WEBVTT - China's Growth Forecast, US House Passes Spending Bill to End Shutdown 0:00:02.520 --> 0:00:10.600 Bloomberg Audio Studios, Podcasts, radio News. 0:00:12.080 --> 0:00:15.640 Welcome to the Daybreak Asia podcast. I'm Doug Krisner. In 0:00:15.680 --> 0:00:18.840 the States, the House of Representatives passed a Senate measure 0:00:18.920 --> 0:00:22.159 to end the government shutdown. The President signed it and 0:00:22.239 --> 0:00:25.400 the government will resume operations on Thursday. In a moment, 0:00:25.480 --> 0:00:28.920 we'll look at US markets with Mike Dixon of Horizon Investments. 0:00:29.320 --> 0:00:31.240 We began though in Hong Kong, where we had the 0:00:31.360 --> 0:00:34.919 chance to catch up with Hifan Hu, chief investment officer 0:00:35.200 --> 0:00:38.960 and head of APAC macro Economics at UBS Wealth Management. 0:00:39.320 --> 0:00:41.879 She spoke with Bloomberg TV, host of aon Men and 0:00:41.920 --> 0:00:42.919 Annabel Droolers. 0:00:43.400 --> 0:00:43.640 Now. 0:00:43.800 --> 0:00:46.839 The conversation began with a question on the outlook for 0:00:46.880 --> 0:00:47.960 the Chinese economy. 0:00:48.560 --> 0:00:50.840 Let's talk about twenty twenty six. I mean, I feel 0:00:50.880 --> 0:00:52.559 like the year has just sort of flown by and 0:00:52.560 --> 0:00:55.640 we're already forecasting. So so what are you talking with 0:00:55.640 --> 0:00:57.440 with clients about right now? 0:00:58.040 --> 0:01:01.160 Yeah, I think sus some most interesting question. Now, I 0:01:01.200 --> 0:01:03.920 think that for twenty twenty five, if we see the 0:01:04.000 --> 0:01:06.759 China's GDP growth like we think, we will end up 0:01:06.880 --> 0:01:09.640 with like a four point nine percent to five percent, 0:01:10.200 --> 0:01:12.640 So for the next year, we think the government could 0:01:12.720 --> 0:01:15.319 set up the target between like a four point five 0:01:15.600 --> 0:01:20.120 percent to five percent. So in our view, if without 0:01:20.280 --> 0:01:23.840 like a major stimulus, so the GDP could reach around 0:01:23.840 --> 0:01:27.520 a four point five percent, so we will have probably 0:01:27.640 --> 0:01:30.720 lower for the first half the high for the second half. 0:01:31.080 --> 0:01:34.360 How significant would that be lowering at least or at 0:01:34.440 --> 0:01:36.679 least that range when it comes to that growth target 0:01:36.720 --> 0:01:37.280 for next year. 0:01:37.720 --> 0:01:40.880 I think this year is around the five percent, so 0:01:40.920 --> 0:01:42.600 I think that if it's end up is a four 0:01:42.600 --> 0:01:45.520 point nine percent, so it's also hits the target. So 0:01:46.120 --> 0:01:49.280 it's possible for them to give a range rather than 0:01:49.440 --> 0:01:52.640 say around a five percent. Again, so because like the 0:01:52.800 --> 0:01:56.480 next year could be lower unless the government like I 0:01:56.560 --> 0:01:59.160 wants to put the major stimilus, but we think the 0:01:59.440 --> 0:02:03.040 chance is not very high, so I think they would 0:02:03.120 --> 0:02:06.720 rather put like our range, maybe more comfortable like her 0:02:06.800 --> 0:02:08.680 for like everyone. 0:02:08.840 --> 0:02:12.359 So not major similars. That's more of the physical side. 0:02:12.360 --> 0:02:14.760 What about the monetary policy side. 0:02:14.919 --> 0:02:17.960 Monetary party side, I think we'll still keep easy and 0:02:18.240 --> 0:02:21.760 keep accommodative, and we still expect like a fifty two 0:02:21.840 --> 0:02:23.680 hundred BIPs of the cut by the end of the 0:02:23.720 --> 0:02:27.120 twenty twenty six and also maybe twenty to thirty BIPs 0:02:27.120 --> 0:02:31.560 of the interest rate cuts. Because given or CPI infreation 0:02:31.720 --> 0:02:32.679 is still pretty low. 0:02:33.080 --> 0:02:34.760 What are you expecting to be kind of the bigger 0:02:34.840 --> 0:02:37.120 drags next year? Is it the exports side of things 0:02:37.120 --> 0:02:38.840 are going to be a bit softer than this year 0:02:38.880 --> 0:02:42.240 that has been quite resilient, And are we just not 0:02:42.320 --> 0:02:46.560 expecting any sort of meaningful recovering the consumer For. 0:02:46.560 --> 0:02:49.480 The consumer side, I think the yeah, we think it 0:02:49.600 --> 0:02:51.880 still will be like at between three to five percent. 