WEBVTT - Latest Moves on China EVs, A Focus on Economic Data 0:00:00.120 --> 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 --> 0:00:26.080 Bloomberg Business App. 0:00:27.320 --> 0:00:31.560 Canada is clamping down on imports of Chinese made electric vehicles, 0:00:32.040 --> 0:00:34.760 and at the same time, Beijing has suggested that it 0:00:34.800 --> 0:00:39.159 would cut tariffs on Germany's large engine cars if Berlin 0:00:39.320 --> 0:00:43.279 can convince the EU to drop tariffs on Chinese evs. 0:00:43.800 --> 0:00:46.440 So a couple of angles to this very interesting story. 0:00:46.520 --> 0:00:48.960 Joining us now in our studios in Hong Kong is 0:00:49.040 --> 0:00:52.680 Min Min Low, Bloomberg China correspondent. Min Min Thanks very 0:00:52.760 --> 0:00:56.080 much for coming into three double duty on television and 0:00:56.240 --> 0:00:59.600 radio and keeping the audience as well informed. Let's talk 0:00:59.640 --> 0:01:02.960 first about the Canada moves. So this is Canada clamping 0:01:03.000 --> 0:01:05.640 down and kind of aligning itself more. I guess with 0:01:05.720 --> 0:01:09.880 the US position first having a thirty day public consultation period, 0:01:10.400 --> 0:01:12.000 and then it moves on from there. 0:01:12.080 --> 0:01:13.960 Walk us through what we expect might happen. 0:01:14.520 --> 0:01:17.560 Yeah, so the thirty day public consultation period is really 0:01:17.640 --> 0:01:20.600 the first stage before Canada can bring in tariffs. 0:01:20.240 --> 0:01:21.360 On Chinese evs. 0:01:21.800 --> 0:01:24.480 But the Finance Minister said that it's not just tariffs 0:01:24.480 --> 0:01:28.400 and focus. They're also examining changes to the list of 0:01:28.520 --> 0:01:33.120 electric vehicles that are eligible for federal consumer incentives because 0:01:33.160 --> 0:01:37.200 currently any electric vehicles from foreign countries qualify for the 0:01:37.280 --> 0:01:42.040 federal rebate. And they're also looking at changes or restrictions 0:01:42.080 --> 0:01:46.200 to broader investments into the EV sector. So pretty sweeping 0:01:46.360 --> 0:01:50.080 changes that could be possibly coming for Chinese evs. 0:01:50.200 --> 0:01:52.840 So what is the criticism from the Canadian government when 0:01:52.880 --> 0:01:59.000 it comes to the competition the Chinese evs represent versus 0:01:59.160 --> 0:02:03.520 some of the domestically manufactured cars in Canada. 0:02:04.360 --> 0:02:07.080 Yeah, the strongest pressure is really coming from the Province 0:02:07.120 --> 0:02:11.520 of Ontario, the Premier. They're saying that Chinese ev makers 0:02:11.560 --> 0:02:13.960 are able to sell very cheap evs because they have 0:02:14.080 --> 0:02:17.800 very low labor standards and they're using quote dirty energy 0:02:17.840 --> 0:02:20.919 as well. So they're putting pressure on Prime Minister Trudeau 0:02:20.960 --> 0:02:25.160 to really match those terriffs they're imposed by the Biden administration, 0:02:25.600 --> 0:02:28.519 and of course the Canadian automakers as well as calling 0:02:28.560 --> 0:02:31.400 for steep terriffs. They say that they want the government 0:02:31.440 --> 0:02:35.160 to protect Canadian jobs and Canadian wages. But really there 0:02:35.240 --> 0:02:39.440 is not actually that much of a threat from Chinese 0:02:39.520 --> 0:02:42.560 EV makers at the current moment, because there is not 0:02:42.720 --> 0:02:46.600 a huge presence of Chinese evs in Canada right now. 0:02:46.919 --> 0:02:50.720 Canada last year saw this fivefold search in evs from China, 0:02:50.800 --> 0:02:54.640 but most of that are teslas rather than the Chinese brands. 0:02:55.200 --> 0:02:58.840 And was there any mention in this about what might 0:02:58.919 --> 0:03:02.840 happen to Chinese cars if they're manufactured in Mexico, because 0:03:02.880 --> 0:03:05.320 that could be an issue for both the US and Canada. 