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Speaker 1: Let's get to Michael Kelly. He's our guest for the

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Speaker 1: half hour. Mike is Global head of Multi Asset at

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Speaker 1: pine Bridge Investment. He joins from Singapore. Mike, thanks for

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Speaker 1: being with us. I'm wondering whether or not you think

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Speaker 1: there is just too much concern right now that the Fed,

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Speaker 1: in its aggressive stance on getting inflation under control, will

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Speaker 1: necessarily break something in the system. Do you think that's

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Speaker 1: likely to happen? Um, it is likely to happen when

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Speaker 1: you begin late. The the only episodes of the three

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Speaker 1: Imatlitstoff landings you had fans move early, um, and they

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Speaker 1: could pay things when they moved early. When you move late,

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Speaker 1: you have to go fast. When you go fast, to

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Speaker 1: your risk of breaking things. Unfortunately, UM, we're in the

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Speaker 1: things are going to break camp. So we've got the

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Speaker 1: U S inflation numbers next Thursday. These closed an operall

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Speaker 1: last month when they came in stronger than expected. What

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Speaker 1: are you anticipating this time and how's that going to

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Speaker 1: change the narrative potentially for the FIT. I don't think

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Speaker 1: it will be a narrative changer. You know, after July

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Speaker 1: is sequential. Everyone has to stop looking at your year

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Speaker 1: but sequentially inflation headline or core was flatted in July,

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Speaker 1: Hope sprung internal August came, which was a big buzz

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Speaker 1: kill with core, you know, accelerating the point six which

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Speaker 1: is nosably this time, we're likely to see sequentially point

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Speaker 1: three headline, core point four five. You know, that's too

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Speaker 1: hot for the FED, for the pressure on the FED

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Speaker 1: to come off, although it's not. It's not a breaker

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Speaker 1: like last month. So if the Fed is inclined to

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Speaker 1: be aggressive, we know that. I'm wondering what your outlook

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Speaker 1: for the dollar happens to be. Are we near peak

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Speaker 1: dollar right now? It seems to consistently be the go

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Speaker 1: to haven currency. There's a lot of geopolitical risk and

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Speaker 1: various hotspots around the world. We know that, But in

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Speaker 1: terms of the path of the dollar from here, what

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Speaker 1: are you thinking, Well, the path of the dollar in

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Speaker 1: prior cycles, um, and here the US is much stronger

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Speaker 1: versus the rest of the world than in prior cycles.

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Speaker 1: But in prior cycles, the dollar really didn't top out

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Speaker 1: until three five months after the last hike and well

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Speaker 1: before the first ease. But the last hike is probably

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Speaker 1: up there in February March, so even though it's too

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Speaker 1: strong as it is at the moment, it's just a

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Speaker 1: wrecking ball. There's there's nothing to get in its way.

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Speaker 1: It probably goes higher in a very disruptive way for

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Speaker 1: many other economies, many other central banks. But that's that's

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Speaker 1: just the nature of the beast right now. So the

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Speaker 1: dollars are raking bowl. Things are going to break. What

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Speaker 1: does it look like when things break? What do you

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Speaker 1: expect that break to manifest? Well, unfortunately, um not in

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Speaker 1: the United States. The the US is still very resilient.

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Speaker 1: It's starting to slow, but it's a very slow motion

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Speaker 1: and slowed out. And the pressures are going to mount overseas.

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Speaker 1: They're already evident of course in Europe and the UK,

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Speaker 1: but there will be a number of emergent countries, you know,

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Speaker 1: who never really mixed their debt more floating. And that's

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Speaker 1: really the soft spots. And Michael, when we left off,

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Speaker 1: you were talking about some of the soft spots in

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Speaker 1: the world economy. But in your view, one of those

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Speaker 1: spots soft spots is not China. That's something of a

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Speaker 1: contrarian position. Has your risk cappitite around China more than

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Speaker 1: it has been, Paul and the last handful of years

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Speaker 1: we've we've really been very parished on China. We thought,

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Speaker 1: you know, the world was early on and discovering President

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Speaker 1: She is just more ideological and less practical that we

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Speaker 1: thought of China. That's now more than fully priced in

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Speaker 1: UM And at the moment, yes, there are some COVID

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Speaker 1: restraints going up, but it's not because the cases flared

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Speaker 1: a bit after the Golden Week. There a hundred, you know,

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Speaker 1: mid mid just mid August. It's really preemptive measures so

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Speaker 1: that nothing embarrassing happens in front of the party congress.

