Perspectives des marchés mondiaux 2024

Martin Lefebvre

Hi everyone, I'm Martin Lefebvre, CIO and strategist for National Bank Investments. Welcome and thank you for tuning into our NBI Podcast series. As the calendar year is drawing to a close, our discussion today will focus on the outlook for 2024. And to do so, I'm joined by Jack Manley, Global Market Strategist at J.P. Morgan Asset Management. Jack, welcome and thank you for being with us.

Jack Manley

Thank you, Martin. It's great to be here.

Martin Lefebvre

Good. Jack, before we jump into the outlook for next year, can we quickly first turn the page on 2023? What were the big surprises for J.P. Morgan this year?

Jack Manley

I think it's a great way to start this conversation, Martin, and I think what's helpful here is to rewind the clock back to the start of 2023 and think about all the things that we thought were more or less guaranteed to happen by the end of this year. One of them was that a great number of macroeconomic strategists, a great number of fixed income strategists were convinced that the U.S. would already be in a recession at this point. And that as a result, the Federal Reserve would already be in cutting mode, that would of course have trickled down effects into other major economies, the trade linkages that the United States has with so many other places around the world. This worry that when the U.S. sneezes, the rest of the world catches a cold. The outlook, so to speak, for the back-hacking particular of 2023 from a growth perspective was not a very good one. And by extension, there was this assumption that rates would be moving down a whole lot faster than major central banks were telegraphic.

We were also looking sort of as a reflection of that, at this assumption that value stocks would be outperforming growth stocks. And that, of course, from where I sit here in New York, Martin, is very relevant for the U.S. equity market, right? Looking at value outperforming growth. But even if we were to zoom out a little bit and apply a global lens to that, there was this assumption that developed markets outside of the U.S. would probably outperform the United States, this year, as those growth differentials narrowed a little bit and central banks started to change their policy.

We were also looking at a China that was finally emerging from its zero COVID policy, right? The whole rest of the world had more or less moved on post-COVID, but China was doubling down on its initiatives to contain the virus all the way through the end of 2022. China is all of a sudden re-emerging at the beginning of 2023, and we're expecting growth there to be quite powerful, right? All this pent-up sort of cyclical demand getting unleashed, not just on the domestic Chinese economy but also on the global economy more broadly. And what's interesting about those things, right, that we just went through. is they all kind of made sense at the start of the year, and yet none of them ended up happening. The Chinese recovery, I think, has largely sputtered. A lot of that having to do with the pandemic, with what's going on with their housing market over there.

The U.S. economy is not only not in a recession but is in fact growing far above the long-term average sort of steady state growth rate. Third quarter GDP print came in at 4.9% annualized. That is not a recessionary print. The Fed did not start to cut interest rates. In fact, they continued to raise rates through July of this year, and it still left the door open for additional rate hikes before the year is up.

And as a result of all these things, right, U.S. equities, generally speaking, outperformed the rest of the world. Growth equities, generally speaking, outperformed the rest of value. You know, my, my kind of look back theme for 2023, Martin, is that investors need to expect the unexpected because all of this stuff that we thought was guaranteed to happen throughout the course of this year, the opposite is actually what came true.

Martin Lefebvre

Yeah, well, I guess now the big question is that are we only delaying the inevitable or are we forecasting or are we embarking in what the Fed is trying to engineer is that the perfect soft landing.

Okay, so we're going to turn now into the outlook for 2024. Of course, we're going to be talking about the bond market, where the Fed is at right now the recent equity market and of course opportunities. So let's start with the rate outlook for 2024.

And let's begin with the inflation forecast. We saw that inflation went up very fast in 2021 and 2022 to reach north of 9% only to decelerate even faster in 2023. So is the worst really behind us in your in your mind, Jack?

Jack Manley

I think the short answer to that question, Martín, is yes, the worst is behind us. And it is worth kind of poking apart a little bit the inflation outlook to figure out what the drivers are of inflation and more importantly, the drivers of recent disinflation that we've been experiencing really around the world. And again, I think it is helpful here to lean in particular on the U.S., if only because the U.S. cycle is so much more mature than most other developed markets around the world. We emerged from COVID a whole lot sooner than a lot of other places did. And as a result, all the dynamics that we're seeing play out in a global sense really started first in the U.S.

