WEBVTT - BOJ Decision Speculation, APAC Markets 0:00:00.120 --> 0:00:10.040 Bloomberg Audio Studios, podcasts, radio news. This is the. 0:00:10.000 --> 0:00:13.440 Bloomberg Daybreak Asia podcast. I'm Doug Krisner. You can join 0:00:13.480 --> 0:00:16.239 Brian Curtis and myself for the stories, making news and 0:00:16.320 --> 0:00:19.439 moving markets in the Apec region. You can subscribe to 0:00:19.480 --> 0:00:22.200 the show anywhere you get your podcast and always on 0:00:22.239 --> 0:00:26.120 Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app. 0:00:30.080 --> 0:00:34.280 Paul Dobson joins us Bloomberg Executive Editor for Asia Markets. 0:00:34.600 --> 0:00:36.480 Paul. The Bank of Japan meeting tomorrow. 0:00:36.840 --> 0:00:40.760 Ninety percent of BOJ watchers apparently see the risk of 0:00:40.800 --> 0:00:44.120 authorities ending the negative interest rate campaign. But we did 0:00:44.159 --> 0:00:46.800 hear from the NIKE that perhaps they would stay steady 0:00:46.800 --> 0:00:49.360 on the bond buying program. And we don't know exactly 0:00:49.440 --> 0:00:52.000 what might happen with the purchase of ETFs, but it 0:00:52.000 --> 0:00:53.640 seems like we're almost set up now for a little 0:00:53.680 --> 0:00:57.160 bit of disappointment, even though the BOJ is finally going 0:00:57.200 --> 0:00:57.640 to act. 0:00:57.880 --> 0:01:00.240 How do you see things? What are you hearing from investors? Yeah? 0:01:00.240 --> 0:01:01.800 Well, and I think that there would be the perfect 0:01:01.840 --> 0:01:04.200 scenario for the BOJ in for awad or if in 0:01:04.280 --> 0:01:07.240 the end it's so well telegraphed that there's no surprise 0:01:07.319 --> 0:01:11.280 in the market belly ripples at all once we finally 0:01:11.319 --> 0:01:15.280 get there. You know, I think that there's a lot 0:01:15.319 --> 0:01:18.360 of certainty now that the door is wide open for 0:01:18.440 --> 0:01:21.959 them to act this week or send an extremely clear 0:01:22.000 --> 0:01:25.840 signal that they're going to be doing some big changes 0:01:26.160 --> 0:01:29.759 pretty soon. It feels like the equities market is relatively 0:01:29.800 --> 0:01:33.280 confident it can continue to hold its ground even without 0:01:33.319 --> 0:01:36.800 the backstop of BOJ purchases of ETFs. What market will 0:01:36.800 --> 0:01:40.960 be more interesting If the BOJ does stay, they're preventing 0:01:41.160 --> 0:01:43.360 too heavy a sell off as well than that, we 0:01:43.480 --> 0:01:47.280 you know, we'll limit the volatility of the en perhaps 0:01:47.319 --> 0:01:50.240 as well, I suppose if you're talking about disappointment. Disappointment 0:01:50.280 --> 0:01:53.080 maybe for people who were bullish on the end thought 0:01:53.120 --> 0:01:55.800 this would be the thing that would cause a recovery. 0:01:57.200 --> 0:01:57.400 You know. 0:01:57.440 --> 0:01:59.000 On the flip side of that, you've got the super 0:01:59.000 --> 0:02:01.440 strong dollar and the super strong US economy. So if 0:02:01.440 --> 0:02:03.760 you're looking at it from that sort of perspective, it 0:02:03.840 --> 0:02:05.880 is quite difficult at the moment for the end to 0:02:05.920 --> 0:02:07.080 gain a great deal of ground. 0:02:07.840 --> 0:02:11.040 Do you think that it was the wage information that 0:02:11.120 --> 0:02:14.359 we had Friday from the largest umbrella group of trade 0:02:14.440 --> 0:02:18.239 unions in Japan that kind of was created the tipping 0:02:18.280 --> 0:02:19.960 point here, or do you think that there was just 0:02:20.000 --> 0:02:24.200 a preponderance of data that was, you know, even before 0:02:24.320 --> 0:02:27.320 that wage data came, that was kind of indicating that 0:02:27.360 --> 0:02:28.919 it was time for the BOJ to move. 0:02:29.400 --> 0:02:32.360 Yeah, the Bank of Japan was pretty explicit that it 0:02:32.520 --> 0:02:37.080 wanted to see that second year of positive wage growth. 