WEBVTT - Powell Softens Tone and Silvergate Liquidates Bank

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<v Speaker 1>This is Bloomberg Daybreak Asia for this Thursday, March ninth

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<v Speaker 1>in Hong Kong, Wednesday March eighth in New York and

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<v Speaker 1>coming up today. Fetcher J. Powell says no decision has

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<v Speaker 1>been made on the size of this month's rate hike.

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<v Speaker 1>The Netherlands prepares more restrictions on shipmaking gear to China,

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<v Speaker 1>and Apple shakes up as sales operation to focus more

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<v Speaker 1>on growth in India. President She calls for the need

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<v Speaker 1>for its tech industry to boost China's military. US intelligence

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<v Speaker 1>report says China is aid in Russia during its war effort.

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<v Speaker 1>Australia touts new submarines. I'm at Baxter with Global News.

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<v Speaker 1>That's all straight ahead on Bloomberg Daybreak Asia, the business

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<v Speaker 1>news you need to start your day in just one

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<v Speaker 1>fifteen minute podcast available on Apples, Spotify, the Bloomberg Business

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

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<v Speaker 1>Deck Prisoner and I'm Brian Curtis. Here the stories we're

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<v Speaker 1>following today. Ben Chair J. Powell, softening his tone a

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<v Speaker 1>little during a second day of congressional testimony, He said

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<v Speaker 1>the FED hadn't made any decision on what it will

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<v Speaker 1>do at its next meeting in March. Larger point, though,

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<v Speaker 1>is that we're not on a preset path and that

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<v Speaker 1>we will be guided by the incoming data any evolving outlook.

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<v Speaker 1>No decision has been made on this, but if the

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<v Speaker 1>totality of the data were to indicate that faster tightening

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<v Speaker 1>is warranted, we'd be prepared to increase the pace of

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<v Speaker 1>rate hikes. PAL signed upcoming payroll and inflation reports as

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<v Speaker 1>potentially key data. In the meantime, Traders up their bets

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<v Speaker 1>on Wednesday that the FED wood hike interest rates by

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<v Speaker 1>half a point at its next meeting. They also saw

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<v Speaker 1>the FED taking rates to a peak of near five

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<v Speaker 1>point seven percent this year, and that he's up from

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<v Speaker 1>five point five percent on Monday. Well, TikTok is making

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<v Speaker 1>a push to convince governments in Europe that the company

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<v Speaker 1>does protect user data. We have that story from Bloomberg's

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<v Speaker 1>ofvon Men. TikTok is planning to build three European data

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<v Speaker 1>center is to store information in the region locally. It'll

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<v Speaker 1>be done with help from an independent third party that

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<v Speaker 1>will oversee data access controls. TikTok's European data is currently

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<v Speaker 1>stored in Singapore and the US. The new data centers

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<v Speaker 1>will take about three years to build and will cost

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<v Speaker 1>one point three billion dollars annually to maintain. TikTok's latest

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<v Speaker 1>move follows an order from the European Commission to ask

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<v Speaker 1>its own staff to delete the app. Germany and Canada

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<v Speaker 1>follows suit, and the Netherlands is said to be considering

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<v Speaker 1>similar steps. In Hong Kong, I'm Ivan Mah Bloomberg Daybreak Asia,

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<v Speaker 1>the Netherlands is preparing more restrictions on chip making gear

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<v Speaker 1>to China. More from Bloomberg's David and Glaze. A new

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<v Speaker 1>proposal will reign in exports a so called immersion DUV

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<v Speaker 1>lithography products that, in addition to restrictions that already exist

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<v Speaker 1>for the most cutting edge lithography machines now, this means

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<v Speaker 1>that Dutch tech firm ASML will be barred from selling

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<v Speaker 1>some additional technology to Chinese companies. Even so, ASML said

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<v Speaker 1>in a separate statement that the measures would not have

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<v Speaker 1>a material effect on its outlook for twenty twenty three.