0:02:52.000 --> 0:02:56.000 We didn't see like how too much highlights about that, 0:02:57.440 --> 0:03:00.800 I think, But the major driver should be still for 0:03:00.840 --> 0:03:06.320 the industry autoput side, industry product because like AI AI 0:03:06.440 --> 0:03:10.920 driven applications and also with like this kind of advanced 0:03:11.040 --> 0:03:15.080 manufacturing and possibly like we call the new productivity growth. 0:03:15.360 --> 0:03:18.160 So I think that will probably lead the driver. On 0:03:18.240 --> 0:03:20.400 the other side. For the energy side, I think that 0:03:20.520 --> 0:03:23.600 especially this year, we say for the energy reserves like 0:03:23.639 --> 0:03:26.840 a new energy and also for this kind of the 0:03:26.960 --> 0:03:31.240 high voltage like our elacricity, like our transmission. That's all 0:03:31.320 --> 0:03:35.720 could become like our new highlights. But for the consumption side, 0:03:35.720 --> 0:03:38.600 I think as will be uh in my view, will 0:03:38.600 --> 0:03:42.280 be I could quite civil, but will not be like 0:03:42.480 --> 0:03:45.640 very strong. Our property will still be the drag, but 0:03:46.200 --> 0:03:48.600 we don't think the government will put too much efforts 0:03:48.600 --> 0:03:51.440 of that, so we'll just let it go unless this 0:03:51.680 --> 0:03:54.440 have the cliff that job, but that's the chance also small. 0:03:55.000 --> 0:03:58.360 Picking up on that theme around increasing automation you're just 0:03:58.440 --> 0:04:03.720 referencing there, how does that also impact the jobs outlook 0:04:03.760 --> 0:04:05.800 and the employment outlook as well? 0:04:07.640 --> 0:04:11.400 In this sense, I think for AI application, so like 0:04:11.480 --> 0:04:13.880 how one side of course, like more jobs may be 0:04:14.000 --> 0:04:16.839 taken by the machine, But at the same time, we 0:04:16.960 --> 0:04:20.240 think maybe service sectors still have the chances. And also 0:04:20.640 --> 0:04:24.239 withs like a new applied like a services sector, maybe 0:04:24.240 --> 0:04:26.760 there's something like a more like how we call the 0:04:26.920 --> 0:04:30.640 experience exposure like a services sector come out, like how 0:04:31.520 --> 0:04:35.040 that's more like a digitized and also with like this 0:04:35.279 --> 0:04:39.240 kind of more entertaining or like how even with more 0:04:39.279 --> 0:04:43.359 creative like a more service oriented like actual opportunities. But 0:04:43.480 --> 0:04:45.520 still I think there is still of pressure. 0:04:46.480 --> 0:04:49.320 And you guys upgraded Chinese Tech just a few weeks 0:04:49.320 --> 0:04:52.520 ago and saying it's probably the most preferred, right, most 0:04:52.520 --> 0:04:54.680 attractive here right now, how are you looking at this 0:04:54.839 --> 0:04:57.160 rally around AI and the light now and how do 0:04:57.200 --> 0:04:58.800 you position around it for next year. 0:04:59.320 --> 0:05:02.320 I think the this year AI already rallied for two 0:05:02.440 --> 0:05:05.360 years like last year. This year, especially for this year 0:05:05.440 --> 0:05:08.719 almost over thirty percent. But I think the think about 0:05:08.760 --> 0:05:11.400 it for this all these kind of a big platforms 0:05:11.480 --> 0:05:15.320 very similar to the US like Meganique since seven. I 0:05:15.360 --> 0:05:19.000 think they just started because like one side, I think 0:05:19.040 --> 0:05:22.680 that their valuation is still relatively low, like thirty to 0:05:22.720 --> 0:05:26.200 thirty percent of discount comparing