1 00:00:02,480 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:09,640 --> 00:00:12,840 Speaker 2: This is the Bloomberg Daybreak Aisia podcast. I'm Doug Krisner. 3 00:00:12,920 --> 00:00:15,400 Speaker 2: You can join Brian Curtis and myself for the stories, 4 00:00:15,440 --> 00:00:18,560 Speaker 2: making news and moving markets in the APAC region. You 5 00:00:18,600 --> 00:00:21,439 Speaker 2: can subscribe to the show anywhere you get your podcast 6 00:00:21,520 --> 00:00:24,919 Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the 7 00:00:24,920 --> 00:00:29,400 Speaker 2: Bloomberg Business App. Adam Koons is with us. He is 8 00:00:29,440 --> 00:00:33,360 Speaker 2: the co chief investment officer at Winthrop Capital Management. Need 9 00:00:33,440 --> 00:00:37,239 Speaker 2: joins us from Indianapolis. Adam, thanks for joining us Sunday night, 10 00:00:37,320 --> 00:00:40,280 Speaker 2: your time. I'm curious as to what you were hearing 11 00:00:40,400 --> 00:00:44,360 Speaker 2: last week from clients with all the volatility we saw 12 00:00:44,400 --> 00:00:47,720 Speaker 2: in markets, particularly heavy selling in the Monday session last week. 13 00:00:49,320 --> 00:00:51,519 Speaker 3: Well, you know, when we have heighten volatility and kind 14 00:00:51,520 --> 00:00:55,960 Speaker 3: of a more chaotic market, investors start to kind of 15 00:00:56,000 --> 00:00:58,640 Speaker 3: wonder how much worse can this get? And that's always 16 00:00:58,680 --> 00:01:00,840 Speaker 3: the first question that we were seeing, is, you know, 17 00:01:00,960 --> 00:01:01,840 Speaker 3: is this just is. 18 00:01:01,800 --> 00:01:05,360 Speaker 1: This a buying opportunity? Is this just a short term blip? 19 00:01:05,600 --> 00:01:07,040 Speaker 1: Or is there more to this? 20 00:01:07,959 --> 00:01:10,400 Speaker 3: And so I think, you know, when we're looking at it, 21 00:01:10,400 --> 00:01:14,360 Speaker 3: it's it's kind of too early to tell. But one 22 00:01:14,360 --> 00:01:18,039 Speaker 3: of the things that we were really focused on was volatility. Obviously, 23 00:01:18,080 --> 00:01:21,160 Speaker 3: we saw the VIC spike to sixty, which is. 24 00:01:21,080 --> 00:01:22,000 Speaker 1: An incredible move. 25 00:01:22,400 --> 00:01:24,440 Speaker 3: And then if you're you know, if you're a bond trader, 26 00:01:24,560 --> 00:01:26,920 Speaker 3: you're looking at the move index very similar that that 27 00:01:27,040 --> 00:01:29,000 Speaker 3: also had quite a a. 28 00:01:29,280 --> 00:01:33,040 Speaker 1: You know, spike. So we're seeing volatility pick up. 29 00:01:33,760 --> 00:01:36,240 Speaker 3: It did, you know, come down considerably by the end 30 00:01:36,280 --> 00:01:39,160 Speaker 3: of the week, But that shows us that, you know, 31 00:01:39,319 --> 00:01:42,319 Speaker 3: investors in general are going to be quick to try 32 00:01:42,360 --> 00:01:45,440 Speaker 3: to sell any kind of bad news at this point. 33 00:01:45,560 --> 00:01:47,760 Speaker 3: So we've we've kind of gone in a different direction 34 00:01:47,840 --> 00:01:50,040 Speaker 3: where you know, there was a time period where bad 35 00:01:50,120 --> 00:01:52,800 Speaker 3: news was good news because it meant that the Fed 36 00:01:52,920 --> 00:01:56,279 Speaker 3: might cut. Now we're starting it feels like we're entering 37 00:01:56,320 --> 00:02:00,000 Speaker 3: that regime where bad news actually could be bad news 38 00:02:00,160 --> 00:02:01,040 Speaker 3: for markets. 39 00:02:01,240 --> 00:02:04,160 Speaker 2: So what is that thinking done to your investment strategy? 40 00:02:04,200 --> 00:02:07,080 Speaker 2: Were you moving things around in the equity trade last week? 41 00:02:08,520 --> 00:02:11,200 Speaker 1: We were, so we were kind of doing a couple 42 00:02:11,240 --> 00:02:11,600 Speaker 1: of things. 43 00:02:11,639 --> 00:02:14,640 Speaker 3: One is, we did see it as a general buying 44 00:02:14,639 --> 00:02:15,640 Speaker 3: opportunity for some. 45 00:02:15,600 --> 00:02:17,920 Speaker 1: Of the higher quality tech names. 46 00:02:18,120 --> 00:02:19,400 Speaker 3: You know, it's kind of one of those baby with 47 00:02:19,440 --> 00:02:23,200 Speaker 3: the bathwater type mentality where you know, everything in tech 48 00:02:23,240 --> 00:02:26,360 Speaker 3: seem to be selling off quite hard. Some names, you know, 49 00:02:27,200 --> 00:02:29,560 Speaker 3: they should have been like an Intel down twenty five percent. 50 00:02:29,960 --> 00:02:33,840 Speaker 3: I think that was probably a move that needed to 51 00:02:33,840 --> 00:02:37,240 Speaker 3: happen because the business model there is deteriorating. But then 52 00:02:37,240 --> 00:02:39,840 Speaker 3: there were other names like Alphabet and Microsoft that we 53 00:02:39,880 --> 00:02:43,240 Speaker 3: felt like, you know, if things do start to roll over, 54 00:02:43,480 --> 00:02:45,240 Speaker 3: those are still names that we want to be in 55 00:02:45,320 --> 00:02:48,000 Speaker 3: because they are higher quality, they're low debt, you know, 56 00:02:48,160 --> 00:02:50,800 Speaker 3: they're low leveraged, and they have high cash flows so 57 00:02:50,840 --> 00:02:53,840 Speaker 3: they can sustain through maybe an economic downturn. And we 58 00:02:53,880 --> 00:02:55,519 Speaker 3: don't think even if we do see some sort of 59 00:02:55,600 --> 00:02:57,200 Speaker 3: recession or downturn, we don't think it's going to. 60 00:02:57,240 --> 00:02:57,799 Speaker 1: Be that harsh. 61 00:02:58,200 --> 00:02:59,720 Speaker 3: So those are the type of names that we were 62 00:02:59,720 --> 00:03:03,400 Speaker 3: buying during that sell off. So it kind of just 63 00:03:03,720 --> 00:03:06,160 Speaker 3: goes right into our overall strategy of kind of moving 64 00:03:06,200 --> 00:03:09,079 Speaker 3: more defensively. So we, like I said, I did the 65 00:03:09,200 --> 00:03:11,600 Speaker 3: quality factor that I pointed out just a minute ago. 66 00:03:11,960 --> 00:03:15,200 Speaker 3: So lower beta, higher quality names is where we're shifting 67 00:03:15,240 --> 00:03:17,639 Speaker 3: to on the equity side, and then on the fixed 68 00:03:17,680 --> 00:03:22,400 Speaker 3: income side, we do still like the long duration fixed 69 00:03:22,440 --> 00:03:25,400 Speaker 3: income trade where you're you know, buying law treasuries or 70 00:03:25,520 --> 00:03:28,120 Speaker 3: high quality corporate buyds, so that you know, because we 71 00:03:28,160 --> 00:03:30,480 Speaker 3: do think that interest rates are going to come down 72 00:03:31,200 --> 00:03:33,720 Speaker 3: and probably going to come down quite quickly on the 73 00:03:33,720 --> 00:03:34,160 Speaker 3: long end. 74 00:03:34,240 --> 00:03:37,480 Speaker 2: So you mentioned Alphabet and Microsoft, and I'm wondering because 75 00:03:37,480 --> 00:03:40,120 Speaker 2: we'll have the earnings from Nvidia at the end of 76 00:03:40,160 --> 00:03:42,680 Speaker 2: the month, I think on the twenty eighth, have you 77 00:03:42,800 --> 00:03:46,960 Speaker 2: heard anything about the AI trade that that's giving you 78 00:03:47,080 --> 00:03:48,080 Speaker 2: cause for concern? 