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Speaker 1: Let's get to our guest, Brian Jacobson, senior investment strategist

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Speaker 1: at all Spring Global Investments. At one point the Dow

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Speaker 1: Is up almost four hundred points in the morning, and

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Speaker 1: then gave it all up, as Doug mentioned, down for

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Speaker 1: the SMP five tenths of one percent. It sounds pretty

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Speaker 1: simple here. As long as the FED is vowing to

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Speaker 1: smack down risk assets and raise unemployment, don't bet for

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Speaker 1: a turn in risk appetite, Brian, anytime soon. And as

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Speaker 1: long as treasury yields are rising again, this is the

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Speaker 1: simple thesis. As long as yields are going up, stay out,

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Speaker 1: full stop. Bartender, bring me a beer. Well, you know

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Speaker 1: that's probably not a bad strategy at least for now, uh,

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Speaker 1: you know, And you can probably sit in cash or

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Speaker 1: money market type instruments and get at least a decent

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Speaker 1: yield while you sit on that beer while you wait

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Speaker 1: for the sky is to clear a little bit here.

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Speaker 1: But yeah, the Fed speak has been really hammering us

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Speaker 1: risk assets, almost us sucking a lot of the enthusiasm

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Speaker 1: out of some of the risk appetite out there. And

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Speaker 1: I don't think that's really going to change any time

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Speaker 1: between now and probably at least the next f MC meeting, Brian,

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Speaker 1: I mean, what you don't actually look at what's you

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Speaker 1: know they're on offer. Surely you know, even if bonds

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Speaker 1: are perhaps going to go down even further, you know,

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Speaker 1: the short end at least, isn't it worth it just

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Speaker 1: for the yield? You know. That's the way that we've

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Speaker 1: been looking at this so here at all Spring on

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Speaker 1: my Systematic Edge multi asset team, UM, we kind of

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Speaker 1: position along the curve and then across countries bonds and equities, currencies, commodities,

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Speaker 1: and when we're looking at the fixed income markets, you know,

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Speaker 1: we think that there's actually a lot to be appeal.

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Speaker 1: That's it's quite appealing to look at the short end,

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Speaker 1: short duration kind of strategies. If you can get above

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Speaker 1: four and a half percent on the two year treasury,

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Speaker 1: you know, would you rather have that or would you

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Speaker 1: rather get something less than that? As far as the

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Speaker 1: coupon on the tenure where you've got all that interest

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Speaker 1: rate risk, really the tenure would give you it would

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Speaker 1: be attractive if you think there's going to be a

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Speaker 1: major decline interest rates, and we think that it's much

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Speaker 1: more likely that that part of the curve, you're going

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Speaker 1: to see those rates rise before they start to fall again.

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Speaker 1: So you know, we've had a bad market down from

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Speaker 1: the peak. The thing is, is that already pricing in

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Speaker 1: a recession. You know, the way that we're looking at it,

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Speaker 1: a lot of the historical analysis. You know, we've had

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Speaker 1: about thirteen bear markets since the nineteen fifties. Eleven of

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Speaker 1: those were with recessions, and the bear market depths really

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Speaker 1: varied pretty dramatically. If it's on the mild end, uh,

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Speaker 1: you can get around twenty four to twenty seven percent

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Speaker 1: as far as a draw down for the markets. If

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Speaker 1: it's more extreme, it can be obviously a much bigger

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Speaker 1: draw down for the market. So it seems to us

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Speaker 1: that the market is pricing in a mild recession, and

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Speaker 1: so you know, trying to get the timing, depth and

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Speaker 1: duration of your recession call can really go a long

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Speaker 1: way to helping with an asset allocation decision between stocks

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Speaker 1: and bonds. And at this point, um, you know, we

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Speaker 1: do believe that we're going to go into a recession

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Speaker 1: in the first part of two thousand twenty three, and

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Speaker 1: as long as the FED doesn't go up to five percent,

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Speaker 1: which is what the market is currently pricing in. If

