Forward Guidance: How To Trade The New Warsh Fed | Bob Sheehan

Sourced by podcast-ingest on 2026-07-10. Auto-transcribed via AssemblyAI (universal-2, en). Speakers identified by AssemblyAI Speaker Identification using the per-podcast host/regulars hints; the resulting label→name mapping is in the frontmatter. Duration: 45m. Episode page: (not provided). Audio: https://traffic.megaphone.fm/BWG8947553895.mp3.

Show notes (from RSS)

Markets may be entering a fundamentally different monetary regime under Kevin Warsh.

This week, Bob Sheehan of Lighthouse Macro joins to explain why the Fed's evolving framework could reshape how investors interpret policy, economic data, and market pricing.

We discuss the end of the Fed put, rising rate volatility, Treasury curve dynamics, fiscal pressures, and why data-driven macro matters more than ever. Enjoy!

TIMESTAMPS:

00:00 Intro

02:04 Bob's Macro Background

09:21 Data-Driven Macro

13:13 The Fed Put Is Dead

16:46 Less Guidance, More Volatility

21:13 Why Data Matters Even More

25:35 The Two Trades In Rates

33:16 Balance Sheet Games

37:42 The Fiscal Doom Loop

43:32 Final Thoughts

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Transcript

Bob Sheehan: The Fed put is essentially the market's assumption that if risk assets fall hard enough, the Fed's going to step in.

Jack Farley: Right?

Bob Sheehan: People were like, don't worry, the Fed's coming in every time there's a big sell off, don't worry. Buy, buy, buy the sell off. And I think Warsh has very much tried to signal that that's, that's gone, that's not going to be back. I think the degree that he's removed it is meaningful and I think it's something that should change the way investors perceive kind of Fed policy. If I'm looking at the Fed and I'm like, okay, they're not going to be as direct about what they're trying to tell us, then I'm going to be a little bit quicker to cut risk. Things aren't as clear as they should be. And I think that lends itself towards a more defensive posture. Most important takeaways is that there are two trades now and this is the way, like I'm really trying to frame it in terms of the market reaction, there is the Nothing said on For

Jack Farley: Guidance is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests and the Blockworks team may hold positions in the company's funds or projects discussed. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research. All right, everybody, welcome back to another episode of Forward Guidance and excited to have a new guest on the show, Bob Sheehan of Lighthouse Macro. Bobby, you kind of came onto my radar about maybe a year or so ago now, started to put out a lot of really good content on X. And I think at the time it wasn't even under your personal life, but it was on the Lighthouse macro and I was like, who is this guy? This is some really good stuff. So, yeah, wildly overdue to get you on the show and yeah, welcome to Ford Guidance.

Bob Sheehan: Yeah, no, it's great to be on here, Felix. Obviously you and Ford Guidance do some great stuff and you have some great guests and I think our kind of attacking that new era of macro that some people have been slow to get around to. So I'm excited to be on here and chat with you today.

Jack Farley: Yeah, yeah, 100%. Likewise. I want to just start off with just getting a bit of a better understanding of your career path, like how you think about macro. What are the key, most important Points that you look at. Yeah. How did you get to this point of launching Lighthouse Macro and what you do today?