with the US PS. And 0:05:26.279 --> 0:05:28.919 the second I think for the China, the AI investment 0:05:29.160 --> 0:05:32.600 is still like a capex is still increasing like a 0:05:32.760 --> 0:05:35.640 similar to the US. And also certain I think it's 0:05:35.640 --> 0:05:38.960 a very a little bit different from the US side. 0:05:39.000 --> 0:05:41.840 I think the China is more like an ecosystem. So 0:05:41.880 --> 0:05:44.240 I think that with this kind of an ecosystem with 0:05:44.360 --> 0:05:48.120 the basic research like then the AI, then the AI 0:05:48.200 --> 0:05:52.400 application with this ecosystem could like the spillover effect, we 0:05:52.520 --> 0:05:53.680 think it could be bigger. 0:05:54.839 --> 0:05:56.839 One of tho sort of issues I guess around the 0:05:56.880 --> 0:06:02.440 AI application side is sometimes low barriers to entry, What 0:06:02.520 --> 0:06:04.520 are the what are the sectors that you look at 0:06:04.560 --> 0:06:07.400 in terms that AI theme in particular is being a 0:06:07.400 --> 0:06:08.280 bit more resilient. 0:06:08.320 --> 0:06:11.200 I guess I think the AI, say, will range you 0:06:11.320 --> 0:06:14.000 from the lower end to the high end. So if 0:06:14.040 --> 0:06:17.440 the we can like AI applic applied like an advance 0:06:17.520 --> 0:06:22.640 of manufacturing and new materials and also healthcare, I think 0:06:22.640 --> 0:06:25.520 he's booming because of the AI like how the application, 0:06:26.040 --> 0:06:29.160 and we also say because say AI applied to maybe 0:06:29.240 --> 0:06:33.279 like era space and also uh some like how many 0:06:33.400 --> 0:06:37.080 like a new fields. I think it's just like feed 0:06:37.279 --> 0:06:40.200 up the exploration and also like innovation. 0:06:41.279 --> 0:06:43.000 What are some of the key themes you're watching out? 0:06:43.040 --> 0:06:45.440 I mean for the fourth part, because I think there's 0:06:45.480 --> 0:06:48.680 been a lot of allocation into domestic tech already, especially 0:06:48.680 --> 0:06:51.400 you take a look how institutional investors are kind of positioning. 0:06:52.160 --> 0:06:54.240 Do you think that this is extreme levels when you 0:06:54.279 --> 0:06:57.240 talk about fund concentration now and we've already sort of 0:06:57.240 --> 0:07:00.280 seen some rotation out of tech cannot continue in the 0:07:00.320 --> 0:07:00.840 fourth quarter. 0:07:01.920 --> 0:07:04.600 Yes, I think that it's started with the tech and 0:07:04.720 --> 0:07:07.680 also like uh yeah, the concentration set. We think the 0:07:07.760 --> 0:07:10.520 text still have the loom, but we also see it's 0:07:10.560 --> 0:07:14.720 applied to other sectors as well, like gradually. For example, 0:07:14.760 --> 0:07:17.440 we think that this year it's also very shiny. Section 0:07:17.600 --> 0:07:20.640 is for the energy reserves because now by now for 0:07:20.680 --> 0:07:23.400 the new energy already surprise thirty five percent of the 0:07:23.480 --> 0:07:26.440 China's like a total energy surprise, So I think that's 0:07:26.640 --> 0:07:30.480 like a very like a significant number. And we'll also 0:07:30.520 --> 0:07:34.440 say like maybe the healthcare will benefit because their price 0:07:34.480 --> 0:07:37.760 has been low and I could benefit like maybe with 0:07:37.960 --> 0:07:42.000 this kind of plakichi. And for the consumption side, yeah, 0:07:42.120 --> 0:07:45.119 that side is ah, it's we have the new const 0:07:45.440 --> 0:07:49.720 new consumption, but too high and it's it's it's not easy. 0:07:50.120 --> 0:07:51.880 But I think that we still have this kind of 0:07:51.920 --> 0:07:55.640 the like the new materials. And we also say for 0:07:55.760 --> 0:07:59.280 the sector like booming out and also the AI is 0:07:59.280 --> 0:08:02.000 not only the SOT to wear and also have the hardwares, 0:08:02.080 --> 0:08:05.160 but of course most sectors, most companies are in the 0:08:05.200 --> 0:08:08.720 A listed, so that's really we also think the issuers 0:08:08.880 --> 0:08:13.920 and could also could slightly better perform than h year 0:08:14.040 --> 0:08:17.080 next year because with all these kind of the like hardwares. 