WEBVTT - Japan Rates, APAC Markets 0:00:02.480 --> 0:00:06.840 Bloomberg Audio Studios, Podcasts, radio news. 0:00:09.640 --> 0:00:12.880 This is the Bloomberg Daybreak Asia podcast. I'm Doug Prisner. 0:00:12.920 --> 0:00:15.400 You can join Brian Curtis and myself for the stories, 0:00:15.440 --> 0:00:18.520 making news and moving markets in the Apec region. You 0:00:18.600 --> 0:00:21.439 can subscribe to the show anywhere you get your podcast 0:00:21.520 --> 0:00:24.919 and always on Bloomberg Radio, the Bloomberg Terminal, and the 0:00:24.920 --> 0:00:28.640 Bloomberg Business app. We had more than a half dozen 0:00:28.680 --> 0:00:32.280 FED officials addressing the issue of rate cuts today, one 0:00:32.280 --> 0:00:36.040 of them the head of the Minneapolis Fed, Neil Kashkari. Curiously, 0:00:36.120 --> 0:00:39.600 he was saying rate cuts may not be needed this year, 0:00:39.720 --> 0:00:43.080 especially if the economy remains robust. 0:00:43.159 --> 0:00:45.720 If we continue to see strong job growth, if we 0:00:45.760 --> 0:00:49.600 continue to see strong consumer spending and strong GDP growth, 0:00:50.080 --> 0:00:53.760 then that raises a question in my mind, well, why would. 0:00:53.600 --> 0:00:54.280 We cut rates. 0:00:54.360 --> 0:00:58.080 Maybe the dynamics that we have right now are actually sustainable, 0:00:59.160 --> 0:01:01.640 but there's a lot there's only a lot of gifts 0:01:01.840 --> 0:01:04.400 underlying that question and that hypothesis. 0:01:04.560 --> 0:01:07.320 He is Neil Kashkara, the head of the Minneapolis FED, 0:01:07.440 --> 0:01:11.160 at a virtual event on LinkedIn earlier today. We also 0:01:11.200 --> 0:01:14.200 heard from the head of the Cleveland Fed, lorettam Mesters, 0:01:14.360 --> 0:01:17.200 She suggested the FED could be getting close to the 0:01:17.319 --> 0:01:21.440 level of confidence it needs to begin cutting and Austin Goolsby, 0:01:21.440 --> 0:01:23.360 the head of the Chicago FED, was saying today those 0:01:23.440 --> 0:01:27.000 higher than expected inflation readings in the months of January 0:01:27.040 --> 0:01:31.440 and February likely don't change the broader picture of cooling 0:01:31.840 --> 0:01:34.560 price growth. Let's get to our guest, George, but Boris 0:01:34.640 --> 0:01:38.800 is with us. George's managing director of research and Investments, 0:01:38.920 --> 0:01:42.640 also advisory at K two Asset Management. He joins us 0:01:42.680 --> 0:01:45.800 from the line in Melbourne. George, thanks for being with us. 0:01:45.840 --> 0:01:48.080 Where are we right now in the inflation story. 0:01:50.080 --> 0:01:51.560 That's a good question to laid with. 0:01:51.600 --> 0:01:54.280 But in the Western world inflation is falling in a 0:01:54.480 --> 0:01:55.720 non linear manner. 0:01:56.440 --> 0:01:57.800 Others are calling it bumpy. 0:01:58.800 --> 0:02:02.560 That is much as expected for most participants in the market, 0:02:02.880 --> 0:02:06.080 but some do. You act surprise, but that stubborn core 0:02:06.160 --> 0:02:10.720 services inflation is an issue, and then it splits very quickly, 0:02:10.720 --> 0:02:13.079 depending on what narrative you are. You can look at 0:02:13.080 --> 0:02:17.120 core CPI it is upper end to that three handle. 0:02:17.360 --> 0:02:20.320 We can look at core PCE and it's upper end 0:02:20.320 --> 0:02:23.160 of the two handle. The directions in the right way. 0:02:23.760 --> 0:02:26.639 It is non many. It is messy. There is stubbornness 0:02:26.639 --> 0:02:30.040 to it, which is predicated on the resilience of aggregate 0:02:30.080 --> 0:02:31.480 data in North America. 0:02:31.560 --> 0:02:34.680 Do we are we underestimating the effect that the crude 0:02:34.680 --> 0:02:36.960 oil market could be having on inflation? I mean we're 0:02:37.000 --> 0:02:39.440 above we were trading above eighty seven dollars a barrel 0:02:39.919 --> 0:02:42.680 in a WTI and Brent right now is above ninety 0:02:42.720 --> 0:02:45.560 one bucks. If this is lasting, if this is durable 0:02:45.880 --> 0:02:48.680 in terms of the price moves in oil, could we 0:02:48.800 --> 0:02:52.000 be underestimating where we are in the inflation story? 0:02:53.919 --> 0:02:56.400 Just like a high interest rates are less sensitive the 0:02:56.440 --> 0:02:59.120 stage of the cycle. In broader terms of the US economy, 0:02:59.400 --> 0:03:02.280 you'd have to say higher energy prices are as well, 0:03:02.320 --> 0:03:04.959 to a degree at the stage of the cycle versus 0:03:04.960 --> 0:03:08.639 previous cycles decades. Part But the thing to reinforce is 0:03:08.680 --> 0:03:13.200 that the demand destruction kicks in rule of thumb. Econometricians 0:03:13.280 --> 0:03:15.800 like telling us ninety days of these sort of prices. 