RUSH TRANSCRIPT The market ░░░░░░░░ watches closely In the ░░░░░░░░ join megato discuss all ░░░░░░░░ this is Nancy Davis ░░░░░░░░ investment officer Good to ░░░░░░░░ you here in luntington ░░░░░░░░ Thank you To the ░░░░░░░░ about the economy not ░░░░░░░░ as strong as some ░░░░░░░░ like to believe he ░░░░░░░░ t believe as you ░░░░░░░░ in a soft landing ░░░░░░░░ recession next year rate ░░░░░░░░ to follow What do ░░░░░░░░ think Well the treasury ░░░░░░░░ have to refinance almost ░░░░░░░░ third of our debt ░░░░░░░░ coming due in the ░░░░░░░░ year The data in ░░░░░░░░ U S has been ░░░░░░░░ strong so far but ░░░░░░░░ treasury has so much ░░░░░░░░ to refinance Like what ░░░░░░░░ they going to do ░░░░░░░░ s going to explode ░░░░░░░░ interest carry costs I ░░░░░░░░ expecting some sort of ░░░░░░░░ cuts are reasonable and ░░░░░░░░ do think you know ░░░░░░░░ we ll get the ░░░░░░░░ tomorrow and we ll ░░░░░░░░ whether core actually comes ░░░░░░░░ but the headline is ░░░░░░░░ at 3 6 so ░░░░░░░░ crossed But again CPI ░░░░░░░░ just a number just ░░░░░░░░ index It s like ░░░░░░░░ dow Jones or the ░░░░░░░░ P It s the ░░░░░░░░ price index It s ░░░░░░░░ the only way to ░░░░░░░░ or think about inflation ░░░░░░░░ would admit yourself the ░░░░░░░░ has been going in ░░░░░░░░ right direction which leads ░░░░░░░░ Fed to you would ░░░░░░░░ to believe think they ░░░░░░░░ be patient from here ░░░░░░░░ Don t you think ░░░░░░░░ definitely think so I ░░░░░░░░ they ve hiked too ░░░░░░░░ already They should have ░░░░░░░░ using the balance sheet ░░░░░░░░ I feel like they ░░░░░░░░ hitting the same nail ░░░░░░░░ the hammer over and ░░░░░░░░ again They have monetary ░░░░░░░░ not one policy but ░░░░░░░░ including quantitative tightening They ░░░░░░░░ been pansies about it ░░░░░░░░ haven t gotten bold ░░░░░░░░ reducing the balance sheet ░░░░░░░░ having these caps in ░░░░░░░░ and then Silicon Valley ░░░░░░░░ created more liquidity and ░░░░░░░░ their balance sheet again ░░░░░░░░ save the banking system ░░░░░░░░ I think they could ░░░░░░░░ ease off the rate ░░░░░░░░ use more quantitative tightening ░░░░░░░░ their balance sheet and ░░░░░░░░ being stop doing the ░░░░░░░░ thing over and over ░░░░░░░░ So just because you ░░░░░░░░ they ve done too ░░░░░░░░ doesn t necessarily mean ░░░░░░░░ they won t do ░░░░░░░░ Do you think like ░░░░░░░░ does that they re ░░░░░░░░ I think we ll ░░░░░░░░ get one more hike ░░░░░░░░ ll take the over ░░░░░░░░ that and say through ░░░░░░░░ end of the year ░░░░░░░░ think we ll probably ░░░░░░░░ one more But I ░░░░░░░░ think the market if ░░░░░░░░ look at fed fund ░░░░░░░░ is expecting rate cuts ░░░░░░░░ year I think that ░░░░░░░░ be the real surprise ░░░░░░░░ markets right if the ░░░░░░░░ hikes and holds longer ░░░░░░░░ what we re expecting ░░░░░░░░ pretty much all bond ░░░░░░░░ whether you re a ░░░░░░░░ queen or something else ░░░░░░░░ is coming out and ░░░░░░░░ where are the cuts ░░░░░░░░ Everybody is looking for ░░░░░░░░ cuts It s kind ░░░░░░░░ a deja vu a ░░░░░░░░ bit If you think ░░░░░░░░ you know back in ░░░░░░░░ nobody was expecting the ░░░░░░░░ to hike 5 5 ░░░░░░░░ rates in about a ░░░░░░░░ month span So I ░░░░░░░░ it s very difficult ░░░░░░░░ don t want to ░░░░░░░░ stuck with consensus thinking ░░░░░░░░ I think we ll ░░░░░░░░ to see what the ░░░░░░░░ shows But it s ░░░░░░░░ the labor statistic and ░░░░░░░░ happen all the time ░░░░░░░░ market volatility is something ░░░░░░░░ you obviously follow and ░░░░░░░░ on where you see ░░░░░░░░ going Would you be ░░░░░░░░ to say that the ░░░░░░░░ in the bond market ░░░░░░░░ been pretty modest almost ░░░░░░░░ this whole stretch of ░░░░░░░░ hikes except for a ░░░░░░░░ periods where things got ░░░░░░░░ little crazy How would ░░░░░░░░ describe what you ve ░░░░░░░░ in your expertise in ░░░░░░░░ area of the market ░░░░░░░░ a little more than ░░░░░░░░ year of rate hikes ░░░░░░░░ Definitely it s needed ░░░░░░░░ lot of people focus ░░░░░░░░ equity volatility but what ░░░░░░░░ lurking in all of ░░░░░░░░ viewers you have fixed ░░░░░░░░ volatility if you re ░░░░░░░░ if you own a ░░░░░░░░ Any place you own ░░░░░░░░ mortgage a U S ░░░░░░░░ can prepay whenever they ░░░░░░░░ They own an option ░░░░░░░░ you own the mortgage ░░░░░░░░ short options to them ░░░░░░░░ whenever you re short ░░░░░░░░ you re short vol ░░░░░░░░ has not gone higher ░░░░░░░░ if we see an ░░░░░░░░ in fixed income volatility ░░░░░░░░ will mean price going ░░░░░░░░ in mortgages so it ░░░░░░░░ important to understand the ░░░░░░░░ index a third of ░░░░░░░░ is mortgages the Fed ░░░░░░░░ balance sheet is still ░░░░░░░░ 8 trillion The balance ░░░░░░░░ with Silicon Valley bank ░░░░░░░░ third of that is ░░░░░░░░ Jeffrey likes mortgages and ░░░░░░░░ s Maybe the mortgage ░░░░░░░░ Maybe we can agree ░░░░░░░░ that He made the ░░░░░░░░ you know people are ░░░░░░░░ in 3 fixed mortgages ░░░░░░░░ perhaps you know some ░░░░░░░░ a little under some ░░░░░░░░ little over who s ░░░░░░░░ Who s going for ░░░░░░░░ 7 5 mortgage now ░░░░░░░░ there s been such ░░░░░░░░ degree of stability in ░░░░░░░░ area of the market ░░░░░░░░ that surprised you It ░░░░░░░░ all about modeling prepayment ░░░░░░░░ so it s about ░░░░░░░░ what home owners are ░░░░░░░░ to do how they ░░░░░░░░ respond when they re ░░░░░░░░ to prepay and it ░░░░░░░░ very rational for homeowners ░░░░░░░░ prepay when interest rates ░░░░░░░░ down But when they ░░░░░░░░ higher people don t ░░░░░░░░ to move That s ░░░░░░░░ more of a wealth ░░░░░░░░ in property prices because ░░░░░░░░ s so expensive to ░░░░░░░░ a home now If ░░░░░░░░ re not already in ░░░░░░░░ estate what is a ░░░░░░░░ person going to do ░░░░░░░░ think that s also ░░░░░░░░ problem going back to ░░░░░░░░ Fed using their bleetd ░░░░░░░░ A third of their ░░░░░░░░ is mortgages They can ░░░░░░░░ normalize things because markets ░░░░░░░░ distorted in fixed incomes ░░░░░░░░ yield curve is more ░░░░░░░░ now than it was ░░░░░░░░ the late 80s One ░░░░░░░░ t bill and get ░░░░░░░░ 25 or lend the ░░░░░░░░ for 10 years and ░░░░░░░░ a percent lower It ░░░░░░░░ t make sense Normally ░░░░░░░░ take more risk you ░░░░░░░░ higher reward In this ░░░░░░░░ you take more risk ░░░░░░░░ get less return The ░░░░░░░░ are definitely screaming that ░░░░░░░░ rates market the bond ░░░░░░░░ with this inverted yield ░░░░░░░░ that a recession is ░░░░░░░░ All right Great to ░░░░░░░░ up with you here ░░░░░░░░ especially having you react ░░░░░░░░ real time what you ░░░░░░░░ from gunglach Thank you ░░░░░░░░ you, Scott.