The Fed's next move on rates is hanging in the balance, while Fed funds' futures show a 79.2% chance of a cut in September.
Now recent economic data on wholesale prices showing inflation pressures building, making a rate hike pause, likely, at least for now.
But the 10 year treasury yield has been dipping and rising as investors weigh economics slow down again soaring inflation as well as government deficits.
Now all eyes are on the. economic reports as well as Jay Powell's speech tomorrow morning at 10 a.m.
Eastern time.
Joining me this morning is David Strezeski, CEO of Sound Planning Group and author of Riding Bulls and Taming Bears.
Great to have you here.
Thank you so much for joining me.
Appreciate you, Remy.
Great to be here.
Well, the countdown is on tomorrow morning at 10 a.m.
Eastern, we'll be hearing from Powell.
So what are your expectations and what are the implications here depending on what he says?
You know, I think Powell right now is he's in a holding pattern.
He's less about, you know, trying to make a move, and I think he's trying to buy some time.
I think that what we're looking for here is we're going to see a 25% 25 basis point cut.
I fully expect though about a 1% cut by the end of the year, and the reason for that is I think that we're going to see in probably the September October over data that.
Going to be a little bit challenged.
We could see some some heavier stuff coming out with GDP and we could see, you know, maybe some of the PPI numbers continue to rise.
So those could be challenges that would be catalysts for maybe a little bit trickier of a Q4 that could have some intervention.
Yeah, and of course we're paying close attention to the economic data about we got non-farm payrolls on those revisions as well as CPI and PPI.
And next week we get those PCE figures here in the US ahead of that Labor Day market holiday coming up.
But when it comes to the equity markets, we've been seeing a pullback when it comes to big tech, but we're still hovering near all-time highs here.
So what do you expect to see not just in the near term, but as we head into your end?
You know, big tech's obviously going to continue to lead in some regard.
I mean, as far as the economy goes, it's definitely leading.
Now what some of the leaders could become might change up a little bit, and the reason why I say that is that we've had such an amazing run with with a lot of these AI companies.
Navidia, the biggest company in the world now, went from early COVID.
This was not nearly the same. a is it right now and so I'm not saying it's going away.
In fact, they're incredible allocators of capital, but I think what you're going to see is we're going to begin to recognize that other parts of our economy are going to start to do well.
So I've been talking about metal miners for a long time as literally they are core to AI.
They are core to data centers.
Why?
Because if you want to go small, you need semiconductors, you've got to go silver.
It's the only way that we can conduct this this information through smaller chips in a cleaner way and more efficient manner.
And so we're looking at big runs up right now this morning.
I'm loving that.
I think my thesis is now starting to play out as people are beginning to harden up their assets, and we see some some metal prices move, but AI is definitely going to continue to lead.
There's no way that the toothpaste can get put back into the tube right now, but our economy is sort of in this in between time where we're identifying what is the best.
Technology.
How are we going to innovate and how is this ultimately going to integrate into our lives?
Yeah, and David, you touched upon the equity market and of course AI and commodities as well.
So another area I want to focus on is bonds.
So of course we're going to be paying attention to what happens with the tenure.
And when we think back to last September when the Fed began the rate cutting cycle heading into year end, of course we saw those bond rates.
So when it comes to fixed income investments for Americans out there, that will concern.
What would you tell them?
OK, a couple of things that are really important.
Triple B is still considered, you know, the best paper.
If you go down to Double B though, that goes to junk.
I'm very concerned about the junk market.
I'm very concerned that there could be even downgrades in companies right now.
Why?
Well, because the interest rate environment makes it very expensive for these companies to survive.
Now, a lot of companies that were less credible, less creditworthy, they've got to go through the junk market.
They couldn't make it at 4 or 5%.
How in the world are they going to make it at 789, 10%.
It is going to be a very challenging economy for those companies to find new liquidity and capitalize on it.
But as far as bonds go, yeah, I think that that people should be aware as well that bonds can just lose money in 5 different ways.
So though they are great places to be putting dollars, they can be.
A little bit volatile from time to time, so we need to be aware of alternatives.
And speaking of alternatives, of course Americans out there who are watching right now, they're concerned about housing and in particular mortgage rates.
So what strategies do you recommend when it comes to keeping an eye on rates as well as what's happening in the housing market across America? housing markets are a really big question because the average person is having a harder time than ever before in the history, at least of my lifetime, to get into a home, to even find a rental home.
Now we're seeing some of that soften right now and if I can be honest, part of the reason why it's softening is that we had 10 million people come into our nation through the southern border.
And they had to live someplace, so a lot of rentals were really filling up.
Now some of that's pulling back and we're seeing some softening, so you'll see some rental softening for sure, especially in some of the southern states.
But I think that you're going to see interest rates come down, but that could also come down with the price of the house.
And here's the reason why for every 1% rates go up, we lose 10% of our buying power.
We have to have 10% more income.
They're up 4%.
That means that a million dollars home should be only worth $600,000 right now.
So we'll see what happens in real estate, but it's the last part of our economy to have challenges before a recession shows up.
So if we're seeing real estate challenges, we could be getting close to something.
Yeah, and very quickly, David, I do want to ask you about retirees that might be watching.
So when it comes to balancing the need for safety as well as growth in their portfolios, what would you tell them?
OK, safety and growth, you got to have a diversified portfolio.
Um, you know, one of the things that we look at is we want asset diversification, but tax diversification as well.
I don't know what someone's mix is, but based on who they are and what they need to accomplish, there are answers that they should mathematically be implementing.
OK, David, well, great having you here on the show again.
Thank you so much for joining me and thanks for sharing all of your insight.
Appreciate you, Remy.
Thank you.
