OK. Let me ask you a question that I'm hearing more and more some people are suggesting this may be here for a long time to
come. We had Jason Furman from Harvard earlier this week on Bloomberg. He said he thinks it could be years. We have really
high inflation. If that's right. If that proves to be true what does that say to investors.
Well actually you know as much stress as we have around higher inflation rates particularly since most of us haven't had to
deal with this for the majority of our lives. There is actually really interesting investment theme around higher inflation.
It's really interesting to look at within industries which companies have pricing power which companies are doing a really
good job of managing their costs and managing to their margins and which are struggling. I mean I also like this theme of
looking at companies that have very high labor intensity to sales. In other words do they have to continue to hire and
especially at a time where we know the total cost of an employee continues to rise or do they have business models that are
scalable they can continue to grow without adding to additional labor. I mean we have to live in this environment and invest in
this environment. And I think there are some pretty interesting opportunities. Even though inflation does pinch our wallets.
Well OK. Give an example. What sorts of sectors are these two you're talking about.
OK an example might be like if you're just thinking in the consumer sectors for example you know some companies have done a
really good job of you know writing longer term contracts of managing their input costs. Sometimes they've made great
investments in software and systems and technology so that they've been able to reduce their dependence on labor. All of
these things help to sort of mitigate the margin pressure that an inflationary environment might otherwise scare us into.
Right. And so there are some decent fundamental stories even in a higher inflationary environment. But you really got to get to
know the company. And there are some beneficiaries of the Fed fighting inflation. Banks insurance companies they should
benefit from higher interest rates. We think utilities are really good bonds substitute with inflation protection and
probably delivering the energy at least to future electrification. And we like health care. And health care has
become the biggest part of consumer spending. It continues to be the fastest growing part. Productivity medicines devices are
needed there. These productivity providers we think they're going to be have to play an important role and capture profits.
What I love about your clip in 1975 is that even though Paul Volcker recognized the challenge ahead it surprised even him the
big man to the upside. Inflation can be a very big problem when that genie is out of the bottle. OK. That leaves me exactly my
question to you David which is you've studied that period. Do we need this time to sort of medicine that Paul Volcker ended up
administering. I it was pretty tough. It was brutal medicine. And I think people need to appreciate that it was a very high
price to pay for allowing inflation to accelerate for so long. Volcker hiked the overnight interest rate to 19 percent and
inflation got to 15 percent. It caused a recession. But one of the things that's important to recognize is that there was this
combination of tightening monetary policy while there's a lot of pro supply side policy whose Reaganomics with Volcker's monetary
discipline that really helped seed a terrific 1980s and longer expansion. So we have to just realize that recessions for risky
that could end up becoming nasty. And if things don't go well on the supply side there could be a recession with inflation still
uncomfortably high. So help me here because you're responsible for making these sorts of decisions. And normally if you've got
a lot of inflation you don't want to have cash because it's dwindling as you hold on to it. On the other hand we've got a
lot of uncertainty. So what's your approach. Yeah. You know normally I would say holding cash in the bank and not investing
it or putting it to work in the market in some way you know is a waste. And especially in real terms you just think about that
cash kind of burning away of course holding cash in this environment. Well we've had some really really challenging
period for both bonds and stocks in terms of returns has actually proven to be a really good portfolio diversify. In fact
we're holding a fairly high level of cash both as an expression of our duration view. So we've had us in our shorter duration
position in the fund. We also direst part of our equity portfolio while still holding some of the higher growth higher
quality companies. I think they can compound over the next couple years. I think you should have dry powder. I really
recommend people having some cash at this point. We're going to get some interesting bites at the apple. You know some other
high quality companies as I was mentioning before may even get cheaper than this as we have a very volatile period over the
next couple. One months a policy adjustment and recession fears recession fears fading. David in a time of inflation one thing
people tend to go to is real assets real estate because really the system. Does that make sense right now. It does. And there's
less availability of real assets and their investable more than they were back in the past. It's easier to invest in
commodities. It's easier to invest in real estate. It's. To even by inflation protected securities these things particularly the
ease of which they're investable nowadays. I bet you investors wish they had those options in the late 70s and early 80s. So
there are ways to help manage through this period of uncertainty and the risks of inflation being high. David Ingles the R word
recession. Does an investor need to be taking that to account. And if he or she does. How did they do that.
Look at these theories of fear in the market. Everyone likes to jump on to like a really scary narrative and right now
everyone's talking about an imminent recession. That is definitely not our base case at this moment. We think growth is
going to decelerate but we don't see the type of shocks either to the consumer or to the corporate sector or a meaningful
pullback in terms of overall fiscal activity that would like launch us into a recession. But I do think we have to think
about you know where are the areas that we can still see solid growth last. Earnings variability and a slower growth
environment. And that's where you have to really not just look at history but look to the future. What are the business models
that are very strong. Where is consumption going to continue to be strong and where companies spending on each other. An example
I might give you is around cloud computing. This is a place that you know despite weaknesses in other parts of technology we
continue to see aggressive spend. Recession risks are a little higher than they normally are at this point in the cycle. So
we're on guard against that. But there are worse things that can happen to investors. So to long term investors then in a
recession that's when you get these lost decades in 1973 to 1982. It's one of the very few periods 10 year periods that the
equity market had negative real returns but it did beat bonds over the full 10 year period. So stay the long term course keep
the equities and other real assets in the portfolio. And cash is not trash at a time of uncertainty like this. But if you hold
onto it for too long it does wrong. OK. So this is unfair. There's a curve ball. Kate I'll throw it your way. Cash is not
trash. What about crypto. I mean we've had this whole discussion. Is something like 70 billion dollars was the value
came out of crypto and stable coins as we did that teach us anything in general. I talked to Larry Summers and he said
merely that greed drives the marketplace. Yeah first of all I'm stealing. Dave's cash is not trash. And I might make like a
little tattoo of that on the shoulder but I wouldn't want. This is what I'll say. I'm by far away not an expert or an authority
in any crypto or digital assets. I just would say that for people who are adding that into their portfolios isn't
diversified. I think we've seen an incredibly higher correlation between all of these assets and actually between a lot of them
and you know more speculative parts of the technology sector. And you know we got to really think about your portfolio
construction. This is the very early stages of this you know digital finance revolution if you will. And you have to be I
think pretty balanced in your portfolio if you're going to own some of those assets. Such a I don't know where it goes from
here but I will say you have to be cautious. Just quickly. That's just a great point Cage's made. We talk about trying to
avoid correlation certainly to be hedged. I'm not sure I heard local talk about the correlation between big tech on the one
hand and crypto on the other. But we certainly sure you've seen it recently. A lot of the same owners. So yes they find
themselves haven't been hurt and perhaps having to do risk. The thing about one of things to keep in mind the dollar's been
getting stronger. And if the Fed pulls this off well the dollar will reign supreme again.
What about that Kate. What about a strong dollar or is it due to your investment.
Yeah we take some concurrency views into consideration. I got to tell you though and over the course of my career I don't have
the best batting average and on making cross currency bets. You know what I will tell you though is that you know it does affect
how we think about our international and I'm sure no currency traders.