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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Daybreak Aisia podcast. I'm Doug Prisner. You can join Brian

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Speaker 1: Curtis and myself for the stories, making news and moving

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Speaker 1: markets in the APAC region. You can subscribe to the

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Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. John Authors

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Speaker 1: is with us. He is Bloomberg opinion columnist. He has

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Speaker 1: been writing a lot about not only the en carried trade,

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Speaker 1: but a lot of the volatility that we've been seeing.

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Speaker 1: It's always a good to have the chance to visit

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Speaker 1: with you. How are you putting this into context right now?

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Speaker 1: Is this something that the boj started when it tightened?

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Speaker 1: Is this the consequence of the FED maybe altering its

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Speaker 1: strategy a bit? Or is it maybe a little bit

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Speaker 1: of both.

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Speaker 2: It's it's bits of both. And you need to throw

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Speaker 2: in because the Magnificent Seven stocks, the BEG, internet platforms

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Speaker 2: were virtually being treated the way that treasuries normally are

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Speaker 2: as as infallible, risk free investments that people around the

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Speaker 2: world wanted to invest in. I think you need to

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Speaker 2: throw in the nervousness, but ai that really got going

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Speaker 2: in the last couple of weeks as well. There were

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Speaker 2: there were a combination of events that's allowed you know

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Speaker 2: that that somehow or other triggered the triggered to sell off.

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Speaker 2: I think ultimately the issue is about central banking coordination.

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Speaker 2: I'm going to have made the analogy many times with mountains,

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Speaker 2: and this was something that the Chief Economy of the

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Speaker 2: the Bank of England, Hugh Pill made this analogy quite

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Speaker 2: quite a while ago. Now that the shape, are we

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Speaker 2: going to have a table mountain where you should keep

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Speaker 2: rates at the same level for a long time and

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Speaker 2: then des end or is it going to be a matter?

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Speaker 2: And the point of that is that the descent from

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Speaker 2: a mountain is much more dangerous than the ascent. Far

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Speaker 2: more climates get killed going down and going up, and

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Speaker 2: it's particularly crucial when you're going down to coordinate. Everyone

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Speaker 2: needs to be roped together. You've got to coordinate your

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Speaker 2: way down the face. I think the analogy with central

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Speaker 2: banking is very good. Last week you saw the FED

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Speaker 2: do nothing, the boj hike and the Bank of England

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Speaker 2: cut That is a recipe. I'm not saying they should

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Speaker 2: all they will have a prime job to their own economies.

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Speaker 2: But when you have that degree of lack of coordination,

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Speaker 2: they are going to be problems.

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Speaker 1: So the Bank of Japan has been looking at inflation

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Speaker 1: in that country well above target for quite some time.

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Speaker 1: Are they guilty of a policy mistake? Did they wait

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Speaker 1: too long? Did the BOJ fall behind the curve? And

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Speaker 1: I know that may seem kind of harsh criticism for

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Speaker 1: a country that's been mired in deflation for three decades plus.

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Speaker 2: Now, No, I wouldn't accuse them of that certainly the moment,

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Speaker 2: if people are complaining about anything, it's that they shouldn't

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Speaker 2: have hiked even to the princely rate of zero point

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Speaker 2: two five percent. Now that there are people who are

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Speaker 2: saying they're being too hawkish, I think it's obvious to

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Speaker 2: some extent. You've got earnings figures earlier this week showing

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Speaker 2: that people really are beginning to get wage rises monit

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Speaker 2: in nominal terms in Japan, which really does That's exactly

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Speaker 2: what the BOJ has wanted to see happen. You want

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Speaker 2: to see the kind of economy ticking over in a

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Speaker 2: way that it does when there is some inflation out

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Speaker 2: there and it was Japan has to return to some

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Speaker 2: kind of normal financial capitalism where the interest rates acts

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Speaker 2: as a discipline on it. So I think there's a

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Speaker 2: lot of problems in messaging. There's all kinds of things

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Speaker 2: about the exact circumstances in which it's move happened last week.

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Speaker 2: I don't myself think that they waited that that's a

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Speaker 2: fair criticism.

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Speaker 1: So this reflationary move that we've been seeing is doing

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Speaker 1: to some degree by a stronger dollar, Right we can

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Speaker 1: ignore that fact.