Bob Sheehan: Yeah, sure. So I've taken a bit of a, I guess a non traditional route to kind of running my own macro shop, let's call it. I started my career at bank of America and I was on a portfolio management team. We were kind of a dual mandate team and what I mean by that is on one hand we ran a large cap macro equity strategy that was, had about a billion, billion two in assets and it was basically you run it like a long only but it was offered in a, an SMA format to internal portfolio managers. But it was an equity top down strategy and we really didn't have a macro guy kind of in that space. When I first joined the team, some of the other team members were kind of more bottoms up directed but we really liked kind of the macro view space and I kind of took over as one of the premier macro guys in terms of formulating our views for that strategy and whether that was sector weighting or viewpoints of that regard. But then the other part of that team was it was multi asset team as well. So we also managed kind of institutional multi asset portfolios whether it was high net worth individuals or institutionals, we had our pension funds and things of that nature. And so really putting together both a macro viewpoint from an equity strategy standpoint and then a macro viewpoint from multi asset class where you're looking at fixed income, where you're looking at commodities and kind of the whole gamut of things, privates even as well. So it was, it was a really cool way to start my career and I think a pretty unique way to start my career because I think a lot of people in the macro space come into it from a research first standpoint and then kind of formulate be like here's my book afterwards I, I got thrown into the fire so to speak and you know, from early on I had to you know, back up my thoughts with an investment thesis and I was fortunate to be on a team that really kind of nurtured that and they, they trusted me and it gave me like a really great kind of early opportunity to you know, test the way I think and you know, not, it's not always going to be right but that's great feedback when you're a young, young guy in the industry. And so I, I started there and that's, that's been honestly the bulk of my career was, was, was on that team. And then after that I actually went to A couple macro shops. I went to Trahan Macro where I work with Francois Trahan. I'm sure a lot of people were, are, are familiar with him. He started his own firm, I think he's now actually at bmo. But I was, I was with Trahan when, in the early days of Trahan Macro. And then I actually stepped away and went back to school. So I had always been kind of the data geek, let's, let's call it at, at my, at bank of America especially. And I went back to school to learn data science. I had always kind of been, I'm a pretty firm believer in trying to back up what your beliefs with numbers. And I went back to the school called Brainstation and really just kind of honed my data science skills and tried to impart that into a macro landscape. And then from there I went to a macro hedge fund called Strom Capital Management to do discretionary global macro. But they wanted to really bring in kind of a data driven analysis to that and you know, have somebody who had had that skill set and put their kind of numbers around that. And so that's that. It was a great fit. He, he had found me from Mike Coolbell is the PM there. And he, he had found me from Twitter. And you know, just how you've, you found me, it's a great, great place to find, or X I should say, great place to find kind of macro thinkers. And then the last stop for that was I was at Equiland which is the kind of the premier place for short sale data in the world. And so it was putting a macro spin on kind of their, their data that they had. It was, you know, from everywhere from blackrock to your smaller pension funds to your, to your California teachers retirement fund and everybody who's running a short book ran through there. And it was really learning to take the data from that data science course and the data science schooling and put that with a macro and be able to talk to the hedge funds that were using that kind of data. And throughout this process and back when I was at school I started Lighthouse Macro and I kind of just wanted to put my thoughts out there and have a place where I could speak my mind about what I'm seeing within the data and share it with people. I think that's always been something I like is being able to kind of share my macro views. And it, it honestly took off. I had some really great feedback in the beginning. I got a couple pieces, got me, let's call it some notoriety And I got asked to be on a couple podcasts, and next thing you know, I was kind of thinking about it and I was like, hey, I think eventually I wanted to do this, but it's. It's kind of happened quicker than, than I thought. And here we are. I've kind of dove right in, in the past. You know, we officially only formed in January, so it's been, you know, January at the end of January, so it's been about five, six months now. It's exciting. And yeah, really, the, the, the goal of what I'm trying to do is bring kind of institutional quality research that has been proven and, you know, used on actual real dollars and bring it to people in. In a way that is a little more layman speak. You know, I try not to get overly, you know, technical with things. Sometimes it's a little harder, easier said than done. But basically that's. That's what Lighthouse macro is. It's trying to take that culmination of everything I've done, the data side, the macro side, the actual investing side, and bring it to people. And so far the feedback's been great and, you know, clearly it's ending me up here, so I'm excited to be here.

Jack Farley: Yeah. Awesome. I feel like I remember one of those initial threads that kind of went around was something related to treasury auction data that was just like, very exceptional and unique thought. And I just like. Yeah, it just really makes sense when you talk through your background of that of, like, being a lot more data driven towards how you think about macro. And I think it's. It might lead into a nice point to start this conversation here, which is just around how you like what your overall macro framework is, because I find very, like, what was unique about the way you looked at, say, that treasury auction data was. It just felt like it was a lot more empirical and just quantitatively driven than like.

Bob Sheehan: Yeah, yeah.

Jack Farley: Sometimes, like, people's macro views are just like. Well, you know, like this person might say this thing which, like, you know, it's just. I don't know, it's nice when there's actually data there. So I want to hear about how you get to that point in your framework.