79 00:03:49,400 --> 00:03:51,360 Speaker 1: We have, So, I mean you kind of heard it 80 00:03:51,480 --> 00:03:52,680 Speaker 1: in some of the earnings. 81 00:03:52,360 --> 00:03:57,920 Speaker 3: Calls with big tech like Alphabet, where they are starting 82 00:03:57,960 --> 00:04:02,680 Speaker 3: to cut back on their spending. Still there's still growth 83 00:04:02,760 --> 00:04:06,000 Speaker 3: in spending, but the acceleration of that. 84 00:04:06,120 --> 00:04:07,440 Speaker 1: Has started to come down. 85 00:04:07,880 --> 00:04:10,120 Speaker 3: And so when you've got to stock like Navidia that's 86 00:04:10,360 --> 00:04:14,840 Speaker 3: really priced to perfection where they need substantial growth really 87 00:04:15,160 --> 00:04:17,840 Speaker 3: right now, you're looking at fifty percent growth rate over 88 00:04:17,880 --> 00:04:20,920 Speaker 3: the next five years in order to justify the price 89 00:04:20,920 --> 00:04:23,040 Speaker 3: of it right now. So I think if you started 90 00:04:23,040 --> 00:04:27,800 Speaker 3: to see any pullback in spending on chipsets, it would 91 00:04:27,839 --> 00:04:30,320 Speaker 3: be it could be quite harsh for a named like 92 00:04:30,400 --> 00:04:32,200 Speaker 3: Navidia kind of you know, at the tail end of 93 00:04:32,200 --> 00:04:33,880 Speaker 3: the earning season here, so. 94 00:04:33,800 --> 00:04:38,839 Speaker 2: We have the CPI data midweek before then PPI retail sales. 95 00:04:39,000 --> 00:04:42,560 Speaker 2: So a lot to kind of consider when you're looking 96 00:04:42,560 --> 00:04:45,400 Speaker 2: at the American economy. How do you feel about US 97 00:04:45,440 --> 00:04:48,760 Speaker 2: inflation right now? Are you confident that it's easing to 98 00:04:48,800 --> 00:04:51,840 Speaker 2: the extent that the Fed will have room maybe in 99 00:04:51,880 --> 00:04:55,880 Speaker 2: September to cut at least by twenty five basis points. 100 00:04:56,600 --> 00:04:57,880 Speaker 1: You know, I actually don't. 101 00:04:58,040 --> 00:05:01,520 Speaker 3: I think getting to that two is going to be 102 00:05:01,560 --> 00:05:04,440 Speaker 3: difficult and it's going to be slow, And so I 103 00:05:04,480 --> 00:05:08,400 Speaker 3: think that that we're running the chance that because inflation 104 00:05:08,760 --> 00:05:11,839 Speaker 3: might surprise to the upside as we kind of head 105 00:05:11,839 --> 00:05:14,960 Speaker 3: into the year end and just prinently have coming up 106 00:05:15,000 --> 00:05:17,240 Speaker 3: this week, I think we're going to get a lot 107 00:05:17,240 --> 00:05:19,680 Speaker 3: of mixed data over the next several months, and it's 108 00:05:19,680 --> 00:05:22,360 Speaker 3: going to make it difficult for the Fed. It's going 109 00:05:22,400 --> 00:05:24,880 Speaker 3: to make it difficult for investors to try to, you know, 110 00:05:24,960 --> 00:05:28,799 Speaker 3: project what's going to happen. And so I still stand 111 00:05:28,839 --> 00:05:30,840 Speaker 3: by I think the Fed is going to be slower 112 00:05:30,839 --> 00:05:34,279 Speaker 3: to act than what markets are predicting right now. If 113 00:05:34,320 --> 00:05:35,840 Speaker 3: you look at the front end of the cycle where 114 00:05:35,839 --> 00:05:38,640 Speaker 3: they were slow to increase interest rates, I think they're 115 00:05:38,680 --> 00:05:40,960 Speaker 3: going to be slow to decrease interest rates, especially if 116 00:05:40,960 --> 00:05:44,760 Speaker 3: we get any data points that show that we're still 117 00:05:44,800 --> 00:05:47,280 Speaker 3: not there, and so I think you know, hitting that 118 00:05:47,320 --> 00:05:50,520 Speaker 3: two percent target is going to be difficult from where 119 00:05:50,520 --> 00:05:51,200 Speaker 3: we're at right now. 120 00:05:51,440 --> 00:05:54,279 Speaker 2: You mentioned the bond market a moment ago. I'm curious 121 00:05:54,320 --> 00:05:56,520 Speaker 2: as to where you see opportunity right now in terms 122 00:05:56,560 --> 00:05:58,800 Speaker 2: of duration, long end, short end of the curve. 123 00:05:58,800 --> 00:06:02,200 Speaker 3: Where are you Yeah, we're definitely on the long end. 124 00:06:02,320 --> 00:06:03,400 Speaker 1: I think you know. 125 00:06:03,440 --> 00:06:07,680 Speaker 3: The reality is everything that was pushing interest rates down 126 00:06:08,160 --> 00:06:12,159 Speaker 3: prior to the pandemic didn't go away. Those are large 127 00:06:12,160 --> 00:06:17,320 Speaker 3: demographic type issues, and because those haven't changed the natural 128 00:06:17,400 --> 00:06:20,320 Speaker 3: path of interest rate, they are to the downside. So 129 00:06:20,960 --> 00:06:23,720 Speaker 3: now we feel like we've really hit that peak and 130 00:06:23,880 --> 00:06:28,760 Speaker 3: interest rates. We're extending in duration quite aggressively to try 131 00:06:28,760 --> 00:06:30,960 Speaker 3: to lock in this yield for as long as we can, 132 00:06:31,320 --> 00:06:33,239 Speaker 3: because I see it as kind of an asymmetric trade. 133 00:06:33,520 --> 00:06:36,360 Speaker 3: Worst case scenario for us is that, Okay, interest rates 134 00:06:36,400 --> 00:06:38,480 Speaker 3: stay where they about where they are for a while, 135 00:06:38,800 --> 00:06:41,640 Speaker 3: and I'm happy to clip higher coupons, and then on 136 00:06:41,640 --> 00:06:43,200 Speaker 3: the flip side, if we do see interest rates start 137 00:06:43,240 --> 00:06:45,400 Speaker 3: to collapse, then obviously I'll get the price appreciation of 138 00:06:45,440 --> 00:06:47,560 Speaker 3: the bonds. I think, you know, the other scenario where 139 00:06:47,600 --> 00:06:49,680 Speaker 3: we see interest rates go higher, I think is a 140 00:06:49,880 --> 00:06:51,520 Speaker 3: very very low probability right now. 141 00:06:52,160 --> 00:06:54,719 Speaker 2: Low probability. I'd like to know about the level of 142 00:06:54,800 --> 00:06:58,080 Speaker 2: conviction in both the equity trade and in the bond 143 00:06:58,120 --> 00:07:01,600 Speaker 2: market trade that you're putting on right now. Are you 144 00:07:01,640 --> 00:07:05,359 Speaker 2: pretty much solidly convinced of the calls that you're making 145 00:07:05,440 --> 00:07:08,279 Speaker 2: right now, or are you hedging maybe by squirreling away 146 00:07:08,320 --> 00:07:09,720 Speaker 2: a little bit of cash at the moment. 147 00:07:11,240 --> 00:07:14,400 Speaker 3: So on the fixed income side, very very convicted on 148 00:07:14,440 --> 00:07:18,760 Speaker 3: that long duration trade. So in our fixed income portfolios, 149 00:07:18,960 --> 00:07:21,680 Speaker 3: we were holding no cash and said we are extending duration. 