Speaker 1: Let's bring in Peter Cheer, he has head of macro
Speaker 1: Strategy at Academy Securities to take a look at today's
Speaker 1: volatility and markets a lot. Peter has focused on some
Speaker 1: of the geopolitical risk that maybe markets had become a
Speaker 1: little complacent on. Would you say that's a fair statement. Yeah,
Speaker 1: I think it's a very fair statement. One of the
Speaker 1: meat things about Academy Securities is we have seventeen retired
Speaker 1: generals and admirals who serve as our geopolitical intelligence group.
Speaker 1: We started analyzing this situation the minute occurred, and I
Speaker 1: think this situation is no matter what happened, this is
Speaker 1: probably going to be an impetus to give Ukraine more
Speaker 1: weapons and better weapons. So, no matter how this all happened,
Speaker 1: I think that that's going to play out. And what
Speaker 1: hasn't been mentioned enough is this all happened in a
Speaker 1: day where Ukraine is potentially without of the country is
Speaker 1: without power, that we're devastating attacks. So I think we're
Speaker 1: going to see an escalation from our side. I think
Speaker 1: now this gets worse before better. Regardless of Article five
Speaker 1: or not, this is just gonna be an escalation with
Speaker 1: what's going on. It's rather reminiscent of the Gulf of
Speaker 1: Tonkin incident. Yes, and I think you know, we all
Speaker 1: talked about escalation. You wonder how do you get to
Speaker 1: some endpoint? And I think this is what happens. We'll
Speaker 1: do something now all of a sudden. Imagine we give
Speaker 1: Ukraine enough long range of missiles, they do something that
Speaker 1: hits Russian territory. So I think this gets very dangerous
Speaker 1: right now. So the knee jerk in terms of market
Speaker 1: reaction sell risk. I mean, we saw popping crude oil prices,
Speaker 1: but that trade didn't seem to be durable. Is what
Speaker 1: you're saying is that we have to reconsider that and
Speaker 1: and maybe we're going to be dealing with one factor,
Speaker 1: which would be higher energy prices going forward. Yeah, I
Speaker 1: went home convincing my clients to be a little bit
Speaker 1: short on risk. We've been very bullish. We thought the
Speaker 1: deflation trade was going to come through. That's been working out,
Speaker 1: and I think the market got fixated on an article
Speaker 1: five what this all meant. And I think the reality
Speaker 1: is take a step back. There is no way that
Speaker 1: Ukraine doesn't demand more weapons after this, and I think
Speaker 1: it all likely that they get better weapons that is
Speaker 1: going to escalate. And you saw Russia statements right there
Speaker 1: denying they had an anything to do with this, but
Speaker 1: they're saying, we're trying to escalate. So the moment we
Speaker 1: do that, I think we're re entering a world of
Speaker 1: geopolitical tensions where you just got comfortable that Putin maybe
Speaker 1: was taking it easy, that g seemed to be pushing
Speaker 1: Pudin towards peace, that maybe after the elections we wanted it.
Speaker 1: I think this is a step backwards. Okay, well, let's
Speaker 1: people have a look at what your generals may be
Speaker 1: telling you about, you know, the loss of care Son
Speaker 1: by the Russians, how I mean inst of all going
Speaker 1: that badly in their view. Yes, I think the war
Speaker 1: is going very badly in the view of our generals.
Speaker 1: They keep making mistake after mistake. Our current base cases
Speaker 1: what we think will happen is and this is gonna
Speaker 1: be a little bit hard to do over radio, but
Speaker 1: Russia needs to go east to west, and all the
Speaker 1: rivers in the Ukraine run north south, so they need
Speaker 1: those rivers to freeze to make a proper attack going forward.
Speaker 1: Because Ukraine, especially with all the recent weaponry that we
Speaker 1: give them, the high mars, etcetera. We can stop them
Speaker 1: from crossing bridges. So Russian needs things to freeze before
Speaker 1: they make one more launched. It's been going very badly.
