Speaker 1: Let's get to our guest, Paul Christopher, head of Global
Speaker 1: market Strategy at Wells Fargo Investment Institute. Paul, let's talk
Speaker 1: a little bit about the b o J action. I'm
Speaker 1: not sure if it's fair to say that the b
Speaker 1: o J wants to have it both ways, but there
Speaker 1: there's both tightening and easing aspects to the move. So
Speaker 1: net net for Paul Christopher, do you like this move? Yes?
Speaker 1: We do. Uh, you're you're right. Uh. Some tightening with
Speaker 1: the changing in the in the yield curve policy, but
Speaker 1: some extra buying of government bombs that will help with
Speaker 1: the economy. So is this a bad move? Well, too
Speaker 1: soon to tell, but they had to do something, uh
Speaker 1: to stop or or at least intervene in the great
Speaker 1: shorting that's been going on in Japanese government death as
Speaker 1: well as in the end those are not good for
Speaker 1: the economy over the long haul. So yeah, there's some
Speaker 1: position squaring going on right now. So it's positive at
Speaker 1: least for the moment. Positive for the moment. Do you
Speaker 1: think the market's going to be satisfied with this? Do
Speaker 1: you think they're going to push for more action from
Speaker 1: the b o J. Yeah, it's typically the case that
Speaker 1: markets will take a certain amount of intervention and then
Speaker 1: and then push, Okay, you're gonna buy nine trillion in
Speaker 1: in Japanese government debt. Let's see if you'll do ten.
Speaker 1: Let's see if you do eleven. Wouldn't have surprised me
Speaker 1: a bit. And notice that the spreads in the squat
Speaker 1: between the swaps and the j GB themselves are still
Speaker 1: where they were yesterday, So markets maybe not believing it
Speaker 1: quite yet. Well, I'm I think that one byproduct of
Speaker 1: this would be that for everybody who has he has
Speaker 1: neglected the end of late that maybe it's nice to
Speaker 1: be diversified and maybe add some end to the portfolio.
Speaker 1: Is that is that sensible? Uh? Maybe not quite time yet. Uh. Look,
Speaker 1: the end was definitely oversold and what we're seeing as
Speaker 1: an oversold bounce. But again, if the market decides to
Speaker 1: test the b o J, it would do it not
Speaker 1: just with the pushing yields higher on the bond, but
Speaker 1: also by selling the end forward again. So it remains
Speaker 1: to be seen there whether it's time yet, we think
Speaker 1: it's probably too early for Europe Edgepan. We would prefer
Speaker 1: the US right now. Okay, let's let's move there because
Speaker 1: it seems to me that this this whole moving out
Speaker 1: of monetary stimulus is going to take a time. You know,
Speaker 1: this is not going to happen overnight. Uh So in
Speaker 1: the US, though we've got that big uncertainty of the
Speaker 1: FETE are actually to me it is not uncertainty at all.
Speaker 1: They're going to keep raising rates and they intend at
Speaker 1: this point to keep them high over the course of
Speaker 1: the year. Should I just look around in equities for
Speaker 1: individual companies that can do well in this environment, or
Speaker 1: forget equities altogether. Oh, we definitely wouldn't forget equities altogether,
Speaker 1: but we would agree with you that the FETE is
Speaker 1: going to keep rates higher for longer than the market think.
Speaker 1: This idea of tapering, where they go from seventy five
Speaker 1: basis points in hike to a fifty hike to and hike,
Speaker 1: does not mean that a cut of twenty five is
Speaker 1: the next thing to happen. They could easily hold rates
Speaker 1: at a high level for a while. We think the
Speaker 1: economy is at the doorstep of recession. We do expect
Speaker 1: that recession to be necessary along with those elevated rates
Speaker 1: to push the economy or push inflation down so we
Speaker 1: would remain defensive here and and maybe not so much
Speaker 1: individual companies, but there are sectors that we like what
Speaker 1: we would think of as those with have that have
Speaker 1: some organic revenue growth, good cash generation energy for example,
Speaker 1: really good cash generation this year. Uh, and then maybe
Speaker 1: good balance sheets. So health care fits that bill. And
Speaker 1: we think tech oddly enough that I know you'll tell
Speaker 1: me it's been taken up behind the woods shed and spank,
Speaker 1: but we like what we like what we're seeing invaluations
Speaker 1: coming down there. So as three sectors where we think
Speaker 1: you can be defensive here a little bit and dollar
Speaker 1: cost average into these positions for several more months, and
Speaker 1: then we think you will start to look for some
Speaker 1: opportunities to be more cyclical. Yes, but you say you've
Speaker 1: been saying pay attention to layoffs. It seems like we've
Speaker 1: only seen baby steps in that in that area. Do
Speaker 1: you think that gets more aggressive going forward? Yeah, first
Speaker 1: thing that happens, well, for the first thing we need
Speaker 1: to remember is that the labor market is the last
Speaker 1: pillar of strength in the economy to fall as you
Speaker 1: go into recession. So we would not expect layoffs to
Speaker 1: become more prominent until we were more clearly and more
Speaker 1: obviously in a spending recession. We're not quite there yet,
Speaker 1: but I would expect those a lot of those you know,
Speaker 1: the two job openings for every applicant that's going to
Speaker 1: go away. Uh, they're just gonna pull those open recks
Speaker 1: now you're not going to get the job creation going forward,
Speaker 1: and that will have some of the same impact on spending. So, uh,
Speaker 1: do you have any industries that you like or uh?
Speaker 1: And when it comes to stocks, where do we start
Speaker 1: looking at you very defensive like healthcare and utilities or
Speaker 1: do you see opportunities in any of the you know,
Speaker 1: companies that have more value or maybe are some kind
Speaker 1: of growth opportunity. Yeah, we don't really like utilities right now.
Speaker 1: The high interest rates have put a damper on that one.
Speaker 1: So it's not strictly a defensive play. I'd call it
Speaker 1: more of a quality play. I t energy healthcare again,
Speaker 1: good organic growth prospects, good revenue streams, good cash production,
Speaker 1: and good balance sheets. That's where we want to be
Speaker 1: right now because we think the losses will be proven
Speaker 1: comparatively less by the time this market finally bottoms. We're
Speaker 1: not there yet. We had some interesting earnings today, one
Speaker 1: kind of looks at the possibility of recession, one looks
Speaker 1: at inflation. Um Nike came out with very strong sales.
Speaker 1: Uh so, I think you have to give them credit
Speaker 1: for that, and that's one reason stocks up twelve percent
Speaker 1: in after hours FedEx. Well, they did a good job
Speaker 1: of cost cutting, saving a billion dollars. Is so is
Speaker 1: the ingeniousness of American company is going to partially save
Speaker 1: the day? It typically does, But you want to be
Speaker 1: careful when you're looking at those companies that have good
Speaker 1: revenue streams. Is it being driven by sales of units
Speaker 1: or by price increases? And it's the latter that ultimately
Speaker 1: we think will undermine their profitability because they just won't
Speaker 1: be able to keep up that with As the is,
Speaker 1: the quantity sold declines faster than the prices can rise.
Speaker 1: So be careful with looking at the revenue. Stremes would
Speaker 1: would tend to look more at the profit margins and
Speaker 1: at the cost cutting. All right, when we're out of time,
Speaker 1: I probably should have said perceived ingeniousness of of management
Speaker 1: teams in the United States, but obviously some credit is
Speaker 1: often given there. Thanks so much for joining us, Paul, Paul,
Speaker 1: Christopher head of global market strategy at Wells Fargo Investment Institute,