So when we think about inflation in particular, we saw headline CPI peak in June of last year, June of 2022, at 9.1%. And to put a little bit of historical context on that. That is the strongest inflation read that we had seen in the United States since January of 1981. We are talking about a four-decade high in inflation. By the time June of this year rolled around, that number had dropped from 9.1% to 3.0%, a lot more of a comfortable kind of familiar number, right? And that happened over the course of 12 months, not a particularly long period of time. And while that was happening, the decline in inflation, also known as disinflation, was very stable and predictable. Every print that was coming in was coming in softer, not just relative to that high watermark of 9.1%, but relative to the ones that had preceded it. So three was less than four, four less than four, two, et cetera, et cetera. There is a very clear downward line, a trend that had emerged in inflation. And this may be a somewhat controversial statement. I'm not exactly sure about that, but I would say that move from 9.1% to 3.0% had absolutely nothing to do with interest rate policy. Right? If you look at what was going on in June of last year with inflation, we are talking mostly about supply chain issues and by extension, scarcity, right? We are dealing with a war in Ukraine that is a whole lot more fresh and uncertain, both Russia and Ukraine to very large producers and exporters of commodity products, food and fuel. We don't know how we're going to get a hold of those things and prices spike accordingly. And as I mentioned a little bit earlier, China is still locked down with zero COVID. Any sort of finished good that makes its way through a Chinese manufacturing facility is going to get clogged up by that policy because output has just declined.

Martin Lefebvre

So is the Fed right to say that inflation was transitory in nature?

Jack Manley

Well, I mean, it depends what your definition of transitory actually is. I mean, if it's not if it's not forever, then yes, I mean, you could claim that it was transitory. But I think that the language around that was very misguided. Right. Because while the Fed has more or less gotten the inflation story right, it's taken a whole lot longer than they would have anticipated when they first started looking to normalize interest rates. And what we have seen happen, right, is those supply chain issues, they got themselves fixed. That's what always happens with supply chain issues. The nature of supply chain issues is that they get resolved. You build new pipelines, you build new container ships, you grow more food, whatever it may be. And over the course of that 12-month period, energy went from being inflationary to deflationary. Food went from being inflationary to somewhat neutral. Finished goods, vehicles in particular, went from being inflationary to deflationary. All of these things pushed CPI down from 9.1% to 3.0%.

And if we look at the more recent inflation reads we've gotten, there has been a bit of reflation rights and concern that inflation has come back. But again, so much of what's happened recently can be tied to supply chain issues. Once more, it's an energy story. Once more, it has to do with a shortage of stuff, OPEC+, Saudi Arabia in particular, Russia to some extent, either announcing new production cuts, extending existing production cuts, war in the Middle East, right? All of these things leading to a spike in energy prices that led to a spike in inflation, that's cooled off and inflation's cooled off.

And so if you're trying to figure out where inflation is going to go from here, I do think that this disinflationary trend that emerged over that 12-month period from June of last year to June of this year is still intact. And I think that if you and I were to have this conversation again this time next year, we would probably be looking at a CPI read in the United States that has a two handle on it and not a three, right? Something much more comfortable, much closer to the Fed's target. But I think that given that so much of inflation right now is being caused by supply chain problems and that the volatility in prices will come as a result of supply chain problems, we have to acknowledge that the road from here to there is going to be a lot more bumpy and a lot more uncertain, I think, by definition than what we had seen in the 12-months leading up to just a couple months ago.

Martin Lefebvre

Well, what about the demand side? I mean, if you see the resilience of the U.S. economy, that should have an effect. We talked a lot about wage growth recently and the correlation with services CPI. So what's your take on that?

Jack Manley

It should have an effect, Martin. I completely agree with you, but for whatever reason, it just doesn't seem to be having the kind of effect that you would expect given all of the fiscal stimulus that came out of the United States in the immediate aftermath of COVID. We printed $6 trillion U.S. dollars in roughly a 12-month time period, all of that going towards supplemental unemployment insurance, direct stimulus checks, forgivable loan programs, but we did not see $6 trillion worth of inflation. I mean, you saw some modest upward pressure on things like food prices, some of that again having to do with supply chain issues, some of that having to do with the fact that poor Americans can now afford to go out and buy a little bit more food and feed their families a little bit more effectively. But whenever we talk about fiscal stimulus, it is very important to figure out where the money goes, right. It is not just about the money supply itself, it's about who's actually holding on to those dollars. And the data very, clearly show you that lower income, lower wealth individuals have a much higher propensity to spend those extra dollars as they come in, then higher net worth, higher income individuals. And that's $6 trillion that we spent in the immediate after a month of COVID, disproportionately focused on those lower income individuals. One of the reasons we did see some demand driven inflation alongside the supply chain problems. I mean, you.

