The Truth About How Wall Street Moves Mortgage Rates
Summary
Investment Theme: The podcast discusses the potential impact of the US government's involvement in the restructuring of TikTok, highlighting the strategic move to transfer US operations to Oracle and other investors, addressing concerns over user privacy and foreign influence.
Market Insights: The conversation shifts to the mortgage market, noting the recent decline in long-term bond yields and mortgage rates due to expectations of Federal Reserve rate cuts, with a focus on the spread between Treasury yields and mortgage bonds.
Economic Outlook: The podcast emphasizes the importance of mortgage rate movements for the housing market recovery, suggesting that significant rate drops could unlock liquidity and stimulate buying and selling activity.
Company Discussion: JP Morgan's aggressive expansion in the credit card market is highlighted, showcasing its strategic investments in consumer spending and travel-related services to dominate the sector.
Opportunities: The potential for JP Morgan to leverage its financial strength to outpace competitors in the credit card space is discussed, emphasizing its ability to invest in customer incentives and long-term profitability.
Key Takeaways: The podcast underscores the interconnectedness of financial markets, the strategic maneuvers of major corporations like JP Morgan, and the broader implications of government and market actions on investment opportunities.
Transcript
[Music] All right, there we are. Look how handsome we look. Tell us, what do you think? >> You know, we got I got I upgraded the uh the the camera on my laptop just for this. So, >> I can Well, the audience >> the audience appreciates it. All right, ladies and gentlemen, welcome to the live from the compound. My name is Downtown Josh Brown. My guest today is someone I've been trying to get on for a while. He's a great writer, great reporter. Um, Telus Deeos is uh writing for Hearn on the Street, which is, I would say, the most vital column for me at least at the Wall Street Journal, where I read pretty much everything he publishes. Um, he is also the co-host of Wall Street Journal's Take on the Week, which is a weekly podcast about markets and finance. You might recognize his co-hosts, Gunin Banerjee, who's been on our channel before. Um, Telus covers the world of money and banking, too big to fail banks, Wall Street itself, private markets, crypto, insurance, mortgages, credit cards, financial technology, and more. Welcome to the show. Tell us, thank you for doing this. >> Thank you. Hearing all that said is just like stressing me out about >> No, no, don't be stressed. >> How how many things uh they ask me to write about? Well, you are uh you're a polymath when it comes to financial media. Like you you you've got the gamut. So, um I want to start with these I want to start with the uh the the I don't know what what you would even call it. I was going to say acquisition, but it's sort of not. Um, it looks like the federal government and China have reached some sort of an agreement where Tik Tok will spin off its US operation into the hands of Oracle and a consortium of other players who will take over running a new version of the app. It sounds as though um we'll be licensing the technology from Bite Dance, which is the Chinese company that will no longer have access to US users, but they will be paid for, I guess, the tech transfer itself. And then Oracle is going to hold on to all the US user data securely in a US-based cloud data center. and um it'll sort of be like rebuilt as like a US-on Tik Tok uh app. Is that the journal's understanding of what what it looks like so far, what we've heard in in public so far? And uh would just love to get your thoughts on the uniqueness of something like this. Yeah, I mean I think there's I think that there's you know we we've reported the journal that that a deal has come together and and I think it's I think what's interesting is that it's not I don't want listeners to come away with the idea that because the government is sort of obviously playing a role in sort of brokering this that that that it's necessarily going to be then you know some extension of the government. There are a consortium of investors who are coming into it. Uh some some some big names. Silverlake. I don't know, you know, people know the private equity industry. That's a name that I'm I'm sure people will know. You know, they longtime, you know, major like tech uh and financial too in investors all over the place. Oracle is going to play a part of that. Um I also just have to I have to flag that um according to our reporting, I I'm not giving any inside information here, but according to our reporting, what I read in the Wall Street Journal is that uh Lachlan Murdoch and Rupert Murdoch will probably be in the ownership group. something that uh Donald Trump said on Fox News on Sunday. Uh he's named Michael Dell as well. And so I should just say that Lachlan Murdoch is the chair of News Corp, which owns the journal. Um and he's also chief executive of Fox News parent Fox Corp. Uh and uh what what the journal said, and I'll just read it here. I don't want to get myself in trouble. A person familiar with the matter said any investment in Tik Tok would come from Fox Corp. So just want to flag that for for everybody. uh that uh you know there's some some crossover there. But uh I mean look it's it's it's a deal that shows you that like it's funny when we talk about like companies that are in the social media business today. We almost never talk about their like social media businesses anymore. When we talk about meta we're talking about like you know what are they doing in AI? How are they going to you know sort of drive that future. But I think, you know, the fact that everyone's so interested in Tik Tok is it's just a reminder that like this is still where we all live our lives, you know, and and young, old, I don't care, you know, the the power users of Tik Tok I know are like middle-aged people who are just trying to like zone out at night and like they like that they can just scroll. They don't even have to like pick something to watch. They just scroll, right? And so, um, so I think I think it just goes to show you that like the the the interest in that deal is so high. Obviously, there's big politics, but it's like it's it's a daily life thing for a lot of people, right? Like I don't I don't know if you do use do you do you do you use Tik Tok? >> I have an account where I think uh Nicole from my team posts clips of some of the stuff we do here >> on Tik Tok, but not >> but I don't I don't scroll it. I don't watch it. I I haven't I'm already brain rotting with uh Instagram. I don't need like four more versions of that. Um I I guess I guess what uh I guess what's interesting to me is that there are two political issues with Tik Tok. One of them is user privacy. Like it's a foreignowned company that is gaining access to All right. So it sounds like the Oracle thing would solve that. Um if it's being hosted here and the Chinese will lose access to I guess coming in through a back door and seeing what US users were up to. Okay. And then the other thing that I think this solves is like the foreign influence like just you know what it what is the algorithm showing people in the wake of a crisis for example October 7th or the Charlie Kirk murder or like what is then being amplified to the 35% of all US 18 to 35 year olds who say Tik Tok is my primary source of news. That like that's an actual stat. That's more than a third of young people consider Tik Tok to be where they get educated. So not having the foreign influence on what the algorithm is surfacing I feel like um gets solved by having now it's a consortium of US companies you know ostensively there's some political spectrum involved no matter who's going to run it but like I feel like that's like one way to really easily clean up that issue. Um, then there's the >> financial I mean just but just but just to to to emphasize your point like we've been talking obviously like late night shows have been in the news. I don't think I need to explain to people why >> you know but to an extent like I mean is that really where people are getting their views from right is a late night host who is >> you know I I mean I I think at that by the time you're getting to like oh I'm watching somebody say something on late night you've already been inundated with with with content from seven other different places right and so and so I think you know the the I'm not surprised to see the Tik Tok content recommendation algorithm which again according to journals reporting a new version of that would be retrained uh I guess in in in this in this deal. Um, and I'm just not surprised to see that that's that that's a political football of like what what is that push and and and what is that not? And and I mean certainly in my just in my industry, right? Uh you know it's it's it's you know the the um >> you know the the the media uh I you know is is is only you know we're sometimes a passenger in in some respects when it comes to like what what what do the different algorithms uh sort of do. So, I'm not surprised to see that that's that that's >> usually >> if you're Mark Zuckerberg, what do you think? This is this good or bad? >> It's a competitor to Reels that two years ago looked like it might get banned off the face of the earth. >> All right. Now, it's not only not going to be banned, but it's going to be a US-based corporation that competes directly with reals. So, from that standpoint, maybe uh not great on the advertising side of the business. It's a real competitor. Do I have to say like uh maybe like maybe I just like me being like you know a relative like grandpa of like social media so I'm not the savviest sort of >> user of it but it's like I feel like every app I open now >> kind of feels like Tik Tok. Like as a matter of fact I was flipping >> videos you know kind of like you would on Tik Tok, right? Like next next scroll. And at some point I realized I was not actually looking at Tik Tok. I was looking at what I I I think was like I just sort of stumbled onto that the the the kind of the the vertical video feed of Facebook. And so and to be honest like just again I'm speaking for myself as just like you know a middle-aged user these things like it's like you know I I I I do think there's maybe kind of we're reaching the point where like I don't know what platform I'm on. I just know that I'm watching and I think and I by the way by the way like >> LinkedIn has it now and um YouTube has uh shorts >> so yeah to your point like everything looks like everything looks like Tik Tok now >> and the same content like I see the same creators kind of pushed into different you know places right