Welcome [music] to Trader Tuck. I am

your host Kenny Polcari and today we've

got Ben Emons who's with us. He's the

chief investment officer and founder of

Fed Watch Advisors and we've got Chris

Campitsis.

Is that right? Campitsis?

>> Perfect. Yes.

>> Uh from Bonham Financial Group, the

managing partner of Bonham Financial

Group. Gentlemen, thank you very much

for joining me

uh because I'm going to join this

conversation. We got about a half an

hour to talk about a lot of things and

there's a lot happening, right? So,

let's start with uh let's start with our

beer about uh the latest announcement

from Treasury Secretary Bessent. You

know, last week he kind of surprised the

markets on Wednesday and said they were

going to double down on the buyback and

this morning there's a there's an

article out about he's got potentially

another hundred million dollars out of

the general fund that's available to him

to try to manage along into the curve.

I'm not so sure he can do that.

>> Yeah, I think Kenny, what's what's

really happening is that and this is

news reported actually by Yahoo

>> Right.

>> that they that they build up this war

chest, which is the checking account of

the Treasury at the Fed and that's

nothing else than an operational

account, right? Money comes in, money

comes out, tax receipts versus other

payments. But they want to use that

amount to say, "Guess what? We can buy

some of these long end bonds and try to

bring rates a bit down." But there's no

free lunch here, right? You got to

replenish that cash cuz you know, you

cannot just keep that at zero

>> Right.

>> and all and all you have to issue more

bonds to finance it.

>> But there's no free lunch, but the fact

is you can't really control the Fed or

the Treasury can't really control the

long end of the curve. That kind of

responds to

market conditions, am I right or am I

wrong?

>> Yeah, market conditions and if at the

end still the Fed that's plays the

biggest role. So, you know, if they

really were to help the Treasury with

this then the impact would be

significant more.

>> Right.

>> But you controlling is still the market

force itself. You know, there's six and

a half trillion dollars outstanding of

these 10 to 30 year bonds, which are

held everywhere, right? So, so it's not

that simple just to control it.

>> And so, the long end of the curve, the

10s, the 20s, and the 30s are in fact

doing a lot of the work of the Fed

because rates are have done nothing but

go up, right? The Fed has done nothing.

Rates are still 3.5, 3.75 in terms of

Fed fund rates, yet the long end of the

curve is now I think we're I think we're

in the danger zone. I don't Do you think

we're any Would you Where do you think

the danger zone is for you? I don't

think we're in the danger zone. I think

we're in the normal zone, which it's

been a long time since we've been there,

so it feels a little uncomfortable. Um

the German vice chancellor came out this

morning and he said he blames these

rising government bond yields

exclusively on Trump's war in Iraq. And

you know, that's a bold statement to

come out and say and there's a lot of

truth to it.

>> be true cuz I think some of it is

narcissist, right?

>> So when you're dealing with that as the

causation, it's hard to then manipulate

it through policy moves at the Treasury.

>> So when you say no, you don't think

we're in the danger zone, where's the

danger zone for you?

>> I I think 4 to 6% on on the Treasury in

the 10-year historically is where that

yield should be.

Um but you know, in 2026,

the yield was under four at one point.

It's amazing how quickly this jump has

happened in such a short period of time.

>> still 3.5, 3.75 and and the long end of

the curve has moved up. It's not like

Fed funds have moved up and so the long

end moves up. It hasn't, right? Fed

funds have stayed the same and yet the

long end is moving up. Cuz I think the

long end is dealing with There's a

massive issuance of Treasuries that is

coming. There's a massive demand because

of, you know, corporate demand, AI

technology, and all that is corporate

demand is is is um

coming to the market.

>> I'd say that that's probably Kenny, the

the the biggest factor. Right. Even the

Fed themselves acknowledge that

hyperscaler issuance Right. being hedged

with Treasuries explains the majority of

the move they were seeing in the long

end of the curve, less so about

inflation or anticipating the Fed move

or even the fiscal deficit for that

matter, even though it continues to be

an issue.

>> Right. So, do you Where do you think

rates are going to go? Where Where Where

were you Where do you think rates are

going to be at the end of the year?

