AI's Great Job Market Reset | ITK With Cathie Wood

0:00 [Music] Greetings everyone. Happy July 4th weekend. Uh so here we are employment Friday in the no. uh and uh just wanted to reiterate that uh the drill here is fiscal policy, monetary policy, uh economic indicators, market indicators uh and we will feature many of the charts um that you've seen just updated

0:46 uh to give you a sense of where we think we are. Um so as you know we believe we've been going through a rolling recession for the past three years. uh we are seeing a lot more indicators uh softening here particularly uh relating to the consumer and to housing. Housing has been very weak for a long time. It seems to be relapsing here. Uh again these interest rates are just too high for the housing market unless prices come down a lot and prices are starting to tick down. Uh so the other thing to focus on since it is employment Friday is employment is a lagging indicator and

1:31 some of the statistics associated with employment are beginning to look uh quite weak. Uh and that's not surprising to us as we're we believe reaching the end of this rolling recession with some certainty on tariffs uh the tax package. So the big beautiful bill uh and the wars uh both Ukraine and uh the turmoil in the Middle East as those start clearing up perhaps or at least some of them. uh and we do believe we'll launch uh from a rolling recession uh into a rolling recovery uh that we think will gather momentum as we're

2:17 exiting this year into next year uh with productivity uh the big surprise uh and real GDP growth benefiting. We also think the other surprise will be inflation much lower than expected because of productivity. Now a lot of people assoc associate real GDP growth with higher inflation. The higher the growth, the higher inflation. Uh if you look at history, that's absolutely wrong. Uh the higher the growth, the higher the productivity and productivity is a potent anti-inflationary force. Uh and we think that's going to be the case this time perhaps more than ever because of all of the deflationary

3:06 undercurrents associated with the explosion in uh new technologies uh catalyzed especially uh today by AI which is as we've gone over in the past extremely deflationary good deflation the more costs fall and prices fall the more units explode. Uh that that is how we usually exit uh recessions or in this case a rolling recession and we think this uh time will be no different except it will be more exaggerated than usual. So I'll go through a few points um first and then we'll go through charts on fiscal policy. Uh well, today I think

3:53 the House uh after an all-nighter is probably uh in the last throws of a vote by the time you get uh or watch this. Uh we may have a bill. We know there are some holdouts, but there's there's a lot of arm twisting too and I have a feeling it will be successful. So, we will have the bill. Uh the most important uh variables to us are tax rates. uh the fact that tax rates are not going to go up at the end of this year is very important. Uh and uh I think that's true. Uh that's all uh the same in both the House and the Senate. Um and then on the spending side, uh we know there's

4:41 been a lot of drama around this package, uh especially Elon Musk's opposition to it. And I do believe Elon um understands that government spending is taxation and that is why he's railing against more government spending. Uh but I think what is also happening is that the forces that he put in motion through Doge uh and uh through the people who are still at work in this administration um are lowering employment and uh and evolving a different mindset inside the government. So, uh I don't

5:26 think uh that this is as bad as Elon um as Elon is suggesting these deficits, yes, I agree, are terrible. But if um his first impulse as he was leaving the government plays out, meaning okay, I guess I'm going to have to do a lot when it comes to innovation in order in order to spur growth to help us grow our way out of the deficit. That's what he said as he was leaving uh initially. Um he's reverted a bit, but we actually think he is right. That first instinct was right. get growth going and that's how we're going to lower the deficit. Um then on

6:12 monetary policy and we'll go through the slides uh in in a moment. Um we have seen M2 accelerate and many people will think oh goodness uh when I say accelerate the growth rate on a year-over-year basis has accelerated to I think it's roughly four and a half percent or thereabouts. Uh many people are probably thinking, okay, this is the beginning of an accommodation of all of this proflegate uh government spending. Um well, if you look at money in the context of history, this is still a very low growth rate. Uh but we're also seeing at the margin signs that um that

6:57 monetary policy is too tight. Now, we've talked about the yield curve a lot and as measured by uh the 2-year uh uh the 2-year Treasury yield versus the 10-year uh and that has moved back into positive territory, meaning the 10-year Treasury yield is higher than the 2year Treasury yield. Um, but if you look at the shorter end of the curve, the 90day T bill rate versus the 2-year yield, uh, you'll see the inversion uh, is is um, in place still. Uh, we've got to basically flat on that basis and now it's reverted. And that does suggest

