WEBVTT - The Fed Holds Steady, Qualcomm Beats on China Strength 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 Asia podcast. I'm Doug Krisner. 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 APAC 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 --> 0:00:26.360 the Bloomberg Terminal, and the Bloomberg Business app. 0:00:27.600 --> 0:00:27.720 Well. 0:00:27.800 --> 0:00:30.920 Joining us now on the program is Adam Turnquist, chief 0:00:30.960 --> 0:00:35.960 technical strategist LPL Financial for a closer look at markets. 0:00:36.360 --> 0:00:39.400 So it was seemed it seemed a little bit like 0:00:39.479 --> 0:00:43.120 a douvish FED meeting compared to what we had expected. 0:00:44.040 --> 0:00:47.000 And you get these comments from Powell, which you know 0:00:47.040 --> 0:00:50.000 are sort of like, well, he's less confident than before, 0:00:50.600 --> 0:00:55.080 but still confident of disinflation continuing. And how you take 0:00:55.160 --> 0:00:58.120 that probably says more about you know, who you are 0:00:58.240 --> 0:01:00.000 versus who he is. 0:01:00.120 --> 0:01:03.200 You think it was an interesting FED meeting. 0:01:03.240 --> 0:01:06.560 I think there was a lot there really no surprises 0:01:06.720 --> 0:01:09.560 from the Fed when you look at the commentary was 0:01:09.600 --> 0:01:12.400 really just a reverberation of the higher for longer narrative 0:01:12.440 --> 0:01:15.039 that we've been hearing about from the Fed. Who's really 0:01:15.040 --> 0:01:17.600 have been pushing back against the idea of rate cuts. 0:01:17.920 --> 0:01:21.399 A lot of April was that repricing of that narrative. 0:01:21.720 --> 0:01:23.640 I think if you were to classify it, it was maybe 0:01:23.720 --> 0:01:27.399 less hawkish than feared, and really for the market, it 0:01:27.520 --> 0:01:29.360 touched on a lot of things they were looking to hear. 0:01:29.560 --> 0:01:33.399 I think most importantly, Chair Powell noted that a rate 0:01:33.480 --> 0:01:36.760 hike is unlikely. As you mentioned, they're a little less 0:01:36.760 --> 0:01:40.400 confident in the timing of reaching their two percent inflation target, 0:01:40.480 --> 0:01:41.920 but he certainly sounded. 0:01:41.520 --> 0:01:45.080 Confident they'll eventually get there, and he also sounded confident 0:01:45.080 --> 0:01:45.800 in the economy. 0:01:45.840 --> 0:01:49.160 He noted that he doesn't see the stag or the 0:01:49.800 --> 0:01:54.120 flation risk as he coined it at the meeting, pushing 0:01:54.120 --> 0:01:58.640 back against any of the stagflation headlines that it percolated recently, 0:01:58.960 --> 0:02:01.600 citing really a strongly or market and growth moving along 0:02:01.640 --> 0:02:03.920 at a solid pace. I was really more surprised by 0:02:04.000 --> 0:02:06.640 the fade into the clothes, as you talked about earlier 0:02:07.040 --> 0:02:09.440 sp given up at one point two percent gain and 0:02:09.480 --> 0:02:11.400 closing at session lows today. 0:02:11.400 --> 0:02:13.560 That was that was more of a surprise than the 0:02:13.600 --> 0:02:14.359 initial reaction. 0:02:14.520 --> 0:02:16.120 Yeah, there were a lot of cross currents, and I 0:02:16.120 --> 0:02:20.240 think another one was this rally, this incredible rally that 0:02:20.280 --> 0:02:22.680 we had in the Japanese yen against the dollar in 0:02:22.720 --> 0:02:24.720 late New York trading. At one point we were up 0:02:24.760 --> 0:02:28.880 three percent, and that obviously fostered a lot of speculation 0:02:28.960 --> 0:02:31.720 that maybe it was an opportune moment for the Ministry 0:02:31.720 --> 0:02:34.640 of Finance in Japan to intervene to support the currency. 