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<v Speaker 1>The plan comes as the US ramps up restrictions and

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<v Speaker 1>China's access to semiconductor technology, and the US is counting

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<v Speaker 1>on the Netherlands to help stop China from further developing

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<v Speaker 1>its chip industry and its military in Hong Kong. I'm

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<v Speaker 1>David Inglis bloombrig Debrick Asia. We go to Apple next.

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<v Speaker 1>We are told the company is reshuffling management of its

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<v Speaker 1>international businesses with a name of putting a larger focus

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<v Speaker 1>on India. That story from Bloomberg's Charlie Pellet. It is

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<v Speaker 1>a sign of the nation's growing importance. The shift will

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<v Speaker 1>mark the first time that India becomes its own sales

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<v Speaker 1>region at Apple, which has seen demands surge in the country.

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<v Speaker 1>One of the sources says it will give the Asian

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<v Speaker 1>nation increased prominence inside the tech giant. Apple is making

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<v Speaker 1>the change after its vice president in charge of India,

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<v Speaker 1>the Middle East, Mediterranean, East, Europe and Africa recently retired.

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<v Speaker 1>In New York, Charlie Pellet Bloomberg Daybreak Asia. We did

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<v Speaker 1>have Apple gaining about eight tenths of a percent in

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<v Speaker 1>this latest session, probably not really as a result of

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<v Speaker 1>that story and also asml Interestingly, when it traded last

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<v Speaker 1>in Europe, it traded up about one point four percent.

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<v Speaker 1>The Adanni family is said to have paid off all

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<v Speaker 1>borrowings backed by Adanni Group shares investors at a meeting

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<v Speaker 1>in London quoted a Donnie executives for this update. In addition,

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<v Speaker 1>sources say that the group repaid a five hundred million

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<v Speaker 1>dollar bridge loan to banks that was due today. The

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<v Speaker 1>London meeting was part of a global road show that

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<v Speaker 1>included earlier stops in Hong Kong, Singapore, and Dubai. The

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<v Speaker 1>Adonni Group has been trying to reassure investors after a

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<v Speaker 1>scathing short seller report, and the road show may be working.

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<v Speaker 1>US investment firm GQG Partners said it would likely increase

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<v Speaker 1>its stakes in Adanni firms over time. Adanni's roadshow will

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<v Speaker 1>continue this week in the United States. Meetings will be

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<v Speaker 1>held over four days in New York and Los Angeles. So, Doug,

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<v Speaker 1>the bear case is pretty easily made. It's about all

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<v Speaker 1>you hear at the moment. The bull case that's much

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<v Speaker 1>more difficult, But it would become a little easier if

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<v Speaker 1>the upcoming data, the economic data was somewhat muted. Yeah,

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<v Speaker 1>that'll begin Friday with the employment report here in the US,

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<v Speaker 1>and then you look to next week with the inflation

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<v Speaker 1>data that we're going to get on a Wednesday, that's

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<v Speaker 1>the consumer price index. It's going to probably indicate to

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<v Speaker 1>that inflation remains stubbornly high. But in terms of trend line,

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<v Speaker 1>I think that we are beginning to see a little

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<v Speaker 1>bit of a continuation of a softening at least in

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<v Speaker 1>the rate of inflation here in the US. But to

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<v Speaker 1>your point, Brian, as long as the FED is going

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<v Speaker 1>to continue to lean into this fight aggressively, and if

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<v Speaker 1>the market has it right and there is an additional

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<v Speaker 1>one hundred basis points of tightening over the next four meetings,

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<v Speaker 1>then you're also right. The equity market has a bit

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<v Speaker 1>of a headwind to face. Yeah, it's a little bit

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<v Speaker 1>of head scratcher. Then you get comments like we heard

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<v Speaker 1>from Caterpillar that they see demand pretty strong and they

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<v Speaker 1>don't see a recession in the United States. And if

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<v Speaker 1>you look at Caterpillar and also John Deer, the stocks

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<v Speaker 1>typical industrial names have traded up of thirty five to

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<v Speaker 1>forty percent since September, although of late they've been moving

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<v Speaker 1>a little bit more sideways. But there's a lot of

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<v Speaker 1>conflicting signals in the marketplace. Yeah, when it comes to

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<v Speaker 1>cat how much of this is construction, how much of

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<v Speaker 1>it is mining. Right, we talk a lot about the

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<v Speaker 1>transition to cleaner energy that's going to boost consumption of metals.

