Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along
Speaker 1: with Jonathan Ferrill and Lisa Brownwitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance and Apple Podcast, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course, on the Bloomberg Terminal. John us nas
Speaker 1: been labor global market strategist that eats are open. It's
Speaker 1: your job to tell us how on earth you can
Speaker 1: be bullish in a moment like this. How can you be?
Speaker 1: I think you just answered the question yourself, haven't you.
Speaker 1: When everyone's on this sort of race to the bottom
Speaker 1: of you know, who can get more bearish? You can
Speaker 1: have the more outlandished so forecast. I think I just
Speaker 1: told you where market psychology is right now. You know, sentiment,
Speaker 1: different ways to measure it. It's a global financial crisis.
Speaker 1: Lows um and however bad you think this is, that's
Speaker 1: not it's um. The inflation fever, I think is is
Speaker 1: beginning to is beginning to break. You've got corporate consumers
Speaker 1: that for now are remaining remarkably resilient. It won't last forever,
Speaker 1: but it's it's it's the fact of the matter today, Uh,
Speaker 1: the U. S. Economy is actually re accelerating right now,
Speaker 1: right it's not about to plunge intercession. We're having helping
Speaker 1: jobs reports. We've got gasoline places coming down. The consumer's
Speaker 1: gonna end up with more money in in in their pocket.
Speaker 1: I mean, I could go on and on. I do
Speaker 1: think this is a This is a market which or
Speaker 1: which is talking itself into into a fund and a
Speaker 1: little bit of less bad news, which is all you need.
Speaker 1: I think goes a very long way from here. And
Speaker 1: then the research dum this morning is off the chart.
Speaker 1: And want to congratulate you on your E T F
Speaker 1: and passive investment research pieces just really extraordinary. But I
Speaker 1: gotta stay on markets this morning. Buried in your note
Speaker 1: is a single line that the bond market is speaking.
Speaker 1: The bond market is saying companies are fine. Discuss that. Yeah,
Speaker 1: that's exactly it. I mean, I'm you know, we look
Speaker 1: at earnings, I mean, owning expectations you talked about earlier. Yeah,
Speaker 1: they're falling, but there's still seven eight percent. They're still
Speaker 1: very healthy. Corporate profit margins are Yes, they're falling, but
Speaker 1: they're falling from sort of record levels. The fault rates
Speaker 1: are absolutely you know, record loads. Companies you know used
Speaker 1: the last crisis very well to sort of refinance um
Speaker 1: And that's the message you're getting sort of loud and
Speaker 1: clear from from the corporate bond market. Yes, spreads of widen,
Speaker 1: Yes the week. His companies are finding it difficult to refinance.
Speaker 1: But spreads are very tight versus sort of historical levels.
Speaker 1: And I can think, you know we're talking about I mean,
Speaker 1: I'm the equity guy, but you know you're you're getting
Speaker 1: these messages if you choose to look for them. And
Speaker 1: I'm not sure everybody is that are telling you that
Speaker 1: corporates are I've been very nimble and very resilient, have
Speaker 1: you know to fault rates are low and you know
Speaker 1: there whether they're ready to weather this slowdown that's coming.
Speaker 1: A lot of people are then say that the corporate
Speaker 1: bond market isn't the same weather vain that it used
Speaker 1: to be, simply because of how much company has turned
Speaker 1: out some of their maturities. Looking at the bottom line,
Speaker 1: have we priced in the ramifications for US companies from
Speaker 1: a deep European recession which is becoming the base case
Speaker 1: for an increasing number of Wall Street firms. So what
Speaker 1: happens if you don't get a deep European recession? So,
Speaker 1: I mean, there are no good policy choices in Europe
Speaker 1: right now, But basically every single government is going to
Speaker 1: come out with some got gantuan package to either cut
Speaker 1: break the link between gas prices and ectricity prices or
Speaker 1: cat those prices. What's that going to do? That's going
Speaker 1: to soften the recession through the winter, and that's going
Speaker 1: to bring down inflation. Now, yes, that's gonna store up
Speaker 1: sort of paying for further down, further down the line.
