WEBVTT - Asian Markets React to China Factory Data 0:00:02.480 --> 0:00:06.800 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.640 --> 0:00:12.840 This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. 0:00:12.920 --> 0:00:15.400 You can join Brian Curtis and myself for the stories, 0:00:15.440 --> 0:00:18.520 making news and moving markets in the APAC region. You 0:00:18.600 --> 0:00:21.439 can subscribe to the show anywhere you get your podcast 0:00:21.520 --> 0:00:24.919 and always on Bloomberg Radio, the Bloomberg Terminal, and the 0:00:24.920 --> 0:00:29.360 Bloomberg Business app. Carlos Kusanov is with us. Carlos is 0:00:29.440 --> 0:00:33.360 senior Asia economist at UBP. He is in our studios 0:00:33.440 --> 0:00:36.360 in Hong Kong. Nice of you to join us. I 0:00:36.440 --> 0:00:38.320 got to begin with the data that we looked at 0:00:38.840 --> 0:00:42.160 on the Chinese economy over the weekend, this manufacturing PMI. 0:00:42.560 --> 0:00:44.440 Maybe it wasn't surprising to you that we're going to 0:00:44.440 --> 0:00:48.320 see continued weakness. How problematic is it though? For Beijing? 0:00:49.280 --> 0:00:51.680 Good morning and thanks for having me so. Over the 0:00:51.720 --> 0:00:56.280 weekend we saw much week manufacturing PMI numbers marking the 0:00:56.360 --> 0:01:00.560 fourth month of consecutive declines. So it was not entirely 0:01:00.560 --> 0:01:03.680 surprising because we have already seen it happen for three months. 0:01:04.760 --> 0:01:07.279 It is problematic in the sense that China is looking 0:01:07.319 --> 0:01:10.440 to achieve a five point zero percent growth target. And 0:01:10.480 --> 0:01:14.640 we are far behind that number. Growth in the first 0:01:14.640 --> 0:01:16.720 half was four point five, but of course that's only 0:01:16.760 --> 0:01:19.240 because we had a very strong GDP print in the 0:01:19.280 --> 0:01:22.640 first quarta. Growth slowed significantly to below four percent in 0:01:22.640 --> 0:01:26.440 the second quarta. So the manufacturing PMI weighs quite a 0:01:26.480 --> 0:01:29.479 bit on GDP and it was quite negative, suggesting that 0:01:29.600 --> 0:01:32.520 pressures do persist and the government needs to do more 0:01:32.520 --> 0:01:33.759 to alleviate those pressures. 0:01:33.880 --> 0:01:36.840 If one of the things that struck me, both the 0:01:36.959 --> 0:01:42.199 underlying input cost index and the output sub index showed 0:01:42.280 --> 0:01:46.600 signs of deepening deflation. And I know we've talked about 0:01:46.600 --> 0:01:51.040 the similarities between what Japan went through thirty years ago 0:01:51.120 --> 0:01:54.960 and what China could be facing these days. Are we 0:01:55.160 --> 0:01:59.400 at risk of seeing a really severe deflationary trap in 0:01:59.480 --> 0:02:00.000 China right now? 0:02:01.160 --> 0:02:03.640 That's right. So if you look at these subcomponents of 0:02:03.720 --> 0:02:07.040 the PMI index, we saw weakness across the board, but 0:02:07.320 --> 0:02:11.600 a lot of the declines, you know, marked declines across 0:02:11.600 --> 0:02:17.040 two key subcomponents producer, the output price and the input price, 0:02:17.080 --> 0:02:20.240 and that reflects two different things. The output price reflects 0:02:20.280 --> 0:02:22.760 the fact that you have over capacity concerns in some 0:02:22.840 --> 0:02:26.520 industrial sectors, and because demand is still very weak. You 0:02:26.560 --> 0:02:30.320 have supply exceeding demand, and you have very negative factory prices. 