WEBVTT - Paul Christopher on the Markets (Radio)

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<v Speaker 1>Nine and a half minutes past the is Let's get

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<v Speaker 1>to Paul Christopher, head of Global market Strategy at Wells

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<v Speaker 1>Fargo Investment Institute. Paul, So, we just detailed there the Microsoft,

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<v Speaker 1>Alphabet and Texas Instruments earnings, and they're all down pretty

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<v Speaker 1>heavily after the bill. In your view, how strongly does

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<v Speaker 1>that change the perception that the earnings have actually been, uh,

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<v Speaker 1>not as bad as feared. Well, the bar was pretty

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<v Speaker 1>low in the first place, right, everybody's been expecting earnings

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<v Speaker 1>at some point fall off the table as the economy

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<v Speaker 1>rolls over and the dollars strength has really been a

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<v Speaker 1>has a strong head wind protect But but overall, we

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<v Speaker 1>have to say, in the early going, it looks like

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<v Speaker 1>earnings have beaten that lower bar, and that's part of

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<v Speaker 1>the reason why I've seen that rally here recently. Not

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<v Speaker 1>sure how long that riley lasts, but the licensee earnings

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<v Speaker 1>coming in strong at least the first but surely at

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<v Speaker 1>the end of the day, because it's will been about

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<v Speaker 1>what they've been saying looking to the future and what

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<v Speaker 1>have they been saying. Yeah, what they've been saying is

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<v Speaker 1>that you're going to start to see earnings come off,

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<v Speaker 1>you're gonna start to see even before the earnings themselves,

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<v Speaker 1>guidance will start to turn lower as we head further

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<v Speaker 1>and further into three. We do expect a recession here

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<v Speaker 1>in the first half of the year, and so we

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<v Speaker 1>are in that camp as well. So is this the

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<v Speaker 1>type of environment where you hunker down here and what

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<v Speaker 1>do you do to do? So you know, we've been

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<v Speaker 1>talking since February about quality, and we still think their

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<v Speaker 1>quality sectors out there. We like energy, it generates a

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<v Speaker 1>lot of cash One are the few sectors of the

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<v Speaker 1>SMP that has generated net positive cash flow this year.

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<v Speaker 1>Healthcare we think is one that's got good organic growth

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<v Speaker 1>prospects for the future. And we also like tech here.

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<v Speaker 1>Uh yeah, there's been a lot of selling, you could

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<v Speaker 1>say a lot of bloodshed, but we still think it's

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<v Speaker 1>a quality sector going forward, one that as a dollar

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<v Speaker 1>comes off next year, we think we'll f you'll start

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<v Speaker 1>to see a strong rebound there. If the market's going

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<v Speaker 1>to rebound, it's going to have to have tech behind it.

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<v Speaker 1>So we like those three areas quality would be. We

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<v Speaker 1>think the way to go not so much hunkering down

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<v Speaker 1>as far as defenses. Tell me something here a pool.

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<v Speaker 1>Does the treasury market worry you? And does liquidity where

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<v Speaker 1>you as well? And I asked this question as simply

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<v Speaker 1>as we had the janet Yellen saying that admitting to

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<v Speaker 1>the publish, she's worried about a loss of adequate liquidity

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<v Speaker 1>if o't on the fourteenth of the month, her staff

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<v Speaker 1>went out and asked the tb a C, the Treasury

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<v Speaker 1>Bond Auction Committee, if they should start buying less liquid

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<v Speaker 1>treasuries to prevent them freezing up. And recently, of course,

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<v Speaker 1>rug and Rogen and Vera said that qut and this

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<v Speaker 1>is immense diplomacy is not likely to be an entirely

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<v Speaker 1>benign process. Yeah, that's right, And liquidity is an issue

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<v Speaker 1>all around the world and in the United States here

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<v Speaker 1>as well. We would be much more worried about liquidity

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<v Speaker 1>if we thought inflation was going to continue to rise.

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<v Speaker 1>That would that would tend to leave lots of upward

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<v Speaker 1>room for bond heels to rise further and lots more

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<v Speaker 1>selling that would do decrease liquidity. We would also be

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<v Speaker 1>worried if the dollar strengthens a lot more forces international

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<v Speaker 1>central banks to uh to sort of sell their currencies

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<v Speaker 1>to buy dollars uh, and that might end up reducing

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<v Speaker 1>their reserves of treasuries as well, so more selling there.

