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Speaker 1: Let's get to our guest, Steve Sosnick, chief strategist at

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Speaker 1: Interactive Brokers. So I want to throw a bunch at you,

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Speaker 1: and you pick your poison. Here, you get four choices.

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Speaker 1: You can maybe we'll circle back on the others. Seventy hundred,

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Speaker 1: the two ten inversion, the dollars up ten percent year

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Speaker 1: to day. Why doesn't that mitigate inflation of nine point

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Speaker 1: one percent? And finally, that's a pretty scary number at

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Speaker 1: nine point one percent, Why is the vix only at

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Speaker 1: twenty six and actually down for the day? Steve? Wow, Um,

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Speaker 1: how long do we have? Well, let we'll pick one,

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Speaker 1: pick one, and then we'll come back to the other

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Speaker 1: Let's let's start. Let's start with seventy five hundred um.

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Speaker 1: As you noted in your intro before, market's kind of

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Speaker 1: got a sixty lean toward towards a hundred basis points

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Speaker 1: instead of seventy five. UM, I kind of I'm gonna

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Speaker 1: go with I'm gonna go with seventy five here. I

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Speaker 1: think Powell, when all said and done, is definitely afraid

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Speaker 1: of surprising markets. And yes, while I just said that

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Speaker 1: markets are works affecting one percent than three quarters of

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Speaker 1: our percent um, you know, he he doesn't want to

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Speaker 1: surprise based on what he's been saying. So unless unless

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Speaker 1: we see um, the FED fund futures really implying something

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Speaker 1: close to to a full percentage point, which is what

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Speaker 1: happened when we got seventy five last time. UM, I

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Speaker 1: would expect to see seventy five again. I just don't

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Speaker 1: think he's got it. I just don't think he's got

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Speaker 1: it in him to do that right now, despite the

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Speaker 1: fact that Canada did it. Steve, you go a hundred,

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Speaker 1: Where is your credibility just a dolm with an admission

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Speaker 1: that you've failed and you're way way behind the curve. Um,

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Speaker 1: I think you gave him. Yeah, that's that's a fabulous reason. Rich,

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Speaker 1: That's that's exactly right. I think I think he doesn't

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Speaker 1: want to admit it. My personal point of view is

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Speaker 1: their way behind the curve. In terms of quantitative tightening,

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Speaker 1: they've they've you know again, they're like going into that

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Speaker 1: with baby steps. Um, you know. And again if you

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Speaker 1: think of inflation is too much money chasing too few goods, well,

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Speaker 1: we have both. We normally get one or the other.

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Speaker 1: UM's it doesn't neither of them fixes the two few

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Speaker 1: goods part. But the interest rate hikes, while very visible

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Speaker 1: means of fighting inflation, don't really address the too much

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Speaker 1: money part. It's the quantitative tightening that does, and that

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Speaker 1: for some reason really spooks them. So I guess past

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Speaker 1: history spooks them. We just squeeze this in. It looked

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Speaker 1: like it could be a really big down day and

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Speaker 1: the equities came back. Why well, I think part of

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Speaker 1: the well, first of all, there was the shock on

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Speaker 1: the opening. Remember also wednesdays before a monthly expiration, which

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Speaker 1: we have on Friday is VIX expiration. Um, So that

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Speaker 1: in some ways was like the worst time to get

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Speaker 1: a market moving number. I think once we got that

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Speaker 1: out of the way, Um, we've kind of sold off

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Speaker 1: in advance a bit yesterday, and so I think, you know,

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Speaker 1: when there was no follow through after the open, you know,

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Speaker 1: then then then let's try to take them higher. Steve,

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Speaker 1: let me just get a sense of you know, the

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Speaker 1: strength of the dollar and it's pluses and it's negatives.

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Speaker 1: I mean, we're approaching we just touched parity actually against

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Speaker 1: the euro. Um. Is that more reflection also fundamentals in Europe?

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Speaker 1: And is the reason yen weakness likewise a reflection of

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Speaker 1: the economic conditions in the state of the economy there

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Speaker 1: well to some extent, but I think you know that,

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Speaker 1: you know, I'll take the the OCAM's razor view and

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Speaker 1: just sort of say, the simplest answer is that, um,

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Speaker 1: you know what, we just finished discussing how fast the

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Speaker 1: you know, the FED was going to raise rates and

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Speaker 1: and um, you know, and the Bank of Japan and

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Speaker 1: and and the e c B are are essentially you know,

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Speaker 1: meandering along with without really committing to anything. Um. So

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Speaker 1: just from that point of view, you know, people people

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Speaker 1: are gonna go where the yield is. Um. Yeah, there's

