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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrissner.

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Speaker 2: In a moment or two, we'll break down the latest

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Speaker 2: tariff news out of the US following an up day

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Speaker 2: on Wall Street. Will be joined by Tim Pagliara. He

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Speaker 2: is the chief investment officer at cap Wealth. We begin

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Speaker 2: though with the Federal Reserve. The head of the Atlanta Fed,

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Speaker 2: Raphael Bostik, sees just one rate cut as being likely

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Speaker 2: this year, rather than two, given the fact that tariffs

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Speaker 2: could impede the progress on disinflation. Here is Bostic, speaking

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Speaker 2: earlier with Bloomberg's Michael McKee.

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Speaker 1: So I was a two.

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Speaker 3: I moved to one mainly because I think we're going

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Speaker 3: to see inflation be very bumpy and not moved dramatically

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Speaker 3: and in a clear way to the two percent target,

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Speaker 3: because that's being pushed back. I think the appropriate path

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Speaker 3: for policy is also going to have to be pushed

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Speaker 3: back in getting us to that neutral level.

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Speaker 4: Well, some of your colleagues also moved their dots down,

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Speaker 4: suggesting that we might see more rate cuts, probably because

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Speaker 4: they think the economy will weaken. What do you think

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Speaker 4: the odds of an economy weakening because of fiscal policies

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Speaker 4: are well.

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Speaker 3: What I would say is I am hearing more concerns

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Speaker 3: about the trajectory of the economy.

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Speaker 1: That's undoubted.

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Speaker 3: But what I also will say is the data that's

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Speaker 3: come in today has not actually shown that, and we've

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Speaker 3: still seen a resilient economy. I do know that consumer

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Speaker 3: sentiment has started to take a dip. And the question

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Speaker 3: that we face right now is is consumer sentiment going

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Speaker 3: to be a leading indicator, let like it was pre pandemic,

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Speaker 3: or is it going to be something that doesn't really

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Speaker 3: translate into actual observed behavior in the economy That is

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Speaker 3: how it played out for most of the pandemic. Right now,

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Speaker 3: it's an open question and it's one of the things

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Speaker 3: I'm going to be watching very closely in the months

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Speaker 3: to come.

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Speaker 2: That was the head of the Atlanta FED, Raphael Bostic.

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Speaker 2: For a look at how Asian markets are digesting the

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Speaker 2: day's FED speak, we spoke with Raoul Chada. He is

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Speaker 2: the chief investment officer at Chicago Capital. Raoul spoke earlier

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Speaker 2: with Bloomberg's Paul Allen in Sydney.

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Speaker 5: I just want to start with those remarks from a

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Speaker 5: r FL bostic, there potentially just one right cut now

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Speaker 5: in twenty twenty five, what's your outlook for what the

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Speaker 5: fan's going to do this year?

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Speaker 6: Yeah, well, I think those projections seem to be moving.

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Speaker 6: I mean, if you look at six months back, there

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Speaker 6: was almost one. Towards the end of the couple of

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Speaker 6: weeks back, it was two or three beginning June.

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Speaker 1: And I think as.

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Speaker 6: The tariffs get a lot clearer and our senses the

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Speaker 6: tariffs are going to be a lot more narrower and

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Speaker 6: scope a lot more moderated, I think the right cuts

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Speaker 6: would be much higher than one of our sense is

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Speaker 6: still two or three.

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Speaker 1: Yeah.

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Speaker 5: And in terms of the impact of tariffs, I mean

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Speaker 5: everyone's got an opinion on this. Are they inflationary, are

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Speaker 5: they not inflationary?

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Speaker 1: Is it a one time hit?

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Speaker 5: What's your view on the impact.

