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Speaker 1: This is Bloomberg Daybreak Asia for this Tuesday May second

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Speaker 1: in Hong Kong, Monday May first in New York and

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Speaker 1: coming up today.

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Speaker 2: JP Morgan Chase agrees to acquire First Republic Bank after

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Speaker 2: the trouble lender was seized by US regulators.

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Speaker 1: The FDIIC weighs more business deposit insurance after recent bank failures.

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Speaker 2: And the RBA may extend its rate hike pause as

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Speaker 2: inflation cools.

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Speaker 3: US Treasure Ace has deadline for default at June first,

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Speaker 3: President Marco's bilateral talks with President Biden to day at

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Speaker 3: the White House. US tracks another balloon over the Pacific.

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Speaker 3: I'm at Baxter with Global Lows.

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Speaker 4: That's all straight ahead on Bloomberg Daybreak Asia, The business

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Speaker 4: news you need to start your day in just one

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Speaker 4: fifteen minute podcast available on Apple, Spotify, the Bloomberg Business App,

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Speaker 4: and everywhere you get your podcasts.

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Speaker 1: Good morning, I'm Doug Risner and I'm Brian Curtiz. Here

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Speaker 1: are the stories we're following today. JP Morgan Chase agreeing

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Speaker 1: to acquire First Republic Bank and a government led deal.

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Speaker 1: The transaction was announced in the early morning hours after

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Speaker 1: First Republic was seized by US regulators. First Republic was

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Speaker 1: the second biggest bank failure in US history and the

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Speaker 1: fourth regional lender to collapse since early March. JP Morgan

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Speaker 1: CEO Jamie Diamond says he hopes that acquiring First republic

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Speaker 1: will help create stability.

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Speaker 4: No crystal ball.

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Speaker 5: Is perfect, but yes, I think the banking system is

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Speaker 5: very stable. A lot of the app depods outloads because

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Speaker 5: of the quality of tightening. Wasn't because these people are

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Speaker 5: having runs. There are only so many banks or off

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Speaker 5: side this way, and I think this is There may

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Speaker 5: be another smaller one, but this pretty much resolves them all.

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Speaker 5: But this part of the crisis is over.

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Speaker 1: Nevertheless, Diamond said that bank lending will probably suffer for

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Speaker 1: a time in the wake of recent failures. JP Morgan

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Speaker 1: said he'd acquired one hundred and seventy three billion dollars

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Speaker 1: of First Republic's loan, some thirty billion of securities, and

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Speaker 1: ninety two billion in deposits. JP Morgan and the FDIC

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Speaker 1: agreed to share the burden of losses as well as

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Speaker 1: any recoveries on the firm's single family and commercial loans.

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Speaker 2: Now at the same time. Today, US banking authorities are

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Speaker 2: proposing changes to deposit insurance for businesses. The story from

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Speaker 2: Bloomberg's Tom busby.

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Speaker 6: The FDIC on Monday, laying out several proposals to overhaul

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Speaker 6: a deposit insurance fund for businesses after First Republic became

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Speaker 6: the third major US bank to fail in the last

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Speaker 6: two months, draining the pool of federal money used to

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Speaker 6: protect those banking clients. The FDIC says a targeted coverage approach,

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Speaker 6: where business accounts get more coverage than the current cap

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Speaker 6: of just two hundred and fifty thousand dollars in deposits,

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Speaker 6: would be the best option to maintain stability, but would

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Speaker 6: require congressional approval. Other options include maintaining coverage as it

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Speaker 6: is or switching to cover all deposits. Tom Busby Bloomberg

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Speaker 6: Daybreak Asia.

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Speaker 1: The Reserve Bank of Australia may be set to extend

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Speaker 1: a pause in its interest rate hikes, and it will

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Speaker 1: deliver its latest monetary policy decision later today. Get a

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Speaker 1: preview here from Bloomberg's Paul Allen.

