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Speaker 1: Sean Darby is with us. Is not going to get

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Speaker 1: that heated in here with us, Sean, but nice to

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Speaker 1: have you with us, um and I'll get your proper

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Speaker 1: title out just a minute. You know, we had we

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Speaker 1: had this situation where we've got over the past many days,

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Speaker 1: the dollar down and yields down, and we have the

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Speaker 1: Bank of Canada kind of helping out with this idea

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Speaker 1: that central banks will moderate a little bit. So that's

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Speaker 1: that's been a trend. But then if if central banks

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Speaker 1: are moderating because of recession fears, that's not necessarily good.

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Speaker 1: It's probably bad for the economy. But then we we

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Speaker 1: hear that the stock market almost always bottoms up before

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Speaker 1: a recession is over, and sometimes before it even starts.

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Speaker 1: So we're all confused. Where are we at the moment? Well,

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Speaker 1: that's a very good question. So I think the way

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Speaker 1: I would divide it is that there's not really any

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Speaker 1: homogeneous interest rate policy at all amongst all the major

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Speaker 1: central banks. I think you can divide the major central

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Speaker 1: banks into three. You've got those where mortgages are set

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Speaker 1: at the short end, which is very much the UK.

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Speaker 1: I'll be a and rule Bank Canada, and they are

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Speaker 1: very sensitive to rates. You have the U S which

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Speaker 1: is following orthodox policy and willing to overtightening, willing to

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Speaker 1: go into a recession. And then you've got Japan, which

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Speaker 1: has gone on its own path, which is creating inflation.

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Speaker 1: So that I'd like to give you a sort of

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Speaker 1: answer that sort of you know, it would fit all

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Speaker 1: three of those. I think what I would say to

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Speaker 1: in respect to the equity markets is if there was

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Speaker 1: two worlds, the equity market would always choose the inflation

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Speaker 1: one versus deflation. Deflation is generally a great environment for bonds,

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Speaker 1: tends to be a pretty difficult environment for equities. Provided

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Speaker 1: inflation is not too high, equities can live with that,

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Speaker 1: but above I would say three to four percent, what

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Speaker 1: you start to find is that the group of sectors

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Speaker 1: that can live with that level of inflation is pretty narrow.

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Speaker 1: So I hope I've answered your question in a in

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Speaker 1: a in a roundabout way. There's not really one answer.

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Speaker 1: That's the difficulty. All three of those groups of central banks,

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Speaker 1: as you mentioned, to have something in common. They rely

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Speaker 1: on backward looking data to try and determine future policy paths.

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Speaker 1: What are the risks here? There are quite immense. Actually,

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Speaker 1: I think that the reality is there will always be

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Speaker 1: dated dependent whatever cycle you're going through. But because they

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Speaker 1: were all very late, the chances are that they make

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Speaker 1: make a mistake. And I think the difficulty in this

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Speaker 1: one is that previous inflation episodes, really genuine inflation episodes,

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Speaker 1: like the seventies, we didn't have asset bubbles, and now

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Speaker 1: we have pretty significant property bubbles in most of these economies,

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Speaker 1: and that I think is going to be the telling

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Speaker 1: feature of six to nine months down the road, because

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Speaker 1: clearly that will have repercussions for the household section in

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Speaker 1: terms of mortgage payments, but for the banks in terms

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Speaker 1: of the impact on the impairment charges. But Sean, being

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Speaker 1: a chief global equity strategist, in such an environment of volatility,

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Speaker 1: can you outline some of the challenges for us at

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Speaker 1: the moment? Where do you put need to work when

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Speaker 1: we can't even really be sure we've found a flora markeitude.

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Speaker 1: That's a very good question. Unfortunately, only two or three

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Speaker 1: asset classes have actually worked here to day, the strong dollar,

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Speaker 1: shorting government bonds and shorting equities. So the sort of

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Speaker 1: group of winners is extremely low, and I suspect that

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Speaker 1: everyone's fallen into the camp in which we've actually had

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Speaker 1: some of the worst total returns on people's pension funds

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Speaker 1: and sixty balanced funds in modern history. If I was

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Speaker 1: looking six or twelve months out, I would probably be

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Speaker 1: highlighting the fact that there's a reasonable chance that these

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Speaker 1: profit recessions are somewhere in the process of bottoming out,

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Speaker 1: and with many of the yield curves, particularly in the

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Speaker 1: United States inverted, the chances again are the bounds of

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Speaker 1: probabilities are that rates of somewhere peaking at the moment.

