October 30, 2025 • 28 mins
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A surprise rate cut without fresh data sounds bold on the surface, but the real story lives in the yield curve the Fed doesn’t control. We unpack why trimming the short end won’t guarantee cheaper mortgages or easier financing, how long-term yields respond to inflation expectations and Treasury supply, and where tariff rulings at the Supreme Court could tilt the outlook. Rather than chasing a tidy headline—“rates down, stocks up”—we map the messy mechanics that set borrowing costs and valuation multiples.
We also dig into the signaling game around central bank independence. When data is delayed and contested, forward guidance becomes both shield and compass. We talk through what a potential rollback of broad tariffs might mean for inflation and growth, how a sticky inflation path could keep long yields elevated despite cuts, and why the market’s AI-fueled optimism still runs through the discount-rate math. From mortgages and capex to equity risk premiums, the key forces sit beyond the overnight rate.
Our skeptic’s playbook centers on you, not the news cycle. Start with goals and cash flows, then match duration and risk to time horizons. Watch the 5-year and 10-year yields if you care about housing and valuations, stress-test for a no-cut December, and keep a margin of safety if long yields jump. Discipline beats prediction when policy, courts, and data collide. If this breakdown helps you think clearer about your plan, follow the show, share it with a friend, and leave a quick review—what’s the biggest curveball you’re preparing for next?
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Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Steve Davenport (00:26):
Hello, everyone, and welcome to
Skeptic's Guide to Investing.
I'm Steve Davenport and I'mhere with Clem Miller.
And we're going to talk to youabout the Fed and the decisions
yesterday to lower rates and togive us a little bit of a
surprise.
Um, the Fed is usually verytransparent and everybody
(00:48):
understands what they're goingto do for the next two or three
meetings.
But yesterday they gave us alittle bit of a curveball.
What do you think about whatthe Fed said yesterday regarding
December not being exactlywhat the administration and a
lot of the market wants, whichis another it cut?
I thought the Fed lefteverything in the hands of uh
(01:11):
the administration to tell themwhat to do and when to do it.
Is it is that not the way it'sworking, Clem?
Clem Miller (01:18):
No, and I think that in this case they're
trying to temper all thoseeconomists who think they're
gonna be like six rate cuts in arow or five rate cuts in a
row. The Fed is saying, no,that's not necessarily the
case. It could be just one nowand then a gap and then another,
(01:42):
you know, and a couple coupleof you know sort of mid early to
mid-2026, and then maybe onelater 2026.
You know, they're they're notum you know, they're not uh
obeisant to the president, andyou know, they're not trying to
do what the economists are aresaying.
(02:04):
They're not following the leadsof the private sector
economists.
Uh I think uh if anybody wasthrown a curveball, it was the
uh you know the macroeconomistswho are you know who were pretty
convinced that we were gonnasee a a round of uh a round of
you know several rounds of ratecuts.
Now it's worth noting why didthese economists think there
(02:26):
would be rounds of rate cuts?
Because they see the economystarting to weaken.
And apparently the the Fed isnot 100% convinced of that.
Uh you know, they they look atsome recent weak data, of
course, they mentioned that.
But is there going to be moreweak data?
(02:47):
You know, they're they'rewaiting to see what the data
actually looks like.
And right now, the governmentisn't producing uh much data
because you've got thisgovernment shutdown that affects
the statisticians.
And even on top of that, youhave this, you know, this
uncertainty about uh theaccuracy of the uh of the data
(03:10):
that's coming out of BLS.
Uh, you know, the one uh guythey nominated, the the Heritage
Foundation uh economist, so tospeak, who was nominated to be
the head of uh BLS, uh he had towithdraw uh because uh he was
seen to be too extreme.
(03:32):
So it's a good thing he wasn'tuh nominated because then you
didn't really have to questionthe data a lot.
But I think you still have to,you know, under the Trump
administration, now that they'veidentified BLS as a source of
their angst, uh, I think uh Ithink one has to question you
know the accuracy of that datagoing forward.
Steve Davenport (03:54):
So I think that I mean, I hate to say this
because I know that it's alittle bit of heresy to for
anybody in this business toquestion rate cuts because rate
cuts are good for market valuesand everybody wants higher
market values, right?
We all want as a society to seethe markets continue to go up
(04:15):
and to the right.
And I do too.
But I also don't know if theFed should be sitting on this uh
position of always trying tosatisfy markets.
I thought that their originalgoal was to help the economy and
unemployment and lowerinflation.
(04:35):
And if there is a third, youknow, um I I think the markets
are a tertiary or more goal.
So I don't think, you know, thethe entire population is not in
the market.
So I don't know how you can saywe're helping the American
people by helping the markets,we're helping the people who
have a lot of equities.
(04:57):
So I have a little problem withif the data is not there and if
they're having trouble withdata and it's making them
uncertain, they made a prettyquick vote to lower rates, and
they haven't had data for awhile.
So I'm not sure I'm buying intothe whole we're doing this
(05:18):
because of the data.
I kind of wonder if they'redoing this as a statement to the
administration that we will notbe influenced by what you want.
We're still here to defend thedollar and some of the things
that are important to theeconomy.
