WEBVTT - Paul Christopher on the Markets (Radio)

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<v Speaker 1>Let's get to our guest, Paul Christopher, head of Global

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<v Speaker 1>market Strategy at Wells Fargo Investment Institute. Paul, let's talk

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<v Speaker 1>a little bit about the b o J action. I'm

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<v Speaker 1>not sure if it's fair to say that the b

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<v Speaker 1>o J wants to have it both ways, but there

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<v Speaker 1>there's both tightening and easing aspects to the move. So

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<v Speaker 1>net net for Paul Christopher, do you like this move? Yes?

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<v Speaker 1>We do. Uh, you're you're right. Uh. Some tightening with

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<v Speaker 1>the changing in the in the yield curve policy, but

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<v Speaker 1>some extra buying of government bombs that will help with

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<v Speaker 1>the economy. So is this a bad move? Well, too

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<v Speaker 1>soon to tell, but they had to do something, uh

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<v Speaker 1>to stop or or at least intervene in the great

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<v Speaker 1>shorting that's been going on in Japanese government death as

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<v Speaker 1>well as in the end those are not good for

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<v Speaker 1>the economy over the long haul. So yeah, there's some

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<v Speaker 1>position squaring going on right now. So it's positive at

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<v Speaker 1>least for the moment. Positive for the moment. Do you

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<v Speaker 1>think the market's going to be satisfied with this? Do

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<v Speaker 1>you think they're going to push for more action from

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<v Speaker 1>the b o J. Yeah, it's typically the case that

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<v Speaker 1>markets will take a certain amount of intervention and then

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<v Speaker 1>and then push, Okay, you're gonna buy nine trillion in

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<v Speaker 1>in Japanese government debt. Let's see if you'll do ten.

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<v Speaker 1>Let's see if you do eleven. Wouldn't have surprised me

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<v Speaker 1>a bit. And notice that the spreads in the squat

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<v Speaker 1>between the swaps and the j GB themselves are still

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<v Speaker 1>where they were yesterday, So markets maybe not believing it

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<v Speaker 1>quite yet. Well, I'm I think that one byproduct of

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<v Speaker 1>this would be that for everybody who has he has

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<v Speaker 1>neglected the end of late that maybe it's nice to

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<v Speaker 1>be diversified and maybe add some end to the portfolio.

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<v Speaker 1>Is that is that sensible? Uh? Maybe not quite time yet. Uh. Look,

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<v Speaker 1>the end was definitely oversold and what we're seeing as

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<v Speaker 1>an oversold bounce. But again, if the market decides to

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<v Speaker 1>test the b o J, it would do it not

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<v Speaker 1>just with the pushing yields higher on the bond, but

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<v Speaker 1>also by selling the end forward again. So it remains

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<v Speaker 1>to be seen there whether it's time yet, we think

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<v Speaker 1>it's probably too early for Europe Edgepan. We would prefer

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<v Speaker 1>the US right now. Okay, let's let's move there because

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<v Speaker 1>it seems to me that this this whole moving out

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<v Speaker 1>of monetary stimulus is going to take a time. You know,

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<v Speaker 1>this is not going to happen overnight. Uh So in

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<v Speaker 1>the US, though we've got that big uncertainty of the

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<v Speaker 1>FETE are actually to me it is not uncertainty at all.

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<v Speaker 1>They're going to keep raising rates and they intend at

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<v Speaker 1>this point to keep them high over the course of

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<v Speaker 1>the year. Should I just look around in equities for

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<v Speaker 1>individual companies that can do well in this environment, or

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<v Speaker 1>forget equities altogether. Oh, we definitely wouldn't forget equities altogether,

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<v Speaker 1>but we would agree with you that the FETE is

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<v Speaker 1>going to keep rates higher for longer than the market think.

