WEBVTT - Australia Election Preview, Microsoft and Meta Earnings Beat 0:00:00.080 --> 0:00:11.760 Bloomberg Audio Studios, podcasts, radio News. Welcome to the Bloomberg 0:00:11.800 --> 0:00:15.159 day Break Geisia podcast. I'm Doug Krisner. There are a 0:00:15.240 --> 0:00:18.759 number of market holidays across the Asia Pacific today, but 0:00:18.920 --> 0:00:22.079 certainly no shortage of headlines, and were days away from 0:00:22.079 --> 0:00:25.159 a national election in Australia. In a moment, I'll be 0:00:25.239 --> 0:00:28.320 joined by Bloomberg's Paul Allen in Sydney for a preview. 0:00:28.560 --> 0:00:30.880 Plus we'll look at the latest ECO data out of 0:00:30.920 --> 0:00:34.159 the US that would include that first quarter GDP report. 0:00:34.479 --> 0:00:38.080 I'll be speaking with George Sippoloni, portfolio manager at Pen 0:00:38.200 --> 0:00:41.239 Mutual Asset Management. But we begin this morning with a 0:00:41.240 --> 0:00:44.440 few of our top stories. In China, a post from 0:00:44.479 --> 0:00:48.720 a CCTV affiliated webwa account says the US has reached 0:00:48.720 --> 0:00:52.760 out to Beijing through various channels to initiate talks on 0:00:52.880 --> 0:00:57.120 the massive tariffs imposed on China. It cited unidentified people 0:00:57.120 --> 0:01:00.240 with knowledge of the matter, but it provided no further detail, 0:01:00.520 --> 0:01:04.160 and it comes on the same day that Ukraine inked 0:01:04.200 --> 0:01:07.560 a long away to deal with Washington for critical minerals. 0:01:07.800 --> 0:01:11.039 The US will now be given privileged access to new 0:01:11.080 --> 0:01:15.679 investment projects to develop things like aluminum, graphite, oil, and 0:01:15.760 --> 0:01:19.440 natural gas. Now, this agreement is seen as critical in 0:01:19.560 --> 0:01:24.240 nurturing President Trump's goodwill toward Kiev in ceasefire talks with Russia. 0:01:24.680 --> 0:01:27.759 After the bell in the States, we got blowout results 0:01:27.760 --> 0:01:31.640 from tech giants Microsoft and Meta, and we got reaction 0:01:32.000 --> 0:01:34.080 from Dan Morgan at Sonova's Trust. 0:01:34.360 --> 0:01:37.480 Madam Microsoft both beat on just about every matrix, and 0:01:37.560 --> 0:01:39.399 I think this kind of sets the tone because we're 0:01:39.400 --> 0:01:41.560 going to go in tomorrow, right, We're going to get 0:01:41.560 --> 0:01:44.720 Apple and Amazon. If they also can have really big beats, 0:01:44.760 --> 0:01:47.760 we can get some good momentum back into the tech 0:01:47.800 --> 0:01:51.360 space and hopefully get the tech stocks to rebound off 0:01:51.400 --> 0:01:52.160 of their lows. 0:01:52.320 --> 0:01:55.720 That's Dan Morgan of Sonova's Trust. Let's take a look 0:01:55.720 --> 0:01:58.200 now at what's going on in Australia with the national 0:01:58.280 --> 0:02:01.480 election happening this weekend. Joining me now for a preview 0:02:01.720 --> 0:02:04.880 is Bloomberg's Paul Allen. He is in Sydney. Paul, it's 0:02:04.880 --> 0:02:07.000 always a pleasure. Thank you so much for joining me. 0:02:07.360 --> 0:02:09.679 If I can, I want to begin with the presence 0:02:09.720 --> 0:02:13.280 of Donald Trump, which may be looming over this election 0:02:13.480 --> 0:02:16.040 in a way that it did during the recent election 0:02:16.280 --> 0:02:18.320 in Canada. Is that a fair statement. 0:02:18.800 --> 0:02:22.160 Yeah, that's absolutely a possibility, and we have seen some 0:02:22.240 --> 0:02:26.280 evidence of that happening as well. Doug the main opposition leader, 0:02:26.440 --> 0:02:29.800 Peter Dutton, he's the leader of the Liberal Party, started 0:02:29.840 --> 0:02:33.440 off this campaign with a suite of policies that appeared 0:02:33.440 --> 0:02:37.760 to be borrowed from President Trump, and after what we've 0:02:37.800 --> 0:02:40.520 seen happen in the United States over the first one 0:02:40.560 --> 0:02:44.760 hundred days of Trump's presidency, those policies have been swiftly 0:02:44.880 --> 0:02:48.360 kicked to the curb and that really sped up after 0:02:48.520 --> 0:02:51.919 the US imposed at ten percent tariff on Australia all 0:02:51.960 --> 0:02:55.640 imports from Australia, which nobody was expecting because of course 0:02:55.639 --> 0:02:59.079 the US runs a very rare trade surplus with Australia. 