150 00:07:22,040 --> 00:07:24,760 Speaker 3: On the equity side, holding a little bit higher cash 151 00:07:24,920 --> 00:07:27,960 Speaker 3: than the normal and like I said, and also hedging 152 00:07:27,960 --> 00:07:31,360 Speaker 3: that with moving more defensively. So on the equity side, 153 00:07:31,800 --> 00:07:33,880 Speaker 3: absolutely kind of hedging that out a little bit. 154 00:07:34,400 --> 00:07:35,960 Speaker 1: But on the fixed income side, we're all. 155 00:07:35,880 --> 00:07:38,720 Speaker 2: In Adam, I'm curious as to whether or not you're 156 00:07:38,760 --> 00:07:43,120 Speaker 2: seeing opportunities offshore. We get some data for China later 157 00:07:43,160 --> 00:07:45,400 Speaker 2: in the week. I know that that market has really 158 00:07:45,440 --> 00:07:49,120 Speaker 2: had some tough times. It's been going on for a while. 159 00:07:49,160 --> 00:07:52,320 Speaker 2: We're well aware of that. Is there anything in Asia 160 00:07:52,440 --> 00:07:55,760 Speaker 2: right now? That's attractive to you, you know. 161 00:07:55,880 --> 00:07:58,600 Speaker 3: Unfortunately, no, and it's a trade that I want to 162 00:07:58,640 --> 00:08:00,720 Speaker 3: put on and it's one that I'm going to be 163 00:08:01,200 --> 00:08:04,000 Speaker 3: watching and waiting for. But I think the reality is 164 00:08:04,680 --> 00:08:08,400 Speaker 3: as the US economy begins to slow, so does China 165 00:08:08,520 --> 00:08:11,280 Speaker 3: and the rest of Asia. It's just not immune from 166 00:08:11,320 --> 00:08:14,600 Speaker 3: what's happening in the US right now. And so until 167 00:08:14,720 --> 00:08:17,480 Speaker 3: China can kind of shift away from being so dependent 168 00:08:17,560 --> 00:08:19,920 Speaker 3: on exports, I think you're just going to see China 169 00:08:20,000 --> 00:08:21,640 Speaker 3: go the same direction as the US economy. 170 00:08:21,920 --> 00:08:24,440 Speaker 2: Adam, thank you so much. A great way to start 171 00:08:24,440 --> 00:08:27,480 Speaker 2: the week with Adam Kohn's co chief investment officer at 172 00:08:27,480 --> 00:08:40,400 Speaker 2: Winthrop Capital Management. He joining from Indianapolis, Indiana. Vishnu Varathan, 173 00:08:40,480 --> 00:08:44,360 Speaker 2: he is head of Economics and Strategy at Misohobank. It's 174 00:08:44,360 --> 00:08:46,720 Speaker 2: always a pleasure to have a chance to benefit from 175 00:08:46,760 --> 00:08:50,560 Speaker 2: your perspective. Can you let me know whether we're near 176 00:08:50,600 --> 00:08:53,760 Speaker 2: the end of this yen carry trade unwind or if 177 00:08:53,760 --> 00:08:55,559 Speaker 2: there's a little bit more pain that we've got to 178 00:08:55,600 --> 00:08:56,200 Speaker 2: deal with. 179 00:08:57,520 --> 00:08:59,800 Speaker 4: Doug, thanks for having me in such a kind introduction. 180 00:09:00,720 --> 00:09:04,319 Speaker 4: My suspicion and and that's mainly because I'm a pessimist 181 00:09:04,360 --> 00:09:04,839 Speaker 4: by nature. 182 00:09:05,520 --> 00:09:05,920 Speaker 2: Set. 183 00:09:06,080 --> 00:09:10,520 Speaker 4: My suspicious is we're not quite decisively out of the 184 00:09:10,559 --> 00:09:12,800 Speaker 4: boats yet. I mean, we've seen some glimmers of light, 185 00:09:13,640 --> 00:09:16,360 Speaker 4: and the shakedown in and of itself does clear out 186 00:09:16,440 --> 00:09:20,320 Speaker 4: some of the excesses, uh and the extreme positioning, but 187 00:09:20,480 --> 00:09:23,320 Speaker 4: I don't think we've quite seen the end of it. 188 00:09:23,360 --> 00:09:28,400 Speaker 4: For two reasons. One is markets continue to remain fairly jumpy, 189 00:09:28,920 --> 00:09:32,720 Speaker 4: but at the same time, uh, you know, in so 190 00:09:32,840 --> 00:09:35,679 Speaker 4: called formal mode where they're they're they're you know, they're 191 00:09:35,760 --> 00:09:38,560 Speaker 4: they're really not willing to miss out on taking risk 192 00:09:38,880 --> 00:09:42,079 Speaker 4: at every opportunity, uh. The and and that sets it 193 00:09:42,200 --> 00:09:46,760 Speaker 4: up for latent downside volatility from time to time. The 194 00:09:46,840 --> 00:09:50,000 Speaker 4: other reason is we continue to focus a lot on 195 00:09:50,320 --> 00:09:55,160 Speaker 4: the bog being a source of yen induced carry and wind, 196 00:09:55,280 --> 00:09:57,480 Speaker 4: but really the biggest source of that is going to 197 00:09:57,480 --> 00:09:57,920 Speaker 4: be the FED. 198 00:09:58,600 --> 00:09:58,760 Speaker 3: Uh. 199 00:09:58,800 --> 00:10:01,560 Speaker 4: And if we again lurch back into a mode where 200 00:10:01,559 --> 00:10:04,200 Speaker 4: the FED would have to end up cutting a lot 201 00:10:04,240 --> 00:10:07,920 Speaker 4: more and a lot sooner, that's going to kick, you know, 202 00:10:08,000 --> 00:10:12,720 Speaker 4: kick off another face of yen unwind yen carry unwind inadvertently, 203 00:10:13,160 --> 00:10:16,200 Speaker 4: and the boj probably could do very little to stop that, 204 00:10:17,240 --> 00:10:20,480 Speaker 4: given they would probably not want to make huge, you 205 00:10:20,480 --> 00:10:23,400 Speaker 4: know policy U turns one way or the other. 206 00:10:23,559 --> 00:10:25,880 Speaker 2: Do we have to be concerned at all about what's 207 00:10:25,880 --> 00:10:29,280 Speaker 2: happening in the Japanese financial system? Are banks vulnerable? 208 00:10:31,240 --> 00:10:33,400 Speaker 4: I think generally the banks are in a in a 209 00:10:33,679 --> 00:10:36,400 Speaker 4: fairly good position. I mean, one of the starting points 210 00:10:36,400 --> 00:10:39,120 Speaker 4: for that. And of course you're going to say, you know, 211 00:10:39,640 --> 00:10:40,559 Speaker 4: I'm talking. 212 00:10:40,320 --> 00:10:43,360 Speaker 1: My position here, who does it? 213 00:10:44,760 --> 00:10:47,679 Speaker 4: But okay, putting that aside, you know, imagining that I'm 214 00:10:47,720 --> 00:10:52,240 Speaker 4: somewhat independent here, I think the starting position for them 215 00:10:52,360 --> 00:10:54,720 Speaker 4: was it was really good to get out of negative 216 00:10:54,800 --> 00:10:58,560 Speaker 4: rates because banks, Japanese banks in particular, were struggling with 217 00:10:58,600 --> 00:11:02,280 Speaker 4: the negative rates and getting more steadfastly into a position 218 00:11:02,320 --> 00:11:06,400 Speaker 4: where they're going to get a normal sloping yield curve 219 00:11:06,480 --> 00:11:10,800 Speaker 4: that's somewhat steepening. That also ought to be good for 220 00:11:10,840 --> 00:11:12,880 Speaker 4: the banks. So the banks are in a position where 221 00:11:12,920 --> 00:11:17,160 Speaker 4: they can benefit from that. Slowly diminishing the crossholdings where 222 00:11:17,840 --> 00:11:20,199 Speaker 4: the NIKE is also in a healthier position, means that 223 00:11:20,360 --> 00:11:25,160 Speaker 4: the banks are now positioned better in a structural perspective. 