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Speaker 1: they say keep it at four and a half, the

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Speaker 1: four point seven five, we think that the recession could

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Speaker 1: likely be mercifully mild. So right now it looks like

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Speaker 1: the markets pricing in a fairly mild recession. But it's

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Speaker 1: really up to the Fed as to how extreme of

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Speaker 1: a recession we're going to get. Bloomberg Economics says it

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Speaker 1: could get a lot worse next year, and I think

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Speaker 1: they take into account everything that you're saying, but just

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Speaker 1: saying that, there are a few things that could could

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Speaker 1: lead to that. One would be that you get this

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Speaker 1: really big risk off shock in the markets. Also, a

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Speaker 1: colder winter could make it much more difficult with the

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Speaker 1: energy crunching Europe and China's exit from COVID zero could

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Speaker 1: very easily be much later. And also the property crisis

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Speaker 1: could be more painful. Um, I take it you're not

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Speaker 1: really expecting any of those, but mindful they could happen. Yeah,

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Speaker 1: And that's just it. You have to be mindful that

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Speaker 1: those are risks, right, And so is that part of

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Speaker 1: your base case? Is that your bear case or is

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Speaker 1: it your bowl case? Right? If you kind of map

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Speaker 1: out those different scenarios, and I think that's a great

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Speaker 1: articulation of what that more bear case scenario could be. Uh.

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Speaker 1: And so we do have to monitor the data as

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Speaker 1: it comes in and the news flow as to will

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Speaker 1: China relax COVID zero? You know last time when they

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Speaker 1: were doing it back in March and April um, it

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Speaker 1: actually mainly affected consumer spending and not so much industrial activity,

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Speaker 1: so it wasn't as bad as the COVID zero that

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Speaker 1: they were practicing in two thousand twenty one, so they

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Speaker 1: did kind of ease things up a little bit. Will

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Speaker 1: they continue to make incremental improvements in their approach to

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Speaker 1: COVID that could bode well for the supply lifeside um.

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Speaker 1: But then you do obviously have the weather, which is

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Speaker 1: even outside of weather forecasters domain of expertise that seems

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Speaker 1: like to know what that's going to be like. But

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Speaker 1: that's more for Europe and not necessarily for the US.

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Speaker 1: And yes, trade is important with Europe, but the United

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Speaker 1: States is actually a fairly insulated economy when it comes

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Speaker 1: to our exposure to trade flows, so that probably wouldn't

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Speaker 1: make our recession that much worse. But Brian, are you

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Speaker 1: looking abroad because it's selectively. There are opportunities, of course

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Speaker 1: right around the world, and with the dollar appreciation appreciating

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Speaker 1: nearly seventeen percent from this time last year, you may

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Speaker 1: well also get to benefit from the other currencies coming

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Speaker 1: back eventually against the green bag. So you could be

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Speaker 1: on a win that well, that's absolutely correct, and I

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Speaker 1: think that's a key thing is if and when the

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Speaker 1: FED decides that they're going to push back on the

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Speaker 1: idea that they need to go to five percent. Let's

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Speaker 1: say we take Bullard at face value when he was

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Speaker 1: saying that they probably don't have to go that high.

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Speaker 1: If he's representing the consensus, and we actually get that

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Speaker 1: pushback at the November meeting from the f m C

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Speaker 1: as to how high they need to go, uh, that

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Speaker 1: could actually be the tipping point for the dollar. So

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Speaker 1: if all of a sudden, hey, they only have to

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Speaker 1: go to four and a half to four point seven

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Speaker 1: five and not all the way to five plus, then

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Speaker 1: you could see the dollar begin to weaken, you could

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Speaker 1: see risk appetite improve, and then that could actually be

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Speaker 1: almost like a double victory for non US equity exposure.

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Speaker 1: If Brian, thank you so much for joining is Brian

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Speaker 1: Jacobson that senior investment strategies that all spring global investments.

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Speaker 1: At getting his take on the markets,