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Speaker 6: So the senses here that look unlike twenty eighteen where

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Speaker 6: US had a deflation issue. Right now, inflation is one

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Speaker 6: of the biggest concerns, which is why the incumbent coverment

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Speaker 6: the Democrats were voted out, and we've seen that in

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Speaker 6: recent weeks with the current Trump administration also, they've been

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Speaker 6: far more discerning about implementing the tariffs. So there's been

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Speaker 6: a lot of noise, a lot of escalation to de escalate,

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Speaker 6: but you've not seen large scale that has been implemented, basically.

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Speaker 5: In terms of some reciprocal relief and maybe some carve

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Speaker 5: outs for some of the more cooperative company countries. Look,

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Speaker 5: the markets took some comfort.

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Speaker 6: Absolutely, So if you look at it, I think what

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Speaker 6: is going to be is buy more US oil, buy

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Speaker 6: more US kind of a defense equipment and other things, etc.

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Speaker 6: Probably buy more tragedies at low interest rates, zero coupon, etc.

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Speaker 6: So I think that's the way or probably invest in

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Speaker 6: US pretty much like the plus I cord on nineteen

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Speaker 6: eighty five. I think that is going to be the

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Speaker 6: way out. But the space evolves in the coming quarters.

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Speaker 5: So is that your approach to US markets? Just buy

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Speaker 5: more full stop?

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Speaker 1: Yeah.

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Speaker 6: So I think the way we are looking at this

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Speaker 6: is our view is US kind of goes through the

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Speaker 6: speriod of detox two three years of correction. Look, coming

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Speaker 6: out of COVID, most other countries cut back on the

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Speaker 6: fiscal spence.

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Speaker 1: They've kind of a curtailed they're fiscal deficit.

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Speaker 6: But for US, where fiscal deferences is about eight percent.

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Speaker 6: The trade deficit is exceptionally high. And to fix all

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Speaker 6: these structural issues, these issues cannot be fixed in a

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Speaker 6: quarter or two, They require two three years. And most

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Speaker 6: investors were over exposed to US, whereas as you come

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Speaker 6: to gain emerging markets, China is doing all the right

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Speaker 6: things from June of last year. They're giving the consumption stimulus,

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Speaker 6: They're taking care of the local government issues. India has

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Speaker 6: gone through this cyclical downturn which kind of impacted the

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Speaker 6: economy last year, so things should improve.

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Speaker 5: I want to come back to the China India story

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Speaker 5: a little bit later, but if we can just look

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Speaker 5: at the US for the moment and get to a

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Speaker 5: Blomberg question of the day, do you think it's going

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Speaker 5: to be not too long before we see the S

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Speaker 5: and P five hundred not shine record.

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Speaker 1: I think it's going to bounce around these levels.

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Speaker 6: So you see the market is not cheap, it's kind

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Speaker 6: of a most people are over exposed. So what we're

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Speaker 6: seeing in US is US is kind of a sellon

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Speaker 6: rice for at least this year. And what we're seeing

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Speaker 6: in some of these Asian markets that they are by

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Speaker 6: on lips. So you continue to see China and touching

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Speaker 6: new eyes where the US is going to jump around

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Speaker 6: these levels.

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Speaker 5: In Rabald you're mentioning a little bit earlier that you

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Speaker 5: are overweight China. You like China. How do you feel

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Speaker 5: about the car makers you buying by D Chami?

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Speaker 6: Yeah, no, we've invested in these car bakers, and even

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Speaker 6: when we were positioned in China prior to this Israelia

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Speaker 6: a view was the global champions coming out of China

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Speaker 6: they like so BYD Chaumi, Pingdo, Dostep dot com are

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Speaker 6: super super attractor because these names were trading at almost

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Speaker 6: fifty percent discount to the global the US payers, et cetera.

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Speaker 6: And what could sense the product quality was getting significantly

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Speaker 6: better than their international payers and they were gaining traction

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Speaker 6: in the global market. So I think that is going

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Speaker 6: to be an interesting story for years to come, these

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Speaker 6: new global champions from China.

