[Alice] Thank you, Matt. Check out mbslive.net for up to the nanosecond updates. Use the sign-up code LOL to get an extended trial period without having to put in your credit card number. All right. Right up now we have Bill Corbett with us, bill Corbett, welcome and thank you so much for all your insight and your expertise here. Can you unpack that for our listeners between Les and Matt and what everybody went through last week and where we’re at in the market?
[Bill] Yeah, sure. I’d be happy to, Alice. And so the fundamental question people are asking is when are rates gonna go down?” After they stop going up. I think-
[Alice] Are people really waking up in the morning going, “I hope rates go down today,” and thinking that is a possibility?
[Bill] Les talks about it in his own way, Matt in his own way. In Les’ case if you pay attention, the 50 or 60 basis point range, and talking about the 10 year, just keeps moving up up. Up. Matt pointed out there were a couple of things last week that on the surface should have been friendly for the bond market, and if you get any positive reaction, it’s short-lived or no reaction. And, right now the bond market, and the old term that Ed Yardeni coined back in the ’80s, the bond vigilantes, they’re in charge. therefore, when you start saying what’s gonna be the ceiling? When are rates gonna max out?” It’s when they decide that long-term treasuries are at an appropriate yield, and it starts to become a trading mindset versus a data-driven mindset. And that’s the first problem that folks just need to get their head around, because the market’s not trading based on data right now. It’s trading on, ” I’m going to keep selling and pushing yields higher until I feel like the market’s running out of steam.” those kind of moves are very hard to predict when they’re gonna turn. And especially now where the fundamentals that are driving rates higher- they’re not changing in the near term, right? You’ve got first budget deficits don’t matter until they do, and I think the market is still catching up for years. One could argue decades of not paying attention to what the debt load looks like. And in the early 2000s, everybody was in the rates are low, and they’re gonna stay low forever,” and the debt kept creeping up, and eventually the dam broke, and I think that’s what we’re seeing now. And as we’ve talked about and I disagree a little bit with Matt in terms of oil prices not being the driver. That may be technically correct, but the price of oil-related products and the availability, which we’ve talked about in the past, is inflationary. And there’s no sign that is going to be turning anytime soon. And Now you’ve got what’s gonna happen after the election, in terms of the war in the Mid East? I have no idea
[Alice] so that’s really the way everyone needs to understand the… It sounds like from what you’re saying, the bond vigilantes are in charge. We can’t predict anything right now, especially until the election happens. And so it’s not business as usual, it’s this is, these are higher rates. This is a whole different market to understand your client base take your marketing to the next level, really find different ways to reach customers who are not used to seeing rates at this level, and now are really wishing they had a six and a half, right? When at six and a half they were going- Yeah, and- … “When’s it going down to five?”
[Bill] And stop looking in the rear view mirror, First it was people like when are rates gonna go back to the threes?” Then they’re like when are rates gonna get back to the fives?” The range that we are in now in a longer term perspective is normal. Wishing, believing it’s gonna go back to some other level. Could it happen? Absolutely. And it probably will at some point. But, the old saying, hope is not a strategy. And the reality is, here’s where we are, and figure out how to make it work.
[Alice] And the reality is we all saw this coming when rates stayed so low for so long. And so this in many ways is not a surprise for folks who knew this was gonna happen at some point, and now you’re going, “All right. It’s here now. This is here. This is where it is.” And we can’t predict the future at this point. There’s too many unknowns. Marc, did you wanna add anything to the conversation about rates?
[Marc] Not really about rates right now. Bill has a good handle on it on every podcast and it seems like no news is bad news and good news is bad news, so I’m not so sure what kind of news we’re gonna see anytime soon that’s gonna change the rate forecast for the future. And it just seems like there’s too much noise going on right now that affects it in so much different levels, and we hear something different every week having an effect on it. So it’s concerning.
[Alice] And you bring up… Yeah, you bring up a good point. There’s almost too much information at this point. Yep. So … it’s difficult to see through the noise. Yep. Bill, anything else our listeners should know? What if they wanted to look at, what is the data that is there any data then, I guess is really the question, is there any data now today that’s worth looking at that will help them see the market from going forward? It sounds like what you’re saying, there really isn’t because people don’t really even agree on what elements of each piece of data is going to drive the market or drive where the bond vigilantes wanna go.
[Bill] Yeah, I… And again, for a long time, the unemployment report was the big market mover, right? Everybody waited for that to come out. the structure of it is in flux, right? I was reading over the weekend it used to be 200,000 jobs created was the benchmark. Now with retiring baby boomers, the lack of immigration, it’s somewhere between zero and 50,000. So to even react to that number, you have to get your head around a new set of rules. There’s a lot of things going on in Europe that Matt talked about. France is a mess right now and maybe doing things with the EU, I won’t go as far as saying a bailout, in the past has pushed folks into treasuries for the safe haven. But, we’ve had this conversation with Dave Licken in the past, right? People used to go into treasuries because they were backed by the full faith, credit, and confidence in the US. If you don’t have all three, you’re gonna find somewhere else to put your money. So a lot of the old rules, aren’t really true, and it’s a challenge figuring out what’s the new paradigm, and, you know the old expression, don’t grab a falling knife. let the market run its course.
[Alice] I’m gonna end on that because that was great words of wisdom on really where the market’s at and don’t grab a falling knife. I like that one. All right. We’re gonna move on at this point to