The Compound and Friends: The Most Interesting Macro Moment of My Lifetime with Jens Nordvig
On episode 259 of The Compound and Friends, Downtown Josh Brown and Michael Batnick are joined
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The Compound and Friends: The Most Interesting Macro Moment of My Lifetime with Jens Nordvig
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On episode 259 of The Compound and Friends, Downtown Josh Brown and Michael Batnick are joined by Jens Nordvig to discuss: rising Treasury yields and the risk of something breaking in the bond market, Scott Bessent’s intervention in the yen and Treasury markets, the massive AI capex and hyperscaler debt boom, whether AI is actually inflationary, oil prices and the Fed, the surprisingly resilient consumer and labor market, America’s growing debt problem, and why Korea could be one of the most interesting macro trades heading into 2027.
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Transcript
Josh Brown: Do you have any friends in your life who you call and they say, like, sarcastically like, you say, how's it going? And they go, live in the dream. Living the dream.
Michael Batnick: Hey, this is my shtick.
Josh Brown: No. Do you somebody. Cause somebody. Somebody did that with me, but they meant it. They were like, living the dream, bro.
Jens Nordvig: I'm living the dream. Oh, you're living the dream.
Michael Batnick: Oh, no, that's sincere. That's nice. I like that.
Josh Brown: No, they meant it like, they are living the dream. I love that. No, because I don't. I go to a dark place. I'm like, really? That's your dream? I see how you live it.
Michael Batnick: You're sick.
Josh Brown: Is that the wrong response?
Michael Batnick: No, Usually.
Josh Brown: Isn't it douchey, though? No, like, I'm living the dream.
Michael Batnick: I hear what you're saying, but usually when people say that, it's like, all right, I'm not talking to you, dude. It's like this. The conversation is over. Somebody says, living the. How you doing? Living the dream. It means, like, all right, walk away. Like, I have nothing to talk to you about.
Josh Brown: Well, that's my point. He is a friend of mine. He's dead serious. I'm living the dream.
Michael Batnick: But if that's your friend, I'm happy for your. I'm happy for my friends.
Josh Brown: Or sometimes.
Michael Batnick: But it's a weird response to literally say, dude, I'm living the dream. I just got this. I'm going to Greece. Like, I am killing it. It is. It's weird. I hear what you're saying.
Josh Brown: I think. I just think it's very douchey, because if you. If you feel that you are living the dream, you should have the emotional awareness to know that other people don't want to hear that.
Michael Batnick: All right, but you're doing okay. He's not, like, talking to a guy in the street.
Josh Brown: But to be honest, you never know.
Jens Nordvig: You never know who feel that they're living the dream. Right. Like, everybody thinks, okay, the ultimate thing is to have, like, an exit when you've, like, done something right.
Josh Brown: Yeah.
Michael Batnick: Are you about to break? I mean, you just had an exit.
Jens Nordvig: Yeah, but it's like a. But the next we're allowed to swear is like a roller coaster. So it's like.
Josh Brown: But then the next day after the exit isn't as good as the day before.
Jens Nordvig: Yeah. And also, you've spent so much energy into this exit that you forgot about doing all kinds of other important things while you were doing it.
Josh Brown: Okay, so we're going to get the story on your end.
Michael Batnick: Conclusion. Josh wants his friends as miserable as he is.
Josh Brown: No, I just. I was taken aback. I thought. I thought. Because you know what the other thing people say is? Oh, another day in paradise. Like say that.
Michael Batnick: Don't worry. This doesn't sound like a true friend. There's an acquaintance.
Josh Brown: Oh, you know who it is? Actually, I don't want you to guess it cuz you probably could guess it within two guesses.
Michael Batnick: Is it a home friend or workfriend?
Josh Brown: No, work related. Okay. You definitely know who it is and you could picture him saying it.
Jens Nordvig: It's one of your colleagues.
Josh Brown: No, it's not somebody that works here. Another day in paradise would suffice. We would take. We would take that.
Michael Batnick: What do you think about the iPhone duo?
Jens Nordvig: I think I need to get it because the last iPhone I got was really bad. So I need an upgrade very soon. But I like to have a lot of real estate.
Michael Batnick: I was very on the fence going into the announcement of like, I don't know, I could see it like going either way. And 30 seconds in, I'm blown away. I am all the way in. I think it's so spectacular.
Jens Nordvig: Yeah. Have you been feeling it?
Josh Brown: I think it's gonna be slam dunk. The iPhone due. I think they'll sell out however many they can make, which will not be a lot.
Jens Nordvig: Should probably go and order one before they sell out October 16th. Yeah.
Josh Brown: Is that when they go on sale? Yes, I think they'll sell out immediately because it's novel. It's.
Michael Batnick: Yeah.
Jens Nordvig: It's a long time since there was anything novel.
Josh Brown: Yes.
Michael Batnick: People are complaining about the price tag, the headline price tag. And Gene monster said the 18 pro max I think is like 38 bucks a month. This is 53. This is the thing. It's finance. Who cares? It's $23 more a month. Nobody cares.
Josh Brown: I also don't think Apple is targeting the person that's worried about the price of the phone. That's not who this is for.
Michael Batnick: No.
Jens Nordvig: I think it's different from the. The headset thing. I forgot what it's called.
Michael Batnick: Vision Pro.
Josh Brown: Right.
Jens Nordvig: Like nobody needs.
Michael Batnick: That's different.
Jens Nordvig: But everybody needs the phone.
Josh Brown: Right.
Jens Nordvig: So the phone doesn't really.
Michael Batnick: That's your. You're spending $4,000 on your credit card. That's very different. Yeah.
Josh Brown: So the price is $2,000.
Jens Nordvig: I think there's one that was up to four almost. Right.
Josh Brown: So the tech blogs thought that this was going to come out at 2,500.
Jens Nordvig: Yeah.
Josh Brown: So they actually surprised consumers with a lower. A lower Average selling price for this thing right out of the gates.
Jens Nordvig: Yeah.
Josh Brown: Which leads me to believe the next iteration will be the duo pro and it'll somehow be bigger and faster and it'll cost more. You know, they gave themselves room to raise the price rather than start out at the high price.
Jens Nordvig: Sounds right.
Josh Brown: And have to hear people say, oh, it flopped. Yeah, I don't know. At 2,500, if it sells out. I think at 2,000, it's roughly comparable with what the iPhone 18 Pro Max will be. They'll sell them out.
Michael Batnick: Daniel, you got any one? Were you excited?
Josh Brown: He's waiting for the trio.
Michael Batnick: Hater.
Josh Brown: John.
Jens Nordvig: I consider it queen. I want the Burgundy 18. To be honest, I'm still missing the BlackBerry for just typing without typos. BlackBerry was good for typing. It was better.
Michael Batnick: Great.
Josh Brown: The key is to lean into the typos. Just let it be part. Just let it be part of the situation.
Michael Batnick: So Yan's living the dream. Things are good.
