WEBVTT - Big Tech Earnings, Fed's Powell December Warning 0:00:02.520 --> 0:00:07.600 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.360 --> 0:00:14.560 Welcome to the Daybreak Asia podcast. I'm Doug Chrisner. We 0:00:14.640 --> 0:00:17.479 are focused on the meeting later today between Donald Trump 0:00:17.560 --> 0:00:20.760 and Chi Chen Ping. These leaders are set to finalize 0:00:21.040 --> 0:00:23.840 call it a detante as they meet on the sidelines 0:00:23.880 --> 0:00:26.639 of the APEX Summit in South Korea, and this will 0:00:26.640 --> 0:00:29.480 put the trade war between the US and China on hold, 0:00:29.600 --> 0:00:33.519 at least for now. Initial signals seem to indicate an agreement. 0:00:33.840 --> 0:00:35.000 Here's Bloomberg sherry On. 0:00:35.280 --> 0:00:38.559 We're expecting President shigm Paint to arrive here in South Korea. 0:00:38.640 --> 0:00:40.960 He'll be arriving the city of Pusan, just half an 0:00:40.960 --> 0:00:44.400 hour ride from where we are hearing in Koonju. Now, 0:00:44.640 --> 0:00:47.400 this is his first trip to South Korean in eleven years, 0:00:47.400 --> 0:00:49.280 and is also going to be the first in person 0:00:49.320 --> 0:00:53.159 meeting with President Trump since twenty nineteen. We're expecting a 0:00:53.240 --> 0:00:56.520 trade truce between the two largest economies of the world, 0:00:56.560 --> 0:01:00.000 perhaps something along the lines of purchase agreements on soybean's, 0:01:00.080 --> 0:01:03.560 perhaps something around critical minerals. But President Trump said that 0:01:03.640 --> 0:01:07.240 he'd be open to providing China with access to Nvidia's 0:01:07.319 --> 0:01:10.680 Blackwell AI processor as part of a trade deal that 0:01:10.760 --> 0:01:13.840 would be a major concession. Of course, it's really been 0:01:13.880 --> 0:01:16.000 about those concessions coming from Washington. 0:01:16.040 --> 0:01:18.959 That is Bloomberg sherry On. Now. The other big story 0:01:18.959 --> 0:01:21.640 we are tracking has to do with big cap tech 0:01:21.720 --> 0:01:25.200 earnings after the bell in the US, we heard from Microsoft, 0:01:25.480 --> 0:01:29.600 Alphabet and Meta Platforms for some reaction. I'm joined now 0:01:29.640 --> 0:01:34.120 by Daniel Newman. He is the CEO at the Futurum Group. Daniel, 0:01:34.120 --> 0:01:35.959 thank you so much for making time to chat with me. 0:01:36.200 --> 0:01:38.400 So much going on in markets. I'd like to focus 0:01:38.440 --> 0:01:40.440 on the earnings first that we had after the bell. 0:01:40.920 --> 0:01:44.959 We heard from Microsoft, we heard from Alphabet and Meta Platforms, 0:01:45.760 --> 0:01:48.560 somewhat different stories, but I think the commonality here is 0:01:48.600 --> 0:01:52.280 the fact that these companies continue to build out AI infrastructure. 0:01:52.520 --> 0:01:54.920 At what point does that become a concern for you? 0:01:57.320 --> 0:02:00.320 For me, it's when the growth stops. One of these 0:02:00.360 --> 0:02:03.600 CEOs understands something that those that are continuously saying it's 0:02:03.600 --> 0:02:06.640 a bubble or that this thing is going too fast, 0:02:06.800 --> 0:02:09.600 is that this is the existential moment for these companies. 0:02:10.160 --> 0:02:13.440 Mark Zuckerberg's done this before. He made a bet on 0:02:13.639 --> 0:02:16.840 the metaverse that didn't yet pan out, and so people 0:02:16.840 --> 0:02:18.760 are kind of skeptical of his decision making. But if 0:02:18.800 --> 0:02:20.600 you actually look at the value he's brought to shareholders 0:02:20.600 --> 0:02:23.760 over time, he's continued to bring growth and the numbers 0:02:23.800 --> 0:02:26.639 overall were very good. That one time charge related to 0:02:26.720 --> 0:02:28.760 the taxes, that non cash charge threw a lot of 0:02:28.760 --> 0:02:32.040 people off. But if you actually if you actually credited 0:02:32.080 --> 0:02:34.400 for that, they actually beat on the top and bottom line. 0:02:34.400 --> 0:02:36.920 But if you listen to Amy Hood and Sati Inadella, 0:02:36.960 --> 0:02:39.919 if you listened just under Pachai, and if you listen 0:02:40.000 --> 0:02:42.880 to Mark, they're all saying the same thing. We have constrained. 