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Josh Brown sitting next to me, uh has to advise his clients on what the best strategies are. He has a question for you, Jeffrey. Hey, Jeff. Thanks so much for all your commentary today. I appreciate it. Um wanted to ask you, given that in the post-pandemic period, so many surprising things have happened, so many outcomes that nobody could have predicted because of how unique this environment is, what if higher for longer ends up serving actually as stimulus for the 20% of wealthy households that are now earning tons of money on their cash, don't really care what a mortgage rate is because they own their home?
Is that a situation where the wealthy continue to spend, thereby negating what would normally happen with higher for longer? And one other thing to throw into the mix, if unemployment rate starts to climb as you suggest, couldn't that also perversely be stimulative? Think about how great that would be for all of the employers who have been dying based on all of these salary increases and minimum wage hikes.
Isn't it It couldn't we have this situation where actually higher for longer is better, higher unemployment is healthier, and actually that ends up prolonging the economic cycle and not ending it? I I don't know, Josh. I mean, there's some logic to that. I I I think that the wealthy people, they save they have savings.
They have wealth by definition. And so, them getting a higher interest rate of, you know, 6% instead of 2%, I'm not really sure that motivates spending, exactly. I I think it just makes them wealthier. Uh so, I I I don't I don't really know about that. I I just think that all of those unusual things that happened that you correctly point out, I think when you drop four and a half trillion dollars of free money into an economy, one should not be uh one should not be careful about uh predicting that's going to have outsized consequences.
So, what I think everybody missed here is what we had initially with all that stimulus was a massive boom in consumption of durables. And and that sort of the manufacturing part of the economy. And then what people missed is it then turned into a services economy because there was all this pent-up demand for services and travel and leisure and all that stuff.
And I feel like that's wearing off at this point in time. And so I'm not really sure that that that those conditions are going to endure much longer. And I I again I say higher for longer. I'm going to go back to my number one point that I started this segment on. And that is higher for longer means we have a massive interest expense problem.
A massive interest expense problem in this country that is going to be I believe the next financial crisis. And so that's what I'm more focused on rather than some some you know Scrooge McDuck having more money in his vault. What about the idea of cash being king? I've had people come on, you know, the network this week and suggest that that is actually the best place to be.
That's where the lowest amount of risk is right now. What amount of cash would you have in a portfolio now? I don't like cash because I think that your interest rate, which is very attractive presently, may decline quite substantially next year. So I would rather be in something that's about two to three years.
So at least you're getting that yield that I talked about around 8%. At least you're going to get that for more than 6 months. T-bill and chill, you can buy the 6-month T-bill and get five and a half and spend that way for a long time now. The rate is no longer going higher. It's now starting to potentially decline.
So I don't think you want to be in cash. The shape of the yield curve suggests that the 2024 will see the Fed cut rates by about 50 or maybe 60 50 basis points or maybe 5/8 of a percent. That's the one thing that I think will not happen. I think that either there are going to be rates will stay high for longer, which is not my base case, but I acknowledge that's a possibility.
But if the economy rolls over as I expect, the Fed is not going to cut rates 50 basis points. They're going to cut rates 200 basis points, and that's what's wrong with the cash strategy. Mhm. You know, the other thing I heard the chair say today that that I frankly don't recall him saying, certainly not at a at a meeting, was when he was addressing the idea of what the backup in rates has done, where financial conditions have gone.
He said they're attentive to all of that. He did mention a stronger dollar being an influence on future rate decisions. And you know what else he said, Jeffrey, which sort of struck me at that moment? Lower equity prices. He actually brought that into the mix today as being a thing that could influence their future rate decisions.
That if something happened in the stock market, that could be a powerful influence for the Fed. What's your take on that? Well, what's new here? I mean, that's always the case. Remember 2018, where we had that bear market in the fourth quarter of 2018 because the Fed said that they were on autopilot for raising rates and doing quantitative tightening, and the stock market dropped 20% in like four four or five weeks.
The the junk bond market seized up. There was no issuance for weeks on end, and suddenly the Fed started cutting rates and abandoned all of their rhetoric. So, I believe deeply that when the recession comes, you're going to see a bond rally. It may be accompanied with a stock rally initially, but they're going to reverse because of the policies.
And then we'll see what happens when the stock market starts to drop in earnest with what would be surprisingly potentially a weak economy with rising bond yields after their initial decline.
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