Speaker 1: Let's get to our guest. Christopher Smart is with us.
Speaker 1: He is the chief global strategist at Bearings on the
Speaker 1: line from Boston, Christopher, thanks for being with us. More
Speaker 1: hawk ish Fed speak today. That shouldn't come as a surprise.
Speaker 1: We know what the Fed is trying to do, get
Speaker 1: the inflation genie back in the bottle, and perhaps the
Speaker 1: market was a little too sanguine in its view on
Speaker 1: trying to second guess the Feds resolve, I think. But
Speaker 1: now Bullard is saying we need a terminal rate of
Speaker 1: around five and a quarter percent. Where does that leave
Speaker 1: asset prices at current levels? Well, I just want to
Speaker 1: I mean, I think the markets have been very much
Speaker 1: like the old story of Lucy and the football um
Speaker 1: several times this year already they get hopeful that this
Speaker 1: is the end, that the terminal rate is in sight
Speaker 1: and start rallying because there's a lot of cautious money
Speaker 1: on the sidelines, only once again to have the football
Speaker 1: pulled away and the FED governors to pour cold water
Speaker 1: on that thesis. I think clearly there there is um
Speaker 1: you know, a lot of short term uncertainty with the
Speaker 1: Fed still talking about being data dependent and needing to
Speaker 1: understand exactly where inflation is going to uh to go
Speaker 1: from here. I think the good news is that, you know,
Speaker 1: inflation is headed downward. You know, we don't have any
Speaker 1: more talk of a return to the nineties, seventies and
Speaker 1: eighties of double digit inflation, of double digit you know,
Speaker 1: fed funds rates. That has taken sort of the corner
Speaker 1: scenarios off the table and does help you put a
Speaker 1: floor under where pees ought to be uh and where
Speaker 1: the stock market you know, should should should bottom out.
Speaker 1: It feels to me like, you know, if we get
Speaker 1: to four and a half or something like that at
Speaker 1: the beginning of next year, which is what I think
Speaker 1: the market is looking for right now. Um, you know,
Speaker 1: we shouldn't see much more downside from here. Just to
Speaker 1: retend to your analogy, or I mean, but child Schultz
Speaker 1: saying that it was important that Charlie Brown never ever
Speaker 1: got to kick that football. So with that in mind,
Speaker 1: where do you see the funds right, Saibling? Eventually they're
Speaker 1: gonna have to stop somewhere right Bullood sees we're in
Speaker 1: a five handle, Now what do you see? Charles Schultz
Speaker 1: was a great investor also, Um, I think, uh, it's
Speaker 1: It's very hard to know right now. I mean I
Speaker 1: think it's it was predictable that Fed governors uh, uh,
Speaker 1: President Bullard and others would come out and see the
Speaker 1: market rally and say, look, uh, it's too soon to
Speaker 1: throw in the towel. Moreover, Uh, we need to see this.
Speaker 1: You know, there are a lot of numbers between seven
Speaker 1: and a half seven point seven and cp I and
Speaker 1: our target of two UM. And we're going to continue
Speaker 1: to make sure things are headed lower, particularly when you
Speaker 1: turn from the inflation numbers to the job market which
Speaker 1: is still very tight, where wage growth continues to be strong,
Speaker 1: where consumer spending continues to be strong. Um, I think
Speaker 1: the Fed has to signal, you know, more resolved. I'm
Speaker 1: not so sure that it's going to go much higher
Speaker 1: than four and a half or five. I mean, I
Speaker 1: think that's currently feels very high right now. I think
Speaker 1: where the market is missing things is it's going to
Speaker 1: have to stay at those higher levels for much longer
Speaker 1: before and he cuts start coming into view. Christopher just
Speaker 1: watching some of the price action around the Asia Pacific
Speaker 1: at the moment um, considering the weakness that we saw
Speaker 1: in the US session, modest weakness that was were seeing
Speaker 1: some pretty good gains at the moments. I'm just wondering
Speaker 1: if you consider Asian markets now a bit more detached
Speaker 1: from what the FED is doing and a bit more
Speaker 1: focused on the changing narrative coming out of China, maybe
Speaker 1: a little bit, I think I would be cautious about
Speaker 1: drawing too many conclusions from I think you've just you know,
Speaker 1: you and your colleagues have highlighted some of the company's
Speaker 1: specific news that's been coming out of China and Ali
Speaker 1: Baba today. But I think it is on the margin
Speaker 1: more positive that we're getting some headlines from China and
Speaker 1: reports about UM local and regional officials uh loosening up
Speaker 1: restrictions on COVID. I think it was also just very
Speaker 1: positive that we had that summit between Presidents Biden and
Speaker 1: President last week Anthony Lincoln heading to China the beginning
Speaker 1: of next year. Feels like at least the relationship that
Speaker 1: seemed to be going from worse to worse every single
Speaker 1: UH with every passing week now at least is stabilized.
