1 00:00:03,410 --> 00:00:06,070 Sean Aylmer: Welcome to the Fear and Greed Daily Interview. I'm Sean 2 00:00:06,070 --> 00:00:09,959 Sean Aylmer: Aylmer. Investors have not had an easy start to the year. 3 00:00:10,039 --> 00:00:12,840 Sean Aylmer: In fact, it's been pretty crazy. Equity markets in the 4 00:00:12,840 --> 00:00:15,630 Sean Aylmer: United States, Asia, and Australia have been hammered in the 5 00:00:15,630 --> 00:00:19,560 Sean Aylmer: last month as investors worry about interest rates rising, adding 6 00:00:19,810 --> 00:00:24,270 Sean Aylmer: geopolitical tensions, the ongoing COVID crisis, and global inflationary pressures. 7 00:00:24,739 --> 00:00:26,870 Sean Aylmer: There's a lot to try and make sense of. Lucky 8 00:00:26,870 --> 00:00:28,840 Sean Aylmer: for us, we've got the assistance today of one of 9 00:00:28,840 --> 00:00:32,450 Sean Aylmer: the biggest investment managers in the world, global giant Mercer 10 00:00:32,680 --> 00:00:35,770 Sean Aylmer: has almost 400 billion US dollars of assets under management, 11 00:00:35,909 --> 00:00:40,360 Sean Aylmer: and more than 17 trillion US dollars under advisement. Rich 12 00:00:40,360 --> 00:00:43,570 Sean Aylmer: Nuzum is the President of Wealth at Mercer and joins 13 00:00:43,570 --> 00:00:46,420 Sean Aylmer: me this morning from New York. Rich, welcome to Fear 14 00:00:46,420 --> 00:00:46,640 Sean Aylmer: and Greed. 15 00:00:47,570 --> 00:00:49,370 Rich Nuzum: Thanks, Sean. And great to be here. Thanks for having me. 16 00:00:49,930 --> 00:00:52,970 Sean Aylmer: Talk about crazy markets. What is going on, volatility, it's 17 00:00:52,970 --> 00:00:54,270 Sean Aylmer: amazing isn't it, at the moment? 18 00:00:54,590 --> 00:00:58,100 Rich Nuzum: It really has been, just huge fluctuations day- to- day 19 00:00:58,100 --> 00:01:00,910 Rich Nuzum: and lots of interesting things going on under the surface 20 00:01:00,910 --> 00:01:01,470 Rich Nuzum: driving that. 21 00:01:01,870 --> 00:01:03,900 Sean Aylmer: Okay. So let's get into some of those. Is it 22 00:01:03,900 --> 00:01:08,120 Sean Aylmer: all about inflation Fed interest rates? Is that what's driving 23 00:01:08,120 --> 00:01:10,869 Sean Aylmer: markets or is it geopolitical? Where do you come down 24 00:01:10,870 --> 00:01:11,380 Sean Aylmer: on all that? 25 00:01:12,270 --> 00:01:15,510 Rich Nuzum: I think inflation and interest rates is the most important 26 00:01:15,510 --> 00:01:18,750 Rich Nuzum: fundamental dynamic right now, but it's more the policy response 27 00:01:18,750 --> 00:01:20,650 Rich Nuzum: to that and the impact of that on the real 28 00:01:20,650 --> 00:01:24,970 Rich Nuzum: economy and discount rates as opposed to the actual headline 29 00:01:24,970 --> 00:01:27,690 Rich Nuzum: inflation numbers at a point in time. There's a Federal 30 00:01:27,690 --> 00:01:31,940 Rich Nuzum: Reserve Board meeting later this week. The path of actual 31 00:01:31,940 --> 00:01:34,580 Rich Nuzum: Fed interest rate increases isn't the big issue. The big 32 00:01:34,580 --> 00:01:38,560 Rich Nuzum: issue is the $ 9 trillion Federal Reserve balance sheet. So 33 00:01:38,560 --> 00:01:40,610 Rich Nuzum: just think about that for a second, $ 9 trillion on 34 00:01:40,610 --> 00:01:43,330 Rich Nuzum: the Fed's balance sheet. Central banks didn't use to have 35 00:01:43,330 --> 00:01:47,830 Rich Nuzum: large balance sheets. That's seven times the size of Australian 36 00:01:47,870 --> 00:01:51,200 Rich Nuzum: national GDP for the year. That's the amount of money 37 00:01:51,200 --> 00:01:53,570 Rich Nuzum: out there that the Fed's holding, that it's going to 38 00:01:53,570 --> 00:01:56,840 Rich Nuzum: unwind. And whereas market analysts have a good sense of 39 00:01:56,840 --> 00:01:59,010 Rich Nuzum: what the Fed might do by way of short- term 40 00:01:59,010 --> 00:02:02,330 Rich Nuzum: interest rate hikes, on that balance sheet, the Federal Reserve 41 00:02:02,330 --> 00:02:04,230 Rich Nuzum: Chair said, " Well, we'll figure it out over the next 42 00:02:04,230 --> 00:02:07,310 Rich Nuzum: couple of months." Markets have woken up to that and 43 00:02:07,860 --> 00:02:11,750 Rich Nuzum: are kind of panicking about the uncertainty associated with how 44 00:02:11,750 --> 00:02:13,079 Rich Nuzum: that balance sheet will be unwound. 45 00:02:13,510 --> 00:02:17,400 Sean Aylmer: How is it unwound in real terms? Is it higher 46 00:02:17,400 --> 00:02:21,450 Sean Aylmer: interest rates? Is it the ending of quantitative easing? What 47 00:02:21,450 --> 00:02:23,710 Sean Aylmer: are they actually doing to try and recoup that? 48 00:02:24,040 --> 00:02:26,900 Rich Nuzum: What they've announced is that they'll stop buying bonds in 49 00:02:26,900 --> 00:02:29,840 Rich Nuzum: March, in terms of net additions to the balance sheet. 50 00:02:29,840 --> 00:02:32,840 Rich Nuzum: So the quantitative of easing will come to an end then. 51 00:02:33,310 --> 00:02:35,429 Rich Nuzum: But that leaves aside, what are they going to do 52 00:02:35,430 --> 00:02:37,310 Rich Nuzum: with the 9 trillion? Are they just going to let 53 00:02:37,310 --> 00:02:40,639 Rich Nuzum: that run out as things mature, the money pays back 54 00:02:40,639 --> 00:02:43,980 Rich Nuzum: and they don't reinvest it? Are they going to reinvest 55 00:02:43,980 --> 00:02:47,540 Rich Nuzum: part of those proceeds? And then there are Fed observers, 56 00:02:47,540 --> 00:02:52,309 Rich Nuzum: including former members of the different reserve bodies that are saying, " 57 00:02:52,310 --> 00:02:56,470 Rich Nuzum: Well, you should actively sell your mortgage- backed securities, your 58 00:02:56,470 --> 00:02:59,700 Rich Nuzum: risk of your securities and hold more conservative things." And 59 00:02:59,700 --> 00:03:02,470 Rich Nuzum: that uncertainty, the Fed's a major market participant, has been 60 00:03:02,470 --> 00:03:06,100 Rich Nuzum: a major market participant, that uncertainty is really roiling markets. 61 00:03:06,440 --> 00:03:08,780 Sean Aylmer: Okay. And so we talk about easy money in the last couple 62 00:03:08,780 --> 00:03:11,540 Sean Aylmer: of years, potentially in the next couple of years, it's 63 00:03:11,540 --> 00:03:12,960 Sean Aylmer: not quite hard money, I'm not quite sure what the 64 00:03:12,960 --> 00:03:14,940 Sean Aylmer: term you use is, Rich, but it's the opposite to 65 00:03:14,940 --> 00:03:16,300 Sean Aylmer: easy money potentially. 66 00:03:17,050 --> 00:03:21,870 Rich Nuzum: Definitely. Yes. And because for example, the tech sector is 67 00:03:21,870 --> 00:03:24,870 Rich Nuzum: about future earnings growth and not just the direction of 68 00:03:24,870 --> 00:03:26,810 Rich Nuzum: the economy, but the revenues, the profits are out there 69 00:03:26,810 --> 00:03:29,530 Rich Nuzum: in the future, long- term interest rates matter a lot. 70 00:03:29,530 --> 00:03:31,510 Rich Nuzum: So when we talk about inflation, when we talk about 71 00:03:31,510 --> 00:03:35,970 Rich Nuzum: interest rates for different investors, different definitions of inflation matter. 