0:02:31.480 --> 0:02:34.960 It you know, in any economy, upstream prices trickle down 0:02:35.000 --> 0:02:37.480 to consumer prices, and so the fact that you have 0:02:38.000 --> 0:02:41.400 signs of deflation in upstream prices suggests that it's going 0:02:41.440 --> 0:02:44.880 to be that much more challenging for China to reflate 0:02:44.919 --> 0:02:48.080 its economy once again because you have the structural oversupply 0:02:48.160 --> 0:02:51.200 of goods in the economy, very weak demand. And the 0:02:51.280 --> 0:02:54.520 other subcomponent was the input price. Now that is not 0:02:54.720 --> 0:02:58.360 entirely reflective of the domestic economy, but we did see 0:02:59.080 --> 0:03:02.639 broad based US dollar weakness last month, and so the 0:03:03.040 --> 0:03:05.680 cost of inputs decreased as a result of that. So 0:03:05.720 --> 0:03:08.200 that is the other factor that was perhaps you know, 0:03:08.520 --> 0:03:13.560 exacerbating inflationary pressures in the economy, but it isn't, you know, 0:03:13.639 --> 0:03:17.320 undeniable that we are seeing over capacity and weak demand, 0:03:17.400 --> 0:03:22.880 which is translating to structural this inflationary pressure. So not 0:03:23.000 --> 0:03:25.160 quite Japan in my opinion, but it is going to 0:03:25.200 --> 0:03:27.200 take a lot for China to reflate its economy in 0:03:27.200 --> 0:03:27.840 this environment. 0:03:28.280 --> 0:03:31.120 You look at the lack of positive sentiment and reflected 0:03:31.120 --> 0:03:33.920 in the latest sales figures that we had on housing, 0:03:34.160 --> 0:03:37.480 and you come away with the idea that this slump 0:03:37.480 --> 0:03:40.880 and residential real estate is only deepening right now, so 0:03:40.920 --> 0:03:44.440 the government, it would seem, has to take more action. 0:03:44.440 --> 0:03:45.400 Wouldn't you agree with that? 0:03:46.160 --> 0:03:50.600 I totally agree. I think they announced a package of 0:03:50.640 --> 0:03:54.480 measures in April. At the time, it seemed like a 0:03:54.480 --> 0:03:58.000 step in the right direction. The intent of that decision was, 0:03:58.040 --> 0:04:00.240 of course, to sort of get the housing stimulus out 0:04:00.240 --> 0:04:02.880 of the way for the July meetings, the third penum 0:04:02.920 --> 0:04:05.000 that focuses on structural reforms, so they didn't want to 0:04:05.000 --> 0:04:09.440 have to focus on housing. In hindsight, it's clear that 0:04:09.520 --> 0:04:12.720 whatever the three hundred billions rescue package for the real 0:04:12.800 --> 0:04:18.839 estate tector was insufficient, and they've also moved to alleviate 0:04:18.920 --> 0:04:23.720 some of the macroprudential rules to basically facilitate people buying 0:04:23.720 --> 0:04:26.440 houses and speculating in real estate in Tier one cities. 0:04:27.560 --> 0:04:31.080 But that's not enough either, So they were Anecdotally, we 0:04:31.120 --> 0:04:34.599 do hear that some luxury real estate developments in first 0:04:34.640 --> 0:04:38.159 year cities like Shanghai have been sold within two weeks 0:04:38.160 --> 0:04:42.840 of launching, but those you know that anecdotal evidence isn't 0:04:42.880 --> 0:04:46.400 translating yet into system wide appreciation. So we are not 0:04:46.480 --> 0:04:50.960 seeing home prices in first year cities stabilizing as a result, 0:04:51.000 --> 0:04:54.279 so it remains anecdotal at this point in time. The 0:04:54.360 --> 0:04:57.680 only way around it will be, you know, if they 0:04:57.880 --> 0:05:02.039 inject enough liquidity into the system that you see a 0:05:02.120 --> 0:05:07.080 recovery in consumption. And of course, you know, if first 0:05:07.160 --> 0:05:10.080 year cities start to stabilize, people might be more inclined 0:05:10.080 --> 0:05:14.480 to shift investments away from government bonds and ultra safe 0:05:14.800 --> 0:05:20.159 options like high dividend stocks from state tone enterprises two 0:05:20.160 --> 0:05:24.160 sort of slightly riskier, but you know, very traditional outlets 0:05:24.200 --> 0:05:27.280 like real estate in first year cities. But sentiment is 0:05:27.320 --> 0:05:28.960 still very weak, so we are not seeing that yet. 0:05:29.040 --> 0:05:30.680 Yeah, no doubt about that. And one of the key 0:05:30.839 --> 0:05:33.400 questions I think for Japan, given the fact that China 0:05:33.480 --> 0:05:36.880 is such a large trading partner, to what extent is 0:05:36.920 --> 0:05:39.400 the weak Chinese economy holding back Japan? Do you have 0:05:39.440 --> 0:05:39.920 a sense of that? 0:05:41.200 --> 0:05:41.520 I do. 0:05:41.640 --> 0:05:45.080 Actually, we've priced this into the