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Speaker 2: With regard to Japan. No, certainly, yes, And I think

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Speaker 2: that's one of the points which I think we'll go

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Speaker 2: into abeyance for a few months, but then we'll come

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Speaker 2: back in a very big way. Is the dollar. I

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Speaker 2: think most things at the moment point to a week

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Speaker 2: dollar through the election weaker dollar than we've had through

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Speaker 2: the election, mainly because the Japanese carry trade is obviously

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Speaker 2: not a one way bet anymore. And the more that

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Speaker 2: the carry trade comes off, that will tend to weaken

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Speaker 2: the dollar. And if the direction of interest rates in

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Speaker 2: this country in the US is downwards, then that needs

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Speaker 2: a week of dollar as well come the election. More

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Speaker 2: or less, everybody I know thinks that a Trump two

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Speaker 2: point zero would mean a higher dollar, even though he

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Speaker 2: wants a lower one. Tariffs plus fiscal boost equals higher rates.

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Speaker 1: Higher deficits, lower taxes. That's a recipe for higher inflation.

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Speaker 2: It's a recipe for it's a recipe to get the

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Speaker 2: economy going quite nicely for bits, but it's also a

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Speaker 2: recipe for higher rates, higher inflation, and a higher dollar.

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Speaker 2: So that that that, you know, a few weeks ago

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Speaker 2: it was tacitly being assumed. It's about one hundred percent

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Speaker 2: probability that we would be getting Trump two point zero.

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Speaker 2: Now we're back to a coin flip. And because there

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Speaker 2: are other things going on, it's hard to read much

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Speaker 2: from all the amazing politics of the last few weeks

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Speaker 2: into the markets. But that will come back.

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Speaker 1: So you mentioned the unwind of the carry trade, and

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Speaker 1: the number that I heard was about four trillion in

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Speaker 1: total size. I mean, I don't know where that is

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Speaker 1: being acquired. Do you have a sense of where we

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Speaker 1: are in this online right now? Are we pretty much

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Speaker 1: have way through it? Is there a little bit more

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Speaker 1: that we need to experience?

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Speaker 2: I mean, nobody can know, because it's not it's not

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Speaker 2: like there are carry trade funds with with with publicly

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Speaker 2: available assets under management. My sense, however, this is my

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Speaker 2: favorite rule of thumb. The Mexican payo yen carry trade.

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Speaker 2: I borrowing in yen, parking it in the Mexican pace.

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Speaker 2: So according to our our our, Bloomberg's index has gained

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Speaker 2: more this decade in total return terms than the S

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Speaker 2: and P five hundred has.

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Speaker 3: Uh.

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Speaker 2: And you know there are times when I just believe

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Speaker 2: in Ockham's razor. That's crazy. There must be further to go.

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Speaker 2: Andrew's madmil Lopez o Bredor came in regarded as this

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Speaker 2: dangerous president who might crash the peso. At the moment,

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Speaker 2: he is still the only Mexican president since they allowed

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Speaker 2: the peso to float, who will leave with the pesos

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Speaker 2: stronger than when he arrived, which again makes very little sense.

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Speaker 2: It's because so many people are pumping money into the

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Speaker 2: carry trade, which involves buying paesos. I think there is

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Speaker 2: quite a lot further to go.

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Speaker 1: Is it incumbent upon a central banker to look at

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Speaker 1: the way in which their currency may be used as

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Speaker 1: a carry trade and building leverage in global financial systems?

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Speaker 1: Do central bankers as a result of this exercise need

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Speaker 1: to be on high alert for this type of thing

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Speaker 1: happening in the future.

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Speaker 2: I think they always should be. I think one of

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Speaker 2: the I mean, there were many mistakes in two thousand

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Speaker 2: and eight, but at that point it was more the

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Speaker 2: Brazilian reale. But you know, there was a massive yen

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Speaker 2: carry trade then which crashed in really spectacular fashion, and

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Speaker 2: that was definitely a contributor to the market conditions that

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Speaker 2: brought down Leman. The carry trade came, you know, peaked

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Speaker 2: and went downwards a few months from memory before before

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Speaker 2: Lehman went down. So, I mean, central banks are morally

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Speaker 2: required to take in lots of take lots of things

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Speaker 2: into account, and they will criticized by people like me

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Speaker 2: when they missed something. It's a it's a rotten job

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Speaker 2: on that level. But yes, the carry trade is a

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Speaker 2: ubiquitous way of accessing leverage which is very hard to measure,

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Speaker 2: and it looks as though it has been allowed to

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Speaker 2: go too far once more in the last.