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<v Speaker 1>The mining cycle is going to be a very very

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<v Speaker 1>critical component for Caterpillar to look at it as the

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<v Speaker 1>need for more natural resources becomes greater. I think that

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<v Speaker 1>a company like cat it's probably going to be a

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<v Speaker 1>big beneficiary. Yeah, so bullcase versus bearcase, inflation versus recession.

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<v Speaker 1>Will put these questions to James aboute coming up in

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<v Speaker 1>a few moments from Center Asset Management. Now it's time

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<v Speaker 1>for Global News. China's president Hijinping is calling for its

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<v Speaker 1>technology advancements to help boost its military might and backs

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<v Speaker 1>to it with Global News in San Francisco in the

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<v Speaker 1>nine sixty news from it Yeah that's right, Brian. She

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<v Speaker 1>clearly says China needs to accelerate its bois for high

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<v Speaker 1>tech independence to achieve advantage over its international rivals. Bloomberg.

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<v Speaker 1>Stephen angel In Honkong says she is telling military delegates

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<v Speaker 1>at the NPC that ties with technology and defense will

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<v Speaker 1>build its military standing in the world. Just about every

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<v Speaker 1>leader has talked about this pressure that China is under

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<v Speaker 1>and the need for a whole nation approach to become

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<v Speaker 1>or reach technology independent, thereby strengthening the military. Meanwhile, the

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<v Speaker 1>US is saying China will deepen its ties with Russia

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<v Speaker 1>despite global pressure. The Director of National Intelligence Abril Haines

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<v Speaker 1>releasing report and appearing before a Senate intelligence today saying,

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<v Speaker 1>despite global backlash, China will maintain its diplomatic defense he

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<v Speaker 1>can technology cooperation with Russia. This in an effort to

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<v Speaker 1>challenge the US. Haynes says China needs the relationship with

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<v Speaker 1>Russia desperately. The IC assesses that China's long term economic

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<v Speaker 1>growth will continue to decelerate because China's era of rapid

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<v Speaker 1>catch up growth is ending. In Structural issues such as debt, demographics, inequality,

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<v Speaker 1>overreliance on investment, and suppressed consumption remain and at the hearing,

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<v Speaker 1>Senator Marc o'rubio drilled down with FBI Director Christopher Ray

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<v Speaker 1>on China and TikTok, but they use it to drive

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<v Speaker 1>narratives like to divide Americans against each other. For example,

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<v Speaker 1>let's say China wants to invade Taiwan to make sure

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<v Speaker 1>that the Americans are seeing videos arguing why Taiwan belongs

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<v Speaker 1>to China and why the US should not intervene yes,

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<v Speaker 1>and I would make the point on that last one,

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<v Speaker 1>in particular, that we're not sure that we would see

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<v Speaker 1>many of the outward signs of it happening if it

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<v Speaker 1>was happening. And Ray confirmed to his knowledge of TikTok

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<v Speaker 1>also had access to privacy of the American public. The

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<v Speaker 1>committee also sought more information about the origins of COVID. Again,

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<v Speaker 1>Abril Haines, there's a broad consensus in the intelligence community

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<v Speaker 1>that the outbreak is not the result of a bioweapon

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<v Speaker 1>or genetic engineering. What there isn't a consensus on is

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<v Speaker 1>whether or not it's a lably or natural exposure to

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<v Speaker 1>an infected animal, Haines says a leading intelligence as it

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<v Speaker 1>did emanate from China. Though, a treasure trove of stories

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<v Speaker 1>coming out of the depositions and the dominion voting System's

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<v Speaker 1>defamation lawsuit against Fox News. Court documents, for example, focusing

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<v Speaker 1>on Tucker Carlson have him passionately writing about Donald Trump quote,

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<v Speaker 1>I hate him passionately this while he's loyally supporting him

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<v Speaker 1>on the air, going on to say, I truly can't

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<v Speaker 1>wait reference to talking about with him too for it

