WEBVTT - China's Factory Activity Read, Previewing US Eco Data 0:00:02.480 --> 0:00:10.480 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:10.520 --> 0:00:13.720 Daybreak Aisia podcast. I'm Doug Krisner. You can join Brian 0:00:13.800 --> 0:00:16.640 Curtis and myself for the stories, making news and moving 0:00:16.680 --> 0:00:19.560 markets in the APAC region. You can subscribe to the 0:00:19.600 --> 0:00:23.080 show anywhere you get your podcast and always on Bloomberg Radio, 0:00:23.320 --> 0:00:26.120 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:26.960 --> 0:00:29.280 Well, we had the pmis come out in China over 0:00:29.280 --> 0:00:32.920 the weekend, not particularly strong. We had the manufacturing PMI 0:00:33.000 --> 0:00:35.760 with a reading of forty nine point five that matched 0:00:35.760 --> 0:00:39.160 the survey estimate and also match the previous month. Joining 0:00:39.240 --> 0:00:42.680 us now for some discussion is Shazan Kazi, COO and 0:00:42.840 --> 0:00:46.480 Managing director at China Beige Book. Chazan, thanks very much 0:00:46.720 --> 0:00:50.479 for coming on the program with us. Bloomberg Economics says 0:00:50.560 --> 0:00:53.120 that the GDP target is in doubt of five percent. 0:00:53.200 --> 0:00:57.800 They say that without stronger stimulus delivery, there's a real 0:00:57.880 --> 0:01:01.920 risk here that GDP will undersh you your thoughts on 0:01:01.960 --> 0:01:03.200 where China is heading. 0:01:03.440 --> 0:01:05.040 Yeah, look, I think if you want to talk about 0:01:05.040 --> 0:01:08.200 the GDP, uh, you know, I agree that we may 0:01:08.200 --> 0:01:11.280 not get to five percent this year despite what the 0:01:11.800 --> 0:01:14.760 you know what the party claimed up front, but I 0:01:14.800 --> 0:01:17.160 think pulling back, let's talk about where the economy is. 0:01:17.200 --> 0:01:20.280 It kicked off on a pretty solid state in the 0:01:20.280 --> 0:01:23.640 first quarter, and where you're getting to now is that 0:01:23.720 --> 0:01:27.959 the pace of improvement has faded, There's no question about it. 0:01:28.200 --> 0:01:31.039 But we are nowhere near I think a level where 0:01:31.080 --> 0:01:35.360 Beijing starts to feel the pressure to unleash stimulus and 0:01:35.480 --> 0:01:38.600 large enough quantities, which is exactly which is what the 0:01:38.640 --> 0:01:40.440 markets are hoping for right now. 0:01:40.640 --> 0:01:44.480 So considering hope we've are looking forward to the third 0:01:44.520 --> 0:01:47.440 Plan in the month of July, is anything going to 0:01:47.520 --> 0:01:49.320 come from this meeting that's meaningful? 0:01:51.000 --> 0:01:53.320 Markets, I think are going to walk away feeling disappointed 0:01:54.240 --> 0:01:56.480 because if I'm the party, you know what am I 0:01:56.520 --> 0:01:59.000 looking at? I'm looking at a property sector where housing 0:01:59.080 --> 0:02:02.680 is beginning to act show possible green shoots. I'm looking 0:02:02.720 --> 0:02:05.760 at a manufacturing sector that's decelerating but still looking pretty 0:02:05.760 --> 0:02:08.320 good year over year. Sure, the consumer side of the 0:02:08.360 --> 0:02:11.359 economy is a bit spotty and not ideal, But does 0:02:11.400 --> 0:02:13.359 this mean that I need to really ramp up a 0:02:13.440 --> 0:02:16.520 fiscal spending and and you know, announce a bigger deficit 0:02:16.560 --> 0:02:19.800 for the year. I don't think so so announcement might 0:02:19.840 --> 0:02:23.080 be meaningful. Markets I don't think will treat anything as 0:02:23.120 --> 0:02:25.839 meaningful short of something that's very splashy. I just don't 0:02:25.840 --> 0:02:26.480 think they get it. 0:02:26.880 --> 0:02:29.720 Well, if you're a policymaker, you had been hoping that 0:02:29.880 --> 0:02:34.320 exports and manufacturing would would help bring the economy along, 0:02:34.639 --> 0:02:37.080 knowing that the consumer side was a little bit weak, 0:02:37.680 --> 0:02:40.200 and so that's not really happening. So I think what 0:02:40.639 --> 0:02:44.160 is being suggested by some is that they need to 0:02:44.160 --> 0:02:46.399 do something. Maybe it comes out of the third Plan, 0:02:46.680 --> 0:02:51.320 or maybe the PBOC just sort of increases the oomph 0:02:51.360 --> 0:02:55.079 of the home buying scheme, which you know, could could 0:02:55.160 --> 0:02:55.760 do the trick. 