Why The Bond Market Is Starting To Revolt — ft. Katie Martin

24:14You've got a government that's trying to pick away, you know, a path in between those two things and the new chancellor, so our new finance minister, is making all the right noises about there is nothing progressive about high borrowing costs. There is nothing progressive about spending more money on servicing your debts than you spend on nurses. So they're trying to find a way through this, but we have a budget coming up in the UK and that's always a high drama moment for our bond markets. So everyone at the FT is just waiting for that to land.

24:49We'll be right back after the break. And if you're enjoying the show so far, Send it to a friend. And please follow us on YouTube, Spotify, or wherever you get your podcasts.

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27:22Scott Galloway:So like any good millennial, I have a love-hate relationship with Gen Z. It's the phenomenon rattling millennials. They just look at you. They want something bigger themselves. Lifestyle is a priority. Motivation is being inspired. But regardless of how you feel about Gen Z, it's undeniable that they're changing national politics. Generation Z is increasingly showing less loyalty to traditional political parties, many now more likely to identify as independent. So what is going on with the kids? I think the biggest misconception about Gen Z's politics right now is that all of a sudden they're all socialists.

27:58Scott Galloway:That is just not the case. They are embracing candidates who are offering new, bold ideas in the absence of those ideas from establishment Democrats. This week on America Actually, Gen Z researcher Rachel Jamfaza joins us to separate Gen Z fact versus fiction. It's not rocket science. And this is, you know, I keep saying like young voters aren't that complicated after all. It's pretty simple. Catch us every Saturday on YouTube or wherever you get your podcasts.

28:30We're back with Prof G Markets. Something we covered earlier this week was the regional election in Germany where the AFD, Germany's far-right party, won by a much larger margin than anyone had expected, than the polls had predicted. And a lot of people in Germany, especially the establishment politicians, are very, very worried about this. How significant was that election in your mind and to what extent does it say something about Germany's economic position and potentially Europe's economic position? My hunch is that it's more significant politically than it is financially. I don't think there's any possibility, you know, to the extent that the AFD has a clearly articulated financial, you know, government borrowing platform, for example, I don't, it hasn't been enough to really spook the market.

29:27it's the politics that really matter on that front. And it is significant. You know, there are some, it's a small region, it's a part of East Germany that has lots of kind of, you know, very old hangovers from the time when the country was divided. I think it's possible to over extrapolate what you see from Saxony-Anhalt. But I think also, you know, this is a demonstration, apart from anything else, that the Chancellor, so the leader of Germany, Mertz, is in trouble. You know, he's effectively like Keir Starmer was in the UK and you have a local election and the far right does very well, just like we did in the UK.

30:10And then it is deemed that the current national leadership hasn't had a strong enough voice in pushing back against the rise of the far right and then they end up having to go. So yeah, Chancellor Mertz does appear to be in trouble here, but I can't see that being a big problem for European bond markets. If I'm wrong, I'm wrong, but it's not cited to me by investors as a big risk right now. Just going back to the question of what changed in the bond markets this year, there was perhaps the idea that there was sort of a change in sentiment about how politicians and our leaders actually think about fiscal responsibility.

30:49But the other more obvious thing to me is the war and the fact that the price of oil, as we record this, Brent crude is nearing$100 a barrel. It's been going up and up and up, went down for a bit, but then it went back up, which is almost even worse. And from my understanding, it doesn't affect just the US. In fact, it affects the US a little bit less than everyone else. It affects the entire world and the costs of living for everyone. So to what extent do you draw a relationship between the Iran war and the crisis that we're seeing in the bond markets right now? There's definitely a link between the two, but the levels of energy dependency and sensitivity in major economies today is not what it was in the 1970s and 80s.

31:43We do have alternatives. the US is self-sufficient in this stuff. So it is a slightly different picture. Also, one of the things that bond investors have been saying to me that just doesn't make sense about what's been happening in debt markets recently is that actually inflation expectations have been pretty well contained. So it's not inflation that's been doing the heavy lifting in weakening bonds over the past few weeks. It's more of this, the fiscal side, the what the hell is going on with the Fed kind of side, the mixed messages, all of these signals from Besant that this really is a problem.