You can remove supply chain issues from the equation, Martin. You're still looking at CPI in June of last year at close to 5%. I mean, still an unusual number. There is a demand component in here for sure. But if we look at how the money has been spent over the last few years, there is still some extra cash sloshing around out there, but it does not seem to be in the pockets of those individuals that are actually going to go out and spend it on those traditional kinds of goods and services. So, all of this means to me that we are probably in a modestly different kind of new inflationary regime where we got very comfortable seeing 1.5% to 2% inflation kind of in perpetuity after the financial crisis. I think 2% to 3%, maybe 2.5% to 3%, is going to feel a whole lot more like the new normal as we look out through at least the rest of this cycle, maybe a little bit beyond that.

Martin Lefebvre

Alright, so if that happens, does the Fed want to wait and see and wait for that to happen before lowering rates or are we riding our expectations that probably the end of the monetary tightening cycle is ahead of us?

Jack Manley

Yeah, that's a fair question. And I would approach that a couple of different ways. The first one is to remember that the Fed has this 2% inflation target and has had that inflation target since the financial crisis. And in the 10+ years after the financial crisis, before COVID came around, the Fed was systematically unable to achieve its 2% inflation target. It almost always persistently undershot that 2% inflation target, which is one of the reasons why we had interest rates in the United States all the way down at 0%. But the Fed could have done more, right? I mean, look at other major developed market central banks around the world, whether it is the Bank of Japan, the European Central Bank, the Swiss Central Bank, right? These central banks taking rates into negative territory. These central banks embarking on yield curve control programs, right? The Fed could have done more to spur that additional inflation. It elected not to and was clearly willing to tolerate a modest but persistent undershoot to its target. There is no reason to think that looking forward that the Fed would not be willing to tolerate a modest but persistent overshoot to its target, right? It still claims 2% as kind of the gold standard, but maybe we hit 2.5%, maybe 2.75%, maybe that's good enough. I think that's an important lesson that we can take away from what happened after the financial crisis, that the 2% number is not the magic number that all of a sudden forces the Fed to flip the switch.

But the other thing here, Martijn, that's important to remember is that while I don't think the Fed has done a very good job of managing monetary policy, they have been very honest about how they were going to manage monetary policy. And one of the only things that they have said consistently since this rate hiking cycle began in the first quarter of last year is that wherever they take interest rates, is not where they're going to hold interest rates forever. They're deliberately going to take rates up into restrictive territory to push prices or push inflation, I should say, lower.

Once that has been achieved, they can then start to lower those rates. And the dot plot, which they publish on a quarterly basis, has told us that time and time again, expect rate cuts in 2024. Powell himself, very unambiguously back in July, told us that he is not looking for 2% inflation before he starts to move with a rate cutting program. So, you know, sort of regardless of the inflation outlook over the next 12 months, unless we see something meaningful sort of depart from what we are expecting right now, right, if CPI were to head up to 5% or 6%, okay, that's a different story. But from where we are right now, even with the bumps in the road, I still think we can be confident, in those rate cuts next year (2024). The problem though is that the timing of those rate cuts is a question and how many rate cuts there are going to be is a question. I think there is a lot of irrational exuberance to borrow a term that has been used in the past when it comes to thinking about rates that, January is when the first cuts coming and we're looking at a hundred basis points of cuts, that I'm not quite as confident in. So we gotta be cautious about the outlook for rates. But I do think that we should expect to see them move lower in ‘24.

Martin Lefebvre

In 2024. All right, interesting. We talked about the U.S. resilience at the beginning of the discussion, and we know that monetary policy works with long and variable lags. So, are we just delaying the inevitable or is the Fed and other central banks around the world really in a position where this time around they're going to gauge it right and stop at the right moment and engineer a soft landing as everyone is expecting?

Jack Manley

This is the trillion-dollar question, Martin, right? Are we actually able to achieve this soft landing?

Martin Lefebvre

Because it's never happened historically, right? Every time they raise interest rates, they go too far and they kind of...

Jack Manley

So it's all about timing because every time you've gotten a recession in the United States, it has been caused at least in part by interest rates moving too high too quickly by an overzealous Federal Reserve. But we have had a couple of instances of soft landings actually. 1994's rate hiking cycle, you did not see a recession for another five or six years. I believe in the mid-1980s, the ‘83 to ‘84 rate hiking cycle, you didn't see a recession until the late 80s, early 90s.

