1 00:00:00,120 --> 00:00:02,240 Speaker 1: Gareth Nicholson is with the c i O and head 2 00:00:02,279 --> 00:00:06,880 Speaker 1: of discretionary portfolio management at International Wealth Management. So a 3 00:00:06,920 --> 00:00:09,360 Speaker 1: couple of things here that are pretty interesting. We had 4 00:00:09,640 --> 00:00:12,959 Speaker 1: a strong, I guess you'd call it solid jobs report 5 00:00:12,960 --> 00:00:15,760 Speaker 1: in the US which seemed to indicate the Fed would 6 00:00:15,760 --> 00:00:19,599 Speaker 1: stay ultra aggressive, yet equities rallied. And then we had 7 00:00:19,640 --> 00:00:24,000 Speaker 1: what Ed was just talking about here about China reassessing, 8 00:00:24,280 --> 00:00:28,120 Speaker 1: are not reassessing but reaffirming. It's it's COVID uh, it's 9 00:00:28,240 --> 00:00:31,000 Speaker 1: very serious COVID zero policies, and yet we seeing a 10 00:00:31,000 --> 00:00:33,400 Speaker 1: bounce here in nation. Not sure it will hold, but 11 00:00:33,440 --> 00:00:36,560 Speaker 1: it does send a message that investors are looking beyond 12 00:00:36,640 --> 00:00:41,319 Speaker 1: the kind of daily headline news. What is that message? Gareth, Well, 13 00:00:41,320 --> 00:00:43,879 Speaker 1: good morning. Yeah, I agree with very interesting. I mean 14 00:00:43,920 --> 00:00:47,760 Speaker 1: Friday's numbers, I think they were a little bit more balanced. Yeah, 15 00:00:47,880 --> 00:00:50,199 Speaker 1: non pom perils was very strong, but unemployments and some 16 00:00:50,240 --> 00:00:52,640 Speaker 1: of the other metrics we we look at participation that 17 00:00:52,760 --> 00:00:54,360 Speaker 1: was a bit more mixed. So I think for the 18 00:00:54,440 --> 00:00:57,440 Speaker 1: Feds stay course. They're still going to raise I think 19 00:00:57,480 --> 00:01:00,480 Speaker 1: fifty base points in December fifty and fab and maybe 20 00:01:00,520 --> 00:01:04,480 Speaker 1: another one in March. We're getting the terminal rate up, 21 00:01:04,680 --> 00:01:07,600 Speaker 1: it's gonna at least decrease their celebration with some markets. 22 00:01:07,600 --> 00:01:09,600 Speaker 1: Are you know some markets are looking at call. That's 23 00:01:09,760 --> 00:01:12,839 Speaker 1: at least some sort of positive um. The equity news 24 00:01:13,200 --> 00:01:17,319 Speaker 1: I think was driven largely by the positive sentiments in 25 00:01:17,440 --> 00:01:20,720 Speaker 1: China on Friday. I mean, sentiment has been terrible, let's 26 00:01:20,720 --> 00:01:22,760 Speaker 1: be honest, in China for some time now, and that 27 00:01:22,880 --> 00:01:26,039 Speaker 1: shift has come from very low base opposition in very 28 00:01:26,040 --> 00:01:30,400 Speaker 1: low base of any sort of positive move there um 29 00:01:30,520 --> 00:01:33,120 Speaker 1: the endwinding of that, given you said the statements on 30 00:01:33,760 --> 00:01:37,560 Speaker 1: on Sunday this morning, I think the trickiness there is 31 00:01:37,720 --> 00:01:41,160 Speaker 1: people now believe that, you know, you don't get five 32 00:01:41,200 --> 00:01:43,559 Speaker 1: without some sort of smoke, and we're seeing some sort 33 00:01:43,600 --> 00:01:46,160 Speaker 1: of smoke. House call has been the reopening to be 34 00:01:46,200 --> 00:01:48,760 Speaker 1: fully up by March. That looks like plans or something 35 00:01:48,800 --> 00:01:51,240 Speaker 1: to board around that. So, yes, it's not gonna likely 36 00:01:51,280 --> 00:01:54,320 Speaker 1: be now, but it's getting close. Do you get a 37 00:01:54,360 --> 00:01:56,600 Speaker 1: feeling though there's kind of a lot of hope going 38 00:01:56,640 --> 00:01:59,920 Speaker 1: around at the moment. I mean that yeah, okay, China 39 00:02:00,040 --> 00:02:03,320 Speaker 1: going to open eventually. But the word unswerving commitment to 40 00:02:03,400 --> 00:02:06,600 Speaker 1: COVID zero is not exactly ambiguous and We've heard from 41 00:02:06,600 --> 00:02:09,000 Speaker 1: the Fed this week as well, saying, you know, Thomas 42 00:02:09,000 --> 00:02:11,280 Speaker 1: bark And it's conceivable we could get to five percent 43 00:02:11,440 --> 00:02:18,639 Speaker 1: Lawrence Summers six markets reflecting hope more than reality here, absolutely, 44 00:02:18,960 --> 00:02:22,760 Speaker 1: I mean the idea of volatility, I mean liquidity is 45 00:02:22,840 --> 00:02:25,239 