0:02:56.200 --> 0:02:57.600 It's just not big enough at the moment. 0:02:59.080 --> 0:03:01.480 And look, you know when when they get into the plan, 0:03:01.560 --> 0:03:03.000 and one of the things I think they may also 0:03:03.080 --> 0:03:06.560 talk about is claim some victory finally housing, you know, 0:03:06.760 --> 0:03:11.240 turning in some somewhat better news by comparison. By the way, 0:03:11.240 --> 0:03:14.680 I should point out, commercial property is starting to suffer 0:03:14.720 --> 0:03:17.440 a little bit, and so increasingly when we think about 0:03:17.480 --> 0:03:19.600 the Chinese property market and what needs to be done 0:03:19.639 --> 0:03:23.040 in terms of a rescue plan, investors might go from 0:03:23.080 --> 0:03:25.560 worrying solely about housing to worrying still about housing a 0:03:25.600 --> 0:03:28.600 little bit, but increasingly getting caught up with what's happening 0:03:28.639 --> 0:03:30.480 to commercial real estate in China. 0:03:30.600 --> 0:03:33.280 So we know the story on deflation, to what extent 0:03:33.360 --> 0:03:35.960 will the PBOC, to Brian's point, kind of lean in 0:03:36.520 --> 0:03:40.640 and do something that is maybe a little controversial, something 0:03:40.720 --> 0:03:43.080 very similar to quantitative easy. 0:03:44.000 --> 0:03:46.320 We're increasingly thinking, you know, hearing about the fact that 0:03:46.600 --> 0:03:50.160 you know, the PBOC wants to get involved in bond 0:03:50.160 --> 0:03:53.040 buying and that sort of thing. So there's there's there's 0:03:53.040 --> 0:03:56.000 a likelihood that we get some more information and announcements 0:03:56.440 --> 0:04:00.240 to that end, and that can help. But but let 0:04:00.240 --> 0:04:03.640 me point something out. Liquidity in the system has not 0:04:03.760 --> 0:04:07.200 been a challenge in China, and that is not a 0:04:07.280 --> 0:04:10.800 challenge today. If anything, I would argue, looking at the data, 0:04:11.080 --> 0:04:14.560 there's plenty of liquidity out there, and banks are willing 0:04:14.600 --> 0:04:17.480 to lend, and banks are cutting back on rates, banks 0:04:17.520 --> 0:04:19.800 are cutting back on rejections the way they used to 0:04:19.800 --> 0:04:23.039 reject loans a couple of years ago. Companies are just 0:04:23.080 --> 0:04:26.280 not going out there and borrowing. So what exactly is 0:04:26.320 --> 0:04:28.240 the problem and what exactly is the solution? We have 0:04:28.279 --> 0:04:29.360 to always think about that thing. 0:04:29.400 --> 0:04:33.920 Will carefully how important is corporate borrowing, which has ticked 0:04:34.000 --> 0:04:35.520 down a little bit in China. 0:04:37.520 --> 0:04:41.640 The main takeaway I think is Beijing is having a 0:04:41.720 --> 0:04:46.440 really really hard time stimulating the economy through monetary policy easing. 0:04:46.720 --> 0:04:49.800 It simply isn't working on in any kind of sustained fashion. 0:04:50.200 --> 0:04:51.840 You do get a month here or there with the 0:04:51.920 --> 0:04:56.840 five boring ramps up, because companies are still not expanding investment, 0:04:57.080 --> 0:04:59.040 and even though they're hiring a little bit more, they're 0:04:59.040 --> 0:05:01.440 not hiring and large enough quantities investing in large enough 0:05:01.480 --> 0:05:05.200 quantities to go out there and borrow continuously, And so 0:05:05.520 --> 0:05:09.320 stimulus through policiesing on the monetary side is just now 0:05:09.360 --> 0:05:10.000 working out. 0:05:10.120 --> 0:05:13.279 What about geopolitics, I mean the thread of maybe more 0:05:13.320 --> 0:05:16.680 severe tariffs on Chinese goods coming to the United States. 