LET'S GET YOUR VIEWS ON WHERE YOU SEE THE FED POSITIONING
ITSELF, THE OPTIONALITY JAY POWELL IS HELPING TO GIVE THE
TEAM AS A RESULT OF A FASTER TAPER, AND WHERE THAT LEAVES US
IN TERMS OF THE PACE OF RATE HIKES, AND THE TIMING.
WHAT IS YOUR ASSESSMENT? ANNEKA: IT FEELS TO BE CONSENSUAL THAT
THE HAWKISHNESS IS GOING AHEAD WITH FULL STEAM.
RATE HIKES, TWO OR THREE NEXT YEAR, AND ALSO IN TERMS OF
TAPERING, IT COULD END IN Q1. WHAT IS MORE IMPORTANT IS THE
NEW PARADIGM WHICH IS IT FEELS LIKE POWELL AND THE FED
SHIFTING FOCUS FINALLY AWAY FROM WALL STREET TO MAIN STREET.
IT FEELS THE NEED TO PROP UP MARKETS, THE S&P IS UP 50% IN'S
THE END OF 2019, AND THE PARAMOUNT POINT IS EVEN IF THE
FED DOES HIKE AGGRESSIVELY, EVEN IF FROM JUNE NEXT YEAR WE
ARE TALKING 25 BASIS POINTS OF HEIGHT, EVERY QUARTER IN AN
AGGRESSIVE SCENARIO, BY THE END OF 2023 WE WOULD BE AROUND 2%
OR LOWER, WHICH IS BELOW THE 2018 INTEREST RATE LEVEL, AND
WILL PROBABLY STILL RESULT IN A NEGATIVE REAL YIELD TERRITORY.
THAT IS WHAT IT IS ALL ABOUT, NEGATIVE REAL YIELD. TOM:
YOU SAY THIS IS A PIVOT AL MOMENT.
CAN THEY BE AGGRESSIVE IN THE RATE HIKES CYCLE AND MEET THEIR
MANDATE WHEN IT COMES TO EMPLOYMENT? ANNEKA:
THE BEAUTY OF HOW THE CYCLE HAS PROGRESSED, IT FEELS THAT THE
ECONOMY IS STANDING WITH MORE ROBUST LEGS, AND IT IS THE
ECONOMIC ENGINE WORKING.
HIGHER LEVELS OF DEMAND, PLUS THE PENT UP SAVINGS IS A
POSITIVE ENVIRONMENT FOR CORPORATES TO INVEST, TIGHT
SUPPLY CHAINS. FROM THAT PERSPECTIVE, IT LOOKS
LIKE THE ECONOMIC DRIVERS COULD BE STRONG ENOUGH FOR THAT TO
CONTINUE. THE OTHER POINT, EVEN WITH ALL
THE UNCERTAINTY AROUND OMICRON, THE BEHAVIOR OF PEOPLE HAS
SHIFTED. PEOPLE ARE ACCUSTOMED TO VIRUS
LOCKDOWNS, CURFEWS. THE PERSPECTIVE FROM VACCINES
TO BOOSTERS. THE ECONOMY HAS BEEN ROCKSOLID,
BUT U.S. GDP IS APPROXIMATELY 1.5% ABOVE
PRE-PENDANT LEVELS. IF YOU ADJUSTED FOR
PRODUCTIVITY GROWTH, POPULATION GROWTH, WE BELIEVE IT COULD
HAVE BEEN AROUND THREE PERCENTAGE POINTS HIGHER.
THERE IS AMMUNITION. TOM: THAT IS IMPORTANT CONTEXT.
EDDIE, OUTLINE INFLATIONARY CHALLENGES FOR THE FED AND THE
CREDIBILITY CHALLENGES AS THEY WRESTLE WITH THESE FOUR DECADE
HIGH PRICES STATE SIDE? EDDIE: WE HAVE SEEN MORE OF THAT THE
LAST COUPLE OF DAYS. WE SAW THE PPI ABOVE
EXPECTATIONS YESTERDAY. IN THE U.K.
AS WELL, INFLATION STARTING TO HEAT UP.
THAT MUST BE WORRYING FOR POLICYMAKERS.
ANNEKA POINTS TO THE HISTORICALLY LOW REAL RATES,
AND THIS IS IMPORTANT.
THERE IS A BIG FED PUT IN THE MARKET THAT HAS BEEN THERE FOR
YEARS.
I WONDER WHETHER THE MARKET IS READY FOR THAT STIMULUS TO BE
TAKEN AWAY. IT WILL HAVE TO TAKE AGGRESSIVE
MOVES TO SEE REAL RATES IN POSITIVE TERRITORY NEXT YEAR.
TOM: WHERE ARE THE OPPORTUNITIES AT
THIS POINT IF YOU TAKE INTO CONSIDERATION THOSE FACTORS,
THOSE NEGATIVE REAL YIELDS AND SUPPORT FROM EARNINGS, HOW ARE
YOU LOOKING TO POSITION? ANNEKA: WE ARE BACK IN YIELD SEEKING
TERRITORY. IT IS A NEGATIVE REAL YIELD
THAT WILL PERSIST, AND IN THAT ENVIRONMENT, FROM AN EQUITIES
PERSPECTIVE, EQUITIES OFFER THAT YIELD OPPORTUNITY.
GOOD COMPANIES WITH GOOD CASH FLOW, AND FROM AN INFLATION
HEDGE PERSPECTIVE, THE ONLY DIFFERENCE IS 2022 WILL
ABSOLUTELY BE THE YEAR OF STOCKPICKING.
THAT IS OUR FUNDAMENTAL CONVICTION.
THE DAYS OF OVERARCHING WIDE LIKE IT POST-PANDEMIC
INDISCRIMINATE BUYING ARE OVER. THAT IS A WINDOW, AND WE
BELIEVE WITHIN EUROPE, EUROPE HAS A LOT TO OFFER FROM A
MACROECONOMIC PERSPECTIVE, FROM A CATCH-UP PERSPECTIVE, FROM A
MONETARY POLICY BACKDROP PERSPECTIVE AND VALUATIONS. TOM:
2022 IS THE YEAR OF STOCK PICKING, I LOVE THAT CALL.
EDDIE, DOES THAT ALIGN WITH WHAT YOU ARE SEEING, AND WHERE
ARE YOU LOOKING TO HEDGE INFLATION? EDDIE:
INFLATION HEDGES ARE HARD TO COME BY.
IF YOU LOOK AT THE REACTION TO THE PPI, GOLD DROPPED
SIGNIFICANTLY. THAT IS DESPITE REAL YIELDS NOT
MOVING MUCH. FOR ME, YES, STOCKS ABSOLUTELY.
BANKS WILL BE VERY INTERESTING ON HIGHER YIELDS, BUT I WORRY
ABOUT THE CALL FOR STOCKPICKING BECAUSE ACTIVE MANAGEMENT HAS
BEEN IN DECLINE FOR A NUMBER OF YEARS, AND I DO NOT SEE THEM
CHANGING THEIR WAYS THAT MUCH ON THAT ONE.