Are Alternative investments The Answer to ‘Slaying the Inflation Dragon?’AreAlternativeinvestmentsTheAnswerto‘SlayingtheInflationDragon?’

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  Let's keep talking and bring in David Hunt, CEO of PGIM, which is the asset management our viewers ensure Prudential Financial. So in other words, a piece of the rock as it were, he joins us live out of New York. David, good to see you appreciate your time. Keeping safe where you are, let's start with what's going on with the bond market. Obviously, we've been watching this a 210. inversion, it's thinning, but it's continuing. Meantime, the equity markets, though, kitchen is to, to march up. And you know, it seems like the equity market is saying, look, the Fed hiking rates, yeah, everything is good, they're gonna be able to steer the US economy into a nice soft, a three point landing. Obviously, though, the bond market does not agree who's right. Though it's a great point, it seems like every market sees its own truth. At the moment, Martin, we've got the equity market, which is focused very much on the fact that actually the developed economies are in very good shape. The continued numbers that we have gotten on employments on spending are really very strong. And if anything, I would say we and others have been marking up actually our forecasts for just how strong the underlying economy will be. And corporate profits look to be holding up extremely well, in light of that. So that's what the equity market has been focused on. The bond market sees a different reality, the bond market is looking at this and saying, Wow, inflation is going to be a good deal higher than anybody had predicted before. They've marked up pretty dramatically, the levels of inflation, and therefore, and therefore the levels of which the Fed and other central banks around the world are going to have to tighten. And that's why you've gotten this significant flattener that your correspondent just talked about. And what that's telling you is that the bond market expects that, you know, in this tightening cycle, we will have rates rise, and that will begin to choke off growth, as we look farther out the curve. And that's why you're getting the longer sides turning down, which is a sign that they believe that markets and the economy will slow. I would just throw in Marvin, since we're one of the largest real estate managers in the world, that the real estate market sees yet its own version of this, which is that oftentimes inflation is good for real assets. And that this has actually been a very constructive time for property prices right around the world of almost all different food groups. And that's something very few of us would have predicted a year ago for sure. Yeah, it's almost counterintuitive, isn't it, David? So I'm wondering whether or not here sort of understating the situation? Because the irony is, the stronger the recovery is, the harder the Feds gonna have to go. In terms of hiking rates to slay this inflation Dragon, what would that mean for especially real estate? Oh, I think it's a great point, Martin, I think that the the more you believe in the strength of the developed economies, and particularly the US, the more you believe that the Fed will have to move higher, and probably move higher more quickly. I mean, six months ago, we weren't talking about 50 basis point moves. And now we're talking about, you know, basically the markets pricing in 350s. This year alone. So this is going to be if it plays out that way, a much faster tightening than we've seen before. And of course, what Beck calls into question, is this question between the stock and the bond market? Will the Fed be able to engineer a soft landing where they're able to bring down demand just enough, but not so much as to throw the economy into a recession? And that's, I think, where everyone is really focused, or will this recession be brought on by the Fed over tightening, which is how many of our recent recessions have in fact, been induced? David, how challenging in this environment? Is it to find inflation protection in the equities market? And if alternatives are the answer, then walk us through what is looking most compelling? Well, I would say that the number one issue that we're working with our clients on around the world is looking at their portfolio construction, and really working through how can they be protected from a period of rising inflation? And clearly part of the answer to that lies in real assets, which certainly includes real estate, but it also includes infrastructure and agriculture and a whole series of other types of assets that tend to do well. And of course, as you know, it includes taking a view on commodities. So I think that there are quite a lot of shifts that we're starting to be seeing made in portfolios, but it's still very early days, and I would say the next three months, you'll start to see companies begin to modify their portfolio construction to take into this view of higher inflation. David, can I just dovetail your expertise on the housing market and the forthcoming banks reporting season? Because we've got this situation where you've got the 30 year fixed rate mortgage at its highest since December 2018 5%. may very well be on the cards. Are there issues in terms of ability to service those loans? Demand for those loans, affordability? And are they going to permeate into the earning season for the banks? Is that a risk? So I think if you take the one year view on your question, the answer is clearly yes. And that we will begin to see as rates begin to bite, that some of the particularly consumer demand and the cost of mortgages will begin to depress the press prices. But if you're asking me about the current earning season, I think it's far too early. And there's actually relatively little evidence that we're seeing that even the rise we've seen so far, has done much to dent housing prices. You really see a lot of this more in the other food groups. So when we look at retail, which still continues to be struggling, when we look at core office that continues to bifurcate, quite a bit, and then we continue to see just dramatic demand for industrial right around right around the world. David, globally, outside the US, how would you position in markets like Europe that really seem to be at the sharp end of this fallout from the conflict in Ukraine, and over here in Asia, particularly in emerging markets? Well, I think it's a it's an excellent point. And I think that, you know, you certainly Europe is seeing higher levels of inflation, and they are likely to see their growth rates come down more, both because of the supply constraints. And we're starting to see many investors shy away from putting money to work in, in continental Europe. And that's that was a surprise to me. But I've seen that quite a bit, I would say over the last the last months. In terms of your question around emerging markets, we have believed for a number of years that the whole emerging markets, bucket and category was not a helpful way for investors to look at the world. We see China as a very different kind of investment, both thesis and protection, then we see South Korea, and we certainly think that has nothing to do with Argentina. And so I'm hoping that maybe one silver lining that can come out of this is that we can finally do away with the emerging market definition and begin to deal much more in specific groups of countries that have much more in common and look at things like people who are big commodities, players look at big bill or big export players, and treat them fundamentally differently. David, thank you for that analysis. And thank you for those insights. Sir David Hunt, the CEO of PGIM. Appreciate it.