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Speaker 1: Let's get to our guest. Francis Stacy is with us.

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Speaker 1: She is director of strategy at Optimal Capital Advisers. She's

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Speaker 1: on the line from Florida. Francis, thanks for being with us.

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Speaker 1: I'm looking at today's price action, actually a lot of

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Speaker 1: the move since last week when we heard from the

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Speaker 1: FED chairman. Seems like the market is getting the message

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Speaker 1: now the Fed is going to fight inflation, no matter

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Speaker 1: was it what it takes, even at the expense of growth. Yes, absolutely,

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Speaker 1: I think the market is getting the message, and it's

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Speaker 1: rapidly repricing that sentiment from the idea that the FED

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Speaker 1: head turned, you know, ever so slightly devish in their

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Speaker 1: last press conference. Um, you know, despite raising rates seventy

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Speaker 1: five basis points. Um. However, volatility has flattened off in

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Speaker 1: these last couple of sessions, and so it might be

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Speaker 1: a little bit finished for now. But I sort of

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Speaker 1: echo that sentiment that I don't think that we've seen

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Speaker 1: the bottom for this year, and um, even if we

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Speaker 1: have a little bit of an intern rally and of

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Speaker 1: course waiting on those jobs numbers. On Friday morning at Francis,

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Speaker 1: of course, we just mentioned the Morgan Stanley chief US

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Speaker 1: equity strategist predicting that they investors have been found to

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Speaker 1: preoccupied with the Feder reserve and that we are probably

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Speaker 1: looking at an earnings downgrade, I suppose, and that could

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Speaker 1: send us to new those Would you agree with him, Yes,

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Speaker 1: that's true. I mean preoccupied with the Fed. The Fed.

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Speaker 1: You know, you just don't fight the Fed because the

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Speaker 1: Fed's reduction of demand and reduction of liquidity is the

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Speaker 1: precursor to having, you know, earnings be affected. And the

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Speaker 1: thing is is that when you look at market peaks

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Speaker 1: since they've introduced quantitative easing post global financial crisis, you

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Speaker 1: really have market peaks perfectly, perfectly correlated when they stopped

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Speaker 1: buying those assets. And so I would say that the

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Speaker 1: FED is the precursor. But I agree with that as

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Speaker 1: far as the quantitative tightening, they were going a little

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Speaker 1: slower than they had planned. So over the last three

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Speaker 1: months they've actually reduced about seventeen billion a month. So

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Speaker 1: if they jump it up to the ninety five billion

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Speaker 1: a month um, you know that's going to be a

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Speaker 1: five x acceleration on reducing those those assets on those

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Speaker 1: on the balance sheet, and that's you know, that could

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Speaker 1: weigh quite heavily on the market. The question is whether

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Speaker 1: the market can absorb that on the credit side. But

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Speaker 1: talk to me a little bit about your forecast for recession.

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Speaker 1: We heard today from the head of the Cleveland fled

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Speaker 1: Loretta Smester, saying in the next two years, the chances

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Speaker 1: of recession, or maybe said another way, the risk of

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Speaker 1: recession clearly much elevated. Where do you come down on

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Speaker 1: the recession call exactly what you just said, right it's

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Speaker 1: how does this record rate of tightening affect the credit market?

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Speaker 1: So right now credit spreads aren't really pricing in any

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Speaker 1: kind of a disaster, and right now, if we were

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Speaker 1: to stop right now, that soft landing looks plausible. But

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Speaker 1: as we've just said, we're not stopping. We're not only

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Speaker 1: you know they're coming out with potentially we're now pricing

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Speaker 1: in you know, seventy basis points for the September meeting.

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Speaker 1: And now you know, taking that balance sheet reduction, uh,

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Speaker 1: quantitative tightening five x that's a lot all at once.

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Speaker 1: And as you say, you know, you can miss a

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Speaker 1: threshold old when you're going that quickly, because all of

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Speaker 1: these things have lag effects. Rates have more of a

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Speaker 1: lag effect than cute does, but you can miss a

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Speaker 1: threshold where you put those credit markets in danger for

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Speaker 1: as it's what you know, we go. Of course, the

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Speaker 1: JOS report coming out Friday, does that take a back

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Speaker 1: seat to the CPI numb as we get No, I

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Speaker 1: think you know, I think bad news is good news.

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Speaker 1: I mean the whole narrative that the Fed. Well, so

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Speaker 1: the Fed doesn't have much choice, right, they have to

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Speaker 1: say resolutely hawkish as they are, because any sigh or

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Speaker 1: any brief breath or any pause that would give traders

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Speaker 1: an idea that they might be sort of going a

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Speaker 1: bit more devilish. Traders Russian anticipate that in price it

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Speaker 1: in and they go ahead and loosen the financial conditions

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Speaker 1: and lower the rates on the Fed's behalf, which is

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Speaker 1: destroying what they're trying to do. So they have to

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Speaker 1: be resolutely hawkish. Um. And so the labor narrative is

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Speaker 1: actually what's allowing them to do that, because it's such

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Speaker 1: a lag indicators. So if that softens enough, that's going

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Speaker 1: to put the Fed even in a worse position, because um,

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Speaker 1: then markets are going to start to price in that

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Speaker 1: they're not going to be able to get all, you know,

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Speaker 1: not going to be able to continue to be hawkish,

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Speaker 1: because that's what they've said they're looking at. So I

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Speaker 1: think it's very important looking at the dollar as really

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Speaker 1: left things off with the doug lass type King dollar,

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Speaker 1: queen dollar, anything non gender specific dollar moving? What ten

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Speaker 1: up on the dollar index so far this year seventeen percent,

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Speaker 1: the depreciation of the yen. Is there anything that stops?