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Speaker 1: Couple of years. So we've been talking about financial market dislocation.

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Speaker 1: At what point does it tip over and become economic dislocation.

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Speaker 2: I think it becomes that it moves on to that

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Speaker 2: level if if you have an emerging market that actually

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Speaker 2: moves into serious trouble. That's that's the that's the script

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Speaker 2: from previous decades, which does, I have to say, look

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Speaker 2: much less likely because because so much more emerging market

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Speaker 2: debt is in their own currency now. So the kind

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Speaker 2: of the kind of domino effect you got in in

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Speaker 2: the late nineties the Asia crisis should is much less likely.

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Speaker 2: And the other ways. If you have a really major

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Speaker 2: institution come into trouble, that's how that's how markets really

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Speaker 2: tip into a major economic credit. Again, I'm not saying

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Speaker 2: it's not going to happen. I think it's less likely

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Speaker 2: than it was in O eight.

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Speaker 1: John, It's always a pleasure. John Authur is from Bloomberg

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Speaker 1: Opinion here on a daybreak Asia. Thanks so much. Let's

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Speaker 1: get to our guest on markets, Berkeley. Bell Knapp is

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Speaker 1: with US, head of US Advisory Portfolio Manage It meant

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Speaker 1: at Franklin Templeton joining us from the Bay Area. Berkeley,

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Speaker 1: thanks so much for being with us. I'm curious about

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Speaker 1: what you have been hearing from clients, Let's say, in

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Speaker 1: the last couple of days. It was very interesting data

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Speaker 1: point yesterday from a Light Solutions the four to one

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Speaker 1: K index that they monitor saw the greatest large cap

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Speaker 1: us equity outflow for quite some time, about sixty percent,

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Speaker 1: where a lot of your clients very very nervous and

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Speaker 1: was their heavy selling.

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Speaker 4: I think this is one of those times where panic

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Speaker 4: sets in and where you see a real disconnect between

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Speaker 4: what's going on in the economy with the actual with

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Speaker 4: the real economy versus what's happening in the market. And

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Speaker 4: this is one of those times where there's been fair

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Speaker 4: amount of panic. But when you look at economic fundamentals,

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Speaker 4: they still look pretty sound. And you know, our view

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Speaker 4: really of the global the global economy is that, yes,

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Speaker 4: you know, some things have moderated. Leading indicators have moderated,

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Speaker 4: the rate of growth is slowing, but we still see

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Speaker 4: reasonable growth expectations. And you know, we really pay attention

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Speaker 4: to a broad set of leading economic indicators and try

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Speaker 4: to focus our attention on patterns of change and the

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Speaker 4: direction level and the rate of change. And these indicators

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Speaker 4: have moderated, but they still can they still continue to

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Speaker 4: suggest really reasonable growth. So you know, if we incorporate

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Speaker 4: risks on top of this, we continue to maintain a

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Speaker 4: measured view that growth is constructive, but growing, So we

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Speaker 4: look at those and we focus on corporate fundamentals and

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Speaker 4: see those you know in the as as still really

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Speaker 4: you know, quite positive. And you know, as economic growth

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Speaker 4: moves more towards historical trends, we'll probably get some relief

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Speaker 4: from interest rates when the ped starts their cycle, and

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Speaker 4: that will help earnings breath to broaden. So we don't

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Speaker 4: have really a pessimistic pessimistic view from the recent activity

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Speaker 4: and really try to keep those two things separate the

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Speaker 4: economy from the actual market activity.

