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Speaker 1: Let's get to our guest, Jason Schenker. He is president

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Speaker 1: of Prestige Economics, on the line from Texas. Jason, thanks

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Speaker 1: for being with us. Obviously, we've been talking a lot

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Speaker 1: about central bank tightening, particularly the FED, and I think

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Speaker 1: that's the reason why the economist over at Goldman are

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Speaker 1: reducing their forecast for US growth is next year to

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Speaker 1: a rate of around one point one percent from one

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Speaker 1: and a half percent. It sounds like the prudent thing

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Speaker 1: to do. Could it get a lot worse? Do you

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Speaker 1: think in terms of you do a u s GDP

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Speaker 1: for three Yeah, I think it could dug As a

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Speaker 1: matter of fact, our forecast is between minus one and

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Speaker 1: minus one and a half percent GDP for next year.

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Speaker 1: This year we've been expecting between one and one and

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Speaker 1: a half, so yeah, it could go negative next year.

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Speaker 1: You know, we had this year just a really strong

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Speaker 1: Q four of one that has kind of kept. Even

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Speaker 1: if we have negative growth every quarter of this year,

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Speaker 1: which is our baseline forecast, we could still have positive

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Speaker 1: GDP for the year year on year because of that

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Speaker 1: strong Q four. But next year it looks a bit

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Speaker 1: more dire where we're gonna have again maybe more negative

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Speaker 1: growth in the first couple of quarters of the year

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Speaker 1: quarter on quarter seasonally, justin annual rates, and we might

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Speaker 1: have negative year on year rates every quarter next year

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Speaker 1: with the rates where they're going, especially when you when

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Speaker 1: you look at mortgage rates, how much damage is this

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Speaker 1: doing the to the housing market and how much can

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Speaker 1: that actually ripple through the wide economy. Yeah, there are

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Speaker 1: a couple of pieces to this. I mean, on the

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Speaker 1: one hand, you've got mortgage rates that are hired just

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Speaker 1: last week over six percent. You can see it up

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Speaker 1: on the Bloomberg terminal. Uh, those are very high rates,

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Speaker 1: the highest since you know, we had seen since two

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Speaker 1: thousand eight. They could go quite a bit higher because

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Speaker 1: although seventy five basis points is baked in for this

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Speaker 1: week's FED decision, there's still two more decisions after that

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Speaker 1: this year, which could yield another hundred and fifty BIPs.

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Speaker 1: Right so right now the lower bound at we could

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Speaker 1: theoretically at another two BIPs to the lower bound before

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Speaker 1: year end. You know, that's just a big move in rates,

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Speaker 1: which means mortgage rates are not done rising. There's downward pressure.

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Speaker 1: You're seeing it at home prices. Data out this week,

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Speaker 1: Housing starts building permits, existing home sales. They're all liked

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Speaker 1: a weekend. The only good point of solace if you

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Speaker 1: look at the consumer credit numbers out of the New

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Speaker 1: York FEDS quarterly report. You look at mortgage credit quality,

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Speaker 1: and the vast majority of mortgages issued over the last

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Speaker 1: two and a half years have been for people with

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Speaker 1: seven sixty plus credit scores. This is very different than

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Speaker 1: before the housing crisis. So we don't have that same

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Speaker 1: debt risk, but prices could still fall in a reverse

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Speaker 1: wealth effect in play. So the FED has said it's

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Speaker 1: willing to accept a little bit more pain if that's

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Speaker 1: the price you pay for getting inflation under controls. So

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Speaker 1: the idea of a FED pivot here, it's not even

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Speaker 1: on the table, not at all. I thought that FED

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Speaker 1: share Powell's remarks from jackson Hole. We're Churchillian in the

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Speaker 1: war on inflation here, right, there's a job to do.

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Speaker 1: There's a job to be done. We will not stop

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Speaker 1: until the job is done. That kind of language is

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Speaker 1: very different from the multiple uses of the word transitory

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Speaker 1: the year before. In fact, in the jackson Hole statement,

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Speaker 1: even the notion of we might cut rates at any

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Speaker 1: time soon, you know, kind of forget about that, right,

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Speaker 1: even that was communicated in that statement. So I don't

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Speaker 1: think they're cutting anytime soon. I don't think we're anywhere

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Speaker 1: near dune raising rates because with a core at six

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Speaker 1: point three percent and a headline at eight point three,

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Speaker 1: we're nowhere near two percent. We've got a dollar index

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Speaker 1: so far this year, hit Jason, it's up fifteen percent.

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Speaker 1: It's quite remarkable at these strength that we have for

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Speaker 1: the dollar. But if any signs of fatigue right now

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Speaker 1: being built in, I don't think so, Rishand I think

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Speaker 1: there's some more upside here if we think about even

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Speaker 1: just the statements we heard about. Right the Russian war

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Speaker 1: in Ukraine is going on, we're moving into the winter.

