Speaker 1: Let's get to Peter Cheer, head of macro strategy at
Speaker 1: Academy Securities. So Peter earnings and economic data effectively a
Speaker 1: pretty strong check on an aggressive FED today. There's a
Speaker 1: long way of saying something, but I want to try
Speaker 1: to do it in a short way, and it's this,
Speaker 1: the Fed went too far with its old mindset soft
Speaker 1: on inflation to now looking like it will go too
Speaker 1: far with its new mindset tough on inflation. The market
Speaker 1: was having none of it on both accounts. Yeah, I
Speaker 1: think that's a fair way to look at it. I
Speaker 1: think they were behind the curve. We probably should have
Speaker 1: stopped QUEI last summer. We probably should have started rate
Speaker 1: hikes sooner. Having said that, I think we've been a
Speaker 1: little bit aggressive. There's a lot of weakness showing up
Speaker 1: in the economy, whether it's the inventory build, consumer credit
Speaker 1: piling up, delinquencies ticking up. There's just a lot that
Speaker 1: concerns me. And we've done so far, so fast on
Speaker 1: these rate hikes. We're not getting it time to play
Speaker 1: out and see what the repercussions are. And I continue
Speaker 1: to believe that as bad as inflation is, job losses
Speaker 1: in a recession are far worse. Well, let's face it, Peter.
Speaker 1: I mean, ultimately, this is supply side inflation, not demand,
Speaker 1: and you know this is uncharted in that regard. And
Speaker 1: as we completely you know, throw all the eggs into
Speaker 1: one basket, I eat monetary policy and higher interest rates.
Speaker 1: Are we in danger of things getting horribly wrong? Yes?
Speaker 1: I completely think so. Um. You know, we just today,
Speaker 1: as you mentioned earlier, we had a surprise that oil
Speaker 1: inventory is picked up, right, so demand for oil is decreasing.
Speaker 1: And I don't think that's just for the consumers. I
Speaker 1: think that's industry slowing down. As we've had this inventory build,
Speaker 1: you're gonna have left need to create new products. So
Speaker 1: I think we should be giving this time and seeing
Speaker 1: whether the economy is I don't want to say the
Speaker 1: word rolling over, but certainly slowing of its own accord.
Speaker 1: And by hiking on top of that, we're just pushing
Speaker 1: things too far, and that to me is very dangerous. Yeah.
Speaker 1: And the defense of that is that if you look
Speaker 1: at the lag effect of rate hikes, people say it's
Speaker 1: something like three to nine months, right, it means that
Speaker 1: we've only felt the impact of one basis point hike,
Speaker 1: and the FED has done two basis points, so there
Speaker 1: are going to be residual effects for some time to come, right,
Speaker 1: And you just said supply chains are starting to open up.
Speaker 1: Your hearing stories about semiconductor shipment shipments coming through, you're
Speaker 1: seeing that easing of supply chains all of a sudden
Speaker 1: when you look at whether it's ball to dryer, other
Speaker 1: measures of shipping costs, those are going down. So you
Speaker 1: might be easing some of these supply chains, which should
Speaker 1: be deflationary in its own right, as you're kind of
Speaker 1: messing up with the demand side. So that to me
Speaker 1: is a real problem. And I think this economy is
Speaker 1: kind of on accellerance, so everything happens faster than we're
Speaker 1: used to, and that is why I'm so concerned that
Speaker 1: we're going to see a slowdown of fairly decent proportion
Speaker 1: coming into Q two and three. Three. Well, of course,
Speaker 1: one of the corollaries of that invasion has been uh
Speaker 1: that we've seen NATO now perhaps have some more meaning,
Speaker 1: but perhaps the other meaning is that we have grid
Speaker 1: and perhaps inexorably moving towards a more bifurcated world. What's
Speaker 1: your thoughts, So, what are your thoughts on that? And
Speaker 1: what I'd like to add to that is if you
Speaker 1: see that Nancy Pelosi visit, does that also push China
Speaker 1: further into the Russian camp? Yes. I think we're in
Speaker 1: a unique position to talk about this. That Academy Securities.