Bob Sheehan: Yeah, certainly. And, you know, I couldn't agree with you more. And that's kind of like the focal point, let's call it, of what I believe in, is that there's a lot in the macro space, and I think you kind of just hinted at it that feels like it's pulled from the stars and a little bit not Grounded in reality and a little bit like, oh, I read this headline and I felt this way and I think that is a disservice to the end, the end user, because I think there's a lot of people, I'm sure you can agree, I'm sure your, your listeners could agree that there's a lot of people who like, who want to know this stuff and want to understand it better and whether they're even an active trader or just somebody running a business, like, there's people who want to understand the economics, the macro of things that are affecting their lives. But it's a lot harder to, you know, give somebody that if you're kind of just pulling it out of your own feelings and you're in the, this is how I read this headline. But if you can put numbers behind it, that that is kind of going to give people that, that confidence that you're not just making stuff up, you know. And so basically what I've done with, with Lighthouse macro and what I've really tried to promote and kind of the entire way I think about things is I want to put data behind everything. I, I say I want to put numbers behind it, but I also want to be aware that just because statistics are in your favor historically does not mean you, it is going to happen every time. So what I try to do is twofold. I try to put the data behind it, say here's where the probabilities lie going ahead. Right here is what the data has historically showed us. But more so, and I think this is kind of the important part and one part that I've gotten like really solid feedback on and it has kind of given me the confidence that people are looking for. This is I try to always be like, here's where I could be definitely wrong. Right? Data can tell you, you know, this is what usually happens. But it can also tell you, hey, your assumption on this was wrong because this, this didn't happen. And you, you hit a threshold or a number. And so my, I guess the, the overall kind of way I approach macro is, is exactly that where I am. I'm trying to play the percentages, let's call it, or play the probabilities. And you always want to kind of lean towards what has what data the numbers have historically kind of shown you, but you also want to be falsifiable and have a, have a point in time where you're like, okay, look, I was wrong and change the number. And I think one of the things that I try to do is be aware of that, like none of us are going to be right 100 of the time. I mean, I ran a portfolio with, at bank of America with, with real money behind it and with some really smart guys. Actually just had breakfast with a former COPM the other day. We were chatting about this like we had a good, we had a good run, but we weren't right every, every time and it's not possible. And so I think that is, that can be true for any part of investing. But I think in macro, when there's a lot of people who kind of don't put numbers behind it, it's a lot easier to then be like, hey, I was wrong here. But you know, I walked you through what could have told me I was wrong beforehand. And, and you can then go to your readers like an honest person. And, and I think that helps out a lot. And so that's, that's really the way I try to approach things is being like, hey, here's, here's history, here's where it could be wrong and just being honest about the approach. I think that people probably, you know, really desire for that in, in this industry where some things can feel so heady and kind of, you know, above them sometimes.

Jack Farley: Yeah, yeah, I appreciate that a lot. All right, so let's get into the heat of things here.

Bob Sheehan: Absolutely.

Jack Farley: Obviously a lot going on on the monetary policy side of things. We have a new Fed chair, Kevin Warsh came in. You've been writing a bit about some of the lead up and the implications afterwards the meeting and surrounding your thesis is you wrote about how you believe that the Fed put is dead. Walk me through how you get to that point and how you're thinking about it after the meeting and what you've learned since.

Bob Sheehan: Yeah, so I think what I basically mean by that is that the Fed put is essentially the market's assumption that if risk assets fall hard enough, the Fed's going to step in.

Jack Farley: Right.