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<v Speaker 1>to end. Now, these statements draw a dark contrast to

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<v Speaker 1>what he and other host were saying on the air

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<v Speaker 1>on Fox and White House Folks when Karine Jean Pierre

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<v Speaker 1>put an exclamation point on it. Today, you agree with

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<v Speaker 1>the Fox Nation's own attorneys and executives who have repeatedly

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<v Speaker 1>stressed in multiple courts of law that Tucker Coulson is

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<v Speaker 1>not credible when it comes to this issue, in particular,

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<v Speaker 1>Global News powered by more than twenty seven hundred journalists

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<v Speaker 1>and analysts and over one hundred twenty countries. In San Francisco,

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<v Speaker 1>I'm at Baxter and this is Bloomberg. This is Bloomberg

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<v Speaker 1>day Break Asia. I'm Brian Curtis, along with Rashad Salama,

0:10:25.960 --> 0:10:29.480
<v Speaker 1>Doug Krisner, and Ed Baxter as well. Our guest on

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<v Speaker 1>the show this morning is James Abatte, Managing director and

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<v Speaker 1>Chief investment Officer at Center Asset Management. James, Doug and

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<v Speaker 1>I were just talking about inflation versus recession, you know,

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<v Speaker 1>which is the greater fear at the moment, and how

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<v Speaker 1>difficult it is to really make the bulk case here

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<v Speaker 1>other than perhaps for individual stories. Always interested in your take,

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<v Speaker 1>How how are you looking at markets these days? Well,

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<v Speaker 1>I think when you're looking at top down indicators as

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<v Speaker 1>the yoke curve being inverted on their own every maturity,

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<v Speaker 1>pm i's other leading indicators and contraction, housing, construction weakness,

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<v Speaker 1>and job losses. You see daily in technology and finance.

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<v Speaker 1>It screams economy wide recession. However, you know, as a

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<v Speaker 1>stock an, it's doing bottom up research across all sectors

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<v Speaker 1>of the market. You know, what we're seeing is that

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<v Speaker 1>it's possible that you know, barring a significant demand shock,

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<v Speaker 1>we might end up with what I consider a rolling

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<v Speaker 1>recession that lasts much longer than the average recession, but

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<v Speaker 1>it's quite shallow as it goes from industry to industry.

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<v Speaker 1>I mean, for example, today today's release of the Federal

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<v Speaker 1>Reserves Page book I highlighted that supply chain disruptions continue

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<v Speaker 1>to ease. Consumer spending has generally held steady. Traveling tourism

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<v Speaker 1>was a bright spot actually and verily strong, while manufacturing

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<v Speaker 1>was quite stable. But when you look at loan demand,

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<v Speaker 1>client credit standard of tightening, delinquency rates edged up, the

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<v Speaker 1>interest rates move higher, you know, from US I think

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<v Speaker 1>the most significant complicating factor to all of this analysis

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<v Speaker 1>is the strength of the labor market. I mean, now

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<v Speaker 1>the side of tech and finance companies are highly reluctant

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<v Speaker 1>to let go of trained workers and remain understaff due

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<v Speaker 1>to the lingering effects of the pandemic crisis. So we

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<v Speaker 1>might just be able to avoid a recession here. So James, ultimately,

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<v Speaker 1>you know, is the FED actually getting it right? You know,

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<v Speaker 1>let's think about it. Assuming the FED races its target

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<v Speaker 1>rate by fifty basis points at the March meeting coming up,

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<v Speaker 1>and we get to a five to five and a

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<v Speaker 1>quarter or target range. You know, let's just point out

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<v Speaker 1>that that may seem high, and in fact that's the

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<v Speaker 1>most significant in terms of the slope in terms of

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<v Speaker 1>rate races that we've seen, you know, in a generation.

