WEBVTT - Jack McIntyre on the Markets (Correct)

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<v Speaker 1>Let's get to Jack McIntyre. Jack is the global portfolio

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<v Speaker 1>manager at Brandywine who joins from Philadelphia. Thanks for being

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<v Speaker 1>with us, Jack. It was all about the FED obviously

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<v Speaker 1>today a lot of volatility and markets. I think participants

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<v Speaker 1>are struggling to make sense of what they're hearing. One moment,

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<v Speaker 1>Pow will suggest, hey, you know, we've got a long

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<v Speaker 1>way to go before we're done, and the next breath

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<v Speaker 1>he seems to suggesting, hey, we might be near the

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<v Speaker 1>end of the tightening cycle. There is so much tightening

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<v Speaker 1>that's already occurred. Let's not forget right. I mean, we've

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<v Speaker 1>taken the FED funds rate, or the FED has from

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<v Speaker 1>near zero to around four and a half percent right now.

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<v Speaker 1>Are you of the belief that you know, the kind

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<v Speaker 1>of the classical thinking here long and variable lag. Are

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<v Speaker 1>we still expecting a lot more um negative impact from

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<v Speaker 1>from higher rates or is that less clear now to you?

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<v Speaker 1>So you know, I'm in the camp that there's been

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<v Speaker 1>a tremendous amount of cumulative tightening of financial conditions. You know,

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<v Speaker 1>we talk a lot about uh FED funds, the policy rate,

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<v Speaker 1>but there's been a tremendous amount of tightening in other

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<v Speaker 1>areas as well. So yeah, I kind of was thinking

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<v Speaker 1>that the statement might kind of infer that as opposed

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<v Speaker 1>to ongoing, they might say additional rate hikes something to

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<v Speaker 1>kind of send a message that they were getting a

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<v Speaker 1>little bit closer to the end. But I still believe

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<v Speaker 1>that's going to be the case, because I think the

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<v Speaker 1>economic data is going to take us in that direction.

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<v Speaker 1>And I get it. You know, the Fed and Powell

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<v Speaker 1>in particular, they don't want equities to be off to

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<v Speaker 1>the races and those sorts of things. They want to

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<v Speaker 1>make sure inflation is definitely not just rolled over but

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<v Speaker 1>declined pretty meaningfully. But I expect to see that earlier

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<v Speaker 1>next year. Where do you place the risk of overtightening. Well,

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<v Speaker 1>so it is elevated because I say it's elevated because

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<v Speaker 1>it's the BED focuses on the employment market then there,

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<v Speaker 1>and that's there, you know, they're their primary focus and

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<v Speaker 1>rationale for tightening. Uh, then I think the odds of

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<v Speaker 1>going into a recession are elevated. You know, Historically, anything

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<v Speaker 1>around the labor market is a lagging indicator for the

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<v Speaker 1>overall economy. I feel as though this cycle it's going

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<v Speaker 1>to be an extra lagging indicator because we know the

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<v Speaker 1>companies struggle to find workers and they're gonna do everything

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<v Speaker 1>they can to not let workers go until they get

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<v Speaker 1>real clarity that things are slowing down. But away from that,

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<v Speaker 1>you know, we've seen signs of decline and inflation. But yeah,

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<v Speaker 1>that's the primary focus to FED. They're going to overcook

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<v Speaker 1>it and we're gonna increase the odds of going to

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<v Speaker 1>a recession. Yeah, Wage inflation, I think is still an

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<v Speaker 1>issue that you mentioned. The labor market is very tight.

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<v Speaker 1>I'm wondering whether we're not in when I say we,

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<v Speaker 1>I'm thinking of markets more broadly, whether we've under estimated

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<v Speaker 1>the way in which the economy has been transformed, even

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<v Speaker 1>before COVID to step in and do as much as

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<v Speaker 1>the FED did, and then to realize that technology that

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<v Speaker 1>was available to American businesses away from services. I get travel,

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<v Speaker 1>I get airlines, hotels, right, but there were so many

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<v Speaker 1>other businesses that were embracing technology that didn't um or

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<v Speaker 1>that allowed them to continue to be productive. And I

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<v Speaker 1>understand that the housing market has suffered badly as a

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<v Speaker 1>result because it's very interest rate sensitive. But maybe the

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<v Speaker 1>economy is shifted and we are a little bit less

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<v Speaker 1>interest rate sensitive right now? Is that at all a possibility? Yeah,

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<v Speaker 1>surely it is a possibility, just as though you know,

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<v Speaker 1>we're less sensitive to the increase in oil prices as well. Um,

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<v Speaker 1>but you know, eventually they will have an impact because

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<v Speaker 1>and Powell and I think the Fed and General has

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<v Speaker 1>been very good about the roadmap knowing that, hey, things