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Speaker 3: What about you know, the extent in which is becoming

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Speaker 3: a bit trickier these days to watch these economic indicators

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Speaker 3: and figure out the recession risks because markets seem to

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Speaker 3: be getting it wrong. To your point about how it

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Speaker 3: is still going, maybe not as quickly. We heard how

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Speaker 3: Claudia sam She said, you know, some of these economic

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Speaker 3: tools are being skewed by disruptions in the past four

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Speaker 3: and a half years. So is it becoming a bit

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Speaker 3: cloudier in terms of getting these projections and getting it right.

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Speaker 4: I think it is. And the element of COVID, you know,

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Speaker 4: really skews sort of the way to look at at

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Speaker 4: history and the way to look at some of these

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Speaker 4: statistics over time. You know her the bomb rule is

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Speaker 4: eleven for eleven in predicting recessions. But even Claudia Samus said, hey,

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Speaker 4: this may not be exactly the same situation, given what

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Speaker 4: happened to the labor market during COVID. So, for example,

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Speaker 4: when we look at the unemployment report and it's being

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Speaker 4: compared to early stages of previous recessions, we don't see

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Speaker 4: it quite as worrisome because many of the labor market

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Speaker 4: indicators have merely refers to their post COVID reverse their

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Speaker 4: post COVID gains, and now they sit at levels closer

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Speaker 4: to the pre COVID equilibrium. So we see those the

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Speaker 4: labor market as definitely slowing, slowing its growth, but still

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Speaker 4: at a healthy level.

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Speaker 1: I want to talk about one of the industries that

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Speaker 1: seems to be very challenged at the moment. Media. We

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Speaker 1: heard from Warner Brothers Discovery after the bell the company

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Speaker 1: has written down the value of its traditional TV networks

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Speaker 1: and posted a charge as a result of that to

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Speaker 1: nine point one billion. Our own Cris Palmer was talking

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Speaker 1: about the possibility that this is a watershed moment, and

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Speaker 1: then early today we heard from Disney it's somewhat of

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Speaker 1: a mixed picture, so weakness in the theme park business,

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Speaker 1: and then we did have Disney posting its first ever

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Speaker 1: profit in streaming. Talk to me about how you see

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Speaker 1: the media industry broadly at this moment in time.

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Speaker 4: It's really going through probably the largest change it's ever

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Speaker 4: been through in its history. And the traditional television network

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Speaker 4: model is pretty much finished, and you know, we now

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Speaker 4: pretty much only use streaming services. So you're going to

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Speaker 4: continue to see those larger companies write down those businesses

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Speaker 4: and focus their efforts more on the more efficient app

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Speaker 4: based products. So it's probably an industry that's going to

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Speaker 4: be suffering in terms of profitability in the near term

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Speaker 4: just based on this conversion. And you know, it's an

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Speaker 4: industry also that if you look at what is actually

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Speaker 4: streamed onto TV, is really change over time from sort

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Speaker 4: of the traditional you know, TV productions into more live events,

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Speaker 4: and we would expect to see them really focus continue

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Speaker 4: to focus on live events and less expensive productions.

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Speaker 3: Do you see this continued rotation out of growth into

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Speaker 3: value because it didn't seem to last very long based

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Speaker 3: on what we saw on Wall Street overnight.

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Speaker 4: Yeah, I think that, you know, growth has been just

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Speaker 4: so dominant. And you know, when we look at what's

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Speaker 4: happened this year, right and you think about how much

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Speaker 4: of the performance has been in the Magnificent seven stocks

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Speaker 4: or just even the tech industry and growth companies, and

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Speaker 4: the the outperformance, you know, has been so significant. And

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Speaker 4: even though we've given back about a third of it

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Speaker 4: thus far with this rotation, you know, growth stocks are

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Speaker 4: still so far ahead. And you know, the one thing

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Speaker 4: I'd say, though, before everyone jumps ship and moves into value,

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Speaker 4: is there's a reason that growth has outperformed. And if

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Speaker 4: you look at those even though it's just those mag

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Speaker 4: seven stocks, and the earnings that they've produced and the

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Speaker 4: rate of the earnings growth, it's really justified those valuations.

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Speaker 4: And so you know, at this point in time, when

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Speaker 4: you look at earnings growth in those mag seven stocks,

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Speaker 4: it's still extremely strong. But we do expect BRETT to

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Speaker 4: widen here, especially as interest rates come down, So we

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Speaker 4: would expect to see certain sectors where value companies really

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Speaker 4: prevail to perform better looking at the rest of this year.