Speaker 1: I work with seventeen retired generals and admirals whose service
Speaker 1: are Geopolitical Intelligence Group. So we've been very focused on
Speaker 1: what's been going on with Russia and with China. And
Speaker 1: starting three years ago, we saw this strategic competition really
Speaker 1: starting with China that was under the Trump administration, and
Speaker 1: we see them kind of pulling away from the US
Speaker 1: becoming more inward looking. I think Russia fell into that
Speaker 1: as well. So that was really the first time we've
Speaker 1: had this bad actor behaving badly. And what we continue
Speaker 1: to see is almost this alignment of autocratic nations where
Speaker 1: China is raising their hand and saying we want come
Speaker 1: out of these we don't care what you do to
Speaker 1: your people, we don't care about your politics, and we
Speaker 1: will pay money and we're gonna be your customer for
Speaker 1: years to come. And the US when we triggered uh,
Speaker 1: you know, basically with held Rush's access to their own
Speaker 1: dollar holdings, that's been another message that China uses with
Speaker 1: these countries. So I think we're seeing this realignment where
Speaker 1: the commodity rich, autocratic nations are aligning with China. We're
Speaker 1: getting NATO stronger, and I think what we really need
Speaker 1: to see from at least the US perspective is stronger
Speaker 1: relationships with Mexico and South America. So I think that's
Speaker 1: how the world is shaping up. It's interesting. I think
Speaker 1: we all believe that at one time putent hope to
Speaker 1: fracture NATO. If anything, it's coalesced. But we really are
Speaker 1: seeing this realignment of seeing that with China. Yeah, up
Speaker 1: against China, however, and the short term, China is set
Speaker 1: to begin an effective blockadive Taiwan with its live fire
Speaker 1: exercises that's happening from today. Uh. That could have a
Speaker 1: big effect on supply chains. Uh. If we thought it
Speaker 1: was troubled before, it may be more troubled now. But
Speaker 1: do you say that inventory levels have been built up
Speaker 1: so much? I wonder whether or not that matters as much.
Speaker 1: I don't know that it matters immediately. So I saw
Speaker 1: a lot of articles claiming success for this visit, and
Speaker 1: I think in many ways it was good that it
Speaker 1: showed that we respect Taiwana, that we care about Taiwan.
Speaker 1: At the same time, I think we're a little bit shortsighted.
Speaker 1: We've got to be very cautious of what China or
Speaker 1: how China chooses to, you know, fight back. We never
Speaker 1: thought they were going to do a military thing. We
Speaker 1: did not think that they were going to try and
Speaker 1: interfere with her flights. But we cannot say safely that
Speaker 1: China has done with whatever retaliation they want, and it
Speaker 1: might be much more on the economic side. And maybe
Speaker 1: this ring fencing of Taiwan, if that becomes anything more
Speaker 1: than temporary, becomes problematic and that sets us back on Unfortunately,
Speaker 1: this inflation course and supply chain issues, well we'll tell me,
Speaker 1: you know, from a macro perspective, you know, how is
Speaker 1: this likely to play out? You know, And that's perhaps
Speaker 1: it's Perry above what's going on right now with the
Speaker 1: supply chain rejigging, a commodity price increases in supply side inflation.
Speaker 1: So one thing we've been talking to clients for about
Speaker 1: three to six months is shifting your supply chains away
Speaker 1: from Southeast Asia, and whether it's Mexico, whether South America,
Speaker 1: and I think this is going to further play into
Speaker 1: that where people were thinking, Okay, even if I don't
Speaker 1: want my supply chain to be based out of China,
Speaker 1: maybe it's Thailand, maybe it's Vietnam, maybe it's Cambodia. I
Speaker 1: think there's a real concern about China's potential to interfere.
Speaker 1: They're growing naval power, they're growing willing to project that power.
Speaker 1: So I think that's gonna be the shift, and that's
Speaker 1: gonna be one of the big beneficiaries from this is
Speaker 1: gonna be South America. I think these reshifting supply chains
Speaker 1: are inflationary over the short term. Over the long term,
Speaker 1: you have a safer supply chain, and I think that's
Speaker 1: very good and healthy for company. Okay, so how do
Speaker 1: you put that into your pick of the day. So
Speaker 1: I like emerging market stocks, I'm back to liking commodities
Speaker 1: um particular materials. If the US get some traction on
Speaker 1: these bills to help build out pot sustainable energy and
Speaker 1: traditional energy infrastructure, Yeah, that's deflationary three five years down
Speaker 1: the road, but near term, you're going to create a
Speaker 1: lot of demand for concrete, steal anything e v so, lithium, cobalt.
Speaker 1: I think those are going to bounce again, so I
Speaker 1: like a lot of good picks there, Peter, thanks very much,
Speaker 1: Peter cheer At of macro Strategy at Academy Securities.