0:02:37.320 --> 0:02:39.079 And so really the I think the numbers that we 0:02:39.120 --> 0:02:41.840 had on Friday with a clincher for that, right, they 0:02:41.880 --> 0:02:45.080 were better than last year. They were better than perhaps 0:02:45.400 --> 0:02:47.880 some of the expectations that had been there as well, 0:02:48.760 --> 0:02:51.480 and so that really drives home the idea that inflation 0:02:51.600 --> 0:02:54.799 is starting to seep itself into the mindset of the 0:02:54.880 --> 0:02:59.720 Japanese population, that they're ready for a cycle of inflation 0:03:00.280 --> 0:03:03.600 and can therefore tolerate slightly higher interest rates as well. 0:03:03.639 --> 0:03:05.680 So it's a green light for the BOJ. They will 0:03:05.720 --> 0:03:08.799 be super encouraged and super happy with that. Now they've 0:03:08.840 --> 0:03:11.720 just got to, you know, manage those expectations very carefully, 0:03:11.760 --> 0:03:14.000 because it's taken so long for us to get here. 0:03:14.400 --> 0:03:17.800 Once they get off the grounds, you know, can they 0:03:17.880 --> 0:03:20.840 continue to raise interest rates with confidence? So they're going 0:03:20.919 --> 0:03:23.200 to have to be very careful. How far can they 0:03:23.240 --> 0:03:25.440 get it? Probably they would like to be able to 0:03:25.440 --> 0:03:27.480 put in a couple of hikes so that you know, 0:03:27.520 --> 0:03:29.960 there's room to cut again if the economy or the 0:03:30.000 --> 0:03:32.080 inflation ouder does start to sour again. 0:03:32.880 --> 0:03:36.880 Well, speaking about setting expectations, we'll have John Powell speaking again, 0:03:37.360 --> 0:03:39.920 and a lot of investors will be interesting to see 0:03:39.960 --> 0:03:43.360 how the Fed adjusts its policy with the with the 0:03:43.400 --> 0:03:46.720 dot plots and such, interest rate swaps now looking at 0:03:46.920 --> 0:03:49.640 fewer than three quarter point cuts this year. At one 0:03:49.640 --> 0:03:52.720 point we thought there would be six, and so there's 0:03:52.720 --> 0:03:54.720 been a little bit of turbulence on that front. What 0:03:54.760 --> 0:03:56.280 do you think Powell will say this week? What will 0:03:56.320 --> 0:03:56.880 his tone be? 0:03:57.680 --> 0:03:59.840 I could have just be so careful to get this 0:04:00.240 --> 0:04:01.920 at the moment. I think that we have a really 0:04:01.960 --> 0:04:04.320 good quote in one of our stories about the bond 0:04:04.400 --> 0:04:07.160 market saying the Fed is desperate to start cutting interest rates, 0:04:07.200 --> 0:04:09.080 but the data just isn't allowing it to do so 0:04:09.160 --> 0:04:10.600 at the moment, you know, and. 0:04:10.520 --> 0:04:11.200 You can't. 0:04:12.480 --> 0:04:16.880 Continue arguing forever the you know, the time for cutting 0:04:17.000 --> 0:04:20.400 is nigh when you're seeing these very strong inflation numbers still, 0:04:20.480 --> 0:04:24.120 So I guess power will will want to project the 0:04:24.160 --> 0:04:26.720 idea that the economy is doing well, but that at 0:04:26.760 --> 0:04:30.880 some point, with our policy being restrictive in the Fed's view, 0:04:30.960 --> 0:04:33.800 then there will be room to start cutting again. And 0:04:33.920 --> 0:04:37.760 you know, hopefully from his perspective, inflation does start to call. 0:04:38.040 --> 0:04:40.200 But on the other hand, you know, it's hard to 0:04:40.240 --> 0:04:43.400 see is policy really restrictive at these rates. You know, 0:04:43.480 --> 0:04:47.640 it doesn't seem to be slowing slowing the economy particularly, 0:04:47.680 --> 0:04:49.880 doesn't seem to be calling inflation all that much either. 0:04:49.960 --> 0:04:52.520 So at some point they're going to be louder questions 0:04:52.520 --> 0:04:54.600 about whether, you know, the FED needs to either keep 0:04:54.680 --> 0:04:58.719 rates higher for longer or even consider moving them moving 0:04:58.760 --> 0:05:00.040 them up further again. 