32:21If you package all of that together, I think that's much more of a factor, weirdly, than the oil price in and of itself. What do you make of Kevin Walsh and his first couple of months as chair of the Federal Reserve? What are some of your takeaways? What do you think? it's a hard job and it's very easy to kind of uh you know throw shade from the peanut gallery and say you know well i would be doing this much better if i were in charge and then all of a sudden you are in charge and oh holy crap this is actually really difficult well we'll never be in charge so that's why we can do it um and i think there is a recognition that it hasn't gone terribly smoothly and that Walsh's efforts to say to the markets, hey, you're on your own, you price the bonds as you see fit, and I'm not going to stand in your way.

33:11I'm not going to give you forward guidance. So I'm not going to tell you where rates are going. I'm not going to spoon feed the market. I think it became clear pretty quickly that what the market would take from that is a signal that it's fine with the administration and with the Fed if government bond yields are much higher, and so I'm going to push them higher. So it kind of backfired. What I'm expecting to see and what we've already seen signs of actually is somewhat of a more conciliatory relationship really with markets, a recognition that it's all well and good to talk about not wanting to spoon feed the market, but you do need some sort of dialogue because if things get really problematic and if bonds really get whacked, you want that kind of trust and connection with the market to be able to guide them on what you think you should do next to calm that down.

34:02So we have seen somewhat more of a conciliatory stance. We have seen strong signals from Kevin Walsh that inflation is higher than we want it to be and that interest rates are the way to deal with inflation, right? Pretty kind of conventional stuff. But then it does get interesting in the sense that you had that blowout jobs report the other day from the States. What did you add? 160 something thousand jobs? Yeah, 162, I think. Yeah. Yeah, way in excess of what the market had been expecting. Decent revision higher on the previous month's number, which had been negative and flipped positive. So all of a sudden, the market has gone from pricing in a one in three chance of higher of a rate increase later this month to a two in three chance of a rate increase later this month.

34:47And then you have Donald Trump saying the Fed needs to get smart. And if they don't cut rates, then I'm going to impose some sort of new trade tariffs. And you just think, what? So the difficulty, I think, for Kevin Walsh, if he really is going to demonstrate that he's his own man and that he has an orthodox position towards the role of monetary policy in taming inflation, he's going to have to raise rates this month about six weeks ahead of your midterm elections. Good luck with that, Kevin Walsh. Hope that works out nicely for you. So you have had a big reset in market expectations around what he's going to do.

35:27There's lots of people now saying that the Fed's likely to do three 25 basis point rate hikes, so three quarter point rate hikes. So one in September, one in December, maybe one in March. For me, the interesting bit and the drama is what does Donald Trump say and do about that? And does he turn on Kevin Walsh in the same way as he turned on Jay Powell, who, let's not forget, was his appointment? You know, his urge, Trump's urge for lower rates, you know, this is not like a new position for him. He's been calling, you know, he's been a low rates guy since he was a real estate guy in the 80s. He believes in low interest rates and high trade tariffs.

36:11So I do think there is a bit of a potential clash coming, again, just ahead of these midterms. And I think it's possible that, for example, the Fed gets a lot of blame for stuff that's actually not its fault if Trump is trying to deflect attention away from problems in the U.S. economy that are pretty squarely down to his war in Iran.

36:31Scott Galloway:When I think about the markets, that we kind of get what we deserve in terms of leadership, and we referenced this earlier, and that is until the markets respond, until a leader stands up and says, we're raising taxes and cutting spending and we have an eight-year plan to get the deficit, the growth and the deficit below economic growth, and the market responds really positively, until that happens, I just think we're going to have more of the same. It doesn't seem to me that the markets really want to have this conversation yet. And until the markets reward some sort of fiscally responsible rhetoric or narrative out of one of our potential leaders.

37:16Scott Galloway:I mean, we have a ton of Democrats and people jockeying for, you know, to be number one on Calci for the Democratic nomination or to be president in 2028. I haven't seen one of them talk about fiscal discipline. I just don't see that as a talking point yet. Isn't it going to be – can you point to any economy where a leader has said, look, we've got to get the deficit under control and it's going to be hard choices? I don't see it anywhere. Do you see it anywhere? No. And it is a very difficult conversation to have with an electorate that is not necessarily particularly financially literate. And, you know, I get that.

