WEBVTT - China, EU EV Tariff Talks, Markets Lookahead 0:00:02.480 --> 0:00:10.480 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:10.520 --> 0:00:13.720 Daybreak Aisia podcast. I'm Doug Prisner. You can join Brian 0:00:13.800 --> 0:00:16.640 Curtis and myself for the stories making news and moving 0:00:16.680 --> 0:00:19.560 markets in the Apec region. You can subscribe to the 0:00:19.600 --> 0:00:23.080 show anywhere you get your podcast and always on Bloomberg Radio, 0:00:23.320 --> 0:00:26.120 the Bloomberg Terminal, and the Bloomberg Business app. 0:00:27.080 --> 0:00:29.960 One of the stories we've been featuring this morning China 0:00:30.040 --> 0:00:33.280 and the European Union agreeing to start talks on electric 0:00:33.400 --> 0:00:36.760 vehicle tariffs and joining us now in our studios for 0:00:36.920 --> 0:00:40.720 more discussion on this is mid Min Low, Bloomberg China correspondent. 0:00:41.520 --> 0:00:44.280 So this is pretty interesting. We had these very high 0:00:44.360 --> 0:00:46.879 levees as high as forty eight percent on evs that 0:00:46.920 --> 0:00:50.920 have been slapped on Chinese cars going that direction, Minmn, 0:00:51.680 --> 0:00:55.080 and we had Germany's Vice Chancellor Robert Habeck there saying 0:00:55.120 --> 0:00:57.880 this is a first step, but it's a first step 0:00:58.160 --> 0:01:01.760 in an area where the wreknows steps before, so he's 0:01:01.920 --> 0:01:04.600 he's leaning optimistic, but then he says it will require 0:01:04.800 --> 0:01:05.600 many steps. 0:01:05.800 --> 0:01:06.520 Tell us what you know? 0:01:07.319 --> 0:01:09.680 Yeah, I would say it's been a lot of push 0:01:09.760 --> 0:01:13.040 and pull in this dynamic between German, Germany and China 0:01:13.160 --> 0:01:16.880 during the German minister's trip to China, because I mean, 0:01:16.959 --> 0:01:19.240 first of all, well, let's talk about that the EU 0:01:19.400 --> 0:01:21.600 China talks us. Then we'll go to the German ministers later. 0:01:21.959 --> 0:01:26.200 But the German the EU China talk. The Chinese Commerce 0:01:26.240 --> 0:01:29.600 Minister had a video conference call with his EU trade 0:01:29.600 --> 0:01:35.440 counterpart over on Saturday, and the EC spokesperson said that 0:01:35.520 --> 0:01:38.679 the talk was candid and substantive. He said that they 0:01:38.720 --> 0:01:41.480 will continue talks at all levels in the coming weeks, 0:01:41.520 --> 0:01:45.840 but that any negotiated outcome must address what he calls 0:01:45.840 --> 0:01:50.400 injurious subsidization. And again this is what the German ministers 0:01:50.400 --> 0:01:54.320 were in China. For the Vice Chancellor, there was very 0:01:54.440 --> 0:01:57.800 you know, he's been repeatedly emphasizing that these tariffs are 0:01:57.800 --> 0:02:00.040 not meant to be punitive in nature. It's meant to 0:02:00.040 --> 0:02:04.040 compensate for these unfair advantages that China's ev makers get. 0:02:04.320 --> 0:02:06.639 It seems like, I mean, I get the subsidy angle, 0:02:06.680 --> 0:02:08.919 but the fact remains that China at this point seems 0:02:08.960 --> 0:02:11.280 to have a lot of excess capacity in a number 0:02:11.320 --> 0:02:15.720 of industries, and lower cost products are being exported to 0:02:15.840 --> 0:02:20.440 countries let's say in the European Union, which directly threatening 0:02:20.639 --> 0:02:26.480 Brian mentioned Germany. The automobile industry in Germany, right, that's right. 0:02:26.320 --> 0:02:29.640 So Germany is the largest automaker in China, and we 0:02:29.680 --> 0:02:32.239 know that over the past five years, in fact, China's 0:02:32.360 --> 0:02:37.160 imports of German cars had nearly halved as their domestic 0:02:37.200 --> 0:02:40.160 makers really you know, pick up market share in the 0:02:40.200 --> 0:02:43.320 domestic market. And yes, you're right, there has been this 0:02:43.400 --> 0:02:46.519 build up of overcapacity, which is why the overseas market 0:02:46.560 --> 0:02:48.960 is really important for China because that's where these ev 0:02:49.120 --> 0:02:52.840 makers get higher profit