So you know, we were talking earlier, the two of us, and I had said that I don't remember really being this confused and in such a period of heightened uncertainty since I was at Mel back during the financial crisis. And I'm not predicting that we're going to have a financial crisis, but maybe you can't really rule it out either, 'cause nothing looks too stable right now. And I'm of the view that when problems hit the Treasury market, they don't stay confined in the Treasury market. And I'm absolutely amazed, and actually it was an article that showed up on the front page of the Wall Street Journal yesterday talking about how great the stock market's doing in light of what the bond market's doing, without realizing that usually when the bond market has a yield meltup, it usually has about a 3-month lag before it really hits the credit markets and the stock market hard. But even with that, and we were talking about this earlier as well, Jeffrey reminded me that 75% of the S&P 1500 stocks are actually in a correction right now. So when you look at the capweight indices, you get this view, everything's all hunky dory, but the average stock and the median stock is actually in a down between 10 and 15% from the 52-week highs.
In any event, none of you came here to listen to me because you get to hear from me daily anyways, at least most of you. So I'm going to turn it over to Jeffrey, who's going, it's going to be Jeffrey Unplugged, and talk about, you know, this mess in the bond market, what you think brought us here, what's going to bring us out if we ever get out of it, what the broad implications are, maybe get into the Fed. But without further ado, I'm going to hand it over to you and Jeffrey. We'd love to hear about your thoughts.
All right. I came up with an analogy last night. I don't know where it came from, but I've got a house in Buffalo. That's why it's easy for me to come up here just for a day type of a trip. And my house in Buffalo, there's a silver maple tree. And the house was built in 1911. So the silver maple tree is over a hundred years old. And I loved looking at the silver maple tree. It looked very healthy, had a lot of leaves on it, provide a lot of great shade, and yet it was old. And so I would worry about every time I'd listen to the Buffalo weather in the wintertime, I'd get nervous when there was an ice storm with high winds coming because I was afraid the tree might fail. And so I was thinking about this and a year ago, not even a full year ago, I get a call from my brother who lives in Buffalo and he says this humongous limb fell off the silver maple tree and he took a picture of it and it was truly humongous. The diameter of the part that broke off was like my shoulders. That's how big it was. And it almost hit the chimney, but it was about a 100 foot branch. And the good news, the good luck was we didn't really have much damage. So I said to him, "Well, we better like trim up the tree. You know, we've got to take care of this." And he goes, "No, no, we have to take the tree all the way down." And I said, "Why?" And he said, "It's completely hollow."
So I was thinking, by all appearances it was in decent shape last summer, a year ago this summer, but it wasn't in good shape. It was on the edge of complete failure. And I'm thank God that the branch fell down before the winter came so that we were, because otherwise I don't know how we would have taken the tree down. But it occurred to me that that's where we are in the markets today. Rosie just talked about how the average S&P 1500 looks decent on average, but when you go underneath the surface, you find there's many, you said 75% are in a correction or worse. Well, I saw a statistic today that when it gets to the S&P 500, which is very close to its all-time high, 440 of the stocks in the S&P 500 are down more than 21% from their high, which is pretty remarkable. So there's all this rot that's in the S&P 500, but it's not in plain sight. You've got to wait for the branch to fall off to figure out that the market's hollow, just like the tree was hollow. And I feel like there's a direct parallel to all of this in the private markets.