7:44 that monetary policy is probably airing on uh the side of too tight. Uh so we'll we'll get into that as well. I will say listening to Chairman Powell over the last week um he's he's probably admitting to what I just said uh because he said well you know if if we didn't have the tariffs upon us uh we'd probably be easing and uh I think what's also interesting about the last month is despite the tariffs that were put in place in April we now have May statistics and some June statistics that would suggest very little of those

8:30 tariff increases are making their way into the pricing structure of this economy. We are seeing certain categories uh that have been hit hard by tariffs uh increasing in price but uh that's being offset uh elsewhere in lower than expected prices. So the overall indices are uh are behaving quite well. 0.1% for both the CPI and the PPI and the PCE deflator uh in the last month which all of those were surprises on the low side of expectations and we'll show you some charts on that as well. Uh so and then

9:16 on economic indicators uh before I launch into the charts uh employment uh employment uh typically Friday but to this this month Thursday um is provided something for everyone. Uh I do think though when uh when more economists dig more deeply into the report they'll find on balance um it is it was a weak report. So headline looks stronger. Uh so non-farm payroll uh came in at yes uh 147,000. Uh but surprisingly about half of that was government, not federal. Federal uh

10:04 government employment fell slightly. Uh but state and local increased quite a bit. Uh taking out government private payrolls uh were up only 74,000 um monthtomonth. And uh there's a plug in the uh employment report each month and it's called the birth death ratio. It's the birth of businesses versus the death of businesses and the employment associated with both. Uh and the the working assumption this year is that monthtomonth it it has been in the 80 to 100,000 range. So if you take out that plug uh employment could have been

10:49 negative. ADP uh the ADP report uh earlier this week um was negative negative 33,000. Uh it is more overweight with small and medium businesses and that's probably where we're seeing uh a shedding of employment. Uh we saw average hourly earnings well behaved 02 I think on a year-over-year basis. they are now about uh 3.7%. And if we if we're right and productivity starts accelerating here after a few negative quarters associated perhaps with two negative GDP quarters uh the first GDP uh negative GDP uh

11:36 quarter first quarter was actually revised down with consumption a big part of the downward revision. Uh but once we get through those negative quarters and productivity picks up again, uh we think it will go north of 2%. So 3.7% year-over-year for the average hourly earnings minus 2% or more uh would suggest that underlying inflation, if you're looking at labor, uh is below or will be below 2%. uh which is what the Fed wants and we think what the Fed will get. Um one other source of weakness in the report was uh the average work week.

12:22 It was down and many people don't pay much attention to that but that can have more of an impact than uh the uh than the change in employment itself. So another sign of weakness. And if you look at the household survey, the household survey was in the 90,000 range. So again, sub 100,000. So uh on balance, I would say a weak report. Uh the the bond market may have anticipated a a a much weaker report because of how ADP set us up earlier in the week. So, it's down a bit, but bond yields have been very well behaved in the last uh in the last month, especially with all of the uh drama

13:07 around the deficit. So, um with that, let's launch into these charts. So, the first chart here is the uh budget deficit. uh now it's very hard to see on a month-to-month basis but actually in the last few months the budget deficit has come down slightly as a percent of uh GDP already. Uh you can see here the green line and X uh depicts where uh Treasury Secretary Bessant uh aims to take the deficit over the next three and a half years. uh and uh if our outlook for growth driven by uh productivity is right uh we think we think he will be

13:54 successful. Uh so we think that the tide is turning here and um and we think the surprises could be on the low side of expectations meaning the deficit shrinking as a percent of GDP more than people expect. Uh and on the next chart you can see uh we featured this last time uh last month. The reason we're featuring it again, the corporate tax rate, is it does look that in both the House and the Senate versions of the the bill, that uh full expensing of capital equipment and some structures uh has made it into the bill, which would take our effective corporate tax rate down

