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Speaker 1: So let's get to our guest, Peter Cheer, head of

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Speaker 1: macro Strategy Academy Securities. Peter, the big question, I suppose

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Speaker 1: is is what the bo j did the beginning of

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Speaker 1: the end to ultra loose monetary policy. But in the

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Speaker 1: shorter term, I'm curious whether or not investors will simply

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Speaker 1: have to add yen to hedge their bets and in

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Speaker 1: fact you actually make bets on what comes next. Yeah,

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Speaker 1: I think it was a really interesting move. I like

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Speaker 1: the surprise factor. It took the market by surprise, and

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Speaker 1: I think that's actually gonna be more powerful than telegraphing

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Speaker 1: so far in advance. So I like what they did.

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Speaker 1: I agree with you. I think people are going to

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Speaker 1: have to buy some yen. I think you're also going

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Speaker 1: to see Japanese look at selling treasuries and some other

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Speaker 1: things that they can start getting a real yield in

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Speaker 1: their own currency without having to go through f X, sedges, etcetera.

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Speaker 1: So I think we're gonna see, you know, yields push

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Speaker 1: up a little bit on the back of this UM,

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Speaker 1: not dramatically in the US, but it's a really interesting

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Speaker 1: start to what Japan's doing. It is rather interesting and

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Speaker 1: you know. The thing, is it as global implications? Is

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Speaker 1: it not? Yes? So you know, I think when you look,

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Speaker 1: Japanese have been the largest buyers of foreign denominated bonds

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Speaker 1: in the world. So will they start selling those foreign

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Speaker 1: denominated bonds because they often have to jump through hoops

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Speaker 1: trying to hedge the f X risk, etcetera. When they

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Speaker 1: want to buy that and keep it in their own currency.

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Speaker 1: So now all of a sudden you can start getting

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Speaker 1: forty fifty BIPs on your own tenure. I think some

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Speaker 1: of that incentive goes away. So I think it's gonna

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Speaker 1: be problematic to the US in particular, where we've relied

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Speaker 1: so heavily on foreign buyers, We're gonna have to make

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Speaker 1: sure that we have domestic buyers. I'm curious, though, you know,

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Speaker 1: you've got this last suit, which is the yield curve control.

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Speaker 1: Uh and and okay, we moved from points to fifty.

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Speaker 1: It's a step in that direction. But I'm curious what

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Speaker 1: you think if we didn't have yield curve control, um,

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Speaker 1: where would those yields be? That that's such an interesting question.

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Speaker 1: I guess probably one and a quarter one and a

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Speaker 1: half percent. I think they're gonna still be much lower

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Speaker 1: than the rest of the world because Japan's really not

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Speaker 1: experiencing the inflation, they're not experiencing the growth. So I

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Speaker 1: don't think you would catch up to even German rates,

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Speaker 1: so I think it would go higher. But that cap

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Speaker 1: certainly makes them it's held them in, but I don't

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Speaker 1: think it's super super dramatic given the state of inflation

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Speaker 1: in Japan versus the state of inflation in the rest

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Speaker 1: of the world. Be that just you know, want to

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Speaker 1: keep on looking at what's happening with regards to this,

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Speaker 1: because I mean, we've got this probably an outflow from

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Speaker 1: treasury is given what happened on the JGB market, the

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Speaker 1: Japanese government bond market, you know it's already a market

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Speaker 1: suffering of I'm talking about the treasury one from liquidity issues,

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Speaker 1: which has been also simultaneously been perhaps affected by coorditative tightening.

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Speaker 1: What does that all really add upt to to me,

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Speaker 1: It's adding up to a policy mistake in the US,

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Speaker 1: where I think they're looking very much in the rear

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Speaker 1: room year at the data. If you take a look

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Speaker 1: for the past two months, the inflation data, even on

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Speaker 1: CPI has been pretty good. It's been overstated UM by

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Speaker 1: pretty much erroneous um housing inputs, and the Cleveland FED

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Speaker 1: actually just published something on that today. So I think

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Speaker 1: the FED is responding to last year's mistakes and older data,

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Speaker 1: and I think we're pushing too far, and I think

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Speaker 1: that's setting the US economy up for a very negative

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Speaker 1: ad recession earlier this year, which is why we're so inverted. Well,

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Speaker 1: it depends on how you define policy mistake, because there

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Speaker 1: will be those who will who will take even recession

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Speaker 1: as necessary to beating inflation, and they will see it

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Speaker 1: as a victory. But as you say, plenty will say

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Speaker 1: that if they don't engineer a soft landing, then it's

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Speaker 1: a mistake. Yes, And I think we're not only going

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Speaker 1: to get a small recession. I think we're gonna get

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Speaker 1: a fairly deep recession. And when I keep thinking about

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Speaker 1: what drove inflation, if you go back to when a

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Speaker 1: lot of us were saying the FEED had to put

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Speaker 1: the brakes on, we had a lot of stimulus. We

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Speaker 1: had both fiscals. We had fiscal stimulus coming from the

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Speaker 1: government directly to people the companies. We also had to

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Speaker 1: me And I think this is the biggest shift is

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Speaker 1: the amount of wealth that was created a very a

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Speaker 1: short period of time and these disruptive companies. So the

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Speaker 1: employers are rich, the companies were cash rich, the investors

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Speaker 1: were cash rich. The private equity firms did so well.

