Speaker 1: Nine and a half minutes past the is Let's get
Speaker 1: to Paul Christopher, head of Global market Strategy at Wells
Speaker 1: Fargo Investment Institute. Paul, So, we just detailed there the Microsoft,
Speaker 1: Alphabet and Texas Instruments earnings, and they're all down pretty
Speaker 1: heavily after the bill. In your view, how strongly does
Speaker 1: that change the perception that the earnings have actually been, uh,
Speaker 1: not as bad as feared. Well, the bar was pretty
Speaker 1: low in the first place, right, everybody's been expecting earnings
Speaker 1: at some point fall off the table as the economy
Speaker 1: rolls over and the dollars strength has really been a
Speaker 1: has a strong head wind protect But but overall, we
Speaker 1: have to say, in the early going, it looks like
Speaker 1: earnings have beaten that lower bar, and that's part of
Speaker 1: the reason why I've seen that rally here recently. Not
Speaker 1: sure how long that riley lasts, but the licensee earnings
Speaker 1: coming in strong at least the first but surely at
Speaker 1: the end of the day, because it's will been about
Speaker 1: what they've been saying looking to the future and what
Speaker 1: have they been saying. Yeah, what they've been saying is
Speaker 1: that you're going to start to see earnings come off,
Speaker 1: you're gonna start to see even before the earnings themselves,
Speaker 1: guidance will start to turn lower as we head further
Speaker 1: and further into three. We do expect a recession here
Speaker 1: in the first half of the year, and so we
Speaker 1: are in that camp as well. So is this the
Speaker 1: type of environment where you hunker down here and what
Speaker 1: do you do to do? So you know, we've been
Speaker 1: talking since February about quality, and we still think their
Speaker 1: quality sectors out there. We like energy, it generates a
Speaker 1: lot of cash One are the few sectors of the
Speaker 1: SMP that has generated net positive cash flow this year.
Speaker 1: Healthcare we think is one that's got good organic growth
Speaker 1: prospects for the future. And we also like tech here.
Speaker 1: Uh yeah, there's been a lot of selling, you could
Speaker 1: say a lot of bloodshed, but we still think it's
Speaker 1: a quality sector going forward, one that as a dollar
Speaker 1: comes off next year, we think we'll f you'll start
Speaker 1: to see a strong rebound there. If the market's going
Speaker 1: to rebound, it's going to have to have tech behind it.
Speaker 1: So we like those three areas quality would be. We
Speaker 1: think the way to go not so much hunkering down
Speaker 1: as far as defenses. Tell me something here a pool.
Speaker 1: Does the treasury market worry you? And does liquidity where
Speaker 1: you as well? And I asked this question as simply
Speaker 1: as we had the janet Yellen saying that admitting to
Speaker 1: the publish, she's worried about a loss of adequate liquidity
Speaker 1: if o't on the fourteenth of the month, her staff
Speaker 1: went out and asked the tb a C, the Treasury
Speaker 1: Bond Auction Committee, if they should start buying less liquid
Speaker 1: treasuries to prevent them freezing up. And recently, of course,
Speaker 1: rug and Rogen and Vera said that qut and this
Speaker 1: is immense diplomacy is not likely to be an entirely
Speaker 1: benign process. Yeah, that's right, And liquidity is an issue
Speaker 1: all around the world and in the United States here
Speaker 1: as well. We would be much more worried about liquidity
Speaker 1: if we thought inflation was going to continue to rise.
Speaker 1: That would that would tend to leave lots of upward
Speaker 1: room for bond heels to rise further and lots more
Speaker 1: selling that would do decrease liquidity. We would also be
Speaker 1: worried if the dollar strengthens a lot more forces international
Speaker 1: central banks to uh to sort of sell their currencies
Speaker 1: to buy dollars uh, and that might end up reducing
Speaker 1: their reserves of treasuries as well, so more selling there.
