>> 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