Speaker 1: But I actually think again, and this is sort of
Speaker 1: raised the bottom of market expectations. I think this is
Speaker 1: a wall of money which is coming out. Why it's
Speaker 1: going to do an awful lot to soften that, at
Speaker 1: least in the near term. But man, you're saying that
Speaker 1: basically fiscal support will come in if there is a
Speaker 1: deep recession. Who's going to finance that at a time
Speaker 1: where you already see yields climb. Yeah, absolutely, you'd probably
Speaker 1: climb a little bit further, right, But these are still
Speaker 1: very very low yield by any historical context. And we'll see,
Speaker 1: we'll see how high yields really go if inflation keeps coming.
Speaker 1: If inflation you know, if I'm right that this inflation
Speaker 1: fever is breaking, and inflation starts to come down, and
Speaker 1: and economies keeps softening, we'll see how high bond deals
Speaker 1: really going. Ben later it all right, Thank you, Ben,
Speaker 1: We appreciate your time. We're gonna pause right now. We
Speaker 1: do so with Bruce chasm In, Chief Economists, head of
Speaker 1: Global economic Research for JP Morgan, with so many things
Speaker 1: to talk about in the frame where we are now
Speaker 1: through the litmus paper of the system, which is foreign exchange,
Speaker 1: and Bruce, we hearken back here to all the work
Speaker 1: over more than half a century of mundel Onto. Jacob Frankel,
Speaker 1: of course, was working for JP Morgan for years, and
Speaker 1: then under Ken Rogoff, and then i'd a boost Brus
Speaker 1: Casiman in there as well. So we're gonna talk to
Speaker 1: you this morning about what foreign exchange signals here. What
Speaker 1: does foreign exchange signal and is it the ultimate release
Speaker 1: veilve for these fiscal and monetary stresses. Well, I think
Speaker 1: the simple thing that foreign exchange is is signaling right
Speaker 1: now is that the U. S economy is faring better
Speaker 1: than the rest of the world, and the FED has
Speaker 1: more work to do, so we're seeing the dollar moving up.
Speaker 1: I think what's interesting about the the dynamic and what's
Speaker 1: reflected in FX as we moved from a world where
Speaker 1: in the last two three months we've been worried about
Speaker 1: a US led global recession to now one where the
Speaker 1: combination of European crimes with energy and China weakening is
Speaker 1: now the more significant problem. Dr Kasmin, I know you
Speaker 1: were like me in the basement with your Gilbert Kem
Speaker 1: set long ago. There was logwood and all those other
Speaker 1: little chemistry things we made your Gilbert Kem set. Right
Speaker 1: now is Japan. They are failing in a theory that
Speaker 1: keeps getting tested and tested by the market. When does
Speaker 1: their theory of limiting through bond ill liquidity the rate rise?
Speaker 1: When does that end well? I think the story in
Speaker 1: Japan is interesting because the continued purchases of assets is
Speaker 1: probably uh counterproductive at this point and unsustainable. But the
Speaker 1: dynamic of the bank in Japan letting the inflation story
Speaker 1: run through trying to establish a more sustainable rise in
Speaker 1: inflation makes sense. I think the problem in Japan is
Speaker 1: they're getting stuck in this mode of thing that they
Speaker 1: continue to need to buy assets keep interest rates pegged
Speaker 1: close to zero in a world in which the dynamics
Speaker 1: are really requiring something different. I would like to see
Speaker 1: them move away from y c C targets as tight
Speaker 1: as they are, but keep policy rates unchanged to continue
Speaker 1: to keep the inflation snary dynamic moving through the system
Speaker 1: there in a way that they certainly need. Well, Bruce,
Speaker 1: Japan's an island of its own, both physically as well
Speaker 1: as from monetary policy. The rest of the world is
Speaker 1: hiking rates into weakness, and we are seeing that with
Speaker 1: the Federal Reserve to a lesser degree, but to a
Speaker 1: bigger degree the ECB, which is expected to raise rates
Speaker 1: by seventy five basis points on Thursday. How much are
Speaker 1: we looking at both the fiscal and the monetary impulse
Speaker 1: working against each other and creating a whole lot of
Speaker 1: pain that we're not pricing in. Well, it's an interesting question.
