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Speaker 1: Let's get to our guest, Paul Gamble's co founder and

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Speaker 1: managing partner at mb MG Group. And Paul, great to

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Speaker 1: have you with us to look at the markets. Um,

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Speaker 1: the energy crisis in Europe is really causing a lot

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Speaker 1: of distress in markets who've seen the Europe at twenty

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Speaker 1: year lows. Is there any way out for Europe in

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Speaker 1: the short term? Yeah, so good good morning, Brian. Um.

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Speaker 1: I mean, there is there are lots of ways out

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Speaker 1: of this mess, because this is you know, this is

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Speaker 1: man made, it's totally unnecessary, but they're probably not ways

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Speaker 1: that there's any obvious indication at the moment that Europe

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Speaker 1: or the rest of the world is going to take.

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Speaker 1: You know, we've we've seen that this is really a

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Speaker 1: response to you know, bad geo political policies. Firstly the

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Speaker 1: sanctions and then you know, last week this this absolutely

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Speaker 1: chaotic idea of the christ gap and the moment, you know,

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Speaker 1: we're in a situation where policymakers are actually doubling down

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Speaker 1: on mistakes. They're not they're not retracing, they're not backtracking,

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Speaker 1: and they're making it a lot harder. They're digging a

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Speaker 1: much much paper hole for themselves. To have to get

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Speaker 1: out of so um it's possible, but at the moment,

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Speaker 1: there's absolutely no indication that policymakers are going to do

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Speaker 1: anything other than just make it an awful lot worse. Yeah,

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Speaker 1: Paul Stephen angle here, So the ECB likely seventy five

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Speaker 1: bases point hike. I mean, where are they going to

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Speaker 1: get the growth when they have inflation at nine point one?

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Speaker 1: I think you know the answer to that there They're not.

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Speaker 1: I mean, this is another instance of policymakers absolutely doubling

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Speaker 1: it down. You know, we know that we know that

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Speaker 1: monetary policy is absolutely a terrible way to deal with

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Speaker 1: supply shock inflation. The policymakers themselves have been telling us that, uh,

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Speaker 1: and yet you know they're now doubling down to do

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Speaker 1: more of it. And you know, we got the same

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Speaker 1: thing last week at Jackson Hole from uh. You know

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Speaker 1: it was this probably the least words that have done

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Speaker 1: the most amount of damage in terms of Jpole's Jpile's claims.

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Speaker 1: And if you if you pass it, you know what

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Speaker 1: he actually said, and I don't think he meant to say,

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Speaker 1: was that they're prepared to do a seven percent reduction

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Speaker 1: in US growth. If that's what it takes to take

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Speaker 1: seven percent off the off the inflation rate. So, uh,

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Speaker 1: you know, again it's bad policy that's being doubled down on.

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Speaker 1: We need to re burn from this, we need to

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Speaker 1: go the other way. And yet actually we're just doubling

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Speaker 1: down on this all the time. Well, a big, a

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Speaker 1: big part of the inflation problem is the Ukraine War,

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Speaker 1: and this is Russia invading a neighboring country. So you

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Speaker 1: say it's bad policy that sanctions are applied. Well, I

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Speaker 1: I think that actually Russia invading Ukraine, if that's what happened,

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Speaker 1: didn't really spark any inflation. If we if we look

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Speaker 1: at it, there's there's clearly a delay between the date

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Speaker 1: of the Russian operations and the start of inflation, and

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Speaker 1: it's really sanctions that filled that gap. And every time

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Speaker 1: we seemed further sanctions imposed since then, that's created another

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Speaker 1: way of inflation. So look, I'm not a geopolitical analyst.

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Speaker 1: I'm not going to say what's uh, you know, what's

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Speaker 1: right or wrong geopolitically, but certainly the geopolitical policy is

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Speaker 1: what's creating this inflation. It's absolutely down to sanctions. It's

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Speaker 1: not down to the Russian operations in Ukraine. Well, Paul,

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Speaker 1: they're not listening to you. The r b A is

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Speaker 1: going to hike by fifty basis points, the ECB by seventy,

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Speaker 1: and the FED seventy. So absolutely that these guys are

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Speaker 1: doubling down. You know that we can see the we

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Speaker 1: can see the dangerous impact of of you know, more sanctions,

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Speaker 1: and yet we keep getting more sanctions. We see the

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Speaker 1: dangerous impact of more interest rate hikes, of monitory tightening,

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Speaker 1: and yet we keep getting more monetary tightening. So, you know,

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Speaker 1: can we get out of this, Yes, we can, but

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Speaker 1: we're not on the course to do that. We're on

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Speaker 1: the course to keep making it worse by doubling down

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Speaker 1: on policies. That's really just aggravating the situation. You said, Basically,

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Speaker 1: the US and European policymakers have been doubling down on

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Speaker 1: bad policy. And I see in the notes that one

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Speaker 1: of your contrarian view is China's recovery. Um. Obviously, they're

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Speaker 1: easy monetary policy and they're stepping up some targeted physical support,

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Speaker 1: but many are saying that it's not nearly enough to

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Speaker 1: counter COVID zero policies. That's really killing off right now.

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Speaker 1: At least domestic demand. What's your take, that's that's very

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Speaker 1: probably right, But it's still a significant divergence that we're seeing.