224 00:11:25,520 --> 00:11:28,400 Speaker 4: But it would of course be negligent to say that, 225 00:11:28,760 --> 00:11:31,720 Speaker 4: you know, heightened yet and induce volatility, and the cyclical 226 00:11:31,760 --> 00:11:35,520 Speaker 4: shakedown in Nicke will flow through without any impact, so 227 00:11:35,960 --> 00:11:39,080 Speaker 4: that there are risks ahead. There's a need to watch 228 00:11:39,120 --> 00:11:42,920 Speaker 4: that space very closely and to remain hatched. But overall, 229 00:11:42,960 --> 00:11:45,120 Speaker 4: I think it's moving into a good better position than 230 00:11:45,120 --> 00:11:45,960 Speaker 4: it used to be in. 231 00:11:46,520 --> 00:11:49,560 Speaker 2: So we're also talking about a lot of leverage being 232 00:11:49,600 --> 00:11:51,559 Speaker 2: on whoelnd from the system as well, and that's got 233 00:11:51,600 --> 00:11:53,200 Speaker 2: to be a healthy thing, I would imagine. 234 00:11:53,240 --> 00:11:57,520 Speaker 4: Maybe you disagree, No, I'm totally with you on this one, Doug. 235 00:11:57,640 --> 00:12:00,640 Speaker 4: I mean, the process of unwinding is not so pretty, 236 00:12:01,800 --> 00:12:04,720 Speaker 4: but often getting to a better place would require moments 237 00:12:04,760 --> 00:12:07,920 Speaker 4: of unpretty if you must, uh, and and and and 238 00:12:07,960 --> 00:12:12,240 Speaker 4: it does get healthier that way. But the recognition right 239 00:12:12,280 --> 00:12:17,280 Speaker 4: now is there is still quite a bit of leverage 240 00:12:17,320 --> 00:12:19,720 Speaker 4: in the system. There's still quite a bit of liquidity 241 00:12:19,720 --> 00:12:20,559 Speaker 4: in the system. 242 00:12:20,880 --> 00:12:21,160 Speaker 2: Uh. 243 00:12:21,240 --> 00:12:23,800 Speaker 4: And the liquidity is it cuts both ways. It is 244 00:12:23,800 --> 00:12:27,920 Speaker 4: a source of backstop, given that it does boy markets 245 00:12:27,960 --> 00:12:33,560 Speaker 4: and valuation, but equally, given just how uh, how intense 246 00:12:33,600 --> 00:12:37,199 Speaker 4: and how precarious geopolitics is at the same time of 247 00:12:37,240 --> 00:12:40,360 Speaker 4: the real conflicts and and and and the US elections 248 00:12:40,360 --> 00:12:44,120 Speaker 4: and what it all means for for Asia, it also 249 00:12:44,400 --> 00:12:48,880 Speaker 4: exposes Asia to I think at least bouts of of 250 00:12:48,960 --> 00:12:51,920 Speaker 4: seizures and shakedowns, and that's something we cannot lose sight of. 251 00:12:52,040 --> 00:12:54,480 Speaker 2: We had comments from a former board member of the 252 00:12:54,480 --> 00:12:57,079 Speaker 2: bo J. We were talking about this earlier on the program, 253 00:12:57,120 --> 00:13:00,959 Speaker 2: and from his view, another rate high from the BOJ 254 00:13:01,200 --> 00:13:04,200 Speaker 2: is not possible this year at all. Maybe as soon 255 00:13:04,280 --> 00:13:07,200 Speaker 2: as we get movement is in March of twenty twenty five. 256 00:13:07,280 --> 00:13:09,119 Speaker 2: Is that the way you see things. 257 00:13:09,920 --> 00:13:13,920 Speaker 4: Well, our view has always been that the BOJ would 258 00:13:14,000 --> 00:13:18,560 Speaker 4: necessarily have to move very very gradually and very cautiously. 259 00:13:19,440 --> 00:13:22,760 Speaker 4: We were never very seduced by the wage increment story 260 00:13:22,800 --> 00:13:26,080 Speaker 4: because that was exaggerated by exports earning boosted by the Again. 261 00:13:27,160 --> 00:13:29,200 Speaker 4: We were also very cautious of the fact that you know, 262 00:13:29,480 --> 00:13:31,559 Speaker 4: you know, We did say you know that again is 263 00:13:31,559 --> 00:13:34,120 Speaker 4: a BOJ problem with the fat solution. If that's the case, 264 00:13:34,160 --> 00:13:38,000 Speaker 4: then the FAT can easily move the needle and make 265 00:13:38,040 --> 00:13:41,840 Speaker 4: the boj's tightening seem too much from here on, Given 266 00:13:41,840 --> 00:13:45,880 Speaker 4: what the BOG is indicated, we continue to be open 267 00:13:45,960 --> 00:13:48,840 Speaker 4: to the prospect of another calibrated hike later in the 268 00:13:48,920 --> 00:13:54,080 Speaker 4: year if conditions so allow. And I think confidence doesn't 269 00:13:54,120 --> 00:13:58,560 Speaker 4: cave particularly household confidences is not so great. But yes, 270 00:13:58,679 --> 00:14:01,760 Speaker 4: We never thought that, you know, terminal rate was going 271 00:14:01,800 --> 00:14:06,080 Speaker 4: to be significantly higher than where it is now. Fifty 272 00:14:06,080 --> 00:14:09,520 Speaker 4: basis points seems comfortable for terminal rate that's met, you know, 273 00:14:09,679 --> 00:14:12,680 Speaker 4: that's that's approached, that has a longer approach, not just 274 00:14:12,720 --> 00:14:15,840 Speaker 4: a six month or three month approach, but at one 275 00:14:15,880 --> 00:14:20,800 Speaker 4: percent rate, I think is a stretch, particularly given the 276 00:14:20,880 --> 00:14:22,960 Speaker 4: uncertainty we are heading into end of the year. In 277 00:14:22,960 --> 00:14:23,800 Speaker 4: twenty twenty five. 278 00:14:24,160 --> 00:14:27,760 Speaker 2: It's amazing because we just had one disappointing jobs report 279 00:14:27,960 --> 00:14:33,240 Speaker 2: that kind of created the shearing. I mean, we were 280 00:14:33,360 --> 00:14:37,440 Speaker 2: clearly at some level of a critical critical state here 281 00:14:37,520 --> 00:14:41,240 Speaker 2: in markets globally, and it didn't take much to precipitate that. 282 00:14:41,720 --> 00:14:44,800 Speaker 2: Do you worry that that central bankers broadly are not 283 00:14:44,960 --> 00:14:46,720 Speaker 2: monitoring the situation well enough? 284 00:14:49,000 --> 00:14:51,560 Speaker 4: I want to be fair to the central bankers where 285 00:14:52,200 --> 00:14:55,280 Speaker 4: I'm fully cognizant of them hanging on to the type 286 00:14:55,280 --> 00:14:58,040 Speaker 4: one mistake that they made being too slow to move 287 00:14:58,080 --> 00:15:02,200 Speaker 4: on inflation that was there and appro problem, and necessarily 288 00:15:02,240 --> 00:15:04,280 Speaker 4: that also means they're getting into the type two mistake, 289 00:15:04,760 --> 00:15:09,200 Speaker 4: clinging onto inflation being the boogeyman in the room when 290 00:15:09,280 --> 00:15:14,320 Speaker 4: the balance of risks are shifting where they stand right now. 291 00:15:14,520 --> 00:15:19,000 Speaker 4: I think the tricky part is what higher for longer 292 00:15:20,400 --> 00:15:24,640 Speaker 4: ought to mean. And to the argument, so to use uh, 293 00:15:24,960 --> 00:15:27,520 Speaker 4: you know, Governor Bowman's point, she said, look, inflation is 294 00:15:27,560 --> 00:15:30,640 Speaker 4: still a problem, sticky, so on and so forth. We 295 00:15:30,760 --> 00:15:33,120 Speaker 4: fully take that point, but you know, the bigger picture 296 00:15:33,120 --> 00:15:35,680 Speaker 4: here is, but does it really warrant a five and 297 00:15:35,720 --> 00:15:39,040 Speaker 4: a half percent rate at a time when job losses 298 00:15:39,080 --> 00:15:42,440 Speaker 4: are are starting to seep through, even if you're not 299 00:15:42,520 --> 00:15:45,840 Speaker 4: in you know, full retrenchment mode. The problem is, this 300 00:15:45,880 --> 00:15:48,960 Speaker 4: is a legging beast and like a huge vessel, is 301 00:15:49,040 --> 00:15:52,040 Speaker 4: very quick, hard to turn directions of of the you know, 302 00:15:52,080 --> 00:15:55,440 Speaker 4: the job market, and usually it's a little too late 303 00:15:55,480 --> 00:15:58,160 Speaker 4: when when we see those signs. So that's where I 304 00:15:58,480 --> 00:16:02,600 Speaker 4: think the FED has signal a lot more restraint than 305 00:16:02,640 --> 00:16:04,720 Speaker 4: it probably ought to leave in the system over the 306 00:16:04,720 --> 00:16:05,720 Speaker 4: next six to twelve. 