72 00:03:36,360 --> 00:03:38,980 Rich Nuzum: But also long- term interest rates can matter a lot 73 00:03:38,980 --> 00:03:41,360 Rich Nuzum: more than short- term interest rates. And the long- term 74 00:03:41,360 --> 00:03:43,860 Rich Nuzum: interest rates are where the volatility is and the uncertainty is. 75 00:03:44,310 --> 00:03:46,190 Sean Aylmer: Okay. So let's just move on to the tech sector. 76 00:03:47,030 --> 00:03:50,870 Sean Aylmer: It's very early in the December quarter earnings season, but 77 00:03:50,870 --> 00:03:53,730 Sean Aylmer: a couple of really notable tech companies have come out 78 00:03:53,730 --> 00:03:56,210 Sean Aylmer: and been hammered. Netflix, one, it said its subscriber numbers 79 00:03:56,210 --> 00:03:58,860 Sean Aylmer: were lower than anticipated. I think its share price dropped 80 00:03:58,860 --> 00:04:01,790 Sean Aylmer: 21% or something, that was last week. Pelotons, the other 81 00:04:01,790 --> 00:04:05,320 Sean Aylmer: one, which has been a crazy ride. That's the home 82 00:04:05,560 --> 00:04:09,080 Sean Aylmer: fitness group, Peloton. It came out, it's having problems in 83 00:04:09,200 --> 00:04:12,620 Sean Aylmer: its production end and its manufacturing end, and its share 84 00:04:12,620 --> 00:04:15,570 Sean Aylmer: price was dumped. People don't like tech stocks at the moment. 85 00:04:16,170 --> 00:04:18,900 Rich Nuzum: Yeah, I think there are bearish dynamics there and then 86 00:04:18,900 --> 00:04:22,410 Rich Nuzum: actually bullish dynamics. If you look at the market for non- 87 00:04:22,410 --> 00:04:26,640 Rich Nuzum: fungible tokens or cryptocurrency, anything digital has done well. Even 88 00:04:26,640 --> 00:04:30,400 Rich Nuzum: things that don't necessarily have underlying earnings or a business 89 00:04:30,400 --> 00:04:33,160 Rich Nuzum: in the way that Netflix or Peloton does. So the 90 00:04:33,160 --> 00:04:37,109 Rich Nuzum: bearish part is with market volatility, the volatility index, the 91 00:04:37,110 --> 00:04:40,020 Rich Nuzum: VIX is trading at a level that we haven't seen 92 00:04:40,020 --> 00:04:44,320 Rich Nuzum: since November 2020. So think about how uncertain things were 93 00:04:44,320 --> 00:04:48,160 Rich Nuzum: about, not last November, but November year prior about COVID 94 00:04:48,190 --> 00:04:50,760 Rich Nuzum: virus and its progress and so on. That's the level 95 00:04:50,760 --> 00:04:53,210 Rich Nuzum: of volatility in the market. So tech stocks, where most of 96 00:04:53,210 --> 00:04:55,540 Rich Nuzum: the earnings are out in the future are uncertain, they're 97 00:04:55,540 --> 00:04:58,570 Rich Nuzum: getting hammered along with all things digital. On the bullish 98 00:04:58,570 --> 00:05:01,900 Rich Nuzum: side, there's a lot of optimism that Omicron may be 99 00:05:01,900 --> 00:05:05,890 Rich Nuzum: our last major wave. That economies are just going, with 100 00:05:05,890 --> 00:05:08,880 Rich Nuzum: the possible exception of China that national governments are just 101 00:05:08,880 --> 00:05:13,000 Rich Nuzum: going to let the pandemic be endemic going forward. We 102 00:05:13,000 --> 00:05:16,500 Rich Nuzum: won't have further lockdowns post- Omicron. We will get used 103 00:05:16,500 --> 00:05:19,490 Rich Nuzum: to living with this and whatever vaccinations are required, that's 104 00:05:19,490 --> 00:05:22,290 Rich Nuzum: bullish for the