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Speaker 1: This is Bloomberg Daybreak Asia for this Wednesday, March fifteenth

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Speaker 1: in Hong Kong, Tuesday March fourteenth in New York and

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Speaker 1: coming up today. The FETE is in a tight spot

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Speaker 1: as US consumer prices rise in February, US authorities examining

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Speaker 1: the collapse of Silicon Valley Bank for misconduct by officers,

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Speaker 1: and China's activity data may show the economy jumping out

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Speaker 1: of a COVID driven slump, Russia down to a US

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Speaker 1: drone in the Black Sea, the State of Ohio sues

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Speaker 1: Norfolk Southern. I'm Dan Schwartzman. I'll have news coming up

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Speaker 1: that's all straight ahead on Bloomberg Daybreak Asia, the business

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Speaker 1: news you need to start your day, and just one

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Speaker 1: fifteen minute podcast available on Apples, Spotify, the Bloomberg Business

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Speaker 1: app and everywhere you get your podcasts. Good morning, I'm

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Speaker 1: Dead Prisoner and I'm Brian Curtis. Here are the stories

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Speaker 1: we're following today. Let's take a closer look here at

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Speaker 1: the CPI report underlying US consumer prices rose in February

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Speaker 1: by the most in five months, and it forces a

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Speaker 1: tough decision on the FED in terms of its rate

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Speaker 1: hiking path. Officials are weighing still rapid inflation against the

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Speaker 1: banking turmoil that we've seen of late that was caused

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Speaker 1: by the collapse of three banks, including Silicon Valley Bank.

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Speaker 1: We heard from Michael Gapon at Bank of America's securities.

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Speaker 1: He told us that a twenty five basis point rate

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Speaker 1: hike by the FED does make sense right now. The

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Speaker 1: bigger principle chew gum and walk at the same time,

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Speaker 1: it can use its lender of last resort tools to

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Speaker 1: quell financial market stress and also keep its broader eye

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Speaker 1: on the macroeconomy. So the FEDS trying to do that

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Speaker 1: walk in chew gum right now. We'll see if they can.

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Speaker 1: I think they can do it. Traders were betting on

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Speaker 1: the possibility of a half point hike prior to the

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Speaker 1: banking crisis, and now they're pricing in the likelihood of

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Speaker 1: a twenty five basis point hike with a pause as

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Speaker 1: a possible option. FED officials meet next on March twenty first,

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Speaker 1: So yes, that FED meeting is next week, and we

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Speaker 1: have a key piece of ECODATA in hand walking up

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Speaker 1: to that meeting, that being the CPI Report. Policymakers will

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Speaker 1: also be scrutinizing tomorrow's reports on producer prices and retail sales.

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Speaker 1: Obviously special coverage for you here at eight thirty am

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Speaker 1: Wall Street Time on Bloomberg Radio. We get a preview

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Speaker 1: now from Bloomberg's Michael McKee. Two more reports on producer

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Speaker 1: prices and retail sales will help Fed policymakers decide what

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Speaker 1: still needs to be done to tame inflation and how quickly.

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Speaker 1: A week ago, investors were arguing over whether the Central

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Speaker 1: Bank should raise interest rates by a quarter or half

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Speaker 1: percentage point throw in one banking crisis, and some went

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Speaker 1: so far as to predict rate cuts. The Consumer Price

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Speaker 1: report showed prices are still rising. However, PPI will offer

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Speaker 1: evidence of inflation in the pipeline, and retail sales will

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Speaker 1: show whether Americans still feel confident about spending money. The

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Speaker 1: data should confirm at least a quarter point move from

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Speaker 1: the Fed next week, unless something happens again to the banks.

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Speaker 1: Michael McKee, Bloomberg Daybreak Asia. Meantime, bank regulators are examining

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Speaker 1: stock sales and trades made by officers of the failed SVB.

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Speaker 1: Bloomberg's Tom Busby has the story protect utors from the

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Speaker 1: US Justice Departments Fraud Unit, along with the US Attorney's

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Speaker 1: Office out of San Francisco and the Securities and Exchange

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Speaker 1: Commission are now looking deeper into the collapse of Silicon

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Speaker 1: Valley Bank, including looking at whether stock sales made by

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Speaker 1: top executives that the failed lender violated any trading rules. Now,

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Speaker 1: so far, no one from the bank has been accused

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Speaker 1: of any wrongdoing, and officials warned that the investigation, now

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Speaker 1: in its earliest stages, could ultimately end without any charges

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Speaker 1: being brought. Tom Busby Bloomberg Daybreak Asia, We go to

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Speaker 1: Meta Platforms next. The company is planning to lay off

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Speaker 1: around ten thousand employees. Meta is also intending to close

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Speaker 1: about five thousand additional open roles. You know, this is

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Speaker 1: the second major round of job cuts at Meta in

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Speaker 1: the past six months. Obviously, it's the parent company of Facebook.

