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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Daybreak

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Speaker 1: Asia Podcast. I'm Doug Chrisner. Today there were massive moves

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Speaker 1: in the currency market. The US dollars sold off, suffering

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Speaker 1: its largest one day decline since April. We had the

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Speaker 1: Bloomberg Dollar Spot Index falling one point one percent. Now,

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Speaker 1: President Trump said he did not think the value of

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Speaker 1: the dollar had declined too much. And that's where we

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Speaker 1: begin our conversation with Rob Kaplan, vice chair at Goldman

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Speaker 1: Sachs and former president of the Dallas Fedbank. He spoke

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Speaker 1: with Bloomberg Steven Engel at the Goldman Sachs Global Macro

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Speaker 1: Conference Asia Pacific.

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Speaker 2: What do you think is the true reason and manifestation

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Speaker 2: of this weaker dollar trend and how long would that last?

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Speaker 3: I think around the world, I think investors pools of

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Speaker 3: money are taking a fresh look at the US. There

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Speaker 3: has been a number of events over the last couple

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Speaker 3: of weeks, domestic and geopolitical, and I think what you're

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Speaker 3: seeing knows gold is up, alternative currencies are up. I

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Speaker 3: think there's a little bit of a reposition here. You'll

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Speaker 3: notice stocks in the US are not down, so people

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Speaker 3: are sticking with their risk positions. But I think are

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Speaker 3: probably buying some tail risk protection hedging the dollar. I

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Speaker 3: think we saw that in the first half of twenty

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Speaker 3: twenty five. Also, I think it will run its course.

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Speaker 3: It puts an onus on calming down some of the

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Speaker 3: tail risk, and I think that would help this.

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Speaker 2: I mean is to say that it's to help boost

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Speaker 2: exports two simplified explanation for what we're seeing here.

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Speaker 4: Yeah, I don't.

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Speaker 3: I think, yes, it is true a week er dollar

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Speaker 3: boosts exports. However, we have in the United States has

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Speaker 3: thirty nine trillion of debt on its way to forty

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Speaker 3: trillion plus.

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Speaker 4: And when you have that much.

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Speaker 3: Debt, I think stability of the currency probably Trump's exports

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Speaker 3: and so I actually think the US is going to

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Speaker 3: want to see a stable dollar and wants to see

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Speaker 3: stability and they want to be able to sell the

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Speaker 3: long end of the treasury curve.

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Speaker 4: Stable dollar helps.

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Speaker 2: I mean, there are concerns, obviously, and there's a lot of

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Speaker 2: noise about it, that this could be the beginning of

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Speaker 2: a multi year structural correction for the dollar.

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Speaker 4: You don't see that. I don't know that that's the case.

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Speaker 3: No, I think there's a lot of strengths in the

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Speaker 3: United States in terms of innovation, very strong year for

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Speaker 3: GDP growth coming, we believe, and a lot of positives. However,

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Speaker 3: people around the world, I don't think they're running away

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Speaker 3: from the US, but they're managing some of the tail

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Speaker 3: risk and the institutional framework. They're trying to make sure

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Speaker 3: they understand it, and on the margin are taking action

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Speaker 3: to probably hedge the dollar or buy some alternative safe haven's.

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Speaker 3: Gold is the most prominent example.

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Speaker 2: Absolutely so, gold obviously has seen the upside. Do you

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Speaker 2: think six thousand and now is a target? I know

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Speaker 2: you're not the prognosticator of currency or commodity markets, but.

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Speaker 3: Well, the house view is we could see goal getting

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Speaker 3: into fifty four, fifty five hundred. I don't think that's

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Speaker 3: an unreasonable view. It's had quite a run here. You

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Speaker 3: may see some retrenchment, but we think stronger gold makes sense.

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Speaker 2: How do you read what's happening in Japan? Obviously the

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Speaker 2: end is a beneficiary of the week of dollars at

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Speaker 2: one fifty two and change right now, So there was

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Speaker 2: a lot of chatter about intervention. When it's approached at

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Speaker 2: one sixty, there's you know, fiscal challenges obviously, and fiscal

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Speaker 2: stimulus being proposed by the Prime minister, but there's been

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Speaker 2: a bond market route and a lot of turmoil. How

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Speaker 2: do you see this dovetailing with what's happened.