14:41 into the 14 to 15% range. Uh which will be one of the lowest in the world, certainly in the developed world. uh and one reason we do believe uh foreign direct investment will uh increase in in this country on the next chart uh here you can see what I mentioned uh about M2. M2 is closing in on 5% growth. That's uh depicted in the purple line here. Uh but if you take a look over history at this chart, you'll see that even that uh rate is at the lower end of what we've experienced over the years. Um now, what's also interesting on this chart is in the 60s

15:28 and 70s, you'll see uh M2 growth on a year-over-year basis was outpacing inflation. it was accommodating all kinds of government spending. Um, and you can see that uh this is this is pushed ahead by 18 months. Uh that that if we're right, the inflation rate is going to come down. uh and and the controversy out there and I think what uh Treasury Secretary Bessant has has been trying to guard against is that uh we don't end up in another 70s um accommodation period which led to terrible inflation, doubledigit

16:14 inflation. Um, if we're right, this environment is going to look much more like uh the '9s uh where money growth is above the inflation rate. Uh, and actually inflation um tends towards a a decline and what that will mean is that the velocity of money is slowing down. Uh now the velocity of money I know I featured it in charts in the past but um it's been in a secular downtrend uh since the the a secular decline. The growth rate had been slowing quite a bit but the actual decline started in the

17:00 late 90s um with the occasional cyclical bump. Well, we've just been through the cyclical bump and velocity is starting to turn down again. Uh so that trend uh is important. If it's still in place uh then money growth um at this level is not at all a problem in terms of uh in terms of uh feeding inflation. Uh the velocity is the rate at which money turns over. And why would it decline? Well, if we're right and inflation is much lower than expected and interest rates will follow, including mortgage rates, um then the attitude is well, I

17:48 don't have to rush now to buy anything uh because inflation and interest rates are coming down. Uh that's how you get that psychology. uh and we think uh that will be at work during the next few months if not years. Uh on the next chart here you can see uh what I mentioned uh a little earlier which is the inverted yield curve at the front end of the curve the short end of the curve. So the 2-year Treasury yield uh versus the threemonth Treasury yield. the longerterm yield is below the shorter term which is not normal and you can see how abnormal uh it has been. Um

18:36 we've had that inversion in place pretty much since the Fed started jacking interest rates up dramatically. The most dramatic move ever in percentage terms uh in percentage change terms. uh and it's been inverted ever since then. And this is one reason we believe we've been in a rolling recession. Uh and the the the headline numbers obfiscate this rolling recession. But if you go sector by sector, manufacturing down and out, housing down and out, small businesses uh constrained uh by all kinds of metrics, um monetary policy is too tight

19:23 and it's um it's it's getting tighter in recent months. As you can see here, uh this may be what uh uh Chairman Powell uh was reflecting on when he said maybe without tariffs we'd be we'd be easing. On this next chart uh here we're going into some of the uh economic indicators. So this is a chart from RENMAC, a service that we uh use. It's a very good service. And what you see here is the unemployment rate in the dark uh brown and in the gray you can you can see uh the labor differential. So this is labor

20:08 differential is based on a conference board metric. Jobs easy to get uh minus jobs hard to get or maybe it's the other way around. Jobs hard to get minus jobs easy to get. And based on that metric, uh, uh, the unemployment rate is probably going to continue moving up. Now, what happened in this report, it actually ticked down a bit in in today's report uh, from 4.2 to 4.1%. One of the reasons is the labor force is shrinking and um probably what's behind that is the uh is immigration uh the crackdown on illegal immigration

20:54 and the deportation of of uh of some people. So uh that that could be holding uh the unemployment rate down. this metric, the labor differential says uh it's getting harder to find a job. The other u metric that suggests that is continuing uh unemployment claims. They are they have been rising even while initial claims have been pretty stable. And what that suggests is uh people who have been out of work are um are are finding it difficult uh to to to get a job. Uh and we do know that AI is is certainly

21:43 um hurting entry-level jobs. Um I I may have mentioned this the last time. We did our own hackathon at ARC during our offsite and we now have 13 projects that we internally started coding ourselves. I did a little bit although I have to give credit uh to Dan White more uh for our team getting a project going. uh Dan White is our associate portfolio manager and um and yet uh 13 pain points within the organization we started addressing ourselves. Uh so this idea of natural language not processing but programming

