>> THE DOW FINISHED UP 99 POINTS
TODAY THAT WOULD BE UNREMARKABLE
BUT FOR THE FACT IT WAS DOWN
MORE THAN 1100 EARLIER IN THE
DAY.
THIS HAS THE MARKETS TUMBLED
BADLY TO START THE YEAR.
CHIEF AMONG INVESTOR FEARS
APPEAR THAT THE FEDERAL RESERVE
WILL RAISE INTEREST RATES TO
TAMP DOWN INFLATION.
AND THE WAR BETWEEN RUSSIA AND
UKRAINE HAS ADDED TO THE
NEGATIVE SENT: JOINING US ARE
LEE BAKER.
AND MICHAEL STRITCH CHIEF
INVESTMENT OFFICER AT BMO WEALTH
MANAGEMENT.
WELCOME BOTH OF YOU TO "CHICAGO
TONIGHT."
>> LEE BAKER WHAT ACCOUNTS FOR
THE WILD GYRATIONS IN THE
MARKET?
>> YOU NAILED IT.
THE THING THAT STARTED IS THE
CONCERN ABOUT WHAT THE FED IS
GOING TO DO RELEVANT TO INTEREST
RATE HIKES OVER THE COURSE OF
THE YEAR.
I THINK SOME IS A BIT OF AN
OVERREACTION.
YES, INFLATION IS A PROBLEM.
IT IS TURNED OUT TO BE LESS
TRANSITORY THAN THE FED THOUGHT
GOING BACK TO LAST SUMMER.
BY THIS TIME THE ANTICIPATION
WAS THAT THE SUPPLY CHAIN ISSUES
WOULD HAVE EASED UP AND WE WOULD
BE MOVING AWAY FROM THAT 5-6%
YEAR-OVER-YEAR INFLATION NUMBER
BUT IT'S HERE AND LIKELY TO BE
HERE ANOTHER THREE MONTHS OR SO.
>> A RELATIVELY BAD POOR START
TO THE YEAR FOR THE DOW AND
OTHER MARKETS.
THE DOW IS DOWN 6%.
THE S&P 5% AND NASDAQ 12.5%.
MICHAEL STRITCH WHAT ACCOUNTS
FOR THIS PERFORMANCE FOR THE
FIRST THREE WEEKS OF THE YEAR?
>> WELL, I THINK WE HAD A
TREMENDOUS YEAR LAST YEAR AND A
TREMENDOUS YEAR THE YEAR BEFORE.
AND THERE IS ALWAYS ROOM FOR A
CORRECTION IN THE FACE OF A
LONGER TERM UPTREND AND I THINK
THAT WHAT WE'RE SEEING DRIVEN BY
A COUPLE FACTORS.
LEE MENTIONED THE INFLATION AND
INTEREST RATE STORY.
WE ARE IN THE MIDDLE OF EARNINGS
SEASON AND RESULTS HAVE BEEN OK
BUT PERHAPS NOT LIVING UP TO THE
HEIGHTENED EXPECTATIONS RELATIVE
TO PAST QUARTERS.
THAT IS WEIGHING ON INVESTORS AS
WELL.
AND WE DO HAVE GEOPOLITICAL
TENSIONS UNFOLDING IN EASTERN
EUROPE.
I REITERATE THIS IS ALTHOUGH IT
SEEMS EXTREME AND TODAY WAS
EXTREME, IT IS IN THE CONTEXT OF
THE BROADER UPTREND WE HAVE BEEN
IN.
SOMETHING THAT CAN BE CONSIDERED
QUITE NORMAL.
>> LEE BAKER IS THIS A NORMAL
CORRECTION TO THE HOT MARKET OF
THE LAST YEAR OR SO?
OR DOES IT PORTEND SOMETHING
MORE OMINOUS LIKE A BEAR MARKET?
>> I BELIEVE THIS IS A NORMAL
CORRECTION.
I THINK ONE OF THE ISSUES WE'VE
GOT OVER THE COURSE OF THE LAST
FEW YEARS WE HAVE BEEN LULLED
INTO A FALSE SENSE OF SECURITY
BECAUSE CORRECTIONS THAT ARE
NORMAL IN MOST YEARS, JUST
HADN'T HAPPENED.
WE'D HAVE MINNIE CORRECTIONS IF
YOU WILL WHERE THE MARKETS WOULD
PULLBACK FOUR OR FIVE POINTS AND
THAT WOULD LAST FOR I AWEEK.
HAVING A PULLBACK OF 10% IS
QUITE NORMAL UNDER MOST
CIRCUMSTANCES.
IT'S JUST THAT THAT HADN'T BEEN
THE CASE FOR THE LAST COUPLE
YEARS.
>> AND INVESTOR FEARS OVER THE
FED RAISING INTEREST RATES.
