Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the au Thoughts podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe.
Speaker 4: Why isn't thal Joe?
Speaker 2: Our live show in London recorded May seventh at Wilton's
Speaker 2: Music Hall. A lot has happened since then. Him Markets,
Speaker 2: it's hard to have a markets conversation that you know
Speaker 2: isn't out of date within like a minute or two. Yeah,
Speaker 2: but I think this one, this one carries on. I
Speaker 2: think this one is still relevant.
Speaker 5: Well, you know, I have to say I always feel
Speaker 5: a little anxious about recording Markets episodes because of this
Speaker 5: very phenomenon. But this is true for our live and
Speaker 5: our recorded shows that by the time it comes out,
Speaker 5: who knows how much hole have changed.
Speaker 6: This is why you should go to the list, is why.
Speaker 4: That's exactly where I was going to go.
Speaker 5: It's actually good to record markets episodes of the live
Speaker 5: show because that's like, all right, create an inducement to
Speaker 5: get people to buy a ticket. But again, you know,
Speaker 5: with a lot of these things, like how traders are
Speaker 5: digesting this particular moment in time. Sure, the headlines and
Speaker 5: the prices on the screen change, but there are certain
Speaker 5: like principles and frameworks for understanding what's going on that
Speaker 5: will be sort of useful regardless of what's happened in
Speaker 5: the meantime.
Speaker 2: You mentioned frameworks, and that is the perfect framing for
Speaker 2: this discussion. So we indeed had the perfect guests. We
Speaker 2: spoke to someone who's been on quite a few times before,
Speaker 2: one of our favorites for letting us know what the
Speaker 2: big money is actually thinking about and trading. We spoke
Speaker 2: with Ozan Tarman. He is, of course vice chair of
Speaker 2: Global Macro over at Deutsche Bank. We also spoke to
Speaker 2: his colleague, someone who hasn't been on the show before,
Speaker 2: but who has quite a reputation, one of Deutsche Bank's
Speaker 2: star bond traders, A ditcha single. He is the head
Speaker 2: of em trading across rates, FX and Credit at Deutsche Bank.
Speaker 2: So take a listen. Okay, let's start with the obvious question.
Speaker 2: Lines on the chart keep going up despite what would
Speaker 2: seem to be some challenges to the global economy. To
Speaker 2: put it mildly, why.
Speaker 7: First of all, even when I walked in, I was
Speaker 7: checking for you guys. It wasn't like that fifteen minutes ago.
Speaker 5: When we're now recording this at seven three twenty seconds.
Speaker 7: When one agency claimed that Operation Freedom was back on,
Speaker 7: that President Trump could try to open the hormones by force,
Speaker 7: SMP and oil SMP didn't like that at all. Oil
Speaker 7: was surging higher than al Jeza denied. So we're all
Speaker 7: calmer again. But bottom line is why we keep going
Speaker 7: higher despite everything that how we are in orkin steeds
Speaker 7: because buses are empty. When I say buses are empty,
Speaker 7: I don't only talk to my portular managers, but men
Speaker 7: on the streets, to my college classmates. One of them
Speaker 7: was like, what do you mean busses are empty? That
Speaker 7: means investors.
Speaker 3: Don't have it.
Speaker 7: The analogy is a bit like closer to April second
Speaker 7: April nine off last year, when we had the big
Speaker 7: tariff shock billboard up. We thought that it would be
Speaker 7: the end of the year and of the markets. Then
Speaker 7: President Trump stepped back and Marcus never looked back.
Speaker 3: A bit similar coincidence or not.
Speaker 7: March thirty first is the first time he claimed through
Speaker 7: Walls the Journal that he would separate State or Foremost
Speaker 7: and Operation, that the two could go separately.
Speaker 3: None of that happened, but that.
Speaker 7: Was the first big brief market took and on April nine,
Speaker 7: exactly on the same day the big first postponement came
Speaker 7: and said you're not going to do anything for two weeks,
Speaker 7: and since then markets never looked back the historic led
Speaker 7: by tech Nazak and SMP rally. And you know, I
Speaker 7: talked to a lot of people at you know, Key ladies, guys. Honestly,
Speaker 7: maybe three four five people really believed in this rally
Speaker 7: since April first, April nine. That's one big part of it,
Speaker 7: but it can be all positioning also fundamentals right, earnings.
Speaker 3: Again, head of sales. One of my.