Bob Sheehan: And that has been true. I mean it was basically true for the entire last Fed chair we had and even Yellen, I would say some of it where people were like, don't worry, the Fed's coming in every time there's a big sell off, don't worry, Buy, buy, buy the sell off. And I think Warsh has very much tried to signal that that's, that's gone, that's not going to be back. He wants to, you know, take monetary policy more broadly in a different direction than it has been. I think he's been pretty vocal about that. If you kind of have studied any of his history. Kind of going back, he's been more vocal about his beliefs and kind of his hawkish, let's call it views in general. And I think just taking that Fed put away just changes the dynamic from a purely Fed funds rate story where a lot of people watch the Fed and they're watching the short end, but he's also building up that balance sheet. And I think when you kind of change both of those parts of things, it makes the curve story and the macro story kind of two stories. And I think for a long time a lot of it was a one story kind of, you know, put together. And so I think retiring the Fed put as my thesis is, is that the reflex is generally kind of gone, that you can just come in every time risk assets fall hard, you can buy and you're going to be fine. You know, rate cuts are going to happen, liquidity is going to be there, there's going to be a softer tone, something to put, you know, a floor, let's call it, under prices. And that backstop has kind of been real all through the last 10 years, let's call it. And investors, you know, you kind of price that I think back to a lot of the sell offs, you, a lot of the sell offs over the past decade kind of followed up with people being like, oh, it's fine, rates are going to come come down and we're going to be saved. And I just think that this new Fed chair and Warsh's kind of policies and what he's echoed so far kind of remove that to a degree that even if I'm not fully right, that it's fully gone. I think the degree that he's removed it is meaningful and I think it's something that is should change the way investors perceive kind of Fed policy and the way investors should think about these meetings and these cuts. So yeah, I think it's an exciting kind of a new dynamic that I think a lot of people maybe haven't been used to, especially some of like, you know, the younger traders. Sure. Some of the people on your podcast haven't even been here kind of for a time when that wasn't the case. So I think it's just a pretty cool, I think I say cool, but like an exciting opportunity to totally to learn kind of new things and understand kind of a new macro regime in that regard.

Jack Farley: So, yeah, I'm not sure you've been digging into the data here, but something I'm wondering about now is, okay, we have this implication of no more forward guidance in some form or another, like probably less conference press conferences, potentially no dot plots. Like in general it's going to be a lot more dynamic for how rate hiker cut expectations get priced into the curve. How are you thinking about that in terms of like just so for pricing, like do you expect more volatility? And like how do you, how do you see the sequence of events from going from like, less words to like how it gets priced into markets?

Bob Sheehan: Yeah, so I was going to say I have a number somewhere that I was, I was doing some research. Like the words got cut from like 340 to 170, I might not be exact on that, but it, it, it got cut significantly.

Jack Farley: Right.

Bob Sheehan: The, the actual guidance in terms of the words, which I think that is where you start as you just kind of said that like, okay, that, that's one thing, but then that, that should signal other things. And I think, yes, I think you just hit on it. That does, it should signal more volatility because less kind of reassurance, let's call it, I mean if it's bumpers in a bowling alley or less kind of things around, sending you down a path means that more opinions can come into it. And, and there's traders on every side of that trade. Right. There's more people who are going to disagree because there is less certainty, so to speak. Not that there's ever going to be certainty in the markets, but I, I totally think opens up the door, let's so to speak, for a wider range of outcomes for not only for the meetings, not only for the dot plots, I mean Morse himself, I think, you know, he abst plot and we had, I think I, I, I was talking about this in my recent piece. Even just the jump to nine out of the 18 officials, right, jumped up in terms of the hikes in September and December. We have, we have more people now, you know, changing their tune. And I think that kind of volatility in what you're hearing from the Fed, only then, you know, it displays itself in the markets, you're going to get more volatility in the actual results. I think that's a, not necessarily a crazy thing to say. I think that that seems like the logical step and that's where I think about it at least is that I think it just opens the door for more, more scenarios. And if anything that should, in my view signal to traders that there should be a little bit more caution in terms of being so certain. Because if, if, if the Fed isn't going to guide you ahead then I, if I'm a trader, right, and I am, and we have a, we have a book that we publish alongside of our, our calls. But if I'm looking at the Fed and I'm like, okay, they're not going to be as, as guided forward and not as direct about what they're trying to tell us, then I'm going to be a little bit quicker to cut risk or I'm going to maybe not, not overly lean on one bet hitting. And so I think that changes the dynamic and I think a lot of people would probably think that way. It can either pay off big now because the, the, the end result isn't so known that you, if you are right and you were on the other side of the majority of the trade, you're going to hit it big, right? But you can also have all these fluctuations in, in between then because it's going to be kind of the, the talking heads take over and, and they do their own interpretations. Whereas it's historically for the past decade it's been the Fed that has basically walked you to here's what we're doing and here's how we're thinking about it. And so I think it'll, it, it will increase the volatility. I think it will increase the kind of the necessity to be able to parse the language of those 120, whatever words they use versus the double, triple that that it's been in the past. But yeah, I think mostly it just makes it for a more dynamic, let's call it, landscape in the macro space rather than everybody knows what's going on. I think the Fed put, yes, not everybody's going to be right all the time, even in the past decade with the Fed put. But I think that gave you kind of a little bit of certainty that maybe is not as much there nowadays. For sure.