There are a couple of instances of a soft landing actually having been achieved. Um, but what we have to remember, right, kind of the baseline here when it comes to the macro assessment is that unless you think that business cycles are dead, a recession is inevitable, right? It is going to happen. The timing of it is still a question. Um, but, but the, it's not so much a question of if as much more a question of when.

Now, I think you could push back on that argument a little bit. And I always like to think about where the U.S. economy was leading up to COVID, right? We have 2% or so steady growth. We have 2% or so steady inflation. We have 2% or so steady interest rates. No real obvious macroeconomic bubbles, no massive cyclical impulses, either positive or negative impacting the economy. Who is to say that a highly mature, a consumption driven services-oriented economy cannot just trot on forever at 2% growth, 2% inflation and 2% interest rates. Normally, the reason you see a big recession is because you have a big boom that precedes a big bust. That's what defines these cycles. If modern, mature economies are not seeing those same booms, then you shouldn't expect the busts that have typically, sort of, followed them.

So I do think it is possible that we avoid a recession in 2024. But I don't think it's going to have anything to do again with the Fed. I think that this is just an extraordinarily resilient consumer here in this country that is willing to walk through a lot of the pain that is willing to tolerate these higher borrowing costs. Black Friday in the United States just passed by, it was another record breaking figure, at least in dollars spent. We do keep on spending, right? And we are the engine of growth and a tightness in the labor market only helps to encourage that strength in the consumer. So I do think it is possible that we avoid recession in 2024, but I would not chalk it up to a masterpiece performance by the Federal Reserve. I think it's in spite of monetary policy, in fact.

Martin Lefebvre

Yeah, Bob Michael, which you know very well, was reminding us lately that Americans tend to buy things that they don't need with money they don't have. Is that where the resilience is coming from?

Jack Manley

Some of it, my time, we talk about it sort of tongue in cheek, but retail therapy is a very real thing in this country. And when people don't feel good, they go out and buy a new TV, you know, worry about it some other time. And that is exactly what we saw happen. Black Friday today is Cyber Monday when we're having this conversation. You know, expect more consumption for better or for worse, right, but expect it.

Martin Lefebvre

What about excess savings? It seems that a lot of the pent up demand in 2023 was based on that. Is it, are Americans out of ammo or what's next in terms of spending in the?

Jack Manley

So it's great timing for this question because not too long ago there was a very significant revision to the excess savings metrics that are published by Treasury and used by the Federal Reserve. And what ended up happening is the baseline for the savings rate was actually revised lower, historically speaking, meaning that, historically speaking, Americans saved less of what they were earning than what we had initially anticipated. COVID rolls around. And not only do you have this massive influx of all this cash, right, from those programs that you and I spoke about a few moments ago, but you also have to remember, I mean, I don't like to look back on 2020, right? Dark days in our past. But if you think about what COVID was really like in the depths of the pandemic in 2020, you had nothing to spend money on, right? All the restaurants are closed. You're not going on vacation anywhere, right? Maybe you spend some money to buy a new TV, you buy a new desk, you get your new work from home set up going, but that sort of repeatable consumption just doesn't really happen in COVID. So you're getting all this money and you're saving all of this money. And you see the savings rate just spike, right? Shoot through the roof and end up at the highest level we have ever seen, resulting in a whole lot of cash kind of sloshing around in bank accounts. Now that number has been drawn lower, of course, as we have spent it, put it into the real economy over the last few years. But critically, because the baseline expectation for that savings rate was revised lower, the actual amount of excess savings still left in consumers' wallets looks bigger than it did just a few months ago. We thought there were only a couple hundred billion dollars left to spend. Now we're looking at north of a trillion dollars left to spend.

But again, I think this comes back right, Martin, to our conversation about inflation. You know, of course, all this excess demand led to some inflation in 2022, and certainly in parts of 2023, but not all of this inflation. And so if all of this excess cash out there, net has more of an impact on growth than it does on prices. I think we can interpret all of this extra money that we seemingly kind of found underneath the sofa cushions, right, as being a positive for consumption and by extension GDP growth in 2024, but not particularly harmful to the inflation outlook. Again, maybe structurally somewhat hotter inflation, 2.5%, 3%, but I would not expect all this extra money to all of a sudden cause inflation to spike significantly higher, if only because it didn't really do that when we were drawing it down over the course of last year.

