1 00:00:02,600 --> 00:00:06,040 Speaker 1: Welcome to the Bloomberg day Break Asia podcast. I'm Doug Chrisner. 2 00:00:06,400 --> 00:00:09,000 Speaker 1: Markets are gearing up for the earnings from the world's 3 00:00:09,000 --> 00:00:12,760 Speaker 1: most valuable company. It's in Nvidia, and the company certainly 4 00:00:12,800 --> 00:00:17,520 Speaker 1: at the epicenter of the craze over artificial intelligence. Tomorrow, 5 00:00:17,560 --> 00:00:21,040 Speaker 1: after the bell, we'll get those results. Joining us now 6 00:00:21,079 --> 00:00:23,960 Speaker 1: for a preview is Daniel Newman. He is the CEO 7 00:00:24,160 --> 00:00:27,639 Speaker 1: of the Futurum Group. Dan joins is from Chicago, the 8 00:00:27,680 --> 00:00:31,960 Speaker 1: site of Microsoft's annual Ignite conference. Dan, thanks for joining us. 9 00:00:32,200 --> 00:00:34,839 Speaker 1: I know you spoke with Sakia and Adella, the CEO 10 00:00:34,920 --> 00:00:37,360 Speaker 1: of Microsoft, earlier in the day, but if we can, 11 00:00:37,479 --> 00:00:40,560 Speaker 1: I'd like to begin with Nvidia. I was struck today 12 00:00:40,640 --> 00:00:43,879 Speaker 1: by a note from Barclay's strategist at the firm. We're 13 00:00:43,920 --> 00:00:47,360 Speaker 1: pointing out some of the price action in Nvidia options, 14 00:00:47,400 --> 00:00:50,159 Speaker 1: and if you look at that, it suggests that in 15 00:00:50,320 --> 00:00:54,440 Speaker 1: Vidia's results will be a much more important catalyst for 16 00:00:54,520 --> 00:00:56,840 Speaker 1: the remainder of the year than even the FED meeting. 17 00:00:57,400 --> 00:00:58,440 Speaker 1: How does that strike you? 18 00:00:59,320 --> 00:01:01,400 Speaker 2: Yeah, you're hearing things like hundreds of billions. 19 00:01:01,480 --> 00:01:03,400 Speaker 3: I think I've seen numbers as high as three hundred billion, 20 00:01:03,600 --> 00:01:08,240 Speaker 3: and this has become oddly familiar for those that have 21 00:01:08,360 --> 00:01:11,600 Speaker 3: been tracking Invidia, DOUG, because we've seen days where you 22 00:01:11,640 --> 00:01:13,920 Speaker 3: go well. They added an AMD in an intel today 23 00:01:13,920 --> 00:01:17,360 Speaker 3: in market Cap, having said that the market right now 24 00:01:17,480 --> 00:01:22,000 Speaker 3: is digesting this AI trade that continues to rally upward, 25 00:01:22,040 --> 00:01:25,240 Speaker 3: the companies closing near all time highs. It seems Blackwell 26 00:01:25,280 --> 00:01:27,360 Speaker 3: is getting off the ground successfully. At the same time, 27 00:01:27,400 --> 00:01:30,959 Speaker 3: though we were hearing these rumors this possible overheating issue, 28 00:01:31,080 --> 00:01:33,200 Speaker 3: and so the way I think this options market is 29 00:01:33,240 --> 00:01:35,400 Speaker 3: sort of reflecting is that I think a lot of 30 00:01:35,440 --> 00:01:37,880 Speaker 3: people feel very bullish DOUG, but there's this kind of 31 00:01:38,040 --> 00:01:41,319 Speaker 3: slight concern is can this momentum continuance. Is there any 32 00:01:41,440 --> 00:01:44,800 Speaker 3: merit because the rumor last quarter there was a little 33 00:01:44,800 --> 00:01:47,520 Speaker 3: bit of merit too, but it ended up being sort 34 00:01:47,520 --> 00:01:48,480 Speaker 3: of a non issue. 35 00:01:48,760 --> 00:01:48,960 Speaker 2: Yeah. 36 00:01:49,040 --> 00:01:51,720 Speaker 1: That was the report from the Information earlier in the week, 37 00:01:52,560 --> 00:01:56,240 Speaker 1: saying that basically the company has in recent months asked 38 00:01:56,400 --> 00:01:59,120 Speaker 1: suppliers to change the design of those server recks for 39 00:01:59,200 --> 00:02:03,480 Speaker 1: the Blackwell G because of some problem with overheating. Obviously 40 00:02:03,520 --> 00:02:06,560 Speaker 1: that comes late in the production process. What was striking 41 00:02:06,600 --> 00:02:09,960 Speaker 1: to me is in Nvidia really hasn't notified customers of 42 00:02:10,000 --> 00:02:12,600 Speaker 1: the delay and I'm wondering whether or not the company 43 00:02:12,720 --> 00:02:15,920 Speaker 1: just hasn't had time to because it's struggling to meet demand. 44 00:02:16,120 --> 00:02:17,280 Speaker 2: Is that possible? 45 00:02:18,040 --> 00:02:22,080 Speaker 3: We know everything is possible, but the tom toms, the 46 00:02:22,120 --> 00:02:24,160 Speaker 3: rumors I hear, and I have the access to speaking 47 00:02:24,160 --> 00:02:26,280 Speaker 3: to many of these companies, Many of these suppliers OEMs 48 00:02:26,280 --> 00:02:29,640 Speaker 3: and partners is units are starting to ship in production. 