Let's get to our guest. Christopher Smart is with us. He is the chief global strategist at Bearings on the line from Boston, Christopher, thanks for being with us. More hawk ish Fed speak today. That shouldn't come as a surprise. We know what the Fed is trying to do, get the inflation genie back in the bottle, and perhaps the market was a little too sanguine in its view on trying to second guess the Feds resolve, I think. But now Bullard is saying we need a terminal rate of
around five and a quarter percent. Where does that leave asset prices at current levels? Well, I just want to I mean, I think the markets have been very much like the old story of Lucy and the football um several times this year already they get hopeful that this is the end, that the terminal rate is in sight and start rallying because there's a lot of cautious money on the sidelines, only once again to have the football pulled away and the FED governors to pour cold water
on that thesis. I think clearly there there is um you know, a lot of short term uncertainty with the Fed still talking about being data dependent and needing to understand exactly where inflation is going to uh to go from here. I think the good news is that, you know, inflation is headed downward. You know, we don't have any more talk of a return to the nineties, seventies and eighties of double digit inflation, of double digit you know,
fed funds rates. That has taken sort of the corner scenarios off the table and does help you put a floor under where pees ought to be uh and where the stock market you know, should should should bottom out. It feels to me like, you know, if we get to four and a half or something like that at the beginning of next year, which is what I think the market is looking for right now. Um, you know,
we shouldn't see much more downside from here. Just to retend to your analogy, or I mean, but child Schultz saying that it was important that Charlie Brown never ever got to kick that football. So with that in mind, where do you see the funds right, Saibling? Eventually they're gonna have to stop somewhere right Bullood sees we're in a five handle, Now what do you see? Charles Schultz was a great investor also, Um, I think, uh, it's
It's very hard to know right now. I mean I think it's it was predictable that Fed governors uh, uh, President Bullard and others would come out and see the market rally and say, look, uh, it's too soon to throw in the towel. Moreover, Uh, we need to see this. You know, there are a lot of numbers between seven and a half seven point seven and cp I and
our target of two UM. And we're going to continue to make sure things are headed lower, particularly when you turn from the inflation numbers to the job market which is still very tight, where wage growth continues to be strong, where consumer spending continues to be strong. Um, I think the Fed has to signal, you know, more resolved. I'm not so sure that it's going to go much higher than four and a half or five. I mean, I
think that's currently feels very high right now. I think where the market is missing things is it's going to have to stay at those higher levels for much longer before and he cuts start coming into view. Christopher just watching some of the price action around the Asia Pacific at the moment um, considering the weakness that we saw in the US session, modest weakness that was were seeing
some pretty good gains at the moments. I'm just wondering if you consider Asian markets now a bit more detached from what the FED is doing and a bit more focused on the changing narrative coming out of China, maybe a little bit, I think I would be cautious about drawing too many conclusions from I think you've just you know, you and your colleagues have highlighted some of the company's specific news that's been coming out of China and Ali
Baba today. But I think it is on the margin more positive that we're getting some headlines from China and reports about UM local and regional officials uh loosening up restrictions on COVID. I think it was also just very positive that we had that summit between Presidents Biden and President last week Anthony Lincoln heading to China the beginning
of next year. Feels like at least the relationship that seemed to be going from worse to worse every single UH with every passing week now at least is stabilized. So that may help as well. When you take a look at global markets and you compare those situations to what we're seeing play out in the US right now in an environment where the FED is poised to raise interest rates and risk assets may still be defensive for
a while. Are you tempted to put money at work and places like China through Hong Kong, or maybe India or North Asia like Japan or South Korea. Well, I think each of those you know bears bears looking at these days. What is so hard for those markets right now is compared to the U S where rates are rising and growth is slowing. Growth is still pretty good in the US. UH. And so I think you need to sort of have a compelling valuation story to to get your attention to to look elsewhere. At some point
over the next several months. As I said before, as I think we all expect rates are going to peak uh in the US, I think the dollar has already sold off a certain amount over the last month, UH, and that is going to get markets feeling a little bit more comfortable that the worst of the hikes um you know are behind us in the US, and that there is more uh you know, comparative value to be
to be explored in UM. In Asia in particular, as we enter a period of rights being high, then we've become accustomed to in the earlier pout of the century. Do you anticipate we're going to see some more bankruptcies? Well, um, you know, all eyes are on ft X right now, which is not necessarily a mainstream business. But I think in any tightening cycle, you get accidents, you get bankruptcies, and you see where the stresses, um are, you know,
aren't going to hold even in a loosening cycles. As you say, if we're going to come down, but come down slowly. Uh, there are a lot of business models out there that were designed for very low inflation and rates at two percent, and if they start, if they remain at five and four through this year, I think
we are going to see more. Of course in the U S that's coming from a very low base of bankruptcy, so you know, so I don't know that that's going to be triggering massive pain across the economy, but it will certainly be an update. So in terms of the f t X story, what is the knock on effect here? I mean it's created maybe a little bit of risk aversion in some of the more exotic pockets of the market,
but I'm doesn't necessarily close the door entirely on on crypto. Well, I don't think it closes the door on crypto because I think what has been exposed here is what appears to be early reports. I want to be cautious what I say, but you know, a lot of mismanagement and possible fraud and a lot of leverage. Uh So that's separate from the attractiveness and relative merits of crypto. I think what is a little what makes us all nervous
right now is we don't see the connections. But you know who is overexposed, who's going to have to post margin, who can't get their collateral back? You know, there's likely to be some other fallout along the way. Again, hard to see that turning systemic, but it's still very early days when you get such a big collapse of such a large amount of of of money. Yes, the f d X story has some ways yet to unravel. Christopher Smart, chief Global strategist at Bearings, thanks so much for joining us.
Some bloom, big daybreak Asia