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Speaker 1: a lot more to it, but in terms of relative strength,

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Speaker 1: et cetera. But I think the the simplest answer is

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Speaker 1: the interest rate differential and the perception that the interest

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Speaker 1: rate differential will continue to widen in the short term. Yeah,

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Speaker 1: one of the big questions, you know, obviously this is

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Speaker 1: all linked on how high does inflation go and do

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Speaker 1: we go into a recession? And and when does the

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Speaker 1: Fed fin only give the all clear or at least

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Speaker 1: hint at it. Uh. People including the presidents, say that

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Speaker 1: the CPI print is out of date because oil prices

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Speaker 1: and other commodities have fallen recently. But actually, if you

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Speaker 1: look back, oil prices started falling on June eight, So

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Speaker 1: you would think even though there's a lag, but you'd

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Speaker 1: think that some of that would have been captured, uh,

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Speaker 1: you know, in the month of June. But apparently not.

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Speaker 1: So is this the last big number or are we

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Speaker 1: still heading higher? I think this, Maybe I think this.

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Speaker 1: I think we may have seen the peak or at

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Speaker 1: least the plateau. I don't know. I don't necessarily want

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Speaker 1: to call it, you know, want to call it, because

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Speaker 1: I would have I probably would have said, you know,

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Speaker 1: last month to be asked me this question, Yeah, we've

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Speaker 1: seen the peak and um but I think we're certainly

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Speaker 1: seeing the plateau. And I do agree. You know, I

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Speaker 1: noticed yesterday were big declines in oil and agricultural commodities.

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Speaker 1: We're kind of back to the pre Ukraine levels and

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Speaker 1: many of these things. The problem is the perception and

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Speaker 1: the crack spread. Where you have the price of gasoline

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Speaker 1: vis will be the price of oil, which used to

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Speaker 1: be really consistent, Gasoline completely outpaced UM oil, let's say,

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Speaker 1: since April, and while they've both come down, gasoline has

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Speaker 1: not come back down to the levels where um where

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Speaker 1: where you know, where you where the oil price would

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Speaker 1: imply also because of the nature of the way that

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Speaker 1: works at the pump. You know, they tend to say that,

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Speaker 1: you know, oil goes up like a rocket and down

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Speaker 1: like a feather, and so it's slow to come down.

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Speaker 1: And that's what drives people's mindset is is the price

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Speaker 1: of finished good you know, the not you know, the

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Speaker 1: food at the store, not necessarily the price of corn futures,

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Speaker 1: that kind of thing. And so that's what's getting in

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Speaker 1: people's heads still, and that's that's why I think you'll

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Speaker 1: still see some stickiness, even though I do agree that

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Speaker 1: that you're seeing some mitigation in the prices of the

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Speaker 1: food and energy, which of course with the non core

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Speaker 1: items anyway. But this is it, isn't it, Steve. I

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Speaker 1: mean you look at that you mentioned, for instance, gasoline,

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Speaker 1: it's down from its at the beginning of June, but

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Speaker 1: it's still twenty six above the February level is when

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Speaker 1: the invasion of Ukraine took place. We've got at the

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Speaker 1: moment to wheat below those levels, soy beans below the

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Speaker 1: pre invasion as well, and we've got also copper loader

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Speaker 1: two but the point being here, does this exogenous view

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Speaker 1: have now in in indogenous properties, i e. Are we

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Speaker 1: getting demand pull inflation now? Because it doesn't look quite

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Speaker 1: like it. Um. I think. I think we're not getting

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Speaker 1: demand pulled so much um as we are getting embedded

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Speaker 1: you know, the wage the wage inflation is really trying

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Speaker 1: to creep ind um. Which let me be very careful

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Speaker 1: what I say here. I I do like people getting

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Speaker 1: more money in their paychecks, Let's be let's be clear

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Speaker 1: about that. But if you're you know, if you're the FED,

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Speaker 1: you know, one hand, you want people with more money

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Speaker 1: in their pockets and another and you don't want them

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Speaker 1: just continually getting into a wage price spiral um. And

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Speaker 1: I think that's where the bigger risk is. And I

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Speaker 1: think that's going to be extraordinarily tricky for the FED,

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Speaker 1: because we're getting really into the land of the dual

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Speaker 1: mandate between stable prices and full employment. UM. We may

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Speaker 1: be at a point where you can't necessarily have them

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Speaker 1: both um, which which we really had for you know,

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Speaker 1: for the better part of a decade plus. We're really

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Speaker 1: spoiled in that. In writ that regard Steve, politicians get

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Speaker 1: in trouble when they you know, sort of lecture companies

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Speaker 1: and say bring your prices down. People say that's not capitalism.