49 00:02:29,919 --> 00:02:33,240 Speaker 3: Here at Microsoft Satia, Nadella reiterated the seventy two GPU 50 00:02:33,400 --> 00:02:36,760 Speaker 3: units are moving into production. We saw Michael Dell come 51 00:02:36,800 --> 00:02:38,720 Speaker 3: out on x the other day and talking about the 52 00:02:38,720 --> 00:02:41,880 Speaker 3: work they're doing for Xai with the new Blackwell units. 53 00:02:41,919 --> 00:02:45,160 Speaker 3: So if there are design changes, we may be seeing 54 00:02:45,160 --> 00:02:47,520 Speaker 3: them happening on the fly and it doesn't seem to 55 00:02:47,560 --> 00:02:51,120 Speaker 3: be stopping progress. But I think everybody on the call 56 00:02:51,160 --> 00:02:53,000 Speaker 3: tomorrow is going to be kind of listening for any 57 00:02:53,040 --> 00:02:55,679 Speaker 3: inkling of is it slowing down and is there enough 58 00:02:55,720 --> 00:02:58,600 Speaker 3: to demand to fill any gaps If there was any 59 00:02:58,639 --> 00:03:01,959 Speaker 3: delays or cancelation. I tend to think it's going to 60 00:03:02,000 --> 00:03:05,320 Speaker 3: be positive. I just don't see these rumors come into fruition. 61 00:03:05,400 --> 00:03:08,160 Speaker 3: It feels like right before Earning's DOUG is a great 62 00:03:08,160 --> 00:03:09,760 Speaker 3: time for these kinds of stories to get a lot 63 00:03:09,760 --> 00:03:11,480 Speaker 3: of attention, just not sure. 64 00:03:11,320 --> 00:03:12,080 Speaker 2: There's a lot of merit. 65 00:03:12,320 --> 00:03:15,520 Speaker 1: So we know that Nvidia is basically one of the 66 00:03:15,639 --> 00:03:19,760 Speaker 1: keystones of the AI ecosystem, and we also know that 67 00:03:19,840 --> 00:03:22,320 Speaker 1: Microsoft has got a big stake in open AI. Right now, 68 00:03:22,360 --> 00:03:25,359 Speaker 1: what did you learn from Satnia Todella in terms of 69 00:03:25,400 --> 00:03:26,800 Speaker 1: the company's commitment to AI. 70 00:03:27,440 --> 00:03:31,840 Speaker 2: Yeah, so the conversation was then under NDA. 71 00:03:31,960 --> 00:03:34,639 Speaker 3: But what I can do is summarize some of what 72 00:03:35,080 --> 00:03:37,720 Speaker 3: Satya was able to reiterate today in the conversation that 73 00:03:37,720 --> 00:03:38,040 Speaker 3: we had. 74 00:03:38,080 --> 00:03:40,000 Speaker 2: First of all, the company is taking. 75 00:03:39,800 --> 00:03:42,120 Speaker 3: A very open and broad approach to how they are 76 00:03:42,160 --> 00:03:44,400 Speaker 3: thinking about AI. So you know, they made the investment 77 00:03:44,520 --> 00:03:47,600 Speaker 3: in open ai, and it looked early on like it 78 00:03:47,640 --> 00:03:50,160 Speaker 3: was going to be all about Microsoft. 79 00:03:49,560 --> 00:03:50,320 Speaker 2: And chat GPT. 80 00:03:50,880 --> 00:03:53,760 Speaker 3: What you're seeing now is a very open approach that's 81 00:03:53,800 --> 00:03:57,000 Speaker 3: starting to you know, this aperture to open model. So 82 00:03:57,040 --> 00:04:01,560 Speaker 3: they're working with the Lamas, the miststraws. They've expanded to 83 00:04:02,280 --> 00:04:05,440 Speaker 3: developers to focus much more on the enterprise data. 84 00:04:05,760 --> 00:04:09,520 Speaker 2: So we know that about only so many lms. 85 00:04:09,120 --> 00:04:11,720 Speaker 3: DOUG can be built with the same training data that 86 00:04:12,240 --> 00:04:14,720 Speaker 3: Gemini and Google are using, and open ai are using 87 00:04:14,920 --> 00:04:18,279 Speaker 3: and Anthropic are using. But The real value happens to 88 00:04:18,320 --> 00:04:20,520 Speaker 3: be that about eighty to ninety percent of the data 89 00:04:20,560 --> 00:04:24,320 Speaker 3: sits on prem in these enterprises to build llms that 90 00:04:24,400 --> 00:04:28,760 Speaker 3: might help solve drug discovery issues or to create more 91 00:04:29,279 --> 00:04:33,680 Speaker 3: safe autonomous driving, and so unlocking that creating an ecosystem 92 00:04:33,720 --> 00:04:37,360 Speaker 3: for developers. And Satya was very focused on building and 93 00:04:37,440 --> 00:04:41,159 Speaker 3: optimizing the applications and the hardware. So we're talking about 94 00:04:41,200 --> 00:04:45,800 Speaker 3: chips today, they're launching new chips for offloading certain workloads, 95 00:04:45,800 --> 00:04:48,960 Speaker 3: for storage, for security, and of course last year you 96 00:04:49,000 --> 00:04:52,000 Speaker 3: heard they launched an accelerator for AI. So they are 97 00:04:52,000 --> 00:04:55,320 Speaker 3: addressing hardware, but they really are looking very full stack. 