We keep saying it was a hawkish Fed, but it was a Fed that was pretty consistent,
Powell said. What he has said before, we are not done
yet. No, and this caffeine and others are
interpreting data seems like the market wants to fade, whatever the Fed says.
And I think that is the base big risk and 23, because although the Fed
projection, which is absolutely worthless in my book anyway.
But let's take it for what it is. You know, right now, as we told you and
I, we have full employment in the US. We have financial conditions that are
easier than when than when the Fed Reserve started increasing in
incremental 75 basis points. We have real rates that are massively
negative. We have an inflation rate at a run rate
at a minimum, in my opinion, a 5 to 6 percent, because simply there is a rule
among economists that this ceiling of one year forward rates is really what
they way wages are tracking and they are tracking at 6 to 7 percent in the US.
So getting below 5 will be very difficult.
So the real issue here is recession and not recession.
I mean, I've been doing this job for 30 years with recession comes with full
employment. I'll be the first time in my career.
And of course, as our poll said, that the labor market is still extremely,
extremely tight. What is also surprising, Dean, is the
projection, the dot plot for 2024. The range is tremendous, 3 percent to 5
percent. I mean, there is a risk that the Fed is
wrong. There's no consensus on on where we go
from here. There is no risk that the Fed is wrong.
The Fed is always wrong. Fed has not foreseen anything in that in
their lifetime. I like to say when I do speeches that I
have a golden retriever. She's called nearly.
She's 9 years old. She's doing better than the two hundred
and fifty economists that works at the Fed.
And she's done so for out her life for the past nine years.
So there is no predictability in the Fed.
What they are is exactly what they should be.
They are data driven. And I think the the the morning news
from Australia is very interesting. You have the RBA who's been the first
one to do the pivot on the pivot on the pivot.
I mean, they must be spinning from all the pivot they're doing down there.
But what happened to the employment number?
The total employment went off so significantly.
You know, wait and see if that employment
impact is coming. A doubt is coming.
We have lost a lot of jobs in the US due due to long Covid on top of that.
You know, if I talk to business and I actually do bother to actually talk to
real people in the real economy, none of them are seeing the displacement that's
going on. It's all about inflationary and the run
rate is significantly above its headline that sits artificially inside the CPI.
Remember, a CPI number is a consumer goods product.
What you need to look at is really the PPA.
Its broader in nature and in capsule. The whole economy that run rate is north
of 10 percent. It pretty much the whole.
Well, one.
Well, one part of what you're seeing. Stein David here is that
to simplify things, the US economy is is doing well.
And I would imagine there's probably a way to express that in an investment
strategy. The bad news is not necessarily bad news
for markets. How do you act on that information then?
So so what I'm really doing right now is that I acknowledge that the immediate
and long term is defined by the energy deficiencies and by the very tight labor
market. So what we will see in terms of
earnings, in my opinion, is that everything takes a lot more time than
the migrant wants it to do. So, you know, in 22 for the Q3 and
certainly for the incoming Q4, analysts was expecting that we see a significant
compression of margins. I think that's the Q1 and Q2 story.
In 22, there were able to pass it on to the consumers a little bit of a slower
slowdown of the excess demand, the economy, not the recession, but the
excess demand in the economy coming down, meaning the pressure on the air
and exports comes down. But who will do well in this environment
remains the real economy. Logistic, defense, stock, mining,
energy, cybersecurity. And in my opinion, by its a contingent
fee to go to. And what you want to avoid at all costs
is very, very high valuation in the growth stock simply because they are
exposed to what we have discussed is length here, which is the terminal rate
and the volatility of interest rate, which of course earns a model which is
very high in cash and needs the discount rate to to create the value.
Right. You need that that guy to tell you that
there's no value there, right, Stein? Well, there's a basket of growth stocks,
to your point, that might be on the cheaper side.
I'm talking China. What do you make of what's happening
right now? What exposure do you want to China right
now? I found a whole conversation about
China. Interesting because the for the past 20
years I've used one indicator and one indicator only in China, and that is to
credit the impulse to credit and poll takes all of the credit facilities that
goes on in the Chinese economy that turned around, not today, not yesterday,
a turnaround six months ago. So what we know from that is that which
60 percent are square or in practical terms, 60 percent of what is going to
happen in the economy in six months forward is already given.
And that would be a higher level of activity.
And then you add that the massive pivot that we've seen on the Covid Zero policy
means that at a bare minimum, China moves from 70 percent capacity to 85 90.
You may not got back to 100 before. Second half of next year.
But there is an acceleration of the credit facilitation and China being a
controlled economy, a planned economy. There's no doubt in my mind not only
will they print higher numbers, but also the underlying trend will be relatively
strong. Against that sits on the negative side,
which I think is that the doors on globalization is really closing down and
it's driven by China itself and by the US, the chipset in the US and the dual
circular in terms of China. It is not a good story for global, but
there we are talking about a 24, 25, 26 story.