1
00:00:00,040 --> 00:00:01,720
Speaker 1: All right, let's get over to our next guess. It's

2
00:00:01,960 --> 00:00:05,720
Speaker 1: Alex Shahidi managing part and co cy IoT Evoke Advisors,

3
00:00:05,760 --> 00:00:09,480
Speaker 1: getting the latest on the markets and more. Um, Alex,

4
00:00:09,520 --> 00:00:13,440
Speaker 1: I'm given what j Palwell said people kind of overreacted

5
00:00:13,520 --> 00:00:16,319
Speaker 1: or did they overreacted to what he talked about? That

6
00:00:16,880 --> 00:00:21,119
Speaker 1: essentially the narrative that they raised interest rates to a

7
00:00:21,160 --> 00:00:24,599
Speaker 1: peak and then suddenly turned tail and start cutting. That

8
00:00:24,720 --> 00:00:29,800
Speaker 1: kind of logic perhaps never seemed logical, but as it

9
00:00:29,840 --> 00:00:31,480
Speaker 1: got through to people that that's not going to be

10
00:00:31,520 --> 00:00:35,240
Speaker 1: the case. Well, Brian and Reshid, it's nice to speak

11
00:00:35,280 --> 00:00:38,280
Speaker 1: with you again. Um, you know that remains to be seen.

12
00:00:38,360 --> 00:00:41,159
Speaker 1: The FET is obviously trying to fight the highest inflation

13
00:00:41,200 --> 00:00:44,280
Speaker 1: we've had in forty years, which resulted from this massive

14
00:00:44,640 --> 00:00:49,920
Speaker 1: policy response to the to the COVID economic collapse, and

15
00:00:50,120 --> 00:00:52,720
Speaker 1: now they have to tighten really fast. The market was

16
00:00:52,760 --> 00:00:55,160
Speaker 1: completely surprised by that. If you just go back to

17
00:00:55,200 --> 00:00:57,720
Speaker 1: the beginning of the year, there was no discounting or

18
00:00:57,840 --> 00:01:00,280
Speaker 1: there was no discounting of a tightening at all, and

19
00:01:00,320 --> 00:01:02,120
Speaker 1: so you had the worst first half of the year

20
00:01:02,200 --> 00:01:05,080
Speaker 1: for the SMP since nineteen seventy and the worst first

21
00:01:05,120 --> 00:01:08,280
Speaker 1: half of the year for Treasury since se and that

22
00:01:08,360 --> 00:01:10,679
Speaker 1: happened at the same time. So the so the market

23
00:01:10,680 --> 00:01:13,039
Speaker 1: has got it completely wrong to to start the year,

24
00:01:13,560 --> 00:01:17,119
Speaker 1: and it's very possible that they're just starting to figure

25
00:01:17,120 --> 00:01:19,200
Speaker 1: out that, you know, this tight ning might need to

26
00:01:19,240 --> 00:01:21,520
Speaker 1: last for a while to slow this inflation that's been

27
00:01:21,959 --> 00:01:24,960
Speaker 1: that's been uh and it seems to be become entrenched,

28
00:01:24,959 --> 00:01:27,280
Speaker 1: like maybe what we saw in the nineteen seventies. There

29
00:01:27,360 --> 00:01:28,720
Speaker 1: was a lot of debate on whether or not we

30
00:01:28,760 --> 00:01:31,760
Speaker 1: would go back and retest the June lows of of

31
00:01:31,840 --> 00:01:35,399
Speaker 1: thirty six sixties six. Do you think now the debate begins,

32
00:01:35,400 --> 00:01:38,160
Speaker 1: do we take it out actually and go back below

33
00:01:38,240 --> 00:01:41,520
Speaker 1: that level? Yeah? You know, the the challenge right now

34
00:01:41,760 --> 00:01:45,360
Speaker 1: is you have this inflation problem and the FED will

35
00:01:45,400 --> 00:01:49,320
Speaker 1: either overtighten, meaning they're they're focused on we're gonna bring

36
00:01:49,360 --> 00:01:52,400
Speaker 1: inflation down as as much as we can and that's

37
00:01:52,400 --> 00:01:55,440
Speaker 1: our primary focus. And you could have a really bad

38
00:01:55,480 --> 00:01:57,960
Speaker 1: recession and that could that could test those lows and

39
00:01:57,960 --> 00:02:01,040
Speaker 1: and could easily blow through that. They could also undertighten.

