Interview recorded – 19th of October 2023
On this episode of the WTFinance podcast I had the pleasure of welcoming on Jim Bianco – President and Macro strategist at Bianco Research.
On this episode we spoke about increasing yields on the long end, the new normal, why this could lead to higher inflation for longer, economic indicators that Jim believes show the new normal, assets to outperform current situation and more. I hope you enjoy!
0:00 – Introduction
1:19 – What is Jim currently watching?
5:14 – Why would a pivot increase yields on the long end?
13:44 – What level will bonds have to be for the FED to intervene?
17:19 – Have economist been caught of guard by the new normal?
22:04 – Current economic indicators to watch?
26:19 – Will fiscal spending remain the same?
29:43 – What assets outperform current scenario?
36:34 – One message to takeaway from our conversation?
Jim Bianco is President and Macro Strategist at Bianco Research, L.L.C. Since 1990 Jim’s commentaries have offered a unique perspective on the global economy and financial markets. Unencumbered by the biases of traditional Wall Street research, Jim has built a decades long reputation for objective, incisive commentary that challenges consensus thinking. In nearly 20 years at Bianco Research, Jim’s wide ranging commentaries have addressed monetary policy, the intersection of markets and politics, the role of government in the economy, fund flows and positioning in financial markets.
Jim appears regularly on CNBC, Bloomberg and Fox Business, and is often featured in the Wall Street Journal, Bloomberg News, Grants Interest Rate Observer, and MarketWatch. Prior to joining Arbor and Bianco Research, Jim was a Market Strategist in equity and fixed income research at UBS Securities and Equity Technical Analyst at First Boston and Shearson Lehman Brothers. He is a Chartered Market Technician (CMT) and a member of the Market Technicians Association (MTA). Jim has a Bachelor of Science degree in Finance from Marquette University (1984) and an MBA from Fordham University (1989).
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FED Policy Error to Intensify Bond Carnage? with Jim Bianco
The Federal Reserve’s policy decisions have long been a topic of debate among economists and market analysts. In recent months, concerns have been growing over a potential policy error by the Fed, which could have serious consequences for the bond market. Jim Bianco, a prominent market strategist, has recently voiced his concerns about the potential fallout from such a policy misstep.
Bianco argues that the Federal Reserve’s current accommodative monetary policy may be inappropriate given the state of the economy and the potential for inflationary pressures to build up. The central bank has been keeping interest rates near zero and purchasing massive amounts of government bonds to provide support to the economy during the pandemic. However, as the economic recovery gains traction and inflation gradually picks up, Bianco believes that the Fed may be slow to react and tighten monetary policy.
The consequences of such a policy error, according to Bianco, could be catastrophic for the bond market. As the economy heats up and inflation rises, bond yields are also likely to increase. This would lead to a decline in bond prices, resulting in significant losses for bond investors.
Bianco points out that bond prices are already at historically high levels due to the Fed’s bond-buying program. If the central bank fails to reverse its accommodative policy in a timely manner, there could be a rapid and substantial sell-off in the bond market. This scenario, known as a “bond carnage,” would have wide-ranging implications for the broader financial markets.
Investors who traditionally seek the relative safety of government bonds may see their portfolios eroded by steep losses. Furthermore, as bond yields rise, the attractiveness of riskier assets such as stocks may diminish, leading to a broader market correction. The impact could extend beyond financial markets and spill over into the real economy, slowing down the recovery.
Bianco’s concerns highlight the delicate balancing act faced by the Federal Reserve. The central bank must navigate the fine line between supporting the economy’s ongoing recovery and avoiding an overheating that could lead to runaway inflation. However, the risk of a policy error remains, and if not managed effectively, it could have significant consequences for financial markets and the broader economy.
It is worth noting that not all experts share Bianco’s viewpoint. Some argue that the Fed’s actions are appropriate given the extraordinary circumstances created by the pandemic. They believe that any potential increase in inflation would likely be transitory and would not warrant a sudden policy reversal.
Nonetheless, the concerns raised by Bianco should not be dismissed lightly. History has shown that policy errors by central banks can have far-reaching and long-lasting effects. Investors and policymakers alike should closely monitor the evolving situation and remain vigilant for signs of a potential policy misstep.
Can a recession save bond bag holders or will they continue to feel the pain?
Thank you. Agree new cycle(s) are developing. When 5-7 stocks dominate the broad market there is dislocation imo until we get mean reversion(s). If in a new type of cycle then reversions are more of a reset.
The most modest of houses now need a space dedicated to "Office" work being done at home – kid/noise proofed.