22:30 we all speak a natural language. uh generative AI is uh all about natural language programming and uh so it is one reason we think software as a service is going to run into a little bit of trouble here now that we can do a lot ourselves and customize uh to our own organizations's needs. Um, the other thing I'll note about this uh employment indicator is the Wall Street Journal uh published an article about college graduates having a difficult time getting jobs. Uh, and that's what I mean by entry level. If you look at the statistics, uh, what you'll find is they

23:18 the unemployment rate is up. I think the low the recent low in that metric was 4% and we're up above 6% 6.3 or 6.4% I think. Uh so it is it is true that uh college graduates are finding it difficult to get a job and AI is probably the reason. So the the lesson here, anyone who uh is thinking about changing a job or or or looking for a job is um start focusing on AI. There's a lot you can do yourselves and follow Frank Downing who's our director of research uh on the next generation

24:03 internet uh broadly but on AI specifically and uh uh Joseph Soya who uh is a research analyst follow them on X follow who they follow people they follow who are uh really transforming the world uh uh with AI and learn a lot about it. There's a lot you can do to up your game in that particular realm. Uh on the next page, another indicator that uh that that there is some stress out there when it comes to employment. You can see these are Google searches on how to file for initial claims uh

24:48 initial unemployment insurance claims. You can see it shot up right after the election because I think a lot of people thought that, oh no, this is this is going to be a very terrible environment and we better figure out uh you know if we're going to lose our jobs what to do next. That kind of settled down. The tariffs have probably set it up uh set it off again. uh as well as this notion that uh AI is starting to um displace or uh displace uh some jobs uh and or maybe remove jobs entirely so they're no longer there for the entry level. Um so here is real GDP versus uh productivity.

25:35 Uh real GDP is in the purple. uh and you can see how this rolling recession has been obfiscated. I think uh holding real GDP growth up over the last few years as housing has crashed and manufacturing has has really been under a lot of stress uh ha has been the government sector and now that's starting to give way and the high income uh uh part of consumer and we know from sentiment indicators that their sentiment has diminished as well with all the uncertainty around tariffs. s uh and geopolitical risks. So, we think the bias here in this number is uh down. You

26:24 can see on a year-over-year basis, even during recessions, look at uh the early 90s. Um that was the SNL recession. It barely went down in the tech and telecom bust. It didn't go down. Uh we needed uh two shocks. the the global financial crisis caused by mortgages uh and COVID to get it down in any big way. Um you can also see productivity uh you can see how it picked up in the 90s one of the reasons that uh as the internet was taking off one of the reasons inflation did stay very low uh and you can see it it has been

27:11 languishing uh uh at a fairly low level relative to where what we enjoyed during the late 90s. We think we're going back to that level and well beyond in a in a secular sense. I think you've heard us say that we could see real GDP uh accelerate to the 7% range in more of a sustained way than you see in this chart uh because of productivity and all of the new technologies proliferating. And we do think that's going to be uh a a big antidote to the deficit uh uh problem out there that the deficit as a share of GDP we would not be surprised.

27:56 It might take a while 5 to 10 years uh but we will move back into a surplus situation. We believe uh much like uh Reagan got got uh the ball rolling during the 80s, but it we needed uh 10 years to get the the uh get back into a surplus situation under Bill Clinton and Nuke Gingrage. Um and then on the next chart, uh here's an illustration of where manufacturing has been. Look at it. It's below 50. 50 is the demarcation point here between expansion and contraction. And our manufacturing sector has been contracting for a long time. Uh we had a little bit of a blip

28:42 there and now it's uh back down. Uh and you can see uh that non-manufacturing in the green is also tending towards contraction. Uh so again this rolling recession is now beginning to hit the services sector and we're seeing in consumption uh and I'll show you that chart so you can see consumption it had it had held up very well again government employment high income uh earners really spending uh and uh we think it's now starting to tick down. We got uh retail sales negative uh in in May, negative by a