37:57I guess, you know, the only mini example that immediately springs to mind is after the disastrous mini budget in 2022 in the UK when Liz Truss was prime minister, which blew up the UK government bond markets and then tripped over a tripwire and it blew up still further. and you know pretty much one of the very first things that happened when she went was that a new chancellor so a new finance minister was installed who just unwound pretty much everything that had been in that mini budget and said right all of that just forget it ever happened we're going to kind of get get back on on track um so a pretty humiliating moment really for for Liz Truss and for Kwasi Kwarteng who was her her finance minister at the time but generally speaking no I mean it's just not a vote winner to kind of stand up on a podium somewhere and say, guys, I've got this great idea.

38:51How about you all pay more taxes? I just, we have forgotten as developed economies, how to do that, how to say to people, you know, if you want all these lovely things, you want lovely, you know, schools and hospitals and roads and yada yada, then that costs money. There's just this idea that you can lean on the bond markets to do it. And particularly since covid that is just what we've done so that's i think that's why we're in the situation we're in today you know you as you've been asking you know why is the market freaking out about this now i think we just the amount of borrowing stepped up so high around the time of covid and don't get me wrong that was the right thing to do there was a pandemic going on and and governments had to had to step into where the private sector was before but the the right thing to do after that period would have been to say, OK, look, that was all emergency borrowing.

39:45We're now getting back to normal. And instead, governments were like, this is awesome. We've found this magic money tree. Let's just keep plucking money off it. And, you know, now here we are in 2026 and the money tree is bare. And it's, you know, it's just a fundamentally more expensive exercise to borrow. Right.

40:06Scott Galloway:There's a great line in the show Billions where someone says to Bobby Axe, you know, this this thing's going to cost 10 million dollars. And he's like, well, it's like I'm a rich man. And I feel as if the U.S. gets not a hall pass, but can kind of say, well, it's like I'm a rich man. The growth, the economic growth in the economy in the U.S., as much as I'd like to shitpost it because I'm hoping for a change in the administration, I think the economy, on any honest analysis, there's red flags or there's blinking yellow lights. But I would challenge anyone to point to an economy that's stronger than the U.S.

40:48Scott Galloway:is. The U.S. has a couple of advantages, yet it does have, you know, great growth, envy of the world. And that's the other way that the U.S. can get out of this problem is just to grow really, really fast. You're stealing my thunder. I'm going to interrupt you because I want to ask a question here. Growth solves almost all problems. I want to go back to the U.K. We are growing. The U.S. still isn't growing fast enough to, in my opinion, maintain this ridiculous spending. But we're less screwed than everyone else. The U.K. is not growing. For all the noise around Canada being such good people and I'm on the side of Canada, the Canadian economy is a shit show.

41:27Scott Galloway:It hasn't grown in 10 years. The U.K. economy is a shit show. It hasn't grown in 10 years as far as I can tell. Other than, okay, so there's the AI. But what are some of the fundamental pillars of non-growth in the U.K. and Canada? And because we talk so much about managing our house, but you can order champagne and ketamine if you're killing it at work and you're making a shit ton of money or a shed load of money. And the UK and Canada aren't. If you were advising the UK or the British government around how to inspire growth, what would your recommendations be? Well, the kind of original sin with the UK was Brexit.

42:13you know it's it's 10 years now since we voted to leave the European Union world's biggest trade bloc right across the water from us you can practically see it from from the the you know the south coast and we left and then that meant that we spent a lot of time and effort as as a government as and as a civil service in trying to sort of figure out how to fix that and how to reconfigure that relationship and that just like was a huge effort sink that we never got back and it just threw sand in the gears of you know every single trade transaction or export or import from Europe that you know we're really still seeing the the effects of that and it's not just the trade it's the UK as an investment destination and we kind of blew up quite a lot of credibility and, and, and.

43:07So, you know, you do see, you know, politicians in the UK talk about the need to rekindle a more friendly relationship with Europe, but it's just politically a nightmare because, you know, the vote for Brexit cut across traditional party lines. So, you have lots of traditional Labour voters who voted for it. And so, and you have lots of traditional, you know, Tory party voters who voted against it. And so neither party is really able to have a proper conversation about what the effects of it have been. We're only now, 10 years after this bloody vote, having a proper honest conversation about what the impact of this whole thing has been.