0:03:05.560 --> 0:03:10.600 Yeah, So I think the intention of this investigation, or 0:03:10.639 --> 0:03:14.800 perhaps this relooking into possible tariffs, is really to close 0:03:14.840 --> 0:03:18.080 the back door for Chinese evs to get into America, 0:03:18.200 --> 0:03:21.800 because Canada, Mexico, and the US have a free trade 0:03:21.840 --> 0:03:25.640 agreement that's coming up under review in twenty twenty six. 0:03:25.720 --> 0:03:29.640 I believe so by getting both Canada and perhaps Mexico, 0:03:29.840 --> 0:03:31.920 well Mexico hasn't announced that, but we don't know if 0:03:32.160 --> 0:03:34.880 they would in the future, but getting these countries to 0:03:34.920 --> 0:03:36.920 be aligned when it comes to their China trade would 0:03:36.920 --> 0:03:39.560 really close off any potential side doors for China to 0:03:39.600 --> 0:03:44.080 circumvent those one hundred percent tariffs on Chinese electric vehicles 0:03:44.080 --> 0:03:45.920 that the Biden administration has imposed. 0:03:46.160 --> 0:03:49.000 How carefully does the Canadian government have to tread here? 0:03:49.040 --> 0:03:52.680 From what I understand, China is Canada's second largest trading partner, 0:03:52.720 --> 0:03:56.800 and I'm sure beyond electric vehicles there are many other 0:03:56.920 --> 0:04:01.720 industries that are involved in trade relations between these two countries. 0:04:01.760 --> 0:04:04.160 I mean, is this something that's going to take a 0:04:04.200 --> 0:04:06.680 little bit of nuance here and sensitivity on the part 0:04:06.680 --> 0:04:07.760 of the Canadian government. 0:04:08.800 --> 0:04:11.360 Yeah, so Prime minist Trudeau will really have to tread 0:04:11.360 --> 0:04:13.800 carefully because, as you said, China is the second largest 0:04:13.800 --> 0:04:17.880 trading partner. But again, you know it's Canada is it's 0:04:18.040 --> 0:04:20.280 basically the US's neighbor, and if you look at the 0:04:20.320 --> 0:04:24.080 auto sector in particular, they are very tightly integrated with 0:04:24.120 --> 0:04:27.720 the US supply chain. Canada sells both finished products and 0:04:27.839 --> 0:04:30.960 parts to the US, and in fact, majority of their 0:04:31.000 --> 0:04:33.479 exports by far is going to the US. So US 0:04:33.560 --> 0:04:37.040 still is its most important partner if you just look 0:04:37.040 --> 0:04:39.599 at the overall scheme of things, just by proximity, by 0:04:39.640 --> 0:04:41.080 trade volume and all that. 0:04:41.720 --> 0:04:44.760 Now let's talk about this second aspect of these developments. 0:04:45.160 --> 0:04:48.480 China offering a perk to Germany. Tell us more about that. 0:04:49.160 --> 0:04:53.080 Yes, so apparently this took place over the weekend. According 0:04:53.120 --> 0:04:55.400 to our sources, it was a conversation between the Chinese 0:04:55.440 --> 0:04:58.840 Commerce Minister one Went Tau and the German Economic Minister 0:04:58.960 --> 0:05:01.279 Robert Hebek when he was in China over the weekend. 0:05:01.800 --> 0:05:05.360 China is now floating this idea of lifting the existing 0:05:05.480 --> 0:05:09.400 fifteen percent terriffs on vehicles with large engines that come 0:05:09.400 --> 0:05:14.120 from Europe. So this would affect companies like BMW, Volkswagen, Mercedes, 0:05:14.640 --> 0:05:18.080 and it's, you know, really Beijing's way of dangling carrots 0:05:18.120 --> 0:05:21.359 and sticks for Germany because previously Beijing had hinted that 0:05:21.360 --> 0:05:24.920 they will impose twenty five percent tariffs on those very 0:05:25.000 --> 0:05:28.680 same vehicles. So you know, the permutations of this negotiation 0:05:28.880 --> 0:05:30.240 is just unlimited. 0:05:30.279 --> 0:05:33.680 Now, Well, you were talking about the limited demand for 0:05:33.800 --> 0:05:37.120 Chinese evs in Canada a moment ago, and I'm wondering 0:05:37.200 --> 0:05:39.840 how the appetite for Chinese evs happens to be in 0:05:40.480 --> 0:05:42.760 Europe right now? Is it about the same little. 