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Speaker 1: Joining us that now is James Demett, found out, managing

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Speaker 1: partner at Main Street Research, getting his take on the market.

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Speaker 1: You're you're suggesting the Federal Reserve at the moment is

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Speaker 1: behind the curve and that they've misjudged the data house.

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Speaker 1: Thank you that, thank you for quoting me. Uh, that

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Speaker 1: is the case, and I think we all know that

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Speaker 1: from looking at the data backwards and um, you know,

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Speaker 1: although they've been adamant about raising rates, they just haven't

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Speaker 1: done it enough. And they definitely haven't done it soon enough.

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Speaker 1: I think they've had felt that, you know, raising makes

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Speaker 1: a few times would make inflation data come down like water.

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Speaker 1: Instead it's appearing to come down more like molasses. Right,

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Speaker 1: we're still north at eight and until that is still

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Speaker 1: the Fed funds. Right, it's near inflation, which is kind

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Speaker 1: of where they normally stop. I think you're gonna have

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Speaker 1: a continued bear market inequities and the bond market until

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Speaker 1: you get some further weakness, significant weakness, so the market.

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Speaker 1: James is convinced that we're going to get at least

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Speaker 1: seventy five basis points some outlies ers, maybe now is

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Speaker 1: the time to strike with a hundred basis point raid hike.

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Speaker 1: What do you think the market reaction would be were

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Speaker 1: the FED to deliver a hundred basis point increase. That's

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Speaker 1: a great question. And you know, if you go back

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Speaker 1: over the last few quarters, the consensus of investors hasn't

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Speaker 1: been spot on by any means. I mean, uh, And

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Speaker 1: I think that this FED is so behind, uh, you know,

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Speaker 1: to give it that last inflation, but clearly it's it's peaking.

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Speaker 1: But we think there's a high likelihood that they come

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Speaker 1: at a hundred just to really try to get ahead

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Speaker 1: of it. I know when I was late for school,

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Speaker 1: I hurried up, and I think that that's kind of

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Speaker 1: where they are. Well, that's the thing. But isn't a

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Speaker 1: hundred also a sign of panic? I think it should be.

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Speaker 1: I mean, I think that you know, their first mandate

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Speaker 1: has to be put inflation back in the bar, even

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Speaker 1: at the cost and they've mentioned this in the economy

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Speaker 1: weakening much more and at the cost of the equity market.

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Speaker 1: So can the market test the June lowes? Uh? Certainly,

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Speaker 1: and it don't even do it this week if they

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Speaker 1: go a hundred, But you know, clearly faster is better

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Speaker 1: and getting this out of the way, even if it's

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Speaker 1: sends stocks south for further than the lower or to

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Speaker 1: the low. So, as you noted, I mean there are

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Speaker 1: signs that maybe we're at peak inflation. The question is

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Speaker 1: whether or not that continues to drift sideways and we

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Speaker 1: don't see a meaningful decline. Are we at risk of

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Speaker 1: an economy that looks like it's got very weak growth

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Speaker 1: but persistently high inflation. Well we are. I mean, you know,

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Speaker 1: as I mentioned the molasses analogy, I mean, it just

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Speaker 1: is not coming down like they thought it would. And

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Speaker 1: I think it's also because we haven't faced this in

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Speaker 1: maybe three decades. But you know, you certainly have that possibility,

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Speaker 1: which gives the equity market a tremendous amount of risk.

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Speaker 1: You know how much further they have to keep going

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Speaker 1: upward to get this back. And and I think the

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Speaker 1: fed x G earnings are really a canary in the

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Speaker 1: coal mine. What's going to what's to come possibly for

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Speaker 1: the earnings reports coming up in a couple weeks. So yeah,

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Speaker 1: so that combinations like really really slow growth and GDP

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Speaker 1: this week as well, along with um, you know, this

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Speaker 1: sort of stubborn inflation means they need to go higher faster. Well,

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Speaker 1: the FedEx warning was certainly has taken the wind out

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Speaker 1: of many people's sales, and how much of it is

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Speaker 1: a bellweather and how much notice are you taking about

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Speaker 1: taking a note of and also fundamentally has it changed

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Speaker 1: the way that you are investing? You know, the FedEx

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Speaker 1: news just confirmed what we had been concerned about all along.

