[CC may contain inaccuracies] markets reeling from that hot CPI
yesterday. Can Japan get these moves under control
without more sustained intervention without a type of G-2 intervention.
Your thoughts this morning Mark. They really have to intervene if they
want to do something because it's going down and down and the numbers don't look
very good. And I think what people are missing is
that these inflation numbers are erroneous.
You know we look at the CPI but that doesn't tell the whole story.
What we should be looking at is money supply.
As you know in the last two years money supply has gone through the roof and all
these countries and a 30 percent increase in money supply means a 30
percent depreciation of the currency and that means more and more inflation.
So I think the CPI is kind of an erroneous measure but it's good enough
for now. I think it is going to be going higher
going forward. And of course the Bank of Japan can't
control that. And the psychology of the market is
going to be driving the yen in a lower and lower position against the US
dollar. Mark good morning.
Good to have you with us. So
your expectation then is a more forceful G intervention whether that's G 2 and
what. Stepping back from you kind of control
are you. There's no question that the Fed has a
game plan. Their game plan is to make sure that the
interest rate is higher than inflation. That's the way they believed the way to
kill inflation. So you have 8 percent CPI.
That means you have to have 9 percent interest rates.
So we're going to see higher and higher rates if these CPI numbers keep on
coming this way. Wait hang on Mark.
Nine percent interest rates. Is that where you see the peak.
Yes. If the inflation is big.
The Fed has to raise the interest rates higher than inflation in order to keep
inflation. That's their belief.
And that's the game plan. So you're making a call this morning of
9 percent rates by the Federal Reserve the United States of America what with
more aggressive quantitative tightening and what kind of an unemployment rate
would 9 percent rates deliver for the United States.
Well you know the good news in America is first of all you've got a strong
dollar which means Americans are going to be able to import things much cheaper
than previously and assemble one. And number two you have a situation
where Americans have lots of cash because their incomes from overseas are
getting better and better. And my recent visit to the US indicates
that things are going well for Americans.
They're spending like crazy. So I don't see
that. And of course very big shortage of
workers. If you go into any restaurant or any
shop in New York or anywhere else in America you'll find that they're looking
for workers. So Mark you have a number in mind.
Do you have a number in mind of what that what that actual unemployment rate
would look like. I think the unemployment rate is going
to be much much lower than say 5 percent.
It depends on how you measure it but that's my feeling.
OK so it's gonna take a lot to take this money supply.
Dawn can we just consider how they do that.
The question I asked you was do you see 9 percent rates in the United States of
America and a more aggressive Kuti is the way to reduce import this money
supply. Is it through a more aggressive
quantitative tightening in the United States of America to impact Ask.com.
Yes but one of the things you have to remember and which is overlooked and
that is crypto currencies. I think the Fed and people in the
policymaking level are not paying attention to the crypto currencies which
results in trillions of dollars of turnover.
If you look at the crypto currency exchanges and how crypto currencies are
being created this is a very big factor. It's not as big as money supply.
It's measured in the US but crypto currencies are huge and they're having a
wealth effect on many many people not only in the United States but in the
world. Many people are holding these crypto
currencies and feeling wealthy. And that's another point that is being
overlooked by policymakers I believe. Well yesterday getting that CPI number
that sent Bitcoin lower by nearly 10 percent mark and that's only with the
market pricing in a peak at just above 4 percent.
What will happen to Bitcoin and the rest of risk markets if these money markets
if bets start to coalesce around as you see 9 percent as the peak in Fed rates.
Well that's a very good point. And now we're in a situation where there
are so many people with crypto currencies and it's a leading indicator
when they lose confidence. In other words when they see the Bay CPI
rate moving up and they feel that oh the Fed is going to tighten they lose
confidence and therefore they begin to sell their bitcoin and their crypto
currencies. So I believe that the entire currency is
basically Bitcoin is the leading indicator for what is going to happen
the stock market. OK.
Well let's just push that a little bit further Mark.
Let's just extrapolate what you've given to Danny and I.
The risk is 9 percent rates. The risk is tighter.
Q T To me and to Danny and anybody else tuning in this morning that may well
imply a much bigger ransacking of equity markets than what we saw yesterday.
Our year to date down 5 percent yesterday.
How much more wealth demolition will come in equities if the trajectory
that you've just put forward comes to play.
You must remember Bernie come down quite a lot.
You know we are in a bear market. No question about that.
So I'm looking at maybe another 10 15 percent before people wake up to the
reality that there are some great companies out there that are beating
inflation or those are able to price their goods higher than the inflation
rate. And these are going to be very good
opportunities for investors. So we're probably when we look at the
index being you know 10 15 percent down. But then there's going to be an
opportunity to be buying. So Mark that's that's the picture of
American risk assets but inflation rate hikes from the Fed is also hitting the
most vulnerable. It's hitting emerging markets as well.
What happens to your E M trades to E M risk in this environment.
Well if you look at em currencies without almost without exception they've
all come down pretty substantially against the US dollar.
Just like the euro has come down. Now what that means is that for some of
these countries that are export oriented they're going to be in a much better
position to export to the US. So we have to pay attention to those
companies. And then of course there are companies
in these emerging markets that are doing very well domestically.
In other words they are exporting their software or their products and spending
locally in depreciated currencies. So we have to look for those companies
that will be doing well. But if you look at the indices of course
emerging markets index it's been battered mainly close in China.
China is down substantially. But at the end of the day I think you're
going to see some of these opportunities in emerging markets are rising.
And of course there are some countries like Indonesia that are exporting a lot
of palm oil and other commodities that are doing fairly well.
Mark you've mentioned China there. Let's just get your thoughts as we go to
the close here. We got a zero Covid policy.
People are talking about a 2 percent growth level and we have intervention on
the one with the risk of more sanctions over Taiwan.
It's a pretty bleak outlook. Lots of people have said to Danny Knight
they can live without China risk with that with that hit hit parade of risk on
it. How funny would it be to live with a
China in my portfolio or how bearish are you on your outlook for China.
I think it's probably a good idea to have very low wages in China at this
stage of the game because that's the reason that you just mentioned in this
list that lots of things hitting that market the Covid the crackdown the the
election coming up and so forth and so on.
So I would say that yes probably to have a lower weighting but some looking for
bargains in China companies that are as I mentioned having pricing power and
there would be some opportunities there. But generally speaking our bet is more
on India on Taiwan and other countries. Mark are you concerned about in terms of
what it does to China risk the upcoming meeting or at least the potential
meeting between Xi and Putin. That's a very good point.
As you notice that she has had a conversation with Biden before this
meeting. So I think the Chinese would like to
play both sides would like to keep the US table so that exports can continue
and trade can continue. But at the same time there's no question
that they are favorable to what Putin is doing.
So it's a it's a tightrope they're writing.
And it'll be interesting to see how that develops.