I also found it interesting in the news this week that Scott Bessent, the Secretary of the Treasury in the United States, went out and hired an old Wall Street guy to be a consultant or I can't remember what the word is, but some sort of an advisor on how to deal with higher interest rates and how to manage the buyback of long-term treasuries, which is starting to get into the area that I've been talking about for probably about three or four years now, and that is that something has to happen with this interest expense problem. You know, we have a trillion to a trillion and a half in interest expense. Every bond that's rolling off in maturities virtually except for the ones issued over a decade ago are being refinanced at higher interest rates. So the deficit is $2 trillion plus per year and there's no attempt or even rhetoric about reigning that in. Bessent says we're going to do it by growing our way out of it. Well, the debt has been growing faster than GDP for decades, particularly if you take out COVID, really made it a big dent in it, but it's been happening for a long time. So you're not growing your way out of it. So something has to happen, and I've been saying there are two candidates that I can think of: one is you print it, which would be inflationary pretty obviously, and the other is, and people react with disbelief when I say this, they'll restructure it. And one of the ways you restructure it is you buy the long-term treasuries so you're trying to cap the yields, which hasn't really worked well historically, and you finance it with short-term T-bills. You issue T-bills to retire higher coupon long-term treasuries, and in that way you can have the government structure. The Fed would have to be an accomplice with this that could then artificially lower T-bill rates with the Fed funds rate because they can control the T-bill rate with the Fed funds rate, and in that way you could bring down the yields at the long end and manipulate the issuance. That would also be inflationary of course.
So obviously that is not likely to happen in the near term, but this is where we are. And I believe there's two reasons primarily, three reasons, Rosie and I were talking about this so I'll add the third one: the yields are relentlessly rising. One is the war problem with the diesel price and the price of Brent crude oil, which is always about to end, you know, this is always going to end next week or we got a new proposal, we're talking again, but it never happens. So that's one reason why rates are moving higher because inflation is headed higher as long as diesel is at these levels or going higher. The next reason is there's a monumental amount of bond issuance. A monumental amount of bond issuance that's happening not just in the United States, all over the developed world. And now it's being joined by the AI. The AI situation is out there. So we have the inflation rate, we've got the diesel, we've got the war, and we've got this outrageous amount of bond issuance that is just going to keep compounding higher. And so the path of least resistance at the long end has been up for a long time. I've been talking about this. And it will rise until such time as something is done about it. One something could be Operation Twist in size that would work temporarily. The other thing would be some sort of restructuring of the debt. Otherwise, you're just going to be choking on this interest expense problem. It's not going to go away. So people know what's going on and nobody wants to finance what's out of control, a freight train that's coming down the tracks with this interest expense problem.
But that would represent a default.
And you got what like half of the Treasury market is held by non-residents. So they'd be unhappy.
You have to treat all Treasury bond and note holders as pari passu. They have to be treated.
Well, so basically that's a prescription for two things. Firstly, the dollar will just plunge.
Absolutely. And so I'm on top of that. Dollar plunges, which is going to be horrible for the economy because import costs go up, you get inflation, real wages go down, margins get crimped, and then Xi Jinping will sit back very gladly because then we're going to pave the road towards in our lifetime China being the reserve currency and not the dollar. So you can't have the reserve currency and default on your debt. So this is going to open up a whole can of worms. Increases the cost of capital. Well, the thing is that they're going to think that we're going to take Treasury yields down.
But then the general level of risk in the markets is going to go up. So the equity cost of capital goes up, the debt cost of capital in the private sector is going to go up. And we're gonna have like a just a horrible recession. So I don't know. The thing is that Canada had, I think that there's some interesting things happening, right? Like we're seeing auction after auction starting to tail. And for people in Canada that were around in the early 90s and I see Develin in the crowd, he knows what I'm talking about. This was happening in Canada's deficits got structural, the debts got structural, and then all of a sudden one 10-year auction in Canada in 1994 almost failed. We almost did not fill that auction and the Canadian dollar plunged. Interest rates skyrocketed. We lost control of the entire yield curve and that was a crisis. So basically the way I see it is that we haven't had a crisis yet. Maybe what we're seeing right now happening in the Treasury market, it's become unhinged. I got to say, I've been in the business 40 years. This is, and I've seen the bond market become unhinged before. This is the most unhinged that I've seen it. So this might be
It's almost the catalyst.