Speaker 7: Legend the researchers, Jim Read just today he was on
Speaker 7: Bloomberg as well, talking about earnings in Q four of
Speaker 7: last year, just thirteen percent growth. Q one records biggest
Speaker 7: in five years late by take twenty four percent. And
Speaker 7: that engine keeps us, keeps us going.
Speaker 5: Yeah, the earnings are what they are, So I'm here's
Speaker 5: some they're curious. So Ozon came in and he gave
Speaker 5: us the latest headlines. Thank you, because I haven't I
Speaker 5: hadn't been looking at my job.
Speaker 2: Yeah, exactly, look at his phone for fifteen minutes.
Speaker 5: Which it might be a record, a record how do
Speaker 5: traders deal with the market in which they're just the sheer.
Speaker 4: Number of headlines?
Speaker 6: How would you?
Speaker 5: And how do they know what to take seriously? And
Speaker 5: like what's real? What's not real?
Speaker 4: Like how are they interesting news?
Speaker 8: So from a trading perspective, right, mostly almost everybody that
Speaker 8: the fundamentally five asset classes, right, so you have a
Speaker 8: thematic view and raised effects credit equities and commodities, and
Speaker 8: a lot of people are fixated or are mandated or
Speaker 8: asset class per se, right, so they have no choice
Speaker 8: but to stick within that kind of region. And then
Speaker 8: of course are you if you're a real many investor,
Speaker 8: a hedge fund, or if you are a sell side trader,
Speaker 8: just depending on how you are positioned, right, it's not
Speaker 8: really it's difficult to get in and out right, So
Speaker 8: thematically you have to take a structure long term, you
Speaker 8: see what every asset class is pricing on that particular
Speaker 8: view and define an upside downside kind of scenario and
Speaker 8: based on the liability profile you have, and that how
Speaker 8: you define that is the function of the money you
Speaker 8: have or what kind of drawdowns are acceptable. You take
Speaker 8: a particular position and you let it play out. So
Speaker 8: in this kind of environment, it's difficult. So what is
Speaker 8: the upcoming kind of positive news that you can rely
Speaker 8: onto the market right today? If you were to sit
Speaker 8: here today, you say, okay. So the fact that not
Speaker 8: much action has happened in the last three to four
Speaker 8: weeks within the straight means that at some point or
Speaker 8: the other the resolution will come. Pakistan is mediating as
Speaker 8: we can see, there's been enough talks happening, so you
Speaker 8: assume that a resolution and should come.
Speaker 6: That's what the market is pricing. Theoretically.
Speaker 8: You also have a situation with Russia which is developing
Speaker 8: right Russia Ukraine war, which could keep positive worse. And
Speaker 8: then you have the visit, the US visit to China,
Speaker 8: which also is the positive. Now, of course there's a
Speaker 8: lot of it is at the price per se, But
Speaker 8: fundamentally speaking, as a trader, you position yourself and then
Speaker 8: you just choose, you know, at some point to close
Speaker 8: it to the time but get out.
Speaker 5: But just like just and that all makes sense to me,
Speaker 5: But like are traders sitting there with a truth social
Speaker 5: window open, like the literal like ingestion of news?
Speaker 4: How do you do it?
Speaker 3: And how just getting the messages from me?
Speaker 8: Yeah?
Speaker 3: Right?
Speaker 4: Just kidding.
Speaker 2: Well, someone needs to make like a motivational poster that says, Lord,
Speaker 2: give me the confidence of an equity investor trading on
Speaker 2: an Axios headline. Yeah, like I feel like that would
Speaker 2: that would?
Speaker 3: So yes, we have one open.
Speaker 8: Yeah, genuinely we we we have no choice. But fundamentally
Speaker 8: it's like this, right, so you make up you see
Speaker 8: what's so? We had a if you would look at
Speaker 8: the rates market for example, this is an example, right,
Speaker 8: there was a six IgA event that happened within it.
Speaker 8: At some point the pricing gets to a level where
Speaker 8: it doesn't make any irrational sense. So you start to
Speaker 8: look at that on a most structural basis and you
Speaker 8: start to ignore the noise in the middle, and whether
Speaker 8: we like it or not, we have to operate with
Speaker 8: that kind of philosophy. So you take one side or
Speaker 8: the other. It's very difficult to trade the headline because
Speaker 8: it's impossible because as of now you had two conflicting
Speaker 8: headlines and you can get caught out. So most people
Speaker 8: have come to that understanding. So you've taken a perspective review.
