Expectations rose to the highest level since may. Larry fink of black rock on the network an hour or so ago. Inflation higher for longer, long rates will be above 5 . That does not sound like goldilocks to me. What a difference a week makes, dont you think . I dont know, maybe a day. I was calling you jimmy goldilocks yesterday. Maybe not today. There were cracks with that cpi report. Needed it to come in softer than expected. It didnt. Here is what were looking at. Inflation is indeed stickier than expected. I dont think thats fatal for the markets. I think were talking about inflation with a three handle now. I will Say Something that may not be popular, it may even get my committee mad at me never. As we go into 2024, this is an Election Year coming up in 2024, if you have headline cpi at 3 , yes, jay powell and everybody else says 2 , i think theyre going to be hard pressed, folks, to put this economy into a recession which, frankly, is whats necessary to get down to 32 . I think theyll setting at 3 . Thats going to keep rates where they are right now. I understand before anyone jumps on me that its not the prevailing sentiment. I am very comfortable being outside the mainstream. Weiss . I cant find anything more unattractive than jumping on him. Listen, it doesnt matter if rates stay where if they raise or not. Its that rates stay where they are. Even if rates come down a little bit, it doesnt matter. We keep seeing the data trending that way. So the bull case built upon sand essentially saying no more hikes just doesnt matter. The die is cast. Youre seeing a delayed reaction to massive tightening cycle that weve seen. So, as you look at investing in the market and in stocks, you always have to decide, what is the risk and whats the reward . There is no nearterm reward. Jimmy, hold on. As you would say, hold on, cowboy. Cowgirl, whatever. Just go, stop with the stupid comments and jokes. Just make your point. Come on, man. Seriously. Okay, if you look at the risk bes and the rewards, where are the rewards . The reward is based on hiking rates, right . Thats not going maybe that doesnt happen, it doesnt matter. The die is cast, as i said. Look at the risk. The risks are that we see an escalation of the issues that were seeing in the middle east. What happens then . Possibly oil goes to 150, right . If oil goes to 150, youre not going to be able to avoid a recession. Iran gets involved, the risk is still there. So lets take a look at the balance there. There is no balance. It firmly tilts to the risk side of the equation. The equal weighted s p, maybe valuations arent that high, but as earnings come down, what were going to see this quarter is a moment in time with earnings moving higher. Were seeing some earnings come out, theyre not good. Even if you look at the earnings reported, the banks, what theyre talking about is a slowing consumer. What leads the economy . 60 , 70 leads the economy. So, to me, its an obvious case. I understand being bullish. Im not advocating selling everything. I think that you dont sell stocks, but i also think its a point in time you say, what am i married to . What will stand the test of time . What can i get into substantially cheaper on a reversal in the market . 200,000 weekly initial jobless claims, the labor market is strong, inflation is 3. 7 , not 9 . Disposable income is coming up. Ed bastion sees demand strong. Jamie dimon says the consumer and corporate Balance Sheets are healthy. I will grant you there are risks. Youre not an idiot. Youre not completely wrong. What im saying to you is, there are a lot of positives out there, as much as you accuse me of ignoring the negatives, i accuse you of ignoring the positives. Even in a tie, human nature is to grow and expand and build. You see, im not ignoring the positives. Im absorbing the positives into my bearish case which pushes rates higher for longer, maybe higher than where they are now, because it wasnt good news. The jobs number wasnt good news. As you said in your preamble, cpi was not good news. It wasnt bad news either. I look at that reasonable people can disagree. Im looking at the future and the trends, where i believe, with all due respect, youre focused on today and single data points not the trend. So, joe, do you want to step in and settle it on either side . I bring up, again, what larry fink said. If hes correct that the essential point hes making is inflation will be sticky and the long rates will remain higher than i think people are ready for. 5 is not exactly a goldilocks environment. You think about if the long end of the curve remains at 5 , think of where Mortgage Rates remain, over 7 . Makes it awfully difficult for anybody to buy a house. It makes it difficult for people who have homes to move. It just makes the possibility of credit issues front and center for as long as rates remain that elevated with inflation that sticky. Okay. So im sitting here listening to jimmy and steve, and its very clear they have different views. And im saying to myself, which way is the market positioned . Is the market positioned more in the direction of what jimmy sees, or is the market positioned more in the direction of what steve sees . Given what we see today, by the way, where geo politics is the dominant driver of where were pricing risk assets and the safe haven trade is back. Theyre buying bonds today. The vix is back approaching 20 which was where it was monday morning. The price of crude oil is 86. 74, which is back approaching where it was sunday night at 86. 25. Its popping today. Theyre all popping. What that indicates to me gold. Is that positioning is coalescing around steves bias. Its continuing to build the short bias as we move into the Fourth Quarter, and thats why i believe in the near term that jimmy ultimately will be right because i think the Fourth Quarter will be a strong one. I think when you acknowledge everything that you laid out, scott which im not going to repeat, because all the viewers know it, all of us on wall street know it economically we are going to see a deterioration in the government, the consumer, and for corporations. The lag effect of what the Federal Reserve has done, in my opinion, is already beginning to take hold within the market. So you could look at financials, and you could say, okay, that was the best Third Quarter collectively for citi, wells, and jpmorgan. Collectively revenue was up 34 , 22. 