0:05:00.400 --> 0:05:02.440 Paul, in the time we have left, we can talk 0:05:02.480 --> 0:05:04.960 a little bit about China because we've got the monthly 0:05:05.080 --> 0:05:09.360 activity data coming around the corner here. Particularly interesting will 0:05:09.400 --> 0:05:12.880 be retail sales and industrial output. Do you have a 0:05:12.920 --> 0:05:14.440 sense of what the data may show. 0:05:15.320 --> 0:05:18.479 My perspective on China at the moment is just look 0:05:18.480 --> 0:05:21.919 at the yields on the longer maturity bonds. You know, 0:05:21.960 --> 0:05:25.840 they're really pricing now a lower for longer environment, a 0:05:26.080 --> 0:05:29.760 slow down in the economy. That deflationary mindset sort of 0:05:29.800 --> 0:05:33.599 really proving hard to shift, So not sure about what 0:05:33.680 --> 0:05:36.640 the individual data will show. Maybe they'll brighten a little bit. 0:05:36.680 --> 0:05:38.800 We had some better exports and stuff like that, but 0:05:38.839 --> 0:05:41.160 the longer term outlook is not you know, a V 0:05:41.200 --> 0:05:43.479 shape rebound or anything like that. At the moment is 0:05:44.279 --> 0:05:47.159 there's still plenty of reasons to be pretty pessimistic about it. 0:05:47.800 --> 0:05:51.000 So China stays down, the US stays up. That could 0:05:51.080 --> 0:05:55.000 be quite roiling over the next little period. Just a 0:05:55.040 --> 0:05:58.119 quick question, I mean, is it possible that we see 0:05:58.200 --> 0:06:01.279 inflation stay entrenched mainly becase because people keep their jobs 0:06:01.279 --> 0:06:03.760 and that that is pretty well entrenched now in the US. 0:06:04.360 --> 0:06:08.400 Yeah, that's definitely. That's definitely a major factor of it. Yeah, 0:06:08.560 --> 0:06:12.920 unemployment is is still super low as well. Wage growth 0:06:13.040 --> 0:06:16.160 is fine as well, So on ongoes that cycle. I mean, 0:06:16.200 --> 0:06:17.520 it just looks great at the moment. 0:06:17.720 --> 0:06:21.679 Yeah, absolutely, And you know, you know talking about waiting 0:06:21.680 --> 0:06:24.359 on godoh well, waiting on the lag defect. 0:06:24.360 --> 0:06:26.520 Where is that lag defect? We're not seeing it at 0:06:26.560 --> 0:06:26.919 the moment. 0:06:27.000 --> 0:06:30.040 Paul Dobson is with US Bloomberg, Executive editor for Asian Markets. 0:06:30.080 --> 0:06:30.960 This is Bloomberg. 0:06:49.920 --> 0:06:53.640 Our guest is Jeanette Garrity, managing director and chief economist 0:06:53.720 --> 0:06:57.080 at Robertson Stevens with us to take a closer look 0:06:57.400 --> 0:07:00.279 at markets. Well, we can talk about We had a 0:07:00.279 --> 0:07:02.680 guest on earlier saying that the equity risk premium was 0:07:02.720 --> 0:07:05.400 way too low at the moment and there's just too 0:07:05.480 --> 0:07:09.560 much optimism in equity markets. Of course, it has been 0:07:10.120 --> 0:07:12.880 a successful strategy over the past four or five months 0:07:13.320 --> 0:07:15.880 and investors have stuck with it, but that doesn't mean 0:07:16.040 --> 0:07:18.880 it will continue in the future. So Jennett, I know 0:07:18.960 --> 0:07:21.840 you're an economist and you probably don't focus as much 0:07:21.880 --> 0:07:25.040 on equity markets as you do on the. 0:07:24.960 --> 0:07:27.480 Broader macro picture. But does he have a point? 0:07:31.160 --> 0:07:34.240 Yeah, he does have a point in this sense. I think, look, 0:07:34.240 --> 0:07:36.760 and I'm optimistic for reasons. We can discuss in a 0:07:36.800 --> 0:07:42.360 little bit about, you know, why equities are a sensible play. 0:07:43.000 --> 0:07:45.040 I think it has a lot to do with where 0:07:45.160 --> 0:07:49.480 I see the economic cycle right now. But there is 0:07:49.960 --> 0:07:53.200 a lot of optimism in the sense that people not 0:07:53.320 --> 0:07:56.320 thinking that something can still go wrong. That's the kind 0:07:56.360 --> 0:07:59.560 of optimism that makes me uncomfortable. There is an offlock 0:07:59.640 --> 0:08:05.200 going on in this economy. There's still still stuff to 0:08:05.280 --> 0:08:10.880 play out from the Fed policies of the last year 0:08:11.000 --> 0:08:14.080 year and a half. Interest rates are still relatively high, 0:08:14.760 --> 0:08:17.480 not the full effect of that has not yet been felt, 0:08:18.000 --> 0:08:24.440 and consumers are always, you know, a question, are they 0:08:24.440 --> 0:08:26.480 going to surprise you? They could surprise us in the 0:08:26.600 --> 0:08:30.240 next couple of months. So I'm optimistic over the long term. 0:08:30.280 --> 0:08:34.240 But I think this general sense, like, hey, we've got 0:08:34.240 --> 0:08:37.320 a soft landing, there are no problems off to the races. 