0:02:43.040 --> 0:02:45.240 We need more energy, we need more data centers, we 0:02:45.320 --> 0:02:48.880 need more AI compute because their plans of how they 0:02:48.880 --> 0:02:50.920 want to build their businesses and deliver to the future 0:02:51.280 --> 0:02:51.880 require this. 0:02:52.760 --> 0:02:55.440 So you were at the Nvidia conference in Washington, d 0:02:55.600 --> 0:02:58.959 C in the last day or two, and I'm wondering 0:02:59.040 --> 0:03:02.760 what you took away from what Jensen Wong had to say. 0:03:03.720 --> 0:03:08.120 Well, Jensen delivered his best keynote at a GtC so far. 0:03:08.720 --> 0:03:10.560 It was crisp, it was clear, it was tight. He 0:03:10.600 --> 0:03:13.720 had the partners aligned, he had the growth story aligned. 0:03:13.880 --> 0:03:15.839 But he really put one number out that I think 0:03:15.960 --> 0:03:21.040 sent that parabolic move that brought the company's market cap 0:03:21.080 --> 0:03:24.560 over five trillion dollars, and that was when he showed 0:03:24.560 --> 0:03:26.600 that he had visibility. By the end of twenty twenty 0:03:26.639 --> 0:03:30.240 six into a half a trillion dollars in revenue. Basically 0:03:30.280 --> 0:03:32.480 every one of those CSPs that we just spoke about, 0:03:33.480 --> 0:03:36.640 all of these partners He had partnerships with Service Now, 0:03:36.760 --> 0:03:40.119 with CrowdStrike, with pal Andeer, he announced a big partnership 0:03:40.160 --> 0:03:43.720 with the Department of Energy, all of them boring investment 0:03:43.840 --> 0:03:48.560 building products on the Nvidia platform. And this just shows 0:03:48.640 --> 0:03:51.440 that there is so much momentum here. But the other 0:03:51.480 --> 0:03:53.800 thing Doug that I thought was really important was the 0:03:53.880 --> 0:03:57.440 diversification through all these partnerships. He went into quantum, he 0:03:57.480 --> 0:04:01.880 went into physical AI and robotics, into you know, of 0:04:01.920 --> 0:04:05.320 course the traditional data center, the edge computing, and autonomy 0:04:05.320 --> 0:04:09.000 and vehicles. The business of AI is so much bigger 0:04:09.040 --> 0:04:11.560 than just the data centers. But what people have to 0:04:11.640 --> 0:04:13.680 kind of realize is it has to start there. It's 0:04:13.720 --> 0:04:16.200 like the brain of all of this buildout starts with 0:04:16.240 --> 0:04:19.320 these data centers and it proliferates into every part of 0:04:19.360 --> 0:04:20.039 our economy. 0:04:20.760 --> 0:04:22.920 So in Vidia, i think, is trading it around forty 0:04:22.920 --> 0:04:26.520 four times forward earnings. That seems to be historically a 0:04:26.560 --> 0:04:29.440 pretty rich multiple, but it doesn't seem to concern you 0:04:29.480 --> 0:04:30.560 at all. 0:04:30.680 --> 0:04:34.440 Well, it actually traded much higher multiples before this sort 0:04:34.440 --> 0:04:37.400 of boom at different times. You know, you see AMD, 0:04:37.520 --> 0:04:40.919 you see Tesla. They traded these great premiums mostly because 0:04:40.960 --> 0:04:44.920 people have this belief. Now in Vidia, I think gets 0:04:44.920 --> 0:04:48.120 a rerating to some extent based on those forward comments 0:04:48.160 --> 0:04:51.479 about the visibility into the size of it of its business. 0:04:51.680 --> 0:04:54.960 But the company operates in the mid seventies percent margins, 0:04:55.320 --> 0:04:58.359 it delivers net income in the fifty percent. It looks 0:04:58.360 --> 0:05:00.560 like it could do three hundred billion dollars and revenue 0:05:00.560 --> 0:05:03.760 next year. So when you look at how it qualifies, 0:05:03.800 --> 0:05:05.359 and then you say, well, if open ai is going 0:05:05.400 --> 0:05:07.400 to be a trillion dollar company coming out the gate, 0:05:07.920 --> 0:05:11.160 then Nvidia delivering you know, nearly one hundred and twenty 0:05:11.200 --> 0:05:13.360 to one hundred and fifty billion of net income depending 0:05:13.400 --> 0:05:16.279 on the exact outcome next year. It seems like that 0:05:16.320 --> 0:05:18.960 would be a business that could be very investible at 0:05:19.000 --> 0:05:21.080 that forward earnings. I like it better at thirty to 0:05:21.120 --> 0:05:23.960 thirty five, and that's where it's been trading. I wouldn't 0:05:23.960 --> 0:05:26.839 be surprised to see some new estimates based on Jensen's 0:05:26.839 --> 0:05:28.159 comments this week at GtC. 0:05:28.360 --> 0:05:31.359 So, I'm glad you mentioned open Ai because the company 0:05:31.400 --> 0:05:35.880 is reportedly preparing an IPO soon. I guess maybe as 0:05:35.920 --> 0:05:38.120 soon as next year. Reuter is saying that it could 0:05:38.240 --> 0:05:40.920 value the company at as much as a trillion. You 0:05:40.960 --> 0:05:43.560 and I talked a moment ago. That's pretty much what 0:05:43.640 --> 0:05:46.039 you said to say a while back. And we know 0:05:46.120 --> 0:05:48.160 as a result of a deal in the last week, 0:05:48.640 --> 0:05:51.919 Microsoft now will have about a near thirty percent stake 0:05:52.160 --> 0:05:54.840 in open Ai. But here's the thing. After the bell, 0:05:55.320 --> 0:05:58.880 Microsoft reports a steeper increase in spending than the street 0:05:59.200 --> 0:06:02.960 was expecting, and the stock in late trading on Wednesday 0:06:03.440 --> 0:06:06.160 gaps down by more than seven percent. What's happening here 0:06:06.200 --> 0:06:07.359 with the Microsoft story. 0:06:08.400 --> 0:06:15.240 Well, these two things are somewhat codependent, but somewhat not. Obviously, Microsoft, 0:06:15.720 --> 0:06:18.320 in this new way of physiciing its relationship in the 0:06:18.400 --> 0:06:21.000 twenty seven percent or so that it holds now has 0:06:21.080 --> 0:06:24.160 to report the losses in open Ai. While it might 0:06:24.160 --> 0:06:26.880 have a trillion dollar valuation and its an investment may 0:06:26.920 --> 0:06:30.200 have a great mark to market valuation for Satia and Microsoft, 0:06:30.920 --> 0:06:35.560 the cash losses are a responsibility of Microsoft at least 0:06:35.560 --> 0:06:37.960 for their share, so that obviously is weighing, But I 0:06:37.960 --> 0:06:39.800 don't think that's what brought the market down. I think 0:06:39.800 --> 0:06:41.600 there was a couple of things that happened. One is 0:06:41.800 --> 0:06:44.680 it had a very strong run up into earnings. It 0:06:44.680 --> 0:06:49.440 had seen its earnings, It's seen the stock price appreciate significantly. 0:06:49.480 --> 0:06:51.760 It went up over four trillion dollars as well. I 0:06:51.760 --> 0:06:54.320 think there was a lot of enthusiasm people were thinking 0:06:54.320 --> 0:06:56.359 there would be this big number. Did deliver a forty 0:06:56.400 --> 0:07:00.000 percent azure growth number, It did deliver an RPO number. 0:07:00.240 --> 0:07:02.480 You know, they're saying they have four hundred billion dollars 0:07:02.560 --> 0:07:06.080 in revenue booked over the next two years. That these 0:07:06.080 --> 0:07:09.360 are booked orders, not potential orders. And to some extent, 0:07:09.400 --> 0:07:11.000 I think there was a little bit of just sell 0:07:11.040 --> 0:07:13.640 the news, Doug. I think people saw it run up, 0:07:13.800 --> 0:07:17.120 they saw more capex, more spending, and it's going to 0:07:17.200 --> 0:07:19.640 spook investors. I'm going to take some gains right here. 0:07:20.120 --> 0:07:24.320 But most of the thoughtful tech forward thinkers that I've 0:07:24.320 --> 0:07:28.560 been speaking to today have all said, all commonly believe 0:07:28.600 --> 0:07:33.880 that these companies, the CEOs, Zuckerberg, Satia, Sundar, they are 0:07:33.920 --> 0:07:36.880 all doing the critical things they need to do to 0:07:36.880 --> 0:07:39.320 make sure that their businesses can survive. I think Zuckerberg 0:07:39.400 --> 0:07:42.120 keeps saying it best. I would rather be overinvested than 0:07:42.200 --> 0:07:44.800 underinvested here. So investors may have to be a little 0:07:44.840 --> 0:07:47.600 patient with the with the gyrations of the market when 0:07:47.600 --> 0:07:50.600 people react to that. But I overall think that these 0:07:50.720 --> 0:07:52.600 CEOs are doing the right thing, and I think this 0:07:52.720 --> 0:07:54.040 AI trade is very real. 0:07:54.280 --> 0:07:58.000 Okay, so let's go to Thursday after the bell. Tomorrow 0:07:58.000 --> 0:08:01.320 we'll hear from Apple, Amazon, what are your expectations from 0:08:01.320 --> 0:08:02.000 these companies. 