and I think people like I I remember the the joke about reals what it was that it was like oh real is like where people go to see Tik Tok six months later right so so I think at the end end of the day, you know, I >> how much does like one particular algorithm drive the conversation versus like the the constellation, you know, of of of of all of them? So, so, you know, I think I think may maybe the future is actually kind of maybe the biggest worry for for Mark Zuckerberg is just maybe the future is a little bit like agnostic to that, right? Like I I know I get it on my device and which service serves it up to me. >> Like as long as the viewer could do this and just scroll up up up up, they almost don't care what what platform is facilitating that as long as the algorithm is good enough to keep people's attention. Uh all right. I agree with that. we're gonna make an extremely hard pivot because um you've been writing a lot about rates and mortgage rates and I actually think so I'm an equity investor primarily and so I actually think the most exciting potential thing that could happen heading into 26 is a true recovery in the housing market. And of course that's not going to happen unless mortgage rates actually fall. They don't need to plunge. they just need to continue on their recent uh let's say last three months, last four months, that kind of gradual descent that we've been seeing in mortgage rates. And you've been writing a lot about it. So, I want let me set you up here. You said long-term bond yields have been drifting lower because of a host of factors, including expectations the Fed will start cutting rates. Okay, we did that last week. Um the corresponding move in mortgage rates has been stunning. A daily tracker reported the 30-year fixed rates hit their lowest level since 2024. We're at 6.29% this past Friday. And on the Friday of the most recent government jobs report, um which was a slower than anticipated pace of hiring. The 10-year fell uh 0.09, which um is a pretty big is is a pretty steep one day drop off. Um, you also point to the spread between Treasury yields and mortgage bonds, um, which is falling as well, which is important. So, I'd love for you to just kind of give us your take on what we're seeing in that mortgage market and, um, whether or not you think this is leading to the type of scenario that could unfreeze the housing market materially. Well, I mean, just to to start with that last question, like I mean there are, you know, what what could unfreeze the the the housing market, right? What could get people buying and selling again? I mean, you either have to have a big adjustment in the price of houses, right? Which is, you know, for for homeowners kind of a an ugly idea, right? Like basically like, oh, home prices have to get cheaper, right? Well, you know, that takes money out a lot of people's pockets. So, that's not really necessarily a fun thing to think about. Uh, you could have people making a ton more money, which I guess is the best case scenario, right? Like everybody's just making a lot more money and and and then mortgages are more affordable. >> Unl unlikely unlikely right now. >> That's that's uh and then and and and by the way, I I you know, the these scenarios were um you know, kind of like a you know, I think one of the um one of the big mortgage guaranurs, I think it was uh one of them kind of laid out these scenarios. So this is not an entirely original thought but um but then but then the other thing would be u mortgage rates right do mortgage rates come down meaningfully like not just like oh from five and a half to five but like from five and a half back to the world of twos um >> and and so you know so so you know will any of this move the needle on like affordability? I don't I don't know if we're talking about a move in mortgage rates uh except in like an extreme scenario that like really changes that conversation, right? So So I just want to I just want to level set there. Like I don't think that that any any kind of move that we're contemplating in the in in just from the scenarios we're talking about here. >> Seven to five is meaningful. >> It's it's meaningful, but it's not going to bring those affordability numbers um back to um you know, and I'm gonna hold on. I'm gonna I want to I want to credit um let's see give me give me one second here. Uh this is I was reading a a a Twitter account news Lambert Lance Lambert was uh was was kind of finding something from Fanny May kind of talking about these things and and to to get back to pre um pandemic uh affordability levels, you'd be talking about again in this calculation um a move back to uh from from 6 and a half to 2.23%. Right. also also unlikely outside of a financial crisis. >> Right. Right. The the the series of events that lead to that are are pretty extreme. Right. So, so I don't think affordability is going to change. However, you know, like at certainly at the margins, right, I do think that that that there are, you know, some some scenarios in which mortgage rates start to come down. What I was writing about talking about that stunning move was was just sort of noting that um you know look I don't I I don't know how many people follow the mortgage market that closely. I didn't really understand what drove mortgage rates until I started writing about this. And um you know there there's there's just there's there's the world of the mortgage rates that you see, right? You call up a bank or you look at like one of the comparison websites and they give you a rate that that doesn't come from that's not like a you know, oh Fed funds rate plus kind of thing. It's it's a rate that's set by a market and that market is the mortgage bond market. And so when you make a mortgage loan, it then gets usually gets sold into the mortgage bond market. So what's going on with those bonds affects the prices that you might see in that get reflected in rates and what what what was happening there was and and and and this was you know being tracked by mortgage news daily. I don't I don't know if most people when people talk about mortgage rates I think they usually are talking about the the the the the Freddy Mack um PMS I forget exact I forget what that stands for the um primary mortgage market survey pretty sure. Um and that that's that's that comes out on on I think on Thursdays and that's backwards looking right. So so you're you're kind of getting well where have mortgage rates been heading um into this day. There are are some daily measures of that and one that that I've cited in my work uh a few times is is mortgage news daily and and and so you know what what they were noting was that what happened was there was this essentially kind of air pocket in the mortgage bond market. Just again, not to I don't want to bore everybody, but the way mortgage bonds work is like the the bonds have a kind of a different coupons and so there's and they come in half point like buckets >> buckets, right? So the six and a half, the six, the five and a half and every mortgage kind of gets sorted into one of those. And so what what was happening in that particular this this was after the jobs report a few weeks ago that where you saw like you know kind of 10-year long-term yields which is really where kind of mortgages are more priced off of because mortgages you know you take out a 30-year mortgage but a lot of people move or refi and so a 30-year mortgage ends up really having more of like a 10yearish duration somewhere between five and 10 is is kind of what people talk about. So, so that's why the 10-year Treasury is a real reference for that market. And >> the 10-year Treasury is is more powerful in terms of having the 30-year mortgage rate >> react to it. It's not overnight. And it's right. >> If you want a quick guide to like what's happening in mortgage rates, look at that 10ear trend. >> Well, let's let's put this let's put this chart up. So, this is from your article. So this is the yield spread between agency mortgage back securities current coupon and benchmark US treasuries and that spread has been falling meaning um the MBS products that people can invest in the yield is getting closer um to what I guess the benchmark US Treasury of the same maturity >> uh looks like. That's a there's a credit component to that. But I think um chart off >> a little bit a little bit. I mean agency mortgage back securities are the ones that Fanny and Freddy and and other >> they're pretty much money sponsor. Yeah. Exactly. A little bit of credit but not a lot. >> You're making this point though that I think is really interesting which is the institutional buyer of a mortgage back security >> if they So one of the big risks to them is prepayment risk. >> Right. So in other words, they invest in a bond which is backed by mortgages, but a lot of people that own those mortgages, the the nominal rate of the mortgage is so high that those are the first people who are going to refinance lower. When they refinance lower, they prepay the mortgage. The problem for for the institution that invested is they thought they had all these years of high yields coming to them and the bond has just been you know the the income is being taken away because the person prepaid. So, as a result, you've pointed out there's actually more popularity from investors to buy the lower nominal yield, the 5%, let's say, mortgage bond because there's less risk of that prepayment. And so, that's that air pocket that you're describing. >> Exactly. >> And that in turn has an impact on the rate at which mortgages, banks will make mortgages. Who can they sell sell it on to? It like really matters that there's a buyer for that MBS. Yeah. Yeah. No. So, so, so it's like all of a sudden the market's mindset shifts to like, uhoh, I gotta protect myself against prepayment risk, right? I've sold this option to homeowners that they might exercise to to refinance their mortgage at a lower rate. And so, okay, I'd rather buy something that has a lower coupon or yield, but I think will actually last, you know, for a longer period of time because otherwise I run the risk that like if if if if my too much of my bond prepays. I don't I don't lose money, right? I I'm getting my principal back, but it means that then I'm sitting on cash that like, you know, first in you got to reinvest that, right? And then the prevailing rates are lower. And so then you're like, okay, well, if if rates are on their way down, so really this is all partly about the market's expectations of like the way rates are headed. And so what's really underlying all this is a sense that like >> despite everything we've talked, you know, you know, we we kind of, you know, I know in the media sometimes in the in the financial press, you know, we get kind of like, all right, there's a new narrative and that's