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Speaker 1: Let's get to Walter Todd. He is our guest for

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Speaker 1: the half hour. Walter, he is the president, also chief

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Speaker 1: investment officer and managing director at Greenwood Capital. Walter, always

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Speaker 1: a pleasure, Thanks so much for being with us. Obviously,

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Speaker 1: for markets, the FED is a big pressure point with

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Speaker 1: the very hot jobs report that we had in the

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Speaker 1: US on Friday. Do we have to rethink this idea

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Speaker 1: that the FED is going to scale back the magnitude

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Speaker 1: of the December hike to fifty basis points? Um? I

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Speaker 1: don't think so. I think Powell was pretty clear um

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Speaker 1: during his talk last week that he's seeing two sides

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Speaker 1: of the risk equation. I know a lot of people

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Speaker 1: said he didn't say anything and already said and I

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Speaker 1: disagree with that. I think he was a pretty notable

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Speaker 1: shift in the balance of risk to being two sided

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Speaker 1: versus one sided. So I think he was pretty you know,

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Speaker 1: pretty adamant that they're gonna have to slow down the

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Speaker 1: pace of hiking. I don't think the jobs number changes that.

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Speaker 1: In fact, if you kind of dig into that job number,

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Speaker 1: the household sir by is actually quite a bit weaker.

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Speaker 1: So I don't know that it was as strong as

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Speaker 1: maybe the headline indicated well too. Yeah, but it was

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Speaker 1: on the you know, the face of it, a bit

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Speaker 1: of a bit out of left field. It was almost

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Speaker 1: as though when j Pal was making that speech that

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Speaker 1: it was he'd assumed it was gonna be much load

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Speaker 1: than it was what it was going to be. How

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Speaker 1: surprised were you by the headline? Yeah, definitely, know, definitely

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Speaker 1: the headline continues to surprise on the upside for sure. Um.

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Speaker 1: And I gotta believe though that Paul, I'm not saying

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Speaker 1: he had an inside look at the number ahead of time,

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Speaker 1: but I have to believe he had a pretty good

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Speaker 1: idea of what that was gonna gonna show. So I

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Speaker 1: don't think anything he said, you know, was changed by

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Speaker 1: that number. However, we do get a CPI number before

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Speaker 1: the FED makes their announcement on the fourth teens. We

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Speaker 1: have the CPI on the thirteen, so that could potentially

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Speaker 1: maybe more of a different changer, perhaps if it came out,

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Speaker 1: you know, really hot and didn't continue to cool as

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Speaker 1: we've seen over the past several readings. Okay, for the

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Speaker 1: sake of argument, then let's say Walter that the FED

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Speaker 1: does scale back the magnitude and we see a fifty

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Speaker 1: basis point high colater this month. Is there the risk though,

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Speaker 1: that the terminal rate, which is to say, the destination

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Speaker 1: point for FED funds now is above five percent? Market

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Speaker 1: right now is is looking of a figure sub five.

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Speaker 1: Do we have to rethink that? Yeah? I think you

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Speaker 1: know whether it's five, five and a quarter five and

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Speaker 1: a half. Honestly, I don't know that fifty basis points

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Speaker 1: makes that much difference in terms of the terminal rate

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Speaker 1: that we reach. Um. I think the market right now

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Speaker 1: is focused on the slowdown of going from seventy five

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Speaker 1: to fifty and then ultimately probably um. You know, you've

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Speaker 1: got some people saying that this December height might be

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Speaker 1: the last one that they do, because what we have

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Speaker 1: on the other side of the equation is a lot

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Speaker 1: of economic data that's coming in, you know, despite the

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Speaker 1: jobs report, a lot of other economic data that's coming

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Speaker 1: in fairly week. These regional FED surveys, the new order

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Speaker 1: components of those is a good I m. Surveys. The

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Speaker 1: housing data that's all coming in weaker. So I think

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Speaker 1: you know, whether it's the right numbers for seventy five

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Speaker 1: five or five in a quarter, I'm not sure it

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Speaker 1: makes that much different, Uh, Todd, we see the reopening

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Speaker 1: of China taking place. I mean officially strict lockdown is there,

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Speaker 1: but we're seeing a real pushback here. How much does

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Speaker 1: this encourage you to perhaps see China as being more investable? Now, yeah,

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Speaker 1: that's a great point. I mean, China has been tough

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Speaker 1: this year. Uh, you know, it's kind of website a

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Speaker 1: lot of people ourselves included, honestly, and so I think,

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Speaker 1: in my opinion, the way to maybe play this reopening

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Speaker 1: would be through some indirect avenues like UM, materials, uh,

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Speaker 1: energy that would obviously benefit copper. Would you rise on this? Oil?