0:05:17.400 --> 0:05:19.920 That's one angle we were talking about. What's going on 0:05:19.960 --> 0:05:22.440 with the EV market, not just in the US but 0:05:22.680 --> 0:05:26.240 in Europe as well. What about the trade relations and 0:05:26.640 --> 0:05:29.919 geopolitics and how might that affect the economy going forward. 0:05:31.080 --> 0:05:33.839 Yeah, there's been a massive amount of redirection of trade 0:05:33.880 --> 0:05:37.440 away from directly with the US, even the EU a 0:05:37.440 --> 0:05:39.839 little bit in our latest data, and then through Southeast 0:05:39.839 --> 0:05:42.599 Asia and so forth. This is I think threat number 0:05:42.600 --> 0:05:44.720 one for the Chinese economy as they look at twenty 0:05:44.760 --> 0:05:47.520 twenty five, there's a trade war part two coming. There's 0:05:47.520 --> 0:05:49.080 just no question about it. I think at this point, 0:05:49.080 --> 0:05:51.280 if there's a Trump presidency, it's going to be pretty extreme. 0:05:52.200 --> 0:05:54.359 And so they are going to have to continuously figure 0:05:54.400 --> 0:05:58.200 out how to sort of almost jump on the decoupling 0:05:58.279 --> 0:06:03.440 bandwagon used to that bilateral trade deficit and be able 0:06:03.440 --> 0:06:06.920 to continuously meet customer demand out here by doing it 0:06:06.960 --> 0:06:09.200 through third party countries. And that of course is going 0:06:09.240 --> 0:06:11.480 to ultimately weigh on Chinese factories. I think it's going 0:06:11.480 --> 0:06:13.119 to take a tickets hit to their bottom lines. 0:06:13.520 --> 0:06:16.080 Shazzad, just in ten seconds, what's the bright spot at 0:06:16.080 --> 0:06:16.400 the moment? 0:06:16.440 --> 0:06:17.080 Ten seconds? 0:06:18.240 --> 0:06:20.080 Look, I think the bright spot is that parts of 0:06:20.080 --> 0:06:22.200 the services economy are holding on. I've said this before. 0:06:22.240 --> 0:06:24.960 Property is actually looking like the rescue plan my family 0:06:25.000 --> 0:06:28.320 finally be having an effect overall solid growth year over year. 0:06:28.720 --> 0:06:31.080 Okay, all right, well thanks for leaving us on at 0:06:31.120 --> 0:06:35.400 least a positive note. Shazad Kanzi there COO, managing director at. 0:06:35.279 --> 0:06:36.280 The China Page Book. 0:06:41.080 --> 0:06:43.800 Joining us now on my program, we will Addams, chief 0:06:43.839 --> 0:06:47.320 economists at Comerica Bank to take a closer look at 0:06:47.320 --> 0:06:49.560 the US economy and some of the data that we'll 0:06:49.600 --> 0:06:53.240 be having coming out this week. And before we get 0:06:53.240 --> 0:06:55.440 to that, Bill, I just wanted to get your comments 0:06:55.800 --> 0:06:59.120 on the stress test and the banks. We had kind 0:06:59.120 --> 0:07:01.719 of a lackluster day in the broader mark is, but 0:07:01.800 --> 0:07:04.919 the banks did very well. JP Morgan was up one 0:07:04.960 --> 0:07:08.279 point six percent, City Group rallied three percent. 0:07:08.160 --> 0:07:09.320 Bank of America higher. 0:07:09.320 --> 0:07:12.320 I know the market is not really your specialty, but 0:07:12.360 --> 0:07:15.360 it's it's good if the banks are doing well, is. 0:07:15.280 --> 0:07:19.000 It not, Brian, thank you for having me back. I 0:07:19.000 --> 0:07:22.240 think it's a sign of the broader health of the 0:07:22.320 --> 0:07:27.760 US economy. The financial system is well capitalized, and it's 0:07:27.920 --> 0:07:33.080 the economy is growing solidly, and when the economy does well, 0:07:33.240 --> 0:07:35.040 the banking system does well. 0:07:35.160 --> 0:07:38.560 So that's I have to say. 0:07:38.600 --> 0:07:41.120 I'm pleasantly surprised that you're even having me on when 0:07:41.200 --> 0:07:45.040 the economy is sort of, you know, bubbling along slow 0:07:45.080 --> 0:07:48.520 and steady, and it's kind of shifted a bit to 0:07:48.560 --> 0:07:51.720 the backdrop relative to twenty twenty three. 