I always appreciate Bianco's inputs, but I believe he is wrong on this one. The long end of the curve is not rocketing due to future inflation concerns, but rather due to unsustainable deficit concerns and ever-raising treasury issuance. In short: the debt doom loop.
The Covid crisis was the most easily identifiable marker of a shift in macro dynamics. But it contained elements that are not events, but long term changes that made the Covid crisis not a one-off event but a lasting change. Those elements are 1.) the change in the disposition of Chinese leadership toward the west, and 2.) the baby boomer retirements.
The change in Chinese leadership actually started around 2018. Without going into the long term historical trends this change represents it can be observed in the story of Jack Ma and the Ant Group. That was the precipitating drama. What that meant for Covid is that the Chinese did not publicize their knowlege that Covid was a human transmissable deadly virus, but instead routed production of medical supplies and PPE to their own use rather than shipment overseas, before the world was even aware there was a crisis. This is what caused the supply chain panic and resulted in a permanent structural shift in global supply chain logistics. But it started with Jack Ma and the re-insertion of communist ideology into the mercantilist free market sectors of the Chinese economy that the CFR and the WTO hoped would bring China to accept democratic reforms. That is what the Covid crisis suddenly made the world wake up to.
As to baby boomer retirements everyone knows that has caused changes in the workforce. What is not widely acknowledged is that the loss of baby boomer participation is the direct cause of the loss of overall worker productivity in today's labor force. It was baby boomer productivity that laid inflation low in the first place. Another unrecognized factor is that baby boomers having led productive lives, including becoming active participants in equities markets have now shifted large portions of their massive portfolios from stocks to fixed income securities. This is creating a river of cash flow for retirees because interest rates have risen so much. What are we doing with all that cash? Well you can look at the statistics and see we are spending it yes, but what the statistics miss is that we are giving it away. Baby boomers aren't waiting to die and let lawyers, accountants and tax collectors eat up our estates. We are giving away large amounts of money to help others now. This is an unmeasured private fiscal stimulus that is driving consumption, growth, employment and yes, inflation. The esteemed Mr. Powell can throw up his hands and let the bond market do the work, but the more yields rise the more cash we get to plow right back into the economy. Let the good times roll!
But are they measuring GDP by money spent on goods and services? That’s only because things cost more. Doesn’t mean that there are more goods and services sold or produced. ISM is still below 50.
Measuring GDP. GDP measures the monetary value of final goods and services—that is, those that are bought by the final user—produced in a country in a given period of time (say a quarter or a year). It counts all of the output generated within the borders of a country.
Jim – totally agree – energy will be more expensive and friend shoring will be inflationary. I also think, since boomers are retiring at 10,000/day, they will eventually die at 10,000/day. They are leaving the work force and are no longer contributing to the 401ks/IRAs, etc., and withdrawing from the markets. This will reduce demand for equities. As they die, there will be less demand for homes and goods and services – all contracting the economy – now, this could be deflationary but comes after the inflation cycle.
So true, homes now have to be built with actual offices built in. By the same as before when 1 in 10,000 needed to convert a room to an office.
Jim has ALWAYS been against treasuries and the bond market. Look up his past videos.
Jim Bianco has been bullish on CNBC for years. if his theory is correct, then markets should have trended up.
many banks' PEs are in the single digit range. They also pay dividend in 3-5% range. Banks are profitable and wealthy, financially.
Thank you so much for this podcast, always fantastic guests and Bianco is a great guest
I think you should be incredibly prudent to talk about the federal reserve as one man
He says most people go to the office three days/week. Is he ignorant of the fact that the majority of people who do real work don't work in offices?
Using energy as a weapon? Like Americabs remaining silent about the nordstream pipeline blow up? It's not de-globalization, it's de-americanization. American thugs not welcome anymore anywhere
I don't think unemployment insurance applies to strikers. It applies only to people who have been fired or otherwise are out of work involuntarily.
Great interview. Thank you. Totally disagree-except for you can never get back to where you left-evolution indeed! with Jim but good to hear an opposite view to challenge confirmation bias.
Bitcoin is up 50 this year alone
Bonds at 5.5% aren’t 2/3 of stock returns. They’re about half. Stocks are 10% avg nominal. Around 8% real. T Bonds are 5.5 nominal at best.
this is the same guy that goes on cnbc and does not know that cpi is rigged that inflation aint the cpi; he's zero percent trustable
Bianco is a fool. he goes around acting like the fed is idiotic and he's a genius; instead the truth he is an idiot providing cover (by making them seem legitimate but dumb), while the fed creates poverty on purpose..and thanks to bianco the game continues because he's pushing stupidity..how long has central banking existed..hundreds and hundreds of years…they know exactly what they're doing.