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<v Speaker 1>But when core CPI inflation still stands at five point

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<v Speaker 1>six percent, rates are still negative in real terms. I mean,

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<v Speaker 1>more importantly, if you look at interest rates that are

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<v Speaker 1>broadly used in the economy as well as valuation, most

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<v Speaker 1>notably the ten year US treasure yield, which is now

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<v Speaker 1>at four percent, it's still a negative two percent rate

0:13:16.040 --> 0:13:18.920
<v Speaker 1>in terms of real terms. So let's talk of restrictive

0:13:18.960 --> 0:13:22.760
<v Speaker 1>monetary policy stance is simply not true. I mean, until

0:13:22.880 --> 0:13:27.320
<v Speaker 1>real yields, you know, go from negative to positive. I

0:13:27.320 --> 0:13:29.000
<v Speaker 1>think that's where the FED is going to end up.

0:13:29.080 --> 0:13:32.679
<v Speaker 1>So you know, when you think about you know, looking

0:13:32.679 --> 0:13:35.720
<v Speaker 1>at even inflation, you know for falls and coming months,

0:13:36.080 --> 0:13:38.920
<v Speaker 1>when you look at forward looking measures like tips shields,

0:13:39.800 --> 0:13:42.960
<v Speaker 1>they're still well below where we were for before the

0:13:43.280 --> 0:13:47.199
<v Speaker 1>global financial crisis, are around one hundred and fifty basis

0:13:47.280 --> 0:13:50.200
<v Speaker 1>points right now. So I've changed my thought process in

0:13:50.280 --> 0:13:53.840
<v Speaker 1>terms of the FED. I think the FED is and

0:13:53.880 --> 0:13:56.720
<v Speaker 1>this is from interpretation of Powell's comments over the last

0:13:56.800 --> 0:13:59.559
<v Speaker 1>year or so, is that they're going to stop and

0:13:59.640 --> 0:14:02.800
<v Speaker 1>hold rates when the ten year tip rate gets to

0:14:02.880 --> 0:14:06.800
<v Speaker 1>around two percent, which is essentially the real yield, meaning

0:14:06.840 --> 0:14:12.320
<v Speaker 1>either inflation expectations fall down or nominal rates move higher,

0:14:12.360 --> 0:14:14.840
<v Speaker 1>because you still got about one hundred basis points to

0:14:14.880 --> 0:14:19.000
<v Speaker 1>go to basically get to that point where real yields

0:14:19.080 --> 0:14:21.520
<v Speaker 1>on a forward looking basis or at that two two

0:14:21.560 --> 0:14:24.080
<v Speaker 1>and a half percent level, which is where they existed

0:14:24.120 --> 0:14:27.000
<v Speaker 1>prior to the global financial crisis. So it's going back

0:14:27.000 --> 0:14:29.600
<v Speaker 1>to the old normal. So is there an issue, do

0:14:29.600 --> 0:14:34.720
<v Speaker 1>you think in terms of messaging? I think so, because

0:14:34.960 --> 0:14:38.880
<v Speaker 1>what's happening now is that there's an entire generation of

0:14:38.920 --> 0:14:43.920
<v Speaker 1>investors who basically know nothing other than the FED put

0:14:43.960 --> 0:14:48.320
<v Speaker 1>and easy monetary policy, and in essence, as you rightly

0:14:48.360 --> 0:14:50.880
<v Speaker 1>point out, we're kind of getting back to the future,

0:14:50.920 --> 0:14:53.840
<v Speaker 1>which is, you know, really the way things existed in

0:14:53.920 --> 0:14:56.240
<v Speaker 1>terms of a normal rate. I think if you do

0:14:56.320 --> 0:15:00.000
<v Speaker 1>want to look at, you know, a variable that does matter,

0:15:00.240 --> 0:15:03.800
<v Speaker 1>it's credit spreads, and right now BAA spreads are still

0:15:03.880 --> 0:15:07.920
<v Speaker 1>near historic lows, only around you know, two percent. I mean,

0:15:08.680 --> 0:15:11.120
<v Speaker 1>unless you get to three percent levels, you're not even

0:15:11.120 --> 0:15:14.440
<v Speaker 1>close to considering recessionary levels. And when you look at

0:15:14.720 --> 0:15:18.680
<v Speaker 1>even high yield indices, um, they're no, we're near close

0:15:19.080 --> 0:15:21.240
<v Speaker 1>to the levels that we saw during the two thousand