40
00:02:01,360 --> 00:02:03,440
Speaker 1: Right now they're focused on inflation, but if the economy

41
00:02:03,440 --> 00:02:06,480
Speaker 1: starts getting weak, then maybe they switch gears and start

42
00:02:06,480 --> 00:02:09,440
Speaker 1: focusing on the economy, and in that case you could

43
00:02:09,680 --> 00:02:11,960
Speaker 1: inflation could become entrenched, and that could be more like

44
00:02:12,000 --> 00:02:15,160
Speaker 1: the nineteen seventies scenario. In that case equities have downside

45
00:02:15,240 --> 00:02:18,360
Speaker 1: risk as well. Um or possibly they could get it

46
00:02:18,400 --> 00:02:21,800
Speaker 1: just right, they raise rates just enough, inflation comes down

47
00:02:22,080 --> 00:02:25,480
Speaker 1: back to target, growth stays a target. That's what's currently

48
00:02:25,520 --> 00:02:27,760
Speaker 1: discounted in markets. I think the odds of that are

49
00:02:27,840 --> 00:02:30,880
Speaker 1: very low, um And if that happens, then maybe equities

50
00:02:31,280 --> 00:02:33,360
Speaker 1: hold you know, current prices. But if any of the

51
00:02:33,360 --> 00:02:36,280
Speaker 1: other two scenarios play out, then there's a good good

52
00:02:36,360 --> 00:02:38,960
Speaker 1: chance that you go, you know, way below those lows.

53
00:02:39,600 --> 00:02:41,200
Speaker 1: So how do you protect yourself? I mean, is it

54
00:02:41,680 --> 00:02:44,200
Speaker 1: the typical places where one would go normally, because it

55
00:02:44,240 --> 00:02:46,360
Speaker 1: doesn't seem to be that at the moment. I mean,

56
00:02:46,360 --> 00:02:48,520
Speaker 1: look at gold, for instance, it's badly done anything and

57
00:02:48,600 --> 00:02:51,400
Speaker 1: you know, high quality bonds indeed, and the likes so

58
00:02:51,800 --> 00:02:56,240
Speaker 1: gives a sense of how you shelter yourself. Yeah, to us,

59
00:02:56,320 --> 00:02:58,720
Speaker 1: it always goes back to just be really well diversified

60
00:02:58,760 --> 00:03:00,840
Speaker 1: and balanced. And the way we think about that is

61
00:03:01,280 --> 00:03:05,720
Speaker 1: own assets that are biased outperformed during different environments. And

62
00:03:05,800 --> 00:03:09,160
Speaker 1: I think the environments that most portfolios are significantly underweight.

63
00:03:09,720 --> 00:03:14,120
Speaker 1: Is the inflation being persistent and staying around much longer.

64
00:03:14,360 --> 00:03:19,200
Speaker 1: So that's things like tips, gold, commodities, UM. And the

65
00:03:19,280 --> 00:03:22,000
Speaker 1: other risk is if you get a really bad recession

66
00:03:22,040 --> 00:03:23,920
Speaker 1: that may be difficult to reverse and it may last

67
00:03:23,960 --> 00:03:27,520
Speaker 1: longer than those V shaped recoveries that we've come used

68
00:03:27,560 --> 00:03:31,680
Speaker 1: to seeing. And and in that case, uh, government bonds