I mean, could they be it?
(05:38):
Seemed like Powell cavedquickly in before the September
meeting and his Jackson Holespeech, and seemed to be
entirely on board with what theadministration wanted, and now
he seems to be stepping it back.
Is this is this about a poweruh struggle, or is this really
(05:59):
about the data fun?
Clem Miller (06:02):
Well, it's about data, plus it's I think it's a
little bit about but theyhaven't had data.
Right, I know, I know.
It's no, it's the absence ofdata.
It's the absence of data that'sthey cut.
Steve Davenport (06:14):
My point is that they made a cut yesterday
and they didn't have data.
Yeah, talking about in thefuture, but well, if they don't
have data and they're thinkingthere's a problem, then it was a
problem yesterday, wasn't it?
Clem Miller (06:26):
Yeah, they're living off the old data,
basically, Steve.
Steve Davenport (06:30):
But you just told me that you think the old
data is questionable.
Clem Miller (06:35):
So how well no, the I guess I don't understand as
time goes as time goes, as timegoes on and the the you know the
lack of data be you know getsto be a compounding problem,
right?
Then there's less certaintyabout what's going on with the
(06:56):
data.
So it's it's not a it's not auh a problem where you you know
if the data is shut off, youknow, you uh are completely
unable to make decisions.
It's a compounding problemwhere a month from now the fact
that there's no data is going tobe worse than it is now, and
two months it's gonna be worsethan it is now, three months,
(07:18):
even far, even more worse.
So that's that's the issue onthat.
But back to your to your latestquestion about uh whether this
is a power struggle or not.
Um I I agree with you that whatthey're trying to do is they're
trying to emphasize Fedindependence.
(07:39):
I really think that's animportant um part of of what
they are doing.
I think that uh they see thatthe administration is somewhat
um distracted by some otherthings.
And so and so now uh I like theword fickle.
Steve Davenport (08:00):
You ever heard the word fickle?
I think that kind of tried, youknow.
I would say on Friday they'reone thing towards China, and on
Monday it's like the sun hascome out and everything is
glorious in China again.
So I I call that fickle.
Clem Miller (08:15):
And so it's a perfect opportunity to uh just
sort of get in a statement aboutFed independence uh when
there's so much else going on.
Of course, you know, Trumpmight look at that and say,
Well, you were trying toundermine my trip with Xi uh out
in Korea.
Um, so you know, maybe there'llbe some kind of true social out
(08:39):
of the the White House on that,but um you know, but but but
we'll see.
Um in any case, the market.
Uh I was looking at it thismorning and you know, looking at
it now, I bet you the market'sdown.
Um, let me see.
Oh, actually it's yeah,market's down.
(09:03):
Markets down.
I'm up.
Markets down.
Steve Davenport (09:08):
I forgot this this episode is all about you.
Clem Miller (09:13):
I like I like I like I like when I'm up and the
market's down.
Um, so so can we think aboutthe investors that listen to the
podcast and stop talking aboutyou and your network?
Steve Davenport (09:27):
Um so I have an important question, Clem, that
we don't really get to wear.
Clem Miller (09:32):
Wait, wait a minute, wait a minute, wait a
minute.
You hold your question for asecond.
I just wanted to mention onething, and that is I think that
one of the reasons why the Fedis being a little bit um uh uh
not wanting to talk about uhanother rate cut yet is because
(09:53):
the Supreme Court is going to betalking about um going to have
oral arguments on the tariffs uhin a couple of weeks.
And I think they're gonna wantto see how that goes.
Because if the if it lookslike, based on the conversation
at the Supreme Court, that uhTrump's tariffs are gonna get
overturned, that creates adifferent um economic scenario
(10:18):
uh than if it looks like theSupreme Court is gonna uphold
them in some sense.
I I still believe that theSupreme Court is going to
overturn them.
Uh for the most part.
I think there are certain areasthat they can re that you know
that uh they may make some Idon't know, exceptions or
(10:43):
reinforce some older laws, likefor example, the steel and
aluminum.
That's actually allowed underlaw to have uh you know the the
president um apply thosetariffs, you know, without
having to go back to toCongress.
But uh, you know, some otherthings, these new reciprocal
quote unquote tariffs, thefentanyl quote-unquote tariffs,
(11:05):
all those things are kind of newthings that that depend on uh
the willingness of the SupremeCourt to allow emergency powers
along the lines of economicsanctions uh to apply to uh to
tariffs.
When tariffs have always beenabout you know collecting
(11:29):
revenue and about leveling theplaying field competitively.
So I I I still don't thinkthey're gonna agree to that.
I think when the Fed, if theFed sees a conversation that
goes against tariffs, I thinkthat might actually be positive.
I know Trump would say, oh,it's so negative that the Fed
that the Supreme Court's turningthem down.
I don't think so.
I think it's gonna be apositive for the economy if the
(11:51):
Supreme Court does that.
And I think that uh that willinfluence it.
Steve Davenport (11:59):
Yes.
And so I I think I think it'syou know, I think there's so
many things that can go onbetween now and the December
meeting that I think uh a littlebit what what Powell is doing
is just putting a defensivestatement out there when he
controls the message, which atthe press conference that's what
he's supposed to do.