0:02:59.480 --> 0:03:04.760 So he Dutton initially had planned proposed Doge style cuts 0:03:05.080 --> 0:03:07.720 for the civil service. He wanted to end work from 0:03:07.760 --> 0:03:11.080 home for the civil service as well. Both those policies 0:03:11.120 --> 0:03:15.280 got quickly axed and having early in the campaign said 0:03:15.320 --> 0:03:17.760 he could get a good deal out of President Trump 0:03:17.800 --> 0:03:21.200 on trade. There was one debate We've had four in 0:03:21.320 --> 0:03:24.080 total here and in one of the debates he was 0:03:24.200 --> 0:03:27.680 asked if he trusted Donald Trump, and Peter Dutton answered 0:03:27.760 --> 0:03:29.720 I don't know Donald Trump, and he said that a 0:03:29.840 --> 0:03:33.560 number of times before swiftly moving on, so it was 0:03:33.680 --> 0:03:37.360 quite the reversal. So yes, President Trump has cast a 0:03:37.400 --> 0:03:39.720 shadow on the Australian election, absolutely so. 0:03:39.840 --> 0:03:42.120 On the subject of trade, I know that President Trump 0:03:42.200 --> 0:03:47.480 recently flagged possible talks with Prime Minister Anthony Albanese. Do 0:03:47.520 --> 0:03:49.040 we have any more details on. 0:03:48.960 --> 0:03:52.800 That, We do not. We understand that Anthony Albanesi has 0:03:52.920 --> 0:03:56.240 attempted to contact the President on a number of occasions. 0:03:56.720 --> 0:04:01.240 Those calls have gone unanswered. The suspicion is Australia is 0:04:01.280 --> 0:04:05.520 some way down the queue, behind the lacks of China, obviously, Japan, 0:04:05.760 --> 0:04:08.600 South Korea, and the European Union. Of course, the ten 0:04:08.600 --> 0:04:12.720 percent baseline tariff not particularly much. As I mentioned, the 0:04:12.840 --> 0:04:15.240 US does run a trade surplus with Australia, one of 0:04:15.240 --> 0:04:18.840 the few countries to do so. And also Australia's got 0:04:18.839 --> 0:04:21.560 a very close defense relationship with the United States as well, 0:04:21.560 --> 0:04:24.239 and it's just made a half billion dollar down payment 0:04:24.800 --> 0:04:28.400 on the Orchest program, which will see Australia receive US 0:04:28.480 --> 0:04:31.960 made nuclear submarine, So there's a really close defense relationship 0:04:31.960 --> 0:04:35.200 there as well. Obviously, an eagerness on the Australian side 0:04:35.200 --> 0:04:37.919 to get something sorted out, but not the same sense 0:04:37.920 --> 0:04:39.920 of urgency coming out of the US, it seems. 0:04:40.000 --> 0:04:42.600 So let's put this election in the context of how 0:04:42.640 --> 0:04:46.200 well the economy is performing. From what I understand, there 0:04:46.279 --> 0:04:49.279 is a bit of a housing crisis, infrast rates do 0:04:49.520 --> 0:04:53.320 remain a bit elevated, and we have seen some cost 0:04:53.320 --> 0:04:57.040 of living pressures in Australia. Is do I have that right? 0:04:57.640 --> 0:04:59.800 Yeah, very much. So we'll start with the cost of 0:05:00.400 --> 0:05:03.760 situation because that's a familiar one too many democracies around 0:05:03.800 --> 0:05:07.640 the world. At the moment, inflation has really bitten hard. 0:05:08.080 --> 0:05:11.400 The price of eggs, something that's familiar to US listeners, 0:05:11.560 --> 0:05:14.520 also an issue here in Australia. That was something else 0:05:14.560 --> 0:05:17.279 that came up in the debate, and Peter Dutton, the 0:05:17.279 --> 0:05:20.039 Opposition leader, stumbled on that one, saying a dozen eggs 0:05:20.160 --> 0:05:23.960 was four dollars twenty Australian. The Prime Minister, Anthony Albanezi 0:05:24.040 --> 0:05:27.040 got closer at seven dollars. The actual price is closer 0:05:27.040 --> 0:05:30.279 to eight dollars, but that does underscore the cost of 0:05:30.320 --> 0:05:33.600 living very much an issue, and both major parties are 0:05:33.640 --> 0:05:38.359 going to this election with various flavors of tax relief. 