Josh Brown: Are you living the dream? You're living age. You're living age dream.
Jens Nordvig: Let's put it this way. I've been doing macro markets for a fair few years, and they don't really get any more exciting than we have them right now.
Josh Brown: You think right now is like prime time?
Jens Nordvig: I've never seen markets being more interesting than they are now.
Josh Brown: Okay, we're gonna get into all that, so let's not step on it. I definitely want to hear that. Do you mind just headphones, if you don't mind?
Jens Nordvig: Yeah, no, I don't mind. Wire on the left.
Josh Brown: You could tell how? You could tell he had. He had an exit. Look how laid down.
Michael Batnick: Do you have a tranquilizer before you came here? You okay? We're about to do a show.
Jens Nordvig: Is there a way to charge this thing, do you think?
Michael Batnick: Yeah, yeah, we have cords.
Jens Nordvig: Yeah, yeah. We can play this if we can do that. All right. And if you can just sit close
Michael Batnick: to the mic, please.
Josh Brown: All right,
Jens Nordvig: let's do that.
Josh Brown: We have power. There you go. All right, Nicole, give me one second.
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Josh Brown: 259 lucky 259. Ladies and gentlemen, you are now rocking with America's favorite investing podcast. This is the Compound and friends, we're coming to you live from Bryant park in New York City. With me, as always, my co host, Mr. Michael Batnik.
Michael Batnick: Oh, hello.
Josh Brown: My name is downtown Josh Brown. First time listeners. Thank you for joining us. Yes, we're your new favorite show. Last time listeners, I'm sorry, We did our best. We have a very special guest. The last time Jens Nordvig was here, the phone's lit up. People were like, who is that guy? He knows everything. Do you get that response everywhere you go or just from here?
Jens Nordvig: Only here.
Josh Brown: Could you read the comments from your video?
Michael Batnick: I have to say, Jens, you got to get closer. Come on, man, this is your second time here.
Jens Nordvig: Yes, that was quite a good response to that. So, yeah, got a lot of, a lot of people reaching out.
Michael Batnick: So when you invented Covid, I would expect that there would be a good response.
Josh Brown: We're going to blow the phones up. Once again, Jens Nordic is president and board member of Vanda, an independent data analytics and insights firm providing positioning data flow intelligence and tactical macro insight to investment professionals globally. Jens has spent his career at the intersection of global macro markets and capital flows. He founded Ex ante Data in 2016, building the firm into a leading macro Strategy and data provider serving more than 100 institutional clients globally. Now take us from there. What happened since?
Jens Nordvig: Quite a lot has happened. It's been a busy year. So we merged Xante Data together with Vander. Vanda is another company that's also focused on flows and positioning. So now we think we can absolutely be the best in class. And that's.
Josh Brown: So you sold X Ante, which was yours, which you started 10 years ago, to Vanda and now you're involved with Vanda.
Jens Nordvig: Yes, I'm the president of the company and leading essentially everything we do on the macro research.
Josh Brown: Why did the two pieces work so well together? Like what was ex ante doing that Vanda wanted and vice versa.
Jens Nordvig: So we wanted to have breadth in terms of the asset classes we covered. I've always been extremely focused on currencies, fixed income. And on the Vander side, they're more focused on sort of macro equity. So there was a nice complementarity there.
Josh Brown: Because they're known for tracking what investors do in stocks.
Jens Nordvig: That's right.
Michael Batnick: I know them through their retail flow stuff.
Jens Nordvig: So that's one of the key products that they have, are an equity focused.
Michael Batnick: Right.
Jens Nordvig: So there was a nice way where we can cover everything. And then the other thing I think has to do with technology. Right. So we're heading into a period where whoever uses AI most efficiently and smart is going to have an edge and it requires some resources. So the combined resources of the company are bigger than if we're separate. And we're really stepping on the gas on that front. So there's going to be a new platform launch soon called Van analytics where we're really going to have more breadth, more depth in all cross asset macro assets. And we're gonna use AI, I think, in a novel way.
Josh Brown: So the business will not just be about selling the data, but actually selling the insights that you guys create from the data in house. And that's obviously a premium product. Cause you're not just saying, all right, here's our data feed. Figure something out. You guys are actually gonna figure things out and share them with select clients.
Jens Nordvig: You know, from yourself, when you run your own business, you have to learn from your mistakes. So. So definitely one of the things we did at Accented Data early on was we try to have like data only business. Yeah, it's not enough.
Josh Brown: People want more.
Jens Nordvig: Data only business is very tricky. Right. Because investors are busy. Portfolio managers are incredibly busy. Right. So they need to be told what data is relevant at a given point in time. There are exceptions. There are some quant funds that are extremely good at finding something in the data. But most people still trade on discretionary basis. And we find that a combination of having really high quality data and some layer on top that tells people, okay, this is important right now is the best model commercially. And we're going to continue with that hybrid model.
Josh Brown: You know what the corollary is for that to our business, the wealth business. Like, I could give you an ADTF portfolio right now. I could do it off the top of my head without even thinking about it. Then what? Like, because that tells you nothing about what the environment's going to be six months from now, a year from now. It doesn't answer anyone's particular questions about their own finances. So, like, the data is not the standalone thing anymore. It's like, what do we get from all this data?
Jens Nordvig: Yeah.
Josh Brown: And then you can. That's something that hedge funds want, asset managers want.
Jens Nordvig: And then I guess what we really want to experiment with is that this insight that comes on top of the data. In my career, I have provided it together with a team. I'm very proud of the team we have from Exante Data and now Vander. And the question now is whether some of this insight that we can generate in an AI environment. And we have to get that right because our clients still want to have the confidence that this is something that's been vetted. We're absolutely confident it's true. But nevertheless, there's stuff we can do at a higher speed if we create a robot for it. So we really need to find the right balance between still having it vetted. Absolutely. Driven by top notch people, human sort of conceptual thinking. But then there's bits and pieces where we can say, okay, the robot can actually do this piece better and faster and then put the robot to work there.
Josh Brown: Yeah. So there's parts of what you guys do that you can have a machine do, like the heavy lifting. But the vetted part is important in your business. People want your reputation. They want you to take a look at it. They don't want a black box where it's like, well, the machine said this, therefore we don't need an explanation for it. Just take it at its word. No, people want that final layer of like, okay, I get it, you're using AI, but what do you think? And then you have to have a point of view.
Jens Nordvig: Like, we can actually see it. Even in, like when you run a business, like sometimes it kind of like goes full circle. Like some of the things you thought a couple of Years ago were a bad idea have actually become a good idea again. So we can actually see that there's some of the highest end clients, actually more so than before, actually want to get you on the phone.
Josh Brown: Yeah.
Jens Nordvig: Which a couple of years ago we thought, okay, that's phasing out completely. But because there's so much information out there that is not vetted at all, there's actually some that really want to pay for having something that has like an extra layer of like total real time personal color and vetting on top.