43:51And it has been horrible. So that's, you know, that's kind of, that's the core of a lot of problems, certainly in the UK. I'm not an expert in the Canadian economy, but there is just a kind of comparison kind of effect going on here where the US has just been such a success story. It has owned AI. Now, what kind of moat has the US really got around that? What does China have up its sleeve? Could there be another deep seek moment? Is there a possibility that all of these companies, which by the way, are borrowing unbelievable amounts of money to build these data centers? Is there a possibility that they're building data centers for a technology that people simply will not pay for or politically will not tolerate?

44:39Yeah, absolutely. There's a bunch of things that could go wrong with AI. But, you know, for now, to kind of use that hackneyed phrase in markets, you know, the music's still playing, so people are still dancing. And that's just, you know, it is not correct to say that AI is the only thing that is making the US economy grow but it is a large part of what behind what is behind making the u.s economy grow and for reasons that you know maybe the rest of the world should regret and maybe we shouldn't we've just allowed the u.s to have enormous um leadership on that we'll be right back and for even more markets content sign up for our newsletter

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47:49What's up, everybody? It's Cam Hayward, Steelers captain and host of Not Just Football. We just sat down with Aaron Rodgers, four-time MVP, Super Bowl champion, future Hall of Famer, for one of the most open and honest conversations we've ever had on the show. There was so much to get into, we had to split it into two parts. Part one is out right now, and trust me, you don't want to miss it. Aaron gives us his real story behind coming back for one final season. We also talk about how he was ready to retire once Mike T stepped down and how reuniting with McCarthy changed everything. We get into playing with Mike T for one more year.

48:23This year's squad, the old team narrative, who stood out this summer and what it's like to be in the quarterback. Aaron also opens up about what he still has left to accomplish this season and what it looks like when he hangs it up with it. And that's only part one. Part two drops this Thursday. That's when we go beyond football. the media, the conspiracy theories, what people still get wrong about Aaron Rodgers, his legacy, Super Bowl ring, the GOAT debate, and the overrated and underrated where things really get off limits. Part one is out right now. Part two drops this Thursday, September 10th.

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49:09We're back. with Prof G Markets. I really appreciate how you are showing the sort of chain of events that are worth caring about if you care about economics, if you care about the state of the United States, and also just the world. And it seems as though what we have here is a situation where we're borrowing unprecedented amounts of money in our governments. And the answer to why that is okay, that we hear from many of our leaders, and that we hear from Scott Besson, that we heard from everyone who is in the White House in America today, is that we will grow our way out of that. And maybe we should have a conversation in a moment about how legitimate that argument is, but that is the argument.

49:51We can grow our way out of it. We can just create more and more prosperity and that will solve the problem. But the growth has become so highly dependent on this one thing, which is AI. And if we look at AI and we look at why it has become so successful, we learn that it is because it is highly dependent, again, on a handful of companies and their ability to spend, specifically the big tech companies right now, who are now borrowing huge amounts of money, but also OpenAI and Anthropic, for whom that is the majority of the revenue that is coming in for these big techs and their big tech AI efforts.

50:32So the whole thing is extremely concentrated. and we talk a lot about this problem of concentration risk. It's a very well-known thing in economics, in finance, and it seems like the entire structure of our system has become heavily dependent on this thing that when I look at it and when I look at the economics of these companies and also what we don't know about these companies, which is a lot, to me, I think this is incredibly unstable. I'd be curious to hear if you agree. Another little thread that you can kind of tease out of that as well is that a couple of years ago, there was this huge AI capex spend coming from the big hyperscalers, the kind of, you know, metas and Microsofts and Amazons of the world.

51:13And 18 months ago, they were paying for all this out of, you know, out of their free cash flow. And then they ran out of that free cash flow. So they started paying for it out of money that they are borrowing from the bond markets. And again, I don't want to go all kind of always sunny in Philadelphia and kind of, you know, get my kind of pin board and all the rest of it. But everything is connected in the sense that these companies are now borrowing so much money that that is sucking some demand out of the government bond markets so if you're an investor and you've got a huge debt issue over here from the u.s government but you've also got another debt issue over here that you could buy into on the same day that's from meta and you think you know actually when i think about it who is the safer credit here is it the u.s government or is it meta which of these bonds should i buy and then And you think, well, the Meta one is actually a little bit more generous because this is a corporate bond and it's got pretty much the same duration.