Speaker 1: very low. People are getting a little bit of lethargic 46 00:02:25,360 --> 00:02:28,840 Speaker 1: regards to this bear market end of year positioning. I 47 00:02:28,880 --> 00:02:32,680 Speaker 1: think this is much more technical driven than fundamentals. Um 48 00:02:32,760 --> 00:02:35,280 Speaker 1: So when fundamental start coming through again and we start 49 00:02:35,280 --> 00:02:37,200 Speaker 1: looking at tone, oris start looking at it's going to 50 00:02:37,280 --> 00:02:39,200 Speaker 1: take a while for the reopening trade and Chinese really 51 00:02:39,320 --> 00:02:41,239 Speaker 1: to come through, then you know they're still gonna be 52 00:02:41,280 --> 00:02:43,840 Speaker 1: further paint. We're still sitting pretty defensively for that reason, 53 00:02:44,120 --> 00:02:46,359 Speaker 1: but there's tactical trades going into the end of the 54 00:02:46,440 --> 00:02:49,720 Speaker 1: year for sure. I guess though, with the Fed raising 55 00:02:49,760 --> 00:02:52,480 Speaker 1: three seventy five basis points, were closer to the end 56 00:02:52,520 --> 00:02:57,920 Speaker 1: than the beginning. Absolutely, and the acceleration is onto decelearies. 57 00:02:57,960 --> 00:03:00,360 Speaker 1: So not only are you closer to you know, the 58 00:03:00,400 --> 00:03:02,480 Speaker 1: lights the end of the tunnel, just breakneck speed is 59 00:03:02,480 --> 00:03:06,120 Speaker 1: also starting to become a little bit more understandable, so 60 00:03:06,400 --> 00:03:08,519 Speaker 1: you know certain markets are going to start looking okay, 61 00:03:08,600 --> 00:03:10,639 Speaker 1: we can we can actually manage in this environment. Other 62 00:03:10,639 --> 00:03:13,640 Speaker 1: markets and ones that are really sensitive to rates and 63 00:03:13,720 --> 00:03:16,720 Speaker 1: really sensitive to keeping them low for a long time 64 00:03:16,760 --> 00:03:19,400 Speaker 1: so they can find innovation in the future, they're going 65 00:03:19,440 --> 00:03:22,880 Speaker 1: to struggle. But industrials and other all economies they're pretty solid. 66 00:03:23,440 --> 00:03:26,760 Speaker 1: We were having a discussion about the broader macro environment. 67 00:03:26,800 --> 00:03:30,240 Speaker 1: There's some competing narratives out there. So what do you 68 00:03:30,320 --> 00:03:34,720 Speaker 1: buy considering the investing landscape right now. Brian mentioned that 69 00:03:34,760 --> 00:03:38,400 Speaker 1: you can get some good yields right now on treasuries. Well, 70 00:03:38,440 --> 00:03:40,760 Speaker 1: I think that's that's the key thing that investors need to, 71 00:03:40,920 --> 00:03:42,520 Speaker 1: you know, just take a look at themselves with a 72 00:03:42,560 --> 00:03:45,120 Speaker 1: bit of humility. The last few years has all been 73 00:03:45,160 --> 00:03:48,880 Speaker 1: about those home runs. It's about the megacaps, the crypto, 74 00:03:49,040 --> 00:03:52,400 Speaker 1: the SMB hitting twenty percent, you know, just hanging in 75 00:03:52,440 --> 00:03:54,600 Speaker 1: there and letting the Fed do the real heavy lifting. 76 00:03:55,040 --> 00:03:57,640 Speaker 1: Now we really feel we're an environment where, if you 77 00:03:57,720 --> 00:04:00,600 Speaker 1: use the same sports analogy, it's about finding those base hits. 78 00:04:00,640 --> 00:04:04,360 Speaker 1: Its We need solid, you know place. So you talked 79 00:04:04,360 --> 00:04:07,280 Speaker 1: about treasonables offering four percent, You can get i G. 80 00:04:07,720 --> 00:04:10,480 Speaker 1: Short dated paper six seven percent. You can get a 81 00:04:10,600 --> 00:04:14,040 Speaker 1: number of interesting asset classes which are offering a very 82 00:04:14,080 --> 00:04:16,960 Speaker 1: attractive yield if you take your blinders off from what 83 00:04:17,080 --> 00:04:19,680 Speaker 1: you received, you know, a couple of years ago, and 84 00:04:19,720 --> 00:04:22,440 Speaker 1: really just focused on boarding the base of solid income 85 00:04:22,560 --> 00:04:24,320 Speaker 1: for a pretty tough pair of still to come. We 86 00:04:24,400 --> 00:04:27,240 Speaker 1: still entering into a recession in in large economies over 87 00:04:27,279 --> 00:04:30,839 Speaker 1: the next quarter or or more, and building those I 88 00:04:30,839 --> 00:04:35,160 Speaker 1: think at the moment fixed income, particularly their flexibility