Josh Brown: I have this heuristic where I tell people, rich people don't talk to robots. Rich people pay someone else to talk to the robots and then take whatever that information is and bring it back to them. Like within reason. Wealthy people don't plan vacations on Expedia. If their travel agent is utilizing Expedia for information, that's fine. But they want a person who's responsible. And I think that corollary is a pretty good one both for hedge fund world and for wealth management world. You talk to the machine, tell me what it says, call me back. I think that's always, there's always gonna be a component of that.
Jens Nordvig: And it's also a matter of making sure that the machine, even though if the machine is mathematically correct, the machine might get outdated. So we need to continually make sure that we know what's happening in the market. There's a lot of our models that is based on, okay, what's the sort of market microstructure that relevant right now? But it changes all the time. Right. So we can give like one. It's okay if I give a specific example. Yeah. So like Korea is a pretty interesting country now. Right. Because it's probably the country where the AI revolution is impacting everything the most. Obviously in the U.S. aI is very important. But us, a bigger country. Right. So it relates to the size of the country. It is an enormous boom that is happening.
Josh Brown: Half the stock market is memory.
Jens Nordvig: It's unbelievable. The trade surplus is just exploding. I've never seen anything like it. And by the way, the currency is having its best run ever now, last three months. So it's all playing out. But in relation to this microstructure I was talking about, it used to be the case that the stock market in Korea was driven by foreigners. And now we've had a period where the stock market has gone up so much and is driven by something else that actually we have the stock market going up and foreigners have to sell to rebalance their portfolio. So the correlation between those flows and the cost is totally flipped.
Josh Brown: What happened? The retail population caught stock market fever this summer.
Jens Nordvig: The local. The local. The locals, yeah. So if you had a model that was based on foreigners in the past, you would have gotten totally wrong what's happening now. So you need to adjust your models all the time to capture what is new. And that requires that you continually just focus on understanding what's happening and adjusting.
Josh Brown: Right. Sometimes the data isn't good enough to know when the environment around it has changed. I was reading about the thing with LLMs that is constructing what they can actually do. LLMs are great at taking existing information, synthesizing it, and giving you insights from it. But it can't think creatively, or if it does, it's getting itself into trouble with hallucinations. And somebody was saying, there's a paper arguing that, and this is probably relevant to the research that you guys are doing now and what your end client actually wants from it. It's very good at induction LLMs. It can't do what's called abduction. And it's like a thing where the AI can do statistical pattern matching, it can do all the deduction, it can take all these facts and spit out a response, but it can't generate novel explanatory hypotheses. It will never discover Einstein's theory of relativity. It can't make that creative leap. And we don't want it to. The way we've built this is we want it to be accurate, we don't want it to be creative. So that's where somebody like you comes in where you can look at the output and then you could say, okay, here's what the machine says, but here's why that might not be the right thing to say to a client.
Jens Nordvig: I think that's exactly right. So there'll be, you know, new themes developing that we've never seen before. Right. So where's the LLM going to understand those new things from? So that's one example. The other example just has to do with. We're incredibly focused on actually having proprietary data as a part of our platform. Right. Which the LLM will not know about.
Josh Brown: Would you do a deal with. You're smiling. Would you do a deal with Anthropic if they said, we want this data as part of our model?
Jens Nordvig: This is a real balance. There's a real balance there. Right. Because we definitely have clients that want to consume pretty much everything they consume via Claude. Right, Right. And we obviously want to help those clients. Right. But if we have something that's proprietary and we feel that that aspect of it being proprietary is threatened by us sharing it that way, clearly we'll have to balance those two things.
Josh Brown: Okay, yeah.
Michael Batnick: As you said, this is the most exciting, interesting macro environment you've ever witnessed in your long career.
Josh Brown: Exciting, like we're all about to lose a lot of money.
Michael Batnick: So I think last time you said that Besant was a client of your former firm. Are you surprised with his comment yesterday where he said I am the house and I assume this is the most interesting part of it is what he's doing, what interest rates are doing, what he's saying, what the yen is doing, the dollar. Is that at the crux of what's making this so interesting?
Jens Nordvig: We had Scott Besson speak, We had a 10 year anniversary conference, for example data in March and Scott Beston was one of the speakers and he touched on some of the issues you're talking about. Now he is a very unusual Treasury Secretary.
Michael Batnick: Yeah.
Josh Brown: This is not normal, but on purpose.
Jens Nordvig: Yeah, on purpose. He has traded tens of billion of dollar yen personally in his life. Clearly no other treasury secretary has done that. And he's not afraid of the market. You would ask almost any other treasury secretary, they'd be very scared about the market kind of rolling them currency fluctuation. Yeah, I think the currency market is pretty scary. But now we essentially have a form of intervention both in the currency market in dollar yen and we also have a form of intervention in the treasury market with these long and buybacks. Right. So he said he doesn't want to intervene in the oil market. So that for some reason he thinks that's a little bit different. But he is clearly willing to intervene in a way we have really not seen for a long, long, long time. And I think what is happening with Japan is fairly logical in the context of his history, he's always been a Japan expert. Actually the reason I know Scott Besson is that I was head of research in the Moro securities, which is the biggest Japanese broker and we always talked about Japan together.
Josh Brown: When the Abenomics started, you were ranked the number one currency strategist by institutional investor for five consecutive years.
Michael Batnick: Oh yeah. What's the Yang do tomorrow?
Josh Brown: Smell your pants. When were those years? Was that 2010 era?
Jens Nordvig: Yeah. I joined Nomura in 2009 and those were the years. Yeah. So that was that when the euro crisis happened.
Josh Brown: And you think what we're about to see might be even more interesting than that?
Jens Nordvig: I think it already is because investors really have to pay attention to a number of things that have not really been in play before. So obviously we a productivity development around AI that is potentially totally unprecedented.
Michael Batnick: Right.
Jens Nordvig: We can compare with previous industrial revolutions and technological shocks, but this seems more profound than any of them.
Josh Brown: So that's that why this is tech that improves itself.
Michael Batnick: Yeah.
Jens Nordvig: And also it's just impacting all industries at the same time. Right. Like we think about the railroads and it was important, but it was like one very specific thing. And this is impacting everything at the same time. Everything is software these days.
Josh Brown: Right.
Jens Nordvig: And it's driven by that, obviously. So that's important. And then we can see what's happening with all the hyperscaler build out. Right. The build out is now so enormous and we're just doing these calculations and trying to make them very precise. But roughly speaking, we now have as much bond issuance by hyperscalers in the long end of the curve as the United States government.
Josh Brown: What this year?
Jens Nordvig: Right now, not early in the year, but we're getting to this point.
Josh Brown: The bonds that exist now, it's equal to what the US treasury has, I
Jens Nordvig: would say, let's call it the flow. How much is coming out right now?
Josh Brown: Wow.
Jens Nordvig: And it's not that the US government is not issuing a lot. The US government is issuing a lot. We have a 6% of GDP deficit which is also at par with the biggest deficit Reagan had when people thought he's going as hard as you can. And nevertheless we have a few private sector companies that together are managing to issue as much debt in the long end of the curve as as the US Government.