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Speaker 3: So here's the dilemma for Japan, and this is true

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Speaker 3: of a lot of the develop world. Aging population in

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Speaker 3: Japan's case, shrinking workforce growth because of aging, and very

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Speaker 3: high leverage, and so there isn't at this stage as

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Speaker 3: much capacity for market willingness to go along with more

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Speaker 3: fiscal stimulus. On the other hand, there's things that the

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Speaker 3: central bank would normally do to protect the currency, i e.

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Speaker 3: Raise rates, and I think I think talking about excess

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Speaker 3: fiscal has sort of had an effect in the market.

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Speaker 3: So I think you'll see that Colm and will probably

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Speaker 3: need a combination of some fiscal action and probably the

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Speaker 3: central Bank taking some action to protect the currency. But

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Speaker 3: I think between now and the election, I think they

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Speaker 3: just want to calmness. But ultimately it's a symptom of

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Speaker 3: these structural issues, aging and leverage. This is why productivity

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Speaker 3: growth with AI being one of the catalysts, is the

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Speaker 3: big upside for many developed companies. Countries including the world,

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Speaker 3: and a lot of the world will be watching how

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Speaker 3: fast do you develop AI to improve productivity growth?

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Speaker 2: How do you read the reports and the speculation that

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Speaker 2: the New York Fed did a rate check at the

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Speaker 2: behas perhaps of Treasury to sort of send a signal

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Speaker 2: to the market that there could be coordinated intervention.

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Speaker 4: So obviously I've seen the same reports.

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Speaker 3: I think it's in the US's interest that you don't

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Speaker 3: see the back end of the Japanese bond curve move up,

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Speaker 3: because it will affect the back end of the US

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Speaker 3: treasury curve. And so I think some rhetorical intervention at

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Speaker 3: least doesn't surprise me, because I think it's in all

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Speaker 3: of our interest to see stability in the kind of

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Speaker 3: environment I talked about aging and leverage. We're seeing duration

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Speaker 3: challenges around the world, and I think we want to calmat.

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Speaker 2: Is there a risk? Last question on Japan? Is there

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Speaker 2: a risk that Japan could start selling off some of

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Speaker 2: its one point two jillion dollars in treasuries as a

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Speaker 2: bit of a backstop, as a bit of a way

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Speaker 2: to calm the bond or currency markets.

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Speaker 4: I think would that impact be.

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Speaker 3: I think the bigger issue about Japan I think I'll

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Speaker 3: have to wrestle with is the fundamentals.

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Speaker 4: Lack of workforce grow both.

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Speaker 3: Yeah, maybe bigger guest worker program. They'll probably talk about

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Speaker 3: faster productivity growth initiatives AI being part of it.

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Speaker 4: I think you've got to get.

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Speaker 3: To the fundamentals, which is a little bit better growth

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Speaker 3: in an aging society. With all the government at these

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Speaker 3: other things are more on the edges. You probably have

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Speaker 3: to address the fundamentals.

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Speaker 2: And calm messaging from authorities. So yeah, absolutely, let's talk

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Speaker 2: about the FOMC. We're going to get the decision early morning,

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Speaker 2: Hong Kong time tomorrow, widely believe, as esther George, we

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Speaker 2: just heard saying it's time to pause.

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Speaker 3: You agree, Yeah, I do agree. I think the FED

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Speaker 3: right now is at neutral. What do I mean neutral?

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Speaker 3: We're at three and a half three and three quarters.

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Speaker 3: The neutral rate is I think three quarters the one

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Speaker 3: percent real and then another at the inflation rate two

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Speaker 3: and three quarters. With inflation still runn into two and

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Speaker 3: three quarters and the expectations of stronger GDP growth i e.

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Speaker 3: Which may help the job market, I don't think they

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Speaker 3: want to move until they see demonstrable evidence that inflation

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Speaker 3: is improving. If they see that this year, they'll move,

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Speaker 3: but they don't want to act until they see it.

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Speaker 2: Is there disunity though among FED participants that was the concern,

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Speaker 2: and I talked to Patrick Harker, the former Philadelphia FED president,

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Speaker 2: who essentially said this could this causes problems. He was

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Speaker 2: quite surprised and the last decision in December.