outlook. I think a 0:05:45.120 --> 0:05:48.360 lot of exporters in Asia have benefited from stronger US 0:05:48.400 --> 0:05:50.880 demand in the first half of the year. The expectation 0:05:51.000 --> 0:05:54.000 now is that US demand is starting to normalize in 0:05:54.040 --> 0:05:55.560 the second half of the year, we are going to 0:05:55.600 --> 0:06:00.160 have positive growth, but we are seeing domestic consumption significantly 0:06:00.200 --> 0:06:04.000 below two percent, and so with that should come phasing 0:06:04.040 --> 0:06:07.839 out of that tailwind that Asian exporters including Japan, have 0:06:07.920 --> 0:06:11.640 benefited from in the first half of the year. A 0:06:11.680 --> 0:06:13.760 few months ago, the expectation was that, you know, the 0:06:13.880 --> 0:06:17.640 China story, the recovery of you know, real estate prices 0:06:18.240 --> 0:06:21.920 benefiting consumers, and then normalization and consumption in China, that 0:06:21.920 --> 0:06:24.400 that should begin to kick in the second half of 0:06:24.440 --> 0:06:27.520 the year, partially offsetting some of the weakness from the US. 0:06:28.279 --> 0:06:30.440 But it is just going to take longer than that, 0:06:30.560 --> 0:06:33.479 and so for all of the major exporters in the region, 0:06:33.520 --> 0:06:36.320 including Japan, I think in the second half of the year, 0:06:36.440 --> 0:06:38.880 external demand is going to be a net drag on 0:06:38.920 --> 0:06:39.520 their economy. 0:06:40.360 --> 0:06:42.440 Carlos, good stuff. Thank you so much for making time 0:06:42.480 --> 0:06:45.520 to chat with us. Carlos Casanova. He is senior Asia 0:06:45.560 --> 0:06:55.240 economist at upp. Anne Barry is with us. She has 0:06:55.279 --> 0:06:58.840 founder also managing partner at Thread Needle. Joining us on 0:06:58.880 --> 0:07:01.640 the line from here in New York City. It's been 0:07:01.680 --> 0:07:04.200 too long. Thanks for making time to chat with us. 0:07:04.200 --> 0:07:06.560 I hope you're doing well, I know you as an 0:07:06.560 --> 0:07:09.040 expert when it comes to kind of private markets. We 0:07:09.080 --> 0:07:11.080 can put that aside for the moment. Can you share 0:07:11.120 --> 0:07:13.840 with me your view on what you see where public 0:07:13.880 --> 0:07:15.200 markets are concerned right now? 0:07:16.160 --> 0:07:18.200 Doug. It's great to be back, so thanks, thanks for 0:07:18.280 --> 0:07:21.720 having me on. And I think this is a timely conversation, Doug, 0:07:21.800 --> 0:07:24.800 because the markets have been such a roller coaster and 0:07:24.840 --> 0:07:28.480 slightly unpredictable in terms of what kinds of news it's 0:07:28.560 --> 0:07:31.760 rewarding and what kinds of news it's punishing at the moment, Doug. 0:07:31.800 --> 0:07:34.040 So we took a look at last week. My expression 0:07:34.240 --> 0:07:40.080 was no good beat went unpunished. Nvidia got punished in 0:07:40.120 --> 0:07:42.800 the market despite the strong report, retailers did despite the 0:07:42.840 --> 0:07:44.560 strong report. And it tells me that now is the 0:07:44.560 --> 0:07:48.880 moment to really look for thematics, to look for fundamentals. 0:07:49.200 --> 0:07:51.200 Bisector and I've got thoughts in a couple of them, 0:07:51.200 --> 0:07:55.000 But the overarching point here is it's not about responding 0:07:55.000 --> 0:07:57.240 to earnings anymore. It's about getting back to themes that 0:07:57.240 --> 0:07:58.720 we can stand behind for the long run. 0:07:59.280 --> 0:08:01.920 Does the narrative around a soft landing enter into this 0:08:02.000 --> 0:08:04.400 thinking at all? Do you think is that a little separate. 