Paul Christopher on the Markets (Radio)

not as bad as feared. Well, the bar was pretty low in the first place, right, everybody's been expecting earnings at some point fall off the table as the economy rolls over and the dollars strength has really been a has a strong head wind protect But but overall, we have to say, in the early going, it looks like earnings have beaten that lower bar, and that's part of

the reason why I've seen that rally here recently. Not sure how long that riley lasts, but the licensee earnings coming in strong at least the first but surely at the end of the day, because it's will been about what they've been saying looking to the future and what have they been saying. Yeah, what they've been saying is that you're going to start to see earnings come off, you're gonna start to see even before the earnings themselves, guidance will start to turn lower as we head further

and further into three. We do expect a recession here in the first half of the year, and so we are in that camp as well. So is this the type of environment where you hunker down here and what do you do to do? So you know, we've been talking since February about quality, and we still think their quality sectors out there. We like energy, it generates a lot of cash One are the few sectors of the SMP that has generated net positive cash flow this year.

Healthcare we think is one that's got good organic growth prospects for the future. And we also like tech here. Uh yeah, there's been a lot of selling, you could say a lot of bloodshed, but we still think it's a quality sector going forward, one that as a dollar comes off next year, we think we'll f you'll start to see a strong rebound there. If the market's going to rebound, it's going to have to have tech behind it.

So we like those three areas quality would be. We think the way to go not so much hunkering down as far as defenses. Tell me something here a pool. Does the treasury market worry you? And does liquidity where

you as well? And I asked this question as simply as we had the janet Yellen saying that admitting to the publish, she's worried about a loss of adequate liquidity if o't on the fourteenth of the month, her staff went out and asked the tb a C, the Treasury Bond Auction Committee, if they should start buying less liquid treasuries to prevent them freezing up. And recently, of course, rug and Rogen and Vera said that qut and this is immense diplomacy is not likely to be an entirely

benign process. Yeah, that's right, And liquidity is an issue all around the world and in the United States here as well. We would be much more worried about liquidity if we thought inflation was going to continue to rise. That would that would tend to leave lots of upward room for bond heels to rise further and lots more

selling that would do decrease liquidity. We would also be worried if the dollar strengthens a lot more forces international central banks to uh to sort of sell their currencies to buy dollars uh, and that might end up reducing their reserves of treasuries as well, so more selling there. But I think I think both of those trends might be coming near to their peaks. Not quite there yet,

but we'll have to see. Especially the action the treasury market today was encouraging that that we you know, as the economic data rolls over, you might start to see some bid for treasuries that will put some money back into that market. Maybe liquidity starts to to turn more to the positives. It would seem kind of awkward having the Treasury buy back treasuries, I mean the U. S. Treasury Department buy back treasuries to improve liquidity. Would it be simpler if the Fed were to just slow down

QT They could do that. What we've seen from the Fed, though, especially since August is a real commitment to to break inflation. We need to see more of a of a peak, more evidence of a peak and services inflation upcoming the next month or two for the Fed to start to feel more comfortable doing something like that. And well, let's having a good to what we have coming out on

the day after tomorrow YO time. G d P hadboard is going to be what are you looking at for and if you go into a deep dive in the data, what will you try to find out? Yeah, I mean it's it's like the first place for for investors. This is all very stale, very old data. So we're looking at third quarters somewhere in the two's for for growth in the US. Uh, not a big surprise there. It was a pretty strong quarter actually a lot of activities,

especially in services. What's more important is how quickly that activity slows down here in the fourth quarter. We think the recession actually begins in the fourth quarter, goes into the middle part of next year. So what'll be interesting to see is how much weakness you see in things like real retail sales, real final sales in the third quarter. How strong were those really after you account for inflation. Yeah,

the housing data was weaken Uh. I think when you get into that market, you can really see that the higher rates are are definitely playing a very big role um time constraints here. So we won't go further on that. I wanted to ask you about China. We did have sock Gen strategists out saying that China deserves higher risk premium. Now the essential point being that a lot more focus is being put on national security. Is China down enough for you to be interested? And what are your thoughts there?

Not quite down enough yet? We think they do avoid recession, but the uh well really need to see more from the economic conference that takes place in December. How much are they going to do to take zero COVID policies off the table? What are they going to do for the property market here to get that restarted and protect

those debtors that developing companies development companies. A little too soon to tell on China, but tell me something for what I mean, you know, after that speech Jing being and you know his pronouncements before, China is certainly turning inwood even though they say that they need they have a need to open up. I mean, is it investable anymore?

That's going to be difficult. But you know, one of the things that has always been true of China throughout here is that when they need a foreign capital, when they need foreign technology in particular for a particular reason,

development reason, then they let that capital in. And I think you're going to see more need for China to end up having to import by Western expertise and healthcare and agriculture and pollution abatement and control, and I think there's going to be room for multinationals to take take that role in the US. Thank you. Paul Christopher, the head of Global Market Strategy at the Wells FuG Investment Institute,