Jack Farley: Yeah, I couldn't agree more. So obviously one side of the coin is the lack of information from the Fed leading to more importance in parsing through it. The other side of that as well is I'm curious, how do you think about the utilization of economic data out of that? If we're getting to a point now where, yeah, there's going to be less guidance. Do you think economic data releases like an NFP or a CPI or even just like Joel say that stuff like that, how are you thinking about utilizing that? Is it, is it changing for how you look at those data sets or is it still just like, look, I'm going to, I'm Going to get the data in and react to it and form my view less so just like waiting to hear what does a Fed chair think about that economic data.

Bob Sheehan: So that's actually a really great question. It's, I would say like that's a lot at kind of the heart of what I'm internally like at Lighthouse that we're, I'm trying to do right now is. And a lot of the work in general I try to do is like how important is this data set?

Jack Farley: Right.

Bob Sheehan: Or how important is this release? And I will say this just for, you know, anybody listening. I'm not a guy who's going to, I don't position the day before data, data release to get a trade off the day after. I'm, you know, I'm a little longer term than that. I'm not out so long that I, I do think there's a point where you're so long that the data releases don't matter at all. And it's like I'm holding for 50 years. I'm not that but I just mean I'm not, I'm not day trading these, these releases by any means. But I do think, and you kind of led me here. Thank you. But like I do think it does, it does definitely change how you should think about it because if, if the Fed isn't going to talk to you through their thinking as much right. Then you should put less reliance on that as you're determining the data. You should. The way, at least I'm approaching it is that I should not necessarily take into account as much of what Warsh's view or anybody kind of on the committee is, is thinking about it and just look at it purely from a data, purely from a number standpoint and just align myself that way. And then over time I think, you know, worse. What is he, it's, it's a month, not even, it's been, you know, a week since you know, some of these original talks. But like he's so young in it or new in this role, not as a man, but yeah, we, we will over time kind of get a little bit of better idea of the meetings and their impact. But I think right now it does change how I come at the data itself. I, I don't put as much impact like, okay, I know that the Fed is looking at this number. I'm, they're looking at core CPI or you know, they're looking at PCE historically as they have. And so it's just more of like a, okay, I'm going To test this data set, this number, this reaction to the number against history and this is what markets have historically done. And then I think it's a little hard right now to be like here is then that little piece of that, that the Fed effects because I think they've kind of removed that part of it, which I mean, makes it exciting, but it does make it a little more difficult and it definitely changes how I think about it. Just in terms of, I don't want to put as much, you know, onus on, on those words even though there's only 120 of them, 150, you know, as short as the, the conferences might be, I don't want to put as much on what they're saying because he's kind of signaled to us, I think that they aren't going to be the most important thing it could, he could change. Right. It seems like this Fed chair versus past Fed chairs. Maybe he could have a different view. He signaled his long term historical views for kind of a while, but he has signaled that there's no forward guidance and therefore you should rely on kind of what the actual data is that time, that day, that moment. And so I do think it comes back to then more just pure data study and data science and less of the behavioral side in this, in the beginning of this kind of stretch of his tenure.

Jack Farley: Yeah.

Bob Sheehan: At least how I'm focusing on it.

Jack Farley: Totally. Yeah. So, okay, so we have the, the economic data side of things and how that reacts. And then yeah, I want to get into how the, the market based reaction has gone through so far and how you think about that. So obviously we have, you know, the short end of deal of the yield curve, the long end. I know you've been looking also like credit spreads, term premia, that whole landscape. What are you seeing so far in terms of the reaction? Knowing that it has to. It's not just like reflecting what war says, but it's trying to anticipate or discount it. Like. Yeah, what are you seeing in that landscape so far?