Speaker 8: Either this is going to get resolved, or if you
Speaker 8: believe it's not going to get resolved, there's a way
Speaker 8: of expressing it within the five asset classes where you
Speaker 8: might get the most convexity. Similarly, if it gets resolved,
Speaker 8: there is certain things that actually might work which haven't
Speaker 8: yet worked. So you take those sides and you just
Speaker 8: certain wait.
Speaker 2: Mentioned irrationality just then, which means we should talk about AI, right,
Speaker 2: because all of the stock market rally at this point
Speaker 2: essentially seems to be a bet on AI. What are
Speaker 2: you hearing from your clients on how comfortable they feel
Speaker 2: with us?
Speaker 7: Well, just two days before the Iran war began, we
Speaker 7: were in West bam Beach and Miami with Aditya as well,
Speaker 7: visiting clients, and then the whole talk of at least
Speaker 7: that town but us in general was that famous Strenny piece,
Speaker 7: the other fifteen million stampiece. Something big is about to happen.
Speaker 7: How in twelve to eighteen months, fifty percent of white
Speaker 7: color jobs could be wiped out. What that could mean
Speaker 7: for rates? That in itself is very very telling, right,
Speaker 7: And because of that, and one Solstal claims numbers if
Speaker 7: you remember us ten years that Friday before the bumps
Speaker 7: came in closed that three ninety three, and one of
Speaker 7: my more famous Frans Clients sends me a message on
Speaker 7: that Friday Night bond is the new gold three Night
Speaker 7: three top tic clothes. Then eraon war happens. Not that's surprising,
Speaker 7: but of course the how it played out is very
Speaker 7: very surprising. War inflation hikes getting priced in for people
Speaker 7: completely pushed aside the slow down job growth, labor part
Speaker 7: of it, and then started completely focusing on the equity,
Speaker 7: the growth the AI engine. Again, if you just go
Speaker 7: back to January February, we were quote unquote happy because
Speaker 7: the thing was broadening out. It was a rally, but
Speaker 7: it was a rally late by Russell as well, would
Speaker 7: it be Magnicude four, Magnicum three, Magnificent seven was forgotten
Speaker 7: and lord behold, some of us, thank god, have three
Speaker 7: month memories. Now now we're complaining about oh, it's all
Speaker 7: about seven stocks. The brief is to we're just fighting
Speaker 7: ways to try to fight and wrestle away the rally.
Speaker 7: But so back to your question at the moment, Yeah,
Speaker 7: the kool aid is to believe that this AI run
Speaker 7: may have another one to two years to go. Pull
Speaker 7: to the Jones public one of definitely my more famous
Speaker 7: transplants today claimed that that's the case and made the
Speaker 7: nineteen ninety nine analogy. So either you swim with that
Speaker 7: or try to fade it.
Speaker 5: You know, this is the other thing, all right, So
Speaker 5: we talk about these very worrisome scenarios the price surgeon oil,
Speaker 5: but very worrisome scenarios about deep shortages in various commodities.
Speaker 5: So that's one reason to be worried. But then there's
Speaker 5: this other thing that basically, you know, the disinflation is
Speaker 5: stalled out if arguably it's going in the other direction.
Speaker 5: Rates around the world and you know, we're I think,
Speaker 5: you know, there's some sort of what was UK thirty.
Speaker 2: Year high since nineteen ninety eight.
Speaker 5: Yeah, So again, just intuitively, you would say, do these
Speaker 5: things compound each other?
Speaker 4: It should really take the wind out of the sales
Speaker 4: of risk appetite. And yet so.
Speaker 5: How is it the like even like you know, what
Speaker 5: we see going on and selling of how does the
Speaker 5: selling in sovereign bonds mix into this market in review?
Speaker 8: So let me take this to actually give you a
Speaker 8: thematic kind of how to think about things, right, Okay,
Speaker 8: just to give a perspective, right, So ultimately there is
Speaker 8: only one thematic view that matters for the next few years. Right,
Speaker 8: And that is if you were to assume you have
Speaker 8: China and China aligned countries and you have the West. Right,
Speaker 8: if you were to take China and China aligned countries
Speaker 8: right and they were in space, what does West need
Speaker 8: theoretically in both manufacturing and services? And if you were
Speaker 8: to the reverse the rules, and if the West person space,
Speaker 8: put is China and China aligned countries needs both in
Speaker 8: manufacturing and services. And the reason I'm bringing to this
Speaker 8: point is because I want to give a perspective. So
Speaker 8: what happened right in the last many years. So this
Speaker 8: microphone for example, right, this most of the material and
Speaker 8: here comes from China or China A lined countries almost
Speaker 8: ninety percent. Right, manufacturing capacity the world is fifty five
Speaker 8: percent China or China link, but some places almost ninety
Speaker 8: to ninety five percent. An example of cobalt, cobalt refining
Speaker 8: all in China. Now, in the past, what happened was
Speaker 8: they would give you this microphone and you would give
Speaker 8: them dollars or pounds or euros or whatever it is.