98 00:04:55,880 --> 00:04:57,960 Speaker 3: And of course we're looking for how does that fifty 99 00:04:58,040 --> 00:05:01,880 Speaker 3: sixty billion of capex start to convert into more than 100 00:05:01,960 --> 00:05:03,920 Speaker 3: just the ten billion of revenue that we heard Amy 101 00:05:03,920 --> 00:05:05,000 Speaker 3: Hood talk about last quarter. 102 00:05:05,120 --> 00:05:07,120 Speaker 1: So is this a case of build it and they 103 00:05:07,120 --> 00:05:09,680 Speaker 1: will come, or is the demand part of the equation. 104 00:05:10,400 --> 00:05:12,839 Speaker 1: They're in a very robust way right now. 105 00:05:14,000 --> 00:05:20,240 Speaker 3: Well, I think the demand for the hyperscalers, the Googles, Microsoft's, 106 00:05:20,279 --> 00:05:23,239 Speaker 3: and Amazon's, the equation the calculus looks a little different 107 00:05:23,760 --> 00:05:26,160 Speaker 3: for those companies that it does, say for Nvidia, because 108 00:05:26,160 --> 00:05:28,280 Speaker 3: they're selling in, they're making the money, and they're moving 109 00:05:28,320 --> 00:05:31,520 Speaker 3: on and innovating. Where Microsoft, Google they sort of have 110 00:05:31,560 --> 00:05:34,800 Speaker 3: a two pronged approach. One is they need to build 111 00:05:34,800 --> 00:05:37,159 Speaker 3: all this AI for themselves, for their own companies, for 112 00:05:37,200 --> 00:05:38,159 Speaker 3: their own use cases. 113 00:05:38,320 --> 00:05:40,200 Speaker 2: We've seen it with Google and Meta and others. 114 00:05:40,440 --> 00:05:43,880 Speaker 3: But the secondness for these hyper scalers, it's how do 115 00:05:43,920 --> 00:05:46,320 Speaker 3: they stand up all these systems and then get all 116 00:05:46,400 --> 00:05:49,000 Speaker 3: of this compute and all these resources to work for 117 00:05:49,000 --> 00:05:52,080 Speaker 3: their enterprise customers. Right now, we heard, like I said 118 00:05:52,120 --> 00:05:55,000 Speaker 3: last quarter, Amy Hood said about ten billion of run 119 00:05:55,080 --> 00:06:00,400 Speaker 3: rate from all this AI, turning that into a factory 120 00:06:00,760 --> 00:06:03,880 Speaker 3: that's driving more than this annual outlay of Capex and doug. 121 00:06:04,080 --> 00:06:05,880 Speaker 3: This is probably one of the most interesting things is 122 00:06:06,480 --> 00:06:09,560 Speaker 3: historically compute cycles have been two, three, even four years. 123 00:06:10,120 --> 00:06:12,719 Speaker 3: We're now seeing a one year cycle. So we're already hearing, 124 00:06:13,279 --> 00:06:16,919 Speaker 3: you know, in Vidia talk about Rubin, which is after 125 00:06:17,000 --> 00:06:20,320 Speaker 3: Blackwell Wow, and Blackwell's just starting to ship. So these 126 00:06:20,320 --> 00:06:22,960 Speaker 3: companies have to buy all this Capex, stand up all 127 00:06:22,960 --> 00:06:26,480 Speaker 3: this equipment, sell it to the customers, and make it profitable, 128 00:06:26,920 --> 00:06:28,360 Speaker 3: and then they're going to have to do it again. 129 00:06:28,520 --> 00:06:31,080 Speaker 3: At least if Nvidia investors want to see this market 130 00:06:31,080 --> 00:06:32,960 Speaker 3: cap run to four trillion beyond. 131 00:06:33,400 --> 00:06:36,039 Speaker 1: We're very well aware of the export controls that the 132 00:06:36,040 --> 00:06:39,760 Speaker 1: Biden administration has placed on some of this advanced technology 133 00:06:39,800 --> 00:06:44,400 Speaker 1: for China. Obviously it's aimed at limiting certain aspects of 134 00:06:44,960 --> 00:06:48,039 Speaker 1: Chinese technology a lot in the military area. 135 00:06:48,120 --> 00:06:48,680 Speaker 2: I get that. 136 00:06:49,080 --> 00:06:51,520 Speaker 1: Do you think we're going to hear anything from in 137 00:06:51,720 --> 00:06:54,360 Speaker 1: Vidia tomorrow as it relates to the China market that 138 00:06:54,440 --> 00:06:58,120 Speaker 1: may allow investors to be a little bit more encouraged 139 00:06:58,120 --> 00:07:00,360 Speaker 1: that there is still a little bit of opportunit unity 140 00:07:00,400 --> 00:07:01,680 Speaker 1: for in Vidia in China. 