0:07:51.880 --> 0:07:55.040 But Bill, are all things kind of functioning at equal 0:07:55.160 --> 0:07:58.040 levels here? Is there not a little bit of weakness? 0:07:58.080 --> 0:08:01.160 I'm going to bring out. Commercial real estate is one area, 0:08:01.200 --> 0:08:04.840 and maybe there are pockets of the residential housing market 0:08:04.920 --> 0:08:05.840 that are starting to falter. 0:08:07.280 --> 0:08:10.679 Sure, interest rate sensitive sectors of the economy are definitely 0:08:10.760 --> 0:08:13.760 under pressure right now. I think commercial real estate is 0:08:14.160 --> 0:08:16.680 a prime example of that, as well as some parts 0:08:16.720 --> 0:08:22.080 of residential Also manufacturing. Of the manufacturing survey out this 0:08:22.120 --> 0:08:25.200 week is probably going to show some continued softness in 0:08:25.240 --> 0:08:29.680 that industry because that's a capital intensive, credit intensive industry, 0:08:29.760 --> 0:08:32.760 and the fed's high rate policy is having its intended 0:08:32.800 --> 0:08:33.400 effect there. 0:08:34.880 --> 0:08:35.160 Bill. 0:08:35.600 --> 0:08:38.679 You know, people don't like to get too comfortable with 0:08:38.800 --> 0:08:41.200 the sort of steady economy notion because they know that 0:08:41.240 --> 0:08:45.079 things can turn quickly, or at least they fear that 0:08:45.120 --> 0:08:49.320 things can turn quickly. Your take on the economy, I 0:08:49.360 --> 0:08:52.360 guess is that it's taking along okay. 0:08:53.000 --> 0:08:54.560 There are always challenges. 0:08:55.520 --> 0:08:58.000 If you had to single out some of the biggest 0:08:58.040 --> 0:08:59.400 challenges right now, what would they be. 0:09:00.960 --> 0:09:05.120 So we've already talked about cr which is an obvious one. Also, 0:09:05.320 --> 0:09:09.320 the risk of a FED policy error holding rates too 0:09:09.400 --> 0:09:12.640 high for too long. It's a possibility. On top of that, 0:09:13.360 --> 0:09:16.680 I'm looking at the startup hurricane season in the United 0:09:16.720 --> 0:09:19.760 States and in you know, the Western hemisphere. It does 0:09:20.200 --> 0:09:23.320 seem like we're having an earlier than normal start to 0:09:23.360 --> 0:09:28.679 that higher ocean temperatures. So I think the risk of uh, 0:09:29.679 --> 0:09:33.160 you know, severe hurricane hitting some part of the United 0:09:33.200 --> 0:09:36.600 States and causing property damage, especially like in a metro 0:09:36.679 --> 0:09:41.480 area that where we've seen home insurance premiums rise a 0:09:41.480 --> 0:09:45.040 lot and an increase in under insurance or uninsurance, I 0:09:45.040 --> 0:09:49.600 think we could have macroeconomic effects of that that that 0:09:49.679 --> 0:09:51.840 could be pretty painful for the US economy. 0:09:51.840 --> 0:09:55.920 Heyil, so tick, let's pivot to the PCE. But what 0:09:55.960 --> 0:09:58.880 did you make of that reading? Underlying inflation is starting 0:09:58.880 --> 0:10:01.520 to cool now, I mean, is enough to allow the 0:10:01.600 --> 0:10:04.600 rate the Fed rather to move more quickly than let's 0:10:04.600 --> 0:10:05.240 say November. 0:10:06.640 --> 0:10:08.960 It's a step in the right direction. I think a 0:10:09.000 --> 0:10:11.400 September rate cut is still on the table, and that 0:10:11.480 --> 0:10:14.120 is in fact our base case for the FED for 0:10:14.200 --> 0:10:17.080 this year, one cut in September, a second one in December. 0:10:17.240 --> 0:10:21.400 The Fed wants to see more normalization of inflation, which 0:10:21.640 --> 0:10:24.720 I think with the economy operating now with a decent 0:10:24.800 --> 0:10:30.760 margin of slack and a more balanced relationship between supply 0:10:30.800 --> 0:10:33.360 and demand and the labor market, it looks like inflation 0:10:33.440 --> 0:10:37.680 should moderate further and that those rate heights are possible. 