0:05:42.640 --> 0:05:47.600 Tepid Well, Europe is a much more important market for 0:05:47.720 --> 0:05:52.560 Chinese evs. I believe it is forty percent of EVS 0:05:52.600 --> 0:05:55.920 in Europe that comes from China. I'm not sure I 0:05:55.960 --> 0:05:57.720 got that number one, but I believe it's forty percent, 0:05:57.839 --> 0:06:02.200 So a very important market packed to Canada. And again, 0:06:02.320 --> 0:06:06.760 as we've previously discussed before, China is now experiencing this 0:06:06.920 --> 0:06:09.880 over capacity problem and all these EV makers are engaging 0:06:09.920 --> 0:06:12.880 in a very steep and brutal price war back in China, 0:06:12.960 --> 0:06:16.560 so they are really looking overseas for higher profit margins. 0:06:17.480 --> 0:06:20.760 And it's not just Chinese ev is trying to get 0:06:20.839 --> 0:06:24.599 market in Europe. Germany as well. Together all these German 0:06:24.640 --> 0:06:27.760 companies they sell millions of cars to China, and that's 0:06:27.800 --> 0:06:31.839 why Germany is such an important partner for China to lobby, 0:06:32.440 --> 0:06:35.520 and Germany can really lean on other countries to break 0:06:35.600 --> 0:06:38.560 ranks with the EC just by using its weight as 0:06:38.600 --> 0:06:39.920 the U's largest economy. 0:06:40.400 --> 0:06:42.280 All right, me Man, thank you very much for coming 0:06:42.279 --> 0:06:45.279 into the studios with this min min Low. Bloomberg China 0:06:45.360 --> 0:06:56.880 correspondent joining us now is Carol Schleive Cio at BEMO 0:06:56.920 --> 0:07:00.440 Family Office to take a closer look at markets. Carol, 0:07:00.520 --> 0:07:03.360 thank you for joining us here on the program again. 0:07:03.400 --> 0:07:06.039 We've seen the broader market hold up pretty well here, 0:07:06.560 --> 0:07:09.239 even with the leadership getting slammed. We just talked about 0:07:09.360 --> 0:07:12.720 Nvidia down something like fifteen percent or so in the 0:07:12.760 --> 0:07:18.840 past week. What comes next is interesting. Perhaps the broader 0:07:18.880 --> 0:07:24.000 market falls infected by the lack of leadership here, or 0:07:24.040 --> 0:07:26.480 maybe you'll get this sort of benign movement that we've 0:07:26.520 --> 0:07:29.679 seen over the past week, where things broaden out and 0:07:30.080 --> 0:07:32.720 money flows into laggards and other themes. How do you 0:07:32.720 --> 0:07:35.240 see things moving here over the next few weeks. 0:07:35.880 --> 0:07:39.160 We would definitely err on the side of the or 0:07:39.760 --> 0:07:42.800 lean towards the side of the ladder, because you need 0:07:42.840 --> 0:07:46.120 a broadening market for this to have sustainability. We had 0:07:46.160 --> 0:07:49.160 seen some broadening earlier in the year, and actually, even 0:07:49.160 --> 0:07:51.880 when you look at today's performance, if you take out 0:07:51.880 --> 0:07:54.800 the market capitalization waiting and look at an equal weight 0:07:54.880 --> 0:07:57.559 on the S and P, most stocks did pretty well, 0:07:57.600 --> 0:08:02.760 and we need that broadening to sustain this. We actually 0:08:02.800 --> 0:08:05.560 think as we get into earnings, which will be in 0:08:05.640 --> 0:08:08.400 the midst of within the next couple of weeks, that 0:08:08.480 --> 0:08:11.600 you'll see stronger than expected earnings because people are forgetting 0:08:11.680 --> 0:08:14.280 last year. The comparison to last year will be a 0:08:14.480 --> 0:08:17.560 very soft last year versus this year. I think there's 0:08:17.600 --> 0:08:21.720 a lot of potential for some reasonable earnings, and so 0:08:22.080 --> 0:08:25.400 we think the fundamentals can carry through more industries than 0:08:25.560 --> 0:08:26.680 just technology. 0:08:27.160 --> 0:08:29.920 Is there a difference in theme as we approach the 0:08:29.960 --> 0:08:32.760 third quarter? How will the third quarter be different than 0:08:32.760 --> 0:08:33.280 the second? 