1 00:00:00,120 --> 00:00:03,120 Speaker 1: Let's get to our guest, Barbara and Bernard, chief investment 2 00:00:03,160 --> 00:00:07,320 Speaker 1: officer at Wincrest Capital. Barbara, You've just spent a lot 3 00:00:07,360 --> 00:00:11,000 Speaker 1: of time talking about the energy crisis in Europe and 4 00:00:11,160 --> 00:00:16,079 Speaker 1: it is leading countries to make some uncharacteristic decisions, maybe 5 00:00:16,079 --> 00:00:20,040 Speaker 1: even unorthodox. A good example is Germany extending the life 6 00:00:20,040 --> 00:00:23,600 Speaker 1: of two nuclear reactors, and at the root of this 7 00:00:23,680 --> 00:00:26,159 Speaker 1: is the war in Ukraine. Is this now back to 8 00:00:26,239 --> 00:00:32,960 Speaker 1: being issue number one, displacing even inflation? I think it is. 9 00:00:33,240 --> 00:00:36,159 Speaker 1: You know, um, we're actually pretty bullish on nuclear I 10 00:00:36,240 --> 00:00:38,159 Speaker 1: we think next gen and you're you are energy are 11 00:00:38,240 --> 00:00:42,320 Speaker 1: great ways to play this, but um, effectively, unfortunately, what's 12 00:00:42,360 --> 00:00:45,520 Speaker 1: happening is E s G is becoming a luxury and 13 00:00:45,840 --> 00:00:47,960 Speaker 1: people are really concerned about how they're going to feed 14 00:00:48,000 --> 00:00:50,720 Speaker 1: themselves and stay warm this winter, and it's only going 15 00:00:50,760 --> 00:00:53,320 Speaker 1: to get worse. And this is a real problem because 16 00:00:53,320 --> 00:00:56,680 Speaker 1: if you look at places like Germany, UM, which are 17 00:00:56,720 --> 00:00:59,560 Speaker 1: sort of you know, export dependent and real engine of 18 00:00:59,640 --> 00:01:04,280 Speaker 1: growth typically for Europe, they're dealing with really high energy 19 00:01:04,319 --> 00:01:06,679 Speaker 1: costs which are reading into margins. So you can say, okay, 20 00:01:06,680 --> 00:01:10,039 Speaker 1: but the euro is lower, but the escalation and energy 21 00:01:10,120 --> 00:01:14,240 Speaker 1: has been UM you know, much more impactful than than 22 00:01:14,280 --> 00:01:18,560 Speaker 1: the depreciation of the currency. So we're pretty bearish unfortunately 23 00:01:18,959 --> 00:01:21,440 Speaker 1: on Europe right now. Um. At the same time, who 24 00:01:21,480 --> 00:01:24,000 Speaker 1: are they exporting to China? And as we were just 25 00:01:24,040 --> 00:01:27,679 Speaker 1: talking about on the show earlier, UM, you know, demand 26 00:01:27,680 --> 00:01:29,360 Speaker 1: in China is slowing and there's just a lot of 27 00:01:29,400 --> 00:01:34,600 Speaker 1: uncertainty there. So the energy transition is um, it's it's 28 00:01:34,640 --> 00:01:36,320 Speaker 1: a real problem right now, and I think it is. 29 00:01:36,480 --> 00:01:39,000 Speaker 1: It is displacing some of the inflation a peers even 30 00:01:39,040 --> 00:01:42,320 Speaker 1: inflation a peers coming down, but the energy crisis worries 31 00:01:42,360 --> 00:01:45,080 Speaker 1: going up. Yeah, Barbara Stephen angle here. Is it too 32 00:01:45,120 --> 00:01:49,320 Speaker 1: optimistic to think that Europe can transition to renewables quicker 33 00:01:49,360 --> 00:01:53,120 Speaker 1: as it needs to. I think they have to because 34 00:01:53,240 --> 00:01:57,120 Speaker 1: it's no longer a luxury, it's