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Speaker 1: That presents downside risk to growth in Europe, upside price

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Speaker 1: risk for power and gas. And in Asia there's still

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Speaker 1: concerned about not just third party sanctions that could be

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Speaker 1: put on China, if they were to try to aid

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Speaker 1: Russia to circumvents sanctions on Russia, or if they were

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Speaker 1: to try to be a bit more aggressive with Taiwan.

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Speaker 1: These are real risks that are lurking out there. And

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Speaker 1: of course, even though the opening of Sandu is a

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Speaker 1: good sign, for the Chinese economy. Chinese manufacturing is contracted

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Speaker 1: in six of the last ten months. That's not a

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Speaker 1: good sign. And foreign investors are a bit spooked by

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Speaker 1: what's going on in Taiwan and the relationship China has

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Speaker 1: with Russia. So I'm kind of getting the sense here

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Speaker 1: that you would be avoiding China and the market there

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Speaker 1: at all cost. Yeah, I would be. And and the

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Speaker 1: truth is a lot of institutional investors had assets, whether

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Speaker 1: they were assets in Russia specifically, or e t f

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Speaker 1: s that had subcomponents that were assets that were in Russia,

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Speaker 1: and those are now stranded assets and you've got to

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Speaker 1: mark to market those, write them down, and nothing on

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Speaker 1: your balance sheet. That's you don't want to do that again,

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Speaker 1: especially if now we're talking about an economy that's much larger, right,

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Speaker 1: so China is a much bigger part of a lot

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Speaker 1: of investment portfolios. Folks are freaked out about that, and

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Speaker 1: they don't want to have to do that again. It's

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Speaker 1: just an infinitely higher probability it was at this time

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Speaker 1: last year. And this is why the dollar has been

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Speaker 1: so strong. It's just really uh, you know, it's just

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Speaker 1: growth here is still quite solid and those kinds of

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Speaker 1: concerns with geopolitical risks are much lower here in the States, Jason.

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Speaker 1: The other aspect to it all is that it's the

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Speaker 1: dollar being so strong and commodities being priced in the

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Speaker 1: currency means that there's an added inflation charge to what's

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Speaker 1: going on in other parts of the world. Absolutely right.

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Speaker 1: We look at the impact on emerging markets. I've been

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Speaker 1: worried about the risks of an emerging market debt crisis

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Speaker 1: that we could see here. You look at where the

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Speaker 1: yields are for emerging market bonds. They've gone up so sharply,

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Speaker 1: especially for uh you kind of the more distressed assets,

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Speaker 1: and those emerging markets. These are poor economies. Energy and

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Speaker 1: food are bigger percentages of their GDP than they are

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Speaker 1: in o e c D economies. And because the commodities

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Speaker 1: are dollar denominated, they you know, they're getting a double

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Speaker 1: whammy because of the the higher price that they're paying,

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Speaker 1: not just outright, but also the currency arms. So those

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Speaker 1: countries are in a lot of pain right now, and

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Speaker 1: they can face more pain as the FED and other

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Speaker 1: oe c D economies raised interest rates further and chief

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Speaker 1: among those commodities, and something that is close to your

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Speaker 1: heart is is crude oil? What is your outlook here

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Speaker 1: as we look at w T I right around eight

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Speaker 1: six of barrel, because I think we could see prices

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Speaker 1: be a little bit choppy here. We might see them

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Speaker 1: come off just a little bit more. We had been

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Speaker 1: expecting in the fall, as we were moving into these

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Speaker 1: fall trading months, that we would see after the summer

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Speaker 1: driving season, demand destruction. We are seeing that we could

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Speaker 1: see a bit more of that still because of those

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Speaker 1: global economic risks, and it it's probably gonna be a

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Speaker 1: dicey four to six months or more before we really

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Speaker 1: begin to see some some probable upsides here. But the

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Speaker 1: Fed's not done raising rates, and global growth isn't done

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Speaker 1: slowing down. The other thing about all this is that

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Speaker 1: it pushes that people towards using non fossil fuels. And

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Speaker 1: is that a trend that you're seeing now that there's

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Speaker 1: now more momentum in that direction. Well, there's going to

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Speaker 1: be thirty years from now there's gonna be two billion

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Speaker 1: more people on the planet, and we have now and

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Speaker 1: we we already have between five hundred and a million

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Speaker 1: and a billion people that live in energy poverty, between

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Speaker 1: one and a half and two billion people who don't

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Speaker 1: have clean cooking fuels. There's huge energy demand that's unmet

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Speaker 1: right now. We're gonna add a lot more people. I

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Speaker 1: do think we're going to see a lot more renewables

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Speaker 1: going forward, but I also think we're probably going to

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Speaker 1: see a lot of hydrocarbons going forward, just because the

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Speaker 1: demands currently aren't being met in the global economy and

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Speaker 1: the risks of Jason. That's what we got time for.

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Speaker 1: Thank you so much for joining us, Jason Shanko that

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Speaker 1: joining us from Prestige Economics. This has been the