1 00:00:00,080 --> 00:00:03,880 Speaker 1: Let's get to Isaac Pool, global CIO at Orianna Financial Services, 2 00:00:03,880 --> 00:00:05,960 Speaker 1: will be with us for this half hour. I is 3 00:00:05,960 --> 00:00:07,720 Speaker 1: it great to have you. Let's put a couple of 4 00:00:07,720 --> 00:00:11,440 Speaker 1: stories together and then extrapolate from them one which we 5 00:00:11,520 --> 00:00:14,239 Speaker 1: get every day more hawk ish FED speak and to 6 00:00:14,520 --> 00:00:17,680 Speaker 1: the noted investors, Scott Minor has Doug referred to saying 7 00:00:17,720 --> 00:00:21,360 Speaker 1: that the fan is going to tighten until something breaks. 8 00:00:21,400 --> 00:00:24,720 Speaker 1: So is it fair to say that there's a lack 9 00:00:24,760 --> 00:00:27,160 Speaker 1: of diverse views at the FED? Right now? They're all 10 00:00:27,200 --> 00:00:32,360 Speaker 1: saying exactly the same thing. And do you think that's healthy? Yeah? 11 00:00:32,520 --> 00:00:35,279 Speaker 1: I think that they are saying exactly the same thing. 12 00:00:35,280 --> 00:00:37,320 Speaker 1: But I think there is a fairly clear message there, 13 00:00:37,360 --> 00:00:40,080 Speaker 1: and that is they want to hike until rates are restrictive, 14 00:00:40,120 --> 00:00:42,120 Speaker 1: but then leave it there for a very long time. 15 00:00:42,640 --> 00:00:45,600 Speaker 1: That does have a risk that they break something. Historically 16 00:00:45,640 --> 00:00:48,120 Speaker 1: there is a high chance of breaking, but but that 17 00:00:48,240 --> 00:00:51,199 Speaker 1: reaction function getting to a level that's pretty restrictive and 18 00:00:51,240 --> 00:00:53,960 Speaker 1: then just pausing for six months, twelve months. I think 19 00:00:53,960 --> 00:00:56,000 Speaker 1: that's a really clear message and I think that's quite 20 00:00:56,080 --> 00:00:57,960 Speaker 1: likely to happen towards the end of this year or 21 00:00:58,000 --> 00:01:01,600 Speaker 1: early next year. Isaac obviously do you think that the 22 00:01:01,640 --> 00:01:06,080 Speaker 1: market itself doesn't quite seriously take what the FED is saying, 23 00:01:06,640 --> 00:01:09,440 Speaker 1: and even though they' trying to hammer the same message 24 00:01:10,000 --> 00:01:14,720 Speaker 1: in unison at times to them. Yeah, I mean the 25 00:01:15,080 --> 00:01:18,080 Speaker 1: market is pricing a pivot, which is a rate cut, 26 00:01:18,520 --> 00:01:20,600 Speaker 1: a series of rate cuts next year. That is just 27 00:01:20,880 --> 00:01:25,000 Speaker 1: very unlikely. It would be very unusual compared to historical 28 00:01:25,080 --> 00:01:27,680 Speaker 1: actions from the FED over the last thirty or forty years. 29 00:01:27,760 --> 00:01:31,399 Speaker 1: So there is a bit of a misunderstanding I think 30 00:01:31,400 --> 00:01:34,000 Speaker 1: in the market of the Fed's message and until until 31 00:01:34,040 --> 00:01:37,440 Speaker 1: that happens. Yeah, Isa, is that because you know, for 32 00:01:37,600 --> 00:01:40,880 Speaker 1: ages J Pow went on about inflation being transit treats, 33 00:01:40,880 --> 00:01:44,000 Speaker 1: So that's you know that the credibility has been eroded. 34 00:01:45,160 --> 00:01:47,760 Speaker 1: It hasn't helped that they are battling to get their 35 00:01:47,760 --> 00:01:49,720 Speaker 1: credibility back, and so I think that's why they're so 36 00:01:49,800 --> 00:01:52,920 Speaker 1: forceful about their message. But the market needs to move 37 00:01:52,960 --> 00:01:55,240 Speaker 1: to a pause, not a pivot. That's not helpful and 38 00:01:55,280 --> 00:01:59,000 Speaker 1: it's likely to be proven very incorrect. I think the 39 00:01:59,000 --> 00:02:02,160 Speaker 1: policymakers they're not stupid. They know they have to talk 40 00:02:02,200 --> 00:02:05,320 Speaker 1: a good game, otherwise money will flow back into the 41 00:02:05,320 --> 00:02:08,560 Speaker 1: market and you'll have a loosening of these tight conditions. 