(12:20):
He's supposed to be clarifyingand and making things more
understandable so that the Fed'snot doing something that will
surprise.
And I think by saying this,he's setting the groundwork for
um, you know, the fact that,hey, there is a lot of
uncertainty.
And I honestly, I mean, do youthink I I think there's issues
(12:41):
of the shutdown, there's issuesof China, there's issues of
Supreme Court and tariffs,there's a lot of issues going
around.
But I thought we could kind ofsegue for a moment into the idea
of what do they really meanwhen they say rates are coming
down, therefore it helpsbusinesses, it helps individuals
(13:04):
with home mortgages.
And why that might notnecessarily be the case.
I mean, the simple assumptionthat everybody's making is if
the Fed thinks about the curve,and we talk about the interest
rate curve, and really what itis is what are interest rates
across different durations?
(13:25):
And duration we mean time.
So the short-term rate, thethree-month, the nine-month, um,
the T bills, the one year, thethree-year, the five-year, which
is where a lot of businessesborrow, and then the 10-year,
which is key for mortgage rates.
We're making, or the market andthe media is making the
(13:49):
assumption that a quarter pointcut in the short end is going to
mean a quarter point across theone year, the three year, the
five year, the ten year, and thetwenty-year.
That it all shifts in one bigmove, and it's all consistent
across each duration.
And I think you and I knowthat's simply not true.
(14:11):
That doesn't happen exactly.
It's it's it's a lot morecomplicated based on supply and
demand and what treasuryissuance is going to be, and
what different pensions and andinsurance companies need in
terms of duration.
So there's there's othervariables, and it's not as
simple as Fed cut equals lowerrate for everyone.
(14:34):
And and I think we're um, youknow, I think this is another
case of uh the attention span ofthe average investor being
shorter, and everybody wants toexplain to me well, what does
the Fed matter?
Okay, I'll tell you, low rate,good for market.
And and I think it's a littlebit, I don't know, insulting.
Clem Miller (14:57):
That's not what you're saying, is that's not the
end of the story.
Steve Davenport (15:01):
You know, the I think it's I think it's I think
it's a an attempt by the Fed todo something, but it is far
from, you know, it's far fromabsolute control over the curve.
They control over the shortrate.
Clem Miller (15:17):
That's it.
Let me reinforce, let mereinforce again for those who
who may not really understandinterest rates and rate curves,
is that, you know, as Steve wassaying, there are multiple types
of rates by term.
And the Fed only controls theshort-term rates.
(15:37):
Okay, they only control theshort-term rates.
They do not control thelong-term rates, uh, which are
determined by the bond market.
And while short-term ratechanges can have some influence
on the bond market and onlonger-term yields, longer-term
(16:00):
rates, uh, those can be, thoseinfluences can be quite modest.
And really, there could be uhthere would be a greater um the
greater driver on bond marketsis really long-term inflation
expectations.
So if it's expected, you know,if you've got a situation where
(16:25):
tariffs continue and inflationis expected to rise, uh, you
know, this would have an impacton making bond yields go up.
And you know, obviously bondprices go down, uh, but bond
yields go up, which would be, asSteve was pointing out, bad for
(16:46):
mortgages and other uh otherlong-term uh debt instruments.
(17:10):
Also, to the extent that to theextent that investors, stock
investors look at bond yields asa discounting factor for
long-term cash flows, it'sactually not that great for the
uh for the stock market either,um, at least some elements of
the stock market.
Steve Davenport (17:30):
Right.
I think I guess I'd say topeople is our name is Skeptics
Guy.
And the reason we pick thatname is that we think sometimes
you need to be a littleskeptical about what the media
is saying and what people aretalking about regarding your
portfolio and your assets.
And sometimes, and I I don'tmean to be cynical with this
(17:54):
comment, but sometimes thesepeople are talking their own
book, and in market terms, thatmeans they're saying what they
want to affect their businessand their stock and their
particular um choices, and sothey're saying, I'm I'm I'm all
in on this market because theFed's cutting rates, Fed cutting
(18:17):
rates means you know it's goodfor me, and I think it's a
little bit simplistic and alittle bit um almost insulting
to investors because we knowthat that's marketing that's not
really true.
We know that it's a complicateddecision that involves a lot of
variables and a lot of thingsthat we don't have any control
(18:39):
over.
We're trying to come up withwhether we think this is a you
know a good thing or a bad thingfor markets.
And in general, I guess I wouldsay right now it's good, but I
think what they're saying is itreally could change, and we
could really see many thingshappen between now and the
(19:02):
December meeting that wouldindicate a reason to not cut.
And if they don't cut, thennone of the shifting goes on
because it's it's just notlikely to happen.
And I think that right, I Iguess I would say to everyone if
you hear something that soundstoo simple or too good, it
(19:22):
probably is.
And I don't think this rally onAI can go on forever.
Clem Miller (19:31):
And we're gonna do another point.
That can't either.
We'll we'll be talking aboutthat one in a in a moment, but
yeah, I just wanted to on theFed issue.
Back on Fed before we concludethis.