that like tre treasury yields are surging, right? There's like a day when the 30% hits five 30-year hits 5% we all uh oh okay all right what if rates keep going up and are there long-term concerns about the US fiscal health right uh uh and and you know uh uh are people not going to want dollars because of tariffs and all that right we get you know but then what happens is that you know couple pieces of economic data come in they're not so hot and like some of the same old kind of muscle memory kicks in where it's like okay well that means that the Fed's probably going to cut so that means that I should buy today's bonds at this yield because yields are going to go down and blah blah, you know, or flight to safety, right? Okay. Oh, I'm going to, you know, cut some of my stock allocations, move into bonds, etc. So, so, you know, we saw the return of that dynamic um, you know, as the, you know, once we started getting a couple of like not so great economic data points. And so then you just had this kind of like then like basically you know the battleship turns and a lot of people in the market start running towards the okay if rates are on their way down here's how I've got to kind of >> but it turns really slow it turns really slowly >> and institutional investors when they get into a mindset that you know what we're actually more interested in buying the MBS at 5% versus six is a better interest rate but more prepayment risk like that battleship once that turns it's not it's not all of a sudden going to turn back around because of one piece of economic data. So I think that's a really good point. >> That sounds right. Yeah. >> And the self-awareness that you have as a journalist just understanding the tendency of journalists to be like we want a new story to tell cuz it's a new day. There's not always a new story to tell. And I know that's constant. >> Yeah. I mean it's not just about the new story. I mean, but it is like we kind of have to be like I mean, you know, I would say that that that at least the way I I I think about it is like, all right, something something new or dramatic is happening. I can't tell you that it's going to necessarily keep happening, but I feel like >> if I don't note it or think about it, then if if things really do head in that direction, I don't want to be in a position where like I kind of was like, "Oh, no, no, no. This this things will never happen that way." Right? It's like it's like my version of like market timing. It's like saying like I'm not going to write anything about 5% yields on the 30-year because I think they're going to come down, right? I I don't know, you know, like I'm I'm doing my best like everyone else to figure out what's what's going on. And so, and so, you know, I want to, you know, I think sometimes the right way to consume, you know, financial media is is is not that we're making a call, but that we're just we're we're trying to just like prepare ourselves and and and our readers for like, all right, if if we take if if the market takes this to its logical conclusion, whatever, right? If they keep pushing on that, then then here's what happens at the end of that. And maybe we don't get there, but I would rather feel prepared as a journalist and and to the extent that I I'm providing a service to readers, you know, just kind of flag for them like, all right, here's here's what's on that side of it. So, >> yeah, I think I think you're chronicling it and you're opening up the door to possibilities based on what's happening and not saying, "All right, this is what's going to happen next, but you should be aware that historically when A, B, and C line up, D is normally the outcome or has sometimes been the outcome." I think that's I think that's the the thing and and if you do that well, you let people make up their own mind and come to their own conclusion. I want to show you uh a chart we made for this. This is 10-year treasuries versus the 30-year mortgage rate. And um my guys uh Sean and Chart Kid Matt noticed the average spread since the year 2000 is 1.88%. the spread has now been above that average since March of 2022. But like these lines largely um mirror each other. There's very little deviation here, especially over the I mean, we're showing you the super long-term 25 years, but you will very rarely see a huge deviation between the 30-year mortgage rate and the 10-year mortgage rate. At times the spread may be wider than others, but um so when you said it's really the 10-year that you're looking at if you're trying to understand the the the forward course of the 30-year, this is exactly what you're saying, but um but illustrated by us. Uh thoughts on this? >> Yeah, I mean that that that spread has really been it's uh it's it's it's really been the conversation I think in the last couple years. uh because when when so you know uh as as people may know you know the Federal Reserve was for many years buying mortgage bonds right as part of um they call it credit easing, quantitative easing, whatever you want to call it. Um you know the the the the Fed was was was in in in some ways, you know, uh helping keep that spread really narrow by being a big buyer of of of mortgage mortgage back securities um agency MBS. And so when the Fed stopped doing that uh you know a couple years ago um and started letting that portfolio run off like I think you know most strategists investors I've talked to you know have attributed you know some of that spread widening to to that right just a big buyer coming out of the market and and and and you know to some extent banks you know were in the same position right back when you know rates were near zero they were like grabbing anything that had a little bit of yield including mortgage back securities. We know that that got some of them into trouble back in 2023. So, so you know, banks have not been big necessarily been big buyers either. And so you have seen a widening, but you know, it's it's not it's not to like such a level that I would say that on a long-term time horizon that those two charts like all of a sudden you see mortgages going like this and treasuries going like this for a long time, you know. Um but you know it does and and and so and so I think that you know there is the potential for for some of that spread to continue tightening uh has has has and and you know just take again it's not going to drive mortgage rates from 6% to 2%. But it will you know maybe you know shave you know some fractional point off of that. Um and and you know listen every every you know we all know as as home buyers or whatever you know every every eighth of a point matters right that's someone's pockets >> I think the bigger story >> to watch for still >> and and you guys did a feature on this uh I don't think it was part of her on the street but um >> there are millions of households where for every 50 basis points in the 30-year mortgage rate like a it's like a new trunch of households it would make sense for them to refinance and I The journal stated it as um rates would have to be 75 basis points or more below the new mortgage rate in order for the financial incentive to kick in and a household to say, "Okay, now is where it makes sense to refinance." So having millions of new households all of a sudden be in a position to refi is also it's not just about moving houses, it's about unlocking liquidity. Um, >> yeah. I >> though I I will say I will say where where mortgage traders kind of like make their money like right the difference between somebody who's good in at that and not or whatever is Yeah. like >> really being able to to to to kind of have a view on that prepayment rate, right? Because there are things that affect that, you know, like for example, like if people may maybe you could refinance, you have an incentive to refinance, but maybe something's happened to you that like, you know, your credit's not so good anymore, right? Right. or you know you can't pay the upfront costs of right because there's there's some out of pocket that you pay so so I think I think people taking a view on the prepayment speed right and by the way other things I've read before and again this is outside of my expertise but like you know what what people in that market talk about is like you know okay a lot of the market is you know what's the prepayment speed of of a first-time home buyer versus somebody who's not right I I think you know sometimes people think that first-time home buyers prepay at a at a lower speed right like they're less likely to refinance, you know, with years, lower income, right? There might be a lot of reason. >> Some of it is, some of it too is like um, you know, also like is there an anchoring effect, right? Where like people remember 3% mortgages. It wasn't that long ago. Everybody's somebody, you know, their neighbor, the person who sits next to them at work, they've got 3% and so they feel like, oh, should I really be excited about five? Like even if even if there's like a meaningful incentive, you're kind of like, >> I'm going to wait till four sounds really good. So I think so I think I think one thing too that like that that investors in that market are thinking about is like what is that prepayment speed going to be. Um and and anyway just just just to let people a little bit of inside baseball there like that's that's that's part of what people think about. >> Yeah. One interesting thing that you um were talking about is that sometimes the rates don't behave the way that you think they will and we got a really great example of that last September. So the Fed surprised the market. they did a 50 basis point cut rather than a 25. Then they then they waited a year to cut again. But that's that's another conversation. But they do this 50 basis point rate cut and then what happens and this is you um the Fed surprised markets by lowering its benchmark rate by half a percent at se at at the September meeting. Over the next two months, the 10-year Treasury yield rose by about a half a percentage point and average mortgage rates jumped about 3/4 of a point. So the bond yields didn't cooperate with what the Fed was doing with overnight rates and the mortgage market certainly didn't cooperate and so that's a thing that happens and um so even if the Fed does deliver two more cuts this year or one more cut or whatever it is to your point we don't know for sure that there is some sort of definitive read through to how the the rate of the mortgage uh market will behave. >> Yeah. Yeah, I mean there's there's so much that goes into whether or not, you know, people are are buying or selling at that longer kind of the the belly or whatever you want to call it of the treasury curve, right? And those fives and tens, which is again where kind of mortgages are sort of, you know, uh, you know, to some extent priced off