>> I think it's going to be still higher

from here. From here. But, here there's

a There's a reason. This is the economy

that's growing a lot faster than we've

had in the past years, right? And And

it's going to grow even faster with all

this issues and investment coming in cuz

a lot more coming in from here. I think

that's what's really driving yields

higher. So, we could end up with a

10-year well over 5% and the 30-year

going to 5 1/2 or higher just because of

economic growth.

>> And do you think that provides a

headwind for stocks?

>> No, it would not. This would be the good

reason

>> Because the economy's growing so much.

>> You see, exactly.

>> Okay, second quarter GDP, the second

the second um

round of second quarter GDP is coming

out on Thursday. They say it's again 1

and 1/2% yet they're already talking

about third quarter being more than 3%.

Do you agree?

>> Yeah, and in fact if you take the the

real-time indicator from the Atlanta

Fed, we're actually growing technically

at 6% real GDP, right? So, adding on

inflation that comes out on Thursday is

like round about 3 3 and 1/2.

This economy is actually growing at 9%

nominal. That's why That's why yields

are going higher.

>> Right, but that's unsustainable.

>> I hope not cuz it would be great to go

>> Well, yeah,

yeah, sure because then we can grow our

way out.

>> Yeah, you grow your way out of debt. You

know, what the president says he

actually That's a good point he makes to

get out of debt you should grow out of

it.

>> Okay.

>> But, you know, the challenges with with

Hormuz as you were saying like that's

what's probably the biggest uncertainty

hanging over our economy. Go ahead.

>> The other challenge that you alluded to

earlier is the mom and pop investor all

of a sudden saying

"Why take this risk in equities when I

can just get 5 and a quarter

>> So, there's the danger

>> locked in the market." That's That's

That's exactly right. So, what's the

danger zone? 5 and 1/2?

>> 5 and 1/2 it starts to become a danger

zone, but I think six is the magic

number where all of a sudden you say

>> Six on the 10-year?

>> Six on the 10-year is where really

equities start to look a lot less

appetizing. I think as long as you have

a five print in front, you're still

going to see people who would prefer the

volatility and the risk on. But when

that edges forward,

you know, it's a challenge. So for

example,

we've seen insurance companies recently

offer 5.9%

on a seven-year guaranteed contract.

That's a big number on a guaranteed

basis. It gets people to pause and

think, is it worth

>> when you say Is that an annuity?

>> A fixed annuity contract. Those are the

latest rates we've seen published.

>> 7.9% on a fixed

5.9 on a 7-year fixed annuity.

>> Correct. So you're getting very close to

seeing that that six in front of the

number.

>> clients pull out of stocks and move into

those annuities?

>> Not yet, but they're starting to ask the

question.

>> That's interesting.

Cuz I'm not a

I'm not an annuity person, but that's

you know, it's a whole another

conversation. But that's you know,

that's interesting. For me, the danger

zone I think we're right at the

beginning of the danger zone. I'm more

in the 5% on the 10-year. I think the

five If we hit 5% on the 10-year, that

it's going to be a headwind for the

market. I think you're going to see

stocks kind of struggle. I think at six

they're going to really struggle. But I

think at five you're going to start to

see I mean I that's I think you're going

to see it start start to struggle at

that point.

>> Even though if you think about this

Kenny, right? Like in 1999, which is

sort of a year of a going through today

with all this technology that is sort of

like pushing the economy,

the 10-year Treasury yield ended up over

6% and although the Fed hiked rates by

three, but

inflation was at that time by much

lower, but there was a 6% handle on the

10-year and the economy was growing at

the same rate as we are today.

>> Yeah, but that was also the beginning of

the dot-com crash and bubble, right? The

Nasdaq lost 60% over the over the next

year and a half.

>> Correct, but that was really because

ultimately the Fed pushed it too far,

too much. So they went on having more

hikes in 2000 at the end they even hiked

by 50 base points when the market was

already turning south. I know this Fed

wash, or sorry, washed Fed, it may be a

little different that way. Which also

means that the tenure may not reach the

6% as our economy could pretty get some

fire. But it either way I think your

dangerous zone idea is about you do need

to hit some sort of a speed bump, call

it that way, if rates are a bit too high

and start to constrain the economy.