Bob Sheehan: Yeah, exactly. So this has actually been like a really fun one and one I've been talking with kind of some people across the space, both, you know, publicly in my pieces, but also like, you know, conversations I have with, with people who I respect. And so I think one of the most, let's call it like the most important takeaways is that there are two trades now and this is the way like I'm really trying to frame it in terms of the market reaction. There is the front end right now. And I think that is going to happen in the near term is kind of the front end reaction which is this, this bear flattener where you're getting the short end moving higher. And I think we've kind of seen that, I think I've talked about that a decent amount where we've seen the short end kind of move up quicker than the long end in more recent weeks and especially kind of after some of these inflation prints and things of that nature where we're getting this short end move and a lot of the actions happening on the short end. But then I think that's, you have to separate it from what's going on in the long end, which is, I still think a supply story, a term premium story. I think we're bringing back kind of this, this new thing where term premium is going to matter to the long end. Again I, I think the long end really answers to supply and the short end is it's still, obviously it's always going to answer to the Fed, but I think that the way that it is reacted to is not necessarily as known as it has been in the past. So we are getting this short end volatility, we're getting this kind of moves on the short end and the long end is going to be a slower trade, at least in my view that long end. I still believe the long end moves higher right now. But I do think that the short end is the focus, let's call it for the next, you know, month or so. And I think eventually, so we're getting this flattener, so to speak, where you're getting the short end higher and the long end isn't moving as much or relative at least. And I think that is probably the focus over, you know, the next month or so, maybe even a little longer. But I think eventually with removing kind of this guidance with the balance sheet reduction and everything, we're kind of getting on, on the, the supply side, let's call it, of things that is going to be the force that eventually takes that long end higher. And, and, and where I think some people are so focused on kind of the hawkishness and its direct relation to inflation. And I think that there's more to that story and I, I think that is where there's a potential trade and I think that's where you're going to get some market movement. I also think, you know, if you know, you asked about just kind of market forces, I hope it's okay. I'm going to take it to equities too. I Think I think kind of in that regard and you know where our book is right now and kind of in that regard this becomes a duration story. And given the duration risk, let's call it, I believe, and it's paying off today. I think the last I checked, you know, healthcare and staples and kind of these more defensive sectors are going to be the beneficiaries of kind of this muddied water, this environment where things are less clear, less signaled and where people are sort of getting a read through on this curve movement. Right where like I just said, you're, you're getting kind of a lot of action on the short end. And that long end I do believe is a kind of a longer term story out months rather than weeks to a month. And so I think that is where you're going to get some rotation. Not necessarily. I mean, yes, you're going to get some from you know, everything you're hearing AI and, and everything. And that in that regard that, that tech kind of scramble that we've, everybody's well aware of but I think also just given the pure duration, if you, you know, if you know, value defensives are shorter duration equities, longer term tech names are going to be your longer duration equities. And we are of the belief and we are currently positioned that you want to be more defensive in this time while things are trying to kind of find their level. Let's, let's call it where people, where people are trying to read through this kind of noise or not. I don't know if it's. Noise is the right word but kind of this whole new regime and dynamic where things aren't less, things aren't as clear as they should be. And I think that lends itself towards a more defensive posture, a more short duration kind of equity exposure. And, and yeah, so I do think, you know, just to wrap it up like the, the curve, I think it's two moves, right? And I, I think not only is it two moves but I think it's two timings of two moves. I think that you got the short end move first and that's, I think what we're kind of witnessing and have witnessed over the past, let's call it week, two weeks and then I think longer term, you know, out in the months to a couple quarters kind of time frame is the, that long end kind of answering to supply, answering to kind of the, the lack of outside buyers. You know, there's a lot of different ways to view like the, the foreign buyers stepping in and I think Generally my broader view is that there's less of them and the data back set up. In some regards I've seen some kind of tricky or you know, funny math around like oh, if you look at it this way that then there's actually just as many buyers. I don't necessarily agree with that. I think broadly speaking we can see that mostly foreign buyers are dropping off compared to what they have been. And I think longer term that supply store becomes a thing for the, for the long end. So yeah, that's kind of my sequencing so to speak is that the short end kind of matters now and the long end will matter in the longer term. So I think you got to get this bare flattener to start and then the steepener kind of comes in waves afterwards. And then again like, like I said, that's going to affect the kind of the equity position. I think we're even seeing it kind of on a, on a risk perspective where you're getting kind of both bitcoin and gold selling off. I think gold sold off like 3% the other day. And, and you're, you're kind of seeing this dislocation of risk that I think is probably unique to some people, especially like the younger traders. But even some of the old, you know, some of us who have been around for, in for the block, you know, we're seeing these moves that don't necessarily correlate with history and kind of how you're doing it. So it's from a data, from a guy who is very data driven. It's interesting to get these new kind of data points that are not the standard, so to speak.