Martin Lefebvre

Interesting. All right, so time is flying by Jack, so let's talk about equities. There was a huge equity rally just recently. I mean, equities were down in March of this year in the midst of this, let's call it, the regional banks crisis, but the Fed was fast in its approach and it's sort of a…, it was done deal in no time. And then we had the tensions in the Middle East, and suddenly, I guess equities were expensive, and there was sort of a pullback that lasted from mid-July all the way into late October. And then all of a sudden, the market was a huge melt up and a big reversal. And you said that there's no need to have a recession. Cycles can last longer than we think. So is this a bear market rally, or really is this the beginning of a new cycle? Where do you see equities going from this point on?

Jack Manley

So, I am cautiously optimistic on where the market is right now, Martin, because I think, first of all, from an earnings perspective, corporate America has proven that it has been able to defend pricing power a lot more effectively than we would have expected. And the fact that top line growth, GDP growth is a lot better than initially anticipated is fueling through into an earnings story that I don't think anybody would have really anticipated at the start of this year. And so that is, of course, one of the things that is helping to drive equities higher.

But the much bigger, much more important driver of equity returns over the last 12 months has been multiple expansion. We were looking at an S&P 500 that bottomed out in October of 2022 at just around $3,500 trading at just north of 15 and a half times for earnings, which is significantly below the index's long-term average for valuations. People were looking at those multiples and saying, “This is a fire sale, right? It's so darn cheap. I don't care if it gets any cheaper. If I only believe in mean reversion, I know I'm gonna make some quick, easy money on this.” And if you put your money to work in October of last year, fell asleep and woke up this morning, you'd be a very happy camper, right? I mean, you're up around a thousand points from where we were back then. You know, the math on that shakes out to 20, 25% returns off of those lows.

But what has happened alongside those returns is yes, the earnings expectations have done a bit better than we were initially calling for, but multiples have exploded. We went from trading at 15 and a half times forward earnings to closing in on 20 times forward earnings. This is not a cheap market. This market is not on sale. Valuations are not our friend anymore. They have in fact very quickly become our foes. But you also have to acknowledge that the recovery that we've seen over the last 12 months has not been a broad recovery. It's been a very narrow recovery. It's been focused in a very small handful of growth, growthy names, tech adjacent names that have benefited from.

Martin Lefebvre

The Magnificent Seven, they call them.

Jack Manley

The Magnificent Seven. I love that term. It's certainly very catchy, right? And you think about like what's driving the returns of some of these names. And there are just sort of themes that have emerged over the course of this year. And as we look into next year, they're helping to shape equity market performance. The biggest one by far, is this assumption that the Fed's done cutting interest rates, right? Because when it comes to the equity market, it is not so much the level of interest rates as it is the rate of change and the direction of travel. And as we talked about earlier, I would guess that most of the pain, the overwhelming majority of the pain from a rate perspective is now very far behind us. And as rates start to move lower, growth assets disproportionately benefit from that more benign interest rate environment. So you see a bit of a pop there.

Martin Lefebvre

But that makes the question, Jack. Are rate cuts really good for equities? It seems historically whenever the Fed is inclined to lower interest rates, it's because economic growth is slowing down. If inflation is going back to 2% and the U.S. economy remains very robust or resilient, to say the least, why would they cut rates? If they have to cut rates, it's because the economy is going to be slowing down to a point where the unemployment rate is going up and whenever that happens, then usually it leads to a recession and then earnings is going to be worse than we expect. So how much of that is already factored in?

Jack Manley

I think you are describing very neatly right there a shift that we have seen happen at a fundamental level in the nature of the equity market in the United States, because historically speaking you are absolutely right. If the Fed is raising interest rates, it is a reflection of an economy that no longer needs training wheels that can afford to kind of stand on its own two feet and higher rates were generally speaking good news for the equity market and of course bad news for bonds. By contrast, right, rates are coming down because of a recession growth is slowing Why would that be good for stocks?

The reality is that the U.S. market has over the last 20 years become heavily concentrated with technology and tech Adjacent names and what I mean by tech adjacent names here Martin is that there are some names out there I won't mention them, but there are household names right where you may shop online or stream your favorite TV show Or do a quick kind of search for something that you're looking for on the internet, right? Those are not actually technology names or even drive a car, right? Or a car that will drive you. You know, these are not technology names. These are, these are consumer discretionary names, their communication services names, their industrial names that have benefited from technology. But the point, right, is that so much of us market capitalization is focused in on technology.

