1 00:00:00,040 --> 00:00:03,559 Speaker 1: Ben Emmons, joints us Managing Director of Global macro Strategy 2 00:00:03,640 --> 00:00:07,960 Speaker 1: at Medley Global Advisors. Ben Doug mentioned the mantra don't 3 00:00:07,960 --> 00:00:10,920 Speaker 1: fight the FED. It seems it's never been more relevant 4 00:00:10,920 --> 00:00:13,200 Speaker 1: if you look at the past weekers. So and I 5 00:00:13,240 --> 00:00:16,080 Speaker 1: say that because not only is there no FED put 6 00:00:16,640 --> 00:00:19,560 Speaker 1: even if we're heading into turbulent times, but the FED 7 00:00:19,680 --> 00:00:24,160 Speaker 1: is actually it's actually actively targeting equities and other risk assets. 8 00:00:24,160 --> 00:00:26,440 Speaker 1: And we heard that from Bullet and Cash Cary. It's 9 00:00:26,440 --> 00:00:29,120 Speaker 1: a little unusual to hear them talking about that. So 10 00:00:29,200 --> 00:00:31,160 Speaker 1: let me put it to you, true or false. You 11 00:00:31,160 --> 00:00:33,519 Speaker 1: either have to be a brave soul or a fool 12 00:00:33,920 --> 00:00:38,080 Speaker 1: to fight this tape down. Don't fight don't fight the 13 00:00:38,080 --> 00:00:42,960 Speaker 1: tape Brian, because this is indeed a situation where you know, 14 00:00:43,040 --> 00:00:45,400 Speaker 1: the inflation rate is just too hot, and you see 15 00:00:45,479 --> 00:00:47,640 Speaker 1: it coming out of the euro Zone today for example, 16 00:00:47,840 --> 00:00:50,080 Speaker 1: right that day to day was against showing in search 17 00:00:50,159 --> 00:00:53,920 Speaker 1: of inflation building and our inflation rate will be affected 18 00:00:53,920 --> 00:00:56,560 Speaker 1: by that too. And even though that oil was down 19 00:00:56,560 --> 00:01:02,000 Speaker 1: today and there's some you know, demands anxiety about energy inflation, 20 00:01:02,040 --> 00:01:03,880 Speaker 1: to Hart means that the fact has to take that 21 00:01:03,960 --> 00:01:08,119 Speaker 1: position of financial conditions must stay tighter. I think Esther 22 00:01:08,240 --> 00:01:11,480 Speaker 1: George actually gave the best signal prior to the power 23 00:01:11,560 --> 00:01:14,319 Speaker 1: speech saying that, and all the other ones come around. 24 00:01:14,400 --> 00:01:16,800 Speaker 1: So the market is doing that. I think you're seeing 25 00:01:16,800 --> 00:01:19,360 Speaker 1: it coming through the real interest race to the dollar 26 00:01:19,760 --> 00:01:22,760 Speaker 1: and obviously through the equity market. So that's in the 27 00:01:23,160 --> 00:01:26,200 Speaker 1: that's my needed to get to that angle of ultimately 28 00:01:26,200 --> 00:01:31,080 Speaker 1: having efficient sustained going down. But you know we're dealing 29 00:01:31,120 --> 00:01:33,240 Speaker 1: with too hard inflation. It's right at taking that position 30 00:01:34,440 --> 00:01:37,319 Speaker 1: also been I mean, we of course have an interest 31 00:01:37,400 --> 00:01:40,800 Speaker 1: rate monetary policy, but we've got a quantitative tightening getting 32 00:01:40,800 --> 00:01:45,240 Speaker 1: into film attack motors you put in this month. I mean, 33 00:01:45,440 --> 00:01:48,160 Speaker 1: the thing is, we don't know the effect of this, 34 00:01:48,320 --> 00:01:51,080 Speaker 1: and wouldn't it be better for the result as you 35 00:01:51,160 --> 00:01:53,440 Speaker 1: wait to see how that plays out, because it could 36 00:01:53,480 --> 00:01:56,520 Speaker 1: have a disproportioned efect that quite the opposite, and have 37 00:01:56,560 --> 00:01:59,360 Speaker 1: a benign infact. But it's certainly one way liquidity comes 38 00:01:59,360 --> 00:02:02,480 Speaker 1: out of the system. And that's for sure, Rich and 39 00:02:02,600 --> 00:02:06,760 Speaker 1: you know we have experience