Michael Batnick: How much do you think that's pushing up yields versus all of the other
Josh Brown: stuff, the war, the competition for Treasuries versus half is it.
Michael Batnick: How do you think about that?
Jens Nordvig: I think it's hyper important, let's put it that way. Obviously oil prices matter. Today we had a massive move again, ECB responded to the oil prices and so forth. But in the background this is something entirely new. We've been worrying about the US government issuing too much debt and now we have another issue or a group of issues that is equally big. So all these years where we were used to, okay, we have a low inflation environment and if you have a little bit of carry in your credit instruments, you can always sell it. Right. Those days are just gone. Now we have such competition for capital that yields are being pushed higher.
Michael Batnick: Is that bad?
Jens Nordvig: Well, it'll be nice to know whether that those investments are going to be productive investments. Right. But I think which ones?
Michael Batnick: The hyperscaler ones?
Jens Nordvig: Yeah, yeah, hyperscale investments. But I think what we can say with great confidence that the companies that are going all in on this, Google, Microsoft, Amazon, Meta and so forth, they're not going to give up anytime soon. Like their capex plans for this year and next year have continued acceleration in them. Right. And in terms of how many bonds they're going to issue, it's kind of like a nonlinear thing because initially they could fund it out of their free cash flow. Right. So every extra 10 billion is like mapping into the issuance with the like higher and higher beta. So next year is going to be dramatically more than this year. So when I look at the long end of the yield curve, it's already pressured.
Josh Brown: Right.
Jens Nordvig: We've seen multi decade high bond yields now even if the fed funds rate is not at the high, but the long end is. Right.
Josh Brown: So it's clearly the 10 year is at 4.92. The last time I looked, the last time it hit that level was October of 2023. People were nervous about it then too.
Jens Nordvig: Yeah.
Michael Batnick: And it got over five.
Josh Brown: It got over five for a cup of coffee. And then the stock market rallied 80% as it fell. Now it's back up at those levels. Stocks have not given up much. We had a momentum wipeout last month, but the hyperscaler equities are sort of stable. They're not at highs, but they're not at lows. And now the question is if we go through 5% on the 10 year this time and we're already seeing 2007 era highs on the 30 year.
Jens Nordvig: Yeah.
Josh Brown: What does that do to the market mechanically or how does that change psychology?
Jens Nordvig: So I would say when you compare with like in 2007 we got close to this level. Right. 2003 is the right number now. Okay. It sounds like, oh, we've tried this. It's only, you know, 23 years ago we got there real rates.
Josh Brown: No, 20, 23, we were exactly where we are now in the tenure.
Michael Batnick: But real rates were higher.
Jens Nordvig: Yeah, but so people go, yeah, but the bottom line is it's a long time ago since we really been at these levels in a sustained way. If we look at the last time we were at this type of level, which was before the global financial crisis, the debt levels are totally different. So what we could handle back then with that level of yields, it's hard to imagine we can handle it now. And this is why Scott Besson is buying back bonds at this level of bonds and the 30 year is meaningfully higher than the 10 year curve, is pretty steep. They don't want to see those bond yields going any higher. Mortgage rates like 7% also not that great for that sector. Right. So really what's different now is the debt levels are so high. I just wrote a report on the way in here on the train and the cbo. Right. Which is supposed to be a bipartisan, conservative Congressional Budget Office. Yeah. Like a nerdy outfit that just does numbers that. Objective numbers. Right.
Josh Brown: That everyone then ignores.
Jens Nordvig: I hope that the director is not listening. He's a great guy. So. No, it is a compliment. Like if you look at their debt projection, right. We got above 100 a couple of years ago. Right. It's going to 200 within like a couple of decades. Like the trajectory is so steep now. So this is why we really have to start to look at these debt levels in a different way. Right. And there's lots of people who've been scaremongering about debt levels forever. Forever. Right. So it's easy to say, oh, we've had the wolf crying for a long time. But I do think you can really see assets start to behave differently here. Right.
Michael Batnick: So which assets?
Jens Nordvig: So I think you can already see it in terms of the long end. Behavior over the last three, four months has been kind of divorced from economic data.
Josh Brown: Right.
Jens Nordvig: It's just doing its own thing. It's not anything the Fed is really saying.
Josh Brown: Or it's also happening globally.
Jens Nordvig: It's also happening globally.
Josh Brown: Yeah.
Jens Nordvig: And then I would say currencies, currencies, you can see it like we have, like if you do kind of a basket of who has not a lot of debt and a lot of debt, it's starting to really favor the ones who don't have a lot of debt.
Josh Brown: So who is that? Switzerland. The currency looks better than all the other developed.
Jens Nordvig: Yeah, that could be Switzerland. Singapore. Australia is a country that actually doesn't have a lot of debt. So if you have long exposure to those, you've done very well. Places that have a lot of debt. Okay. You can rank the top 30 economies in the world. Guess who has the worst debt metrics?
Michael Batnick: Japan and US.
Jens Nordvig: It's actually United States. Now, Japan used to be the worst,
Michael Batnick: but isn't the worst of the best? Like we are able to sustain such
Josh Brown: a Chicago and we have a bigger economy.
Jens Nordvig: Yeah. It's a tricky thing. Right. Because the dollar is obviously still the reserve currency, the main reserve currency of the world. Right. So is it special?
Michael Batnick: Yes.
Jens Nordvig: And it certainly is more resilient than Everything else because of that. But it's not trading fantastically well now. So I think you can start to see some kind of correspondence between when the 30 and US dollars a wobble and the dollar's starting to leak. When I say leak, what I mean by that is that you can have a model for, okay, what are the standard things that drive the dollar? Obviously short end rates, maybe risk sentiment and so forth. And what you're starting to see is that there's some little residual that is hard to explain with those normal things that is leaking in a weaker direction. And that's what's happening in the last few years.
Michael Batnick: Is something going to break? Are you like nervous that something's going to happen?
Jens Nordvig: I'm nervous. I think also. So now I work in a company now where we have a lot of equity focus. Right. Massive. Like Eric Lewis is the head of our equity efforts. Right. So massive focus on whether we are getting into sort of a non linearity in terms of like the 10 year or the 30 year moving to a degree where we really have an equity puke. So we're very close to an amount of move in the yield curve where the equities get very vulnerable.
Josh Brown: Just explain what Bessant is doing. Not with the yen. We'll just focus on the US Explain to the audience what Besant is trying to accomplish by buying longer dated treasuries in the open market and then tell us whether or not you think it's meant to succeed. Or is it kind of Besant getting his boss off his back and doing something very publicly so that he can tell Trump, look, I'm doing all the things like what do you really think this is about and do you think can succeed?
Jens Nordvig: So I think what's important here is that if you did not have a lot of debt and you had a few coupons you had to pay in the long end, you would just pay, retire it. Yeah, it wouldn't be a big issue. Right. But because that, that is a problem and because they don't want to issue at higher and higher yields, they're trying to do something to save themselves money. So the essence of what is happening is that they fear that the debt dynamic is going to take over and it's going to be a negative spiral.