29:29 lot, 0.9% monthtomonth. Uh we saw personal uh consumption also negative in May. Uh and I do think uh some of the uncertainties are now being expressed through consumption. But you can see consumption it takes a lot to get it uh into negative territory. Here you see the two uh major recessions we've seen o over history. Um so just wanted to illustrate I know why people think we haven't been in a rolling recession. It's a chart like this and now it is starting to weaken. Um here on the services side you can see uh the and I did present this

30:15 the last goound but new orders have responded to that price increase. the prices in purple, new orders uh went negative. And uh uh I think the um statistic here is we have never seen this this wide of a gap um or I don't think we've seen this wide of a gap uh since since the 70s if I'm not mistaken. I may be a little bit off on that, but uh un unlike or it would have been the early 80s. Unlike uh the the 70s when higher prices stimulated activity as uh consumers and companies said let me buy now before prices go higher. This is a

31:02 very different dynamic. Uh so again those worried about the 70s environment and I think chairman pal's one of them uh this chart would would suggest not to worry. Uh here you can see auto sales. We had the spike pre-tariff and now it's giving way. We're back to 153 and we would not be surprised to see this go actually much lower. Um because uh unlike during uh other recessions, we have alternatives uh like Uber and even autonomous alternatives if you don't want to get into a car with a stranger and apparently many people don't. Um we have U uh Uber and uh Lyft. Uh and then we

31:51 have uh Whimo and now for the first month we have in Austin uh Tesla's autonomous service uh which it is now I think within the last week started to offer more broadly than just to uh uh those invited. So, we think uh we're on the threshold of some very exciting times in transportation, but they they could hurt auto sales significantly. And one of the reasons for that is if especially well, even with Ubers and Lifts today, uh the capacity utilization of those cars is much higher than our personal cars. We drive our cars four to

32:36 5% of the time. if you use a 24h hour period. Uber andyft um 25% of the time autonomous could be even higher uh uh 50% or more and uh therefore the need for more cars on the road or or to be purchased uh goes down. Uh here's capital spending. So continuing through the sectors of the economy you can see it's it's actually uh responded uh to the interest rate hikes um and and flatlined in here for the last few years. Um we think even though AI and power generation has been a huge

33:25 stimulant to capital spending, the rest of capital spending has been giving way has been given way. Um what I find interesting about this chart is you see a triple top from the late 90s to uh the global financial crisis and then in the the 2012 to 14 and then oh a quadruple top right before the covid. Now capital spending is uh being stimulated by uh these data centers and uh AI uh AI generally. Um and we do think with this corporate tax cut that I mentioned and illustrated earlier and certainty in the tax package that

34:12 capital spending will pick up. Uh capital spending has a huge multiplier on economic activities. So that's very good. Here you can see the trade deficit uh around the tariff. The pre- buying g got us to a record-breaking uh deficit and now it is normalizing. In the last month reported I think was May exports dropped 4% monthtomonth. That's a huge drop. Um and imports were flattish. Uh so uh a little bit of deterioration there um which we'll see if it continues uh could become a drag on uh GDP growth in the short term. Here

34:59 just to feature housing um uh a bit uh which is technically a part of investment in the GDP accounts. You can see this is new and existing home sales sales. Um, very very weak by historical standards. Um, and I remember I started in the business when I was in college in the late 70s. Um, this number was higher back then than it is now and the population is much larger. Uh so housing is I think going to be a source of significant strength going forward as interest rates fall and maybe prices fall to clear the market. And you'll see

35:45 in a moment why we think uh that will happen. Uh but there's another very interesting twist in the last um in the last week or so. uh the FHFA headed up by uh Bill Py Py uh who's uh who was I don't think he is or can be as a government employee chairman of PY Homes. Um he has just uh issued a directive uh to uh allow crypto uh currency to count if it's on a a a centralized exchange in the US like Coinbase uh to count

36:32 um in uh in the um analysis of whether a person is qualifying for a new or uh for a a new home or an existing home because uh these are this is a this is agency supported mortgages. Uh so that's very interesting and uh uh I I think important maybe more important than many people uh understand because young people have been hodddling holding on for dear life a lot of different cryptoc currencies and they don't want to sell them. Uh so now they'll be able to use them uh uh to qualify uh for for