underlying economy. But if you're a digital 105 00:05:22,290 --> 00:05:25,560 Rich Nuzum: company you've benefited from having people locked down. If you're 106 00:05:25,560 --> 00:05:27,990 Rich Nuzum: Peloton, you've benefited from people having a lot of time 107 00:05:27,990 --> 00:05:30,360 Rich Nuzum: to work out at home, that really impacts your future 108 00:05:30,670 --> 00:05:35,080 Rich Nuzum: earnings growth. So two sets of things impacting digital, one 109 00:05:35,080 --> 00:05:38,070 Rich Nuzum: that's bearish for the entire markets, which is higher volatility, 110 00:05:38,070 --> 00:05:40,560 Rich Nuzum: higher interest rates. The other, which is actually bullish, which 111 00:05:40,560 --> 00:05:44,719 Rich Nuzum: is a resumption in normal, in real- life economic activity 112 00:05:44,720 --> 00:05:47,339 Rich Nuzum: at the expense of things digital. Whether it's personal life 113 00:05:47,339 --> 00:05:47,900 Rich Nuzum: or work life. 114 00:05:48,330 --> 00:05:50,390 Sean Aylmer: Okay. I'll get to crypto's in a moment, but what 115 00:05:50,390 --> 00:05:54,010 Sean Aylmer: you are talking about there, that must be good then for cyclical stocks. And 116 00:05:54,010 --> 00:05:55,730 Sean Aylmer: we've seen a bit of that and back to the 117 00:05:55,730 --> 00:05:58,580 Sean Aylmer: earning season, sort of very early on, I mean I 118 00:05:58,580 --> 00:06:00,589 Sean Aylmer: think some of the train companies in that actually came 119 00:06:00,589 --> 00:06:03,210 Sean Aylmer: out with pretty good results. Puma was another one. Do 120 00:06:03,210 --> 00:06:07,720 Sean Aylmer: you expect that rotation into cyclical stocks to continue? I mean, is 121 00:06:07,720 --> 00:06:10,010 Sean Aylmer: that happening? Will it continue? How do you see that? 122 00:06:12,130 --> 00:06:15,250 Rich Nuzum: That one's tough. And I think to have a real 123 00:06:15,250 --> 00:06:17,190 Rich Nuzum: strong view on that, you need to have a view 124 00:06:17,190 --> 00:06:19,279 Rich Nuzum: on the virus. And a lot of people have lost 125 00:06:19,279 --> 00:06:21,830 Rich Nuzum: a lot of money trying to outguess the virus over 126 00:06:21,830 --> 00:06:22,680 Rich Nuzum: the last couple of years. 127 00:06:22,890 --> 00:06:24,850 Sean Aylmer: Yep. Fair enough. So that's a bit of a wait 128 00:06:24,850 --> 00:06:27,839 Sean Aylmer: and see, we need more time and evidence before we 129 00:06:27,839 --> 00:06:28,840 Sean Aylmer: make a judgment on that one? 130 00:06:30,080 --> 00:06:32,710 Rich Nuzum: I think so. And my advice to investors would be 131 00:06:32,710 --> 00:06:36,900 Rich Nuzum: to diversify. Rather than play that short- term play, do 132 00:06:36,900 --> 00:06:40,299 Rich Nuzum: both. Digitalization is going to continue, globalization is going to 133 00:06:40,300 --> 00:06:43,810 Rich Nuzum: continue. One of the benefits of a full- employment economy, 134 00:06:44,130 --> 00:06:46,500 Rich Nuzum: it's a great time to be a worker. It's a 135 00:06:46,500 --> 00:06:49,080 Rich Nuzum: great time to be an employee. We've got wage growth 136 00:06:49,080 --> 00:06:51,109 Rich Nuzum: in most of the world for the first time in 137 00:06:51,110 --> 00:06:54,440 Rich Nuzum: our working lifetimes. We've got employees being able to say 138 00:06:54,450 --> 00:06:57,810 Rich Nuzum: to their employer, " Hey, I'd prefer to work remotely, and 139 00:06:57,810 --> 00:06:59,950 Rich Nuzum: if you can't accommodate that, that's fine, I'll find a 140 