WEBVTT - Christopher Smart on the Markets (Radio)

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<v Speaker 1>Let's get to our guest. Christopher Smart is with us.

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<v Speaker 1>He is the chief global strategist at Bearings on the

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<v Speaker 1>line from Boston, Christopher, thanks for being with us. More

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<v Speaker 1>hawk ish Fed speak today. That shouldn't come as a surprise.

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<v Speaker 1>We know what the Fed is trying to do, get

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<v Speaker 1>the inflation genie back in the bottle, and perhaps the

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<v Speaker 1>market was a little too sanguine in its view on

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<v Speaker 1>trying to second guess the Feds resolve, I think. But

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<v Speaker 1>now Bullard is saying we need a terminal rate of

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<v Speaker 1>around five and a quarter percent. Where does that leave

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<v Speaker 1>asset prices at current levels? Well, I just want to

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<v Speaker 1>I mean, I think the markets have been very much

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<v Speaker 1>like the old story of Lucy and the football um

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<v Speaker 1>several times this year already they get hopeful that this

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<v Speaker 1>is the end, that the terminal rate is in sight

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<v Speaker 1>and start rallying because there's a lot of cautious money

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<v Speaker 1>on the sidelines, only once again to have the football

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<v Speaker 1>pulled away and the FED governors to pour cold water

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<v Speaker 1>on that thesis. I think clearly there there is um

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<v Speaker 1>you know, a lot of short term uncertainty with the

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<v Speaker 1>Fed still talking about being data dependent and needing to

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<v Speaker 1>understand exactly where inflation is going to uh to go

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<v Speaker 1>from here. I think the good news is that, you know,

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<v Speaker 1>inflation is headed downward. You know, we don't have any

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<v Speaker 1>more talk of a return to the nineties, seventies and

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<v Speaker 1>eighties of double digit inflation, of double digit you know,

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<v Speaker 1>fed funds rates. That has taken sort of the corner

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<v Speaker 1>scenarios off the table and does help you put a

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<v Speaker 1>floor under where pees ought to be uh and where

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<v Speaker 1>the stock market you know, should should should bottom out.

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<v Speaker 1>It feels to me like, you know, if we get

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<v Speaker 1>to four and a half or something like that at

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<v Speaker 1>the beginning of next year, which is what I think

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<v Speaker 1>the market is looking for right now. Um, you know,

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<v Speaker 1>we shouldn't see much more downside from here. Just to

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<v Speaker 1>retend to your analogy, or I mean, but child Schultz

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<v Speaker 1>saying that it was important that Charlie Brown never ever

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<v Speaker 1>got to kick that football. So with that in mind,

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<v Speaker 1>where do you see the funds right, Saibling? Eventually they're

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<v Speaker 1>gonna have to stop somewhere right Bullood sees we're in

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<v Speaker 1>a five handle, Now what do you see? Charles Schultz

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<v Speaker 1>was a great investor also, Um, I think, uh, it's

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<v Speaker 1>It's very hard to know right now. I mean I

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<v Speaker 1>think it's it was predictable that Fed governors uh, uh,

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<v Speaker 1>President Bullard and others would come out and see the

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<v Speaker 1>market rally and say, look, uh, it's too soon to

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<v Speaker 1>throw in the towel. Moreover, Uh, we need to see this.

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<v Speaker 1>You know, there are a lot of numbers between seven

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<v Speaker 1>and a half seven point seven and cp I and

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<v Speaker 1>our target of two UM. And we're going to continue

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<v Speaker 1>to make sure things are headed lower, particularly when you

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<v Speaker 1>turn from the inflation numbers to the job market which

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<v Speaker 1>is still very tight, where wage growth continues to be strong,

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<v Speaker 1>where consumer spending continues to be strong. Um, I think

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<v Speaker 1>the Fed has to signal, you know, more resolved. I'm

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<v Speaker 1>not so sure that it's going to go much higher

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<v Speaker 1>than four and a half or five. I mean, I

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<v Speaker 1>think that's currently feels very high right now. I think

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<v Speaker 1>where the market is missing things is it's going to

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<v Speaker 1>have to stay at those higher levels for much longer

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<v Speaker 1>before and he cuts start coming into view. Christopher just

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<v Speaker 1>watching some of the price action around the Asia Pacific

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<v Speaker 1>at the moment um, considering the weakness that we saw

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<v Speaker 1>in the US session, modest weakness that was were seeing

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<v Speaker 1>some pretty good gains at the moments. I'm just wondering

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<v Speaker 1>if you consider Asian markets now a bit more detached

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<v Speaker 1>from what the FED is doing and a bit more

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<v Speaker 1>focused on the changing narrative coming out of China, maybe

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<v Speaker 1>a little bit, I think I would be cautious about

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<v Speaker 1>drawing too many conclusions from I think you've just you know,

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<v Speaker 1>you and your colleagues have highlighted some of the company's

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<v Speaker 1>specific news that's been coming out of China and Ali

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<v Speaker 1>Baba today. But I think it is on the margin

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<v Speaker 1>more positive that we're getting some headlines from China and

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<v Speaker 1>reports about UM local and regional officials uh loosening up

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<v Speaker 1>restrictions on COVID. I think it was also just very

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<v Speaker 1>positive that we had that summit between Presidents Biden and

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<v Speaker 1>President last week Anthony Lincoln heading to China the beginning

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<v Speaker 1>of next year. Feels like at least the relationship that

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<v Speaker 1>seemed to be going from worse to worse every single

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<v Speaker 1>UH with every passing week now at least is stabilized.