Uh, you know, there's thisimpression that's often
communicated on media like CNBCor you know other other uh media
(19:56):
or by investment firms,economists, um what have you,
that that the Fed is some kindof all-seeing, all-knowing,
all-powerful kind of um guru,okay, running the economy.
Sort of, but you know, if youremember the movie The Wizard of
Oz, okay.
(20:19):
You remember the scene with theuh the wizard trying to drive
all the I I agree.
Steve Davenport (20:29):
It's it's not a yellow brick road.
Um, there's a lot of things onthis side of the road.
Uh and um I like to think of uhsome of the people involved in
the current economic discussionas the uh the tin man with no,
you know, the tin man has noheart, and who is the scarecrow
has no brain.
And so there are people withvery little brains and very
(20:52):
little heart and very littlecourage that we see in today's
market, and we could probably doan episode on just how who are
the analogies, and I thinkPowell would be you know the
wizard.
And I think that you know, Idon't know, if you want to go
through who the who the who thecharacters are and who um maybe
(21:17):
make some analogies to that'sprobably not a good idea.
We're probably stepping into anarea that has a lot of uh risk
here, but anyway, the the thebottom line for us is that there
are some people with lack ofcourage, and there are some
people with lack of brain, andthere are some people with lack
(21:38):
of heart who are deeply engagedin this discussion.
And so it's not perfect.
The Fed is not all-knowing, andthe Fed, you know, likes to say
that occasionally at the end ofthe press conference, but they
also like to say, you know, wehave this um responsibility and
we take it seriously.
(21:58):
And I think that they do to agreat degree.
But I think that um when we'retalking about the Fed, I'd like
to kind of go to what'shappening with the, I mean, it
looks like Cook is not going tobe taken off the Fed.
It looks like the Fed is havingmeetings in January.
The end of January, there willbe votes on who should be in
(22:20):
nominations or who will be theregional presidents of the
different Fed banks.
And that meeting and thosenominations, Trump and the
administration wanted to havemore people on the Fed committee
so that they could vote formore of the candidates that they
think would be good in thoseroles.
(22:41):
And ultimately, people on thoseroles rotate in onto the
committee.
So it would be kind of stackingthe deck, if you wish, towards
more people who would be morealigned to the administration's
low rates.
Now, I think that we we havethis image of everything
working, you know, the mostqualified people get nominated,
(23:04):
and therefore we we fill ourcommittees with the best people.
I think we have to step backnow and say we know that there's
politics in everything.
There's politics in every bill,every person who gets on CNBC
has an agenda.
Those agendas may not alignwith yours.
(23:26):
So if you're waiting for youknow the Fed to lower in order
to buy a house, if you'rewaiting for the Fed to lower to
make another investment in moreNVIDIA, let's look at this
reasonably and say maybe weshould look at what happens if
they don't lower and how thatwould affect the markets and how
(23:47):
it would affect the overalleconomy.
I think there's too manyvariables right now to say that
lowering or raising rates rightnow would squash the economy and
or make it uh unbelievablyriskless.
Those things don't happen.
Clem Miller (24:07):
And so the the I agree.
I agree, and one last thing,Steve.
I agree, and one last thing asyou as you mentioned that you
know, not about expectations andabout really not getting uh
your expectations up in advanceof a decision.
You know, a lot of people areare also making um decisions
(24:29):
about what could happen in thefuture.
And so you're not just making abet on what the Fed would do,
you're making a bet on againstpeople who are also making the
same decisions right now.
unknown (24:44):
Right.
Clem Miller (24:44):
So it's all about it's all about competing against
others in the market.
Steve Davenport (24:49):
Right.
And you're trying to do thingsthat are right for you.
That's where you know thecenter of your plan, the center
of your investments shouldalways be.
How does this affect me?
And how do I make it make thechanges I need so that my assets
are working the way I want themto, in the direction, whether
(25:12):
it's income or whether it'sgrowth or whether it's
international or whether it'sprivate.
All of these decisions comedown to how is it going to
affect me?
And if the Fed doesn't change,how does that affect me?
I think that we need to stepback and stop the Fed mania.
(25:32):
We're not in a place where theworld is on an edge, on a knife
edge, and it'll tilt one way ifthe Fed doesn't lower.
It's it's not that simple.
And I think that for what thatis really means to you is hey,
it's complicated.
And therefore, I need to getback into my core and understand
(25:56):
what I need in order to come upwith the right decision based
on all these other marketfactors.
And so I guess I would say topeople, invest with your
interests at heart and look atyourself and your investments as
I have a chance to do somethings that are going to help me
(26:16):
improve my lifestyle and myoverall financial wellness.
And that's what we're here forat Skeptics Guide.
And I think that putting yourhead, turning away from the TV
when they tell you that the Fedis, you know, critical in how
you're gonna live your life, Ithink it's a little bit uh
overblown.
And I would ask people to stepback from Fed mania and focus on
(26:41):
the fundamentals of yourportfolio and the fundamentals
of what you want to do with yourmoney.
Clem Miller (26:48):
Anything else, 1,000%.
Nope, I agree with you athousand percent.
Steve Davenport (26:54):
So take care out there, and as they used to
say on uh the police show there,uh be careful out there.