0:08:34.320 --> 0:08:40.000 Hopefully it's a broadening with more sectors, more capitalizations leaning in. 0:08:40.360 --> 0:08:42.400 You know, it would be lovely if we can keep 0:08:42.400 --> 0:08:45.640 the US economy floating along like this, where you've got 0:08:46.280 --> 0:08:51.080 solid low to mid single digit kinds of growth rates 0:08:51.120 --> 0:08:55.960 from companies on the top line, but reducing costs that 0:08:56.120 --> 0:09:00.400 a lot of them have seen, and still sturdy consumers spending. 0:09:00.559 --> 0:09:04.960 You could see a variety of sectors and hopefully some 0:09:05.080 --> 0:09:07.400 spreading to mid and small caps would be lovely to 0:09:07.440 --> 0:09:08.120 see as well. 0:09:09.240 --> 0:09:12.079 You wonder whether biotech could be ready for a run. 0:09:13.280 --> 0:09:17.160 Yep, there's definitely implications when you start thinking about a 0:09:17.200 --> 0:09:20.040 lot of these companies and industries have really been leaning 0:09:20.040 --> 0:09:23.880 into building use cases for artificial intelligence and other things. 0:09:23.920 --> 0:09:26.480 You look at the rapid pace of drug development and 0:09:26.520 --> 0:09:32.520 what's going on. There's biotechnology, there's medical discovery, there's even 0:09:32.600 --> 0:09:37.080 some of the medical technologies. But there's uses all through 0:09:37.120 --> 0:09:39.920 the services industries too, when you start looking at who's 0:09:40.000 --> 0:09:46.320 already deploying artificial intelligence and other cost saving methods that 0:09:46.480 --> 0:09:49.920 in the intermediate, longer run should really help margins, even 0:09:50.000 --> 0:09:53.080 if it's a hit early on as they're building out 0:09:53.160 --> 0:09:55.280 data centers and figuring out where they're going to get 0:09:55.280 --> 0:09:56.240 their energy from. 0:09:56.320 --> 0:10:00.120 Obviously, we have an election November first debate, the presidential 0:10:00.160 --> 0:10:02.800 debate is on Thursday. Is it too soon for you 0:10:02.840 --> 0:10:06.240 to begin talking with clients about potential changes in tax 0:10:06.280 --> 0:10:12.000 policy and what a new administration may do to overall 0:10:12.040 --> 0:10:13.040 economic policy. 0:10:13.920 --> 0:10:16.200 No, we're getting We've been getting that question for a 0:10:16.320 --> 0:10:19.200 very long period of time, and I would assume especially 0:10:19.240 --> 0:10:22.880 this week, given that you've got fed speak, you've got 0:10:22.920 --> 0:10:25.920 the debates coming up on Thursday, You've got a lot 0:10:25.960 --> 0:10:29.080 of focus everywhere but the markets this week. But no 0:10:29.360 --> 0:10:31.640 clients have been asking us to lay out plans. And 0:10:31.679 --> 0:10:36.520 it's as as many commentators have noted, it's one of 0:10:36.520 --> 0:10:41.080 the most difficult to try to to try to place 0:10:41.160 --> 0:10:44.320 the odds on the outcomes of this one. And it's 0:10:44.360 --> 0:10:48.120 been interesting because no matter what strategistic shop you're looking at, 0:10:48.160 --> 0:10:53.559 there's very few that have you know, solid conviction in 0:10:54.320 --> 0:10:58.240 more than one halfs. Everyone's playing three or four different 0:10:58.280 --> 0:11:03.400 potential scenarios, none very high conviction, so it'll be nerve wracking. 0:11:03.920 --> 0:11:07.680 We suspect you'll see mark volatility and most likely flatter 0:11:07.760 --> 0:11:11.240 markets as we get into the throws of the election 0:11:11.360 --> 0:11:13.840 season this fall, but we do think you're teed up 0:11:13.840 --> 0:11:16.400 for a pretty reasonable summer before we hit that fall. 0:11:17.840 --> 0:11:20.320 It's also probably a fair game to talk a little 0:11:20.320 --> 0:11:22.040 bit about the FED. It seems like more of the 0:11:22.040 --> 0:11:25.600 FED speakers now are talking about the impact of higher 0:11:25.600 --> 0:11:27.800 for longer and how it might have an effect. But 0:11:27.840 --> 0:11:30.760 when I was digging down into the Merry Daily comments, 0:11:31.640 --> 0:11:34.960 I found a little bit of a conundrum there because 0:11:35.400 --> 0:11:38.880 she said that the labor market could be nearing an 0:11:38.880 --> 0:11:42.319 inflection point and that higher unemployment. 