0:05:39.200 --> 0:05:43.800 So whatever happens, life is expected to get easier for consumers. 0:05:44.120 --> 0:05:47.000 Well let's see how that actually eventuates. 0:05:47.040 --> 0:05:47.240 Though. 0:05:47.600 --> 0:05:50.680 Can you give me a sense of the various parties 0:05:50.920 --> 0:05:54.039 in Australia and how they seem to be represented right now? 0:05:54.279 --> 0:05:57.720 Well, there are two major parties, although within that there 0:05:57.760 --> 0:06:01.000 is nuance. The Labor Party in power right now, led 0:06:01.000 --> 0:06:04.279 obviously by Prime Minister Anthony Albanesi. They have a very 0:06:04.560 --> 0:06:07.920 slim majority in the lower House. The House of Representatives 0:06:07.960 --> 0:06:11.479 has one hundred and fifty seats. The Labor government has 0:06:11.560 --> 0:06:14.039 a very narrow majority of just two or three seats, 0:06:14.480 --> 0:06:17.080 and of course I won't get into the nuance of it, 0:06:17.120 --> 0:06:20.600 but they also appoint the speakers, which reduces their count 0:06:20.640 --> 0:06:25.520 by one vote. The opposition Liberal Party is in a 0:06:25.720 --> 0:06:29.720 pretty much a perpetual lockstep coalition with another party called 0:06:29.720 --> 0:06:32.840 the Nationals, which represents rural Australia, so you often hear 0:06:32.839 --> 0:06:36.520 them referred to as the coalition. They are some distance 0:06:36.600 --> 0:06:40.000 behind with just fifty three seats, so they need to 0:06:40.040 --> 0:06:42.760 pick up more than twenty electorates to win powers. So 0:06:42.839 --> 0:06:46.600 the road to government very very difficult for Peter Dutton 0:06:46.640 --> 0:06:49.640 and the coalition and what has made it harder for 0:06:49.720 --> 0:06:52.800 them is that the last election they lost a whole 0:06:52.880 --> 0:06:56.240 series of very wealthy seats, and it's wealthy voters that 0:06:56.279 --> 0:07:01.400 typically vote for Liberal Coalition to so a loose grouping 0:07:01.440 --> 0:07:04.120 of independence that have come to be known as the Teals, 0:07:04.520 --> 0:07:07.440 a teal being a mixture of blue and green, and 0:07:07.480 --> 0:07:10.040 this is made up of wealthy voters who are very 0:07:10.120 --> 0:07:14.239 frustrated with the Coalition's policy on climate over the years. 0:07:14.520 --> 0:07:17.960 The former Prime Minister Scott Morrisson, for example, once took 0:07:18.000 --> 0:07:21.920 a lump of coal into Parliament House. Another former Prime Minister, 0:07:22.000 --> 0:07:26.120 Tony Abbott once labeled climate change as and I quote crap. 0:07:26.760 --> 0:07:29.560 And then we had the devastating bushfires of twenty nineteen 0:07:29.800 --> 0:07:33.400 and that really started this Teal movement which is eaten 0:07:33.480 --> 0:07:36.640 into the Coalition's base. So a big challenge for them 0:07:36.840 --> 0:07:38.960 is to try and first win back all of those 0:07:39.000 --> 0:07:42.320 seats and then try and make some inroads into Labour's majority. 0:07:42.400 --> 0:07:45.240 I'm wondering about the younger voters in Australia and the 0:07:45.320 --> 0:07:48.960 degree to which they may influence the outcome. Is that likely? 0:07:49.440 --> 0:07:53.480 Yeah, A tremendous level of frustration about the situation with 0:07:53.640 --> 0:07:57.600 housing that you mentioned earlier, and that is a perpetual 0:07:57.800 --> 0:08:02.280 feature of the Australian elector landscape. House prices in this 0:08:02.400 --> 0:08:05.880 country are out of control. The median house price in 0:08:05.960 --> 0:08:09.680 Sydney well over a million dollars, the other major cities 0:08:09.680 --> 0:08:12.560 of Melbourne and Brisbane knocking on the door of that 0:08:12.640 --> 0:08:16.679 as well. The rental market is incredibly tight. Getting rental 0:08:16.680 --> 0:08:21.480 accommodation is extremely expensive as well. So young voters are 0:08:21.520 --> 0:08:25.360 really trying to flex their muscles