0:08:18.360 --> 0:08:20.800 So that's that's the equity side. What about the fixed 0:08:20.840 --> 0:08:22.720 income side? What are your preferences there? 0:08:23.320 --> 0:08:26.080 Uh, for the fixed income side, because we still expect, 0:08:26.200 --> 0:08:29.960 like for the interest rate will go down, so I 0:08:30.000 --> 0:08:34.160 think the like for the bond side, I think it's 0:08:34.200 --> 0:08:38.240 not very attractive. But the existing bound of course, like 0:08:38.400 --> 0:08:41.920 I think I still like have the uh the game. 0:08:43.320 --> 0:08:45.520 Is buying bonds again, right, Yeah, that's is that likely 0:08:45.559 --> 0:08:47.040 to be more measured this time around? 0:08:47.600 --> 0:08:50.720 I think the yeah, PBOC and also I think the 0:08:50.720 --> 0:08:53.560 PBOC also, I think that this year we also say 0:08:53.640 --> 0:08:57.719 for the company's actually issue like Chinese, like for the 0:08:57.920 --> 0:09:00.920 c N y bounds like in Hong Kong. So I 0:09:00.920 --> 0:09:04.240 think the government like pbios by bonds. I think it's 0:09:04.280 --> 0:09:09.440 more like I'll keep the mandatory. They don't call it 0:09:09.520 --> 0:09:12.880 a quantitative easy, but I think it's more like I'll 0:09:12.920 --> 0:09:17.520 provide the liquidity adjustment of the liquidity like a provision 0:09:17.640 --> 0:09:18.200 in the market. 0:09:18.640 --> 0:09:22.160 That was ifan Who from UBS Wealth Management speaking with 0:09:22.160 --> 0:09:25.439 Bloomberg TV host Von Mann and Anabel Droolers on the 0:09:25.520 --> 0:09:36.600 Daybreak Asia podcast. Welcome back to the Daybreak Asia podcast. 0:09:36.640 --> 0:09:40.320 I'm Doug Prisner. As mentioned earlier, the House of Representatives 0:09:40.320 --> 0:09:43.720 passed a Senate measure to end the longest government shutdown 0:09:43.760 --> 0:09:44.679 in US history. 0:09:44.880 --> 0:09:45.080 Now. 0:09:45.120 --> 0:09:48.880 In anticipation of this development, the Dow climbed for a 0:09:48.920 --> 0:09:51.680 fourth straight day, breaking above forty eight thousand for the 0:09:51.720 --> 0:09:55.280 first time and closing at a record high. Financials led 0:09:55.320 --> 0:09:58.280 the way for a closer look. I'm joined by Mike Dixon. 0:09:58.320 --> 0:10:02.960 He is head of research and quantitative Strategies at Horizon Investments. Mike, 0:10:03.040 --> 0:10:04.920 thank you for making time to chat with me. If 0:10:04.920 --> 0:10:07.520 you don't mind, I'd like to start with Cisco Systems. 0:10:07.920 --> 0:10:10.600 We heard from the company after the bill an upbeat 0:10:10.640 --> 0:10:14.640 sales forecast, which is likely a reflection of the progress 0:10:15.000 --> 0:10:18.880 Cisco is making and capturing more spending on AI. The 0:10:18.920 --> 0:10:21.839 stock was up eight percent in late US trading to 0:10:21.960 --> 0:10:26.080 around eighty dollars. Now that is the closest Cisco's shares 0:10:26.120 --> 0:10:29.080 have come to eighty two. They're all time high, set 0:10:29.120 --> 0:10:33.400 back on March twenty seventh, two thousand rights the dot 0:10:33.400 --> 0:10:37.000 com bubble burst. It's interesting timing. Maybe with all the 0:10:37.080 --> 0:10:38.600 talk we've heard about bubbles. 0:10:40.200 --> 0:10:43.840 I certainly love the history throwback, and yeah, I mean 0:10:43.840 --> 0:10:46.240 we are right on the cusp of reclaiming that high. 0:10:46.320 --> 0:10:48.480 I would say, you know, at least on a dividend 0:10:48.480 --> 0:10:52.560 adjusted basis, that has been reclaimed within the past several months. 