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Speaker 1: Get to our guest, Johann Peeney, partner and portfolio manager

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Speaker 1: at Advisors Capital Management. Joanne, it's the kind of day

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Speaker 1: where sometimes we just set aside our own jobs for

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Speaker 1: a moment, just to think back on something like the

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Speaker 1: Queen's life and how it touched our own I'm just

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Speaker 1: curious whether or not you have any strong feelings about

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Speaker 1: the British monarchy and the legacy of the Queen. Well.

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Speaker 1: I think, you know, the Queen's influence clearly has been

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Speaker 1: a stabilizing force, you know, in in potentially global politics,

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Speaker 1: but certainly within the domestic dynamics of the United Kingdom

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Speaker 1: over many different you know, eras and crises. You know,

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Speaker 1: from an investor perspective, I don't, you know, see a

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Speaker 1: lot of uh, you know, points to be made about

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Speaker 1: about her passing. Obviously, it's a very sad day for

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Speaker 1: for Britain, and I think the world is joined in,

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Speaker 1: you know, wishing them all the best and sympathies um

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Speaker 1: and uh, and wishing the best of luck to the

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Speaker 1: new King, Charles the Third, Joan Stephen Angle here, I

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Speaker 1: need to pivot, I guess, to the markets and too,

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Speaker 1: obviously the central bank actions that we had Jerome Powell

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Speaker 1: out again kind of reiterating Thursday that the Fed is

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Speaker 1: determined to curb price pressures. Uh, stirring bets of course,

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Speaker 1: of another seventy five basis point move soon. Uh. The

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Speaker 1: e c B obviously raising rates by the same increment um.

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Speaker 1: Where what's your take on on on the FED and

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Speaker 1: whether you know there's going to be a little bit

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Speaker 1: of a back pedaling or is it full steam ahead

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Speaker 1: with more rate hikes the rest of this year? You know, Steve,

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Speaker 1: and I think the FED and J. Powell in particular,

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Speaker 1: has made it very clear that they are not going

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Speaker 1: to back off the necessary steps to get inflation under

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Speaker 1: control and to keep inflation expectations anchored longer term. You know,

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Speaker 1: right now the five year five year out inflation expectation

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Speaker 1: is is two four. That's a great place for it

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Speaker 1: to be, and and they want to make sure that

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Speaker 1: that remains well anchored. And so I think they've clearly

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Speaker 1: signaled that they're going to do another seventy five basis

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Speaker 1: point increase here in the September meeting if they wanted

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Speaker 1: to convince markets that that, oh, no, that you guys

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Speaker 1: have gotten ahead of us. We're not going to go

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Speaker 1: that high. They would have done something in the last

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Speaker 1: couple of days, and they had the opportunity, they chose

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Speaker 1: not to do it. It's really hard to make the

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Speaker 1: bullish case at the moment if you look at the

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Speaker 1: inversion of the yield curve, an economy that seems to

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Speaker 1: be moving towards slower growth and the FED being very

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Speaker 1: aggressive and and really hell bent almost on restoring its

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Speaker 1: its reputation. However, you know, the markets tend to surprise

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Speaker 1: people all the time. Uh, can you make the bullish

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Speaker 1: case or is that really just too difficult at this point? Well,

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Speaker 1: you know, that's it's important to be humble in the

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Speaker 1: face of the markets. I completely agree. Uh, you know,

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Speaker 1: I think that you know, people are recognized that the

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Speaker 1: global economy faces some real challenges. It's not just an

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Speaker 1: inflation challenge, which central banks around the world are are

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Speaker 1: working to get back under control. But there's there's still

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Speaker 1: real shortages out there, whether it's because of China imposing

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Speaker 1: zero COVID, whether it's because of the Russia Ukraine war. Uh,

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Speaker 1: and the energy crisis in Europe is going to have

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Speaker 1: ramifications that will affect not only the continent but also

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Speaker 1: other economies that sell into and buy from Europe. So

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Speaker 1: there are some raal risks out there, and I think

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Speaker 1: that's why we're seeing a lot of volatility and we

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Speaker 1: should expect it to continue. How deep of a recession

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Speaker 1: risk is the global economy facing hard to tell, you know,

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Speaker 1: as an economist, I I will definitely hedge on that

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Speaker 1: because very hard to tell. You know, in the US,

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Speaker 1: for example, of the labor market is still extremely strong,

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Speaker 1: firms can't find enough folks to hire, so that you know,

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Speaker 1: boes well for the continued growth in the US economy,

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Speaker 1: it actually makes the FEDS challenge more severe. But Europe

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Speaker 1: clearly is in trouble and has some real headwinds that

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Speaker 1: I don't see how they're going to avoid a recession.

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Speaker 1: One quick question about the euro and perhaps this speaks

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Speaker 1: for really how much discounting we've seen of all the troubles.

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Speaker 1: I mean, it's a very dire time in in Europe.