0:08:37.600 --> 0:08:39.880 I think we need to be more considered about that. 0:08:40.040 --> 0:08:43.480 So, Jeannette, where is commercial real estate on your list 0:08:43.559 --> 0:08:46.080 of potential problems? 0:08:47.600 --> 0:08:50.520 Commercial real estate is always on a list of potential problems, 0:08:50.559 --> 0:08:53.480 you know, And what do we really mean. It's a 0:08:53.600 --> 0:08:57.080 huge market. There are so many different facets of it. 0:08:57.080 --> 0:09:02.600 There are so many different geographies too to address. I'll 0:09:02.640 --> 0:09:06.360 tell you where this really comes home to roost is 0:09:06.440 --> 0:09:09.600 really not so much just in the commercial real estate side, 0:09:09.640 --> 0:09:14.319 but on the regional banks and financial system at large. 0:09:15.440 --> 0:09:21.040 There's no indication that this is not a manageable issue, 0:09:21.559 --> 0:09:26.680 but the fact that there's still properties that are under 0:09:27.360 --> 0:09:31.679 stress because of interest rates and possibly difficult in getting 0:09:31.760 --> 0:09:35.439 difficulties in getting refinanced, and that means stress for bankers, 0:09:36.040 --> 0:09:40.160 stress for bankers is not a happy situation. Stressful bankers 0:09:40.200 --> 0:09:44.640 are sometimes then not happy in giving loans to other people. So, 0:09:45.040 --> 0:09:48.959 you know, I think there's still more of that to come. 0:09:49.520 --> 0:09:53.079 The blessing has been the refinancing cycle, and commercial real 0:09:53.200 --> 0:09:55.319 estate is a very long one, meaning there's a lot 0:09:55.320 --> 0:10:02.480 of different properties coming up for refinancing at different times, 0:10:02.520 --> 0:10:04.880 and so it stretches out the problem, but it also 0:10:04.920 --> 0:10:06.040 makes it more manageable. 0:10:07.240 --> 0:10:09.920 Yeah, the question of whether or not it's manageable is 0:10:10.000 --> 0:10:13.520 big because you have Jay Powell and also Janet Yellen 0:10:13.640 --> 0:10:16.439 both coming out and saying, look, there will be issues, 0:10:16.480 --> 0:10:20.680 but there will be individual issues to those regional banks. 0:10:21.320 --> 0:10:24.040 It's not a systemic issue. Now most of us, you know, 0:10:24.240 --> 0:10:27.640 take the word of leaders like J Powell and Janet Yellen. 0:10:28.080 --> 0:10:30.640 But a lot of this, you know, has been kind 0:10:30.640 --> 0:10:33.440 of baked on or baked into the idea that we'd 0:10:33.440 --> 0:10:36.280 get we'd get lower interest rates later this year, it 0:10:36.320 --> 0:10:39.120 would be a little easier to refinance. But now that's changing. 0:10:39.559 --> 0:10:41.400 So do we have to change our view and our 0:10:41.440 --> 0:10:42.559 confidence in the leaders? 0:10:43.840 --> 0:10:48.360 Well, no, I think the messaging delivered by Janet Yellen 0:10:48.440 --> 0:10:52.120 and J Powell is the correct one. You can think 0:10:52.280 --> 0:10:56.679 back to times like after the Great Financial Crisis of 0:10:56.880 --> 0:10:59.600 eight and nine, and there were expectations at that time 0:10:59.640 --> 0:11:01.960 the career social real estate would be the next problem, 0:11:02.400 --> 0:11:06.679 and it really didn't unfold that way. And you know, 0:11:07.040 --> 0:11:11.199 reserve requirements are much more aggressively managed right now. The 0:11:11.600 --> 0:11:14.840 solvency of the system has been much more aggressively managed 0:11:14.880 --> 0:11:17.800 since that time. So I think that all comes together 0:11:17.920 --> 0:11:20.920 to say, yes, you know, I think there is not 