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Speaker 1: There was all this money slashing around, and a lot

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Speaker 1: was spent on the economy because it was growth, growth,

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Speaker 1: growth at all costs, and it looked like it was

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Speaker 1: going to go on forever. And I think that really

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Speaker 1: drove inflation and a lot of products semiconductors for example,

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Speaker 1: And I think that's all gone, and that's why the

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Speaker 1: feeders overreacting. That was a quote unquote transitory type thing

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Speaker 1: that has now gone. Well, absolutely is the end of

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Speaker 1: free money. And that's something that we've gotten used to

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Speaker 1: for the last what twelve thirteen years, And this has

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Speaker 1: actually consequences well beyond not just of course the asset

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Speaker 1: price set of things, but also how people look at markets,

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Speaker 1: whether they're now looking actually where they can make yield

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Speaker 1: rather than capital appreciation. Yeah, we've had a lot of

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Speaker 1: people looking even at bonds as capital appreciation. You could

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Speaker 1: buy bonds at sixty cents on the dollar, Okay, you

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Speaker 1: can get some upside from there. I fields move and

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Speaker 1: I just think that the process of QUEI really forces

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Speaker 1: everyone out the risk spectrum all the way into those

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Speaker 1: risky assets. And I think as we go through quantitative tightening,

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Speaker 1: it allows everyone every day almost to make that decision

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Speaker 1: I can take less risk for similar returns. I am

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Speaker 1: going to do that. So all of a sudden, you're

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Speaker 1: tiving all these conversations should I be in two years?

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Speaker 1: Should I be in money market funds? And I think

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Speaker 1: you're seeing a much better portfolio diversification. And it's going

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Speaker 1: to take time to play out, but people actually have

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Speaker 1: that ability to pick and choose where they want to

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Speaker 1: be on the yield curve, where they want to make income,

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Speaker 1: and they'll still take equity risk, but it doesn't all

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Speaker 1: have to come from equity returns. Right now, you probably

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Speaker 1: heard me mentioned Nike shares are in after hours and

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Speaker 1: FedEx actually trading up about three and three quarters percent.

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Speaker 1: These these earnings will will will definitely satisfy some people.

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Speaker 1: What are you expecting from this next round of earnings? UM? So,

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Speaker 1: I think we are seeing oil prices lower, and I

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Speaker 1: think that's going to help some of these companies. It's

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Speaker 1: probably good that we're seeing some of the dollar weakness,

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Speaker 1: so that might have chance to translate into the next quarter,

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Speaker 1: and I think you're gonna see it reminds me a

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Speaker 1: lot of what was going on in the US in

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Speaker 1: two thousand and fifteen sixteen, when energy was horribly disappointing

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Speaker 1: and everything else is okay for a while. I think

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Speaker 1: you're gonna see tech disappointing, but you're gonna see autos

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Speaker 1: do reasonably well. You're gonna see travel and leisure do

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Speaker 1: very well. So it's gonna be, you know, a little

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Speaker 1: bit hard to see where this recession is coming through.

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Speaker 1: But I think fang, which was such a big leader,

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Speaker 1: is rolling over, and I think that's going to continue.

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Speaker 1: That's going to show up evidence in the earnings. And

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Speaker 1: what I'm really watching for is the service providers how

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Speaker 1: they do. So there's a couple of public um you know,

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Speaker 1: accounting firms, there's some public consulting firms. I think that's

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Speaker 1: going to be the area that companies cut back on.

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Speaker 1: So I'm really looking for earnings pressure there to confirm

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Speaker 1: whether we are headed for a deeper recession than people think.

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Speaker 1: So if the Feds stopped moving on rates now, would

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Speaker 1: we be fine? I do not think so. I think

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Speaker 1: that ship is sailed. I think they've staid enough things

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Speaker 1: in motion that it's triggering. And if you go back historically,

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Speaker 1: we've often talked, right, it's six to twelve months for

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Speaker 1: hikes to take act. I think it maybe it's three

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Speaker 1: to six months. But you're still not even feeling some

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Speaker 1: of the consequences of these prior effects. You're seeing losses

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Speaker 1: in the credit markets at some of the big banks

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Speaker 1: where you had feels like citrics the Twitter bond deal

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Speaker 1: of cause some losses. I think you're gonna see credit tightening.

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Speaker 1: All the things that we're factoring into expansion are changing,

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Speaker 1: and that just takes time. And I think the FED

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Speaker 1: has gone too far. They should have paused and waited

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Speaker 1: real quickly. Looks sounds like you like Japan here, I do.

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Speaker 1: I think Japan is going to be a really good

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Speaker 1: growth story for the inflations low. They've got a good

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Speaker 1: economic base. I like now what they're doing loosening up

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Speaker 1: monetary policy a little bit. But this particularly comes from

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Speaker 1: we spent a lot of time on the geopolitical Japan

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Speaker 1: is really interesting in Asia because of their strength. Okay, yeah,

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Speaker 1: we expanded our segments here, so we can have more

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Speaker 1: time with that guests, but we need even more time

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Speaker 1: with you. Peter have to be next time. Peter Cheer

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Speaker 1: from Academy Securities