Speaker 1: They keep losing and their tactics seem awful. So if
Speaker 1: markets have it right then, and or maybe they don't
Speaker 1: and we need to see some kind of readjustment. Does
Speaker 1: that necessarily mean stronger dollar, lower yields, and and a
Speaker 1: FED that's in a much more tight situation. I think
Speaker 1: it means lower yields, but I don't think it puts
Speaker 1: the FED dealing with inflation. Right. If we see oil
Speaker 1: prices go up because of a renewed focus on the war,
Speaker 1: I don't think the FED reacts to that right. Traditionally
Speaker 1: the FED actually eases into war. So I don't think
Speaker 1: higher oil prices trigger FED inflation response. They figure they
Speaker 1: trigger more a FED. Hey, we have to see where
Speaker 1: this is all headed, one way or the other. I
Speaker 1: think this escalates the end game, whether it's a good
Speaker 1: or bad endgame, whether maybe everyone finally pushes people to
Speaker 1: the table, so there could be a good result, but
Speaker 1: I think right now worse and then let's see how
Speaker 1: the people respond. I'm going to keep on talking about this,
Speaker 1: but at the end of the day, it's the way
Speaker 1: to conclude. This may well have to be some kind
Speaker 1: of face saving for Vladimir Putin. Yes, I think in
Speaker 1: the end what we want to avoid is where he
Speaker 1: feels that he has to I hate to say the term,
Speaker 1: but go nuclear. We don't want him to see feel
Speaker 1: so panicked that he loses, and I think some negotiation
Speaker 1: has to occur where Ukraine maybe has to give up something,
Speaker 1: which I think Zelensky is going to be very reluctant
Speaker 1: to do, but maybe just has to get to old listen,
Speaker 1: we cannot keep supporting you in this way, give up
Speaker 1: something so Putent can go home peacefully. And it's really
Speaker 1: crucial right now as Ukraine's facing a as we mentioned earlier,
Speaker 1: huge electrical power shortages, which as you face winner, that's
Speaker 1: not something we can do. But as the sanctions ramp up,
Speaker 1: I think there's a lot of evidence that it's going
Speaker 1: to hurt us the West collectively more than it hurts Russia.
Speaker 1: So maybe we want to avoid those sanctions as well.
Speaker 1: So peace seems the best outcome. And maybe this is that,
Speaker 1: you know, one step backwards before we get the two
Speaker 1: steps forward much more in the way of headwind I'm
Speaker 1: imagining for Europe's economy. Play that out for me, What
Speaker 1: does that look like? Yeah, I think Europe. It felt
Speaker 1: like Europe was just turning the corner right. More and
Speaker 1: more analysts, including myself, were saying, Okay, maybe they've done
Speaker 1: enough to make it through this winter. Maybe we're okay,
Speaker 1: And now that feels off the table, right. If there's
Speaker 1: this friction, it's problematic. And the other thing, which I
Speaker 1: haven't mentioned, comes up often when you talk, especially with
Speaker 1: our geopolitical history, is the force migration that's gone on
Speaker 1: in Europe is unseen since World War Two, and at
Speaker 1: times it's probably even worse than World War Two. Right,
Speaker 1: we've displaced five to eight million Ukrainians into Western Europe.
Speaker 1: The longer this war goes on, the harder it's going
Speaker 1: to be for them to return. The more destruction that
Speaker 1: goes on to their old property, their apartments, harder for
Speaker 1: them to return. So that's yet another reason I think
Speaker 1: we need to sit down and get some sort of
Speaker 1: truce that maybe gets put in just enough that we
Speaker 1: can get out of this. But let's move away from
Speaker 1: the missile strike and and just talk about what it's
Speaker 1: going on in terms of how you see the global
Speaker 1: economy panning out, how you see inflation at the moment,
Speaker 1: and whether it's peaked or not. I think inflations peaked.
Speaker 1: I think it's rolling over very quickly. And some of
Speaker 1: it's obvious, right the higher interest rates. I think the
Speaker 1: US economy was more leveraged to raise than people expected.
Speaker 1: You're seeing it in housing, you're seeing it in autos.