0:11:41.800 --> 0:11:45.960 Might result as a outcome of this. 0:11:46.600 --> 0:11:48.920 But then she also said that they may need to 0:11:48.920 --> 0:11:51.800 see a weaker economy to get to the target. So 0:11:51.920 --> 0:11:54.800 I wonder whether or not in her mind that's a 0:11:54.840 --> 0:11:58.120 little hawkish or a little dovish. 0:11:58.400 --> 0:12:01.080 I think it depends on who was asking the question 0:12:01.160 --> 0:12:05.800 of which day, maybe, but it is It is tough 0:12:05.840 --> 0:12:08.959 because I think the FED sensitive to market reaction too 0:12:09.600 --> 0:12:12.400 we saw what, you know, how the market reacted to 0:12:12.559 --> 0:12:15.800 Chairman Powell's press conference in December when all of a 0:12:15.840 --> 0:12:19.320 sudden they were projecting six or seven rate cuts this year, 0:12:19.360 --> 0:12:23.160 which was insane in our view. But we do think, 0:12:23.480 --> 0:12:26.520 you know, we keep our eyes focused pretty tightly on 0:12:26.559 --> 0:12:30.640 the on the jobs market because that is the backbone 0:12:30.640 --> 0:12:33.760 and the driver of this economy. We do suspect that 0:12:33.840 --> 0:12:36.240 you'll you'll see one of the things we'll be watching 0:12:36.280 --> 0:12:39.720 for is earnings get announced. Is we suspect companies will 0:12:39.760 --> 0:12:44.400 free up some of the cash that they've got sitting around, 0:12:44.440 --> 0:12:48.160 if you will, to do some plant expansions, to be 0:12:48.240 --> 0:12:50.840 thinking about stuff that got sidelined because a year ago, 0:12:50.880 --> 0:12:54.880 everybody was expecting a recession around every quarter or a corner, 0:12:54.960 --> 0:12:58.880 and that pulled in their expectations. So we expect businesses 0:12:58.880 --> 0:13:03.440 to cease to to start spending a bit again, given 0:13:03.520 --> 0:13:06.200 that things are still steady. But the employment market is 0:13:06.240 --> 0:13:09.040 definitely worth watching because there are signs at the margin 0:13:09.120 --> 0:13:12.040 that it's softening. You've got the weekly claims ticking up 0:13:12.080 --> 0:13:16.200 a bit, you've got job openings coming into better balance, 0:13:16.280 --> 0:13:18.560 and who knows how many of those are legit openings. 0:13:18.640 --> 0:13:22.760 Versus phantom openings that companies put out there they interview 0:13:22.840 --> 0:13:24.720 for just to build their pool, but they never really 0:13:24.800 --> 0:13:26.720 hire for them. 0:13:26.760 --> 0:13:29.839 How are you feeling about opportunities offshore? Are you seeing 0:13:29.880 --> 0:13:30.840 anything at the moment. 0:13:31.760 --> 0:13:32.000 Yeah. 0:13:32.040 --> 0:13:35.480 We actually recently went to a more neutral rating from 0:13:35.520 --> 0:13:39.240 an underweight on developed markets, particularly in Europe. We had 0:13:39.280 --> 0:13:43.480 been overweight. We stepped up our exposure to Japan two 0:13:43.559 --> 0:13:46.200 or three times over the last year and a half 0:13:46.320 --> 0:13:49.320 or so. But then looking at the developed markets and 0:13:49.360 --> 0:13:51.760 you're seeing some of the numbers stabilized there and come 0:13:51.800 --> 0:13:55.440 in better in terms of economic progress. They're starting to 0:13:55.520 --> 0:14:01.280 cut there, so they've got pretty solid economies. It's not thrilling, 0:14:01.559 --> 0:14:06.319 but there's you know, around the globe. Actually it's there's 0:14:06.880 --> 0:14:10.040 a lot to be optimistic about in terms of consumers 0:14:10.080 --> 0:14:11.080 in reasonable space. 