margin, and now they're being squeezed 0:02:52.919 --> 0:02:56.000 when it comes to profits with these huge terriers that 0:02:56.040 --> 0:02:59.360 are being slept on China. But some analysts are saying 0:02:59.360 --> 0:03:02.760 that maybe the final outcome is not about you know, 0:03:02.880 --> 0:03:05.840 just removing these tariffs altogether, but eventually to get perhaps 0:03:05.880 --> 0:03:09.320 some Chinese companies to invest in Europe, to pay European 0:03:09.360 --> 0:03:13.840 wages to European workers, that could perhaps you know, lesson 0:03:13.919 --> 0:03:17.920 that kind of cost advantage that Chinese makers get and 0:03:18.000 --> 0:03:21.040 also reduce the threat of taking away jobs from Europeans. 0:03:21.360 --> 0:03:24.320 So there is room for negotiation. There's a lot of 0:03:24.520 --> 0:03:27.440 scope here to find ways to try to make it 0:03:27.520 --> 0:03:30.959 work because obviously the two sides feel as though they 0:03:31.120 --> 0:03:34.720 want and need each other. But it's interesting that there's 0:03:34.720 --> 0:03:38.480 no timetable on this. Is that just you know, just 0:03:38.480 --> 0:03:41.560 a technical thing and it'll get worked out well. 0:03:42.160 --> 0:03:44.080 So we're about one and a half weeks away from 0:03:44.200 --> 0:03:47.040 July fourth, which is when the provisional terrorists will take effect, 0:03:47.080 --> 0:03:50.200 so it's highly unlikely that any outcome will come out 0:03:50.240 --> 0:03:54.240 before that. But again, this July fourth tariffs are provisional. 0:03:54.360 --> 0:03:57.760 The finer tariff reads will be decided in November. It 0:03:57.800 --> 0:04:00.000 has to be backed by the majority of EU members, 0:04:00.040 --> 0:04:03.720 so China has this window until November to convince the 0:04:03.720 --> 0:04:07.080 majority of EU members it needs to. In fact, it 0:04:07.160 --> 0:04:11.960 requires EU members support that represents sixty five percent of 0:04:12.000 --> 0:04:14.640 the EU population. So China has been very strategic here 0:04:14.680 --> 0:04:19.320 because the top foremost populous countries are France, Germany, Italy 0:04:19.560 --> 0:04:22.200 and Spain. So when you look at their terriffs, their 0:04:22.200 --> 0:04:25.880 investigations into these empty dumping you know areas. They have 0:04:25.960 --> 0:04:28.960 looked at pork, which targets Spain, They've looked at brandy, 0:04:29.000 --> 0:04:32.640 which targets France. They've hinted at twenty five percent tariffs 0:04:32.640 --> 0:04:35.880 at vehicles with large engines, which really targets Germany and 0:04:35.920 --> 0:04:40.040 Italy because Italy sells these luxury sports cars. You're Ferraris 0:04:40.120 --> 0:04:43.200 Lamborghinis to China as well. So very strategic here. 0:04:43.640 --> 0:04:46.320 I'm wondering whether or not we need to recognize the 0:04:46.360 --> 0:04:48.680 political winds in Europe and how they seem to be 0:04:48.720 --> 0:04:53.320 shifting and the risk that we get perhaps no compromise, 0:04:53.520 --> 0:04:56.760 that there is a firm line drawn and it results 0:04:56.760 --> 0:04:58.320 in some type of trade war. 0:04:59.640 --> 0:05:03.040 Yeah, that risk is getting higher with the EU elections 0:05:03.040 --> 0:05:05.440 and you see the rights of these right leaning parties 0:05:05.440 --> 0:05:08.640 getting into the parliament. And again, as I said, we 0:05:08.680 --> 0:05:11.400 saw very mixed signals coming out of the German minister's 0:05:11.440 --> 0:05:14.920 trip to China, because you would expect someone of the 0:05:15.000 --> 0:05:17.960 vice chancellor's rank to meet with someone of a similar 0:05:18.000 --> 0:05:19.920 rank in China, and that would be premierly to Young, 0:05:19.960 --> 0:05:21.960 who is the number two men in China. But that 0:05:22.000 --> 0:05:25.400 meeting didn't happen. Habak himself said that he didn't know 0:05:25.440 --> 0:05:27.480 why that didn't work out, but he got to meet 0:05:27.480 --> 0:05:30.680 with other Chinese officials though, including the Commerce Minister, the 0:05:30.720 --> 0:05:34.400 head of the NDRC, which