THE FED CHAIRMAN HINTED THOSE
MIGHT BE COMING.
MICHAEL STRITCH WHY DOES THIS
MAKE INVESTORS SO SKIDDISH?
>> WELL, I MEAN THERE'S THE
PRIMARY REASON I THINK FROM THE
FEDS PERSPECTIVE OF INTEREST
RATES GOING UP HAS TO DO WITH
THIS IDEA OF NO BETTER
ALTERNATIVES AND REALLOCATION OF
FUNDS WHEN YOU SEE INTEREST
RATES IN 1% RANGE AND NOW 2 AND
ABOVE 2 LATER THIS YEAR YOU
START TO ASK IS THERE A BETTER
OPPORTUNITY THAN THE FIXED
INCOME INSTRUMENTS VERSUS
EQUITIES.
THERE IS A CONSIDERATION AND
THAT IS IMPACTFUL FOR TECHNOLOGY
COMPANIES OR HIGH GROWTH
COMPANIES WHERE YOU DON'T
REALIZE THE VALUE IN TERMS OF
FREE CASH FLOWS WELL INTO THE
FUTURE AND WHEN YOU SEE INTEREST
RATES GO UP AND THINK ABOUT HOW
EQUITIES ARE IN EFFECT A
DISCOUNTED VALUATION BACK FOR
THE FUTURE CASH FLOWS IF RATES
GO UP THAT CHALLENGES THAT
LONG-TERM VALUATION LEVEL WHICH
IMPACTS TECHNOLOGY AT THE
MARGIN.
WHAT WE'RE SEEING LEADING TO
DOWNSIDE.
THAT IS THE RISK WITH THE FED
AND INFLATION.
THE CONCERN FOR THE MARKET IS
THAT THE FED GOES TOO FAR TOO
FAST AND TOO HIGH.
I THINK AS LEE SAID WE'RE
PROBABLY AT THE PEAK HAWKISHNESS
RIGHT NOW.
WE SHOULD SEE THIS STUFF
RETRENCH IN THE COMING WEEKS AND
MONTHS.
AFTER THE MEETING THIS WEEK IN
PARTICULAR.
>> LEE BAKER WHAT ABOUT THE
GEOPOLITICAL FACTORS, A PENDING
MILITARY ACTION ON THE BORDER OF
UKRAINE AND RUSSIA.
THE OMICRON VARIANT OF THE
CORONAVIRUS.
HOW BIG A FACTOR ARE THESE?
>> I THINK THOSE FACTORS ARE
FAIRLY LARGE.
PARTICULARLY THE GEOPOLITICAL
WITH RUSSIA AND UKRAINE.
ANYTIME YOU'VE GOT THE SPECTER
OF POTENTIAL MILITARY ACTION ON
A LARGE SCALE, THAT MAKES PEOPLE
NERVOUS BECAUSE YOU DON'T KNOW
HOW ALL THE DOWNHILLS WILL FALL.
AND ONE OF THE THINGS WE'VE
LEARNED THROUGH THE YEARS IS
MARKETS LIKE CERTAINTY.
WELL, IF YOU ARE BRINGING IN THE
SPECTER IF YOU WILL OF DOES THIS
THING WITH RUSSIA AND UKRAINE
END UP BEING SOMETHING BIG?
DOES IT SPREAD TO OTHER
COUNTRIES?
HOW DO OTHER COUNTRIES GET
INVOLVED?
THAT IS A LOT OF UNCERTAINTY AND
THE MARKETS JUST DON'T LIKE THAT
UNCERTAINTY.
NOW, ON THE COVID FRONT GIVES
PEOPLE HOPE OR BELIEVE PERHAPS
OMICRON IS THE BEGINNING OF THE
END, IF YOU WILL, TO THE
TRANSITION FROM PANDEMIC TO
ENDEMIC.
BUT IF THERE COMES ALONG ANOTHER
VARIANT THAT IS AS TRANSMISSIBLE
AS OMICRON BUT AS DEADLY OR
SICKENING AS DELTA THEN ALL BETS
ARE OFF.
>> MICHAEL STRITCH WE HAVE A FEW
SECONDS LEFT WHAT ABOUT CRYPTO?
A LOT OF THE CRYPTOCURRENCY ARE
WORRIED OF THE FREE FALL OF
BITCOIN IS THIS PART OF THE
NORMAL VOLATILITY?
>> IT IS.
THAT IS THE SEGMENT MUCH LONGER
SESSION.
CRYPTO IS A SPECULATIVE
TECHNOLOGY THERE IS CRYPTO IS
FRONT AND CENTER IN THAT REGARD.
I EXPECT MORE PRESSURE IN THAT
SEGMENT IN THE FUTURE AS WELL.
>> AND THAT CERTAINLY IS A TOPIC
FOR ANOTHER DAY AND WE THANK LEE