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Speaker 4: By that disc I don't think.

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Speaker 3: I think there's debate and disagreement, and I think that's

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Speaker 3: a good thing. And here's why, when we were at

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Speaker 3: four to four and a quarter four and a quarter

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Speaker 3: four and a half, it was easier to go along

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Speaker 3: with cuts to buy labor insurance because we were still

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Speaker 3: the FED was still restrictive. The reason the tensions got

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Speaker 3: higher is once you're getting the neutral, I think a

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Speaker 3: good part of the group said I don't want to

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Speaker 3: be at neutral with inflation sticky and mode by the

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Speaker 3: way above target for the last four or five years.

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Speaker 3: I think you'll see now that they bought the insurance,

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Speaker 3: I think you'll see a pretty good consensus among the group.

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Speaker 3: We don't want to act until we see improvement.

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Speaker 2: And your views again on FED independence, Obviously, there's been

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Speaker 2: lots of wrapping up of rhetoric coming, whether it's from

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Speaker 2: the DOJ and having the subpoena. J. Powell stood strong.

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Speaker 2: Of course he's going to be handing off his position.

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Speaker 2: He could stay on as governor, though, how do you

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Speaker 2: think this plays out?

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Speaker 3: So let's take it in pieces. In December, a lot

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Speaker 3: of people may not have paid attention to this. The

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Speaker 3: governors voted unanimously to extend the term of all the

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Speaker 3: Bank presidents other than A. Raphael Bostak who's retiring. That

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Speaker 3: might have surprised people. Unanimous vote, by the way, Okay,

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Speaker 3: so I think it's I think there's more likelihood there'll

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Speaker 3: be stability among the presidents. Then if the Supreme Court

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Speaker 3: does not allow action on Lisa Cook, you've got four

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Speaker 3: seats with J. Powell's the one that's up for grabs.

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Speaker 3: I think he's likely. I would thought not to stay on,

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Speaker 3: and so there'll be four seats with the new chair.

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Speaker 3: It means the new chair will push regulatory reform, may

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Speaker 3: have more collaboration with the Treasury on the Balance sheep

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Speaker 3: and on the Fed funds rate. He's not going to

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Speaker 3: have seven votes, wired He's going to have to persuade, debate, disagree.

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Speaker 4: I think that's a good thing.

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Speaker 3: He'll argue that the Fed should anticipate inflation improvement. The

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Speaker 3: committee will want to see it, and that'll be the debate.

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Speaker 1: That's Rob Kaplan, vice chairman of Goldman Sachs and former

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Speaker 1: president of the Dallas Fed, speaking to Bloomberg Steven Engel

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Speaker 1: at the Goldman Sachs Global Macro Conference Asia Pacific. Welcome

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Speaker 1: back to the Daybreak Asia podcast. I'm Doug Prisner. Three

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Speaker 1: of the mag seven companies will be reporting earnings Wednesday

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Speaker 1: after the US close. We'll hear from Tesla as well

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Speaker 1: as Microsoft and Meta Platforms, and then the next day

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Speaker 1: Apple will report its results. Let's take a closer look

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Speaker 1: now with Phil Palumbo. He is founder, also CEO and

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Speaker 1: chief investment officer at Palumbo Wealth Management. Thank you for

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Speaker 1: being here, Phil. What are you expecting to hear from

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Speaker 1: these companies.

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Speaker 5: A lot of the focus is going to be around

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Speaker 5: this spending on capex in a return on investment. I

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Speaker 5: think a lot of investor is going to be interested

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Speaker 5: to see what that looks like overall. You know, we

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Speaker 5: own we own Microsoft. I think it's going to be

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Speaker 5: focusing on that cloud business and how that's performing and

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Speaker 5: on meta overall, I think the same story there, right

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Speaker 5: is their their spend rate and their focus. You know

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Speaker 5: what that all looks like, and if they're making any

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Speaker 5: type of return on investment. I think that that's what

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Speaker 5: this year is going to be really about.

