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00:00Jack, I'll talk about the Fed a bit. I just wanted your take on what we're seeing in China at the moment, just given how we've seen this blowout in spreads in credit, the bond market seems to be in a bit of a rout here. What would you see any opportunities in China right now? So if I elevate things to the 40000 foot level, I think China prevents a tremendous amount of opportunity for the global economy. So we're not invested specifically in China. But how we structure our portfolios is a bet that China's going to kind of work its way through Covid. It's going to take time, but they're going to help grow the rest of the world away from the U.S. and the U.S. is on teetering probably on to some form of a recession right now. So that actually has big implications for the direction of the U.S. dollar. It should weaken and I think it should see that sort of growth for us in China trickles through broader Asia. So I think there's opportunities throughout Asia and then eventually even in Europe right now. So, yeah, I do want to get you granular on specifics on China, but in our world, it presents some great opportunities. OK. Let's let let's thoughts, I guess an area that we need to talk about, which is the Fed. Your first reaction to what Paul said and how he said things, Jack. So, you know, the statement was a little more hawkish than people expected. You know, they used they left that word ongoing in terms of rate hikes. The market was kinda hoping they were gonna stay additional or something that kind of intimated that they were getting closer to the end. I think Powell sort of during the press conference kept Powell for a sounded maybe a little bit more dovish on that standpoint, saying, hey, we can start going 25. I think they should go to 25. It gives the Fed more flexibility right now. But again, I think the Fed is running the risk of taking the U.S. economy into recession by probably focusing a little too much on the labor market, which is extra lagging in terms of an economic indicator this cycle, because we know companies are struggling to find workers. They don't want to let workers go and unless things get really bad. So the bond market, I mean, just seeing what people are still pricing in cuts for in 2023 24. I mean, they continue to not listen to what one day Paul says. Should I expect that yield curve to continue to invert then? So, you know, it's interesting because ultimately that data is going to be a lot more important than the Fed. So that, you know, it's funny. I went back and I looked at what the dot plot looks like a year ago. They were looking for 1 percent rates at the end of this year and they were at four and a half. So, you know, if the Fed is like the rest of us, they're kind of working their way through this right now. I think there's the rate cuts certainly could be the back end of the 2023, maybe into twenty point four. But I actually think the curve is probably going to just start to steep in here fairly soon. We own a lot of 30 year treasuries and we're thinking about maybe moving down the curve into the 10 year part. And that's a function of what, Jack? Why are you looking to do that? So I think it's a function that, you know. So let's take a step back. There's been a tremendous amount of accumulative financial financial tightening away from just what the Fed has done today with a 50 basis point move. And that's happening with a lag effect in the economy that's going to be slowing. And we've already had peak inflation that's rolling over right now. So I think when you you combine those things together, Treasury is going to do very well in the curve. You know, the markets are forward looking and they're going to start to say, OK, hey, inflation is rolling out, is probably gonna accelerate. And I think we're going to start to see the curve steep and a little bit higher unless we're totally wrong. And the Fed is taking Fed funds to five and a half or six percent, which I know they're not going to do doing that. Do you think treasuries could be safer than what we could be seeing in Europe? I mean, we have the ECB VOA coming up just in a few hours or so and the ECB is, you know, they're just starting to announce Kutty. So yeah, it's actually time. So we know Europe's in a recession right now. What we don't know is, is the U.S. going into a recession? We actually think it is. So we think treasuries look more compelling than European bonds in here. But, you know, Europe, the labor market still in pretty good shape. But I think in terms of the spread between treasuries and European bonds, you want to have bigger allocation in U.S. treasuries. Right now, Jack, I want to ask you about one of the points you made earlier on, and certainly when you look back at the history of DOT plots when they released them these last few quarters, I mean, it didn't seem like the Fed was known any way where they were going. And it begs the question, how how much confidence can I have when it's five point one percent target that they have and they're not going to go above that. So, yeah, it was interesting. We haven't been doing this for a long time. I was really amazed. And Powell talked about it during the press conference, 19 people gave their projections, 10 of them were at that five point one. So very, very contentious. There was a lot of dispersion around that sort of 5.1 percent target rate. But you're right. You know, again, it's not it's not just where Fed funds it's going to be. You got to think about all the additional forms of tightening the wealth destruction that's happened this year. You know, equities have rallied here. The dollar's been strong. That's tightening. You know, the backup in rates, the impact on the mortgage market. So there's been a a confluence of things towards tightening of financial conditions. And, you know, again, behind the scenes, the balance sheet of the Fed is continued to shrink by ninety five billion. So there's just plenty of tightening. But again, my point being is with a lag effect, if I was at that press conference, I would have asked powered go going a little bit more detail about the lag effect of all this tightening, because I suspect it's going to impact the U.S. economy next year when the economy should already start to be slowing down pretty significantly. So I ask why again, we like treasuries because basically I think bonds in general should have a good year in 2023. You mentioned, you know, bonds are back a lot, people are saying that Paul Sweeney 20, that you're saying 2024 is the year of the bond. Why do I have to wait until 2024? Jack? No idea if I said that's a mistake. Twenty throughout the years, a bond because a typo is very similar. Or glad you're wrong. Yeah, the bond math works for you. The point here is that boy, the coupon is going to be a more meaningful part of the total return of bonds. That's something we haven't seen for a long time right now. And there was a lot of wealth destruction in bonds and 20 22. But no, twenty twenty three is going to be the year of the bond.

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Brandywine's McIntyre on Markets

Jack McIntyre, Brandywine Global's Portfolio Manager, discusses his market outlook and investment strategy. He speaks with David Ingles and Yvonne Man on "Bloomberg Markets: China Open". (Source: Bloomberg)

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