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Speaker 7: Australia Central Bank will keep its cash rate at three

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Speaker 7: point six percent for a second straight month. That's according

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Speaker 7: to Bloomberg Economics. This comes following a deceleration in inflation

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Speaker 7: that allowed the RBA's board more time to assess the

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Speaker 7: impact of its policy tightening to date. The key reason

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Speaker 7: for pausing is Governor Philip Lowe's desire to hold on

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Speaker 7: to employment gains made during the pandemic and unlike many

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Speaker 7: Developed World counterparts, those willing to tolerate a slightly slower

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Speaker 7: return of inflation to deliver a soft landing for the

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Speaker 7: Australian economy. In contrast to the RBA, both the FED

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Speaker 7: and the ECB are both expected to push rates even higher.

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Speaker 7: Later this week, we'll get a decision from the RBA

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Speaker 7: at two thirty pm Sydney time. In Sydney, I'm Paul

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Speaker 7: Allen Bloomberg Daybreak Asia.

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Speaker 2: Back here in the US. MGM Resorts International reported first

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Speaker 2: quarter results above estimates. The story from Bloomberg's Charlie Pellett.

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Speaker 8: MGS is the largest operator of casinos on the Las

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Speaker 8: Vegas Strip, and it is crediting growth in Nevada and

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Speaker 8: a rebound in Macau. MGM's business in Las Vegas, its

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Speaker 8: largest market, is booming, with revenue up thirty one percent

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Speaker 8: to two point two billion dollars. The company's hotels were

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Speaker 8: ninety two percent full during the quarter, taking in an

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Speaker 8: average of two hundred and fifty eight dollars a night.

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Speaker 8: China is on the men too. Business in Macau more

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Speaker 8: than doubled, reflecting the recovery that has followed the lifting

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Speaker 8: of COVID nineteen travel restrictions. In New York, Charlie Pad

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Speaker 8: Bloomberg Daybreak Asia.

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Speaker 1: So MGM's adjusted EPs was forty four cents, the estimate

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Speaker 1: ten cents, and yet the stock is trading flat in

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Speaker 1: late trading. That's one we can definitely unpack a little bit.

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Speaker 1: Later this morning, i am F chief Cristelina Gorgieva said

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Speaker 1: that China is shifting its thinking about debt restructuring. Gorgieva

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Speaker 1: said that the move is due to China being confront

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Speaker 1: by countries that are unable to pay what they owe.

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Speaker 1: Here's Gorgieva speaking earlier at the Milken Institute Global Conference.

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Speaker 9: Nothing makes you more eager to understand that restructuring than

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Speaker 9: when a country says, sorry, I can't pay you back.

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Speaker 9: We need to walk together because if we don't, they

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Speaker 9: would be catastrophe for many many countries.

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Speaker 1: Gurgiv also said, my view is we have to drag

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Speaker 1: them more than seventy low income nations face a collective

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Speaker 1: three hundred and twenty six billion dollar debt burden. More

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Speaker 1: than half of them are already in or near distress,

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Speaker 1: and in many cases China is the largest creditor. Beijing

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Speaker 1: has long resisted providing relief, citing its own status as

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Speaker 1: a developing country, but the IMF says that now maybe changing.

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Speaker 1: I'm Brian Curtis along with Doug Krisner. I think we'll

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Speaker 1: talk about that story a lot with our guests this morning,

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Speaker 1: but I think we want to make a point again

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Speaker 1: here which I heard a few moments ago, that now

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Speaker 1: you have the second and third biggest bank failures in

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Speaker 1: US history, Doug. That have happened while the Fed was

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Speaker 1: raising rates five hundred bases points in a jiffy. The

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Speaker 1: economy in the market seemed to have escaped great harm.

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Speaker 1: But we don't know what would have happened if the

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Speaker 1: regulators hadn't stepped in. And yet Jamie Diamond says, the

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Speaker 1: American banking system is extraordinarily sound. At the very least,

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Speaker 1: that sounds provocative.