of like, you know, that that depends on people's views on on a million different things, right? The the economy, um, you know, politics, etc., right? So, so you know, the the Fed cutting now, um, as a matter of fact, you could even see a scenario where like if the Fed cuts like super aggressively that that that that, you know, spooks people in some different way, right, about like, you know, the the the the direction of the Fed overall and is the economy going to go overheat? Is there going to be that we don't know? Yeah. Yeah. >> Yeah. So, and and so then you see then you see people kind of like, you know, what do you call it? Like a bear steepener, right? Where people are like, "Oh, this isn't good. I need to sell, you know. So, I don't know, maybe I mix up those terms, but like but but but there but but you know, what the 10-year Treasury does is only somewhat related to what the Fed does at its next meeting. >> I want to get to uh one more thing before uh before we let you go. Um you've been talking about uh JP Morgan and its ambitions in the credit card market and I thought this is a really great piece you did. Um, so you say that they are already number one in card spending and they want to be even more dominant in this business. Um, last week we found out there's new pricing on the American Express Platinum card. Uh, also a lot of new features that are going to come along with that. But on the JP Morgan Chase side, it's about the Sapphire Reserve and uh, they've been making a bunch of acquisitions. um acquisitions that steer people toward more ways to spend money on trips, on restaurants. What do you see happening in this market and why do you think it's so important to JP Morgan right now? >> I think what what struck me and what what got me interested in that was just seeing how, you know, here's like America's biggest bank by most if not all measures. Yeah. Um and uh you know and and and here they are like really kind of you know investing heavily in a business that I think people think of as like oh it's got its up right like credit cards like oh there could be loss the consumer loss is there right it's really competitive etc and you know and then I think you know you just started to see it like we see it in our lives right like the the you know we read about like the relaunch of like you know of of you know the sapphire card and its you know fee and and and the value ad and and American Express does does that too and City has a kind of premium travel card. Capital One is and so it's like the what I wanted to just sort of write about was just like this is this is a big business and it's really important for even a bank as gigantic as as as JP Morgan Chase just because it's it's I mean the credit card business is is can can be a really you know good business like not only does it itself you know make money right and and and that's that's partly through the the interchange fees that banks collect when you swipe your card the kind of merchant fees we sometimes call them you Um, now some of that gets essentially like rebated back to people in the form of rewards. Um, but you know it's still but still that's a lot of money kind of moving through the banks and and and and they have partners, right? All the companies that that that participate in those rewards like they want to be in on that, right? They want to be they want to have that customer loyalty, you know? So So and the bigger you are, >> if you're not doing it with them, you're doing it you're doing it somewhere else. >> Exactly. >> So they want you to do it with them. you pointed out um JP Morgan Chase credit card sales volumes just so people have an understanding of like the raw numbers involved and this is excluding corporate cards. This is just people using things like the Sapphire uh reserve and some lesser cards, but that number pre- pandemic is um just below $200 billion and as of the latest reading, it looks like you guys have that number now, just shy of $350 billion. So that is one of the fastest growing businesses within banking, period. Full stop. And you could understand why if you're consumerf facing it's it's like you have to win there and they certainly appear to be uh trying to win win win it all. What do you think? >> Yeah. I mean it's and and and if you think about it too like you know it's a it's a feeder into all kinds of other banking businesses, right? Like if you've got someone's credit card, right? You you know you can um you know obviously maybe have their checking account too or have a shot at that. you know, you you you could pitch them a mortgage. And then, you know, like I said, you've got the merchants, you know, in there, too, right? Like you've got people who want to make deals with you, who want to do business with you because you you you essentially are this funnel of money and where you point people, you know, um can be very meaningful to to to a merchant, right? like um you know uh uh you know like I think one one thing I've learned is that is it that you know when you're listening to the earnings call of like you know American uh Express you've also got to be listening to the Delta earnings call right because those two have been you know they they they have they have a major business together right and so like and and so I think I think people just really need to appreciate like how just just the the the the amount of money and just like the nexus of kind of like business that happens you know with credit cards, right? It's not just like this like, you know, thing in your pocket, you know, it's it's it's a huge business and and even for somebody of the scale and stature, JP Morgan Chase. And also just that like, you know, it shows too like how Chase, you know, given its its its size can can really be um you know, a fierce competitor in here where they can they can deploy so many resources to to to making their cards, you know, attractive to to to users. Like that's that's that's a tough competitor, too. So you um so to that end and I'm a I'm a personally I'm a shareholder in JP Morgan Chase just full disclosure but you point out how JP Morgan has the ability to make investments here that pretty much nobody else does and that ultimately becomes an advantage they just don't have people asking them about how they're spending their capital and how they're investing to the same degree that other banks might and this is this is to quote you the market has a high degree of trust in how JP Morgan spend spends its money unlike many lenders who can afford to be patient with the profitability of investments. You talk about the return on tangible common equity 21% in Q2 uh well above its uh through cycle target of 17. Um it's the highest among the big six US uh mega banks and they kind of are in this place where they can make investments and allow more time for them to pay off than many other banks that want to issue credit cards. And as a result, they can win more customer business through those incentives. And um the bigger they get, the more benefits of scale that come later as sort of like a longer tailed um benefit to the company itself and its shareholders. It's a pretty unique circumstance that they're in. >> Yeah. Yeah, I mean I they just they have a profitability cushion um you know just given how how high their you know return on tangible common equity is which is kind of a benchmark I think that a lot of investors and that the banks themselves use to kind of look at their kind of core profitability that is like how h how how how well does their capital turn into to to profit. Um, and so, you know, so they can just I mean, you know, it's like it's like classic, right? It's like they can they can they could put a loss leader out into the market that sort of like just either grabs them share or not and you know and and you know uh uh uh so you know so just just thinking about them as as as as a competitor is tough and you know and and that's not to say that other banks don't have like compelling credit cards out there, right? like um but um you know it's just like I I it just seems like and and just talking to analysts you know this this is a view that came up. It's like there's, you know, when when when they're, you know, sort of saying, "Okay, we're going to invest in in in in, you know, in our card business, the market's kind of like, oh, really?" Like, "How much are you going to spend? How long you going to do that for?" Like, "What's the, you know, whereas with with sometimes it just it feels like just looking at the way, you know, JP Morgan trades." It's like, "Oh, great. Oh, wow. They're they're they're investing more. >> Yeah, you got this. That's we trust you. That's that's a good sign, right?" And and I mean JP Morgan is not the only business that has that, but it's like that's that's that's um that's a good place to be and and it it may be, you know, kind of unique in in in in banking. So now we'll see, right? I mean I mean cards are not a riskless business, you know, if if there's a huge recession, you know, um PE, you know, borrowers are are can be exposed. Now, you know, again, Chase and this is true of most of the big banks, you know, they try and play in the more kind of like prime super prime part of the market. So they're not lending to people that they think are at big risk. But you know um you know credit risk is credit risk. Uh and um you know and then and then also you know again you know playing playing the the the rewards kind of race running in that race with everyone else is expensive. you know, you've got to be offering people, you know, they're they're raising the fee, but they're also giving more, you know, kind of benefits, right? Like more credits and and and other, you know, you know, the point totals and stuff. So, you know, so so it's not like um you know, you you you you have to to to be be able to see through all that and to say, okay, we still think that we're going to be, you know, that this is a profitable business today and will be in the future, right? like if you just buy market share, we know that's not necessarily like a road to to success. So, you know, so it's not, you know, we'll we'll we'll see if these things pay off as as as anticipated, but um but yeah, cards are just and and I think right now is a really interesting time. Like I said, you know, people probably seen the the marketing for all the different, you know, kind of card brands that they know that, you know, um you know, uh the >> I still never I still never get the call one. >> Yeah. I never got the call with uh US Open tickets from uh from MX Platinum. I don't understand who's somebody's getting that call. It's not me. So, all right. Uh >> you got to spend more. You got to spend money to make money. Josh, >> tell us this has been so much fun. Thank you so much for joining me. I want to let people know where they can follow your writing and your reporting. Um you are at Herd on the street with uh WSJ. And then the podcast, tell people how they find the podcast. What's it called? >> Uh it's called WSJ's Take on the Week. It comes out on Sundays. Uh we focus on like markets, business, finance, um you know, trying to look at uh what what people are talking about in the markets and um and what's coming up. So So it's a it's a good it's you know, listen to it on Sunday mornings to to kick off your week. >> It's a good Sunday morning listen. All right, Talis near the man. Thank you so much for joining us. We appreciate it. Thanks guys for watching and for listening. We'll talk to you soon. [Music]