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Speaker 1: You know, in China, we're getting easy, we're getting monetary easing,

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Speaker 1: we're getting fiscal easing, and yet people are saying, well,

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Speaker 1: you know that's not enough. In the States, you know,

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Speaker 1: we're still getting monetary and fiscal tightening. Um. So it's

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Speaker 1: it's still a positive divergence in favor of China. And

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Speaker 1: at some point you have to assume that the the

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Speaker 1: headwinds from COVID lockdowns are going to, uh, you know,

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Speaker 1: are going to dissipate and we are going to get

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Speaker 1: some form of reopening in China. So look, we're not

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Speaker 1: saying China is going to be growing at absolutely sort

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Speaker 1: of gang bust rates tomorrow, but this just seems like

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Speaker 1: it's a reasonable time to be picking up Chinese assets.

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Speaker 1: I think, you know, we've spoken before about the fact

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Speaker 1: that we prefer domestically focused assets, such as smaller companies,

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Speaker 1: So we think it's reasonable trying to be picking those up. Well,

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Speaker 1: they're cheap. The longer that the problems go on, and

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Speaker 1: the more evident is that the stimulus policies are inadequate,

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Speaker 1: the cheaper they'll get, so keep buying them. But at

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Speaker 1: some point, you know, we think it's inevitable that China

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Speaker 1: will introduce adequate stimulus, be able to implement it without

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Speaker 1: the sort of political problems that beset Europe or or

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Speaker 1: other states, and that lockdown will go away. So still

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Speaker 1: constructive on China. Yeah, it seems like what you're saying

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Speaker 1: is that the Chinese economy is fundamentally stronger than it appears,

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Speaker 1: while the US economy is fundamentally weaker than it appears.

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Speaker 1: Absolutely absolutely, And and you know, the keypable of this,

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Speaker 1: I think is that the European economy is absolutely you know,

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Speaker 1: in many tould be weaker than it appears. That's that

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Speaker 1: that's the real sort of problem child in the equation.

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Speaker 1: But the one thing, one thing that I've been thinking

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Speaker 1: here of later is that you know, with the FED

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Speaker 1: pretty much telegraphing that it's going to slam inflation no

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Speaker 1: matter what the cost, I mean, normally that would be

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Speaker 1: a signal to to sell down equity, and and even Europe,

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Speaker 1: I mean it has declined here in this current setup.

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Speaker 1: I mentioned that the DACS is down two point two,

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Speaker 1: but it could be worse. And so it almost augurs

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Speaker 1: for for people thinking that there's some underlying strength that's

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Speaker 1: not being recognized. But you say, just the reverse, Yeah,

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Speaker 1: I don't think it is. I actually think it indicates

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Speaker 1: underlying weakness because I think I think it's more of

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Speaker 1: a sign that people are for once willing to fight

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Speaker 1: the FED. There when they when they hear the FED

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Speaker 1: double down, it creates a huge knee jerk reaction and

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Speaker 1: people then you know, we get sell offs, but I

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Speaker 1: think we didn't get data that indicates, well, you know,

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Speaker 1: things are not so great. We really do have a

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Speaker 1: lot of a lot of structural problems here, and we

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Speaker 1: are going to have to get a policy reversal at

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Speaker 1: some point, you know, probably sooner and and of a

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Speaker 1: greater magnitude than people are expecting. So that's when we

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Speaker 1: start to get a bit of release coming into the market,

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Speaker 1: so that people are people then you know, don't believe

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Speaker 1: the FED threats or they don't believe the ECB threats,

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Speaker 1: which is why we then have to get you know,

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Speaker 1: the response from the policymakers to to kind of come

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Speaker 1: out boxing like like Powell did in Jackson Hole, saying no, No,

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Speaker 1: we really do mean it. We are serious. We are

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Speaker 1: going to drive this plus over the cliff and starts

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Speaker 1: what it takes. And so I think that's actually the

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Speaker 1: sort of evan that we're seeing in the market, which

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Speaker 1: you know we've been talking about for months. Now. Do

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Speaker 1: you see an end to the if if you know,

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Speaker 1: the Fed does dial back a little bit, do you

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Speaker 1: see the end coming by the end of the year

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Speaker 1: then of this king dollar that's driven the yen up

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Speaker 1: to one forty and the reman being up closer to seven,

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Speaker 1: weakening of the Asian currencies, obviously the euro is a

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Speaker 1: different set of circumstances. Yeah, No, I think that's like that.

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Speaker 1: I think I think at that point what we expect

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Speaker 1: to see is that um, you know, dollar will keep

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Speaker 1: strengthening while ever people believe that the Fed are going

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Speaker 1: to implement policy divergence in terms of tighter policies in

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Speaker 1: the States. At the point where we we reached sort

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Speaker 1: of apex of that, when you know, the Fed finally

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Speaker 1: have to sort of fall on the sword and admit

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Speaker 1: that you know, they can't keep they can't keep tightening.

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Speaker 1: At that point, that's that's probably going to the high

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Speaker 1: watermark for dollar and we'd expect we'd expect a family

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Speaker 1: significant retrace at that stage. So that's why we're constructive

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Speaker 1: on on the end, it could go. It could go,

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Speaker 1: you know, we could. Then it is to day stock

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Speaker 1: up on the end while it's at one forty, I

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Speaker 1: guess huh. Paul Gamble's co founder and managing partner of

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Speaker 1: m b MG Group