Speaker 6: So they hold that.
Speaker 8: So China holds that, what is the most rational thing
Speaker 8: for them to do? The most rational thing for them
Speaker 8: to do was to buy your land with that money,
Speaker 8: but you said no.
Speaker 6: Then they said I'll buy your equities. You said no
Speaker 6: to that too.
Speaker 8: Then they said, what, you know what, I'm going to
Speaker 8: buy the commodities that you might need in the future.
Speaker 8: You said, fine, do it, which is what China did
Speaker 8: for years. Then here's the interesting thing. You said in return,
Speaker 8: let me sell you my services. So let me sell
Speaker 8: you fine wine, let me send you the gucci you know,
Speaker 8: more phenomenal bags, top education, education, and a lot of
Speaker 8: other things. And then also services services, whether it's a
Speaker 8: Microsoft Excel or whatever it is. Right, But now what's
Speaker 8: happening is you have that side of the world which
Speaker 8: is also building their own services. Tax durdism is now
Speaker 8: on shore. They started building their own cars up the
Speaker 8: chain value chain. So you're getting to a stage where
Speaker 8: if you expand this thematic que you in the West
Speaker 8: have to literally build all of it from ground up.
Speaker 8: So if you assume China was a space, they can
Speaker 8: still disrupt the services sector, but they can't disrupt the
Speaker 8: manufacturing sector theretary anymore, because you can you will have
Speaker 8: to build it all up. So if you want cobalt,
Speaker 8: and if they say no, you have to refine it,
Speaker 8: mine it, refine it. You need to have companies that
Speaker 8: refine it. You need to have the engineers do that work.
Speaker 8: And fundamentally, that's what the fundamental paradigm of the world is.
Speaker 8: So when you talk about sovereign debt or any holding
Speaker 8: of or any equity holding, ultimately the creditor is China
Speaker 8: and China alligned countries. They are the creditor to the
Speaker 8: West and we are the debtor. And this is only increasing.
Speaker 8: So if you believe the wizard, what does the ultimate
Speaker 8: objective agenda of the Wizard of the US China is
Speaker 8: to balance the current account to some extent, that's one agenda,
Speaker 8: and this, of course there's certain other spectual it. But
Speaker 8: fundamentally that's what defines the kind of makeshift of the
Speaker 8: next kind of year two three years, and whether we
Speaker 8: like it or not, we have to build this.
Speaker 2: I want to come back to China versus the US
Speaker 2: on AI in just a second, but I definitely want
Speaker 2: to also ask this question, because we are in London,
Speaker 2: how big a deal are the UK elections from your
Speaker 2: respective purchase, the local elections that are happening tonight.
Speaker 7: It is important because basically UK and broad there is
Speaker 7: for the past two years at least a big fight
Speaker 7: between fiscal dominance beliefs ten years, thirty years, more importantly
Speaker 7: thirty years around the world. Will they get more out
Speaker 7: of control since we are in London, have the dear
Speaker 7: least trust two moments? Or will financial repression mean meaning
Speaker 7: emerging market style, Treasury and central banks working more close together,
Speaker 7: especially on issues issuing less on the long end, more
Speaker 7: on the short end, taking a risk, but making sure
Speaker 7: that ten and thirty years are under the leash.
Speaker 3: In fact, a very key investor.
Speaker 7: Last summer, as in a smaller round table, what happens
Speaker 7: if all four of them this was probably August is
Speaker 7: before back to school September races began a US, Frans,
Speaker 7: Japan and UK if all of them had their transponments
Speaker 7: and then September came in. I remember us talking about this.
Speaker 7: Yes it happened, but only four hours in the guilt
Speaker 7: market and that was it.
Speaker 4: I remember that little many moment.
Speaker 7: So now there's an excitement again because UK has a
Speaker 7: different risk premium, a net international investment portfolio i e.