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Speaker 1: But we think, you know, these you know, these surgical,

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Speaker 1: quick short things are going to disappear starting November. UM

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Speaker 1: will will have the new party shortly and then the

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Speaker 1: new government will be put in place at the end

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Speaker 1: of March, and after that one does need to look

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Speaker 1: forward to zero COVID disappearing slowly from the landscape in China.

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Speaker 1: So they have essentially bottomed with the Shanghai COVID lockdowns,

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Speaker 1: which were fierce, severe and all encompassing. Things are getting

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Speaker 1: less bad. Since then, there's been less improvement than we've hoped.

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Speaker 1: We actually prefer markets that are showing less improvement and

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Speaker 1: Hope and all the others that are showing slower deterioration

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Speaker 1: than feared. It will take less improvement UM any day. So, Mike,

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Speaker 1: if you're right and the the COVID zero policy begins

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Speaker 1: to livet after the Party Congress, are we to be

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Speaker 1: concerned about the damage already done to the Chinese consumer

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Speaker 1: during this period of COVID and are we going to

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Speaker 1: have to expect a period of retrenchment and recovery? Is

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Speaker 1: that not inherent in what we're dealing with on the

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Speaker 1: macroad side a little bit? Well, it is, Um. It's

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Speaker 1: a big part of the reason that we've been so

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Speaker 1: cautious for five years that you know, all of the

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Speaker 1: more centralization is discouraging the private sector in addition to

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Speaker 1: the consumer. But you know there is there are now

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Speaker 1: fiscal measures in place, they'll type time to start kicking in.

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Speaker 1: We think after de Congress they'll have a little bit

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Speaker 1: more laxity to do monetary stimulus. They have to watch

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Speaker 1: the currency. Of course, it will be less embarrassed by

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Speaker 1: soft the currency after the Party Congress. Now there will

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Speaker 1: be no one eight on COVID after the Party Congress

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Speaker 1: early November. It will just slowly start loosening up. The

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Speaker 1: one eighty will come after the government. The March twenty

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Speaker 1: three government is more fully put in place, but that's

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Speaker 1: not too far out for our taste. Where an intermediate

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Speaker 1: term investor, there's a lot of caution built over the

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Speaker 1: prices that there's better things to come here, though the

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Speaker 1: pace is very slow, and unfortunately we see a lot

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Speaker 1: of downside still in the fundamentals for most other markets.

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Speaker 1: While rape prices and inflation has been priced, the spill

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Speaker 1: over into earnings and things like credit spreads and equity

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Speaker 1: respremiums aren't yet where they need to be there are.

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Speaker 1: With a view to the intermediate term, then well, where

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Speaker 1: do you buy? What s do you like? Well, we've

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Speaker 1: liked our favorite all year has been sort of an

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Speaker 1: old fashioned risk premium called commodity carry, where you're shorter

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Speaker 1: kind of spot commodity prices long further out. There's more

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Speaker 1: backwardation than we've seen in fifteen years, by greater degree

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Speaker 1: than we've seen in fifteen years. You make an awful

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Speaker 1: lot of money in these strategies as spot prices are

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Speaker 1: near the ceiling and fall towards the floor. And we're

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Speaker 1: in that process now as the slowdown spreads worldwide and

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Speaker 1: you earned a nice carry, low volume carry, highly uncorrelated

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Speaker 1: with most other things, you need to still be overexposed

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Speaker 1: the dollar China, of course is sort of a unusual exposure.

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Speaker 1: But when we think that will play off, and you know,

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Speaker 1: the most overplayed strategy and everyone's portfolio is quality choking

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Speaker 1: up more qualities, more resilient income statements, but hasn't really

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Speaker 1: worked this year because the slowdown is so slow. It's

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Speaker 1: about to okay, alright, Michael Kelly will have to leave

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Speaker 1: it there, but thanks so much for joining us with

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Speaker 1: your insights today. Michael Kelly is Global head of Multi

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Speaker 1: Asset at pine Bridge Investments