141 00:07:02,279 --> 00:07:05,919 Speaker 3: Yeah, the new chip controls that talk about anything sub 142 00:07:06,000 --> 00:07:10,600 Speaker 3: seven nanometer would likely create a lot of consternation among 143 00:07:10,640 --> 00:07:13,160 Speaker 3: investors looking at the market opportunity in China. 144 00:07:13,160 --> 00:07:15,280 Speaker 2: But I actually think a lot of that at this point, 145 00:07:15,320 --> 00:07:16,160 Speaker 2: DOUG has been baked in. 146 00:07:16,680 --> 00:07:20,240 Speaker 3: I think the investors have largely looked that there were 147 00:07:20,280 --> 00:07:24,520 Speaker 3: some specialty components that in Vidia made, specialty parts h 148 00:07:24,600 --> 00:07:27,480 Speaker 3: twenties that were tuned down for China. But now we're 149 00:07:27,480 --> 00:07:32,000 Speaker 3: seeing that these technically don't pass the new controls, And 150 00:07:32,040 --> 00:07:34,680 Speaker 3: of course we know what a Trump administration entering the 151 00:07:34,720 --> 00:07:38,080 Speaker 3: White House, there's probably going to be even tighter, more 152 00:07:38,160 --> 00:07:43,120 Speaker 3: strict controls over intellectual property and innovations going to China. 153 00:07:43,280 --> 00:07:46,040 Speaker 3: So if I'm an investor, I'm looking at the situation 154 00:07:46,160 --> 00:07:50,280 Speaker 3: and I'm saying, we have to understands the demand continue 155 00:07:50,360 --> 00:07:53,000 Speaker 3: to run at this rate without China being able to 156 00:07:53,200 --> 00:07:57,040 Speaker 3: meaningfully play. We know China always has a way and 157 00:07:57,040 --> 00:07:59,360 Speaker 3: and other markets always have a way of getting We 158 00:07:59,480 --> 00:08:01,560 Speaker 3: know what happened with TSMC and soft Go. 159 00:08:02,240 --> 00:08:04,080 Speaker 2: We heard about this over the last few weeks. 160 00:08:04,280 --> 00:08:06,400 Speaker 3: But in terms of being able to directly get the 161 00:08:06,400 --> 00:08:10,800 Speaker 3: most leading edge from Nvidia or from ASML or others, 162 00:08:11,040 --> 00:08:13,400 Speaker 3: I think it's going to get harder during the Trump administration. 163 00:08:13,480 --> 00:08:16,760 Speaker 1: So I'm wondering, if you're playing in VideA on the longside, 164 00:08:16,800 --> 00:08:19,160 Speaker 1: do you want to be long TSMC as well. 165 00:08:19,760 --> 00:08:26,480 Speaker 3: TSMC is arguably the biggest monopoly right now, and not again, 166 00:08:26,520 --> 00:08:29,480 Speaker 3: monopoly doesn't always mean abuse, but a monopoly in terms 167 00:08:29,480 --> 00:08:33,920 Speaker 3: of having the only offering at the leading edge from 168 00:08:34,000 --> 00:08:37,319 Speaker 3: a process and packaging standpoint that can meet the demand 169 00:08:37,760 --> 00:08:39,920 Speaker 3: of a company like in Nvidia right now. So they 170 00:08:39,920 --> 00:08:42,840 Speaker 3: are incredibly well positioned. They're sold out largely through twenty 171 00:08:42,880 --> 00:08:45,680 Speaker 3: four and twenty five, and leading nodes they're getting grants 172 00:08:45,720 --> 00:08:47,880 Speaker 3: from the US government to expand capacity. 173 00:08:48,240 --> 00:08:50,839 Speaker 2: This is where I'd love to see Intel, And. 174 00:08:50,840 --> 00:08:53,480 Speaker 3: Of course Samsung's working out its issues because we actually 175 00:08:53,559 --> 00:08:56,000 Speaker 3: need more healthy competition in boundary and we need more 176 00:08:56,040 --> 00:08:58,280 Speaker 3: production and manufacturing of leading edge chips. 177 00:08:58,760 --> 00:08:59,920 Speaker 2: But as of right now. 178 00:08:59,800 --> 00:09:02,920 Speaker 3: It's it's really hard. You've seen record month after record 179 00:09:02,960 --> 00:09:06,199 Speaker 3: month from TSMC all on the weight to AI, and 180 00:09:06,640 --> 00:09:08,800 Speaker 3: it's hard to see it going another way because there's 181 00:09:08,800 --> 00:09:12,480 Speaker 3: so little competition and so much demand. TSMC is a 182 00:09:12,559 --> 00:09:14,920 Speaker 3: name that would be hard not to own if you 183 00:09:15,360 --> 00:09:18,880 Speaker 3: remain bullish. The AI is not a cyclical but it's 184 00:09:18,920 --> 00:09:20,120 Speaker 3: actually a secular trend. 185 00:09:20,559 --> 00:09:22,640 Speaker 1: Dan, thanks so much for joining us and helping us 186 00:09:22,640 --> 00:09:25,480 Speaker 1: set up the earnings from Nvidia tomorrow after the bell 187 00:09:25,559 --> 00:09:28,719 Speaker 1: in the US. Daniel Newman is the CEO of the 188 00:09:28,800 --> 00:09:32,240 Speaker 1: Futurum Group. Joining us here on the Daybreak Asia podcast. 