on this issue. There 0:08:25.400 --> 0:08:28.720 is something being offered by both parties for this group 0:08:28.760 --> 0:08:32.160 of people. The Prime Minister Anthony Alberanezi has a pledge 0:08:32.200 --> 0:08:35.040 to spend ten billion dollars to build one hundred thousand homes, 0:08:35.720 --> 0:08:37.840 went to the twenty twenty two election with a similar 0:08:37.840 --> 0:08:41.120 plan and not a great deal of progress there. The 0:08:41.160 --> 0:08:45.560 opposition meanwhile is saying they'll make mortgages tax deductible for 0:08:45.640 --> 0:08:49.160 five years, but that doesn't really address that affordability problem. 0:08:49.160 --> 0:08:51.920 It doesn't make life any easier if you can't amass 0:08:52.120 --> 0:08:54.960 a ten or a five percent deposit for a one 0:08:55.040 --> 0:08:58.120 and a half million dollar house. So the housing issue 0:08:58.280 --> 0:09:02.640 is a red hot potato here and the youth are 0:09:02.640 --> 0:09:04.720 expected to vote along those lines, and this is why 0:09:04.720 --> 0:09:06.800 you see a lot of the youth vote starting to 0:09:06.840 --> 0:09:09.160 go to the Greens, which is starting to cut into 0:09:09.200 --> 0:09:11.000 a labor support base as well. 0:09:11.280 --> 0:09:14.520 So, Paul, we started the conversation talking about the impact 0:09:14.520 --> 0:09:18.040 President Trump may have on the Australian election. One of 0:09:18.080 --> 0:09:20.720 the things that we've been dealing with here recently in 0:09:20.760 --> 0:09:24.319 the States has been Trump's criticism of the Federal Reserve 0:09:24.559 --> 0:09:28.120 and subsequently the pushback that came from the market that 0:09:28.120 --> 0:09:31.880 the FED needs to remain independent. What is the relationship 0:09:32.120 --> 0:09:35.040 between the government and the Central Bank in Australia. Is 0:09:35.080 --> 0:09:37.800 there the same aspiration of independence? 0:09:38.320 --> 0:09:41.000 There is that same aspiration and there is a lot 0:09:41.040 --> 0:09:45.920 more respect on the political side towards that independence. I 0:09:45.960 --> 0:09:49.280 don't think you would find what you don't find either 0:09:49.360 --> 0:09:53.960 major party are really waiting into FED policy at all. 0:09:54.280 --> 0:09:56.720 And every year, at least once a year, I have 0:09:56.720 --> 0:09:59.679 an opportunity to speak to the Finance Minister of the 0:09:59.800 --> 0:10:03.640 Chef no treasurer as well. Whenever I utter the acronym 0:10:03.840 --> 0:10:08.680 RBA Reserve Bank of Australia, they immediately default too. We 0:10:08.760 --> 0:10:12.360 will not comment on monetary policy. The Reserve Bank is independent. 0:10:12.400 --> 0:10:15.360 It is important that we protect that independence these sorts 0:10:15.360 --> 0:10:19.640 of talking points, so no appetite at all from either 0:10:19.720 --> 0:10:22.920 party to erode the independence of the Central Bank in Australia. 0:10:22.960 --> 0:10:24.880 Paul will leave it there. Thank you so much. It's 0:10:24.920 --> 0:10:27.959 always a pleasure. Bloomberg's Paul Allen joining us from Sydney 0:10:27.960 --> 0:10:39.560 here on the Debreak Asia podcast. Welcome back to the 0:10:39.600 --> 0:10:43.520 Debreak Asia Podcast. I'm Doug Chrisner. Stateside. We got key 0:10:43.600 --> 0:10:46.560 earnings after the bell. We heard from Microsoft and the 0:10:46.600 --> 0:10:50.000 company reported better than expected sales and profit for the 0:10:50.080 --> 0:10:53.920 latest quarter. The bright spot was the Azure cloud computing unit. 0:10:54.000 --> 0:10:57.880 It posted a thirty three percent jump in sales. Meta 0:10:57.920 --> 0:11:01.480 Platforms posted first quarter sale above estimates. This could be 0:11:01.520 --> 0:11:05.320 assigned the company's ad business is so far weathering the 0:11:05.400 --> 0:11:08.280 ongoing trade war. For a closer look, now, I am 0:11:08.360 --> 0:11:12.520 joined by George Sippoloni. He is portfolio manager at Penn 0:11:12.640 --> 0:11:16.240 Mutual Asset Management. George, thank you so much. It's always 0:11:16.280 --> 0:11:19.000 a pleasure. Let's talk about the mag seven results that 0:11:19.040 --> 0:11:22.440 we had today. Are you optimistic now that maybe anything 0:11:22.480 --> 0:11:24.680 that people were kind of wringing their hands over is 0:11:24.920 --> 0:11:27.360 has subsided or is there still a bit of risk here. 0:11:27.960 --> 0:11:28.960 Great to talk to you again. 