0:14:11.559 --> 0:14:14.160 But Carol, you mentioned Japan. Do you worry that some 0:14:14.200 --> 0:14:17.120 of the policies there are leading to continued weakness in 0:14:17.160 --> 0:14:20.360 the currency and it seems to be kind of impacting 0:14:20.400 --> 0:14:21.480 the economy Now. 0:14:22.320 --> 0:14:24.720 Yeah, to a certain extent, it is, But I think 0:14:24.760 --> 0:14:27.200 the thing that doesn't get talked about very often is 0:14:27.200 --> 0:14:29.920 you've got a generation of workers there who have never 0:14:30.040 --> 0:14:33.680 had salary increases that now have salary increases that are 0:14:33.760 --> 0:14:36.560 keeping up with that inflation, and so that leads to 0:14:36.680 --> 0:14:37.440 different behavior. 0:14:38.080 --> 0:14:39.160 Yeah, that's a good point. 0:14:39.400 --> 0:14:41.880 You know, we haven't really thought about the Japanese consumer 0:14:42.080 --> 0:14:44.480 coming to life, but I mean that's what they want 0:14:44.520 --> 0:14:46.720 in China as well. Carol, it's always a pleasure to 0:14:46.760 --> 0:14:49.040 talk to you. Thank you for joining us. Carol Schleife, 0:14:49.440 --> 0:14:59.800 CIO at BEMO Family Office. Joining us now for some 0:15:00.000 --> 0:15:03.800 discussion of markets is Isaac Poole, Global CIO and portfolio 0:15:03.800 --> 0:15:08.680 manager at Orienta Financial Services. Isaac, I give you three topics, 0:15:08.720 --> 0:15:11.240 and you tell me what's most important and what's most 0:15:11.240 --> 0:15:17.600 interesting the FED and Nvidia or geopolitics involving Europe, the 0:15:17.680 --> 0:15:19.960 United States and China. 0:15:21.120 --> 0:15:22.960 Three tough ones, but three good ones. I think. 0:15:23.200 --> 0:15:26.960 Still right now, the FED is absolutely critical. It's still 0:15:26.960 --> 0:15:30.320 in the driving seat, and you can see that because 0:15:30.360 --> 0:15:33.240 markets are really struggling to get a grip on exactly 0:15:33.280 --> 0:15:35.240 when the Fed's going to cut, how quickly they'll cut, 0:15:35.280 --> 0:15:37.200 and how much they need to cut to head off 0:15:37.600 --> 0:15:38.720 a harder landing. 0:15:39.640 --> 0:15:42.680 What is your sense of exactly what you're laid out here, 0:15:42.720 --> 0:15:44.680 I mean, right now, the futures market seems to be 0:15:44.840 --> 0:15:48.640 indicating twenty five basis points in November, maybe another twenty 0:15:48.640 --> 0:15:51.440 five at the December policy meeting. Is that the way 0:15:51.440 --> 0:15:53.120 you're viewing the picture right now. 0:15:55.120 --> 0:15:56.760 I think that's plausible. 0:15:56.840 --> 0:16:00.360 But Mary Daly's comments earlier are really important here. The 0:16:00.440 --> 0:16:03.320 point that the labor market is perhaps a little more 0:16:05.240 --> 0:16:08.600 fractious than people are taking on board is really important. 0:16:09.120 --> 0:16:11.720 The unemployment rate has gone up to four percent from 0:16:12.240 --> 0:16:15.840 around three point four and never in history does the 0:16:15.920 --> 0:16:20.160 unemployment rate just stop and plateau and go along that 0:16:20.240 --> 0:16:22.320 same level for six or twelve months, like the FED 0:16:22.400 --> 0:16:25.640 is hoping it will. It typically goes up a lot. 0:16:25.800 --> 0:16:28.280 And so I worry that if the FED doesn't cut 0:16:28.360 --> 0:16:30.240 until November or December, it's not going to be a 0:16:30.240 --> 0:16:32.760 twenty five basis point cut. It could be an emergency 0:16:32.760 --> 0:16:36.120 cutter half a percent cut, which will be absolutely needed 0:16:36.880 --> 0:16:39.200 to get the economy even close to a soft landing. 0:16:39.840 --> 0:16:41.840 Yeah. I almost stuck my foot in my mouth earlier 0:16:41.840 --> 0:16:45.000 when Doug was reporting on the FED by following up 0:16:45.040 --> 0:16:47.040 by saying, so it's either zero, one or two in 0:16:47.080 --> 0:16:47.960 the next six months. 0:16:48.000 --> 0:16:48.600 Who cares? 0:16:49.280 --> 0:16:51.720 But you've just laid out why we really should care. 0:16:52.000 --> 0:16:56.520 Particularly if, and I suppose mainly if the economy goes 0:16:56.560 --> 0:16:59.680 into a serious downturn. But there aren't really many signs 0:16:59.680 --> 0:17:01.440 of that either, Isaac. 