The Truth About How Wall Street Moves Mortgage Rates
Summary
Transcript
[Music] All right, there we are. Look how handsome we look. Tell us, what do you think? >> You know, we got I got I upgraded the uh the the camera on my laptop just for this. So, >> I can Well, the audience >> the audience appreciates it. All right, ladies and gentlemen, welcome to the live from the compound. My name is Downtown Josh Brown. My guest today is someone I've been trying to get on for a while. He's a great writer, great reporter. Um, Telus Deeos is uh writing for Hearn on the Street, which is, I would say, the most vital column for me at least at the Wall Street Journal, where I read pretty much everything he publishes. Um, he is also the co-host of Wall Street Journal's Take on the Week, which is a weekly podcast about markets and finance. You might recognize his co-hosts, Gunin Banerjee, who's been on our channel before. Um, Telus covers the world of money and banking, too big to fail banks, Wall Street itself, private markets, crypto, insurance, mortgages, credit cards, financial technology, and more. Welcome to the show. Tell us, thank you for doing this. >> Thank you. Hearing all that said is just like stressing me out about >> No, no, don't be stressed. >> How how many things uh they ask me to write about? Well, you are uh you're a polymath when it comes to financial media. Like you you you've got the gamut. So, um I want to start with these I want to start with the uh the the I don't know what what you would even call it. I was going to say acquisition, but it's sort of not. Um, it looks like the federal government and China have reached some sort of an agreement where Tik Tok will spin off its US operation into the hands of Oracle and a consortium of other players who will take over running a new version of the app. It sounds as though um we'll be licensing the technology from Bite Dance, which is the Chinese company that will no longer have access to US users, but they will be paid for, I guess, the tech transfer itself. And then Oracle is going to hold on to all the US user data securely in a US-based cloud data center. and um it'll sort of be like rebuilt as like a US-on Tik Tok uh app. Is that the journal's understanding of what what it looks like so far, what we've heard in in public so far? And uh would just love to get your thoughts on the uniqueness of something like this. Yeah, I mean I think there's I think that there's you know we we've reported the journal that that a deal has come together and and I think it's I think what's interesting is that it's not I don't want listeners to come away with the idea that because the government is sort of obviously playing a role in sort of brokering this that that that it's necessarily going to be then you know some extension of the government. There are a consortium of investors who are coming into it. Uh some some some big names. Silverlake. I don't know, you know, people know the private equity industry. That's a name that I'm I'm sure people will know. You know, they longtime, you know, major like tech uh and financial too in investors all over the place. Oracle is going to play a part of that. Um I also just have to I have to flag that um according to our reporting, I I'm not giving any inside information here, but according to our reporting, what I read in the Wall Street Journal is that uh Lachlan Murdoch and Rupert Murdoch will probably be in the ownership group. something that uh Donald Trump said on Fox News on Sunday. Uh he's named Michael Dell as well. And so I should just say that Lachlan Murdoch is the chair of News Corp, which owns the journal. Um and he's also chief executive of Fox News parent Fox Corp. Uh and uh what what the journal said, and I'll just read it here. I don't want to get myself in trouble. A person familiar with the matter said any investment in Tik Tok would come from Fox Corp. So just want to flag that for for everybody. uh that uh you know there's some some crossover there. But uh I mean look it's it's it's a deal that shows you that like it's funny when we talk about like companies that are in the social media business today. We almost never talk about their like social media businesses anymore. When we talk about meta we're talking about like you know what are they doing in AI? How are they going to you know sort of drive that future. But I think, you know, the fact that everyone's so interested in Tik Tok is it's just a reminder that like this is still where we all live our lives, you know, and and young, old, I don't care, you know, the the power users of Tik Tok I know are like middle-aged people who are just trying to like zone out at night and like they like that they can just scroll. They don't even have to like pick something to watch. They just scroll, right? And so, um, so I think I think it just goes to show you that like the the the interest in that deal is so high. Obviously, there's big politics, but it's like it's it's a daily life thing for a lot of people, right? Like I don't I don't know if you do use do you do you do you use Tik Tok? >> I have an account where I think uh Nicole from my team posts clips of some of the stuff we do here >> on Tik Tok, but not >> but I don't I don't scroll it. I don't watch it. I I haven't I'm already brain rotting with uh Instagram. I don't need like four more versions of that. Um I I guess I guess what uh I guess what's interesting to me is that there are two political issues with Tik Tok. One of them is user privacy. Like it's a foreignowned company that is gaining access to All right. So it sounds like the Oracle thing would solve that. Um if it's being hosted here and the Chinese will lose access to I guess coming in through a back door and seeing what US users were up to. Okay. And then the other thing that I think this solves is like the foreign influence like just you know what it what is the algorithm showing people in the wake of a crisis for example October 7th or the Charlie Kirk murder or like what is then being amplified to the 35% of all US 18 to 35 year olds who say Tik Tok is my primary source of news. That like that's an actual stat. That's more than a third of young people consider Tik Tok to be where they get educated. So not having the foreign influence on what the algorithm is surfacing I feel like um gets solved by having now it's a consortium of US companies you know ostensively there's some political spectrum involved no matter who's going to run it but like I feel like that's like one way to really easily clean up that issue. Um, then there's the >> financial I mean just but just but just to to to emphasize your point like we've been talking obviously like late night shows have been in the news. I don't think I need to explain to people why >> you know but to an extent like I mean is that really where people are getting their views from right is a late night host who is >> you know I I mean I I think at that by the time you're getting to like oh I'm watching somebody say something on late night you've already been inundated with with with content from seven other different places right and so and so I think you know the the I'm not surprised to see the Tik Tok content recommendation algorithm which again according to journals reporting a new version of that would be retrained uh I guess in in in this in this deal. Um, and I'm just not surprised to see that that's that that's a political football of like what what is that push and and and what is that not? And and I mean certainly in my just in my industry, right? Uh you know it's it's it's you know the the um >> you know the the the media uh I you know is is is only you know we're sometimes a passenger in in some respects when it comes to like what what what do the different algorithms uh sort of do. So, I'm not surprised to see that that's that that's >> usually >> if you're Mark Zuckerberg, what do you think? This is this good or bad? >> It's a competitor to Reels that two years ago looked like it might get banned off the face of the earth. >> All right. Now, it's not only not going to be banned, but it's going to be a US-based corporation that competes directly with reals. So, from that standpoint, maybe uh not great on the advertising side of the business. It's a real competitor. Do I have to say like uh maybe like maybe I just like me being like you know a relative like grandpa of like social media so I'm not the savviest sort of >> user of it but it's like I feel like every app I open now >> kind of feels like Tik Tok. Like as a matter of fact I was flipping >> videos you know kind of like you would on Tik Tok, right? Like next next scroll. And at some point I realized I was not actually looking at Tik Tok. I was looking at what I I I think was like I just sort of stumbled onto that the the the kind of the the vertical video feed of Facebook. And so and to be honest like just again I'm speaking for myself as just like you know a middle-aged user these things like it's like you know I I I I do think there's maybe kind of we're reaching the point where like I don't know what platform I'm on. I just know that I'm watching and I think and I by the way by the way like >> LinkedIn has it now and um YouTube has uh shorts >> so yeah to your point like everything looks like everything looks like Tik Tok now >> and the same content like I see the same creators kind of pushed into different you know places right and I think people like I I remember the the joke about reals what it was that it was like oh real is like where people go to see Tik Tok six months later right so so I think at the end end of the day, you know, I >> how much does like one particular algorithm drive the conversation versus like the the constellation, you know, of of of of all of them? So, so, you know, I think I think may maybe the future is actually kind of maybe the biggest worry for for Mark Zuckerberg is just maybe the future is a little bit like agnostic to that, right? Like I I know I get it on my device and which service serves it up to me. >> Like as long as the viewer could do this and just scroll up up up up, they almost