00:06:59,950 --> 00:07:03,210 Rich Nuzum: job that will." Labor actually has some bargaining power now. 141 00:07:03,210 --> 00:07:06,779 Rich Nuzum: Now, if you're providing capital to the stock market, that's 142 00:07:06,779 --> 00:07:10,070 Rich Nuzum: inflationary pressure that's tough on your earnings and so on, but 143 00:07:10,070 --> 00:07:11,570 Rich Nuzum: it's a great time to be a worker. And with 144 00:07:11,570 --> 00:07:16,100 Rich Nuzum: that, the political opposition to globalization, to free trade, to 145 00:07:16,100 --> 00:07:20,080 Rich Nuzum: digitalization has receded a bit. The chance that populous governments 146 00:07:20,080 --> 00:07:23,880 Rich Nuzum: get elected to protect in the short- term workers from 147 00:07:23,880 --> 00:07:27,540 Rich Nuzum: those competitive pressures has receded a bit. Companies are able 148 00:07:27,540 --> 00:07:31,010 Rich Nuzum: to digitalize, globalization's able to proceed. So I think digitalization 149 00:07:31,110 --> 00:07:33,250 Rich Nuzum: is going to continue to happen long- term. At the 150 00:07:33,250 --> 00:07:36,380 Rich Nuzum: same time, we've got a lot of income, cash on 151 00:07:36,380 --> 00:07:39,690 Rich Nuzum: balance sheets of households that people are waiting to spend. 152 00:07:39,690 --> 00:07:41,630 Rich Nuzum: People are eager to travel. They're eager to spend in 153 00:07:41,630 --> 00:07:44,390 Rich Nuzum: the real economy. We saw it over the Christmas holidays 154 00:07:44,390 --> 00:07:48,120 Rich Nuzum: with spending. And so our advice to clients is to 155 00:07:48,190 --> 00:07:50,800 Rich Nuzum: diversify, not put all your eggs in one basket, but 156 00:07:50,800 --> 00:07:51,250 Rich Nuzum: play both. 157 00:07:51,650 --> 00:07:53,640 Sean Aylmer: Stay with me Rich. We'll be back in a minute. 158 00:07:58,710 --> 00:08:02,110 Sean Aylmer: I'm speaking to Rich Nuzum, President of Wealth at Mercer. 159 00:08:02,750 --> 00:08:06,990 Sean Aylmer: Okay. You mentioned cryptocurrencies and NFTs, non- fungible tokens earlier on. 160 00:08:07,410 --> 00:08:09,760 Sean Aylmer: They certainly have lot, I'm not sure about NFTs so much, 161 00:08:09,760 --> 00:08:12,690 Sean Aylmer: but cryptocurrencies have had a rough start to the year. 162 00:08:13,310 --> 00:08:15,570 Sean Aylmer: How do you see those particular assets performing? 163 00:08:16,010 --> 00:08:19,630 Rich Nuzum: I'm a long- term bear on crypto. And I think 164 00:08:19,630 --> 00:08:24,070 Rich Nuzum: to me, crypto falls somewhere between gold and NFTs. Gold 165 00:08:24,230 --> 00:08:27,950 Rich Nuzum: is an asset that many market participants would point to 166 00:08:27,950 --> 00:08:30,900 Rich Nuzum: as a hedge against creative monetary policy, as an inflation 167 00:08:30,900 --> 00:08:34,819 Rich Nuzum: hedge, as a store of real value over time. And 168 00:08:34,880 --> 00:08:37,340 Rich Nuzum: even if they don't expect gold prices to go up 169 00:08:37,340 --> 00:08:40,150 Rich Nuzum: in real terms over the long term, they'll use it 170 00:08:40,150 --> 00:08:43,260 Rich Nuzum: in their portfolios is to hedge inflationary risk. Crypto has 171 00:08:43,540 --> 00:08:46,500 Rich Nuzum: served the same purpose for some investors and that sort 172 00:08:46,500 --> 00:08:49,690 Rich Nuzum: of speculative hedging purpose can be legitimate. But then we 173 00:08:49,690 --> 00:08:54,040 Rich Nuzum: have NFTs which have no intrinsic value, same as crypto. 