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Speaker 2: That's a good point. At the same time, I want

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Speaker 2: to bring in the view of Dick Beauvet the noted

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Speaker 2: banking analyst who was saying today that this deal that

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Speaker 2: would be the acquisition of First Republic by JP Morgan

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Speaker 2: is jpm's best deal in decades. He is saying that

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Speaker 2: if you look at that wealthy client business, that that

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Speaker 2: alone could earn JP Morgan between five hundred million to

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Speaker 2: a billion plus in net income annually. So I think

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Speaker 2: a lot of people seem to be not only sighing

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Speaker 2: a bit of relief that yes, maybe the worst is

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Speaker 2: passed in terms of the ructions that we've been seeing

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Speaker 2: in the regional banking complex, but where it goes to

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Speaker 2: JP Morgan, that maybe the company has scored in a big.

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Speaker 1: Way, well, it creates some ructions for sure. I mean,

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Speaker 1: people will see this and admittedly nobody wants a crisis,

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Speaker 1: but they'll say, look, the big banks are just getting bigger. Yeah,

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Speaker 1: And you know this was they had to make some adjustments,

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Speaker 1: as we pointed out yesterday, in order for this to

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Speaker 1: be done. They had to make some allowances with JP

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Speaker 1: Morgan having sixteen percent deposits. So it may not it

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Speaker 1: may not be received too positively by some in the market,

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Speaker 1: but then you know, like I said before, we don't

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Speaker 1: know what would have happened if the FEDS hadn't stepped in.

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Speaker 1: One quick point about Meta and Facebook. Facebook's a cash machine, right,

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Speaker 1: Why is it borrow? Why is it paying one hundred

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Speaker 1: and ninety two basis points above treasuries. I'm sure there

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Speaker 1: are capital management reasons, but it does seem to raise

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Speaker 1: some interesting questions.

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Speaker 2: Yeah, that was a very interesting development as part of

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Speaker 2: a larger issue here with a lot of issuers coming

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Speaker 2: to the corporate bond market. I think on that list

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Speaker 2: is Comcast as well. I think they have a five

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Speaker 2: billion dollars four part deal this week. That may account

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Speaker 2: for some of the move up that we had in

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Speaker 2: yield today because as part of some of the corporate offerings,

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Speaker 2: those issuers put treasuries under pressure, since underwriters sometimes sell

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Speaker 2: corporate notes to ratelock the issues for those corporate buyers.

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Speaker 2: So that may have been one of the factors that

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Speaker 2: we saw play out in the market today.

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Speaker 1: Yeah, Hershey was in there as well today. So I

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Speaker 1: have three big companies and it must mean that they

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Speaker 1: feel that rates are going to stay high or go

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Speaker 1: even higher. If you're willing to get the cash now

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Speaker 1: at rates that you deem good value. Time now for

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Speaker 1: Global News. The US Treasury now saying it may run

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Speaker 1: out of ways to stave off default only until the

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Speaker 1: first of June. At Baxter has Global News from the

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Speaker 1: nine to sixty newsroom in San Francisco.

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Speaker 3: Ed, Yeah, and we're talking three weeks to a month, right.

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Speaker 3: Treasury Secretary Janet Yellen has sent a letter to House

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Speaker 3: Speaker Kevin McCarthy in particular and lawmakers in general today

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Speaker 3: that her ability to use her special accounting maneuvers to

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Speaker 3: stay within the death limit could be exhausted as soon

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Speaker 3: as the start of June. And now the White House

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Speaker 3: has put out a statement saying that the President has

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Speaker 3: invited McCarthy, House Speaker Hakeem Jeffreys, and sent a Majority

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Speaker 3: Leader Schumer Chuck Schumer to the White House on May

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Speaker 3: ninth to try and get a resolution. Bub Bloomberg's Wendy

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Speaker 3: Benjaminson on Balance of Power says, this really puts pressure

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Speaker 3: on all the negotiating parties.