0:02:34.680 --> 0:02:36.079 Now that you know you got the fed out of 0:02:36.120 --> 0:02:38.360 the way, let's deal with the other big problem here, 0:02:38.400 --> 0:02:40.919 which has been yen weakness. And I think that may 0:02:40.960 --> 0:02:44.080 have correlated with a lot of the volatility that we 0:02:44.160 --> 0:02:46.600 had in the equity market. When you look at Japan 0:02:46.760 --> 0:02:50.200 right now, what is your feeling. Maybe it's about the 0:02:50.200 --> 0:02:52.880 way that the currency has been behaving. Maybe it's about 0:02:53.240 --> 0:02:56.000 whether there is still opportunity to put money to work 0:02:56.160 --> 0:02:58.880 in the equity market. How are you seeing Japan these days? 0:03:00.080 --> 0:03:00.400 Right now? 0:03:00.400 --> 0:03:04.440 There's a rising risk of currency stability and you can 0:03:04.480 --> 0:03:07.840 see that ever since the yen weakened against the dollar 0:03:07.919 --> 0:03:10.200 through one fifty two. That was the spot where the 0:03:10.520 --> 0:03:13.240 boj came in back in twenty twenty two, and I 0:03:13.240 --> 0:03:16.799 think most people thought they would do the same, and 0:03:17.040 --> 0:03:21.080 you can see now we briefly hit one sixty Sunday overnight, 0:03:21.480 --> 0:03:24.400 the Bank of a Japan presumably came in with about 0:03:24.400 --> 0:03:27.240 a thirty five billion dollar order to prop up the end, 0:03:27.720 --> 0:03:29.720 and that was the same type of reaction that we 0:03:29.760 --> 0:03:31.360 witnessed going into the close. 0:03:31.480 --> 0:03:33.160 It was pretty interesting. 0:03:33.200 --> 0:03:36.160 I looked down at my screen and I was shocked 0:03:36.200 --> 0:03:38.720 when I thought when I saw the yen where it 0:03:38.800 --> 0:03:41.560 was trading, it is bounced back a little bit or 0:03:41.600 --> 0:03:44.440 weakened a little bit against the dollar. But I think 0:03:44.480 --> 0:03:46.600 if they can maintain control and we're not going to 0:03:46.600 --> 0:03:50.720 be pushing through one sixty, that should help stabilize the 0:03:52.000 --> 0:03:53.720 Japanese equity market in the yen. 0:03:53.840 --> 0:03:56.120 Of course, a lot of that's correlated. 0:03:55.720 --> 0:03:57.840 To what's going on in the US, and you can't 0:03:57.840 --> 0:04:00.680 really ignore that big rate differential when you're talking about 0:04:00.920 --> 0:04:04.920 BED policy and BOJ policy. But from a longer term 0:04:05.080 --> 0:04:09.440 investor standpoint, we continue to like Japan within international developed 0:04:09.640 --> 0:04:12.720 I think there's a great earning story there. Shareholder friendly 0:04:12.800 --> 0:04:16.120 practices are being implemented, and there's a lot of households 0:04:16.120 --> 0:04:19.159 that are underinvested in equity markets, and you're seeing kapital 0:04:19.200 --> 0:04:22.360 of move into equity markets at this time. So long term, 0:04:22.400 --> 0:04:24.880 I think that theme has shelf life. Might be some 0:04:25.279 --> 0:04:28.240 bumps along the road as we work through this Yen 0:04:28.360 --> 0:04:29.200 weakness story. 0:04:29.760 --> 0:04:32.040 Adam, you said you were quite surprised at the market 0:04:32.080 --> 0:04:36.200 reaction because, as we know, when Pal finished speaking, both 0:04:36.240 --> 0:04:38.720 the NASDAC and the S and P five hundred were 0:04:38.800 --> 0:04:40.520 up more than one percent, and then just in the 0:04:40.600 --> 0:04:43.279 last hour of training I ended up with the loss. 0:04:44.480 --> 0:04:49.320 Doug talked about one possibility. I think also some of 0:04:49.360 --> 0:04:53.760 the momentum plays did get slammed pretty hard, particularly some 0:04:53.839 --> 0:04:56.680 of the chip makers. Now that might change with Coalcom 0:04:56.720 --> 0:04:59.800 after the bill, but you did have Nvidia and Broadcom 0:05:00.040 --> 0:05:03.640 and AMD down pretty sharply. I wonder whether or not 0:05:03.880 --> 0:05:07.400 we're still in this process of sort of squeezing out 0:05:07.400 --> 0:05:09.520 the giddiness in markets. 0:05:09.880 --> 0:05:12.440 What do you think. I think that's a good point, Brian. 