0:17:02.440 --> 0:17:05.960 There's nothing at the moment, or no one thing at 0:17:05.960 --> 0:17:08.080 the moment at least that you can point to and say, hey, 0:17:08.119 --> 0:17:11.280 we're right on the precipice of this doom loop. But 0:17:11.359 --> 0:17:14.159 there are some signs there that I think people really 0:17:14.200 --> 0:17:18.199 need to take attention of or pay attention to, and 0:17:18.240 --> 0:17:21.400 that is the retrenchment in consumer spending. We really are 0:17:21.440 --> 0:17:25.040 seeing retail sales in particular start to slow. It's across 0:17:25.119 --> 0:17:29.320 all income quintiles. It's starting to put downward pressure on 0:17:29.920 --> 0:17:34.359 consumer growth. And if that unemployment rate picks up, that's 0:17:34.400 --> 0:17:39.280 the doom loop scenario. That's the feedback loop where incomes collapse, 0:17:39.720 --> 0:17:41.520 household spending retrenches further. 0:17:41.840 --> 0:17:43.720 And this is a large part of GDP growth. 0:17:43.880 --> 0:17:46.919 And if that doom loop begins, it's going to be 0:17:47.000 --> 0:17:49.080 really difficult for the FED to cut their way out 0:17:49.080 --> 0:17:49.960 of it in a hurry. 0:17:50.200 --> 0:17:54.120 So, your portfolio manager, you run money at Oreana, I'm 0:17:54.160 --> 0:17:56.840 curious about giving everything you just laid out, how you 0:17:56.880 --> 0:18:00.199 play that thesis? Is it a bond market buy you 0:18:00.240 --> 0:18:03.240 begin lightning up on the equity space. So how are 0:18:03.320 --> 0:18:03.800 you playing this? 0:18:05.040 --> 0:18:09.399 Yeah, I mean that's exactly it. We've seen US treasuries 0:18:09.480 --> 0:18:11.840 up around five percent along the curve over the last 0:18:11.840 --> 0:18:14.520 six months, and yes they've come off a bit, but 0:18:14.720 --> 0:18:16.800 that's a great place to park some money if you're 0:18:16.800 --> 0:18:19.720 a little bit concerned about the economy's resilience over the 0:18:19.760 --> 0:18:22.800 next six to twelve months. One thing that we absolutely 0:18:22.840 --> 0:18:25.520 are not advocating is chasing rallies in the equity market. 0:18:25.800 --> 0:18:29.280 That's been a great rally. Investors have done very well. 0:18:29.680 --> 0:18:32.080 We would say it's time to start locking in some 0:18:32.119 --> 0:18:34.840 profits and perhaps building a bit of portfolio resilience through 0:18:34.880 --> 0:18:36.359 fixed income sleeves right now. 0:18:38.040 --> 0:18:40.479 Yeah, it's interesting to try to find some areas that 0:18:40.600 --> 0:18:45.400 have vastly underperformed that might be a combination of safety 0:18:45.840 --> 0:18:50.439 and value and could provide a little protection if you 0:18:50.480 --> 0:18:52.720 see continued selling in companies. 0:18:52.280 --> 0:18:54.960 Like Nvidia, Broadcom, and AMD. 0:18:56.920 --> 0:19:00.480 Yeah, it's not easy to find the real safe havens 0:19:00.520 --> 0:19:06.120 beyond that, really high quality government bonds, US treasuries for example. 0:19:06.240 --> 0:19:08.720 Although I would say one of the factors that has 0:19:08.760 --> 0:19:11.040 performed very well in the equity market has been quality. 0:19:11.200 --> 0:19:15.320 Now that has a reasonable exposure to the large megacap 0:19:15.480 --> 0:19:18.560 companies in the US. But for US, we think tilting 0:19:18.640 --> 0:19:21.840 to that quality value right now might be a place 0:19:22.000 --> 0:19:24.200 just to build some defensiveness in the equity sleeve. 0:19:24.359 --> 0:19:26.320 All right, so we've checked the box on the FED. 0:19:26.400 --> 0:19:28.800 Let's talk about geopolitics. We had a story a moment 0:19:28.840 --> 0:19:32.200 ago about China clamping down on imports of Chinese made 0:19:32.600 --> 0:19:37.600 electric vehicles. That is Canada maybe following what the US 0:19:37.680 --> 0:19:39.800 is attempting to do here. We know what the situation 0:19:39.920 --> 0:19:43.760 in Europe is. Are you concerned about how politics may 0:19:43.760 --> 0:19:46.040 be playing into markets right now in a way that 0:19:46.280 --> 0:19:47.800 may not be fully discounted. 