307 00:16:05,520 --> 00:16:08,360 Speaker 2: Months, unless they're just unwilling to say the quiet part 308 00:16:08,520 --> 00:16:13,200 Speaker 2: out loud, which is that there is, well, financial conditions 309 00:16:13,200 --> 00:16:18,080 Speaker 2: are pretty relaxed right now. There are easy financial conditions 310 00:16:18,600 --> 00:16:20,960 Speaker 2: to be concerned about. Is that a fair statement. 311 00:16:21,560 --> 00:16:23,600 Speaker 4: That's a fistatement And in fact, I'm glad you brought 312 00:16:23,640 --> 00:16:27,800 Speaker 4: that up. So the liquidity in the system, how risk 313 00:16:27,880 --> 00:16:32,240 Speaker 4: is priced, where equities are All that point to really 314 00:16:32,320 --> 00:16:37,440 Speaker 4: easy financial conditions. There is always a sense in monitoring 315 00:16:37,480 --> 00:16:40,440 Speaker 4: three aspects of policy separately. One is the policy itself, 316 00:16:40,480 --> 00:16:43,080 Speaker 4: so that's the rates, and then monetary conditions, which is 317 00:16:43,080 --> 00:16:45,480 Speaker 4: where exchange rates are and the rates are, and then 318 00:16:45,520 --> 00:16:49,880 Speaker 4: financial conditions, the overall thing, the overall situation in the markets. 319 00:16:50,560 --> 00:16:52,800 Speaker 4: The trouble with today's market is why it's getting hard 320 00:16:52,840 --> 00:16:56,040 Speaker 4: to read this because increasingly there's a greater divergence between 321 00:16:56,360 --> 00:17:01,400 Speaker 4: the very core policy conditions versus the overall financial conditions, 322 00:17:01,680 --> 00:17:04,920 Speaker 4: which means a lot of the reaction function comes from 323 00:17:05,000 --> 00:17:08,639 Speaker 4: sudden swings in markets, and the high correlation between asset 324 00:17:08,640 --> 00:17:12,560 Speaker 4: classes means that financial conditions can really turn on a dime, 325 00:17:12,840 --> 00:17:14,919 Speaker 4: and that's not a healthy position to be in. 326 00:17:15,240 --> 00:17:17,560 Speaker 2: We'll leave their Vishnu. It's always a pleasure. Thank you 327 00:17:17,600 --> 00:17:20,080 Speaker 2: so much for making time to chat with a vision Overarathan, 328 00:17:20,320 --> 00:17:24,080 Speaker 2: head of Economics and Strategy at Misohobank, joining us from 329 00:17:24,119 --> 00:17:28,320 Speaker 2: the Lion City of Singapore. Here on day break Asia. 330 00:17:34,280 --> 00:17:37,760 Speaker 2: Eric Lynch is with us, Managing director of SCHARF Investments, 331 00:17:38,080 --> 00:17:41,600 Speaker 2: joining from Los Coados, California. Eric thank you for being 332 00:17:41,640 --> 00:17:44,760 Speaker 2: with us. You're a stone's throw from Silicon Valley. Are 333 00:17:44,800 --> 00:17:47,680 Speaker 2: people a little nervous about this AI trade right now? 334 00:17:47,960 --> 00:17:53,000 Speaker 5: I think so. Obviously tech has had a wonderful run 335 00:17:53,080 --> 00:17:57,320 Speaker 5: for really ever since the financial crisis ended, and you know, 336 00:17:57,359 --> 00:17:59,080 Speaker 5: you had the AI Can we give us some extra 337 00:17:59,200 --> 00:18:02,720 Speaker 5: legs post pandemic? So you know, to have this kind 338 00:18:02,720 --> 00:18:07,120 Speaker 5: of underperformance both in July and now actually one third 339 00:18:07,160 --> 00:18:09,800 Speaker 5: through August, it's been something that market has the things 340 00:18:09,800 --> 00:18:10,879 Speaker 5: for a very long time. 341 00:18:11,400 --> 00:18:13,199 Speaker 2: So to what do you attribute that to? 342 00:18:13,400 --> 00:18:13,440 Speaker 5: It? 343 00:18:13,640 --> 00:18:16,160 Speaker 2: Was it the comment that we had from Sundar Pachai 344 00:18:16,280 --> 00:18:19,080 Speaker 2: over at Alphabet Is it the Microsoft report that kind 345 00:18:19,119 --> 00:18:21,080 Speaker 2: of creates this apprehension? 346 00:18:22,320 --> 00:18:23,280 Speaker 5: Yeah, it's a good question. 347 00:18:23,440 --> 00:18:23,560 Speaker 3: You know. 348 00:18:23,560 --> 00:18:25,120 Speaker 5: I think there's a couple of things going on, Doug. 349 00:18:25,160 --> 00:18:28,840 Speaker 5: I think one is you've got, you know, a couple 350 00:18:28,880 --> 00:18:32,920 Speaker 5: hundred billion dollars of some odd estimated investment in terms 351 00:18:32,960 --> 00:18:36,040 Speaker 5: of Cathex and the AI kind of data center, and 352 00:18:36,440 --> 00:18:38,639 Speaker 5: today now even though it's only been less than a 353 00:18:38,640 --> 00:18:42,080 Speaker 5: couple of years, you've got very little revenue to show 354 00:18:42,119 --> 00:18:44,120 Speaker 5: for that. But that's not such an issue. The issue 355 00:18:44,200 --> 00:18:46,199 Speaker 5: is that there's not a lot of clear visibility. So 356 00:18:46,560 --> 00:18:48,919 Speaker 5: if you look at the Q two earn your results, 357 00:18:48,960 --> 00:18:52,919 Speaker 5: there was a very clear kind of pattern. The one stock, 358 00:18:53,000 --> 00:18:55,800 Speaker 5: the one company that reported kind of lesser CAPEX and 359 00:18:55,880 --> 00:18:59,879 Speaker 5: could have been reported but yet revenues kind of outperformed, 360 00:19:00,200 --> 00:19:03,640 Speaker 5: was Meta. The rest of the Max seven kind of underperformed. 361 00:19:03,800 --> 00:19:07,520 Speaker 5: Vias to be the business outperforming expectations as well as 362 00:19:07,560 --> 00:19:10,119 Speaker 5: CAPEC still being pretty significant boilth in this quarter and 363 00:19:10,240 --> 00:19:12,959 Speaker 5: go forward. So I think it's showing you that investors 364 00:19:13,000 --> 00:19:16,000 Speaker 5: are kind of nervous about the AI returns. But the 365 00:19:16,040 --> 00:19:19,479 Speaker 5: other issue, Doug, which is actually really huge positive, is 366 00:19:19,520 --> 00:19:23,240 Speaker 5: that Q two on the earning season, we're ninety percent through. 