So David it's not a very easy task but what sense was made out of this week. Oh this week was volatile. At least it ended on a
happy note. Happy Friday. Happy Friday the 13th. And we appreciate that equities ended the week on a on a strong note.
But let's face it the equity market and most asset classes have been under a lot of pressure year to date. The S&P it's flirting
with a bear market. It was down as much as 18 19 percent during the week. Now it's down 16 percent from its all time highs. Well
what about that bear market Kate. Because some people who surround Bloomberg later on Friday were saying what we really
saw was a bounce off of that level of bear market sort of a bear market bounce as it were.
Yeah. I mean the way I think about today's trading David was more that the sellers took off early for the weekend rather than
buyers having a huge amount of conviction. You know I think sentiment is such an important thing to track right now. And
we're seeing kind of all of the major segments of investors whether it's retail or traditional mutual funds and long only
and hedge funds have a pretty dower outlook for both the market and the economy. And you know it's my view that we're not going
to see a meaningful and sustained rally something that takes us closer to say forty five hundred on the S&P until we can really
firm sentiment and kind of allay some of the fears around the economy and inflation and policy mistakes in the war in Ukraine
and Chinese growth. I mean the list goes on. You lay that out at the beginning of the show. Well it does make sense to keep
saying I think we're in a range bound market for some time. Markets just need to figure out what the normal interest rates
are. And until we have an understanding as to where interest rates stabilize and especially not until the bond markets stop
suffering losses the equity markets are at risk. I think the S&P is in a trading range. That is not much lower from where we were
this week but 5000 is likely out of reach for the next year or maybe two. So it's OK. When you look at the equity market
relation to the bond market how much of this is discounting future earnings basically as a discount rate cut against future
earnings. And how much was actually the multiple. Yeah. I mean look in the highest growth parts of the market the
stuff that was commanding ridiculous multiples for a lot of 20 21. You know that D rating really started in November and rates
continued through the course of 2022. Look I think it's fair to assume that rates are going to have to move higher. Even if the
economy is slowing a bit we still believe we're far away from a recession. And we think the Fed is in the very early stages of
normalizing policy both in terms of policy rates as well as of course quantitative tightening and reducing our party and
changing the size of the balance sheet. So you know those two things together are going to I think exert a bit of pressure.
And I think going to keep volatility high. We keep watching the relationship between rates fall and equity ball and see if
there's a change in the pattern. But right now I think they're going to stay elevated. That's exactly right. I mean we're
watching interest rates. We're watching interest rate volatility. It's just representative of how much uncertainty
there is on where interest rates are likely to go up. But where do they plateau. And yes the higher interest rates particularly
higher real interest rates is reducing the P E multiple. And then there's this uncertainty about how long this expansion
might last. I've said that this expansion is two years old but perhaps going on seven or nine years old biologically when it
has a 10 year expected lifespan. So these days not only used a higher discount rate to take in the PE they've also shorten
their forecast horizons. It's enough pain for future growth stood their value in the more certain earnings and dividends
that you see coming from certain companies now. Yeah. And I have to say you know we look around and say there
are a lot of high quality companies that you want to own for the next three or five years that are trading at pretty attractive
multiples right now. That said could the multiples overshoot to the downside. I mean I think the answer is yes. There is a high
probability that as the uncertainty rises around the macro environment and policy that you end up seeing multiples get to
you kind of really silly cheap levels. You want to average it then. Great. But this is a challenging environment. I think it's
still a good environment for the long term investor. You have to find that person. That person needs to really understand the
volatility they may be facing. The S&P is trading at seventeen and a half to 18 times this year's earnings. A 20 P E is still
reasonable given these interest rates they're still much lower than history. Now the Fed has an inflation fight to fight but
it's unlikely that interest rates go anywhere near where they were historically. So OK we've really focused quickly on
inflation which is only appropriate given the CPI numbers. We had this this week and the interest rates. But there are other
risks out there as well. We have a war pending in Ukraine for example and their possible effects on the supply chain. It could
affect certainly the cost the companies going forward in their margin. Yeah I think this is one of our big focuses right now.
Look you know when you look back a couple of years ago during the trade war and some of the changes in terms of tariffs for
example had a lot of companies come out and say hey we're going to re jigger our supply chain. We're going to rethink where
we're producing relative to where we're selling. They said that there wasn't a lot of follow through when it came to capital
expenditure and investment in order to onshore or Wishaw some production. I think this experience of the last two years of the
pandemic and certainly the supply shock shock that we've seen in part because of dependence on China is going to incite like a
new round of capital expenditure actually a real one in terms of supply chains. But that's expensive David and it's going to cost
companies a large amount of money and take time. So we've got to watch margins. It's a challenging global economy. The
partnerships that we've had in Asia and the challenges that Europe is now facing for their security for their energy and
even a refugee crisis it's there are many threats out there to the health of this expansion and the pandemic. And some of the
monetary and fiscal responses to it have caused demand to cause a bit more inflation than any of us are comfortable with in past
40 years. But I'm also taking more concern with secular challenges structural challenges facing the global economy
because things that drive productivity trade global trade global investment demographics cooperation on on a global scale. These
are things that were not seen as much of that we saw in past decades. And we even have more resource constraints. So
inflation should come down. But it may not come down as fast or as low as the Fed wants it to come down. We certainly have a
risk on interest rates although I think we're pretty clear that they're going to go up. It's a question of how far they go up
and how fast not where they're going go up. But if I had to make it choose between the biggest risk in terms of uncertainty and
between on the one hand interest rates for an investor and the war in Ukraine and it's sort of that. Which would you pick.
Oh David that's a tough question. I don't think that interest rates are that uncertain. In fact I gave Jay Powell and the Fed
broadly it a plus in terms of how they've been communicating more recently. I think it's very very very clear to see that
we'll continue to raise policy rates to the balance of this year and that will be a steady progression. We'd have to have a
massive shock I think in terms of you know an economic shock or an expansion of the conflict that's currently in Ukraine. I am
worried about the shifting of political alliances. I am worried about what this does to overall energy relationships. I am
worried about the feed through to European growth of this ongoing conflict in Ukraine though somewhat similar most similar
thoughts for more concerned about the war the conflict in Europe. It speaks about the there I say d globalization. There's
just a lesser cooperation that's been in the world interest rates. The Fed is doing what they need to do. This
looks like it will be a typical said hiking cycle of about 300 basis points and 3 percent of total fed hikes over one and a
half year period a pretty normal set hiking cycle. Even though inflation has jumped higher than we've seen it in so many
decades. But the Fed may be facing challenges greater than normal. To these global threats that we see out there.