America’s AI Boom Is Squeezing Main Street | Weekly Roundup

Aidan Garrib (0:00)

Welcome to Token2049.

Jack Farley (0:02)

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Nothing said on Forward Guidance is a recommendation to buy or sell any investments or products.

All right, everybody. Welcome back to another round of edition of Forward Guidance, and we're excited to keep the momentum rolling with the rotating guests, third week in a row. So excited to be joined this week, alongside Quinn and I with Aidan Garrib, who's the head of the Global Macro Strategy and Research at PGM Global. You've come with a deck full of charts, so there will be no shortage of that. But yeah, Aidan, really great to have you. I know you've been a regular listener, but we'd love to just hear a bit about your background, what you focus on and what you do at PGM before we get into it.

Aidan Garrib (1:27)

Yeah. So I run Global Macro Strategy at PGM Global. We were just acquired by National Bank, so I guess I run Global Macro Strategy for National Bank of Canada.

Essentially, what we do is we put out actionable trades cross-asset for institutional investors. I really just try to figure out what's going on in the world, where have the narratives gone too far on either of the extremes, and then positioning for what comes next.

Jack Farley (1:58)

Sweet. Awesome.

Quinn (2:00)

Good to have you. I'm outnumbered now with the Canadians.

Don't gang up on me. Yeah.

Jack Farley (2:06)

There's a good cohort of Canadian macro types.

Aidan Garrib (2:09)

Especially in Montreal, there's a good base for it, yeah.

Jack Farley (2:13)

Yeah. You got a, yeah, Kevin Muir, we were talking about you're on his show recently. Yeah, you were on Forward Guidance a couple of years ago, back when Jack was running it too.

Aidan Garrib (2:18)

Back with Jack talking about China and the CapEx cycle, and basically what the policy makers are thinking, and what they've been trying to do. That was my first intro to Forward Guidance, and then Jack's moved on.

Jack Farley (2:35)

He's moved on to his own pastures, which is cool.

All right, well, why do we start with rates and the Fed? Because that continues to be the talk of the town right now. Pretty interesting. Obviously, like a week ago, it looked like another hike was baked into the cake for October. I think we got as high as like 70% odds of a hike, and that's come back pretty substantially in the past couple of days off a PC print that missed on the surface, but I know there was also some changes to the methodology there, which is kind of interesting, so I don't know. But it's also like came off the back of higher than expected GDP growth, which I think sets up this conversation for us to try to figure out of what the hell is driving these bond yields. But yeah, obviously that's given back a little bit, and now we're looking like the base case is a hold, which is interesting. We had a shit ton of FedSpeak come out today. We're just trying to sum up the amount of Fed committee members that we're talking. There's like Kashkari, there's Jeffries, Bowman, and probably missing another one, but yeah.

Aidan Garrib (3:36)

We had Waller earlier, I think, yeah.

Jack Farley (3:38)

Yeah, exactly. Yeah, the two-year rally is pretty hard off it.

Now I'm thinking maybe we got to pause. Well, I don't know. Aidan, how are you thinking about rates right now?

Aidan Garrib (3:50)

So in 2025, we were of the view, and there's all this in writing, the Fed, Fed Treasury needs to expand the balance sheet and hike rates. That's been our view for the better part of the last year. Which was hugely, I think, controversial, but that's actually what's played out here. It hasn't been the Fed that's been expanding its balance sheet, but you've had the Treasury, you've had RMOs, then you've had the Treasury buyback plan while the Fed's hiking. And so now the discussion is, okay, is there inflation? Is there fiscal worries that are really driving the long end of the curve? And at least in the US, I don't think that's the case. I think it's just the market has been pricing in a higher terminal rate for the Fed, right? And I think this is important because of, I think what the Fed and Treasury want to achieve, which is a broadening out of growth. But then the reason, from a macro perspective, the reason that this is important is it really, there's like this dichotomy between the US economy where, you know, like the Fed's kind of tightening into strength arguably with nominal GDP where it's at. And then Europe, where the ECB just looks like, you ever see like, there's like sideshow Bob on The Simpsons where there's like rakes on the grass and like they just everywhere he turns, he just steps into the rakes that hit some of the face. It's like just like force policy, you know, mistakes, right? Where so they're hiking into like supply shortages and stagflation. So I think like that's the important dichotomy, right? And as we zoom into the US, I provided a pretty massive chart deck here, but if you go to page 7, on the top right of page 7, you can see I've broken down what, like some of the purported causes of the increase in US Treasury. So you have the light blue line, which is the 10-year Treasury, okay, that's surged. You have inflation expectations, which actually haven't budged all that much. Are they below target at 2.4 percent? Yeah, but like they've been here for like six years, right? Like get used to it, hasn't really picked up dramatically. Then when you look at various measures of the term premia, which is a bit academic, but essentially it's just the extra premium that you need to be compensated with to hold long-term Treasuries because you're uncertain of the growth and inflation outlook. This is where the fiscal profligacy and inflation like uncertainty would be showing up. Hasn't really moved all that much. When you look at 10-year yields, the conventional wisdom of higher inflation expectations or fiscal concerns, those don't really seem to be behind it all that much. Rather, if you were to go to page 11