a necessity. Um. You know, 35 00:01:57,520 --> 00:02:00,400 Speaker 1: I live in the Bahamas where we have final to 36 00:02:00,480 --> 00:02:03,520 Speaker 1: payments crisis when we can't afford electricity in the world 37 00:02:03,600 --> 00:02:07,040 Speaker 1: spacing that look at a Sri Lanka. Um. So the 38 00:02:07,080 --> 00:02:10,680 Speaker 1: irony is it will accelerate in my opinion, the energy 39 00:02:10,720 --> 00:02:14,880 Speaker 1: transition because you know, if it's solar, it's a renewable 40 00:02:14,919 --> 00:02:19,280 Speaker 1: source and uh, and you know, and the prices controllable. 41 00:02:19,639 --> 00:02:23,880 Speaker 1: So I think it's making every country rethink the necessity, 42 00:02:24,000 --> 00:02:29,440 Speaker 1: UM of of transitioning. It's becoming an urgent. I wonder 43 00:02:29,639 --> 00:02:31,960 Speaker 1: how demand is holding up in the United States. The 44 00:02:32,040 --> 00:02:37,160 Speaker 1: US is clearly closer to energy independent by long shot 45 00:02:37,240 --> 00:02:40,600 Speaker 1: than either China or Europe. UM. But you know, the 46 00:02:40,680 --> 00:02:43,520 Speaker 1: slowdown in China and the slowdown in Europe has to 47 00:02:43,560 --> 00:02:46,040 Speaker 1: affect the US. What are you seeing in terms of demand, 48 00:02:47,880 --> 00:02:52,200 Speaker 1: in terms of demand for destruction, well, just general demand 49 00:02:52,280 --> 00:02:57,360 Speaker 1: destruction in the United States, that's a big issue too. Yeah, 50 00:02:57,360 --> 00:03:00,800 Speaker 1: so certainly you know, a stronger dollar is not going 51 00:03:00,880 --> 00:03:03,639 Speaker 1: to help their exports, right, and so everyone talks about 52 00:03:04,040 --> 00:03:08,360 Speaker 1: um pent up savings in the US, but savings for who. Um. 53 00:03:08,400 --> 00:03:11,120 Speaker 1: You know, inflation has really eroded the purchasing power of 54 00:03:11,160 --> 00:03:15,000 Speaker 1: the lower end consumer, who inflation hurts the most. So UM, 55 00:03:15,080 --> 00:03:18,119 Speaker 1: I think eroading savings are being eroded. I think multiples 56 00:03:18,160 --> 00:03:22,640 Speaker 1: have contracted, but I don't think we've seen EPs contraction yet. Um. 57 00:03:22,880 --> 00:03:26,160 Speaker 1: And so although we might have a good jobs number, 58 00:03:26,240 --> 00:03:28,720 Speaker 1: to me, it's sort of looking in the rear view 59 00:03:28,720 --> 00:03:32,760 Speaker 1: mirror when I read, UM, you know, the earnings announcements 60 00:03:32,760 --> 00:03:38,640 Speaker 1: of companies, I just read layoff after layoff. UM. So yeah, 61 00:03:38,800 --> 00:03:42,000 Speaker 1: So how sustainable is it? Would be my question? So 62 00:03:42,440 --> 00:03:44,520 Speaker 1: do you think that we will see a ratcheting down 63 00:03:44,560 --> 00:03:49,440 Speaker 1: of earnings expectations? Absolutely? Um. If you know, the canary 64 00:03:49,520 --> 00:03:53,280 Speaker 1: in the coal mine UM is usually credit spreads. And 65 00:03:53,320 --> 00:03:54,960 Speaker 1: in the last ten days, if you look at what 66 00:03:55,000 --> 00:03:57,520 Speaker 1: they've done, they've absolutely blown out in a two standard 67 00:03:57,560 --> 00:04:00,800 Speaker 1: deviation way. And it's not only the pace at which 68 00:04:00,840 --> 00:04:03,360 