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Speaker 1: Coming up on eight minutes past the hour. As promised,

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Speaker 1: Walter Todd joins this President, the c i O and

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Speaker 1: managing director at Greenwood Capital. The currency is very much

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Speaker 1: in the picture this morning. Walter and I want to

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Speaker 1: lay out an argument that was made on our air

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Speaker 1: late last week by Time or Bag, and it's that

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Speaker 1: dollar strength is likely to boomerang on the FED and

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Speaker 1: end up hurting the United States. And the argument is

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Speaker 1: that the US economy is a much smaller percentage of

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Speaker 1: the global economy than back in Vulker's day, and that

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Speaker 1: tightness that dollar strength imposes on the rest of the world,

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Speaker 1: it's just going to make the pie smaller and make

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Speaker 1: it more difficult for the US to not only grow,

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Speaker 1: but to fight inflation. Your thoughts on that argument, Yeah, well,

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Speaker 1: thanks for having me on UM. Yeah, I would I

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Speaker 1: would say I would agree with the concept that the

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Speaker 1: UM I would I would say disorderly to getting a

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Speaker 1: little disorderly in the currency market. So the dollar strength

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Speaker 1: is really destabilizing a number of different seas and countries

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Speaker 1: around the world right now. And you know, I think

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Speaker 1: the FED seems so you know, my optically focused on

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Speaker 1: the inflation, which I understand, but there there may be

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Speaker 1: losing sight of some of the financial stability concerns that

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Speaker 1: are you know, front and center. So I do think

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Speaker 1: that there's gonna have to be you mentioned some type

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Speaker 1: of maybe coordinated action from other central banks to try

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Speaker 1: to ease this this one way trade that's going on

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Speaker 1: of dollar strength and weakness everywhere else around the world,

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Speaker 1: whether it's the UK, whether it's Japan. You think about

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Speaker 1: emerging markets with all the dollar denominated debt that they have, UM.

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Speaker 1: So it is creating significant financial pressure and tightening of

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Speaker 1: financial conditions. Um, not only in the US but around

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Speaker 1: the world. But tell me here, well, you know there's

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Speaker 1: a huge, huge risk of policy mistakes surely, and the

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Speaker 1: Federal Reserve is what his other center branks is going

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Speaker 1: too far too fast. Yeah, I mean, I think I

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Speaker 1: think the markets telling them they're they're making that mistake

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Speaker 1: as we speak. UM. If you look at you know,

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Speaker 1: kind of pick your metric. You look at the two

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Speaker 1: tent spread as negative fifty basis points. You look at

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Speaker 1: the one year break even uh here in the US

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Speaker 1: it's collapsed from over six to below two. UM. If

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Speaker 1: you look at um, you know, other market signals you know,

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Speaker 1: Pal said he wants positive real yields across the curve

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Speaker 1: there there. Um. So the markets, in my opinion's kind

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Speaker 1: of trying to tell the fat hey, just stop and wait,

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Speaker 1: and inflation is coming down and coming down fast, um

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Speaker 1: as we head into three, so we don't need to

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Speaker 1: do anymore. But they're not not heeding that advice at

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Speaker 1: this point. Yeah. You you wonder because the market sort

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Speaker 1: of laed the Fed into doing what it did starting

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Speaker 1: in March, and it was behind the curve of the

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Speaker 1: market was out in front. But does the Fed actually

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Speaker 1: think that it's leading the market now? Well, if they

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Speaker 1: think that, I think they're wrong unfortunately, um because again, um,

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Speaker 1: just all the market signals are telling us that they are. Um, well,

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Speaker 1: they have done enough already. Unfortunately. I think they're trying

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Speaker 1: to wait to see the numbers kind of flow through

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Speaker 1: the official data. And if they wait for that, they're

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Speaker 1: gonna be too tight for too long for sure, and

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Speaker 1: we're gonna have a you know, significant slow down or

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Speaker 1: pretty pretty bad recession in three. If they are waiting

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Speaker 1: for that the CPI had actually come down, Well, what

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Speaker 1: do you think it's really? New? View? In your gut?

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Speaker 1: How do you think all these interest rate hikes are

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Speaker 1: going to play out for the economy overall? Give us

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Speaker 1: your sort of best and worst case scenarios. Y um. Well,

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Speaker 1: given the fact that these impact the economy with a lag,

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Speaker 1: we uh, you know, as much damage as we're seeing

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Speaker 1: in the financial markets. From an economic perspective, we really

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Speaker 1: are just we're just starting to see the impact of

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Speaker 1: these interest rate increases and they will continue to to

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Speaker 1: ripple through the economy. So we know that housing is

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Speaker 1: slow and dramatically, we know that auto sales are slowing

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Speaker 1: um significantly as a result of these higher rates. So

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Speaker 1: it's hard to envision a scenario where economic growth is

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Speaker 1: h anything but slow. That the best case scenario is

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Speaker 1: it's positive but slow. The worst case scenario is this,

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Speaker 1: you know, a significant recession given the amount of hikes.