0:05:12.520 --> 0:05:13.359 It was interesting. 0:05:13.520 --> 0:05:15.520 We look at things a lot technically, at least in 0:05:15.560 --> 0:05:18.920 my role, and you've had this short relief rally off 0:05:18.960 --> 0:05:22.920 some oversoul levels hit mid April that's stalled out right 0:05:22.920 --> 0:05:25.800 around the fifty day moving average. That's often a spot 0:05:25.800 --> 0:05:28.640 where you see these relief rallies die just not enough 0:05:28.680 --> 0:05:31.080 the momentum. It does raise the risk we could go 0:05:31.120 --> 0:05:34.760 back retest those April lows. We start breaking down there, 0:05:34.800 --> 0:05:37.240 that could be another leg lower down more toward the 0:05:37.279 --> 0:05:40.440 forty eight hundred level and potentially retesting those prior highs. 0:05:40.440 --> 0:05:42.920 We were very frothy. 0:05:42.560 --> 0:05:45.359 We'll call it if you look back, coming into the 0:05:45.600 --> 0:05:49.279 second quarter after an impressive first quarter rally that had 0:05:49.440 --> 0:05:52.159 I think a record high every three trading days. So 0:05:52.279 --> 0:05:54.320 we're taking some of that froth out. It looks like 0:05:54.400 --> 0:05:58.599 a pretty orderly pullback at this point. No major trend 0:05:58.680 --> 0:06:02.800 line violations from technical standpoint, Breath still holding up well, 0:06:02.880 --> 0:06:04.960 so looks like I could have a little bit more 0:06:04.960 --> 0:06:06.839 of a shakeout though, as you mentioned in some of 0:06:06.839 --> 0:06:07.840 those momentum. 0:06:07.440 --> 0:06:11.839 Areas, Unfortunately Adam tech tech canalysis really doesn't work well 0:06:11.839 --> 0:06:13.200 on the radio. But I'm going to go out on 0:06:13.200 --> 0:06:14.000 a limb anyway. 0:06:14.800 --> 0:06:15.440 I'm looking at the. 0:06:15.400 --> 0:06:17.600 Bloomberg now on the S and P five hundred, it 0:06:17.640 --> 0:06:21.560 looks like the one hundred day moving averages at forty 0:06:21.640 --> 0:06:24.640 nine seventy four, and we seem to be using that 0:06:24.680 --> 0:06:27.280 as support right now. Is that the key number for you? 0:06:27.360 --> 0:06:29.560 I mean, we're trading today. We close the S and 0:06:29.600 --> 0:06:33.640 P at fivey eighteen, so we're not far away from 0:06:33.680 --> 0:06:36.400 the one hundred day moving average. If we violate that 0:06:36.480 --> 0:06:39.200 level the number I just quoted forty nine seventy four, 0:06:39.279 --> 0:06:41.040 is there a lot more in the way of downside, 0:06:42.120 --> 0:06:42.560 I think so. 0:06:43.279 --> 0:06:46.560 I'm really watching the April lows forty nine sixty seven 0:06:46.600 --> 0:06:49.480 if we're going to get super technical tonight. But if 0:06:49.880 --> 0:06:52.600 dip buyers aren't stepping in and there's no demand off 0:06:52.640 --> 0:06:55.719 those lows, there's a pretty big pocket of air to 0:06:56.040 --> 0:06:58.720 really that forty eight hundred level where those prior highs are. 0:06:58.760 --> 0:07:01.839 And when you have how these type of parabolic moves, 0:07:02.000 --> 0:07:04.920 you often revert back to towards the longer term trend 0:07:05.080 --> 0:07:08.440 that tends to be around that forty eight hundred level. 0:07:08.760 --> 0:07:11.040 So it could be a pretty quick trip down there 0:07:11.080 --> 0:07:13.400 if we start breaking through those intra day lows. 0:07:13.400 --> 0:07:14.520 In April, J. 0:07:14.720 --> 0:07:18.720 Powell was asked if loose financial conditions were actually hurting 0:07:18.880 --> 0:07:22.000 the FEDS fight against inflation, and he shrugged it off 0:07:22.000 --> 0:07:24.880 to a certain degree, saying that growth in the early 0:07:24.960 --> 0:07:28.000 part of this year was weaker than last year even 0:07:28.040 --> 0:07:30.840 with the looser conditions, and he noted that inflation came 0:07:30.880 --> 0:07:36.480 down fast last year despite overall GDP growth being really 0:07:36.520 --> 0:07:38.920 high in the US up three point four percent in 0:07:38.960 --> 0:07:41.640 the fourth quarter, stronger than this year. It's kind of 0:07:41.640 --> 0:07:45.239 another way of saying that the relationships of these things 0:07:45.240 --> 0:07:46.840 are not hard and fast. 0:07:48.280 --> 0:07:50.840 I think that's fair and it's been. Of course, we 0:07:50.920 --> 0:07:54.360 have to factor in the lagged effects of monetary policy 0:07:54.640 --> 0:07:57.360 and when that's really going to take fold. If you 0:07:57.400 --> 0:08:00.880 look at some of the trends in consumer spending. Obviously 0:08:00.920 --> 0:08:04.120 we witnessed that in the first quarter GDP with spending 0:08:04.160 --> 0:08:07.160 slowing down, But other areas of the market that we've 0:08:07.200 --> 0:08:10.600 watched in terms of some spending slowdowns have been just 0:08:10.760 --> 0:08:14.040 in the delinquency rates, whether it's. 0:08:13.920 --> 0:08:17.520 Auto loans or credit credit cards. 0:08:17.840 --> 0:08:21.560 Ninety day delinquencies are up, and also just credit scores 0:08:21.640 --> 0:08:23.400 have been moving lower as some of the bills come 0:08:23.480 --> 0:08:26.560 doe and a lot of the excess savings have been 0:08:26.640 --> 0:08:28.520 drawn down from the pandemic era. 0:08:28.640 --> 0:08:30.680 So you seem a little cautious on the equity market 0:08:30.840 --> 0:08:33.760 very quickly. If I'm short duration in the bond market, 0:08:33.800 --> 0:08:34.480 is that a buy. 0:08:35.960 --> 0:08:37.880 Yeah? I think so. We think you should be taking 0:08:37.920 --> 0:08:38.920 advantage of yields. 0:08:39.480 --> 0:08:41.640 You don't need to go out long duration right now, 0:08:41.960 --> 0:08:44.800 or even in high yield. Credit spreads in the high 0:08:44.840 --> 0:08:48.520 yield space are call it ninetieth percentile, So you're not 0:08:48.559 --> 0:08:49.400 really getting. 0:08:49.120 --> 0:08:51.000 Paid what you used to get paid to pick on 0:08:51.080 --> 0:08:51.640 credit risk. 0:08:51.880 --> 0:08:56.400 Thank you, Adam Turnquist, Chief technical strategist LPL Financially. 0:09:03.240 --> 0:09:06.200 Let's get to what we heard after the belt from Qualcomm, 0:09:06.720 --> 0:09:09.640 the company with an upbeat forecast for both sales and 0:09:09.720 --> 0:09:12.520 profit in the current quarter. Qualcom, you may know, is 0:09:12.559 --> 0:09:16.480 the world's largest seller of smartphone processors. We have now 0:09:16.520 --> 0:09:20.920 on the line from San Francisco, Bloomberg Intelligence Senior semiconductor 0:09:20.920 --> 0:09:24.080 analyst kun John Sabani. What did you make of what 0:09:24.120 --> 0:09:26.360 you heard from the company or what you're kind of 0:09:26.440 --> 0:09:30.080 reviewing now as you look at the statement from the company. 0:09:31.520 --> 0:09:34.480 Yeah, I mean, you know, the main positive was that 0:09:34.600 --> 0:09:38.840 while most of the smartphone guys, including its chips peers, 0:09:39.960 --> 0:09:44.040 gave a really bleak June quarter outlook lower than seasonal, 0:09:44.440 --> 0:09:47.080 Qualcoms sort of stood out from the pack as the 0:09:47.080 --> 0:09:49.600 only one which not only came in line but with 0:09:49.679 --> 0:09:52.840 a slight beaed, which was sort of a win in itself. 0:09:53.280 --> 0:09:56.600 And we think there were two primary drivers of that. One, 0:09:57.000 --> 0:10:00.840 Apple has seen a significant share loss in China and 0:10:01.040 --> 0:10:04.000 the Android OEMs have picked up that loss, so that 0:10:04.080 --> 0:10:08.679 really benefits a qual Comm and sort of the premium, 0:10:08.840 --> 0:10:14.000 really high end segment is seeing less of this demand weakness, 0:10:14.040 --> 0:10:16.760 which is again where Qualcom has a much higher exposure. 