5 billion, spectacular, or you could look at it and you could listen to what wells fargo said talking about the challenges in their securities portfolio as it relates to commercial real estate. Thats not going to get any better. You can listen to jpmorgan and citi looking forward and saying, yes, we believe that there are going to be higher chargeoffs and there were higher chargeoffs in this quarterly report. But then you suggest but then youre suggesting because i dont want it to get buried what you said at the beginning, for stocks to make a run in the Fourth Quarter and to the end of the year despite everything you said about the economy in your mind weakening, commercial real estate issues still remaining there, the consumer slowing. How do we get from point a to b . I see the positioning and as its reflected in the commitment of traders, were at historic highs in terms of short positioning there. One week ago you looked at positioning in crude oil. We were near not alltime highs but certainly categorizing the positioning in oil at a significant overweight. I think the market is positioned accordingly for stevens bias. I think the market all year has been somewhat positioned for not the s p to be up 17 and the nasdaq up nearly 40 . The positioning was slightly bearish, and i think thats why if you get some strong earnings and you move forward here past november 1st with the Federal Reserve pauses, where the treasury doesnt increase the supply of issuance, youll see Portfolio Managers chase this market towards the end of the year. Bryn, do you want to whats your view . Yep, so i think about going to the end of the year, i think those thinking were going to raise to an alltime high, it doesnt seem those ingredients are there for that to happen. That would be a lot of people are calling for that or quite a few. So im just saying you have the seasonality. I think to go back to steve and jim, i actually think its a lower probability we go into a recession, because, play this out. First of all, you have fiscal policy fighting the fed. And so just look at one of the bills, the american recovery act. It was 1. 4 trillion. If you read it, the punch line is this. Theres billions of dollars on municipalities Balance Sheets whether theyre in tbills or in bank accounts. Those dollars, scott, have to be obligated by 2024 and spent by 2025. So thats why youre seeing battery plants. Youll see in 2024 a lot of that ara money and the other fiscal bills having to be spent. And so, to me, that is billions of dollars thats going to be from the fiscal side coming into the economy. On top of that, you have zero workforce population growth. And so jobs are still plentiful, and so then on top of that, you have the interest on our debt was probably 9 out of 12 on budget items in two years, its probably, number one, above Social Security and medicare. So when i put all that together, to me, its very hard to construct allocation off what i just said but what i can do is say, you know what, that seems to be very inflationary, and i think thats what youre seeing on the long end of the market is fine. The fed may be done raising rates, but, scott, is the market done raising rates . And i think when you see Services Inflation and the cpi report is very high, i question i think the fed commentary is the old commentary. Its the market commentary. And then on top of that, qt. So while qe was an experiment, qt is as well. And so thats why from a positioning, when i say look to joes point about positioning, since july the s p has made lower highs and lower lows. You really want to see that change, and so right now the s p is butting up against that 100 day and going into the close today were probably going to be weak. Thats where i think you have to come down and say higher inflation for longer, and how do you want to position your portfolio around that. I love the way that bryn put that, jim. I thought that was very well said. The fed might be done raising rates, the market might not be done raising rates. Because you can say everything you want about, well, its an Election Year, the fed may be willing to tolerate 3 , even though i cant imagine that they would be because theyve said anything but that. But also the idea, well, the market might not be. And, in part, thats larry finks point. Inflation will remain elevated. Who cares what the fed does . They may be on hold, and thats going to be a problem. I think were all going to agree, maybe not, but its not the level of Interest Rates. Its the direction and the magnitude. At some point that may have been the upset of september, but at some point the level is the problem. Okay. The long end of the curve above 5 , that is the level and thats a problematic level. Psychologically when it crosses 5 , were not going to have a good day here. We may have fun but the markets will not like it. All that said, i strongly believe that 5 , 5. 25 , 5. 5 is not a fatal level. You can look back to the late 90s where it rose 25 per annum and the 10 year rose 5. 5 . The issue is the process to get to 5. 5 . If youre talking a year from now and i really dont think youre going to get to 5. 5 , but lets say 5. 25 they say stocks can do okay as long as yields remain below 5 . Its like 5 seems to be the line in the sand whether its a psychological plus some of the other issues i mentioned. The psychological he can may be temporary but i dont think the fundamental level of 5 is something to worry about. In this range, 4. 80, 5. 