174 00:08:54,429 --> 00:08:57,679 Rich Nuzum: Gold has an intrinsic value. Gold has industrial uses, gold 175 00:08:57,940 --> 00:09:01,530 Rich Nuzum: has actual uses that create a floor on gold prices, 176 00:09:01,840 --> 00:09:05,790 Rich Nuzum: crypto doesn't and then NFTs gives us the proxy, if 177 00:09:05,790 --> 00:09:08,809 Rich Nuzum: you believe that crypto has intrinsic value, that there's something 178 00:09:08,809 --> 00:09:13,900 Rich Nuzum: to crypto beyond say the gold corollary. Well then explain 179 00:09:13,900 --> 00:09:17,170 Rich Nuzum: why it's so correlated with NFTs, which don't have intrinsic 180 00:09:17,170 --> 00:09:19,870 Rich Nuzum: value, but it fluctuate in the same space. It's been 181 00:09:19,870 --> 00:09:22,589 Rich Nuzum: interesting the last few weeks to see crypto off and 182 00:09:22,590 --> 00:09:25,520 Rich Nuzum: to see many market analysts saying, " Well, all things digital 183 00:09:25,520 --> 00:09:28,630 Rich Nuzum: are getting hammered. So of course, crypto were hammered." That 184 00:09:28,630 --> 00:09:31,589 Rich Nuzum: wasn't the thesis that we heard from crypto enthusiasts last 185 00:09:31,590 --> 00:09:35,140 Rich Nuzum: year, crypto was supposed to provide diversification. The other big 186 00:09:35,140 --> 00:09:38,440 Rich Nuzum: challenge with crypto is, I do think that many nation- 187 00:09:38,440 --> 00:09:41,100 Rich Nuzum: states will move to have a digital currency, but it's 188 00:09:41,100 --> 00:09:43,440 Rich Nuzum: going to be sponsored and regulated by their central banks. 189 00:09:43,440 --> 00:09:46,170 Rich Nuzum: Central banks and yet national governments, in general, don't like 190 00:09:46,170 --> 00:09:50,650 Rich Nuzum: competition. They control the armed forces, they control local taxation. 191 00:09:50,650 --> 00:09:53,530 Rich Nuzum: There's certain natural monopolies that accrue in a nation- state 192 00:09:54,050 --> 00:09:56,069 Rich Nuzum: and one of them is their currency, and we've already 193 00:09:56,070 --> 00:09:59,730 Rich Nuzum: seen the Chinese government crackdown on crypto. Unfortunately, crypto is 194 00:09:59,730 --> 00:10:03,650 Rich Nuzum: vulnerable to regulatory disruption. And the last issue is crypto 195 00:10:03,650 --> 00:10:08,980 Rich Nuzum: is horribly carbon- emitting. Now, there's advocates for proof of 196 00:10:08,980 --> 00:10:11,360 Rich Nuzum: stake instead of proof of work. And if that transformation 197 00:10:11,360 --> 00:10:15,250 Rich Nuzum: happens, crypto could go from being carbon- emitting to at 198 00:10:15,250 --> 00:10:18,059 Rich Nuzum: least neutral. But that isn't where we've been, the crypto 199 00:10:18,059 --> 00:10:22,790 Rich Nuzum: sector, crypto mining's been worse than personal vehicles, automobiles as 200 00:10:22,790 --> 00:10:26,000 Rich Nuzum: a source of emissions, just horrible from an ESG standpoint. 201 00:10:26,000 --> 00:10:29,100 Rich Nuzum: So I think it's hard to be bullish on crypto, 202 00:10:29,600 --> 00:10:31,640 Rich Nuzum: honestly unless you have a commercial interest in it. 203 00:10:32,140 --> 00:10:35,020 Sean Aylmer: Okay. Just quickly Rich, the themes of the next 12 204 00:10:35,020 --> 00:10:37,559 Sean Aylmer: months or two years or so. Let's start with the 205 00:10:37,559 --> 00:10:40,010 Sean Aylmer: geopolitical tension. I mean, it's sort of hourly news in 206 00:10:40,010 --> 00:10:43,439 Sean Aylmer: terms of what's happening around the Ukraine area with US- 207 00:10:43,490 --> 00:10:48,309 Sean