>> Yeah, no. I I I agree. I I think it's

interesting that you've got a you've got

a a a a

you know, 6% number on it as being your

dangerous zone.

Okay, we're going to see what's going to

happen because I think it's going to I

think it's at least going to five. And

then I think we'll see, you know, we'll

see the market back off some. I think it

will certainly start to create a

headwind for

for especially nervous investors. Maybe

not the younger set, but certainly the

you know, the set that's the the set

that's in the 60-70 age may get a little

bit more nervous.

>> Right. And then look, I certainly think

you'll see market jitters anytime

we hit a new threshold, right? But

ultimately the market tends to collect

itself, the buyers come in, and we march

towards new highs.

>> Well, tell me where you think we're

going in September, October as we move

into the fall and then into midterms in

terms of the market volatility.

>> So the midterms can become a tension

point in markets because

>> You think? Especially this [laughter]

year.

>> I think I think it is because let's say

that we're getting hypothetically a blue

sweep of Congress. So the Senate does

flip to Democrat, then we're getting a

lot of the ideas of the current price in

the market being priced out or different

direction. It would really turn the the

economy into a different direction

potentially, too. Because think about AI

data centers, which in the Democratic

camp there's a lot of like resistance to

that idea, right? So to curb that itself

would curb investment, therefore

bringing the market down. So that that's

I think there's there.

>> Yeah, I think there's [clears throat] a

risk. I mean, But, what are you saying

as we move into the fall?

>> I think if you look at echoes of 2018, I

mean, this is a rare instance where

we've literally played this script back

once before, right? Same president,

different Congress, but ultimately what

ended up happening is we had a blue

wave. The S&P went from being up

something like plus 10 in September to

finishing negative for the year. But, at

the end of the day, you know, the market

collected itself and we had a phenomenal

year in 2019.

>> Agreed.

>> We're in a really good time to have a

lot of bad things going on because

against the backdrop of all these

geopolitical issues and and bond issues,

we have the expansionism of what's

happening with technology.

>> And we've had a lot of bad things going

on this year.

>> That's right.

>> More than more than our fair share of

bad stuff that they've been throwing at

this market, and yet we're still kissing

or near kissing new highs, right? I

think the market's a little bit weaker

today.

Um,

and I think the market's I you know, I

think the market's going to continue to

to to struggle as we move into

September. Whatever, September's

typically the worst month out of the

year in terms of how how it returns, how

it trades, right? And this year with the

with I think is a really hot midterm hot

meaning anxious

midterm environment.

Um,

and I think we could see a pullback,

which I wouldn't necessarily be

surprised at. Um, and I think it needs

to shake the branches a little bit.

>> I think it's so interesting when you

look at what how Trump ran on the

economy, the economy, the economy.

>> And then you've had these geopolitical

factors come in that ultimately have

derailed the potential of the economy,

but the economy's been so strong that

it's managed to overcome it to this

point.

But, you feel a little bit of fatigue

setting in and the numbers are starting

>> is now an eight-month conflict with

really no end in sight at the moment.

>> That's right.

>> Right? As of as of, you know, the

weekend this morning, it doesn't look

like doesn't look like there's any

>> The Iranians even said that they would

not open the strait until Trump is out

of the office. That's There you go.

>> And they did their service by the way.

>> Yeah, yeah. Yeah, and and that's exactly

right is that they can you know, there's

no reason for them to to make a deal at

the moment. They're going to if they if

they hold his feet to the fire even

more, you know,

>> What we're getting right now is that the

sanctions are being announced

>> Right.

>> which could be I looked up the sanctions

that are currently in place on the

Treasury website.

>> Yeah.

>> And I kind of little toggle on the large

language model asking it like, what can

be worse here? They could do

significantly more

>> Yeah.

>> to paralyze the Iranian economy.

>> Which is I think they announced it

today, right? They're going to try to

completely completely

uh uh

leave them alone on this island.

>> But there's consequences of that.

