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Speaker 1: Let's get to our guest, the esteemed Richard Harris, CEO

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Speaker 1: of Port Shelter Investment Management with US. So I've got

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Speaker 1: a kind of quirky question for you here, Richard. I

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Speaker 1: think for most of this year we have seen the

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Speaker 1: FED as the dark Knight. How much longer will that

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Speaker 1: be the dark knip? Maybe not quite the white Knight.

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Speaker 1: I mean, it looks as if the economies in the

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Speaker 1: US at least is pretty strong. It looks as if

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Speaker 1: the FED is not really going to change its attack,

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Speaker 1: and the fact that they've moved from seventy five basis

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Speaker 1: points to maybe a standard fifty basis points is not

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Speaker 1: particularly good news when you think interest rates are still

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Speaker 1: going to go up. So so, no, not the white Knip,

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Speaker 1: but certainly the black Knight. So where do you see

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Speaker 1: the corner being turned for the FED? Because we get

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Speaker 1: four new voting members next year, did you anticipate that's

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Speaker 1: going to bring any change in rhetoric? Well, it sounds

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Speaker 1: like the Supreme Court, doesn't it. Uh. I don't know,

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Speaker 1: because we don't really know what these new FED governors

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Speaker 1: are actually going to say, uh, and which side of

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Speaker 1: the street they're actually going to go on? But I

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Speaker 1: think that if you're looking at as an analyst, you

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Speaker 1: have to say that inflation is still stubbornly high. Yes,

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Speaker 1: it's been coming down, but still stubbornly high. In the

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Speaker 1: service sector. We're looking at really quite high levels compared

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Speaker 1: to what we have if you take a you know,

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Speaker 1: four year mean or something like that, and it seems

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Speaker 1: difficult to imagine that the FED is really going to

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Speaker 1: bang inflation on the head with the sort of rates

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Speaker 1: levels they've got at the moment. Richard, we had a

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Speaker 1: guest on earlier who said, the main reason that we're

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Speaker 1: seeing we will eventually see recession is because of the FED.

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Speaker 1: And if you look at the data today, it was

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Speaker 1: pretty strong. So if that really is the case, that

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Speaker 1: this is not an organic recession that's coming because of

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Speaker 1: some fissures in the in the economy, but it's it's

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Speaker 1: really being led by the FED, doesn't that mean then, uh,

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Speaker 1: that with the reins firmly in control, that the FED

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Speaker 1: could could slow down at the appropriate time and engineer

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Speaker 1: a soft landing. I mean, nobody thinks of soft landing

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Speaker 1: is coming. That's what it seems like from the guests

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Speaker 1: we talked to. Well, that's right, And I think that's

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Speaker 1: because the markets look quite unstable at the moment. You know,

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Speaker 1: we've got a fairly strong economy, but certainly some weakness

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Speaker 1: in parts of the economy in terms of earnings. You've

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Speaker 1: got a discontinuity there. You've got reasonably high inflation that's

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Speaker 1: stubbornly high, and the FED with interest rates that are

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Speaker 1: still quite low. Um. I actually blame the Fed for

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Speaker 1: a lot of things, but I wouldn't blame them for

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Speaker 1: an oncoming recession, because recessions are part of economies. You know,

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Speaker 1: they come every now and then. And the reason we

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Speaker 1: haven't seen them, and the reason why the teenage scribblers

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Speaker 1: haven't really written about them in the last fifteen twenty years,

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Speaker 1: is every time there's a smell of a recession, the

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Speaker 1: Fed has cut rates. They cut them virtually zero, which

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Speaker 1: is impossible. Money can't be worth nothing. So we're in

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Speaker 1: a situation now where we have to really roll back

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Speaker 1: a lot of that um and in that rolling back

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Speaker 1: into a more normalized situation the economy, we are going

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Speaker 1: to get quite a lot of instability. UM. So I

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Speaker 1: think the criticality that people are seeing in the markets

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Speaker 1: at the moment is there. It sounds. The only question

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Speaker 1: is whether the economies are able to pull themselves out

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Speaker 1: of the travel whether they fall deeply into it, and

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Speaker 1: that really depends on events. Dear boy. Yeah, you make

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Speaker 1: a very good point about the sweep of history. Before

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Speaker 1: the global financial crisis, there was nothing surprising at all

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Speaker 1: about having rights in positive territory and firmly in positive territory.

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Speaker 1: So when you're looking around at places to put your

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Speaker 1: money to work, um, where do you look? Now? Well,

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Speaker 1: it's it's tough. If you're looking at a bearish environment.

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Speaker 1: You know, you can't run, you can't hide. I think

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Speaker 1: tactically you have to be looking at China. I mean,

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Speaker 1: China's obviously in the news for all the wrong reasons

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Speaker 1: at the moment, but I like to look at themes

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Speaker 1: and trends that have happened elsewhere. And we know in

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Speaker 1: the second and third quarter of after we had those

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Speaker 1: very difficult lockdowns UM in the West, the economies bounced substantially.

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Speaker 1: I think we'll see that in China as well, and

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Speaker 1: I think that will help China. And I think Hong

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Speaker 1: Kong is a bit of a leverage play on China.

