Let's get to Peter Cheer, head of macro strategy at Academy Securities. So Peter earnings and economic data effectively a pretty strong check on an aggressive FED today. There's a long way of saying something, but I want to try to do it in a short way, and it's this, the Fed went too far with its old mindset soft on inflation to now looking like it will go too far with its new mindset tough on inflation. The market was having none of it on both accounts. Yeah, I
think that's a fair way to look at it. I think they were behind the curve. We probably should have stopped QUEI last summer. We probably should have started rate hikes sooner. Having said that, I think we've been a little bit aggressive. There's a lot of weakness showing up in the economy, whether it's the inventory build, consumer credit piling up, delinquencies ticking up. There's just a lot that concerns me. And we've done so far, so fast on these rate hikes. We're not getting it time to play
out and see what the repercussions are. And I continue to believe that as bad as inflation is, job losses in a recession are far worse. Well, let's face it, Peter. I mean, ultimately, this is supply side inflation, not demand, and you know this is uncharted in that regard. And as we completely you know, throw all the eggs into one basket, I eat monetary policy and higher interest rates. Are we in danger of things getting horribly wrong? Yes?
I completely think so. Um. You know, we just today, as you mentioned earlier, we had a surprise that oil inventory is picked up, right, so demand for oil is decreasing. And I don't think that's just for the consumers. I think that's industry slowing down. As we've had this inventory build,
you're gonna have left need to create new products. So I think we should be giving this time and seeing whether the economy is I don't want to say the word rolling over, but certainly slowing of its own accord. And by hiking on top of that, we're just pushing things too far, and that to me is very dangerous. Yeah.
And the defense of that is that if you look at the lag effect of rate hikes, people say it's something like three to nine months, right, it means that we've only felt the impact of one basis point hike, and the FED has done two basis points, so there are going to be residual effects for some time to come, right, And you just said supply chains are starting to open up.
Your hearing stories about semiconductor shipment shipments coming through, you're seeing that easing of supply chains all of a sudden when you look at whether it's ball to dryer, other measures of shipping costs, those are going down. So you might be easing some of these supply chains, which should be deflationary in its own right, as you're kind of messing up with the demand side. So that to me
is a real problem. And I think this economy is kind of on accellerance, so everything happens faster than we're used to, and that is why I'm so concerned that we're going to see a slowdown of fairly decent proportion coming into Q two and three. Three. Well, of course, one of the corollaries of that invasion has been uh that we've seen NATO now perhaps have some more meaning, but perhaps the other meaning is that we have grid and perhaps inexorably moving towards a more bifurcated world. What's
your thoughts, So, what are your thoughts on that? And what I'd like to add to that is if you see that Nancy Pelosi visit, does that also push China further into the Russian camp? Yes. I think we're in a unique position to talk about this. That Academy Securities. I work with seventeen retired generals and admirals whose service are Geopolitical Intelligence Group. So we've been very focused on
what's been going on with Russia and with China. And starting three years ago, we saw this strategic competition really starting with China that was under the Trump administration, and we see them kind of pulling away from the US becoming more inward looking. I think Russia fell into that as well. So that was really the first time we've
had this bad actor behaving badly. And what we continue to see is almost this alignment of autocratic nations where China is raising their hand and saying we want come out of these we don't care what you do to your people, we don't care about your politics, and we will pay money and we're gonna be your customer for years to come. And the US when we triggered uh, you know, basically with held Rush's access to their own dollar holdings, that's been another message that China uses with
these countries. So I think we're seeing this realignment where the commodity rich, autocratic nations are aligning with China. We're getting NATO stronger, and I think what we really need to see from at least the US perspective is stronger relationships with Mexico and South America. So I think that's how the world is shaping up. It's interesting. I think we all believe that at one time putent hope to fracture NATO. If anything, it's coalesced. But we really are
seeing this realignment of seeing that with China. Yeah, up against China, however, and the short term, China is set to begin an effective blockadive Taiwan with its live fire exercises that's happening from today. Uh. That could have a big effect on supply chains. Uh. If we thought it was troubled before, it may be more troubled now. But do you say that inventory levels have been built up so much? I wonder whether or not that matters as much.
I don't know that it matters immediately. So I saw a lot of articles claiming success for this visit, and I think in many ways it was good that it showed that we respect Taiwana, that we care about Taiwan. At the same time, I think we're a little bit shortsighted. We've got to be very cautious of what China or how China chooses to, you know, fight back. We never thought they were going to do a military thing. We did not think that they were going to try and
interfere with her flights. But we cannot say safely that China has done with whatever retaliation they want, and it might be much more on the economic side. And maybe this ring fencing of Taiwan, if that becomes anything more than temporary, becomes problematic and that sets us back on Unfortunately, this inflation course and supply chain issues, well we'll tell me, you know, from a macro perspective, you know, how is
this likely to play out? You know, And that's perhaps it's Perry above what's going on right now with the supply chain rejigging, a commodity price increases in supply side inflation.
So one thing we've been talking to clients for about three to six months is shifting your supply chains away from Southeast Asia, and whether it's Mexico, whether South America, and I think this is going to further play into that where people were thinking, Okay, even if I don't want my supply chain to be based out of China, maybe it's Thailand, maybe it's Vietnam, maybe it's Cambodia. I think there's a real concern about China's potential to interfere.
They're growing naval power, they're growing willing to project that power. So I think that's gonna be the shift, and that's gonna be one of the big beneficiaries from this is gonna be South America. I think these reshifting supply chains are inflationary over the short term. Over the long term, you have a safer supply chain, and I think that's very good and healthy for company. Okay, so how do
you put that into your pick of the day. So I like emerging market stocks, I'm back to liking commodities um particular materials. If the US get some traction on these bills to help build out pot sustainable energy and traditional energy infrastructure, Yeah, that's deflationary three five years down the road, but near term, you're going to create a lot of demand for concrete, steal anything e v so, lithium, cobalt.
I think those are going to bounce again, so I like a lot of good picks there, Peter, thanks very much, Peter cheer At of macro Strategy at Academy Securities.