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Speaker 1: Meta has been marketing twenty twenty three is a year

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Speaker 1: of efficiency as it moves to improve financial performance. Now,

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Speaker 1: as a part of these efforts, CEO Mark Zuckerberg saying

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Speaker 1: that Meta is canceling lower priority projects and slowing it's

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Speaker 1: hiring so today, when discussing these layoffs, Zuckerberg also talked

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Speaker 1: about potential head wins ahead when it rains, it pause

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Speaker 1: or whatever you want to say. I mean, he's basically

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Speaker 1: citing higher interest rates, he's citing a Lena economy, he's

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Speaker 1: slicing geopolitical tensions. But for me, the really interesting part

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Speaker 1: of that statement is saying that increased regulatory scrutiny of

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Speaker 1: technology is resulting in slower growth. I think that's something

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Speaker 1: we need to look into. No, that wasn't Mark Zuckerberg.

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Speaker 1: That was our own ed Ludlow there. Separately, mister Zuckerberg

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Speaker 1: is also encouraging and met employees to come back to

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Speaker 1: the office. He said early analysis does suggest that engineers

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Speaker 1: are performing better in person than they do remotely, though

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Speaker 1: he did ca that Meta's data does require further study. Bryan,

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Speaker 1: and here's a story, Doug that just broke as we

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Speaker 1: were starting the show. Very interesting. TikTok's leadership is discussing

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Speaker 1: the possibility of separating from by Dance, it's Chinese parent company.

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Speaker 1: That's according to sources, a divestiture, which could result in

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Speaker 1: a sale or an IPO, is considered a last resort,

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Speaker 1: and we're told that this would only be pursued off

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Speaker 1: the company's existing proposal with US national security officials doesn't

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Speaker 1: get approved. Even then, the Chinese government would have to

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Speaker 1: agree to such a transaction. TikTok agreed last year to

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Speaker 1: implement a number of measures to try to address US

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Speaker 1: officials concerns about a security and privacy. That plan, which

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Speaker 1: it calls Project Texas, involves bringing an American tech giant

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Speaker 1: oracle to host US user data and review its software.

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Speaker 1: So again that's a breaking story. So the USCPR report

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Speaker 1: came in mostly as expected, didn't seem to rattle too

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Speaker 1: many nerves in the market, but there's still a lot

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Speaker 1: of rattling going on. If you look at all the

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Speaker 1: banks and hedge funds that are sitting on a significant

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Speaker 1: amount of longer duration securities, mortgage backed securities and treasuries

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Speaker 1: with very low coupons, and they're stuck with a lot

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Speaker 1: of risk, a lot of higher risk in an environment

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Speaker 1: where you've got high interest rates, and that's not going

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Speaker 1: to change. So if I can just sort of make

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Speaker 1: an interesting joke out of this, the job of risk

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Speaker 1: office there just got a lot more important and valuable.

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Speaker 1: In college kids, you should be listening up. It's been

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Speaker 1: difficult for some time not only because of the volatility

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Speaker 1: that we've seen in the rates market, but the dramatic

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Speaker 1: reshaping of the yield curve over the past year. And

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Speaker 1: that exposes not just financial institutions, but corporations that are leveraged,

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Speaker 1: even some bond portfolios households as well. So this yield

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Speaker 1: curve in version that's been with us for the last year,

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Speaker 1: Brian has made things armlessly difficult. And one of the

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Speaker 1: things I think is very interesting here is we walk

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Speaker 1: up to the FED meeting, our Ed Harrison was saying,

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Speaker 1: if you look at this emergency backstop that was put

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Speaker 1: in place over the weekend by Treasury, So basically, banks

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Speaker 1: that decide to use this facility will be allowed to

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Speaker 1: surrender their debt at par. This is a sign, in

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Speaker 1: Ed's view, that the FED is pulling out all the

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Speaker 1: stops adding liquidity in order that it can continue to

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Speaker 1: hike until inflation is dealt with. Yeah, that could very

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Speaker 1: well be the case, particularly with even though we said

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Speaker 1: that the CPI report didn't rattle too many nerves, it