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Speaker 1: You can't contract an economy, which is what you have

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Speaker 1: raising rates does and expect earnings to continue to sort

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Speaker 1: of need expectations. It just those two things just don't

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Speaker 1: work together. So our expectation has been and I think

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Speaker 1: FedEx was just early because we're closer to this next

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Speaker 1: quarters earnings is sort of late um and didn't even guide.

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Speaker 1: I think, you know, I think that's is that sort

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Speaker 1: of confirms what we've been thinking all along, that earnings

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Speaker 1: are very very vulnerable, and that shows you what you

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Speaker 1: see in that last big phase down in bear markets.

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Speaker 1: I mean, I don't know if that drew lows or

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Speaker 1: lower than that, but that's that's concerning, but kind of confirms,

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Speaker 1: you know, our position. We were talking earlier in the

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Speaker 1: program about the call over the weekend from Goldman Sachs.

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Speaker 1: They are looking at GDP growth in the new year

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Speaker 1: three of around one point one percent. Obviously they are

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Speaker 1: including into their thinking here um a plan that the

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Speaker 1: FIT has already put forward in terms of being aggressive

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Speaker 1: on on rate hikes. Does that still sound too optimistic?

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Speaker 1: Do you think for one one percent GDP? No, I

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Speaker 1: don't think it does. I think, you know, I think

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Speaker 1: whether the number comes from at least how I would

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Speaker 1: view it or our team is that, you know, we

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Speaker 1: we were sort of negative going into the year, and

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Speaker 1: they were negative and maybe a couple of quarters and

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Speaker 1: then we then we start our you know, the recovery

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Speaker 1: in the back half of three in economic growth of least,

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Speaker 1: so you sort of go negative and then by the

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Speaker 1: to the year you're sort of slightly positive. So you're

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Speaker 1: sort of going through this sort of value doom. The

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Speaker 1: good news is the stock market discounts all that before

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Speaker 1: before it happens, So the bottom of the market will

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Speaker 1: happen certain way before the economy bottoms, as is always

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Speaker 1: the case. So that brings me actually to the domain point,

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Speaker 1: which is what is it actually pricing in right now?

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Speaker 1: Then I think the market now is is beginning to

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Speaker 1: start to realize and price in this this earnings. Corporate

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Speaker 1: profits are going to be down and the economy is

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Speaker 1: going to get weaker because they're specifically bringing it tools

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Speaker 1: to contract it. So you're seeing the market market come

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Speaker 1: down certainly in recent weeks, and I think over the

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Speaker 1: next quarter, maybe even longer than that to price in,

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Speaker 1: you know, a real recession. Well, the bond market and

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Speaker 1: the inverted yield curve seems to be telegraphing that message.

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Speaker 1: Can I get you to be very quickly, James, in

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Speaker 1: about thirty seconds a buyer of a US two year

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Speaker 1: treasury with the yield just under three. Yes, I'd even

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Speaker 1: go longer than too. I go to five, I go

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Speaker 1: to ten, even fifteen made wow. But individual individual bonds

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Speaker 1: have great value. Good stuff. Thank you so much for

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Speaker 1: being with us. James Demert is founder also managing partner

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Speaker 1: at Main Street Research, joining us on the line from Greenwich, Connecticut. Rich,

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Speaker 1: you're wrapping up two hours with us on the program.

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Speaker 1: Final thoughts as we get set for trading in Seoul

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Speaker 1: and in Sydney, Well, I think we'll be talking about

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Speaker 1: central banks rather a lot this week, Doug, So I

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Speaker 1: don't want to talk too much about them right now,

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Speaker 1: but certainly twelve decisions midweek single day and the b

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Speaker 1: o j is on that list, but a market holiday

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Speaker 1: in Japan will take a closer look at top business

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Speaker 1: stories coming up. This is Bloomberg