0:08:03.160 --> 0:08:05.800 Well, Apple, it's going to be all about the new 0:08:05.800 --> 0:08:09.520 iPhone seventeen. We've heard a lot of positives about that 0:08:09.680 --> 0:08:12.280 pro device, a lot of excitement. We've also heard some 0:08:13.720 --> 0:08:17.120 questions about some of those lower end devices that thinner 0:08:17.160 --> 0:08:20.440 air device hasn't necessarily done well. Apple's sort of been 0:08:20.480 --> 0:08:23.440 able to get that growth at software trillion dollars as 0:08:23.480 --> 0:08:27.600 well without ever actually really identifying its AI strategy. And 0:08:27.600 --> 0:08:30.160 I think that's because the market just believes its platform 0:08:30.640 --> 0:08:34.440 is so close to its consumer the commitment level people 0:08:34.480 --> 0:08:36.160 to stay on the Apple platform. So when you hear 0:08:36.160 --> 0:08:38.960 about open AI building something that's going to disrupt it 0:08:39.040 --> 0:08:41.040 or Meta. I just don't think people believe it, and 0:08:41.080 --> 0:08:43.680 they think Apple might be a safer investment. They certainly 0:08:43.760 --> 0:08:46.800 haven't laid out those capex dollars to nearly the extent 0:08:46.840 --> 0:08:50.080 of these other mag seven companies. Amazon, they had that 0:08:50.120 --> 0:08:53.600 big outage. They've got to show some growth in that 0:08:53.640 --> 0:08:56.160 AWS business. You had Google over thirty percent, I think 0:08:56.160 --> 0:09:00.000 thirty four percent today you had Azure's Microsoft's cloud business. 0:09:00.160 --> 0:09:04.679 For Amazon's been trailing, and it's been trailing because it 0:09:04.679 --> 0:09:07.800 came out late. It underinvested to the point that I 0:09:07.840 --> 0:09:12.120 made earlier, they underinvested with Nvidia, didn't build out enough capacity. 0:09:12.440 --> 0:09:15.880 Their growth, despite being the biggest player, their growth has 0:09:16.080 --> 0:09:18.800 been much slower. They've been in the teens, you know, 0:09:18.960 --> 0:09:21.319 trying to get back to the twenties, and I think 0:09:21.400 --> 0:09:24.240 the market needs to see that growth. I think their 0:09:24.280 --> 0:09:27.160 commerce business will do well. I think Amazon's absolutely knocked 0:09:27.160 --> 0:09:29.640 out of the park there. They've been, you know, finding 0:09:29.720 --> 0:09:33.160 these cost efficiencies that obviously comes with two sides. People 0:09:33.240 --> 0:09:36.520 don't love all the cost cutting, you know, from the 0:09:36.520 --> 0:09:40.959 world standpoint, but investors tend to like those actions. So Amazon, though, 0:09:40.960 --> 0:09:42.439 I think it's going to ride the way the market 0:09:42.440 --> 0:09:46.719 will respond on does aws grow enough? And have they 0:09:46.760 --> 0:09:50.320 shown that they've been able to overcome those capacity constraints 0:09:50.559 --> 0:09:52.520 that have worried investors in the last few quarters. 0:09:52.520 --> 0:09:54.040 Before I let you go, I want to get your 0:09:54.080 --> 0:09:56.880 take on Qualcom. Earlier in the week we had news 0:09:56.880 --> 0:09:59.240 that the company is developing a new AI chip, and 0:09:59.400 --> 0:10:02.520 I think it was Monday, the stock popped about eleven percent. 0:10:02.640 --> 0:10:06.160 What's your story on on Qualcom here? Is it worthwhile? 