Right

... uh, experienced and, and capable.

And some people, even without a PhD or JD, can h- can draw conclusions that'd probably be just as good as those that have those great degrees.

But anyway, the, the-- It's very tough question.

Pro-- Will productivity of Americans rise as a result of artificial intelligence? Will we be more productive? Uh, the PhD will do the work.

Uh, I often think of the movie, um, The Martian.

Uh, you might recall, uh, Mark Watney.

Our, our, our third

Bessent's approach here to stewarding the, the US economy?

Well, it's a stabilizer, is probably the best way to think about it.

And when we think as investors about what to do, we have to f- really just start with the, the principle of how to invest and what the fair value is.

So how do you determine where a 10-year note should be, where 30 year bonds should be? What does a bond investor actually think? You know, there's a lot of, there are a lot of headlines, but we have to still do the math.

Think of the movie The Martian, remember? He said, "Just get, get to work and do the math." There's really three components of a bond yield that an investor thinks about each and every day, and we're focusing a lot on, of course, on this technical operation.

But the most important variable in that, and I'll go through each, each one really quickly, is the inflation component.

It's the least variable when we think about what we should be compensated against as investors in a long-term security, because you are in it for a while, 10 year, 30-year period.

[laughs]

Are you moving for coupon or for total return?

Well, today, um, you, y- you just think of the starting yield, and the starting yield today on the Bloomberg US Aggregate's 4.91%.

That's the highest of the past year, because yields have been rising lately.

The starting yield, so think the year 2031, I could probably tell you in 2031, um, uh, uh, God willing, that, uh, the yield, the return that you had on bonds was, uh, in the US aggregate, uh, was 4.91%.

94% correlation since 1978.

Uh, so the starting yield's really important.

It, it's the main determinant of y- your future returns, and so that's, that's the th- the thing I, I would focus on most, is just simply getting that return.

... into the Jerome Schneider space?

Tony Criscenzi on being brave in fixed income.

5 to 7% is quite attractive, uh, for AA minus.

AA minus according to Standard & Poor's and Moody's indicates you have a 99.98% chance of getting your money back.

Now, if you, if you believe that b- those yields are unattractive-

Mm-hmm.

... you're thinking then that that's because the Federal Reserve will fail.

It will fail on its, its efforts on price stability.

It may continue to fail in its efforts to achieve its 2% price target, sure, but that doesn't matter.

Tony Cosenza of PIMCO on the uproar.

What we should expect is something that we all learned in grade school, uh, which is, uh, the idea that there's, uh, checks and balances.

And so, so far the checks and balances are working.

We know one major check and balance in this whole story will be, of course, the Senate Banking Committee.

It'll be very difficult to push-

She was on fire yesterday.

... that it's just one, uh, one, uh, one seat, uh, majority, two seat majority in the Senate Banking Committee, three seat majority in the Senate, makes it very difficult to push nominees through.

And it's proven, in fact, in 20...

Tony Cosenza on the American economy.

All we have to look at is how fast can the economy grow? (clears throat) How fast is it growing? And that, that could suggest a growth recession, not an outright recession, which is defined as a contraction in GDP, which was seen in the first quarter of the year.

But what if the economy grows at 1%, sort of PIMCO projection in that zone-

Mm-hmm.

... and consensus for the next year? The Fed says it can grow, according to the summary of economic projections, about 1.7, 1.8%, because that's the combination of the people and how productive they are, 0.3% increase in people, 1.5% increase in productivity.

If we grow at 1%, a company will say, "Hmm, I can, I can handle about an increase of about 2% in a demand for goods and services.

It's only one.

Should I slow hiring and spending?" That depends on the sentiment that exists at that time.

Yep.

The government makes an assumption for how many new jobs are created based on the m- numbers of businesses that it thinks were created that it doesn't know about yet because they're new.

And it adds in near over 100,000 jobs per month to that.

But what it's finding in the reconciliation of those data nine months afterward, that it over counted by 25, 30,000 per month.

I can point to many other things that suggest the payroll numbers will fall substantially below where they've been recently.

And on a payroll Friday, somewhere out there in the months ahead, the bond market, specifically the short-term interest rates and out to five years, could rally substantially.

Mm-hmm.

... and consensus for the next year? The Fed says it can grow, according to the summary of economic projections, about 1.7, 1.8% because that's the combination of the-...

Tony, how do we get from a "read my lips" moment, though, to a Liz Truss moment?

If there's complete ignorance of what the bond market is concerned about, I would think that you would have that moment.

But so far, you see some relenting through the bond market in the James Carville-like.

Remember he said, of course, he'd like to be reincarnated as a bond investor because he can intimidate anyone.

If anyone inve- uh, if, if the policymakers decide to say no to the bond market in the sense of allowing inflation to rise, so the Federal Reserve could permit it, could create that moment, but it's not.

And it's why you see the Fed Chair Powell being very slow and gradual and prudent about, uh, rate cuts because it's the right thing to do, because high inflation would be saying, uh, something, uh, very negative to the bond market.

So I think it... it's... it's if we go on a fiscally r- irresponsible path, uh, you see the bond market pushing back.

Are you thinking about something similar?