Collapse Of Tech? Rosenberg &. Bianco Debate AI Bubble, Soaring Bond Yields

Jim Bianco (0:00)

We need to do this. We're going to run into problems that the Chinese are just going to take over. Every technology ends in a bubble. Now, the question is, how close are we to the bubble P? I'm in the camp that we're still probably closer to 97, 98

David Rosenberg (0:15)

This is not 1997 By 1997, credit default swaps across the board, safe for Microsoft right now, credit default swaps in the AI space have tripled. That was not happening in 1997 This is something totally different. The stresses on cap, leverage cap x.

Jim Bianco (0:29)

Bonds now have value. I saw as a low risk probability.

David Rosenberg (0:33)

But Jim said bonds are not cheap. Bonds are cheap relative to equities, yield for yield.

David Lin (0:37)

All right, the 10 year yield is now in the US back near 5%.

The CPI that came out earlier this week headline rose 0.4% in the month, hotter than expected. And meanwhile, Fed Governor Christopher Wallace says a half point hike in December is warranted if the CPI is hotter than expected, which happened. What's next for the bond market? What's next for equity markets? What's next for economic growth? We'll discuss these themes today with our two esteemed guests on a wonderful panel that we've arranged for you guys. David Rosenberg, president of Rosenberg Research and Jim Bianco, president and macro strategist at Bianco Research. Gentlemen, welcome to the show. Good to see you both. Thank you for being here.

Jim Bianco (1:15)

Well, thanks for inviting us.

David Lin (1:17)

I'm aware you guys go back way back. So good to have you both on. I think first time holding a panel with both of you together. Jim, I like to start with you. You were both on the show last sometime around September. Jim, you were on end of September. Back then, the 10 gear had just broken above 5.25.

And you said, I quote, I have been short the market, the bond market in particular, and been bad mouthing bonds since 2020 And now at these levels, I'm actually kind of coming around to that. There's some real value there. So you turned bullish on bonds on my show right around September. That was a great call. Yields have been falling ever since.

What do you think is happening now? Are you still buying bonds at current levels?

Jim Bianco (1:59)

Yes. Still think that bonds now have value.

I am not a screamy. I don't think they're cheap. I don't think that they're going to fall a lot in yield unless there's a dramatic change in the economy. But once we got to 5% yields, the prospect of buying bonds and incurring a capital loss with the price going down and the yield going even higher, I saw as a low risk probability. I mean, the only scenario I could have saw at that point that bond yields would go higher would be $200 oil. Well, we're going the other way right now on oil. So I still think that they represent value. So you can own them at these levels, and you can probably hold on to that 5% coupon.

David Lin (2:42)

All right.

David, you were also one, and you were long short duration. I'll get your exact quote. You said, I've got a lot of two-year notes in there, short duration bonds, I've got a local currency emerging market bonds in there as well. You don't really want to take on duration in the bond market, you told us on September 1st. Have you changed that view since?

David Rosenberg (3:03)

Well, we already had some duration because we have twos and we also had tens. And recently, we dipped our toes into the long end of the curve. So I wouldn't say we're massively exposed. But we are exposed. And my overall views haven't changed. And a couple of CPI reports aren't going to change my fundamental view, might cause me to question it. But I agree with Jim that the risk-reward is so much different than it was back in 2020

You know, when the 10-year note yield was like 30 basis points, and you just needed a 10 basis point increase, and you were upside down on your 10-year note holding. Right now, you have a significant cushion. And 2.8% real yields in the 10-year, over 3% real yields in the long bond gives you an enormous cushion.

So risk for reward, based on where rates are trading right now, I do think they actually offer decent value.

David Lin (4:15)

OK. Jim, I want to show you this chart.

David can comment on it as well. MOVE index of bond volatility versus the VIX volatility. The bond volatility has largely followed the 10-year and the 30-year.