Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is the Bloomberg Daybreak Aisia podcast. I'm Doug Krisner.
Speaker 2: You can join Brian Curtis and myself for the stories,
Speaker 2: making news and moving markets in the APAC region. You
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Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the
Speaker 2: Bloomberg Business App. Adam Koons is with us. He is
Speaker 2: the co chief investment officer at Winthrop Capital Management. Need
Speaker 2: joins us from Indianapolis. Adam, thanks for joining us Sunday night,
Speaker 2: your time. I'm curious as to what you were hearing
Speaker 2: last week from clients with all the volatility we saw
Speaker 2: in markets, particularly heavy selling in the Monday session last week.
Speaker 3: Well, you know, when we have heighten volatility and kind
Speaker 3: of a more chaotic market, investors start to kind of
Speaker 3: wonder how much worse can this get? And that's always
Speaker 3: the first question that we were seeing, is, you know,
Speaker 3: is this just is.
Speaker 1: This a buying opportunity? Is this just a short term blip?
Speaker 1: Or is there more to this?
Speaker 3: And so I think, you know, when we're looking at it,
Speaker 3: it's it's kind of too early to tell. But one
Speaker 3: of the things that we were really focused on was volatility. Obviously,
Speaker 3: we saw the VIC spike to sixty, which is.
Speaker 1: An incredible move.
Speaker 3: And then if you're you know, if you're a bond trader,
Speaker 3: you're looking at the move index very similar that that
Speaker 3: also had quite a a.
Speaker 1: You know, spike. So we're seeing volatility pick up.
Speaker 3: It did, you know, come down considerably by the end
Speaker 3: of the week, But that shows us that, you know,
Speaker 3: investors in general are going to be quick to try
Speaker 3: to sell any kind of bad news at this point.
Speaker 3: So we've we've kind of gone in a different direction
Speaker 3: where you know, there was a time period where bad
Speaker 3: news was good news because it meant that the Fed
Speaker 3: might cut. Now we're starting it feels like we're entering
Speaker 3: that regime where bad news actually could be bad news
Speaker 3: for markets.
Speaker 2: So what is that thinking done to your investment strategy?
Speaker 2: Were you moving things around in the equity trade last week?
Speaker 1: We were, so we were kind of doing a couple
Speaker 1: of things.
Speaker 3: One is, we did see it as a general buying
Speaker 3: opportunity for some.
Speaker 1: Of the higher quality tech names.
Speaker 3: You know, it's kind of one of those baby with
Speaker 3: the bathwater type mentality where you know, everything in tech
Speaker 3: seem to be selling off quite hard. Some names, you know,
Speaker 3: they should have been like an Intel down twenty five percent.
Speaker 3: I think that was probably a move that needed to
Speaker 3: happen because the business model there is deteriorating. But then
Speaker 3: there were other names like Alphabet and Microsoft that we
Speaker 3: felt like, you know, if things do start to roll over,
Speaker 3: those are still names that we want to be in
Speaker 3: because they are higher quality, they're low debt, you know,
Speaker 3: they're low leveraged, and they have high cash flows so
Speaker 3: they can sustain through maybe an economic downturn. And we
Speaker 3: don't think even if we do see some sort of
Speaker 3: recession or downturn, we don't think it's going to.
Speaker 1: Be that harsh.
Speaker 3: So those are the type of names that we were
Speaker 3: buying during that sell off. So it kind of just
Speaker 3: goes right into our overall strategy of kind of moving
Speaker 3: more defensively. So we, like I said, I did the
Speaker 3: quality factor that I pointed out just a minute ago.
Speaker 3: So lower beta, higher quality names is where we're shifting
Speaker 3: to on the equity side, and then on the fixed
Speaker 3: income side, we do still like the long duration fixed
Speaker 3: income trade where you're you know, buying law treasuries or
Speaker 3: high quality corporate buyds, so that you know, because we
Speaker 3: do think that interest rates are going to come down
Speaker 3: and probably going to come down quite quickly on the
Speaker 3: long end.
Speaker 2: So you mentioned Alphabet and Microsoft, and I'm wondering because
Speaker 2: we'll have the earnings from Nvidia at the end of
Speaker 2: the month, I think on the twenty eighth, have you
Speaker 2: heard anything about the AI trade that that's giving you
Speaker 2: cause for concern?