0:10:17.960 --> 0:10:21.600 Yeah, as mentioned, Qualcomm seems to have made a comeback 0:10:21.640 --> 0:10:24.520 in China, both on the sales front but also on 0:10:24.559 --> 0:10:29.959 its relations with regulators. What's the latest there, I. 0:10:29.880 --> 0:10:34.280 Mean for Qualcom revenues. Sort of these US China trade 0:10:34.320 --> 0:10:38.840 sanctions never had any major impact because it goes most 0:10:38.840 --> 0:10:43.120 of its devices goes in a consumer product and again 0:10:43.559 --> 0:10:46.720 you know the Chinese OEMs who they're selling into. There's 0:10:46.760 --> 0:10:51.600 sort of no other big alternative grown, homegrown alternative from China, 0:10:51.679 --> 0:10:55.600 so it doesn't impact them. The tensions have impacted Apple, 0:10:55.679 --> 0:10:59.120 which again is sort of a beneficial benefit. Qualcom is 0:10:59.120 --> 0:11:02.920 a beneficiary from that because every Apple phone that is 0:11:02.960 --> 0:11:06.680 not sold and is replaced by a Chinese Android OEM phone, 0:11:07.080 --> 0:11:09.680 Qualcom gets sort of a three x to a five 0:11:09.920 --> 0:11:11.960 x asp uplift from that. 0:11:12.240 --> 0:11:14.360 Yeah, for the last two quarters, I think the number 0:11:14.559 --> 0:11:18.080 in terms of sales to Chinese phonemakers was like a 0:11:18.160 --> 0:11:21.439 gain of forty percent. I mean, that's just a stunning 0:11:21.520 --> 0:11:23.200 number to look at, But when you look at the 0:11:23.240 --> 0:11:25.679 guidance for the current quarter, I want to understand it. 0:11:25.720 --> 0:11:29.400 Clearly we're calling it an upbeat forecast. Are we to 0:11:29.480 --> 0:11:32.520 look at it in that way? I mean, is it 0:11:32.559 --> 0:11:36.319 is it barely meeting expectations or is it more optimistic 0:11:36.880 --> 0:11:38.560 than I'm kind of alluding to. 0:11:39.720 --> 0:11:43.160 Well, it's not a significant beat in terms of magnitude, 0:11:43.559 --> 0:11:47.680 but it's more of an optimistic sentimental beat, right, Like, 0:11:47.800 --> 0:11:51.800 while rest of your peers are suffering and gave double 0:11:51.920 --> 0:11:56.440 digit decline or beats, I should say non decline, you 0:11:56.559 --> 0:11:59.280 came in in line or slightly up. That's sort of 0:11:59.280 --> 0:12:02.640 an invitelf right. And what also is helping them is 0:12:02.960 --> 0:12:06.319 the auto con which has been continued to grow sequentially 0:12:06.720 --> 0:12:12.080 continues its tragedory, but IOD, which was declining significantly for 0:12:12.280 --> 0:12:15.160 multiple quarters in a row, sort of has stopped that 0:12:15.240 --> 0:12:18.200 bleeding and is now expected to turn around slowly. So 0:12:18.280 --> 0:12:20.960 all that is sort of a win in a market 0:12:20.960 --> 0:12:23.679 where again, like most of its peers are struggling. 0:12:24.760 --> 0:12:28.320 Yeah, when I asked about actually about regulators earlier, I 0:12:28.360 --> 0:12:30.160 was kind of referring back to the difficult period that 0:12:30.240 --> 0:12:33.720 Qualcomm had in China. Over licensing and the billion dollar, 0:12:33.880 --> 0:12:36.920 almost billion dollar fine that it had to pay. But 0:12:36.960 --> 0:12:40.240 it seems like basically what you're saying is that things 0:12:40.320 --> 0:12:43.439 are pretty hunky dory for Qualcom in China now, including 0:12:43.880 --> 0:12:47.440 the relationship with Shaumi, Honor one plus Opo, Vivo, you 0:12:47.520 --> 0:12:47.880 name it. 0:12:48.720 --> 0:12:51.640 Yeah, exactly. I mean, China is one of their, if 0:12:51.679 --> 0:12:55.000 not the biggest, most important market for them specifically, and 0:12:55.160 --> 0:12:59.240 we don't see any sort of geopolitical or regulatory issues 0:12:59.280 --> 0:13:02.160 for them in China, at least in the near future. 0:13:02.320 --> 0:13:04.240 Huawei is a different story, right. 0:13:05.600 --> 0:13:10.360 Yeah, I mean, Wawei is not a negative for them, right. 