0:11:29.000 --> 0:11:31.960 First of all, Doug, and yeah, so coming into this 0:11:32.040 --> 0:11:34.760 and you know it, I mean, the amount of volatility 0:11:34.880 --> 0:11:38.760 and the historical president presidents is that have been broken 0:11:38.800 --> 0:11:41.440 over the last few months have just been incredible. So 0:11:41.480 --> 0:11:44.000 coming into this earning season, what did we see? 0:11:44.040 --> 0:11:46.280 At first? We saw companies backing off guidance. 0:11:46.320 --> 0:11:48.880 We saw a lot of companies miss or just talk 0:11:48.880 --> 0:11:50.280 about the uncertain environment. 0:11:50.559 --> 0:11:52.559 So we really needed a few good. 0:11:52.400 --> 0:11:55.199 Earnings reports from some big companies and we got them 0:11:55.240 --> 0:11:58.000 tonight through Microsoft and Meta, which was great. And to 0:11:58.080 --> 0:12:01.240 you you mentioned the as you're business doing really really well. 0:12:01.520 --> 0:12:07.000 The comments related to AI growth and cap X are 0:12:07.040 --> 0:12:09.800 just eye popping and they're pretty stunning, and the market 0:12:09.840 --> 0:12:11.040 really needed something like this. 0:12:11.400 --> 0:12:14.960 We also had the GDP report today showing the economy 0:12:15.000 --> 0:12:18.080 here in the US declined at an annual rate of 0:12:18.080 --> 0:12:21.440 three tens to one percent. That sounds maybe troublesome, but 0:12:21.640 --> 0:12:24.000 I think it's got to be placed into the proper 0:12:24.040 --> 0:12:27.040 context here. Because we had a big jump in pre 0:12:27.200 --> 0:12:31.040 tariff imports. Companies were really scrambling to secure a lot 0:12:31.080 --> 0:12:34.400 of merchandise ahead of the expanded tariffs. So if you 0:12:34.600 --> 0:12:38.400 look at that buying It essentially subtracted about five percentage 0:12:38.400 --> 0:12:42.160 points from GDP. Where are you right now and understanding 0:12:42.600 --> 0:12:46.360 the US economy and the potential risk that is still 0:12:46.400 --> 0:12:48.640 out there visa these tariffs. 0:12:49.080 --> 0:12:52.080 This is a great conversation to talk about right now, Doug, 0:12:52.120 --> 0:12:54.920 because everybody wants to talk about the soft data and 0:12:54.960 --> 0:12:57.439 how soft the soft data has been, and they're waiting 0:12:57.480 --> 0:12:59.160 for more hard data and we. 0:12:59.200 --> 0:13:01.199 Just don't have it yet, but it's going to come 0:13:01.280 --> 0:13:02.880 soon enough. I do think. 0:13:02.960 --> 0:13:06.560 Look, what the administration is trying to do is pretty historic. 0:13:07.080 --> 0:13:10.760 Nobody's really tried to institute tariffs and tariff policy in 0:13:10.800 --> 0:13:13.880 this fashion in a very very long time. And so 0:13:13.960 --> 0:13:15.920 my biggest concern is that we end up in a 0:13:15.960 --> 0:13:18.920 trade war because that will just shrink the entire global 0:13:18.960 --> 0:13:22.240 pie and we don't want that. And then what are 0:13:22.320 --> 0:13:25.480 the actual tariff tariffs that are implemented. What's that going 0:13:25.520 --> 0:13:27.800 to mean for companies? What's that going to mean for earnings? 0:13:28.280 --> 0:13:31.040 We just had a Jack specific, a company we don't own, 0:13:31.120 --> 0:13:33.640 but you know, toy manufacturer, and they just said, hey, 0:13:33.720 --> 0:13:36.520 look it's there's no magic wallet out there. These costs 0:13:36.520 --> 0:13:38.680 are going to have to get absorbed. So that's what 0:13:38.679 --> 0:13:40.960 we're looking at is bottom up stock and bomb pickers. 