1 00:00:00,160 --> 00:00:03,440 Speaker 1: Jason Thomas. He's managing director also the head of global 2 00:00:03,480 --> 00:00:07,040 Speaker 1: research at Carlisle Jason, before we get into the macro, 3 00:00:07,120 --> 00:00:09,280 Speaker 1: and I know Kathleen wants to talk a lot about 4 00:00:09,280 --> 00:00:11,440 Speaker 1: the FED and what's happening with the labor market in 5 00:00:11,480 --> 00:00:14,200 Speaker 1: front of this employment data that we're getting tomorrow morning. 6 00:00:14,800 --> 00:00:17,239 Speaker 1: I want your perspective on what you see playing out 7 00:00:17,280 --> 00:00:19,680 Speaker 1: in the U. S. House of Representatives. Since at one 8 00:00:19,680 --> 00:00:22,520 Speaker 1: time you did serve on a White House staff, talk 9 00:00:22,640 --> 00:00:26,799 Speaker 1: to me about the risk of the political gamesmanship that 10 00:00:26,880 --> 00:00:30,360 Speaker 1: may be playing out in the House and the potential 11 00:00:30,440 --> 00:00:32,760 Speaker 1: effect it could have on markets when you think of 12 00:00:32,800 --> 00:00:37,000 Speaker 1: things like, hey, can we raise the debt ceiling? Well, 13 00:00:37,000 --> 00:00:39,000 Speaker 1: thank you very much for having me. I will say 14 00:00:39,040 --> 00:00:42,400 Speaker 1: at the outset that it's much better to be observing 15 00:00:42,440 --> 00:00:44,839 Speaker 1: this from seven thousand miles away than back in my 16 00:00:44,920 --> 00:00:48,040 Speaker 1: home in Washington, UM. But but yes, it's it's an 17 00:00:48,080 --> 00:00:51,879 Speaker 1: unfortunate situation, and certainly it does raise questions about the 18 00:00:51,880 --> 00:00:55,720 Speaker 1: debt ceiling and another must pass legislation going forward. And 19 00:00:55,920 --> 00:00:58,600 Speaker 1: I think that the main risk is if there is 20 00:00:59,000 --> 00:01:02,080 Speaker 1: an agreement that so constrains the Speaker of the House 21 00:01:02,520 --> 00:01:06,440 Speaker 1: that it actually makes passage of some of those against 22 00:01:06,440 --> 00:01:10,080 Speaker 1: the debt ceiling in particular more difficult, and uh, you know, 23 00:01:10,120 --> 00:01:13,160 Speaker 1: we'll we'll see. Really, it's not how long this takes 24 00:01:13,200 --> 00:01:16,039 Speaker 1: to find a speaker. I think that the main question 25 00:01:16,160 --> 00:01:19,000 Speaker 1: for market participants today is what sort of deals need 26 00:01:19,080 --> 00:01:23,240 Speaker 1: to be cut to actually for for representing McCarthy to 27 00:01:23,240 --> 00:01:27,080 Speaker 1: to attain the speakership, and how do those deals impact 28 00:01:27,080 --> 00:01:31,440 Speaker 1: the likelihood or difficulty of getting debt ceiling other must 29 00:01:31,440 --> 00:01:33,880 Speaker 1: pass legislation across the finish line. That that that's what 30 00:01:33,920 --> 00:01:36,280 Speaker 1: I think investors should be watching. But Jason, do you 31 00:01:36,319 --> 00:01:39,440 Speaker 1: think ultimately that that McCarthy will be able to cut 32 00:01:39,520 --> 00:01:43,160 Speaker 1: deals with the most intrangent of the rebels whatever you 33 00:01:43,200 --> 00:01:47,920 Speaker 1: want to call them, uh or because right now they 34 00:01:47,920 --> 00:01:51,000 Speaker 1: are so saying some of them that will never vote 35 00:01:51,040 --> 00:01:53,280 Speaker 1: for him, and that's just it. But of course nobody's 36 00:01:53,320 --> 00:01:57,000 Speaker 1: posing any viable candidates to us, you know, to run 37 00:01:57,040 --> 00:02:00,120 Speaker 1: instead of him. Well, well, that's the big question. And 38 00:02:00,480 --> 00:02:03,040 Speaker 1: I think that what's what's worth considering is if there 39 00:02:03,080 --> 00:02:06,440 Speaker 1: is an alternative candidate who would not be as encumbered 40 00:02:06,560 --> 00:02:08,960 Speaker 1: as it appears that representive McCarthy would be, which is 41 00:02:09,000 --> 00:02:11,680 Speaker 1: to say, if it is there an alternative so that 42 00:02:11,720 --> 00:02:14,960 Speaker 1: they wouldn't demand all of these, you know, the concessions, 43 00:02:15,040 --> 00:02:18,400 Speaker 1: the seats on the Rules Committee, uh, the other parts 44 00:02:18,400 --> 00:02:20,440 Speaker 1: of the deal that that we've seen recorded in the 45 00:02:20,480 --> 00:02:22,800 Speaker 1: press thus far. So we've got the FED trying to 46 00:02:22,840 --> 00:02:25,640 Speaker 1: engineer a soft landing, and we know the story on inflation. 