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Speaker 1: Let's get to Mikyo Kumada who is joining us for

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Speaker 1: the segment. Mikyo is financial economist at LGT Capital Partners,

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Speaker 1: joining from Tokyo. Mikyo a lot of appetite for risk

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Speaker 1: in the US session. Maybe a strange day because there

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Speaker 1: with that CPI data coming tomorrow, in the wake of

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Speaker 1: the PPR report that was a little above forecast, you

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Speaker 1: think that the stock market would take the queue from

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Speaker 1: the bond market rates were up today, Maybe a little

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Speaker 1: bit of anxiety on the inflation front. How do you

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Speaker 1: justify higher equity prices in the current environment. Well, you know,

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Speaker 1: I think it's a positioning issue mainly. So if you

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Speaker 1: look at various surveys among the institutional investors, including US,

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Speaker 1: I have to say, I mean most of that, you know,

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Speaker 1: everyone who has an allocation to public equities is underweight

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Speaker 1: or severely underwege or at least s so uh. And

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Speaker 1: so you know, when you have news that are largely

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Speaker 1: priced in, I mean, you know, inflation is high, so

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Speaker 1: that's not really a huge surprise, and you have just

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Speaker 1: a tiny bit of positive aspect to any news item,

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Speaker 1: or you can construe one, then the market can rally.

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Speaker 1: I have to say that's the that's you know, that's

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Speaker 1: fine if you're a very short term trader. But from

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Speaker 1: our perspective, we decided to, yeah, as they say, to

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Speaker 1: take chips off the table. And when we actually reduced

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Speaker 1: our equity allocation in recent days because we thought the

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Speaker 1: rally that we saw at this quarter that was a

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Speaker 1: nice rally to sell, given that the outlook is still

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Speaker 1: let's say, not necessarily negative, but there's a lot about

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Speaker 1: uncertainty out there as we go into next year. Yeah,

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Speaker 1: and as we go into next year, how closely are

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Speaker 1: you're going to be watching the dot plot when we

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Speaker 1: get it to this week, because yes, the size of

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Speaker 1: the right increases is declining, but who knows how many

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Speaker 1: are coming down the track? What are you expecting? Well,

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Speaker 1: I wouldn't be watching the dot plot that much as

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Speaker 1: I to be watching what the actual economy is doing. Uh,

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Speaker 1: and the bottom line. And I'm saying this is not

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Speaker 1: because the top lots isn't that important. But you know,

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Speaker 1: ultimately it matters how much they will deviate from their

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Speaker 1: own intentions. They didn't want to hike rate initially, you know,

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Speaker 1: if you look more than twelve months backward, but they did.

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Speaker 1: They did jumbo hikes, right, So you have to look

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Speaker 1: at the economy and that The point I would like

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Speaker 1: to stress is that, I mean, in particular, the US

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Speaker 1: economy is just way too strong and that's not going

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Speaker 1: to bring down inflation. If you look at nominal GDP,

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Speaker 1: uh it's uh it's, which is basically everybody's income combined

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Speaker 1: in nominal terms, UH it's it's still very close. It's

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Speaker 1: high single digits, very close to ten percent actually, and

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Speaker 1: it's more importantly, way way above anything that comes to

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Speaker 1: a long term average UM. So if you have an

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Speaker 1: economy that's going nominally at that point nominal income in

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Speaker 1: the do get the colomy being that strong, it's very

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Speaker 1: hard to imagine um first of all, an earning sucession

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Speaker 1: or uh any sort of UH easing in the underlying

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Speaker 1: fundamental price versions, which is basically too much money slashing ground.

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Speaker 1: So could you make the case, though, Mikio, that we

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Speaker 1: have yet to really see a lot of the rate

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Speaker 1: increases bite in a way to curtail growth in a

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Speaker 1: meaningful way and by extension, to bring down the rate

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Speaker 1: of inflation. And isn't it fair that if the market

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Speaker 1: is thinking that the terminal rate the destination point on

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Speaker 1: FED funds maybe around five percent. That that's reasonable at

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Speaker 1: this point in time, and that the real question is

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Speaker 1: does the Fed keep rates elevated for for a long

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Speaker 1: time going forward? I think that's exactly the point. So

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Speaker 1: the five percent I need to me on the back

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Speaker 1: of the envelope is seems reasonable. But the question is

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Speaker 1: what happens between now in that terminal five percent rate? Right,

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Speaker 1: it's not an exact science of when exactly that will happen. Uh.

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Speaker 1: And there is also I mean, hiking interest rates is

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Speaker 1: not just the only way that a central back can

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Speaker 1: control money. They can also do things on the quantitative side. Uh.