0:13:10.880 --> 0:13:14.160 It seems the share gains in Wahwei had in five 0:13:14.240 --> 0:13:17.240 G came again a lot at the expense of Apple, 0:13:18.000 --> 0:13:22.040 and Wawei has actually indirectly helped them to drive up 0:13:22.160 --> 0:13:26.360 the TAM for the Android space, so sort of indirectly 0:13:26.360 --> 0:13:28.120 helping them. 0:13:28.000 --> 0:13:32.760 Just briefly on AI and Internet of Things, I know 0:13:32.880 --> 0:13:36.040 quakam as a group on that. How is the company 0:13:36.080 --> 0:13:41.960 faring in those two areas. 0:13:40.200 --> 0:13:44.320 You know, AI outside of smartphones sort of in let's say, 0:13:44.280 --> 0:13:47.199 in automotive variety, it's too early. I don't think it's 0:13:47.240 --> 0:13:52.960 having material revenue impact on the fundamentals, it's most of 0:13:53.040 --> 0:13:57.079 its sort of other diversified products. The next big thing 0:13:57.160 --> 0:14:00.280 to look out for the companies really bullish on in 0:14:00.320 --> 0:14:04.720 that IoT segment is the AIPC, which I'd expected to 0:14:04.920 --> 0:14:07.520 hit the market sort of in second half twenty four. 0:14:08.240 --> 0:14:11.600 We don't think it is going to drive significant revenue 0:14:11.600 --> 0:14:14.840 this year. If it goes all goes well, it could 0:14:14.920 --> 0:14:18.760 be a driver in fiscal twenty five, but nothing this year. 0:14:18.880 --> 0:14:21.040 All right, Kunjohn, it's always a pleasure. Thanks for making 0:14:21.080 --> 0:14:25.160 time to chat with us, Bloomberg Intelligence Senior semiconductor analyst, 0:14:25.240 --> 0:14:27.800 Kun John Subani. As we talk call Tom here. 0:14:34.880 --> 0:14:37.720 Let's get to our guest, Nancy Davis, founder in CIOT 0:14:37.840 --> 0:14:40.760 Quadratic Capital Management, to talk a little bit more about 0:14:40.760 --> 0:14:43.920 markets and the FED. I always love watching the FED 0:14:44.040 --> 0:14:48.360 news conference and how definitely Pal handles the questions. I 0:14:48.400 --> 0:14:51.760 thought he was a little nervous at the open, really 0:14:51.800 --> 0:14:54.360 referring to notes and scrambling and get the papers in there. 0:14:54.360 --> 0:14:57.160 But then he started to kind of reach stride. He 0:14:57.760 --> 0:15:01.560 blasted the notion of stagfla, He blasted the notion that 0:15:01.600 --> 0:15:04.760 the FED would do anything different on policy because of 0:15:04.840 --> 0:15:08.320 the election coming up. He said, look, I'm less confident 0:15:08.400 --> 0:15:13.760 now about disinflation continuing, but I'm still confident. Your takeaway 0:15:13.800 --> 0:15:16.520 from the way that this meeting rolled. 0:15:16.240 --> 0:15:20.760 Out, well, I don't think he said anything really new, 0:15:21.680 --> 0:15:24.320 but he was trying to thread the needle. I think 0:15:24.320 --> 0:15:27.480 the markets definitely were worried a little bit that the 0:15:27.520 --> 0:15:30.080 Fed was going to be more hawkish in their commentary, 0:15:30.120 --> 0:15:33.000 and I think all the it was read more dubvish 0:15:33.200 --> 0:15:38.000 just because of there's still they're using quantitative tightening. They're 0:15:38.040 --> 0:15:41.200 still providing so much liquidity to the market that it 0:15:41.240 --> 0:15:45.680 is still easing even though they haven't started cutting rates yet. 0:15:45.840 --> 0:15:48.760 Yeah, they kind of dialed back on the amount of 0:15:49.680 --> 0:15:52.480 quantitative tightening they're going to be doing. Is certainly where 0:15:52.600 --> 0:15:55.880 US treasuries are concerned. I mean, the mortgage back portion 0:15:56.040 --> 0:15:59.120 of unwanting the balance sheet remained in tech I think 0:15:59.680 --> 0:16:03.920 months rated around thirty five billion. What is your sense 0:16:04.080 --> 0:16:07.440 do you fear or suspect that the market is would 0:16:07.440 --> 0:16:10.040 have a strong negative reaction if the Fed were to 0:16:10.080 --> 0:16:13.440 remain on the same track that it's been with respect 0:16:13.480 --> 0:16:16.920 to unwinding the balance sheet. Was there a risk that 0:16:16.960 --> 0:16:20.360 Powell was trying to address today that may have to 0:16:20.400 --> 0:16:23.000 do a little bit with some type of potential tantrum. 