367 00:19:23,880 --> 00:19:26,879 Speaker 5: This is the first really solid year of year growth 368 00:19:26,920 --> 00:19:29,679 Speaker 5: we've seen in several quarters. We're tracking for eleven percent 369 00:19:29,720 --> 00:19:32,800 Speaker 5: for the SP five hundred. That's off of you zero 370 00:19:32,840 --> 00:19:36,600 Speaker 5: to negatives and twenty three. And what's awesome about it 371 00:19:36,640 --> 00:19:40,920 Speaker 5: is that it's broadening out recent quarters. Max seven responsible 372 00:19:40,960 --> 00:19:43,680 Speaker 5: for over one hundred percent of EPs growth this quarter. 373 00:19:43,800 --> 00:19:46,639 Speaker 5: It's there's a lot of things that are growing. Financial 374 00:19:46,720 --> 00:19:49,920 Speaker 5: sectors on track to grow eighteen percent year every year, 375 00:19:49,960 --> 00:19:53,840 Speaker 5: healthcare seventeen percent, Infotech is just barely ahead at nineteen. 376 00:19:54,000 --> 00:19:57,199 Speaker 5: So this is I think why you're seeing some of 377 00:19:57,240 --> 00:20:00,760 Speaker 5: the broadening out of returns because investors are realized that, hey, 378 00:20:00,760 --> 00:20:02,360 Speaker 5: maybe don't have a way for the AI trade to work. 379 00:20:02,359 --> 00:20:03,520 Speaker 5: There's other stuff that's available. 380 00:20:03,560 --> 00:20:06,440 Speaker 2: Maybe it's a little ironic because now on the macro 381 00:20:06,680 --> 00:20:09,640 Speaker 2: level we're getting indications of economic slowing. 382 00:20:10,680 --> 00:20:13,639 Speaker 5: Yeah, that is interesting, and I'm glad you brought that 383 00:20:13,720 --> 00:20:15,159 Speaker 5: up though, because if you look at kind of what 384 00:20:15,200 --> 00:20:19,720 Speaker 5: happened in July, everything outperformed tech, everything up form the 385 00:20:19,760 --> 00:20:22,760 Speaker 5: Max seven, whether it's financials or it was small caps 386 00:20:22,800 --> 00:20:27,119 Speaker 5: and value, it's more nuanced. Right in August once we 387 00:20:27,280 --> 00:20:30,199 Speaker 5: had these kind of blips with some macro data, and 388 00:20:30,240 --> 00:20:33,000 Speaker 5: so what's really outperforming now are still a lot of 389 00:20:33,000 --> 00:20:36,159 Speaker 5: different sectors Visa the tech Tech is down six percent 390 00:20:36,520 --> 00:20:39,719 Speaker 5: at a sectral level month today, but staples are up 391 00:20:39,720 --> 00:20:42,880 Speaker 5: one point seven, real estates at one point six, Utilities 392 00:20:42,920 --> 00:20:45,439 Speaker 5: and healthcare also up. So I think what that's showing 393 00:20:45,600 --> 00:20:49,200 Speaker 5: is investors still worried about the tech trade. They still 394 00:20:49,200 --> 00:20:51,440 Speaker 5: think that their earnings are converging, but the same time 395 00:20:51,520 --> 00:20:53,879 Speaker 5: they've got their eyes out on wow, what if we 396 00:20:53,960 --> 00:20:56,640 Speaker 5: don't have a soft landing. Perhaps we should be looking 397 00:20:56,680 --> 00:20:59,320 Speaker 5: at some of these laggards of twenty three and year 398 00:20:59,359 --> 00:21:02,520 Speaker 5: to date twenty four and put some bets there. 399 00:21:03,240 --> 00:21:06,440 Speaker 2: So, speaking of putting your bets in the market right now, 400 00:21:06,680 --> 00:21:10,080 Speaker 2: I'm imagining that the expectations for a lot in the 401 00:21:10,119 --> 00:21:13,280 Speaker 2: way of fed accommodation here that they begin cut or 402 00:21:13,320 --> 00:21:17,240 Speaker 2: it begins cutting interest rates. Uh, maybe as soon as September. 403 00:21:17,520 --> 00:21:19,439 Speaker 2: Is that a part of your thesis a reason to 404 00:21:19,480 --> 00:21:20,640 Speaker 2: be bullish on equities? 405 00:21:23,000 --> 00:21:27,679 Speaker 5: Yes, I think clearly, you know, any type of monetary 406 00:21:28,119 --> 00:21:32,920 Speaker 5: kind of help is appreciated, right for investors. We're still 407 00:21:32,920 --> 00:21:36,280 Speaker 5: sitting on these you know, historically in recent times higher 408 00:21:36,359 --> 00:21:40,000 Speaker 5: rates and certainly slowing down the housing market. Certainly some 409 00:21:40,200 --> 00:21:43,720 Speaker 5: lower rates would help certain areas more than others. And 410 00:21:43,760 --> 00:21:46,120 Speaker 5: so yeah, that's that's that's part of it. I think 411 00:21:46,160 --> 00:21:48,600 Speaker 5: the real part of it, though, and the optimism is 412 00:21:48,600 --> 00:21:53,200 Speaker 5: that you're you're finally getting this broad based or earnings uptick. 413 00:21:53,520 --> 00:21:56,720 Speaker 5: You know, eleven percent earnings grow for Q two just 414 00:21:56,760 --> 00:21:59,200 Speaker 5: a couple of quarters ago, Doug, we're kind of sitting 415 00:21:59,200 --> 00:22:02,600 Speaker 5: around three or four is pretty subs substantive. And what's 416 00:22:02,680 --> 00:22:07,040 Speaker 5: nice is that you're also seeing profit margins up. You know, 417 00:22:07,080 --> 00:22:10,240 Speaker 5: profit margins are tracking for twelve point two in the 418 00:22:10,280 --> 00:22:14,040 Speaker 5: SMP for Q two earning season, and that's notably higher 419 00:22:14,080 --> 00:22:17,679 Speaker 5: than where we were in Q one, and also, you know, 420 00:22:17,800 --> 00:22:20,159 Speaker 5: much higher than where we were a year ago. And 421 00:22:20,880 --> 00:22:23,840 Speaker 5: you know, kind of perhaps corely with that is you 422 00:22:23,880 --> 00:22:27,760 Speaker 5: had a strong productivity improvement both in Q two as 423 00:22:27,760 --> 00:22:29,680 Speaker 5: well in five of the last seven quarters. You know, 424 00:22:29,720 --> 00:22:32,840 Speaker 5: we've got us productivity and are growing two point seven 425 00:22:32,880 --> 00:22:35,879 Speaker 5: percent year of a year in Q two and that 426 00:22:35,960 --> 00:22:38,720 Speaker 5: kind of two percent plus August something we haven't seen 427 00:22:38,800 --> 00:22:41,399 Speaker 5: since kind of the post tech bubble of the knots. 428 00:22:41,800 --> 00:22:44,359 Speaker 2: So Vice President Kamala Harris is going to be in 429 00:22:44,400 --> 00:22:48,320 Speaker 2: San Francisco for a fundraiser. She's leading in a number 430 00:22:48,359 --> 00:22:51,720 Speaker 2: of the polls. Talk to me very quickly, Eric about 431 00:22:52,080 --> 00:22:57,520 Speaker 2: regulatory risk of a Harris Walls victory. I mean, are 432 00:22:57,520 --> 00:23:00,240 Speaker 2: you concerned about the way in which big tech could 433 00:23:00,280 --> 00:23:01,600 Speaker 2: be impacted by such a thing. 