Josh Brown: Right.
Jens Nordvig: And they're trying to stop this negative spiral by holding the yields via these buybacks.
Josh Brown: That what he means by I'm the house, meaning I can buy more treasuries than you can short.
Michael Batnick: Does that ever work?
Jens Nordvig: So, so it's a, it's a strong statement that was made in the context of, of the, of the yen.
Michael Batnick: Here's the statement. I am the House now. So when we intervene with the Japanese yen, I have pretty good insight into what the Japanese, what the bank of Japan is going to do, what Japanese policymakers are going to do. And you can bet against me if you want, whenever. I mean this is a lot. Whenever people say, oh well, Treasury Secretary is taking a risk. Well, it's my dream. I have asymmetric information. So he's saying that he knows sound
Josh Brown: like a speech that Oliver Stone would write for one of his characters.
Michael Batnick: He knows what the bank of Japan is going.
Josh Brown: It's almost like Gekko esque.
Michael Batnick: So he's saying what, you're right, that they're going to raise rates. What is he saying?
Jens Nordvig: So I known Scott Besson for a long time. It's extremely unusual what he's doing. But when the intervention happened, the question we got from clients was, okay, how can they intervene when the bank of Japan has just passed on hiking rates they did not hike in July? Why would they intervene if the bank of Japan was not serious about getting rates higher? And the explanation is very simple and it's embedded in that statement you just read out. And that was Scott was pretty confident that he essentially could somehow orchestrate that the hike would come at the next meeting. Right. So he was willing to do the intervention on the expectation that the hike is coming. The hike in September. Right. Was priced by three or four basis points. So nothing was priced when the intervention happened. And now it's priced like more than 90% probability. Right. So fully priced. So he wasn't wrong on this.
Michael Batnick: But the yields haven't stopped moving.
Jens Nordvig: So in the long end, you mean just.
Michael Batnick: Right. The 10 year is screaming higher right now.
Jens Nordvig: Sure. So is he doing this Japan intervention because he wanted to achieve something specific in the US treasury market, or is he doing it because he actually want the dollar to be weaker? This administration is facing a pretty complex mix of challenges. Right. Because they only have so many policy steps they can do and they need to solve 100 different problems with those different steps. So I think they would like to have a weaker dollar against Asian currencies because they feel that could help manufacturing in some parts of the country. So that's the sort of weaker dollar.
Michael Batnick: Well, isn't it two things? It's one, onshoring. If Japan exports are suddenly more attractive, it works against us. And also my understanding is that this is a cheaper way to influence policy. So Japan, I think they had to sell what was reported $94 billion worth of treasuries in order to finance what they're doing. If he can prevent that, that is a more cost effective way to step in.
Jens Nordvig: Agreed. So clearly it is not really in the US's interest to have the bank of Japan or it's really the Minister of Finance in Japan. Doesn't matter.
Michael Batnick: Those two hazards.
Josh Brown: The wizard of finance.
Jens Nordvig: It's not. It's not in the US's interest to have them sell a ton of Treasuries. Right. That pressures up yields. Right. So clearly by sending some kind of signals where the intervention is successful with less ammo being spent makes some sense from a treasure market perspective. There's also been talk about them being able to use kind of some kind of lending facilities more aggressively so they can get the funding to do their intervention without having to sell Treasuries. So all that makes some kind of sense. But I think there's the currency dimension that is interesting. And it's pretty interesting that we have this kind of currency dimension where the administration is willing to endorse currency weakness and even actively pursue it while we have inflation problems at the same time. Right.
Josh Brown: Those two things don't seem to go together.
Jens Nordvig: No. And yet that just tells you that we have so many conflicting goals and policies.
Josh Brown: The administration's attitude toward inflation has been sort of like, well, as soon as we get the Iranians under control and we unblock the Strait of Hormuz, WTI will crumble from 100 back to 70 and everything will be fine again. So that has not happened yet. But that seems to be what they're saying, even if they're not saying it that way. But it's already gone on for too long and now higher energy prices are embedded are the new inflation expectation and it's hard to shake that once it starts.
Michael Batnick: Do you guys think that it's strange given everything that we're talking about, with yields just screaming higher and mortgage rates are about to hit 7%, although that's been a problem forever, so maybe that's not moving the needle. Gasoline national average keeps bumping up and yet the Vix is at 18s and P equal weight is like 4% off its highs. There's just no fear at all. Oh, and we just had the nastiest tech momentum crash on record and yet the stock market is just yawning.
Josh Brown: Are you surprised by that?
Jens Nordvig: I'll be surprised if we have a couple of more weeks of this yield move. I'll be very surprised if there's not a reaction equities. And I think the point you make about oil is important because we're now more than six months into this and it was supposed to last a couple of weeks. We had a deal on the way that has obviously totally fallen apart.
Josh Brown: He called it like an interlude or something, like a day trip to Iran.
Jens Nordvig: And I think it's also increasingly clear that the US is expending quite valuable resources and the opponents sort of deliberately doing something to make that problem bigger. So that's not going to make the situation any easier. So this could go on for a while, I think. We've also had rumors from different people in the administration that they know this could be a multi year thing now.
Josh Brown: So that's what's being priced into bond yields then.
Jens Nordvig: Yeah, and you can see it as well. If you look at the bond market, there's a concept called break even. You can split the bonds into what's the real yield on the bonds and what's the inflation that's expected that people call the break even. And that has also started to move in the last couple of weeks. So if you look at five year break even, right. It was 2:2. Now it's 2.42:5. So that's also relevant for this Fed meeting that's coming up. Right. Like how chill can they really be? The AI inflation is here, the energy inflation is there and they're coming from an inflation level that is already above target. Like it's, it's hard to be too relaxed.
Josh Brown: Do you think the administration was hoping that I would be deflationary or disinflationary because it would cool down the jobs market, which really hasn't happened. And now they're looking at this like, all right, so it's a capex boom. It's great, great for photo ops. Every time they open a new data center, we can put an official there to cut the ribbon. But it's not disinflationary at all. And if anything, workers in the bottom 10 and 20%iles are actually seeing more meaningful wage hikes. People working in the trades have never been more employed and it sort of is not playing out the way maybe they would have hoped as recently as nine months ago. Yeah, there's some element of that.
Jens Nordvig: Absolutely. This technology is been pretty hard to forecast. It's moving so fast and it's hard to compare to these previous technology shocks. And Walsh did a lot of public speaking before he was appointed. Right. Where he talked about deflationary effects of AI and kind of used that as an argument not to hike rates. And it's probably one of the things that made him a bit, what should we say, schizophrenic in terms of sounding hawkish at one meeting and dovish at another meeting.
Josh Brown: Disinflation is not showing up anywhere that it matters.