Speaker 1: We have, So, I mean you kind of heard it
Speaker 1: in some of the earnings.
Speaker 3: Calls with big tech like Alphabet, where they are starting
Speaker 3: to cut back on their spending. Still there's still growth
Speaker 3: in spending, but the acceleration of that.
Speaker 1: Has started to come down.
Speaker 3: And so when you've got to stock like Navidia that's
Speaker 3: really priced to perfection where they need substantial growth really
Speaker 3: right now, you're looking at fifty percent growth rate over
Speaker 3: the next five years in order to justify the price
Speaker 3: of it right now. So I think if you started
Speaker 3: to see any pullback in spending on chipsets, it would
Speaker 3: be it could be quite harsh for a named like
Speaker 3: Navidia kind of you know, at the tail end of
Speaker 3: the earning season here, so.
Speaker 2: We have the CPI data midweek before then PPI retail sales.
Speaker 2: So a lot to kind of consider when you're looking
Speaker 2: at the American economy. How do you feel about US
Speaker 2: inflation right now? Are you confident that it's easing to
Speaker 2: the extent that the Fed will have room maybe in
Speaker 2: September to cut at least by twenty five basis points.
Speaker 1: You know, I actually don't.
Speaker 3: I think getting to that two is going to be
Speaker 3: difficult and it's going to be slow, And so I
Speaker 3: think that that we're running the chance that because inflation
Speaker 3: might surprise to the upside as we kind of head
Speaker 3: into the year end and just prinently have coming up
Speaker 3: this week, I think we're going to get a lot
Speaker 3: of mixed data over the next several months, and it's
Speaker 3: going to make it difficult for the Fed. It's going
Speaker 3: to make it difficult for investors to try to, you know,
Speaker 3: project what's going to happen. And so I still stand
Speaker 3: by I think the Fed is going to be slower
Speaker 3: to act than what markets are predicting right now. If
Speaker 3: you look at the front end of the cycle where
Speaker 3: they were slow to increase interest rates, I think they're
Speaker 3: going to be slow to decrease interest rates, especially if
Speaker 3: we get any data points that show that we're still
Speaker 3: not there, and so I think you know, hitting that
Speaker 3: two percent target is going to be difficult from where
Speaker 3: we're at right now.
Speaker 2: You mentioned the bond market a moment ago. I'm curious
Speaker 2: as to where you see opportunity right now in terms
Speaker 2: of duration, long end, short end of the curve.
Speaker 3: Where are you Yeah, we're definitely on the long end.
Speaker 1: I think you know.
Speaker 3: The reality is everything that was pushing interest rates down
Speaker 3: prior to the pandemic didn't go away. Those are large
Speaker 3: demographic type issues, and because those haven't changed the natural
Speaker 3: path of interest rate, they are to the downside. So
Speaker 3: now we feel like we've really hit that peak and
Speaker 3: interest rates. We're extending in duration quite aggressively to try
Speaker 3: to lock in this yield for as long as we can,
Speaker 3: because I see it as kind of an asymmetric trade.
Speaker 3: Worst case scenario for us is that, Okay, interest rates
Speaker 3: stay where they about where they are for a while,
Speaker 3: and I'm happy to clip higher coupons, and then on
Speaker 3: the flip side, if we do see interest rates start
Speaker 3: to collapse, then obviously I'll get the price appreciation of
Speaker 3: the bonds. I think, you know, the other scenario where
Speaker 3: we see interest rates go higher, I think is a
Speaker 3: very very low probability right now.
Speaker 2: Low probability. I'd like to know about the level of
Speaker 2: conviction in both the equity trade and in the bond
Speaker 2: market trade that you're putting on right now. Are you
Speaker 2: pretty much solidly convinced of the calls that you're making
Speaker 2: right now, or are you hedging maybe by squirreling away
Speaker 2: a little bit of cash at the moment.
Speaker 3: So on the fixed income side, very very convicted on
Speaker 3: that long duration trade. So in our fixed income portfolios,
Speaker 3: we were holding no cash and said we are extending duration.
Speaker 3: On the equity side, holding a little bit higher cash
Speaker 3: than the normal and like I said, and also hedging
Speaker 3: that with moving more defensively. So on the equity side,
Speaker 3: absolutely kind of hedging that out a little bit.
