As I say we saw more action on the central bank front in Bank of England and also ECB this week. It surprised I think some people
at least. What did it do to the bond market. Well we finally saw bonds go positive first time in three years. Right. So we
definitely had an impact. I would say that the Bank of England is the one which I find fascinating. Definitely the ECB moves
large pools of money when you see it see a major central bank shift on a dime between December and now December. Probably no
rate increases this year. Now pretty clearly we'll have a couple of rate increases I'd say later on this year. It's a big change.
You look at the Bank of England and that was a truly hawkish tone because not only are we thought yet in the US they're still
open questions. And the market fully believes that when the Fed reduces the size of its balance sheet it won't actively be
selling down the balance sheet which would be big big news for the U.S.
The U.K. the Bank of England has made actually said that they might do that. That's very hawkish and very unexpected. And I
always look at the Bank of England because it's so interesting. They have the liberty to move because it's a smaller country on
currency. And I often look at them as a leading indicator of the potentially other major central banks but also something to
keep. Keep an eye on markets potentially have room to be majorly surprised and loads of volatility. Shery Ahn. Talk about the
equity side U.S. versus Europe for us. As for the rest of the world. How did it look. And 20 21 is going to look like that in
2022. We have been much more bullish on U.S. equities and have
recommended that our clients actually overweight U.S. equities in their portfolios relative to market cap. Just to give you a
sense of the magnitude of the difference in terms of U.S. and other parts of the world since the trough of the global
financial crisis U.S. equities have returned about seven hundred sixty percent. And we'd like to use cumulative numbers because
we think it is just such a huge number. It has more impact when people hear the curative numbers. Developed equities outside the
US return to around let's say two hundred and sixty percent. So roughly 500 percent lower returns. Emerging markets a little bit
less than that in China just two hundred and twenty percent. So U.S. has far out earned and outpaced in terms of returns the
rest of the world. And last year was just was an incredible example of that. So last year U.S. equities up just under 30
percent let's say. Twenty nine non U.S. developed equities around 20. Emerging markets flat in
China down 21 percent. Well that kind of a difference can't persist forever as they say. Trees do not grow to the skies.
However we do think U.S. will continue to out or in other parts of the world other regions. And so even though they appear
cheaper we think some of that cheapness is just because of the sector exposure. U.S. has a lot more earnings for example from
technology and faster growing sectors. They have less market cap weighted in areas like energy and financials that are cheaper
while emerging markets and non U.S. developed economies have more of that. So we still prefer our U.S. preeminence theme and
recommend clients do that. And again that's why that Coast Guard icebreaker is called USS Equities.
And so now what about on the bond side. Given what's going right now. Does it make any sense for example to be owning European
bonds particularly sovereign bonds right now. Again you've got to pick and choose the one thing about Europe
which is true is there are different countries in Europe different underlying fundamentals. And there's always going to
be there will always be parts of Europe which look attractive at different points in time. And I think that as you start seeing
yields go up in Europe. Conversely one of the anchors which kept rich people expected would keep U.S. 10 years from going up too
high which is that as the differential with Europe. But the Europe eurozone kept increasing. You would see inflows into into
the U.S. and thus the long end would stay anchored. That starts that argument starts becoming a bit bit weaker as you get some
kind of normalization and it's gonna be much lower. Let's let let's have that upfront. Normalization in Europe will be a lot
slower than the US. But on the other hand I think it again points towards differences amongst the different countries.
Sure. I mean when you describe that really substantial difference between for example U.S. and Europe which equities I
tend to think over the long term you can't have those kind of differentials. There's just sort of a lot of us mosques and
financial markets. Does that suggest maybe it is time to actually go into some other markets such as Europe because
they're undervalued. That is actually one of the questions our clients ask us so when
you look at valuations across a series of metrics U.S. is trading at a much higher premium relative to again emerging
markets and non U.S. developed and clients are asking isn't this time to go. Given that it's much cheaper than even average
levels. But first of all we do adjust for sector weights and it doesn't look as cheap. And as we project forward U.S. trend
growth is actually higher than that of let's say the Eurozone or Japan. So you'd expect better earnings growth. The other two
really interesting facts are U.S. Labor is a much more productive labor force and U.S. corporate management has much
better management scores. So actually they get better earnings out of similar levels of growth. And so our view is that the
earnings gap will continue but the outperformance will not be as significant.
So now we've had this whole discussion without once mentioning supply chains which has been talked about an awful lot. Talk
about supply chains. And do you see a differential potential between the United States and Europe or the United States and
Asia with respect to relief of some of the clogging of the supply chains. I'm not so sure we're going to see differences on
supply chains. I would actually say that one thing which is really get me a little bit bemused is that when I look at the
inflation expectations for most of this year the second half of the year you typically see a very sharp decline in expectations
of where inflation will go partly related to the idea that you know you've got these effects which fall out. But then also with
this idea that supply chains are going to clear up and I didn't I really don't think. Supply chains. OK. Yes. So I don't I don't
put much faith in that. The other thing I'd say is we haven't talked about this much but
fortunately it is only China. But China is committed to a zero corporate policy. Now zero Covid is interesting because you can
have completely. Very difficult to predict stocks and stocks to supply chains.
And therefore I remain a little bit skeptical about an easy smooth unclogging of all the supply chains. That's one thing.
Another point I would say which is different to me. Between the US and suddenly Europe would be that
would be that in the U.S. you've got very very strong demand. Right. We've got in fact my along my Qs
books.