Speaker 7: Has a budget deficit and the current counterfeicit. Has to
Speaker 7: be nice to the foreigners because they will buy your
Speaker 7: our debts. Question Marks on what this local election may
Speaker 7: mean for the government. Will there be a change there
Speaker 7: or in the chancellor, will somebody more to the left
Speaker 7: come in? All these are under question mark famous last word.
Speaker 7: My feel is for the moment still, this financial repression
Speaker 7: will win. We won't have the trust moment two, but
Speaker 7: obviously they will need a little bit of luck for
Speaker 7: the Rand situation to continue to calm down, because unlike
Speaker 7: the trust moment Trust moment one. Now all of this
Speaker 7: is happening for reasons much beyond the UK.
Speaker 2: Joe, I am impressed that we always managed to schedule
Speaker 2: these macro conversations for maximum event risk between when we
Speaker 2: record and what it publishes. So we have the UK elections,
Speaker 2: everything happening with Iran, and we have non farm payrolls tomorrow.
Speaker 5: There's so much going on and we just apologize in
Speaker 5: an advent. This is why people should buy tickets to
Speaker 5: the event, because if you have to hear this conversation
Speaker 5: on the podcast feed, who knows it could be out
Speaker 5: of date, but those who are here don't have that
Speaker 5: issue is emification of Western policy making. Is that an
Speaker 5: apt characterization of it? Sinning aside specific you know, elections
Speaker 5: here or there. You hear that term emification of end
Speaker 5: is that appt.
Speaker 8: It depends right, So it's country to country this again
Speaker 8: paradigm you have. So let's the legalistic UK is an example.
Speaker 8: Let's elaborate further. Real rates are reasonably high. The country
Speaker 8: has gone through a difficult situation. You court see what
Speaker 8: happened with oil the pass through effect, but it's happening
Speaker 8: pretty much everywhere else in the world. You have a
Speaker 8: current account, which matters mostly in most countries, including UK.
Speaker 8: You have an input factor of energy and you have
Speaker 8: an output factor of services effectively that you said, so
Speaker 8: depending on where you are in the world, which country,
Speaker 8: depending on who you are. If you have a situation
Speaker 8: where you an energy importer M and your exports are
Speaker 8: highly dependent on effective services which you are getting disrupted
Speaker 8: courtesy AI, if you're in trouble alongside, if you're an
Speaker 8: importer of manufacturing also or goods, again you're in trouble.
Speaker 8: So this adjustment will happen. So you have to have allies.
Speaker 8: You have to have people who you do a quick
Speaker 8: proprove with, and that adjustment is what we're seeing effectively,
Speaker 8: and markets are finding a true balance of risk cleepia alongside.
Speaker 5: Well, okay, so on this point, two things you've said
Speaker 5: which sound very rational on stage, having a series of allies,
Speaker 5: I don't know if those are stable. And then also
Speaker 5: you know this aspiration to balance the current account between
Speaker 5: the US and China. It sounds nice, but like do
Speaker 5: you think, like, are there actually any real prospects of
Speaker 5: moving the dialogue that kind of thing.
Speaker 6: So again I don't want to comment here.
Speaker 8: This is in terms of our house view, but a
Speaker 8: general will I give you a general perspective on the
Speaker 8: same example, if you were to get west in space
Speaker 8: and ask China, what does it deed from the West?
Speaker 3: Yeah, it's not not. Yeah, I've heard apart from.
Speaker 8: Bowing in air buspare parts if you were to just
Speaker 8: look at from that perspective. So there is a desire
Speaker 8: and maybe there is an they will oblige. I do
Speaker 8: think there is certain things, like for example, agricultural products
Speaker 8: that could benefit. There are certain aspects, but fundamentally, unless
Speaker 8: we choose within the West to build the whole manufacturer stack,
Speaker 8: it's going to be very difficult to keep this current
Speaker 8: account balanced and.
Speaker 6: On top of it.
Speaker 8: The biggest worry, and again I'm maybe jumping on this point,
Speaker 8: is when people took about the as attack that the
Speaker 8: West is investing in the Capex stack, that the West
Speaker 8: is investing in. The key is not what the West
Speaker 8: is doing. The key is to understand what China is
Speaker 8: doing in it. Understand what they are doing with the
Speaker 8: deep sea version for models, glm FI, the Hawaii clusters.
