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>> THE DOW FINISHED UP 99 POINTS

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TODAY THAT WOULD BE UNREMARKABLE

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BUT FOR THE FACT IT WAS DOWN

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MORE THAN 1100 EARLIER IN THE

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DAY.

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THIS HAS THE MARKETS TUMBLED

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BADLY TO START THE YEAR.

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CHIEF AMONG INVESTOR FEARS

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APPEAR THAT THE FEDERAL RESERVE

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WILL RAISE INTEREST RATES TO

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TAMP DOWN INFLATION.

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AND THE WAR BETWEEN RUSSIA AND

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UKRAINE HAS ADDED TO THE

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NEGATIVE SENT:  JOINING US ARE

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LEE BAKER.

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AND MICHAEL STRITCH CHIEF

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INVESTMENT OFFICER AT BMO WEALTH

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MANAGEMENT.

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WELCOME BOTH OF YOU TO "CHICAGO

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TONIGHT."

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>> LEE BAKER WHAT ACCOUNTS FOR

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THE WILD GYRATIONS IN THE

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MARKET?

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>> YOU NAILED IT.

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THE THING THAT STARTED IS THE

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CONCERN ABOUT WHAT THE FED IS

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GOING TO DO RELEVANT TO INTEREST

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RATE HIKES OVER THE COURSE OF

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THE YEAR.

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I THINK SOME IS A BIT OF AN

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OVERREACTION.

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YES, INFLATION IS A PROBLEM.

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IT IS TURNED OUT TO BE LESS

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TRANSITORY THAN THE FED THOUGHT

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GOING BACK TO LAST SUMMER.

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BY THIS TIME THE ANTICIPATION

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WAS THAT THE SUPPLY CHAIN ISSUES

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WOULD HAVE EASED UP AND WE WOULD

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BE MOVING AWAY FROM THAT 5-6%

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YEAR-OVER-YEAR INFLATION NUMBER

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BUT IT'S HERE AND LIKELY TO BE

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HERE ANOTHER THREE MONTHS OR SO.

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>> A RELATIVELY BAD POOR START

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TO THE YEAR FOR THE DOW AND

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OTHER MARKETS.

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THE DOW IS DOWN 6%.

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THE S&P 5% AND NASDAQ 12.5%.

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MICHAEL STRITCH WHAT ACCOUNTS

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FOR THIS PERFORMANCE FOR THE

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FIRST THREE WEEKS OF THE YEAR?

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>> WELL, I THINK WE HAD A

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TREMENDOUS YEAR LAST YEAR AND A

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TREMENDOUS YEAR THE YEAR BEFORE.

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AND THERE IS ALWAYS ROOM FOR A

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CORRECTION IN THE FACE OF A

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LONGER TERM UPTREND AND I THINK

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THAT WHAT WE'RE SEEING DRIVEN BY

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A COUPLE FACTORS.

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LEE MENTIONED THE INFLATION AND

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INTEREST RATE STORY.

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WE ARE IN THE MIDDLE OF EARNINGS

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SEASON AND RESULTS HAVE BEEN OK

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BUT PERHAPS NOT LIVING UP TO THE

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HEIGHTENED EXPECTATIONS RELATIVE

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TO PAST QUARTERS.

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THAT IS WEIGHING ON INVESTORS AS

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WELL.

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AND WE DO HAVE GEOPOLITICAL

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TENSIONS UNFOLDING IN EASTERN

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EUROPE.

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I REITERATE THIS IS ALTHOUGH IT

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SEEMS EXTREME AND TODAY WAS

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EXTREME, IT IS IN THE CONTEXT OF

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THE BROADER UPTREND WE HAVE BEEN

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IN.

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SOMETHING THAT CAN BE CONSIDERED

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QUITE NORMAL.

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>> LEE BAKER IS THIS A NORMAL

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CORRECTION TO THE HOT MARKET OF

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THE LAST YEAR OR SO?

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OR DOES IT PORTEND SOMETHING

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MORE OMINOUS LIKE A BEAR MARKET?

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>> I BELIEVE THIS IS A NORMAL

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CORRECTION.

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I THINK ONE OF THE ISSUES WE'VE

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GOT OVER THE COURSE OF THE LAST

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FEW YEARS WE HAVE BEEN LULLED

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INTO A FALSE SENSE OF SECURITY

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BECAUSE CORRECTIONS THAT ARE

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NORMAL IN MOST YEARS, JUST

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HADN'T HAPPENED.

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WE'D HAVE MINNIE CORRECTIONS IF

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YOU WILL WHERE THE MARKETS WOULD

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PULLBACK FOUR OR FIVE POINTS AND

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THAT WOULD LAST FOR I AWEEK.

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HAVING A PULLBACK OF 10% IS

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QUITE NORMAL UNDER MOST

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CIRCUMSTANCES.

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IT'S JUST THAT THAT HADN'T BEEN

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THE CASE FOR THE LAST COUPLE

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YEARS.

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>> AND INVESTOR FEARS OVER THE

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FED RAISING INTEREST RATES.