189 00:09:40,480 --> 00:09:43,640 Speaker 1: Welcome back to the Bloomberg Daybreak Asia Podcast. I'm Doug Krisner. 190 00:09:43,960 --> 00:09:47,480 Speaker 1: President elect Trump has selected his Commerce Secretary. He is 191 00:09:47,559 --> 00:09:51,760 Speaker 1: Howard Lutnick, the chief executive of Kanter Fitzgerald. Lutnik will 192 00:09:51,800 --> 00:09:54,800 Speaker 1: be responsible for the tariff and Trade agenda, as well 193 00:09:54,800 --> 00:09:57,960 Speaker 1: as the Office of the US Trade rep Now, it 194 00:09:58,000 --> 00:10:01,679 Speaker 1: really shouldn't come as a surprise that mentions of tariffs 195 00:10:01,720 --> 00:10:04,439 Speaker 1: on earnings calls and transcripts for S and P five 196 00:10:04,520 --> 00:10:08,560 Speaker 1: hundred companies seem to be spiking. The largest surge is 197 00:10:08,600 --> 00:10:11,920 Speaker 1: coming from the industrial sector. Joining US now for a 198 00:10:11,920 --> 00:10:14,319 Speaker 1: closer look is Michael Green. He is the chief strategist. 199 00:10:14,400 --> 00:10:18,680 Speaker 1: He's also a portfolio manager at Simplify Asset Management. Joining 200 00:10:18,720 --> 00:10:22,320 Speaker 1: from here in New York. Michael, thanks for joining us. Obviously, 201 00:10:22,360 --> 00:10:25,920 Speaker 1: when you're talking about tariffs, importers will bear the direct cost, 202 00:10:26,360 --> 00:10:30,640 Speaker 1: potentially driving up expenses significantly for these companies. To what 203 00:10:30,760 --> 00:10:33,800 Speaker 1: degree is this a risk in your view on corporate 204 00:10:33,840 --> 00:10:34,840 Speaker 1: earnings going forward? 205 00:10:35,280 --> 00:10:38,720 Speaker 4: Well, it's clearly a risk, But the really critical component 206 00:10:38,840 --> 00:10:41,640 Speaker 4: is is that the actual risk is going to be 207 00:10:41,720 --> 00:10:44,840 Speaker 4: largely born by the exporters. So yes, the importers, the 208 00:10:44,840 --> 00:10:49,480 Speaker 4: wholesalers like Amazon, Walmart, etc. Could very well have to 209 00:10:49,520 --> 00:10:52,400 Speaker 4: pay higher prices for the goods that they're importing for 210 00:10:52,440 --> 00:10:56,079 Speaker 4: particular locations. But because we've had kind of a six 211 00:10:56,200 --> 00:10:59,440 Speaker 4: year lead on this since twenty eighteen, many of these 212 00:10:59,480 --> 00:11:01,960 Speaker 4: companies have actually invested a tremendous amount in terms of 213 00:11:01,960 --> 00:11:04,880 Speaker 4: building flexibility in their supply chains. That suggests that they 214 00:11:04,920 --> 00:11:09,120 Speaker 4: will rapidly move their supply chains to locations that have 215 00:11:09,280 --> 00:11:11,880 Speaker 4: less of a tariff impact. The real loser here, and 216 00:11:11,960 --> 00:11:14,160 Speaker 4: this is really the critical point we're already seeing, it 217 00:11:14,200 --> 00:11:16,640 Speaker 4: was you trying to come to the table in some forms, 218 00:11:17,120 --> 00:11:19,520 Speaker 4: is that this is really going to place pressure on 219 00:11:19,600 --> 00:11:23,640 Speaker 4: the China supply chain, in particular, lowering the profits and 220 00:11:23,720 --> 00:11:28,360 Speaker 4: the resources of the Chinese exporters. That's really the critical 221 00:11:28,360 --> 00:11:31,040 Speaker 4: component for the Trump administration, and it's one that I 222 00:11:31,080 --> 00:11:34,000 Speaker 4: think is going to have a surprisingly small impact on 223 00:11:34,120 --> 00:11:37,520 Speaker 4: prices in the United States, but a very large impact 224 00:11:37,600 --> 00:11:38,760 Speaker 4: on global supply chains. 225 00:11:38,840 --> 00:11:40,960 Speaker 1: The export economy in China has been one of the 226 00:11:40,960 --> 00:11:44,120 Speaker 1: bright spots. So does the US at this point, given 227 00:11:44,120 --> 00:11:46,400 Speaker 1: the fact that there are these threats of tariffs, have 228 00:11:46,480 --> 00:11:49,280 Speaker 1: a little bit of leverage in trying to renegotiate things 229 00:11:49,280 --> 00:11:50,240 Speaker 1: with China right now. 230 00:11:50,640 --> 00:11:52,640 Speaker 4: I think that's absolutely the right way to think about it, 231 00:11:52,720 --> 00:11:55,160 Speaker 4: because what China is really doing is dealing with the 232 00:11:55,200 --> 00:11:58,520 