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<v Speaker 1>This idea of tapering, where they go from seventy five

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<v Speaker 1>basis points in hike to a fifty hike to and hike,

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<v Speaker 1>does not mean that a cut of twenty five is

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<v Speaker 1>the next thing to happen. They could easily hold rates

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<v Speaker 1>at a high level for a while. We think the

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<v Speaker 1>economy is at the doorstep of recession. We do expect

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<v Speaker 1>that recession to be necessary along with those elevated rates

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<v Speaker 1>to push the economy or push inflation down so we

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<v Speaker 1>would remain defensive here and and maybe not so much

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<v Speaker 1>individual companies, but there are sectors that we like what

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<v Speaker 1>we would think of as those with have that have

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<v Speaker 1>some organic revenue growth, good cash generation energy for example,

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<v Speaker 1>really good cash generation this year. Uh, and then maybe

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<v Speaker 1>good balance sheets. So health care fits that bill. And

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<v Speaker 1>we think tech oddly enough that I know you'll tell

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<v Speaker 1>me it's been taken up behind the woods shed and spank,

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<v Speaker 1>but we like what we like what we're seeing invaluations

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<v Speaker 1>coming down there. So as three sectors where we think

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<v Speaker 1>you can be defensive here a little bit and dollar

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<v Speaker 1>cost average into these positions for several more months, and

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<v Speaker 1>then we think you will start to look for some

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<v Speaker 1>opportunities to be more cyclical. Yes, but you say you've

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<v Speaker 1>been saying pay attention to layoffs. It seems like we've

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<v Speaker 1>only seen baby steps in that in that area. Do

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<v Speaker 1>you think that gets more aggressive going forward? Yeah, first

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<v Speaker 1>thing that happens, well, for the first thing we need

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<v Speaker 1>to remember is that the labor market is the last

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<v Speaker 1>pillar of strength in the economy to fall as you

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<v Speaker 1>go into recession. So we would not expect layoffs to

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<v Speaker 1>become more prominent until we were more clearly and more

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<v Speaker 1>obviously in a spending recession. We're not quite there yet,

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<v Speaker 1>but I would expect those a lot of those you know,

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<v Speaker 1>the two job openings for every applicant that's going to

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<v Speaker 1>go away. Uh, they're just gonna pull those open recks

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<v Speaker 1>now you're not going to get the job creation going forward,

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<v Speaker 1>and that will have some of the same impact on spending. So, uh,

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<v Speaker 1>do you have any industries that you like or uh?

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<v Speaker 1>And when it comes to stocks, where do we start

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<v Speaker 1>looking at you very defensive like healthcare and utilities or

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<v Speaker 1>do you see opportunities in any of the you know,

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<v Speaker 1>companies that have more value or maybe are some kind

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<v Speaker 1>of growth opportunity. Yeah, we don't really like utilities right now.

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<v Speaker 1>The high interest rates have put a damper on that one.

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<v Speaker 1>So it's not strictly a defensive play. I'd call it

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<v Speaker 1>more of a quality play. I t energy healthcare again,

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<v Speaker 1>good organic growth prospects, good revenue streams, good cash production,

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<v Speaker 1>and good balance sheets. That's where we want to be

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<v Speaker 1>right now because we think the losses will be proven

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<v Speaker 1>comparatively less by the time this market finally bottoms. We're

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<v Speaker 1>not there yet. We had some interesting earnings today, one

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<v Speaker 1>kind of looks at the possibility of recession, one looks

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<v Speaker 1>at inflation. Um Nike came out with very strong sales.

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<v Speaker 1>Uh so, I think you have to give them credit

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<v Speaker 1>for that, and that's one reason stocks up twelve percent

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<v Speaker 1>in after hours FedEx. Well, they did a good job

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<v Speaker 1>of cost cutting, saving a billion dollars. Is so is

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<v Speaker 1>the ingeniousness of American company is going to partially save

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<v Speaker 1>the day? It typically does, But you want to be

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<v Speaker 1>careful when you're looking at those companies that have good

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<v Speaker 1>revenue streams. Is it being driven by sales of units

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<v Speaker 1>or by price increases? And it's the latter that ultimately

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<v Speaker 1>we think will undermine their profitability because they just won't

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<v Speaker 1>be able to keep up that with As the is,

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<v Speaker 1>the quantity sold declines faster than the prices can rise.

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<v Speaker 1>So be careful with looking at the revenue. Stremes would

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<v Speaker 1>would tend to look more at the profit margins and

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<v Speaker 1>at the cost cutting. All right, when we're out of time,

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<v Speaker 1>I probably should have said perceived ingeniousness of of management

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<v Speaker 1>teams in the United States, but obviously some credit is

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<v Speaker 1>often given there. Thanks so much for joining us, Paul, Paul,

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<v Speaker 1>Christopher head of global market strategy at Wells Fargo Investment Institute,