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Speaker 1: But one of the original questions that I posed as

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Speaker 1: a possibility for you was, with a dollar this strong, really,

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Speaker 1: I mean up ten percent for a broad index like

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Speaker 1: the Bloomberg don a Spot index, why doesn't it mitigate inflation?

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Speaker 1: Or is it that people are not actually bringing the

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Speaker 1: prices down and they're they're actually you know, using and

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Speaker 1: abusing the American consumer. Um, you know, I won't I

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Speaker 1: won't say use and abuse. I think I think definitely

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Speaker 1: the you know, if you're if you're the if you're

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Speaker 1: the company, you're gonna want to try to charge as

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Speaker 1: much as you can. We're starting to see it. I mean,

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Speaker 1: you know, we had the fake holiday Prime Day, and

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Speaker 1: you know for Amazon here you know the twelve and thirteen,

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Speaker 1: and but it wasn't just Amazon having these huge sales.

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Speaker 1: It was it was more or less every merchant having

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Speaker 1: big sales. And so I do think that they're trying

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Speaker 1: to they're they're they're in a tough situation. Now we

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Speaker 1: know that Target and Walmart have been choking on some

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Speaker 1: EXUS inventory. I'm sure there have to be others. But

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Speaker 1: you know, again, they don't want to mark their prices

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Speaker 1: down too aggressively across the board, so they're using amazons

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Speaker 1: there as their you know, as their cover, so to speak.

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Speaker 1: So I do think you start to see some of

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Speaker 1: this mitigate. That's possibly because retail you know, retail consumers,

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Speaker 1: you know, get feel strapped because of because of the

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Speaker 1: rising food and energy prices, and even though they're starting

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Speaker 1: to come down, they're still in the mindset that things

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Speaker 1: are high and more expensive, which which to a certain extent,

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Speaker 1: they are maybe just not as expensive as they were

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Speaker 1: at the peak. What did you If you're an investor,

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Speaker 1: then I think you have to I think you have

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Speaker 1: to remain very cautious. I think you I think you

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Speaker 1: play what the earning season that's upcoming very close to

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Speaker 1: the vest um, I know it starts tomorrow at the banks.

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Speaker 1: I really think the banks are like the worst bell

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Speaker 1: weather because they're so dependent on fluky things that don't

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Speaker 1: really affect the rest of the rest of the industrial companies. Um.

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Speaker 1: But I think you have to see. Number One, do

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Speaker 1: companies take the Microsoft route and say that the dollar

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Speaker 1: is impacting their their earnings from around the world. Number Two,

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Speaker 1: how does the market react to negative stories, because that

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Speaker 1: was really the tell in January and April. They take

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Speaker 1: they took our companies that missed and destroyed them. If

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Speaker 1: they if they're a little more charitable this time, and

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Speaker 1: I have no reason to believe that they are necessarily,

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Speaker 1: But if you see some of these companies have misses

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Speaker 1: and they don't actually get clobbered, they just kind of

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Speaker 1: go down a little, that's probably a time that you

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Speaker 1: start to think about maybe it's a little bit safer

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Speaker 1: to get back in the water. And then you start

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Speaker 1: to think in terms of a value investor, looking for

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Speaker 1: solid rep earnings that can be replicated and cash flows

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Speaker 1: that that can support dividends. Yeah, you just wonder whether

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Speaker 1: or not the valuations are such the discounting having already

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Speaker 1: been done, that the market can basically move almost sideways

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Speaker 1: today on that horrific number. Yeah it did. You know,

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Speaker 1: we have gotten very oversold um and again you know,

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Speaker 1: but to me, the other shoe that's left out there,

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Speaker 1: you know, sort of lurking at us is the quantitative

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Speaker 1: tightening and the market and markets have not done well

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Speaker 1: during cute periods of when the FETE has tried to

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Speaker 1: shrink their balance sheet. Think of um, when we sold

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Speaker 1: off hard in the in the in the fourth quarter.

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Speaker 1: Think often where we recovered after the FETE stopped raising rates,

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Speaker 1: but then we ended up with a repot crisis that

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Speaker 1: that ultimately led to an upward market in late But ultimately,

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Speaker 1: you know, the FET had to step in and stop shot,

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Speaker 1: stop reducing its balance sheet because of getting the banks

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Speaker 1: into trouble, they couldn't finance their positions. So I think

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Speaker 1: that is that remains a huge risk out there of

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Speaker 1: what happens when we actually really start to drain money

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Speaker 1: instead of making it more expensive. All right, Steve, thanks

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Speaker 1: so much for joining us. Steve Sosnick, chief strategist, set

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Speaker 1: Interactive Brokers with this if