1 00:00:00,120 --> 00:00:03,520 Speaker 1: Our next guest as a couple of colorful lines in 2 00:00:03,600 --> 00:00:06,360 Speaker 1: the notes, and I always love reading his stuff. Here's 3 00:00:06,440 --> 00:00:09,240 Speaker 1: one line, markets took the on ramp to a highway 4 00:00:09,280 --> 00:00:13,000 Speaker 1: to hell, no stop signs, no speed limits. Let's say 5 00:00:13,000 --> 00:00:16,360 Speaker 1: good morning to Ben Emmons, Managing Director at Global Macro 6 00:00:16,560 --> 00:00:21,160 Speaker 1: or of Global Macro Strategy at Medley Global Advisors. Ben 7 00:00:21,360 --> 00:00:24,520 Speaker 1: colorful comments there. I would have to say that the 8 00:00:24,520 --> 00:00:29,000 Speaker 1: equity markets have been down but actually actually have remained 9 00:00:29,040 --> 00:00:33,960 Speaker 1: pretty orderly. But currencies are another story altogether if you 10 00:00:34,000 --> 00:00:36,320 Speaker 1: put it all together. My question for you, Ben is 11 00:00:36,680 --> 00:00:40,760 Speaker 1: are we getting closer to instability and financial markets that 12 00:00:40,960 --> 00:00:45,120 Speaker 1: might draw concern from the fit It could be Brian, 13 00:00:45,240 --> 00:00:47,680 Speaker 1: because you know what happened on Friday was you know, 14 00:00:47,760 --> 00:00:51,440 Speaker 1: a collision if you will, between fiscal monte policy in 15 00:00:51,479 --> 00:00:55,840 Speaker 1: the UK having to make difficult decisions. But that's not 16 00:00:55,960 --> 00:00:58,960 Speaker 1: different than what the each will face and what even 17 00:00:58,960 --> 00:01:01,560 Speaker 1: effectful face in the US right. As much as they 18 00:01:01,640 --> 00:01:03,840 Speaker 1: think there's a soft lending or they could manage that 19 00:01:04,000 --> 00:01:07,520 Speaker 1: to some extent, the choices around it are really difficult. 20 00:01:07,640 --> 00:01:10,760 Speaker 1: So the challenges that we're seeing in the UK market 21 00:01:11,440 --> 00:01:14,160 Speaker 1: had a spill over to US markets, and I think 22 00:01:14,160 --> 00:01:15,959 Speaker 1: that's what you want to take notice of in terms 23 00:01:16,000 --> 00:01:19,479 Speaker 1: of your question instability that comes from that where because 24 00:01:19,520 --> 00:01:22,880 Speaker 1: it's basically a story that we've had seen before coming 25 00:01:22,880 --> 00:01:25,479 Speaker 1: out of Europe, a specific country getting into a lot 26 00:01:25,520 --> 00:01:29,680 Speaker 1: of challenge with a global spill over. So I think 27 00:01:29,720 --> 00:01:32,319 Speaker 1: we need to be ready for a rough week. Um, 28 00:01:32,360 --> 00:01:34,319 Speaker 1: there's going to be a fair bit of speakers from 29 00:01:34,319 --> 00:01:37,039 Speaker 1: the Bank of England out the next few days. They 30 00:01:37,040 --> 00:01:40,080 Speaker 1: may indeed arrest or try to arrest the pounds, just 31 00:01:40,160 --> 00:01:42,000 Speaker 1: like the Bank of Japan did that last week with 32 00:01:42,160 --> 00:01:44,640 Speaker 1: the end at least to something, but it may be 33 00:01:44,760 --> 00:01:47,680 Speaker 1: a brief respite, right, There's a lot of pressure building here, 34 00:01:48,200 --> 00:01:50,560 Speaker 1: so I think it's we're in for for quite a 35 00:01:50,600 --> 00:01:55,440 Speaker 1: volatility period. Interventions, certainly, it can be a pan of 36 00:01:55,560 --> 00:02:00,160 Speaker 1: saya when you know you've got oversold conditions and your 37 00:02:00,200 --> 00:02:02,960 Speaker 1: currency and you know you've got fundamentals that perhaps don't 38 00:02:03,120 --> 00:02:05,760 Speaker 1: support the view for selling it. But when you do 39 00:02:05,960 --> 00:02:09,240 Speaker 1: have fundamental reasons to be selling things and you know 40 00:02:09,440 --> 00:02:13,760 Speaker 1: you do ultimately see things such as spreads, etcetera, etcetera 41 00:02:14,000 --> 