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Speaker 1: Let's get to our guests. Jeff Klingelhoffer is with us.

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Speaker 1: He is co head of investments also managing director at

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Speaker 1: Thornburg Investment Management. He's on the line from New Mexico.

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Speaker 1: Thanks for joining, Jeff. A lot to talk about. We

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Speaker 1: had the news after the bell from Microsoft, in particular

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Speaker 1: this uh real upward revision to growth forecast for f

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Speaker 1: y twenty three in terms of sales double digit. Iman

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Speaker 1: stock right now is up more than four and a

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Speaker 1: half percent. Does that cause you to be a little

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Speaker 1: bit more optimistic about the equity market? You know? I

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Speaker 1: think it's just one data point overall. I think what

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Speaker 1: we're seeing is a revaluing of of perhaps some of

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Speaker 1: the fall of the big tech right where these are

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Speaker 1: just they're always quality companies. We know their quality companies.

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Speaker 1: Perhaps ratings got a little bit over elevated um and

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Speaker 1: as the the the US investor market and the global

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Speaker 1: investor market shift its focus from how much does the

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Speaker 1: fet have to raise rates to bring down inflation to

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Speaker 1: oh no, the fet is is shifting rates and moving

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Speaker 1: them up. At what point do we hit a recession? Right?

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Speaker 1: I think that the focus to quality growth is coming

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Speaker 1: back to fruition, and ultimately, yes, as a one off,

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Speaker 1: it raises my expectations for the equity market. But there's

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Speaker 1: still a number of things that leave me significantly concerned,

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Speaker 1: but much less concerned about Microsoft and Google and just

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Speaker 1: the big tech companies that are vehemous and are very

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Speaker 1: high quality. Let's come back to the macro environment in

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Speaker 1: a moment, But on the subject of Google or alphabet

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Speaker 1: is is known off so far this year? Do you

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Speaker 1: look at that stock now and other take stocks and

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Speaker 1: say this is this is time to buy? I think

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Speaker 1: it is certainly time to to take a renewed look.

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Speaker 1: I think it's a time to begin legging in. You

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Speaker 1: know ultimately that the time to buy is itself a

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Speaker 1: timing call. Um. We we believe at our core that

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Speaker 1: we're likely to face a mild recession. I think the

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Speaker 1: companies that we want to own throughout mild recession are

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Speaker 1: these types of big tech companies that have the ability

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Speaker 1: to grow, fit's a minimum, protect against rising inflation regardless,

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Speaker 1: write a strong mote around the core of the business.

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Speaker 1: So when when we look broadly, yes, these are these

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Speaker 1: are the companies that we want to be buying. We

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Speaker 1: want to be buying them now. But that's not to

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Speaker 1: get away from the overarching picture that I worry about

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Speaker 1: continued stress on the equity market, and overall, my highest

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Speaker 1: core conviction is continued volatility. Yeah, I'm wondering if a

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Speaker 1: part of that concern is tied to the consumer. The

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Speaker 1: weaker outlook issued yesterday from Walmart, and today the Conference

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Speaker 1: board with a consumer confidence number that is the lowest

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Speaker 1: that we have seen since February. Give me forty seconds

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Speaker 1: on how you feel about the American consumer. I think

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Speaker 1: we have bifurcate the consumer. I think that there's a

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Speaker 1: notable difference between the high income, high wage consumer versus

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Speaker 1: the lower wage income consumer. And so what we worry

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Speaker 1: about is that low wage consumer. They're coming out of

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Speaker 1: the COVID cope stimulus, they're coming out from an exceptionally

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Speaker 1: strong point that but they've spent through the entirety of

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Speaker 1: their COVID stimulus. They've begun again habit of borrowing, and

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Speaker 1: there's been a grab for credit, and there's been an

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Speaker 1: especially strong grab for credit in the last last month

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Speaker 1: or two, and that leaves us concerned on that cohort

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Speaker 1: in particular. And Jeff, just looking ahead to this week's

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Speaker 1: FED meeting seventy five basis points as pays to be

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Speaker 1: pretty much baked in. But what about the rist of

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Speaker 1: the year and in terms of doing too much or

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Speaker 1: not enough for getting tightening just right? Where does the

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Speaker 1: balance of probabilities lie for you? Yeah, I think we

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Speaker 1: can start with the most immediate one, and that's uh,

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Speaker 1: that's this upcoming FED meeting. I think the market is

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Speaker 1: underestimating the possibility, not base case, the possibility that we

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Speaker 1: do see a hundred basis points out of the FED.