25, the economy doesnt stop on a dime. When youre making Capital Spending decisions at a semiconductor plant, an automobile plant, probably two years ago you were looking at 2 , 3 hurdle rate. It isnt that big of a deal. What is a big deal is the rate at which it changes, and, to be blunt, the affect on Balance Sheets. Frankly with what were seeing today, were not worried about it. This is youre talking about positioning but i hear it in a shortterm point of view, didnt feel good today or yesterday. I dont think thats a systemic fatal flaw either at 4. 85 or 5. 25 at the 10 year thats going to prevent us from rallying as i suspect into year end. Bryn . Listen, 5 is not the issue. The issue is the last 13 years at zero. And the impact of moving to 5, staying to 5, that hasnt weve seen it in the regional banks, right . Just blown up. Its that 13 years of zero rates, and then the muscle memory we all have of rates low forever. And soap i dont think we as investors really believe theyre going to stay up for longer, but i think people should believe that and have an allocation around that. You cant look at the 90s and compare the 90s to today. We werent at zero in the 80s. We were at 12 and 15. 5 was cheap compared to the previous decade. We are in uncharted water. Good point you make all around today, bryn, and i appreciate that. Lets talk about the banks. I see the results today, and i see jpm is up 3 , and i see citi up 2 1 3 percent, and wells up near 3 . The first thing that comes to my mind, oh, my gosh, joe might have sold jpmorgan and bank of america too soon. No. I dont think of it that way. I know you dont. I do. Im the one that incurs the loss in the portfolio. Thats true. No, i think the rotation that i did into the qqq was the right trade, get out of the biotechs, get out of morgan stanley, bank of america. You get my point. The banks what do you take from the earnings . Net Interest Income guidance goes up. A lot of the worry about higher rates seems to be, you know, benefiting the banks more so than its hurting them at this particular time. Looking at the bangs, its interesting. I said to myself on the way in, if the banks are going to rally, i think its the regional banks not the money center banks. If there is the overall lifting of the bearish sentiment surrounding the banking industry, where youve seen the most significant deterioration has been in those regional banks and not universally so poor. Ive avoided regional banks since the spring, since we learned of the challenges there. The real opportunity as you push forward, lift the bearishness that will be residing in the national banks. You can believe theyre going to have a lot of green shoots. Such significant restrictions in terms of hoarding capital on the Balance Sheet, i believe that will be an impediment to loan growth. There are challenges as we look ahead if the economy begins to contract. Im not at all questioning myself. I said at the time i go back to what i also said. Show me some paper where we can buy the debt on morgan stanley. Ill take that all day long on this environment where i know their Balance Sheets will be strongly fortified. Weiss, im looking at all those forward pes in the stocks we showed you are all under 10. The argument, the valuations are so cheap to book value. Thats one of the boons of why you want to get into stocks. You have bank of america and Goldman Sachs. What do you take from these reports today . I think the multiples are justified. What they are now are trading houses. Theyre not running their core businesses at a higher margin. M a is just paltry the number of m a deals. Wealth management is a Balance Sheet business. The very wealthy are not borrowing at these levels. We saw a pickup in citis business. And what theyve said is weve made this because rates are higher. Rates are higher, no, its not benefiting to your statement, its benefiting banks. Not driving core businesses. Its more difficult to raise funds. A big fund business. Who is investing in private equity funds now . Very difficult. If you look at the banks on the businesses youre talking about, not all. The few that reported are very reliant. Its trading houses now, that multiple to me is appropriate. Goldman sachs and Something Else says you sold Goldman Sachs. I cut it back. I really increased the position, arm and instacart, because i thought those would drive it and maybe its an early opening of the ipo window. I sold it when instacart started to falter, because that trade was over. And Goldman Sachs, back to just below a core position. There will be time to come back in, just not now. Jimmy, you do have citi and jpmorgan. This is obviously very complicated. The next three years is when the bills come through in terms of the fiscal spending. Its 2024 through 2026. You think about what actually happens, that means excavator will work, general contractors, financing the use of those excavators, financing the materials that go into building that infrastructure. We can talk about capital markets. I think they will come back in the First Quarter but theyre not here now. In the First Quarter . The First Quarter . I do think. Theyre thinking the second half, not seeing it earlier at all. Im in the private markets every day. Its not coming back anytime soon. First off, the bread and butter lending business should pick up on the back of infrastructure. Whats the multiple . Hang on a second here. Get bigger earnings. I get it. Those sputtered. It was testing the waters. If you get what joe and i agree, Fourth Quarter rally, the animal spirits will come back. The ideas stunk up the joint. They did. You get a turnaround in the market, that could happen. Where would your beta be, your performance, if you believe in a Fourth Quarter rally . In the banks or big cap tech . Your point is well made. The banks are pretty attractive. Youre advocating for the next three years. What happens in 2025 when the 2017 tax cuts sunset and now the financials are faced with a much higher rate and the financials are reliant on a lower Corporate Tax . Its a good question. Will you forgive me if i say its an awfully long time from now . You just said were talk