69
00:03:31,880 --> 00:03:34,440
Speaker 1: and even tips could do really well. So I think

70
00:03:34,560 --> 00:03:37,400
Speaker 1: those are the assets people need in their portfolios to

71
00:03:37,520 --> 00:03:42,600
Speaker 1: hedge against all those risks that could occur. Uh, those um,

72
00:03:43,600 --> 00:03:46,160
Speaker 1: you know, conditions that you described at the beginning about

73
00:03:46,840 --> 00:03:50,440
Speaker 1: which we all know, you know, for the SB stocks

74
00:03:50,440 --> 00:03:52,880
Speaker 1: generally the worst year since nineteen seventy. I think you

75
00:03:52,920 --> 00:03:57,320
Speaker 1: said the worst year for treasury since Suh. It doesn't

76
00:03:57,440 --> 00:04:03,160
Speaker 1: feel like organically the U S economy and structures there

77
00:04:03,560 --> 00:04:07,920
Speaker 1: are in that kind of like dire straight uh you know,

78
00:04:08,000 --> 00:04:10,800
Speaker 1: I mean, the jobs markets pretty strong here, kind of

79
00:04:10,800 --> 00:04:13,360
Speaker 1: would expect it to weaken, I suppose in this environment,

80
00:04:13,400 --> 00:04:16,960
Speaker 1: but it doesn't seem that bad. Uh, you know, it

81
00:04:17,000 --> 00:04:20,520
Speaker 1: has so much of this already been discounted. Yeah, that's

82
00:04:20,560 --> 00:04:23,080
Speaker 1: the that's the I think the part that most investors

83
00:04:23,120 --> 00:04:26,040
Speaker 1: are missing the only thing that's really been discounted is

84
00:04:26,120 --> 00:04:29,360
Speaker 1: you've had this massive tightening, which is the fastest since

85
00:04:29,440 --> 00:04:31,960
Speaker 1: Vulca in the early eighties, and that was a complete

86
00:04:31,960 --> 00:04:34,400
Speaker 1: shock to the market. It wasn't discounting any tightening coming

87
00:04:34,440 --> 00:04:37,880
Speaker 1: into the year. So just that is what caused the

88
00:04:38,000 --> 00:04:42,400
Speaker 1: SMP and treasuries to suffer losses. Like that, the discounting

89
00:04:42,440 --> 00:04:46,000
Speaker 1: of weak economic conditions for an exttent period or or

90
00:04:46,279 --> 00:04:49,560
Speaker 1: prolonged high inflation are not discounted in the price at all,

91
00:04:50,160 --> 00:04:53,400
Speaker 1: and and so there's significant risk to portfolios that aren't

92
00:04:53,400 --> 00:04:56,000
Speaker 1: hedged in in those regards. And I think that's something

93
00:04:56,040 --> 00:05:01,000
Speaker 1: that's widely misunderstood. It's just what you said about tips

94
00:05:01,040 --> 00:05:03,680
Speaker 1: being somewhere where you could hide that and a diversified

95
00:05:03,680 --> 00:05:05,960
Speaker 1: and balanced portfolio give us a sentence if there's any

96
00:05:06,000 --> 00:05:09,440
Speaker 1: places to hide in it just in't playing vanilla equities

97
00:05:09,560 --> 00:05:14,000
Speaker 1: and equity classes um well equities. You know, if you

98
00:05:14,040 --> 00:05:17,120
Speaker 1: go back to the nineteen seventies, equities underperformed cash for

99
00:05:17,160 --> 00:05:19,440
Speaker 1: a decade, and if you go back to the two thousands,

100
00:05:19,520 --> 00:05:22,359
Speaker 1: which is that downside growth scenario, equities lost money for

101
00:05:22,360 --> 00:05:25,320
Speaker 1: the decade. But there are segments within that and I'd

102
00:05:25,320 --> 00:05:29,360
Speaker 1: say in this case, particularly commodity producer equities could do well.

