Front and center. McHugh It is about the 10 year yield now back up above 3 percent. Is it a buying opportunity. Are you waiting
for it to hit three and a half percent before dipping in. Yeah I would wait. I mean interest rates are more likely to go
up over time than down. There's been a bit of a counter move recently. But yes I would say the bigger picture hasn't changed.
The yields are still headed higher and there is a risk of a hawkish surprise going forward because the market has been a bit
too dovish I think in its expectations recently. How high can you go. Mikhail.
Well you know in the short term I think three and a half to four is probably a reasonable expectation not much more. We do we
have most likely peaking inflation. That is true. The question is rather you know how to what degree will this slow down how
fast and how sustainable and sustained will the slowdown in the headline inflation rate be. So you know I wouldn't be too
bearish on bonds but yeah the current level is certainly not not high enough given where we are.
How do you position it as a bit in anticipation of Jackson Hole and given oldest subsidies out there including you know the
power crunch in Europe the expectations of recession. Yeah so I mean you know at the risk of sounding a bit
self-congratulatory we did basically take profit going into this a few days ago.
We have a pragmatic approach to in these markets even though you might say that I'm a bit on the bearish side from from from a
macro perspective. But if you look at the sell off in the first half it was one of the worst sell offs in more than 100 years.
And after that you know you do tend to have rebounds which is what we had in July and August on Oaks that we have seen peak
inflation. But you know once that rally was there which was a very strong rally in the S&P we took profit. And now we're
underweight equities again. We avoid Europe precisely for the reason that you mentioned. And we look for another dip to buy
back into these markets from a countercyclical perspective. Right. And just to I guess take take that last point you made.
You want to buy the debt but you also expect treasuries to hit three and a half and 4 percent. Under what scenario would
equities do. Well under that other scenario where treasuries just fall off Cliff.
I think I think equities would do well once they have once their market. And you probably will see it in a bit more
commit know a higher commitment in the Fed communication that inflation is actually going to slow down towards the target
within a reasonable time which is you know one or two years and we can also avoid a recession. So basically once we have
confidence that the soft landing is almost a certainty that's when when you can have high rates or relatively high rates
higher than they used to be in the past and still have a robust equity markets. I mean the the good thing about having plentiful
inflation that say is that you always have nominal GDP growth. And if you have nominal GDP growth you have nominal revenue
growth in equities. So it's very hard to imagine an earnings recession if you of. And it's incredible to learning C.S.
Equities will do well but that's still a couple of quarters away before we can make the judgment.
Right. Not in all places though. And I think Japan is one of those places I believe where you're not getting that earnings
recessions and that's why you favor equity wise. Yes that is definitely one we favor. There's also some other
special factors. Japan has been delayed in terms of its reopening. It's basically reopening with a lag to towards the
other essentially the western countries. And it's also coming out of a or it actually has a very good cyclical recovery. I
mean the potential growth rate here is more or less zero. But right now the economy is growing at 2 percent. That's a boom by
Japanese standards and Japanese companies. Moreover they've learned to make a profit out of no revenue growth no nominal GDP
growth. So that's a combination that it makes some Japanese equities attractive while everybody else is something big
problems especially in the rest of Asia and also in Europe. Maciel What happens to his assets mind the energy crises pull
down risk assets even more. Eventually. Well the way I see it is I wouldn't want to make a firm bet on
which direction energy prices will go. Let's say in remaining off here.
I would like to point out that not just energy prices but actually commodity prices across the board are down a lot from
their peaks a year to date. And I think the directional call is one thing. It might actually
be defused already. But the problem is we have a lot of uncertainty surrounding Ukraine. So it could go both ways.
That's why I wouldn't take a position on these things. But it is a good sign that equity that I'm sorry if commodity prices on a
broad basis are actually down a lot up double digits in many areas from their year to date ISE and that you're going to see
that in the inflation rate going forward especially in goods inflation.
So I don't have a problem with. I wouldn't want to make a bet in the direction but I do know there is some uncertainty especially
in Europe regarding Ukraine. And with this car city of energy that is that Europe is headed into as they approach winter. So
that's a big that's a problem. Yeah. And make it just a broader story than this is all new to many people in the market right
now. Inflation where it is. So help us understand then the path of inflation down might take one or two years. What do you think
the investment environment is going to be and what how does the Fed massaged that message as inflation does fall not knowing if
it actually gets to 2 percent. Well look I mean the Fed there is a lot of criticism and I feel
a bit humble because you had Professor Taylor just talking before me.
But you know there is a lot of criticism all about the Fed. But at the end of the day if you look at what the market is pricing
in for the inflation path it's actually doing a pretty good job. So my book would be here. We do have a lot of noise now because
inflation is very high now. It has been over the past few months. You have an election coming up in the US in November
where of course inflation is a huge topic especially gas prices. But once that's over I think people markets will find out that
you know having I don't know having a 3 4 percent handle of inflation and with nominal GDP growing at high single digit rate
is actually not that bad for equities. But there we just have to wait until the market digests what it actually means to have
inflation that is higher than what it used to be in the you know in the in the notes in the 2010s.