is China's macroeconomic planner. And again, 0:05:34.600 --> 0:05:36.919 as I said, that push pull dynamic, where you have Chinese, 0:05:37.040 --> 0:05:40.000 the Chinese side saying, yes, we're willing to get Chinese 0:05:40.080 --> 0:05:43.320 companies to tap the German market. But Germany, you have 0:05:43.360 --> 0:05:45.640 to step up your leadership here and get the EU 0:05:45.680 --> 0:05:48.279 to quote correct it's wrong. And then you have the 0:05:48.320 --> 0:05:52.320 German Vice Chancellor also managing expectations, saying that this conflict 0:05:52.360 --> 0:05:54.400 will not be resolved in his trip here and he 0:05:54.480 --> 0:05:56.880 cannot negotiate on behalf of the EU as well. 0:05:57.680 --> 0:06:01.880 So many philosophical differences between the two sides. You wonder 0:06:02.160 --> 0:06:04.720 how much can actually be agreed to. Miend men out 0:06:04.720 --> 0:06:07.720 of time unfortunately, but thank you for coming into our studios. 0:06:07.760 --> 0:06:11.560 Midmen Low Bloomberg, China correspondent looking more closely here at 0:06:11.640 --> 0:06:14.480 China and the European Union, and I guess a little 0:06:14.480 --> 0:06:18.839 bit of faith here agreeing to start talks on EVY tariffs. 0:06:25.520 --> 0:06:28.600 Thomas Tadd joins us in our studios at a APAC 0:06:28.760 --> 0:06:33.360 investment strategy at Blackrock. Thomas, thanks very much for traversing 0:06:34.000 --> 0:06:36.440 the traffic and coming into our studios with us. We 0:06:36.520 --> 0:06:39.479 do appreciate it. So it seems like most people, a 0:06:39.520 --> 0:06:45.520 lot of people are basically long US equity, we seem 0:06:45.600 --> 0:06:47.240 like we might be seeing a little bit of a 0:06:47.279 --> 0:06:51.799 selloff here in some of the big momentum plays, particularly AI. 0:06:52.240 --> 0:06:53.960 But one of the things that this market has shown 0:06:54.040 --> 0:06:57.240 us of late is that it has been absorbing some 0:06:57.279 --> 0:07:00.520 of these hits. I've been able to let some of 0:07:00.279 --> 0:07:04.000 the gas out without having the broader market go into 0:07:04.040 --> 0:07:06.520 a really big downturn. We had a little bit, maybe 0:07:06.720 --> 0:07:10.400 five and a half percent down run in April. In 0:07:10.440 --> 0:07:14.320 any case, if one is looking to diversify here, are 0:07:14.360 --> 0:07:16.560 there ways to do it? Or would you switch out 0:07:16.560 --> 0:07:18.840 of US equities and find an overweight elsewhere? 0:07:19.440 --> 0:07:22.320 Yeah, morning, I guess I have no excuse to traverse 0:07:22.360 --> 0:07:23.680 because our offices are about. 0:07:23.440 --> 0:07:24.800 Twenty meters away from each other. 0:07:24.880 --> 0:07:29.000 But yeah, in terms of the US equity market rally, 0:07:29.920 --> 0:07:32.880 time for a breather. It looks like when you talk 0:07:32.920 --> 0:07:40.400 about broader market, small cap, some of the laggard sectors utilities, financials, energy, 0:07:40.600 --> 0:07:42.920 I mean, it's it's obviously important to note that we 0:07:43.000 --> 0:07:45.960 have not seen anywhere near the rally that we've seen 0:07:46.640 --> 0:07:52.240 in large mega mega cap tech, tech and quality, and 0:07:52.320 --> 0:07:54.440 so you know, there's a couple of different scenarios here. 0:07:54.480 --> 0:07:57.280 One is the underlying data in the US starts to 0:07:57.320 --> 0:07:59.240 deteriorate a little bit. We're seeing a little bit of 0:07:59.240 --> 0:08:02.120 that on the margin in terms of housing, housing starts, 0:08:02.880 --> 0:08:07.360 consumer retail numbers, et cetera. Or the US economy continues 0:08:07.360 --> 0:08:09.680 to power on and we start to see a broadening 0:08:09.760 --> 0:08:12.840 out of the US equity rally. So either way, I think, 0:08:12.920 --> 0:08:15.800 you know, now is probably a good time to look 0:08:15.840 --> 0:08:18.920 at diversification and broadening out into some sectors. I think 0:08:19.280 --> 0:08:21.760 most investors will be doing that through kind of a 0:08:21.800 --> 0:08:25.120 factor lens, so continuing to look at quality type of 0:08:25.120 --> 0:08:28.200 companies with strong balance sheets, and then other investors will 0:08:28.240 --> 0:08:30.440 look at sector rotations. And as I mentioned that the 0:08:30.480 --> 0:08:32.679 sectors before are the ones that I think most investors 0:08:32.720 --> 0:08:37.880 are looking at, financials, energy, utilities, consumer staples to some extent. 