Speaker 1: they've flown out, it's also the degree to which they've 69 00:04:03,360 --> 00:04:06,240 Speaker 1: blown out. Credit sweads are now basis points and every 70 00:04:06,280 --> 00:04:09,920 Speaker 1: time that's happened in two fifteen, sixteen and two and twenty, 71 00:04:10,000 --> 00:04:12,520 Speaker 1: you've had an earnings recession. Of course, we talked about 72 00:04:12,520 --> 00:04:16,200 Speaker 1: the European energy crisis before the break and we're also 73 00:04:16,279 --> 00:04:19,000 Speaker 1: on Central Bank Watch this week. Brian just mentioned the 74 00:04:19,080 --> 00:04:21,360 Speaker 1: r B A expected to hike by fifty basis points 75 00:04:21,560 --> 00:04:25,520 Speaker 1: the e c B is um meeting on Thursday. Given 76 00:04:25,600 --> 00:04:28,120 Speaker 1: the the energy crisis that we just talked about, can 77 00:04:28,160 --> 00:04:32,359 Speaker 1: the EASYB in your estimation, afford to do maybe fifty 78 00:04:32,400 --> 00:04:35,880 Speaker 1: basis points instead of seventy or is the ECB simply 79 00:04:36,080 --> 00:04:40,120 Speaker 1: too late to the hiking party? Well, given their inflation 80 00:04:40,200 --> 00:04:41,960 Speaker 1: is higher in the U S right, it's at nine point. 81 00:04:42,560 --> 00:04:44,480 Speaker 1: I think they're going to go through with a hike. 82 00:04:45,040 --> 00:04:47,599 Speaker 1: And the real dilemma for any central bank or today 83 00:04:47,720 --> 00:04:50,599 Speaker 1: is if you take all the negative forces that um 84 00:04:50,640 --> 00:04:52,680 Speaker 1: we're seeing in the world, and you have to assume 85 00:04:52,680 --> 00:04:54,279 Speaker 1: that it's going to cost about three to five percent 86 00:04:54,279 --> 00:04:59,159 Speaker 1: of GDP. So if you're taking three to five GDP out, 87 00:04:59,400 --> 00:05:02,080 Speaker 1: that's money you don't have, that's purchasing power that's not 88 00:05:02,120 --> 00:05:07,719 Speaker 1: there for any nondiscretionary expense. So the conundrum right now 89 00:05:07,880 --> 00:05:10,680 Speaker 1: if you're a central banker is do you in the 90 00:05:10,720 --> 00:05:14,200 Speaker 1: short term increase interest rates to kill inflation or do 91 00:05:14,240 --> 00:05:16,560 Speaker 1: you keep interest rates low enough to stimulate growth through 92 00:05:16,560 --> 00:05:19,479 Speaker 1: the future, because low rates have not only an impact 93 00:05:19,520 --> 00:05:22,040 Speaker 1: on the stock market but also in the investment decision 94 00:05:22,080 --> 00:05:26,160 Speaker 1: of companies, and what we need to do is create growth. Right, So, 95 00:05:26,240 --> 00:05:28,479 Speaker 1: we're living in a world that is seduced by the 96 00:05:28,480 --> 00:05:31,320 Speaker 1: pressures of elections and what they've said, and they're all 97 00:05:31,320 --> 00:05:36,880 Speaker 1: focusing on inflation and until they admit that actually some 98 00:05:36,920 --> 00:05:40,160 Speaker 1: inflation is necessary and we need to live with a 99 00:05:40,240 --> 00:05:43,600 Speaker 1: higher rate of sustained inflation to not only deflate our debt, 100 00:05:43,760 --> 00:05:47,600 Speaker 1: but to stimulate growth. We're really in a quandary and 101 00:05:47,760 --> 00:05:50,520 Speaker 1: it's not easy. It's a good point. And you know, 102 00:05:50,600 --> 