It's uh it could it could getdangerous.
So I hope people enjoy thepodcast and share with their
friends.
Um, do you have any lastthoughts, Clum?
Clem Miller (27:14):
No, no, just uh you know, just uh just be mindful
that there's no real Wizard ofOz out there.
Steve Davenport (27:22):
All right, and we're gonna work on our Wizard
of Oz analogies and come back toyou with maybe maybe a separate
podcast, just um movies and andcharacters and who we think the
current people in theadministration and others um are
best were best captured on thethe silver screen.
So thanks everybody forlistening.
We enjoyed talking to you.
(27:43):
Please let us know topics andideas that we should be um
sharing and uh just have a greatday.
Hello, everyone, and welcome to
Skeptic's Guide to Investing.
I'm Steve Davenport and I'mhere with Clem Miller.
And we're going to talk to youabout the Fed and the decisions
yesterday to lower rates and togive us a little bit of a
surprise.
Um, the Fed is usually verytransparent and everybody
(00:48):
understands what they're goingto do for the next two or three
meetings.
But yesterday they gave us alittle bit of a curveball.
What do you think about whatthe Fed said yesterday regarding
December not being exactlywhat the administration and a
lot of the market wants, whichis another it cut?
I thought the Fed lefteverything in the hands of uh
(01:11):
the administration to tell themwhat to do and when to do it.
Is it is that not the way it'sworking, Clem?
Clem Miller (01:18):
No, and I think that in this case they're
trying to temper all thoseeconomists who think they're
gonna be like six rate cuts in arow or five rate cuts in a
row. The Fed is saying, no,that's not necessarily the
case. It could be just one nowand then a gap and then another,
(01:42):
you know, and a couple coupleof you know sort of mid early to
mid-2026, and then maybe onelater 2026.
You know, they're they're notum you know, they're not uh
obeisant to the president, andyou know, they're not trying to
do what the economists are aresaying.
(02:04):
They're not following the leadsof the private sector
economists.
Uh I think uh if anybody wasthrown a curveball, it was the
uh you know the macroeconomistswho are you know who were pretty
convinced that we were gonnasee a a round of uh a round of
you know several rounds of ratecuts.
Now it's worth noting why didthese economists think there
(02:26):
would be rounds of rate cuts?
Because they see the economystarting to weaken.
And apparently the the Fed isnot 100% convinced of that.
Uh you know, they they look atsome recent weak data, of
course, they mentioned that.
But is there going to be moreweak data?
(02:47):
You know, they're they'rewaiting to see what the data
actually looks like.
And right now, the governmentisn't producing uh much data
because you've got thisgovernment shutdown that affects
the statisticians.
And even on top of that, youhave this, you know, this
uncertainty about uh theaccuracy of the uh of the data
(03:10):
that's coming out of BLS.
Uh, you know, the one uh guythey nominated, the the Heritage
Foundation uh economist, so tospeak, who was nominated to be
the head of uh BLS, uh he had towithdraw uh because uh he was
seen to be too extreme.
(03:32):
So it's a good thing he wasn'tuh nominated because then you
didn't really have to questionthe data a lot.
But I think you still have to,you know, under the Trump
administration, now that they'veidentified BLS as a source of
their angst, uh, I think uh Ithink one has to question you
know the accuracy of that datagoing forward.
Steve Davenport (03:54):
So I think that I mean, I hate to say this
because I know that it's alittle bit of heresy to for
anybody in this business toquestion rate cuts because rate
cuts are good for market valuesand everybody wants higher
market values, right?
We all want as a society to seethe markets continue to go up
(04:15):
and to the right.
And I do too.
But I also don't know if theFed should be sitting on this uh
position of always trying tosatisfy markets.
I thought that their originalgoal was to help the economy and
unemployment and lowerinflation.
(04:35):
And if there is a third, youknow, um I I think the markets
are a tertiary or more goal.
So I don't think, you know, thethe entire population is not in
the market.
So I don't know how you can saywe're helping the American
people by helping the markets,we're helping the people who
have a lot of equities.
(04:57):
So I have a little problem withif the data is not there and if
they're having trouble withdata and it's making them
uncertain, they made a prettyquick vote to lower rates, and
they haven't had data for awhile.
So I'm not sure I'm buying intothe whole we're doing this
(05:18):
because of the data.
I kind of wonder if they'redoing this as a statement to the
administration that we will notbe influenced by what you want.
We're still here to defend thedollar and some of the things
that are important to theeconomy.
I mean, could they be it?
(05:38):
Seemed like Powell cavedquickly in before the September
meeting and his Jackson Holespeech, and seemed to be
entirely on board with what theadministration wanted, and now
he seems to be stepping it back.
Is this is this about a poweruh struggle, or is this really
(05:59):
about the data fun?
Clem Miller (06:02):
Well, it's about data, plus it's I think it's a
little bit about but theyhaven't had data.
Right, I know, I know.
It's no, it's the absence ofdata.
It's the absence of data that'sthey cut.
Steve Davenport (06:14):
My point is that they made a cut yesterday
and they didn't have data.
Yeah, talking about in thefuture, but well, if they don't
have data and they're thinkingthere's a problem, then it was a
problem yesterday, wasn't it?