Speaker 8: I can go on with an optical compute, there are
Speaker 8: quantum computing. There are many more things that they're actually
Speaker 8: investing a lot and which effectively becomes a true competition
Speaker 8: and a cost factor of reduction.
Speaker 6: If there is a risk, that is the risk to
Speaker 6: watch out for.
Speaker 8: Right It's not to study what we are doing here,
Speaker 8: because we will find ways to keep evolving. But you
Speaker 8: have an ecosystem there which is actually quite well worsed
Speaker 8: and also has a lot of capital behind it. And
Speaker 8: there was somebody who was quoted as most of the
Speaker 8: engineers today actually are that part of the world.
Speaker 7: And another thing that the market miscalculated right right after
Speaker 7: Trump got elected the second time December twenty fourth January
Speaker 7: twenty five, by far, the big CONSTANTUS straight. Besides, the
Speaker 7: us NI year is going to five fifty. You know,
Speaker 7: everybody being done a long was to buy these dollars
Speaker 7: NH options like that seven to seventy five.
Speaker 4: Everyone I knew was buying dollars C and nature.
Speaker 3: There you go, and what happened is.
Speaker 7: To start to start your see the other around. So
Speaker 7: that shows you even though some people are really into
Speaker 7: saying markets are never wrong, you're wrong, that can be
Speaker 7: very very wrong itself. So we're all human beings and
Speaker 7: certainly that can make markets very wrong itself. One more
Speaker 7: aging country that we need to talk about to bring
Speaker 7: it right to the market, Japan.
Speaker 3: Right, So to your question.
Speaker 7: Higher oil, higher rates, why doesn't this thing bring down equities?
Speaker 7: Why are these you know, why is this guy was
Speaker 7: on sending messages buses empty and nobody's buying it. It
Speaker 7: can be quite frustrating. Right last Thursday Friday, it almost
Speaker 7: happened because you know, it just feels itchy. The other
Speaker 7: end looked like it would break one the sixty it
Speaker 7: took like US Space would contin to sell off hurlmost again,
Speaker 7: question mark there was there wasn't that hunt and then
Speaker 7: just like the rate checkof at the beginning of the year,
Speaker 7: one of my closest friends on not on our trading floor,
Speaker 7: but on the sector. I had to heard this big
Speaker 7: Irish voice. You know, you know, this is a fat
Speaker 7: New York calling on helful of Bank of Japan and like,
Speaker 7: what's going on with this guy? And because he was
Speaker 7: shouting around, Because they want to make sure that in
Speaker 7: public information, they told those three banks that they called
Speaker 7: would let others know that they were watching. Similar this
Speaker 7: time around, FED didn't call Bank of Japan itself came
Speaker 7: and they punted for risk parity. What does that mean?
Speaker 7: They punted for lower walltalty, commer waters and stable rates.
Speaker 7: The moment they pushed down Yan's dollar and lower yan
Speaker 7: stronger US rates, calm down, he's got a bit et.
Speaker 3: Cetera, et cetera.
Speaker 7: So it's always a tug of war on one side
Speaker 7: resparraty camp mostly central banks trying to keep things calm,
Speaker 7: and on the other sides, sometimes my dear fast money
Speaker 7: friends looking for more twenty twenty two years Christmas come
Speaker 7: early every Friday, another fifty base points sell off on
Speaker 7: ty US ten years higher volatilty, et cetera, et cetera,
Speaker 7: and US stay in the middle and try to decide
Speaker 7: which one is right.
Speaker 2: Can't you just tell your fast money friends to calm
Speaker 2: down for a little bit. To Aditya, I want to
Speaker 2: go back to what you were saying about US versus
Speaker 2: Chinese AI models, because if we think about how much
Speaker 2: the stock market rally is actually dependent on AI at
Speaker 2: the moment, and how much of the AI story is
Speaker 2: dependent on this idea that like, well, the West has
Speaker 2: these amazing more sophisticated, albeit more expensive models for which
Speaker 2: the you know, tam is basically the entire world. And
Speaker 2: you're arguing that actually that's not the case, and China's
Speaker 2: models are perfectly suited for its own needs. Elaborate on that.
Speaker 2: How are you, as a sort of trader evaluating these models?
Speaker 2: How much of your day basically is now just trying
Speaker 2: to figure out AI.
