Episode summary
Jim Bianco: I Was Bearish on Bonds for 6 Years — Here’s Why I Changed My Mind
The Julia La Roche Show
· · 43 min · Hosts: Julia La Roche · Guests: Jim Bianco
Summary
Jim Bianco says he has shifted after six years of being bearish on bonds and is now neutral, arguing that 5% yields are close to fair value because the U.S. is effectively in a 3% inflation, 2% real growth, 5% nominal growth world. He frames the call as a value judgment, not a forecast for sharply lower yields, and says bonds look attractive so long as the economy does not reaccelerate or inflation does not break materially lower.
A big part of his inflation view is political and structural: cheap Chinese goods are unlikely to return, services inflation remains sticky because wages are embedded in it, and policymakers are choosing not to reopen the economy to the kind of import deflation that helped hold inflation down from 2001 to 2020. He argues that this makes 5% rates normal rather than punitive, and that only a recession or a major oil shock would change the picture.
Bianco also argues that the labor market is better than the headlines suggest because the working-age population is shrinking and the economy now needs only about 30,000 jobs a year. On politics and markets, he says the midterm question is whether moderate Democrats can outvote the Democratic Socialists, and he sees AI as a bubble that can keep expanding for years because demand for compute is being held back by IT departments and bank incentives.
Key takeaways
- Bianco says 5% bond yields are fair value, not a crash signal, because inflation is around 3% and growth around 2%.
- He argues his bond thesis would turn bullish only if growth slowed or inflation fell enough to make 5% yields too high.
- Bianco says cheap Chinese goods are not coming back because Washington does not want to reopen the deflationary trade channel that hurt U.S. manufacturing.
- He thinks AI is a bubble, but not one that is popping yet; he expects years of expansion before the eventual top.
- He says the labor market is fine because the shrinking working-age population means the economy only needs about 30,000 jobs a year.
- On the midterms, Bianco says the market-relevant issue is whether moderate Democrats can outvote the Democratic Socialists inside their own party.
Notable quotes
“And now that we have a 5% coupon, the risk that that price will fall and incur more capital losses is lower”
“I think this is a lowrisk entry that I can buy them and I can just continue to capture that coupon and get about a 5% return out of them”
“I'm in the camp that inflation is in the 3% world”
“It's a choice not to let China bring cheap stuff back into this country which is going to keep goods inflation up”
“I think it's a bubble, but it's got a couple more years to run before the pop occurs”
How the episode opens
And now that we have a 5% coupon, the risk that that price will fall and incur more capital losses is lower. It's never zero. Nothing in life is ever zero.
I think this is a lowrisk entry that I can buy them and I can just continue to capture that coupon and get about a 5% return out of them. Hey everyone, welcome back to another special instudio episode of the Julia Larose show where we are joined by Jim Biano, founder and president of Bianco Research. Jim, great to be with you.
Thanks for having me. — It's been a long time. We haven't had you in a year. — Has it been that long? — It's been a year. We I cannot let that happen again, but I'm glad doing this in person. This is going to be really fun.
Yeah, I'm looking forward to the conversation. — All right, let's kick things off since it's been a year. Get us caught up on your big picture macro view today. Where do you see things right now? What's been on your radar of late? Um, how are you kind of describing the current environment for growth, inflation, rates, risk assets, and where do you see things headed from here?
Well, the big thing is I have been negative on bonds, yields, thinking that they would rise, bearish on bonds since 2020. And within the last month, I've kind of backed off that bearishness. And I'm more neutralish on bonds.
I don't want to say I'm pounding the table long them, although they have been rallying. Uh, and I got out of my bearish position, so I'm not unhappy. Uh, so I, you know, I've changed my position on bonds.
And finally, because I'm such a crack marketer.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- bond yields
- inflation vs growth
- ai bubble and compute
- bank regulation of ai agents
- labor market/jobs outlook
Companies and tickers mentioned
- AMZN
- Bianco Research
- BiancoAdvisors
- Amazon
- Perplexity
Watch the episode
Watch “Jim Bianco: I Was Bearish on Bonds for 6 Years — Here’s Why I Changed My Mind” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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