Transcript Generated by AI 00:00 Mark Parkinson back with Park Place, and thank you very much for joining us 00:04 today. 00:05 I'm super excited. 00:06 We have Peter Buchvar from Bleakley Capital, 00:09 where he is the Chief Investment Officer to talk with us about where the economy 00:14 is headed. 00:15 And really, I think most important for all of us, 00:18 where interest rates are headed. 00:20 Peter has had a tremendous background. 00:23 He's not only the Chief Investment officer there. 00:25 I think I know you, Peter, because I see you on CNBC all the time. 00:28 You're a regular contributor on CNBC. 00:31 So I'm just sitting here thinking, you know, 00:34 wealth manager of $8 billion in fund CNBC. 00:39 But now you finally hit the big time you're on Park Place. 00:42 I, I am honored to be here more. 00:44 It's great to sit down and chat with you. 00:46 Well, it's terrific to have you here. 00:47 And I, I really do enjoy watching your segments 00:49 because I think you're level headed and, you know, give tremendous advice. 00:54 It's got to be incredible to, to, to see all of things that you see with 00:58 the, with bleakly and the, the vast amount of money that you're 01:01 managing. 01:02 Obviously a major factor in how you invest relates to the economy and where 01:07 you see the economy headed. 01:09 What's your overall view of where we're headed? 01:11 Are we headed to, to recession? 01:12 What, what do you see coming up? 01:14 So I see the economy right now as very mixed and uneven. 01:18 I say that because their pockets of strength and then their pockets of 01:22 weakness in the aggregate. 01:23 If you take the first two quarters of 2025, we're averaging about 1% growth. 01:29 You have areas of strength like anything related to AI spend. 01:33 The data center build out is tremendous. 01:36 Companies are spending hundreds of billions of dollars in total and any 01:40 beneficiary of that, whether you're selling chips, 01:43 whether you're selling steel, it's going to the construction of the 01:46 facilities, whether you're selling servers, 01:49 whether you're selling the cement, a lot of people are benefiting from this 01:53 build out. 01:54 You have upper income spending that still has been very strong, 01:57 particularly leisure, hospitality, travel. 02:00 The high valued stock market is certainly helping net worth, 02:03 which is flowing through to that spending. 02:05 Also elevated interest rates. 02:08 People for the first time after 15 years of 0 interest rates, 02:11 they're benefiting from higher interest income. 02:14 And then you have beneficiaries of all that government spending. 02:17 When you have a a debt, a budget deficit as a percentage GDP and 02:21 call it 6 1/2%, that money flows into the private sector. 02:25 And that excessive spend is also lifting parts of the economy, 02:29 particularly healthcare, we know via Medicare, Medicaid. 02:32 And then on the flip side, we have manufacturing that's in a 02:35 recession. 02:36 The pace of existing home sales at 30 or lows. 02:40 So when you compare the US population today relative to 1995, it's much bigger, 02:45 but the pace of existing home sales is still around 4 million. 02:49 You have lower to middle income consumers that are very financially challenged and 02:54 they're sort of experiencing their own recession. 02:57 Global trade, particularly with the tariffs is, 03:00 is is muted and capital spending X the AI build out has been relatively muted as 03:05 well. 03:05 So to my point about a very mixed and uneven economy. 03:09 So do you think we're going to have a recession or just slow growth? 03:12 I think the real test on whether we will or not is how the economy, 03:16 not just in the US but globally, absorbs these tariffs. 03:21 Just to quantify, we entered the year, the US had a 2 1/2 percent tariff rate on 03:27 incoming goods, incoming goods totalling about $3. 03:31 3 trillion. 03:32 That rate at the end of the day, we still don't know where it's going to 03:36 settle out at, but it's more likely going to be 15%. 03:40 Call it 15% * 3. 3 trillion is 1/2 a trillion dollars of 03:44 taxes, because that's what tariffs are. 03:47 How we absorb that to the extent that exporters are going to absorb some of 03:52 that via price, to the extent that companies are going to 03:55 absorb it via profit margin hit, and how much consumers are going to 03:59 absorb via companies passing it on to us, That is the big test. 04:03 So if we were to go into a recession, this would be one of the causes in the 04:06 back half of the year because right now going into this, as I said, 04:10 we're only growing about 1% right now. 04:13 You know, many of our viewers are just hyper 04:15 focused on their interest rates. 04:18 Nursing homes and assisted living facilities are very capital intensive. 04:22 A lot of them were built in the last 20 years when interest rates were, 04:26 as you said, almost zero. 04:28 I think, you know, really more in like the two, three, 04:31 4% range. 04:32 But now a bunch of those loans are starting to mature and rates are being 04:36 readjusted. 04:37 And as I talked to folks, that's what they're really concerned 04:40 about. 04:40 And you know, you go from a 3% rate to a 7% rate, 04:44 it can completely wipe out your bottom line. 04:47 I think a lot of us thought that interest rates would be going down in 2024 and 04:51 2025, but we really haven't seen that. 04:53 What what's your interest rate outlook and how come rates haven't gone down? 04:58 So during the the 40 year bond bull market, call it, 05:02 when interest rates topped in the early 80s in the teens and for 40 years had 05:07 this steady decline over many decades. 