from the period, but we're 40 00:02:06,800 --> 00:02:09,600 Speaker 1: just now getting into it. But there too, the communication 41 00:02:09,639 --> 00:02:12,600 Speaker 1: has been quite consistent. You know, I think Bargain was 42 00:02:12,639 --> 00:02:14,800 Speaker 1: one of the few saying, you know, this is a 43 00:02:14,840 --> 00:02:18,639 Speaker 1: symmetric process. We run down the balance sheet and we 44 00:02:18,760 --> 00:02:20,680 Speaker 1: hike at the same time, we're not going to stop. 45 00:02:21,240 --> 00:02:24,160 Speaker 1: We know at some point that will change because draining 46 00:02:24,200 --> 00:02:27,120 Speaker 1: the liquidity from the system will lead at some point 47 00:02:27,120 --> 00:02:30,280 Speaker 1: to reserves that are being hoarded by banks. So you're 48 00:02:30,280 --> 00:02:33,840 Speaker 1: getting get dynamic and a fact, the credit creation in 49 00:02:33,880 --> 00:02:36,800 Speaker 1: the economy at this moment, I think they feel content 50 00:02:36,919 --> 00:02:39,560 Speaker 1: with where they're heading with that, and it may not 51 00:02:39,919 --> 00:02:42,960 Speaker 1: do as much yet, at least not directly to the 52 00:02:43,000 --> 00:02:46,000 Speaker 1: economy yet, but as you can tell for markets, it's 53 00:02:46,080 --> 00:02:49,480 Speaker 1: been highly anticipated. Everybody's looking at the month of September 54 00:02:49,560 --> 00:02:52,320 Speaker 1: is when we're going to see the full the full 55 00:02:52,320 --> 00:02:55,280 Speaker 1: blown motive. They had a full attack and from there 56 00:02:55,400 --> 00:02:58,360 Speaker 1: we go right. So again, these eventual conditions are all 57 00:02:58,440 --> 00:03:02,480 Speaker 1: driven by the Some some are doubting the FEDS resolve, 58 00:03:03,280 --> 00:03:06,519 Speaker 1: and you know that might be the case, but that's 59 00:03:06,560 --> 00:03:09,520 Speaker 1: not actually something that you bet on, would you, Given 60 00:03:09,680 --> 00:03:13,360 Speaker 1: everything that they've been saying. I think that the power 61 00:03:13,440 --> 00:03:17,040 Speaker 1: speech at that most important message that you know, we 62 00:03:17,080 --> 00:03:20,679 Speaker 1: cannot really stop, we have to continue. And I think 63 00:03:20,720 --> 00:03:22,920 Speaker 1: this is where the market may have learned now like 64 00:03:23,000 --> 00:03:26,040 Speaker 1: this is a different message then, indeed that message from 65 00:03:26,080 --> 00:03:29,720 Speaker 1: the past where there was optionality around it saying well, okay, 66 00:03:29,840 --> 00:03:32,519 Speaker 1: we want to hype rates, but eventually they pivoted really 67 00:03:32,600 --> 00:03:35,960 Speaker 1: quickly back to a new easing sense that doesn't seem 68 00:03:36,000 --> 00:03:38,640 Speaker 1: to really the case this time. You want to reach 69 00:03:39,000 --> 00:03:41,280 Speaker 1: the goal of four percent funds right by the end 70 00:03:41,280 --> 00:03:44,119 Speaker 1: of the year, which Ballard has been advocating so much. 71 00:03:44,120 --> 00:03:46,360 Speaker 1: For Ben, I want to get a sense of, you know, 72 00:03:46,360 --> 00:03:48,760 Speaker 1: what the European Center Bank does in your view, and 73 00:03:48,800 --> 00:03:52,440 Speaker 1: whether actually raising interests rates that is a good idea. 74 00:03:52,800 --> 00:03:58,440 Speaker 1: And I'm i say that with the whole energy crisis 75 00:03:58,560 --> 00:04:02,200 Speaker 1: in other words playing out with hugely elevated the electricity bills, 76 00:04:02,440 --> 00:04:06,040 Speaker 1: they are in effect interest rate hikes in themselves. They're 77 00:04:06,040 --> 00:04:09,640 Speaker 1: that large if you sure are rich. And this is 78 00:04:09,760 --> 00:04:13,120 Speaker 1: really a