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Speaker 1: And or they can keep First of all, they can

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Speaker 1: do seventy five places points later this month or I

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Speaker 1: think this week, um and uh, and then they can

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Speaker 1: keep it there for a while. So that would be uh,

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Speaker 1: let's say bad enough until the market gets your stay.

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Speaker 1: It's not really bad because we need to do that

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Speaker 1: in order to get to a very nice and stable place. Remember,

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Speaker 1: the problem is we came from a world of no

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Speaker 1: interest rates, and now we're going to a world with

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Speaker 1: interest rates. And that's actually very normal world. That's how

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Speaker 1: it should be Um. And the getting from that point

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Speaker 1: A to point B is very messy, as we saw

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Speaker 1: this year and I'm likely to see for some time.

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Speaker 1: But ultimately, ultimately it's a it's a it's you know,

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Speaker 1: it's a thing. It's closer to how things should be. Um.

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Speaker 1: But yeah, I think the the time period of tightness,

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Speaker 1: as you say, will be the critical point as we

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Speaker 1: go into next year, rather than the terminal level of

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Speaker 1: interest rates. MM. So you're long US dollar and confuse

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Speaker 1: you too much? But I guess now the new normal

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Speaker 1: is the old old normal? Right to do these things? Um,

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Speaker 1: the point being we don't think really that the FED

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Speaker 1: is is as done as these market rallies suggest. Uh.

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Speaker 1: And we'd rather be on the courtiers side for now, right.

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Speaker 1: That's that's basically the essence. Well, you're also a long

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Speaker 1: U S Dollar, which is old fashioned, I guess, yeah.

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Speaker 1: But with that view, Yeah, But if you're looking at

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Speaker 1: the other side of currency appearings, which currencies do you

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Speaker 1: expect to be softest going ahead? Well, the yen is

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Speaker 1: one of those, maybe not as soft as it used

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Speaker 1: to be in the in the earlier stages of the

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Speaker 1: fat technique, but it will be one of the weaker

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Speaker 1: currencies because even if the b o J shifts, So

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Speaker 1: this is about relative differences in in let's say, monetary hawkishness, right,

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Speaker 1: um So, in that sense, even if the b o

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Speaker 1: J brings in a hawk in Japanese terms, it will

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Speaker 1: be you know, nothing compared to even Europe, which also

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Speaker 1: has to be structural a lot more hawkish than than

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Speaker 1: the US for a variety of reasons, including a war

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Speaker 1: in the neighborhood. Um So, yeah, the bottom line is

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Speaker 1: the end is one of those. I am reluctant still

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Speaker 1: to see strength in the British town. I think they

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Speaker 1: have to rebuild a lot of credibility until they reach

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Speaker 1: that point, even though they do are they are hiking

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Speaker 1: interest rates and you know, it is an undervalued currency

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Speaker 1: and it's certainly the economy is doing below potential. But yeah,

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Speaker 1: so it comes down to all the potential strong currencies

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Speaker 1: that are undervalued um on fundamental terms, such as Japan

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Speaker 1: or Britain, um and others that they are unlikely to

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Speaker 1: stay soft against the dollar, with one possible exception being

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Speaker 1: the Swiss Frank I'm gonna put you on the spot,

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Speaker 1: will be not necessarily stronger than than the us, but

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Speaker 1: it won't be soft here. You're a pretty opinionated person.

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Speaker 1: I know that you've been with us over the years

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Speaker 1: on this program. Weigh in on the crypto space very

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Speaker 1: quickly in about a minute or so. In light of

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Speaker 1: the fact that this ft X collapse and ostensibly what

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Speaker 1: maybe criminal activity connected with it, I mean, has it

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Speaker 1: tarnished the asset class overall? Is there? Are you positive

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Speaker 1: at all on the future of quipro well as I am.

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Speaker 1: I may be opinionated as you say, and I appreciate

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Speaker 1: that you have on your program, but I do not

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Speaker 1: like to comment on criminal issues. However, I will say

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Speaker 1: that you know this is also a consequence of higher

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Speaker 1: risk free rates, and in that sense, it's a good

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Speaker 1: thing when you have higher risk free rates, when you

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Speaker 1: have people being able to earn a decent nominal return.

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Speaker 1: You can get four or more on a three month

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Speaker 1: US dollar deposit. These days, the threshold for any um,

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Speaker 1: anyone soliciting an investment from you, including a crypto investment,

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Speaker 1: has a higher bar to convince you to give him

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Speaker 1: his money. And when industry is right, therefore you have

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Speaker 1: you have a washout of whoever is not up to

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Speaker 1: the task. Of really having the approp We did see

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Speaker 1: a washout, no doubt. Keep a Mikhio Kumado from LGT

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Speaker 1: Capital Partners, Thanks so much. This is Bloomberg