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Speaker 1: And is there anything which is not really at the

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Speaker 1: moment being factored in here? Well, what's interesting about the

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Speaker 1: d X Y which that one actually wasn't overweight to

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Speaker 1: the euro. But the thing is is that it's hitting

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Speaker 1: double top resistance from July fourteen from so it's kind

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Speaker 1: of consolidating sideways in range here. And again if the

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Speaker 1: Fed starts tightening, tightening, tightening, I see further upside to

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Speaker 1: the dollar. Obviously, it has some relative strength to you know,

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Speaker 1: say Euro and this particular index um, you know, because

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Speaker 1: the US is still relatively strong economically. But I think

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Speaker 1: the minute that the FED has to pivot or slow

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Speaker 1: down or change their narrative, then the dollar is going

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Speaker 1: to sell off, and then financial conditions are going to

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Speaker 1: go ahead and loosen. And so that's why they're trying

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Speaker 1: to remain resolutely hawkish. But this is one of the

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Speaker 1: markets that's kind of um, you know, questioning how much

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Speaker 1: they're going to be able to get done despite the narrative,

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Speaker 1: um and all of the comments that are coming out.

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Speaker 1: So we know that the weak state of the global

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Speaker 1: economy generally speaking, and with a lot of dollar strength.

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Speaker 1: If you're a multinational company, that's a huge headwind you're

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Speaker 1: going to have to fight. So when you look at

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Speaker 1: what we're likely to see on the top line, uh,

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Speaker 1: let's say between now and the remainder of the year.

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Speaker 1: For you a corporate sit here in the US, how

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Speaker 1: do you begin to factor that into the equation when

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Speaker 1: it comes down to two earnings to factor right, because

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Speaker 1: it's all about timing, so can be depreciate potential depreciation

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Speaker 1: and the dollar stay ahead of demand destruction, um, you know,

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Speaker 1: and wages remaining sticky and high because the labor markets

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Speaker 1: are landing, sorry, the labor markets are lagging indicators. And

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Speaker 1: also you know how conservative our corporations based on the

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Speaker 1: fact that they feel like their taxes are going to

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Speaker 1: go up. So a lot of these you know, things

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Speaker 1: are floating out there. It's very hard to predict, but

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Speaker 1: the dollar would have to start selling off well in

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Speaker 1: advance of you know, further demand destruction. And the problem

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Speaker 1: is is that the FED is really not going to

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Speaker 1: give any indication that it's going to pivot until we

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Speaker 1: see you know, economic problems or problems plumbing in the system.

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Speaker 1: You know, you mentioned a potential hundred basis point hike,

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Speaker 1: and if they're not committed to the soft landing, then

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Speaker 1: what you know, what has them stopping, what would have

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Speaker 1: them stopping is if they reduced the liquidity to the

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Speaker 1: point where we were going to have credit market problems

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Speaker 1: and how contain just those credit market problems are now

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Speaker 1: Powell has proven to us in the third quarter of

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Speaker 1: nineteen UM and also you know during COVID that he's

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Speaker 1: going to protect the plumbing in the system, and that

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Speaker 1: is going to be the thing that yeah, I mean,

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Speaker 1: the last thing he wanted the credit crunch at the time.

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Speaker 1: Like this that you see also with the dollar ware

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Speaker 1: it is it's shielding a lot of the economy from

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Speaker 1: the worst of inflation which other countries are having to

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Speaker 1: endure because of the dollar strength itself. No, it's true. Um.

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Speaker 1: The thing is is that anytime you have a currency

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Speaker 1: that goes out of a range, right, currencies. This is

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Speaker 1: sort of the funny thing about crypto, right. Um, you know,

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Speaker 1: traders want volatility, right because they get alpha and trading

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Speaker 1: the volatility. But if you're talking about a currency, you

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Speaker 1: want that currency to be as stable as possible because

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Speaker 1: you have the most prediction economically and you can do

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Speaker 1: policies around that. So the rise in the dollar has

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Speaker 1: been um, you know, it's been huge, and that is

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Speaker 1: unsettling for a number of reasons. Um, you know, to

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Speaker 1: other countries, other currencies attendant with inflation, and it's going

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Speaker 1: to exacerbate things and it's going to take a minute

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Speaker 1: for it to balance out. And I'm looking for it

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Speaker 1: to return back down to one of six to five

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Speaker 1: on the d X Y to say that it's kind

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Speaker 1: of gone back to it's reverted to the mean, um,

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Speaker 1: And we'll just see what occurs at that point. Frances,

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Speaker 1: very quickly, fifteen seconds. How much a dry powder are

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Speaker 1: you sitting on right now? Are you fully invested? We have,

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Speaker 1: We're pretty fully invested. We will take it down if

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Speaker 1: we start to see volatility persisting, um, you know, above

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Speaker 1: and certainly above thirty, because when volatility gets into that range,

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Speaker 1: all correlations go to one and it doesn't make much

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Speaker 1: difference between defensive sectors and non defensive sectors and all

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Speaker 1: of the other things that we try to plan. Francis

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Speaker 1: Stacy that Director of Strategy, it's optimal capital advisors are

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Speaker 1: thanks to this has been big