complicated situation compared to the US because they 79 00:04:13,160 --> 00:04:16,400 Speaker 1: are energy dependents and you know, they may have got 80 00:04:16,480 --> 00:04:19,440 Speaker 1: their storage filled up to an extent, but there's a 81 00:04:19,440 --> 00:04:21,600 Speaker 1: lot of uncertainty about how long they could keep their 82 00:04:21,600 --> 00:04:24,360 Speaker 1: storage to these electricity bills to elevate it. And the the 83 00:04:24,680 --> 00:04:28,000 Speaker 1: ECB has to start reacting to this now. And as 84 00:04:28,040 --> 00:04:29,760 Speaker 1: much as they put that out of two in place 85 00:04:29,800 --> 00:04:33,280 Speaker 1: to try to contain sovereign spreads probably not going to 86 00:04:33,400 --> 00:04:37,320 Speaker 1: happen because so you know, for fundamental reasons, after race rates, 87 00:04:37,320 --> 00:04:41,559 Speaker 1: so BTP spreads and those perple spreads will go wide. 88 00:04:41,560 --> 00:04:44,080 Speaker 1: And so that this a sort of a combination of 89 00:04:44,120 --> 00:04:47,359 Speaker 1: the two again where the ECB just like in twenty eleven, 90 00:04:47,880 --> 00:04:50,560 Speaker 1: racist rates and it causes huge friction in its its 91 00:04:50,640 --> 00:04:54,960 Speaker 1: bond markets. So we have more issues ahead of here. Yeah, 92 00:04:55,000 --> 00:04:57,240 Speaker 1: you can imagine Christine Legarden, you know, saying that j 93 00:04:57,360 --> 00:04:59,760 Speaker 1: pal you think you had a bad day, you know her, 94 00:05:00,360 --> 00:05:03,839 Speaker 1: It is probably tougher now than your own palaces. We 95 00:05:03,880 --> 00:05:06,919 Speaker 1: have so many things working against um the system at 96 00:05:06,960 --> 00:05:11,159 Speaker 1: the moment. A little known story here of South Korean 97 00:05:11,200 --> 00:05:14,800 Speaker 1: chip makers reporting their first fall in factory shipments in 98 00:05:14,839 --> 00:05:18,279 Speaker 1: almost three years. Another story that China's retail activity if 99 00:05:18,320 --> 00:05:22,160 Speaker 1: you look at satellite data flatlined in August. You've got 100 00:05:22,200 --> 00:05:26,159 Speaker 1: the socks just pummeled here, the Socks index of semiconductors, 101 00:05:26,400 --> 00:05:31,240 Speaker 1: semiconductors being like like transports indicative on the economy, tumbling 102 00:05:31,360 --> 00:05:34,320 Speaker 1: way below it's fifty day moving average. If that's leading 103 00:05:34,480 --> 00:05:37,880 Speaker 1: S and P look out below. Uh, it's just a 104 00:05:38,000 --> 00:05:41,320 Speaker 1: very very tough environment at the moment. Do you see 105 00:05:41,360 --> 00:05:45,960 Speaker 1: any catalyst that changes that. Not at this moment, Brian, 106 00:05:46,120 --> 00:05:47,760 Speaker 1: But you know, and we get to be in my 107 00:05:47,920 --> 00:05:50,880 Speaker 1: data overnight right which I think a really good indicator 108 00:05:50,960 --> 00:05:53,440 Speaker 1: of the activity over the summer and how it really 109 00:05:53,480 --> 00:05:57,440 Speaker 1: is softened carefully to Washington probably is not good activity. 110 00:05:57,839 --> 00:05:59,560 Speaker 1: So the only the good thing if you look look 111 00:05:59,640 --> 00:06:03,400 Speaker 1: forward too, is that we get that invasion under control, 112 00:06:03,480 --> 00:06:06,440 Speaker 1: that it starts to be decline and then the Chinese 113 00:06:06,440 --> 00:06:08,719 Speaker 1: economy does start to reopen. I think that's still a 114 00:06:08,800 --> 00:06:12,040 Speaker 1: story for the global economy is a positive, and I 115 00:06:12,080 --> 00:06:16,080 Speaker 1: think that's months ahead of us at the moment. We 116 00:06:16,160 --> 00:06:19,000 Speaker 1: got to deal with this multi policy being digested not 117 00:06:19,120 --> 00:06:22,800 Speaker 1: just by markets but in the economy itself. And that's 118 00:06:22,839 --> 00:06:24,800 Speaker 1: I think where the pain now is right as you're 119 00:06:24,800 --> 00:06:28,760 Speaker 1: seeing layoff announcers coming through. So it's it's going to 120 00:06:28,839 --> 00:06:32,200 Speaker 1: just simply take a number of months of difficult environment. 