0:16:24.040 --> 0:16:28.280 Well, he's easing by slowing the pace of quantitative tightening, 0:16:28.320 --> 0:16:31.800 which really wasn't very large when you think about the 0:16:31.800 --> 0:16:35.320 Fed's denominator, which is the balance sheet, is about seven 0:16:35.440 --> 0:16:38.400 trillion dollars in the SOMA piece of the balance sheet, 0:16:38.480 --> 0:16:41.200 So that's the piece of the Fed's balance sheet that 0:16:41.240 --> 0:16:43.880 the New York Fed actually went into the open market 0:16:43.960 --> 0:16:50.520 and bought during QE. So reducing the quantitative tightening is easing, 0:16:51.080 --> 0:16:54.600 and they're easing in a very very hot economy in 0:16:54.600 --> 0:16:57.960 the US, so it's all quite inflationary in the long term. 0:16:58.160 --> 0:17:00.840 So it's sort of like talking out of both sides 0:17:00.840 --> 0:17:03.880 of your mouth. You know, they're they're not cutting, but 0:17:04.000 --> 0:17:06.119 they still are reducing QT. 0:17:07.840 --> 0:17:10.680 We like to think of there being a lot of 0:17:10.760 --> 0:17:15.400 volatility in the bond market, but as as we heard 0:17:15.480 --> 0:17:17.800 from a number of practitioners, I mean, if you really 0:17:17.840 --> 0:17:20.920 look at it, the ten year has been in a 0:17:21.040 --> 0:17:23.760 range of around this this sort of area of four 0:17:23.760 --> 0:17:28.000 point six percent going back on you know, back to November. 0:17:28.320 --> 0:17:31.240 So yeah, we've fluctuated thirty forty basis points, but not 0:17:31.280 --> 0:17:34.280 that much, are you do you like the short end 0:17:34.280 --> 0:17:36.639 of the curve better here, or you would you go 0:17:36.720 --> 0:17:37.439 out in duration. 0:17:39.040 --> 0:17:39.680 I don't think you. 0:17:39.760 --> 0:17:42.320 Really get paid to go out in duration, because the 0:17:42.440 --> 0:17:47.280 US yield curve is still, you know, massively inverted. Especially 0:17:47.359 --> 0:17:50.240 even if you look at the sofa curve, the not 0:17:50.359 --> 0:17:53.639 the treasury curve, but the swaps curve, it's you know, 0:17:53.680 --> 0:17:57.720 the choose tens as negative sixty four basis points, so 0:17:57.840 --> 0:18:01.399 you literally get paid sixty four this points less to 0:18:02.440 --> 0:18:06.359 lend the US money for ten years versus two years. 0:18:06.440 --> 0:18:10.600 I mean, it's nonsensical. Even markets like Japan, their yield 0:18:10.680 --> 0:18:16.320 curve is positive sixty basis points, so we're exactly opposite 0:18:16.359 --> 0:18:19.639 being negative. So I just don't think investors in the 0:18:19.640 --> 0:18:22.320 bond market really get paid to own duration. It's almost 0:18:22.359 --> 0:18:25.600 like you're paying a tax, right, You're taking more risk 0:18:25.680 --> 0:18:28.800 and getting paid less yield, And especially if the Fed's 0:18:28.880 --> 0:18:31.640 gonna leave it higher for longer, I just don't see 0:18:31.640 --> 0:18:33.679 any point to extend duration. 0:18:33.960 --> 0:18:36.080 I'm glad you brought up Japan because we had a 0:18:36.119 --> 0:18:39.400 lot of action in the foreign exchange in the last 0:18:39.480 --> 0:18:41.440 hour of a New York trading in the equity market, 0:18:41.480 --> 0:18:45.000 at one point, the end strengthened buy around three percent 0:18:45.000 --> 0:18:47.520 against the greenback. The dollar had been a little week 0:18:48.280 --> 0:18:50.000 after the you know, the FED meeting, we saw a 0:18:50.080 --> 0:18:52.400 drop and yield. Some of that may have been due 0:18:52.440 --> 0:18:57.080 to the quantitative tightening adjustment. But when when you trade 0:18:57.119 --> 0:18:59.359 a market like the one that we find ourselves in 0:18:59.440 --> 0:19:03.360 right now, if you're short yen, that may help explain 0:19:03.400 --> 0:19:05.480 why we saw a pullback in US stocks. Would you 0:19:05.560 --> 0:19:08.080 have to you know, sell the equity market to raise 0:19:08.160 --> 0:19:11.359 cash to cover your short position in yen? Is Can 0:19:11.359 --> 0:19:13.280 that help explain a little of what we saw in 0:19:13.320 --> 0:19:15.840 the final moments of trading today. 