Clem Miller (06:26):
Yeah, they're living off the old data,
basically, Steve.
Steve Davenport (06:30):
But you just told me that you think the old
data is questionable.
Clem Miller (06:35):
So how well no, the I guess I don't understand as
time goes as time goes, as timegoes on and the the you know the
lack of data be you know getsto be a compounding problem,
right?
Then there's less certaintyabout what's going on with the
(06:56):
data.
So it's it's not a it's not auh a problem where you you know
if the data is shut off, youknow, you uh are completely
unable to make decisions.
It's a compounding problemwhere a month from now the fact
that there's no data is going tobe worse than it is now, and
two months it's gonna be worsethan it is now, three months,
(07:18):
even far, even more worse.
So that's that's the issue onthat.
But back to your to your latestquestion about uh whether this
is a power struggle or not.
Um I I agree with you that whatthey're trying to do is they're
trying to emphasize Fedindependence.
(07:39):
I really think that's animportant um part of of what
they are doing.
I think that uh they see thatthe administration is somewhat
um distracted by some otherthings.
And so and so now uh I like theword fickle.
Steve Davenport (08:00):
You ever heard the word fickle?
I think that kind of tried, youknow.
I would say on Friday they'reone thing towards China, and on
Monday it's like the sun hascome out and everything is
glorious in China again.
So I I call that fickle.
Clem Miller (08:15):
And so it's a perfect opportunity to uh just
sort of get in a statement aboutFed independence uh when
there's so much else going on.
Of course, you know, Trumpmight look at that and say,
Well, you were trying toundermine my trip with Xi uh out
in Korea.
Um, so you know, maybe there'llbe some kind of true social out
(08:39):
of the the White House on that,but um you know, but but but
we'll see.
Um in any case, the market.
Uh I was looking at it thismorning and you know, looking at
it now, I bet you the market'sdown.
Um, let me see.
Oh, actually it's yeah,market's down.
(09:03):
Markets down.
I'm up.
Markets down.
Steve Davenport (09:08):
I forgot this this episode is all about you.
Clem Miller (09:13):
I like I like I like I like when I'm up and the
market's down.
Um, so so can we think aboutthe investors that listen to the
podcast and stop talking aboutyou and your network?
Steve Davenport (09:27):
Um so I have an important question, Clem, that
we don't really get to wear.
Clem Miller (09:32):
Wait, wait a minute, wait a minute, wait a
minute.
You hold your question for asecond.
I just wanted to mention onething, and that is I think that
one of the reasons why the Fedis being a little bit um uh uh
not wanting to talk about uhanother rate cut yet is because
(09:53):
the Supreme Court is going to betalking about um going to have
oral arguments on the tariffs uhin a couple of weeks.
And I think they're gonna wantto see how that goes.
Because if the if it lookslike, based on the conversation
at the Supreme Court, that uhTrump's tariffs are gonna get
overturned, that creates adifferent um economic scenario
(10:18):
uh than if it looks like theSupreme Court is gonna uphold
them in some sense.
I I still believe that theSupreme Court is going to
overturn them.
Uh for the most part.
I think there are certain areasthat they can re that you know
that uh they may make some Idon't know, exceptions or
(10:43):
reinforce some older laws, likefor example, the steel and
aluminum.
That's actually allowed underlaw to have uh you know the the
president um apply thosetariffs, you know, without
having to go back to toCongress.
But uh, you know, some otherthings, these new reciprocal
quote unquote tariffs, thefentanyl quote-unquote tariffs,
(11:05):
all those things are kind of newthings that that depend on uh
the willingness of the SupremeCourt to allow emergency powers
along the lines of economicsanctions uh to apply to uh to
tariffs.
When tariffs have always beenabout you know collecting
(11:29):
revenue and about leveling theplaying field competitively.
So I I I still don't thinkthey're gonna agree to that.
I think when the Fed, if theFed sees a conversation that
goes against tariffs, I thinkthat might actually be positive.
I know Trump would say, oh,it's so negative that the Fed
that the Supreme Court's turningthem down.
I don't think so.
I think it's gonna be apositive for the economy if the
(11:51):
Supreme Court does that.
And I think that uh that willinfluence it.
Steve Davenport (11:59):
Yes.
And so I I think I think it'syou know, I think there's so
many things that can go onbetween now and the December
meeting that I think uh a littlebit what what Powell is doing
is just putting a defensivestatement out there when he
controls the message, which atthe press conference that's what
he's supposed to do.
(12:20):
He's supposed to be clarifyingand and making things more
understandable so that the Fed'snot doing something that will
surprise.
And I think by saying this,he's setting the groundwork for
um, you know, the fact that,hey, there is a lot of
uncertainty.
And I honestly, I mean, do youthink I I think there's issues
(12:41):
of the shutdown, there's issuesof China, there's issues of
Supreme Court and tariffs,there's a lot of issues going
around.
But I thought we could kind ofsegue for a moment into the idea
of what do they really meanwhen they say rates are coming
down, therefore it helpsbusinesses, it helps individuals
(13:04):
with home mortgages.