Well, and look what happened in '94. In '94, look what happened. Clinton lost the midterms in '94. Newt Gingrich, Contract with America, and the next thing you know, by the end of the decade, we're running fiscal surpluses under Clinton. Now, of course, it wasn't just Clinton. It was Clinton and a Republican Congress.
It had to do with the demographics of the baby boomers in Social Security. That was a demographic thing that happened because the boomers were paying tremendously into Social Security and that was what caused the so-called surplus. There were liabilities against Social Security though. So it's a phony surplus. It wasn't really balanced.
No, but you had under Contract with America, you had a lot of spending restraint and then it was leftover from what got George H.W. Bush lost the election in '92 because he raised taxes.
So that mindset's going to have to change. But I want to pivot towards
Before you pivot, I want to comment on what you opened up with and that is that pari passu thing. I just want to say a historical fact. Scott Bessent before he became Secretary of the Treasury, he floated the idea of doing exactly what I just said to foreigners.
He actually floated that?
He actually floated that, which is probably like illegal as you kind of frame it, but we do all kinds of illegal things.
Well, they haven't done it. I think that it would basically end up being an unmitigated disaster because he's backed off and I wrote about at the time, like let's trace out what the laws of consequences are going to be for us.
Even if it were legal, you couldn't administer the dollar. Look, they'll just crush the dollar. I guess you'll say, well, is a dollar decline any different than tariff increase going to protect domestic industry? Yeah.
But if you, and then if we end the dollar as a reserve currency, and you know what, I'll be the first to say I never thought actually before now that I would say that I think in my lifetime we will see the US dollar no longer being the reserve currency. I never thought I would say that before. That's one of the reasons why I still like gold. I'm sure that people never saw what was going to happen in 1971 with gold convertibility. So, but I'm talking about like in the here and now. Like let's say that we had this conversation in February. Yeah, you know, so okay, the debt wasn't 40 trillion. That's a nice bunch of zeros. It was 39 something trillion. And we had rampant fiscal deficits for the past six years. That's on the hyperscalers were already going crazy with their spending and borrowing plans. This is in February. I'm not talking about February of 2022. This is February of this year. The 10-year note by the end of the month before the war was 3.97.
Today, we're like 13 some odd basis points in short order. And a lot of that just happened in the past couple of months. So I don't know if I buy into like the deficits, debts. It's because it was there. I'm not saying it doesn't matter, but it was there like a few months ago and all of a sudden people are fitting the narrative into the price action. Like what's changed? And this is what I want to ask you about. I'll tell you what I think. What's changed? Okay. And this is why I, you know, David Zervos is going to be an adviser. Well, if they wanted to actually have rates not go up, they would have appointed Zervos to head up the Fed and not Kevin Warsh. Because I think that US monetary policy is in this incredible state of confusion. You got this head of the Fed, he doesn't want to give guidance, doesn't want to say anything. He's telling the world, I follow the PCE deflator. I follow headline inflation at a time when the only part of headline inflation that's a major problem is diesel fuel. So he's telling the world, I'm going to raise rates into a supply shock. Now what's fascinating to me, I want to get your comment on this, is why is it, if it's about inflation, and he never talks about this, right, he never talks about this, we got the consumer confidence survey today, we got the UMich last week, consumer inflation expectations are not, they're in a range, they're not hitting a new high, they're not hitting a new high. They were a lot higher by the way on liberation day in April 2025, okay, and nominal yields were a lot lower. What is going on here? Market TIPS break evens, 5-year, 10-year, 5-year, 5-year forwards 2.34%. Do you know that? But the Fed doesn't talk about this. He talks about diesel. But the bond market is telling him inflation is not the problem because you can actually strip out in the Treasury market the real yield and inflation expectations. And when I talk to my clients about this, I have to show them the chart of the break evens that they're the same level today that they were five years ago. They haven't moved. They're just in a range. It's been the real rate going up. And the real rate is like the real rate moves like the MOVE index. People know what I mean about the MOVE index. The MOVE is the VIX in the bond market. It's had a massive heart attack. Guess when the heart attack started? The heart attack started when Morris took over the Fed in mid June. The 10-year note was not even 4.4% then and we were thinking okay we've had an adjustment, we got the war, we got risk premia gone from 440 to like five and a quarter.