0:10:06.200 --> 0:10:08.840 Do you think that this company has a chance to 0:10:08.880 --> 0:10:11.120 go up against in Vidia in any way? 0:10:12.160 --> 0:10:17.720 I think the everything against Nvidia train of thinking is 0:10:17.720 --> 0:10:20.600 a bit problematic here. I think Qualcom has a lot 0:10:20.600 --> 0:10:23.400 of engineering prowess. They hold, you know, in an abscorbinate 0:10:23.440 --> 0:10:28.760 amount of patents. They understand low power efficient design, and 0:10:28.800 --> 0:10:32.199 they have invested and bought some really good intellectual property 0:10:32.559 --> 0:10:36.359 for compute. I think what they actually launched is complementary. 0:10:36.480 --> 0:10:38.520 I think in many ways, there's this and Doug you've 0:10:38.520 --> 0:10:42.640 probably heard about inference versus this training boom. Nvidia owns 0:10:42.679 --> 0:10:45.880 that market and AMD has basically taken what's left along 0:10:45.920 --> 0:10:48.959 with some of those custom broadcom chips. I think Qualcomm, 0:10:49.200 --> 0:10:51.880 in that deal that they signed with humane they're really 0:10:51.880 --> 0:10:54.280 going after this inference, which is going to be this 0:10:54.400 --> 0:10:58.080 higher volume, this more efficient computing at the edge. I 0:10:58.080 --> 0:11:00.400 think they're going to find some efficiencies in their pricing 0:11:00.520 --> 0:11:02.520 and how they market themselves. But here's the biggest thing 0:11:02.520 --> 0:11:04.280 for investors to think about. This is a company that's 0:11:04.280 --> 0:11:06.760 been trading around thirteen fourteen times. Maybe they got a 0:11:06.760 --> 0:11:10.240 little boost after Monday for as we talked about, you know, 0:11:10.400 --> 0:11:14.120 Invidiot forty five, this wild company at thirteen fourteen. They 0:11:14.160 --> 0:11:16.439 got a little bit of a boost here. But they 0:11:16.480 --> 0:11:18.440 win one or two percent of the market share. Our 0:11:18.559 --> 0:11:21.240 estimates show that that could be six to twelve billion 0:11:21.320 --> 0:11:23.120 dollars of incremental revenue for them by the end of 0:11:23.160 --> 0:11:25.840 the decade. So I think they can win big even 0:11:25.880 --> 0:11:28.000 if they only win small in that market. I think 0:11:28.000 --> 0:11:30.960 they have the abilities to win a small piece of 0:11:30.960 --> 0:11:31.520 that market. 0:11:31.679 --> 0:11:33.640 Daniel will leave it there, Thank you so very much. 0:11:33.760 --> 0:11:36.959 Daniel Newman is the CEO of the Futurum Group, joining 0:11:37.000 --> 0:11:46.800 us here on the Daybreak Asia podcast. Welcome back to 0:11:46.840 --> 0:11:50.160 the Daybreak Asia Podcast. I'm Deck Chrisner. Let's turn next 0:11:50.200 --> 0:11:53.480 to the Federal Reserve. We had policymakers cutting the Fed 0:11:53.520 --> 0:11:56.280 funds rate by a quarter point during the last session. Now, 0:11:56.280 --> 0:11:59.440 that move was widely expected. The aim is to support 0:11:59.480 --> 0:12:03.640 a softer labor market. However, the path forward seems less clear, 0:12:03.800 --> 0:12:07.400 especially since there's been a lack of economic data resulting 0:12:07.400 --> 0:12:10.679 from the government shutdown. That's one reason why Fedchair j 0:12:10.840 --> 0:12:14.520 Powell cautioned against assuming the FED will cut rates again 0:12:14.760 --> 0:12:15.479 in December. 0:12:15.679 --> 0:12:19.199 In the committee's discussions at this meeting, there were strongly 0:12:19.240 --> 0:12:23.600 differing views about how to proceed in December. A further 0:12:23.679 --> 0:12:26.640 reduction in the policy rate at the December meeting is 0:12:26.720 --> 0:12:31.320 not a foregone conclusion. Far from it. Policy is not 0:12:31.600 --> 0:12:32.600 on a preset course. 0:12:32.960 --> 0:12:35.520 At the same time, Powell said the FED will stop 0:12:35.559 --> 0:12:40.120 shrinking its balance sheet after some recent stress in money markets. 0:12:40.400 --> 0:12:42.680 Joining me now for a closer look. As Sean Clark, 0:12:42.720 --> 0:12:46.280 he is the CIO at Clark Capital. Sean is on 0:12:46.360 --> 0:12:50.200 the line from Philadelphia, Pennsylvania. Sean, thank you for making 0:12:50.240 --> 0:12:52.560 time to chat with me. This move on the part 0:12:52.600 --> 0:12:54.800 of the FED to lower interest rates at quarter point 0:12:54.840 --> 0:12:58.600 today was widely expected. There's been a lot of suggestions 0:12:59.000 --> 0:13:01.520 recently that the FED needs to pay attention to a 0:13:01.559 --> 0:13:05.440 weaker labor market, but Powell seemed to push back on 0:13:05.480 --> 0:13:08.800 this idea that the market is expecting a rate cut 0:13:08.840 --> 0:13:11.920 in December. He said, it's far from a foregone conclusion. 