0:10:52.559 --> 0:10:56.120 But nonetheless, look, this is not this AI trade is 0:10:56.160 --> 0:10:58.840 not the Internet bubble of the nineties. When we look 0:10:58.840 --> 0:11:01.320 at the underlying fundamental at the top of the market, 0:11:01.880 --> 0:11:05.480 you have had extremely strong earnings growth and revenue growth, 0:11:05.640 --> 0:11:08.680 and this earning season is no exception. When you look 0:11:08.720 --> 0:11:12.320 at the Magnificent seven and the NASDAC, you've actually had 0:11:12.360 --> 0:11:15.440 an inflection higher and revenue growth year every year of 0:11:15.600 --> 0:11:18.679 fifteen percent for the Nasdaq and that's up from ten 0:11:18.679 --> 0:11:20.640 percent about a year ago. So we've had an inflection 0:11:20.720 --> 0:11:25.079 higher in revenue growth. Obviously, earnings have been absolutely stellar. 0:11:25.160 --> 0:11:26.959 We have seen cash flows come down a good bit 0:11:26.960 --> 0:11:29.600 because of a lot of the cap x, but these 0:11:30.120 --> 0:11:34.160 we are seeing significant plans to make the power demand 0:11:34.240 --> 0:11:37.040 and the deals needed to get that infrastructure build and 0:11:37.080 --> 0:11:40.280 make that stuff happen. So really strong fundamentals here supporting 0:11:40.360 --> 0:11:41.800 the top of the market, which is not what we 0:11:41.880 --> 0:11:43.440 had back in the late nineties. 0:11:43.520 --> 0:11:45.840 Even so, over the last couple of days, we've seen 0:11:45.880 --> 0:11:48.920 a rotation away from big cap tech. Yesterday that would 0:11:48.960 --> 0:11:51.280 be the Tuesday session in the States, it was healthcare. 0:11:51.679 --> 0:11:54.720 Today it was the financials. Is it prudent now to 0:11:54.800 --> 0:11:56.480 kind of maybe take a little bit of risk off 0:11:56.559 --> 0:11:57.000 the table. 0:11:58.920 --> 0:12:00.920 Well, we have seen a little bit of rotation, but 0:12:01.000 --> 0:12:03.840 I think the market overall we tend to forget that 0:12:03.880 --> 0:12:06.319 some of these stocks actually can be flat for a day, 0:12:06.360 --> 0:12:08.680 and that's completely normal, and in fact it's very healthy, 0:12:09.120 --> 0:12:12.360 you know, zooming out when you look at the more 0:12:12.480 --> 0:12:15.560 you know, equal weight version of the SMP or you know, 0:12:15.600 --> 0:12:17.840 I believe that the Dow right cross its forty eight 0:12:17.920 --> 0:12:20.400 thousand today, that of course does not have a lot 0:12:20.440 --> 0:12:23.520 of the Max seven you know, top of the tech 0:12:23.559 --> 0:12:26.640 and AI trade really embedded in there. It's healthy to 0:12:26.679 --> 0:12:29.280 see some of that, you know, certainly with what we've 0:12:29.280 --> 0:12:33.800 had this year, because market concentration has been has been growing, 0:12:34.000 --> 0:12:36.960 and it is good to see a broader participation even 0:12:36.960 --> 0:12:40.359 some of the defensives you mentioned healthcare. I mean that 0:12:40.360 --> 0:12:43.319 that to me is a really good kind of contrarian 0:12:43.400 --> 0:12:46.079 sector play, and I think it's good to see participation there. 0:12:46.080 --> 0:12:48.439 We've had a stellar rally in the top of the. 0:12:48.400 --> 0:12:50.679 Market, and I do believe right now it might be 0:12:50.679 --> 0:12:52.000 prudent to think of. 0:12:51.880 --> 0:12:55.880 That as more of a hold and not necessarily an ad. 0:12:56.400 --> 0:12:59.360 We do have Nvidia next week, which is a macro 0:12:59.440 --> 0:13:01.600 event in al so we're going to need to see 0:13:02.320 --> 0:13:06.040 that what that holds, whether this Santa claus rally is 0:13:06.080 --> 0:13:09.040 going to be, you know, what we get through the 0:13:09.160 --> 0:13:12.040 end of the year. But there are other opportunities other 0:13:12.080 --> 0:13:13.679 than AI out there, and I do think it's wise 0:13:13.760 --> 0:13:15.880 to be looking at what some of those may be. 0:13:16.440 --> 0:13:19.840 Earlier today, the White House said that the October reports 0:13:19.920 --> 0:13:25.400 on unemployment and consumer prices will