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<v Speaker 1>around goods are going to see deflation. Eventually, we're gonna

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<v Speaker 1>see housing service inflation decline, and then the core service

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<v Speaker 1>is going to be the last thing that will will

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<v Speaker 1>see decline. But if we see weakness in those other sectors,

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<v Speaker 1>then I think that will funnel through into service sectors

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<v Speaker 1>as well. Again, this is very big picture long term,

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<v Speaker 1>but you will see more investment in automation robotics, excepting

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<v Speaker 1>those little things as well as because of this, because

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<v Speaker 1>of the dishortage in labor Nearer to him in the

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<v Speaker 1>next couple of quarters. What sort of pressure do you

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<v Speaker 1>expect the sustained high rights to be having on balance sheets,

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<v Speaker 1>stings and consumer confidence as well? Yeah, I think, uh,

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<v Speaker 1>all of those factors as well. It's you know, we've

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<v Speaker 1>been positioning our portfolio, adding treasury duration in the portfolio

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<v Speaker 1>as an offset of that, because I think that the

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<v Speaker 1>tightening of financial conditions that we've been talking about increase

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<v Speaker 1>the odds of the economy slowing down. And you know, again,

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<v Speaker 1>the FEED is very committed to making sure that they

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<v Speaker 1>break the lack of inflation. It's just seemingly when you

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<v Speaker 1>put everything together, it's hard to come out of this

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<v Speaker 1>with a soft landing uh in here, and I think

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<v Speaker 1>that certainly is going to impact um. You know what

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<v Speaker 1>we see on the corporate sector as well well. The

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<v Speaker 1>FED doesn't seem to be there yet. I mean the

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<v Speaker 1>summary of economic projections they're looking at positivity in three.

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<v Speaker 1>If you have to go offshore right now, though, Jack,

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<v Speaker 1>if you have to look to maybe areas in Asia

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<v Speaker 1>to put money to work, are you less inclined to

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<v Speaker 1>be exposed to the US given everything you described. I mean,

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<v Speaker 1>I understand your being a little conservative here looking at

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<v Speaker 1>the bond market, but if if you need to capture

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<v Speaker 1>a better yield, do you go offshore and chase equities there?

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<v Speaker 1>I would do that, and we are doing that in

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<v Speaker 1>terms of our bond allocation as well, because I actually

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<v Speaker 1>think what we're seeing is as the U S slows

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<v Speaker 1>down and the end what we've talked about the odds

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<v Speaker 1>of recession increased, but look at what China is doing.

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<v Speaker 1>China is actually doing the exact option. And I get it.

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<v Speaker 1>This is going to be a bumpy transition as they

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<v Speaker 1>move away from COVID. It's going to be some version

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<v Speaker 1>of two steps forward, one step back. But if you

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<v Speaker 1>extend your time rising and it's very similar to what

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<v Speaker 1>we did in the spring of because of the uncertainty

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<v Speaker 1>around COVID, then but they're ejecting more stimulus and we

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<v Speaker 1>have a more favorable view of China. So the point

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<v Speaker 1>being is that I think you're going to see a

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<v Speaker 1>shift in relative growth North America led by a slowdown

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<v Speaker 1>in the US, but then Asia actually starts to get

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<v Speaker 1>a little bit more traction, led by China coming out

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<v Speaker 1>of that. I think it's got personally, it's got a

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<v Speaker 1>huge US dollar implications. It's going to drive the dollar lower,

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<v Speaker 1>it's gonna push capital more into Asia. UH, and also

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<v Speaker 1>I think in UH Latin America some of the higher

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<v Speaker 1>yielding markets as well, and then eventually even Europe. Do

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<v Speaker 1>you have a sick to specific approach to China, considering

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<v Speaker 1>how enthusiastic regulators often tamed to be there, so you

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<v Speaker 1>know interesting. You know, I'm talking very constructively on China,

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<v Speaker 1>but we don't have a direct all cation into China

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<v Speaker 1>because again, I don't want to own their bonds. If

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<v Speaker 1>they are opening their economy. The currency is interesting, but

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<v Speaker 1>I think there's other ways to be positioned to benefit

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<v Speaker 1>from China's UH sort of potential uptick as they move

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<v Speaker 1>away from covid UH. And that's just more in Asia

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<v Speaker 1>currencies and Asia equities in general. In our world, Asian

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<v Speaker 1>to hire some of the higher yielding bomb markets in

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<v Speaker 1>Asia as well. Jack, always a pleasure. Thank you for

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<v Speaker 1>spending time with us and sharing your perspective on price

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<v Speaker 1>action and markets not just here in the States, but

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<v Speaker 1>in the pack Rim as well. Jack McIntyre's global portfolio

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<v Speaker 1>manager at Brandywine