0:11:21.640 --> 0:11:24.480 I do not think that there's anything indicating that there's 0:11:24.520 --> 0:11:28.840 a systemic problem at all, but it can those losses 0:11:28.960 --> 0:11:33.120 can provide a chill, you know, when they hit, particularly 0:11:33.200 --> 0:11:37.640 it for regional banks. It can change the overall appetite 0:11:37.679 --> 0:11:40.679 for risk in a way that you don't anticipate and 0:11:40.760 --> 0:11:44.080 be a negative, not a catastrophic negative at all, but 0:11:44.160 --> 0:11:47.640 it can just certainly be a negative for various quarters 0:11:47.640 --> 0:11:50.280 of various regions or various needs at the time. I 0:11:50.280 --> 0:11:54.120 think it's plainly addressable by the way. I do think 0:11:54.160 --> 0:11:57.839 that interest rates will fall later in the year and 0:11:58.040 --> 0:11:59.960 that will be of considerable assystem. 0:12:00.520 --> 0:12:03.680 So domestic politics one of the risks as well. I 0:12:03.679 --> 0:12:06.120 would imagine Janeta, I can give you sixty seconds and 0:12:06.200 --> 0:12:08.520 let me just highlight a headline from a story on 0:12:08.520 --> 0:12:12.520 the Bloomberg terminal. Biden pitch on improving economy falls flat 0:12:12.520 --> 0:12:13.600 at the grocery store. 0:12:16.920 --> 0:12:19.160 Listen, my mother used to tell me, you know so 0:12:19.240 --> 0:12:21.480 much about inflation, and then she would quote me the 0:12:21.480 --> 0:12:24.360 price of ahead of lettuce. The price of ahead of 0:12:24.400 --> 0:12:27.320 lettuce does not determine the overall level of inflation, but 0:12:27.360 --> 0:12:33.400 there are price pressures there. I think it's interesting to 0:12:33.440 --> 0:12:38.160 see how this is playing through the households, US households 0:12:38.160 --> 0:12:41.480 and the consumer sector. But at the end of the day, 0:12:41.520 --> 0:12:45.760 if the employment growth days strong and there are all 0:12:45.800 --> 0:12:49.640 sorts of surveys that indicate people are very optimistic about 0:12:49.960 --> 0:12:55.360 the near, medium, and longer term outlook for employment, and 0:12:55.400 --> 0:12:58.040 that stays in place, particularly with some of the wage 0:12:58.040 --> 0:13:00.680 increases that we've seen, I think will be very It'll 0:13:00.720 --> 0:13:01.200 be okay. 0:13:01.559 --> 0:13:02.760 Jennette, Thank you so much. 0:13:02.840 --> 0:13:14.839 Jeanette Garretty, Managing director and chief Economist at Robertson Stevens. 0:13:25.880 --> 0:13:29.560 James Abonte joins us Managing director and chief investment Officer 0:13:29.600 --> 0:13:33.480 at Center Asset Management. James, last week was a big week. 0:13:33.600 --> 0:13:36.320 We had a huge spike in tenure yields and seems 0:13:36.320 --> 0:13:38.920 like the bond market now is finally coming around to 0:13:39.040 --> 0:13:42.920 the Fed's projected path on rates, interest rate swaps now 0:13:42.960 --> 0:13:46.880 reflecting a fewer than three quarter point cuts this year, 0:13:47.160 --> 0:13:48.800 and that's a long ways away from the six that 0:13:48.840 --> 0:13:52.040 we're expecting anyway. So I'm wondering how you are embracing 0:13:52.080 --> 0:13:54.200 this change and how you see the path forward. 0:13:55.320 --> 0:13:59.960 Well, I think the FED seems handcuffed by this persist 0:14:00.040 --> 0:14:04.200 sense of inflation. The talk of a June or even 0:14:04.240 --> 0:14:09.040 a July cut is increasing an uncertainty. And you know 0:14:09.080 --> 0:14:12.640 how that relates to, you know, other asset classes. Is 0:14:12.640 --> 0:14:16.200 that when you look now at the relationship between stocks 0:14:16.200 --> 0:14:20.720 and bonds, which can be expressed by a forecasted equity 0:14:20.840 --> 0:14:23.880 risk premium, and again to explain to people, or risk 0:14:23.960 --> 0:14:28.280 premium is just the attractiveness of stocks versus risk free treasuries. 