unlikely be released. Obviously, 0:13:25.440 --> 0:13:28.240 these numbers have been delayed by the shutdown. This is 0:13:28.280 --> 0:13:29.880 only going to add to a little bit more of 0:13:29.880 --> 0:13:33.920 the difficulty engaging the outlook, especially for the FED. Right now, 0:13:33.920 --> 0:13:36.840 I think FED fun Future suggests a sixty three percent 0:13:36.920 --> 0:13:39.840 chance of a rate cut next month of twenty five 0:13:39.880 --> 0:13:42.360 basis points. Although we're hearing more and more from a 0:13:42.400 --> 0:13:46.640 number of FED members about the concern over inflation it 0:13:46.760 --> 0:13:51.040 being sticky and perhaps a bigger risk than the unemployment story. 0:13:51.480 --> 0:13:54.080 Where do you come down when it comes to the 0:13:54.080 --> 0:13:55.440 FED and the outlook. 0:13:57.000 --> 0:14:00.040 Well, you know, seeing that the headline today about the 0:14:00.120 --> 0:14:03.040 delay in those reports is not great timing, right. I 0:14:03.080 --> 0:14:06.040 think we are at a point where we have had 0:14:06.120 --> 0:14:10.120 a pretty steady decline in labor market data heading into 0:14:10.160 --> 0:14:13.800 the shutdown. But at the same time, inflation it hasn't 0:14:13.800 --> 0:14:15.960 necessarily been a problem, but it hasn't been improving at 0:14:16.000 --> 0:14:18.719 the rate that folks would like. And so you know 0:14:18.960 --> 0:14:21.840 what has happened with this shutdown is a lot of 0:14:21.840 --> 0:14:25.360 these surveys just didn't get completed and as a result 0:14:25.440 --> 0:14:27.520 may not be for at least what I was reading 0:14:27.600 --> 0:14:31.000 the first time. Ever, that's not great because the December 0:14:31.120 --> 0:14:33.880 meeting as well, is a little bit earlier this year 0:14:33.880 --> 0:14:36.240 than it typically is, and so we're going to be 0:14:36.280 --> 0:14:38.080 kind of running up against the wire to get a 0:14:38.120 --> 0:14:40.360 lot of this data collected and get a fresh view 0:14:40.400 --> 0:14:43.560 on the market. But you know, overall, I do think 0:14:43.720 --> 0:14:45.400 what we saw at the end of October was a 0:14:45.440 --> 0:14:48.480 little bit of a surprise from Powell and the Committee 0:14:48.480 --> 0:14:51.120 as a whole. You know, he mentioned a number of 0:14:51.120 --> 0:14:54.280 times that the December cut was not a foregone conclusion 0:14:54.800 --> 0:14:56.280 for me and I think the rest of the market. 0:14:56.280 --> 0:14:58.520 That was a good bit of a surprise to hear that. 0:15:00.160 --> 0:15:00.400 You know. 0:15:00.600 --> 0:15:04.080 On the inflation side of things, though, and I hear 0:15:04.240 --> 0:15:06.960 the arguments out there, but if we also zoom out 0:15:07.000 --> 0:15:09.800 a little bit, the FED has been above their inflation 0:15:09.920 --> 0:15:12.880 target for you know, the better part of four nearly 0:15:12.960 --> 0:15:16.520 five years, and in their recent statement of economic projections, 0:15:16.720 --> 0:15:18.720 they don't have us getting back down to two percent 0:15:18.840 --> 0:15:22.360 until the end of twenty twenty seven. I mean, Look, 0:15:22.360 --> 0:15:25.200 that's almost eight years that they're going to be spending 0:15:25.280 --> 0:15:28.200 above a two percent, and to me, I'm not so sure. 0:15:28.200 --> 0:15:32.680 Their target practically is two percent, and so we'll see 0:15:32.680 --> 0:15:36.480 what the Committee committee thinks here in December. But I, 0:15:36.520 --> 0:15:38.560 for one, do believe that in the mid two they're 0:15:38.560 --> 0:15:41.680 probably perfectly comfortable with that so long as they get 0:15:41.720 --> 0:15:44.400 stability in the labor market. So that's what that's the 0:15:44.400 --> 0:15:46.120 side I'm on. I think we're going to get some 0:15:46.480 --> 0:15:47.920 get a cut, but we're going to have to see. 0:15:47.920 --> 0:15:49.640 It's going to be highly dependent on what the missing 0:15:49.640 --> 0:15:50.640 information tells us. 0:15:50.720 --> 0:15:53.480 So I'd like to get your take on whether or 0:15:53.560 --> 0:15:56.600 not there is a great degree of bifurcation in the economy. 