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Speaker 1: Let's get to our guest. Ellen Hazen is with us.

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Speaker 1: Ellen is the chief market strategist at f L. Putnam

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Speaker 1: Investment Management. She joins from Wellesley, Massachusetts. Always a pleasure,

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Speaker 1: thanks for being with us. Ellen. Have markets underestimated the

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Speaker 1: resolve on the part of the Fed to really get

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Speaker 1: the inflation genie back in the bottle? There's no question

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Speaker 1: that the Fed has been clear that they are trying

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Speaker 1: to make sure that not only their raising rates, but

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Speaker 1: that they're communicating effectively. And I think one of the

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Speaker 1: presidents was out in the last couple of days saying

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Speaker 1: that the communication was even more important than the actual

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Speaker 1: level of rates. And so I think they have a

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Speaker 1: very visibly coordinated strategy for going out and making sure

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Speaker 1: that the message gets across. And I do think the

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Speaker 1: market is paying attention. You know. The head of the

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Speaker 1: New York Fed, John Williams, today kind of damp in

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Speaker 1: spirits um. He said the Fed should avoid incorporating financial

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Speaker 1: stability risk into considering rate hikes. That seems to my

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Speaker 1: mind a little risky. I think that it's hard enough

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Speaker 1: to balance the price stability and full employment, and when

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Speaker 1: you add in that third element to the mix, the

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Speaker 1: financial stability it becomes a very very tricky balancing act, indeed,

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Speaker 1: and you have all the economic actors out there trying

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Speaker 1: to second guests the FED, trying to understand how the

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Speaker 1: FED is going to respond to different environments, and it's

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Speaker 1: very hard to keep the communication straightforward, which is what

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Speaker 1: they're trying to do. If they are then also implying

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Speaker 1: that they're going to manage to three variables instead of two,

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Speaker 1: and so I think it does make sense, uh for

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Speaker 1: them to not talk about the financial stability angle. Ultimately, though,

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Speaker 1: at the end of the day, if there's a financial

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Speaker 1: stability problem, I would expect the FED would come in

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Speaker 1: as it has every other time there's better financial stability problem.

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Speaker 1: But I think this is really them trying to make

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Speaker 1: sure that the communications are more clear. So we reached

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Speaker 1: new extremes in the inversion of the yield curve. Today,

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Speaker 1: I think it's fair to say the the risk of

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Speaker 1: a hard landing has increased. Maybe we're looking at a

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Speaker 1: recession hands down at this point. I mean, we may

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Speaker 1: already be there. I don't know. I'm wondering whether or

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Speaker 1: not you're concerned about the possibility of much much weaker

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Speaker 1: economic growth. We are certainly so, as everyone knows, the

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Speaker 1: FED starded raising rates in March, and it takes about

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Speaker 1: three quarters for that to flow through to the real economy.

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Speaker 1: So even the very first basis point increase is only

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Speaker 1: really beginning to be felt in a meaningful way now.

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Speaker 1: And of course you have the other three and fifty

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Speaker 1: basis points that they added on top of that that

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Speaker 1: are still cumulatively still to impact the market. So on

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Speaker 1: the one hand, you have a number of indicators suggesting

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Speaker 1: weak economic growth. First of all the yield curve as

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Speaker 1: you point out, but also leading economic indicators are are

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Speaker 1: are quite poor at the moment here in the US.

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Speaker 1: And then of course labor market remains very strong, and

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Speaker 1: so the question is are we going to eat wider

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Speaker 1: scale layoff and is that going to drive a weaker

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Speaker 1: economic outlook. But I will say that right now, the

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Speaker 1: Atlanta GDP now forecast for Q four is at four percent,

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Speaker 1: So if we're starting a recession, at least according to

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Speaker 1: the Atlanta Fed, it doesn't appear to be this quarter.

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Speaker 1: So we're getting close to the holidays in the States.

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Speaker 1: Before we pivot to markets off shore, I want to

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Speaker 1: get your perspective on the American consumer. I mean to

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Speaker 1: Target today, warrenant that shoppers are essentially pulling back, But

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Speaker 1: yesterday the numbers from Walmart maybe told us a slightly

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Speaker 1: different story. Where is the American consumer right now? Overall,

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Speaker 1: that's a really good question, and the data, as you

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Speaker 1: point out, are conflicting right now. So Walmart saw very

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Speaker 1: strong UH comp stales of both traffic and ticket were strong,

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Speaker 1: and you also saw strong numbers out of both Home

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Speaker 1: Depot and lows over the last couple of days, And

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Speaker 1: you saw great numbers out of t j X. On

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Speaker 1: the other hand, Target was pretty bad. Although I will

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Speaker 1: say their top line was actually better than expected, it

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Speaker 1: was all in the markdowns they had to take, and

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Speaker 1: therefore their operating margin was half of what the street

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Speaker 1: had been looking for. So it seems as though consumers

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Speaker 1: are very keen to buy things on promotion. They want sales,

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Speaker 1: they want bargains, they don't want to pay full price.