42 00:02:08,960 --> 00:02:11,079 Speaker 1: But you have to say that investors aren't stupid either, 43 00:02:11,480 --> 00:02:13,760 Speaker 1: and you know they're going to watch the data and 44 00:02:13,800 --> 00:02:17,239 Speaker 1: they will make assumptions on when the FED might blink. 45 00:02:17,320 --> 00:02:20,640 Speaker 1: So both sides are doing probably what they should be doing. 46 00:02:20,760 --> 00:02:23,839 Speaker 1: Is that a reasonable argument? Yeah? I think I think 47 00:02:23,840 --> 00:02:26,640 Speaker 1: that's pretty fair. And at the moment, the data are 48 00:02:26,680 --> 00:02:30,640 Speaker 1: showing that there's no inflation expectations issue, there's no rage spiral. 49 00:02:30,760 --> 00:02:33,560 Speaker 1: Inflation is trending lower, and so they're going to meet 50 00:02:33,600 --> 00:02:35,160 Speaker 1: in the middle somewhere, and I think that's going to 51 00:02:35,160 --> 00:02:37,800 Speaker 1: be somewhere around four four and a quarter percent and 52 00:02:37,800 --> 00:02:40,600 Speaker 1: then a long pause, And it's just that that move 53 00:02:40,720 --> 00:02:42,560 Speaker 1: towards that over the next three or four months. It's 54 00:02:42,560 --> 00:02:46,919 Speaker 1: going to keep markets volatile in that period, but you 55 00:02:47,040 --> 00:02:50,160 Speaker 1: need volatility is one thing. But you know, when do 56 00:02:50,240 --> 00:02:54,800 Speaker 1: we actually see I'm going to say, how much store 57 00:02:54,880 --> 00:02:56,840 Speaker 1: does the FED put in the earning season which is 58 00:02:56,880 --> 00:02:59,560 Speaker 1: coming up, and what are you looking at? Yeah, I 59 00:02:59,560 --> 00:03:02,320 Speaker 1: mean the SAID will be looking to see what's happening 60 00:03:02,360 --> 00:03:06,840 Speaker 1: to margins. Are inflations impacting the ability of companies to 61 00:03:07,320 --> 00:03:10,360 Speaker 1: keep margins wide and earned profits? And I think they 62 00:03:10,400 --> 00:03:12,919 Speaker 1: will look at that in the sense that if if 63 00:03:12,919 --> 00:03:16,000 Speaker 1: they are able to keep margins wide, that could be inflationary, 64 00:03:16,000 --> 00:03:17,440 Speaker 1: and that would be a bit of a concern. I 65 00:03:17,520 --> 00:03:20,160 Speaker 1: think they're expecting it to trend lower and uh and 66 00:03:20,360 --> 00:03:23,720 Speaker 1: for earnings pressure to be a little bit of a 67 00:03:23,800 --> 00:03:25,919 Speaker 1: challenge for the equity market, and ultimately I think they'll 68 00:03:25,960 --> 00:03:28,240 Speaker 1: be very comfortable with that. I mean, what at the 69 00:03:28,280 --> 00:03:31,120 Speaker 1: moment are you looking at in terms of value in 70 00:03:31,160 --> 00:03:33,560 Speaker 1: the market. I mean, you look at what's going on, 71 00:03:33,639 --> 00:03:35,880 Speaker 1: and I guess you know, the price is what you pay, 72 00:03:35,920 --> 00:03:41,520 Speaker 1: and Buffett said, and values what you get. Yeah, that's 73 00:03:41,560 --> 00:03:44,120 Speaker 1: that's right. I think right now the most interesting part 74 00:03:44,160 --> 00:03:46,800 Speaker 1: of the market is fixed income and particularly government bonds. 75 00:03:47,440 --> 00:03:50,320 Speaker 1: Um If the Fed does pause, and they will eventually 76 00:03:50,320 --> 00:03:53,200 Speaker 1: they're going to pause at some stage, then ten year 77 00:03:53,280 --> 00:03:57,080 Speaker 1: treasury yields above for excent look pretty attractive at that level, 78 00:03:57,080 --> 00:03:59,240 Speaker 1: and they did pop up there they're moving higher again. 