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Speaker 1: So the stakes are high. I'm curious about whether you

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Speaker 1: feel this the theme of investing in artificial intelligence has

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Speaker 1: maybe run its course, at least in the short term.

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Speaker 1: I understand that people are optimistic longer term, but I'm

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Speaker 1: wondering whether the market is ripe for maybe a little

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Speaker 1: disappointment and if that's the case that some of these

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Speaker 1: stocks are vulnerable, or maybe you don't agree with that.

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Speaker 5: I don't agree with that. I actually believe that we're

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Speaker 5: in the second third inning of this AI revolution, which

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Speaker 5: is the biggest revolution we're ever going to see. Do

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Speaker 5: I think there's going to be hiccups and it's going

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Speaker 5: to be a little bit of a cesare at times

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Speaker 5: just like it was back in nineteen ninety five to

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Speaker 5: two thousand, mean absolutely yes, But I think overall it'll

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Speaker 5: be a huge victory where AI will really do a

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Speaker 5: lot of positive things for the economy, individual companies. I

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Speaker 5: think we still have to see that broadened out the

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Speaker 5: benefits of AI to all companies within the SP five hunters,

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Speaker 5: not just the MAC seven that everly focuses on. So

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Speaker 5: I'm very optimistic about AI in the future of it.

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Speaker 1: So we have a FED rate decision tomorrow as well,

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Speaker 1: and I'm curious to get your take on not so

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Speaker 1: much whether we get a cut in interest rates, but

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Speaker 1: what we are likely to hear from FED chair at

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Speaker 1: J Powell.

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Speaker 5: The economy remains strong right now. I think he's going

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Speaker 5: to talk about that. I think that he's going to

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Speaker 5: say the labor market overall I look at is neutral,

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Speaker 5: it's not terrible, it's not great, and I think due

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Speaker 5: to economic growth that he's going to be on pause.

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Speaker 5: I think he'll talk about economic growth and I think

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Speaker 5: he'll just continue to say he's going to continue to

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Speaker 5: follow the data, and if the job market gets worse,

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Speaker 5: I think at that time he'll act. I think inflation

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Speaker 5: at this point, I think he realizes that it's not

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Speaker 5: much of an issue at this point. And again I

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Speaker 5: think he's continued to say he's going to watch the data,

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Speaker 5: but I think for him it's going to be all

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Speaker 5: about the job market and reviewing that on a continuous basis.

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Speaker 5: I mean, specifically, it's taken people longer now, you know,

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Speaker 5: which we haven't seen in about four years to find

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Speaker 5: a job. So the job market is showing some strains

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Speaker 5: that I believe he's concerned about, but I think it's

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Speaker 5: it's still not enough for him to continue to raise rates.

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Speaker 1: So we heard from the conference board today consumer confidence

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Speaker 1: fell in January to the lowest level in more than

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Speaker 1: a decade. Samsa as though there is a little pessimism

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Speaker 1: here in terms of not only the labor market but

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Speaker 1: the overall economy as well. What does that cause you

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Speaker 1: to conclude here? If you've got weakness in consumer confidence

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Speaker 1: to that extent, I mean.

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Speaker 5: I think everybody understands why it's consumer confidence lem has

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Speaker 5: come down. I mean, I think there's a geopolitical issues

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Speaker 5: that we've had, especially with Greenland, and the threats that

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Speaker 5: Trump made about Greenland obviously didn't come to fruition. It

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Speaker 5: seems like it was just a bargaining chip that he

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Speaker 5: went forward with, But I think it just caused and

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Speaker 5: still causes a lot of uncertainty. And because of that,

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Speaker 5: I think we see confidence doing what it's doing. So

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Speaker 5: I'm not surprised at all with everything that's going on

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Speaker 5: in this country. It was seeing in Minnesota. All of

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Speaker 5: these things add up to reduce the confidence in consumers.

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Speaker 1: So what does that leave you when you look at

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Speaker 1: the bond market? Are there opportunities there if you want

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Speaker 1: to play the fixed income space?

