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Speaker 1: Let's get to our guest, Todd Jablonsky, ce IO at

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Speaker 1: Principal Global Asset Allocation. Todd, it would be nice if,

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Speaker 1: you know, we could say, well, maybe this is more

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Speaker 1: than than just a bear market rally. Um. The narrative, though,

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Speaker 1: was supposed to be that analysts were way behind in

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Speaker 1: revising their earnings estimates down. But what's actually happening is

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Speaker 1: is kind of the opposite. Companies are beating and we're

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Speaker 1: finding that the estimates are actually still too low and

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Speaker 1: the forecast are not all being brought down. So it

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Speaker 1: begs the question, you know, what's the strategy here? Well,

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Speaker 1: you're right, it certainly would be nice to have that

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Speaker 1: sort of clear, unilateral signal that would send the investors

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Speaker 1: a message say risk off, you know, to prepare for

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Speaker 1: uh an earning slow down. But much of the frustration

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Speaker 1: of I think of of market washers. We've had a

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Speaker 1: mixed set of signals. You know. One thing I think

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Speaker 1: that is quite clear though, for global equity investors is

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Speaker 1: that as the global economy moves forward into this declined phase,

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Speaker 1: it's tough to expect valuation increases to drive equity performance.

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Speaker 1: We're keenly focused on the delivery of EPs trajectory to

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Speaker 1: move equities forward. And right now, the SMP five hundreds

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Speaker 1: got close to a ten percent expectation for the year,

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Speaker 1: and some of the higher frequency data points we've seen

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Speaker 1: do suggest that you could see some stabilization as stock

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Speaker 1: prices begin to move off of a more optimistic earnings outlook.

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Speaker 1: And tell you now think that a US recession next

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Speaker 1: year is your baseline case. I just want to do

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Speaker 1: think the markets have fully reflected that just yet, you know,

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Speaker 1: it's been a remarkable story in two Right at the

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Speaker 1: beginning of the year, most US FED observers expected perhaps

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Speaker 1: a hundred basis points of tightening. And yet as we

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Speaker 1: move forward today we policy rates are likely to hit

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Speaker 1: three point five percent at your end. And that's come

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Speaker 1: about as the FED has moved to arrest inflationary forces

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Speaker 1: caused by excess demand. And yes they have advanced. In fact,

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Speaker 1: a recession to its maximum proba sort of probability to

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Speaker 1: occur in three rather than that probability increase into three

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Speaker 1: is part of our base case and as part of

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Speaker 1: I think what investors can look at in the year ahead.

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Speaker 1: And Todd, we were, you know, and I was just

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Speaker 1: talking about this news out of Europe revolving the Russia

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Speaker 1: gas problem reportedly have restarted exports and will respont exports

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Speaker 1: and have put in suggesting flows will will restart this

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Speaker 1: whole North Stream pipeline. It seems to be had the

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Speaker 1: big event risk this week. I have to wonder how

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Speaker 1: much relief can we get from from these sort of

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Speaker 1: news and how do you position around that well. I

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Speaker 1: think investors would be wise to assume that inflation is

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Speaker 1: only likely to decline at a slow pace, though as

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Speaker 1: you mentioned, particularly in Europe food and energy, inflation remained

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Speaker 1: the wild card. Uh. The news that you saw around

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Speaker 1: the North Stream pipeline today, as well as the market

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Speaker 1: action today, I think Bill suggests you know, some optimism

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Speaker 1: for investors ahead. But looking at Europe, I think, for

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Speaker 1: more of a fundamental standpoint, we do believe that the

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Speaker 1: continent is likely to enter recession ahead of the US

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Speaker 1: and put downward pressure on European equities in the near term,

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Speaker 1: but that for that more negative fundamental outlook is balanced

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Speaker 1: out by the more attractive valuations UH net net, you

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Speaker 1: have to look at Europe as being fairly priced and

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Speaker 1: still spacing substantial economic challenges. Despite the waning of pressure

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Speaker 1: on energy prices. But we have a couple of examples.

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Speaker 1: Netflix is another one where valuation had gotten maybe a

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Speaker 1: little extended with a stock following some sevent or so

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Speaker 1: and and so it could be a period here where

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Speaker 1: you know, you may not be all in on oh yeah,

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Speaker 1: the lows are in and we're going you know, we're

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Speaker 1: going up um with a rocket. But there there could

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Speaker 1: be some recovery, like for instance, the shorting the euro

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Speaker 1: and yen trade. A lot of people are saying, geez,

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Speaker 1: that seems like it's gone too far. What do you

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Speaker 1: think I mean, are you looking for some areas like

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Speaker 1: this where you can just get a little bit of

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Speaker 1: sort of relief in your portfolio. Certainly, currency movements have

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Speaker 1: been a surprise too investors that the dollars exceeded I

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Speaker 1: think even some of the most optimistic expectations for this year,

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Speaker 1: and that's certainly translated to a boon, you know for

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Speaker 1: us AC at U S dollarge donominated assets. The trade

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Speaker 1: you refer to, I think does offer you know, relief,

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Speaker 1: you know, right now, as as as you talk about um,

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Speaker 1: some of the relenting happenings, investors perhaps may have overestimated

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Speaker 1: the tightening in the US. That said, you know, you

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Speaker 1: still have to look at the US, and I still

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Speaker 1: think that you find a kind of fundamental acceleration that

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Speaker 1: does point to a US lead at global equity market.

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Speaker 1: In fact, I posit that looking at the mid have

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Speaker 1: space in the US actually offers attractive entry points and valuation,

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Speaker 1: a more US focused revenue profile and less of a

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Speaker 1: growth exposure than we've seen on the large cap side.

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Speaker 1: Quite popular with investors over the preceding years. You're still

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Speaker 1: thinking when it comes to fixed income, though, stay underweight.

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Speaker 1: You don't think bonds can have that kind of defensive

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Speaker 1: play anymore. Well, it's been hard to own stability this year.

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Speaker 1: The cost of stability has been quite high, as you've

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Speaker 1: seen roughly two hundred basis points of rate increase out

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Speaker 1: on the tenure. As you look at the fixed income category,

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Speaker 1: the combination of rate risk and spread risk really is

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Speaker 1: it doesn't add up to I think the same risk

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Speaker 1: risk reward potential as exists in alternatives. That's why from

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Speaker 1: an acid allocation perspective, you know, principle taxically prefers those

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Speaker 1: real asset exposures like commodities, natural resource stocks, infrastructure over

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Speaker 1: what a fixed income market can offer at this stage.

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Speaker 1: So just briefly to look China, you know, it's a

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Speaker 1: conundrum d D. It's probe by Chinese regulators seems to

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Speaker 1: be ending here, so that's that's the good news. But

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Speaker 1: the company will pay a fine of a billion bucks. Uh,

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Speaker 1: that's kind of the bad news. Is that something that

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Speaker 1: you would look at some sort of not just d D,

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Speaker 1: but I mean just generally China. China does offer I

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Speaker 1: think a lot of appeal to investors, mostly due to

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Speaker 1: the different path that's been taken forward, whether it's dealing

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Speaker 1: with the COVID virus and the COVID zero COVID zero policy,

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Speaker 1: or whether it's the form and shape of common prosperity

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Speaker 1: and what the form and shape of returns look like

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Speaker 1: out of China. Putting it all together, you can see

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Speaker 1: diversification benefits via the world's second largest economy. Though I'm

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Speaker 1: reluctant to point to the current case in China and

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Speaker 1: suggest that you, I think have a better market out

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Speaker 1: looked than inside the US. So I believe it there

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Speaker 1: to the principal globe asset allocation, This is Boe Barth