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Speaker 5: Please obviously though China and the crosshairs of the US

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Speaker 5: VISA trade policy, but we've heard from the government saying

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Speaker 5: it's preserving fiscal power for any impact. How do you

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Speaker 5: see this trade battle between the China and the US

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Speaker 5: shaping up?

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Speaker 6: So I think i'd like twenty eighteen where China was

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Speaker 6: caught by surprise and has been a lot.

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Speaker 1: More prepared this time around.

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Speaker 6: If we see a lot of Chinese exporters who spoke

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Speaker 6: to the US over the last five years have moved

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Speaker 6: to Oursian countries have moved to Mexico. More importantly, I

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Speaker 6: think the market's kind of an uprising end this trade war,

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Speaker 6: and what is happening also is over the last six

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Speaker 6: nine months, the leadership in China is doing all the

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Speaker 6: right things in terms of taking care of the local

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Speaker 6: government debt isssues, taking care of the real estate bubble,

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Speaker 6: and then in a very targeted way, giving the consumption stimulus.

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Speaker 6: So they're then keeping their gun power dry at the

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Speaker 6: same time making sure the business and the consumer confidence

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Speaker 6: comes back with Do.

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Speaker 5: You feel this rally that we've seen in China, though,

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Speaker 5: feels a little bit uneven because if we take a

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Speaker 5: look at the hang saying it's done amazingly, it's up

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Speaker 5: something like nineteen percent on year, while the CSI three

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Speaker 5: hundreds looking pretty flat. Do you have any concerns about

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Speaker 5: the confidence of retail investors in China and consumers as well.

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Speaker 6: I think what happened prior to this value was a

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Speaker 6: lot of the locals were kind of a positioned in

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Speaker 6: CSI three hundred because their idea was this is relatively

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Speaker 6: insulated from the foreign selling. And if you look at HCI,

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Speaker 6: the valuations are very, very attractive and bulk of these

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Speaker 6: consumer platforms, the internet platforms are in Hsai, so when

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Speaker 6: the fund has returned, it was bound to redate much

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Speaker 6: better than the CSI. So so no specific issues with

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Speaker 6: the out performance HCI has. I think the companies there

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Speaker 6: are great, the valuations were attractive, it was under owned,

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Speaker 6: and you look at the influence from the soundbound the

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Speaker 6: influence white has been recorded. Basically, if I'm not mistaken,

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Speaker 6: more one hundred and fifty billion dollars.

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Speaker 5: I want to talk to you about India as well,

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Speaker 5: because you're also bullish on the outlook here. We did

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Speaker 5: see some pretty heavy selling for the nifty towards the

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Speaker 5: end of the year, but the last six days it's

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Speaker 5: really started to see that turnaround. Do you feel that

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Speaker 5: that's sustainable?

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Speaker 6: Absolutely so our view was somewhere around that India's bottom.

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Speaker 6: See what happened in India was again in h two

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Speaker 6: of last year, you had RBA which was tightening again.

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Speaker 6: There was a for ex's a brought on of about

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Speaker 6: sixty to eighty billion dollars. Domestic liquidity was die tight.

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Speaker 6: RBA was worried about the unsecured lending. Look, government had

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Speaker 6: run out of this all these infrastructure projects. So all

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Speaker 6: that kind of fun turns better. Now. What we've seen

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Speaker 6: white is RBA's cutried by twenty five bibs. We've seen

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Speaker 6: government give some some bit of a fiscal handouts twenty

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Speaker 6: to thirteen billion dollars to the people, and economy is

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Speaker 6: kind of.

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Speaker 1: A bottom and is improving. Q and K and India

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Speaker 1: is a structured story.

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Speaker 6: See, something we've got to understand is with whatever Chinnel

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Speaker 6: is doing, growth is not going to be beyond three

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Speaker 6: to four percent. So you've got to buy market share

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Speaker 6: gainers in China. You've got to buy global champions in China.