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Speaker 1: We'll leave it there, Berkeley, thank you so much. Berkeley

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Speaker 1: Bellknap from Franklin Templeton here on Daybreakation.

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Speaker 3: Right.

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Speaker 1: Nolan is director for the United States at Eurasia Group.

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Speaker 1: He joins us from Washington, d C. First of all,

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Speaker 1: before we get in to the politics of this, how

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Speaker 1: how do you assess the choice of Walls?

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Speaker 5: I think the best way to describe Walls as a

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Speaker 5: safe pair of hands. This is not the choice that's

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Speaker 5: going to blow anyone out of the water. It's not

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Speaker 5: gonna really create this massive new shift in democratic appeal.

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Speaker 5: But it's also someone who probably isn't going to have

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Speaker 5: too many downsides for Harris. He's moderate, he's from the Midwest,

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Speaker 5: represents an agg state. He's a lot of things that

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Speaker 5: Kamala Harris just isn't, so it compliments her appeal in

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Speaker 5: a lot of ways. It is a little bit of

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Speaker 5: a gamble on the campaign itself. It's obvious they're betting

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Speaker 5: that they're getting stronger, strong enough that they don't need

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Speaker 5: Shapiro's boost.

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Speaker 3: In Pennsylvania, He's also seen as someone that's favored by

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Speaker 3: progressives but to many Americans a relative unknown. Correct me

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Speaker 3: if I'm wrong. We have three months away. Is this

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Speaker 3: enough time for him to introduce himself to voters?

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Speaker 5: No, I think you are one hundred percent correct. And

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Speaker 5: the thing is that they have about four hundred and

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Speaker 5: twenty five million dollars to spend to make sure people

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Speaker 5: get to know the version of Tim Walls that they want.

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Speaker 5: They want people to know. Vice presidents are never the

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Speaker 5: prime draw. It's you know, they're always the backup singer.

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Speaker 5: They're always the opening act. They're never the person that's

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Speaker 5: selling the tickets to get people in the door. By

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Speaker 5: the same token, they can't be terrible. You can't have

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Speaker 5: a terrible bass player in your band and be successful.

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Speaker 5: But nobody's there to see the bass player. Tim Walls

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Speaker 5: is going to become very well known. In fact, you

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Speaker 5: we're already seeing this really massive, pretty coordinated rollout across

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Speaker 5: social media from both the Harris campaign as well as

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Speaker 5: other Democratic surrogates that are all trying to put Ford

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Speaker 5: the preferred image of Walls, this moderate kind of dad figure,

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Speaker 5: you know, a kind of again a safe pair of hands,

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Speaker 5: someone who is moderate, approachable, you know, friendly and in

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Speaker 5: a lot of ways they're trying to position him as

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Speaker 5: maybe a contrast to JD. Vance.

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Speaker 1: So that kind of anticipates the next question here in

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Speaker 1: terms of the Trump Vance campaign, what type of challenge

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Speaker 1: are they now facing maybe that they weren't before. If

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Speaker 1: you assume that the conventional wisdom was that Josh Shapiro

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Speaker 1: would be put on the ticket.

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Speaker 5: I think the conventional wisdom of Shapiro sort of was.

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Speaker 5: I think in some ways a little bit bigger of

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Speaker 5: a risk for Trump I and for Republicans in general.

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Speaker 5: I think that they view Shapiro as an inbuilt advantage

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Speaker 5: for for Harris in what is at this point likely

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Speaker 5: to be the tipping point state, the state that decides

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Speaker 5: the breakdown of electoral college results, the one that's going

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Speaker 5: to push either side over to seventy. I think that

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Speaker 5: the Trump campaign now faces a bit of a pivot.

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Speaker 5: They have to sort of reframe what Vance's appeal is

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Speaker 5: and put him more as a counterpart, or reframe him

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Speaker 5: a little bit too directly offset Walls's appeal. The other

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Speaker 5: thing is Vance right now is the most vocal person

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Speaker 5: in the Trump campaign. Trump has really kind of backed

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Speaker 5: away from campaign events. He only really has one scheduled

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Speaker 5: in the upcoming week, and that's in Montana. So Vance

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Speaker 5: is taking the lion's share of the public attention and

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Speaker 5: media hits that the campaign's putting.