00:02:19,440 Speaker 1: in play, isn't intervention actually ultimately pointless? Yeah, it could 42 00:02:19,440 --> 00:02:21,359 Speaker 1: be rich because you know if you do take the 43 00:02:21,520 --> 00:02:26,160 Speaker 1: specific case of the UK current account deficits fiscal deficits 44 00:02:26,800 --> 00:02:30,240 Speaker 1: both will worsen as a result of these fiscal plans 45 00:02:30,360 --> 00:02:33,640 Speaker 1: and are worsening because of inflation, so the pound reacts 46 00:02:33,680 --> 00:02:36,280 Speaker 1: to that. Then you have a Bank of England coming 47 00:02:36,320 --> 00:02:40,280 Speaker 1: with another strong policy over it, right which and a 48 00:02:40,400 --> 00:02:43,800 Speaker 1: forecast a recession. So the whole fundamental picture just gets 49 00:02:43,800 --> 00:02:47,240 Speaker 1: worse and worse and costs the spiral. And that's likened 50 00:02:47,280 --> 00:02:49,519 Speaker 1: to what can happen in the emerging markets, with the 51 00:02:49,560 --> 00:02:53,720 Speaker 1: extreme example of Turkey. So interventions sometimes may not work. 52 00:02:54,240 --> 00:02:56,200 Speaker 1: I think in case of Japan last week it was 53 00:02:56,280 --> 00:02:59,560 Speaker 1: somewhat initially successful because of you control where you do 54 00:02:59,639 --> 00:03:02,799 Speaker 1: control a bomb market that's not yet happening in the UK, 55 00:03:03,320 --> 00:03:05,040 Speaker 1: and that's why I think markets will be really keen 56 00:03:05,080 --> 00:03:08,280 Speaker 1: on seeing next week. It's not only the currency, but 57 00:03:08,320 --> 00:03:10,639 Speaker 1: it's what they're gonna do about that guild market. Maybe 58 00:03:10,639 --> 00:03:13,320 Speaker 1: the Bank affing it will delay its plan to sell guilts, 59 00:03:14,320 --> 00:03:17,400 Speaker 1: but eiven so difficult choices, right, you continue to deal 60 00:03:17,440 --> 00:03:19,720 Speaker 1: with high inflation and it has to be tackled with. 61 00:03:19,880 --> 00:03:22,240 Speaker 1: You can grow yourself out of a facio to try 62 00:03:22,280 --> 00:03:25,840 Speaker 1: to in the UK, so it really difficult situation. Yeah, 63 00:03:26,000 --> 00:03:29,040 Speaker 1: how about in the US did the fundamentals look better 64 00:03:29,160 --> 00:03:34,280 Speaker 1: than than what the market suggesting. Well, the recent string 65 00:03:34,320 --> 00:03:38,320 Speaker 1: of data says so, you know, both on manufacturing services 66 00:03:38,360 --> 00:03:41,800 Speaker 1: as well as employments, that continues to be you know, 67 00:03:41,840 --> 00:03:44,600 Speaker 1: a decent economy called it that way, right, it's it's 68 00:03:44,640 --> 00:03:48,040 Speaker 1: it's certainly not a recession. So in that regard, yea 69 00:03:48,120 --> 00:03:50,600 Speaker 1: strong goer. It tell me something. What would your advice 70 00:03:50,640 --> 00:03:52,720 Speaker 1: be for the moment for anybody who wants to dip 71 00:03:52,760 --> 00:03:57,000 Speaker 1: that toe into this market? Yeah, it sounds boring, rich, 72 00:03:57,080 --> 00:04:00,280 Speaker 1: but you would be good diversified and really think about 73 00:04:00,280 --> 00:04:02,080 Speaker 1: it is set and there's two ways to do that, 74 00:04:02,080 --> 00:04:03,800 Speaker 1: by the way, right, So if you look at bonds, 75 00:04:04,320 --> 00:04:06,400 Speaker 1: you want to stay on the really front of the 76 00:04:06,480 --> 00:04:08,560 Speaker 1: Yu curve and really back end of the yuker because 77 00:04:08,560 --> 00:04:12,040 Speaker 1: any anything in the middle, that duration risk continues to 78 00:04:12,080 --> 00:04:14,960 Speaker 1: be really high as rates will keep rising. But with 79 00:04:15,080 --> 00:04:18,840 Speaker 1: stocks is really about since the loads of them June 80 00:04:18,920 --> 00:04:22,560 Speaker 1: until Friday, you would expect to see healthcare utilities and 81 00:04:23,000 --> 