0:13:12.200 --> 0:13:14.240 But what do you think is driving his thinking here? 0:13:15.679 --> 0:13:17.920 I think you're right about that. He actually said that, 0:13:17.960 --> 0:13:21.520 I believe three times in the in the press conference. 0:13:21.920 --> 0:13:23.760 I think I was driving him. I think it's he's 0:13:23.840 --> 0:13:27.000 he's looking at a more balanced picture when it comes 0:13:27.040 --> 0:13:31.960 to weakening labor conditions and a little bit of you know, 0:13:32.240 --> 0:13:36.360 elevated inflation. I still do think, however, I do think 0:13:36.400 --> 0:13:40.400 that the FED still is more worried about weakening UH 0:13:40.440 --> 0:13:45.680 employment than they are inflation. And I think, you know, 0:13:45.679 --> 0:13:50.800 the FED does see that there's continued gradual cooling of 0:13:51.080 --> 0:13:53.839 the labor markets. I just think for right now, with 0:13:54.080 --> 0:13:58.000 a lot of lack of data given the government shutdown, 0:13:58.200 --> 0:14:00.360 I think the FED wants to take a little more 0:14:00.400 --> 0:14:01.240 of a measured pace. 0:14:01.760 --> 0:14:05.120 Financial conditions, I think you could agree with me, are 0:14:05.240 --> 0:14:09.199 pretty much have been regarded as being very loose right now, 0:14:09.200 --> 0:14:11.679 and I'm wondering whether that creates a bit of concern 0:14:11.760 --> 0:14:12.120 for you. 0:14:13.720 --> 0:14:17.920 Actually, no, you know, I think when we look at 0:14:17.960 --> 0:14:22.520 the bigger inflation picture, it's still we still remain within 0:14:22.560 --> 0:14:26.920 the context of a deflationary trajectory that has really defined 0:14:27.000 --> 0:14:30.720 the cyclicobal market that began in twenty twenty two. A 0:14:30.760 --> 0:14:32.520 lot of that DOUG, as you mentioned, has to do 0:14:32.600 --> 0:14:39.720 with easy financial conditions, lower interest rates, lower dollar, higher stocks. 0:14:40.320 --> 0:14:42.880 I think we get a continuation of that into your 0:14:43.000 --> 0:14:46.680 end and well into next year before I think we 0:14:46.720 --> 0:14:50.280 start to run into some volatility into and ahead of 0:14:50.640 --> 0:14:53.800 the midterm election. So my opinion is, no matter what 0:14:53.840 --> 0:14:56.120 the FED does right now, I think they're still going 0:14:56.160 --> 0:14:59.080 to be cutting into next year. Whether or not they 0:14:59.080 --> 0:15:02.560 cut in December, is more of a coin toss right now, 0:15:03.320 --> 0:15:06.880 and overall market expectations that now back FED cuts by 0:15:07.000 --> 0:15:11.280 one rate cut into the end of next year, I 0:15:11.320 --> 0:15:15.239 am not too concerned. I actually think it's a positive 0:15:15.280 --> 0:15:17.160 that the market that the FED is going to be 0:15:17.320 --> 0:15:21.240 cutting in a more gradual pace, not so much in 0:15:21.280 --> 0:15:25.360 a reactionary tone, but you know, maybe a little bit 0:15:25.800 --> 0:15:26.480 of precaution. 0:15:27.000 --> 0:15:28.600 What does it say to you that the FED is 0:15:28.640 --> 0:15:30.640 going to stop shrinking the balance sheet. One of the 0:15:30.640 --> 0:15:34.000 things I think Powell focused on was some recent stress 0:15:34.040 --> 0:15:37.320 that we have seen in money markets, and I'm wondering 0:15:37.360 --> 0:15:40.440 whether that represents any concern for you that the FED 0:15:40.480 --> 0:15:42.600 is going to stop a process that the market had 0:15:42.600 --> 0:15:44.600 been kind of looking forward to. 0:15:44.640 --> 0:15:48.600 Almost Yeah, I think the FED really needed to deliver 0:15:48.720 --> 0:15:51.920 on three key points today. That one one was a 0:15:52.000 --> 0:15:57.560 rate cut check. Second was they needed to message the 0:15:57.640 --> 0:16:02.480 QT and you know ending the balance sheet runoff check 0:16:02.560 --> 0:16:06.840 two and third is dubbish language. We didn't quite get that. 0:16:07.120 --> 0:16:11.680 But then back to back to the balance sheet runoff comments. 