So I pin this on the Fed.
What, because really what's changed? Debt deficits that hasn't really changed, right?
Well, I'll start at that Warsh point. I think that absolutely it has something to do with Warsh. I think Warsh reminds me of Al Gore in the George Bush-Al Gore debate where there were three debates and a different Al Gore showed up at each debate. The first one was the sighing Al Gore. When Bush said something that Gore didn't like, he sighed very heavily into the mic. And that's all that anybody remembers in that debate is Al Gore sighing. So they said, "No more, lose the sighing." So he shows up at the next one looking like a pumpkin. He's got on this incredibly loud orange makeup and you can't even process what he's saying because you can't get past this ridiculous look. And then they say, "You got to get rid of this look. No more sighing. No more pumpkin." And then he shows up at the third one and he shows up as Mr. Nice Guy. So it's like who are you? Nobody knows who you are. That's why you lost the election. Warsh shows up at a press, at one of his meetings, his press conference, and he sounds really hawkish, and then he shows up at the next one and he sounds really dovish, and he shows up at the next one and he's got some other kind of spin to it. The third one. Then he goes, does Jackson Hole was the third one. And he starts out thinking it's funny to talk about hiking. He starts talking about hiking. When I was here a few years back, we went hiking and it was with this one athletic guy and it was really strenuous and was very steep, and I went on one last year with this other guy and yeah, we went it was a hike but it was much more leisurely. So he's almost like saying I'm going to hike. So he's the Mr. No Forward Guidance. I don't know if it's not a coincidence that he starts out talking about hiking at Jackson Hole. It can't possibly be a coincidence. And so then he ends up hiking, and then he has the last press conference and I write down shorthand notes, question, you know what the answer was, question answer, and I was writing it down at the most recent one and I would write down the question and I wrote next to it no answer. And I did that five or six questions in a row. No answer. There was no answer. And so I started, said this guy is giving us on the thinnest gruel possible on this conference. So I agree that Warsh has not really presented himself and we're still learning about it. And one of the things that I've been thinking about, why are yields going up when economic data comes in weak? It's because interest rates left to the market forces will go higher when the economy softens because it's going to increase the deficit. It will decrease tax receipts and increase unemployment benefits and the like. And I've been saying this since before the rate rise started happening. And the Fed cut interest rates, what was it, 175 basis points total from September of 2024 until January of this year. Every single maturity on the United States yield curve rose over that time period. That's never happened before. In the past, when the Fed cuts interest rates, of course short-term rates go down, but long-term interest rates ultimately go down as well. Every single spot on the yield curve was higher after the 175 basis point cuts than it was before the first cut was made, and not by a small amount. All the way across the curve it was about a 100 basis points. That corroborates my idea that all the patterns from the past that we think have informed our ability to manage markets are informed by secular declining interest rates from 1980 broadly into 2020. That's not happening.
I think I got a slightly different view. So it would be the first time even in the 1970s we had three recessions. Okay. 1970, 73-75, 79-80.