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Speaker 10: When you say they have three weeks that often doesn't

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Speaker 10: include Mondays and Fridays, and so we're talking days. Congress

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Speaker 10: has days to get this done. The White House has

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Speaker 10: days to decide whether they are going to negotiate how

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Speaker 10: Speaker McCarthy or not.

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Speaker 5: Now.

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Speaker 3: McCarthy's in Israel today at a news conference, he of

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Speaker 3: course was asked about the impasse. He focused on the Senate.

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Speaker 11: If the Senate has a different opinion the bill. How

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Speaker 11: Congress works. If you just go back to schoolhouse rock

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Speaker 11: House pass the bill, Senate passability, can go to conference

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Speaker 11: and the President can then decide.

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Speaker 5: Yeah.

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Speaker 3: President on his part, says that debt limit has to

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Speaker 3: be addressed.

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Speaker 12: Threatening to fall now we're totally responsibly irresponsible. We'll lead

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Speaker 12: to higher indust rates, hire, credit card rates, mortgage rates

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Speaker 12: with skyrocket. Working people, middle class and seniors would pay

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Speaker 12: the price.

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Speaker 4: Now.

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Speaker 3: Bloomberg's Rick Davis says Congress will most probably move very

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Speaker 3: quickly now.

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Speaker 13: They want to get this over with. Nobody wants to

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Speaker 13: hanging over their heads during a presidential election year. The

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Speaker 13: House wants to get on to do other things. This

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Speaker 13: is instability personified, right, I mean, what will the Senate

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Speaker 13: do if not, you know, take this up in the

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Speaker 13: short hasten.

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Speaker 3: So again next day June one. A major meeting set

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Speaker 3: for May nine, with a short amount of time to

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Speaker 3: get it sorted out. Philippine President Ferdinand Marcos Junior at

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Speaker 3: the White House today bilateral meeting with President Joe Biden.

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Speaker 3: White House Press Secretary Karine Jean Pierre says, reaffirming the

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Speaker 3: vast partnership.

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Speaker 8: You know, our work together will allow our lines to

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Speaker 8: operate more effectively, not only for the defense of the Philippines,

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Speaker 8: but for the good of the region, such as the

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Speaker 8: respond to natural disasters.

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Speaker 3: Marcos looking for reassurances to help in the South China

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Speaker 3: Sea against potential Chinese aggression. In the US military is

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Speaker 3: tracking a balloon that flew across portions of Hawaii. NBC's

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Speaker 3: reporting it's not clear who it belongs to. They're saying

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Speaker 3: it did not go over any sensitive areas, as moving

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Speaker 3: slowly toward Mexico. It has been tracked by the US

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Speaker 3: since late last week. They say it poses no threat

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Speaker 1: This is Bloomberg Daybreak Asia. I'm Brian Curtis along with

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Speaker 1: Rashad Salamat in Hong Kong. Our guest is Devon Drew,

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Speaker 1: CEO and CIO of DFD Partners, So Devon, thanks very

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Speaker 1: much for joining us. The S and P five hundred

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Speaker 1: is more or less where it was two years ago,

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Speaker 1: a little bit of a round trip in between, but

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Speaker 1: not too far off where it has been moving sideways

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Speaker 1: for ten months. So yet in the time we've had

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Speaker 1: the FED raise interest rates five hundred basis points, so

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Speaker 1: I'm not quite sure whether don't fight the FED works.

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Speaker 1: And we have an earnings recession that's underway now too,

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Speaker 1: and yet the market hasn't gone down. Is that a

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Speaker 1: good sign or a bad sign for equity holders?

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Speaker 14: Yeah, so thank you so much for having me. So

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Speaker 14: we actually think it's kind of like a best of

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Speaker 14: both world situation. We feel like the financial markets, as

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Speaker 14: you know, of pricing that recession. However, we do think

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Speaker 14: that recession allows for rates to be lower and inflation

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Speaker 14: to dramatically cool off. I know we have a meeting

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Speaker 14: here this week, but more poorly not to negatively affect

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Speaker 14: corporate earnings. So definitely feel like it's a best of

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Speaker 14: both world type of situation.