00:05:52,640 Speaker 1: if you look at the FED, even the FED, even 103 00:05:52,680 --> 00:05:55,840 Speaker 1: though we don't have the same types of issues that 104 00:05:55,920 --> 00:05:59,040 Speaker 1: Europe has, there's nothing really in the FED mandate that 105 00:05:59,040 --> 00:06:02,360 Speaker 1: that says to at I mean, it's stable prices, and 106 00:06:02,680 --> 00:06:05,400 Speaker 1: you know, in in turbulent times like this, I suppose 107 00:06:05,440 --> 00:06:08,200 Speaker 1: you could make the argument that even three percent was 108 00:06:08,400 --> 00:06:12,680 Speaker 1: relatively acceptable or or stable. Do you do you? I 109 00:06:13,160 --> 00:06:14,800 Speaker 1: suppose it's hard to say do you expect to FED 110 00:06:14,880 --> 00:06:17,400 Speaker 1: to change because you know, this is just too close 111 00:06:17,440 --> 00:06:21,200 Speaker 1: to Jackson hole? But is that coming? I think so? 112 00:06:21,400 --> 00:06:23,360 Speaker 1: Like I think the FED is stopped giving guidance because 113 00:06:23,360 --> 00:06:25,360 Speaker 1: they're tired of being wrong. I mean, the first thing 114 00:06:25,400 --> 00:06:28,120 Speaker 1: told you it was transitory, and it wasn't. Right now 115 00:06:28,160 --> 00:06:32,359 Speaker 1: they've sort of dropped guidance. I mean, these are unprecedented times, 116 00:06:32,480 --> 00:06:34,680 Speaker 1: and I think it's okay to to be off an 117 00:06:34,680 --> 00:06:37,320 Speaker 1: authentic leader and say we're doing our best and we 118 00:06:37,360 --> 00:06:41,240 Speaker 1: don't know, you know, and nobody knows. But to be 119 00:06:41,320 --> 00:06:43,320 Speaker 1: to be fair, I mean, three percents a long way 120 00:06:43,360 --> 00:06:44,960 Speaker 1: from where we are. They would still have to be 121 00:06:44,960 --> 00:06:48,480 Speaker 1: aggressive until you start getting closer to that, right, But 122 00:06:48,480 --> 00:06:50,120 Speaker 1: then they're going to tank the economy. So it's the 123 00:06:50,120 --> 00:06:53,359 Speaker 1: greatest game with chicken you've ever seen. So you know, 124 00:06:53,560 --> 00:06:56,080 Speaker 1: I think I think they will, you know, they do 125 00:06:56,120 --> 00:06:58,680 Speaker 1: want to get a handle on inflation because they lose credibility. 126 00:06:58,800 --> 00:07:01,440 Speaker 1: They don't, and then the data is going to get 127 00:07:01,480 --> 00:07:03,760 Speaker 1: so bad that they're going to have to reverse course. 128 00:07:03,800 --> 00:07:07,359 Speaker 1: But I don't see that happening right now. And um, 129 00:07:07,400 --> 00:07:09,560 Speaker 1: and it's not until that happens that I will get 130 00:07:09,560 --> 00:07:12,960 Speaker 1: more constructive on markets. Barbara, we have a couple of 131 00:07:12,960 --> 00:07:15,400 Speaker 1: minutes left. I want to talk about China. What is 132 00:07:15,440 --> 00:07:19,080 Speaker 1: your take right now given COVID zero, given the fact that, 133 00:07:19,200 --> 00:07:22,120 Speaker 1: of course this is an economy that is slowing and 134 00:07:22,120 --> 00:07:28,280 Speaker 1: and and increasingly shutting itself off from the global economy. Absolutely, 135 00:07:28,320 --> 00:07:31,520 Speaker 1: I mean I think China right now is characterized by uncertainty. 