[00:00] If instead you have improving inflation data and monetary policy gets more hawkish and starts hiking interest rates, to me, that shows the introherence reaction function. The data has been that the inflation data has been coming down. They've been getting better.
[00:12] They held in June and July. Since then, the data has been better. I just want to be clear about Myron. He's really got these rose-colored glasses on. And I'm all for rate cuts, okay?
[00:26] I'm literally, Mr. Time, betting that by 2032, rates will be lower than ever before. Totally agree with that. And there are long-term reasons I believe that.
[00:40] AI disinflation is one. Labor force participation will probably normalize in the future. It doesn't have to be now. In the short term or the long term, it will probably normalize. And that will actually be disinflationary for wage pressures.
[00:53] Iran's probably not going to last at this level of peak fear forever. Yes, could this be a long-term issue? Yeah, but are we going to last at this peak fear?
[01:07] No. Add to that expectations for artificial intelligence, productivity increases, and disinflation. Right now, they're pretty inflationary because of the build-out. Now, I think of it back to the inflation reduction era.
[01:21] So inflation reduction era, you get this Joe Biden policy where they're like, we're going to pass the inflation reduction act. We're going to get inflation down. And the whole branding was, we're going to reduce inflation.
[01:34] But we're going to reduce inflation by building more in America and, you know, jacking up how much we spend on both chips via the Chips Act, but also solar panel manufacturing or other green energy manufacturing in America.
[01:47] those build-outs started inflationary and they still probably are contributing to inflation the Congressional Budget Office when the Inflation Reduction Act was first passed
[01:59] reported that for the first five years we would actually see inflation first and then we would see the benefits from that build-out and we would see deflation or disinflation you know, falling price increases
[02:11] basically the weight of these investments would help bring prices down I think the same is true of the AI bubble. You build, build, build, build. That's the inflationary expansion cycle,
[02:23] and eventually that turns into a disinflationary cycle. So I think longer term, if we were to sort of basket it out, longer term, there are a lot of reasons to look forward to inflation coming down.
[02:37] So lapping tariff impacts, expecting higher or normalizing labor force participation, right? The relaxing of the Iran conflict from peak year AI disinflation post high capex
[02:58] build out. All of those things contribute to my long term thesis. Those all create the foundation of my long term thesis
[03:10] on disinflation lower rate than ever before by 2032. That's why I go crazy for real estate. We already know that.
[03:23] Okay. Short-term, short-term, markets are pricing in 3.8 rate hikes between now and September 15th. The Fed has to race tomorrow to prevent this from getting out of hand, right?
[03:43] because otherwise then the market's going to price in stagflation, fear that the 10-year is going to get sold off even more because the Fed has lost control, and then the 10-year skyrockets to 5.15,
[03:55] and things actually get worse. The Fed has to, like, ironically, in order to let this play out, you have to prevent stagflation. You must prevent the feeling of stagflation,
[04:10] or stagflation, or losing expectations on inflation for the above to happen. The rate hike does that. A rate hike tomorrow helps with this.
[04:24] So ironically, a rate hike tomorrow actually contributes to this long-term thesis. Because if you lose inflation expectations, you're cooked, and none of this is going to happen. Short-term, I believe the market is actually pricing in too many hikes.
[04:40] and that's why I'm bullish. People say, Kevin, why are you bullish? Like, Myron says the labor market could weaken. Yeah, a sack of rice could also fall over in China.
[04:53] That's not what's happening right now. The data is really clear. The labor market right now, in aggregate levels, has both the BLS data, which is, you know, revised and mostly BS, but also the private data from Empire Manufacturing
[05:08] that we just saw this morning, or this right here, the ADP weekly data, what we're seeing in ISMs, what we're seeing in PMIs, they're all showing this bullish stabilization in labor.
[05:20] So Myron is wrong to say the labor market is, you know, could weaken. Yes, just like I said, a sack of rice would fall over in China. Anything could happen. But that's not what we're seeing in the data now.
[05:32] When it comes to this idea that, oh, inflation is better, I don know how you could go on CNBC and argue that inflation is better when the last read had us showing super core inflation running at the hottest level that we seen frankly years I mean we pull up the chart right here A very hot inflation rate running at a level of 6 annualized
[05:54] Those are crazy numbers. 6% annualized on super core inflation? That's nuts, though. This is the highest super core we've had in about a year. Roughly a year ago is when we had a slightly higher super core level.