0:16:12.360 --> 0:16:16.000 You know, there have been signs that reserves are no 0:16:16.080 --> 0:16:19.920 longer really abundant, and I think a lot of that's 0:16:19.960 --> 0:16:22.640 evident by the fact that we've seen repo rates that 0:16:22.680 --> 0:16:27.080 have been running pretty much consistently above the midpoint of 0:16:27.120 --> 0:16:31.240 the FED funds target range for for quite a quite 0:16:31.240 --> 0:16:36.440 a while. So there were some signs of stress. Now 0:16:36.920 --> 0:16:38.760 we do know that the VET did message that they're 0:16:38.800 --> 0:16:41.720 going to be ending the runoff and keep the balance 0:16:41.760 --> 0:16:45.960 sheet at a constant level starting on December first. They 0:16:46.120 --> 0:16:49.920 are still going to be reinvesting treasuries at the auction, 0:16:50.160 --> 0:16:53.680 they're going to be rolling those over, but principal payments 0:16:53.720 --> 0:16:56.840 and payments from nbs, they're going to be reinvested in 0:16:56.960 --> 0:17:00.800 T bills. I think what that potentially does longer term 0:17:01.400 --> 0:17:03.840 possibly increases demand on the short end of the curve, 0:17:05.320 --> 0:17:07.359 and I think that actually could steep in the yeld curve, 0:17:07.640 --> 0:17:10.119 which you know for bank earnings, that probably is not 0:17:10.200 --> 0:17:10.680 a bad thing. 0:17:11.080 --> 0:17:13.600 I'm interested in getting your perspective on the banks in 0:17:13.600 --> 0:17:16.639 a moment, But talk first about this move lower pretty 0:17:16.680 --> 0:17:19.560 dramatic across the curve in terms of yield. We've got 0:17:19.600 --> 0:17:22.479 a ten year right now around three sixty Would you 0:17:22.520 --> 0:17:24.199 put money to work at the short end of the 0:17:24.200 --> 0:17:25.840 curve right now on the long side. 0:17:27.560 --> 0:17:31.040 Who No, I would not. I would go more to 0:17:31.080 --> 0:17:33.560 the belly of the curve, or maybe extend a little 0:17:33.560 --> 0:17:36.159 bit more in narration. I would stay away from the 0:17:36.200 --> 0:17:38.200 short end of the curve, just because I think a 0:17:38.200 --> 0:17:40.040 lot of the gains have been had. With that said, 0:17:40.560 --> 0:17:43.000 I do think the path of least resistance for most 0:17:43.240 --> 0:17:46.160 most of the Yelk curve probably is still a little 0:17:46.160 --> 0:17:50.239 bit lower. Right we already defined downtrend in yields when 0:17:50.280 --> 0:17:53.119 you look at the two year yield, the five year yield, 0:17:53.359 --> 0:17:57.320 ten year, and thirty year yields. From a technical standpoint, 0:17:57.359 --> 0:18:00.280 all of those yields fifty day moving averages are creating 0:18:00.359 --> 0:18:02.680 below there are two hundred day moving averages, which two 0:18:02.680 --> 0:18:07.440 wats is one of the key definitions for a downtrend. 0:18:07.560 --> 0:18:10.880 So I still think we get lower yields. The fact 0:18:10.920 --> 0:18:14.560 that we punctured four percent on the tenure to the downside. 0:18:14.600 --> 0:18:16.760 We're a little bit elevated above that right now with 0:18:17.240 --> 0:18:18.840 a little bit of backup in yields over the past 0:18:18.880 --> 0:18:21.160 couple of days. You know, getting through that four percent 0:18:21.240 --> 0:18:24.200 on the ten year tells me next stop is probably 0:18:24.280 --> 0:18:26.600 three point eight percent on the ten year yield, and 0:18:27.440 --> 0:18:29.359 after that we might be looking at three sixty. 