0:13:41.000 --> 0:13:44.520 We're looking line by line, looking at companies with good 0:13:44.559 --> 0:13:47.720 operating margins and companies that can defend their operating margins 0:13:47.760 --> 0:13:48.800 against these costs. 0:13:49.120 --> 0:13:51.760 So we had the monthly reading on the Fed's preferred 0:13:51.760 --> 0:13:54.839 measure of inflation today core PCE for the month of 0:13:54.960 --> 0:13:59.600 March unchanged. That was shocking, right, the tamest I think 0:13:59.640 --> 0:14:02.440 we've seen in nearly five years. How do you understand that? 0:14:02.800 --> 0:14:05.920 And more importantly, is there a risk that inflation could 0:14:05.960 --> 0:14:07.160 begin to re accelerate? 0:14:08.160 --> 0:14:10.520 And I think that is ultimately the biggest risk because again, 0:14:10.559 --> 0:14:12.480 one key piece of this soft data that I just 0:14:12.520 --> 0:14:15.080 mentioned is the fact that if you look at the surveys, 0:14:15.520 --> 0:14:20.480 inflation expectations of consumers is skyrocketing, and if you look 0:14:20.520 --> 0:14:23.400 at consumer confidence, it's going in the opposite direction. It's 0:14:23.920 --> 0:14:26.880 sinking like a rock. And that's a pretty bad combination. 0:14:27.000 --> 0:14:30.120 So then you enter that world of potential for stagflation, 0:14:30.600 --> 0:14:34.040 and that's not a really positive world from an economic standpoint. 0:14:34.120 --> 0:14:36.280 So yes, we would. So we are starting to see it. 0:14:36.320 --> 0:14:37.000 We'll pull back. 0:14:37.040 --> 0:14:39.440 We are starting to see gas prices pull back, but 0:14:39.480 --> 0:14:41.520 they're starting to pull back for the wrong reason. They're 0:14:41.520 --> 0:14:45.800 starting to pull back because there's receession concerns. So hopefully, again, 0:14:45.840 --> 0:14:47.960 hopefully we can kind of clear the decks here. Hopefully 0:14:48.000 --> 0:14:50.760 the administration can help us with some trade deals with 0:14:50.800 --> 0:14:53.880 some certainty, just so we can get on with this. 0:14:53.960 --> 0:14:57.080 I think the longer this goes on, this period of uncertainty, 0:14:57.680 --> 0:15:00.880 the worst the possible outcomes tend to be. So it's like, 0:15:01.040 --> 0:15:03.800 let's just move on with it. Let's stop talking about talking, 0:15:03.840 --> 0:15:05.760 and let's sign some deals, and let's just move on 0:15:05.880 --> 0:15:06.480 and deal with it. 0:15:06.560 --> 0:15:08.920 Well, it's interesting that you make that point because we 0:15:08.960 --> 0:15:12.120 had a report today that the US has been proactively 0:15:12.160 --> 0:15:16.000 reaching out to China through various channels to begin discussing trade. 0:15:16.280 --> 0:15:18.000 So that from the US side, and then if you 0:15:18.080 --> 0:15:20.440 look at the PMI data that we had in the 0:15:20.520 --> 0:15:24.120 last session in China, the manufacturing economy on the mainland 0:15:24.200 --> 0:15:27.680 is now in contraction. So it seems like we've reached 0:15:27.880 --> 0:15:28.880 a critical point. 0:15:29.400 --> 0:15:31.520 I think we have, Doug. I think you're absolutely right. 0:15:31.560 --> 0:15:34.080 I do think there's pain on both sides now. The 0:15:34.120 --> 0:15:37.640 pain in China is factories shutting down, the pain that 0:15:37.680 --> 0:15:39.720 we might see, and we're starting to see it in 0:15:39.760 --> 0:15:44.360 the shipping statistics, is potential, the potential for clearing out 0:15:44.360 --> 0:15:46.680 of some shelves. I don't think empty shelves is good 0:15:46.720 --> 0:15:49.160 for anyone politically. I don't think factory shutting down in 0:15:49.240 --> 0:15:52.160 China is good for them politically. So we enter this, 0:15:52.920 --> 0:15:55.040 you know, the trade war turns into more of a 0:15:55.080 --> 0:15:59.200 political war of contrition, and that's where we're going to 0:15:59.320 --> 0:16:01.640 end up being. So hopefully we don't get to the 0:16:01.680 --> 0:16:04.120 worst case scenarios. I really think they just need to 0:16:04.120 --> 0:16:07.160 sit down and talk. I will say, look, you know, 0:16:07.320 --> 0:16:10.760 the trade imbalances that we've had, I get it very noble, 0:16:11.480 --> 0:16:13.720 very noble cause to try to straighten those out from 0:16:13.760 --> 0:16:16.720 a US perspective. China from the very beginning he said, look, 0:16:16.760 --> 0:16:18.880 let's just sit down and talk. And we just haven't 0:16:18.880 --> 0:16:22.400 gotten there yet. So again, let's just get down to it, 0:16:22.600 --> 0:16:25.080 sit down at the table and talk like adults and 0:16:25.480 --> 0:16:26.160 make some deals. 