0:08:37.960 --> 0:08:41.800 And then globally, you know, investors are are still looking 0:08:41.800 --> 0:08:44.640 at really Japan and India. I know there's a lot 0:08:44.640 --> 0:08:46.920 of debate about both of those markets and the valuations 0:08:46.920 --> 0:08:48.840 there and the boj and central banks. 0:08:48.520 --> 0:08:48.880 Et cetera. 0:08:49.720 --> 0:08:53.040 But and then also em X China has been a huge, 0:08:53.520 --> 0:08:58.600 huge beneficiary of the em trade, and how investors tactically 0:08:58.720 --> 0:09:00.840 rotate around China is going to be interesting to watch US. 0:09:01.000 --> 0:09:04.160 So you sketched out two different scenarios very briefly in 0:09:04.240 --> 0:09:06.320 terms of where the US might be headed. Do you 0:09:06.360 --> 0:09:10.200 have a degree of confidence in the tie in one 0:09:10.320 --> 0:09:12.079 particularly well? 0:09:12.120 --> 0:09:15.960 I think you know, the underlying economy is certainly one thing. 0:09:16.080 --> 0:09:19.280 I think investors tend to underestimate how long it takes 0:09:19.320 --> 0:09:22.360 for higher rates to trickle down into the underlying economy 0:09:22.360 --> 0:09:25.680 and for consumers to actually be able to grasp that 0:09:25.760 --> 0:09:29.720 and essentially stop or slow down in spending. And then 0:09:29.760 --> 0:09:32.800 the other thing to mention is, you know, in terms 0:09:32.800 --> 0:09:35.000 of the earnings growth, you know clearly that's been very 0:09:35.080 --> 0:09:38.600 very strong for a megacap. If you look at the valuations, 0:09:38.600 --> 0:09:41.520 they haven't risen that much, but there is a huge 0:09:41.840 --> 0:09:45.440 there's a huge emphasis on forward looking valuations. And you know, 0:09:45.480 --> 0:09:48.880 whether some of those megacap names can continue to grow 0:09:49.679 --> 0:09:52.480 at the significant rates that they have been growing, that 0:09:52.840 --> 0:09:54.720 I'm not so sure of. So I think there is 0:09:54.720 --> 0:09:56.760 a little bit of a more defensive tilt. And let's 0:09:56.760 --> 0:09:59.640 not forget obviously we are going into US election cycle 0:10:00.160 --> 0:10:03.600 pretty soon, so I think investors are looking at maybe rotation, 0:10:03.760 --> 0:10:05.040 maybe taking some profit here. 0:10:05.520 --> 0:10:09.480 So you're looking at Asia Pacific Investment Strategy. I wanted 0:10:09.520 --> 0:10:12.040 to ask you about Japan because you're right. We did 0:10:12.080 --> 0:10:13.920 run a story over the weekend. It said that foreign 0:10:13.960 --> 0:10:17.880 investors are lightning up on Japan. They're starting to worry 0:10:17.880 --> 0:10:20.760 about the weakness in the end, and they're also worried 0:10:20.760 --> 0:10:23.000 about whether or not that has an impact on the economy. 0:10:23.320 --> 0:10:26.520 A couple of a couple of houses mentioned did not 0:10:26.600 --> 0:10:29.679 include you. In fact, you were one of the examples 0:10:29.760 --> 0:10:31.520 of how you're sticking with the Japan story. 0:10:31.559 --> 0:10:34.080 Why yeah, well, I think you know, versus some of 0:10:34.640 --> 0:10:37.360 maybe some of the investment banks analysts, we're much more 0:10:37.679 --> 0:10:40.800 longer term strategic asset allocation, and so, you know, I 0:10:40.800 --> 0:10:43.720 think it's also important to clarify. A couple of months ago, 0:10:43.760 --> 0:10:46.360 we did this big piece on spotlight on Japan and 0:10:46.400 --> 0:10:49.400 how investors can play that, and the story hasn't really 0:10:49.480 --> 0:10:51.200 changed much. So one of the things we said was, 0:10:51.520 --> 0:10:54.600 in terms of the broader index rally that we've been 0:10:54.600 --> 0:10:57.240 seeing over the last year year and a