0:14:28.640 --> 0:14:31.800 It's at the lowest level that we've seen, even that 0:14:31.880 --> 0:14:36.160 below that preceded the global financial crisis, as low as 0:14:36.160 --> 0:14:39.320 it was back in early two thousand. And you know, 0:14:39.400 --> 0:14:42.960 even in a more rudimentary kind of valuation metric, the 0:14:43.000 --> 0:14:45.440 pe on the SMP five hundred, the equal weight to 0:14:45.560 --> 0:14:48.480 SMP is about twenty four times, so the market itself. 0:14:48.520 --> 0:14:50.600 In terms of how the ramifications of this play out 0:14:50.640 --> 0:14:53.640 to other ACID classes is that it implies either a 0:14:53.760 --> 0:14:58.320 very significant drop in interest rates or a significant acceleration 0:14:58.400 --> 0:15:00.520 in earnings. And I don't think the up and earning 0:15:00.560 --> 0:15:02.520 an interest rates is going to happen anytime soon. 0:15:03.240 --> 0:15:05.520 So what do you make Let's look at Nvidia. I mean, 0:15:05.560 --> 0:15:08.080 you highlight in your note some of the Magnificent seven 0:15:08.120 --> 0:15:10.280 that you've been watching, but let's talk about in video. 0:15:10.360 --> 0:15:12.560 Over the last ten weeks, this stock is up nearly 0:15:12.600 --> 0:15:15.440 eighty five percent. I think we've been up for ten 0:15:15.520 --> 0:15:18.280 straight weeks if you look at it on a weekly basis. 0:15:19.000 --> 0:15:23.320 The company will beginning on Monday, launch a developers conference. 0:15:23.360 --> 0:15:25.080 I think it's going to take a lot of very 0:15:25.160 --> 0:15:27.560 upbeat news in order to drive this stock even further, 0:15:27.560 --> 0:15:28.440 wouldn't you agree? 0:15:28.920 --> 0:15:31.720 I agreed to one hundred percent and Vidia. You know, 0:15:31.840 --> 0:15:33.440 we could sit here and talk about how much it's 0:15:33.480 --> 0:15:36.400 gone up, but the reality is when you look at 0:15:36.480 --> 0:15:38.440 where we are in terms of in Vidia and some 0:15:38.480 --> 0:15:41.560 of the other Magnificent seven stocks. I mean, it may 0:15:41.560 --> 0:15:45.480 sound ironic, but investors are seeking safety, and usually investors 0:15:45.480 --> 0:15:48.160 seek safety until it's obvious that the whole market's at risk. 0:15:48.480 --> 0:15:50.640 You know, whether it's the nifty to fifty and the seventies, 0:15:50.640 --> 0:15:53.480 a boot chips like Coca Cola and g in the 0:15:54.280 --> 0:15:58.160 ninety seven to ninety eight environment, Cisco, Intel, Yahoo back 0:15:58.200 --> 0:16:01.800 in two thousand. But if you look at video in particular, 0:16:02.600 --> 0:16:05.480 you know markets fall earnings. And when you look at 0:16:05.480 --> 0:16:08.840 the aggregate magnificent seven in video being the biggest contributor, 0:16:09.160 --> 0:16:12.280 they accounted for approximately one hundred percent of sm P 0:16:12.400 --> 0:16:15.280 five hundred operating earnings growth, which meant that the rest 0:16:15.280 --> 0:16:18.040 of the market actually had negative earnings growth in the 0:16:18.080 --> 0:16:21.120 first quarter of twenty twenty four. So if you think 0:16:21.160 --> 0:16:24.520 that you know markets fall earnings, the reality is earnings 0:16:24.520 --> 0:16:27.520 are going to fall economic growth, and this is where 0:16:27.560 --> 0:16:29.480 there's a big disconnect because I think if you look 0:16:29.520 --> 0:16:32.480 at top down indicators, a lot of strategists looking at 0:16:32.680 --> 0:16:36.120 PMIS and leading economic indicators feel that there's a bottoming 0:16:36.520 --> 0:16:39.600 in early signs of some kind of pivoting higher on 0:16:39.720 --> 0:16:43.520 the horizon. But when you look at kind of the 0:16:44.120 --> 0:16:47.760 negative view, you were at a critical juncture because the 0:16:47.760 --> 0:16:51.400 top down information doesn't reconcile what the bottom up, meaning 0:16:51.480 --> 0:16:55.200 that there's very little sales growth margins are rolling over 0:16:55.240 --> 0:16:59.000 from elevated levels, Asset efficiency is moving lower, which means 0:16:59.000 --> 0:17:01.800 returns on equities are one moving lower. So I think 0:17:01.800 --> 0:17:04.040 people are going to seek safety and names like Nvidia 0:17:04.560 --> 0:17:08.560 until essentially in Vidia starts to show cracks like other 0:17:08.600 --> 0:17:11.200 high flyers have in the past. But it's very difficult 0:17:11.200 --> 0:17:13.639 to sit here and feel that there's further upside in 0:17:13.640 --> 0:17:14.960 the stock at this point in time. 0:17:16.400 --> 0:17:19.680 Yeah, investors were somewhat distracted by the earnings. I mean, 0:17:19.720 --> 0:17:23.160 perhaps your take is accurate that they were a little 0:17:23.160 --> 0:17:27.440 too bullish on that, but that distraction is now gone 0:17:27.480 --> 0:17:29.960 because the earning season is basically over. Do you think 0:17:30.000 --> 0:17:31.800 that now it gets a little rougher here in the 0:17:31.840 --> 0:17:35.320 stock market because people will focus more on the FED 0:17:35.480 --> 0:17:38.280 and rates and inflation being sticky. 0:17:38.960 --> 0:17:41.560 Agreed to one hundred percent. You know, I'm quite negative 0:17:41.560 --> 0:17:43.399 at this point in time. I think we have an 0:17:43.520 --> 0:17:48.240 environment where we go sideways at best, with the potential 0:17:48.320 --> 0:17:52.400 that year's you know, significant to move down in markets. 0:17:52.440 --> 0:17:55.280 And as I talked about with regard to everything price 0:17:55.359 --> 0:17:57.639 for perfection with regard to equities, you can make the 0:17:57.640 --> 0:18:01.440 same argument with regard to corporate it. So I think 0:18:01.560 --> 0:18:06.600 speculation is rampant, right, cryptocurrencies, ETFs, zero day options, I 0:18:06.640 --> 0:18:10.199 mean global, It's a global phenomenon, right India, right, we 0:18:10.240 --> 0:18:13.159 see derivters trading in India up one hundred and fifty percent, 0:18:13.520 --> 0:18:17.000 and in fact, Indian derivdives are eighty percent of global 0:18:17.320 --> 0:18:20.000 option contracts at this point in time. So I think 0:18:20.000 --> 0:18:21.960 when you look at you know, just like the now 0:18:22.080 --> 0:18:25.840 thirty six thousand book in late nineteen ninety nine argued 0:18:25.880 --> 0:18:29.240 that stocks are no riskier than bonds and the equity 0:18:29.320 --> 0:18:32.120 risk premium should be zero. There's a lot of academic 0:18:32.160 --> 0:18:35.359 papers that are being widely discussed that argue for one 0:18:35.440 --> 0:18:39.399 hundred percent equity allocation right now. Very interesting, you know. 0:18:39.440 --> 0:18:41.280 In fact, they say that you should lever it up 0:18:41.600 --> 0:18:44.119 your equity exposure for a young person like a home. 0:18:45.280 --> 0:18:47.520 You know, very very very top of the market when 0:18:47.520 --> 0:18:50.800 you think about the antidotal information. But again, the fundamentals 0:18:50.800 --> 0:18:53.919 are all pointing to not a broadening out of the 0:18:53.960 --> 0:18:57.919 overall economy and the overall stock market earnings picture, but 0:18:58.000 --> 0:19:01.359 in essence, a environment where we have not had an 0:19:01.400 --> 0:19:05.879 acceleration in economic growth, a lot of policy uncertainty, margins 0:19:05.960 --> 0:19:09.399 acid efficiency all turning negative from recent highs. None of 0:19:09.400 --> 0:19:11.520 that boats well for a stock market outlook. 0:19:11.840 --> 0:19:14.000 So Brian was mentioning a moment ago the fact that 0:19:14.040 --> 0:19:16.720 the market has now pretty much aligned itself with the 0:19:16.760 --> 0:19:20.520 FEDS thinking in terms of the forecast for interest rate 0:19:20.560 --> 0:19:23.040 cuts this year. I think the Fed was predicting in 0:19:23.080 --> 0:19:27.119 twenty four three separate twenty five basis point rate cuts. 0:19:27.119 --> 0:19:29.719 But from what I'm hearing you say, Jim, it seems 0:19:29.760 --> 0:19:32.080 like there's a risk that we could even get more 0:19:32.160 --> 0:19:32.760 rate cuts. 0:19:33.960 --> 0:19:37.760 Yes, exactly, in response to a deterior rating environment. And 0:19:37.800 --> 0:19:41.040 I think if you look at the information from the economy, 0:19:41.080 --> 0:19:45.440 I mean, there's