Joining us now, Greg Fleming, president and CEO of Rockefeller Capital Management, former president of Morgan Stanley Wealth Management.
I don't think I was at Merrill when you were there, but you were a big, big swinging person at Merrill and sold it. Had to sell it. Sadly.
It was a good time to sell, my friend.
It was a good time to sell, but as you know, it was a great company and shouldn't have had to be sold.
You're preaching to the choir. I'm still, I think, trained at Mother Merrill. Part of the Thundering Herd was at ML and I loved it. I really did.
That was weird yesterday. Did you see the... Can you explain the action in the ten-year and what you think that indicated?
You know, one of the great things about the action in the ten-year is that we've been at this for so long. I mean, coming up on four decades, and that was surprising to see. Right.
Yeah. Even though it's not that many basis points, we used to have much bigger moves that we were talking about, but to go from 535 to 508 and just after rushing up to 535. Oh, wait a second. And then rushing back.
Well, and the rushing up is what you'd expect with the hotter, you know, inflation number and then maybe, you know, the bond market takes a look at it and says, you know, maybe the AI trade's going to come off enough that the economy is going to cool. But, you know, it's hard to tell at this point. You know, you've got a PPI number this morning. We'll see what happens in response to that. But it is possible, Joe, and this is early. I mean, this is the early, you know, my early speculation that maybe the bond market is starting to try to settle around where it, you know, the rates may end as they've reset here because it's been such a rapid and stark move that it may have been a reaction to that. Maybe there's also, you know, covering of trades. You know, you start seeing some trades unwind as it started to fall. That accelerated the fall, but there is no question that was a surprise, the magnitude of it in particular.
But it was a rush to safety. You agree?
Partly a rush to safety. You know, and Becky and Joe, one of the things I was going to talk about this morning is the fact that there are major positives. There are still major issues clearly. And there are increasing jitters and that always happens. We're later in the cycle. You know, remember we come into 2026 with three years of very strong equity market performance. It's narrower now. A statistic I heard the other day is that 80% of stocks are 10% off their highs and the median stock is 17% off its high. So the stocks that have continued to do really well has been a narrower and narrower group. That makes people uneasy. And I think in order to broaden the group of stocks that are doing well and maybe have another kick higher here on the equity market, you need rates to settle so that people can see where they're going to be. Because Joe, last time I was on, you said, 'Well, wait a minute. These rates aren't actually that high relative to what you and I...'
Well, they're starting to, but still, if they were to settle here, what if you had a five-year, what if they settled at 5% on the ten-year?
I think businesses would be fine.
Businesses would be fine. Maybe we get, you know, some broadening in market performance. Maybe, you know, some of the sectors that are under more pressure now, some of that pressure will come off. And that's a real possibility.
If you had to bet your life on it, is the new range on the ten-year four and a half to five and a quarter or is it five and a quarter to six?
You know, based upon the productivity that I think could be coming from AI and some weakness in different places, including, you know, housing is really under pressure now, I'm more in the four and a half to five and a quarter than five and a quarter to six.
Look how important that was to this administration that Scott Bessent was actually talking about, you know, a bazooka in his pocket and all that stuff. I mean, they really wanted mortgage rates and everything else that are tied to the ten-year here. It was a priority. If we could, if we knew four and a half to five and a quarter, that would put us in a more, I don't know, sustainable place with the amount of 40 trillion that you worry about too because that's your biggest concern.
It remains my biggest concern. But that would be a great place for it to settle and I think it would allow other pockets of the economy to participate more and not have it be so narrowly focused on AI.
Kick off higher rates again if the rest of the economy breathes a sigh of relief and says, 'Great, we're off to the races again.' That's a great point, but at least they go for the right reason because, you know, the rates ran up for several reasons, right? One is inflation and the pressure particularly on energy. Two is the deficit. I think that's starting to become more of an issue for the bond market. And then three is the economy. I mean, the Atlanta Fed is tracking 4% in the third quarter.
So you have one positive reason for higher rates. But if rates are going up because the economy is at a 4% sustainable growth rate, we'll take that. It's just a chicken and egg thing though. If rates are lower then it means the AI buildout can continue. If rates go up it means, oh my gosh, maybe not so fast. We can't do all this on the leverage.
Which is why, you know, Joe's hypothetical is a good one. If they settled in four and a half to five and a quarter and they kind of settled, it may be a sweet spot where, you know, you can have the investment cycle continue, the leverage not be too much, and parts of the economy that are struggling more now start to participate more. So you broaden out.
Did you take that four and a half because he laid it out or would you rather have a five to five and three-quarter range? Like if you could put your magic number anywhere, where would you drop it?
I thought those were good ranges because sentiment, I think, will go in one of those buckets. It could be on the higher end, five and five and three-quarter. I think those are, you know, if it ends up settling, you know, because the economy is not overheating, because inflation starts to, you know, be tamed a little more because it ran up maybe farther than it should have and it settles at four and a half to five and a quarter, I think that would be a real positive. And then, you know, if it keeps running and it gets closer to six, that's obviously going to create more issues in more parts of the economy.
You obviously are a risk manager. 40 trillion is too much. One bright spot, I don't think we've said it, when rates go up like on the ten-year, that doesn't automatically add to our borrowing costs on the 40 trillion because we already have a lot of that's already settled what the interest rate we pay, but it certainly doesn't help at this point. Is it manageable if AI increases productivity and we get, you know, really strong growth without commensurate inflation? Do you feel better about the 40 trillion or you just are never going to feel good about that?
I would like them to deal with it. It's less...
Well, let's first just talk about... we'll come to how they deal with it, but it's not just that it's 40 trillion. It's the increase that I'd like them to deal with. I'm not asking them to run surpluses and start to reduce it. Just start to reduce the rate of the deficit. So, let's get it to, you know, when...
He said 3% when he was coming in. I mean, he only has so much control over that. I know. But that's... I'd like to see the rate of the percentage of the GDP that the deficit represents start to come down. By the way, the bond market would respond enormously well to that. But Joe, the other part of your question is fair and real in the United States. It is what's unique about us. We have the possibility of growing at a rate where even if they continue to run deficits at this level, we can manage it somewhat. And this might be the only economy in the world where you can do that. And as I said, Atlanta Fed says 4% in the third quarter. So if we were able to get to 4% on a more sustainable basis, that would help a lot. Yeah.
But it would still be good for everybody if the rate of increase started to come down, particularly when the...
Figure out how to do it. So we're at 17 or 18% revenue and we're 24% spending. So I'm going to read this to you. I'm going to read this to you and I tweeted out... I've used those numbers on this show, but I've tweeted this out just to drive one side of the aisle crazy. Milton Friedman: 'In the long run, government will spend whatever the tax system will raise, plus as much more as it can get away with. That's what history tells us.' So my view has always been cut taxes on any occasion, for any reason, in any way that's politically feasible as the only way to keep down the size of government. And I know you disagree with that because I've had arguments with you over the years and I call you a lefty all the time. You want to do both, don't you?
Well, look, one thing we can both agree on is when you look at post-World War II or anytime...
You think we're at a lower average amount of taxation.
No, I wasn't going to go there. I was saying the clear issue in the last 10 years is spending.
And that's not a statement about one party or another. It's a statement about the government. The clear issue, because spending as a percentage of GDP used to be 19 or 20% and taxes were 18 or 19. You ran deficits. Although, let's not forget when Bill Clinton left office, we had a surplus.
But a surplus. The last we had...
Because of the Gingrich Congress. But go ahead.