>> Yes.

>> Definitely towards China

>> Yes.

>> which will affect them negatively, even

Europe. And you know, that there's

limits to that at some point.

>> becomes a bigger problem.

>> It becomes a bigger problem, yeah.

>> Right. So, I think it it So, that's

that's playing into you know, as I think

about it, that's playing into kind of my

sense that there's going to be we're

going to have some more volatility in

the fall, you know, moving into the

fall. I don't think it's going to be a

disaster, but I wouldn't be surprised if

we saw, you know,

an 8 to 10% pullback from the top. Now,

we're already down 2 or 3%, I guess. So,

you know,

>> I think we're very range-bound

>> Yeah.

>> until the economic indicators indicate

that these symptoms have actually led to

a problem.

>> Right.

>> Um and unless we get that, you know,

unemployment remains relatively strong,

inflation stays in this mid-3s or or

less kind of range,

generally speaking, you know, that's

conducive to continued upward stock

market movement and further economic

expansion like you referenced with GDP

growth.

>> Right.

>> Um

if unemployment all of a sudden starts

becoming a major issue, then all of a

sudden everyone's looking around, the

Fed in particular, what arrows do we

have

>> is at 4.1% according to the latest NFP

report.

>> as good as it gets.

>> It's historically low.

>> Yeah.

>> Right? That's not anywhere near a

concern level.

Right?

>> Absolutely not. And that's why,

you know, our belief is that the economy

continues to move forward, the stock

market continues to hit ultimately

higher highs, but

it's going to be a struggle to continue

because there's a lack of confidence.

>> Okay, so we're going to get PCE on

Thursday, which is expected to be a

shade better than last month. But that

was the same for PPI and CPI, which

proved to be true, right? It was better

than last month. But now the whole month

of August, we've seen oil do nothing but

move up from 67. It's been trading here

in 80 80 plus for most of the month. So

next month PPI and CPI and PCE are not

going to show the same kind of downward

trending pattern, which only then So so

I think people are going to look through

Thursday's number because they're

already looking into next month's

number. They already recognize that it's

going to be higher.

>> I think that's right because this CPI

report actually had some surprise

element in it on energy.

>> Right.

>> Maybe because of the way it was

measured. Cuz even in July you had a big

move in energy and commodities. So we're

rippling now through here. And you're

right, like this is all shows up in

services, which PCE is a lot more about

that.

>> Yeah.

>> And and then we have the tariffs are

back on, right? And so this this the

Canadian tariff situation, even though

it's very small, it will have a tiny

effect. It's going to start rippling.

It's going to start affecting other

things.

>> it's the it's the impression, right?

It's the tariff it's the whether or not

it's small and has a tiny effect. It's

just the idea that we're talking about

these these onerous tariffs again,

right?

>> Yeah, and even bigger ones that will

maybe come into effect by January. But

you know, this this is a new type of

tariff again. It's the smooth highly

>> Right.

>> tariffs that has not been used since the

depression.

>> Right.

>> So a different approach in the towards

our main trading partner, right? So it's

like

>> It will affect our trading partner.

>> our main. [laughter]

>> All right, so tell me about the Kevin

Warsh Fed. What's your opinion about the

Kevin Warsh Fed in terms of how he's

doing so far? It's only been what, two

or three months, I guess. But

uh next week starts Jackson Hole

boondoggle, which I think is a

boondoggle, right? Say for what it is.

They get all these global central

bankers come to town, and I think this

month's this year's they're talking

about payments and processing. So,

they're not even talking monetary

policy. So, I don't think you're getting

anything out of Kevin Warsh.

>> It's going to be interesting. I think

he's speaking on Friday. And is he going

to talk about the moves that the

Treasury secretary has made and

announced or is he going to basically

ignore it all together?

>> And so, what do you think?

>> I think in all likelihood he ignores it.

>> Yeah. I don't think he's going to go

down that road.

>> Fact actually this this payments topic

>> Yeah.

>> is is he has spoken very specifically

about it tokenization digital payments

and it's a nice excuse to not talk about

anything else.

