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Speaker 1: Christopher Allman joining us right now. He's a chief investment

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Speaker 1: officer over at Cawsters. And I don't even know where

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Speaker 1: to start here, Chris. I mean, this was a pretty

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Speaker 1: wild week with a lot of different catalysts here. What

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Speaker 1: do you think was most important for you in terms

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Speaker 1: of getting a better read on what's going to happen next?

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Speaker 2: Bro, mean, it's all about earnings. It's got to be

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Speaker 2: about earnings. Those are fundamentals. They still matter. And I

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Speaker 2: said to my board this week we had an off site.

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Speaker 2: Rule Number one is don't fight the Fed. We all

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Speaker 2: know that. But rule number two don't fight the tape.

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Speaker 2: And the tape and earnings are saying that this market

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Speaker 2: is okay. It's surprising to me, but we're still okay.

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Speaker 1: And and you're fine with okay? Or more importantly, do

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Speaker 1: you think investors are going to be fine with just okay?

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Speaker 2: Well, when you look back at my fiscal year just

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Speaker 2: into June thirty, you've got US stocks almost nineteen percent.

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Speaker 2: That's a bull market. That's fantastic. So we still anticipate

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Speaker 2: a recession, but you've got really strong earnings and you've

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Speaker 2: got returns. I'm an out of equity.

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Speaker 1: Do you anticipate a recession this year or is that

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Speaker 1: being kicked down into twenty twenty four or beyond.

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Speaker 2: All right, remain you got me. I'm embarrassed. I admit

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Speaker 2: I still think there's about a fifty to fifty chance

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Speaker 2: we have a recession somewhere in the next two quarters.

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Speaker 2: I've been saying that for a year and I've been

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Speaker 2: flat out wrong. But obviously, as you've been saying, there's

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Speaker 2: a growing chorus of people believing the FED is pulling

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Speaker 2: off of soft landing inflation from the numbers this week

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Speaker 2: are lowering in the three percent range, and that may

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Speaker 2: be good enough.

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Speaker 3: So part of why everyone is still convinced that there

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Speaker 3: is going to be some kind of slowdown or possibly

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Speaker 3: a recessionist because we've had five hundred and twenty five

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Speaker 3: basis points hikes in rates and at some point that's

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Speaker 3: going to show up in the economy. From where you sit,

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Speaker 3: what kinds of companies or which parts of the economy

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Speaker 3: are feeling the pain.

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Speaker 2: The most, you know, Scarlett, and I've been saying that

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Speaker 2: for a while. When rates climbed five hundred and fifty,

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Speaker 2: somebody's got to get hurt. And you know, my investment.

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Speaker 2: When Committee chair told me the other day he believes J. Powell,

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Speaker 2: He takes him at his word. Why doesn't the street

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Speaker 2: seem to believe him? Normally we'd expect the real estate

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Speaker 2: stocks to be hurt, and then obviously medium sized financials.

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Speaker 2: We'd expect the consumer to shart th throwing some pain.

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Speaker 2: But they're not. So it's still surprising. You are seeing

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Speaker 2: some pain points, obviously in real estate with some of

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Speaker 2: the mortgages, big players putting buildings back, and a draw

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Speaker 2: on the real estate reads. But you know, we're not

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Speaker 2: seeing the pain we would expect at five hundred basis points.

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Speaker 3: Yeah, it might be a slower and more drawn out

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Speaker 3: process in anytime. We were talking earlier, Chris about the

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Speaker 3: BOJ perhaps tilting more hawkishly. This idea that the Bank

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Speaker 3: of Japan is getting slightly more hawkish does signal a

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Speaker 3: new era for central banks? What does it mean for

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Speaker 3: investors like you?