a lot of information that's anecdotally IRA 0:19:45.640 --> 0:19:50.240 hardship withdrawals are spiking, higher capacity utilization is deterior rating, 0:19:50.240 --> 0:19:53.280 which is a very bad thing for capital spending. Even 0:19:53.320 --> 0:19:55.560 more so when you look at the labor front, which 0:19:55.560 --> 0:19:58.119 has really been the point of strength. There's been incredible 0:19:58.200 --> 0:20:02.520 discrepancy between the house survey and the payroll survey. In fact, 0:20:02.800 --> 0:20:05.679 we've never had such a large difference. In fact, the 0:20:05.720 --> 0:20:10.080 difference between the household and the payroll survey was, you know, 0:20:10.119 --> 0:20:12.680 one point one million in December and eight hundred thousand 0:20:12.760 --> 0:20:16.600 in January. That has only been a sign that there's 0:20:16.640 --> 0:20:22.040 been a significant aberration, and typically this divergence indicates a 0:20:22.080 --> 0:20:24.479 weakening job market, which is really what people have been 0:20:24.520 --> 0:20:26.520 holding their hat on in terms of the economy. 0:20:26.560 --> 0:20:29.400 Remaining point, let's talk a little bit about the Bank 0:20:29.440 --> 0:20:31.760 of Japan because tomorrow is going to be a big day. 0:20:32.119 --> 0:20:34.680 What we've been saying, the latest is, at least from 0:20:34.680 --> 0:20:38.280 the NIKE, is that they will they will finish off 0:20:38.320 --> 0:20:41.679 with negative interest rates, but to keep the YCC program 0:20:41.720 --> 0:20:44.520 in place in order to tamp down the volatility a 0:20:44.520 --> 0:20:46.840 little bit. Is that where you're expecting and what might 0:20:46.880 --> 0:20:47.840 the consequences be. 0:20:48.880 --> 0:20:51.200 Well, when you look at the other developed market areas, right, 0:20:51.240 --> 0:20:55.280 I mean, the EU and the US all have positive 0:20:55.320 --> 0:20:58.080 real rates and Japan is definitely the outlier, and we've 0:20:58.080 --> 0:21:01.320 seen that with where the end is traded. I'm not 0:21:01.480 --> 0:21:05.760 so convinced yet that the Japan is ready to ready 0:21:05.760 --> 0:21:09.480 to abandon its negative interst rate policy. In fact, I 0:21:09.480 --> 0:21:11.560 think one of the biggest surprises that you could see 0:21:11.840 --> 0:21:15.200 going forward is a significant spike of the end through 0:21:15.240 --> 0:21:18.439 the one to fifty level, in fact, back to levels 0:21:18.480 --> 0:21:23.080 that may have been consistent with the environment back in 0:21:23.119 --> 0:21:25.920 the late nineteen nineties. So I think that we could 0:21:26.000 --> 0:21:29.560 see a very significant shock at some point as a 0:21:29.600 --> 0:21:32.959 black Swan event occur because of such a consensus at 0:21:32.960 --> 0:21:35.360 this point in time that Japan is going to basically 0:21:35.440 --> 0:21:39.280 get itself out of this negative interest rate policy stabilize 0:21:39.280 --> 0:21:41.720 the end. I might think that the black swan event 0:21:41.800 --> 0:21:44.480 is actually a currency event that occurs in Japan where 0:21:44.520 --> 0:21:46.800 the end goes way way through one to fifty and 0:21:47.080 --> 0:21:49.000 weaken significantly very quickly. 0:21:49.119 --> 0:21:52.159 Jim, So what you're been saying kind of in total here, 0:21:52.200 --> 0:21:54.280 if we are looking at rate cuts maybe more than 0:21:54.320 --> 0:21:56.960 three and a end that could weaken to one fifty, 0:21:57.440 --> 0:21:59.600 it's too soon to call for peak dollar. 0:21:59.480 --> 0:22:03.560 Right, exactly right, as long as we have an environment 0:22:03.600 --> 0:22:07.679 where the FED recognizes that it needs inbound investment. I 0:22:07.680 --> 0:22:09.080 don't believe the FED is going to be in a 0:22:09.119 --> 0:22:11.760 position to move us back into negative indust rates because 0:22:11.760 --> 0:22:14.160 of the fiscal deficits which you need to be financed, 0:22:14.400 --> 0:22:16.600 as well as the inbound investment requirements to keep it 0:22:16.600 --> 0:22:18.080