0:10:37.720 --> 0:10:41.120 So the PCE report basically validating that we are in 0:10:41.120 --> 0:10:44.760 this two steps forward, one step back process back towards 0:10:45.080 --> 0:10:46.080 more normal inflation. 0:10:47.520 --> 0:10:49.520 So in the data that we got late last week, 0:10:49.600 --> 0:10:55.680 including personal incomes and spending, personal incomes up and higher 0:10:55.760 --> 0:10:59.680 than expected, and spending was pretty steady. But I wonder 0:10:59.720 --> 0:11:01.840 whether or not, you know, if, because you had such 0:11:01.840 --> 0:11:04.720 a robust stock market in the first half of the year, 0:11:05.000 --> 0:11:07.160 if that cools down in the second half, whether you 0:11:07.240 --> 0:11:10.520 might see well off people spending a little bit less. 0:11:11.440 --> 0:11:14.400 I don't really track the breakdown there as closely as 0:11:14.480 --> 0:11:17.079 you do, but tell us what you expect in terms of, 0:11:18.440 --> 0:11:20.200 you know, spending in the second half. 0:11:19.960 --> 0:11:20.360 Of the year. 0:11:22.200 --> 0:11:26.240 The affluent consumer in the United States and wealthy consumers 0:11:26.280 --> 0:11:31.720 are doing quite well. Household net worth was up about 0:11:31.800 --> 0:11:34.160 nine percent year over year in the first quarter, which 0:11:34.200 --> 0:11:37.080 is the last the most timely data we have right 0:11:37.160 --> 0:11:40.640 now on all assets all liabilities of the household sector, 0:11:41.000 --> 0:11:44.439 and that is enough to continue to power spending. Consider 0:11:44.520 --> 0:11:47.680 that the US is an aging society, A lot of 0:11:47.800 --> 0:11:52.240 consumers are retirees, and so they're much more sensitive to 0:11:53.160 --> 0:11:56.920 asset markets and financial markets than they are to earned incomes, 0:11:57.240 --> 0:11:59.199 and I think that's going to keep the US economy 0:11:59.240 --> 0:12:00.600 growing in the second half of the year. 0:12:00.840 --> 0:12:03.880 Let's talk about the employment reports. Do at the end 0:12:03.880 --> 0:12:06.520 of the week. Obviously it's a market holiday on Thursday 0:12:06.520 --> 0:12:09.760 here in the States when we come back from July fourth, 0:12:09.840 --> 0:12:11.800 and we're going to jump right into it with non 0:12:11.840 --> 0:12:14.600 farm payrolls for June. Are you expecting a little bit 0:12:14.600 --> 0:12:15.480 of moderation. 0:12:16.920 --> 0:12:20.720 I'm expecting a hair more softness on the household survey, 0:12:20.920 --> 0:12:23.280 So I do think the unemployment rate more likely than not, 0:12:23.360 --> 0:12:25.800 would rise to four point one percent from four percent 0:12:26.559 --> 0:12:30.200 in May. I think the payrolls will probably still see 0:12:30.200 --> 0:12:33.240 a solid report. So we've really had a lot of 0:12:33.280 --> 0:12:36.679 split personality type jobs reports in the last couple of months, 0:12:36.679 --> 0:12:39.880 with the unemployment rate rising, a mid solid payrolls growth, 0:12:39.920 --> 0:12:42.679 and I think we'll still see that mixed message in 0:12:42.720 --> 0:12:45.760 this latest report, but most likely we'll also see wage 0:12:45.760 --> 0:12:46.600 growth moderating. 0:12:47.679 --> 0:12:51.440 Speaking of mixed messages, it seems it's very very difficult 0:12:51.520 --> 0:12:54.800 to get one take on things. For instance, we just 0:12:54.840 --> 0:12:57.760 got some date out of Japan. You had some slight 0:12:57.800 --> 0:13:01.280 positivity there with the large manufacturer Tongkon thirteen. 0:13:01.400 --> 0:13:02.319 The estimate eleven. 0:13:02.880 --> 0:13:07.640 But first quarter and this is ancient information admittedly, but 0:13:08.280 --> 0:13:11.880 first quarter GDP was revised down pretty sharply to minus 0:13:11.920 --> 0:13:14.640 two point nine percent. How do you read Japan at 0:13:14.640 --> 0:13:15.000 the moment? 