Bond Market Dominoes: The Path to 6% Rates with Peter Boockvar

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Peter Boockvar (1:06)

Game of dominoes, Dan. We're not debating here the quality of the technology and how it's going to change all our lives. We're debating what it takes to create that. You know who's got a greater budget deficit relative to GDP than France?

We do, here in the US. So it matters here as well. So that is a factor. Investors are pushing back against lending money on a long duration basis to a lot of these countries. Then, of course, you have sort of capital calls for all the hyperscalers that are drawing capital away. I think the hyperscalers, I've seen estimates up to $500 billion worth of debt this year, which is a lot of money.

Dan Nathan (1:46)

And double of last year, I think.

Peter Boockvar (1:48)

Yeah. And that money has to come from somewhere.

Dan Nathan (1:51)

All right. Welcome to the Risk Reversal Podcast. I am Dan Nathan. That is Peter Boockvar. He is the CIO at OnePoint BFG Wealth Partners. Peter, welcome back to the podcast.

Peter Boockvar (2:01)

Dan, always good to be with you. All right.

Dan Nathan (2:03)

We got a lot of stuff to do in a very short period of time because you know what? You're a busy man. If you are a CIO, that means you have to make investment officer decisions. Like, let's just be clear. I don't have that issue, so I want to be respectful of your time. A lot of stuff going on this week, and you are Johnny on the spot with all of it. You write the book report on the substacks, so people go check that out. It's B-O-O-C-K.

You're also a huge, I think, reference to many people on air at CNBC. I'm not going to name names, but we, and people know that it is the guy in me, what you do, but also to many other folks. So we appreciate all of your breakdown of all things macro. All right, let's do a little bit of Fed minutes. We gotta talk yields. We gotta talk about what the CME Fed Funds tracker is suggesting for the October meeting, for the December meeting, a whole host of things as it relates to, not just the AI build. Let's move away from that a little bit. I think we're all a little sick of it, but really what agents mean within the space and who they are meant to disrupt. Obviously, in such a short period of time, this is something that's really taken consumers by storm. It seems like almost everybody I talked to is using one. Now, maybe we are in interesting sort of demographic. I wanna talk about some consumer discretionary. There's some kind of news or maybe rumors about Starbucks and Chipotle. I know that you've been kicking the tires on things like Nike. Maybe we'll talk a little bit about Home Depot, but then we also have to hit banks and earnings next week. So let's talk about the takeaway we've seen. I don't know about you, man, in such a short period of time, going from like a 75% probability, this is again going up this DME FedWatch tool, of a 25 basis point hike at the October meeting to about 20%. I think where it sits right now, a lot of data has obviously played into that. I think the jobs data was really important for that. Put it all together for me, man.

Peter Boockvar (4:04)

So we have the Fed, of course, that we're all trying to gauge what Kevin Warsh is going to do. We know we entered the year, the bond market was pricing in two cuts, and instead we're probably going to get two hikes. We went from Trump appointing Kevin Warsh, thinking that maybe Kevin would do Trump's bidding and cutting rates, and instead he's gone his own way with the committee and have raised rates. But the most interesting thing to me is not necessarily what the Fed is doing on the short end, it's what the rest of the yield curve is doing itself. Itself being how the market is pricing in the cost of capital. And to the point where I do think that the market is leading the Fed rather than the opposite, and the Fed is really just following. Now, we had an unanimous decision on that Fed rate hike. But I think that if the market wasn't sort of dragging the Fed into that rate increase, then maybe you would have had some people that wouldn't have been for that rate increase. There's no question that there's an inflation issue. It's all throughout the supply chain. So you could have easily said, you know what, the Fed should attack that. The question though is, is a Fed rate increase going to attack the inflation that's currently being generated by the economy? The AI spend.