Now the S&P 500 and Nasdaq are both at record levels. Let’s talk about this first. What does this rally really mean? Do you think that the market can absorb the uncertainty in the long term caused by rates – especially with regard to China – and to a certain extent India?
Andrew Ferris: In fact, it means that we all look at the same statistics and come to totally different conclusions. The markets were apparently very satisfied with the inflation numbers in the United States. Well, I’m afraid I have my Bloomberg for me, and let me read for your viewers and listeners the following: CPI, a simple, ordinary Vanvanilla index, was 2.3% in April, 2.4% in May, 2.7% in June and 2.7% again in July. That is 2.3, 2.4, 2.7 – fast accelerating.
Core inflation, which is very important, has also risen. The figures were 2.3%, 2.2%, 2.4%and 2.6%in the past four months. To clarify, the other core measure to which I refer even went from 2.8%to 2.8%, than 2.9%, and finally 3.1%. The PCE index, the Fed’s favorite measure, also rose from 2.3%to 2.2%, 2.4%and then 2.6%. All these figures rose in the last quarter.
I don’t see inflation getting better – it has not improved; It speeds up and remains above the target of 2% of the FED. So this idea that the Fed will lower the interest rates in September – I have no idea what it is based on. The S&P may be at a record high, but I keep telling my customers: stay away. It is excellent overvalued and based, if I can say that on a nonsensical interpretation of the data.
But given this inflation trend, the street is still in a rate reduction of the Federal Reserve next month. What is your expectation and how many cutbacks have you provided for the rest of this calendar year?
Andrew Ferris: I don’t have to repeat myself. I hate to read numbers to an audience – it’s terrible. If someone appeals to me, I switch off completely. But here the figures are obvious. For me this means that the FED will not lower interest rates in September, period.
What Trump also says or threatens to do with Powell, Powell is a very decent person and will not be put under pressure only because the president threatens to fire him or to sue him. What a performance – what behavior of the leader of a large country to her own central bank, simply because the bank does not obey the president. The President does not play a role in establishing monetary policy. As far as India is concerned, inflation comes down. The RBI held the interest rates during the last meeting and said that the situation is improving. If their next step is to lower the rates, this will not be because Mr. Modi called the Governor and threatened him to fire him. India is a good example of how democracy works – something that the United States often claim to illustrate, but not in this case.
You were just talking about how the S&P 500 was collected, but you think it is overvalued. Are there other asset classes except shares or stock markets outside the US, which you now find attractive?
Andrew Ferris: Just look at markets where indices year-on-year in the US dollar have risen-what is important, because whether we like it or not, the market is still going on American dollars we see several good doing. The Sesex in India is performing well, just like South Korea and Taiwan. Even Hong Kong did well, although that is due to the performance of Chinese companies mentioned there, not Hong Kong -based companies.
Most markets of the European Union have also been strong. And here I sound like a broken plate: Defense shares. They have done it brilliantly and will continue to do this. I know it is controversial to suggest to invest in companies that produce the means of war, but that is the reality.
Given that discussions about Ukraine probably do not produce rapid results, the war will continue to exist. Israel, regardless of global opinion, seems to be the intention to fully occupy Gaza, which means that conflict will continue. I am not gloating – it is tragic that people die – but I would fail my customers if I did not point out that defense shares have been performing well for more than two and a half years. This includes Indian and various other Asian defense companies. Their performance is not driven by interest rates, but due to rising defense expenditure, and that is why they continue to purchase strong purchases.
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