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Speaker 1: still was on the hot side. It still was at

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Speaker 1: a level that would make the FED feel uncomfortable. And

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Speaker 1: as we know, I mean, I think your mention of

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Speaker 1: the inverted yield curve draws attention to the fed's activity

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Speaker 1: so far. But we must say that the regulators themselves

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Speaker 1: away from the monetary side, but on the supervision side

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Speaker 1: that's going to get called into question, and so is

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Speaker 1: the risk management at the entities involved, particularly the banks,

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Speaker 1: because they're taking depositors money. So a lot's going to

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Speaker 1: come out in this inquiry done. And I think we

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Speaker 1: have to say, and we mentioned this on our post

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Speaker 1: mortem of our own show yesterday, that Silicon Valley was

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Speaker 1: probably more of a bear Stearns type moment than a

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Speaker 1: Lehman moment. And we may still get a Lehman moment,

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Speaker 1: and so be scared, be very scared. That'll be a

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Speaker 1: tough decision. All Right, It is time now for global news.

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Speaker 1: A Russian jet downs a US drone. Dan Schwartzmann has

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Speaker 1: details in the Bloomberg news room. Dan Yeah, Brian. A

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Speaker 1: US Air Force unmanned MQ nine Reaper drone flying in

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Speaker 1: international waters over the Black Sea was downed after two

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Speaker 1: Russian SU twenty seven fighter jets intercepted the craft. One

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Speaker 1: of the jets struck the propeller of the drone, causing

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Speaker 1: the US to bring the drone down in the sea.

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Speaker 1: According to US European Command, the Suquoi twenty seven's initially

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Speaker 1: dumped fuel on the drone will also ying in front

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Speaker 1: of it in a quote reckless, environmentally unsafe, and unprofessional manner.

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Speaker 1: US representative from California, John Garamendi on the situation, it

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Speaker 1: is one very dangerous situation and escalation beyond this is

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Speaker 1: something we certainly don't want to have, and at the

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Speaker 1: same time Russian needs to be very much aware that

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Speaker 1: these kinds of incidents are not acceptable at all, but

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Speaker 1: unfortunately they're not new. Garamendi was speaking to Bloomberg's Joe Matthew.

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Speaker 1: Poland looks to be expanding its military hardware transfers to

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Speaker 1: its neighbor Ukraine as it continues to battle Russian forces.

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Speaker 1: Poland's Prime Minister Matteoshmurovitsky says the country could send its

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Speaker 1: stock of Soviet era mid twenty nine Fulkram jets to

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Speaker 1: Ukraine in the next four to six weeks. According to

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Speaker 1: James World Air Forces, Poland possesses twenty one single seat

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Speaker 1: and six twin seat mid twenty nine's. The state of

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Speaker 1: Ohio sewing rail operator Norfolk Southern, in federal court after

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Speaker 1: one of its trains derailed, spilling toxic chemicals in the

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Speaker 1: town East Palestine last month. The complaints seeks to hold

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Speaker 1: the company responsible for the accident, which spilled over a

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Speaker 1: million gallons of hazardous materials, leading to residents the town

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Speaker 1: complaining of health issues. Norfolk Southern, which has said it

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Speaker 1: is committed to the recovery and remediation of the area,

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Speaker 1: could be on the hook for more than one hundred

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Speaker 1: million dollars for the remediation and other claims. That's according

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Speaker 1: to a Bloomberg Intelligence an analyst. Secretary Transportation Pete Budajige

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Speaker 1: says despite the accident, rail travel is safe. There were

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Speaker 1: more fatal railroad incidents in the early twenty tents that

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Speaker 1: led to more regulation and then that got watered down

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Speaker 1: in recent years. We need to make sure this time

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Speaker 1: there are permanent, durable solutions and that we only ever

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Speaker 1: move higher, not lower in terms of how rigorous and

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Speaker 1: how enforceable railroad safety is in this country. More challenges

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Speaker 1: to the Biden administration when it comes to securing the

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Speaker 1: southern border, as Panama has reported a four hundred and

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Speaker 1: fifty percent surge in migrants coming through the country on

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Speaker 1: their way to the US. Panamanian author do you say

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Speaker 1: that in the first two months of the year, forty

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Speaker 1: nine thousand migrants entered the country through Colombia after just

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Speaker 1: nine thousand entered during the same period last year. Most

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Speaker 1: of those making the tripper from Haiti, Ecuador and Venezuela,

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Speaker 1: while close to twenty two hundred Chinese nationals were also counted.