0:15:56.600 --> 0:16:00.120 It was very interesting today we heard from Fitch Ratings 0:16:00.160 --> 0:16:03.640 and the company said the share of some prime borrowers 0:16:03.880 --> 0:16:06.920 at least sixty days past too on their auto loans 0:16:07.320 --> 0:16:09.600 rose by more than six percent of the month of October. 0:16:09.640 --> 0:16:11.440 I think we're now at the highest level since about 0:16:11.520 --> 0:16:14.880 nineteen ninety four. Now you and I both know what 0:16:14.920 --> 0:16:17.280 the wealth effect has done this move higher in the 0:16:17.320 --> 0:16:22.080 equity market, and how higher income earners that own stocks 0:16:22.200 --> 0:16:24.880 have been able to power a lot of consumer spending. 0:16:25.320 --> 0:16:27.880 Maybe there's a little bit more concern about lower and 0:16:28.320 --> 0:16:32.560 middle income households. Do you think this has the potential 0:16:32.600 --> 0:16:35.080 really to hold back a lot of growth the way 0:16:35.120 --> 0:16:36.560 in which we were kind of divided. 0:16:38.680 --> 0:16:40.800 You know, I don't think we're really there yet. 0:16:41.160 --> 0:16:45.360 I think that the economy, as we're seeing in the 0:16:45.400 --> 0:16:48.560 stock market, you know, has become more concentrated because not 0:16:48.640 --> 0:16:52.080 everybody is you know, participating in a lot of the 0:16:52.160 --> 0:16:54.960 equity market wealth that has been created. But you know, 0:16:55.040 --> 0:16:57.760 you mentioned on the debt side of things. The New 0:16:57.840 --> 0:17:02.480 York Fed puts out their quarter debton credit report that 0:17:02.600 --> 0:17:04.960 comes out. It was just last week the for the 0:17:05.080 --> 0:17:08.240 for the third quarter, reporting on a lot of these statistics, 0:17:08.240 --> 0:17:12.720 you know, across loan types and across the different you know, 0:17:12.840 --> 0:17:16.480 age and other demographic areas. And you know, we really 0:17:16.480 --> 0:17:19.720 didn't see many headlines around that in Bloomberger otherwise. And 0:17:19.760 --> 0:17:24.160 the reason is because nothing really got that worse or alarming. 0:17:24.520 --> 0:17:26.639 And I hear you on that data point on the 0:17:26.680 --> 0:17:29.360 auto loans, but you know, it didn't really show up 0:17:30.000 --> 0:17:32.600 in a screaming manner on a change basis, you know, 0:17:32.720 --> 0:17:33.640 in that major. 0:17:33.520 --> 0:17:34.359 Quarter we report. 0:17:34.480 --> 0:17:36.800 So you know, I don't think that I think that 0:17:36.880 --> 0:17:39.200 was good that we didn't see that tick up there. 0:17:39.600 --> 0:17:43.520 But I don't think we're quite at a trouble area yet, 0:17:43.880 --> 0:17:45.119 you know, as it relates to that. 0:17:45.280 --> 0:17:47.440 And overall, the consumer is in a. 0:17:47.400 --> 0:17:50.040 Really, really healthy pace, and we've seen that when we 0:17:50.119 --> 0:17:53.199 used to get economic data, we saw that broadly, and 0:17:53.240 --> 0:17:55.520 we'll hope to see that see that again here once 0:17:55.760 --> 0:17:58.160 the floodgates open back up and we get some information. 0:17:58.359 --> 0:17:59.960 Even so, if you look at the results of the 0:18:00.320 --> 0:18:04.080 election last week, we're talking New Jersey, we're talking Virginia, 0:18:04.160 --> 0:18:07.840 even here in New York City, this issue of affordability, 0:18:07.880 --> 0:18:11.160 it's front and center, you know. 0:18:11.160 --> 0:18:11.520 It is. 0:18:11.600 --> 0:18:15.440 I think one thing on affordability that that's going to 0:18:15.480 --> 0:18:18.960 be an underappreciated boost to economic activity is really on 0:18:19.000 --> 0:18:21.200 the housing side. And I think you can see that 