Speaker 4: deficit of internal demand. They need to export to the 233 00:11:58,520 --> 00:12:00,560 Speaker 4: rest of the world because they have not allowed their 234 00:12:00,600 --> 00:12:03,240 Speaker 4: population to become as wealthy as they should have given 235 00:12:03,280 --> 00:12:07,840 Speaker 4: their manufacturing and export prowess that has allowed resources to 236 00:12:07,920 --> 00:12:12,800 Speaker 4: accumulate to the Chinese Communist Party and the military. That's 237 00:12:12,840 --> 00:12:15,960 Speaker 4: obviously against the interests of the United States, and so 238 00:12:16,080 --> 00:12:19,880 Speaker 4: there is tremendous negotiating leverage. If we look around the world, 239 00:12:19,920 --> 00:12:23,920 Speaker 4: there's many situations which China is now a convenience manufacturer. 240 00:12:23,920 --> 00:12:27,160 Speaker 4: They're no longer the low cost manufacturer, and so again, 241 00:12:27,200 --> 00:12:30,680 Speaker 4: in many ways, this could actually be an impetus for 242 00:12:30,760 --> 00:12:33,480 Speaker 4: companies to take that step that they've wanted to take 243 00:12:33,520 --> 00:12:36,560 Speaker 4: for a while to move their production offshore in China. 244 00:12:37,120 --> 00:12:40,600 Speaker 4: The real question becomes, how does China retaliate when it. 245 00:12:40,559 --> 00:12:44,760 Speaker 1: Comes to the potential for inflationary impacts of tariff policy. 246 00:12:44,800 --> 00:12:47,680 Speaker 1: Does the bond market have it right? Is there a 247 00:12:47,760 --> 00:12:50,800 Speaker 1: high probability that this will have a significant increase in 248 00:12:50,800 --> 00:12:52,440 Speaker 1: the level of inflation here in the US? 249 00:12:52,720 --> 00:12:54,400 Speaker 4: Well, I think it's really critical to consider what the 250 00:12:54,400 --> 00:12:56,640 Speaker 4: bond market is actually saying. So if we look at 251 00:12:56,640 --> 00:12:59,960 Speaker 4: things like inflation forwards and inflation swaps, yes they have risen, 252 00:13:00,600 --> 00:13:02,880 Speaker 4: but they remain well below the levels that they were 253 00:13:02,880 --> 00:13:05,640 Speaker 4: at in twenty twenty one and parts of twenty twenty two, 254 00:13:06,320 --> 00:13:09,360 Speaker 4: and in many ways the levels that we're seeing for 255 00:13:09,400 --> 00:13:13,480 Speaker 4: things like inflation swaps or break evens on tips are 256 00:13:13,600 --> 00:13:15,880 Speaker 4: really very much in line with what we saw in 257 00:13:15,920 --> 00:13:18,679 Speaker 4: the pre pandemic era. Not quite as low as the 258 00:13:18,720 --> 00:13:22,080 Speaker 4: twenty seventeen twenty eighteen time period, and certainly not as 259 00:13:22,120 --> 00:13:24,440 Speaker 4: low as the immediate aftermath of the pandemic, but these 260 00:13:24,480 --> 00:13:28,640 Speaker 4: remain inflation metrics that are under control. The market is 261 00:13:28,640 --> 00:13:31,840 Speaker 4: suggesting there is not a significant risk here. What we 262 00:13:31,960 --> 00:13:36,080 Speaker 4: do have is an unbelievable narrative around that fear. We'll 263 00:13:36,080 --> 00:13:39,120 Speaker 4: see what ultimately plays out, but my expectations again are 264 00:13:39,160 --> 00:13:41,200 Speaker 4: the price impact is going to be much less than 265 00:13:41,200 --> 00:13:41,800 Speaker 4: people think. 266 00:13:42,160 --> 00:13:45,240 Speaker 1: Well, the FED seems to be dialing back expectations for 267 00:13:45,440 --> 00:13:48,840 Speaker 1: future rate cuts, and I'm wondering whether that's a growth 268 00:13:48,880 --> 00:13:52,600 Speaker 1: story more than an inflation story. Based on what you're 269 00:13:52,640 --> 00:13:53,679 Speaker 1: telling me, is that true? 270 00:13:54,360 --> 00:13:56,120 Speaker 2: That certainly seems to be the case. 271 00:13:56,160 --> 00:13:58,840 Speaker 4: Although this was a concern that I had actually flagged 272 00:13:58,880 --> 00:14:03,640 Speaker 4: during the summer. Remember the seasonality discussions that happened during 273 00:14:03,679 --> 00:14:07,560 Speaker 4: the summer. Those were very positive for us during the summer. 