half, that 0:10:57.720 --> 0:11:00.120 first leg of the structurable market could be coming to 0:11:00.160 --> 0:11:02.520 an end. And that basically means, you know, the way 0:11:02.559 --> 0:11:06.160 that investors move into Japan using just broad index funds 0:11:06.240 --> 0:11:08.360 to get any kind of exposure in n K two 0:11:08.400 --> 0:11:12.959 two five topics, et cetera. That structural leg of the bullmarket, 0:11:13.000 --> 0:11:15.600 Phase one was kind of coming to an end, and 0:11:15.640 --> 0:11:19.000 now I think we're in a period of relative calm, 0:11:19.040 --> 0:11:21.679 trading range investors trying to digest what the boj are 0:11:21.679 --> 0:11:23.240 going to do and what the impact of rates are 0:11:23.240 --> 0:11:23.760 going to be, etc. 0:11:24.000 --> 0:11:24.200 Etc. 0:11:24.840 --> 0:11:27.200 And I think phase two and again this hasn't really changed, 0:11:27.200 --> 0:11:29.040 but investors need to be a little bit more tactical 0:11:29.080 --> 0:11:31.520 and granular on Japan because not everything is going to 0:11:31.559 --> 0:11:33.640 keep going up like it has been going up, so 0:11:34.120 --> 0:11:37.800 looking at active funds, value funds, high dividend type of exposures. 0:11:38.080 --> 0:11:40.040 And also the final thing on Japan is, you know, 0:11:40.080 --> 0:11:42.040 I think it makes a lot of sense for investors 0:11:42.080 --> 0:11:45.640 to close underweights there because you know, even if it 0:11:45.640 --> 0:11:48.160 doesn't continue to go up as it has been going up, 0:11:48.400 --> 0:11:51.319 it offers diversification because it's a value driven market and 0:11:51.679 --> 0:11:54.200 investors have so much growth in their portfolio at the moment. 0:11:54.480 --> 0:11:58.640 Given the enthusiasm that has finally taken hold domestically, I'm 0:11:58.679 --> 0:12:01.760 wondering if this market to get rattled in a significant way, 0:12:01.840 --> 0:12:05.200 how SENDEMA just is undermined to such a degree that 0:12:05.240 --> 0:12:08.559 there's really a big setback as a result in terms 0:12:08.559 --> 0:12:11.000 of psychology. Yeah, well, I. 0:12:10.960 --> 0:12:13.720 Mean, let's not forget that. You know, retail investors have 0:12:13.840 --> 0:12:17.640 not really participated that much in the equity, the Japanese 0:12:17.679 --> 0:12:20.520 equity rally over the last couple of years. You know, 0:12:20.559 --> 0:12:23.520 we're still seeing around seven trillion US dollars sitting on 0:12:23.559 --> 0:12:27.400 the sidelines. Yes, there has been more participation in programs 0:12:27.400 --> 0:12:32.240 like NISSA, but it's quite marginal. Inflation is going up, 0:12:32.320 --> 0:12:34.960 you know that there is There are some areas where 0:12:34.960 --> 0:12:37.280 investors are concerned that maybe it's not going up like 0:12:37.320 --> 0:12:40.120 the boj would like it to go up. But you know, 0:12:40.160 --> 0:12:43.719 the equity market has rally, inflation is going up, and 0:12:43.760 --> 0:12:47.160 you have these programs that are incentivizing investors to move 0:12:47.240 --> 0:12:49.920 into equity market. So I think that's really just starting, 0:12:49.920 --> 0:12:54.200 and I think the domestic investors will be part of that, 0:12:54.280 --> 0:12:56.679 if not the majority of that second leg of the 0:12:56.720 --> 0:12:57.680 structural bull market. 0:12:57.679 --> 0:13:00.760 There all right, Thomas, out of time, unfortunately, Thank you 0:13:00.880 --> 0:13:03.559 very much for joining us here in our studios. Thomas Ta, 0:13:03.640 --> 0:13:15.280 Head of APAC Investment Strategy at black Rock. Steve Sosnik, 0:13:15.600 --> 0:13:19.480 chief strategist at Interactive Brokers, Steve, thank you for joining 0:13:19.559 --> 0:13:22.800 us on an early Monday morning in Asia, late Sunday 0:13:22.880 --> 0:13:25.959 for you in the United States. We can talk a 0:13:26.000 --> 0:13:27.960 little bit about how the triple which didn't seem to 0:13:28.000 --> 0:13:30.160 deliver as much volatility as we thought. But I thought 0:13:30.240 --> 0:13:32.599 maybe first we could go to as I mentioned a 0:13:32.640 --> 0:13:36.760 few moments to GOO, Japan's currency chief Masato Conda, threatening 0:13:36.800 --> 0:13:40.640 to intervene in the market. We have seen quite steady 0:13:40.720 --> 0:13:44.640 and quite fast weakening in the Jena late A warning 0:13:44.720 --> 0:13:45.920 like this, does it make a difference? 