37:18 mortgages and uh we think that could open up the housing market um more than most people think. Well, here is why prices could go down especially in the new home home uh sector. So this is new one family houses for sale and you can see we're reaching for levels that we saw during the global financial crisis which was a massive housing crisis. Uh and uh there the inventory in other words for sale has tripled uh in well certainly since the um early teens. So 2011 1213

38:04 uh to now and uh I would say that's not voluntary. Uh and we are hearing more and more about homebuilders buying down loans. So they're helping to subsidize um home homeowners as they're buying homes. Uh we also think prices we don't think we know prices are starting to fall and that's on the next page here. So you can see new home prices in the purple there. They have been slipping uh for a couple of years now. And you can see existing home price uh home prices uh if people were sort of paralyzed stuck in their homes because they were

38:51 not going to um uh they were not going to sell their existing home which has a 1 and a half to two and a half% mortgage rate on it for a new home that would have a 6 and 12 to 7% mortgage on it. So, what the heck? I I know I can't move, so I'm not going to cut my price. That's what was going on in the existing home market. If you look today at uh the the two price levels, uh the existing home prices uh have been coming uh down very recently. And I think both new and existing home prices are at the $413,000

39:38 uh dollar level somewhere in there. Mid maybe 415,000 somewhere in that range. Uh so we do see prices starting to fall on the existing home side as well. And uh to clear that inventory uh we'll probably see more price declines. And that's going to feature heavily in just to flip back that's going to feature heavily in the CPI and the personal consumption deflator. Um I think it gets it will get in to those indices with a big lag and will be sustained for a long time. Uh and I think it'll be one of the main reasons we'll see uh some periods of

40:24 deflation in the CPI. Now uh many people are saying no the CPI that that inflation rate's going up. One of the reasons they're saying that is the comparisons to last year are very difficult. So last year around this time we had a few months of point of of zero and 0.1 uh% increases in the CPI and those are the comparisons uh against uh which um uh this year uh is and uh so maybe we stay around here in the 2.4% four% range for a month or so, but I think with shelter as a driving force that we we will drop below uh 2%

41:10 um could be by the end of this year. Um now consider the source. I thought that transitory inflation which you you look even on on this home price in in uh you can see inflation was transitory and I think history will judge it as being h transitory as well as for the CPI as well. I would have expected 2% a long time ago. It's it has taken time. uh but I do think uh the inflation is resolving on the low side of expectations. I just wanted to put into context the dollar once again. Many people say it's crashing and yes, we've had the worst uh start of the year since 1973. And yet putting it in context, you can

41:56 still see that certainly relative to where it has been, it's much stronger than it was than it has been in the last decade or so, 10 10 to 15 years. Um, another way this this DXY is against six major countries including the Swedish uh crona which I was surprised to see. I I thought it was the Swiss Frank but no it's the Swedish Crona. Um, the next one is against 26 countries trade weighted again but including emerging markets. Here's what the dollar looks like. It's it it it it's strong by historical standards. And again, this is more uh

42:44 more a comment on weakness in in other currencies perhaps than uh dollar strength. If you look at the gold price, the dollar has not been strong at all. It's been losing purchasing power. uh but if you look at it relative to 26 other currencies on a tra trade weighted basis it still looks to be quite strong. Um here you can see the ramifications uh commodity prices again still pretty flat in the context of the last gosh 40 40-ish years um which many people are surprised to see. I will say uh the copper price has moved back above $5 and

43:33 uh so many people think uh Dr. copper is the the commodity with the PhD um u more because of what it says about the real economy than perhaps uh what it says about inflation. So copper uh sensitive sectors, we know electric vehicles are copper sensitive. Uh we know that data uh uh centers are have uh an intense amount of copper. So that's probably what's going on there. Uh and then just quickly going through some more market indicators. Um gold's purchasing power uh is going up uh not just against the dollar but against metals. So the purple line there is

44:19 metals relative to gold. And I do think as as I have presented this chart to economists I and strategists I I respect uh like Art Laugher uh their conclusion is okay somewhere in the world there's a there's a lot of weakness and we do think it's in China and it's still property that bubble is still bursting. Um, we are still surprised that the 10-year Treasury bond yield here is levitating. Uh, given what's going on in the past, uh, that the the 10-year bond yield would probably have dropped closer to 1%. Instead, it's still over 4%.

