Let's bring in Peter Cheer, he has head of macro Strategy at Academy Securities to take a look at today's volatility and markets a lot. Peter has focused on some of the geopolitical risk that maybe markets had become a little complacent on. Would you say that's a fair statement. Yeah, I think it's a very fair statement. One of the meat things about Academy Securities is we have seventeen retired generals and admirals who serve as our geopolitical intelligence group.
We started analyzing this situation the minute occurred, and I think this situation is no matter what happened, this is probably going to be an impetus to give Ukraine more weapons and better weapons. So, no matter how this all happened, I think that that's going to play out. And what hasn't been mentioned enough is this all happened in a day where Ukraine is potentially without of the country is without power, that we're devastating attacks. So I think we're
going to see an escalation from our side. I think now this gets worse before better. Regardless of Article five or not, this is just gonna be an escalation with what's going on. It's rather reminiscent of the Gulf of Tonkin incident. Yes, and I think you know, we all talked about escalation. You wonder how do you get to some endpoint? And I think this is what happens. We'll do something now all of a sudden. Imagine we give Ukraine enough long range of missiles, they do something that
hits Russian territory. So I think this gets very dangerous right now. So the knee jerk in terms of market reaction sell risk. I mean, we saw popping crude oil prices, but that trade didn't seem to be durable. Is what you're saying is that we have to reconsider that and and maybe we're going to be dealing with one factor, which would be higher energy prices going forward. Yeah, I went home convincing my clients to be a little bit short on risk. We've been very bullish. We thought the
deflation trade was going to come through. That's been working out, and I think the market got fixated on an article five what this all meant. And I think the reality is take a step back. There is no way that Ukraine doesn't demand more weapons after this, and I think it all likely that they get better weapons that is going to escalate. And you saw Russia statements right there denying they had an anything to do with this, but
they're saying, we're trying to escalate. So the moment we do that, I think we're re entering a world of geopolitical tensions where you just got comfortable that Putin maybe was taking it easy, that g seemed to be pushing Pudin towards peace, that maybe after the elections we wanted it. I think this is a step backwards. Okay, well, let's people have a look at what your generals may be telling you about, you know, the loss of care Son by the Russians, how I mean inst of all going
that badly in their view. Yes, I think the war is going very badly in the view of our generals. They keep making mistake after mistake. Our current base cases what we think will happen is and this is gonna be a little bit hard to do over radio, but Russia needs to go east to west, and all the rivers in the Ukraine run north south, so they need those rivers to freeze to make a proper attack going forward. Because Ukraine, especially with all the recent weaponry that we
give them, the high mars, etcetera. We can stop them from crossing bridges. So Russian needs things to freeze before they make one more launched. It's been going very badly. They keep losing and their tactics seem awful. So if markets have it right then, and or maybe they don't and we need to see some kind of readjustment. Does that necessarily mean stronger dollar, lower yields, and and a FED that's in a much more tight situation. I think it means lower yields, but I don't think it puts
the FED dealing with inflation. Right. If we see oil prices go up because of a renewed focus on the war, I don't think the FED reacts to that right. Traditionally the FED actually eases into war. So I don't think higher oil prices trigger FED inflation response. They figure they trigger more a FED. Hey, we have to see where
this is all headed, one way or the other. I think this escalates the end game, whether it's a good or bad endgame, whether maybe everyone finally pushes people to the table, so there could be a good result, but I think right now worse and then let's see how the people respond. I'm going to keep on talking about this, but at the end of the day, it's the way to conclude. This may well have to be some kind
of face saving for Vladimir Putin. Yes, I think in the end what we want to avoid is where he feels that he has to I hate to say the term, but go nuclear. We don't want him to see feel so panicked that he loses, and I think some negotiation has to occur where Ukraine maybe has to give up something, which I think Zelensky is going to be very reluctant to do, but maybe just has to get to old listen, we cannot keep supporting you in this way, give up
something so Putent can go home peacefully. And it's really crucial right now as Ukraine's facing a as we mentioned earlier, huge electrical power shortages, which as you face winner, that's not something we can do. But as the sanctions ramp up, I think there's a lot of evidence that it's going to hurt us the West collectively more than it hurts Russia. So maybe we want to avoid those sanctions as well.