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Speaker 6: But India is a story of nine to ten percent

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Speaker 6: normal GDP and when a three and a half trillion

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Speaker 6: economy grows at that, that creates a whole bunch of opportunities.

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Speaker 2: That was Rahul Chata, chief investment officer at Chikara Capital

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Speaker 2: here on the Daybreak Asia podcast. Welcome back to the

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Speaker 2: Daybreak Asia podcast. I'm Doug Chrisner. So we had a

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Speaker 2: rally in the equity market today on signs US tariffs

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Speaker 2: will be more targeted than anticipated, and in addition, a

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Speaker 2: solid reading on the US services PMI seemed to embold

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Speaker 2: in risk taking. Joining me now is Tim Pagliara. He

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Speaker 2: is the chief investment officer at cap Wealth. He's on

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Speaker 2: the line from Franklin, Tennessee. Tim, thanks for catching up

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Speaker 2: with us. I'm curious to get your take on the

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Speaker 2: price action. To begin with, what did you make of

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Speaker 2: today's trading.

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Speaker 7: I think that this is, you know, there's still a

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Speaker 7: lot to be unwound with the nature of the tariffs.

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Speaker 7: I think, you know, there's still a lot to learn

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Speaker 7: about how that's ultimately going to unfold. But I think

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Speaker 7: we're still in kind of a reset of the valuation

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Speaker 7: issues that have kind of plagued a lot of different

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Speaker 7: securities in the market, especially you know, the MAGS seven

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Speaker 7: as we start looking forward to maybe little lower levels

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Speaker 7: of economic activity, not as compliant a federal reserve as

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Speaker 7: we'd like in terms of the ability of their ability

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Speaker 7: to lower rates as they keep an eye on inflation.

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Speaker 7: So there's a lot of things out there beyond just tariffs.

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Speaker 7: But tariffs are certainly front and center right now, and

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Speaker 7: I wouldn't get too excited about, you know, the rally today.

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Speaker 2: Okay, Well, we had equity strategist from JP Morgan, Chase Morgan, Stanley,

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Speaker 2: Evercore isi All saying the worst of the recent downturn

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Speaker 2: in stocks is likely over I'm getting the sense that

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Speaker 2: you don't agree with that.

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Speaker 7: Well, I think it comes in waves. It depends. It

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Speaker 7: depends on how inflation continues to respond. It depends on,

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Speaker 7: you know, the resiliency in the economy. Look, we still

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Speaker 7: have a lot of debt to refinance. We're very, very

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Speaker 7: dependent on stability in the financial markets and global markets

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Speaker 7: to refinance that debt. So I don't know why anyone

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Speaker 7: would say maybe the worst is over with. I think

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Speaker 7: you still have to make a case for how you

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Speaker 7: can continue to justify evaluations at this level as we're

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Speaker 7: faced with moderating levels of economic activity.

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Speaker 2: One of the things I think that's been hanging over

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Speaker 2: the equity market is the health of the American consumer. Tomorrow,

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Speaker 2: we're going to get a reading on consumer confidence from

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Speaker 2: the Conference Board. Some of the Michigan data shows an

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Speaker 2: increase in consumer expectations for inflation. Give me your sense

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Speaker 2: of how you're reading the American consumer now.

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Speaker 7: Well, we're writing a white paper and the title of

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Speaker 7: it is have we built an economy no one can afford?

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Speaker 7: And so I think it's you have to go beyond

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Speaker 7: just consumer sentiment, and you've got to look at the

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Speaker 7: things that Treasure Secretary Bessent focused on an interview last week.

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Speaker 7: You know that, you know, you can't confuse, you can't

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Speaker 7: convince the American public into thinking things are great when

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Speaker 7: the price of everything has gone up and real estate

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Speaker 7: prices are moderating, cost of home ownership is skyrocketed, whether

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Speaker 7: you're looking at interest rates for first time home buyers,

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Speaker 7: or insurance costs or maintenance costs. And so the consumer

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Speaker 7: confidence is one thing, it's what can this consumer enford.