19:00 Bloomberg model last year: 100% chance of a recession this year. The US economy and labor market are fundamentally different from 2019 23:40 containernshipping has bottomed; on its way up 26:30 reasons interest rate going up; deficits matter when inflation returning 31:00 cash and anything that plays on inflation works: energy, basic material, investment grade high yield bonds (energy, industrials, gaming). Financials not working
Very qualitative view. Not quantitative support shown during the interview. Should at least ask the question: OK if it is the new cycle, how can treasury stand such high rates over long period without fed loosening (QE) ?
I guess we will never have a balanced budget at the Federal level. I blame the electorate every bit as much as the politicians. Anyone who bitches about the deficit needs to also tell you what federal cuts they personally will accept in order to restore financial stability. If they say “I do not think I need to experience any cuts in benefits”, then they are full of sh*t and part of the problem.
Liz truss didn't last any longer than a head of lettuce. LOLOLOL
アメリカ人を裕福にしているのはドルの法外な特権のせいだけではなく、世界がひどいインフレに苦しんでいるこのような時期に、アメリカ人は未だに自分たちがいつインフレになるのか不景気になるのかさえわからないほど裕福なので、必ず読む必要があります。 彼らが世界に対してどのように行動するかを想像できるようにするためだけにグラフを作成しました…インフレに苦しんでいるのは米国ではなく米国の外の世界です…そして彼らは、世界がインフレの痛みでうめいているとき、彼らはあまりにもインフレの痛みをうめいているふりをしていることに気づきました 彼らは世界の富を盗み、病気の子供たちの雨の日の貯金を食いつぶした罪深い政党のようには見えません…そうです…アメリカ人はその点では賢いです…見た目は普通で裕福ではありません…しかし実際のアメリカ人は異常で非常に裕福です。
Not only because of the dollars exorbitant privilege that makes americans so rich that at a time like this when the world is suffering from terrible inflation, americans are still so rich that they do not even know WHEN they are having inflation or recession and NEED TO READ CHARTS just so they can imagine HOW TO BEHAVE TOWARDS the world…it is the world OUTSIDE OF usa…that is suffering from inflation NOT americans … & they have found that when the world groans, inflation pain, they TOO PRETEND to groan inflation pain so that they DONT LOOK LIKE THE GUILTY PARTIES THAT STOLE THE WORLD’s WEALTH & ATE THE sick CHILDREN’s rainy day savings …yes…Americans are clever in that way…look normal and NOT rich…but actually americans are ABNORMAL & VERY RICH.
PEDO BRANDON WOKE SOCIALIST AGENDA ! INFLATION HERE TO STAY !
Why would the Fed be concerned about a big increase in long-end rates that still leaves them lower than T-bill rates? When the Fed increased rates to 5.5%, didn’t they expect the long end to rise as well?
I’ve heard a lot of claims about “bond vigilantes” fighting government deficits, but it seems preposterous to assume that its the only cause, as if Japan is the most fiscally sound government in the world followed by the bulk of Europe purely because of their lower interest rates.
I respectfully disagree. Long term Bond market behavior has very little to do with the Fed! It has everything to do with Supply vs Demand for Treasuries, Collateral shortage in the Euro Dollar market, and momentum chasing Hedge funds. All this in the context of steady Dis-Inflation and slowing global GDP growth. The Policy error, if any, is in having raised rates to a point that practically guarantees a HARD LANDING in 2024-2025. Very soon I expect the Long term rates to start heading DOWN sharply.
im getting 5.4% in a cd 🙂
Jim is lowkey a shit analyst. He just doesn’t get the bigger picture. The economy is overly financialized.
Monetary policy makers can not control or influence fiscal policy. However, Fiscal policy makers can control and influence monetary policy. Jerome Powell himself stated it very clearly in his speech this week.
You think the fiscal policy makers will allow for long term financing rates to blow out?
Grow up Jim, your smart enough to realize government officials won’t allow that much pain to happen. They won’t get re elected.
Poor Jim is delusional
Remember when Jim said it was a new era with Reddit traders taking on hwdge funds?
Remember when Jim said people would never go back imto the office…well they are going back and theyre terrified of losing their jobs
The next round of QE will be epic
The dollar is what's used as a weapon, not energy. Russia and Saudi Arabia aren't going to pump the same amount of oil when the demand goes down.
Very good analysis, thank you very much…
Lies: everyone wants to move to Florida
Thanks. Great interview.
Are we going to still be in QT when housing is crashing 40%? The current environment is unsustainable. Either mortgage rates need to fall or prices need to crash