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<v Speaker 1>But I think I think both of those trends might

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<v Speaker 1>be coming near to their peaks. Not quite there yet,

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<v Speaker 1>but we'll have to see. Especially the action the treasury

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<v Speaker 1>market today was encouraging that that we you know, as

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<v Speaker 1>the economic data rolls over, you might start to see

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<v Speaker 1>some bid for treasuries that will put some money back

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<v Speaker 1>into that market. Maybe liquidity starts to to turn more

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<v Speaker 1>to the positives. It would seem kind of awkward having

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<v Speaker 1>the Treasury buy back treasuries, I mean the U. S.

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<v Speaker 1>Treasury Department buy back treasuries to improve liquidity. Would it

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<v Speaker 1>be simpler if the Fed were to just slow down

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<v Speaker 1>QT They could do that. What we've seen from the Fed, though,

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<v Speaker 1>especially since August is a real commitment to to break inflation.

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<v Speaker 1>We need to see more of a of a peak,

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<v Speaker 1>more evidence of a peak and services inflation upcoming the

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<v Speaker 1>next month or two for the Fed to start to

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<v Speaker 1>feel more comfortable doing something like that. And well, let's

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<v Speaker 1>having a good to what we have coming out on

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<v Speaker 1>the day after tomorrow YO time. G d P hadboard

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<v Speaker 1>is going to be what are you looking at for

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<v Speaker 1>and if you go into a deep dive in the data,

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<v Speaker 1>what will you try to find out? Yeah, I mean

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<v Speaker 1>it's it's like the first place for for investors. This

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<v Speaker 1>is all very stale, very old data. So we're looking

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<v Speaker 1>at third quarters somewhere in the two's for for growth

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<v Speaker 1>in the US. Uh, not a big surprise there. It

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<v Speaker 1>was a pretty strong quarter actually a lot of activities,

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<v Speaker 1>especially in services. What's more important is how quickly that

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<v Speaker 1>activity slows down here in the fourth quarter. We think

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<v Speaker 1>the recession actually begins in the fourth quarter, goes into

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<v Speaker 1>the middle part of next year. So what'll be interesting

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<v Speaker 1>to see is how much weakness you see in things

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<v Speaker 1>like real retail sales, real final sales in the third quarter.

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<v Speaker 1>How strong were those really after you account for inflation. Yeah,

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<v Speaker 1>the housing data was weaken Uh. I think when you

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<v Speaker 1>get into that market, you can really see that the

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<v Speaker 1>higher rates are are definitely playing a very big role

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<v Speaker 1>um time constraints here. So we won't go further on that.

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<v Speaker 1>I wanted to ask you about China. We did have

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<v Speaker 1>sock Gen strategists out saying that China deserves higher risk premium.

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<v Speaker 1>Now the essential point being that a lot more focus

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<v Speaker 1>is being put on national security. Is China down enough

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<v Speaker 1>for you to be interested? And what are your thoughts there?

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<v Speaker 1>Not quite down enough yet? We think they do avoid recession,

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<v Speaker 1>but the uh well really need to see more from

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<v Speaker 1>the economic conference that takes place in December. How much

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<v Speaker 1>are they going to do to take zero COVID policies

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<v Speaker 1>off the table? What are they going to do for

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<v Speaker 1>the property market here to get that restarted and protect

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<v Speaker 1>those debtors that developing companies development companies. A little too

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<v Speaker 1>soon to tell on China, but tell me something for

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<v Speaker 1>what I mean, you know, after that speech Jing being

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<v Speaker 1>and you know his pronouncements before, China is certainly turning

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<v Speaker 1>inwood even though they say that they need they have

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<v Speaker 1>a need to open up. I mean, is it investable anymore?

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<v Speaker 1>That's going to be difficult. But you know, one of

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<v Speaker 1>the things that has always been true of China throughout

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<v Speaker 1>here is that when they need a foreign capital, when

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<v Speaker 1>they need foreign technology in particular for a particular reason,

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<v Speaker 1>development reason, then they let that capital in. And I

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<v Speaker 1>think you're going to see more need for China to

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<v Speaker 1>end up having to import by Western expertise and healthcare

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<v Speaker 1>and agriculture and pollution abatement and control, and I think

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<v Speaker 1>there's going to be room for multinationals to take take

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<v Speaker 1>that role in the US. Thank you. Paul Christopher, the

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<v Speaker 1>head of Global Market Strategy at the Wells FuG Investment Institute,