Speaker 1: But on the fixed income side, we're all.
Speaker 2: In Adam, I'm curious as to whether or not you're
Speaker 2: seeing opportunities offshore. We get some data for China later
Speaker 2: in the week. I know that that market has really
Speaker 2: had some tough times. It's been going on for a while.
Speaker 2: We're well aware of that. Is there anything in Asia
Speaker 2: right now? That's attractive to you, you know.
Speaker 3: Unfortunately, no, and it's a trade that I want to
Speaker 3: put on and it's one that I'm going to be
Speaker 3: watching and waiting for. But I think the reality is
Speaker 3: as the US economy begins to slow, so does China
Speaker 3: and the rest of Asia. It's just not immune from
Speaker 3: what's happening in the US right now. And so until
Speaker 3: China can kind of shift away from being so dependent
Speaker 3: on exports, I think you're just going to see China
Speaker 3: go the same direction as the US economy.
Speaker 2: Adam, thank you so much. A great way to start
Speaker 2: the week with Adam Kohn's co chief investment officer at
Speaker 2: Winthrop Capital Management. He joining from Indianapolis, Indiana. Vishnu Varathan,
Speaker 2: he is head of Economics and Strategy at Misohobank. It's
Speaker 2: always a pleasure to have a chance to benefit from
Speaker 2: your perspective. Can you let me know whether we're near
Speaker 2: the end of this yen carry trade unwind or if
Speaker 2: there's a little bit more pain that we've got to
Speaker 2: deal with.
Speaker 4: Doug, thanks for having me in such a kind introduction.
Speaker 4: My suspicion and and that's mainly because I'm a pessimist
Speaker 4: by nature.
Speaker 2: Set.
Speaker 4: My suspicious is we're not quite decisively out of the
Speaker 4: boats yet. I mean, we've seen some glimmers of light,
Speaker 4: and the shakedown in and of itself does clear out
Speaker 4: some of the excesses, uh and the extreme positioning, but
Speaker 4: I don't think we've quite seen the end of it.
Speaker 4: For two reasons. One is markets continue to remain fairly jumpy,
Speaker 4: but at the same time, uh, you know, in so
Speaker 4: called formal mode where they're they're they're you know, they're
Speaker 4: they're really not willing to miss out on taking risk
Speaker 4: at every opportunity, uh. The and and that sets it
Speaker 4: up for latent downside volatility from time to time. The
Speaker 4: other reason is we continue to focus a lot on
Speaker 4: the bog being a source of yen induced carry and wind,
Speaker 4: but really the biggest source of that is going to
Speaker 4: be the FED.
Speaker 3: Uh.
Speaker 4: And if we again lurch back into a mode where
Speaker 4: the FED would have to end up cutting a lot
Speaker 4: more and a lot sooner, that's going to kick, you know,
Speaker 4: kick off another face of yen unwind yen carry unwind inadvertently,
Speaker 4: and the boj probably could do very little to stop that,
Speaker 4: given they would probably not want to make huge, you
Speaker 4: know policy U turns one way or the other.
Speaker 2: Do we have to be concerned at all about what's
Speaker 2: happening in the Japanese financial system? Are banks vulnerable?
Speaker 4: I think generally the banks are in a in a
Speaker 4: fairly good position. I mean, one of the starting points
Speaker 4: for that. And of course you're going to say, you know,
Speaker 4: I'm talking.
Speaker 1: My position here, who does it?
Speaker 4: But okay, putting that aside, you know, imagining that I'm
Speaker 4: somewhat independent here, I think the starting position for them
Speaker 4: was it was really good to get out of negative
Speaker 4: rates because banks, Japanese banks in particular, were struggling with
Speaker 4: the negative rates and getting more steadfastly into a position
Speaker 4: where they're going to get a normal sloping yield curve
Speaker 4: that's somewhat steepening. That also ought to be good for
Speaker 4: the banks. So the banks are in a position where
Speaker 4: they can benefit from that. Slowly diminishing the crossholdings where
Speaker 4: the NIKE is also in a healthier position, means that
Speaker 4: the banks are now positioned better in a structural perspective.