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Speaker 5: So I am the furthest first person to thinking that

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Speaker 5: fixed income is a great investment longer term, just because

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Speaker 5: when you factor in the average return of fixed income

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Speaker 5: that you're getting, whether it now historically speaking and for

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Speaker 5: the future after taxes and inflation, your real return is

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Speaker 5: zero to negative. So I'm just not a belief big

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Speaker 5: believer in bonds being any opportunity. I mean, the reason

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Speaker 5: why we own any bonds in a portfolio just to

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Speaker 5: help protect capital there are major declines clients who are a

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Speaker 5: little bit more on the conservative side, and then we own,

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Speaker 5: you know, we'll own short term fixed income, very short

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Speaker 5: term that we can utilize to take advantage of any

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Speaker 5: type of volatility. But as far as opportunities a bond market,

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Speaker 5: what I would be very very nervous about if you

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Speaker 5: are a big bond investor, is the idea about the

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Speaker 5: Japanese bond market and what we're seeing there. If rates

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Speaker 5: continue to move higher parabolically, that's going to put some

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Speaker 5: pressure on outbound market here, which is not good for

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Speaker 5: long duration fixed income. So I would stay very very

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Speaker 5: short term as it relates to fixed income for numerous reasons.

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Speaker 5: I mean, I think you've got the economy grown here,

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Speaker 5: the yield curve steepens as a result of that, and

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Speaker 5: you got to watch a Japanese bond market, which can

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Speaker 5: cause all of that can cause yields to rise.

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Speaker 1: We have seen a pretty amazing rally in the precious

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Speaker 1: metal space. Both gold and silver have jumped to all

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Speaker 1: time highs. How do you view this? Is this more

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Speaker 1: of a haven trade right now, or people just so

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Speaker 1: nervous that they've become defensive, or is this a hedge

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Speaker 1: against something like dollar weakness.

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Speaker 5: You could argue that it's rates down, dollar down, gold up. However,

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Speaker 5: gold up parabolically is a different dynamic than a simple

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Speaker 5: rates down, dollar down, gold up. So the parabolic move

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Speaker 5: why is that? And I do think it's a function

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Speaker 5: of international developed countries specifically, even developing countries specifically China.

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Speaker 5: Really is central banks around the world buying gold and

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Speaker 5: result of the demand that we're seeing as a result

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Speaker 5: of central banks that's driving up the price of gold.

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Speaker 5: I think driving up the price of silver too. And

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Speaker 5: I think there has been confidence as a result of

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Speaker 5: our current administration where it's sell the dollar and buy gold,

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Speaker 5: and I think that's what's going on around the world.

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Speaker 1: So we've heard the term debasement trade applied a lot

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Speaker 1: where people are unwinding essentially from owning US assets and

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Speaker 1: they move in precious metals may also be reflective of that.

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Speaker 1: Would you agree with that analysis, Yeah, I do think.

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Speaker 5: In the short term there is a trade that is happening.

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Speaker 5: I don't believe it's a long term investment that's happening.

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Speaker 5: I think it's a trade that is developing where you

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Speaker 5: can make a couple of bucks, and I think traders

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Speaker 5: are hopping on that bandwagon. And that's what we're seeing

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Speaker 5: right now. And I think Trump with everything and he's doing,

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Speaker 5: creating the volatility that he's creating, and with tariffs, I think,

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Speaker 5: you know, investors around the world are losing confidence, selling

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Speaker 5: the dollar, looking for opportunities outside of that, and that's

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Speaker 5: what we're seeing right now. So this is a trade

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Speaker 5: that can continue.

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Speaker 1: Where are you finding opportunities in the US market these days.

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Speaker 5: A big area where if someone says, well, what's going

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Speaker 5: to know, who's going to be the biggest one out

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Speaker 5: of this whole AI investment revolution that we're seeing, And

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Speaker 5: I really do believe it is going to be Google.

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Speaker 4: Now.

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Speaker 5: Google is the most invertically integrated company out of all

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Speaker 5: the companies that are out there. They have more, more intel,

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Speaker 5: more better infrastructure, more data, you know, I think than

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Speaker 5: any other company out there, which now you know with

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Speaker 5: their Gemini product is which I think in Gemini now

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Speaker 5: is the most elite LLL model that that's out there.

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Speaker 5: That and you can see it in the numbers and

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Speaker 5: that numbers, and those numbers are only growing a year

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Speaker 5: after year of the year. I just think that Google,

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Speaker 5: where you could have bought it, would at a cheap

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Speaker 5: valuation due to people having uncertainty around the search business.