0:13:16.920 --> 0:13:21.320 I think of Japan as a slow growing economy, advanced 0:13:21.360 --> 0:13:25.760 economy that's being affected by the lagged effects of high 0:13:25.840 --> 0:13:29.679 interest rates around the world and the headwinds to manufacturing 0:13:29.720 --> 0:13:32.880 from that. Nice to see the latest survey in more 0:13:32.880 --> 0:13:39.120 positive territory. I think there's the upside case for Japanese 0:13:39.120 --> 0:13:42.360 manufacturing for global manufacturing this year is that we've been 0:13:42.400 --> 0:13:46.559 in a period of inventories de stocking in the goods 0:13:46.559 --> 0:13:49.760 sector around the world, and maybe we're going to come 0:13:49.760 --> 0:13:51.880 to the end of that soon and we'll see a 0:13:51.920 --> 0:13:54.800 little bit stronger demand for inventories and business to business 0:13:54.800 --> 0:13:55.560 sales because of that. 0:13:56.240 --> 0:13:59.480 So the swaps market bill right now is projecting maybe 0:13:59.520 --> 0:14:01.320 we get too rate cuts between now and the end 0:14:01.360 --> 0:14:03.920 of the year. Certainly twenty five basis points at least 0:14:04.160 --> 0:14:07.920 has been fully priced in by November, maybe December as 0:14:07.920 --> 0:14:09.959 a toss up. I don't know, how are you seeing 0:14:09.960 --> 0:14:12.080 the path for rate cuts between now and the end 0:14:12.160 --> 0:14:13.400 of twenty four. 0:14:14.800 --> 0:14:19.560 Market pricing is reasonable. I think that there's a stronger 0:14:19.680 --> 0:14:21.800 likelihood of a second rate cut by the end of 0:14:21.840 --> 0:14:25.880 this year, and that's because I think we have seen 0:14:25.920 --> 0:14:29.600 a more substantial slowdown in the economy than, for example, 0:14:29.640 --> 0:14:33.360 you'll get by looking at GDP now still has real 0:14:33.400 --> 0:14:35.840 GDP in the second quarter above two percent. I think 0:14:36.000 --> 0:14:40.080 probably we'll see a second quarter GDP print of a 0:14:40.080 --> 0:14:43.360 bit shy of two percent. So with that, you know, 0:14:43.440 --> 0:14:46.080 businesses don't have the same pricing power that they did 0:14:46.080 --> 0:14:50.000 when the economy was going gangbusters in the second half 0:14:50.040 --> 0:14:53.040 of last year, and I think that's going to lead 0:14:53.080 --> 0:14:57.200 to more discounting announcements and help to slow inflation. 0:14:58.320 --> 0:15:00.640 All right, Bill, thanks very much for joining us. Spill Adams, 0:15:00.720 --> 0:15:11.000 chief economist ATQ America Bank to talk about markets, who 0:15:11.000 --> 0:15:14.600 are joined by Meredith Whitney, founder and CEO at Meredith 0:15:14.600 --> 0:15:18.240 Whitney Advisory Group. Meredith, thank you for joining us here. 0:15:18.480 --> 0:15:21.840 So we had some favorable economic data out on Friday 0:15:21.880 --> 0:15:25.640 with spending and income and the PCEE, yet it was 0:15:25.680 --> 0:15:29.480 not a risk on session, particularly for markets. 0:15:29.920 --> 0:15:32.080 How are you reading the room at the moment? 0:15:33.520 --> 0:15:34.880 I think it's well. 0:15:34.920 --> 0:15:37.600 First of all, you know, a lot of the outperformance 0:15:37.800 --> 0:15:41.560 in the market, as you have well covered, is very concentrated. 0:15:41.640 --> 0:15:44.880 So you know, today I was looking at doing a 0:15:44.920 --> 0:15:47.880 second quarter audit of the baskets that I look at, 0:15:48.000 --> 0:15:54.640 and you've got great names that have underperformed and. 0:15:53.320 --> 0:15:54.560 For no fundamental reason. 