Speaker 4: But it would of course be negligent to say that,
Speaker 4: you know, heightened yet and induce volatility, and the cyclical
Speaker 4: shakedown in Nicke will flow through without any impact, so
Speaker 4: that there are risks ahead. There's a need to watch
Speaker 4: that space very closely and to remain hatched. But overall,
Speaker 4: I think it's moving into a good better position than
Speaker 4: it used to be in.
Speaker 2: So we're also talking about a lot of leverage being
Speaker 2: on whoelnd from the system as well, and that's got
Speaker 2: to be a healthy thing, I would imagine.
Speaker 4: Maybe you disagree, No, I'm totally with you on this one, Doug.
Speaker 4: I mean, the process of unwinding is not so pretty,
Speaker 4: but often getting to a better place would require moments
Speaker 4: of unpretty if you must, uh, and and and and
Speaker 4: it does get healthier that way. But the recognition right
Speaker 4: now is there is still quite a bit of leverage
Speaker 4: in the system. There's still quite a bit of liquidity
Speaker 4: in the system.
Speaker 2: Uh.
Speaker 4: And the liquidity is it cuts both ways. It is
Speaker 4: a source of backstop, given that it does boy markets
Speaker 4: and valuation, but equally, given just how uh, how intense
Speaker 4: and how precarious geopolitics is at the same time of
Speaker 4: the real conflicts and and and and the US elections
Speaker 4: and what it all means for for Asia, it also
Speaker 4: exposes Asia to I think at least bouts of of
Speaker 4: seizures and shakedowns, and that's something we cannot lose sight of.
Speaker 2: We had comments from a former board member of the
Speaker 2: bo J. We were talking about this earlier on the program,
Speaker 2: and from his view, another rate high from the BOJ
Speaker 2: is not possible this year at all. Maybe as soon
Speaker 2: as we get movement is in March of twenty twenty five.
Speaker 2: Is that the way you see things.
Speaker 4: Well, our view has always been that the BOJ would
Speaker 4: necessarily have to move very very gradually and very cautiously.
Speaker 4: We were never very seduced by the wage increment story
Speaker 4: because that was exaggerated by exports earning boosted by the Again.
Speaker 4: We were also very cautious of the fact that you know,
Speaker 4: you know, We did say you know that again is
Speaker 4: a BOJ problem with the fat solution. If that's the case,
Speaker 4: then the FAT can easily move the needle and make
Speaker 4: the boj's tightening seem too much from here on, Given
Speaker 4: what the BOG is indicated, we continue to be open
Speaker 4: to the prospect of another calibrated hike later in the
Speaker 4: year if conditions so allow. And I think confidence doesn't
Speaker 4: cave particularly household confidences is not so great. But yes,
Speaker 4: We never thought that, you know, terminal rate was going
Speaker 4: to be significantly higher than where it is now. Fifty
Speaker 4: basis points seems comfortable for terminal rate that's met, you know,
Speaker 4: that's that's approached, that has a longer approach, not just
Speaker 4: a six month or three month approach, but at one
Speaker 4: percent rate, I think is a stretch, particularly given the
Speaker 4: uncertainty we are heading into end of the year. In
Speaker 4: twenty twenty five.
Speaker 2: It's amazing because we just had one disappointing jobs report
Speaker 2: that kind of created the shearing. I mean, we were
Speaker 2: clearly at some level of a critical critical state here
Speaker 2: in markets globally, and it didn't take much to precipitate that.
Speaker 2: Do you worry that that central bankers broadly are not
Speaker 2: monitoring the situation well enough?
Speaker 4: I want to be fair to the central bankers where
Speaker 4: I'm fully cognizant of them hanging on to the type
Speaker 4: one mistake that they made being too slow to move
Speaker 4: on inflation that was there and appro problem, and necessarily
Speaker 4: that also means they're getting into the type two mistake,
Speaker 4: clinging onto inflation being the boogeyman in the room when
Speaker 4: the balance of risks are shifting where they stand right now.
Speaker 4: I think the tricky part is what higher for longer
Speaker 4: ought to mean. And to the argument, so to use uh,
Speaker 4: you know, Governor Bowman's point, she said, look, inflation is
Speaker 4: still a problem, sticky, so on and so forth. We
Speaker 4: fully take that point, but you know, the bigger picture
Speaker 4: here is, but does it really warrant a five and
Speaker 4: a half percent rate at a time when job losses
Speaker 4: are are starting to seep through, even if you're not
Speaker 4: in you know, full retrenchment mode. The problem is, this
Speaker 4: is a legging beast and like a huge vessel, is
Speaker 4: very quick, hard to turn directions of of the you know,
Speaker 4: the job market, and usually it's a little too late
Speaker 4: when when we see those signs. So that's where I
Speaker 4: think the FED has signal a lot more restraint than
Speaker 4: it probably ought to leave in the system over the
Speaker 4: next six to twelve.