47 00:02:25,680 --> 00:02:28,480 Speaker 1: The labor market remains tight. That is evidenced by a 48 00:02:28,480 --> 00:02:30,800 Speaker 1: lot of the numbers we were looking at today December 49 00:02:30,840 --> 00:02:34,440 Speaker 1: employment data due tomorrow. Given everything that we're talking about 50 00:02:35,040 --> 00:02:38,160 Speaker 1: in or on Capitol Hill visa VI, the FED is 51 00:02:38,200 --> 00:02:41,639 Speaker 1: the feds challenge these days much more difficult if you're 52 00:02:41,639 --> 00:02:45,480 Speaker 1: talking just about kind of bringing inflation down and maintaining 53 00:02:45,480 --> 00:02:49,680 Speaker 1: market stability. Well, I think the FED is in a 54 00:02:49,840 --> 00:02:52,799 Speaker 1: place where they have a dual mandate, of course, and 55 00:02:52,919 --> 00:02:57,680 Speaker 1: the employment mandate is perhaps above expectations, above target, so 56 00:02:57,720 --> 00:03:00,600 Speaker 1: they can be solely focused on inflation. And I think 57 00:03:00,639 --> 00:03:04,359 Speaker 1: that this is what surprised investors in two because you 58 00:03:04,639 --> 00:03:07,840 Speaker 1: have a because we've had an extended period really twelve 59 00:03:07,919 --> 00:03:11,480 Speaker 1: years where the FED where disinflation allowed the FED to 60 00:03:11,560 --> 00:03:16,799 Speaker 1: really focused almost exclusively unemployment incomes stabilizing markets, and now 61 00:03:16,880 --> 00:03:19,040 Speaker 1: you have a very different regime where the FED is 62 00:03:19,080 --> 00:03:23,240 Speaker 1: instead solely focused on inflation and and so as a result, 63 00:03:23,320 --> 00:03:25,720 Speaker 1: I do think that there are more rate hikes in store. 64 00:03:25,840 --> 00:03:27,799 Speaker 1: I think, you know, five and a quarter five and 65 00:03:27,840 --> 00:03:31,880 Speaker 1: a half percent could be the peak FED funds rate, 66 00:03:31,919 --> 00:03:35,119 Speaker 1: and I do believe that it's going to be sustained 67 00:03:35,160 --> 00:03:37,480 Speaker 1: at those levels really, you know, through the end of 68 00:03:37,480 --> 00:03:40,920 Speaker 1: the year into as I think it's more clear from 69 00:03:40,920 --> 00:03:43,520 Speaker 1: the minutes. But but it's also just I think the 70 00:03:43,560 --> 00:03:48,040 Speaker 1: reality of inflation dynamics. The FED today is very concerned 71 00:03:48,080 --> 00:03:51,880 Speaker 1: about inflation getting stuck at four to five percent, and 72 00:03:52,160 --> 00:03:54,480 Speaker 1: I think the only way to guard against that is 73 00:03:54,520 --> 00:03:57,960 Speaker 1: to keep the the target policy rate higher for longer. 74 00:03:58,160 --> 00:04:00,600 Speaker 1: And that's actually what they've been telling as markets just 75 00:04:00,640 --> 00:04:02,720 Speaker 1: have a hard time getting it through their investor heads 76 00:04:02,760 --> 00:04:04,720 Speaker 1: that because they've never left through this before, I guess 77 00:04:04,800 --> 00:04:07,320 Speaker 1: or something. So if I'm an investor, what do I do? 78 00:04:07,360 --> 00:04:09,000 Speaker 1: Where do I make money? Let's say the key rates 79 00:04:09,040 --> 00:04:11,960 Speaker 1: stays up for well over well into four as Estra 80 00:04:12,000 --> 00:04:17,279 Speaker 1: George indicated today almost not presently Kansas, fitted Kandada if anymore. Uh, 81 00:04:17,440 --> 00:04:19,800 Speaker 1: what kind of stocks do I you know, what kind 82 00:04:19,800 --> 00:04:24,480 Speaker 1: of fixed income? Well, first, I think that domestic investors 83 00:04:24,480 --> 00:04:27,839 Speaker 1: in the US do suffer from home bias. You know, 84 00:04:27,839 --> 00:04:30,239 Speaker 1: in some some cases, I think that they are driving 85 00:04:30,279 --> 00:04:32,719 Speaker 1: with the rear view mirror. They see how strong US 86 00:04:32,800 --> 00:04:35,840 Speaker 1: market performance has been over the last several years. They 87 00:04:35,839 --> 00:04:39,000 Speaker 1: see technology growth stocks, those assets, and and you know, 88 00:04:39,400 --> 00:04:42,839 Speaker 1: expect a rebound. I think it's time to start allocating abroad, 89 00:04:43,160 --> 00:04:46,960 Speaker 1: starting to to focus especially on Asia, but but also Europe. 