0:13:46.960 --> 0:13:49.640 Hi, Brian, good morning to you. Thanks for having me. Yeah, 0:13:49.640 --> 0:13:52.120 it does make a difference. You know. I think one 0:13:52.200 --> 0:13:56.600 of the aspects when foreign and when international investors are 0:13:56.600 --> 0:14:01.160 allocating their money is the currency ability or the currency 0:14:01.320 --> 0:14:05.320 outlook for a given country. And in Japan, you know, 0:14:05.360 --> 0:14:07.920 it's tricky. You either have to you either have to 0:14:07.960 --> 0:14:10.959 consider whether you want to hedge the currency because it's 0:14:11.000 --> 0:14:13.520 an interesting problem, right because you know, stocks tend to 0:14:13.559 --> 0:14:16.440 go up when a currency weakens, but your holdings don't 0:14:16.480 --> 0:14:19.800 seem to improve if if the currency balance is balancing 0:14:19.880 --> 0:14:22.600 it out by weakening. So you've got this this issue 0:14:22.600 --> 0:14:26.840 going on, and you know, instability is another word for volatility, 0:14:26.880 --> 0:14:29.400 and that does put investors a little bit on the 0:14:29.560 --> 0:14:32.280 on their heels when it comes to making international allocations. 0:14:32.360 --> 0:14:34.800 Hey, Steve, how much of this is really a story 0:14:34.800 --> 0:14:37.360 about a strong dollar? I mean a dollar that has 0:14:37.400 --> 0:14:39.440 been so supreme it's not even funny. 0:14:40.320 --> 0:14:43.080 Well, Doug, I think some and some and I think, 0:14:43.120 --> 0:14:46.440 you know, across the scope of global currencies, it is 0:14:46.520 --> 0:14:49.680 more of a strong dollar issue. You know, remember of 0:14:49.680 --> 0:14:51.960 course that that this is one of the times where 0:14:51.960 --> 0:14:54.160 the feed is actually a bit behind its peers, where 0:14:54.200 --> 0:14:58.040 we had other central banks, uh, you know, cutting before 0:14:58.080 --> 0:15:00.880 the US did, and so so that you know, that 0:15:01.000 --> 0:15:03.840 interest rate differential, at least even the perceived interest rate 0:15:03.880 --> 0:15:07.480 differential that that might persist, is definitely strengthening the dollar. 0:15:07.840 --> 0:15:11.480 Although that said, the Japan and the end have their 0:15:11.520 --> 0:15:14.880 own unique set of circumstances, you know, regarding yield curve 0:15:14.920 --> 0:15:16.960 control and all the other stuff you've been reporting on. 0:15:18.320 --> 0:15:21.280 So let's go back to US equities because that's very 0:15:21.320 --> 0:15:25.120 much in focus as well, particularly the high flyers, and 0:15:25.280 --> 0:15:27.960 video was slammed pretty good at the end of last week. 0:15:28.200 --> 0:15:31.560 Of course, it's had you know, remarkable gains all year long. 0:15:32.280 --> 0:15:35.920 I'm curious whether or not you think that that's something 0:15:35.960 --> 0:15:39.359 that will continue here. And I want to draw comparison 0:15:39.400 --> 0:15:41.600 because when people were buying Amazon back in the days 0:15:41.600 --> 0:15:44.720 when it had no earnings, it was because of the potential, 0:15:44.960 --> 0:15:47.960 and it was because of perhaps a little bit of hope. 0:15:48.240 --> 0:15:51.160 The same thing with Tesla. But with Nvidia you actually 0:15:51.240 --> 0:15:55.520 have earnings. So it's it's a little bit trickier to 0:15:55.120 --> 0:15:59.120 to try to value the stock when it's it's out 0:15:59.120 --> 0:16:01.800 of sync. The companies growing faster than what it is 0:16:01.840 --> 0:16:04.760 predicting and what analysts are predicting. Does that add up 0:16:04.800 --> 0:16:06.160 to volatility going forward? 0:16:06.160 --> 0:16:10.000 For you, Steve in theory, it should, you know, because 0:16:10.040 --> 0:16:14.520 anytime again, you know, any sort of uncertainty does create volatility. 