Opimas CEO Octavio Marenzi joins Yahoo Finance Live to discuss inflation expectations, the impact of the Russia-Ukraine war on global financial markets, and how investors should go into 2023.

Video Transcript

- We've got about 15 minutes to go until the closing bell. And you're looking at losses once again, with equities moving lower on the final trading day of the year. You look at the Dow off 263 points. For more on the markets losses, we want to bring in Octavio Marenzi, Opimas CEO. Octavio, great to have you. I think we got the audio worked out here, so let's try all of this again.

Because we are coming off what has been a brutal several months for the market, investors looking ahead to 2023. Is it going to get any better?

OCTAVIO MARENZI: I'm afraid I'm going to be a harbinger of bad news. I really don't see what's going to change or what's going to be fundamentally different. I mean, the story in 2022 was basically the Fed hiking interest rates and killing off and choking off the equities markets and the bond markets and, by implication, a bunch of other markets in the process as well.

Inflation pressures are still there. The Fed is still going to increase interest rates further. They're not even close to their target inflation rate. I'd [? think ?] more interest rate hikes are coming. The market consensus seems to be we're going to hit about 5% in 2023. I think that's mindlessly optimistic. They're going to have to go much further than that. I don't believe the peak interest rate is only 75 basis points away-- if you look at where inflation is. So I think there's more pain to come in 2023. I think we're going to basically see a replay of 2022, the same kind of pressures, the same direction.

- And, Octavio, it was about a month or a month in a half into 2022, the current year, that we saw-- kind of out of the blue for most people-- a war emerge between the Ukraine and Russia. And I'm just wondering-- I'm reading through your notes here-- you think there is a chance for escalation, re-escalation again at the beginning of this new year.

OCTAVIO MARENZI: Well, I think the Russians have pulled up a very large army now and have put about half a million men right along the border along Ukraine. I imagine they're there to do something. And unfortunately, I suspect-- and a bunch of military analysts are looking at it. I'm not a military analyst-- but basically looking at it and saying they're probably waiting for the ground to freeze, when their tanks can roll over that Ukrainian mud, which, otherwise, the tanks would get stuck in.

Now, the weather's been unseasonably warm in Ukraine. Usually, [? they ?] would have frozen the ground by now. It hasn't. It's pretty warm. It's pretty muddy, especially wet. So they're going to wait for January, February, when the ground really freezes, like they did last year, and then roll in. And they've amassed this huge army that's going to do that. I'm afraid it looks like it's going to be bad.

But we'll see, I think, the same impact on commodities markets and bond and equity markets as we saw in February of 2022 as that escalates again. And I think, unfortunately, that's what's in the cards for us in the next couple of weeks and months.

- And, Octavio, with investors out there trying to figure out what they should do with their portfolio at this point, what are you advising your clients?

OCTAVIO MARENZI: Well, basically, I mean, it depends on the risk profile of what the clients are looking to do and achieve. But I think by and large, we advise people to sort of sit on the sidelines and hold as much cash as possible and then wait for the central banks to reverse policies and pivot into a different direction, start to say we're going to start to decrease interest rates again and up the markets that way.

But I don't see that as being close. I think all the indications are the central banks around the world are moving more into a direction of more aggressively increasing interest rates. Now, we've seen the Fed sort of lead the charge there over the course of the past year. The European Central Bank has started to gain some momentum there and feeling inflationary pressures as well. The Bank of England has been in that direction as well.

And finally, most, recently the Bank of Japan has been a very, very dovish central bank, is making the turn as well, in terms of higher interest rates. So this seems to be sort of a coordinated effort, except for the Bank of China. All the others seem to be moving in the direction of higher interest rates. And that's going to choke off markets around the world.

- All right. Octavio Marenzi, always great to have you. Thanks so much for breaking down the latest on the markets for us.