Speaker 2: Months, unless they're just unwilling to say the quiet part
Speaker 2: out loud, which is that there is, well, financial conditions
Speaker 2: are pretty relaxed right now. There are easy financial conditions
Speaker 2: to be concerned about. Is that a fair statement.
Speaker 4: That's a fistatement And in fact, I'm glad you brought
Speaker 4: that up. So the liquidity in the system, how risk
Speaker 4: is priced, where equities are All that point to really
Speaker 4: easy financial conditions. There is always a sense in monitoring
Speaker 4: three aspects of policy separately. One is the policy itself,
Speaker 4: so that's the rates, and then monetary conditions, which is
Speaker 4: where exchange rates are and the rates are, and then
Speaker 4: financial conditions, the overall thing, the overall situation in the markets.
Speaker 4: The trouble with today's market is why it's getting hard
Speaker 4: to read this because increasingly there's a greater divergence between
Speaker 4: the very core policy conditions versus the overall financial conditions,
Speaker 4: which means a lot of the reaction function comes from
Speaker 4: sudden swings in markets, and the high correlation between asset
Speaker 4: classes means that financial conditions can really turn on a dime,
Speaker 4: and that's not a healthy position to be in.
Speaker 2: We'll leave their Vishnu. It's always a pleasure. Thank you
Speaker 2: so much for making time to chat with a vision Overarathan,
Speaker 2: head of Economics and Strategy at Misohobank, joining us from
Speaker 2: the Lion City of Singapore. Here on day break Asia.
Speaker 2: Eric Lynch is with us, Managing director of SCHARF Investments,
Speaker 2: joining from Los Coados, California. Eric thank you for being
Speaker 2: with us. You're a stone's throw from Silicon Valley. Are
Speaker 2: people a little nervous about this AI trade right now?
Speaker 5: I think so. Obviously tech has had a wonderful run
Speaker 5: for really ever since the financial crisis ended, and you know,
Speaker 5: you had the AI Can we give us some extra
Speaker 5: legs post pandemic? So you know, to have this kind
Speaker 5: of underperformance both in July and now actually one third
Speaker 5: through August, it's been something that market has the things
Speaker 5: for a very long time.
Speaker 2: So to what do you attribute that to?
Speaker 5: It?
Speaker 2: Was it the comment that we had from Sundar Pachai
Speaker 2: over at Alphabet Is it the Microsoft report that kind
Speaker 2: of creates this apprehension?
Speaker 5: Yeah, it's a good question.
Speaker 3: You know.
Speaker 5: I think there's a couple of things going on, Doug.
Speaker 5: I think one is you've got, you know, a couple
Speaker 5: hundred billion dollars of some odd estimated investment in terms
Speaker 5: of Cathex and the AI kind of data center, and
Speaker 5: today now even though it's only been less than a
Speaker 5: couple of years, you've got very little revenue to show
Speaker 5: for that. But that's not such an issue. The issue
Speaker 5: is that there's not a lot of clear visibility. So
Speaker 5: if you look at the Q two earn your results,
Speaker 5: there was a very clear kind of pattern. The one stock,
Speaker 5: the one company that reported kind of lesser CAPEX and
Speaker 5: could have been reported but yet revenues kind of outperformed,
Speaker 5: was Meta. The rest of the Max seven kind of underperformed.
Speaker 5: Vias to be the business outperforming expectations as well as
Speaker 5: CAPEC still being pretty significant boilth in this quarter and
Speaker 5: go forward. So I think it's showing you that investors
Speaker 5: are kind of nervous about the AI returns. But the
Speaker 5: other issue, Doug, which is actually really huge positive, is
Speaker 5: that Q two on the earning season, we're ninety percent through.
