Let's get to Jack McIntyre. Jack is the global portfolio manager at Brandywine who joins from Philadelphia. Thanks for being with us, Jack. It was all about the FED obviously today a lot of volatility and markets. I think participants are struggling to make sense of what they're hearing. One moment, Pow will suggest, hey, you know, we've got a long way to go before we're done, and the next breath he seems to suggesting, hey, we might be near the
end of the tightening cycle. There is so much tightening that's already occurred. Let's not forget right. I mean, we've taken the FED funds rate, or the FED has from near zero to around four and a half percent right now. Are you of the belief that you know, the kind of the classical thinking here long and variable lag. Are we still expecting a lot more um negative impact from from higher rates or is that less clear now to you? So you know, I'm in the camp that there's been
a tremendous amount of cumulative tightening of financial conditions. You know, we talk a lot about uh FED funds, the policy rate, but there's been a tremendous amount of tightening in other areas as well. So yeah, I kind of was thinking that the statement might kind of infer that as opposed to ongoing, they might say additional rate hikes something to kind of send a message that they were getting a
little bit closer to the end. But I still believe that's going to be the case, because I think the economic data is going to take us in that direction. And I get it. You know, the Fed and Powell in particular, they don't want equities to be off to the races and those sorts of things. They want to make sure inflation is definitely not just rolled over but declined pretty meaningfully. But I expect to see that earlier
next year. Where do you place the risk of overtightening. Well, so it is elevated because I say it's elevated because it's the BED focuses on the employment market then there, and that's there, you know, they're their primary focus and rationale for tightening. Uh, then I think the odds of going into a recession are elevated. You know, Historically, anything around the labor market is a lagging indicator for the
overall economy. I feel as though this cycle it's going to be an extra lagging indicator because we know the companies struggle to find workers and they're gonna do everything they can to not let workers go until they get real clarity that things are slowing down. But away from that, you know, we've seen signs of decline and inflation. But yeah, that's the primary focus to FED. They're going to overcook it and we're gonna increase the odds of going to
a recession. Yeah, Wage inflation, I think is still an issue that you mentioned. The labor market is very tight. I'm wondering whether we're not in when I say we, I'm thinking of markets more broadly, whether we've under estimated the way in which the economy has been transformed, even before COVID to step in and do as much as the FED did, and then to realize that technology that
was available to American businesses away from services. I get travel, I get airlines, hotels, right, but there were so many other businesses that were embracing technology that didn't um or that allowed them to continue to be productive. And I understand that the housing market has suffered badly as a result because it's very interest rate sensitive. But maybe the economy is shifted and we are a little bit less
interest rate sensitive right now? Is that at all a possibility? Yeah, surely it is a possibility, just as though you know, we're less sensitive to the increase in oil prices as well. Um, but you know, eventually they will have an impact because and Powell and I think the Fed and General has been very good about the roadmap knowing that, hey, things
around goods are going to see deflation. Eventually, we're gonna see housing service inflation decline, and then the core service is going to be the last thing that will will see decline. But if we see weakness in those other sectors, then I think that will funnel through into service sectors
as well. Again, this is very big picture long term, but you will see more investment in automation robotics, excepting those little things as well as because of this, because of the dishortage in labor Nearer to him in the next couple of quarters. What sort of pressure do you expect the sustained high rights to be having on balance sheets, stings and consumer confidence as well? Yeah, I think, uh,
all of those factors as well. It's you know, we've been positioning our portfolio, adding treasury duration in the portfolio as an offset of that, because I think that the tightening of financial conditions that we've been talking about increase the odds of the economy slowing down. And you know, again, the FEED is very committed to making sure that they
break the lack of inflation. It's just seemingly when you put everything together, it's hard to come out of this with a soft landing uh in here, and I think that certainly is going to impact um. You know what we see on the corporate sector as well well. The FED doesn't seem to be there yet. I mean the summary of economic projections they're looking at positivity in three.
If you have to go offshore right now, though, Jack, if you have to look to maybe areas in Asia to put money to work, are you less inclined to be exposed to the US given everything you described. I mean, I understand your being a little conservative here looking at the bond market, but if if you need to capture a better yield, do you go offshore and chase equities there?
I would do that, and we are doing that in terms of our bond allocation as well, because I actually think what we're seeing is as the U S slows down and the end what we've talked about the odds of recession increased, but look at what China is doing. China is actually doing the exact option. And I get it. This is going to be a bumpy transition as they move away from COVID. It's going to be some version
of two steps forward, one step back. But if you extend your time rising and it's very similar to what we did in the spring of because of the uncertainty around COVID, then but they're ejecting more stimulus and we have a more favorable view of China. So the point being is that I think you're going to see a shift in relative growth North America led by a slowdown in the US, but then Asia actually starts to get a little bit more traction, led by China coming out
of that. I think it's got personally, it's got a huge US dollar implications. It's going to drive the dollar lower, it's gonna push capital more into Asia. UH, and also I think in UH Latin America some of the higher yielding markets as well, and then eventually even Europe. Do you have a sick to specific approach to China, considering how enthusiastic regulators often tamed to be there, so you
know interesting. You know, I'm talking very constructively on China, but we don't have a direct all cation into China because again, I don't want to own their bonds. If they are opening their economy. The currency is interesting, but I think there's other ways to be positioned to benefit from China's UH sort of potential uptick as they move away from covid UH. And that's just more in Asia
currencies and Asia equities in general. In our world, Asian to hire some of the higher yielding bomb markets in Asia as well. Jack, always a pleasure. Thank you for spending time with us and sharing your perspective on price action and markets not just here in the States, but in the pack Rim as well. Jack McIntyre's global portfolio manager at Brandywine