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Speaker 1: Let's get to the pithy comment. Now. We're joined by

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Speaker 1: Anthony Doyle out of investment strategy at Fire Trail. Anthony,

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Speaker 1: I don't know what you're positioning is, but I just

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Speaker 1: want to make the comment general, am, and we take

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Speaker 1: no position here, but this year has been a tough

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Speaker 1: year for both stocks and bonds. The first half was

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Speaker 1: the worst year, or the worst start to a year

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Speaker 1: in UH since nineteen seventy three, I believe, and it's

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Speaker 1: it's been a particularly bad year for the bond market,

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Speaker 1: and for sectors of the bond market, the worst ever.

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Speaker 1: And yet I sensed that the bears, I think we

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Speaker 1: deserve more, they want more, and they're going into two

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Speaker 1: thousand and twenty three expecting further losses. Your thoughts on that, Yeah,

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Speaker 1: you're right. So it's the first time in that I

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Speaker 1: can remember that the street are actually expecting declines for

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Speaker 1: the SMP A five on a calendary a basis three,

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Speaker 1: so expecting around it two to three percent decline. And

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Speaker 1: on average since nineteen the street has been expecting between

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Speaker 1: nine and ten appreciation in the SMP five hundreds. So

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Speaker 1: you're absolutely right, the bears are ruling the market at

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Speaker 1: the moment, and undeniably that's a reflection of the uncertainty

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Speaker 1: around the economic outlook FED policy and of course the

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Speaker 1: outlook for for earnings and companies over the course of

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Speaker 1: the next twelve months. Do you think markets have got

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Speaker 1: the path ahead for the FED fully priced in? Because

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Speaker 1: this is a pattern that we've seen over two markets rally.

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Speaker 1: The FED makes an announcement replete with hawkers rhetoric, and

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Speaker 1: then they slip again before recovering. How long are we

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Speaker 1: going to see the cycle going on? Yes, So our

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Speaker 1: expectation is that the FED will deliver on their expectations

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Speaker 1: for FED fund rate heights next year, and the markets

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Speaker 1: may be overestimating the potential for FED rate cuts. So

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Speaker 1: undeniably a theme of the year has been bad news

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Speaker 1: is good news for markets in that and we thought

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Speaker 1: that really in November with the lower than expected inflation print,

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Speaker 1: which has since been confirmed this month as well. But

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Speaker 1: you're quite right in that the the market has continually

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Speaker 1: underestimated the Fed's willingness to stamp out inflation, and undeniably,

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Speaker 1: inflation is still a long way away from where the

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Speaker 1: FED wants it to be, so I think that we

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Speaker 1: may see a painful repricing of expectations. Um At some stage,

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Speaker 1: probably in the first quarter of next year, we say

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Speaker 1: that stocks have recovered, but it's still pretty dire for many.

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Speaker 1: I mean, yes and people. I've a hundred down eighteen

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Speaker 1: point six percent year to day. The cost be down

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Speaker 1: more than year to day, and the Hansing Index has

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Speaker 1: has treated up a lot in the last month, but

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Speaker 1: it's still down six year to day. But even with that,

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Speaker 1: it's sort of in your gut. It almost feels like

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Speaker 1: the bears are right well. Has been a very painful

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Speaker 1: lesson for investors to learn that central banks don't exist

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Speaker 1: to backstock risk assets, which has been the name of

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Speaker 1: the game really since the GFC, really since the Global

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Speaker 1: financial Crisis and the extraordinary monetary policy measures we've seen

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Speaker 1: since then. To tell you the truth, I would be

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Speaker 1: far more worried if we weren't seeing the policy reaction

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Speaker 1: function that we're seeing from the FED. I think that

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Speaker 1: they're actually setting up an environment of well anchored inflation

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Speaker 1: expectations and that bodes well for long term return for

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Speaker 1: equity markets. But we've come off an extraordinary period of

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Speaker 1: monetary policy larges, which has been the function of an

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Speaker 1: extraordinary global health crisis when the economies were put on

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Speaker 1: ice and obviously not only was it the monetary policy,

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Speaker 1: but also fiscal policy was the taps were firmly turned

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Speaker 1: on from both perspective gives in order to support respective

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Speaker 1: economies around the world. So I think what we're seeing

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Speaker 1: now is obviously a normal reaction to the cost of

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Speaker 1: capital appreciating in value. But we will see normality return,

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Speaker 1: but it is going to take some time, particularly given

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Speaker 1: the strength of the US labor market at the moment,

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Speaker 1: and they're willing willingness of consumers to continue to spend.

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Speaker 1: Is the FED you're think going to have to engineer

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Speaker 1: a recession to get inflation under control, or is the

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Speaker 1: tide turned in that particular battle, or at the very least,

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Speaker 1: are we going to see an earnings recession due to

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Speaker 1: those wage pressures you're just described. Typically, what you find, Paul,

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Speaker 1: is that the FED, when it embarks upon a rate

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Speaker 1: hiking cycle, it's very difficult to avoid a recession. UM.