0:15:54.920 --> 0:15:58.200 So I think that, you know, you can have good 0:15:58.280 --> 0:16:00.440 numbers come out or bad numbers come out. I wouldn't 0:16:00.480 --> 0:16:04.600 say that the consumer spend numbers are you know, barn 0:16:04.960 --> 0:16:08.160 you know barn Burner. They're they're relatively softer than they 0:16:08.160 --> 0:16:14.600 were a year ago, and that's largely because you know, 0:16:14.680 --> 0:16:19.359 we're seeing that the effects of cumulative inflation, specifically for homeowners, 0:16:19.400 --> 0:16:23.080 and that's sixty five percent of US households. So I 0:16:23.120 --> 0:16:27.600 think you're you're seeing you know some you know, most 0:16:27.600 --> 0:16:33.600 consumers pull back and the smaller portion of consumers caring 0:16:34.080 --> 0:16:34.840 the economy. 0:16:35.400 --> 0:16:38.720 Does the market have it right? If we're predicting two 0:16:38.840 --> 0:16:41.120 ratecouts between now and the end of the year. Is 0:16:41.120 --> 0:16:42.440 that the way you see things? 0:16:43.040 --> 0:16:43.520 I don't. 0:16:43.600 --> 0:16:47.960 So I came into the year being very skeptical. I 0:16:47.960 --> 0:16:49.680 thought the biggest risk of the market was the fact 0:16:49.720 --> 0:16:54.240 that the FED would not cut rates by h six times, 0:16:54.280 --> 0:16:59.520 and I still think that you have so much fiscal 0:16:59.560 --> 0:17:03.720 spending that's powering the economy that I think you're going 0:17:03.800 --> 0:17:06.080 to it's going to be tough. I think you're probably 0:17:06.440 --> 0:17:09.760 we may get one, but I don't think we're going 0:17:09.800 --> 0:17:10.320 to get two. 0:17:11.920 --> 0:17:14.439 So one interesting aspect of the data was that you 0:17:14.560 --> 0:17:18.359 had personal income a little higher than was expected and 0:17:18.440 --> 0:17:24.080 personal spending a little lower. Now, you know, the consumer 0:17:24.119 --> 0:17:26.360 is seventy percent of the economy, so we don't really 0:17:26.440 --> 0:17:28.720 want that number low. But in a time when you're 0:17:28.720 --> 0:17:31.480 trying to fight inflation, is sort of matched up as 0:17:31.520 --> 0:17:34.639 a pretty decent result. But you think that it's a 0:17:34.680 --> 0:17:37.680 little too heavily weighted with well off people, Is that right? 0:17:38.640 --> 0:17:39.439 Well, I think you have. 0:17:40.320 --> 0:17:42.280 So you have well off people, but then you also 0:17:42.400 --> 0:17:47.320 have what I call the avocado toast generation, and it's 0:17:47.720 --> 0:17:52.199 the younger millennials and Gen Z and they're not burdened 0:17:52.320 --> 0:17:55.160 by owning a home. Now you could say it's tough 0:17:55.160 --> 0:17:57.440 for them to get to the housing market, but owning 0:17:57.480 --> 0:18:01.240 a home has become increasingly expensive, and I think it's 0:18:01.280 --> 0:18:04.679 actually going to drive a lot of homeowners to be 0:18:04.760 --> 0:18:05.639 forced to sell. 0:18:05.720 --> 0:18:07.800 Because you had homeowners. 0:18:07.359 --> 0:18:14.480 Insurance on average up in the teams each year, and 0:18:15.400 --> 0:18:20.320 certainly for the past three years it's up over ten percent, 0:18:20.359 --> 0:18:24.480 over eleven percent. This is nationally, it's been much higher 0:18:24.560 --> 0:18:28.359 in many of the states. Property taxes over the past 0:18:28.359 --> 0:18:31.680 three years are up over twenty six percent. Obviously varies 0:18:31.720 --> 0:18:36.239 state to state, but these are things that you just 0:18:36.280 --> 0:18:39.399 can't get around. So the average cost of housing for 0:18:39.520 --> 0:18:45.200 most people have gone up much faster than inflation, and 0:18:45.240 --> 0:18:48.680 that's what you see that is really the sticking point 0:18:48.760 --> 0:18:53.600 with consumer spend. So older. The vast majority of homeowners 0:18:53.840 --> 0:18:59.200 are over fifty, and in fact very they're well under 0:19:00.800 --> 0:19:03.680 ten percent of homes are owned by people under forty, 0:19:04.040 --> 0:19:09.160 So you see younger people really driving the leisure spend 0:19:09.480 --> 0:19:14.639 and the experiential spend. And the fastest category of growth 0:19:14.680 --> 0:19:20.440 within leisure spend is actually online gaming and sports bedding. 