0:15:21.280 --> 0:15:24.680
<v Speaker 1>and two recession, or you know, even very elevated levels

0:15:24.720 --> 0:15:27.240
<v Speaker 1>during two thousand and eight. But James, if you're right

0:15:27.320 --> 0:15:32.480
<v Speaker 1>and we get this sort of long rolling recession, wouldn't

0:15:32.480 --> 0:15:35.360
<v Speaker 1>that do the trick? Wouldn't that get at inflation? In fact,

0:15:35.440 --> 0:15:39.360
<v Speaker 1>it's actually not a bad scenario because it means that,

0:15:39.480 --> 0:15:42.640
<v Speaker 1>you know, because people don't want to fire or companies

0:15:42.680 --> 0:15:45.840
<v Speaker 1>don't want to fire their workers, they will stay employed,

0:15:45.840 --> 0:15:48.600
<v Speaker 1>they will keep getting paychecks, and they will spend and

0:15:48.680 --> 0:15:51.400
<v Speaker 1>even if growth slows down, it just buys you some

0:15:51.520 --> 0:15:56.080
<v Speaker 1>time for ultimately higher interest rates to bring inflation down

0:15:56.120 --> 0:15:59.720
<v Speaker 1>and nobody gets that hurt. Yeah, that's that's kind of

0:15:59.720 --> 0:16:01.320
<v Speaker 1>like what the market has told us, right, because the

0:16:01.440 --> 0:16:04.360
<v Speaker 1>SMP five hundreds at the same level today as it

0:16:04.520 --> 0:16:08.400
<v Speaker 1>was last May, so you know, the earnings collapse is

0:16:08.440 --> 0:16:11.160
<v Speaker 1>not yet evident, whether it's because the FED has not

0:16:11.240 --> 0:16:15.520
<v Speaker 1>constricted the economy to the same degree, but it is

0:16:15.600 --> 0:16:20.080
<v Speaker 1>maxtional frustration for US investors, right because sideways versus this

0:16:20.240 --> 0:16:23.120
<v Speaker 1>trap door draw down like we had in the fall

0:16:23.200 --> 0:16:25.280
<v Speaker 1>two thousand and eight or some er two thousand and two,

0:16:25.720 --> 0:16:28.440
<v Speaker 1>you know, has not yet materialized. So I think we

0:16:28.480 --> 0:16:31.760
<v Speaker 1>continue to kind of have this grinding, sideways type of

0:16:31.920 --> 0:16:35.320
<v Speaker 1>environment unless we see an earnings recession, end doors, some

0:16:35.400 --> 0:16:39.320
<v Speaker 1>type of event that causes major risk aversion. Do you

0:16:39.360 --> 0:16:42.600
<v Speaker 1>hold your nose a little in buy? I think what

0:16:42.720 --> 0:16:44.880
<v Speaker 1>you want to do, And this is a good opportunity

0:16:44.880 --> 0:16:47.600
<v Speaker 1>because what we have seen is correlations within the SMP

0:16:47.720 --> 0:16:50.840
<v Speaker 1>five hundred fall to levels that we haven't seen in

0:16:50.920 --> 0:16:55.320
<v Speaker 1>quite a while, and particularly when you look at intrastsector correlations,

0:16:55.760 --> 0:17:00.239
<v Speaker 1>they're at very little levels, and healthcare, materials, consumers states

0:17:00.640 --> 0:17:03.960
<v Speaker 1>so to the extent where people have gravitated towards technology

0:17:04.000 --> 0:17:07.879
<v Speaker 1>and communication services earlier this year. We've taken the opportunity

0:17:07.920 --> 0:17:12.240
<v Speaker 1>to go back into those sectors, particularly staples and healthcare,

0:17:12.280 --> 0:17:15.000
<v Speaker 1>to amplify positions that we think can give kind of

0:17:15.080 --> 0:17:22.399
<v Speaker 1>an idiosyncratic opportunity and away from kind of broad market risk. Again.