434 00:23:03,280 --> 00:23:07,359 Speaker 5: That's a great question. Uh, yeah, clearly, there's probably more risk. 435 00:23:07,440 --> 00:23:10,200 Speaker 5: But at the same time, based on you know, based 436 00:23:10,200 --> 00:23:13,520 Speaker 5: on the rhetoric. Uh, at the same time, you know, 437 00:23:13,600 --> 00:23:17,800 Speaker 5: both parties are kind of intriguingly and probably not great 438 00:23:17,840 --> 00:23:21,199 Speaker 5: for business. Big business and public equities are kind of 439 00:23:22,040 --> 00:23:24,760 Speaker 5: converging on certain points, whether it's you know, kind of 440 00:23:24,800 --> 00:23:29,720 Speaker 5: anti capitalists kind of tariff rhetoric, or it's kind of 441 00:23:29,760 --> 00:23:33,440 Speaker 5: anti tech rhetoric they're saying kind of the same things 442 00:23:33,400 --> 00:23:37,160 Speaker 5: word we're different, or or also you know, kind of 443 00:23:37,520 --> 00:23:42,320 Speaker 5: underwriting uh, exceptionally high kind of federal deficits which long 444 00:23:42,400 --> 00:23:44,800 Speaker 5: term should be inflationary and crowd out private investment. So 445 00:23:45,480 --> 00:23:49,200 Speaker 5: both parties are kind of subscribing to this new normal 446 00:23:49,560 --> 00:23:53,000 Speaker 5: of a policy framework, which is exactly great now that 447 00:23:53,240 --> 00:23:56,879 Speaker 5: the benefit of the Trump campaigns are they're kind of 448 00:23:56,920 --> 00:23:59,720 Speaker 5: advocating an extension of the tax eric. 449 00:23:59,680 --> 00:24:02,119 Speaker 2: Pleasure or as always, we'll leave it there. Eric Lynch 450 00:24:02,640 --> 00:24:06,159 Speaker 2: from Sharp Investments joining us here on a daybreak aship. 451 00:24:12,720 --> 00:24:16,040 Speaker 2: Louis Nevalier joins us. Louis is a founder also chairman 452 00:24:16,119 --> 00:24:20,040 Speaker 2: of the Navalier Associates, joining us from Florida. Louis, it 453 00:24:20,080 --> 00:24:22,720 Speaker 2: is always a pleasure before we get into technology, I'm 454 00:24:22,760 --> 00:24:24,399 Speaker 2: sure you have a lot to say on that front. 455 00:24:24,960 --> 00:24:29,080 Speaker 2: Let's talk about the volatility last week and the underpinnings 456 00:24:29,119 --> 00:24:31,520 Speaker 2: of that seem to be an unwind of the yen 457 00:24:31,640 --> 00:24:35,560 Speaker 2: carried trade. I'm just going to shoot right here and 458 00:24:35,600 --> 00:24:38,840 Speaker 2: ask whether you think most of this unwind is behind 459 00:24:38,920 --> 00:24:39,280 Speaker 2: us now. 460 00:24:40,720 --> 00:24:44,080 Speaker 6: Yeah, it looks like about seventy five percent is Obviously, 461 00:24:44,760 --> 00:24:48,080 Speaker 6: we need Japan to open up a firm like they 462 00:24:48,080 --> 00:24:52,200 Speaker 6: did since Tuesday, and because you know, if Japan opens 463 00:24:52,240 --> 00:24:54,960 Speaker 6: all week, we're going to gap down as well. But 464 00:24:55,960 --> 00:25:01,080 Speaker 6: bonnields firmed up quite a bit last week the treasury auctions, 465 00:25:01,119 --> 00:25:03,480 Speaker 6: and some of them didn't go that well. So it's 466 00:25:03,520 --> 00:25:05,720 Speaker 6: just a sign that you can't get yields too low 467 00:25:05,800 --> 00:25:09,080 Speaker 6: too fast because the market won't buy the bonds. So 468 00:25:09,160 --> 00:25:11,679 Speaker 6: I think we found equilibrium here. A lot of the 469 00:25:11,880 --> 00:25:15,560 Speaker 6: carry trade to risk has dissipated, but we're still in August. 470 00:25:15,720 --> 00:25:18,960 Speaker 6: We still have air pockets and you know, most of 471 00:25:19,000 --> 00:25:22,119 Speaker 6: my Wall Street friends aren't in at their offices and 472 00:25:22,160 --> 00:25:24,720 Speaker 6: will not be until after Labor Day. 473 00:25:24,920 --> 00:25:27,080 Speaker 2: Air pockets. Talk to me about what you see right 474 00:25:27,080 --> 00:25:28,880 Speaker 2: now in markets? Where are the risks? 475 00:25:30,400 --> 00:25:33,960 Speaker 6: Well, I think the best way to explain air pockets 476 00:25:34,040 --> 00:25:38,600 Speaker 6: is August of twenty fifteen, we had one day there 477 00:25:38,640 --> 00:25:42,600 Speaker 6: where some circuit breakers were hit, and what happened is 478 00:25:43,520 --> 00:25:47,239 Speaker 6: some stocks can open, but the ETFs opened, but they 479 00:25:47,240 --> 00:25:50,360 Speaker 6: couldn't price the ETFs because the stocks were open. So 480 00:25:50,480 --> 00:25:53,080 Speaker 6: a lot of ETFs went down immediately, almost thirty five 481 00:25:53,080 --> 00:25:56,680 Speaker 6: percent at the opening, stayed there for over ninety minutes. 482 00:25:56,720 --> 00:26:00,520 Speaker 6: At the end of the day, prices were largely changed. 483 00:26:01,359 --> 00:26:06,000 Speaker 6: So that's the risk of August. I recommend a lot 484 00:26:06,040 --> 00:26:08,680 Speaker 6: of small cap stocks. Obviously we're static with a small 485 00:26:08,720 --> 00:26:12,239 Speaker 6: cap or rally. But you know, when I look at 486 00:26:12,240 --> 00:26:15,040 Speaker 6: my best small cap stock, something like our Powell Industries, 487 00:26:15,920 --> 00:26:18,119 Speaker 6: you know, it's a bunny stock. It sits at hops, 488 00:26:18,119 --> 00:26:21,360 Speaker 6: it sits at hops, and people have to realize when 489 00:26:21,359 --> 00:26:23,320 Speaker 6: they go in the small cap arena that's what they're 490 00:26:23,320 --> 00:26:25,480 Speaker 6: going to get. I think the liquid will be a 491 00:26:25,560 --> 00:26:29,080 Speaker 6: lot better if we get in early January. Fact in November, 492 00:26:29,119 --> 00:26:32,760 Speaker 6: just before Thanksgiving. We want to get all our distractions 493 00:26:32,760 --> 00:26:34,119 Speaker 6: out of the way. Clearly, we want to get their 494 00:26:34,119 --> 00:26:36,040 Speaker 6: election out of the way. We want to get the 495 00:26:36,080 --> 00:26:38,879 Speaker 6: FED cutting rates, and then we want to, you know, 496 00:26:38,920 --> 00:26:40,240 Speaker 6: have optimism for the future. 497 00:26:41,119 --> 00:26:43,320 Speaker 2: Do you think there's still too much leverage in the system. 498 00:26:43,320 --> 00:26:45,720 Speaker 2: I mean putting the end carried trade aside. I mean 499 00:26:46,160 --> 00:26:49,880 Speaker 2: the FED in its balance sheet, Global central banks, their 500 00:26:49,920 --> 00:26:54,080 Speaker 2: balance sheets are still very very large by historical standards. 501 00:26:54,240 --> 00:26:55,800 Speaker 2: Is there still too much liquidity? 502 00:26:57,920 --> 00:27:00,400 Speaker 6: No, but there is leverage. And that's a very good 503 00:27:00,400 --> 00:27:05,160 Speaker 6: point you brought up. Your average financial advisor doesn't sell stocks, 504 00:27:05,160 --> 00:27:09,879 Speaker 6: They sell leveraged debt, and it yields about eleven percent, 505 00:27:10,080 --> 00:27:14,160 Speaker 6: And you've got these little exit windows. And because it's 506 00:27:14,359 --> 00:27:20,320 Speaker 6: a very popular seller, and because the exit is restricted, 507 00:27:21,080 --> 00:27:23,720 Speaker 6: I worry that if something goes bad in that arena. 