>> Right. Listen, and it would go right

down kind of what he's what he's you

know said from the very beginning. He

thinks less is more in terms of what the

Fed is thinking. So, I think the last

thing he's going to do is get in get out

in Jackson Hole and start talking about

monetary policy in the US when he's

physically said I'm not going there.

Right? I don't want to go there. So, I

don't anyone who I think was looking for

him to say that is going to be sorely

disappointed, I think. But, I don't

think the market's going to react to

that anyway.

>> Unlikely. I mean, I know unless he

surprises of see, but he's definitely as

you right. He's not in the camp of the

policy signal that a Bernanke or Powell

even Yellen has done in the past or

Draghi when they used this platform to

signal policy which was a important

signal at that time that they said it.

He doesn't have a reason actually to

signal anything.

>> Right.

>> Even if those yields are higher and

above what the Treasury is doing, he

wants to stay far away from that anyway.

So, he's not going to signal anything

that is anything material to signal

about, right? It's an economy that has

not accelerating inflation, growth is

really good, and unemployment say is

low. So, the the mandate is is

relatively in balance with some

restriction here and then housing. So,

what is he really going to say? The

speech going to open with the economy as

a description of the economy perhaps

which you could pluck a little bit from

it.

>> Yeah.

>> And then he goes goes into that whole

digital payment discussion.

>> Yeah.

>> And we've got nothing

>> Right. And so, therefore I think he

avoids uh any conversation about about

kind of monetary policy. Um you know,

what's interesting in the Fed minutes

that we got

a week ago, week and a half ago.

Um

Besides the three dissenters, which were

very clear, we knew there were three

dissenters, there was there were more

leaning more hawkish.

>> That's right.

>> they ultimately voted no, but they were

leaning more hawkish. Is that a concern?

>> I mean, the the current forecast is 75%

chance of a rate hike between now and

the end of the year. Um I think the

question kind of becomes

given everything going on,

does the Fed view three as the new two,

or is the mandate get back into the

twos? And Warsh has come out and said

his primary concern is inflation. He's

much less concerned about the other end

of the mandate.

>> Okay, but but if we see inflation pick

up because oil in the straight is closed

and this whole geopolitical drama in the

Middle East is causing inflation because

of the price of oil, what's a quarter of

a point or half a basis point increase

in in Fed funds going to do to solve

that problem?

>> Probably not a lot, and it goes back to

that term we heard post-COVID,

transitory inflation. [laughter]

>> I'm glad you said it, not me. I am not

saying it.

>> Um but I think that is why investors

need to have some commodities exposure

as a hedge in their portfolio right now.

>> So, which commodities?

>> Well, I I want to own oil.

I want to own gold.

Um

I think silver is is making a nice

comeback here as well.

Um and ultimately, uh just a broad

basket of commodities futures in

general, you know, whether it be so-

soybeans, cattle, etc. Uh because if

these prices are going up, they're going

up because things are not playing out

the way the administration wants it.

>> Gold is gold was stuck in a 4,042

hundred range for, you know, a good

seven or eight or nine weeks. It has

since busted out. Now it's trading at

46, almost 4,700, trading at 46.70, I

think. Um

so, we're getting close to 4,700. Is

that stretch? You think there's more

room in gold? You think gold goes higher

if this if the you know you you talk

about if there's a sweep and if there's

a blue sweep, it becomes more anxious.

You think gold goes higher if the state

of the world moves doesn't get solved

and oil stays up here in the 80s, gold

goes higher I would imagine.

>> So the function of interest rates there

too.

It's interesting that gold does not

perform well during the whole war that

we've had. Why? Because interest rates

are taking real interest rates when

higher.

>> Right.

>> That's when gold doesn't perform. Now I

the case of a blue sweep you get the

anxiety indeed I was

>> So then you get the safety trade.

>> Exactly. The safety trade comes back. I

was called this like the gold smile like

gold rallies on on on uncertainty but it

can also rally on lower interest rates

right? So it's kind of like that kind of

thing.

>> Just back and forth.

>> Back and forth. I think this blue sweep

by the way if that actually were to

happen is like the treasury yields are

going to go lower. So that boosts gold

even more. That's so the gold trade

would be in a good hedge against the

blue sweep.