0:08:05.400 --> 0:08:07.600 I think it does enter into it because I think 0:08:07.640 --> 0:08:09.400 it means that we are going to get rate cuts, 0:08:09.440 --> 0:08:11.600 that perhaps we're a little bit deeper, a little bit faster, 0:08:11.800 --> 0:08:13.800 doug than we had thought about before. And so when 0:08:13.840 --> 0:08:16.840 I come back to these thematics, I asked myself, well, 0:08:16.880 --> 0:08:19.640 which kinds of sectors stand to gain one from that 0:08:19.720 --> 0:08:23.240 reduced long term rate outlook, and two from the good 0:08:23.320 --> 0:08:26.680 secular trends and so software in the public markets one 0:08:26.680 --> 0:08:29.080 area I've been looking at specifically at these names that 0:08:29.120 --> 0:08:31.920 are one interest rate sensitive, but two where there's a 0:08:31.960 --> 0:08:36.280 real thesis around providing one stop shop solutions, particularly for 0:08:36.440 --> 0:08:40.559 medium and small sized enterprises, people like workday in sales, 0:08:40.600 --> 0:08:42.959 sport and pallel to networks. So I've been spending a 0:08:43.000 --> 0:08:44.520 lot of time looking at those businesses. 0:08:44.559 --> 0:08:48.480 What do you think about software companies relative to the 0:08:48.559 --> 0:08:51.760 AI story? Should we look at that together? 0:08:53.280 --> 0:08:53.440 You know? 0:08:53.559 --> 0:08:55.319 Do you and I talked about in the past, I've 0:08:55.320 --> 0:08:58.160 been somewhat skeptical about the AI story, and I've certainly 0:08:58.200 --> 0:09:01.160 had a perspective back to your opening line that in 0:09:01.200 --> 0:09:04.560 the private market, AI valuations have been well into bubble 0:09:04.640 --> 0:09:06.680 territory for a long time, and incidentally, I think the 0:09:06.760 --> 0:09:10.040 recent roomored one hundred billion dollar valuation for open AI 0:09:10.120 --> 0:09:12.880 falls into that bucket. So I've been skeptical. I've been 0:09:12.880 --> 0:09:16.400 applying applying that skepticism to the public market. So the 0:09:16.480 --> 0:09:18.480 kinds of companies I've been looking at again like the 0:09:18.520 --> 0:09:21.959 workdays of sales forces, and also companies like trade Desk, 0:09:22.040 --> 0:09:26.480 which is a digital marketplace for connected TV ads. These 0:09:26.480 --> 0:09:28.960 are companies that at some point may benefit from AI 0:09:29.360 --> 0:09:32.120 in terms of productivity to lift margins or in generative 0:09:32.160 --> 0:09:36.000 AI to get the revenue generation up, but they're not 0:09:36.080 --> 0:09:39.800 dependent on AI driving the increasing scale I expect them 0:09:39.800 --> 0:09:41.840 to experience, so I think it's been quite important to 0:09:41.840 --> 0:09:42.520 separate them. 0:09:43.160 --> 0:09:45.280 I'm curious as to whether or not you think companies 0:09:45.720 --> 0:09:49.120 the ones you've just described there these startups would be 0:09:49.120 --> 0:09:52.920 more inclined to go to a larger player and for 0:09:53.000 --> 0:09:55.880 that player to become acquisitive, rather than from the startup 0:09:55.920 --> 0:09:59.240 to go to raise capital through an IPO. Is that right? 0:10:00.080 --> 0:10:02.680 That's such a great question, and let's talk about IPOs. 0:10:02.800 --> 0:10:05.400 Everyone thought at the beginning of this year, once we 0:10:05.480 --> 0:10:07.760 saw Reddit go out into the market and IPO, once 0:10:07.760 --> 0:10:10.000 we saw Rubric go out into the market, which was 0:10:10.040 --> 0:10:12.360 in the spring of this year that Q four of 0:10:12.360 --> 0:10:14.400 twenty twenty four would be the moment that the IPO 0:10:14.480 --> 0:10:16.800 window opened up. And at the moment, to be honest, 0:10:16.960 --> 0:10:19.320 there aren't signs quite yet that there's going to be 0:10:19.360 --> 0:10:22.840 this blossoming of IPO activity that folks were expecting. It 0:10:22.840 --> 0:10:25.960 feels as though electoral uncertainty is still squashing the IPO 0:10:26.040 --> 0:10:29.000 market a little bit, and there's a little bit of 0:10:29.040 --> 0:10:31.600 wait and see going on. So I do think that 0:10:31.640 --> 0:10:35.080 there's a whole slew of privately held companies that have 0:10:35.200 --> 0:10:38.080 got slightly impatient investors who pumped a lot of cash 0:10:38.120 --> 0:10:41.600 into them in twenty twenty one twenty twenty two, who 0:10:41.640 --> 0:10:44.400 are saying, look, you can't bank on an IPO outcome here, 0:10:44.520 --> 0:10:46.520 Let's really go and try and get some synergies. Let's 0:10:46.520 --> 0:10:48.720 sell to let's sell to a strategic and get a clean, 0:10:49.320 --> 0:10:52.080 clean exit, rather than if you're an investor and you 0:10:52.120 --> 0:10:54.320 wait for your portfolio company to go public, your subject 0:10:54.320 --> 0:10:56.000 to lock up, so you have to sell down over time. 0:10:56.280 --> 0:10:59.520 So I think a strategic sept just a strategic exit, 0:11:00.360 --> 0:11:01.880 it is looking increasingly attractive. 