Speaker 1: All right, let's have a look at what we are
Speaker 1: seeing with the market action and get to our guest.
Speaker 1: Chuck Lieberman is co founder and chief investment officer at
Speaker 1: Advisors Capital Management, discussing all the latest on the markets,
Speaker 1: joining us from New Jersey. So, certainly we are watching
Speaker 1: the protests against the COVID controls spread in China before
Speaker 1: we get to the broader macro picture on the inflation
Speaker 1: and the FED. How much does this complicate things for
Speaker 1: the overall global picture? Well, it certainly does that. Um,
Speaker 1: it's unclear how the Chinese government is going to respond.
Speaker 1: Further lockdowns would obviously be very disruptive to global supplies
Speaker 1: of products coming from China and also undermine demand. Uh.
Speaker 1: But if they allow the virus to spread, that could
Speaker 1: also be very disruptive. Alright, Well, let's talk as well
Speaker 1: about the broader picture, because we're looking at whether or
Speaker 1: not inflation has peaked and how much is going to
Speaker 1: moderate or how quickly after that? In your view, have
Speaker 1: we reached peak inflation yet? Yeah? I think we have,
Speaker 1: although I don't think that's good enough. Um, inflation is
Speaker 1: going to come down because some of the inflation increase
Speaker 1: was transitory and that is coming out. Various goods categories
Speaker 1: saw artificial scarcities. Prices went up. Now that's reversing. Autos
Speaker 1: are perfect example. Auto production was was disrupted. You couldn't
Speaker 1: buy a new car, it was demand for existing cars.
Speaker 1: Used cars was very very strong. They became scarce as well.
Speaker 1: And as the supply of cars increases, prices will weaken.
Speaker 1: And that's coming into the data. But the underlying trend
Speaker 1: is driven by the labor market. There's no relief yet
Speaker 1: in labor market that the labor market continues to be
Speaker 1: very very tight. Wage increases are solid. Uh, labor is
Speaker 1: becoming a bit more aggressive in negotiating for wage increases.
Speaker 1: That's not going away. So it's premature to say that
Speaker 1: the FED is anywhere close to achieving what it needs
Speaker 1: to achieve, and premature then to say pivot as you
Speaker 1: as you point out too. But do we continue to
Speaker 1: see these aggressive rate hikes of basis points. No, they
Speaker 1: have every reason to slow the pace down. At seventy
Speaker 1: basis points to clip, Uh, it doesn't take very long
Speaker 1: before the interest rate, the overnight interest rate is through
Speaker 1: the roof, so inevitably they were going to slow um.
Speaker 1: That was in that literally had to happen. Uh. And
Speaker 1: they also need more data. They need to see how
Speaker 1: much inflation moderates. If inflation comes down easily on its
Speaker 1: own to two percent, which I doubt, then they don't
Speaker 1: have to keep on going that far. But if inflation
Speaker 1: turns out to be more resilient and stays very elevated,
Speaker 1: then they might have to go that much more. So
Speaker 1: I think they're going to slow the pace the market
Speaker 1: expects fifty basis points. I've been in that camp for
Speaker 1: a little while. I expect another fifty thereafter. That would
Speaker 1: take the funds rate up to about five UH. And
Speaker 1: I think they take it to five five and a half,
Speaker 1: and then they plause and they wait to see more data,
Speaker 1: see how the economy is performing, whether the labor market
Speaker 1: is beginning to loosen, whether there's any slowing and hiring,
Speaker 1: and whether inflation is moderating more than that I expect
Speaker 1: um and that all remains to be seen. You talk
Speaker 1: there about the strength of the labor market, and everybody's
Speaker 1: waiting to see what kind of wage increases will happen
Speaker 1: as well, given everybody's dealing with these inflationary pressures. But
Speaker 1: how did you read the kind of sluggish Black Friday
Speaker 1: sales if if the consumer doesn't really want to spend them, well,
Speaker 1: I thought the retail sales numbers were actually pretty decent. Um.
Speaker 1: You know, certainly the mix changes. We've seen multiple changes
Speaker 1: in consumer spending mix during the pandemic. Initially everything was
Speaker 1: for sheltering at home, UH, bringing in goods to provide
Speaker 1: UH services for for people who are literally stuck at home.
Speaker 1: And then once things reopened, then we shifted over to
Speaker 1: services um and and now I think it's a matter
Speaker 1: of UH. As long as income is strong, spending will
Speaker 1: stay strong too. And yet some of your thoughts on
Speaker 1: how to play the markets amidst all the geopolitical headwinds
Speaker 1: that we are facing, and of course as we're looking
Speaker 1: to what the FED does next, you're saying it's too
Speaker 1: late to sell, even if the repricing hasn't hit bottom.