0:18:29.480 --> 0:18:33.320 And yet inflation remains above target. It's rising still, and 0:18:33.440 --> 0:18:37.080 Powell today said near term inflation expectations have risen. That 0:18:37.200 --> 0:18:40.200 doesn't concern you in the least well. 0:18:40.200 --> 0:18:42.960 Inflation ceremony, But I still believe that we are in 0:18:43.040 --> 0:18:48.560 a disinflationary trajectory. When we look at the components of CPI, 0:18:49.040 --> 0:18:54.480 most of those components are actually in deflationary territory. And 0:18:54.600 --> 0:18:57.200 we look at you know what Powell said today with 0:18:57.400 --> 0:19:01.200 regards to the various components and how the Fed breaks 0:19:01.240 --> 0:19:07.280 it into three different three different subsets shelter x, hotels 0:19:07.840 --> 0:19:13.680 or shelter goods. Inflation is being affected by the tariffs, 0:19:13.680 --> 0:19:18.840 which is elevated. That's to be expected. Housing services has 0:19:18.960 --> 0:19:23.919 been down. That's a reflection of shelter costs thing as 0:19:23.960 --> 0:19:28.000 a LAG. Shelter costs represent about forty three percent of 0:19:28.240 --> 0:19:32.800 course CPI. They are deflating. That should continue because they 0:19:32.880 --> 0:19:37.520 operate with the LAG. Finally, non housing service in inflation. 0:19:38.200 --> 0:19:41.560 Pop comment is being you put all of that together, 0:19:41.800 --> 0:19:45.240 it doesn't seem like the inflation picture is all that bad. 0:19:45.920 --> 0:19:47.560 Okay, let's go back to the banks. 0:19:47.640 --> 0:19:47.760 Now. 0:19:47.800 --> 0:19:51.200 We're talking about maybe a little bit more steepening of 0:19:51.320 --> 0:19:55.520 the curve, albeit in an environment where rates overall are 0:19:55.600 --> 0:19:59.320 drifting lower. Do you like the bank stocks here we 0:19:59.440 --> 0:19:59.960 do going bad. 0:20:00.359 --> 0:20:02.840 I think they've had a pretty big correction given some 0:20:02.920 --> 0:20:06.840 of the concerns with regional banks and quite frankly, some 0:20:06.920 --> 0:20:11.240 of the loans. I would use this weakness in banks 0:20:11.400 --> 0:20:15.080 as a buying opportunity as opposed to getting overly conservative 0:20:15.119 --> 0:20:17.800 and too cautious on the industry group by itself. 0:20:18.480 --> 0:20:20.960 Is there a risk that some of these banks may 0:20:21.080 --> 0:20:24.880 still be exposed to problems in the credit space where 0:20:24.960 --> 0:20:29.080 we're talking about maybe a credit line to a private 0:20:29.200 --> 0:20:34.760 credit firm or something else that remains at this point unseen, undisclosed. 0:20:34.960 --> 0:20:36.800 We don't really have a lot of visibility here, and 0:20:36.880 --> 0:20:40.720 I'm wondering whether that represents the slightest concern for you. 0:20:41.840 --> 0:20:44.000 Well, there's always risks, and certainly that is a risk. 0:20:44.040 --> 0:20:46.440 I do think the whole private credit space is a risk. 0:20:47.359 --> 0:20:49.159 What we saw a couple of weeks ago with some 0:20:49.320 --> 0:20:54.360 bad loans and some defaults. Yeah, I mean Jamie Diamond's 0:20:54.600 --> 0:20:58.880 comments about cockroaches. Sure there may be more. We really 0:20:58.960 --> 0:21:01.679 focus on overall credit conditions, and when I look at 0:21:01.880 --> 0:21:06.920 credit spreads, credit spreads are historically low. When we begin 0:21:07.000 --> 0:21:10.560 to see credit spreads rising, that's when we're going to 0:21:10.600 --> 0:21:16.080 start to get concerned with overall credit conditions, which normally rise, 0:21:16.880 --> 0:21:20.879 credit spreads normally begin to elevate prior to market turmoil. 0:21:21.119 --> 0:21:23.760 We just quite frankly, are not seeing any of that 0:21:24.400 --> 0:21:24.960 at the moment. 0:21:25.160 --> 0:21:27.040 Okay, Sean, we'll leave it there. Good stuff, Thank you 0:21:27.200 --> 0:21:30.720 so much. Sean Clark is CIO at Clark Capital, joining 0:21:30.760 --> 0:21:35.680 from Philadelphia here on the Daybreak Asia podcast. Thanks for 0:21:35.800 --> 0:21:40.359 listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. 0:21:40.760 --> 0:21:43.840 Each weekday, we look at the story shaping markets finance 0:21:44.240 --> 0:21:47.280 and geopolitics in the Asia Pacific. You can find us 0:21:47.359 --> 0:21:51.520 on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere 0:21:51.560 --> 0:21:54.639