Speaker 1: I think DCB needs to get policy rates towards neutral
Speaker 1: in the world in which they certainly have recession risks,
Speaker 1: but they also have fairly significant inflation concerns. Keeping policy
Speaker 1: rates at zero don't make sense. We think they're going
Speaker 1: to move seventy five basis points. And as you're noting
Speaker 1: the fiscal policy in Europe, and by the way, Europe
Speaker 1: and China are both moving in the other direction supporting growth.
Speaker 1: I think this is the right thing to do against
Speaker 1: the backdrop of what is a huge hit to household
Speaker 1: and in some cases business incomes um. But the consequences
Speaker 1: of that are we believe that the CD is going
Speaker 1: to move policy rates up to something like one and
Speaker 1: a half percent even as the European economy suffers as
Speaker 1: we go through this winter, one and a half percent
Speaker 1: by the end of this year. You're saying, firs, that's correct, yea.
Speaker 1: So let's talk about what kind of downturn we're expecting
Speaker 1: from that. If there is the fiscal support that's helping
Speaker 1: to support the economy, but there needs to be, according
Speaker 1: to certain economic theory, some sort of deceleration activity in
Speaker 1: order to bring inflation under control. What kind of deceleration
Speaker 1: is required, both European wise as well as in the US,
Speaker 1: to bring inflation back to something more like the target
Speaker 1: for central banks. I think that's the rub here, which
Speaker 1: is to say that if we avoid the very damaging
Speaker 1: recession dynamic in which labor markets weaken a lot. The
Speaker 1: combination of tight labor markets, salience which is changing wage
Speaker 1: and price setting process, and some things that are happening
Speaker 1: in the global economy that are not going to return
Speaker 1: to normal suggests to us that you're gonna get inflation
Speaker 1: down quite a bit here, but you're not gonna get
Speaker 1: it down enough. So I don't think we'll move up
Speaker 1: back to seven percent unemployment in the Euro Area, which
Speaker 1: is our forecast with a mild recession. I don't think
Speaker 1: it move up to four percent inflation. Unemployment rates excuse
Speaker 1: me in the US are going to be enough to
Speaker 1: do the job, and I think central banks are starting
Speaker 1: to understand that they're not there yet. But over time,
Speaker 1: I think part of the problem we have is we're
Speaker 1: gonna need much more significant adjustments in labor markets to
Speaker 1: contain inflation. Then, with that said, Brad, excuse me, uh
Speaker 1: Dr kems In With that said, very very important important here.
Speaker 1: Where is where does it become more difficult for central bankers.
Speaker 1: One of my problems is everybody is stressed out about
Speaker 1: the now, and I'm like, wait a minute, the now
Speaker 1: is not the point we're out. There is where the
Speaker 1: stress really comes in for monetary decision is it this
Speaker 1: year next year? Well, I think it comes when polose
Speaker 1: these stances are restrictive and labor markets are turning soft.
Speaker 1: And that's you know, I think one of the interesting
Speaker 1: things in the US right now. Last Friday's report doesn't
Speaker 1: suggest to us that the labor market is soft at
Speaker 1: this point, so the FED doesn't have a really difficult
Speaker 1: choice continuing to move. But once you get policy into
Speaker 1: a restrictive stance, which the c B is far away from,
Speaker 1: but the FED is starting to move towards, and you
Speaker 1: start to see the effects of tight monetary policy and
Speaker 1: other things we can laby markets, that's when the choice
Speaker 1: has become more difficult. We're not there yet for the
Speaker 1: FED in terms of the labor market. We're not there
Speaker 1: yet for the e c B in terms of policy stance.