Speaker 8: It's a very very good question, and the key here
Speaker 8: is is to understand what are you so currently? There's
Speaker 8: a whole There is a very very strong narrative. Yes,
Speaker 8: also a very strong use case. Now, the valuation stack
Speaker 8: versus a forward earnings kind of multiple, right, if you
Speaker 8: were to look at it right, says that there is
Speaker 8: going to be a huge CAPEX investment within the Western
Speaker 8: stack for the next three or four years, and that's
Speaker 8: what's created this valuy within various companies and the second
Speaker 8: order effect companies. China is doing something similar. It's very
Speaker 8: clearly said in the West that they're effectively using in
Speaker 8: video chips and video is just to companies, just to
Speaker 8: give an example, but just their chips to train the models.
Speaker 8: In reality, now they have Hawaii chips which are pretty
Speaker 8: much parallel or comparable to h one hundred processors. The
Speaker 8: big problem, and that the West is not appreciating is
Speaker 8: is that the reason West is investing so much in
Speaker 8: CAPEX is because they want to effectively get to superhuman
Speaker 8: intelligence very quickly. So almost everybody's saying, okay, you have
Speaker 8: a model that has seven trillion parameters. Now we go
Speaker 8: to fifteen, maybe at twenty five fifty, and it becomes
Speaker 8: self learning and it's reinforcement. But the reality is you
Speaker 8: have things like distributed AI, you have things which is
Speaker 8: actually being worked out in the West. You have also
Speaker 8: things which are very different, which is something has simple
Speaker 8: as quantum computing or I would say optical GPUs. Right,
Speaker 8: it's another concept, please read about it. So you have currently,
Speaker 8: there was a narrative in the West where you had
Speaker 8: GPUs of Nvidia and you had a copper connector between them.
Speaker 8: Now you have optical computer firms or optical firms effectively
Speaker 8: that have done very well in the last many kind
Speaker 8: of months.
Speaker 6: So this narrative will remain right.
Speaker 8: Having said that, if you keep an eye on what's
Speaker 8: going on the other side of the world. Also use
Speaker 8: case in terms of actual optic of usage, because it's
Speaker 8: not like I'm going to run five different AI models together.
Speaker 8: I'm going to probably converge to one at some point
Speaker 8: will eventually cause some kind of a problem in the future.
Speaker 8: The second thing that you have to keep an ion
Speaker 8: is also robotics. That's the other aspect which is going
Speaker 8: to be the second narrative that is actually going to
Speaker 8: start within the Western stack, which is the Elon Musk
Speaker 8: revolution of Optimus. And again something to keep keep an
Speaker 8: eye on what's happening in China within it versus what's
Speaker 8: happening in West, and how deficient is West.
Speaker 5: You talk about, Okay, this microphone that we're talking to
Speaker 5: almost certainly the majority of it or all of it
Speaker 5: prime made in China. How much do you see clients
Speaker 5: or people that you talk to purchasing Chinese financial assets,
Speaker 5: including Chinese government bonds, which more and more people are
Speaker 5: talking about not just the safe haven, but a safe
Speaker 5: haven that's done well and a diversifier. And how much
Speaker 5: is that becoming a meaningful part of portfolio construction.
Speaker 3: It can grow.
Speaker 7: I mean already it's happening with effects. But you know
Speaker 7: people first denial, then anger than accomplishments, right, they realized
Speaker 7: that the effects train has moved to your question government
Speaker 7: bond Chinese As said just two three years ago, even
Speaker 7: when I went to Singapore and Hong Kongs of the world,
Speaker 7: people were either fearing claiming being very confident that.
Speaker 3: China was uninvestible.
Speaker 7: Yeah, and deep inside I was saying, if Chinese uninvestible,
Speaker 7: you know your future in Singapore and Hong Kong. I
Speaker 7: turned out to be correct, right, But it turns out
Speaker 7: its thoughts of a fixed But there's still a lot
Speaker 7: more room to go in Chinese equities and Chinese bones.
Speaker 3: That bus is also not fool Okay.
Speaker 2: All right, lots of empty buses around. Ozon and Adita,
Speaker 2: thank you so much for coming on all thoughts really appreciated.
Speaker 6: Thanks for working.
Speaker 2: That was our conversation recorded live in London on May seventh.
Speaker 2: Shall we leave it there?
Speaker 4: Let's leave it there.
Speaker 2: This has been another episode of the au Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 5: I'm Joe Wisenthal. You can follow me at the Stalwart.
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Speaker 5: Bennett at Dashbot, Cale Brooks at Calebrooks and Kevin Lozano
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