Jens Nordvig: No. So I think that where we are is that there's a technology that has a promise of being deflationary in the long run, but the technology is being built and as we already discussed, building is so expensive that that demand is creating incredible pressure on dram. That's why Korea is benefiting so much and some other things as well. Right. And at the moment we're just experiencing those inflationary effects. And if the CapEx is going to continue to ramp up into 27, which seems highly likely. Right. It's very hard to imagine that this inflationary force is going to go away anytime soon. There's a guy called Elon Musk, you might have heard about him, right. So he knows something about some of these issues. So he said, yeah, we obviously going to get a supply response, right. So we're going to get a supply response clearly, like you can make a ton of money making meaning they will
Josh Brown: build more memory plans to satisfy all the.
Jens Nordvig: And by the way, that's what's happening in Korea now. Like we're going to have a massive investment boom in Korea. I think growth is going to surprise in Korea in a massive way. But his point was, okay, if you really step on the gas and build a lot of extra capacity, maybe within a year or two you can get a 20% increase and what we need is 100%. Like that's just quoting him, but he's built some data centers himself. I think it's not irrelevant to get these projections from people who are actually in the data center business themselves. And I think it's gonna be very hard for supply to match this demand and therefore the price effect is gonna be there for a sustained period of time.
Michael Batnick: So that's it. I mean, to not overthink things in terms of why is the market looking past all of these geopolitical interest rate risks? It's because the stock market is not particularly expensive and earnings growth is 20 plus percent and it's expected to be that way for a while now. Obviously this could look Foolish in three weeks if stocks do fall 20%. But you just said. Everybody's saying the same thing. They're not going, they're not slowing down.
Jens Nordvig: No.
Michael Batnick: And until they, until somebody says otherwise, the market will act as if they're.
Josh Brown: We have bond vigilantes show up in the debt market for corporates, meaning could Alphabet or Meta or somebody come to market with another debt offering that instead of being two to three times over subscribed, it's actually underwhelms, the rate goes up or the deal gets canceled. Like that has not happened yet. But wouldn't that be the ultimate signal that the party's over?
Jens Nordvig: I think a lot of people have been looking at Oracle as the less strong play in this space.
Josh Brown: Right.
Jens Nordvig: And their credit spreads have also been volatile. But I saw today like there was a major bank that upgraded Meta. I think the price forecast got raised by 25 or 30% because that company is like having all its existing businesses and now they'll actually have like an enterprise AI business on top.
Josh Brown: They launched Muse, which is going to be like an open weight model, I guess, like a free to use model that they'll make money from people using it. Yeah.
Jens Nordvig: So, so that there's, there's a lot going on. So I agree when you, when you look at some of these companies, right, like actually their valuations, if they are going to be the winners or one of the winners, like the valuation is not that extreme, right. The, the trick that it was like
Michael Batnick: 17 times forward earnings, nobody wanted it two weeks ago.
Jens Nordvig: Exactly. Yeah. So, so the trick is, okay, whose lunch are they going to eat?
Josh Brown: This has been a rally in three stages. The initial stage in 2023 was MAG7. The consensus was the hyperscalers are going to win AI. They are going to be the engine behind it and that's where the profits will accrue. And then sometime mid 2024, late 2024, everyone's minds were changed. The hyperscalers stopped going up and the semiconductors became, I don't know, 20% of the S and P. Biggest semiconductor rally in history for half of 24 in all. 25. And then this year it switched again. The semis are now reporting blowout numbers and the stocks are falling. What's going up the software layer now? The market seems to have become convinced actually same as ever. It'll be the SaaS, the enterprise SaaS, companies who sell the most AI shit to people and they will be the winners. So we've had like a horse race with three different horses leading in three years. The narratives are changing so fast. I wouldn't even rest comfortably on this new software thesis just because Salesforce came back.
Jens Nordvig: Yeah.
Josh Brown: What are they going to decide is the winner next week? I don't Know if you, if you
Michael Batnick: zoom out and you look at a ratio chart of IGV divided by smh, obviously it's in a long, long downtrend. It bounced back to its 200 day, barely. I mean, if you zoom out, the rally looks like nothing. So we could easily in six months be talking about this all over again.
Jens Nordvig: Actually, software is, I will add a fourth wave. Right. So this is a little bit harder to see, but we deal with a lot of hedge funds around the world. But we also deal with people who take more long term investments like pension funds, sovereign wealth funds and so forth. And I think their main focus has been on the energy. Right. So they would invest in the power plant or grid infrastructure.
Josh Brown: No matter who wins, it all needs energy.
Jens Nordvig: Yeah. Or even in the metal space. Right. Copper is going to be a part of this as well. Right. So there are a lot of kind of derivative expressions and some of those plays will be maybe not so much in the public market. So you need to have a very big checkbook to participate. But very big investors have definitely been doing that aspect of it for several years now.
Michael Batnick: You mentioned copper and industrial metal earlier. We didn't speak about gold, which traditionally has been the debasement trade. All right. I don't like what's happening. I don't trust the government. There's too much debt. I just don't like this. I'm going to buy gold as an alternative. Problem is when real rates are going up like they have been, they're the highest they've been since 2007. That is a legitimate competitor. I don't really want to own a precious metal. I'm going to own something that has a very positive real rate of return.
Jens Nordvig: Yeah.
Michael Batnick: So that further complicates matters.
Jens Nordvig: So gold has been a lot of fun to analyze in the last couple of years. I never really found that gold was a particularly exciting asset until 22. It moved with the dollar move with real rates. And if you knew what the dollar was doing and you knew real rates were doing, like you know, roughly what gold was doing, but it wasn't doing anything on its own. But since 22 and especially middle of 23, gold has been doing something that's totally different. So I'm not saying that real rates are not relevant, but there's been something else.
Josh Brown: We think it's central bank buying and speculators betting on more central bank buying.
Jens Nordvig: Yeah. We've been through different waves. Right. So there was, I would say the liftoff when that correlation to real rates really broke was China. China started to accumulate a ton of gold. Is it the Chinese central bank? China is incredibly skilled at not being totally transparent about what's going on. So finding which specific balance sheet it's on, it's hard. But we can see either way. You know, it's coming from Beijing, they're absorbing it somehow. So that was the first wave. Then there's been broader central bank buying. Then last year we had an incredible kind of spec wave that both played out in ETF space and also in all those GLD options.
Josh Brown: So silver took off too.
Jens Nordvig: Yeah. This is what we do on a day to day basis like tracking all those flows in incredible detail. Right. So I would say right now it's hard for me to imagine that we're going to get the same level of bonanza in option trading, retail option trading in gold. So I think that means that the targets you want to have for gold in the next couple of months needs to be tempered from. Okay, we already had the biggest bonanza ever, right. And it's, they probably not going to repeat what we had in January. But the ETF flows have been incredibly strong, especially out of Europe actually. So there is some very persistent demand that I think is going to mean that even if real rates continue to go up, gold's going to have some support. And it's to do with what we started speaking about. People are not comfortable buying long end bonds so they feel that there's some kind of hedgehog involved in the gold trade. And I think on a multi quarter horizon that demand will be there.