0:19:16.960 --> 0:19:19.719 Well, I do think that the yen, the currency is 0:19:19.720 --> 0:19:22.920 more closely tied to the treasury market. More too, because 0:19:22.960 --> 0:19:26.480 Japan such a large owner of our debt and the 0:19:26.520 --> 0:19:30.120 treasury does have to refinance a ton of the debt. Yeah, 0:19:30.440 --> 0:19:32.600 And at the same time, the Fed is still doing 0:19:32.640 --> 0:19:38.280 They reduced quantitative tightening starting in June, but they're still 0:19:38.320 --> 0:19:40.880 doing it, and so I think, you know, I would 0:19:40.920 --> 0:19:44.280 say the foreign currency moves are more tied to the 0:19:44.359 --> 0:19:46.720 rate differential. In carry trade. 0:19:46.880 --> 0:19:49.720 We were like six basis points down in the case 0:19:49.760 --> 0:19:51.600 of both the two and the ten, but that was 0:19:51.640 --> 0:19:54.520 a three percent move in yen. That felt to me 0:19:54.680 --> 0:19:57.399 like a massive short squeeze that was tied to fear 0:19:58.119 --> 0:20:01.439 that or maybe the Ministry of Finance was already in 0:20:01.480 --> 0:20:04.159 there kind of trying to prompt a bit of short covering. 0:20:05.480 --> 0:20:08.080 Yeah, I mean there's definitely a lot of chatter about 0:20:08.840 --> 0:20:11.800 intervention because again, as we can you know, if you 0:20:11.880 --> 0:20:13.719 just take a big step back, you know, the end 0:20:13.880 --> 0:20:17.359 was ninety and then got to one sixty in a 0:20:17.480 --> 0:20:22.320 very short period of time. So it's had massive depreciation recently, 0:20:22.320 --> 0:20:24.919 and the dollar has been very strong, so you know, 0:20:25.080 --> 0:20:28.400 three percent pullback before even Asia is really open. I'm 0:20:28.440 --> 0:20:32.040 sort of you know, like the bond market's moving like 0:20:32.119 --> 0:20:34.639 crazy too. It's kind of just noise at this point, 0:20:34.720 --> 0:20:35.760 and we'll really have to. 0:20:35.720 --> 0:20:37.680 See what actually. 0:20:38.920 --> 0:20:40.800 Where then do you see the best value in the 0:20:40.800 --> 0:20:45.960 bond market, including credit? Would you look at investment grade 0:20:46.040 --> 0:20:48.560 but the better you know, sort of maybe triple b's 0:20:48.640 --> 0:20:50.360 instead of higher than that. 0:20:51.320 --> 0:20:53.800 No, I wouldn't touch that stuff with a ten foot pull. 0:20:54.280 --> 0:20:57.240 I mean, if you have equities in your portfolio already 0:20:57.240 --> 0:21:01.119 have that corporate beta, you know, with investment grade, you know, 0:21:01.160 --> 0:21:03.679 you pull up your Bloomberg terminal and look at the 0:21:03.760 --> 0:21:07.760 CDX index for the two year investment grade bond. It's 0:21:07.800 --> 0:21:10.320 twenty two basis points. I mean that you can only 0:21:10.400 --> 0:21:13.160 go to zero, right. It's a spread trade. You want 0:21:13.200 --> 0:21:16.639 credit spreads Titan to Titan to go lower. If you 0:21:16.720 --> 0:21:20.000 own the bonds, you're not getting paid with credit. Frankly, 0:21:20.040 --> 0:21:21.800 I think if you're going to take corporate resk, you 0:21:21.840 --> 0:21:25.840 might as well have equities, and I think values of 0:21:25.920 --> 0:21:28.240 value our inflation protection bonds. 0:21:28.240 --> 0:21:30.720 No time to go into it, but that was Jeff 0:21:30.760 --> 0:21:34.239 Gundlock speaking on CNBC earlier saying that he thought that 0:21:34.320 --> 0:21:36.359