Equity market technicals are extraordinary and earnings are powerful. The parts of the economy driving equities (tech, high-end consumer) are doing well, while housing and lower income are not. Technicals are boosted by a lack of supply (trillion in buybacks vs. couple hundred billion in IPOs). Contrasts with Treasury market facing $520B/week supply.

Cites 97% earnings growth in semis and strong retail sales breakdown as evidence.

No contradiction due to an unprecedented productivity revolution. Companies grow revenue 4-10%+ while keeping labor static or down, leading to higher operating margins and ROE. AI/automation hasn't fully kicked in yet. This is good for corporate earnings, not for the broad population, and affects interest rate transmission.

Describes a common corporate dynamic of revenue growth with cost control.

Not 'incredibly bullish' but long equities. Lower volatility allows for a longer equity disposition. Prefers equity beta over credit (investment grade/high yield) due to explosive earnings growth, convexity to the upside, and manageable risk.

Compares asset classes, finding credit spreads uninteresting.

Fed will be on hold and watch data. Current inflation is a supply shock, not demand-driven. Raising rates hurts lower/middle income via mortgages. Fed still needs to get rates down; expects a couple of cuts, maybe pushed back. Describes a two-speed economy where rates affect housing, small business, and lower income.

Cites weak housing numbers and dispersion in retail sales as evidence of interest sensitivity.

Finds the 10-year part of the curve uninteresting for asset allocation; it's been remarkably stable. Believes there will be initiatives to contain the 10-year/keep mortgage rates down. His sense is the 10-year note will drift lower through the year as the funds rate comes down. In portfolios, focuses on front-to-belly exposure to clip coupon/yield.

Mentions colleague's analysis on yield stability and potential post-confirmation (Kevin Warsh) dynamics.

Fed can use its balance sheet effectively on the long end (only 11% of Treasury debt is in back end). Administration's GSE program buying mortgages could be expanded. Housing incentives (home builder) could pull mortgage rates down. Strong motivation to increase housing inventory to lower shelter inflation and improve labor mobility.

Links housing inventory to inflation and economic mobility.