WEBVTT - Peter Tchir on the Markets (Radio)

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<v Speaker 1>Let's get to Peter Cheer, head of macro strategy at

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<v Speaker 1>Academy Securities. So Peter earnings and economic data effectively a

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<v Speaker 1>pretty strong check on an aggressive FED today. There's a

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<v Speaker 1>long way of saying something, but I want to try

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<v Speaker 1>to do it in a short way, and it's this,

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<v Speaker 1>the Fed went too far with its old mindset soft

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<v Speaker 1>on inflation to now looking like it will go too

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<v Speaker 1>far with its new mindset tough on inflation. The market

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<v Speaker 1>was having none of it on both accounts. Yeah, I

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<v Speaker 1>think that's a fair way to look at it. I

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<v Speaker 1>think they were behind the curve. We probably should have

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<v Speaker 1>stopped QUEI last summer. We probably should have started rate

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<v Speaker 1>hikes sooner. Having said that, I think we've been a

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<v Speaker 1>little bit aggressive. There's a lot of weakness showing up

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<v Speaker 1>in the economy, whether it's the inventory build, consumer credit

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<v Speaker 1>piling up, delinquencies ticking up. There's just a lot that

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<v Speaker 1>concerns me. And we've done so far, so fast on

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<v Speaker 1>these rate hikes. We're not getting it time to play

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<v Speaker 1>out and see what the repercussions are. And I continue

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<v Speaker 1>to believe that as bad as inflation is, job losses

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<v Speaker 1>in a recession are far worse. Well, let's face it, Peter.

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<v Speaker 1>I mean, ultimately, this is supply side inflation, not demand,

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<v Speaker 1>and you know this is uncharted in that regard. And

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<v Speaker 1>as we completely you know, throw all the eggs into

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<v Speaker 1>one basket, I eat monetary policy and higher interest rates.

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<v Speaker 1>Are we in danger of things getting horribly wrong? Yes?

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<v Speaker 1>I completely think so. Um. You know, we just today,

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<v Speaker 1>as you mentioned earlier, we had a surprise that oil

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<v Speaker 1>inventory is picked up, right, so demand for oil is decreasing.

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<v Speaker 1>And I don't think that's just for the consumers. I

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<v Speaker 1>think that's industry slowing down. As we've had this inventory build,

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<v Speaker 1>you're gonna have left need to create new products. So

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<v Speaker 1>I think we should be giving this time and seeing

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<v Speaker 1>whether the economy is I don't want to say the

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<v Speaker 1>word rolling over, but certainly slowing of its own accord.

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<v Speaker 1>And by hiking on top of that, we're just pushing

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<v Speaker 1>things too far, and that to me is very dangerous. Yeah.

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<v Speaker 1>And the defense of that is that if you look

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<v Speaker 1>at the lag effect of rate hikes, people say it's

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<v Speaker 1>something like three to nine months, right, it means that

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<v Speaker 1>we've only felt the impact of one basis point hike,

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<v Speaker 1>and the FED has done two basis points, so there

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<v Speaker 1>are going to be residual effects for some time to come, right,

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<v Speaker 1>And you just said supply chains are starting to open up.

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<v Speaker 1>Your hearing stories about semiconductor shipment shipments coming through, you're

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<v Speaker 1>seeing that easing of supply chains all of a sudden

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<v Speaker 1>when you look at whether it's ball to dryer, other

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<v Speaker 1>measures of shipping costs, those are going down. So you

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<v Speaker 1>might be easing some of these supply chains, which should

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<v Speaker 1>be deflationary in its own right, as you're kind of

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<v Speaker 1>messing up with the demand side. So that to me

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<v Speaker 1>is a real problem. And I think this economy is

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<v Speaker 1>kind of on accellerance, so everything happens faster than we're

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<v Speaker 1>used to, and that is why I'm so concerned that

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<v Speaker 1>we're going to see a slowdown of fairly decent proportion

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<v Speaker 1>coming into Q two and three. Three. Well, of course,

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<v Speaker 1>one of the corollaries of that invasion has been uh

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<v Speaker 1>that we've seen NATO now perhaps have some more meaning,

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<v Speaker 1>but perhaps the other meaning is that we have grid

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<v Speaker 1>and perhaps inexorably moving towards a more bifurcated world. What's

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<v Speaker 1>your thoughts, So, what are your thoughts on that? And

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<v Speaker 1>what I'd like to add to that is if you

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<v Speaker 1>see that Nancy Pelosi visit, does that also push China

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<v Speaker 1>further into the Russian camp? Yes. I think we're in

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<v Speaker 1>a unique position to talk about this. That Academy Securities.

