So Sara thanks so much for being with us. Let's start with you on the equity side here. What did we learn this week into these
market. But markets churn during the week. There seems to be uplifts
whenever there is some sense that the federal back off. But it's very unlikely there is there's so much need to crush inflation
now. Given what a terrible tax it is particularly on low income people.
And the other side of the bonsai. Chris what did you take out of the week
for a two point nine and heading to three percent on that to your rate and the curve is going to be flat. I know it's going
to go inverted. Already did that earlier. David so we've got the signal that a recession is somewhere way out there. But you know
bonds are going to be backing up. The Fed is tightening. The facts are the facts. The Fed will tighten throughout 2022. Well
so we've been told by a chair Powell Chris that he has the tools necessary to deal with inflation. Does he.
Not this time. Inflation mean there's only tool is is raising rates. And this is the kind of inflation that doesn't have a
direct impact. It's a supply problem. It's crude oil it's commodities eventually. But it does mean that you start to raise
them consistently and a whole bunch higher than I think people are anticipating. So rough road ahead. I'm very concerned. Yeah
I would agree with that. He has to. He has to lower demand in order to keep prices under control. And that's going to require
I mean we've just started. Not to mention the shrinkage of the Fed balance sheet. Other central banks other than China are all
doing this too. This is a global tightening. This is our area. When you say slow demand that means slow down the economy
growing strong. Where do you hide. Yeah I did. Well I don't believe in raising cash because it's one thing to raise another
to put it back into the markets at the right time. That's why market timing is so difficult and our institutional clients and
our funds expect us to be fully invested. So the key here is to be diversified and use a lot of risk metrics in order to know
just how much volatility you're likely to anticipate and then attempt with the better companies to be defensive. We just
outperform as markets swoon. But these are cycles and then we'll cycle back up again. At that point time we need to be in stocks.
It would be take advantage of the impending recovery. We just haven't gotten to the bottom yet. Chris go back to Sara's point.
You've got to slow the economy hook it up with the jobs numbers you've got on Friday because that didn't look like the economy
is slowing very much. How much does the economy need to slow. We heard from Bill Dudley the former Fed chair president here in
New York and he said that actually we've got to go way about 4 percent unemployment to get the inflation back down to 2
percent. Now you're on the point David. We still don't to realize the
amount of stimulus that the Fed and Congress kicked into the U.S. economy during the pandemic and we're still living off of
that bus. I got to tell you that you know balance sheets of average consumers are still there. They're checking accounts in.
Their bank accounts are still cash rich. They're not spending that money. They're saving some of it. But you know you've got a
strong employment market. You've got five million people who think they're wealthy enough to not work. That's just amazing to
me. They've got to come back in the market. That's probably going to mean higher wages to attract them back which is more
inflation. So you're right. The Fed's got to raise rates. We've got a long way to go. That's why I don't think a recession is
imminent. But we've got a lot of problems that we have to deal with before we're in a recovery mode. And David housing is the
most lagging of economic indicators. We're still looking at housing which we should be looking for example in housing
employment lagging housing orders profit sort of in that order and net. And it's all coming. That's what's so interesting that
these markets have rated by valuation multiple but the profit hit hasn't happened yet. That's the other shoe to drop. Well
what about that. Because you've talked about earnings expectations. Are they coming down the way they should. Given
where we're headed. Sarah. Very likely. And again that gets to the point of poor Chris
question where do you hide. You obviously want to be in the stocks that will incur the least earnings downgrades. And that's
typically those at this point that are more defensive less economically cyclical. But again it's critical to be prepared to
invest in those that are cyclical when we are at some point at the at the bottom of economies and we're not there yet. And
that's why it's hard to know exactly where it will be. And the whole point of active management is to start you. We we use a
ranking system so we know how stocks are from a risk adjusted return basis. And as the cyclical stocks look more and more
attractive they'll start working their way into the portfolio and into the fund. So it's a it's a gradual process right now
defensive. And then over time over the next several months probably well into 2023 much more cyclical.
Chris you said it's not imminent recession is not imminent. What do you mean by that. What do you think about 2023 2024. Yeah
I've got to be careful when I use words that are vague on timing. Chair Powell did that on inflation and it really to
resolve for a loop. So I just don't think we're going to see it in the second quarter or the third quarter during the
summertime. But I am worried about the fourth quarter next fall because these cash in consumers accounts they're going to ease
it up quick associate these inflated prices that people are having to pay. So employment is strong. And as Sara said
earnings are OK. But listen to what CEOs are saying in their earnings calls. They're very cautious. They can't push this
inflation in their base prices on to consumers. They won't buy it. So at some point we're going to start to see weaker economic
numbers and then eventually earnings downturns surrounding Wall Street's pricing that end David. It's not paying attention to
just the facts surrounding the market at this point in the economy.
Yeah I would I would agree with that. There are more earnings downgrades ahead but sir on this question of the cash on the
balance sheet of households they do have a lot over 2 trillion dollars I saw reported yet again this week.
Chris says it's not going to last that long. How long can that continue through. And do we wanted to continue through very long
because the longer we keep up with inflation doesn't it mean the harder the Fed's gonna have to come down in the market.
Very likely yes. The more persistent it is the more psychological it becomes embedded in how people operate. And
that's the vicious wage price spiral. Something we haven't seen for 40 plus years. And it's it's nobody wants to see this. So
that's why the Fed has it aggressively. It just this is going to be quite different from the 70s because I'm sure we have
consumers with some money. Maybe they will in turn carry higher savings rates with so much uncertainty out there. That's it.
Banks but just awash in reserves. And the problem with that is that means that they'll continue to lend. That's that velocity
of money. Money just keeps circulating in the economy which is counter to what the Fed wants which in turn makes the Fed have
to be even more aggressive. And Chris we've gone through this entire discussion without talking about Ukraine and what's going
on with a war on the ground in Europe much less what's going on with China. You talk about uncertainties. It goes beyond
inflation goes beyond the economy. You're going to keep me up at night again. David there's a long
list of risks surrounding this market. It begins with the economy but geopolitics are huge. You know the whole issue with
Ukraine that's the beginning of inflation. We had inflation from the supply surplus. The supply chain shocks. But now it's
continued on because of the oil shut down as you said with the lead in and now food problems because of lack of wheat coming
out of Ukraine and Russia. You're going to have higher food costs across Europe and that's going to lead to inflation even
in the USA. So there's a litany of problems surrounding this market on the long term as well as in the short term. It's not
for the faint of heart at this point.