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Speaker 1: In that respect, the best things to be doing is

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Speaker 1: to be going back to owning some credit, particularly investment grade,

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Speaker 1: and some moaning some large cap equities. Those tend to

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Speaker 1: do quite well coming out of a tightening phase, and

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Speaker 1: I think that's what we will be probably seeing from

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Speaker 1: most central banks by March next year. I wonder if

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Speaker 1: the very strong selling that we've seen is bear market,

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Speaker 1: whether or not it it puts some discipline on management teams,

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Speaker 1: and whether or not, you know, companies actually get better.

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Speaker 1: We can talk about Facebook just as a microcosm. In there,

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Speaker 1: I might have got too far out over my skis

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Speaker 1: and saying that Mark Zuckerberg will probably realize at some

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Speaker 1: point here that he needs stronger governance at his company

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Speaker 1: and that will perhaps, you know, provide a better forward

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Speaker 1: momentum at some point. But you know, this really does

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Speaker 1: force a lot of discipline. Art companies, and US companies

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Speaker 1: are very good at rolling with the punches. I would

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Speaker 1: agree with you. I guess that some of these more

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Speaker 1: dreamier and more imaginative areas that people are wanting to

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Speaker 1: spend money on in hope that they are delivered very

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Speaker 1: large returns for a certain time, but probably not now,

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Speaker 1: that's correct. So you can have this sort of don

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Speaker 1: Quixote type of views about where the company should be going,

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Speaker 1: and you can end up going down a pretty treacherous

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Speaker 1: path and the expenditure. I guess what I would try

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Speaker 1: to say to investors is that perhaps a good thing

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Speaker 1: about this cycle is that the major large caps haven't

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Speaker 1: overextended themselves, and in that respect, when you come out

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Speaker 1: of the cycle, companies don't find they're having to repair

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Speaker 1: the balance sheet, and that can they can go back

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Speaker 1: into a sort of more profitable stance quite quickly. And

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Speaker 1: I do think there's a reasonable probability at least for

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Speaker 1: the US, and in that respect that that's going to

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Speaker 1: be how the cycle turns. You don't go through what

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Speaker 1: we would call a balance sheet recession, which tends to

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Speaker 1: mean that you repair the balance sheet before you start

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Speaker 1: doing anything else. What's your position on China right now?

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Speaker 1: Because between COVID zero at the property crisis and the

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Speaker 1: apparent rise of one man rule and the caprices of

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Speaker 1: one all powerful leader, what are the risks? There are

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Speaker 1: there just too many potholes? Well, I where where I

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Speaker 1: frame the answer is about two and a half years

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Speaker 1: ago we wrote a piece about dual circulation and essentially

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Speaker 1: implications for investing in common prosperity, and I wish I'd

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Speaker 1: followed my own advice, and which was to invest a

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Speaker 1: hundred percent in essentially consumer staple stocks. These companies avoided

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Speaker 1: any of the private sector issues that came along over

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Speaker 1: the last eighteen months and essentially have been running their

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Speaker 1: businesses pretty much since the late I mean in companies

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Speaker 1: like Tingy ting Tow Brewery, and I think those stocks

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Speaker 1: are actually going to still run pretty much as they

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Speaker 1: have done for the last twenty years. And that sort

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Speaker 1: of playing the consumer that that that sort of juncture,

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Speaker 1: uh UM is probably going to be a reasonably profitable

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Speaker 1: area to be in, and I think that's how I've

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Speaker 1: sort of framed the answer to questions about you know,

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Speaker 1: running alongside dual circulation, and also of course is two establishments,

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Speaker 1: which is the more political heckemony. Alright, Sean Derby, we'll

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Speaker 1: have to leave it there, but thanks so much for

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Speaker 1: joining us on Bloomberg Daybreak Asia. Sean Derby is the

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Speaker 1: chief of Global equity Strategist at Jeffrey's