00:04:26,440 Speaker 1: that staple sort of factors to outperform. You look within that, 82 00:04:26,640 --> 00:04:28,840 Speaker 1: there's a lot of companies that have been you know, 83 00:04:28,920 --> 00:04:32,680 Speaker 1: doing pretty well. In terms of those performances in you know, 84 00:04:32,680 --> 00:04:34,880 Speaker 1: a free cash flow and a high dividend yield that 85 00:04:34,960 --> 00:04:37,880 Speaker 1: sort of boring stocks. You do the two to get 86 00:04:37,920 --> 00:04:40,039 Speaker 1: a bonds and stocks. That way you get called a 87 00:04:40,080 --> 00:04:43,919 Speaker 1: barble portfolio. That could work for the time being. You 88 00:04:44,000 --> 00:04:47,520 Speaker 1: stay invested, you're not fully in cash, your lower volatility, 89 00:04:47,560 --> 00:04:50,800 Speaker 1: you earn some yield on diffidend and and an interest. 90 00:04:50,880 --> 00:04:53,479 Speaker 1: In that way, you're not out of the market until 91 00:04:53,960 --> 00:04:58,800 Speaker 1: better times. Right, we're very close to the June lows 92 00:04:58,880 --> 00:05:01,760 Speaker 1: for the SNP five dred thirty six ninety three at 93 00:05:01,800 --> 00:05:05,000 Speaker 1: the moment. We we finished up at thirty six sixty 94 00:05:05,080 --> 00:05:08,880 Speaker 1: six back in mid June. It feels like there's a 95 00:05:08,920 --> 00:05:12,080 Speaker 1: flush coming in in equity markets. And I say that 96 00:05:12,120 --> 00:05:14,240 Speaker 1: as a journalist. It just it just feels like there 97 00:05:14,320 --> 00:05:17,920 Speaker 1: really is is nothing to to to really get people 98 00:05:18,080 --> 00:05:22,280 Speaker 1: incentivized with the FED. This this hawk is um. Did 99 00:05:22,400 --> 00:05:24,160 Speaker 1: you share that view, Ben, or do you think that 100 00:05:24,279 --> 00:05:28,160 Speaker 1: we're almost close to bottoming somewhere around the June lows? Now, 101 00:05:28,440 --> 00:05:30,679 Speaker 1: you want to be careful about that bottom picking because 102 00:05:30,680 --> 00:05:32,760 Speaker 1: it just shows right that there was a lot of 103 00:05:32,760 --> 00:05:35,280 Speaker 1: conviction in June that was the bottom and we had 104 00:05:35,279 --> 00:05:37,880 Speaker 1: a big rebound from there, but we came all the 105 00:05:37,880 --> 00:05:40,160 Speaker 1: way back to that bottom, so basically you ended up 106 00:05:40,200 --> 00:05:43,120 Speaker 1: with no return as a result. Right, So I think 107 00:05:43,160 --> 00:05:46,000 Speaker 1: you want to be wary because we're going into not 108 00:05:46,080 --> 00:05:48,880 Speaker 1: only a difficult period for the market sorts of data 109 00:05:48,920 --> 00:05:51,480 Speaker 1: and and earnings and those types of things. We also 110 00:05:51,520 --> 00:05:54,960 Speaker 1: deal with this this escalation again between Russia and Ukraine 111 00:05:55,600 --> 00:05:58,440 Speaker 1: that I think brings them gio political risk and then 112 00:05:58,480 --> 00:06:01,880 Speaker 1: of course the Ucasian situation, which interesting you had a 113 00:06:01,920 --> 00:06:05,240 Speaker 1: bigger spillover effect on Friday. So I think you do 114 00:06:05,320 --> 00:06:07,680 Speaker 1: not want to pick the bottom. You want to play 115 00:06:07,720 --> 00:06:10,600 Speaker 1: this Bible idea, so you don't have to pick the bottom, 116 00:06:11,040 --> 00:06:13,920 Speaker 1: but stay invested very defensively. I think that's the way 117 00:06:13,960 --> 00:06:17,800 Speaker 1: to do what ben ultimately, and you know it's something 118 00:06:17,800 --> 00:06:20,280 Speaker 1: which you only realize after the event in the rear 119 00:06:20,360 --> 00:06:25,279 Speaker 1: view mirror. But what does capitulation look like? Well, I 120 00:06:25,320 --> 00:06:28,400 Speaker 1: think in that case risk you're getting a significant helpful 121 00:06:28,400 --> 00:06:32,839 Speaker 1: a lot of equities and bonds