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Speaker 1: Global News twenty four hours a day, powered by more

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Speaker 1: than twenty seven hundred journalists and analysts in over one

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Speaker 1: hundred and twenty countries. I'm Dan Schwartzman, and this is Bloomberg.

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Speaker 1: Hi everybody, I'm Brian Curtis in Hong Kong alongside Rishad Salamat.

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Speaker 1: This is Bloomberg Daybreak Asia, and we welcome David Kudla

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Speaker 1: as our guest founder, CEO and chief investment strategist at

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Speaker 1: Mainstay Capital Management. David, Sorry, I didn't mention that you

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Speaker 1: were coming up. The thousands of people listening or millions

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Speaker 1: maybe would have been interested to hear your comments. So

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Speaker 1: let me ask you. This swift action, determined action by

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Speaker 1: the FEDS on Silicon Valley Bank and Signature Bank from

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Speaker 1: your point of view, do you think this means we're

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Speaker 1: closer to the end of this saga or just at

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Speaker 1: the beginning. Well, I think it means at least were

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Speaker 1: we're at a pause for now or more of a

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Speaker 1: steady state, or you know, we don't know, you know

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Speaker 1: what yet could could come up in terms of other

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Speaker 1: risks at banks. But you know, it's important for everyone

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Speaker 1: to separate this from solvency issues like in two thousand

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Speaker 1: and eight liquidity issues, and the facilities that the FED

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Speaker 1: and FDIC put in place over the weekend certainly gave

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Speaker 1: the markets and the banks high relief. We sell the

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Speaker 1: regional banks rally sharply today and we've seen a calmness.

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Speaker 1: You know, overall markets were higher as a result as well.

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Speaker 1: So there's certainly that was a calming effect. And I

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Speaker 1: can't say, you know, I don't want to say we're

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Speaker 1: out of the woods yet, but you know, when we

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Speaker 1: look at each of these failures, they're more certainly more idiosyncratic,

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Speaker 1: more more unique than systemic. David, I mean, the last

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Speaker 1: few months, you know, we've just seen how high short

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Speaker 1: term yields have been sucking in a lot of a

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Speaker 1: lot of liquidity and as indeed QT and that's the

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Speaker 1: question I was asking that it's just getting to the

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Speaker 1: point that something would break. Is this that something which broke? Yeah,

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Speaker 1: this is at least one thing that broke. You know,

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Speaker 1: we have a saying the federal rates rates until something breaks,

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Speaker 1: and you know the concern here or you know, really

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Speaker 1: the root cause was the speed at which rates went up.

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Speaker 1: There was such a steep climate rates by the Fed

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Speaker 1: after being at zero rates for so long. These banks

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Speaker 1: had so many low yielding bonds on the books, and

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Speaker 1: it's it's already been discussed a lot and a lot

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Speaker 1: on the show, I know, but that's really the root

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Speaker 1: cause of the problem and why this facility they put

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Speaker 1: in place will certainly help when we make the final analysis.

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Speaker 1: Will the blame be attached more to the quick raising

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Speaker 1: of interest rates in response to maybe staying path for

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Speaker 1: too long, or will it be on the management at

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Speaker 1: the banks themselves or do you think it'll be on

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Speaker 1: the supervision? I think that uh And I even heard

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Speaker 1: a school of thought that it was due to regulation

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Speaker 1: is what caused the problem. But the the you know,

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Speaker 1: I think we're I think it's it's really the combination

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Speaker 1: of Uh, they could, they didn't want to bring deposit

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Speaker 1: the rate on deposits up. Uh. We had the flight

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Speaker 1: of capital, it was starting two treasuries other high higher

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Speaker 1: yeting investments. So that was certainly one problem. But if

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Speaker 1: you dig into each of these banks, you know they

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Speaker 1: do have their their uh specific management issues as well.

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Speaker 1: So that's why I say it's it's I think more

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Speaker 1: unique with some of these, with these three banks than

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Speaker 1: it would be, you know, more systemic issue for regional

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Speaker 1: banks in general. But who are Who's Who's the winner

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Speaker 1: out of this? The winner out of this are the

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Speaker 1: big banks because it deposits already flowing there the money

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Speaker 1: center banks in the US, and the regional banks will

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Speaker 1: will suffer to some degree. How much is this, David? Does?

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Speaker 1: It reminds you of the savings and loans crisis of

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Speaker 1: the mid eighties to early nineties. And you know, what

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Speaker 1: then should you be looking at when you look at

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Speaker 1: the bank's balance sheets? What would be red flags? Yeah?