136 00:07:31,600 --> 00:07:34,600 Speaker 1: You know, historically I've really liked the market, but you know, 137 00:07:34,640 --> 00:07:38,240 Speaker 1: the tech names are sort of untouchable right now. Um, 138 00:07:38,400 --> 00:07:41,400 Speaker 1: and you know, just today a ten cent disposing of steaks, 139 00:07:41,400 --> 00:07:45,760 Speaker 1: so there's some headwinds there. Um. We've only added two 140 00:07:45,880 --> 00:07:48,400 Speaker 1: positions all year in our long in our hedge fund, 141 00:07:48,440 --> 00:07:52,360 Speaker 1: on alongside, and one was a Chinese stock, and so 142 00:07:52,520 --> 00:07:54,880 Speaker 1: you know, the upside down side sus to be so 143 00:07:54,920 --> 00:07:56,680 Speaker 1: great for us to get interested right now. And the 144 00:07:56,720 --> 00:07:59,360 Speaker 1: stock was e Du and it was trading at the 145 00:07:59,440 --> 00:08:01,520 Speaker 1: value of cat Chitalan's balance sheets. We were getting the 146 00:08:01,560 --> 00:08:05,080 Speaker 1: operating business for free. So that's what it takes for 147 00:08:05,400 --> 00:08:09,120 Speaker 1: an investor like need to get interested by China right now. Um. 148 00:08:09,200 --> 00:08:11,200 Speaker 1: The other stock that I think is kind of interesting 149 00:08:11,240 --> 00:08:14,320 Speaker 1: because I believe in the energy transition tail winds is 150 00:08:14,400 --> 00:08:17,040 Speaker 1: b y D. It's sold off, you know, double digit 151 00:08:17,240 --> 00:08:21,000 Speaker 1: um recently on the news that Warren Buffett was reducing 152 00:08:21,040 --> 00:08:23,960 Speaker 1: a steak. But it's not about company and fundamentally nothing 153 00:08:24,000 --> 00:08:26,000 Speaker 1: has changed, and so for a long term investor, I 154 00:08:26,040 --> 00:08:29,360 Speaker 1: think it's a unique opportunity. Yeah, that's an interesting call. 155 00:08:29,840 --> 00:08:33,600 Speaker 1: You wonder whether China is kind of closing itself off 156 00:08:33,600 --> 00:08:35,520 Speaker 1: from the rest of the world in a sense that 157 00:08:35,920 --> 00:08:39,680 Speaker 1: it will always be important from a trading standpoint for 158 00:08:39,800 --> 00:08:43,479 Speaker 1: the countries, but you almost wonder whether culturally and socially 159 00:08:43,640 --> 00:08:48,840 Speaker 1: and and politically that countries are will be thinking less 160 00:08:48,840 --> 00:08:52,680 Speaker 1: of China going forward. Well, ever, the world is becoming 161 00:08:52,720 --> 00:08:56,120 Speaker 1: more nationalistic right and and this is one of the 162 00:08:56,120 --> 00:08:59,240 Speaker 1: sources of inflation. Just in time has become just in case, 163 00:08:59,840 --> 00:09:04,560 Speaker 1: and people are weaponizing their natural resources. Um. You know, 164 00:09:04,640 --> 00:09:08,280 Speaker 1: China supplies seventy of the world solar panels, for example. 165 00:09:08,920 --> 00:09:12,079 Speaker 1: Um so it's a it's a very interesting time. The 166 00:09:12,120 --> 00:09:14,719 Speaker 1: world can't ignore China, but China is going to take 167 00:09:15,040 --> 00:09:19,160 Speaker 1: take care of China first. Barbara and Bernard, chief investment 168 00:09:19,160 --> 00:09:21,800 Speaker 1: officer at Windcrest Capital. Always good to have you on 169 00:09:21,960 --> 00:09:23,119 Speaker 1: sharing your insights.