Yes a lot of the question is how deep a recession could be if this is what we are facing and how much has been priced in. So
just talk about your view here. Well ultimately how deep the recession ends up being depends on the Fed trajectory in terms
of hiking rates. So if you think that the Fed manages to somewhat achieve a soft landing then we think that the recession
could be shallower than the past couple of recessions. But obviously it's something that you know is still a developing
story. And let's talk then about our question of the Day which is more focused on whether or not US stocks have high priced in
these Fed hikes. I know you're looking at the bond market too and the bond market here does seem to be a little bit ahead of
the curve. Yes absolutely. So if you think about US Treasuries or even corporate bond markets we think that they're phrased in
a recession risk to a much larger degree as compared to the equity markets. If you look at the US equities in the last
eight or 10 recessions they have declined by an average of 27 percent in the recession. Peter. So given that we are already in
bear market it's fair to say that equities have praised in a fair bit of recession risk as well. But there is a fair bit of
variability around that as well. So in 20 2007 for instance equities declined by more than 50 percent. So we think there's a
bit more downside to equities as compared to bonds. I mean quite a few data points and we've got a chart showing
them which suggests that we are nowhere near a recession right now. And of course you can be allocated about these things.
These NBER indicators don't show that such a slowdown is imminent at least right now given the four components employment
household employment also real consumer spending and also incomes as well. But then you overlay other aspects as well. You
know you've seen consumer confidence Michigan consumer confidence index down to
record lows lows we haven't seen since 1977 when that data series started. So I mean as you know the thing is those four
data points belie the actual confidence being polled by the consumer or of the consumer.
Yes absolutely. And we all know that predicting a recession is an incredibly hard thing to do. So if I look at the recession
recession checklist that we have you know obviously the risks have risen but we still think that you know a recession is a
2023 story. So we will continue to see a slowdown in the U.S. economic data as we go through 2022. And the growth mostly
slowed down to below trend level. But we should know a wider recession at least this year unless we see a further hawkish
surprise from the Fed. Well the thing is they probably have to get hawkish. And you
know we look at just the inflationary threat here. Is always the fiat of money dictates when you print the stuff you end up with
prices going up. And let's have a look at M1 money supply here. It's up 400 percent since March of 2020. That means that we've
got more notes and coins in circulation something like four trillion
dollars worth to what we have at the moment at twenty point six trillion. So that is a system completely awash with money. And
you've got a central bank trying to trying to reduce the amount it has on its balance sheet. All of this is likely to hurt.
Yes absolutely. But if you think about what's the driver for the recession risk rate it's been the rapid pace of central bank
hikes that has been praised in because of the inflationary pressures. But at the end of the day the inflation is being
driven by supply side rates low commodity prices food prices have risen a lot and that's driving inflation. And there's only
limited effectiveness when we think about rate hikes in terms of curbing the supply side inflationary pressure. So yes you know
obviously central banks will hike rates but it's unlikely to have a lot of impact in terms of curbing supply side inflation.
And the other part which is important is obviously the job market. So job markets in the US and Europe continue to be
fairly strong. So we think that that's a fairly strong pillar as far as the economy is concerned. A lot of the pain could still
be to come. I mean everybody is facing rising prices as you say from food food inflation very much a threat. How do you hedge
against this. Because I know you've got gold as a potential here and that is something that we don't hear very often anymore.
It's one of those already inflationary hedges. But you're sticking with it. Yes absolutely. So obviously it's very
difficult to hedge against the kind of inflation environment that we are seeing. But when we think about the geopolitical
risks that are that we think that gold makes us say it makes sense as a hedge from from a geopolitical risk angle as well.
And as far as inflation is concerned obviously gold hasn't really performed as well as people would have hoped for in the
last six to eight months. But let's not forget gold has a 2000 year history behind it and it has worked as it has a good head.
So we think that when we think about the risks facing equity markets and even bond markets to a certain degree gold still
makes sense to have an always allocation to it.