Speaker 1: I think the job's number we might have to come back,
Speaker 1: because that's the one remaining issue. The other part, to
Speaker 1: me has been the wealth effect, the complete wealth destruction
Speaker 1: that's gone on, and where I'm really focused. I think
Speaker 1: it's very different. This time. It was very concentrated wealth creation,
Speaker 1: and it was the disruptive companies. It was the crypto companies,
Speaker 1: and I see it as threefold. One the companies themselves,
Speaker 1: so they were able to raise money, and they spent
Speaker 1: that money aggressively, their employees, their stock options were worth
Speaker 1: a lot of money. They were spending that money. And
Speaker 1: then just the casual investor is working very well. All
Speaker 1: that's gone down. So I think that's gonna be a
Speaker 1: huge drag in the economy. I think it's gonna infect technology,
Speaker 1: it's gonna affect semis, etcetera. But one pushback I get
Speaker 1: to my view that inflation is really topped out is
Speaker 1: people are looking at jobs, and I see two things
Speaker 1: about that. One is, traditionally jobs are very lagging indicator,
Speaker 1: and I think it's gonna be more liking this time
Speaker 1: than we've ever seen before, partly because HR people have
Speaker 1: spent the last year and a half trying to hire
Speaker 1: and have been unable to hire. They are not going
Speaker 1: to allow people to get fired. They're going to figure
Speaker 1: out other ways to cut costs before firing. So jobs
Speaker 1: is going to be the last lay to drop, and
Speaker 1: I think that starts happening. And when you look at
Speaker 1: some of the discommunities between household versus establishment versus birth
Speaker 1: death models, I think we're prepared actually to see a big,
Speaker 1: shockingly not good number in this next job's report. So
Speaker 1: that's why I think inflations rolled over. I think it's problematic.
Speaker 1: I think markets can be happy briefly that we go
Speaker 1: through a soft landing type scenario, but I think soon
Speaker 1: we're gonna start pricing in a hard landing. Hard landing,
Speaker 1: and what about earnings disappointments. Are we going to see
Speaker 1: a lot in the way of that. Yes, I think
Speaker 1: we're already struggling. One thing, You look at some of
Speaker 1: the companies that are laying off people, and they're laying
Speaker 1: off people at what seems like an awkward time. Right,
Speaker 1: We're usually coming into one of the most robust business
Speaker 1: seasons in the US and you get companies that are
Speaker 1: involved in that area letting people go. I think the
Speaker 1: f X volatially is problematic, but more importantly, everywhere I look,
Speaker 1: people are having sales. Right, it's off this off that
Speaker 1: I think retail is still struggling. The service industry has
Speaker 1: done very well. But what I can't tell with the
Speaker 1: service industry whether this is a one time effect coming
Speaker 1: to the US holiday season and it dissipates after year
Speaker 1: end or it doesn't. I lean towards that this is
Speaker 1: going to dissipate. So I see the economy rolling over,
Speaker 1: higher rates playing a price, and this wealth effect, this
Speaker 1: pure wealth destruction we've seen in disruptive companies and crypto
Speaker 1: having a much bigger effect than people realize. I've got
Speaker 1: to ask you this question, how far is now uh
Speaker 1: crypto being Well, let's just put in another way, how
Speaker 1: badly damage is crypto being as a consequence of the
Speaker 1: f t X debuclet. So I think it has a
Speaker 1: lot more way to go down. It's I would not
Speaker 1: touch bitcoin until it's well below ten thousand. Clearly we're
Speaker 1: getting little bounces. But you know, I talk a lot
Speaker 1: about there's two ways to lose money. One is you
Speaker 1: buy an asset that goes down in price, and that's
Speaker 1: we all do that, right, It's been in possible year
Speaker 1: this in many respects with you about bond stocks. It
Speaker 1: didn't matter, it was easy to lose money. One problem
Speaker 1: with losing money on some of these crypto investments is
Speaker 1: you don't even really have a good floor. You don't
Speaker 1: understand what it could be, as we saw, say with
Speaker 1: the FTT token. The other way you lose money is
Speaker 1: you give your money to someone to hold and they
Speaker 1: don't return it to you or can't return it to you.
Speaker 1: And that's what just went on with ft X by
Speaker 1: the looks of it, right So, and it happened earlier
Speaker 1: this year with Celsius, and that to me is really
Speaker 1: hard because with enough due diligence, you feel you could
Speaker 1: ultimately trust someone that you give your money to and
Speaker 1: until that gets resolved, I don't see institutional investors coming
Speaker 1: to this market. In fact, I see people fleeing this
Speaker 1: market because you can't even trust if you get your
Speaker 1: decision to buy crypto right, that you get your returns back,
Speaker 1: and that's a big issue. Peter, thank you so much
Speaker 1: for joining. Is always a pleasure, never a chue. Peter Cheer,
Speaker 1: the head of macro strategy Academy Security, is getting his
Speaker 1: take on the markets and more.