Michael Batnick: You mentioned earlier that when you're feeding data into a model, as the world changes, we might be using an outdated playbook. And I think one of the things that I don't subscribe to anymore is that discretionary stocks tell you a lot about either the stock market or, or the consumer. So yesterday I saw a Guy, Q Capital 2020. Now it's a satirical account. I don't know if he's kidding or not, but doesn't matter because what he's showing is real. A lot of the consumer stocks, specialty retail, have been blown to smithereens. Right. Like American Eagle today, down 15%. Dick's in the last month down 38%. Burlington Casey, GeneralStar, I mean a million. They're all getting killed. Advanced auto parts, whatever, whatever it is, you name it, they're getting killed. So I brought some charts that I want to go through. Let's start with chart 11, please. So this is the United States Red Book Index and retail sales, right. Just retail Sales year over year. Nothing really in here that is noteworthy. I had the guys take a look at all of the names of companies that reported same store sales going back to 2001. So we have like a decent data set here. Chart 12, please. So this looks pretty similar to this latest chart. So in here it's a composite of Ross Stores, Bath and Body Works, Starbucks, Costco, Target, autozone, Dine Brands, Brinkler, Williams, Sonoba, Walmart, Macy's, Gap, Home Depot, Abercrombie and Kohl's. And same store sales. All right, it's up 5.1% year over year. So where I'm going with this is chart 13, please. If you look on the left at an equal weight discretionary relative to The S&P 500, this thing is at the lowest levels.
Josh Brown: Crashing.
Michael Batnick: It's crashing. But guess what? It's been crashing. It's been going from the top left to the lower right for the last decade. And it's told you nothing, nothing at all about the stock market. This has happened while the stock market equal, weighted and otherwise is at an all time high. So instead of looking at the stock price, which has all sorts of information in there, it could be valuations, it could be idiosyncratic risk, it could be,
Josh Brown: I think it's like portfolio managers just don't want to own those stocks.
Michael Batnick: It could be a million.
Josh Brown: No matter how well they're doing.
Michael Batnick: What does Nike say about the consumer? I don't know. I don't know. So I look to bank of America as a set of charts that they put out every month. I'm sure you're aware of this. Let's go through some of these. Spending. Consumer spending eased a little in July, chart 14. But the overall picture remains robust. Bank of America total aggregated credit and debit card spending per household increased 5% year over year. Next chart. So that's spending. This is household savings inflation adjusted relative to 2019 levels, of course, coming off the sugar high of all that money printing.
Josh Brown: But still it looks like back to
Michael Batnick: normal above where we were in 2019, inflation adjusted. Next chart. We're looking at total card spending excluding. It's not just gas, excluding gas. And online retail still growing. Now there's inflation here, okay? So if you strip that out, it's whatever, it's flat. It's not crashing. Lastly, and this is maybe my final, this is my final point here. Necessity spending versus discretionary. And bank of America serves the nation. It serves a millions tens of millions of American households. And discretionary spending is doing it's hard to say a bad thing about this. It's freaking booming. So I don't think. Shut offs, please. I don't. On the one hand, it is a little bit disconcerting to look at all of these discretionary stocks. Not all of them targets working. Abercrombie is working, but there's a lot of them that are down 30%. So I don't want to completely dismiss the stock market, but if you go to the source of the truth, I don't know that it says a lot. I don't know that the consumer is cooked because the stocks are.
Jens Nordvig: Yeah. So I think. I think one thing that's pretty tricky this year is that we had these big tax refunds.
Michael Batnick: Right.
Jens Nordvig: So the big Trump 2 budget giveaway
Josh Brown: was a beautiful bill.
Jens Nordvig: Yeah. Was the fact that we had the no tax on overtime and no tax on Social Security and those types of things. And whatever happened last year only got refunded when you filed your tax return this year. So there was a lot of people who got refunds. And you can file really in February, but most people file around the deadline in April. Right. And then you get your money maybe in May. So a lot of people got money in the bank in May. And then it takes some months to spend it. So I think some of what you're seeing in these charts, you show there was sort of the juice from those tax refunds. And then the big question is, over how many months is it going to spend? If it's just a couple of months, then there could be something coming after that. If it's spread over six months, we have another couple of months of it. But I think that's one thing that worries me a little bit, that we had some extra juice from those tax refunds.
Michael Batnick: Well, we have $5,000 coming. What are you going to do with yours?
Jens Nordvig: Yeah, let me put it this way. I don't think I'm going to spend it before it's in the account.
Josh Brown: I think you're dividing the charts wrong. So. No, no, you're not making a mistake. I'm saying the way that the market thinks about consumer spending, when they look. Look at stocks, they break it up into discretionary versus staples. Right. Like consumer staples, mostly food and tobacco. But the reality is, if you were to break up the discretionary sector by experiences versus items, you would find that the experiences chart tells the same story as all those credit card spending charts.
Michael Batnick: Correct.
Josh Brown: So if you just had a bucket, that was golf courses, airlines.
Michael Batnick: Yeah, you're right. You're right.
Josh Brown: Hotels live nation like things that people can do versus items at Dick's that they no longer want to fill their garages with. I think that's more close to the truth of what the consumer is doing with their capital right now.
Jens Nordvig: Yeah, you get that from the airlines as well, that I think Delta is expanding the business class.
Michael Batnick: They had record spending in Q2. Like during all of the shit.
Josh Brown: Moynihan was on TV today. He said there is. I forget the exact wording, but it was literally like. Or maybe this is yesterday. He said so Moynihan is Bank of America CEO and most of the credit cards run through his hands. And he said the bank's data shows consumer spending and credit remain healthy despite rising gasoline prices. Quote, consumers spent in the month of August about 4% more than they spent last August. Last quarter it was 5%. So it's kicking along. That's consistent with a strong growing economy. He would love to be able to come out and say things are slowing. I think he would love to be able to say that. Cuz it's easier for him to make his numbers for next quarter. It's just not what he's seeing.
Jens Nordvig: Yeah.
Josh Brown: And people are dying for him to say it, but he's not saying it. Citi's not saying it. J.P. morgan's not saying it. None of them are saying it. I trust the credit card data more than I trust the stock price of Dick's Sporting Goods.
Jens Nordvig: Yeah. We've obviously had a big debate about what's happening in the labor market. Right. The labor market has surprised massively on the upside last couple of readings. Right. So the economy is not falling apart. Right. And that's also why we have these inflationary pressures. Right. And if the labor market is not soft, they have to respond.
Michael Batnick: Yes. It's amazing how much shit has been thrown at this economy. Tariffs, inflation, frozen housing market. I mean a frozen housing market, gas prices. Gas prices. And nothing is budging other than the Terminator economy. It's unbelievable.
Josh Brown: Yeah. We have been through a lot. What are you worried about is the bond market. Is it currencies? Is it somebody saying the wrong thing in front of a microphone that's in a position of authority? What's the thing that people are coming to you and saying they're worried about?