274 00:14:07,960 --> 00:14:11,040 Speaker 4: This is the seasonal adjustments, moving from non seasonally adjusted 275 00:14:11,080 --> 00:14:13,640 Speaker 4: prices to what are kind of expectations given where we 276 00:14:13,679 --> 00:14:16,000 Speaker 4: are in the year right, so during the summer, we 277 00:14:16,080 --> 00:14:19,120 Speaker 4: expect gasoline prices to rise as a function of the 278 00:14:19,240 --> 00:14:25,240 Speaker 4: driving season. Those seasonal adjustments were incredibly favorable during the 279 00:14:25,280 --> 00:14:28,200 Speaker 4: summer because of the change in the seasonality that we 280 00:14:28,280 --> 00:14:32,760 Speaker 4: experienced during COVID. That's now beginning to flip, and I, 281 00:14:32,920 --> 00:14:36,560 Speaker 4: unfortunately had been very worried that we would see exactly 282 00:14:36,640 --> 00:14:40,640 Speaker 4: this occur. We're now actually seeing indications that the FED 283 00:14:40,720 --> 00:14:44,760 Speaker 4: is going to respond to this seasonality by pausing interest 284 00:14:44,840 --> 00:14:47,880 Speaker 4: rate cuts. That's going to be very negative for segments 285 00:14:47,880 --> 00:14:51,960 Speaker 4: like the real estate markets, the housing sector, etc. And candidly, 286 00:14:52,000 --> 00:14:54,200 Speaker 4: I would suggest that part of what you saw earlier 287 00:14:54,240 --> 00:14:56,760 Speaker 4: in the day to day was fears around the housing 288 00:14:56,800 --> 00:14:59,360 Speaker 4: market not getting the support that it needs from lower 289 00:14:59,400 --> 00:15:00,160 Speaker 4: interest rates. 290 00:15:00,680 --> 00:15:03,560 Speaker 1: When you survey the global economy right now, and then 291 00:15:03,600 --> 00:15:07,960 Speaker 1: you allow that assessment to inform investment choices, do you 292 00:15:08,000 --> 00:15:11,000 Speaker 1: want to be overly exposed to the US right now 293 00:15:11,040 --> 00:15:13,760 Speaker 1: at the exclusion of let's say Asia or Europe. 294 00:15:14,200 --> 00:15:18,520 Speaker 4: Well, I think there's two questions embedded in there. One 295 00:15:18,560 --> 00:15:21,400 Speaker 4: is do you really have a choice, And part of 296 00:15:21,440 --> 00:15:24,360 Speaker 4: that is a function of where the US market cap, 297 00:15:24,480 --> 00:15:27,280 Speaker 4: particularly in equity markets, is relative to the rest of 298 00:15:27,320 --> 00:15:30,760 Speaker 4: the world, we're hitting new all time highs there. My 299 00:15:30,880 --> 00:15:33,160 Speaker 4: analysis and a lot of my work on market structure 300 00:15:33,240 --> 00:15:36,240 Speaker 4: suggests that this is largely a byproduct of the passive 301 00:15:36,320 --> 00:15:39,640 Speaker 4: investing boom that is further in the United States than elsewhere. 302 00:15:39,720 --> 00:15:42,040 Speaker 4: So I think it's important to just remember that if 303 00:15:42,080 --> 00:15:44,360 Speaker 4: we simply invested on the basis of market cap, you 304 00:15:44,400 --> 00:15:46,920 Speaker 4: would be over allocating to the United States to a 305 00:15:46,960 --> 00:15:47,480 Speaker 4: degree you. 306 00:15:47,480 --> 00:15:48,400 Speaker 2: Never have before. 307 00:15:48,960 --> 00:15:52,680 Speaker 4: Now, with that said, that much higher level of allocation 308 00:15:53,120 --> 00:15:55,680 Speaker 4: is also somewhat of a reflection of the US being 309 00:15:56,400 --> 00:15:58,920 Speaker 4: by far the cleanest dirty shirt that's out there. Right 310 00:15:59,000 --> 00:16:02,240 Speaker 4: If we look around the rest of the world, tremendous 311 00:16:02,280 --> 00:16:05,840 Speaker 4: increases in expenditures for simple things like defense that they've 312 00:16:05,880 --> 00:16:07,520 Speaker 4: taken for granted for the past. 313 00:16:07,440 --> 00:16:08,120 Speaker 2: Need to be done. 314 00:16:08,600 --> 00:16:11,600 Speaker 4: Those are taking away from the traditional strengths in these 315 00:16:11,680 --> 00:16:16,440 Speaker 4: exporter led environments like Japan and Europe, and as a result, 316 00:16:17,120 --> 00:16:19,840 Speaker 4: many are looking abroad and saying I just don't see 317 00:16:19,840 --> 00:16:24,360 Speaker 4: the compelling story. But likewise, in emerging markets, the vulnerability 318 00:16:24,400 --> 00:16:28,840 Speaker 4: to China, China's lack of demand and it's decreasing need 319 00:16:28,880 --> 00:16:31,920 Speaker 4: for commodities, which is really the primary production function of 320 00:16:31,960 --> 00:16:37,200 Speaker 4: the emerging markets that has downgraded to an extraordinary degree, 321 00:16:37,360 --> 00:16:39,680 Speaker 4: and you really have to ask yourself, what does the 322 00:16:39,720 --> 00:16:43,400 Speaker 4: future look like for many of these countries. If China 323 00:16:43,520 --> 00:16:45,600 Speaker 4: is unable to continue to grow in the manner that 324 00:16:45,640 --> 00:16:47,520 Speaker 4: it has over the last two decades. 