52:10It's, you know, I'm pretty comfortable with Meta as a credit risk, so I'm going to buy the Meta bond instead. And all over the world, this is leeching demand out of government bond markets at precisely this time that people are worrying about the fiscal incontinence and about the sheer levels of borrowing that governments have got to do. You know, in Europe, you know, an investor was telling me the other day there are some government bond issues that had been planned by smaller European governments. They've had to move the timing of these issues so that they can negotiate their way around these massive hyperscaler bonds that are hitting the market on the same day so that they can try and ensure that the demand is there to buy these government bonds.

52:48It's messing with the whole ecosystem. I think this is one of the big kind of underappreciated stories in global finance at the moment. I've written about it a couple of times, is that the corporate bond markets are getting new wings attached to them and a new engine while they're flying along through the air. And nobody is noticing what a big impact that has both on the corporate bond market in and of itself, but also the second round effect on government bond markets. And yet, so again, you know, where does that leave us if the AI trade does fall over? Not in a great place, I would argue, that would free up more demand maybe for the government bonds.

53:31But, you know, when people talk about, oh, the AI trade is really dominant in stock markets, that is not even half the story. It's also super dominant in private markets, private equity, private credit and public corporate bond markets. It's bending everything out of whack. which to me is a very good reason to think very critically about the probability that the AI trade could fall over. And it does seem as though whenever we have this conversation, we have the conversation on this podcast a lot because as you can tell, I think it's really important. But it seems like when we do have the conversation, what I hear from the AI bulls is, you know, you're missing out on the greatest thing of all time.

54:10Like they think that it means that I'm shorting something. They think that it means that I'm just like this perma bear, which is not the case. But to me, it's just like, it's something that we have to care about and we have to get to the bottom of. You mentioned what we're seeing in the corporate bond market, also exclusive reporting from the FT, which just came out today, which is that Anthropic and Open AI are now having conversations with credit agencies about getting an investment grade credit rating. And it sounds like their strategy is just to ask them nicely to give them a low rate, which to me is another red flag i mean it feels like this is extreme extremely big deal and i almost wish i'm surprised that people don't care enough about it i know people care but i feel like they should care more i think it's not unusual for companies to talk to credit rating agencies in an effort to get those credit rating agencies to understand what they do in the hope they will give you a low rating i you know i i hear your point that it can look a little bit iffy from the outside.

55:10But again, you know, yes, you know, even if you think you're not a tech investor, you're a tech investor. If you've got any money in any market anywhere, whether that's through a pension or through allocations that you make to ETFs or whatever it is, you think of just how much of the S &P 500 is tech. You think of how much of emerging market stock indices are in tech and AI. It's the entire Korean stock market. It's a large part of the Taiwanese stock market. It's a huge part of the Japanese stock market. Even if you think you're just buying an index because you want exposure to a certain country, you are buying an active tech fund.

55:49And so, yes, it's in everyone's interest to think carefully about what can go wrong here. I don't have the answer. I'm not a tech pointy head. I don't know whether this technology makes sense. I don't know whether it is uh you know remunerative over time whether people really will pay for this technology but i do know this is like to a large extent the only game in town and i was talking to a large asset management firm earlier that was saying that clients are coming to them and saying i don't want to think about the world in countries anymore i want to think about okay i've got my tech allocation over here and maybe that's a kind of pretty plain vanilla uh us national stock index and i want exposure to things in the rest of the world that are not tech.

56:34So I want you to take the tech and AI out of that part of my portfolio. And guess what? The UK and Europe look pretty good from that regard as diversifiers. So they're actually doing surprisingly well in this environment. But yeah, tech is just shot through absolutely everything at the moment. And if it were to go wrong. Big if. I have no crystal ball. I don't know. But there's a lot of things that would go wrong at the same time.

57:04Scott Galloway:Looking at the bond market or the credit markets right now, do you feel like any one credit market is underpriced or overpriced? I just think there are some credit markets that have been traditionally really, really tiny that are suddenly actually operating at scale. So the bad thing about the fact that the hyperscalers are kind of coming in and borrowing huge amounts of money in loads and loads of different currencies is that the hyperscalers are bossing around the rest of the borrowing markets for other companies that are domiciled in those smaller currencies. The good news is that the hyperscalers are demonstrating that you can borrow in size in little currencies like, you know, little in corporate bond terms, like yen, sterling, Canadian dollar, Swiss franc.