0:11:02.120 --> 0:11:04.560 We're a little more than two months away from the election. 0:11:04.640 --> 0:11:07.400 How do you think that's entering into the thinking in 0:11:07.520 --> 0:11:10.280 terms of people that are really playing this market right now. 0:11:11.720 --> 0:11:13.920 It's such a good question, and one of the conversations 0:11:13.960 --> 0:11:17.280 I'm having a lot with folks Doug is what does 0:11:17.320 --> 0:11:21.240 the Harris trade look like versus the Trump trade? And 0:11:21.679 --> 0:11:24.040 you know the moment in time when it looked as 0:11:24.040 --> 0:11:27.240 though former President Trump and and Vice President his vice 0:11:27.280 --> 0:11:29.840 president nominee J. D. Barns were getting traction. It looked 0:11:29.880 --> 0:11:32.160 as though the market was stilling to double down on 0:11:32.200 --> 0:11:35.319 things like energy and defense, classic sort of Trump or 0:11:35.400 --> 0:11:42.280 Mark trade stock with Vice President Harris, Doug gaining momentum. 0:11:42.400 --> 0:11:46.040 And we just had the Bloomberg voice over here on 0:11:46.080 --> 0:11:49.160 your show that the Gats narrowing and the likes of Michigan. 0:11:49.880 --> 0:11:52.360 It's getting a little uncertain because there isn't a clear 0:11:53.120 --> 0:11:57.520 Harris trade yet. It's really unclear which sectors stand to 0:11:57.559 --> 0:12:00.320 gain most from Vice President Harris becoming president and which 0:12:00.400 --> 0:12:02.520 dand to lose because her policy position at the moment 0:12:02.520 --> 0:12:05.600 seems to be business as usual, which doesn't really provide 0:12:05.640 --> 0:12:07.439 a catalyst for much change, to be honest. So I 0:12:07.440 --> 0:12:09.000 think it's we need to get a little bit closer 0:12:09.000 --> 0:12:09.440 to the time. 0:12:09.920 --> 0:12:12.840 I know you're going to be heading off to Germany soon. 0:12:13.480 --> 0:12:15.960 Give me your sense of what that conversation is going 0:12:16.000 --> 0:12:19.040 to be, like, what do you hope to discover when 0:12:19.080 --> 0:12:19.760 you're in Berlin. 0:12:21.160 --> 0:12:22.960 Well, I'm going to be talking to a lot of 0:12:23.000 --> 0:12:27.320 CEOs there, Doug, of the global department stores, the likes 0:12:27.320 --> 0:12:31.200 of Nordstrom, the lights of Carda Bay in Germany, the 0:12:31.320 --> 0:12:35.120 likes of Central and Thailand. And one of the key 0:12:35.160 --> 0:12:37.120 areas of dialogue is going to be what is the 0:12:37.160 --> 0:12:39.240 state of the global consumer? And if we look at 0:12:39.240 --> 0:12:41.400 what the US data has been saying. You cited the 0:12:41.480 --> 0:12:45.319 inflation data now starting to come in where economists had expected. 0:12:45.679 --> 0:12:47.600 But if you listen to the earnings calls we had 0:12:47.679 --> 0:12:51.120 last week, there was a sense in the US at 0:12:51.200 --> 0:12:53.800 least that the consumer is feeling pressured. We heard that 0:12:53.880 --> 0:12:56.480 on the Abercrombie and Fitch earnings call. We heard that 0:12:56.559 --> 0:12:58.560 on the Gap earnings call, we heard that on the 0:12:58.600 --> 0:13:03.320 Coal earnings call, all saying we've had a run of 0:13:03.440 --> 0:13:06.760 decent activity, but the consumer is really starting to feel 0:13:06.760 --> 0:13:10.160 pressured and is shifting towards value. I'm really curious to 0:13:10.200 --> 0:13:13.920 hear whether that trend, Doug is continuing in other markets 0:13:13.920 --> 0:13:17.000 in Europe and in Asia as well. The second thing 0:13:17.040 --> 0:13:19.960 I'm looking at is how much more digitization