Speaker 1: I think we get there sometime early next year. And
Speaker 1: that's what I think. You're gonna have more interesting choices
Speaker 1: to be made, more difficult choices to be made. We
Speaker 1: do think the FED is going to stop somewhere close
Speaker 1: to for and we think d CB is gonna stop
Speaker 1: somewhere close to one and a half to take stock
Speaker 1: of what they've done against softening economies. So Bruce, let's
Speaker 1: put some numbers on this. What kind of unemployment rate
Speaker 1: are you expecting that is required to inflation under control
Speaker 1: in the European region as well as in the United States. Well,
Speaker 1: let's just be careful here. I think a move from
Speaker 1: what has been something like nine percent inflation over the
Speaker 1: last year down to four or five that's going to
Speaker 1: happen with energy markets normalizing, with the slowing we've seen
Speaker 1: in global growth, taking goods pressures off. I think you
Speaker 1: get that pretty much without having to do anything. The
Speaker 1: question is getting back down to two. And I think
Speaker 1: in that context, I would argue that you need to
Speaker 1: probably push the US unemployment rate up above five percent
Speaker 1: and probably push the euro are unemployer rate up towards
Speaker 1: eight percent at minimums. And that's not going to happen
Speaker 1: without uh, something that we would naturally call a retrenchment,
Speaker 1: a recession of more magnitude than what we're forecasting, and
Speaker 1: most others are short and Shannow doesn't fit in. That
Speaker 1: doesn't brace short and Shannow recessions. It doesn't. First of all,
Speaker 1: that's hard to achieve. Let's just to to gradually move
Speaker 1: the US unemployer rate up to four percent is something
Speaker 1: which would be hard to do, not not by any
Speaker 1: means impossible, but yeah, I think to get the inflation
Speaker 1: picture back in the bottle with a four percent unemployment rate,
Speaker 1: a very mild subpart growth face, that's not what history
Speaker 1: suggests can really do the job. Recognizing getting down from
Speaker 1: nine is easy, you know, getting from nine to four
Speaker 1: or five, I think that's a done deal, just just
Speaker 1: given where inflation, energy prices are, given what's happening in
Speaker 1: global manufacturing. Brice Casman, Thank you, Brice. Really thoughtful stuff
Speaker 1: from J. K. Morgan Semester. May let me thank you
Speaker 1: for joining us here. Do let's trust face dynamics like
Speaker 1: the United Kingdom face thirty years ago. Well, there's one
Speaker 1: huge difference tone, which is that back in standing as
Speaker 1: part of the European exchange rate mechanism, and that created
Speaker 1: one of these asymmetric bets for drug A, Miller and
Speaker 1: Soros where they knew that sterling was not going to rise.
Speaker 1: It was at the bottom of the permitted band in
Speaker 1: the exchange rate mechanism at the time, and because Britain
Speaker 1: was in the recession, the Bank of England was going
Speaker 1: to keep rates as late as it could get away with, right,
Speaker 1: So if Sterling was to rise a little bit, it
Speaker 1: wouldn't rise more. But if it crashed out of the
Speaker 1: r M, it could go down in one shot. And
Speaker 1: that's what created this totally asymmetric bet. That's why George
Speaker 1: Soros said to drug a miller famously goes to the
Speaker 1: regular on this. Put more money on, more money on.
Speaker 1: And ye know they were both up all night trying
Speaker 1: to find counterparties to put more positions on so that
Speaker 1: they could get that billion daughter profit when Sterling did
Speaker 1: crack this time today, you know the pland floats, it's
Speaker 1: already down a huge amount. It's down to levels, so
Speaker 1: it's adjusted gradually. There isn't one single breaking point, and
Speaker 1: that a very different dynamic. Is a kid Sebastian, you
Speaker 1: live this. Your father was the United Kingdom ambassador of
Speaker 1: Germany and it was a time of Deutsche mark volatility,
Speaker 1: to say the least. Are you looking at the currency
Speaker 1: markets as being the release valve for a system buffeted
Speaker 1: by a war in Ukraine? Yeah, I mean I think
Speaker 1: flexible exchange rates are playing their intended role of being
Speaker 1: shock absorbers right now, the US is in somewhat better
Speaker 1: shape than Europe. Is farther away from Ukraine, it's less
Speaker 1: exposed to the inflation, so the US can have a
Speaker 1: very strong dollar therefore absorbed foreign imports more and that's
Speaker 1: going to be a bit of a benefit for the
Speaker 1: rest of the world. China's in the dumps and so
Speaker 1: it's not playing that role. And meanwhile, Britain, which isn't
Speaker 1: a very weak position because of uncertainty over huge gas
Speaker 1: price rises etan inflation government stacks predicting inflation coming up
Speaker 1: in the UK. So these are dire straits um but
Speaker 1: because sterling has already fallen a lot, it gives some
Speaker 1: release in terms of the stimulus to exports from Britain,
Speaker 1: an attraction for foreigners to come into the UK property
Speaker 1: market because everything is so cheap, and that is somewhat
Speaker 1: of the stabilizing factor. So beastly if you framed these
Speaker 1: numbers yet from less trust a hundred and seventy billion
Speaker 1: sterling to offset some of the energy pain, if you
Speaker 1: thought much about how big that it actually is, the
Speaker 1: scale of that, and what it could mean for respective
Speaker 1: bond markets across Europe. Yeah, I mean, we've come out
Speaker 1: of this, you know, Covidge shock of enormous fiscal response
Speaker 1: to a public health emergency, and now we're going right
Speaker 1: back into a new kind of shock and energy price shark,
Speaker 1: which is going to call forth another round of enormous stimulus.