Speaker 5: This is the first really solid year of year growth
Speaker 5: we've seen in several quarters. We're tracking for eleven percent
Speaker 5: for the SP five hundred. That's off of you zero
Speaker 5: to negatives and twenty three. And what's awesome about it
Speaker 5: is that it's broadening out recent quarters. Max seven responsible
Speaker 5: for over one hundred percent of EPs growth this quarter.
Speaker 5: It's there's a lot of things that are growing. Financial
Speaker 5: sectors on track to grow eighteen percent year every year,
Speaker 5: healthcare seventeen percent, Infotech is just barely ahead at nineteen.
Speaker 5: So this is I think why you're seeing some of
Speaker 5: the broadening out of returns because investors are realized that, hey,
Speaker 5: maybe don't have a way for the AI trade to work.
Speaker 5: There's other stuff that's available.
Speaker 2: Maybe it's a little ironic because now on the macro
Speaker 2: level we're getting indications of economic slowing.
Speaker 5: Yeah, that is interesting, and I'm glad you brought that
Speaker 5: up though, because if you look at kind of what
Speaker 5: happened in July, everything outperformed tech, everything up form the
Speaker 5: Max seven, whether it's financials or it was small caps
Speaker 5: and value, it's more nuanced. Right in August once we
Speaker 5: had these kind of blips with some macro data, and
Speaker 5: so what's really outperforming now are still a lot of
Speaker 5: different sectors Visa the tech Tech is down six percent
Speaker 5: at a sectral level month today, but staples are up
Speaker 5: one point seven, real estates at one point six, Utilities
Speaker 5: and healthcare also up. So I think what that's showing
Speaker 5: is investors still worried about the tech trade. They still
Speaker 5: think that their earnings are converging, but the same time
Speaker 5: they've got their eyes out on wow, what if we
Speaker 5: don't have a soft landing. Perhaps we should be looking
Speaker 5: at some of these laggards of twenty three and year
Speaker 5: to date twenty four and put some bets there.
Speaker 2: So, speaking of putting your bets in the market right now,
Speaker 2: I'm imagining that the expectations for a lot in the
Speaker 2: way of fed accommodation here that they begin cut or
Speaker 2: it begins cutting interest rates. Uh, maybe as soon as September.
Speaker 2: Is that a part of your thesis a reason to
Speaker 2: be bullish on equities?
Speaker 5: Yes, I think clearly, you know, any type of monetary
Speaker 5: kind of help is appreciated, right for investors. We're still
Speaker 5: sitting on these you know, historically in recent times higher
Speaker 5: rates and certainly slowing down the housing market. Certainly some
Speaker 5: lower rates would help certain areas more than others. And
Speaker 5: so yeah, that's that's that's part of it. I think
Speaker 5: the real part of it, though, and the optimism is
Speaker 5: that you're you're finally getting this broad based or earnings uptick.
Speaker 5: You know, eleven percent earnings grow for Q two just
Speaker 5: a couple of quarters ago, Doug, we're kind of sitting
Speaker 5: around three or four is pretty subs substantive. And what's
Speaker 5: nice is that you're also seeing profit margins up. You know,
Speaker 5: profit margins are tracking for twelve point two in the
Speaker 5: SMP for Q two earning season, and that's notably higher
Speaker 5: than where we were in Q one, and also, you know,
Speaker 5: much higher than where we were a year ago. And
Speaker 5: you know, kind of perhaps corely with that is you
Speaker 5: had a strong productivity improvement both in Q two as
Speaker 5: well in five of the last seven quarters. You know,
Speaker 5: we've got us productivity and are growing two point seven
Speaker 5: percent year of a year in Q two and that
Speaker 5: kind of two percent plus August something we haven't seen
Speaker 5: since kind of the post tech bubble of the knots.
Speaker 2: So Vice President Kamala Harris is going to be in
Speaker 2: San Francisco for a fundraiser. She's leading in a number
Speaker 2: of the polls. Talk to me very quickly, Eric about
Speaker 2: regulatory risk of a Harris Walls victory. I mean, are
Speaker 2: you concerned about the way in which big tech could
Speaker 2: be impacted by such a thing.
Speaker 5: That's a great question. Uh, yeah, clearly, there's probably more risk.