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Speaker 15: And Davone you're suggesting right now the monkets French mark

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Speaker 15: is a pricing in a recession. But what kind of recession?

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Speaker 14: Yeah, so, I mean we really feel like it's going

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Speaker 14: to be in you know, a light, a light earnings recession.

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Speaker 14: You know, you've seen some you know, you you've seen

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Speaker 14: at some point, you know, last quarter, you know, it

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Speaker 14: was like thirty you know, thirty five percent of the

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Speaker 14: companies that have that have missed. We think that looking

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Speaker 14: at you know, looking at earnings and looking at from

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Speaker 14: a balance sheet perspective, investors really shrugging off the recent

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Speaker 14: banking crisis. But it's really clear that investors have made

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Speaker 14: the preferences abundantly clear. And that's and that's dominant companies

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Speaker 14: with fortress balance sheets. Right, So we feel like the

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Speaker 14: companies with these fortress balance sheets, like your JP Morgans,

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Speaker 14: like your Metas, like you you know, like your like

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Speaker 14: your you know, like your other dominant players in the space,

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Speaker 14: will continue to have really good success. But then the

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Speaker 14: the you know, the bottom let's say thirty of these

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Speaker 14: companies are going to are going to continue to struggle

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Speaker 14: like we've seen with on a financial respective. On the

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Speaker 14: financial side, i'd like a Silicon League bank of course,

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Speaker 14: and and today with you know, with First Republic going

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Speaker 14: into receivership and JP Morgan buying it out.

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Speaker 1: So is not a justification for the narrow part of

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Speaker 1: the market doing so well. And are you looking at, say,

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Speaker 1: the top quality companies in every sector, not just the

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Speaker 1: big tech companies with fortress balance sheets as you just mentioned.

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Speaker 14: Yeah, I mean I think I think that's what the

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Speaker 14: preferences are right for. I mean, like if you have

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Speaker 14: if you have cash on the balance sheets, if you're

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Speaker 14: not you know, if if you're kind of steadfast in

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Speaker 14: your your your disciplines, I think that the market is

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Speaker 14: going to continue to to award those companies. And and

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Speaker 14: I just looked at you know, when the US was

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Speaker 14: going through our quote unquote banking crisis and the fear

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Speaker 14: of contagion. But yet you know the but yet, let's

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Speaker 14: say on it's on the tech side, you know, the

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Speaker 14: nas that continue to continue to rally, and you know,

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Speaker 14: really thinking, okay, well let's look at the here and

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Speaker 14: you're looking at the VIX and it hasn't really spiked.

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Speaker 14: You know, we think the VIX could actually go lower

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Speaker 14: from here. So unless there's like some you know, less

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Speaker 14: there's like some news with debt ceiling We're not able

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Speaker 14: to come to agreement there unless there's some crazy geopolitical

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Speaker 14: event or anything in the macro. I mean, this could

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Speaker 14: really lead to a very strong second half of twenty

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Speaker 14: twenty three for these for these larger, more dominant players.

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Speaker 15: Are you restricted just to equities, because I mean the

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Speaker 15: bond market is where the juice is right now if

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Speaker 15: you're looking for steady income and have that defensive nature

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Speaker 15: as well.

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Speaker 14: Yeah, I mean most of what we do is on

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Speaker 14: the equity side, but we definitely pay attention to the

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Speaker 14: you know, to the fixed income market. You've seen the

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Speaker 14: flows within within treasury funds that you know, people continue

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Speaker 14: to pile into those type of funds. So it makes us,

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Speaker 14: you know, it makes us a little bit nervous, right,

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Speaker 14: and when you know you have, you know, the the

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Speaker 14: competition for capital at all time highs, right, and then

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Speaker 14: now if you include treasuries and certain fixed income you know,

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Speaker 14: opportunities out there, it definitely makes it that much difficult,

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Speaker 14: that much more difficult to compete for the capital that's

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Speaker 14: out there.

