00:00Is that conservative, sensible or just complacent?
00:04Well, I think, you know, this is the time where, you know, we got to take stock and try to
00:10be prepared for any potential outcomes.
00:11I think as you've been discussing with all the guests and as we've seen in the data, there is a
00:17lot of potential outcomes that could happen.
00:19And I think every day, you know, the number of potential outcomes continues to be wide.
00:25And, you know, we want our clients to just be prepared and not necessarily take one big side or one
00:31other side, because, you know, as we have seen historically, the different scenarios could play out that if the conflict
00:37ends quickly, you know, the market has a historical way to rebound and recover very quickly.
00:43So you don't necessarily want to be, you know, placing in a place where you are left out.
00:48On the other hand, you know, we could have a very prolonged and sustained damage that could affect growth.
00:53And therefore, you also don't want to be extremely bullish.
00:56So this is one where, you know, it's better to be well diversified, but at the same time, be very
01:01conservative, a very, very risk risk control in order for you to be prepared for any potential outcomes that may
01:08come out of this.
01:08Before we get into how you do that, can you give us the sentiment check?
01:11You've got a ton of clients. Do you sense that the fear of missing out on gains is greater than
01:17the fear of losses right now?
01:19Right now, they're in the loss aversion and the risk aversion has been increasing dramatically for the last, you know,
01:25two or three weeks.
01:26So clients, you know, started to just, you know, be concerned about, you know, what would be the length of
01:32these are the implications.
01:33And in many cases, they see it not just because of the results and the volatility we see on an
01:37every given day, but they also see in their regular lives.
01:40You know, the effect on gas prices, the effect of just the potential inflation hit, you know, something that, you
01:46know, clients have started to feel.
01:48And that's the natural reaction is to just become, you know, risk averse.
01:51So the risk aversion is definitely there.
01:54The sentiment towards being uncertain is growing higher.
01:58You know, you will see days like today where nobody wants to go on a weekend like this with any
02:04positions.
02:04You know, they will try to just stay flat.
02:06And that's probably the right approach, you know, as we go into the next few days.
02:10You mentioned the word diversification.
02:12The fear of 22 and a repeat of 22 is when the correlation between stocks and bonds turns positive.
02:18And it's hard to get away from.
02:20You get losses in stocks.
02:21You get losses in bonds.
02:22Where's the diversification right now?
02:25Well, I think if you if you go for the last two days, you know, there's definitely the same feeling
02:30that we have back in 2022.
02:32And now the big difference in this particular time, unlike 2022, where we were just, you know, coming out of
02:39COVID, our economy was not in the best shape.
02:43We were better prepared here.
02:45So I think in many cases, you know, our current feeling and our current positioning is that the fixed income
02:52market seems to be extrapolating fairly aggressive.
02:55You know what the potential implication of inflation might be.
02:58Inflation expectations has gone through the roof, not just in the U.S., but it should probably be more in
03:04Europe and in the U.K.
03:05And then, you know, the market is now going from potentially easing financial conditions and monetary policy being easy to
03:12now, you know, pricing in rates that could be, you know, over, you know, 75 basis points in some cases.
03:17So so that that translation has actually gone into the different type of setting, because, you know, right now, you
03:25know, we're talking about the implications of inflation, not the implications of economic deceleration.
03:32And I think that's the biggest difference. That tradeoff between, you know, what is the market pricing it today is
03:38a significant inflation hit is basically what is driving inflation expectations higher and yields higher, whereas, you know, the long
03:45term implications for the economy hasn't been priced in completely.
03:49If you actually see that just in the level of downturns that we have had in the market, you know,
03:54for an impact of this level, you know, the markets and the general indices are not down as much as
04:00you would expect.
04:00So the economic backdrop here seems to be giving a little floor for risky assets.
04:05Fixed income seems to be, you know, taking a hit first.
04:08Omar, it's a very good point. When do you think we would see potentially investors start to take more on
04:14board the fact that this is not just inflationary up front, but this is going to be a long term
04:19economic hit?
04:21Yeah, I think, you know, the longer this conflict, you know, continues, the worse you will get for economic growth
04:27and the GDP progression.
04:29We even saw with the discussion on the dot plots at the Fed, as well as just the Jerome Powell's
04:35overall language was related to the fact that they still see GDP being consistently good.
04:44They don't necessarily see yet the effect of consumers.
04:47And I think consumption is going to be the driver of this.
04:50I think the longer we see this, especially as we get closer to the summer months, you know, that will,
04:56you know, get into a place where clearly GDP will be affected.
05:00I think, again, you know, in many ways today, you know, the implications of, you know, gas prices being higher,
05:07supply change being disrupted feels a little bit more like a tariff hit that we saw last year and less
05:14of the economic situation we have in 2022.
05:17So you think the Fed could look through it then if it's similar to a tariff hit?
05:22That seems to be what is projected.
05:24If you just look at the dot plots, just even updated, they still had one rate cut, you know, in
05:30there.
05:30You know, market seems to be, you know, disagreeing with the Fed, saying like, well, there's going to be definitely
05:35no cuts here.
05:36But overall, the central banks are thinking about that this could go through, you know, we could probably end these
05:43results and then the economy can sustain it.
05:45I think the longer the conflict stays, you know, the more difficult would that be?
05:49I think the latter one will be that, let's go on the right side.
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