0:19:49.359 --> 0:19:51.880 Yeah, And I think it's worth pointing out that it's 0:19:51.920 --> 0:19:54.840 always really hard for markets to fully discount some of 0:19:54.840 --> 0:19:59.480 these geopolitical risks, but they're there, they exist, and they 0:20:00.119 --> 0:20:04.600 they have the risk of sort of pushing markets down 0:20:04.760 --> 0:20:08.119 an equilibrium or a dis equilibrium in a hurry. And 0:20:08.160 --> 0:20:10.879 I think that is what's difficult for markets to price in. 0:20:11.000 --> 0:20:14.120 Where you might want to watch that is in bed pricing. 0:20:14.200 --> 0:20:17.280 So if we do see markets start depricing more rate cuts, 0:20:17.320 --> 0:20:20.600 I think that could be the bond market saying hang on, 0:20:20.760 --> 0:20:21.880 there is a little bit of risk there. 0:20:22.000 --> 0:20:24.439 Let's just take a little bit of protection against that. 0:20:26.520 --> 0:20:29.240 In terms of Asia, if we set aside China for 0:20:29.280 --> 0:20:32.680 the moment, Japan is one place that a lot of 0:20:32.680 --> 0:20:36.480 people are still thinking about, but they've been troubled by 0:20:36.560 --> 0:20:38.760 the weakness in the end. I see here in the 0:20:38.800 --> 0:20:42.480 notes that you're thinking that the end stands out as 0:20:43.000 --> 0:20:45.840 an opportunity going forward. Describe why. 0:20:47.160 --> 0:20:50.520 Yeah, I mean it has weakened a lot this year, 0:20:50.960 --> 0:20:55.600 and it's forced the Japan Japanese authorities to intervene in 0:20:55.880 --> 0:20:59.639 the currency markets, but overall, we still see the end 0:20:59.680 --> 0:21:03.520 as a as a risk off currency is something that 0:21:03.880 --> 0:21:09.280 where Japanese nationals will buy yen. If the global economy slows, 0:21:09.280 --> 0:21:12.760 and we think that the global economy is slowing. In 0:21:12.800 --> 0:21:16.520 that environment, you could see the yen strengthen. And I 0:21:16.640 --> 0:21:20.200 do suspect we'll see some more policy support, whether that's intervention, 0:21:20.280 --> 0:21:23.159 and that could come very very quickly, according to some 0:21:23.200 --> 0:21:26.040 of the commentary we're hearing out of Japan recently, or 0:21:26.560 --> 0:21:29.119 the Bank of Japan actually getting their act together and 0:21:29.240 --> 0:21:32.720 hiking while they still have a window to do so. 0:21:33.640 --> 0:21:36.000 I mean, that could leave the yen moving back towards 0:21:36.040 --> 0:21:37.720 one forty by the end of the year, and that's 0:21:37.760 --> 0:21:38.960 a pretty significant move. 0:21:39.280 --> 0:21:42.439 Last topic before we let you go, Isaac Brian mentioned 0:21:42.440 --> 0:21:44.280 in Vidia and the downdraft that we have seen in 0:21:44.320 --> 0:21:47.920 the stock over the last three days. Very quickly. Where 0:21:47.920 --> 0:21:51.320 do you come when it is about the AI story? 0:21:51.359 --> 0:21:54.240 I mean, what are you coming down on the bullish 0:21:54.440 --> 0:21:56.800 side still or are you beginning to get a little 0:21:56.840 --> 0:21:59.000 worried about the rally that we have seen in many 0:21:59.000 --> 0:21:59.600 of these names. 0:22:01.160 --> 0:22:03.800 I think a good way to put it is there 0:22:03.800 --> 0:22:06.720 has been a lot priced in to this rally, a 0:22:06.840 --> 0:22:09.600 real lot, and there's an onus on some of these 0:22:09.640 --> 0:22:12.520 other companies beyond in Video to show that it's going 0:22:12.520 --> 0:22:15.520 to deliver earnings growth, and today all we've seen is 0:22:15.600 --> 0:22:19.479 capek spend. So that is a challenge and we are 0:22:19.560 --> 0:22:22.639 going to see some competition come through to twin Video 0:22:22.720 --> 0:22:24.000