90 00:04:47,320 --> 00:04:49,599 Speaker 1: And then secondly, I think domestically in the US, you 91 00:04:49,640 --> 00:04:53,040 Speaker 1: do see the rebalancing back into value. If you were 92 00:04:53,080 --> 00:04:56,320 Speaker 1: to just slice uh US assets and and look at 93 00:04:56,360 --> 00:05:00,960 Speaker 1: the top ten top of companies in regard to free 94 00:05:00,960 --> 00:05:04,800 Speaker 1: cash flow relative enterprise value, you see that that those 95 00:05:04,960 --> 00:05:08,040 Speaker 1: those stocks were you know, actually relatively flat in some 96 00:05:08,120 --> 00:05:11,840 Speaker 1: cases up modestly two. And I think that they're still 97 00:05:11,839 --> 00:05:15,680 Speaker 1: going to outperform. They have a better profile relative to 98 00:05:15,680 --> 00:05:18,560 Speaker 1: to these this higher level of interest rates. So, as 99 00:05:18,560 --> 00:05:21,920 Speaker 1: an American expat living in Singapore and working there, I 100 00:05:21,960 --> 00:05:24,400 Speaker 1: know China is a long way from the Lion City. 101 00:05:24,440 --> 00:05:27,560 Speaker 1: But give me your view on what you see unfolding 102 00:05:27,560 --> 00:05:31,000 Speaker 1: on the mainland visa v COVID and the pivot away 103 00:05:31,040 --> 00:05:34,640 Speaker 1: from COVID zero, And give me your outlook. Maybe the 104 00:05:34,680 --> 00:05:39,120 Speaker 1: house view from Carlisle on the Chinese reopening, Well, I 105 00:05:39,120 --> 00:05:41,800 Speaker 1: would say first of all that the only policy that 106 00:05:41,839 --> 00:05:45,080 Speaker 1: has garnered more criticism than zero COVID, of course, has 107 00:05:45,080 --> 00:05:48,760 Speaker 1: been China's decision to suddenly abandon it, and and so 108 00:05:48,839 --> 00:05:50,320 Speaker 1: you know, I think that this is really a no 109 00:05:50,400 --> 00:05:54,000 Speaker 1: win situation. But it feels to me as though the 110 00:05:54,040 --> 00:05:58,360 Speaker 1: reopening is the first step in a larger policy program 111 00:05:58,400 --> 00:06:03,000 Speaker 1: of reigniting growth in China and reinstilling confidence in the economy. 112 00:06:03,400 --> 00:06:05,200 Speaker 1: And so you know, if you look at the data 113 00:06:05,279 --> 00:06:08,240 Speaker 1: in December, they were dreadful, of course, both from a 114 00:06:08,240 --> 00:06:12,039 Speaker 1: public health but also economic perspective, really a collapse in 115 00:06:12,560 --> 00:06:15,719 Speaker 1: foot traffic, collapse in business volumes, and so on a 116 00:06:15,800 --> 00:06:18,440 Speaker 1: cumulative basis, it looks as though the Chinese economy is 117 00:06:18,440 --> 00:06:22,440 Speaker 1: probably about seven percent below where one might have expected 118 00:06:22,480 --> 00:06:25,440 Speaker 1: it to be in terms of total output relative to 119 00:06:25,480 --> 00:06:27,800 Speaker 1: two years ago. So I think that there's quite a 120 00:06:27,880 --> 00:06:31,080 Speaker 1: lot of makeup growth ahead. And you know, if you 121 00:06:31,160 --> 00:06:34,680 Speaker 1: have not only reopening, but but additional policy support that 122 00:06:34,760 --> 00:06:39,400 Speaker 1: we've seen liquidity additions for for the general economy, also 123 00:06:39,640 --> 00:06:42,480 Speaker 1: support for property, it wouldn't be terribly surprising to see 124 00:06:42,520 --> 00:06:45,440 Speaker 1: China growing at a ten or twelve annualized right in 125 00:06:45,440 --> 00:06:47,719 Speaker 1: the middle of this year. You know, for a brief 126 00:06:47,720 --> 00:06:50,040 Speaker 1: period that's not going to be sustained. But but again 127 00:06:50,040 --> 00:06:53,040 Speaker 1: it's it's important to appreciate the the amount of catch 128 00:06:53,160 --> 00:06:58,440 Speaker 1: up growth that could be ahead in three into no 129 00:06:58,440 --> 00:07:01,400 Speaker 1: no doubt about it. From Jason Thomas at Carlyle Here 130 00:07:01,400 --> 00:07:02,719 Speaker 1: on dB A, Thanks so much.