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Speaker 1: But the euro uh actually is below parity with the

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Speaker 1: US dollar in the past couple of days, and we

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Speaker 1: didn't even get there when the existence of you I mean,

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Speaker 1: it was an existential crisis back from two thousand. Is

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Speaker 1: there a possibility. We've already discounted a lot of this. Yeah,

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Speaker 1: I think there is a fair bit of understanding among

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Speaker 1: investors now globally that the world faces a lot of

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Speaker 1: significant challenges to economic activity, and we've seen that pullback

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Speaker 1: in stocks, particularly in European stocks. So I think a

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Speaker 1: lot of it has been digested. You know, the strength

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Speaker 1: of the dollar relative to other currencies is you know,

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Speaker 1: is um is understandable given how strong the U. S

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Speaker 1: economy is relative to other economies and the outlook and

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Speaker 1: how different that is. Obviously, we're talking about the euro

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Speaker 1: Zone before the break up, and the ECB did raise

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Speaker 1: the rates by sev basis points obviously given the nine

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Speaker 1: point one percent headline inflation figure that we're seeing in

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Speaker 1: the euro Zone, but given the stresses Joanne on the

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Speaker 1: European economy right now, how far the can they go

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Speaker 1: with with rate hikes and not just absolutely obliterate any

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Speaker 1: chance of growth. Yeah, they are are really in a

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Speaker 1: sticky situation here. They have to get inflation under control

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Speaker 1: because once expectations get built into uh, workers demanding you know,

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Speaker 1: wages being adjusted automatically, once pricing starts becoming just automatically,

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Speaker 1: they'll it'll be very much more painful. So as painful

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Speaker 1: as it's going to be, at this point, they have

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Speaker 1: to push forward with us. It's hard to see the

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Speaker 1: way forward in Europe as long as the Ukraine War

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Speaker 1: is happening. Uh. I guess it's a bit of a

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Speaker 1: standoff now. So at some point, probably Vladimir Putin and

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Speaker 1: Europe will have some negotiation. It's easier, I think in

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Speaker 1: the US to see, you know, getting out of this. Uh.

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Speaker 1: And I suppose that is with inflation rolling over, and

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Speaker 1: once inflation starts setting down faster than the FED is raising,

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Speaker 1: I don't know if you have a green light, but

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Speaker 1: you'll definitely be thinking about taking advantage of lower value evaluations. Yeah.

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Speaker 1: I think that's fair. I think we should be careful

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Speaker 1: to hope too much. And I think that's what the

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Speaker 1: market did over the summer, and they were quickly disabused

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Speaker 1: of that. Uh, that view that the Fed would change

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Speaker 1: course anytime soon. The Feed is gonna wait for a

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Speaker 1: lot of data to accumulate before they change course. I

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Speaker 1: think they're going to continue to raise rates a few times. Um.

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Speaker 1: But you know, there are things that investors can do, uh.

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Speaker 1: You know, there are income oriented stocks for example, with

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Speaker 1: pay dividends well above the market average, that may be

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Speaker 1: a very good place to hide during this and at

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Speaker 1: least people are getting their their income, and a lot

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Speaker 1: of our retired clients, for example, of really appreciating the

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Speaker 1: face this kind of volatility, being able to have a

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Speaker 1: portfolio that delivers a higher yield than average, you know.

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Speaker 1: And there are a lot of opportunities out there right

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Speaker 1: now companies that have held up pretty well, and then

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Speaker 1: are some that have sold off that create opportunities for

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Speaker 1: additions right now. Well to my point earlier, Joanne, I mean,

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Speaker 1: you could see the Fed funds rate getting up around

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Speaker 1: four percent before too long, really within the next couple

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Speaker 1: of months, and if if you see inflation, you know,

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Speaker 1: moving down to that four percent level, you could be

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Speaker 1: back in negative real rates. Yeah, certainly short term. I

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Speaker 1: think that's fair statement. And in fact, we've had negative

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Speaker 1: real rates are quite a while. And then so it's

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Speaker 1: very stimulative for the economy. I mean, that's what firms

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Speaker 1: really ultimately care about. It's what's the real cost of borrowing,

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Speaker 1: And so that's why I think the US economy is

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Speaker 1: still relatively healthy. We have labor shortages as opposed to gluts.

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Speaker 1: Unemployment remains very low, labor force participation is rising, and

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Speaker 1: so it is challenging for the FED to slow economic activity.

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Speaker 1: Yet they really need to with all the pressure that

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Speaker 1: still sits in labor markets pushing wages higher. So, Joanne,

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Speaker 1: since Brian and I are sitting here in Hong Kong,

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Speaker 1: we'd love to get your hot take on China. Obviously,

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Speaker 1: COVID zero is the over arching pressure on the Chinese

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Speaker 1: economy right now, and it's a bit of a tired

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Speaker 1: debate saying is China investable or not investable? But is

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Speaker 1: China a place that you will be looking at into

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Speaker 1: the beginning part of the year if things do ease

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Speaker 1: and while there is trouble in the US and in Europe, well, Stephen,

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Speaker 1: you know, I think China is clearly a large, growing economy.

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Speaker 1: It's going to be a place where opportunities will continue

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Speaker 1: to emerge. There are clearly problems right now, though zero

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Speaker 1: COVID being one, the state of uncertain regulation that has

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Speaker 1: really come out of the headlines with zero COVID cropping up,

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Speaker 1: but still as a concern. We do have our toes

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Speaker 1: in China and in some places where we think the

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Speaker 1: companies really contribute to the long term health and growth

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Speaker 1: of the economy. We believe the government will ultimately be

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Speaker 1: supportive of these companies, whether it's a Bay Do or

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Speaker 1: a ten Sent for example. But I think it's very

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Speaker 1: in coming upon investors to look carefully and see whether

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Speaker 1: the company they're looking at can be outside the scope

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Speaker 1: of regulation and really outside the scope of these zero

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Speaker 1: COVID uptowns. It's a very tricky place to invest right now,

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Speaker 1: but there are some opportunities, all right, Joann, I think

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Speaker 1: we're out of time at the moment. I didn't want

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Speaker 1: to ask you about the b o J and whether

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Speaker 1: or not we might see any softening deb but we'll

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Speaker 1: save that for another time. We've been chatting here with

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Speaker 1: Joanne Feenie live on Bloomberg Daybreak, Asia, partner and portfolio

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Speaker 1: manager at Advisors Capital Management.