Jens Nordvig: Yeah. So people definitely worried that we're going to just have oil prices continuing to go up. Right. They've gone up in the last couple of weeks substantially, but we could go up more. There's not really any solution around the corner. So Continued rises there. That's number one. Well, I don't have not ranking them. So I would say the bond market,
Josh Brown: you're hearing that from a lot of your clients.
Jens Nordvig: Yeah, we have trading clients all around the world. Clearly there's hyper focus on the, on the oil price. Now the long end is really concerning people and concerning equity investors.
Josh Brown: You think it's concerning equity investors?
Jens Nordvig: Yeah, it is. I think it's making people nervous that there's this nonlinearity when the long end moves quickly, you know, 20, 30, 35 basis point, we gets into danger territory. So we're very close to that danger territory. So that's, that's the second one. And I would say people are also worried that, okay, is this election gonna go okay? We're getting a lot of questions. Is the election gonna be all right?
Josh Brown: Is it gonna like the sanctity of the election?
Jens Nordvig: There's that. And then assume no. It's also a long time since we've had a Dem sweep. So there's some investors that are concerned about is that gonna move markets too?
Michael Batnick: Yes. Does all these worries make you worried or do you take a little bit of comfort in the fact that there's so much worry that the market does it for you?
Jens Nordvig: No, I think, I don't think. I've been like a debt scaremonger my whole career, but I do think at some point you have to take it seriously. And I think we're starting to sniff that. It's starting to impact the asset allocation. Right. So what matters is when investors respond to it. And I think we can start to sniff it.
Josh Brown: Don't you think there's enough demand that a 10 year above 5% gets aggressively bought by allocators who have been waiting for something like this, or we might find out the emperor has no clothes and there are no buyers.
Jens Nordvig: Yeah, I would say the fact that we have to eat the bonds both from the US treasury and the hyperscalers at the same time is a bit game changing.
Josh Brown: Okay.
Jens Nordvig: So I think that makes it harder to say, okay, what kind of level is it?
Josh Brown: So why isn't Besson saying that?
Michael Batnick: Yes. The White House going to say to the hyperscalers, hey, assholes, guys, no more, calm down.
Jens Nordvig: But this has to do with the conflicting objectives. They want the AI sector in the US to be strong. They want them to come and rescue the growth of the U.S. economy. And it is a big source of growth. Now probably part of the reason why we have resilience is that that growth is there. So they don't want to hamper that. That's why they're doing these buybacks, to make sure it doesn't go off the rails too quickly. But I do think heading into next year it's going to be a problem. It could be a massive problem for housing markets. And so like, what if we have mortgage rates that are 8%, right?
Michael Batnick: What's the difference?
Jens Nordvig: Don't forget the housing market's already out of business.
Josh Brown: It's already out of business.
Jens Nordvig: But don't forget that a lot of people have mortgages that are 3 and 4% that eventually have to roll. And it's almost like because there was so much QE and so forth when we locked in those mortgage rates, we have the hangover of those mortgages resetting to a higher level with a huge lag. So there are going to be housing sector issues that are going to be exacerbated.
Michael Batnick: But on that point, there was so much financial suppression in the last couple of decades that was pissing everybody off. The same people that are pissed off now about government spending were irate about how much interference the Fed and the treasury were having with the bond market. I'm not saying that this is awesome and it's all roses and sunshine, but this is a lot more of a normal yield curve. In a healthy economy and a growing economy, this looks a lot more normal than that shit did.
Jens Nordvig: Well, if you look at historically, it's certainly more normal to have 4, 5% bond yield than having one or whatever.
Michael Batnick: We have trillions of negative rates. That was abnormal.
Jens Nordvig: Yeah, agreed. And you can also see it like in Europe, right? We, we now have yields that are more normal in Europe, ECB high grades today. Right. And banks are making money. Right. So it's very hard for banks to exist and make money. We've seen in Japan as well if there's no yield at all. So in a way it is a more normal situation we're in. The problem is that if this hyperscaler issuance continues to accelerate, then we might get another percent or another percent on top of what we've already seen. And then there's probably some non unaries kicking in.
Josh Brown: It would be very ironic and interesting if the bull market for stocks comes to an end because the hyperscalers went from being like the biggest cash generating companies in history to being the largest debtor companies in history. And they did it on purpose to themselves, 100%. It would be very poetic if we say the market topped when finally. Yeah, I don't know if we stopped it. The market topped when finally, like, somebody said no to Amazon in the bond market. Yeah, that would be sort of a poetic end.
Michael Batnick: That would be the signal.
Jens Nordvig: Yeah.
Josh Brown: We're not rooting for it. Just pointing out that I think that's
Jens Nordvig: something to think pretty hard about, because if you look at the flows, that's the direction we're going.
Josh Brown: Okay, last question. What's the most interesting trade right now going into 2027? Maybe something that you're hearing people putting on themselves or something that you're thinking about. What's something that no one's thinking about that actually might be a good trade?
Jens Nordvig: Well, I think one of the most important and pronounced macro trends is playing out in Korea. I think that trade can continue to
Josh Brown: go in a massive equity market in Korea or you want to see the one?
Jens Nordvig: Both. I think it's just such an extraordinary situation. That is probably the biggest macro country shock I've seen. Almost entirely.
Michael Batnick: How do I buy that at the mall?
Josh Brown: Can I buy Korean, like, mid and large caps that are gonna benefit from a richer consumer, or do I have to buy these memory stocks?
Jens Nordvig: I think you can do both because it's like the workers are getting paid, the dividends are coming out, the growth is gonna be there. They're gonna invest. It's like, on all cylinders.
Michael Batnick: Dude, we're going to JFK on Sunday. Let's buy. We'll buy the wine at the airport.
Josh Brown: Good call. We could do that. Did you have fun on the show today?
Jens Nordvig: Yeah, absolutely.
Josh Brown: All right, well, we were super excited to have you back. As always, we've learned a lot from talking with you. I want to tell people where they can learn more about the work that you're doing at Vanda. I know the company officially changes over in October. Is that right? So it's called Vanda Macro Research.
Jens Nordvig: So, yeah, we, we, we have the. The Vanda Macro data and we have the. What we call Vanda Macro Intelligence, which is the.
Josh Brown: All the insights.
Jens Nordvig: Yeah. So vanda.com is the domain now and you can. You can find me on. On Twitter X if you. If you want to do that. That's J. Nordwick. That hasn't changed.
Josh Brown: All right, awesome, guys. Follow Jens for sure. Check out Vanda, of course. Thank you so much for coming. We appreciate you. Jon, what do you think? Good. Daniel, good job. All right, guys, thank you so much for watching. Thanks for listening. Back with you very soon. We're. This is US Bank's cozy cash formations with your chief financial playmaker, Fernando Mendoza. You are worthy of financial security. Budgeting is not restriction it's freedom. You are smart, you are capable.
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