0:17:22.640 --> 0:17:25.679
<v Speaker 1>You know, you look at the the ADP employment report

0:17:25.720 --> 0:17:28.520
<v Speaker 1>here is well again, this is strong too, and you

0:17:28.560 --> 0:17:31.000
<v Speaker 1>know in Jolts also that was a bit of a

0:17:31.000 --> 0:17:34.440
<v Speaker 1>surprise to the upsite, So you know, this goes really

0:17:34.440 --> 0:17:39.680
<v Speaker 1>further your narrative. Ultimately, Yeah, that's right, And clearly the

0:17:39.760 --> 0:17:42.520
<v Speaker 1>number on Friday with a change in non farm payrolls,

0:17:42.520 --> 0:17:45.200
<v Speaker 1>which is estimated to be two hundred twenty five thousand,

0:17:46.200 --> 0:17:48.639
<v Speaker 1>is critically important in terms of what the Fed's decision

0:17:48.720 --> 0:17:51.840
<v Speaker 1>is going to be at its upcoming March meetings, as

0:17:51.840 --> 0:17:54.320
<v Speaker 1>well as the CPI numbers that we're expecting next week.

0:17:54.400 --> 0:17:56.439
<v Speaker 1>So I think, you know, the one worry that I

0:17:56.520 --> 0:18:00.960
<v Speaker 1>do have, and this is a real important issue, is first,

0:18:01.000 --> 0:18:04.879
<v Speaker 1>never underestimate how well run US companies are. You know,

0:18:04.960 --> 0:18:09.080
<v Speaker 1>that's said labor costs and rising input costs from deglobalization

0:18:09.560 --> 0:18:12.560
<v Speaker 1>are significant unknowns, and I think the major point that

0:18:12.600 --> 0:18:15.320
<v Speaker 1>I wanted to point out with regard to kind of

0:18:15.359 --> 0:18:18.040
<v Speaker 1>all the restructuring efforts and cost cutting that we're seeing

0:18:18.080 --> 0:18:22.119
<v Speaker 1>today unlike what happened back in two thousand and nine.

0:18:22.640 --> 0:18:24.479
<v Speaker 1>And one of the reasons back then why we were

0:18:24.520 --> 0:18:27.600
<v Speaker 1>kind of shouting from the rooftops to buy stocks was

0:18:27.600 --> 0:18:31.000
<v Speaker 1>that people were underestimating the operating leverage to earnings of sales.

0:18:31.119 --> 0:18:34.800
<v Speaker 1>Growth turned positive out of the recession, but margins were depressed.

0:18:35.480 --> 0:18:37.600
<v Speaker 1>You know. In fact, you know, margins back then for

0:18:37.760 --> 0:18:41.040
<v Speaker 1>the SMP five hundred expanded over thirty percent in two

0:18:41.040 --> 0:18:43.720
<v Speaker 1>thousand and ten after declining you know, twelve percent in

0:18:43.760 --> 0:18:46.280
<v Speaker 1>two thousand and seven and thirty percent two thousand and eight,

0:18:46.359 --> 0:18:49.600
<v Speaker 1>which led to a huge forty percent increase in EPs

0:18:49.640 --> 0:18:52.560
<v Speaker 1>in two thousand and ten that drove the market higher. Today,

0:18:53.160 --> 0:18:57.080
<v Speaker 1>you know, very important distinguishing issue is that margins have

0:18:57.160 --> 0:18:59.560
<v Speaker 1>contracted by about ten percent from the record highs, but

0:18:59.560 --> 0:19:03.359
<v Speaker 1>they're two standard deviations from trend right now. So in

0:19:03.359 --> 0:19:05.680
<v Speaker 1>other words, you know, the cost cutting we're seeing today

0:19:05.800 --> 0:19:08.560
<v Speaker 1>is just simply slowing down the rate of decline and

0:19:08.640 --> 0:19:11.879
<v Speaker 1>earnings and not setting the foundation for huge increase that

0:19:11.960 --> 0:19:15.200
<v Speaker 1>can drive earnings higher even in a temperate sales growth environment.

0:19:16.520 --> 0:19:19.359
<v Speaker 1>This is Bloomberg Daybreak Asia, your morning brief on the

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