0:16:26.320 --> 0:16:27.920 So if you look at the action in the bond 0:16:28.000 --> 0:16:30.480 market today, we had a drop in the yield on 0:16:30.520 --> 0:16:32.080 the two year, a little bit of buying at the 0:16:32.080 --> 0:16:34.920 short end of the curve. The notion here is that 0:16:35.040 --> 0:16:37.720 everything we've been describing is going to set up a 0:16:37.760 --> 0:16:40.040 FED rate cut, maybe as soon as June. 0:16:40.600 --> 0:16:42.200 That's exactly how we see it, Doug. 0:16:42.280 --> 0:16:45.160 So you know, if you think about a number, So 0:16:45.480 --> 0:16:48.800 we have a pretty big number now of expected rate 0:16:48.840 --> 0:16:51.400 cuts from the FED, and if you talk to economists 0:16:51.400 --> 0:16:54.520 they might say two or three. If you look at 0:16:54.680 --> 0:16:56.760 what the market is pricing in, we're looking at three 0:16:56.800 --> 0:16:59.640 to four. And so yes, I do think it's going 0:16:59.680 --> 0:17:02.720 to come sooner rather than later. I do think tune 0:17:02.880 --> 0:17:04.320 should be the date. 0:17:04.400 --> 0:17:06.240 And if it's not, we all know what's going to 0:17:06.280 --> 0:17:07.080 happen the pal. 0:17:07.520 --> 0:17:10.000 In the media, Trump's going to beat them up pretty good, right, 0:17:10.080 --> 0:17:12.680 So yeah, hopefully they come sooner than later, and again 0:17:12.720 --> 0:17:16.040 hopefully we can get some more positive news flow going. 0:17:16.200 --> 0:17:18.400 So do you on that notion, do you put money 0:17:18.440 --> 0:17:20.240 to work in the bond market and do you look 0:17:20.280 --> 0:17:24.160 for capital gains or do you hold back and think, 0:17:24.240 --> 0:17:27.120 all right, maybe there's a big question mark right now 0:17:27.160 --> 0:17:29.480 over the equity market. I'm just going to go to 0:17:29.520 --> 0:17:32.480 the short end, keep some powder dry, wait for a pullback, 0:17:32.680 --> 0:17:34.920 and maybe put a little bit more money to work 0:17:34.920 --> 0:17:36.120 in the stock market later. 0:17:36.680 --> 0:17:38.560 Yeah, this is a perfect lead in, Doug, because I 0:17:38.560 --> 0:17:40.560 do think right now we're pretty much bar belled. We 0:17:40.600 --> 0:17:43.560 do have some money on the front end, super safe protected, 0:17:43.600 --> 0:17:45.200 we're not really concerned about. 0:17:44.920 --> 0:17:46.680 It, you know, and then we'll move out. 0:17:46.520 --> 0:17:49.439 Like the belly of the curve looks really good, you know, 0:17:49.480 --> 0:17:51.320 maybe after twenty years for example. 0:17:51.640 --> 0:17:53.160 And then we've seen a lot of. 0:17:53.119 --> 0:17:56.320 Credit moves over the last few months and we've seen 0:17:56.359 --> 0:17:58.720 a lot of bonds get hit pretty good. So yes, 0:17:58.800 --> 0:18:01.639 as bottom up against and bond pickers, one of the 0:18:01.640 --> 0:18:03.720 big things we like to do is take advantage of 0:18:03.760 --> 0:18:07.520 those periods of volatility, take advantage of those drops. And 0:18:08.119 --> 0:18:10.320 we're looking at we have a super long term view, 0:18:10.359 --> 0:18:13.000 which is great at Pen Mutual, and so when we 0:18:13.080 --> 0:18:15.600 get these pockets of value, we have to take advantage 0:18:15.640 --> 0:18:17.800 of them. We have to see through the fear I 0:18:17.880 --> 0:18:20.280 call it. Right now, we're going through a fog of tariffs. 