don't care what what platform is facilitating that as long as the algorithm is good enough to keep people's attention. Uh all right. I agree with that. we're gonna make an extremely hard pivot because um you've been writing a lot about rates and mortgage rates and I actually think so I'm an equity investor primarily and so I actually think the most exciting potential thing that could happen heading into 26 is a true recovery in the housing market. And of course that's not going to happen unless mortgage rates actually fall. They don't need to plunge. they just need to continue on their recent uh let's say last three months, last four months, that kind of gradual descent that we've been seeing in mortgage rates. And you've been writing a lot about it. So, I want let me set you up here. You said long-term bond yields have been drifting lower because of a host of factors, including expectations the Fed will start cutting rates. Okay, we did that last week. Um the corresponding move in mortgage rates has been stunning. A daily tracker reported the 30-year fixed rates hit their lowest level since 2024. We're at 6.29% this past Friday. And on the Friday of the most recent government jobs report, um which was a slower than anticipated pace of hiring. The 10-year fell uh 0.09, which um is a pretty big is is a pretty steep one day drop off. Um, you also point to the spread between Treasury yields and mortgage bonds, um, which is falling as well, which is important. So, I'd love for you to just kind of give us your take on what we're seeing in that mortgage market and, um, whether or not you think this is leading to the type of scenario that could unfreeze the housing market materially. Well, I mean, just to to start with that last question, like I mean there are, you know, what what could unfreeze the the the housing market, right? What could get people buying and selling again? I mean, you either have to have a big adjustment in the price of houses, right? Which is, you know, for for homeowners kind of a an ugly idea, right? Like basically like, oh, home prices have to get cheaper, right? Well, you know, that takes money out a lot of people's pockets. So, that's not really necessarily a fun thing to think about. Uh, you could have people making a ton more money, which I guess is the best case scenario, right? Like everybody's just making a lot more money and and and then mortgages are more affordable. >> Unl unlikely unlikely right now. >> That's that's uh and then and and and by the way, I I you know, the these scenarios were um you know, kind of like a you know, I think one of the um one of the big mortgage guaranurs, I think it was uh one of them kind of laid out these scenarios. So this is not an entirely original thought but um but then but then the other thing would be u mortgage rates right do mortgage rates come down meaningfully like not just like oh from five and a half to five but like from five and a half back to the world of twos um >> and and so you know so so you know will any of this move the needle on like affordability? I don't I don't know if we're talking about a move in mortgage rates uh except in like an extreme scenario that like really changes that conversation, right? So So I just want to I just want to level set there. Like I don't think that that any any kind of move that we're contemplating in the in in just from the scenarios we're talking about here. >> Seven to five is meaningful. >> It's it's meaningful, but it's not going to bring those affordability numbers um back to um you know, and I'm gonna hold on. I'm gonna I want to I want to credit um let's see give me give me one second here. Uh this is I was reading a a a Twitter account news Lambert Lance Lambert was uh was was kind of finding something from Fanny May kind of talking about these things and and to to get back to pre um pandemic uh affordability levels, you'd be talking about again in this calculation um a move back to uh from from 6 and a half to 2.23%. Right. also also unlikely outside of a financial crisis. >> Right. Right. The the the series of events that lead to that are are pretty extreme. Right. So, so I don't think affordability is going to change. However, you know, like at certainly at the margins, right, I do think that that that there are, you know, some some scenarios in which mortgage rates start to come down. What I was writing about talking about that stunning move was was just sort of noting that um you know look I don't I I don't know how many people follow the mortgage market that closely. I didn't really understand what drove mortgage rates until I started writing about this. And um you know there there's there's just there's there's the world of the mortgage rates that you see, right? You call up a bank or you look at like one of the comparison websites and they give you a rate that that doesn't come from that's not like a you know, oh Fed funds rate plus kind of thing. It's it's a rate that's set by a market and that market is the mortgage bond market. And so when you make a mortgage loan, it then gets usually gets sold into the mortgage bond market. So what's going on with those bonds affects the prices that you might see in that get reflected in rates and what what what was happening there was and and and and this was you know being tracked by mortgage news daily. I don't I don't know if most people when people talk about mortgage rates I think they usually are talking about the the the the the Freddy Mack um PMS I forget exact I forget what that stands for the um primary mortgage market survey pretty sure. Um and that that's that's that comes out on on I think on Thursdays and that's backwards looking right. So so you're you're kind of getting well where have mortgage rates been heading um into this day. There are are some daily measures of that and one that that I've cited in my work uh a few times is is mortgage news daily and and and so you know what what they were noting was that what happened was there was this essentially kind of air pocket in the mortgage bond market. Just again, not to I don't want to bore everybody, but the way mortgage bonds work is like the the bonds have a kind of a different coupons and so there's and they come in half point like buckets >> buckets, right? So the six and a half, the six, the five and a half and every mortgage kind of gets sorted into one of those. And so what what was happening in that particular this this was after the jobs report a few weeks ago that where you saw like you know kind of 10-year long-term yields which is really where kind of mortgages are more priced off of because mortgages you know you take out a 30-year mortgage but a lot of people move or refi and so a 30-year mortgage ends up really having more of like a 10yearish duration somewhere between five and 10 is is kind of what people talk about. So, so that's why the 10-year Treasury is a real reference for that market. And >> the 10-year Treasury is is more powerful in terms of having the 30-year mortgage rate >> react to it. It's not overnight. And it's right. >> If you want a quick guide to like what's happening in mortgage rates, look at that 10ear trend. >> Well, let's let's put this let's put this chart up. So, this is from your article. So this is the yield spread between agency mortgage back securities current coupon and benchmark US treasuries and that spread has been falling meaning um the MBS products that people can invest in the yield is getting closer um to what I guess the benchmark US Treasury of the same maturity >> uh looks like. That's a there's a credit component to that. But I think um chart off >> a little bit a little bit. I mean agency mortgage back securities are the ones that Fanny and Freddy and and other >> they're pretty much money sponsor. Yeah. Exactly. A little bit of credit but not a lot. >> You're making this point though that I think is really interesting which is the institutional buyer of a mortgage back security >> if they So one of the big risks to them is prepayment risk. >> Right. So in other words, they invest in a bond which is backed by mortgages, but a lot of people that own those mortgages, the the nominal rate of the mortgage is so high that those are the first people who are going to refinance lower. When they refinance lower, they prepay the mortgage. The problem for for the institution that invested is they thought they had all these years of high yields coming to them and the bond has just been you know the the income is being taken away because the person prepaid. So, as a result, you've pointed out there's actually more popularity from investors to buy the lower nominal yield, the 5%, let's say, mortgage bond because there's less risk of that prepayment. And so, that's that air pocket that you're describing. >> Exactly. >> And that in turn has an impact on the rate at which mortgages, banks will make mortgages. Who can they sell sell it on to? It like really matters that there's a buyer for that MBS. Yeah. Yeah. No. So, so, so it's like all of a sudden the market's mindset shifts to like, uhoh, I gotta protect myself against prepayment risk, right? I've sold this option to homeowners that they might exercise to to refinance their mortgage at a lower rate. And so, okay, I'd rather buy something that has a lower coupon or yield, but I think will actually last, you know, for a longer period of time because otherwise I run the risk that like if if if if my too much of my bond prepays. I don't I don't lose money, right? I I'm getting my principal back, but it means that then I'm sitting on cash that like, you know, first in you got to reinvest that, right? And then the prevailing rates are lower. And so then you're like, okay, well, if if rates are on their way down, so really this is all partly about the market's expectations of like the way rates are headed. And so what's really underlying all this is a sense that like >> despite everything we've talked, you know, you know, we we kind of, you know, I know in the media sometimes in the in the financial press, you know, we get kind of like, all right, there's a new narrative and that's that like tre treasury yields are surging, right? There's like a day when the 30% hits five 30-year hits 5% we all uh oh okay all right what if rates keep going up and are there long-term concerns about the US fiscal health right uh uh and and you know uh uh are people not going to want dollars because of tariffs and all that right we get you know but then what happens is that you know couple pieces of economic data come in they're not so hot and like some of the same old kind of muscle memory kicks in where it's like okay well that means that the Fed's probably going to cut so that means that I should buy today's bonds at this yield because yields are going to go down and blah blah, you know, or flight