[06:07] It's that top level right there. and if you remove that one peak over here you go all the way back another year so you kind of seem to get that spike it seems like once a year but combined with the strength of the labor market now
[06:21] compared to then when it was weak the labor market was a lot weaker in 23 and 24 than it is now the Federal Reserve in the weirdest way possible creates a bullish scenario to hike tomorrow
[06:33] they hike then let this inflation come and then you start un-pricing those four hikes. So think about that. This is the weirdest thing. This is why I'm so bullish.
[06:46] Maybe I'm wrong. So, you know, no guarantees. But it's my thesis. If right now we are pricing in four hikes,
[06:58] we're not going to get four hikes, okay? Between now and next year, so 9-15-27, I would expect some of those issues that are contributing to inflation now, oil, Iran, the CapEx build-out, tariff impacts, whatever.
[07:18] Some of those things will start showing up in lower inflation. We'll slowly see inflation come down. Like, I really think if this is 2026, you know, we have basically this memorandum of understanding, and now we're seeing this.
[07:32] That's sort of my, like, mental model of what inflation is doing. The pet has to put the pants on. Warsh has to prove he has balls. And then he could claim victory and go, oh, see, our rate hike is helping bring inflation down.
[07:46] Then you start going, oh, never mind. We don't need four rate hikes. We only need three. Oh, never mind. We only need two. That down right is actually bullish because the market's already priced in four.
[07:59] So if you go down to two, that's bullish. so I think Myron is making a last bitch effort here I think he's also frankly
[08:11] trying to shill Donald Trump his point of view is hey Trump see should have picked me for Fed Chair I'm your greatest shill and honestly Myron would have been
[08:25] the better choice because Myron is such a dogged shill for Trump that he would have done better at explaining this long deflation case And in fairness when I first watched videos of Meyer and I thought this guy is just a pure shill now I actually come
[08:47] to consider him an intellectually smart shill. So, like, I actually think he can make convincing
[08:59] arguments for deflation or disinflation. So I actually think Myron would have been a way better person for FedShare than Kevin Warsh, mostly because I don't respect Kevin Warsh's
[09:11] history. You know, oh, we're going to hike in 2008. We're going to hike through the great financial crisis and make everything worse. The guy was so wrong in 2008, and he was wrong for like a decade. He was so wrong, he left the Fed because he was so wrong and he stayed
[09:24] wrong. So, the guy should adjust his opinion when wrong hits him in the face, but he doesn't. Myron, I actually think, makes really good arguments. Yes, the long-term concerns he
[09:37] has are valid, but short-term, he's doing the right thing, I think, tomorrow. And, again, I think that's bullish, because then it's going to set up worse to claim victory on
[09:49] C, we're bringing inflation down as we start getting those disinflationary forces. So, Hence why I've been such a fan of, hey, you're worried about CPI coming out, you're worried about the Fed meeting or whatever, I just think it's an opportunity buy.
[10:02] And if I'm wrong, I'm wrong. I'm not in a place where it's going to make any difference to any of what we're doing. It doesn't matter. But I don't want to discount why I'm so passionate for that thesis of,
[10:17] you buy before this, this kind of panic. There's so much people are worried about. the greatest time to buy, in my opinion. Everything's on sale, and then people are like, oh, but it's barely off all-time high.
[10:29] No. We should be way frickin' higher. I mean, it's like what we saw in the, what was it, the Goldman piece? Look at this. Look at how money has shifted. Money has shifted from semiconductors, right here, to software.
[10:46] Okay, well, we've already been calling for the software Q3, Q4 rally, and that's why we're buying software stocks. Yes, let's talk about it. Okay, great. Who cares? It's part of a portfolio. But what happens when both of these go up?
[10:59] And that's what I think is next. Software and semi-project. After we get through the election and some of this piece of gear that we're in. But, yeah. Byron, you're feeling a little bit numb right now.
[11:13] Let's see what we see. I don't know how to advertise these things each of the year. I feel like nobody else knows about this. We'll try a little advertising and see how it goes. Congratulations, man. You have done so much. People love you. People look up to you. Kevin Parker, F.I. National Analyst.
[11:25] And you too, but meet Kevin. Always great to get your take.