Mark, we were just talking uh to Richard
Windsor about tech and about the tech
selloff we've seen and what drove that.
I know on the markets live blog you guys
have been talking about how there wasn't
much of a catalyst. Some people have
attributed this MIT report and a write
up of it that suggests that AI projects
and pilots are not very successful. Um
what are you looking at in terms of this
selloff in tech and and how sustained it
will be?
>> Uh I think it makes complete sense. We
talked about this in the show on Monday
that we suddenly came into this week and
AI was suddenly looking very vulnerable
specifically AI after not being the weak
link for the last few years. uh and and
I think you know obviously valuations
are stretched but that's never a timing
tool but we've come into a period of
where it's seasonally not great for the
retail sector that's been a big buyer of
these mega cap tech names but the really
big catalyst on the horizon is of course
Jackson Hole and the bias for the next
month out of maybe not immediate
reaction out of Jackson Hole but it
delayed reaction Jackson Hole or
immediately will be higher longend
yields and that's when AI is much higher
duration asset than it was previously
because the of its capex cycle so we've
got a a hype cycle that's extended
relative to the impact cycle. We've got
retail participation down just
seasonally. We've got Jackson Hole on
the horizon. We've got Nvidia earnings
that are like priced wonderfully and
they will be wonderful. They'll be
absolutely wonderful. We know that all
the AI earnings have been really strong
this month. So, that's already fully
priced. They'll they'll beat they'll do
great next week and still the AI sector
will sell off. I do expect this to be
extended. I expect the next month to be
very tough for AI. It's something we
talked about already on the show this
week. I and I and I think that's going
to be way on risk sentiment everywhere
because we've got such a concentration
of risk there. And it's not just about
Jackson Hole. Remember, we've got
potentially chip tariffs on the horizon.
And we've also got the US administration
taking revenues directly from some of
the big names in this sector. Nvidia and
AMD have already been targeted, but the
White House announced last week they're
looking to expand that revenue sharing
idea, which means this is a a chunk of
profits being taken directly from
companies.
Mark, is Pal going to flatten the curve?
>> I don't think so particularly. I'll say
that there's two ways we go this way.
Let's simplify it, right? So either he's
he's validates the dovish pricing and
then the reaction will be, oh my god,
he's folding to administration pressure
and you'll see a twist steepening.
You'll see the front end come down and
the and the long end rise. Now, the
alternative is is that he emphasizes
that, hey, we've got a supply side
problem in the labor market um because
the immigration crackdown and therefore
you don't respond with with rate cuts to
a a supply side problem. That's not
going to solve the labor issue and hey,
we've got a big inflation problem and
that would ultimately see a short-term
flattening, but it be a bearish
flattening. We'll see front-end yields
jump. It won't see long yields kind of
come down too much. And that's because
the backdrop picture is everyone knows
as soon as he pushes back on rate
pricing the administration will double
down on pressure uh kind of because of
Powell's intransigence and that means
that all we do is see a tw a delayed
twist steepening from a higher level. So
if he is hawkish you actually see higher
yields just move higher later but in a
much more powerful fashion. Either way
yields are going higher over the next
month.