Speaker 5: But at the same time, based on you know, based
Speaker 5: on the rhetoric. Uh, at the same time, you know,
Speaker 5: both parties are kind of intriguingly and probably not great
Speaker 5: for business. Big business and public equities are kind of
Speaker 5: converging on certain points, whether it's you know, kind of
Speaker 5: anti capitalists kind of tariff rhetoric, or it's kind of
Speaker 5: anti tech rhetoric they're saying kind of the same things
Speaker 5: word we're different, or or also you know, kind of
Speaker 5: underwriting uh, exceptionally high kind of federal deficits which long
Speaker 5: term should be inflationary and crowd out private investment. So
Speaker 5: both parties are kind of subscribing to this new normal
Speaker 5: of a policy framework, which is exactly great now that
Speaker 5: the benefit of the Trump campaigns are they're kind of
Speaker 5: advocating an extension of the tax eric.
Speaker 2: Pleasure or as always, we'll leave it there. Eric Lynch
Speaker 2: from Sharp Investments joining us here on a daybreak aship.
Speaker 2: Louis Nevalier joins us. Louis is a founder also chairman
Speaker 2: of the Navalier Associates, joining us from Florida. Louis, it
Speaker 2: is always a pleasure before we get into technology, I'm
Speaker 2: sure you have a lot to say on that front.
Speaker 2: Let's talk about the volatility last week and the underpinnings
Speaker 2: of that seem to be an unwind of the yen
Speaker 2: carried trade. I'm just going to shoot right here and
Speaker 2: ask whether you think most of this unwind is behind
Speaker 2: us now.
Speaker 6: Yeah, it looks like about seventy five percent is Obviously,
Speaker 6: we need Japan to open up a firm like they
Speaker 6: did since Tuesday, and because you know, if Japan opens
Speaker 6: all week, we're going to gap down as well. But
Speaker 6: bonnields firmed up quite a bit last week the treasury auctions,
Speaker 6: and some of them didn't go that well. So it's
Speaker 6: just a sign that you can't get yields too low
Speaker 6: too fast because the market won't buy the bonds. So
Speaker 6: I think we found equilibrium here. A lot of the
Speaker 6: carry trade to risk has dissipated, but we're still in August.
Speaker 6: We still have air pockets and you know, most of
Speaker 6: my Wall Street friends aren't in at their offices and
Speaker 6: will not be until after Labor Day.
Speaker 2: Air pockets. Talk to me about what you see right
Speaker 2: now in markets? Where are the risks?
Speaker 6: Well, I think the best way to explain air pockets
Speaker 6: is August of twenty fifteen, we had one day there
Speaker 6: where some circuit breakers were hit, and what happened is
Speaker 6: some stocks can open, but the ETFs opened, but they
Speaker 6: couldn't price the ETFs because the stocks were open. So
Speaker 6: a lot of ETFs went down immediately, almost thirty five
Speaker 6: percent at the opening, stayed there for over ninety minutes.
Speaker 6: At the end of the day, prices were largely changed.
Speaker 6: So that's the risk of August. I recommend a lot
Speaker 6: of small cap stocks. Obviously we're static with a small
Speaker 6: cap or rally. But you know, when I look at
Speaker 6: my best small cap stock, something like our Powell Industries,
Speaker 6: you know, it's a bunny stock. It sits at hops,
Speaker 6: it sits at hops, and people have to realize when
Speaker 6: they go in the small cap arena that's what they're
Speaker 6: going to get. I think the liquid will be a
Speaker 6: lot better if we get in early January. Fact in November,
Speaker 6: just before Thanksgiving. We want to get all our distractions
Speaker 6: out of the way. Clearly, we want to get their
Speaker 6: election out of the way. We want to get the
Speaker 6: FED cutting rates, and then we want to, you know,
Speaker 6: have optimism for the future.
Speaker 2: Do you think there's still too much leverage in the system.
Speaker 2: I mean putting the end carried trade aside. I mean
Speaker 2: the FED in its balance sheet, Global central banks, their
Speaker 2: balance sheets are still very very large by historical standards.
Speaker 2: Is there still too much liquidity?
Speaker 6: No, but there is leverage. And that's a very good
Speaker 6: point you brought up. Your average financial advisor doesn't sell stocks,
Speaker 6: They sell leveraged debt, and it yields about eleven percent,
Speaker 6: And you've got these little exit windows. And because it's
Speaker 6: a very popular seller, and because the exit is restricted,
Speaker 6: I worry that if something goes bad in that arena.