57:51So actually what they're doing is kind of offering this proof point that it can be done and that this is an area where there is the potential to borrow much more. In terms of which bits are overpriced, you know, again, it all comes back to the same question, which is, does it make sense to have such a large allocation to the AI story? And, you know, credit investors generally operate under stricter rules than stocks investors in terms of the concentration they're allowed to have in one sector or another or one company or another so it does throw up all sorts of kind of technical and and complicated problems for for credit investors uh but yeah we're all just sort of circling around that same question which is does this stuff make sense and it is quite sort of gratifying to me actually that in corporate bond markets you do get somewhat of a sort of stricter um treatment from investors than you do in stocks Stocks investors are like, sure, I'm sure this thing will go up.

58:52I'm going to buy it. Whereas credit investors ask some pretty awkward questions about, okay, where's the money coming from and how can this go wrong for me? Just going to tariffs, just what I've said about the tariffs thus far, to me, the tariffs are like America's Brexit. It's like our way of throwing sand into the gears, as you said, for no real reason other than a sense of like patriotism, nationalism. We don't like those other countries. We prefer America, rah, rah, rah. And ultimately, in the case of Brexit, it led to basically economic stagnation. It basically ruined an entire country. Do you see tariffs the same way?

59:35Do you think it could have those levels of effects? For the US? Yes. The beauty of the US is that it is a massive and very closed economy. You can get along just fine without really anybody else. So it is somewhat different in that, you know, the UK, you know, don't tell the Brits, but it's a small island and we need like stuff from abroad. Whereas, you know, the US is in a much better situation, not least because of its shale oil to get by on its own. I think really the victim of the tariffs and, you know, I know there's a school of thought among colleagues of mine who are much bigger specialists on trade than I am, like Alan Beatty and Samaya Keynes, that we've passed peak tariff.

1:00:23you know we've we've gone past the point where you know trump is like threatening and executing tariffs on anyone for any reason whatsoever but yet this odd line that he's taken since the payrolls report that um happened to have written down in front of me lower the interest rate or i'll stop trading with countries with which we have a deficit i was really struggling to get my head around this one. Not sure how it makes sense for the US to shoot itself in the foot because he doesn't like interest rates. Really struggling with this one. He's still fixated on it on some level. And it's interesting as well that one of the reasons why Scott Besant has been arguing that government bond yields are much higher is because the US isn't getting the revenue in from the trade tariffs anymore you know again goes back to my first point paint your own adventure if you really want to argue that that's an input into higher yields not sure i get it but be my guest um so uh yeah it it it's not helpful geopolitically and it uh but i i think i just don't think the world takes trump terribly seriously on threats of tariffs anymore you You mentioned the midterm elections and the fact that we're in a position where a rate high is on the table in the months leading up to the midterm elections and the politics and the drama around that.

1:01:52It does seem to be a very good example of how politics really does matter in economics and in markets. I feel like sometimes we get criticism, like, why are you talking about politics? I thought this was a markets show. It's like, because the two are connected, they relate. In terms of the midterms, to what extent do you think that the midterm elections might have an impact on markets, might have an impact on the U.S. economy? Is it an important event in that regard? And what are you focusing on in the buildup? I think investors are, you know, from the notes that I read in the conversations that I have, they're just trying to start getting their head around what it would mean if there was a big tilt in power in Congress.

1:02:40And I don't think anybody really knows just yet. You know, a lot hinges on you are going to do these elections right. And it is all going to kind of be normal. And you are going to respect results, you know, and, and, and. And, you know, there's some pretty kind of meaningful questions. But there is also an idea that, you know, the more that Trump is perceived as a, you know, he should technically be, you know, a lame duck president, he should be getting towards the end of his position in the White House. Does that embolden aggressive regimes around the world to think, well, I'm going to get done all of the terrible stuff that I want to get done while this guy is still in the White House and I've only got like a year to do it.

1:03:24So does this ramp up the pressure on Taiwan is obviously the big one. Does this ramp up pressure still further on poor old Ukraine from the Russians? So I think there's a possibility of, you know, depending on how cornered Trump feels after the midterms, and you would have much better insight into that than I would, it is possible that we get this kind of flurry of worrying geopolitical news that comes after it, while people perceive that he really doesn't have long left in the world. the job. Just going into the second half of 2026, in your mind, what are the biggest, most important things to look at and to examine in terms of their effect on global markets?