But bond yields went down during the recessions. Bond yields went down even though inflation stayed elevated, and there's never been a recession where the fiscal deficit and government borrowings didn't go up because the automatic stabilizers kick in. So the deficit always goes up. Why do bond yields go down? Is because risk appetite goes down. People shift from stocks to bonds and the banks call in their loans. People tend to forget that one of the biggest buyers of treasuries are the US commercial banks. And when you have a recession, they increase their liquidity ratio. So they cut back on their private sector lending and then they boost their holdings of bonds, MBS, so on and so forth. So this is typically what happens. I'm not going to, I don't know so much about how things are going to change. I'm sort of focused on the Warsh Fed, which I think is making a terrible policy mistake. So we should have had today's JOLTS number was bad. The consumer confidence number was bad. Treasury yields should have come down, but they're not because it's become 100% correlated to crack spreads and diesel. And that's because of Warsh. When Warsh tells everybody in this room that he's focused only, he's the first central banker to say he's not looking at core. Now, people always laugh at economists. Oh, you look at core X food and energy. So you don't eat, Mr. Economist, and you don't drive. No, it's because those are, you don't change your eating habits overnight and you don't change your driving habits overnight. Food and energy are special, okay? Because they're typically influenced by supply side events that are beyond the Fed's control. The Fed should be concerned whether they're second round impacts. Even Volcker waited for that. Volcker inherited a mess. But at that point, after Miller was replaced in the late 70s, waited to see is the shock from energy feeding into core. Is it feeding into wages? Is it feeding into inflation expectations? So none of that's happening right now. But the Fed's raising rates anyways. So people are scared. People are scared to take on duration because why would you? The Fed's paying you to just stay at the front end of the yield curve and clip 5%. The two-year note's almost at 5%. Why take what you're gonna get 30 basis points to go extend duration? So I think that this is actually about the Fed. I think it's about the Fed. So I don't think that the market, if the market was so nervous about inflation, that TIPS even would be gapping out. It's been the real rate. It's been the real rate. It's been the risk premium in bonds that's precipitated because we have not seen Fed policy like this before. Warsh is certainly introduced a whole new regime and he's not talking very much. He has no dot plot. He has no forecast. He doesn't say anything. In any event, I do think that there's going to be something that's going to happen because all we talk about is government, government, government. But you know, you said before that part of the reason why things started to collide was you had the corporate sector dramatically raising its credit demands at the same time that we have these still stubbornly high fiscal deficits. Well, what if that stops? What if the corporate borrowing stops? What if basically, you know, we got this regulatory thing going on? We got this public backlash against data centers. The Democrats are not pro AI and they're going to win probably the House and the Senate it looks like in November the 3rd. And just what if, look what's happening, you know, we talk about Treasury yields, the average yield in the high yield markets 8%. It's gone up more than the, I mean spreads are gapping out 6% in the investment grade market. At what point does the interest rate in the corporate sector break the back of all this borrowing by the hyperscalers? 'Cause then all of a sudden you might find they scale back their borrowings. That might be the genesis for bringing interest rates back down more reasonable levels. We all blame the government, all blame the government, government this. Meanwhile, three of the four hyperscalers are now basically net cash flow negative, right? Net free cash flow negative, right? So they're running the same policy that the government is. They're running deficits on their balance sheet.
I read an article today that said credit spreads remain incredibly calm. And I looked to the sub aspect of it. The Wall Street Journal said investment grade. Well, it's true that investment grade is near, it's out a little bit but not a lot. But if you break it into two sectors, AI investment grade and investment grade excluding AI, you see two totally different things. Investment grade excluding AI has not widened at all. AI investment grade over the past year has widened 75 basis points and that was as of a couple weeks ago. It's probably more than that now. Go to the high yield market. High yield market spreads are out a little bit on average, but again, if you do the non-AI high yield bond market, it's pretty close to its tights. If you do the AI high yield bond market, it's out by over 150 basis points. And I bet you now, because this is a couple weeks ago, I bet you now it's out by 200. So that's going out. So underneath the surface, it's the silver maple again. All looks fine on average. Tree looks healthy, but you start parsing it up and it's already starting to change in that market. I think that these hyperscalers will go from massive borrowing to zero overnight. They'll keep going and it's going to go longer than most people think because they don't care if they pay 200 basis points more than 6 months ago. And then one day the music's going to stop and it's going to go to zero on that bar because nobody's going to lend to them. So I don't know that crossover point is going to be something challenging to navigate, shall we say. But in the meantime, they're not going to stop. They're going to do as much as they possibly can at today's interest rates. So I think the supply issue is very significant.