0:19:20.760 --> 0:19:24.320 So the underlying trends or what's moving the economy are 0:19:24.400 --> 0:19:29.840 probably not good long term, but it's keeping spending flowing. 0:19:29.920 --> 0:19:33.960 And the very high end that has been the biggest 0:19:34.480 --> 0:19:38.760 beneficiary of low interest rates for the longest time are 0:19:38.800 --> 0:19:40.800 also still spending and not. 0:19:40.840 --> 0:19:41.639 Having a problem. 0:19:41.680 --> 0:19:42.560 I'm wondering of. 0:19:42.560 --> 0:19:44.720 Americans that are really coming up against it. 0:19:44.800 --> 0:19:48.200 I'm wondering how those avocado toasters will influence the election 0:19:48.280 --> 0:19:51.119 in November. What is your sense in where things stand 0:19:51.160 --> 0:19:54.320 politically right now in the States, and how might that 0:19:54.359 --> 0:19:55.840 affect the market going forward. 0:19:56.720 --> 0:19:57.760 Well, it's very interesting. 0:19:57.800 --> 0:20:01.840 When I was in Asia with you in March, you 0:20:01.920 --> 0:20:05.400 asked me such like the best question, which was what's 0:20:05.400 --> 0:20:08.879 your biggest takeaway from your meetings with investors? And I 0:20:08.920 --> 0:20:12.560 said that the every investor that I spoke to was 0:20:12.640 --> 0:20:16.720 preparing for Trump to win, and you know, obviously having 0:20:16.800 --> 0:20:23.800 no idea about how really shocking and sad the debates 0:20:23.840 --> 0:20:27.679 were Thursday night. I think that I don't think that 0:20:27.760 --> 0:20:30.040 the youth is engaged with Biden. 0:20:30.200 --> 0:20:31.480 I don't think that the youth. 0:20:31.760 --> 0:20:37.280 May be engaged with voting and may set this election out. 0:20:37.680 --> 0:20:41.000 You've got to get and that's the scariest thing for 0:20:41.040 --> 0:20:45.040 me about this election, that a smaller percentage of Americans 0:20:45.160 --> 0:20:50.919 can determine can determine who becomes our stay as president 0:20:50.960 --> 0:20:51.880 or becomes president. 0:20:52.119 --> 0:20:54.159 So I think we got you. 0:20:54.480 --> 0:20:56.240 I was just gonna say, we got some time to 0:20:56.280 --> 0:20:58.120 get to that. I wanted to squeeze in a question 0:20:58.200 --> 0:21:00.840 about the banking sector because you're you're a wizard of that. 0:21:01.440 --> 0:21:06.199 So away from the avocado toast express to the stress 0:21:06.280 --> 0:21:09.880 test express. The stress test was tough. I mean, these 0:21:09.960 --> 0:21:13.440 banks did very well in passing. It is the banking 0:21:13.880 --> 0:21:15.880 community now in really good shape. 0:21:17.800 --> 0:21:21.040 It depends on which banks you're looking at. So the 0:21:21.080 --> 0:21:24.159 banks that you know, the over the banks that are 0:21:24.200 --> 0:21:26.720 over two hundred and fifty billion in assets, the original 0:21:28.160 --> 0:21:33.120 systemically important financial institutions, they're great, right, So they've de risked, 0:21:33.320 --> 0:21:37.280 they're sitting on a lot of capital. They've been in 0:21:37.440 --> 0:21:40.560 for you know, most banks, well at least JP Morgan 0:21:40.560 --> 0:21:42.719 and Bank of America, when those banks have been cus 0:21:43.000 --> 0:21:46.680 you know, really right sizing their businesses for the past 0:21:46.680 --> 0:21:51.400 fifteen years. And I think Wells Fargo is has been 0:21:51.440 --> 0:21:54.280 in the penalty the regulatory penalty box and is doing 0:21:54.320 --> 0:21:57.440 a lot of the right things to get itself back 0:21:57.480 --> 0:22:01.440 on track. And City has a you know, restructuring plan, 0:22:01.560 --> 0:22:05.840 and you know, godspeed to them. But the smaller banks, 0:22:05.920 --> 0:22:10.239 I think are are still in a precarious position and 0:22:10.359 --> 0:22:11.760 really need to consolidate. 0:22:11.960 --> 0:22:15.000 So these are the banks under one hundred billion. 0:22:15.480 --> 0:22:18.760