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Speaker 1: I just want to make the point here real quickly though,

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Speaker 1: that this time last year, the market and the Fed

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Speaker 1: we're expecting one basis point hike. In today they have

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Speaker 1: hike rates three percentage points things this year and or

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Speaker 1: hiking you know, more in three So it's not the

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Speaker 1: level as much as it is the speed with which

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Speaker 1: the dynamics have changed in the speed with which rates

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Speaker 1: are being hiked. It's it's a real difficult task to

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Speaker 1: beat inflation, but it may be even more difficult to

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Speaker 1: beat deflation. We have more of a playbook for beating inflation,

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Speaker 1: and for most of the prognosis by a lot of

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Speaker 1: the Fed policymakers they are going to get inflation to

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Speaker 1: come down to two percent and then it magically stabilizes.

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Speaker 1: And I think that's you know, that's what really it is,

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Speaker 1: is magic, because once you start the momentum down from

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Speaker 1: nine percent to two, it's not likely to stop, is it. Yeah,

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Speaker 1: that's a risk, right if if you slow things down

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Speaker 1: too quickly and too fast. That Yeah, to your point,

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Speaker 1: it's hard to envision it all, you know, all of

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Speaker 1: a sudden, you know, stopping it too and not pushing

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Speaker 1: through beyond that. Um. And I think again, that's the

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Speaker 1: risk of kind of looking at the recent data and

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Speaker 1: looking kind of in the rear view mirror versus looking

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Speaker 1: ahead and seeing what's happening on the ground. We're already

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Speaker 1: seeing deflation in housing prices, I mean in certain markets. Um,

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Speaker 1: we're already seeing deflation and used car prices. So you're

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Speaker 1: already starting to see that and you're gonna have to

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Speaker 1: start to pull back ahead of getting to two percent

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Speaker 1: to try to kind of ease it into that level.

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Speaker 1: And the one year break even is already there, it's

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Speaker 1: already a two percent. So again, uh, you know, it's

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Speaker 1: it's it's it's a tricky spot there in I don't

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Speaker 1: envy the job at all, but I wish they would

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Speaker 1: look at the real time data versus maybe the official

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Speaker 1: statistics a little bit more. Well can you imagine being

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Speaker 1: a well, you know, portfolio manager just having to wait

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Speaker 1: or through all this. What what do they do here?

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Speaker 1: Because I mean, if you stay in cash, your money

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Speaker 1: is being eroded by inflation. If you get into the market,

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Speaker 1: you're getting you're getting beaten up. Yeah yeah, well I

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Speaker 1: think you know, I do think they're you know, if

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Speaker 1: you look at um corporate bond yields right now. I

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Speaker 1: mean again, I get inflation currently is at eight percent.

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Speaker 1: But if I'm able to put money to work, you know,

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Speaker 1: two or three year money and corporate bonds and get

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Speaker 1: more than five percent, I think that's actually gonna be

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Speaker 1: a pretty good bet because I think inflation is going

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Speaker 1: to be quite a bit lower a year from now.

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Speaker 1: So I think that's gonna look pretty good. So I

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Speaker 1: think that's an opportunity here. And I think, you know,

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Speaker 1: there's a lot of names, quality names that are just

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Speaker 1: being taken out. And you mentioned earlier that fundamentals are

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Speaker 1: being ignored, and that's true. It's a very macro driven

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Speaker 1: market right now. So I think there are opportunities and

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Speaker 1: individual names within the market that if your time arising

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Speaker 1: is you know, longer than six or twelve months, that

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Speaker 1: they're probably pretty good spots to be putting money to work.

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Speaker 1: But in the short term is gonna be violatile. In

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Speaker 1: the short term to find those do you have to

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Speaker 1: look more at consumer staples and utilities? Uh, we don't

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Speaker 1: think so. I think those names are very expensive relative

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Speaker 1: to history. Um. And so as far as defensive sectors,

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Speaker 1: we like healthcare versus those two right now, if you

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Speaker 1: want to play defense, if you want to get a

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Speaker 1: little bit more offensive and and look at some a

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Speaker 1: little bit more, you know, cyclical areas is as crazy

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Speaker 1: as that may sound right now. Um, you know, I mean,

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Speaker 1: you know, we don't own fed X, but I mean

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Speaker 1: fed X down trade at nine times if you're willing

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Speaker 1: to look out again twenty four thirty six months out,

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Speaker 1: he's probably not a bad spot to pick something like

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Speaker 1: that up, or even energy that got really tomahawked on

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Speaker 1: on Friday, Well, thank you so much for joining us.

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Speaker 1: That's the m D and C I O at Greenwood

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Speaker 1: Capital getting his take on the markets