121 00:06:33,400 --> 00:06:37,320 Speaker 1: The transmission mechanism is a while, absolutely, But in that 122 00:06:37,440 --> 00:06:41,600 Speaker 1: while we do get dollar appreciation, and there would seem 123 00:06:41,640 --> 00:06:44,400 Speaker 1: to be nothing to remove the crown from king dollar 124 00:06:44,560 --> 00:06:48,680 Speaker 1: right now. Nothing at this moment, and I think as 125 00:06:48,760 --> 00:06:51,400 Speaker 1: real interest rates are rising in the US because of 126 00:06:51,560 --> 00:06:55,640 Speaker 1: well dissipating duty and and tightening. At some point though 127 00:06:55,680 --> 00:06:59,200 Speaker 1: that the other currencies who are falling, like the urine sterling, 128 00:06:59,240 --> 00:07:03,560 Speaker 1: will courses those interstrates start to catch up with the US. 129 00:07:03,600 --> 00:07:06,279 Speaker 1: But that's some way to go there. As we just discussed, 130 00:07:06,320 --> 00:07:09,840 Speaker 1: the Eurozone in straight differential with the US is still 131 00:07:09,920 --> 00:07:12,600 Speaker 1: good on the fifty basis points. It would take the 132 00:07:12,640 --> 00:07:14,720 Speaker 1: FETE to pause and the easy to be to keep 133 00:07:14,760 --> 00:07:17,360 Speaker 1: the hiking before they can actually truly getch up right, 134 00:07:17,360 --> 00:07:20,560 Speaker 1: So the dollar will continue to be fueled with strength 135 00:07:20,680 --> 00:07:23,280 Speaker 1: just from that itself, from the Euro right being weak. 136 00:07:24,040 --> 00:07:27,480 Speaker 1: Um that works also against the ECB. So dollar strength 137 00:07:27,880 --> 00:07:30,800 Speaker 1: is tightening of global financial conditions. That's just like a 138 00:07:30,880 --> 00:07:32,960 Speaker 1: number of years ago in the same way, so no difference. 139 00:07:33,560 --> 00:07:37,640 Speaker 1: All that said, we see India's GDP up thirteen point 140 00:07:37,720 --> 00:07:43,760 Speaker 1: five percent in the second quarter. What are they getting right? Yeah, 141 00:07:43,800 --> 00:07:47,800 Speaker 1: I think that's the story of that Asian resilience reopening 142 00:07:47,800 --> 00:07:50,040 Speaker 1: story that's still there from the pandemic. And this is 143 00:07:50,080 --> 00:07:54,480 Speaker 1: the last area where some of that activity rebounding still 144 00:07:54,520 --> 00:07:58,240 Speaker 1: comes through to data like that. So that's say, unfortunately 145 00:07:58,400 --> 00:08:00,960 Speaker 1: a little a little good story and in a mix 146 00:08:01,040 --> 00:08:04,200 Speaker 1: of all the bad stuffed us out there. It's obviously 147 00:08:04,200 --> 00:08:06,280 Speaker 1: going to slow down there too. We had the GDP 148 00:08:06,400 --> 00:08:08,760 Speaker 1: rate like that a year ago, right, so we know 149 00:08:08,840 --> 00:08:11,560 Speaker 1: what the dejective of that is. But I guess they're 150 00:08:11,600 --> 00:08:13,760 Speaker 1: getting it right in terms of having the ability to 151 00:08:13,840 --> 00:08:16,520 Speaker 1: completely reopen and not deal with COVID and they were 152 00:08:16,640 --> 00:08:20,480 Speaker 1: significant affected. Ben, always a pleasure, Thank you so much 153 00:08:20,480 --> 00:08:22,120 Speaker 1: for joining. Is Ben m And is their Managing Director 154 00:08:22,160 --> 00:08:26,080 Speaker 1: of Global macro Strategy at A Medley Global Advisers.