Aylmer: NATO, et cetera. How big an issue will geopolitics be 208 00:10:48,880 --> 00:10:50,180 Sean Aylmer: in the short to medium term? 209 00:10:50,700 --> 00:10:54,439 Rich Nuzum: I think it will remain a huge issue, but with 210 00:10:54,540 --> 00:10:57,730 Rich Nuzum: China being a lot more important than Russia and the Ukraine 211 00:10:57,809 --> 00:11:01,800 Rich Nuzum: fundamentally and for the long term. And also with things 212 00:11:01,800 --> 00:11:06,570 Rich Nuzum: like the progress of green policy or climate change- related 213 00:11:06,580 --> 00:11:10,870 Rich Nuzum: policy in Europe being more important fundamentally. And I say 214 00:11:10,870 --> 00:11:13,610 Rich Nuzum: that because the Russian economy, Russia is an important player, 215 00:11:13,610 --> 00:11:16,429 Rich Nuzum: especially in the energy markets. I really hope and pray 216 00:11:16,429 --> 00:11:20,090 Rich Nuzum: that Vladimir Putin's not about to make a horrible miscalculation 217 00:11:20,090 --> 00:11:21,820 Rich Nuzum: and invade the Ukraine. Because I think that would be 218 00:11:21,820 --> 00:11:25,140 Rich Nuzum: disastrous for Russia, not just in terms of economic sanctions, 219 00:11:25,140 --> 00:11:29,179 Rich Nuzum: but in terms of Russian influence on Europe, in terms 220 00:11:29,179 --> 00:11:33,920 Rich Nuzum: of Russian participation in global economy, huge miscalculation. But if 221 00:11:33,920 --> 00:11:37,439 Rich Nuzum: it happens, the Russian economy is only 1. 5 trillion of an $ 222 00:11:37,440 --> 00:11:42,030 Rich Nuzum: 80 million global economy, there's other energy producers. And Ukraine, 223 00:11:42,220 --> 00:11:47,189 Rich Nuzum: I hesitate to discount the human cost of invasion, but 224 00:11:47,190 --> 00:11:52,230 Rich Nuzum: it's a $ 165 billion economy. So it's just not material to 225 00:11:52,230 --> 00:11:55,500 Rich Nuzum: the global economy, except for impact on sentiment. But things 226 00:11:55,500 --> 00:11:59,319 Rich Nuzum: like how China participates in the world order and we 227 00:11:59,320 --> 00:12:01,660 Rich Nuzum: are in a multipolar world and China is its own 228 00:12:01,660 --> 00:12:04,880 Rich Nuzum: pole. And so China's going to have a seat at 229 00:12:04,880 --> 00:12:09,179 Rich Nuzum: the table determining how trade works and how intellectual property 230 00:12:09,179 --> 00:12:13,390 Rich Nuzum: works. And it's an important economic motive. It's an important 231 00:12:13,460 --> 00:12:17,080 Rich Nuzum: source of innovation. That's going to matter a lot more 232 00:12:17,110 --> 00:12:20,700 Rich Nuzum: for earnings of most of our clients' investments over time 233 00:12:21,030 --> 00:12:23,160 Rich Nuzum: than the specific issue around Russia and Ukraine, although at 234 00:12:23,160 --> 00:12:24,760 Rich Nuzum: the moment that is roiling markets. 235 00:12:25,059 --> 00:12:27,240 Sean Aylmer: Just quickly on that because China obviously is a very, 236 00:12:27,290 --> 00:12:31,500 Sean Aylmer: very important partner of Australia, particularly on the commodity side. 237 00:12:31,840 --> 00:12:34,530 Sean Aylmer: Do you think that the Central Bank will continue cutting 238 00:12:34,530 --> 00:12:38,650 Sean Aylmer: rates, will continue pushing manufacturing, which should have positive flow- 239 00:12:38,650 --> 00:12:41,170 Sean Aylmer: on effects for the Australian commodities, things like iron or 240 00:12:41,179 --> 00:12:41,930 Sean Aylmer: coal, et cetera? 