0:18:20.320 --> 0:18:21.800 We have to see through it. We just have to 0:18:21.880 --> 0:18:25.800 as investors again focus on good management teams, good balance sheets, 0:18:26.040 --> 0:18:28.359 and maybe some of these price declines are just a 0:18:28.400 --> 0:18:30.919 really good opportunity from a long term perspective. So we 0:18:30.960 --> 0:18:34.280 always need to keep that slightly positive bent even in 0:18:34.440 --> 0:18:35.720 a world of negativity. 0:18:35.840 --> 0:18:38.399 So how are you feeling about high yield in the 0:18:38.440 --> 0:18:41.160 current environment. Is this something that you want to avoid 0:18:41.240 --> 0:18:44.480 given maybe greater default risk right now, or do you 0:18:44.520 --> 0:18:47.479 want to try to capture that higher yield on the 0:18:47.520 --> 0:18:50.200 notion that the FED is going to prevent things from 0:18:50.359 --> 0:18:51.240 getting much worse. 0:18:51.680 --> 0:18:54.760 Yeah, that's a great point. So within high yield, I 0:18:54.920 --> 0:18:57.760 really think so. Obviously it's called junk for a reason. 0:18:58.119 --> 0:19:00.160 I think we want to avoid the junk and really 0:19:00.200 --> 0:19:03.280 focus on the higher quality high yield companies. That's been 0:19:03.320 --> 0:19:05.240 our bread and butter, a penm usual for a very 0:19:05.320 --> 0:19:06.840 very long period of time, and we're. 0:19:06.680 --> 0:19:07.919 Going to stick to that now. 0:19:07.960 --> 0:19:10.840 I will say, the market when we get these spread 0:19:10.840 --> 0:19:13.640 widening events, the market does int tend, does not tend 0:19:13.680 --> 0:19:16.399 to differentiate between the good and the junkie companies, the 0:19:16.440 --> 0:19:19.800 high yield and the junk. So our job as investors 0:19:19.840 --> 0:19:22.440 is to focus on the good, higher quality high yield 0:19:22.680 --> 0:19:25.399 companies that may have seen spreads blow out, but guess what, 0:19:25.480 --> 0:19:28.280 they're fundamentals and their earnings held up really, really well. 0:19:28.520 --> 0:19:30.560 And there are a bunch of companies that just reported 0:19:30.600 --> 0:19:35.760 where we've seen some really tangible, solid operating improvement and 0:19:36.080 --> 0:19:39.840 we've seen leverage ratios go down for some companies. Management 0:19:39.880 --> 0:19:42.040 teams that are paying down debt. Those are the ones 0:19:42.040 --> 0:19:45.080 that we'll focus on here, as we saw these spreads wide. 0:19:45.119 --> 0:19:47.679 Now, so I know you focused primarily on the fixed 0:19:47.680 --> 0:19:50.720 income space, George, but if you had to put money 0:19:50.720 --> 0:19:53.359 to work on the equity side, can you give me 0:19:53.400 --> 0:19:56.359 a strategy that you think would be effective in the 0:19:56.400 --> 0:19:58.000 next six to nine months. 0:19:58.480 --> 0:20:03.520 Sure, So with our fun at PENM Mutual PMFX, we do, 0:20:03.600 --> 0:20:05.840 and we can buy dividend paying stocks up to forty 0:20:05.840 --> 0:20:06.520 percent of the fund. 0:20:06.520 --> 0:20:08.000 We can own dividend paying stocks. 0:20:08.359 --> 0:20:11.760 I do think again, going through this period and the 0:20:11.760 --> 0:20:16.480 amount of downside volatility we've seen, we're seeing huge divergences 0:20:16.520 --> 0:20:20.360 in actual operating performance. And so I think there's two 0:20:20.480 --> 0:20:23.560 really good tax to take here, and number one is 0:20:23.600 --> 0:20:25.880 to focus on companies that don't even have to worry 0:20:25.880 --> 0:20:29.040 about tariffs. We have a company, I can't say the name, 0:20:29.080 --> 0:20:32.800 but a commercial HVAC company that just reported tonight, great earnings, 0:20:32.840 --> 0:20:36.400 great backlog. They are a domestic eight HVAC company. They 0:20:36.440 --> 0:20:39.639 make here and they sell here. That's easy. They actually 0:20:39.640 --> 0:20:42.280 may benefit from tariffs because their competitors are going to 0:20:42.320 --> 0:20:45.520 be faced with them or ADRs. For example, we own 0:20:45.560 --> 0:20:48.560 this technology company. It's a well web browsing company that's 0:20:48.600 --> 0:20:52.520 based in Norway that has a fantastic balance sheet and 0:20:52.560 --> 0:20:56.360