0:18:22.240 --> 0:18:27.520 through the fall in mortgage rates. You know, we are 0:18:27.840 --> 0:18:30.000 still in you know, the low sixes, but a good 0:18:30.000 --> 0:18:33.000 bit down from where things were. And one of the 0:18:33.240 --> 0:18:34.960 one of the metrics that we look at and have 0:18:35.000 --> 0:18:37.840 been tracking closely is you know, interest rate volatility and 0:18:37.880 --> 0:18:41.440 how that's been falling, and that's playing a pretty big 0:18:41.560 --> 0:18:44.720 role in where mortgage rates are relative to the ten year, 0:18:44.880 --> 0:18:47.840 and you know, with as we get closer and closer 0:18:47.880 --> 0:18:51.600 to the end of this FED easing cycle, you know, 0:18:51.640 --> 0:18:54.159 we're going to continue to see that interest rate volatility 0:18:54.200 --> 0:18:56.440 fall and even without a change in the ten year, 0:18:56.800 --> 0:18:59.680 mortgage rates can still come down. I think some Mesma said, 0:18:59.680 --> 0:19:01.280 we'll looking, you know, we could see you know, in 0:19:01.320 --> 0:19:03.879 the five and a half range with no change in 0:19:03.920 --> 0:19:07.359 the tenure, just simply through this volatility reduction channel with 0:19:07.400 --> 0:19:09.720 interest rates. This is going to be a really big 0:19:09.760 --> 0:19:15.120 boost to just housing affordability overall because the activity has 0:19:15.160 --> 0:19:17.760 been just completely on the floor there, and I think 0:19:17.840 --> 0:19:19.480 that can be a really big boom when it comes 0:19:19.480 --> 0:19:23.840 to consumer confidence, labor, mobility, home equity, lines of credit. 0:19:24.520 --> 0:19:28.600 There's there's a lot of I think booming economic activity. 0:19:28.640 --> 0:19:32.600 We can get through that mortgage channel, and I think 0:19:32.600 --> 0:19:34.800 that that is something it's a little bit underappreciated, but 0:19:34.840 --> 0:19:36.920 things have been moving in the right direction to make 0:19:37.200 --> 0:19:40.600 at least the housing side there with existing homes, you know, 0:19:40.680 --> 0:19:43.400 a lot more affordable, and as time passes, I think 0:19:43.400 --> 0:19:46.200 that that's gonna be alleviated a little bit through that channel, 0:19:46.200 --> 0:19:47.080 and that's a really good thing. 0:19:47.280 --> 0:19:50.000 So, Mike, where are you finding opportunity domestically. 0:19:52.800 --> 0:19:55.560 Well, you know, one of my favorite areas right now, 0:19:56.359 --> 0:20:00.760 I'll give I'll give two things that that really have 0:20:00.880 --> 0:20:04.119 my attention lately. One of them is the small and 0:20:04.200 --> 0:20:07.719 MidCap space in US markets. Now, this has been a 0:20:07.760 --> 0:20:10.240 trade that has had its fits and starts, right. You've 0:20:10.280 --> 0:20:14.399 seen numerous very short lived kind of rallies in the 0:20:14.440 --> 0:20:17.760 smaller cap segments of the market, but it's really failed 0:20:17.760 --> 0:20:20.760 to sustain a rally, you know, in the last several years. 0:20:21.240 --> 0:20:23.239 And I think there's a couple of things working in 0:20:23.280 --> 0:20:25.760 favor of that trade right now for more of a 0:20:25.800 --> 0:20:26.720 longer term hold. 0:20:27.080 --> 0:20:28.800 You know. One of them is this rate channel. 0:20:28.880 --> 0:20:32.199 Right, the high level of rates overall have been you know, 0:20:32.280 --> 0:20:35.200 difficult and weighing in a disproportionate manner on the small 0:20:35.240 --> 0:20:39.000 and midcaps space, right, Microsoft and Video. These folks don't 0:20:39.000 --> 0:20:41.160 really care too much about the level. 0:20:40.920 --> 0:20:41.520 Of interest rates. 0:20:41.520 --> 0:20:45.280 They have plenty of cash flow and balance sheet. So 0:20:45.440 --> 0:20:48.680 the fact that rate hikes are definitely off the table 0:20:49.600 --> 0:20:51.680 and whether we get a cut in December is one thing, 0:20:51.720 --> 0:20:53.560