And strangely enough, technology has become a defensive asset and it's become a defensive asset for a couple of reasons. I mean, you're going to keep on doing those searches online. You're going to still have a social media profile. You're probably going to still be paying for at least one of these streaming services. The earnings power behind some of these very large technology names, very large growthy names, suggests that they have become somewhat defensive. But also, if you're looking at a more speculative approach towards equity market investing, I mean, hey, the reality is that lower interest rates are better for speculation because the cost of borrowing comes down, which means you have more time to actually become profitable. And if you are one of these companies that's just throwing stuff at a dartboard and seeing what sticks, and by extension, you're one of these investors that's just throwing stuff at a dartboard and seeing what sticks, lower interest rates are net-net better for long-term growth potential. And that's why we've seen the shift occur in the equity market, where even though rates may fall in response to a cooling economy, which historically speaking, wouldn't be good for stocks, it will be good for those more defensive assets or even those more speculative assets that hinge on very low borrowing costs.

Martin Lefebvre

I think you're absolutely right. And you also mentioned growth stocks and tech stocks. And we remember that it took a few years for the internet to have a huge impact on productivity. What about artificial intelligence? What's your, how should we think about that?

Jack Manley

So I'm glad you drew the parallel to the internet, Martin, because that's exactly how I think about this too. And when I'm having conversations about artificial intelligence, I think it is very important to divide the landscape into the tech makers and the tech takers. The tech makers here being the companies that are actually developing the infrastructure, and in some cases, like with the early days of the internet, laying literally the pipe on, right, to connect all of these different entities. The tech takers are those companies that then use that technology to either create an entirely unheard of before business model, like streaming, right, or take an existing business model and revolutionize it, like e-commerce. And if you think about the winners of the early days of the internet, it was those tech makers. And a lot of those names are still around right now, but they are not nearly as valuable, as the streaming giants, as the social media giants, as the search engine giants, the tech takers very clearly were able to outperform.

And I think you're gonna see something very similar in artificial intelligence. I mean, this is brand new uncharted territory, Martin. We've seen some really interesting developments, some fun toys that you can kind of play around with around the dinner table. And we've certainly seen some companies use AI to improve productivity on the margin. But AI, I think, has the potential to enormously transform our world over the next 10 to 15 years in the way that the internet did 20 or 30 years ago. But there are big legislative hurdles that have to be surpassed before we get there. There are technological hurdles. There are geopolitical hurdles that have to be surpassed before we get there. So it's okay to be excited about artificial intelligence, but it is risky, I think, to put all your eggs in one or two baskets, right? Because not only has perhaps a lot of this future growth already been pulled forward into current prices, but there's a very good chance that 10 to 15 years from now, the real winners of the artificial intelligence space may not even exist today. And so you have to be very nimble, very tactical, very active when it comes to approaching artificial intelligence investing, just because there is so much creative destruction happening right now in that space. And new companies, I'm sure, will be cropping up like weeds over the next 10 to 15 years.

Martin Lefebvre

Jack, I feel like we can have this discussion going for hours but let's wrap it up with your favourite trade for 2024.

Jack Manley

My favourite trade for 2024, I can't believe I'm saying this, Martin, as a young man in the industry, is high quality intermediate duration fixed income. When I say high quality, I mean investment-grade or better, so you can include corporates in addition to treasuries. When I say intermediate duration fixed income, I mean three to six years, something close to or a little bit south of the duration that you see in the Bloomberg U.S. aggregate, which as a reminder is kind of the fixed income equivalent of the S&P 500. This to me just feels like an absolute slam dunk because we know the Fed is going to start to cut rates at some point next year. And while we wait for it to do so, you are clipping a better coupon on a fixed income instrument that you've seen in 20 years. You could be looking at base case 5%, 6%, upside case of 15% to 20% in terms of returns over the next few years from some of these instruments with very, very little risk and volatility associated with them historically speaking. So it's a boring answer. I never thought I'd be a bomb guy. And if we were to have this conversation again in a couple of years, I probably won't be a bomb guy anymore. But for right now, that is probably my highest conviction single play at the moment.

Martin Lefebvre

All right, so I guess cash is not king anymore.

Jack Manley

Not anymore.

Martin Lefebvre

All right, this is all the time we had for this podcast. Once again, I was joined by Jack Manley, Global Market Strategist at JP Morgan Asset Management. Thank you very much, Jack, for your participation in this podcast.

Jack Manley

Thank you for having me, it was a pleasure.

Martin Lefebvre

And everyone else, thank you very much for tuning in and tuning into this podcast and we'll talk again next month.