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Speaker 1: And if as a retailer, you are positioned for that,

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Speaker 1: as t j X often is, as Walmart often is,

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Speaker 1: then you're going to do better. But Target has a

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Speaker 1: bit of a higher price point, a bit of a

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Speaker 1: higher end consumer, and they found that they needed to

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Speaker 1: take many more markdowns that they had expected to do.

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Speaker 1: But if you point out the retail sales numbers that

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Speaker 1: came out was was fairly strong as well. So I

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Speaker 1: think what this means is that the consumer is beginning

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Speaker 1: to dip into those pandemic savings and this is probably

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Speaker 1: just the first shot across the bow. So we're coming

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Speaker 1: to the end of the year, and I'm sure the

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Speaker 1: staff over fl Putnam is beginning to look at and

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Speaker 1: put on certain strategies. Maybe they haven't pulled the trigger yet,

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Speaker 1: but I'm sure that the thinking caps are on at

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Speaker 1: this point to look out into the new year and

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Speaker 1: begin to give me a sense of of what you're

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Speaker 1: thinking about and how you're sketching out a plan. Well,

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Speaker 1: certainly it looks right now as though earning's estimates are

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Speaker 1: still too high for next year, particularly in consumer discretionary

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Speaker 1: where earnings estimates are something like for next year. Now,

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Speaker 1: that's down from where they were a few months ago.

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Speaker 1: So the analysts are beginning to pencil this in, but

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Speaker 1: but they're still pretty high. On the other hand, though,

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Speaker 1: there are some areas of the market that are fairly

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Speaker 1: expensive that might grow a little bit um or at

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Speaker 1: least pay you a nice dividend. So there are a

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Speaker 1: number of areas within healthcare where you can get to

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Speaker 1: two and a half three or three and a half

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Speaker 1: percent yields and you're paying high single low double digits UH.

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Speaker 1: And then and then the banks. Banks are looking for

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Speaker 1: UH ten to twelve percent earnings growth for the most

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Speaker 1: part for next year, and they're trading at low double

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Speaker 1: digit earnings multiples and also paying dividends, and increasingly a

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Speaker 1: number of them are going to be allowed to restart

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Speaker 1: their share repurchases in the new year. So we think

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Speaker 1: that that can help financials too. So you seem to

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Speaker 1: be indicating that you were at this point are continuing

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Speaker 1: to be US centric. Are you interested in any opportunities

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Speaker 1: offshore right now? Well, certainly the dollar action over the

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Speaker 1: last couple of days makes us look again. Um. But

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Speaker 1: every time we sharpen the pencil and try to make

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Speaker 1: a case for buying assets, particularly in Europe, we just

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Speaker 1: can't make the math work. Um. On the other hand,

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Speaker 1: a company like TSMC still looks pretty interesting. Estimates there

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Speaker 1: keep going up and the stock is getting cheaper and

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Speaker 1: cheaper every day, So I do think you can find

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Speaker 1: individual names outside the US, But the strong dollar, even

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Speaker 1: after the last couple of days, we think it's likely

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Speaker 1: to continue for a while going forward, and so we

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Speaker 1: don't see a lot of opportunity. Speaking of currency, let's

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Speaker 1: talk a little bit about cryptocurrency. I'm just curious to

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Speaker 1: get your take on what we have seen this meltdown

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Speaker 1: that has kind of sent shockwaves through the entire crypto space.

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Speaker 1: How do you think this has impacted market psychology generally speaking, Uh,

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Speaker 1: when bubbles burst, there's always a lot of collateral damage.

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Speaker 1: I think it's very early to draw conclusions about f

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Speaker 1: t X, given that there's still a lot of information

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Speaker 1: that needs to come out. But based on the preliminary reports,

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Speaker 1: it does look like a classic run on the bank

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Speaker 1: caused by speculating within with your own currency um, which

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Speaker 1: is one of the things that you learn not to

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Speaker 1: do very early on in the finance world. So it

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Speaker 1: does look like sort of a basic mistake. But again

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Speaker 1: that's a preliminary assessment based on what we've seen. I

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Speaker 1: do think though, that as real interest rates rise, right

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Speaker 1: the fet is raising rates, that's going to cause increased

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Speaker 1: volatility across all asset classes, including crypto Ellen, it's always

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Speaker 1: a pleasure to uh spend time with you and to

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Speaker 1: get your perspective of Ellen Hazen, our guest. She is

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Speaker 1: the chief market Strategist at f L. Putnam Investment Management,

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Speaker 1: joining us here on Daybreak Asia