And why that might notnecessarily be the case.
I mean, the simple assumptionthat everybody's making is if
the Fed thinks about the curve,and we talk about the interest
rate curve, and really what itis is what are interest rates
across different durations?
(13:25):
And duration we mean time.
So the short-term rate, thethree-month, the nine-month, um,
the T bills, the one year, thethree-year, the five-year, which
is where a lot of businessesborrow, and then the 10-year,
which is key for mortgage rates.
We're making, or the market andthe media is making the
(13:49):
assumption that a quarter pointcut in the short end is going to
mean a quarter point across theone year, the three year, the
five year, the ten year, and thetwenty-year.
That it all shifts in one bigmove, and it's all consistent
across each duration.
And I think you and I knowthat's simply not true.
(14:11):
That doesn't happen exactly.
It's it's it's a lot morecomplicated based on supply and
demand and what treasuryissuance is going to be, and
what different pensions and andinsurance companies need in
terms of duration.
So there's there's othervariables, and it's not as
simple as Fed cut equals lowerrate for everyone.
(14:34):
And and I think we're um, youknow, I think this is another
case of uh the attention span ofthe average investor being
shorter, and everybody wants toexplain to me well, what does
the Fed matter?
Okay, I'll tell you, low rate,good for market.
And and I think it's a littlebit, I don't know, insulting.
Clem Miller (14:57):
That's not what you're saying, is that's not the
end of the story.
Steve Davenport (15:01):
You know, the I think it's I think it's I think
it's a an attempt by the Fed todo something, but it is far
from, you know, it's far fromabsolute control over the curve.
They control over the shortrate.
Clem Miller (15:17):
That's it.
Let me reinforce, let mereinforce again for those who
who may not really understandinterest rates and rate curves,
is that, you know, as Steve wassaying, there are multiple types
of rates by term.
And the Fed only controls theshort-term rates.
(15:37):
Okay, they only control theshort-term rates.
They do not control thelong-term rates, uh, which are
determined by the bond market.
And while short-term ratechanges can have some influence
on the bond market and onlonger-term yields, longer-term
(16:00):
rates, uh, those can be, thoseinfluences can be quite modest.
And really, there could be uhthere would be a greater um the
greater driver on bond marketsis really long-term inflation
expectations.
So if it's expected, you know,if you've got a situation where
(16:25):
tariffs continue and inflationis expected to rise, uh, you
know, this would have an impacton making bond yields go up.
And you know, obviously bondprices go down, uh, but bond
yields go up, which would be, asSteve was pointing out, bad for
(16:46):
mortgages and other uh otherlong-term uh debt instruments.
(17:10):
Also, to the extent that to theextent that investors, stock
investors look at bond yields asa discounting factor for
long-term cash flows, it'sactually not that great for the
uh for the stock market either,um, at least some elements of
the stock market.
Steve Davenport (17:30):
Right.
I think I guess I'd say topeople is our name is Skeptics
Guy.
And the reason we pick thatname is that we think sometimes
you need to be a littleskeptical about what the media
is saying and what people aretalking about regarding your
portfolio and your assets.
And sometimes, and I I don'tmean to be cynical with this
(17:54):
comment, but sometimes thesepeople are talking their own
book, and in market terms, thatmeans they're saying what they
want to affect their businessand their stock and their
particular um choices, and sothey're saying, I'm I'm I'm all
in on this market because theFed's cutting rates, Fed cutting
(18:17):
rates means you know it's goodfor me, and I think it's a
little bit simplistic and alittle bit um almost insulting
to investors because we knowthat that's marketing that's not
really true.
We know that it's a complicateddecision that involves a lot of
variables and a lot of thingsthat we don't have any control
(18:39):
over.
We're trying to come up withwhether we think this is a you
know a good thing or a bad thingfor markets.
And in general, I guess I wouldsay right now it's good, but I
think what they're saying is itreally could change, and we
could really see many thingshappen between now and the
(19:02):
December meeting that wouldindicate a reason to not cut.
And if they don't cut, thennone of the shifting goes on
because it's it's just notlikely to happen.
And I think that right, I Iguess I would say to everyone if
you hear something that soundstoo simple or too good, it
(19:22):
probably is.
And I don't think this rally onAI can go on forever.
Clem Miller (19:31):
And we're gonna do another point.
That can't either.
We'll we'll be talking aboutthat one in a in a moment, but
yeah, I just wanted to on theFed issue.
Back on Fed before we concludethis.
Uh, you know, there's thisimpression that's often
communicated on media like CNBCor you know other other uh media
(19:56):
or by investment firms,economists, um what have you,
that that the Fed is some kindof all-seeing, all-knowing,
all-powerful kind of um guru,okay, running the economy.
Sort of, but you know, if youremember the movie The Wizard of
Oz, okay.
(20:19):
You remember the scene with theuh the wizard trying to drive
all the I I agree.
Steve Davenport (20:29):
It's it's not a yellow brick road.
Um, there's a lot of things onthis side of the road.
Uh and um I like to think of uhsome of the people involved in
the current economic discussionas the uh the tin man with no,
you know, the tin man has noheart, and who is the scarecrow
has no brain.