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Speaker 1: You know, I think ultimately that the story of the

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Speaker 1: year has been the FED moving from well behind the curve,

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Speaker 1: admitting that it's behind the curve to today maybe being

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Speaker 1: right back at the at where it needs to be,

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Speaker 1: but that they still need to regain their FED inflation

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Speaker 1: fighting credibility with the market, and they ultimately still see

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Speaker 1: incredibly incredibly strong job growth. You know, a consumer that

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Speaker 1: broadly speaking is very resilient, and I don't think that

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Speaker 1: they've gained any confidence, at least internally amongst themselves, that

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Speaker 1: they've truly broken the inflation uh challenge that we have

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Speaker 1: here in the United States. So I think the Hunter

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Speaker 1: basis points is absolutely uh, still a possibility. Looking farther

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Speaker 1: out right in September, the FED almost certainly will will

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Speaker 1: move beyond what it views as neutral. And they are

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Speaker 1: absolutely cognizant that very rarely are they able to move

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Speaker 1: beyond neutral without causing a recession. So I view the

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Speaker 1: FED rhetoric is telling us they are going to cause

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Speaker 1: a recession, they are okay with causing a recession, and

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Speaker 1: and really they are going to be very data dependent,

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Speaker 1: and the data point that matters today is inflation and

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Speaker 1: inflation expectations. So that's what we'll be watching closely. But

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Speaker 1: no end in sight from from my perspective in terms

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Speaker 1: of future FED hikes. I think you're right in terms

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Speaker 1: of what we have already heard from FED Chair J

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Speaker 1: Powell talking about the risk of not getting this inflationary

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Speaker 1: pressure under control. The FED is willing to risk inflation

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Speaker 1: or at risk recession, I should say, But I think

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Speaker 1: the greater risk now is shock and awe creating a

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Speaker 1: bit of instability and financial markets. Don't you think that's

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Speaker 1: something that the FED must pay attention to. You know,

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Speaker 1: it's something the FED must pay attention to. But I

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Speaker 1: think we as a financial market have become too reliant

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Speaker 1: on the FED watching that as as a primary mechanism, right,

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Speaker 1: And if I go back to their dual mandate one

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Speaker 1: of price stability and maximum employment, they were able to

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Speaker 1: focus very heavily on financial conditions because it didn't come

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Speaker 1: at the cost of financial stability. And they're in the

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Speaker 1: exact opposite environment today right where, if anything, they are

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Speaker 1: trying to make consumers feel less safe, less willing to

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Speaker 1: go out and spend, and deflating stock markets, deflating risk assets,

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Speaker 1: bringing down the price of homes and and what is

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Speaker 1: the average consumers largest source of wealth, I think is

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Speaker 1: actually well within their mandate now and trying to primarily

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Speaker 1: bring inflation down. So I think we as a market again,

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Speaker 1: I have faced a decade where we believe the FED

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Speaker 1: will always come to our rescue because financial conditions are

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Speaker 1: of utmost importance. And I don't think that was ever

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Speaker 1: truly the story. It was that financial conditions supported moving

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Speaker 1: inflation up, and today they're trying to move inflation down.

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Speaker 1: We talk about policy divergence a lot on this. Conditions

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Speaker 1: and are still very very easy, but they are easy

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Speaker 1: for a reason. What's your risk appetite like when it

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Speaker 1: comes to looking at opportunities in China. Yeah, I think

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Speaker 1: our risk appetites were the reward of looking at China today,

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Speaker 1: especially in the world of bonds has China has had

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Speaker 1: notably higher yields versus the US for quite some time,

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Speaker 1: and it's an incredibly resilient country, and so there was

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Speaker 1: an opportunity to put capital to work there. Today, US

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Speaker 1: treasuries are a much more comparable investment, so in the

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Speaker 1: world of fixed income, we're not seeing a great opportunity

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Speaker 1: to look there for for sources of yield and potential

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Speaker 1: return for all of equity is a little bit different.

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Speaker 1: But but the big story, of course of the day

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Speaker 1: is ongoing geopolitical risk between the US and China. And

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Speaker 1: the real reality in my perspective is that geopolitical risk

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Speaker 1: is it was never about trade. It was always about

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Speaker 1: truly geopolitics. Two world superpowers ultimately trying to to jockey

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Speaker 1: and find their appropriate positions. And China is just a

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Speaker 1: very different economy than the US and and they themselves

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Speaker 1: are having to to take a more inward look and

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Speaker 1: balance an economy with slowing growth, a continued up surgeon

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Speaker 1: and potential COVID cases and social unrest, So again we

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Speaker 1: just don't see the true risk return opportunities, all right,

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Speaker 1: Jeff Klingelhoffer Investments co hit and Managing director at Thornberg

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Speaker 1: Investment Management, Thanks so much for joining us on bloom

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Speaker 1: Big Daybreak Asia