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Speaker 3: Out right now, it seems like neither side is making

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Speaker 3: much headway as well with black voters. Does this shift

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Speaker 3: the calculus?

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Speaker 5: So, I think that the Harris side is making some headway.

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Speaker 5: You're seeing really sharp increases in voter enthusiasm, especially among

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Speaker 5: black voters. There's indications that there are many more likely

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Speaker 5: black voters. You know, there's a couple of electoral analyzes

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Speaker 5: now that are out saying, look, this is a big

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Speaker 5: deal because the more that you can increase potential turnout,

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Speaker 5: the more states you possibly put on the map. I

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Speaker 5: think that this is something that both sides are really

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Speaker 5: very very aware of. Certainly, the Trump campaign has an

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Speaker 5: explicit strategy of trying to divide parts of the Democratic

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Speaker 5: base by appealing to black mail voters between the ages

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Speaker 5: of eighteen and thirty five. Wilds said that verbatim, and

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Speaker 5: I think they're going to continue to do that to

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Speaker 5: try and keep or try and mitigate or minimize that

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Speaker 5: increase in voter enthusiasm among black voters.

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Speaker 1: When President Biden was the top of the Democratic ticket,

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Speaker 1: there was a lot of concern being expressed from members

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Speaker 1: in Congress, whether the House or the Senate, talking about

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Speaker 1: the vulnerability and some of those down ballot races, which

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Speaker 1: is to say, anything below kind of the presidential ticket.

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Speaker 1: What does this do for Democrats' hope of maybe holding

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Speaker 1: on to the Senate and picking up a few seats

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Speaker 1: in the House.

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Speaker 5: I mean mechanically, just as the top of the ticket

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Speaker 5: gets tighter, you know, as the Harris campaign looks more competitive,

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Speaker 5: it boosts down ballot races because the ultimate effect is

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Speaker 5: to raise voter turnout across the Democratic sort of spectrum,

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Speaker 5: and higher turnout benefits every Democrat that's on the ballot.

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Speaker 5: I think the other side effect is that you now

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Speaker 5: have Democrats who don't have to worry about explaining away

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Speaker 5: top of the ticket or a presidential candidate that people

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Speaker 5: really weren't that excited about. It takes away a big

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Speaker 5: headwind for a lot of these races, and I think

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Speaker 5: it improves Democrats' chances certainly in both the House and

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Speaker 5: the Senate, though I'd be remiss not to note that

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Speaker 5: the Senate still looks likely to go Republican, just by

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Speaker 5: virtue of the fact that if Democrats lose one of

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Speaker 5: the races that are up right now, especially one of

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Speaker 5: the two really close ones in Montana and Ohio, that

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Speaker 5: gives Republicans a straight up fifty one seed advantage.

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Speaker 3: You know. One of the things that also came up

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Speaker 3: after the ticket was confirmed is Walls's connections with China

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Speaker 3: going back decades. Do you think this in any way

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Speaker 3: informs what could be the approach to China going forward.

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Speaker 5: I really doubt it, to be honest. I think that

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Speaker 5: Walls is going to be a lot like Biden was

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Speaker 5: in two thousand and eight and Harris was in twenty twenty,

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Speaker 5: someone who is there to compliment and to bolster the

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Speaker 5: chief executive, who is not there to set the direction

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Speaker 5: of policy. It's a governing partner in a lot of

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Speaker 5: ways in that the vice president goes and delivers the

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Speaker 5: message of the administration. But I don't expect that Walls

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Speaker 5: is going to have a huge direct impact on the

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Speaker 5: actual shape of that policy that would be dictated by

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Speaker 5: Harris and by her close advisors.

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Speaker 1: Clayton, thank you for making time to chat with us.

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Speaker 1: Clayton Allen there. He is director for the United States

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Speaker 1: Said Eurasia Group on the line from Washington, DC. This

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Speaker 1: has been the Bloomberg Daybreak Asia podcast, bringing you the stories,

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Speaker 1: making news and moving markets in the Asia Pacific. Visit

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