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Speaker 1: And Johnny's now is that Jim Schmiegel, he's a chief

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Speaker 1: investment officer of SEI, discussing the latest on the markets.

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Speaker 1: And I suppose ultimately it is the only one show

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Speaker 1: in time. It's a FED and it's CPI. I guess

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Speaker 1: what you want to focus on to some extent here,

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Speaker 1: Jim and did that core reading. Of course, it's probably

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Speaker 1: what spoot members of the FOMC. I think that's right.

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Speaker 1: You know, that's a that's an acceleration reversal of what

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Speaker 1: they saw over the summer, which which really lead to

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Speaker 1: and easing and financial conditions despite the two seventy five

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Speaker 1: basis point rate hikes that the FED had already put

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Speaker 1: in place by them. So this is really after Jackson Hole,

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Speaker 1: which is the kind of the hawk is shot across

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Speaker 1: the bow. This is really them trying to get the

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Speaker 1: message across, you know, kind of hitting the hitting the

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Speaker 1: market over the head with a frying pan that we

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Speaker 1: are committed to bringing down inflation. And you know they

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Speaker 1: have a dual mandate, but they're clearly prioritizing they feel

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Speaker 1: as though they have a wiggle room given the employment

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Speaker 1: situation in the States, that they are laser focused on

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Speaker 1: inflation and they are not going to stop. And you know,

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Speaker 1: I think that the dots really reflected that. It's it's

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Speaker 1: it was quite it's it's quite telling. I mean, from

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Speaker 1: the June meeting to the September meeting, a hundred basis

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Speaker 1: point increase UH in expectations for FED funds by the

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Speaker 1: end of that's that's a can't be any more hawkers

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Speaker 1: than what we saw today. So it's really short term

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Speaker 1: pain that can be expected, I suppose, because the longer

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Speaker 1: term inflation expectations are still fairly well anchored. They are,

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Speaker 1: and it's and it's you know, you can look at

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Speaker 1: that in a lot of different ways. You can look

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Speaker 1: at the UH you know, kind of even the FED

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Speaker 1: itself with their Summary of Economic Projections really expecting UH

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Speaker 1: longer term CPI to to hit there obviously, to hit

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Speaker 1: their their target of two percent. They're expecting core pc

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Speaker 1: E to be two point three by the end of

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Speaker 1: four break evens have two handles further out the curve.

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Speaker 1: You don't have to say we we find ourselves a

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Speaker 1: bit skeptical of that. Um, I'm we're kind of willing

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Speaker 1: to take the over on that. There are a lot

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Speaker 1: of structural issues, a lot of kind of macro issues

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Speaker 1: that that we really have to deal with, and these

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Speaker 1: are things that aren't going to show h you know,

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Speaker 1: we have we have obviously these short term supply chain issues.

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Speaker 1: Of course, we have wage pressures in the near term,

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Speaker 1: of course, but longer term we're dealing with other things

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Speaker 1: like the end of globalization. What does that mean from

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Speaker 1: the stability of prices. We're past the peak of a

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Speaker 1: working age population, even in China, what does that mean

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Speaker 1: from wage pressures and the continuation of really what has

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Speaker 1: been uh for the last two twenty years or so,

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Speaker 1: a tail wind if you will, to lower inflation rates,

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Speaker 1: as that really turns into a bit of a bit

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Speaker 1: of a head wind. So we're a bit skeptical there,

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Speaker 1: but you're exactly right. The market is pricing in this

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Speaker 1: short term pain but still fairly sanguine as we look

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Speaker 1: out out a few years and we see, well, and

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Speaker 1: that's the reason to buy, isn't it. I mean, if

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Speaker 1: you can most of the time we're talking about equity

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Speaker 1: investors looking at least nine months out. Don't you think

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Speaker 1: that the picture looks better in nine months than now

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Speaker 1: in nine months? Perhaps? I mean, I think our take

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Speaker 1: on that would be, have we seen the full effect

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Speaker 1: of the recent rate hikes, in particular make their way

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Speaker 1: through earnings. M Have the full pressures of wages made

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Speaker 1: their way through the economy and therefore made their wage

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Speaker 1: way through earnings. We're not so sure. I mean, last

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Speaker 1: I checked three earnings growth is looking about expectations around

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Speaker 1: eight percent. That feels quite Frankly, that feels quite a

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Speaker 1: bit rosy to me. You know, we had a big

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Speaker 1: we had a big contract signed this week for rail workers,

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Speaker 1: or some serious wage hikes in there. I think those

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Speaker 1: pressures have yet to make their way through the system.

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Speaker 1: So I don't know. We are a bit risk off

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Speaker 1: to be totally transparent. We're not. We're not buyers of

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Speaker 1: this dip right now? Is it time, then, Jim, to

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Speaker 1: get back to sixty footy And I'm saying sixty being

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Speaker 1: your exposure to the but market, I mean by markets

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Speaker 1: look quite a bit more attractive now than they have

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Speaker 1: in the past. Uh. You know, I think I think

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Speaker 1: we have to if if our thesis is correct, that

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Speaker 1: you know that maybe we are in a slightly new

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Speaker 1: error as it relates to rates of inflation. I think

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Speaker 1: the sixty has to has to look a little different.

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Speaker 1: We have to add inflation sensitivity into that mix, right,

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Speaker 1: we have the sixty of the sixty forty is very

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Speaker 1: very growth sensitive from from equity markets the forty and

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Speaker 1: the sixty forty is really deflationary oriented its nominal bonds.

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Speaker 1: We would suggest that our investors, on a strategic basis

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Speaker 1: make sure that they have some exposure to inflation sensitive

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Speaker 1: assets that can be outright things like commodities that can

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Speaker 1: be inflation linkers and even value equities. Quite frankly, one

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Speaker 1: of the troubling points is that if you look at

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Speaker 1: the FED projections, they all sort of think that inflation

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Speaker 1: comes down to two. With all this, you know, real

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Speaker 1: hawkishness from the FED, and then it stabilizes. But you

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Speaker 1: know that that may not be the case. Are you

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Speaker 1: worried that we at some point, maybe next year or

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Speaker 1: just after, we start to really worry about deflation. We're

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Speaker 1: not in that camp just yet, because I mean, I

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Speaker 1: think your your first point is a good one, which

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Speaker 1: is the FED projections and the market. What the market

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Speaker 1: is expecting is assuming quite a bit, and it's assuming

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Speaker 1: that the FED actually has the tools to solve the

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Speaker 1: inflationary pressures that we have. Now we can you know,

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Speaker 1: you can look at inflationary pressures and you can try

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Speaker 1: to break them down as as best you can and

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Speaker 1: to demand driven and supply driven. But I agree, I

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Speaker 1: don't I don't know. If the FED has everything in

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Speaker 1: the tool kit too, it might be a tough train

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Speaker 1: to stop. Get out in front of that freight train.

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Speaker 1: Jim Spiegel, thanks very much for being with us, c

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Speaker 1: I O of s E I with us live here