Speaker 1: I haven't got the numbers in my head as to
Speaker 1: whether this these hundred and something billions that people are
Speaker 1: banding around. We don't know for sure what the numbers
Speaker 1: are going to be yet, because the speech will come
Speaker 1: on Thursday, I believe. But whether it's bigger or smaller
Speaker 1: than the the the COVID fiscal response, I'm not clear,
Speaker 1: but it's it's cumulative. Right, We've already got a position
Speaker 1: of huge public debt because we've come out of covid
Speaker 1: um and now we're going to lay on more. And
Speaker 1: it's not clear what you know, how much the markets
Speaker 1: are wunning to finance now at some price of studying
Speaker 1: depreciates even more. I guess foreigners will come in and
Speaker 1: buy UK assets and plug the funding gap, but it
Speaker 1: may take, you know, an even weak apparent for that
Speaker 1: to happen. Sebastian back in the pandemic policy from fiscal
Speaker 1: authorities and monetary authorities complemented each other. This time it
Speaker 1: feels like it's in conflict. What do you think the
Speaker 1: consequences will be for things like growth inflation with these
Speaker 1: kind of dynamics. Yeah, I mean that's a super important
Speaker 1: point because as you say in COVID, we had the
Speaker 1: ear of magic money as I called it in a
Speaker 1: Foreign Affairs essay, meaning that it was this assumption inflation
Speaker 1: wasn't going to be there, so you could have both
Speaker 1: fiscal and monetary stimulus and you were not afraid of
Speaker 1: being punished in terms of high inflation. Now clearly that's
Speaker 1: totally reversed. How inflation is a reality, so central banks
Speaker 1: have to raise rates. So in a situation where you're
Speaker 1: getting fiscal stillers on the one hand in Europe, but
Speaker 1: at the same time the e CB this Thursday is
Speaker 1: going to raise your interest rates and the Bank of
Speaker 1: England is going to have to tighten too, And so
Speaker 1: you've got, as you say, the two engines putting against
Speaker 1: each other, and that's going to create more of the
Speaker 1: stop start experience and it's going to be tougher. Sebastin,
Speaker 1: do you consider this as a one off winter or
Speaker 1: do we have to gear out for a repeat act
Speaker 1: next year and maybe even a year after that. Well,
Speaker 1: I'm pessimistic in terms of like the geopolitics of the war.
Speaker 1: I do think that neither side has an off ramp.
Speaker 1: Ukraine cannot accept the idea that it lost the territory
Speaker 1: after February in a permanent way, so it's determined to
Speaker 1: win that back. And there have been these atrocious walk
Speaker 1: crimes in Mariopol, and no Ukrainian leader can just say, well,
Speaker 1: that's okay, we're going to Nega. On the other hand,
Speaker 1: Cougon is not the kind of person is going to
Speaker 1: lose face easily. So I think the war, to answer
Speaker 1: that part of the question, could go on indefinitely. It
Speaker 1: could be a very long process. On the other hand,
Speaker 1: we'll have to remember that with the inflation shot the
Speaker 1: results from the war, you do get these base effects.