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Speaker 2: We've got to pay attention to central banks for a

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Speaker 2: global portfolio. So first and foremost, we watched the FED

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Speaker 2: because the vast majority of our portfolio is here in

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Speaker 2: the USA. But we've got to watch the ECB, the

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Speaker 2: BOJ and then a little bit of the Bank of England,

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Speaker 2: and for the last couple of years we have really

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Speaker 2: seen coordinated responses. Think back to the beginning of this

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Speaker 2: pandemic in two thousand, absolute coordinated response in March of

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Speaker 2: twenty twenty, and then now they've really all been trying

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Speaker 2: to fight inflation. So the rule of don't fight the

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Speaker 2: FED stands whether it is a central bank in the

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Speaker 2: US or anywhere. Pay attention to central banks and the

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Speaker 2: flow of interest rates. I always say, as much as

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Speaker 2: equity people think they're the first and foremost, it's really

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Speaker 2: the bomb market you've got to pay attention to, and

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Speaker 2: bonds are telling you there's still an inverted curve and

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Speaker 2: there's a risk of a recession.

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Speaker 1: And you're certainly not alone in that call, Chris. I mean,

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Speaker 1: we've talked to some people here on this program have

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Speaker 1: said just that don't get too complecent because there are

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Speaker 1: still some red flags out there when it comes to

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Speaker 1: your own allocations. And with the asterisk the caveat that

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Speaker 1: you are probably one of the longest of the long

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Speaker 1: term investors out there. Do you sort of reposition if

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Speaker 1: at all, if you expect that economic conditions are going

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Speaker 1: to deteriorate.

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Speaker 2: Well, I would say yes, Romain, but you know, if

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Speaker 2: you did too early like last year, then if you

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Speaker 2: were defensive, which we were for part of the year,

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Speaker 2: it hurt your performance. So we frankly have been taking profits.

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Speaker 2: As this equity market continues to run and we are

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Speaker 2: beginning to feather back into fixed income, we see that

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Speaker 2: as an increasing opportunity and a great place to be,

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Speaker 2: both in some of the credit opportunities and then even

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Speaker 2: in the straight sovereign debt. So we're finally earning a

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Speaker 2: rate of return four to five percent coupon income out

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Speaker 2: of fixed income. That's a good thing and we'll take that. Well,

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Speaker 2: we get it.

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Speaker 1: When it comes to a corporate a fixed income here

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Speaker 1: are you primarily sticking with? I guess high quality borrowers.

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Speaker 2: You really do have to pay attention to your credit

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Speaker 2: as always, and yes, high quality borrowers. It's not a

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Speaker 2: time where you're going to want to take a ton

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Speaker 2: of risk in high yield, but they're even there. There's

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Speaker 2: some opportunities. It really gets back to whether you're trying

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Speaker 2: to be a trader in fixed income or an investor.

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Speaker 2: I think traders have seen themselves get hurt by this

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Speaker 2: yield curve moving back and forth rapidly as the central

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Speaker 2: banks take action. But to investors there's opportunities to pick

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Speaker 2: off and hold yields to maturity. Howard Marks had a

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Speaker 2: great article a couple of months ago about just time

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Speaker 2: to look back at fixed income.

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Speaker 3: Yeah. Well, one final question for you, Chris, with central banks,

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Speaker 3: as you say, moving together tighten their policy together, are

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Speaker 3: treasury is still the preferred flight to quality security or

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Speaker 3: has something else or will something else take his place?

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Speaker 2: You know, Scarlett A great question because we thought in

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Speaker 2: a way we were going to see other securities besides

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Speaker 2: the dollar. I mean, our budget deficits growing huge, and

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Speaker 2: obviously the Congress doesn't deal with the deficit very well.

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Speaker 2: But surprisingly it is still the US thirty year bond.

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Speaker 2: It is still the key flight to quality, and a

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Speaker 2: lot of its US and non US tension plans use

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Speaker 2: that as a nice defensive area to protect our portfolios.

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Speaker 1: All right, Chris, always all wonderful to talk to you.

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Speaker 1: Christopher Allman their friend of the program. More importantly, though,

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Speaker 1: of course, a CIO over at Calists