0:16:14.720 --> 0:16:17.520 You know, we were actually, in this case, fairly certain 0:16:17.600 --> 0:16:20.560 that this is we I mean collectively, you know, the 0:16:20.600 --> 0:16:24.640 investors as a whole seemed pretty collectively certain that this 0:16:24.840 --> 0:16:28.160 was a company that could continue to beat beat on 0:16:28.200 --> 0:16:31.440 the top line, beat on the bottom line, raise their estimates, 0:16:31.880 --> 0:16:35.040 beat the raised estimate, keep doing it and do it 0:16:35.080 --> 0:16:37.360 over and over and over again. That's why the stock 0:16:37.400 --> 0:16:40.600 has had this remarkable run. But at some point you 0:16:40.680 --> 0:16:42.400 have to figure what are the limits to all this? 0:16:42.520 --> 0:16:45.800 How much more you know, how much more AI adoption 0:16:45.920 --> 0:16:48.120 will there be? You guys just reported on you know, 0:16:48.160 --> 0:16:50.480 on cutter in the Middle East, so there's some more 0:16:50.520 --> 0:16:52.600 doing it. But you know, bear in mind that Mark 0:16:52.640 --> 0:16:55.680 Zuckerberg at the last conference call basically said it was 0:16:55.720 --> 0:16:58.720 going to take potentially years for the billions of dollars 0:16:58.720 --> 0:17:01.440 that they're spending on AI pay off on their bottom line. 0:17:01.840 --> 0:17:04.919 And so you do have to run into the situation of, Okay, 0:17:05.000 --> 0:17:07.760 we've got all this AI. You know, we're building all 0:17:07.760 --> 0:17:11.479 this AI potential. I'm going to stipulate, let's say it 0:17:11.520 --> 0:17:13.760 is that is the wave of the future, because with 0:17:13.840 --> 0:17:17.119 Amazon's case, the Internet was everything that was promised and 0:17:17.160 --> 0:17:21.639 then some. But you know, how what if this doesn't 0:17:21.680 --> 0:17:24.679 necessarily pan out as quickly as possible, is there a 0:17:24.680 --> 0:17:27.840 bit of a hangover? And if so, how that is 0:17:27.880 --> 0:17:30.480 a go? And the other part being we've become so 0:17:30.600 --> 0:17:34.399 dependent upon Nvidia and these few market leading stocks. What 0:17:34.560 --> 0:17:38.240 happens if this pullback persists. Obviously, if that does persist 0:17:38.280 --> 0:17:40.720 in a major way, it's probably something really not good 0:17:40.720 --> 0:17:41.360 for the markets. 0:17:41.520 --> 0:17:43.560 So a moment ago, Steve Brian mentioned the fact that 0:17:43.600 --> 0:17:45.840 we did have that triple witching in the States on Friday, 0:17:45.880 --> 0:17:49.359 the expiration of options and futures on equities and stock 0:17:49.400 --> 0:17:52.919 indicies I think about five and a half trillion and 0:17:52.960 --> 0:17:55.720 notional value, which is in and of itself staggering. What 0:17:55.800 --> 0:17:58.280 did we learn from the price action Friday? 0:17:59.040 --> 0:18:01.280 I think what we learned from the price action, or 0:18:01.520 --> 0:18:03.880 or sort of the lack thereof, was two things. First 0:18:03.920 --> 0:18:05.800 of all, we were expecting a bit more price action 0:18:05.920 --> 0:18:09.080 in Apple and Nvidia and Vida. Actually the positive side, 0:18:09.119 --> 0:18:12.560 because the rebalance of the xl K ETF, it's about 0:18:12.560 --> 0:18:16.600 an eighty billion dollar ETF. It needed to buy about 0:18:16.640 --> 0:18:19.200 ten billion dollars of Nvidia and sell a similar amount 0:18:19.200 --> 0:18:21.360 of Apple. I won't get into the details of why. 0:18:21.400 --> 0:18:24.080 It's kind of a weird mechanics of the ETF itself, 0:18:24.440 --> 0:18:26.600 but neither one moved all that much. So it tells 0:18:26.640 --> 0:18:30.320 you the market was pretty good at absorbing that. And secondly, 0:18:30.400 --> 0:18:32.960 it's telling you that we've got all these funds that 0:18:33.600 --> 0:18:38.119 mechanically sell volatility to some extent, they've been under performers 0:18:38.160 --> 0:18:41.199 because really, when the market goes straight up, you know, 0:18:41.240 --> 0:18:43.480 you don't necessarily want to be writing calls you'd rather 0:18:43.520 --> 