Speaker 1: So the first round is that you know, energy prices
Speaker 1: spike up, that creates inflation, but they're not going to
Speaker 1: spike out further from the spike. At some point. Indeed,
Speaker 1: we've seen that in markets they start to come back down.
Speaker 1: So because of these base effects, I don't think inflation
Speaker 1: isn't ongoing double winter kind of problem. Sebastian, this was
Speaker 1: a clinic and it's a conversation we need to continue
Speaker 1: very soon. Sebasti, Manity, there are they cancel on foreign
Speaker 1: relations right now? Victoria Green joins his chief investment officer,
Speaker 1: g Squired Private Wealth, and what we're gonna do here
Speaker 1: is dive into the idea of what do you actually
Speaker 1: do how do you effect investment given all of the
Speaker 1: turmoil that's out there? Victoria? How valuable is cash right now?
Speaker 1: Cash is good. I'd rather set in a very ultrashort
Speaker 1: T bill somewhere between zero and six months. You know,
Speaker 1: you're getting on a six months T bill now, which
Speaker 1: has very limited duration or price risk. You're getting a
Speaker 1: three point one three point two percent as this front
Speaker 1: end comes up. Yes, if you look on a real basis,
Speaker 1: you're still losing versus inflation. But park it somewhere safe,
Speaker 1: and we do think cash is an allocation. Isn't a
Speaker 1: best bad place to be. You know one thing we
Speaker 1: do always advise, even when things feel very dark, panic
Speaker 1: is never a good investment strategy. And it's funny, you
Speaker 1: have very very smart people that that when we start
Speaker 1: to see these losses pile on, they just can't take it.
Speaker 1: Let me announce a victoria with you. My theme of
Speaker 1: the next ninety days in investment, which is something I
Speaker 1: heard in the dregs of August, which is trying to
Speaker 1: find scale. You and I have three or four good ideas,
Speaker 1: but it's so hard out to get scale in investment,
Speaker 1: to get belief across X number of equities, to get
Speaker 1: belief across different portfolios. How do you get scale if
Speaker 1: you've got a fair amount of money, Well, what you
Speaker 1: wanna do is is you want to be in the
Speaker 1: right places. You know. I don't think diversification is dead,
Speaker 1: though I think it is amusing every time we see
Speaker 1: stress and volatility. You know, the fixes remained low, but
Speaker 1: we saw us it's become correlated. And honestly, I think
Speaker 1: it was the fixed income that's surprised everybody this year.
Speaker 1: But I do think when you're looking at investing, you
Speaker 1: don't want to just say I'm gonna put a little
Speaker 1: bit and everything, because there are markets that are gonna
Speaker 1: do a little bit better than others. Right now, we're
Speaker 1: not very bullish on Europe or the UK. No offense, John,
Speaker 1: but there's a bit of a hut. All they have
Speaker 1: the they have the work on over there, So I
Speaker 1: prefer to be like, let's be a little more concentrated
Speaker 1: US blue chips, value dividends. Put your stocks where you're
Speaker 1: gonna have a little bit of a bunker mentality, and
Speaker 1: then work your way back out into risk. We're never
Speaker 1: black and white. We're not a hedge fund. We're not
Speaker 1: trying to long short and trade every single day. But
Speaker 1: if you were to look at the world, I'd say
Speaker 1: I would bunker in quality. I'd make sure you understand
Speaker 1: everything you own and what kind of risk you have
Speaker 1: in your portfolio, and then understand your time frame as
Speaker 1: an investor, because if you can wait it out six months,
Speaker 1: twelve months, it's going to be okay. It's just you
Speaker 1: have to emotionally get ready that maybe you shouldn't look
Speaker 1: at it every day, and then definitely don't panic. And honestly,
Speaker 1: uh panic is one of the biggest risk to investors
Speaker 1: right now. Let's say we go down four weeks in
Speaker 1: a row. Let's say we retest our thirty six hundred lows.
Speaker 1: Do you have the courage and conviction to hang onto
Speaker 1: your stocks? And the answer should be yes, Victoria. You
Speaker 1: know me, I don't take offense. I just draw the
Speaker 1: line at soccer versus football. Other than that, Philly boots,
Speaker 1: go for it. She's some Texas amohn, She's a finer
Speaker 1: Texas Aggy football is the American football you want to
Speaker 1: go there? I thought it was famish here again. No,
Speaker 1: we're gonna do US college football. No, no, look it is.