Speaker 1: But I think I think both of those trends might
Speaker 1: be coming near to their peaks. Not quite there yet,
Speaker 1: but we'll have to see. Especially the action the treasury
Speaker 1: market today was encouraging that that we you know, as
Speaker 1: the economic data rolls over, you might start to see
Speaker 1: some bid for treasuries that will put some money back
Speaker 1: into that market. Maybe liquidity starts to to turn more
Speaker 1: to the positives. It would seem kind of awkward having
Speaker 1: the Treasury buy back treasuries, I mean the U. S.
Speaker 1: Treasury Department buy back treasuries to improve liquidity. Would it
Speaker 1: be simpler if the Fed were to just slow down
Speaker 1: QT They could do that. What we've seen from the Fed, though,
Speaker 1: especially since August is a real commitment to to break inflation.
Speaker 1: We need to see more of a of a peak,
Speaker 1: more evidence of a peak and services inflation upcoming the
Speaker 1: next month or two for the Fed to start to
Speaker 1: feel more comfortable doing something like that. And well, let's
Speaker 1: having a good to what we have coming out on
Speaker 1: the day after tomorrow YO time. G d P hadboard
Speaker 1: is going to be what are you looking at for
Speaker 1: and if you go into a deep dive in the data,
Speaker 1: what will you try to find out? Yeah, I mean
Speaker 1: it's it's like the first place for for investors. This
Speaker 1: is all very stale, very old data. So we're looking
Speaker 1: at third quarters somewhere in the two's for for growth
Speaker 1: in the US. Uh, not a big surprise there. It
Speaker 1: was a pretty strong quarter actually a lot of activities,
Speaker 1: especially in services. What's more important is how quickly that
Speaker 1: activity slows down here in the fourth quarter. We think
Speaker 1: the recession actually begins in the fourth quarter, goes into
Speaker 1: the middle part of next year. So what'll be interesting
Speaker 1: to see is how much weakness you see in things
Speaker 1: like real retail sales, real final sales in the third quarter.
Speaker 1: How strong were those really after you account for inflation. Yeah,
Speaker 1: the housing data was weaken Uh. I think when you
Speaker 1: get into that market, you can really see that the
Speaker 1: higher rates are are definitely playing a very big role
Speaker 1: um time constraints here. So we won't go further on that.
Speaker 1: I wanted to ask you about China. We did have
Speaker 1: sock Gen strategists out saying that China deserves higher risk premium.
Speaker 1: Now the essential point being that a lot more focus
Speaker 1: is being put on national security. Is China down enough
Speaker 1: for you to be interested? And what are your thoughts there?
Speaker 1: Not quite down enough yet? We think they do avoid recession,
Speaker 1: but the uh well really need to see more from
Speaker 1: the economic conference that takes place in December. How much
Speaker 1: are they going to do to take zero COVID policies
Speaker 1: off the table? What are they going to do for
Speaker 1: the property market here to get that restarted and protect
Speaker 1: those debtors that developing companies development companies. A little too
Speaker 1: soon to tell on China, but tell me something for
Speaker 1: what I mean, you know, after that speech Jing being
Speaker 1: and you know his pronouncements before, China is certainly turning
Speaker 1: inwood even though they say that they need they have
Speaker 1: a need to open up. I mean, is it investable anymore?
Speaker 1: That's going to be difficult. But you know, one of
Speaker 1: the things that has always been true of China throughout
Speaker 1: here is that when they need a foreign capital, when
Speaker 1: they need foreign technology in particular for a particular reason,
Speaker 1: development reason, then they let that capital in. And I
Speaker 1: think you're going to see more need for China to
Speaker 1: end up having to import by Western expertise and healthcare
Speaker 1: and agriculture and pollution abatement and control, and I think
Speaker 1: there's going to be room for multinationals to take take
Speaker 1: that role in the US. Thank you. Paul Christopher, the
Speaker 1: head of Global Market Strategy at the Wells FuG Investment Institute,