Gold's going up.
Is it central bank buying?
Yeah, certainly central bank buying is a part of it. Central banks used to have 70% of their reserves in gold. You know, they went down to 20 and I think it's up at around 30. I don't see any reason why it wouldn't go to 50. And I also think gold has become a legitimate asset class. You're no longer laughed at when you recommend gold. For 20 years, you recommend gold. Oh, yeah. Yeah. Where's your bunker? You know, where you got your water and canned goods? You're either a wide-eyed speculator or you're a lunatic survivalist. Now, you don't get laughed out of the room when you talk about gold. I've owned gold since it was below $300. The most recent thing I did, which is over a year ago, a year ago June, was to buy more. And if it goes anywhere close, anywhere below 3,800, I'm going to buy with both hands.
I'm going to answer that with some investment advice because I hear people on TV talking about they want to own TIPS to diversify their bond risk at the long end, particularly just over 30 years. 30-year TIPS and nominals are perfectly correlated. They go, it's the same line. There's just that 2 and 12% difference between the two. If you think, I'm worried about inflation, I'm worried about the long-end nominals. I'm gonna sleep at night because I'm going to buy long-end TIPS. You're making a huge mistake. A huge mistake. Because you're going to say, "Oh, here's my statement. I'm so glad I shifted from nominals to TIPS in the 30-year. Oh, look, the 30-year is down 15%. I wonder if I'm up on my TIPS." No, you're down 15%. They're exactly correlated. So that's some investment advice, but I think I would want real rates to be higher than they are today to take the risk of buying 30-year bonds or 20-year bonds from the US government. I don't trust them. I don't trust them at all. So I want a real rate of at least 300 basis points. And I think the inflation rate, I don't care what the two and a half thing, that's just a residual of a calculation. I think that the inflation rate is running, you know, you tell me what index you want to use. You got a grab bag to choose from, but it's running somewhere around 3 to 3 and a half percent. Some people say it's eight, but the numbers, I'm using official numbers, three and a half. So I want a six handle on the 30-year Treasury for me to buy it. And I've been saying this for a long time. I thought that the
I've been saying this for a long time. I thought that the...
Government shenanigans would start when we got the 30-year towards 6%. And we're not there yet, but we're getting close. We're at a 24-and-a-half-year high on the 30-year Treasury, and it's only at 5.62 or something. That's not a high rate. People that are talking about investment strategies for the last two years have been built on rates are going to come down and bail us all out. It's going to bail out my bad commercial real estate investment. It's going to bail out my overleveraged private credit fund. We enter 2026 with people saying we're going to be cutting rates in 2026. They talked about two or three rate cuts in 2026. In January, we're hiking. There are no rate cuts. I said in January, after that Fed press conference, I said if your only reason to be bullish on risk assets is rate cuts in 2026, you're backing the wrong horse. There will be no rate cuts in 2026.
So I think that this long-rate problem is getting to the point where it's in all these other countries. The UK is even worse than the United States. Japan is probably worse than the United States, and that's competition. When you have competition from other countries, many of which have bad problems, some are even worse than us like Japan and probably China is too, but there are others that aren't as bad. It doesn't matter. They're all competing for all this borrowing, and you've got the hyperscalers kicking in that are price-insensitive.
Well, I'm just going to say that you're 100% correct. Worsh wants to get to 2% headline inflation in the context of an energy shock. So think about how crazy that is. He's going to destroy the economy.
So basically, I'm going to come back to Ed De Look, I'll just say right now, if they're going to generate a recession, I'm going to buy bonds. I'm going to buy more bonds because I know what happens in a recession. Private sector credit demand goes down. Good luck to the hyperscalers. As people start to see a recession, they're going to pull in risk. They're going to cut back on the risk. It's going to be very difficult for these hyperscalers to finance because they haven't done that yet. We've not gone through a cycle of hyperscaler financing into a recession. Good luck with that because people pull in their horns. Risk appetite goes down. Credit spreads widen out. And that's why Treasuries, even in the 1970s.