Speaker 1: It is definitely a religion down here. And this year's
Speaker 1: a and m Zyere Undercent National Championship. I'm trying to
Speaker 1: get to a gang dance staff later this year, so
Speaker 1: maybe we can sort that out. Victor. I want to
Speaker 1: talk about the pain and the pain still to come
Speaker 1: in your mind if you do have a longer time
Speaker 1: of rice, And I want to understand from your perspective
Speaker 1: where you expect the leadership to come from through the
Speaker 1: next cycle. Is it too premature, too early to make
Speaker 1: that cool. I think we're still on the down end
Speaker 1: of the cycle. So this is a classic business cycle,
Speaker 1: right we're gonna have we have expansion and right now
Speaker 1: we're not. You know, p ms, I think are gonna
Speaker 1: reflect that and you're gonna have this contraction. So during
Speaker 1: the contraction period, you want to be bunkerd you want
Speaker 1: to be in safe havens, and you look at defensive sectors,
Speaker 1: your health sectors. I know staples are a little expensive,
Speaker 1: so i'd be picky their utilities versus reads have done well,
Speaker 1: and I still don't mind a little bit of energy.
Speaker 1: And one thing I think is fascinating about that part
Speaker 1: of the market is that energy prices or energy stocks
Speaker 1: have decoupled a little bit from from oil prices. So
Speaker 1: we saw in August w T I pull back about
Speaker 1: eight nine, but the energy sector was actually still positive
Speaker 1: in August, and I think a lot of that is
Speaker 1: the way US energy companies are giving back to shareholders
Speaker 1: their their dividends, their fix plus variable dividends. There buy backs. UM.
Speaker 1: So even at eighty six, you know, we think, well,
Speaker 1: there's a lot of very profitable energy companies. And the
Speaker 1: US is now becoming an energy exporter. I think we
Speaker 1: exported something like ten million barrels of our fine product
Speaker 1: just last week. We're doing about a million barrels of gasoline. UH.
Speaker 1: And so we're seeing this continued demand and you're gonna
Speaker 1: see the push pull and demand as we see recessions
Speaker 1: typically are are bad for for gasoline demand. That the
Speaker 1: China issue, UH are like shutting down again. You know,
Speaker 1: sometimes it feels like groundhog Day, like we can't get
Speaker 1: out of this. Oh, we've got shut downs, we've got COVID,
Speaker 1: we've got demand issues. And then when everything feels terrible,
Speaker 1: that's when you want to start buying some growthy things
Speaker 1: and some longer duration equities. But you don't necessarily want
Speaker 1: to hold a ton of higher beta, higher risk stocks
Speaker 1: right now, Victoria, just quickly. Here have the large cap
Speaker 1: US stocks priced in a European recession and the strong dollar?
Speaker 1: I think so the song dollar, yes, you know, and
Speaker 1: if you look at you know, we're kind of playing
Speaker 1: again on hug Day. What what pulled the markets down
Speaker 1: through that first second quarter was the strong US dollar?
Speaker 1: Uh and the Fed raising race, and and then the
Speaker 1: dollar pulled back someone and commandity of pulled back someone.
Speaker 1: But you still have a huge headwind. I think the
Speaker 1: recession in Europe and the energy crisis that is brewing
Speaker 1: is something investors cannot ignore. We are not an isolated nation.
Speaker 1: We're independent with each other. And as you guys were
Speaker 1: talking about earlier on the show, this may be a
Speaker 1: crisis that drags on. It is going to be very
Speaker 1: difficult to replace the amount of gas that has needed
Speaker 1: over the winter, and then potentially to do it on
Speaker 1: a go forward basis. We're even drawing down our spr
Speaker 1: It's as low as possible the strategic petroleum reserves ever
Speaker 1: since we started building it up in the seventies and eighties,
Speaker 1: we are now back down to levels we haven't seen.
Speaker 1: So how long can these band aids continue? Uh, we'll
Speaker 1: have to see sor thank you always gonna catch out
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