RUSH TRANSCRIPT The market ░░░░░░░░ joining us is Nancy ░░░░░░░░ from qua drattic capital ░░░░░░░░ and Andrew from Morgan ░░░░░░░░ investment management Good afternoon ░░░░░░░░ you both Andrew I ░░░░░░░░ going to start with ░░░░░░░░ Because we kicked off ░░░░░░░░ week talking about support ░░░░░░░░ the S P 500 ░░░░░░░░ 4200 and now we ░░░░░░░░ back to talking about ░░░░░░░░ at 4400 with the ░░░░░░░░ finishing today at 4314 ░░░░░░░░ the worst behind us ░░░░░░░░ we go higher from ░░░░░░░░ How do you see ░░░░░░░░ It s interesting when ░░░░░░░░ said in my notes ░░░░░░░░ morning the market was ░░░░░░░░ and now it reversed ░░░░░░░░ thought the rally would ░░░░░░░░ next keke Next week ░░░░░░░░ I think the inflation ░░░░░░░░ next week will remind ░░░░░░░░ that inflation is coming ░░░░░░░░ and immediately following that ░░░░░░░░ earnings season and the ░░░░░░░░ earnings season when expectations ░░░░░░░░ low going in and ░░░░░░░░ s what we have ░░░░░░░░ I think it will ░░░░░░░░ a pretty good earnings ░░░░░░░░ It is a reminder ░░░░░░░░ the economy is strong ░░░░░░░░ the inflation is prove ░░░░░░░░ think that makes for ░░░░░░░░ good setup But as ░░░░░░░░ said and he s ░░░░░░░░ right the risk is ░░░░░░░░ a level of interest ░░░░░░░░ The risk is that ░░░░░░░░ 10 year has gone ░░░░░░░░ 70 60 70 basis ░░░░░░░░ in a matter of ░░░░░░░░ month and a half ░░░░░░░░ that s a big ░░░░░░░░ And it is a ░░░░░░░░ of something great Going ░░░░░░░░ next week I think ░░░░░░░░ sell off is a ░░░░░░░░ entry point I want ░░░░░░░░ stick with that Nancy ░░░░░░░░ the 2 10 spread ░░░░░░░░ is the least inverted ░░░░░░░░ a year And the ░░░░░░░░ inverted because we have ░░░░░░░░ the 10 year the ░░░░░░░░ on the 10 year ░░░░░░░░ as quickly as we ░░░░░░░░ and we ve had ░░░░░░░░ on the air who ░░░░░░░░ said when you start ░░░░░░░░ see a de inversion ░░░░░░░░ the yield curve that ░░░░░░░░ s actually a recessionary ░░░░░░░░ How do you think ░░░░░░░░ it Definitely historically Morgan ░░░░░░░░ you pointed out as ░░░░░░░░ yield curve unin virts ░░░░░░░░ inverted it typically means ░░░░░░░░ recession is coming so ░░░░░░░░ think it is definitely ░░░░░░░░ most important thing to ░░░░░░░░ keeping an eye on ░░░░░░░░ it makes sense to ░░░░░░░░ that the yield curve ░░░░░░░░ uninverting because think about ░░░░░░░░ you know with the ░░░░░░░░ yield curve the Fed ░░░░░░░░ the policy rate But ░░░░░░░░ we lend money to ░░░░░░░░ U S treasury is ░░░░░░░░ yield curve And so ░░░░░░░░ like the 10 year ░░░░░░░░ it is right now ░░░░░░░░ is still leveller than ░░░░░░░░ overnight policy rate that ░░░░░░░░ Fed has set So ░░░░░░░░ a normal upward sloping ░░░░░░░░ curve is not some ░░░░░░░░ of that It is ░░░░░░░░ more normal Okay And ░░░░░░░░ is definitely a little ░░░░░░░░ unusual This is happening ░░░░░░░░ the maybe not the ░░░░░░░░ dynamics in the past ░░░░░░░░ I want to play ░░░░░░░░ sound bite from you ░░░░░░░░ marko he has a ░░░░░░░░ of competing company JPMorgan ░░░░░░░░ have a listen You ░░░░░░░░ starting to see this ░░░░░░░░ rate stress and if ░░░░░░░░ look at the delinquency ░░░░░░░░ the cars and auto ░░░░░░░░ and basically the inflation ░░░░░░░░ there and rates are ░░░░░░░░ for longer You know ░░░░░░░░ this thing will eventually ░░░░░░░░ right And so then ░░░░░░░░ look at the upside ░░░░░░░░ the down side right ░░░░░░░░ there be another 5 ░░░░░░░░ 7 upside in equityies ░░░░░░░░ course And you compare ░░░░░░░░ to the cash A ░░░░░░░░ So now how much ░░░░░░░░ equity upsid You say ░░░░░░░░ think we re here ░░░░░░░░ for a rally through ░░░░░░░░ end of the year ░░░░░░░░ would imagine perhaps you ░░░░░░░░ with that but I ░░░░░░░░ wonder if we re ░░░░░░░░ for longer with the ░░░░░░░░ is there a point ░░░░░░░░ which this actually does ░░░░░░░░ to extract more pain ░░░░░░░░ earnings and with stocks ░░░░░░░░ on the consumer and ░░░░░░░░ the economy writ large ░░░░░░░░ you re absolutely right ░░░░░░░░ Nancy mentioned the steepening ░░░░░░░░ the yield curve look ░░░░░░░░ yield curve is steepening ░░░░░░░░ the 10 year is ░░░░░░░░ up Normally what happens ░░░░░░░░ we see the re ░░░░░░░░ of the yield curve ░░░░░░░░ the 2 year is ░░░░░░░░ which is telling you ░░░░░░░░ the economy is weakening ░░░░░░░░ I think yes it ░░░░░░░░ suggest a slowdown out ░░░░░░░░ but I think it ░░░░░░░░ further out nd to ░░░░░░░░ s comment when you ░░░░░░░░ 5 5 on the ░░░░░░░░ market that is over ░░░░░░░░ 365 day period I ░░░░░░░░ talking about a rally ░░░░░░░░ this quarter So I ░░░░░░░░ you have to be ░░░░░░░░ little bit careful But ░░░░░░░░ sense talking to our ░░░░░░░░ advisers that clients are ░░░░░░░░ comfortable sitting in money ░░░░░░░░ and so I think ░░░░░░░░ cash is still sitting ░░░░░░░░ the sidelines and it ░░░░░░░░ going to get sucked ░░░░░░░░ into the market until ░░░░░░░░ the market is higher ░░░░░░░░ rates are lower So ░░░░░░░░ I m going to ░░░░░░░░ you both how play ░░░░░░░░ Nancy I know you ░░░░░░░░ very focused on volatility ░░░░░░░░ ve seen a lot ░░░░░░░░ That the return Vix ░░░░░░░░ lived earlier this week ░░░░░░░░ are you positioned I ░░░░░░░░ the thing for people ░░░░░░░░ keep in mind is ░░░░░░░░ every bond portfolio that ░░░░░░░░ benchmarked to the ag ░░░░░░░░ the leemen ag and ░░░░░░░░ s ag and the ░░░░░░░░ ag and it has ░░░░░░░░ inflation protected bonds and ░░░░░░░░ it is market cap ░░░░░░░░ has a third of ░░░░░░░░ portfolio approximately to U ░░░░░░░░ mortgage shares And owners ░░░░░░░░ financial mortgages are short ░░░░░░░░ Now this is not ░░░░░░░░ vix right That is ░░░░░░░░ equity vol I think ░░░░░░░░ is super important to ░░░░░░░░ at positive strategies Things ░░░░░░░░ are long Fixed income ░░░░░░░░ this market Because we ░░░░░░░░ a new era with ░░░░░░░░ Fed reversing the qe ░░░░░░░░ they ve done for ░░░░░░░░ going into quantitative tightening ░░░░░░░░ we have a tremendous ░░░░░░░░ of fiscal spending and ░░░░░░░░ treasury has to refinance ░░░░░░░░ third of our debt ░░░░░░░░ the next year So ░░░░░░░░ is a super important ░░░░░░░░ to be focused on ░░░░░░░░ that has an options ░░░░░░░░ it has a vol ░░░░░░░░ and there are a ░░░░░░░░ of different types of ░░░░░░░░ that I personally think ░░░░░░░░ rate volatility is something ░░░░░░░░ most people are only ░░░░░░░░ from their mortgage exposure ░░░░░░░░ to wake up and ░░░░░░░░ just be shortfall Leave ░░░░░░░░ conversation there Nancy Davis ░░░░░░░░ Andrew thanks for kicking ░░░░░░░░ the hour with me.