Speaker 5: Uh.
Speaker 6: You know, this is a two trillion dollar ar industry,
Speaker 6: up from about four hundred and thirty eight a billion
Speaker 6: a decade ago. But I worry if something bad happens there,
Speaker 6: it'll be a minibox swan event and the whole market
Speaker 6: will freeze up, and then that will definitely cause the
Speaker 6: FED to cut. Because you we've become like China. We
Speaker 6: have our we have two tiers of lending in America,
Speaker 6: the banks if you have a perfect credit score, and
Speaker 6: then private credit if you're less than optimal.
Speaker 2: Were you seeing AI right now? I mean there was
Speaker 2: a big unwind obviously as a part of that and
Speaker 2: carry trade unwind. We saw megacap tech very hard hit.
Speaker 2: I mean, how are you still positive here?
Speaker 3: Yeah?
Speaker 6: I'm still in the camp that eighty percent of your
Speaker 6: AI investments should be Navidian super micro Obviously super Micro missed,
Speaker 6: but they guide it higher and they started one hundred
Speaker 6: and forty three percent sales growth. Uh, there seems to
Speaker 6: be some sort of delay with the Blackwell chip from
Speaker 6: the video. Whether it was quality control or wise another matter,
Speaker 6: but the video's incredible sales have come from their previous ships,
Speaker 6: and Blackwell's only going to make it grow faster. So
Speaker 6: the video is lock and load.
Speaker 3: Now.
Speaker 6: You know, super Micro's only eleven times forecast at earnings,
Speaker 6: so it's very fairly priced.
Speaker 2: We're going to get earnings from Nvidia at the end
Speaker 2: of the month, I think on the twenty eighth, after
Speaker 2: the bell, which will make the next day in the
Speaker 2: cash market very very interesting. Are you expecting a big
Speaker 2: beat here? What's your sense? And if there's disappointment, what happens.
Speaker 6: Well, the video will be the grand finale regardless of
Speaker 6: what happens. They have an incredible history of beating I
Speaker 6: think Jensen is one of the few founders that can
Speaker 6: actually run his company. You know, most of these tech
Speaker 6: founders have to be replaced by professional management. And I
Speaker 6: have nothing but the highest respect and hope for him.
Speaker 6: But yeah, if you want regenerat of AI chips, in
Speaker 6: the videos of the Big Game.
Speaker 2: If you mentioned super micro and video, I mean, is
Speaker 2: that the only way to play it right now?
Speaker 6: Yeah, that's the hardware side. Obviously, you can buy Microsoft
Speaker 6: and get regetitive AI with chat GTPT. Obviously, there are
Speaker 6: a lot of low tech AI chips coming out AMDs
Speaker 6: trying to catch up.
Speaker 1: You know.
Speaker 6: I have a friend in Boise, Idaho that's building low
Speaker 6: tech AI chips for Samson. It's basically like a super Alexa.
Speaker 6: The chip tries to figure out who you are. It's
Speaker 6: no different than our pets condition us at home, and
Speaker 6: that's that's It's just that will he consumer electronics things
Speaker 6: that will try to learn and understand us better.
Speaker 2: What about playing in Nvidia through TSMC? Is that advisable
Speaker 2: in your view?
Speaker 6: You could, But you know, I like to see tm
Speaker 6: SC's plant in Arizona startup. You know, that's that's a
Speaker 6: big question mark. I mean, I suspect they're gonna have
Speaker 6: to move a whole bunch of Taiwanese to Arizona to
Speaker 6: get it going. You know, It's funny. I have a
Speaker 6: lot of friends at the Tesla plant and Reno and
Speaker 6: they work on the Panasonic side of the battery side,
Speaker 6: and there's plenty of Japanese from Panasonic and Reno too.
Speaker 6: In fact, the kids are pretty good at baseball, so
Speaker 6: I suspect as soon as Taiwan wants to get some
Speaker 6: engineers to move to Arizona, I think it will run
Speaker 6: a lot better.
Speaker 2: Interesting, Louis, it's always a pleasure. Thanks for making time
Speaker 2: to chat with us, Louis Nevali or founder chairman Nevalier Associates,
Speaker 2: joining from Florida. This has been the Bloomberg Daybreak Asia podcast,
Speaker 2: bringing you the stories making news and moving markets in
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