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Speaker 1: So I wouldn't be surprised if we see a US

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Speaker 1: recession next year, including for earnings UM that that wouldn't

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Speaker 1: supp wise me in the least, particularly given how stubborn

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Speaker 1: inflation is at the moment, particularly core inflation. So uh,

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Speaker 1: notwithstanding that fact that the US is likely to enter

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Speaker 1: into a recession, the you know, the the expectations for

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Speaker 1: global growth are actually the weakest since um so, A

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Speaker 1: lot of that is already in the price for markets.

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Speaker 1: Um So, for me, if you are looking at generating

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Speaker 1: returns in the US equity market over the medium to

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Speaker 1: long term, now represents an excellent opportunity for investors. But

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Speaker 1: that's notwithstanding the volatility that we're likely to see in

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Speaker 1: the short term, given the uncertainty over the outlook. Is

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Speaker 1: there a lesson for the United States? In Australia, the

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Speaker 1: s X is one of the better performing markets. Um

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Speaker 1: that isn't actually higher. I mean it's down three and

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Speaker 1: three quarters per cent, but that's a very small amount

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Speaker 1: compared to some of the key West markets. Um And

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Speaker 1: ordinarily some might say, well, yeah, but there's the trading

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Speaker 1: relationship with China. But China has hardly been uh stoking rallies.

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Speaker 1: I wouldn't think in the in the a s X

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Speaker 1: two hundred during this year. What is Australia getting right?

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Speaker 1: What's Australia getting right? Then? Perhaps the FED could learn

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Speaker 1: from No, I don't think that we I don't think

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Speaker 1: that we can embark any lessons for central banks around

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Speaker 1: the world. We are very very lucky country in that

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Speaker 1: if you think about the makeup of the A S

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Speaker 1: X two hundred, it's dominated by banks um and they've

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Speaker 1: seen that interest margins improve without the other side of

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Speaker 1: the coin insolvencies or bankruptcies increasing, given their very low

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Speaker 1: unemployment rate. We have here in Australia and we have

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Speaker 1: a big resources sector, So where we have a very

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Speaker 1: large underweight in the A S X two hundred is

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Speaker 1: really to technology and that's obviously dominates the S and

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Speaker 1: P five hundred, and technology stocks obviously have been hurt

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Speaker 1: significantly due to rizing discount rates and expectations for long

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Speaker 1: term bond yields. So it's more luck rather than anything

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Speaker 1: that the RBA has done. I would suggest that from

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Speaker 1: the central banking side, the rb A has actually had

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Speaker 1: a very poor performance since the It really reflects what

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Speaker 1: an unusual time we've just been through. But we saw

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Speaker 1: a yield curve control collapse. The Central Bank Governor Phil

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Speaker 1: Low was saying he doesn't expect interest rates to increase

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Speaker 1: until that's obviously being proven very very wrong. So I

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Speaker 1: think that next year might be a little bit tougher

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Speaker 1: than the year we've experienced this year, reflecting strong and

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Speaker 1: high commodity prices. Yeah, words that may come to haunt

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Speaker 1: to feel low. Indeed, the abbe under review at the moment,

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Speaker 1: also with the government. But I just want to get

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Speaker 1: to one of your calls, Andrew before we let you go,

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Speaker 1: and that's about tech. You like semiconductors, but we've had

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Speaker 1: this warning from Micron today about weak sales forecast, the

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Speaker 1: plan to cut the workforce campex as well. You say

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Speaker 1: semis are a by though, why is that? Yeah, that's

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Speaker 1: right for in that we actually own Micron in our

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Speaker 1: global funds. And the reason for that is typically the

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Speaker 1: semi conductor cycle, the chip cycle is very very fast.

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Speaker 1: Um it's a healthy oligopoly. Uh. And obviously the long

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Speaker 1: term structural demand for semis um will remain in place

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Speaker 1: given the advancement of AI but also increasing automation in

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Speaker 1: many aspects of consumers and industrial lives. So the typically

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Speaker 1: the cycle is very very fast. You saw that result

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Speaker 1: from Micron. They are restricting supply um as are a

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Speaker 1: number of the semi names in the sector, and what

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Speaker 1: we expect to see is a tightening of that market

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Speaker 1: over the course of the next six months UM, notwithstanding

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Speaker 1: the cyclical exposure that you will you will experience due

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Speaker 1: to a slow down in global growth UM. But over

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Speaker 1: the medium to long term, we were very, very optimistic

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Speaker 1: about the potential for the semi sextor. Of course, Micron Anthony,

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Speaker 1: thank you. Anthony Doyle, head of investment strategy at fire Trail,

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Speaker 1: pretty persuasive in his arguments Underweight US and the Asia Pacific,

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Speaker 1: overweight Europe and like semiconductors over consumer and internet stocks,