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Speaker 1: Would rise on this? I think? Um, you know, with

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Speaker 1: the k Web for example, UM, Chinese Internet et F

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Speaker 1: quarter to date, I don't know that chasing, you know,

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Speaker 1: the direct investment in China right now makes a ton

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Speaker 1: of sense. Um. You know that's still down on a

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Speaker 1: one year trailing basis. Um. So our our view would

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Speaker 1: be to kind of play this reopening in some other

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Speaker 1: avenues besides going directly into China. So if you're a

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Speaker 1: US corporate that does business on the mainline, you've set

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Speaker 1: up some type of production, maybe are exposed on the

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Speaker 1: supply chain side the way that Beijing has handled COVID,

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Speaker 1: Do you really have to rethink your strategy now and

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Speaker 1: maybe move some production, some capacity outside of China. Absolutely, um,

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Speaker 1: I believe so. I know you started the top of

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Speaker 1: the hour off with Apple News about them trying to

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Speaker 1: diversify their supply chain. I mean, they're heavily exposed to China,

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Speaker 1: but a number of other companies are as well. And

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Speaker 1: I think this is a you know, kind of a

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Speaker 1: phenomenon we've seen really play out over the last couple

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Speaker 1: of years as a result of COVID and now some

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Speaker 1: of the other dynamics at play here in terms of

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Speaker 1: making sure you have a supply chain you can count on.

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Speaker 1: You don't really necessarily care about having the lowest cost

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Speaker 1: supply chain. You want a reliable supply chain. Um. And

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Speaker 1: I think we're going to continue to see that dynamic

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Speaker 1: play out in years to come. You know, I want

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Speaker 1: simmy talking about building some high production or high you

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Speaker 1: know chips in the US, for example, at the request

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Speaker 1: of some companies that want some different production areas. If

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Speaker 1: we have a look at you know, evaluations, and I

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Speaker 1: mean Hong Kong is astonishingly cheap, but just under seven

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Speaker 1: times earnings. You look at the CSA in China that's

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Speaker 1: fourteen times. A bit richer, certainly, but you look at

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Speaker 1: the hang thing and you could ask yourself, now, is

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Speaker 1: there a China discount being baked into this and if so,

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Speaker 1: what is it? Yeah, I mean, you know, the evaluation

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Speaker 1: argument has been there for for a for a while

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Speaker 1: in terms of just x US in general and certainly

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Speaker 1: ages specifically as you're talking about UM. So to this

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Speaker 1: point it's been, you know, pretty terrible timing tool UM.

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Speaker 1: But perhaps the you know, everything's kind of coming together.

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Speaker 1: If we see a week or dollar next year, if

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Speaker 1: to see the US economies slow down, the FETs slows down,

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Speaker 1: that sets up the backdrop for x US assets to outperform.

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Speaker 1: And you know, talking about the valuation being so cheap

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Speaker 1: in Hong Kong, that would be another impetus for that

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Speaker 1: area to potentially outperform UM the US. One of our

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Speaker 1: recent m Live Bloomberg surveys suggested that the greatest risk

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Speaker 1: in the new year is stagflation. Walter, I'm curious to

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Speaker 1: get your take on what you think the greatest risk

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Speaker 1: maybe fore is is stagflation at the top um I

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Speaker 1: wouldn't put that at the top honestly for US, I

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Speaker 1: think it's really just a concern around what what's the

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Speaker 1: level of growth going to be or not be in

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Speaker 1: in the case of the US, I mean, the severe

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Speaker 1: inversion of the Yeld curve across the Yeld curve really

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Speaker 1: from one month out um is really concerning to us

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Speaker 1: as we look out in the past history of the

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Speaker 1: prediction of those inversions and what happened you know, within

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Speaker 1: twelves eighteen months in terms of recession. So that's the

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Speaker 1: biggest pet scratcher for US right now in terms of

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Speaker 1: looking at three versus what the market is doing right now,

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Speaker 1: which is being very economically sensitive with the sectors that

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Speaker 1: are leading the market, and that would be our biggest concern.

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Speaker 1: You know, tell me something also, I mean you look

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Speaker 1: at investment grade, you look at high yield. There must

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Speaker 1: be some screaming buggains out there offering a really, really

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Speaker 1: decent and juicy yield. Are you looking and fishing in

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Speaker 1: that space? Yeah? So I think this is one of

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Speaker 1: the best opportunities in fixed income investing in fifteen years.

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Speaker 1: And and just aside from the high yield, we tend

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Speaker 1: to focus on investment grade. But just looking at two

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Speaker 1: to three year investment grade returns, you're looking at five

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Speaker 1: plus percent on a two to three year piece of paper.

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Speaker 1: Buying an investment rate balance sheet. You know, we haven't

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Speaker 1: seen that again since two thousand and eight two thousand

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Speaker 1: nine time frame, So we do think it's a good

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Speaker 1: opportunity to invest in fixed income. Well, always a pleasure

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Speaker 1: to thank you for joining us. Well to Todd, the

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Speaker 1: President and chief Investment Office, as well as m d

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Speaker 1: at Greenwood Capital. This is Bloomberg