to safety, right? Okay. Oh, I'm going to, you know, cut some of my stock allocations, move into bonds, etc. So, so, you know, we saw the return of that dynamic um, you know, as the, you know, once we started getting a couple of like not so great economic data points. And so then you just had this kind of like then like basically you know the battleship turns and a lot of people in the market start running towards the okay if rates are on their way down here's how I've got to kind of >> but it turns really slow it turns really slowly >> and institutional investors when they get into a mindset that you know what we're actually more interested in buying the MBS at 5% versus six is a better interest rate but more prepayment risk like that battleship once that turns it's not it's not all of a sudden going to turn back around because of one piece of economic data. So I think that's a really good point. >> That sounds right. Yeah. >> And the self-awareness that you have as a journalist just understanding the tendency of journalists to be like we want a new story to tell cuz it's a new day. There's not always a new story to tell. And I know that's constant. >> Yeah. I mean it's not just about the new story. I mean, but it is like we kind of have to be like I mean, you know, I would say that that that at least the way I I I think about it is like, all right, something something new or dramatic is happening. I can't tell you that it's going to necessarily keep happening, but I feel like >> if I don't note it or think about it, then if if things really do head in that direction, I don't want to be in a position where like I kind of was like, "Oh, no, no, no. This this things will never happen that way." Right? It's like it's like my version of like market timing. It's like saying like I'm not going to write anything about 5% yields on the 30-year because I think they're going to come down, right? I I don't know, you know, like I'm I'm doing my best like everyone else to figure out what's what's going on. And so, and so, you know, I want to, you know, I think sometimes the right way to consume, you know, financial media is is is not that we're making a call, but that we're just we're we're trying to just like prepare ourselves and and and our readers for like, all right, if if we take if if the market takes this to its logical conclusion, whatever, right? If they keep pushing on that, then then here's what happens at the end of that. And maybe we don't get there, but I would rather feel prepared as a journalist and and to the extent that I I'm providing a service to readers, you know, just kind of flag for them like, all right, here's here's what's on that side of it. So, >> yeah, I think I think you're chronicling it and you're opening up the door to possibilities based on what's happening and not saying, "All right, this is what's going to happen next, but you should be aware that historically when A, B, and C line up, D is normally the outcome or has sometimes been the outcome." I think that's I think that's the the thing and and if you do that well, you let people make up their own mind and come to their own conclusion. I want to show you uh a chart we made for this. This is 10-year treasuries versus the 30-year mortgage rate. And um my guys uh Sean and Chart Kid Matt noticed the average spread since the year 2000 is 1.88%. the spread has now been above that average since March of 2022. But like these lines largely um mirror each other. There's very little deviation here, especially over the I mean, we're showing you the super long-term 25 years, but you will very rarely see a huge deviation between the 30-year mortgage rate and the 10-year mortgage rate. At times the spread may be wider than others, but um so when you said it's really the 10-year that you're looking at if you're trying to understand the the the forward course of the 30-year, this is exactly what you're saying, but um but illustrated by us. Uh thoughts on this? >> Yeah, I mean that that that spread has really been it's uh it's it's it's really been the conversation I think in the last couple years. uh because when when so you know uh as as people may know you know the Federal Reserve was for many years buying mortgage bonds right as part of um they call it credit easing, quantitative easing, whatever you want to call it. Um you know the the the the Fed was was was in in in some ways, you know, uh helping keep that spread really narrow by being a big buyer of of of mortgage mortgage back securities um agency MBS. And so when the Fed stopped doing that uh you know a couple years ago um and started letting that portfolio run off like I think you know most strategists investors I've talked to you know have attributed you know some of that spread widening to to that right just a big buyer coming out of the market and and and and you know to some extent banks you know were in the same position right back when you know rates were near zero they were like grabbing anything that had a little bit of yield including mortgage back securities. We know that that got some of them into trouble back in 2023. So, so you know, banks have not been big necessarily been big buyers either. And so you have seen a widening, but you know, it's it's not it's not to like such a level that I would say that on a long-term time horizon that those two charts like all of a sudden you see mortgages going like this and treasuries going like this for a long time, you know. Um but you know it does and and and so and so I think that you know there is the potential for for some of that spread to continue tightening uh has has has and and you know just take again it's not going to drive mortgage rates from 6% to 2%. But it will you know maybe you know shave you know some fractional point off of that. Um and and you know listen every every you know we all know as as home buyers or whatever you know every every eighth of a point matters right that's someone's pockets >> I think the bigger story >> to watch for still >> and and you guys did a feature on this uh I don't think it was part of her on the street but um >> there are millions of households where for every 50 basis points in the 30-year mortgage rate like a it's like a new trunch of households it would make sense for them to refinance and I The journal stated it as um rates would have to be 75 basis points or more below the new mortgage rate in order for the financial incentive to kick in and a household to say, "Okay, now is where it makes sense to refinance." So having millions of new households all of a sudden be in a position to refi is also it's not just about moving houses, it's about unlocking liquidity. Um, >> yeah. I >> though I I will say I will say where where mortgage traders kind of like make their money like right the difference between somebody who's good in at that and not or whatever is Yeah. like >> really being able to to to to kind of have a view on that prepayment rate, right? Because there are things that affect that, you know, like for example, like if people may maybe you could refinance, you have an incentive to refinance, but maybe something's happened to you that like, you know, your credit's not so good anymore, right? Right. or you know you can't pay the upfront costs of right because there's there's some out of pocket that you pay so so I think I think people taking a view on the prepayment speed right and by the way other things I've read before and again this is outside of my expertise but like you know what what people in that market talk about is like you know okay a lot of the market is you know what's the prepayment speed of of a first-time home buyer versus somebody who's not right I I think you know sometimes people think that first-time home buyers prepay at a at a lower speed right like they're less likely to refinance, you know, with years, lower income, right? There might be a lot of reason. >> Some of it is, some of it too is like um, you know, also like is there an anchoring effect, right? Where like people remember 3% mortgages. It wasn't that long ago. Everybody's somebody, you know, their neighbor, the person who sits next to them at work, they've got 3% and so they feel like, oh, should I really be excited about five? Like even if even if there's like a meaningful incentive, you're kind of like, >> I'm going to wait till four sounds really good. So I think so I think I think one thing too that like that that investors in that market are thinking about is like what is that prepayment speed going to be. Um and and anyway just just just to let people a little bit of inside baseball there like that's that's that's part of what people think about. >> Yeah. One interesting thing that you um were talking about is that sometimes the rates don't behave the way that you think they will and we got a really great example of that last September. So the Fed surprised the market. they did a 50 basis point cut rather than a 25. Then they then they waited a year to cut again. But that's that's another conversation. But they do this 50 basis point rate cut and then what happens and this is you um the Fed surprised markets by lowering its benchmark rate by half a percent at se at at the September meeting. Over the next two months, the 10-year Treasury yield rose by about a half a percentage point and average mortgage rates jumped about 3/4 of a point. So the bond yields didn't cooperate with what the Fed was doing with overnight rates and the mortgage market certainly didn't cooperate and so that's a thing that happens and um so even if the Fed does deliver two more cuts this year or one more cut or whatever it is to your point we don't know for sure that there is some sort of definitive read through to how the the rate of the mortgage uh market will behave. >> Yeah. Yeah, I mean there's there's so much that goes into whether or not, you know, people are are buying or selling at that longer kind of the the belly or whatever you want to call it of the treasury curve, right? And those fives and tens, which is again where kind of mortgages are sort of, you know, uh, you know, to some extent priced off of like, you know, that that depends on people's views on on a million different things, right? The the economy, um, you know, politics, etc., right? So, so you know, the the Fed cutting now, um, as a matter of fact, you could even see a scenario where like if the Fed cuts like super aggressively that that that that, you know, spooks people in some different way, right, about like, you know, the the the the direction of the Fed overall and is the economy going to go overheat? Is there going to be that we don't know? Yeah. Yeah. >> Yeah. So, and and so then you see then you see people kind of like, you know, what do you call it? Like a bear steepener, right? Where people are like, "Oh, this isn't good. I