1:04:12I mean, just to list off a few things, there's the war in Iran, there's the Fed, Federal Reserve, and the decision on interest rates. There's the IPOs, the incoming IPOs of Anthropic, which is supposedly going to happen at the end of the year, potentially open AI, though they've started to push it out. I mean, what do you think is most critical? Because I'm like a sad macro person, I'm going to say that like a lot comes down to the credibility of the Federal Reserve and a lot comes down to the extent to which Walsh really is willing to demonstrate that he's an orthodox policymaker, even despite, you know, the howls and whales from what might be a somewhat kind of cornered US president.

1:04:57I think that is incredibly important. I think if Walsh gets this wrong, then that would be another unhelpful factor for the bond markets. And, you know, heaven knows it is a bit of a mystery why equity markets have been ignoring debt markets, you know, up until this point. But if something really did snap, then I think we'd all have something to worry about. So I think keep a close eye on what Walsh says and much more importantly does in the months ahead.

1:05:24Scott Galloway:I was shocked to see that Calci has the likelihood of a rate increase at 74 % by the end of the year, because I thought it's like biting or performing surgery on the hand that writes your check. And then as I think about it, it's a 12-year appointment. from a president who can't remove him, at least legally. And quite frankly, at some point, Warsh probably goes, Honey Badger, don't give a shit. This is my opportunity for a profile in courage. And this is a guy who can't remove me. And then it's all of a sudden a rate hike started making sense to me, whereas I thought of it as unthinkable just a week ago.

1:06:03Scott Galloway:What do you think? Do you think we see a rate hike before the end of the year? I do. Yeah. Whether it's, you know, next week, you know, whether it comes in September, I don't know. But I think there will be something before the end of the year. If you carry on with inflation being sticky, we've got a big CPI report coming up from the States in a few days. If inflation stays sticky and payrolls keep doing what they're doing, I don't see how Walsh has a choice. You know, he has to stick to the script because we've seen how unhelpful it is when he doesn't. You mentioned earlier, Katie, that Walsh needs to get this right or he can't get it wrong.

1:06:40What would getting it wrong look like? I think it would look like another quite explicit acceptance from Walsh that it's fine if bond yields keep pushing higher. That, I think, was a bit of a misstep. And if he keeps signaling that, actually, I'm very happy for the market to do my job for me and I want yields to be much higher, then they'll push higher. because, you know, Walsh, like, you know, he used this analogy that, you know, I don't want to be a player on the pitch. I want to be a referee. Tough. You're a player. So play properly. Do you see the merit? Because part of me almost likes where he's coming from, which is like, I'm not, I don't, I want to intervene as little as possible.

1:07:25I want the markets to do their thing. And I don't want people to be, I don't want to game anything. And I see your point, but do you see those merits? Like, where do you find it problematic? There's absolutely merits in that. And I'm not suggesting that the Fed has been a perfect institution over the past sort of decade or so. What I am saying is that, again, you need that dialogue and trust and predictability in situations where something bad happens, whether that's a recession reshock or an inflation reshock, investors need to know where the Fed is. And if they really don't know where the Fed is, then the only thing they can price is not knowing.

1:08:10And that means just not buying so many treasuries, you know, buying something else instead. Because, you know, then you don't have the U.S. currency risk and you don't have the U.S. institutional risk. So I think one thing that would be helpful to US policymakers is a more kind of explicit acceptance that investors don't have to buy these bonds. You know, up till now, there's been no efforts to put a gun to their head and make them buy them. We don't have any kind of particular kind of efforts at financial repression right now. Except for when the president threatened military intervention in the bond markets, except for that.

1:08:45That was good. I did enjoy that. That was great. you know, we will fight them at the discount window. There is a choice. Investors have a choice about where they put their money. And this is something that governments in the UK and France and Japan and everywhere else have got to take much more seriously. Katie Martin is a markets columnist and member of the Financial Times editorial board. She writes the weekly Longview column on market trends and appears weekly on the Unhedged podcast. Previously, she spent four years as the FT's markets editor and also several years on the the FT's live news service.

1:09:17Prior to joining the FT in 2015, she spent 11 years at the Dow Jones Wall Street Journal Group. Katie, always love having you. Pleasure. Thanks, Katie. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Cotty. Our research team is Dan Chalon, Kristen O'Donoghue and Mia Silverio. Jake McPherson is our social producer. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

1:10:15The waters

1:10:20And the dark flies In love, love, love, love