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Speaker 5: But as we can see, Google now is pulling ahead

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Speaker 5: of all their competitors and really shining, and in their

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Speaker 5: cloud business is growing over thirty percent. There's backlog, there,

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Speaker 5: great margins in that business, free cast flow of around

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Speaker 5: one hundred billion. I just feel Google is operating on

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Speaker 5: all sil you know, they have the TPU business. You

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Speaker 5: know the recent deal they do with Anthropic, So I

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Speaker 5: think I really really like Google a lot. Here. The

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Speaker 5: other area I like a lot is Amazon up only

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Speaker 5: six percent last year due to some hangover with the

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Speaker 5: with the tariff issues, which is you know, obviously a

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Speaker 5: big part of the business, the e commerce business, but

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Speaker 5: their e commerce business at this point really had done

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Speaker 5: a good job laying the foundation and the platform. I

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Speaker 5: think everything here you could see margins expand there. Their

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Speaker 5: AD business is a high margin business in the fifties,

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Speaker 5: you know, growing at around twenty to twenty five percent.

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Speaker 5: You know, their their AWS business, you know they're there,

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Speaker 5: They're leaders in the cloud business. You know, they're hitting

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Speaker 5: the numbers now that everybody's looking for. They got a

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Speaker 5: very strong backlog, so I could see a good year

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Speaker 5: out of Amazon.

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Speaker 1: So the S and P five hundred today finished at

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Speaker 1: a record high. And I'm curious to get your take

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Speaker 1: on the broader market right now for all of twenty

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Speaker 1: twenty six. To what extent will this year be an

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Speaker 1: up year for the stock market in the States.

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Speaker 5: Yeah, So what I continually say is that this year

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Speaker 5: is going to be an up year, but but but

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Speaker 5: not without a fight, and the fight for this year

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Speaker 5: where I believe you can get a ten to twenty

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Speaker 5: percent correction is going to come in really three parts.

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Speaker 5: One is the uncertainty around new FED chair, and the

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Speaker 5: market typically tests a new FED chair, So if there's

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Speaker 5: any indication that there's lack of independence, you can get

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Speaker 5: volatility around that, which I do believe you can see.

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Speaker 5: You know, that's number one. Number two, typically a second

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Speaker 5: year of a presidential election cycle, there's always volatility around that,

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Speaker 5: where correctional average could be fifteen percent. I think, going

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Speaker 5: back to what I said before, I think the Japanese

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Speaker 5: bond market and what's going on there, you know, can

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Speaker 5: be that exogny shock that could really put some pressure

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Speaker 5: on the bottom market bring yields up, which will also

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Speaker 5: create volatility. So due to these three main areas, I

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Speaker 5: could see a correction of ten to twenty percent. But overall,

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Speaker 5: for so many reasons, this economy is rocking and rolling.

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Speaker 5: You got the big beautiful bill and the refunds that

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Speaker 5: we're going to see from a tax standpoint. First half

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Speaker 5: of this year, I think we're going to see a

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Speaker 5: lot of the regulation deregulation materialize more. It's been a

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Speaker 5: slow startard deregulation, but you're going to see more and

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Speaker 5: more of that come into fruition this year. And that's

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Speaker 5: the positive backdrop why I think we could finish positive

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Speaker 5: for the year.

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Speaker 1: Phil will leave it there. Thank you so very much.

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Speaker 1: Phil Palumbo. He is founder, CEO and Chief Investment Officer

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Speaker 1: at Palombo Wealth Management. Joining us here on the Daybreak

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Speaker 1: Asia Podcast. Thanks for listening to today's episode of the

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Speaker 1: Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at

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Speaker 1: the story shaping markets, finance, and geopolitics in the Asia Pacific.

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Speaker 1: You can find us on Apple, Spotify, the Bloomberg Podcast

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Speaker 1: YouTube channel, or anywhere else you listen. Join us again

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Speaker 1: tomorrow for insight on the market moves from Hong Kong

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Speaker 1: to Singapore and Australia. I'm Doug Chrisner, and this is

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Speaker 1: Bloomberg