Let's talk about this relatively risk on week we saw this week. What do you make of it given the fact that we are at war.
Well the fence trying to create a Goldilocks scenario by engineering a soft landing. The equity markets are buying it and
the bond markets aren't. We're watching three key things to monitor whether we're going to get to that. And that is the Fed
movements inflation and geopolitical issues. The equity markets like what the Fed said in terms of becoming more hawkish because
they're catching up to what's going on with inflation getting more credibility around that battle. The equity markets like it
because it means we won't have runaway inflation. Now when it comes to inflation the key question is can economic growth be
strong enough to overcome inflation. We think it can. Geopolitical risks are here to stay with Russia though we see
overall impact on global growth is moderate. But areas that we're monitoring our financial channels commodities and the
impact on the European Union all of that together still leaves us moderately bullish for the year.
So Chris Sarra says the effect on the markets will be relatively moderate from the war. The war is not going the way we thought
it would. We thought it would over quickly. One way or the other. It isn't. Are you more concerned about long term
consequences. Exactly. David. Sarah. I would have to say I think the markets
actually have their heads stuck in the sand. The bond market they're awake and they're paying attention. I mean David as you
said 2s are back to 228. There's a 30 basis points spread between 2s and 30s. That tells me the 30 year bond knows it's
going to be a flight to quality because it's a safe haven in a war which is the word you started with this. Equity markets
shouldn't be rising. They go up at the beginning of inflation Sarah. I give you that
but I think long term the bond markets got this right and stock markets got this wrong. It should be more cautionary and it
should be more worried about inflation long term. What's interesting Chris because if you look at the yield curve
actually it's a friend of the yield curve. If you look at history that is a strong indicator of recession. It's at some of
the steepest levels that we've seen in almost a decade. So while I agree with your points I think one thing is important is a
yield curve can tell you a recession is coming. But the timing is crucial. A lot of money can be left on the table during the
early cycles of rate hikes an initial yield curve inversions. Markets tend to be quite strong. Well my concern would be you
might have a lot of money on the table if you become too concerned at this point about a future recession. So Chris as
you imagine and manage that really substantial portfolio there are calendars. What do you look at. And the yield curve if
anything at all. We heard from Jay Powell this week and he said look. Oh sure. We pay attention to anything which is really the
very very early part of the yield curve which we focus on not for example the Tuesday tens.
Jay can't control the Tuesday hence he can talk it up and he can jawbone it. You guys have a wonderful montage of a whole bunch
of Fed governors who all talk about the next meeting. That knowledge is 50 basis points not off the table. I think one of
them at the end says could be zero. It could be twenty five. Could be 50. Could be a point. I just think we have to recognize
when a rising rate environment Sarah's right at the beginning bond stocks do quite well at the beginning of inflation period.
But this is not going to go away. This isn't remember transitory. It's not transitory. Inflation is going to be around
and this war impact is going to be felt not just in the wheat market but due to the lack of fertilizer. I really think Ann and
I know Larry Summers will talk to you later that we're going to run into risk of a global famine at least certainly in Europe
when it comes into the summer and fall. So Sarah you know I like stocks and I'm in the middle market but I'm worried long term
that we need to be more balanced in all of our portfolios. And Sarah what about the inflation picture. Because I have heard
some talk of the fact that the deflationary pressures are basically gone between the supply chain. And so what we're
seeing the excess capacity used up and we're going to have inflation for a good long time to come.
I mean if you look at the estimates for inflation the break evens. We're seeing about 4 percent inflation over the next
couple of years and then even 2 plus percent over the next decade. So you're right in that higher inflation is here to
stay. The question is what does that lead to. We're not in the stagflation camp. The recipe really isn't in place for that
because we have strong economic growth and strong employment to go along with that inflation. So the key is can the Fed raise
rates enough to keep inflation with a lid on it while also letting economic growth continue. We think that is a likely
scenario that can't happen. Initially the Fed will rate will raise interest rates pretty aggressively. Markets are expecting
about 40 basis points of hikes in the next two meetings. So that's kind of hedging their bets between 25 and 50. We're in
the multiple 25 basis point rate hikes for the next number of meetings but then the Fed can wait and see if inflation does
start to level off. They can also back off a little bit and that would be that soft landing that they're trying to achieve.
You know Sarah I've got to ask you because I'm baffled about this so I want your opinion. The unemployment numbers this week
were staggeringly low. The number of new jobless claims. You know we're having a hard time finding people yet. I know there
are tons of people out of work. I mean what do you guys make of this job market. Is it super strong or are we going to see a
backlash of higher wages which compounds the inflation problem. IBEX you agree that the job market has been the issue has been
on the supply side how do you get people back into the workforce and what does it take. It's been an issue going on for months
and question because wage inflation is a big component of overall inflation.
How much wage inflation will there be necessary to bring people back in. We expect the job market to loosen up a bit going
forward this year now that we're past the most recent Covid variant. But if when we're looking at our portfolios that one
key is in why we do like equities from here is focus on those companies that have pricing power. So if you have the pricing
power to overcome inflation expand your margins beat earnings and also economic resilience. We like us large cap growth
stocks. For that reason I think you can succeed in this kind of environment where growth does slow but not to recessionary
levels. I'm going to give you a just some feedback because we talked to a lot of teachers in California and companies actually
are not going to have a lot of pricing power. I mean they are squeezed as as you know in California gas prices are are north
of six bucks a gallon. And now that everybody is supposed to start driving back to work in the month of April they're going
to feel that squeeze in their pocketbook. So lucky companies that might have some pricing power.
But I think as we've seen they're reducing the size of their servings in their products.
And I think people are going to get squeezed. I think this inflation is going to catch him off guard. And I think David as
long as they see this war continuing you're going to have inflation pressures built into this economy which the Fed is
going to have a hard time beating because it's price inflation and potentially wage inflation. Chris I want to take advantage
of you here because you're such a major player in this market here.
We saw last year in the proxy combat certain issues come up things like how we treat workers and diversity and climate. Are
those going to be the issues this year or is it to be a new world given what we're seeing with inflation. Given what we're
seeing going on with the war it's going to be those issues and even turned up on high. It's going to be if you think of it
while people take those politically to us there are risks to accompany long term risk. Their workforce isn't diverse. They're
going to suffer from a lack of of of different people thinking in different ways. If they're not thinking about climate change
they're behind the curve and they're going to have to pay a price. So for us those are long term risks. And I think supply
chain is going to be a big question to people about their risk. People care more about human rights now. They realize how
important Russia was to places like Germany. What about human rights in China. And you're going to see more and more companies
need to address those and report to shareholders and give us information. But there's no question that diversity inclusion
and then the race to net zero are absolute priorities this year and next year and the year after. Sara Malik I'm really sorry.
Go ahead please. Thanks. I have to say I agree with Chris. Globalization climate change and diversity inclusion three key
issues going forward in a world that is constantly changing.