79 00:03:59,280 --> 00:04:00,960 Speaker 1: I think that would be an other opportunity if they 80 00:04:00,960 --> 00:04:03,480 Speaker 1: get around that four percent level, to to lock in 81 00:04:03,680 --> 00:04:07,720 Speaker 1: more duration into portfolios. We know there are plenty of 82 00:04:08,040 --> 00:04:12,680 Speaker 1: examples of inflation or prices coming down. However, I was 83 00:04:12,720 --> 00:04:16,760 Speaker 1: listening to the Mandolie CEO Dirk vander Putt on CNBC 84 00:04:17,320 --> 00:04:20,040 Speaker 1: and he said he doesn't have particularly good news on 85 00:04:20,080 --> 00:04:23,159 Speaker 1: that front. He said that while commodity prices are down, 86 00:04:24,000 --> 00:04:27,640 Speaker 1: that his his packaging costs are a lot higher, and 87 00:04:27,680 --> 00:04:31,560 Speaker 1: so were other prices tied to labor and logistics and 88 00:04:31,560 --> 00:04:34,480 Speaker 1: and storage. So one of the problems with the Fed 89 00:04:34,520 --> 00:04:37,159 Speaker 1: pivot is that maybe they raise those those rates up 90 00:04:37,200 --> 00:04:39,719 Speaker 1: there and they just hold them there for a year, 91 00:04:40,480 --> 00:04:45,039 Speaker 1: and that could complicate equity prices at the moment. I think, 92 00:04:45,400 --> 00:04:47,599 Speaker 1: I think that is what they'll do because they do 93 00:04:47,800 --> 00:04:51,040 Speaker 1: want to prevent inflation moving higher. I think higher prices 94 00:04:51,080 --> 00:04:52,760 Speaker 1: will be here for a while, but they won't continue 95 00:04:52,800 --> 00:04:55,880 Speaker 1: to rise. If if rates get high enough, and if 96 00:04:56,279 --> 00:04:58,440 Speaker 1: if the rate, the FED funds rate does get to 97 00:04:58,720 --> 00:05:01,000 Speaker 1: say four and a quarter maybe four and a half 98 00:05:01,440 --> 00:05:03,839 Speaker 1: and stay there for a year, that will be challenging 99 00:05:03,920 --> 00:05:05,560 Speaker 1: for parts of the equity market. But I think it 100 00:05:05,960 --> 00:05:08,640 Speaker 1: importantly if it doesn't keep moving higher, there is some 101 00:05:08,720 --> 00:05:11,320 Speaker 1: support therefore for US equities in particular over the next 102 00:05:11,320 --> 00:05:15,960 Speaker 1: twelve to eight months. I think it's also how closely 103 00:05:16,000 --> 00:05:18,200 Speaker 1: to look at the investor story emerging markets as well. 104 00:05:18,240 --> 00:05:20,479 Speaker 1: I mean, if we look at China. I mean, it 105 00:05:20,520 --> 00:05:23,440 Speaker 1: seems like all the bad news must be pricing, or 106 00:05:23,480 --> 00:05:25,480 Speaker 1: it should be priced. And given how far we've gone 107 00:05:25,480 --> 00:05:28,520 Speaker 1: with equities and other assets there, so you know, does 108 00:05:28,560 --> 00:05:32,040 Speaker 1: this represent a buying opportunity And do you actually wait 109 00:05:32,120 --> 00:05:33,960 Speaker 1: till the Party Congress is over with and what do 110 00:05:33,960 --> 00:05:37,000 Speaker 1: you expect out of that? Yeah, I think that the 111 00:05:37,160 --> 00:05:40,920 Speaker 1: Party Congress is going to move through to an era 112 00:05:41,040 --> 00:05:43,520 Speaker 1: of more software opening, and we've seen that over the 113 00:05:43,560 --> 00:05:45,960 Speaker 1: last few months. Software opening is happening. I think we'll 114 00:05:45,960 --> 00:05:49,640 Speaker 1: see more internal mobility. I think that means China's economy 115 00:05:49,720 --> 00:05:53,320 Speaker 1: will move out of recession and grow okay next year. 116 00:05:53,360 --> 00:05:55,520 Speaker 1: That would be good for the world economy. But importantly, 117 00:05:56,000 --> 00:06:00,120 Speaker 1: Chinese equities are pricing into such an appalling outlook that 118 00:06:00,120 --> 00:06:03,119 Speaker 1: that there is real genuine upside over the next twelve months, 119 00:06:03,120 --> 00:06:05,640 Speaker 1: and I think it would be sensible to start looking 120 00:06:05,640 --> 00:06:10,200 Speaker 1: at Chinese equities at these levels as as an opportunity. 