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<v Speaker 1>So that may help as well. When you take a

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<v Speaker 1>look at global markets and you compare those situations to

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<v Speaker 1>what we're seeing play out in the US right now

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<v Speaker 1>in an environment where the FED is poised to raise

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<v Speaker 1>interest rates and risk assets may still be defensive for

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<v Speaker 1>a while. Are you tempted to put money at work

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<v Speaker 1>and places like China through Hong Kong, or maybe India

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<v Speaker 1>or North Asia like Japan or South Korea. Well, I

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<v Speaker 1>think each of those you know bears bears looking at

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<v Speaker 1>these days. What is so hard for those markets right

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<v Speaker 1>now is compared to the U S where rates are

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<v Speaker 1>rising and growth is slowing. Growth is still pretty good

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<v Speaker 1>in the US. UH. And so I think you need

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<v Speaker 1>to sort of have a compelling valuation story to to

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<v Speaker 1>get your attention to to look elsewhere. At some point

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<v Speaker 1>over the next several months. As I said before, as

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<v Speaker 1>I think we all expect rates are going to peak

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<v Speaker 1>uh in the US, I think the dollar has already

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<v Speaker 1>sold off a certain amount over the last month, UH,

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<v Speaker 1>and that is going to get markets feeling a little

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<v Speaker 1>bit more comfortable that the worst of the hikes um

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<v Speaker 1>you know are behind us in the US, and that

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<v Speaker 1>there is more uh you know, comparative value to be

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<v Speaker 1>to be explored in UM. In Asia in particular, as

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<v Speaker 1>we enter a period of rights being high, then we've

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<v Speaker 1>become accustomed to in the earlier pout of the century.

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<v Speaker 1>Do you anticipate we're going to see some more bankruptcies? Well, um,

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<v Speaker 1>you know, all eyes are on ft X right now,

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<v Speaker 1>which is not necessarily a mainstream business. But I think

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<v Speaker 1>in any tightening cycle, you get accidents, you get bankruptcies,

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<v Speaker 1>and you see where the stresses, um are, you know,

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<v Speaker 1>aren't going to hold even in a loosening cycles. As

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<v Speaker 1>you say, if we're going to come down, but come

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<v Speaker 1>down slowly. Uh, there are a lot of business models

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<v Speaker 1>out there that were designed for very low inflation and

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<v Speaker 1>rates at two percent, and if they start, if they

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<v Speaker 1>remain at five and four through this year, I think

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<v Speaker 1>we are going to see more. Of course in the

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<v Speaker 1>U S that's coming from a very low base of bankruptcy,

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<v Speaker 1>so you know, so I don't know that that's going

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<v Speaker 1>to be triggering massive pain across the economy, but it

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<v Speaker 1>will certainly be an update. So in terms of the

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<v Speaker 1>f t X story, what is the knock on effect here?

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<v Speaker 1>I mean it's created maybe a little bit of risk

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<v Speaker 1>aversion in some of the more exotic pockets of the market,

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<v Speaker 1>but I'm doesn't necessarily close the door entirely on on crypto. Well,

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<v Speaker 1>I don't think it closes the door on crypto because

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<v Speaker 1>I think what has been exposed here is what appears

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<v Speaker 1>to be early reports. I want to be cautious what

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<v Speaker 1>I say, but you know, a lot of mismanagement and

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<v Speaker 1>possible fraud and a lot of leverage. Uh So that's

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<v Speaker 1>separate from the attractiveness and relative merits of crypto. I

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<v Speaker 1>think what is a little what makes us all nervous

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<v Speaker 1>right now is we don't see the connections. But you

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<v Speaker 1>know who is overexposed, who's going to have to post margin,

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<v Speaker 1>who can't get their collateral back? You know, there's likely

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<v Speaker 1>to be some other fallout along the way. Again, hard

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<v Speaker 1>to see that turning systemic, but it's still very early

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<v Speaker 1>days when you get such a big collapse of such

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<v Speaker 1>a large amount of of of money. Yes, the f

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<v Speaker 1>d X story has some ways yet to unravel. Christopher Smart,

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<v Speaker 1>chief Global strategist at Bearings, thanks so much for joining us.

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<v Speaker 1>Some bloom, big daybreak Asia