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Speaker 1: All right, let's have a look at what we are

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Speaker 1: seeing with the market action and get to our guest.

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Speaker 1: Chuck Lieberman is co founder and chief investment officer at

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Speaker 1: Advisors Capital Management, discussing all the latest on the markets,

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Speaker 1: joining us from New Jersey. So, certainly we are watching

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Speaker 1: the protests against the COVID controls spread in China before

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Speaker 1: we get to the broader macro picture on the inflation

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Speaker 1: and the FED. How much does this complicate things for

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Speaker 1: the overall global picture? Well, it certainly does that. Um,

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Speaker 1: it's unclear how the Chinese government is going to respond.

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Speaker 1: Further lockdowns would obviously be very disruptive to global supplies

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Speaker 1: of products coming from China and also undermine demand. Uh.

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Speaker 1: But if they allow the virus to spread, that could

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Speaker 1: also be very disruptive. Alright, Well, let's talk as well

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Speaker 1: about the broader picture, because we're looking at whether or

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Speaker 1: not inflation has peaked and how much is going to

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Speaker 1: moderate or how quickly after that? In your view, have

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Speaker 1: we reached peak inflation yet? Yeah? I think we have,

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Speaker 1: although I don't think that's good enough. Um, inflation is

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Speaker 1: going to come down because some of the inflation increase

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Speaker 1: was transitory and that is coming out. Various goods categories

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Speaker 1: saw artificial scarcities. Prices went up. Now that's reversing. Autos

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Speaker 1: are perfect example. Auto production was was disrupted. You couldn't

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Speaker 1: buy a new car, it was demand for existing cars.

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Speaker 1: Used cars was very very strong. They became scarce as well.

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Speaker 1: And as the supply of cars increases, prices will weaken.

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Speaker 1: And that's coming into the data. But the underlying trend

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Speaker 1: is driven by the labor market. There's no relief yet

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Speaker 1: in labor market that the labor market continues to be

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Speaker 1: very very tight. Wage increases are solid. Uh, labor is

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Speaker 1: becoming a bit more aggressive in negotiating for wage increases.

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Speaker 1: That's not going away. So it's premature to say that

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Speaker 1: the FED is anywhere close to achieving what it needs

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Speaker 1: to achieve, and premature then to say pivot as you

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Speaker 1: as you point out too. But do we continue to

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Speaker 1: see these aggressive rate hikes of basis points. No, they

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Speaker 1: have every reason to slow the pace down. At seventy

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Speaker 1: basis points to clip, Uh, it doesn't take very long

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Speaker 1: before the interest rate, the overnight interest rate is through

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Speaker 1: the roof, so inevitably they were going to slow um.

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Speaker 1: That was in that literally had to happen. Uh. And

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Speaker 1: they also need more data. They need to see how

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Speaker 1: much inflation moderates. If inflation comes down easily on its

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Speaker 1: own to two percent, which I doubt, then they don't

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Speaker 1: have to keep on going that far. But if inflation

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Speaker 1: turns out to be more resilient and stays very elevated,

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Speaker 1: then they might have to go that much more. So

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Speaker 1: I think they're going to slow the pace the market

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Speaker 1: expects fifty basis points. I've been in that camp for

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Speaker 1: a little while. I expect another fifty thereafter. That would

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Speaker 1: take the funds rate up to about five UH. And

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Speaker 1: I think they take it to five five and a half,

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Speaker 1: and then they plause and they wait to see more data,

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Speaker 1: see how the economy is performing, whether the labor market

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Speaker 1: is beginning to loosen, whether there's any slowing and hiring,

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Speaker 1: and whether inflation is moderating more than that I expect

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Speaker 1: um and that all remains to be seen. You talk

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Speaker 1: there about the strength of the labor market, and everybody's

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Speaker 1: waiting to see what kind of wage increases will happen

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Speaker 1: as well, given everybody's dealing with these inflationary pressures. But

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Speaker 1: how did you read the kind of sluggish Black Friday

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Speaker 1: sales if if the consumer doesn't really want to spend them, well,

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Speaker 1: I thought the retail sales numbers were actually pretty decent. Um.

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Speaker 1: You know, certainly the mix changes. We've seen multiple changes

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Speaker 1: in consumer spending mix during the pandemic. Initially everything was

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Speaker 1: for sheltering at home, UH, bringing in goods to provide

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Speaker 1: UH services for for people who are literally stuck at home.

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Speaker 1: And then once things reopened, then we shifted over to

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Speaker 1: services um and and now I think it's a matter

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Speaker 1: of UH. As long as income is strong, spending will

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Speaker 1: stay strong too. And yet some of your thoughts on

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Speaker 1: how to play the markets amidst all the geopolitical headwinds

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Speaker 1: that we are facing, and of course as we're looking

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Speaker 1: to what the FED does next, you're saying it's too

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Speaker 1: late to sell, even if the repricing hasn't hit bottom.