Speaker 1: So where should you be looking potentially to buy? Then, Well,
Speaker 1: typically the market always fights the last war. So the
Speaker 1: last war from the market's perspective was the credit crisis
Speaker 1: of two thousand and eight, and so everything related to
Speaker 1: housing is weak. If you look at the banks, the
Speaker 1: house home builders, the suppliers to the industry mortgage insurance,
Speaker 1: Every single one of those sectors is amazingly cheap. You
Speaker 1: have major banks like Wells, Fargo and City Group trading
Speaker 1: around book or less than book. U home builders are
Speaker 1: trading at three, four or five times earnings. Suppliers the
Speaker 1: same thing. UM mortgage insurance companies trading at seven eight
Speaker 1: times earnings. All of these companies are profitable. Many of
Speaker 1: them are buying backstock. UM. That whole part of the
Speaker 1: market is just incredibly cheap. What about tech? Do you
Speaker 1: stay away there or is the opportunity Well, tech is
Speaker 1: more complicated. Uh, it's there. That's the part of the
Speaker 1: market that got hurt the most. Uh. It's the highest
Speaker 1: pe multiples, so it's very long lived asset. Higher interest
Speaker 1: rates hurt that valuation, and we've seen them come down
Speaker 1: a lot. But that's a broad brush. You then have
Speaker 1: to look at individual companies and judge whether or not
Speaker 1: those companies are likely to continue to do well. Uh.
Speaker 1: Some are very well placed. We like, uh, for example,
Speaker 1: a company like Microsoft or Google or Amazon. We think
Speaker 1: those are great long term holdings. In other cases, some
Speaker 1: of the companies are a lot more expensive, and I
Speaker 1: would be cautious about them. We're looking at a U
Speaker 1: S tenure yield around three point six eight percent. About
Speaker 1: a month ago, we're above four percent. You're saying around
Speaker 1: three point seven five doesn't really provide any real return
Speaker 1: without a lower inflation rate. And we've talked about when
Speaker 1: we might see that happen. What is the likelihood then
Speaker 1: that it is more yields rutch at lower Where where
Speaker 1: are you seeing the tenure move? Yeah, I'm on the
Speaker 1: other side of that argument. I think that interest rates
Speaker 1: have got to go up more. The FED is going
Speaker 1: to continue to hike rates at least fifty basis points
Speaker 1: at the next meeting, probably another fifty after that. So
Speaker 1: that'll take the funds rate up to five. And with
Speaker 1: the five percent funds rate, how do you justify a
Speaker 1: tenure at the three point seven percent um? I think
Speaker 1: that's hard to do, and it's especially hard to do
Speaker 1: when you put in the context of inflation at the
Speaker 1: end of I think the FED would be very happy
Speaker 1: if in ation we're around four percent. That still means
Speaker 1: a negative rate of return after inflation for any investor
Speaker 1: in ten years security. So I don't think that the
Speaker 1: bond market has fully discounted what it should discount, namely
Speaker 1: that inflation will be higher for longer and therefore interest
Speaker 1: rates are relatively unattractive. And just a quick word as
Speaker 1: well about the the oil market. Will talking earlier about
Speaker 1: the U S granting Chevron a six month license to
Speaker 1: resume oil production in Villezuela. At the same time, you've
Speaker 1: got this China unrest that we also touched on, sending
Speaker 1: ripples throughout the world markets. When we look at those concerns,
Speaker 1: and of course the other side of the coin, which
Speaker 1: is the reopening, where do you see oil kind of
Speaker 1: trade when we've got it around seventy six dollars about
Speaker 1: at the moment. Yeah, I think oil reflects those concerns
Speaker 1: that you just mentioned, juliet Um. So I think that's
Speaker 1: why oil is where it is. But the fact of
Speaker 1: the matter is oil is pretty scarce. Their shortages, we're
Speaker 1: still scrambling to try to get more natural gas to Europe.
Speaker 1: Um supplies of oil or are moving through the back
Speaker 1: door so Russia can export via India to other parts
Speaker 1: of the world. Oil is still pretty scarce, and so
Speaker 1: I think there's a lot of risk that oil prices
Speaker 1: moved back up to a hundred bucks barrel that'll be
Speaker 1: under a lot of pressure if the winter turns out
Speaker 1: to be cold and we start dipping into our inventories
Speaker 1: of both oil and natural gas, and that will create
Speaker 1: a lot of upward pressure. So I'm more of a
Speaker 1: bull on the energy side um as opposed to thinking
Speaker 1: that there's weakness ahead. Alright, Chuck, great to have your insights.
Speaker 1: Thanks for joining us on Depricasia. Chuck Lieberman's co founder
Speaker 1: and chief investment officer and advises capital management, joining us
Speaker 1: from nu Ja