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Speaker 1: I think that it does. It does. Uh, it's reminiscent

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Speaker 1: of the savings and loan crisis. But again, where you know,

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Speaker 1: I really don't see this as a systemic problem. I

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Speaker 1: don't see this as something that rolls from here, and

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Speaker 1: the FED and the FDAC did a good job of

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Speaker 1: putting facilities in place so that it doesn't. But certainly,

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Speaker 1: you know, if you if you take uh, you know,

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Speaker 1: the each of the unique situation. You know, we had

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Speaker 1: Signature and silver Gate uh, and their dealings in crypto,

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Speaker 1: not that we want to cast you know, stone at

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Speaker 1: a crypto because of this uh. And then a Silicon

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Speaker 1: Valley Bank just you know, they may have been too

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Speaker 1: cozy with the San Francisco FED. They may be h

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Speaker 1: just a management place there. So yeah, when looking at

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Speaker 1: the balance sheet of the banks, you know, what are

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Speaker 1: they holding? How diverse fied? And that's what we're you know,

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Speaker 1: we're looking at is how diversified or the hold is,

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Speaker 1: how diversified Is that financial institution? Sun Valley or Silicon

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Speaker 1: Valley Bank was very concentrated a venture capital. Yeah. But

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Speaker 1: what's interesting is this wasn't really a credit store. It

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Speaker 1: wasn't like a lot of they'd made loans to companies

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Speaker 1: that can't pay it back. This was more on liquidity

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Speaker 1: and to the brilliance, the sort of interesting brilliance of

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Speaker 1: Rashad and Salamad. He's been asking about liquidity for a

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Speaker 1: long time on this program, not from the standpoint probably

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Speaker 1: of people piling into two year notes with a five

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Speaker 1: percent yield, but more at the long end because you know,

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Speaker 1: you don't have the liquidity d and if you're a

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Speaker 1: smaller bank. This wasn't a small bank, but it was smaller. Uh.

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Speaker 1: You know, they they you are more prone to a

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Speaker 1: run than say a JP Morgan or a City Group

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Speaker 1: And as you mentioned, city Group now up six percent

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Speaker 1: today JP Morgan rallied more than two and a half percent.

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Speaker 1: Would that be a pick of yours going with the

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Speaker 1: big banks? Uh, We're we're light in financials in general

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Speaker 1: right now because of the uh, the issues that you know,

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Speaker 1: all banks have relative to the yielding can offer on deposits, uh,

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Speaker 1: and some other issues. So we're essentially avoiding sector. Certainly,

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Speaker 1: there are some trades right now that today trades that

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Speaker 1: could have been made in the banks and over the

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Speaker 1: past couple of days in large money center banks. But

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Speaker 1: we're uh, we're underweight financials right now. M very quickly, David,

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Speaker 1: So how's this affecting you investment strategy? And you know,

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Speaker 1: what do you think of cash is the best asset

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Speaker 1: so the time being. Yeah, well, with the exception of

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Speaker 1: what the two year note did over three days, with

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Speaker 1: the biggest decline in several decades, the yield is still

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Speaker 1: quite high. If we look at six months one year

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Speaker 1: t bills, and really it means that you know, cash

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Speaker 1: can once again be part of our asset allocation strategy

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Speaker 1: nearly risk free return. And if we nearly risk free return,

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Speaker 1: and if we combine that with the other areas where

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Speaker 1: we want to be invested in stocks, maybe when we

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Speaker 1: tip into duration on bonds and some liquid alternatives, it

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Speaker 1: certainly now can make more sense in an asset allocation

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Speaker 1: strategy at closer to five percent than zero. David, in

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Speaker 1: about thirty cent kinds you mentioned you want it that

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Speaker 1: keen on the banks. What are you most keen about now? Well, actually,

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Speaker 1: we're looking two things. We're looking abroad into from the

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Speaker 1: US to international. We're looking at Asia and Europe as

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Speaker 1: better opportunities in general and those markets from macro standpoint.

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Speaker 1: And also we are tilting back into duration, which means

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Speaker 1: we're tilting towards gross stocks versus value stocks. Okay, David,

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Speaker 1: thank you very much for joining us. David Coudla founder, CEO,

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Speaker 1: and chief investment strategist at Mainstay Capital Management. This is

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Speaker 1: Bloomberg Daybreak Asia, your morning brief on the stories making

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