45:07 Uh so I know a lot of uh a lot of people are saying well that's foreigners leaving uh the US dollar and leaving the US uh for you know all kinds of reasons uh tariffs and uh and um other policies. But I I do think that once this new cycle around tariffs and so forth and the deficit once those two are behind us that uh the long-term Treasury yield could come down not to 1% but could come down maybe into the 3 to 4% range which may be uh a new range and I'll get into that in a moment here. Again, this has

45:54 been an interesting test. uh the S&P to gold. Those who think we have an inflation problem uh spurred by uh government spending and deficit spending um expected a breakdown like we saw in the 70s. And so we've been testing that thesis here and you can see there's a triple bottom so far. Uh the S&P is now starting to go up relative to gold. And on the next chart, you'll see what has been the leading indicator there, and that's S&P to oil. And now that we have Saudi Arabia uh basically saying, "Yes, we're going to put another 400 to

46:39 500,000 barrels on the market, even with oil prices at this level, um we think this uh this indicator will continue to move up. uh which is very much unlike what happened in the 70s uh late 60s uh and and 70s. And then here is that long-term Treasury yield. Uh we think that the 40-year bull market is over. Um mostly because uh the Treasury yield will normalize. We're not at 0% Fed funds rate anymore and the market is starting to work again and that's what we want. We don't want to go back to zero 1%. Um but if inflation is going to

47:26 be as low as we expect even if growth accelerates um uh we'll see short rates really responding much more to the growth rate uh and long rates tuning in to more to inflation. And if inflation's going to, you know, below 2%, maybe even 0% as we expect, uh, then this, uh, then the Treasury bond yield should probably drop into the 3 to 4% range. Um, and then, uh, just a couple of more. Uh, always look at the high yield spread. So, the difference between the high yield, so more junk like bond yields and the

48:12 10-year Treasury yield near its lows, had a little spike around tariffs and now um moving back down and so the bond market doesn't have a care in the world. Now, we do wonder if there's just too much uh capital flooding the the credit markets, especially with all these private credit funds. And so maybe the signal is being distorted by that. I don't know. Uh but if it is, that will end badly. And then uh finally, always have to mention Bitcoin here. Bitcoin to gold. Gold was gaining um was gaining uh purchasing power over Bitcoin

49:00 uh late last year into this year, but now Bitcoin has turned and moving back. I know it's threatening uh new highs. It's been very interesting to watch Bitcoin during this period. Um it has it has been acting not as much as gold has but it's been acting like a risk uh off asset you know uh more people are willing to hold it and gold uh especially during the market tremor um I know we ended up in a bare market by some metrics uh during uh or right after so-called liberation day, early April.

49:47 Um, but Bitcoin has maintained its uptrend relative to gold did not break. Uh, and uh, I think that's a very very positive thing. Um, even during the uh, Iran or the the bombing of the Iran nuclear facilities, uh, Bitcoin really held its own. So, um I think uh I think it's uh it's still in the bull market as uh as our onchain analytics led by David Puel uh suggest uh that we are still in a bull market for Bitcoin and I do think you can say the same now about the equity markets.

50:35 uh a lot of uh investors were faked out during both the tariff turmoil and that weekend uh around the or the the the war intensifying in the Middle East. Um and the bull and the bull the the equity market is powering through all of this. Um, I really love bull markets like this uh because what's happening is uh the equity market is climbing a wall of worry. And what's been fantastic about this time around is it has not been an unhealthy bull market like it really was from 22 I

51:21 mean from 23 to 24 when uh the concentration towards just a few stocks um was at its extremes. The market is broadening out so it's much healthier now while it's climbing this wall of worry. So, um I I think you could say we are quite optimistic for the future, especially given the way we see a rolling recession evolving into a rolling recovery and then into a productivity driven um boom in economic activity accompanied by much lower uh than expected inflation. So with that,

52:08 happy 4th. Uh, and I'll look forward to next employment Friday. [Music]