You call for a radical shift next year Where will that shift be and so I think The shift is in the bonds uh so this Year has been historically difficult to State the obvious but yield matters and Starting Place matters and so if you Think about just you know the boj Yesterday right we've moved from this Zero negative interest rate policy to Pretty sizably positive territory for Yields and that matters a lot like when We were looking at the 10-year at 50 Basis points our future looked really Pretty bleak right it was hard to kind Of earn till return and return off of That but where we are today I think We're in a much better place I think it Creates much more balanced portfolios Those who were calling for the death of Fixed income were kind of right right For the year but I think the reset Matters a lot and so we're pretty Constructive as we head into 2023. is This a colon sulference a colon credit Or a colon the whole universe it's a Sequencing of sorts so I think the first Move is on The Sovereign side so the Defensive nature of fixed income starts To assert itself uh it seems like There's a high probability of a Recession who knows I think is very Bimodal and so it's really difficult to Ascertain but I think that protection Mechanism matters a lot into 2023 and
Then I think you roll into credit and Other things so I think it's a Sequencing aspect of fixed income that Provides different flavors of protection At different times throughout the course Of the year does that sequencing rely on Inflation and disinflating if there's a Sort of just sort of gradual and linear Uh path to a lower level for inflation Does it have to really happen that way To make what you're saying come true it Does I mean I think the lesson of 2022 Was stagflation bad bad for all Financial assets even Commodities Started to catch the knife for a little Bit here towards the end of the year Here so I think as we move off the Stagflation narrative I think it bodes Much more favorably if we're wrong Around that and inflation is incredibly Difficult to forecast of course but it Does seem like all indicators point to Lower inflation in 2023. I think the tail risk that we were Experiencing in 2023 I'm sorry 2022 gets Chopped off in 23 and I think that Matters a lot although if you do see a Stickier bottom right let's say we stop At three and a half percent by the end Of next year How does that leave your call Considering that some people are talking About structurally higher inflation Giving given some of the labor market
Dynamics given the gaps there and given The deglobalization that a lot of people Are talking about that's a clear risk And I think that is an underappreciated Risk that said go back to starting point So do we think the FED is going to move Another you know 400 500 basis points From here no right so we're talking About now incremental I do think the Markets are wrong in terms of the Pricing where uh the the markets are Pushing back on the FED staying higher For longer and I don't know if I buy Into that myself I think we are in this Higher Fed rate regime but that in and Of itself isn't a bad thing for fixed Income assets where it's about roll and Carry and yield in income and so I think It bodes quite favorably