241 00:12:42,500 --> 00:12:45,260 Rich Nuzum: I think they will. But the biggest source of uncertainty 242 00:12:45,700 --> 00:12:48,580 Rich Nuzum: right now that we see for China is, do they 243 00:12:48,580 --> 00:12:52,429 Rich Nuzum: maintain the zero COVID policy, which would be a deviation 244 00:12:52,429 --> 00:12:54,750 Rich Nuzum: from what we're seeing in the UK or US or 245 00:12:54,750 --> 00:12:58,459 Rich Nuzum: many other economies globally. It's worked relatively well for China 246 00:12:58,460 --> 00:13:01,550 Rich Nuzum: so far. But if we see China try to maintain 247 00:13:01,600 --> 00:13:06,190 Rich Nuzum: a zero COVID policy amidst Omicron, the concern is massive global 248 00:13:06,190 --> 00:13:09,209 Rich Nuzum: supply chain disruptions, possibly worse than we've seen so far 249 00:13:09,210 --> 00:13:14,070 Rich Nuzum: because of shutdowns in Chinese domestic production. One other issue 250 00:13:14,070 --> 00:13:17,390 Rich Nuzum: with China is that it's hard to play the Chinese 251 00:13:17,390 --> 00:13:20,949 Rich Nuzum: onshore Asia market. We think it makes a lot of 252 00:13:20,950 --> 00:13:23,309 Rich Nuzum: sense to play in that market. Even though the global 253 00:13:23,309 --> 00:13:27,170 Rich Nuzum: index providers haven't fully included it in their indices because 254 00:13:27,170 --> 00:13:29,709 Rich Nuzum: China's such a large economy, but also because the Chinese 255 00:13:29,710 --> 00:13:32,620 Rich Nuzum: economy is uncorrelated with the rest of the world. And so 256 00:13:32,620 --> 00:13:36,260 Rich Nuzum: China actually cutting interest rates to stimulate economic growth, they'll 257 00:13:36,260 --> 00:13:38,840 Rich Nuzum: need to do more of that if all's been equal. 258 00:13:38,840 --> 00:13:42,500 Rich Nuzum: If they maintain the zero COVID policy and try to 259 00:13:42,679 --> 00:13:46,059 Rich Nuzum: avoid or mitigate the spread of Omicron. If they have 260 00:13:46,059 --> 00:13:48,400 Rich Nuzum: production disruptions, because of that, they'll need to do more 261 00:13:48,400 --> 00:13:50,970 Rich Nuzum: by way of domestic stimulus. At the same time as 262 00:13:50,970 --> 00:13:52,460 Rich Nuzum: the rest of the world, we talked about the Fed 263 00:13:52,460 --> 00:13:56,900 Rich Nuzum: earlier is moving to more hawkish monetary policy. But that 264 00:13:56,900 --> 00:13:59,670 Rich Nuzum: lack of correlation, if you're a global investor, you'd want 265 00:13:59,670 --> 00:14:01,490 Rich Nuzum: to play both. You'd want to be in China where 266 00:14:01,490 --> 00:14:04,520 Rich Nuzum: there's potentially going to be expansionary monetary policy. You'd want 267 00:14:04,520 --> 00:14:07,809 Rich Nuzum: to be in the US where there's potentially contractionary policy 268 00:14:08,090 --> 00:14:11,079 Rich Nuzum: because you're trying to get that diversification in your return drivers. 269 00:14:11,500 --> 00:14:13,350 Sean Aylmer: Rich, thank you for talking to Fear and Greed. 270 00:14:13,730 --> 00:14:14,449 Rich Nuzum: Okay. Thank you. 271 00:14:14,620 --> 00:14:18,100 Sean Aylmer: That was Rich Nuzum, President of Wealth at Mercer. This 272 00:14:18,100 --> 00:14:20,670 Sean Aylmer: is the Fear and Greed Daily Interview. Join me every morning 273 00:14:20,670 --> 00:14:22,590 Sean Aylmer: for the full Fear and Greed Podcast with all the 274 00:14:22,590 --> 00:14:25,750 Sean Aylmer: business news you need to know. I'm Sean Aylmer. Enjoy 275 00:14:25,750 --> 00:14:26,130 Sean Aylmer: your day.