joining us now to discuss is Greg Swenson, founding partner at Greg Mack uh you know,
welcome,
what's driving the games this morning after a rough third quarter in september
Yeah, I think it's just a bear market rally Chloe or a dead cat bounce.
Um You know, the market has been beaten up,
it's there's no doubt about that so that you know,
of course there are buying opportunities after big corrections or big sell offs,
but I don't think it's a long term rally here.
I think you know, there's by many metrics, the market's still overvalued
and you're also looking at a recession coming up.
So I'm not too excited about the rally here and
I would sell into it if it's if it's meaningful
as we are heading into the fourth quarter here,
what do you expect investors need to watch out for?
I think you know, keep an eye on the inflation numbers.
They've they've been pretty, you know,
for the last six weeks have been have been negative.
The numbers friday were particularly troubling.
So you know, keep an eye on inflation, keep an eye on rates.
You've seen some volatility in the last few weeks.
But I think there's still room for rates to go higher.
I don't think that's you know, going to be a surprise to anyone.
Um with the Fed continuing to tighten but keep an
eye on the inflation numbers and I think ultimately this starts
to affect earnings even more than it has and and
you know expect a recession if not late this year,
surely in 2023.
So you know when you talk about valuation metrics,
it's not just our stocks overvalued as a multiple of G.
D. P. You're gonna you're going to start to see that GDP number come down.
So you know the denominator has an effect here as well
now as we move into this new quarter,
what are you advising your clients should they be putting
their money to work in alternative assets for example.
Yeah. Very much so.
And I think you know, you see that alternatives outperformed,
you know the liquid equity markets for sure.
But even the bond markets in in recessions and
at times like this in an inflationary environment.
So yeah I like real assets that have a
natural inflation hedge that are non correlated alternatives.
Especially if you can get real assets like infrastructure,
you know that that will outperform but also provide
non correlated returns but more importantly inflation protected returns.
Do you expect the Feds continued rate hikes to impact the
job market and what are you expecting from friday's jobs report?
Yeah.
Ultimately if anything on friday it will it will be a
negative number or you know at least worse than consensus.
But but I think generally speaking it's really the only
outcome and it kills me to say that but the,
you know with the with the tools that are available to the fed right now
or to the to the government there's really no op Except for economic recession,
I mean, you know, there's really no other tool because they, you know,
you have to have quantitative tightening right now after, you know,
15 years of especially cheap money.
But it's really all they have because you don't
have any ability to manage the supply side.
There's still that hostility to the supply side to the private sector.
So I think you have to really consider the
difference between now and the last time inflation,
which was this high, which was 40 years ago, but at that time you had a fiscal plan
That included, you know, liberating the supply side, reducing regulation,
reduce taxation.
I don't see that happening. Um you know, at least until 2025.
So unfortunately the Fed is really the only game in town.
They're the only really,
the only way they can manage inflation is to create a
recession or economic destruction that's going
to affect the job-market unfortunately.
But it's really, there's really no other angle here
you know, obviously to your point,
the fact does have quite a bit on its plate at the moment.
You know,
attempting to navigate a soft landing cut down on inflation
and obviously not send the country into a recession here.
Those are sort of the aims uh what grade would you give the Feds
performance as you're watching it sort of
navigate this and continue these rate hikes.
Yeah, well, I would give them an f for you know,
however they navigated this this whole situation beginning in 2000, early 21.
Um Even even late 2020 when we had
a massive recovery from the covid lockdown recession.
Both unemployment as well as GDP growth.
And yet they kept the emergency spending or the emergency lower rates and Q. T.
It's amazing to think they were still buying bonds,
they were still, you know, executing quantitative using
as recently as March of this year.
So I think in f prior to a couple of months ago,
but I'd give them a B or even a B plus in terms
of how they've managed the situation in the last two months where,
you know, Powell has come out and said,
you know,
don't think that I'm going to start easing in 23 as the market was implicating
from june through august so you saw that rally from june to august,
I think it was clearly a bear market rally and and
the market misunderstood how serious he is about addressing this.
And he knows he has no support in terms of fiscal policy.
There's still reckless spending going on
and hostility to the job to the job creators, hostility to the supply side.
So, you know, the two parts of
the inflation problem is demand and supply,
you're not Going to see any improvement in supply,
but they have they have to crush demand and it's really unfortunate.
So, you know, f prior to August of 22 and B plus,
you know, since August of 22
now,
let's quickly look overseas at what the UK has been doing.
You know,
obviously this morning the UK backtracking on its
plan to cut taxes on higher earners.
How closely are you watching that situation? And what does it mean for us investors?
Yeah, look,
I'm watching it very closely because I'm here in London and working
in the UK and so it's it's front page news here,
there's really nothing else, um, that's making the headlines.
So, um, look, I thought that the move was not necessarily messaged well,
a week ago when they announced it,
I think tax cuts are always good for GDP growth for stimulating growth as well, as,
again, liberating the supply side, which is really important.
Now, this is the only country in the West that's actually gone out with a pro growth,
pro supply side,
you know, kind of policy,
I think they had to back away from this because it just wasn't messaged well,
there was too much push back and remember they were only going from 40 to 40 45 to 40.
This isn't Margaret Thatcher, you know,
taking it from 80 to 40 this isn't Reagan taking it from, you know,
the 70 80 90 highest marginal tax rates
from the sixties and seventies
down 28
those were meaningful moves. I don't think this was necessarily
the most important part of their
proposal,
but the rest of it, I hope they can keep in because it is
it is pro growth.
It is, it is liberating the energy sector
and liberating the supply side or the private sector in general.
So it's it's great news and I wish the rest of the west
would take a page out of Liz truss is playbook right now.
Greg, thank you so much for your time this morning.
That's Greg Swenson, founding partner at Greg Mcadam.