need to sell, you know. So, I don't know, maybe I mix up those terms, but like but but but there but but you know, what the 10-year Treasury does is only somewhat related to what the Fed does at its next meeting. >> I want to get to uh one more thing before uh before we let you go. Um you've been talking about uh JP Morgan and its ambitions in the credit card market and I thought this is a really great piece you did. Um, so you say that they are already number one in card spending and they want to be even more dominant in this business. Um, last week we found out there's new pricing on the American Express Platinum card. Uh, also a lot of new features that are going to come along with that. But on the JP Morgan Chase side, it's about the Sapphire Reserve and uh, they've been making a bunch of acquisitions. um acquisitions that steer people toward more ways to spend money on trips, on restaurants. What do you see happening in this market and why do you think it's so important to JP Morgan right now? >> I think what what struck me and what what got me interested in that was just seeing how, you know, here's like America's biggest bank by most if not all measures. Yeah. Um and uh you know and and and here they are like really kind of you know investing heavily in a business that I think people think of as like oh it's got its up right like credit cards like oh there could be loss the consumer loss is there right it's really competitive etc and you know and then I think you know you just started to see it like we see it in our lives right like the the you know we read about like the relaunch of like you know of of you know the sapphire card and its you know fee and and and the value ad and and American Express does does that too and City has a kind of premium travel card. Capital One is and so it's like the what I wanted to just sort of write about was just like this is this is a big business and it's really important for even a bank as gigantic as as as JP Morgan Chase just because it's it's I mean the credit card business is is can can be a really you know good business like not only does it itself you know make money right and and and that's that's partly through the the interchange fees that banks collect when you swipe your card the kind of merchant fees we sometimes call them you Um, now some of that gets essentially like rebated back to people in the form of rewards. Um, but you know it's still but still that's a lot of money kind of moving through the banks and and and and they have partners, right? All the companies that that that participate in those rewards like they want to be in on that, right? They want to be they want to have that customer loyalty, you know? So So and the bigger you are, >> if you're not doing it with them, you're doing it you're doing it somewhere else. >> Exactly. >> So they want you to do it with them. you pointed out um JP Morgan Chase credit card sales volumes just so people have an understanding of like the raw numbers involved and this is excluding corporate cards. This is just people using things like the Sapphire uh reserve and some lesser cards, but that number pre- pandemic is um just below $200 billion and as of the latest reading, it looks like you guys have that number now, just shy of $350 billion. So that is one of the fastest growing businesses within banking, period. Full stop. And you could understand why if you're consumerf facing it's it's like you have to win there and they certainly appear to be uh trying to win win win it all. What do you think? >> Yeah. I mean it's and and and if you think about it too like you know it's a it's a feeder into all kinds of other banking businesses, right? Like if you've got someone's credit card, right? You you know you can um you know obviously maybe have their checking account too or have a shot at that. you know, you you you could pitch them a mortgage. And then, you know, like I said, you've got the merchants, you know, in there, too, right? Like you've got people who want to make deals with you, who want to do business with you because you you you essentially are this funnel of money and where you point people, you know, um can be very meaningful to to to a merchant, right? like um you know uh uh you know like I think one one thing I've learned is that is it that you know when you're listening to the earnings call of like you know American uh Express you've also got to be listening to the Delta earnings call right because those two have been you know they they they have they have a major business together right and so like and and so I think I think people just really need to appreciate like how just just the the the the amount of money and just like the nexus of kind of like business that happens you know with credit cards, right? It's not just like this like, you know, thing in your pocket, you know, it's it's it's a huge business and and even for somebody of the scale and stature, JP Morgan Chase. And also just that like, you know, it shows too like how Chase, you know, given its its its size can can really be um you know, a fierce competitor in here where they can they can deploy so many resources to to to making their cards, you know, attractive to to to users. Like that's that's that's a tough competitor, too. So you um so to that end and I'm a I'm a personally I'm a shareholder in JP Morgan Chase just full disclosure but you point out how JP Morgan has the ability to make investments here that pretty much nobody else does and that ultimately becomes an advantage they just don't have people asking them about how they're spending their capital and how they're investing to the same degree that other banks might and this is this is to quote you the market has a high degree of trust in how JP Morgan spend spends its money unlike many lenders who can afford to be patient with the profitability of investments. You talk about the return on tangible common equity 21% in Q2 uh well above its uh through cycle target of 17. Um it's the highest among the big six US uh mega banks and they kind of are in this place where they can make investments and allow more time for them to pay off than many other banks that want to issue credit cards. And as a result, they can win more customer business through those incentives. And um the bigger they get, the more benefits of scale that come later as sort of like a longer tailed um benefit to the company itself and its shareholders. It's a pretty unique circumstance that they're in. >> Yeah. Yeah, I mean I they just they have a profitability cushion um you know just given how how high their you know return on tangible common equity is which is kind of a benchmark I think that a lot of investors and that the banks themselves use to kind of look at their kind of core profitability that is like how h how how how well does their capital turn into to to profit. Um, and so, you know, so they can just I mean, you know, it's like it's like classic, right? It's like they can they can they could put a loss leader out into the market that sort of like just either grabs them share or not and you know and and you know uh uh uh so you know so just just thinking about them as as as as a competitor is tough and you know and and that's not to say that other banks don't have like compelling credit cards out there, right? like um but um you know it's just like I I it just seems like and and just talking to analysts you know this this is a view that came up. It's like there's, you know, when when when they're, you know, sort of saying, "Okay, we're going to invest in in in in, you know, in our card business, the market's kind of like, oh, really?" Like, "How much are you going to spend? How long you going to do that for?" Like, "What's the, you know, whereas with with sometimes it just it feels like just looking at the way, you know, JP Morgan trades." It's like, "Oh, great. Oh, wow. They're they're they're investing more. >> Yeah, you got this. That's we trust you. That's that's a good sign, right?" And and I mean JP Morgan is not the only business that has that, but it's like that's that's that's um that's a good place to be and and it it may be, you know, kind of unique in in in in banking. So now we'll see, right? I mean I mean cards are not a riskless business, you know, if if there's a huge recession, you know, um PE, you know, borrowers are are can be exposed. Now, you know, again, Chase and this is true of most of the big banks, you know, they try and play in the more kind of like prime super prime part of the market. So they're not lending to people that they think are at big risk. But you know um you know credit risk is credit risk. Uh and um you know and then and then also you know again you know playing playing the the the rewards kind of race running in that race with everyone else is expensive. you know, you've got to be offering people, you know, they're they're raising the fee, but they're also giving more, you know, kind of benefits, right? Like more credits and and and other, you know, you know, the point totals and stuff. So, you know, so so it's not like um you know, you you you you have to to to be be able to see through all that and to say, okay, we still think that we're going to be, you know, that this is a profitable business today and will be in the future, right? like if you just buy market share, we know that's not necessarily like a road to to success. So, you know, so it's not, you know, we'll we'll we'll see if these things pay off as as as anticipated, but um but yeah, cards are just and and I think right now is a really interesting time. Like I said, you know, people probably seen the the marketing for all the different, you know, kind of card brands that they know that, you know, um you know, uh the >> I still never I still never get the call one. >> Yeah. I never got the call with uh US Open tickets from uh from MX Platinum. I don't understand who's somebody's getting that call. It's not me. So, all right. Uh >> you got to spend more. You got to spend money to make money. Josh, >> tell us this has been so much fun. Thank you so much for joining me. I want to let people know where they can follow your writing and your reporting. Um you are at Herd on the street with uh WSJ. And then the podcast, tell people how they find the podcast. What's it called? >> Uh it's called WSJ's Take on the Week. It comes out on Sundays. Uh we focus on like markets, business, finance, um you know, trying to look at uh what what people are talking about in the markets and um and what's coming up. So So it's a it's a good it's you know, listen to it on Sunday mornings to to kick off your week. >> It's a good Sunday morning listen. All right, Talis near the man. Thank you so much for joining us. We appreciate it. Thanks guys for watching and for listening. We'll talk to you soon. [Music]