the retailers 0:13:19.960 --> 0:13:21.920 are leading into. And I discussed when I went to 0:13:21.920 --> 0:13:24.760 the similar conference last year. Last year, a big theme 0:13:24.840 --> 0:13:28.520 is retail media, department stores and other retailers looking at 0:13:28.559 --> 0:13:32.720 their email distribution list, their instore digital screens to find 0:13:32.760 --> 0:13:35.720 inventory to sell for advertising. Really curious to see if 0:13:35.760 --> 0:13:38.360 that's been gaining traction as we digitize more and more. 0:13:38.760 --> 0:13:40.840 So I'm going to circle back to politics and try 0:13:40.880 --> 0:13:44.120 to include it in our conversation around global retail right 0:13:44.120 --> 0:13:47.080 now visa v tariffs. I mean, this is something that 0:13:47.120 --> 0:13:51.120 Donald Trump is advocating. What would that mean to the outlook? 0:13:51.160 --> 0:13:54.040 Do you think in the view of these global department 0:13:54.040 --> 0:13:57.960 store CEOs, how would the notion of tariffs? How would 0:13:57.960 --> 0:13:59.160 they respond? Do you think? 0:14:00.240 --> 0:14:04.319 Well, it's certainly called added complexity when it's come to 0:14:04.360 --> 0:14:07.120 supply chain management. And it's interesting because we saw today 0:14:07.160 --> 0:14:10.480 that the Biden administration has been delaying announcements on China tariffs, 0:14:10.520 --> 0:14:13.240 even though we've seen Canada step up to the plate. 0:14:13.520 --> 0:14:16.560 I'll give you a really specific example, Doug, for how 0:14:16.559 --> 0:14:20.240 I've seen this create complexity. I'm involved in a manufacturing 0:14:20.280 --> 0:14:22.600 business and a client came to us recently and off 0:14:22.720 --> 0:14:26.760 for a quote for us to provide a certain kind 0:14:26.800 --> 0:14:30.160 of product, and we really had to go back and say, well, look, 0:14:30.200 --> 0:14:32.600 if we source from China, which is what this client 0:14:32.680 --> 0:14:35.160 is used to, then, given where the tariffs have been 0:14:35.200 --> 0:14:37.600 and where they could go, that's going to force us 0:14:37.600 --> 0:14:40.200 into producing one price level to them, which could force 0:14:40.280 --> 0:14:43.480 them to go to another geography completely to go and 0:14:43.520 --> 0:14:46.240 source a coming to us in the US. And so 0:14:46.320 --> 0:14:48.360 we're having to double down on the work on looking 0:14:48.400 --> 0:14:51.080 at other places in Asia, other places in South America 0:14:51.840 --> 0:14:54.880 to provide components for that particular client. So I do 0:14:54.920 --> 0:14:57.000 think it's going to add more and more complexity to 0:14:57.000 --> 0:14:59.640 supply chains, which shifted a lot under the Trump administration. 0:15:00.080 --> 0:15:01.760 If there's a second wave of that, Doug, I think 0:15:01.800 --> 0:15:04.200 it's going to add perhaps a little bit of a 0:15:04.200 --> 0:15:08.520 delay around the fight against inflation that's been going fairly 0:15:08.520 --> 0:15:09.480 well in recent months. 0:15:09.760 --> 0:15:12.320 Last question before I let you go, and I'm going 0:15:12.400 --> 0:15:14.480 to ask you to respond at about twenty seconds here, 0:15:14.520 --> 0:15:16.800 and maybe that's a little unfair. No matter Trump or 0:15:16.920 --> 0:15:19.880 Harris is the bet for greater reshoring. 0:15:20.840 --> 0:15:23.040 The bet is the greater restoring, no matter which one. 0:15:23.280 --> 0:15:25.880 Absolutely all right, Always a pleasure and take good care. 0:15:25.920 --> 0:15:27.960 I hope to see us soon. And Barry is founder. 0:15:27.960 --> 0:15:32.240 I'm also managing partner at Thread Needle. Joining us here 0:15:37.680 --> 0:15:41.760 Barbara and Bernard founder and the CIO at Windcrest Capital. 