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Speaker 1: So where should you be looking potentially to buy? Then, Well,

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Speaker 1: typically the market always fights the last war. So the

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Speaker 1: last war from the market's perspective was the credit crisis

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Speaker 1: of two thousand and eight, and so everything related to

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Speaker 1: housing is weak. If you look at the banks, the

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Speaker 1: house home builders, the suppliers to the industry mortgage insurance,

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Speaker 1: Every single one of those sectors is amazingly cheap. You

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Speaker 1: have major banks like Wells, Fargo and City Group trading

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Speaker 1: around book or less than book. U home builders are

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Speaker 1: trading at three, four or five times earnings. Suppliers the

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Speaker 1: same thing. UM mortgage insurance companies trading at seven eight

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Speaker 1: times earnings. All of these companies are profitable. Many of

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Speaker 1: them are buying backstock. UM. That whole part of the

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Speaker 1: market is just incredibly cheap. What about tech? Do you

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Speaker 1: stay away there or is the opportunity Well, tech is

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Speaker 1: more complicated. Uh, it's there. That's the part of the

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Speaker 1: market that got hurt the most. Uh. It's the highest

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Speaker 1: pe multiples, so it's very long lived asset. Higher interest

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Speaker 1: rates hurt that valuation, and we've seen them come down

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Speaker 1: a lot. But that's a broad brush. You then have

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Speaker 1: to look at individual companies and judge whether or not

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Speaker 1: those companies are likely to continue to do well. Uh.

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Speaker 1: Some are very well placed. We like, uh, for example,

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Speaker 1: a company like Microsoft or Google or Amazon. We think

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Speaker 1: those are great long term holdings. In other cases, some

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Speaker 1: of the companies are a lot more expensive, and I

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Speaker 1: would be cautious about them. We're looking at a U

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Speaker 1: S tenure yield around three point six eight percent. About

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Speaker 1: a month ago, we're above four percent. You're saying around

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Speaker 1: three point seven five doesn't really provide any real return

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Speaker 1: without a lower inflation rate. And we've talked about when

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Speaker 1: we might see that happen. What is the likelihood then

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Speaker 1: that it is more yields rutch at lower Where where

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Speaker 1: are you seeing the tenure move? Yeah, I'm on the

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Speaker 1: other side of that argument. I think that interest rates

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Speaker 1: have got to go up more. The FED is going

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Speaker 1: to continue to hike rates at least fifty basis points

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Speaker 1: at the next meeting, probably another fifty after that. So

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Speaker 1: that'll take the funds rate up to five. And with

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Speaker 1: the five percent funds rate, how do you justify a

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Speaker 1: tenure at the three point seven percent um? I think

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Speaker 1: that's hard to do, and it's especially hard to do

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Speaker 1: when you put in the context of inflation at the

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Speaker 1: end of I think the FED would be very happy

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Speaker 1: if in ation we're around four percent. That still means

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Speaker 1: a negative rate of return after inflation for any investor

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Speaker 1: in ten years security. So I don't think that the

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Speaker 1: bond market has fully discounted what it should discount, namely

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Speaker 1: that inflation will be higher for longer and therefore interest

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Speaker 1: rates are relatively unattractive. And just a quick word as

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Speaker 1: well about the the oil market. Will talking earlier about

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Speaker 1: the U S granting Chevron a six month license to

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Speaker 1: resume oil production in Villezuela. At the same time, you've

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Speaker 1: got this China unrest that we also touched on, sending

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Speaker 1: ripples throughout the world markets. When we look at those concerns,

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Speaker 1: and of course the other side of the coin, which

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Speaker 1: is the reopening, where do you see oil kind of

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Speaker 1: trade when we've got it around seventy six dollars about

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Speaker 1: at the moment. Yeah, I think oil reflects those concerns

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Speaker 1: that you just mentioned, juliet Um. So I think that's

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Speaker 1: why oil is where it is. But the fact of

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Speaker 1: the matter is oil is pretty scarce. Their shortages, we're

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Speaker 1: still scrambling to try to get more natural gas to Europe.

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Speaker 1: Um supplies of oil or are moving through the back

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Speaker 1: door so Russia can export via India to other parts

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Speaker 1: of the world. Oil is still pretty scarce, and so

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Speaker 1: I think there's a lot of risk that oil prices

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Speaker 1: moved back up to a hundred bucks barrel that'll be

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Speaker 1: under a lot of pressure if the winter turns out

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Speaker 1: to be cold and we start dipping into our inventories

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Speaker 1: of both oil and natural gas, and that will create

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Speaker 1: a lot of upward pressure. So I'm more of a

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Speaker 1: bull on the energy side um as opposed to thinking

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Speaker 1: that there's weakness ahead. Alright, Chuck, great to have your insights.

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Speaker 1: Thanks for joining us on Depricasia. Chuck Lieberman's co founder

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Speaker 1: and chief investment officer and advises capital management, joining us

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Speaker 1: from nu Ja