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Speaker 1: Our guest has mentioned Shane Assistle, founder and president of

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Speaker 1: ben Reong Capital Management. So, Shana, it feels like we

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Speaker 1: kind of know how the Fed plays this. They wait

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Speaker 1: and wait until the inflation data waves the white flag,

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Speaker 1: and by that time it's too late for a soft landing,

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Speaker 1: and so we just say hello to recession. The bond

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Speaker 1: market gets a bid, the stock market does not. Do

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Speaker 1: you see it that way? I don't disagree that. As

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Speaker 1: you pointed out, inflations lagging indicator, So if they're waiting

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Speaker 1: for it to hit a certain mark before they stop,

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Speaker 1: they will obviously push us past the point at which

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Speaker 1: would have been prudent UH. And also their focus on

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Speaker 1: employment and unemployment rate here in the US, I think

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Speaker 1: also kind of pushes us closer to recession because obviously

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Speaker 1: they want to see an increase in the unemployment rate

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Speaker 1: UH from where it currently sits at about three point

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Speaker 1: three and a half percent. They want to see it

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Speaker 1: increased by a full percentage point, which is quite a

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Speaker 1: few jobs that need to be lost in their opinion,

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Speaker 1: to get everything and to slow down the economy. Shanna

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Speaker 1: is in the case of be careful what you wish

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Speaker 1: for as well here because these things have in tendencies.

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Speaker 1: It's not cascading and causing UH all sorts of unintended consequences. Oh. Absolutely,

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Speaker 1: and the Fed has consistently h overshot whatever their targets

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Speaker 1: are ha had negative consequences for the overall economy. The

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Speaker 1: hope here is that they will heed some of the

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Speaker 1: negative economic data that is leading UH and possibly slow

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Speaker 1: the rate of their um interest rate hikes UH to

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Speaker 1: be a little more prudent in the decisions that they make,

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Speaker 1: as opposed to continue to be aggressive, raising fifty seventy

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Speaker 1: five basis points every meeting. It seems like the stock market, though,

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Speaker 1: is still kind of holding out for a soft landing. UH.

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Speaker 1: You know, down eight that's that's less than the typical recession. Right.

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Speaker 1: Well two UH was one of the worst stock market

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Speaker 1: UH performances in history. I believe it's like number six

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Speaker 1: on the list. So UH, let's not pretend that it

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Speaker 1: wasn't a bad year and that that isn't to be

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Speaker 1: expected when the economy starts to slow down and you

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Speaker 1: start to move into a recession. But the market is

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Speaker 1: forward looking, so by the time we are in a recession,

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Speaker 1: and it's likely that the market will have begun to

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Speaker 1: recover at that point. I think we will see some

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Speaker 1: very difficult earnings in the first quarter, reflecting on Q

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Speaker 1: four earning reports, uh, and that could spill over into

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Speaker 1: Q one three earnings. But I think that's kind of

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Speaker 1: where it ends, and I wouldn't be surprised to see

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Speaker 1: the market start to really turn and gain some positive

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Speaker 1: momentum and the second quarter of twenty twenty three, so

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Speaker 1: April March April may actually that's it's or do you

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Speaker 1: mentioned that, because we've had a few people suggest that

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Speaker 1: it's going to be a year of two halves, the

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Speaker 1: first one being where you are into the whole value

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Speaker 1: side of things, and then gradually you morph into growth

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Speaker 1: as it comes back after being actually if viscerated in

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Speaker 1: terms of what's been happening with evaluations in the light.

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Speaker 1: I think that that might be true. I'm not as

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Speaker 1: convinced that growth is going to, you know, come back roaring,

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Speaker 1: but I do think that it is going to be

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Speaker 1: a tale of two years of two halves of the year,

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Speaker 1: with the second half of the year being quite different,

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Speaker 1: more of a market recovery. I don't think we'll say

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Speaker 1: see interest rates come down, but I think we'll see

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Speaker 1: them pause. I am not in the camp that the

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Speaker 1: federal stop raising and then immediately start cutting. I don't

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Speaker 1: think that's going to happen. So I think rates will

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Speaker 1: probably hit their target, whatever that may be. I think

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Speaker 1: they said five percent. They'll probably get close, and I

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Speaker 1: think we'll be there for a while, the federal pause

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Speaker 1: and the market will start to recover. I don't know

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Speaker 1: if I think growth is going to come out of

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Speaker 1: the gate ahead, though, um there are still some headwinds.