121 00:06:10,640 --> 00:06:13,120 Speaker 1: So I'm going to outline a problem that probably doesn't 122 00:06:13,120 --> 00:06:15,279 Speaker 1: exist for China. But if you look around the rest 123 00:06:15,360 --> 00:06:19,680 Speaker 1: of of Asia, a lot of countries have have diminished 124 00:06:19,680 --> 00:06:24,480 Speaker 1: their reserves by a huge amount in bolstering their currency 125 00:06:24,520 --> 00:06:26,520 Speaker 1: and we've seen that happen in Korea and Thailand and 126 00:06:26,560 --> 00:06:29,240 Speaker 1: other places, to the point where for some of them 127 00:06:29,279 --> 00:06:31,960 Speaker 1: they're they're down to only a few months of being 128 00:06:31,960 --> 00:06:35,320 Speaker 1: able to cover imports. When you talk about things breaking. 129 00:06:35,680 --> 00:06:39,599 Speaker 1: That's an example of how there are these unintended consequences 130 00:06:39,600 --> 00:06:43,480 Speaker 1: of the strong dollar and higher rates. Yeah, I mean 131 00:06:43,680 --> 00:06:47,800 Speaker 1: the stronger dollar, higher rates, elevated oil prices throw that 132 00:06:47,880 --> 00:06:49,680 Speaker 1: in the mix. That is a real challenge for Asia 133 00:06:49,760 --> 00:06:53,560 Speaker 1: and Asian equities, and and you're seeing that really directly 134 00:06:53,600 --> 00:06:56,880 Speaker 1: in the currency movements this year. So if if you 135 00:06:56,920 --> 00:06:59,400 Speaker 1: are looking for a place that could break, it could 136 00:06:59,480 --> 00:07:03,360 Speaker 1: snap relatively soon. That's it. I think that the FED 137 00:07:03,360 --> 00:07:05,680 Speaker 1: would need to move rates quite a bit higher before 138 00:07:05,720 --> 00:07:08,680 Speaker 1: that becomes a real big concern. But but this is 139 00:07:08,720 --> 00:07:10,720 Speaker 1: the big risk over the next twelve months of FED 140 00:07:10,760 --> 00:07:13,680 Speaker 1: policy era, and that they're talking tufts and that that's 141 00:07:13,720 --> 00:07:15,679 Speaker 1: got to be a concern I think for investors around 142 00:07:15,680 --> 00:07:19,160 Speaker 1: Asia at the moment. Yeah, policy areas are very easy 143 00:07:19,280 --> 00:07:21,400 Speaker 1: given the lag were two in putting rates up and 144 00:07:21,600 --> 00:07:26,200 Speaker 1: seeing the effect of them exactly. So that's that's really 145 00:07:26,240 --> 00:07:29,600 Speaker 1: the argument I think for more rate hikes. But seventy 146 00:07:29,600 --> 00:07:32,520 Speaker 1: five basis point hikes are unusual historically. Three of them 147 00:07:32,520 --> 00:07:36,080 Speaker 1: in a row is really unusual. Historically, the FED would 148 00:07:36,080 --> 00:07:39,080 Speaker 1: be sensible to start hiking at a slower rate. They 149 00:07:39,080 --> 00:07:40,480 Speaker 1: can still get up to four and a half four 150 00:07:40,480 --> 00:07:42,640 Speaker 1: and a quarter four per cent over the next three 151 00:07:42,720 --> 00:07:45,480 Speaker 1: or four months without banging up seventy five basis points 152 00:07:45,480 --> 00:07:48,480 Speaker 1: in November and December. So I think that's the that's 153 00:07:48,520 --> 00:07:50,400 Speaker 1: the question they're gonna have to start asking themselves, And 154 00:07:50,400 --> 00:07:52,240 Speaker 1: I think the data is allowing them to slow that 155 00:07:52,280 --> 00:07:57,080 Speaker 1: pace and still be restrictive in policy. Yep. That that's 156 00:07:57,120 --> 00:07:59,239 Speaker 1: just it, isn't it. Ultimately, thanks not for that, Isaac, 157 00:07:59,280 --> 00:08:02,080 Speaker 1: always a pleasure. Thank you for joining as Isaac Pool 158 00:08:02,120 --> 00:08:07,160 Speaker 1: there from Orianna Financial there Orianna, of course, his financial 159 00:08:07,200 --> 00:08:10,160 Speaker 1: services company, discussing his take on the market.