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Speaker 1: I'll take the opposite side of Rish's argument in that

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Speaker 1: I think the latter part of last year was probably

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Speaker 1: good to be in in treasuries. But from the beginning

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Speaker 1: of this year until now, the cues the Nasdaq one

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Speaker 1: hundreds up twenty percent. You know, if you if you

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Speaker 1: were in there, So, I mean, what what we're trying

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Speaker 1: to do is outperform, and right now the equity market

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Speaker 1: is giving you that. But as we mentioned earlier, in

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Speaker 1: a narrow slice of the market. So what's the what's

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Speaker 1: the next three months going, what sort of outperform? Where

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Speaker 1: are you going to find the outperformance in the next

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Speaker 1: three months?

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Speaker 14: Yeah, you know, if you look at you know, I'm

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Speaker 14: more kind of data driven, right, so when I look

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Speaker 14: at you know, when I look at you know, fun

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Speaker 14: flows for instance, you know, you saw last week, right,

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Speaker 14: you saw l q D, which is the I sharees

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Speaker 14: investment grade corporate right having the most you know, the

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Speaker 14: most outflows of anything in a fixed income line fixed

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Speaker 14: income arena. But then you look at you know, you're

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Speaker 14: looking at the s m P equivalent on the on

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Speaker 14: the on the equity side having the largest, uh, you know,

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Speaker 14: the largest inflows as far as you know, as far

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Speaker 14: as on the equity side. So really feeling, you know,

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Speaker 14: really really sticking to that high quality company companies that

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Speaker 14: have been indiscriminately sold off for the you know over

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Speaker 14: the past few months, right, and that's why I think

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Speaker 14: you've seen some some real traction with the you know,

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Speaker 14: with the metas and the you know, these large and

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Speaker 14: these large cap companies and the JP Morgans of the world.

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Speaker 14: So you know, I think that's going to continue to happen,

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Speaker 14: especially if you know, the vix continues to be low.

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Speaker 14: You're not really seeing a lot of valots in your market.

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Speaker 14: And then of course selling may go away, right, So

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Speaker 14: there's really not going to there's really not going to

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Speaker 14: be that catalyst for extreme volatility. And you know and

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Speaker 14: these you know, in these megacap companies, uh to go

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Speaker 14: down from here, right, so you know, with that old adage,

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Speaker 14: right may and go away. Really really at large cap

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Speaker 14: you know, the high quality large megacap companies with you know,

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Speaker 14: with christine balance sheets and ones that are paying a

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Speaker 14: study study uh study dividend.

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Speaker 15: Okay, you know you look at how you actually pick

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Speaker 15: equities then, so you know you've talked about the mega

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Speaker 15: I should say, those cash rich companies out that you know,

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Speaker 15: looking at those which you get HANDSI rewarded from here

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Speaker 15: as well with the Fortress balance sheets as you put it,

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Speaker 15: Where else do you look in you know, how do

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Speaker 15: you do your stock selection? And tell me something? Is

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Speaker 15: technology becoming more and more important to you in that?

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Speaker 15: And I'm making a veiled reference to AI.

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Speaker 14: Yeah, I mean technology for sure? Right, So even thinking

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Speaker 14: about you know, think about what we listen to from

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Speaker 14: you know, from a company perspective, right, So using technology

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Speaker 14: where you're being able to identify voice inflections in earnings calls,

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Speaker 14: right and being able to decipher and leveraging you know,

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Speaker 14: leveraging data and AI to decipher you know what point

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Speaker 14: is you know, is a manager being truthful or you know,

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Speaker 14: are they being you know, are are they you know?

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Speaker 14: Is there anything to any cause for concern in the

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Speaker 14: voice pattern? And I think those type of technologies will

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Speaker 14: continue to evolve which will allow for you know, folks

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Speaker 14: in the you know, sitting on the stock selection side

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Speaker 14: of the house, to make you know, better, more informed

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Speaker 14: decisions if they're you know, if they're fundamental fundamental investors.

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