0:18:46.960 just hold onto things. But as a result, it means 0:18:46.960 --> 0:18:50.280 that a lot of the active hedges, the market makers 0:18:50.280 --> 0:18:54.680 and the professionals who delta hedge, end up long that volatility, 0:18:54.720 --> 0:18:57.399 and as we get close to expiration, it kind of 0:18:57.440 --> 0:18:59.920 puts a It kind of puts a magnet on expiring 0:19:00.040 --> 0:19:03.840 strikes rather than sort of providing a slingshot effect, Which 0:19:03.880 --> 0:19:07.600 is why we sort of find the volatility dampening a 0:19:07.640 --> 0:19:10.240 lot of times on these major explorations, whereas they used 0:19:10.280 --> 0:19:12.680 to kind of expand a bit on these major explorations. 0:19:13.200 --> 0:19:16.960 You're so good at explaining things, Steve explained to our audience, 0:19:17.040 --> 0:19:20.560 how even with all of these huge gains from companies 0:19:20.560 --> 0:19:26.959 like Eli, Lilly and Broadcommon and Video, that realized volatility 0:19:27.000 --> 0:19:29.240 just isn't that great at tomorrow. If you look at 0:19:29.320 --> 0:19:32.679 the vics at thirteen, it suggests that you know that 0:19:32.720 --> 0:19:35.920 there's almost complacency there. And yet it should be a time, 0:19:35.960 --> 0:19:38.800 shouldn't it that we have a ton of volatility. 0:19:38.880 --> 0:19:41.119 It should be because part of it is we're getting 0:19:41.119 --> 0:19:43.640 a bit of dispersion of results, actually quite a bit 0:19:43.640 --> 0:19:46.199 of it, because this is kind of the problem with 0:19:46.240 --> 0:19:49.080 the narrow leadership is the moves are sort of being 0:19:49.200 --> 0:19:53.119 dampened out. You don't have much participation at all, you know, 0:19:53.119 --> 0:19:56.520 from the vast majority of stocks that are trading. But 0:19:56.640 --> 0:19:59.399 yet you've got this cadra of market leaders, you know, 0:19:59.400 --> 0:20:02.119 among the ones that you've mentioned, that are just propelling 0:20:02.160 --> 0:20:05.639 the market higher. So that's sort of you know, if 0:20:05.680 --> 0:20:07.800 you if you thought about having a two stock index 0:20:07.840 --> 0:20:09.760 and stock A goes up by five percent and stock 0:20:09.840 --> 0:20:12.200 D goes down by five percent, well then your net 0:20:12.280 --> 0:20:15.959 move is zero to expand that and scale a little bit. 0:20:16.000 --> 0:20:20.080 And when you think about market capitalization weighted indices, you know, 0:20:20.119 --> 0:20:23.359 the big ones can outweigh, can outwigh all the smaller ones. 0:20:23.720 --> 0:20:27.040 But that's kind of why we're dampening volatility. And VIX 0:20:27.520 --> 0:20:31.399 reflects the historical volatility, but I've always asserted that it 0:20:31.560 --> 0:20:37.240 also it also represents institutional demand for hedging. Our institutions 0:20:37.280 --> 0:20:40.280 buying VIX and VIX related products because it's really the 0:20:40.320 --> 0:20:43.679 easiest way to hedge a portfolio, and quite frankly, they're not. 0:20:43.960 --> 0:20:45.760 This is this is what I used to say when 0:20:45.800 --> 0:20:47.880 I was market making, you know, was you know, we're 0:20:48.200 --> 0:20:50.479 selling umbrellas here, and nobody wants to buy them. When 0:20:50.520 --> 0:20:53.399 there's a drought. That's kind of what's going on in 0:20:53.480 --> 0:20:54.119 terms of VIX. 0:20:54.520 --> 0:20:57.960 The fact that we were so heavy in volume Friday 0:20:58.040 --> 0:21:00.719 is that is that a bullish sign to you? Sixty 0:21:00.720 --> 0:21:03.879 percent above the average for the past month and the 0:21:03.960 --> 0:21:04.960 S and P very quickly. 0:21:05.000 --> 0:21:08.879 Steve, No, that's just expiration. When all those options expire, 0:21:08.960 --> 0:21:12.400 you're going to get bought and you have rebalancing that volume. 0:21:12.440 --> 0:21:14.840 Follows from Matt Okay, all right, all right, Steve, we'll 0:21:14.880 --> 0:21:17.640 let you go back to the barbecue. Have one on us. 0:21:17.840 --> 0:21:21.400 Thanks very much for joining us on Sunday. Steve Saznik, 0:21:21.480 --> 0:21:23.800