So peace seems the best outcome. And maybe this is that, you know, one step backwards before we get the two steps forward much more in the way of headwind I'm imagining for Europe's economy. Play that out for me, What does that look like? Yeah, I think Europe. It felt like Europe was just turning the corner right. More and more analysts, including myself, were saying, Okay, maybe they've done enough to make it through this winter. Maybe we're okay,
And now that feels off the table, right. If there's this friction, it's problematic. And the other thing, which I haven't mentioned, comes up often when you talk, especially with our geopolitical history, is the force migration that's gone on in Europe is unseen since World War Two, and at times it's probably even worse than World War Two. Right, we've displaced five to eight million Ukrainians into Western Europe. The longer this war goes on, the harder it's going
to be for them to return. The more destruction that goes on to their old property, their apartments, harder for them to return. So that's yet another reason I think we need to sit down and get some sort of truce that maybe gets put in just enough that we can get out of this. But let's move away from the missile strike and and just talk about what it's going on in terms of how you see the global economy panning out, how you see inflation at the moment,
and whether it's peaked or not. I think inflations peaked. I think it's rolling over very quickly. And some of it's obvious, right the higher interest rates. I think the US economy was more leveraged to raise than people expected. You're seeing it in housing, you're seeing it in autos. I think the job's number we might have to come back, because that's the one remaining issue. The other part, to me has been the wealth effect, the complete wealth destruction
that's gone on, and where I'm really focused. I think it's very different. This time. It was very concentrated wealth creation, and it was the disruptive companies. It was the crypto companies, and I see it as threefold. One the companies themselves, so they were able to raise money, and they spent that money aggressively, their employees, their stock options were worth a lot of money. They were spending that money. And then just the casual investor is working very well. All
that's gone down. So I think that's gonna be a huge drag in the economy. I think it's gonna infect technology, it's gonna affect semis, etcetera. But one pushback I get to my view that inflation is really topped out is people are looking at jobs, and I see two things about that. One is, traditionally jobs are very lagging indicator, and I think it's gonna be more liking this time than we've ever seen before, partly because HR people have spent the last year and a half trying to hire
and have been unable to hire. They are not going to allow people to get fired. They're going to figure out other ways to cut costs before firing. So jobs is going to be the last lay to drop, and I think that starts happening. And when you look at some of the discommunities between household versus establishment versus birth death models, I think we're prepared actually to see a big, shockingly not good number in this next job's report. So
that's why I think inflations rolled over. I think it's problematic. I think markets can be happy briefly that we go through a soft landing type scenario, but I think soon we're gonna start pricing in a hard landing. Hard landing, and what about earnings disappointments. Are we going to see a lot in the way of that. Yes, I think we're already struggling. One thing, You look at some of the companies that are laying off people, and they're laying
off people at what seems like an awkward time. Right, We're usually coming into one of the most robust business seasons in the US and you get companies that are involved in that area letting people go. I think the f X volatially is problematic, but more importantly, everywhere I look, people are having sales. Right, it's off this off that I think retail is still struggling. The service industry has
done very well. But what I can't tell with the service industry whether this is a one time effect coming to the US holiday season and it dissipates after year end or it doesn't. I lean towards that this is going to dissipate. So I see the economy rolling over, higher rates playing a price, and this wealth effect, this pure wealth destruction we've seen in disruptive companies and crypto
having a much bigger effect than people realize. I've got to ask you this question, how far is now uh crypto being Well, let's just put in another way, how badly damage is crypto being as a consequence of the f t X debuclet. So I think it has a lot more way to go down. It's I would not touch bitcoin until it's well below ten thousand. Clearly we're getting little bounces. But you know, I talk a lot
about there's two ways to lose money. One is you buy an asset that goes down in price, and that's we all do that, right, It's been in possible year this in many respects with you about bond stocks. It didn't matter, it was easy to lose money. One problem with losing money on some of these crypto investments is you don't even really have a good floor. You don't understand what it could be, as we saw, say with
the FTT token. The other way you lose money is you give your money to someone to hold and they don't return it to you or can't return it to you. And that's what just went on with ft X by the looks of it, right So, and it happened earlier this year with Celsius, and that to me is really hard because with enough due diligence, you feel you could ultimately trust someone that you give your money to and until that gets resolved, I don't see institutional investors coming
to this market. In fact, I see people fleeing this market because you can't even trust if you get your decision to buy crypto right, that you get your returns back, and that's a big issue. Peter, thank you so much for joining. Is always a pleasure, never a chue. Peter Cheer, the head of macro strategy Academy Security, is getting his take on the markets and more.