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THE FED CHAIRMAN HINTED THOSE

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MIGHT BE COMING.

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MICHAEL STRITCH WHY DOES THIS

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MAKE INVESTORS SO SKIDDISH?

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>> WELL, I MEAN THERE'S THE

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PRIMARY REASON I THINK FROM THE

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FEDS PERSPECTIVE OF INTEREST

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RATES GOING UP HAS TO DO WITH

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THIS IDEA OF NO BETTER

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ALTERNATIVES AND REALLOCATION OF

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FUNDS WHEN YOU SEE INTEREST

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RATES IN 1% RANGE AND NOW 2 AND

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ABOVE 2 LATER THIS YEAR YOU

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START TO ASK IS THERE A BETTER

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OPPORTUNITY THAN THE FIXED

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INCOME INSTRUMENTS VERSUS

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EQUITIES.

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THERE IS A CONSIDERATION AND

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THAT IS IMPACTFUL FOR TECHNOLOGY

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COMPANIES OR HIGH GROWTH

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COMPANIES WHERE YOU DON'T

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REALIZE THE VALUE IN TERMS OF

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FREE CASH FLOWS WELL INTO THE

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FUTURE AND WHEN YOU SEE INTEREST

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RATES GO UP AND THINK ABOUT HOW

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EQUITIES ARE IN EFFECT A

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DISCOUNTED VALUATION BACK FOR

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THE FUTURE CASH FLOWS IF RATES

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GO UP THAT CHALLENGES THAT

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LONG-TERM VALUATION LEVEL WHICH

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IMPACTS TECHNOLOGY AT THE

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MARGIN.

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WHAT WE'RE SEEING LEADING TO

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DOWNSIDE.

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THAT IS THE RISK WITH THE FED

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AND INFLATION.

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THE CONCERN FOR THE MARKET IS

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THAT THE FED GOES TOO FAR TOO

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FAST AND TOO HIGH.

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I THINK AS LEE SAID WE'RE

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PROBABLY AT THE PEAK HAWKISHNESS

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RIGHT NOW.

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WE SHOULD SEE THIS STUFF

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RETRENCH IN THE COMING WEEKS AND

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MONTHS.

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AFTER THE MEETING THIS WEEK IN

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PARTICULAR.

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>> LEE BAKER WHAT ABOUT THE

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GEOPOLITICAL FACTORS, A PENDING

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MILITARY ACTION ON THE BORDER OF

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UKRAINE AND RUSSIA.

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THE OMICRON VARIANT OF THE

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CORONAVIRUS.

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HOW BIG A FACTOR ARE THESE?

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>> I THINK THOSE FACTORS ARE

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FAIRLY LARGE.

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PARTICULARLY THE GEOPOLITICAL

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WITH RUSSIA AND UKRAINE.

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ANYTIME YOU'VE GOT THE SPECTER

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OF POTENTIAL MILITARY ACTION ON

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A LARGE SCALE, THAT MAKES PEOPLE

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NERVOUS BECAUSE YOU DON'T KNOW

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HOW ALL THE DOWNHILLS WILL FALL.

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AND ONE OF THE THINGS WE'VE

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LEARNED THROUGH THE YEARS IS

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MARKETS LIKE CERTAINTY.

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WELL, IF YOU ARE BRINGING IN THE

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SPECTER IF YOU WILL OF DOES THIS

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THING WITH RUSSIA AND UKRAINE

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END UP BEING SOMETHING BIG?

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DOES IT SPREAD TO OTHER

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COUNTRIES?

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HOW DO OTHER COUNTRIES GET

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INVOLVED?

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THAT IS A LOT OF UNCERTAINTY AND

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THE MARKETS JUST DON'T LIKE THAT

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UNCERTAINTY.

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NOW, ON THE COVID FRONT GIVES

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PEOPLE HOPE OR BELIEVE PERHAPS

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OMICRON IS THE BEGINNING OF THE

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END, IF YOU WILL, TO THE

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TRANSITION FROM PANDEMIC TO

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ENDEMIC.

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BUT IF THERE COMES ALONG ANOTHER

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VARIANT THAT IS AS TRANSMISSIBLE

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AS OMICRON BUT AS DEADLY OR

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SICKENING AS DELTA THEN ALL BETS

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ARE OFF.

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>> MICHAEL STRITCH WE HAVE A FEW

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SECONDS LEFT WHAT ABOUT CRYPTO?

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A LOT OF THE CRYPTOCURRENCY ARE

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WORRIED OF THE FREE FALL OF

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BITCOIN IS THIS PART OF THE

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NORMAL VOLATILITY?

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>> IT IS.

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THAT IS THE SEGMENT MUCH LONGER

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SESSION.

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CRYPTO IS A SPECULATIVE

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TECHNOLOGY THERE IS CRYPTO IS

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FRONT AND CENTER IN THAT REGARD.

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I EXPECT MORE PRESSURE IN THAT

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SEGMENT IN THE FUTURE AS WELL.

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>> AND THAT CERTAINLY IS A TOPIC

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FOR ANOTHER DAY AND WE THANK LEE