05:11 Historically with the Fed during that time frame when they would cut rates, 05:15 long term interest rates would fall as well. 05:18 And vice versa when they would raise interest rates, 05:21 long term interest rates would rise too. 05:23 So the yield curve sort of was sort of imbalance where it was always steepening. 05:28 You got times of inversion, but mostly steepening. 05:32 What we saw in 2024 as we entered the year, 05:34 there was a lot of hope that the Fed after the most aggressive rate hiking 05:39 cycle since the 1970s and early 80s, that their rate cuts on the short end of 05:44 the yield curve. 05:45 The overnight rate would flow through the yield curve and interest rates would fall 05:49 across the yield curve. 05:51 Where the 10 year yield being the most important, 05:53 whether you're a home buyer or a nursing home that has borrowed at that part of 05:57 the yield curve, because a lot of your borrowing rate 06:00 depends on where on the yield curve are you borrowing. 06:03 Some borrowers are borrowing. 06:05 So for plus where the overnight rate is most important to them, real estate, 06:09 people, nursing homes, five years and 10 years. 06:12 So what we learned in 2024 is the Fed cut the Fed funds rate, 06:15 the overnight rate by 100 basis points. 06:18 And instead of the 10 year yield falling, even though it fell going into those cuts, 06:23 it went straight up thereafter. 06:26 And what we see now is the bond market is pricing in two more rate cuts this year 06:31 and long term interest rates are still remaining elevated. 06:35 And not only are they remaining elevated here, 06:37 they're remaining elevated around the world. 06:39 We're seeing elevated and higher long term interest rates in Japan, in Germany, 06:43 in France, in the UK, in addition to the US, 06:46 because it's not just one country's growth and inflation expectations, 06:50 but also debts and deficits are becoming a much greater concern of investors. 06:55 And they would rather lend money to their respective governments in short term 06:59 bonds rather than long term bonds. 07:02 So I fear that long term interest rates, the 10 year in particular, 07:07 whereas we tape this is about 4:45. 07:10 I think there's more risk to the upside in that interest rate rather than 07:13 downside. 07:14 And if someone who is reaching that point with their bank and their lender that 07:19 they need to refinance and they're thinking, well, 07:21 the Fed may cut a few more times this year, maybe I should wait. 07:26 I would not wait. 07:28 I, I think there's more risk to the upside 07:30 in the 10 year yield then there is the possibility of downside in that rate. 07:34 Well, I mean that's very worrisome. 07:36 So you're saying even if the Fed cuts two more times this year, 07:39 the 10 year might go up. 07:40 Yes. 07:41 And so if you're going to, if you're in a situation where you need 07:44 to refinance, your advice is do it, do it now, do it now. 07:47 Can maybe if you wait, can, can the 10 year yield fall back to 425? 07:51 Maybe, yes. 07:52 But I think there's risk to 5% and above on the other side. 07:56 It's, it's, it's good to know. 07:58 It's not great news though. 07:59 But you, you've got to act on, on the reality that's out there. 08:03 Now finally, we've seen an incredible run in the stock 08:06 market over the last 10 years or so. 08:08 What, what is your outlook on the future of the 08:10 stock market? 08:11 So it's been an incredible run, dominated by the incredible performance 08:16 of US big cap technology stocks, where their market caps have gotten just 08:20 extraordinarily big. 08:22 And just to put numbers behind it, NVIDIA, a $4 trillion market cap company, 08:28 that's about 4% of the world's GDP. 08:31 It's astonishing numbers. 08:33 So the question is when you get to such big numbers and you have Apple 3 trillion, 08:37 Microsoft approaching 4 trillion, that the numbers are so big, 08:41 can the next 10 years be as good for these stocks? 08:44 And I and I narrow down in these stocks because the top ten stocks in the S& 08:49 P 500 make up 40% of the index. 08:52 So someone who thinks they're buying the S& 08:54 P 500 and they're getting this diversified basket, 08:56 they're actually getting a very concentrated group of stocks. 09:00 So the point being that where are these stocks go should drive the index when 09:05 looking forward. 09:06 So I think that we have to have more realistic and more muted expectations for 09:11 returns over the next 10 years because it's very hard to duplicate in a success 09:17 successive decade, a great performance in the prior decade 09:21 just by large numbers. 09:23 And also valuations when they get too high, 09:25 they sort of pull forward future returns. 09:28 Yeah. 09:29 Yeah. 09:29 Well, again, not great news, but good to know. 09:32 Trying to be realistic. 09:33 Yeah, I think it, I think it makes a lot of sense. 09:35 We've had such incredible growth. 09:36 It's hard for that to continue. 09:38 Well, Peter, thank you very much for your advice today. 09:40 I think it's very helpful, particularly on the interest rate front. 09:44 And I want to thank all of you for continuing to support in Watch Park Place. 09:49 I want to thank CBS Omnicare for sponsoring this segment. 09:54 And until next time, thank you very much. 09:57 Oh my God. 09:58 If you're still watching this, this means that you watch the end of a 10:01 very long video on Park Place. 10:04 I'm not sure what that means. 10:05 It says something about you or maybe there was just nothing else to watch 10:09 today or maybe your priorities are a little bit off. 10:11 But whatever it is, we really appreciate your support and you 10:15 want to continue to follow us. 10:16 Follow us on LinkedIn, on our various social media sites and, 10:20 you know, try to find something else to do.