325 00:16:47,320 --> 00:16:49,800 Speaker 1: If we look at themes, can we expect that big 326 00:16:49,840 --> 00:16:52,520 Speaker 1: cap tech will continue to be the type of driver 327 00:16:52,640 --> 00:16:54,120 Speaker 1: that it was in twenty twenty four. 328 00:16:54,760 --> 00:16:56,760 Speaker 4: It really depends on what you want to think of 329 00:16:56,760 --> 00:16:59,600 Speaker 4: as the driver. So again, the work on passive investing 330 00:17:00,080 --> 00:17:03,360 Speaker 4: us that the multipliers of money flowing into those companies 331 00:17:03,480 --> 00:17:07,159 Speaker 4: is significantly higher than it is for other companies simply 332 00:17:07,160 --> 00:17:12,360 Speaker 4: by virtue of their market capitalizations. That creates a continuation 333 00:17:12,680 --> 00:17:18,919 Speaker 4: of this process that is somewhat unaffected by the underlying performance. 334 00:17:19,800 --> 00:17:22,320 Speaker 4: But because their stock prices are going up more, they're 335 00:17:22,359 --> 00:17:25,840 Speaker 4: able to compensate their employees better through stock compensation plans, 336 00:17:25,880 --> 00:17:27,080 Speaker 4: they pay less in cash. 337 00:17:27,160 --> 00:17:28,600 Speaker 2: They're generating cash. 338 00:17:28,320 --> 00:17:31,040 Speaker 4: Flow associated with the exercise of those warrants, which in 339 00:17:31,040 --> 00:17:35,160 Speaker 4: turn creates opportunities for further investment. And so we have 340 00:17:35,280 --> 00:17:39,000 Speaker 4: really a situation here in which those leading stocks are 341 00:17:39,040 --> 00:17:42,760 Speaker 4: being advantaged to such an extraordinary degree that unless something 342 00:17:42,880 --> 00:17:46,280 Speaker 4: structural changes. I have a very hard time arguing it's 343 00:17:46,320 --> 00:17:47,679 Speaker 4: going to move in the opposite direction. 344 00:17:48,080 --> 00:17:51,040 Speaker 1: So, if we can assume that artificial intelligence is a 345 00:17:51,080 --> 00:17:54,280 Speaker 1: major component of that trade that you just laid out, 346 00:17:54,800 --> 00:17:58,720 Speaker 1: are you seeing evidence that there has been sufficient ROI 347 00:17:58,920 --> 00:18:01,320 Speaker 1: on that investment AI? 348 00:18:01,359 --> 00:18:05,000 Speaker 4: I actually ironically think it doesn't matter, and so I 349 00:18:05,040 --> 00:18:08,159 Speaker 4: think it's highly implausible that we will generate the ROI 350 00:18:08,320 --> 00:18:12,280 Speaker 4: in a reasonable time period associated with the AI boom. 351 00:18:12,640 --> 00:18:14,639 Speaker 4: But again, I'm not really sure it matters all that 352 00:18:14,760 --> 00:18:17,760 Speaker 4: much because when we have a market that is dominated 353 00:18:17,880 --> 00:18:21,920 Speaker 4: by passive investment strategies, they're simply buying in proportion to 354 00:18:22,000 --> 00:18:26,359 Speaker 4: market capitalization, presuming that nothing is actually changing as a 355 00:18:26,400 --> 00:18:29,119 Speaker 4: result of that behavior. And I simply think that's a 356 00:18:29,119 --> 00:18:30,800 Speaker 4: false articulation. 357 00:18:31,160 --> 00:18:34,320 Speaker 1: Michael will leave it there, great conversation. Thanks for joining us. 358 00:18:34,320 --> 00:18:37,800 Speaker 1: Michael Green is the chief strategist also a portfolio manager 359 00:18:37,840 --> 00:18:41,520 Speaker 1: at Simplify Asset Management. Joining here in New York on 360 00:18:41,560 --> 00:18:48,400 Speaker 1: the Daybreak Asia podcast. Thanks for listening to today's episode 361 00:18:48,480 --> 00:18:52,439 Speaker 1: of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we 362 00:18:52,440 --> 00:18:56,280 Speaker 1: look at the story shaping markets, finance, and geopolitics in 363 00:18:56,320 --> 00:18:59,399 Speaker 1: the Asia Pacific. You can find us on Apple, Spotify, 364 00:18:59,520 --> 00:19:03,000 Speaker 1: the Bloomberg Podcast YouTube channel, or anywhere else you listen. 365 00:19:03,400 --> 00:19:06,240 Speaker 1: Join us again tomorrow for insight on the market moves 366 00:19:06,320 --> 00:19:10,760 Speaker 1: from Hong Kong to Singapore and Australia. I'm Doug Prisoner 367 00:19:10,920 --> 00:19:12,320 Speaker 1: and this is Bloomberg.