Jack Farley: Yeah, that's really great framing. Something I've been trying to figure out as well is so a lot of what you talked about there I would just characterize as like expectations around changes in real yields. And then there's also this. Yeah, then there's also this other big component that we've become really used to over the last decade which is just like changes and I don't know if you want to call it like liquidity or just basically like balance sheet games. And there's a whole bunch of stuff over there that like, you know, you have the, the, the reserve management purchases been going on the last few months. You have this deregulation that's been going on in terms of like how many Treasuries commercial banks can buy. You have like traditionally WARSH wanted to decrease the balance sheet. There's all those aspects where it's like, I'm curious how do you balance what you just talked about in terms of just this whole complex of real deals with like that whole other thing?

Bob Sheehan: Yeah. So I, I would say like that is kind of let's call it the game right now. Right. And like that is kind of, I think, I think if you ask like pretty much anybody in the broader macro space, like that is the call to get, so to speak. And that's like one of the harder spots. But I, I do think so that is where you are, you're parsing kind of the language he uses. And then this is where I come to a little bit of his history, you know, and what he's talked about historically. And you know he's these task force task forces and everything. And I think it is a little bit where you are trying to balance what you know and what like and you, the proverbial you. But like what you know as, as an investor has historically happened and kind of then this new dynamic of everything that's happening in the balance sheet is just a pure natural force like you can't ignore. That's not words, right? That is an actual change in, in the money supply and in the dollars that are out there and in the investable universe, let's call it so to speak. And I think that you have to a little bit. And this is where I kind of, that's kind of why I said mentioned earlier that there's two trades and I think kind of the, the short end is the easier one in the short term. And I think the reason why I believe the long end is the longer term trade and at least the longer term change that people are still kind of grappling with is because all this, you know, historically he wanted as you just said, the, the balance sheet smaller. He wanted to shrink that. And he is kind of building this deniability and this, this kind of, this task force around that are kind of COVID and some degree to maybe launder like the conclusions that he's come to where he's, he's trying to figure out what he can do and he's not committing to anything. And I think that that becomes a story in the sense that historically Fed guidance has been just a short end, short end story. And I think that is probably the framing that some people are not yet fully aware of or maybe not coming to full conclusions to that. You can't just focus on the short end. Obviously the Fed that is the short and then any of the treasury that's going to be the long and that is the traditional, let's Call it macro economic view and the way things work and I think with, with Borsch and with kind of this new era, those become a little different and you have this balance sheet thing come into play and you, you have reserve management purchases coming into play and, and you have to kind of separate the two things and I think almost look at them as different and the if from a trading perspective and then you can bring them all in together, you know, in your macro view. But I think that you cannot have them one in the same. Like, okay, the Fed said this, this is what's going to happen the entire way out the curve. Yeah. I think all of that now becomes kind of its own mechanisms to the degree that maybe hasn't been in the past decade.

Jack Farley: Yeah, 100%. Not to make things even more complicated, but.

Bob Sheehan: No, no, I'm happy to. I like it.

Jack Farley: Yeah, well, look, it's like there's all this on the monetary. But then since where I was getting is that since 2021, fiscal has become a lot more important and dominant which just like you can just think about all these different variables. No wonder macro is so hard.