508 00:27:24,640 --> 00:27:24,760 Speaker 5: Uh. 509 00:27:24,960 --> 00:27:26,719 Speaker 6: You know, this is a two trillion dollar ar industry, 510 00:27:26,800 --> 00:27:28,760 Speaker 6: up from about four hundred and thirty eight a billion 511 00:27:29,320 --> 00:27:33,920 Speaker 6: a decade ago. But I worry if something bad happens there, 512 00:27:34,080 --> 00:27:37,760 Speaker 6: it'll be a minibox swan event and the whole market 513 00:27:37,760 --> 00:27:39,840 Speaker 6: will freeze up, and then that will definitely cause the 514 00:27:39,920 --> 00:27:44,439 Speaker 6: FED to cut. Because you we've become like China. We 515 00:27:44,480 --> 00:27:47,000 Speaker 6: have our we have two tiers of lending in America, 516 00:27:47,560 --> 00:27:50,280 Speaker 6: the banks if you have a perfect credit score, and 517 00:27:50,320 --> 00:27:53,360 Speaker 6: then private credit if you're less than optimal. 518 00:27:55,040 --> 00:27:57,240 Speaker 2: Were you seeing AI right now? I mean there was 519 00:27:57,280 --> 00:28:00,240 Speaker 2: a big unwind obviously as a part of that and 520 00:28:00,280 --> 00:28:03,879 Speaker 2: carry trade unwind. We saw megacap tech very hard hit. 521 00:28:03,960 --> 00:28:06,120 Speaker 2: I mean, how are you still positive here? 522 00:28:07,240 --> 00:28:07,400 Speaker 3: Yeah? 523 00:28:07,440 --> 00:28:09,560 Speaker 6: I'm still in the camp that eighty percent of your 524 00:28:09,600 --> 00:28:15,359 Speaker 6: AI investments should be Navidian super micro Obviously super Micro missed, 525 00:28:15,840 --> 00:28:19,600 Speaker 6: but they guide it higher and they started one hundred 526 00:28:19,600 --> 00:28:22,760 Speaker 6: and forty three percent sales growth. Uh, there seems to 527 00:28:22,800 --> 00:28:25,160 Speaker 6: be some sort of delay with the Blackwell chip from 528 00:28:25,160 --> 00:28:28,960 Speaker 6: the video. Whether it was quality control or wise another matter, 529 00:28:29,560 --> 00:28:32,280 Speaker 6: but the video's incredible sales have come from their previous ships, 530 00:28:32,720 --> 00:28:37,040 Speaker 6: and Blackwell's only going to make it grow faster. So 531 00:28:37,359 --> 00:28:38,480 Speaker 6: the video is lock and load. 532 00:28:38,560 --> 00:28:38,680 Speaker 3: Now. 533 00:28:38,720 --> 00:28:41,320 Speaker 6: You know, super Micro's only eleven times forecast at earnings, 534 00:28:41,520 --> 00:28:42,760 Speaker 6: so it's very fairly priced. 535 00:28:43,240 --> 00:28:44,960 Speaker 2: We're going to get earnings from Nvidia at the end 536 00:28:44,960 --> 00:28:47,040 Speaker 2: of the month, I think on the twenty eighth, after 537 00:28:47,080 --> 00:28:49,360 Speaker 2: the bell, which will make the next day in the 538 00:28:49,360 --> 00:28:53,120 Speaker 2: cash market very very interesting. Are you expecting a big 539 00:28:53,160 --> 00:28:57,920 Speaker 2: beat here? What's your sense? And if there's disappointment, what happens. 540 00:28:57,520 --> 00:29:00,720 Speaker 6: Well, the video will be the grand finale regardless of 541 00:29:00,800 --> 00:29:05,960 Speaker 6: what happens. They have an incredible history of beating I 542 00:29:05,960 --> 00:29:10,160 Speaker 6: think Jensen is one of the few founders that can 543 00:29:10,160 --> 00:29:12,080 Speaker 6: actually run his company. You know, most of these tech 544 00:29:12,120 --> 00:29:18,920 Speaker 6: founders have to be replaced by professional management. And I 545 00:29:19,000 --> 00:29:21,640 Speaker 6: have nothing but the highest respect and hope for him. 546 00:29:21,960 --> 00:29:24,040 Speaker 6: But yeah, if you want regenerat of AI chips, in 547 00:29:24,080 --> 00:29:25,440 Speaker 6: the videos of the Big Game. 548 00:29:27,840 --> 00:29:30,920 Speaker 2: If you mentioned super micro and video, I mean, is 549 00:29:30,960 --> 00:29:32,800 Speaker 2: that the only way to play it right now? 550 00:29:33,760 --> 00:29:37,240 Speaker 6: Yeah, that's the hardware side. Obviously, you can buy Microsoft 551 00:29:37,320 --> 00:29:43,000 Speaker 6: and get regetitive AI with chat GTPT. Obviously, there are 552 00:29:43,000 --> 00:29:46,280 Speaker 6: a lot of low tech AI chips coming out AMDs 553 00:29:46,520 --> 00:29:47,400 Speaker 6: trying to catch up. 554 00:29:48,080 --> 00:29:48,240 Speaker 1: You know. 555 00:29:48,280 --> 00:29:50,760 Speaker 6: I have a friend in Boise, Idaho that's building low 556 00:29:50,800 --> 00:29:55,080 Speaker 6: tech AI chips for Samson. It's basically like a super Alexa. 557 00:29:56,600 --> 00:29:59,360 Speaker 6: The chip tries to figure out who you are. It's 558 00:29:59,400 --> 00:30:02,240 Speaker 6: no different than our pets condition us at home, and 559 00:30:02,280 --> 00:30:06,480 Speaker 6: that's that's It's just that will he consumer electronics things 560 00:30:06,520 --> 00:30:09,360 Speaker 6: that will try to learn and understand us better. 561 00:30:09,520 --> 00:30:14,360 Speaker 2: What about playing in Nvidia through TSMC? Is that advisable 562 00:30:14,360 --> 00:30:14,880 Speaker 2: in your view? 563 00:30:16,560 --> 00:30:18,920 Speaker 6: You could, But you know, I like to see tm 564 00:30:19,120 --> 00:30:24,160 Speaker 6: SC's plant in Arizona startup. You know, that's that's a 565 00:30:24,200 --> 00:30:27,320 Speaker 6: big question mark. I mean, I suspect they're gonna have 566 00:30:27,360 --> 00:30:29,600 Speaker 6: to move a whole bunch of Taiwanese to Arizona to 567 00:30:29,680 --> 00:30:32,640 Speaker 6: get it going. You know, It's funny. I have a 568 00:30:32,640 --> 00:30:35,400 Speaker 6: lot of friends at the Tesla plant and Reno and 569 00:30:35,840 --> 00:30:38,080 Speaker 6: they work on the Panasonic side of the battery side, 570 00:30:38,520 --> 00:30:42,520 Speaker 6: and there's plenty of Japanese from Panasonic and Reno too. 571 00:30:43,080 --> 00:30:46,000 Speaker 6: In fact, the kids are pretty good at baseball, so 572 00:30:46,080 --> 00:30:49,720 Speaker 6: I suspect as soon as Taiwan wants to get some 573 00:30:49,800 --> 00:30:51,920 Speaker 6: engineers to move to Arizona, I think it will run 574 00:30:51,960 --> 00:30:52,560 Speaker 6: a lot better. 575 00:30:53,440 --> 00:30:56,240 Speaker 2: Interesting, Louis, it's always a pleasure. Thanks for making time 576 00:30:56,280 --> 00:31:00,120 Speaker 2: to chat with us, Louis Nevali or founder chairman Nevalier Associates, 577 00:31:00,200 --> 00:31:05,520 Speaker 2: joining from Florida. This has been the Bloomberg Daybreak Asia podcast, 578 00:31:05,640 --> 00:31:08,360 Speaker 2: bringing you the stories making news and moving markets in 579 00:31:08,400 --> 00:31:12,280 Speaker 2: the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube 580 00:31:12,320 --> 00:31:15,680 Speaker 2: to get more episodes of this and other shows from Bloomberg. 581 00:31:15,920 --> 00:31:19,840 Speaker 2: Subscribe to the podcast on Apple, Spotify, or anywhere else 582 00:31:19,880 --> 00:31:23,080 Speaker 2: you listen, and always on Bloomberg Radio, the Bloomberg Terminal, 583 00:31:23,280 --> 00:31:24,640 Speaker 2: and the Bloomberg Business app.