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Speaker 1: I think it will help Hong Kong quite a lot,

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Speaker 1: So you've got that um. But if we are looking

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Speaker 1: at a beary scenario, you know, if you're looking at

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Speaker 1: your underlay, your canvas, you've got to continue to be

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Speaker 1: in the dollar um. And the third thing is I'd

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Speaker 1: favor equities over bonds because I think in this environment,

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Speaker 1: bonds are definitely not the place to be. So you're

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Speaker 1: saying equities are not a bad hiding place. So what

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Speaker 1: would be the theme that drives that? Would it be

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Speaker 1: free cash flow or high dividends, or or simply quality

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Speaker 1: companies that have proven it over time. I mean, how

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Speaker 1: do you how do you set up your metrics? Well,

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Speaker 1: all of those things, but I think perhaps the most

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Speaker 1: important thing is pricing power in in the markets, because

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Speaker 1: as you have an inflationary environment, you need to put

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Speaker 1: our prices. You know, your your money, your revenue is

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Speaker 1: falling in real terms by probably seven tem per cent

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Speaker 1: a year at the moment, and you need to keep

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Speaker 1: putting your prices up. Now, customers are very unhappy if

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Speaker 1: you put them up in small in large bytes over

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Speaker 1: a long period of time. They're much happier putting it

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Speaker 1: up in small amounts. So I think if you're looking

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Speaker 1: at consumer staples, they're likely to remain solid because you know,

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Speaker 1: you go to the supermarket, prices go up a penny

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Speaker 1: or two here and there, Nobody really notices it unless

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Speaker 1: you've been away for six months. So that sort of

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Speaker 1: area is I think where I'm focusing at the moment.

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Speaker 1: So it's very much a stock picker's active investor. Market.

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Speaker 1: Were pretty much around about this time in the quarter,

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Speaker 1: start hearing portents of doom about what the next quarter

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Speaker 1: of earnings is going to look like. In future earnings

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Speaker 1: quarters as well, and then things typically don't turn our

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Speaker 1: quite as badly as we expected. Do you feel like

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Speaker 1: the talk of earnings recessions is sometimes overdone? Well, I

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Speaker 1: think you're right, Paul. Things often don't turn out as

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Speaker 1: badly as we expect. And one of the problems of

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Speaker 1: allilis have is we're always there things are going to

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Speaker 1: happen tomorrow. Very often. These things happen over a long

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Speaker 1: period of time. Now, of course we see the seasonality

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Speaker 1: in the market, you know, January the one as we

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Speaker 1: saw last year, it could be a time of reversal.

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Speaker 1: We could see the market come off quite a bit.

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Speaker 1: But you're quite right, these things don't happen instantly. They

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Speaker 1: happen over periods of time. Even this year we had

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Speaker 1: you know, pretty well in a bear market beginning to

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Speaker 1: end of the year, but it's happened largely over the

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Speaker 1: year rather than over a short period of time. So yes,

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Speaker 1: I think the the future looks gloomy. But where they

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Speaker 1: we'll have a big sharp shock, you know, once again,

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Speaker 1: is just dependent on the circumstances of events that are

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Speaker 1: likely to pop up. Richard, do you think we'll see

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Speaker 1: the rise of the consumer again in China into twenty three? Well,

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Speaker 1: you know, it's funny. When I was last there, which

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Speaker 1: of course is a while ago now because of of COVID,

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Speaker 1: the consumer always seems quite healthy. Um. You know, shops

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Speaker 1: of full, restaurants are full. Um. I think the consumer

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Speaker 1: wants to consume. But of course, you know, with a

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Speaker 1: difficult economy, it's likely the government is going to want

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Speaker 1: to insert it's it's buying power into the economy, and

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Speaker 1: that rather, if you like, overwhelms consumptions. So I can't

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Speaker 1: see if you're looking at raw economic figures that the

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Speaker 1: consumer is going to be particularly healthy. But you know,

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Speaker 1: once again, as we've seen in other parts of the world. Um,

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Speaker 1: you know, once the lockdown comes off, you have revenge spending.

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Speaker 1: So I think we're going to see that in China too,

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Speaker 1: which will help that market on a tactical basis. Canada

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Speaker 1: escape inflation though, because else we have had revenge spending

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Speaker 1: plus inflation, are things different in China? I don't think so. No.

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Speaker 1: I think inflation is likely to be there in China,

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Speaker 1: as with very thing else. Now. Of course, China has

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Speaker 1: to keep one eye on what the world economy is doing.

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Speaker 1: If we have a very difficult world economy next year,

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Speaker 1: China is not going to be able to escape their

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Speaker 1: kind of recession. So of course you've always got these

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Speaker 1: things that may temper an overall view. Um, but I

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Speaker 1: I think that you know, the authorities will keep an

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Speaker 1: eye on inflation and we'll just have to manage it

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Speaker 1: as as people are in the West, you know, with

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Speaker 1: lending restrictions or in interest rates. To Japan, do you

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Speaker 1: think we could see a great rotation out of bonds

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Speaker 1: into equities given what's happening with monetary policy in the

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Speaker 1: b l J. Well, you know, we've got a big

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Speaker 1: pivot by the bj in perhaps the biggest indicator that

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Speaker 1: you can have in most economies. So I think the

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Speaker 1: answer is yes. You know, China looks like a tactical bet,

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Speaker 1: and perhaps Japan does as well, in a in a

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Speaker 1: much smaller extent. But I've seen some of the reports

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Speaker 1: that people are going to come back in with with

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Speaker 1: with both feet, you know, both trotters and their snouts

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Speaker 1: as well. I don't think that's likely to be the case.

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Speaker 1: I think we're probably likely to see uh AN increase

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Speaker 1: um some optimism, but not the kind of increase that

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Speaker 1: you'd see in China. All right, Richard, thank you very

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Speaker 1: much for being with us. Love the love, the color

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Speaker 1: that you bring to the program, and happy holidays. Richard Harris,

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Speaker 1: CEO at Ports Shelter Investment Management,