103
00:05:29,400 --> 00:05:33,320
Speaker 1: They're up you know, double digits this year as an example. Um,

104
00:05:33,400 --> 00:05:36,920
Speaker 1: but those are those are have better inflation hedging components

105
00:05:36,920 --> 00:05:39,719
Speaker 1: to them. And and I think having that inflation hedging

106
00:05:39,880 --> 00:05:43,200
Speaker 1: piece is the part that most portfolios are missing. And

107
00:05:43,279 --> 00:05:47,279
Speaker 1: high quality bonds that that's that's the place that you

108
00:05:47,320 --> 00:05:49,560
Speaker 1: can go. But how do you how do you actually

109
00:05:49,600 --> 00:05:53,720
Speaker 1: decide on what you know, what is quality? Yeah, I

110
00:05:53,760 --> 00:05:57,640
Speaker 1: mean government bonds to us are relatively safe place to be. Obviously,

111
00:05:57,680 --> 00:05:59,400
Speaker 1: they've had it, they've taken a big hit so far

112
00:05:59,480 --> 00:06:01,479
Speaker 1: as you had to move in interest rates. But the

113
00:06:01,520 --> 00:06:03,400
Speaker 1: good news is that the yields are much higher than

114
00:06:03,440 --> 00:06:06,440
Speaker 1: they have been for some time. And particularly with tips.

115
00:06:06,560 --> 00:06:08,880
Speaker 1: If I go back to that, those are government guaranteed bonds,

116
00:06:09,080 --> 00:06:11,039
Speaker 1: and the yield there because it pays you c p

117
00:06:11,160 --> 00:06:14,440
Speaker 1: I You're talking seven eight percent type of yield in

118
00:06:14,480 --> 00:06:16,720
Speaker 1: a government guaranteed bond, and tips could do well if

119
00:06:16,720 --> 00:06:18,600
Speaker 1: you get prolonged inflation, and they could also do well

120
00:06:18,600 --> 00:06:20,800
Speaker 1: if you get a bad recession. So that seems like

121
00:06:21,040 --> 00:06:24,760
Speaker 1: a very good addition to most portfolios. And I guess

122
00:06:24,800 --> 00:06:27,120
Speaker 1: you look for I mean, do you I mean, given

123
00:06:27,160 --> 00:06:28,640
Speaker 1: that interest rates are going to be as so much

124
00:06:28,640 --> 00:06:30,359
Speaker 1: more high, but do you look for yield as well?

125
00:06:31,080 --> 00:06:34,800
Speaker 1: I'm talking about dividends to Um. Yeah, but I think

126
00:06:34,800 --> 00:06:38,000
Speaker 1: you've got to be careful about chasing yield because if

127
00:06:38,040 --> 00:06:40,599
Speaker 1: that leads you to a portfolio that's that's not very

128
00:06:40,600 --> 00:06:44,800
Speaker 1: well balanced. Meaning if you emphasize credit and equities and

129
00:06:44,920 --> 00:06:48,200
Speaker 1: you get you know, some of those scenarios that I described,

130
00:06:48,720 --> 00:06:51,160
Speaker 1: you could lose a lot on your principle. UM. So

131
00:06:51,200 --> 00:06:53,359
Speaker 1: I think you know, if you know cash is yielding,

132
00:06:53,680 --> 00:06:55,520
Speaker 1: you know it's gonna be yielding three and a half

133
00:06:55,560 --> 00:06:59,240
Speaker 1: four percent at some point soon, UM, that that's not

134
00:06:59,320 --> 00:07:03,040
Speaker 1: such a bad thing in a tightening environments. Great stuff Alex,

135
00:07:03,120 --> 00:07:07,520
Speaker 1: really good, direct, insightful Alex Shahiti here, managing partner of

136
00:07:07,560 --> 00:07:10,640
Speaker 1: Cocy Iowitt Evoke Advisors. This is Bloomberg