Bob Sheehan: It's exactly what I always joke. It's, it's exactly like, it's what makes it fun. But it also makes you like we can all sound like, like I could sound like an idiot tomorrow, right. Like something could come out and, and everybody's gonna be like, ah, this guy's a joke. He was wrong with all this because the truth is there are so many variables and it, it, it's, you have this, I think I wrote a piece, let's call it, you know, four or five months ago, called like it was about the fiscal doom loop, so to speak, where you have kind of this yields go and then we need to pay more and so we've, you know, issue more bonds and then it becomes this doom loop where okay, we're, we're, we're falling behind on our, our payments and we, we don't have enough to make and interest is going higher. So we're, we're paying more than we're getting in from tax receipts and it becomes this loop. And so it's exactly why like you just kind of hinted at it like macro is so goddamn hard. Like there's all these variables all. I mean, I personally think, I'm sure you, you would agree with this. Like that's what makes it fun, right? Is like this constant, this constant need or ability or whatever you want to call it to parse what's going on in the world and then what the actual numbers are saying and then the people who are communicating those two things to you and figuring that all out. But so I mean I tend to my, I guess my view is I tend to still rely on the data and like historically if right now with you know, the spending on the war and already our, our tax receipts are lagging behind what we're spending and then not just the war, but just, just overall government expenditures and then you have higher rates right now, so we're having to pay out more and, and we have the highest interest rate, excuse me, highest interest expense on, on our debt. We've had in. Yeah I think forever for, for a long time where we have very high payments out versus what work versus the inflows from a government standpoint. So we are in this thing where we are issuing more to then kind of fix the problem that then we need to kind of issue more. And it's becoming this, this loop and we are. I, I don't think everybody is fully appreciating that this loop puts this pressure on the. Again, this kind of goes back to my long end supply thing and kind of that, that story that this loop is kind of this fiscal side and the, the expenditures and this, the fiscal doom, doom loop. I've even seen it called. It is real. But I also think there is a point where you can't get. There's, you know, there's some people in macro who are kind of like oh, the, the dollar is going to fall to zero because of this fiscal. And the only way to do it is devalue. Like I don't think that's a realistic way to view the world because we're like, yes, people are still going to buy Treasuries and people are still going to, we aren't going to disappear tomorrow.

Jack Farley: And it's a relative game.

Bob Sheehan: Like yes, exactly. It's. Yeah, I think all the, there's a lot and kind of goes back to the very beginning of our conversation. Like there's a lot in macro where like people want to say absolutes and it's like that's not the way the world works. Everything's relative. And, and that even goes into kind of other macro things that I've been talking about and I'm, I'm sure you've, you've paid attention to is like, you know, the relative thing from the consumer perspective. Like everything's going to be relative. Like, and you need to understand that it's not necessarily are we better off today versus then it's it's like are we better off versus the who we're versing ourselves to who, who our opponent is in our mind or, or the relative change and if it's, you know, whether it's, it's China for the dollar and, or for oil and all these things like you have to frame everything I think in this game relatively and I think it, I think that is so important and I think that is what sometimes gets lost. I don't know if you agree with me on that, but I think that is for sure. I think Relative is kind of just the name of the game. And so yeah, I mean that whole, the whole like the balance sheet, the, the current fiscal output versus what we're, what we're bringing in, like all of that, you have to, I think you have to account for it in the, the sense that I think that generally it makes it. Things drift higher on the long end and I think just generally it causes a little more stress and a less clear path. But it's also there's going to reach a point too where like it is a relative thing where eventually you reach a point where like it doesn't matter if it drifts a little bit higher. You have to then measure it against what, what else is going on. And so I think that's kind of the, the ever, ever present eye of the camel that you need to kind of thread the needle through. But yeah, no, I mean, I mean it's fun I think, I think you, you seem to enjoy it the way I enjoy it. There's. It's a hard game but that's what makes it intellectually stimulating. And I think that's kind of what anybody who gets into this space is, is looking for at the end of the day.

Jack Farley: Amazing. Yeah, very well said. Feels like a nice feel place to end it there. Bob, it was really great to have you on for guidance. Where can folks go if they want to see your work? Where do they go?

Bob Sheehan: Yes, so they can go to research.lighthousemacro.com also we are building out our own Lighthouse macro kind of portal, let's call it, with all of our internal indicators. The actual screens I watch on a daily basis and that'll be coming out soon just right on my website, lighthousemacro.com you can also find me on X at, @LH Macro. We are still working to get the full Lighthouse macro handle but yeah, you can find me on all of those. I am always available for you know, if you guys want to email me or, or send me a DM I'm happy to chat with anybody and I will also be on, you know, X and, and everywhere. Just, just chatting my work all the time. Uh, and yeah, so that I'm, I'm pretty much available on any platform that you're getting your macro on right now. I'm, I've tried to make myself available on any of them, but substack my website and X are kind of the best places.

Jack Farley: Beautiful. Well, yeah, thanks for going for joining, Bob. That was awesome. Appreciate it.

Bob Sheehan: Yeah, thanks so much, Felix.