of 89 00:04:35,640 --> 00:04:38,279 Speaker 1: you know, liquid assets that are still giving you income 90 00:04:38,279 --> 00:04:40,440 Speaker 1: that's protecting against inflation. This is where you want to 91 00:04:40,440 --> 00:04:43,240 Speaker 1: be and wait for the opportunity to move into potentially 92 00:04:43,240 --> 00:04:45,520 Speaker 1: that the China trade when you have a reopen, move 93 00:04:45,600 --> 00:04:48,640 Speaker 1: into Japan trade, when the currency stabilizers, move into a 94 00:04:49,000 --> 00:04:51,039 Speaker 1: number of other regions when you have a little bit 95 00:04:51,080 --> 00:04:53,080 Speaker 1: more clarity. But it's not about you know, sitting and 96 00:04:53,120 --> 00:04:56,600 Speaker 1: waiting now, it's about actively managing that income. M hm. 97 00:04:57,360 --> 00:05:00,200 Speaker 1: So I I was tempted into thinking over the last 98 00:05:00,320 --> 00:05:02,160 Speaker 1: a couple of weeks that we wind up in a 99 00:05:02,160 --> 00:05:07,000 Speaker 1: better place here with higher rates than before. UH if 100 00:05:07,040 --> 00:05:10,120 Speaker 1: only because you know, for a lot of UH you know, 101 00:05:10,160 --> 00:05:13,440 Speaker 1: widows and others for savings, they don't have to get 102 00:05:13,680 --> 00:05:16,720 Speaker 1: into more riskier investments. They can collect three or four 103 00:05:16,800 --> 00:05:20,640 Speaker 1: percent or five percent or so with treasury yields. The 104 00:05:20,640 --> 00:05:23,160 Speaker 1: only thing is that, you know, I'm starting to think 105 00:05:23,200 --> 00:05:25,360 Speaker 1: that if inflation is this sticky and you have it 106 00:05:25,440 --> 00:05:28,320 Speaker 1: up there around six seven eight percent, even the safety 107 00:05:28,560 --> 00:05:31,240 Speaker 1: of a treasury at four percent means you're losing money. 108 00:05:31,320 --> 00:05:33,880 Speaker 1: And so I'm wondering whether this would push people into 109 00:05:34,200 --> 00:05:38,800 Speaker 1: you know, still ever risk your investments. You gotta find 110 00:05:38,839 --> 00:05:42,280 Speaker 1: that balance, right, But I think investment grade liquid short 111 00:05:42,320 --> 00:05:45,080 Speaker 1: paper that's offering you round about inflation, that's a pretty 112 00:05:45,080 --> 00:05:47,640 Speaker 1: good place to start. It's much better than just sitting 113 00:05:47,640 --> 00:05:50,239 Speaker 1: in in cash and doing nothing. Yes, cash is earning 114 00:05:50,279 --> 00:05:52,120 Speaker 1: something and you know, fixed the posits or a lot 115 00:05:52,160 --> 00:05:53,600 Speaker 1: more truck to than they have been for the last 116 00:05:53,640 --> 00:05:56,760 Speaker 1: five years. But it's still about actively managing the risk 117 00:05:56,839 --> 00:05:59,359 Speaker 1: to your point, having some credit was in there to 118 00:05:59,440 --> 00:06:02,480 Speaker 1: be able to offset the value in And I mean, 119 00:06:02,520 --> 00:06:04,440 Speaker 1: we know this year has been phenomenal with regards to 120 00:06:04,480 --> 00:06:08,040 Speaker 1: both bonds and equity really selling off it historical levels. 121 00:06:08,279 --> 00:06:10,760 Speaker 1: We think that the pick thingcome is likely to come 122 00:06:10,800 --> 00:06:13,120 Speaker 1: back stronger next year, at least for the beginning part. 123 00:06:13,360 --> 00:06:15,280 Speaker 1: When we start seeing a bit of a shifting the 124 00:06:15,320 --> 00:06:18,479 Speaker 1: acceleration and the you know where the terminal is. You know, 125 00:06:18,520 --> 00:06:21,320 Speaker 1: we're close to the end. So for those for those 126 00:06:21,360 --> 00:06:24,240 Speaker 1: investors that are looking for stable income, you know, bonds 127 00:06:24,279 --> 00:06:26,280 Speaker 1: is something that starts you can attractive again after a 128 00:06:26,400 --> 00:06:29,640 Speaker 1: terrible year. You know, entry level is getting interesting. That's 129 00:06:29,760 --> 00:06:33,880 Speaker 1: selecting the sectors and then the duration which matches an 130 00:06:33,960 --> 00:06:37,600 Speaker 1: environment of slower growth recession. That was Gareth Nicholson we 131 00:06:37,600 --> 00:06:40,040 Speaker 1: were talking to. He's for the CEE IO and head 132 00:06:40,080 --> 00:06:45,599 Speaker 1: of Discretionary Portfolio Managements at uh International Wealth Management.