And so there are people withvery little brains and very
(20:52):
little heart and very littlecourage that we see in today's
market, and we could probably doan episode on just how who are
the analogies, and I thinkPowell would be you know the
wizard.
And I think that you know, Idon't know, if you want to go
through who the who the who thecharacters are and who um maybe
(21:17):
make some analogies to that'sprobably not a good idea.
We're probably stepping into anarea that has a lot of uh risk
here, but anyway, the the thebottom line for us is that there
are some people with lack ofcourage, and there are some
people with lack of brain, andthere are some people with lack
(21:38):
of heart who are deeply engagedin this discussion.
And so it's not perfect.
The Fed is not all-knowing, andthe Fed, you know, likes to say
that occasionally at the end ofthe press conference, but they
also like to say, you know, wehave this um responsibility and
we take it seriously.
(21:58):
And I think that they do to agreat degree.
But I think that um when we'retalking about the Fed, I'd like
to kind of go to what'shappening with the, I mean, it
looks like Cook is not going tobe taken off the Fed.
It looks like the Fed is havingmeetings in January.
The end of January, there willbe votes on who should be in
(22:20):
nominations or who will be theregional presidents of the
different Fed banks.
And that meeting and thosenominations, Trump and the
administration wanted to havemore people on the Fed committee
so that they could vote formore of the candidates that they
think would be good in thoseroles.
(22:41):
And ultimately, people on thoseroles rotate in onto the
committee.
So it would be kind of stackingthe deck, if you wish, towards
more people who would be morealigned to the administration's
low rates.
Now, I think that we we havethis image of everything
working, you know, the mostqualified people get nominated,
(23:04):
and therefore we we fill ourcommittees with the best people.
I think we have to step backnow and say we know that there's
politics in everything.
There's politics in every bill,every person who gets on CNBC
has an agenda.
Those agendas may not alignwith yours.
(23:26):
So if you're waiting for youknow the Fed to lower in order
to buy a house, if you'rewaiting for the Fed to lower to
make another investment in moreNVIDIA, let's look at this
reasonably and say maybe weshould look at what happens if
they don't lower and how thatwould affect the markets and how
(23:47):
it would affect the overalleconomy.
I think there's too manyvariables right now to say that
lowering or raising rates rightnow would squash the economy and
or make it uh unbelievablyriskless.
Those things don't happen.
Clem Miller (24:07):
And so the the I agree.
I agree, and one last thing,Steve.
I agree, and one last thing asyou as you mentioned that you
know, not about expectations andabout really not getting uh
your expectations up in advanceof a decision.
You know, a lot of people areare also making um decisions
(24:29):
about what could happen in thefuture.
And so you're not just making abet on what the Fed would do,
you're making a bet on againstpeople who are also making the
same decisions right now.
unknown (24:44):
Right.
Clem Miller (24:44):
So it's all about it's all about competing against
others in the market.
Steve Davenport (24:49):
Right.
And you're trying to do thingsthat are right for you.
That's where you know thecenter of your plan, the center
of your investments shouldalways be.
How does this affect me?
And how do I make it make thechanges I need so that my assets
are working the way I want themto, in the direction, whether
(25:12):
it's income or whether it'sgrowth or whether it's
international or whether it'sprivate.
All of these decisions comedown to how is it going to
affect me?
And if the Fed doesn't change,how does that affect me?
I think that we need to stepback and stop the Fed mania.
(25:32):
We're not in a place where theworld is on an edge, on a knife
edge, and it'll tilt one way ifthe Fed doesn't lower.
It's it's not that simple.
And I think that for what thatis really means to you is hey,
it's complicated.
And therefore, I need to getback into my core and understand
(25:56):
what I need in order to come upwith the right decision based
on all these other marketfactors.
And so I guess I would say topeople, invest with your
interests at heart and look atyourself and your investments as
I have a chance to do somethings that are going to help me
(26:16):
improve my lifestyle and myoverall financial wellness.
And that's what we're here forat Skeptics Guide.
And I think that putting yourhead, turning away from the TV
when they tell you that the Fedis, you know, critical in how
you're gonna live your life, Ithink it's a little bit uh
overblown.
And I would ask people to stepback from Fed mania and focus on
(26:41):
the fundamentals of yourportfolio and the fundamentals
of what you want to do with yourmoney.
Clem Miller (26:48):
Anything else, 1,000%.
Nope, I agree with you athousand percent.
Steve Davenport (26:54):
So take care out there, and as they used to
say on uh the police show there,uh be careful out there.
It's uh it could it could getdangerous.
So I hope people enjoy thepodcast and share with their
friends.
Um, do you have any lastthoughts, Clum?
Clem Miller (27:14):
No, no, just uh you know, just uh just be mindful
that there's no real Wizard ofOz out there.
Steve Davenport (27:22):
All right, and we're gonna work on our Wizard
of Oz analogies and come back toyou with maybe maybe a separate
podcast, just um movies and andcharacters and who we think the
current people in theadministration and others um are
best were best captured on thethe silver screen.
So thanks everybody forlistening.
We enjoyed talking to you.
(27:43):
Please let us know topics andideas that we should be um
sharing and uh just have a greatday.
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