But you're right. I guess Borch has given it to us on a silver platter. That's why the average and median stock are down 15%. Maybe we're building up towards a bear market in equities. We don't see it. We've had a cyclical bear market in Treasuries that happened first. But I'm going to come back to the most important point in my opinion. It's not any of the stuff about 40 trillion, a few months earlier 39 trillion. It is exactly what Jeff Gunlock said — that we started the year, the dot plot had a rate cut, the market was priced for two rate cuts. What's changed? The hyperscalers have changed. I mean, at the margin, that story was already there. The deficits and debts. We priced in a whole interest-rate cycle. The one-year Treasury bill yields almost at 5%. Do you see what's happened here? We priced in a Fed tightening cycle not because of David Zervos, because of Kevin Morris. And they started to tighten last week, I think,
but the yield curve at 20 basis points. Usually it's 120 bips. They're going to invert the yield curve. And here's what's going to happen. People are going to say, 'Ah, the yield curve didn't work in 2022. It didn't work because there's $2 trillion of stimulus checks patting people's pockets, and that was an Energizer Bunny that kept on giving. There's no fiscal stimulus. And after November the 3rd, there's going to be complete fiscal gridlock. No fiscal shenanigans are going on anymore. We won't be talking about fiscal excess after November 3rd.' That's the beautiful thing about gridlock happening after a midterm election when the party in power that screwed things up for the previous two years ends up not having one-party power anymore. So basically, Worsh, if he's on a mission — it's one thing to say I'm going to get to 2% inflation with a booming demand picture. There's no booming demand.
It's a two-pronged economy. AI spending because xAI capex is negative year over year. AI has sucked the vitality out of the rest of the business sector, and then it's been basically the equity wealth effect on high-end spending on luxury goods and services. Outside of that, there's been no growth in the US economy. The Fed is convincing everybody this is robust — their favorite words, resilient, solid and strong — which is total, it's total garbage. You can see right now they're talking about the payroll number from August. You saw the JOLTS numbers today. The JOLTS tells you the churning in the market. The labor market is not strong. But they have to say that because Trump will get even angrier if they don't convince him the economy is strong. We're going to raise rates.
Yeah, he wants to get inflation down at 2%. I got news for you. When Volcker left office, we bowed down to Paul Volcker. Inflation wasn't 2%. More like four. And he didn't bring down the price level. The price level under Paul Volcker went up 60% in his seven years. He didn't bring down the price level. He brought inflation right down. He left office at four, and we're going apeshit over three. You're telling me inflation's 8%. I'm going to tell you, if we took the rents, if we took rents in real time, because there's distributional lags, and we took home prices real time — new home prices are down 8% year over year. We're talking about inflation. New home prices. The builders are discounting prices to move product because their inventories are eight-and-a-half-months' supply like it's nobody's business. And I hear about inflation, inflation, inflation because the oil price and the crack spreads are right on our Bloomberg terminal. Inflation's on the brain.
What's going on with fertilizer, transportation — there's nothing bigger than shelter. And so, but he doesn't talk about that. Worsh does not talk about that. I find the guy dangerous. Okay, my opinion. I never said that about any other central banker. Okay, this will not end well. And the bond market's priced that in because that's the reality. The cost of carry has gone up so much. The yield curve's flattened. It's been a bear flattener. We just priced in like what, four more hikes. And six months ago they were supposed to cut. And that's exactly going from one cut priced in, to a hike, and then four more priced in. Yes, that's worth under 25 basis points arithmetically across the yield curve. That's what's happened. I say this is about Borch. It's not, to me, about anything else.
I'll just say one thing. You said if a recession starts to show up a little bit more convincingly on the horizon, you'd buy bonds and then you'd buy more bonds.
On that first round, I might buy bonds along with you.
You give me a call when you want to buy more, because I'll be happy to.