0:15:41.800 --> 0:15:44.840 She joins us from the Bahamas. Thanks for making time 0:15:44.880 --> 0:15:47.840 to chat with us. I got to go back to 0:15:47.880 --> 0:15:50.560 what we learn Friday with that PCE. It seems to 0:15:50.600 --> 0:15:53.200 me like inflation is really under control. I think the 0:15:53.240 --> 0:15:55.680 FED is comfortable with that notion. Now they pretty much 0:15:55.960 --> 0:15:59.720 have telegraphed a rate cut for September. The key question 0:15:59.880 --> 0:16:02.040 is whether or not there is going to be a 0:16:02.160 --> 0:16:05.320 pickup in the degree to which the labor market has 0:16:05.360 --> 0:16:09.480 been deteriorating. That may determine the magnitude of easy going forward. 0:16:09.840 --> 0:16:12.080 Talk to me about your view on the US jobs market. 0:16:12.080 --> 0:16:13.440 How well do you think it's holding up? 0:16:15.120 --> 0:16:17.360 Well? Thanks so much for having me on this evening. 0:16:18.200 --> 0:16:20.200 I think you know it has held up in The 0:16:20.240 --> 0:16:23.200 FED is obviously very dependent on data, so I think 0:16:23.240 --> 0:16:27.560 the US jobs report later this week will be very instructive. 0:16:27.920 --> 0:16:29.960 I mean, when you think about what's priced in I 0:16:29.960 --> 0:16:33.680 think sixty five bits of cuts by year end, and 0:16:33.880 --> 0:16:38.120 so whether that number changes that your guess is as 0:16:38.160 --> 0:16:39.160 good as mine at this point. 0:16:39.440 --> 0:16:41.520 So are you pretty much in the soft landing camp 0:16:41.520 --> 0:16:44.120 then that the FED has been successful in avoiding recession. 0:16:45.560 --> 0:16:47.800 Well, I think what we have right now is sort 0:16:47.840 --> 0:16:50.960 of a Goldilocks type scenario right where the soft landing 0:16:51.040 --> 0:16:54.480 narrative is certainly building momentum, and you know, you have 0:16:54.560 --> 0:16:58.600 dissinplation trend right that, coupled with the price hikes that 0:16:58.640 --> 0:17:02.960 are you know, that are being called for in September, 0:17:03.120 --> 0:17:06.399 has just given a lot of complacency. So that's my 0:17:06.480 --> 0:17:12.040 bigger concern as a more micro investor than a macro investor. 0:17:13.600 --> 0:17:18.560 But yeah, we all know what complacency and consensus can 0:17:18.600 --> 0:17:20.639 back fire very quickly, and we saw that at the 0:17:20.640 --> 0:17:23.320 beginning of August and then you know, the market just 0:17:23.400 --> 0:17:27.240 roared back. So a the thing that concerns me is 0:17:27.280 --> 0:17:30.119 these Teflon like qualities because I don't think they're normal. 0:17:30.880 --> 0:17:34.480 And September has historically been a very volatile market month 0:17:34.480 --> 0:17:36.960 in the markets, so I don't think it's any time 0:17:37.040 --> 0:17:40.919 to be complacent in here. But what changes that, Like, 0:17:40.960 --> 0:17:44.720 what's a catalyst right, That's that's the harder question. And 0:17:45.040 --> 0:17:48.600 I feel like right now the market's just sort of fidgeting, 0:17:48.640 --> 0:17:51.040 if you will, with trying to find the next big 0:17:51.119 --> 0:17:54.080 theme to take it higher. We're at all time high, 0:17:54.160 --> 0:17:56.399 is essentially right, So how does the market go up 0:17:56.400 --> 0:17:59.040 another twenty five percent from here? And if you think 0:17:59.080 --> 0:18:02.119 about what has led to the gains in the market 0:18:02.240 --> 0:18:05.800 over the last few years, it's always been thematic. Right. 0:18:05.840 --> 0:18:08.520 We had the tech platforms and they were just the 0:18:08.560 --> 0:18:13.040 best model ever, so crowded. Then obesity drugs and everyone 0:18:13.280 --> 0:18:16.199 piled in, and then of course this year you had 0:18:16.240 --> 0:18:19.680 Ais you know, saved the day and everyone thought, wow, 0:18:19.720 --> 0:18:22.600 all these productivity gains. Of course, the markets can go 0:18:22.720 --> 0:18:26.040 on forever, my fear, although those have all worked in 0:18:26.400 --> 0:18:30.919 their great themes. Right, But the expectations for growth and 0:18:30.960 --> 0:18:33.840 all of those themes are high, and so are the valuations. 0:18:34.560 --> 0:18:37.320 So as a value investor, what I tend to think 0:18:37.400 --> 0:18:39.040 is overpriced right now is growth. 