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Speaker 1: I think the higher rate environment in particular that will

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Speaker 1: kind of keep that in check. So does that mean

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Speaker 1: you would not go with the worst performing sectors from

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Speaker 1: last year as a kind of mean reversion trade, or

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Speaker 1: if you did, you'd at least wait until the second

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Speaker 1: or third quarter. Yes, And that's not to say I'm

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Speaker 1: not looking at tech names, because I am, But I

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Speaker 1: would be more in the active space, um, with focusing

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Speaker 1: on active managers and being very stock specific if I'm

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Speaker 1: going to go there. But if you look through history,

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Speaker 1: the sector that tends to do best in this type

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Speaker 1: of environment tends to be industrials. So that's an area

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Speaker 1: that I'd be looking at. Healthcare is another one I

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Speaker 1: wouldn't be jumping into tech, although on a case by

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Speaker 1: case basis, I might look at some specific names. How

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Speaker 1: does the restarting of the world's second largest economy after

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Speaker 1: perhaps being very mute for the last year and a

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Speaker 1: half play into this narrative, Well, that's the wild card

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Speaker 1: in this. I think that the U. S consumer is

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Speaker 1: starting to pull back, but the Chinese consumer has a

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Speaker 1: bunch of pent up demand and they actually could fill

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Speaker 1: the void UH that will be left by the U.

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Speaker 1: S consumer pulling back. If if if that is the case,

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Speaker 1: and so I think that that could actually drive economic

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Speaker 1: growth globally and and help actually with a soft lending.

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Speaker 1: The downside, of course, is that increased demand, increased consumption

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Speaker 1: could actually be more difficult to get inflation under control,

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Speaker 1: especially as a lot of the demand will be for

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Speaker 1: commodities um oil, gas, at different types of metals and UH,

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Speaker 1: and that could inherently keep inflation elevated for longer, making

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Speaker 1: it the Fed's job much harder. So they are really

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Speaker 1: a wild card on what happens here. I was just

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Speaker 1: having to look at Deer because as did fit into

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Speaker 1: your industrials, and also the China reopening, and you know,

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Speaker 1: this is a stock that's gone up probably four times

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Speaker 1: since early I mean that means a lot of the

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Speaker 1: gains maybe in it could be the case. But if

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Speaker 1: there's anything we know, it's that sometimes momentum can continue

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Speaker 1: longer than we think. And some of these names will

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Speaker 1: continue to benefit from the China reopening. Deer Caterpillars another one,

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Speaker 1: and then also I some of the defense stocks, the

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Speaker 1: aerospace and defense stocks I think are quite interesting here too,

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Speaker 1: and those all fall into that industrial sector category. So

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Speaker 1: the question is what happens with the sixty is a

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Speaker 1: split certainly that wasn't going to do you any favors

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Speaker 1: in twenty two? Does it come back? I think that

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Speaker 1: people are starting to learn that the needs to evolve. Um,

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Speaker 1: it's not dead, but it needs to evolve. And we're

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Speaker 1: seeing a lot more opportunity with some unique type of

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Speaker 1: alternative strategies that are available in ETPs and neutral funds.

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Speaker 1: And just like we learned our lesson after the dot

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Speaker 1: com bubble burst and everybody remember they should have bonds

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Speaker 1: in their portfolio, they didn't forget that lesson. We never

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Speaker 1: really saw big outflows from fixed income even during the

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Speaker 1: height of the bull market. I think people will start

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Speaker 1: to see that there's some benefit that can be had

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Speaker 1: to including some of these alternative strategies and their portfolios.

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Speaker 1: And I think that is what the evolution is going

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Speaker 1: to be, that is going to be more normal going forward. Uh,

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Speaker 1: as these products can offer some diversification benefits produced risk,

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Speaker 1: and then in times of stress like now, as we've seen,

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Speaker 1: they do quite well. You know, there is a possibility,

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Speaker 1: I suppose that we don't even go into any recession

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Speaker 1: in the United States. So Bill Dudley didn't exactly say that,

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Speaker 1: he still thinks the light recession but not deep. But

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Speaker 1: then it's a little easier to to to postulate that

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Speaker 1: maybe we don't even have recession at all. When you

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Speaker 1: look at the Atlanta FED talking about fourth quarter growth

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Speaker 1: at three point nine percent, is there any chance that

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Speaker 1: continues into this year. I think that there will be

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Speaker 1: a recession. I think it. I agree with Bill Dudley

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Speaker 1: that it will be a mild one and it will

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Speaker 1: be FED induced. So there's not a financial market issue

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Speaker 1: that would cause a recession. Uh. This is clearly being

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Speaker 1: driven by the FED and their desire to keep inflation lower.

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Speaker 1: Their rates are going to be higher, and they want

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Speaker 1: unemployment to rise, so those things I think will kind

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Speaker 1: of push us into some sort of recessionary environment, though

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Speaker 1: I think it will be mild okay, Shana, thank you

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Speaker 1: very much. Interesting conversation. Shane Assistile, founder and president of

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Speaker 1: Banryal Capital Management