>> So So tell me cuz I'll tell you this

I'm leaning that there's going to be a

blue sweep. I think we're going to lose

both.

>> If you believe Cal Shiller prediction

markets, then then there is a decent

>> Oh, is that what it says Cal Shiller? I

didn't even know that.

>> It's like it's really it's been pretty

consistent probability there. So it's

like

the prediction markets have been better

predicted

>> markets are better than the poll

markets.

>> Yeah, exactly. Better than futures

markets. So I I'd say pay attention that

you know.

>> What do you think? Do you have a sense?

>> I think a lot has to continue to go

wrong for the Senate to turn blue but I

definitely believe it's on the table.

>> We're only We're only eight weeks out

from this from this election and and

this war is not over. Oil is not coming

back down. Oil is not going back to the

60s by the time election comes. And

people are people are pissed off.

>> A little bit of good news in the last

four weeks of the election can easily

change the direction of the outcome

though.

>> You're okay.

>> It's going to be the the story is not

yet been written.

>> good news come August or October.

>> Um but to your point about uh gold, you

know, I don't necessarily think it's

entirely an inflation story, but it's

also just a dollar confidence story

that's happening as well.

Um, and you know, you have those

those people who say the dollar is going

to get debated, etc. and that's why

you're seeing I think a little bit of a

rally in crypto. You're seeing gold come

around. So, it's not just uh an

inflation story. It's it's unfortunately

even more complicated than that.

>> Right.

>> Um, but that's why we think we have to

have some of those hedges against the

equity volatility here within the

portfolio.

Um, and it may be a good time to have

some cash. You know, there's nothing

wrong with a little extra dry powder in

the portfolio.

>> Actually, cash is a decision, right? If

you decide you want to cash, that is an

investment decision. That's right. And

if you put the ca- you know, whether you

leave it in a government money market

fund or you put it in a treasury, that

is a an investment decision. And you're

right. If people get anxious or people

are nervous about where we're going,

that's not necessarily the worst thing.

>> No, in fact, I

>> Actually, the cash itself brings the

volatility portfolio really down.

And that that is actually a good thing

and for certain periods of time to have

your volatility portfolio significantly

lower than the VIX as we go through an

uncertain period, actually sets yourself

up for an opportunity to reengage once

the the the the the it's all clear. And

that's that tends to be the case, but

cash is a good anchor of volatility in

the portfolio down.

>> Yeah, sure. Whether it's cash or

treasury, it's still a good anchor,

right? Okay, so one last question and

that uh and before we go go because

we're going to run out of time.

Nvidia, do they disappoint or not?

>> Nvidia, I

I hate to say that they disappoint. They

meet and exceed all expectations, but

the stock drops.

>> Well, cuz that's what it's done every

time. I mean, every time the traders hit

the sell button because they say it

can't get better, it can't get better.

But yet it drops and then they take it

off again. I think the options market is

pricing in a 7% move, up or down

depending on how the market interprets

what he says.

>> Which has kind of been the case the last

few quarters.

>> what it's been.

>> And you know, it's right like they

blockbuster earnings they have a good

chance to beat you know, the the

estimates.

But then it's not enough beat for some

reason. This news that came out

overnight of this price hike and the

specific

You know, it's a little damper on the

stock too and what comes out of that in

the press conference and what they're

doing.

>> going to be listening to that.

>> Exactly, yeah. And then it's the

hyperscaler like you know, circular

finance thing where in Nvidia does have

taken equity stakes

>> Yeah.

>> indirectly

>> That's circular financing which is

always a problem or it's not always a

problem but it it's certainly a concern.

>> Concern and that's why the stock hasn't

performed so well.

>> Right.

>> And until up until recently I guess but

>> It's interesting because we're right at

the highs, you know.

>> the fact sell the rumor and rumor sell

the fact

>> yeah. Yeah, [laughter] it'll be various

things. In any event, listen gentlemen,

thank you very much for joining this

conversation. I could have kept this we

could have talked for another hour and a

half anyway. Until the next time, take

good care.