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Speaker 7: You know, when you look at, for example, the Florida

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Speaker 7: real estate market right now, as the true cost of

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Speaker 7: home ownership in these coastal areas and other areas subject

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Speaker 7: to these storms, you know, prices and inventory. Prices have

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Speaker 7: come down, and inventory is skyrocketed throughout Florida, especially in

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Speaker 7: the high rise condominiums that are older interfacing. You know,

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Speaker 7: tremendous maintenance issues.

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Speaker 2: So you alluded to stubborn inflation there. I don't want

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Speaker 2: to put words in your mouth, but that's the sense

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Speaker 2: that I'm getting. One of the critiques that you're offering

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Speaker 2: right now, and whether or not the FED is going

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Speaker 2: to be able to kind of ease going into a

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Speaker 2: period where we may even see inflation spike as a

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Speaker 2: result of these tariffs. Raphaelbostik was speaking with us earlier today,

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Speaker 2: the head of the Atlanta FED. He's penciling in just

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Speaker 2: one rate cut as being likely this year. How do

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Speaker 2: you see the FED factoring into everything that you're describing.

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Speaker 7: Well, if you believe what they say, and they are

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Speaker 7: still very data dependent, then it will unfold, you know,

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Speaker 7: quarter to quarter, and I would probably be more in

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Speaker 7: the camp of maybe one rate cut this year. But

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Speaker 7: you know, rate cuts aren't necessarily a good thing either,

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Speaker 7: because they represent you know, kind of a real softening

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Speaker 7: in the economy, and the people that want more than

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Speaker 7: one rate cut, you know, the consequence of that is

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Speaker 7: deteriorating GDP, and then you have the circular problem of

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Speaker 7: tax receipts going down before you can actually get budget

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Speaker 7: expenditures under you under control, so that again, it's I've

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Speaker 7: described it as kind of a financial whack a mole

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Speaker 7: because every time you get one part of this under control,

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Speaker 7: whether it's a moderating dollar, then you've got something else

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Speaker 7: that's popping up, like a tariff or instability in the

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Speaker 7: Middle East, or you know, Ukraine not going quite the

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Speaker 7: way everybody wants it to. So so there's a lot there,

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Speaker 7: and I think it's very prudent at this point to

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Speaker 7: be cautious.

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Speaker 2: I'm curious as to whether you see upside to tariff

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Speaker 2: policy under the Trump administration. Here we had today at

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Speaker 2: the White House Hyundai Motor undertaking a significant expansion in

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Speaker 2: the US. They're going to Billy, They're going to be

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Speaker 2: building a new steel plant in Louisiana, and I think

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Speaker 2: through twenty twenty eight, Hondai is planning to spend about

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Speaker 2: twenty one billion dollars in the US expanding vehicle production.

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Speaker 2: They're going to support some other projects as well, and

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Speaker 2: the company was talking today about creating fourteen thousand jobs.

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Speaker 2: Is this something we should kind of correlate to Trump

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Speaker 2: administration tariff policy, do you think? Or is there something

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Speaker 2: else at work?

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Speaker 7: Yes, No, I think that's part of it. It's like

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Speaker 7: Taiwan summitconductor last week, one hundred billion dollar investment. You know.

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Speaker 7: So it's kind of a I call it the three c's.

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Speaker 7: You know, there's chaos, then there's capitulation, and then there's compromise.

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Speaker 7: The President is addressing long standing trade imbalance issues related

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Speaker 7: to tariffs. That's painful in the short run, but in

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Speaker 7: the long run, as you're suggesting, I think it's it's

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Speaker 7: good for America. I think it's good for our national defense.

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Speaker 7: And I think it's also good for working people because

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Speaker 7: you know, the quality of those jobs are going to

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Speaker 7: continue to improve when you.