combined together the vixed 122 00:06:32,920 --> 00:06:35,320 Speaker 1: and does finally go over forty, which is really considered 123 00:06:35,320 --> 00:06:37,880 Speaker 1: to be a stress level that we haven't seen yet, 124 00:06:38,880 --> 00:06:41,640 Speaker 1: and you would get a major flight into the dollar, right, 125 00:06:41,760 --> 00:06:44,159 Speaker 1: even more than what we've seen so far. I think 126 00:06:44,200 --> 00:06:47,760 Speaker 1: that would be true capitulation. You know, we've seen some elements, 127 00:06:47,800 --> 00:06:50,880 Speaker 1: but it's it's not a financial crisis situation. It's more 128 00:06:50,920 --> 00:06:54,520 Speaker 1: economic issue where we have difficult choices to make to 129 00:06:54,680 --> 00:06:57,760 Speaker 1: combat inflation and think that's what the market keep struggling 130 00:06:57,760 --> 00:07:00,800 Speaker 1: with day by day. Yeah, if you look at the 131 00:07:00,800 --> 00:07:04,599 Speaker 1: Hansing Index from thirty one down to seventeen thousand nine, 132 00:07:05,040 --> 00:07:08,599 Speaker 1: feels like it's been rolling capitulation for the past year, 133 00:07:08,720 --> 00:07:12,440 Speaker 1: year and a half. You've got the Hansing Index constituent 134 00:07:12,480 --> 00:07:17,160 Speaker 1: members trading on six times earnings. Yet it still looks like, 135 00:07:17,280 --> 00:07:20,560 Speaker 1: you know, it's it's perilous to to pick a bottom. 136 00:07:20,680 --> 00:07:23,000 Speaker 1: Does you know for major equity markets to be down 137 00:07:23,040 --> 00:07:28,520 Speaker 1: fifty is that is that something that gets anyone's attention. Yeah, 138 00:07:28,520 --> 00:07:31,440 Speaker 1: it would, it would be, And that is extreme because 139 00:07:31,560 --> 00:07:33,600 Speaker 1: you know the history of bear markets show more than 140 00:07:33,640 --> 00:07:36,800 Speaker 1: average of thirty two percent down peak to trough, right, So, 141 00:07:37,360 --> 00:07:39,600 Speaker 1: and you're talking about real bear markets like you've seen 142 00:07:39,640 --> 00:07:44,880 Speaker 1: in the seventies, So is really dramatic. The crime not impossible, 143 00:07:44,920 --> 00:07:48,600 Speaker 1: of course, but it's it's uh, I think really sparked 144 00:07:48,640 --> 00:07:51,080 Speaker 1: people to look at okay, there must be at some 145 00:07:51,200 --> 00:07:55,040 Speaker 1: point just leveling off of all the selling and it 146 00:07:55,120 --> 00:07:57,360 Speaker 1: starts to rebound from there. Right, there is a lot 147 00:07:57,360 --> 00:08:00,200 Speaker 1: of cash on the sidelines, is really bare shot there 148 00:08:00,600 --> 00:08:04,280 Speaker 1: that has each time led to a rebound. So I 149 00:08:04,320 --> 00:08:06,880 Speaker 1: don't think it's different this time. But we're dealing with 150 00:08:06,920 --> 00:08:10,239 Speaker 1: an inflation problem and the solution on that requires tweaking 151 00:08:10,320 --> 00:08:13,400 Speaker 1: of policies, and that's what what continues to cause this 152 00:08:13,520 --> 00:08:16,200 Speaker 1: friction of every day. I think you will see the 153 00:08:16,640 --> 00:08:19,840 Speaker 1: really turning inflation, which the strong dollar may actually really 154 00:08:19,880 --> 00:08:22,880 Speaker 1: help to do that. Then I think you could have 155 00:08:22,960 --> 00:08:26,280 Speaker 1: the boats lifted again and you get that sentiment reverse 156 00:08:26,360 --> 00:08:29,800 Speaker 1: to a more positive out look. Ben, thank you so 157 00:08:29,880 --> 00:08:33,600 Speaker 1: much for joining. Is your Sunday evening our Monday morning 158 00:08:33,640 --> 00:08:36,160 Speaker 1: here in Hong Kong. That's Ben emon Z and Daching, 159 00:08:36,240 --> 00:08:40,600 Speaker 1: director of a Global micro strategy at a Medley Global Advisers, 160 00:08:40,640 --> 00:08:43,040 Speaker 1: getting his take on the market action.