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<v Speaker 1>I work with seventeen retired generals and admirals whose service

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<v Speaker 1>are Geopolitical Intelligence Group. So we've been very focused on

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<v Speaker 1>what's been going on with Russia and with China. And

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<v Speaker 1>starting three years ago, we saw this strategic competition really

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<v Speaker 1>starting with China that was under the Trump administration, and

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<v Speaker 1>we see them kind of pulling away from the US

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<v Speaker 1>becoming more inward looking. I think Russia fell into that

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<v Speaker 1>as well. So that was really the first time we've

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<v Speaker 1>had this bad actor behaving badly. And what we continue

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<v Speaker 1>to see is almost this alignment of autocratic nations where

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<v Speaker 1>China is raising their hand and saying we want come

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<v Speaker 1>out of these we don't care what you do to

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<v Speaker 1>your people, we don't care about your politics, and we

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<v Speaker 1>will pay money and we're gonna be your customer for

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<v Speaker 1>years to come. And the US when we triggered uh,

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<v Speaker 1>you know, basically with held Rush's access to their own

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<v Speaker 1>dollar holdings, that's been another message that China uses with

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<v Speaker 1>these countries. So I think we're seeing this realignment where

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<v Speaker 1>the commodity rich, autocratic nations are aligning with China. We're

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<v Speaker 1>getting NATO stronger, and I think what we really need

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<v Speaker 1>to see from at least the US perspective is stronger

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<v Speaker 1>relationships with Mexico and South America. So I think that's

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<v Speaker 1>how the world is shaping up. It's interesting. I think

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<v Speaker 1>we all believe that at one time putent hope to

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<v Speaker 1>fracture NATO. If anything, it's coalesced. But we really are

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<v Speaker 1>seeing this realignment of seeing that with China. Yeah, up

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<v Speaker 1>against China, however, and the short term, China is set

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<v Speaker 1>to begin an effective blockadive Taiwan with its live fire

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<v Speaker 1>exercises that's happening from today. Uh. That could have a

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<v Speaker 1>big effect on supply chains. Uh. If we thought it

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<v Speaker 1>was troubled before, it may be more troubled now. But

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<v Speaker 1>do you say that inventory levels have been built up

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<v Speaker 1>so much? I wonder whether or not that matters as much.

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<v Speaker 1>I don't know that it matters immediately. So I saw

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<v Speaker 1>a lot of articles claiming success for this visit, and

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<v Speaker 1>I think in many ways it was good that it

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<v Speaker 1>showed that we respect Taiwana, that we care about Taiwan.

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<v Speaker 1>At the same time, I think we're a little bit shortsighted.

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<v Speaker 1>We've got to be very cautious of what China or

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<v Speaker 1>how China chooses to, you know, fight back. We never

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<v Speaker 1>thought they were going to do a military thing. We

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<v Speaker 1>did not think that they were going to try and

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<v Speaker 1>interfere with her flights. But we cannot say safely that

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<v Speaker 1>China has done with whatever retaliation they want, and it

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<v Speaker 1>might be much more on the economic side. And maybe

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<v Speaker 1>this ring fencing of Taiwan, if that becomes anything more

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<v Speaker 1>than temporary, becomes problematic and that sets us back on Unfortunately,

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<v Speaker 1>this inflation course and supply chain issues, well we'll tell me,

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<v Speaker 1>you know, from a macro perspective, you know, how is

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<v Speaker 1>this likely to play out? You know, And that's perhaps

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<v Speaker 1>it's Perry above what's going on right now with the

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<v Speaker 1>supply chain rejigging, a commodity price increases in supply side inflation.

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<v Speaker 1>So one thing we've been talking to clients for about

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<v Speaker 1>three to six months is shifting your supply chains away

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<v Speaker 1>from Southeast Asia, and whether it's Mexico, whether South America,

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<v Speaker 1>and I think this is going to further play into

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<v Speaker 1>that where people were thinking, Okay, even if I don't

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<v Speaker 1>want my supply chain to be based out of China,

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<v Speaker 1>maybe it's Thailand, maybe it's Vietnam, maybe it's Cambodia. I

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<v Speaker 1>think there's a real concern about China's potential to interfere.

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<v Speaker 1>They're growing naval power, they're growing willing to project that power.

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<v Speaker 1>So I think that's gonna be the shift, and that's

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<v Speaker 1>gonna be one of the big beneficiaries from this is

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<v Speaker 1>gonna be South America. I think these reshifting supply chains

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<v Speaker 1>are inflationary over the short term. Over the long term,

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<v Speaker 1>you have a safer supply chain, and I think that's

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<v Speaker 1>very good and healthy for company. Okay, so how do

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<v Speaker 1>you put that into your pick of the day. So

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<v Speaker 1>I like emerging market stocks, I'm back to liking commodities

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<v Speaker 1>um particular materials. If the US get some traction on

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<v Speaker 1>these bills to help build out pot sustainable energy and

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<v Speaker 1>traditional energy infrastructure, Yeah, that's deflationary three five years down

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<v Speaker 1>the road, but near term, you're going to create a

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<v Speaker 1>lot of demand for concrete, steal anything e v so, lithium, cobalt.

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<v Speaker 1>I think those are going to bounce again, so I

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<v Speaker 1>like a lot of good picks there, Peter, thanks very much,

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<v Speaker 1>Peter cheer At of macro Strategy at Academy Securities.