Speaker 1: So that may help as well. When you take a
Speaker 1: look at global markets and you compare those situations to
Speaker 1: what we're seeing play out in the US right now
Speaker 1: in an environment where the FED is poised to raise
Speaker 1: interest rates and risk assets may still be defensive for
Speaker 1: a while. Are you tempted to put money at work
Speaker 1: and places like China through Hong Kong, or maybe India
Speaker 1: or North Asia like Japan or South Korea. Well, I
Speaker 1: think each of those you know bears bears looking at
Speaker 1: these days. What is so hard for those markets right
Speaker 1: now is compared to the U S where rates are
Speaker 1: rising and growth is slowing. Growth is still pretty good
Speaker 1: in the US. UH. And so I think you need
Speaker 1: to sort of have a compelling valuation story to to
Speaker 1: get your attention to to look elsewhere. At some point
Speaker 1: over the next several months. As I said before, as
Speaker 1: I think we all expect rates are going to peak
Speaker 1: uh in the US, I think the dollar has already
Speaker 1: sold off a certain amount over the last month, UH,
Speaker 1: and that is going to get markets feeling a little
Speaker 1: bit more comfortable that the worst of the hikes um
Speaker 1: you know are behind us in the US, and that
Speaker 1: there is more uh you know, comparative value to be
Speaker 1: to be explored in UM. In Asia in particular, as
Speaker 1: we enter a period of rights being high, then we've
Speaker 1: become accustomed to in the earlier pout of the century.
Speaker 1: Do you anticipate we're going to see some more bankruptcies? Well, um,
Speaker 1: you know, all eyes are on ft X right now,
Speaker 1: which is not necessarily a mainstream business. But I think
Speaker 1: in any tightening cycle, you get accidents, you get bankruptcies,
Speaker 1: and you see where the stresses, um are, you know,
Speaker 1: aren't going to hold even in a loosening cycles. As
Speaker 1: you say, if we're going to come down, but come
Speaker 1: down slowly. Uh, there are a lot of business models
Speaker 1: out there that were designed for very low inflation and
Speaker 1: rates at two percent, and if they start, if they
Speaker 1: remain at five and four through this year, I think
Speaker 1: we are going to see more. Of course in the
Speaker 1: U S that's coming from a very low base of bankruptcy,
Speaker 1: so you know, so I don't know that that's going
Speaker 1: to be triggering massive pain across the economy, but it
Speaker 1: will certainly be an update. So in terms of the
Speaker 1: f t X story, what is the knock on effect here?
Speaker 1: I mean it's created maybe a little bit of risk
Speaker 1: aversion in some of the more exotic pockets of the market,
Speaker 1: but I'm doesn't necessarily close the door entirely on on crypto. Well,
Speaker 1: I don't think it closes the door on crypto because
Speaker 1: I think what has been exposed here is what appears
Speaker 1: to be early reports. I want to be cautious what
Speaker 1: I say, but you know, a lot of mismanagement and
Speaker 1: possible fraud and a lot of leverage. Uh So that's
Speaker 1: separate from the attractiveness and relative merits of crypto. I
Speaker 1: think what is a little what makes us all nervous
Speaker 1: right now is we don't see the connections. But you
Speaker 1: know who is overexposed, who's going to have to post margin,
Speaker 1: who can't get their collateral back? You know, there's likely
Speaker 1: to be some other fallout along the way. Again, hard
Speaker 1: to see that turning systemic, but it's still very early
Speaker 1: days when you get such a big collapse of such
Speaker 1: a large amount of of of money. Yes, the f
Speaker 1: d X story has some ways yet to unravel. Christopher Smart,
Speaker 1: chief Global strategist at Bearings, thanks so much for joining us.
Speaker 1: Some bloom, big daybreak Asia