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Speaker 2: Look at trying to take American produced goods and find

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Speaker 2: markets for those goods offshore. One of the things that

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Speaker 2: I think could be an issue is a strong dollar.

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Speaker 2: Is this something that the administration is going to have

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Speaker 2: to address.

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Speaker 7: Well, you know, everybody wants a strong dollar, but they

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Speaker 7: don't want it to be so strong that it impedes,

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Speaker 7: as you suggest, our exports abroad. You know, so I

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Speaker 7: think a moderating dollar from where it was, you know, Europe,

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Speaker 7: and that should happen. Europe is you know, they're getting

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Speaker 7: their act together a little bit more. They you know,

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Speaker 7: we were really alone in interest rate policy and trying

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Speaker 7: to address inflation, and and they were, you know, they

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Speaker 7: were really behind the curve. And so you know, Germany

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Speaker 7: has stepped up with defense spending and they're trying to

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Speaker 7: you know, address their issues. And so as they improve,

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Speaker 7: the dollars should moderate a little bit. It shouldn't be

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Speaker 7: as strong as it is.

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Speaker 2: So we've covered a little bit of ground here, and

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Speaker 2: I'm curious, given everything that we've been talking about, how

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Speaker 2: are you formulating an investment strategy going forward.

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Speaker 7: We are about twenty to twenty four percent in short

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Speaker 7: term treasuries. We're slanted towards the value side of the market.

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Speaker 7: We're looking at non correlating assets to the market special situations.

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Speaker 7: We've got a big investment in Fannie May and Freddie

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Speaker 7: Mac preferreds for example. As you have probably heard, there's

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Speaker 7: talk just about every day. Yeah, with reprivatization of Fanny

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Speaker 7: May and Freddie Mac, that will be very very favorable

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Speaker 7: for that for the preferreds of Fanny and Freddy. And

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Speaker 7: so you know that that is not dependent on anything

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Speaker 7: the market. In fact, if anything, the market is driving

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Speaker 7: the recapitalization and release of Fannyman Freddie Mack at this point,

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Speaker 7: they've been in conservatorship too long. And you know, some

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Speaker 7: of the investment banking folks like Milstein today in a

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Speaker 7: podcast suggested that that the government's interest, you know, could

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Speaker 7: be worth close to three hundred billion dollars. Yeah, and

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Speaker 7: that's that's just smart policy and consistent with what the

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Speaker 7: Trump administration's trying to do.

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Speaker 2: So a moment ago you spoke about Europe getting its

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Speaker 2: act together. How do you want to be diversified right

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Speaker 2: now away from the US. What markets look attractive to you?

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Speaker 7: India looks attractive, you know, on a long term basis.

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Speaker 7: That's a really interesting discussion too, potentially about the tariffs,

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Speaker 7: because I think, as Treasury Secretary Bethsince said, the Chinese

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Speaker 7: have built the most imperfect, imbalanced economic system in.

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Speaker 1: The history of the world.

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Speaker 7: So India having to confront reciprocity and tariffs and opening

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Speaker 7: their markets and our markets being open and to them,

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Speaker 7: open to them, I think will help them build a

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Speaker 7: much better sustainable economy long term, unlike the Chinese. So

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Speaker 7: you know, that's exciting. And then I think just you know,

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Speaker 7: generally in Europe, I would favor large cap you know,

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Speaker 7: value indexes you know in the European markets.

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Speaker 1: At this point, Tim.

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Speaker 2: Will leave it there. Thank you so much for joining us.

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Speaker 2: Tim Pagliara there. He is the chief investment Officer at

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Speaker 2: cap Wealth, joining from Franklin, Tennessee here on the Daybreak

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Speaker 2: Asia Podcast. Thanks for listening to today's episode of the

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Speaker 2: Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at

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Speaker 2: the story shaping markets, finance, and geopolitics in the Asia Pacific.

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