0:18:40.000 --> 0:18:43.560 Is there some degree of concern about the election maybe 0:18:43.680 --> 0:18:45.800 looming over the market. I'm not saying that that could 0:18:45.800 --> 0:18:49.840 be the catalyst to create the kind of second guessing 0:18:49.840 --> 0:18:53.240 that you're talking about to say that the market would correct. 0:18:53.080 --> 0:18:56.160 Great, it's a great question, right, And what we've seen 0:18:56.280 --> 0:18:58.879 is a month in politics is a long time. Yeah, 0:18:58.920 --> 0:19:01.000 you know, six weeks ago, the Trump trade was doing 0:19:01.080 --> 0:19:03.640 so well, and you know, and then Biden stepped down 0:19:03.640 --> 0:19:08.359 and Camela's you know, support has has truly been remarkable, 0:19:09.320 --> 0:19:11.320 that grounds fall, that she's got behind her, and so 0:19:12.000 --> 0:19:17.600 who knows. I don't have a crystal ball, but so 0:19:17.840 --> 0:19:20.680 I wouldn't I wouldn't place bets based on you know, 0:19:20.680 --> 0:19:23.119 I wouldn't invest based on the outcome of an election. 0:19:23.240 --> 0:19:27.120 I think that's certainly somewhere. I don't have an edge. 0:19:27.680 --> 0:19:31.159 Yeah, but if you look at economic plans, Kamala Harris 0:19:31.200 --> 0:19:34.040 what she would like to accomplish through her economic agenda, 0:19:34.040 --> 0:19:39.280 and whether that means that tax hikes, virtue that, you know, 0:19:39.359 --> 0:19:42.000 whatever is a part of the tax code right now 0:19:42.040 --> 0:19:45.000 in terms of those Trump tax cuts would not be extended. 0:19:46.280 --> 0:19:50.600 President or Vice President Harris has basically said that that 0:19:50.680 --> 0:19:52.480 she would like to be able to do more I 0:19:52.480 --> 0:19:55.000 think on the fiscal side. And then former President Trump 0:19:55.080 --> 0:19:57.840 is talking about the issue of tariffs is a way 0:19:57.880 --> 0:20:02.560 of combating a lot of the the export favoritism maybe 0:20:02.560 --> 0:20:05.240 that China enjoys, right, now do you think that either 0:20:05.280 --> 0:20:07.919 one of those things could spell trouble for the bond market? 0:20:08.920 --> 0:20:14.639 Well, the ironies, I think they're both inflationary, like higher taxes, terroriffts. 0:20:14.640 --> 0:20:17.560 Those are all inflationary at a time when you've got 0:20:17.560 --> 0:20:22.720 a very data dependent FED. So if you have higher inflation, 0:20:22.760 --> 0:20:24.960 our rate's going to come down as much as being 0:20:25.000 --> 0:20:29.439 priced in. So that's where the politics will matter. But 0:20:30.359 --> 0:20:33.440 you know, again, people say things and do things differently, 0:20:35.240 --> 0:20:37.080 and I think we would just have to wait to 0:20:37.080 --> 0:20:40.560 see on that one. But they're both definitely inflationary, which 0:20:40.680 --> 0:20:44.120 is a risk to the narrative that rates are coming down. 0:20:45.160 --> 0:20:48.000 Where are you finding opportunity in markets these days? Barbara? 0:20:49.400 --> 0:20:53.160 So, I think if we carry on in a Goldilock scenario, 0:20:53.359 --> 0:20:57.320 what will happen is this very narrow rally will broaden out. 0:20:57.400 --> 0:20:58.760 So if you look at the S and P five 0:20:58.840 --> 0:21:03.879 hundred twenty times next year's earnings, you compare that to 0:21:03.920 --> 0:21:07.080 the equal weight at SMP, which is trading at sixteen times. Right. 0:21:07.440 --> 0:21:11.680 So I think what lower rates will do is bring 0:21:11.720 --> 0:21:15.600 money into sectors and geographies that have underperformed during this 0:21:15.680 --> 0:21:19.240 higher rate environment. And when I think of what's underperformed, 0:21:19.280 --> 0:21:22.560 I really think it's emerging markets and capital intensive industries, 0:21:23.040 --> 0:21:25.960 and the anomaly there is, you know, a very capital 0:21:26.000 --> 0:21:29.560 intensive industry is mining. So I think lower rates help that, 0:21:31.160 --> 0:21:35.280 and we have been able to identify opportunities where not 0:21:35.320 --> 0:21:38.560 only is the stock cheap, but it has a catalyst 0:21:38.760 --> 0:21:43.000