0:03:16.040 --> 0:03:19.240 Demand destruction kicks in one to eighty days. Demand destruction 0:03:19.440 --> 0:03:23.040 amplifies itself if there were to be sustainably higher and 0:03:23.120 --> 0:03:24.400 you need GDP. 0:03:24.120 --> 0:03:26.080 And aggregate data to justify it. 0:03:26.160 --> 0:03:28.800 Just like high nomenal bond yards, you can tolerate it 0:03:28.880 --> 0:03:32.880 if economic growth in nominal terms is expanding, So comes 0:03:32.919 --> 0:03:34.680 back to it is ahead. 0:03:34.720 --> 0:03:37.120 When it is demand destruction, it is a tax on 0:03:37.200 --> 0:03:38.840 the consumer. But taking a. 0:03:38.760 --> 0:03:40.960 Step back is that there's the resilience for the US 0:03:41.000 --> 0:03:44.200 economy and the employments there. So in the US you'll 0:03:44.200 --> 0:03:46.640 be going up at a higher price. You'd be upset 0:03:46.680 --> 0:03:50.680 with hurb feelings, but in the main, generally it's that 0:03:51.160 --> 0:03:53.360 economic activity is more robust to tolerate it. 0:03:53.480 --> 0:03:56.480 Yeah, hurt feelings great in an election year. I mean, 0:03:56.480 --> 0:03:59.400 we'll see where that gets us, right, So let's talk 0:03:59.440 --> 0:04:02.040 a little bit of higher for longer in the states. 0:04:02.200 --> 0:04:04.600 Are you in the camp that we're going to get 0:04:04.640 --> 0:04:06.880 as many as three rate cuts this year in the US? 0:04:09.040 --> 0:04:11.680 Not too much three believe I'll start one late in 0:04:11.720 --> 0:04:14.440 the year, But that's irrelevant. 0:04:14.520 --> 0:04:16.200 It's more what does the data do. 0:04:16.480 --> 0:04:21.360 So having government obviously fed governors speaking about no rate 0:04:21.400 --> 0:04:24.000 cuts this year really gets the attention on the headline, 0:04:24.040 --> 0:04:25.520 so people can sit down and go, oh, what am 0:04:25.560 --> 0:04:28.320 I dealing with here? Because it can't be as binary 0:04:28.320 --> 0:04:32.000 as rate cut good, rate staying the same bad for 0:04:32.120 --> 0:04:34.320 risk assets, It's going to be more nuanced to that 0:04:34.680 --> 0:04:36.800 and that's what something's happening, and people need to focus 0:04:36.839 --> 0:04:41.159 on it. So the economic data and the wealth effects 0:04:41.160 --> 0:04:44.479 for households in North America and their residential homes are 0:04:44.560 --> 0:04:47.279 much higher than what it was before. There's a double 0:04:47.320 --> 0:04:50.000 wealth effect in there. Yes, there's the fixed loans and 0:04:50.360 --> 0:04:52.960 it's an accid in itself that have to be reset sometime. 0:04:53.400 --> 0:04:58.320 But why would someone's looking for price stability across an economy? 0:04:58.480 --> 0:04:59.880 Why would you be cutting into that? 0:05:00.400 --> 0:05:04.640 So data has to deteriorate in a faster momentum and pace, 0:05:05.160 --> 0:05:05.920 not just one month. 0:05:05.920 --> 0:05:07.480 It can't be just pay rolls tonight. 0:05:07.800 --> 0:05:10.320 It needs to be weakness over three months, rolling three 0:05:10.360 --> 0:05:13.200 months to be able to build that narrative of three 0:05:13.320 --> 0:05:14.159 rate cuts this year. 0:05:14.400 --> 0:05:17.320 But as it stands at the moment, earnings are growing. 0:05:17.520 --> 0:05:20.279 They're probably pricing to be too high, high single digits, 0:05:20.320 --> 0:05:24.560 but they are growing. It's quite healthy relative to expectations. 0:05:24.560 --> 0:05:27.800 And cutting interest rates in the face of these risks 0:05:27.800 --> 0:05:29.440 and average out of the earnings is what would be 0:05:29.480 --> 0:05:30.200 all looking for. 0:05:30.800 --> 0:05:32.359 It doesn't seem to make much sense to me. 0:05:32.640 --> 0:05:35.119 So let's change gears talk a little bit about China, 0:05:35.120 --> 0:05:37.000 and I'm curious as to whether or not first, you 0:05:37.080 --> 0:05:40.280 think the economy has bottomed, and if we are in 0:05:40.320 --> 0:05:44.080 that process right now, could we begin to inflate a 0:05:44.160 --> 0:05:47.880 little bit and kind of emerge from this deflationary trap 0:05:47.920 --> 0:05:51.760 in China. 0:05:50.080 --> 0:05:53.520 Possible, many moving parts, and your show discusses it all 0:05:53.560 --> 0:05:56.920 the time. It's very clear that household and business sentiment 0:05:56.960 --> 0:06:00.560 in China is at real depressed levels, unlike North America, 0:06:00.720 --> 0:06:04.480 and they got deflation unelike North America. So there are 0:06:04.600 --> 0:06:06.520 many moving parts as they've got to deal with the 0:06:06.520 --> 0:06:10.200 consequences of the biggest construction housing collapse we've ever seen. 0:06:10.839 --> 0:06:12.920 But it's very clear Beijing is very targeted. So the 0:06:12.920 --> 0:06:16.039 middle class is going to maintain this painful period for 0:06:16.160 --> 0:06:20.440 considerable time as they deviate their policies accordingly as pragmatic 0:06:20.480 --> 0:06:22.960 as Beijing always chose to be. So there is an 0:06:23.120 --> 0:06:27.760 aggregate turnaround of data. Sentiment is very very low in there, 0:06:28.400 --> 0:06:31.360 and they are controlling and the rest. This is why 0:06:31.400 --> 0:06:34.520 everybody's underweight auto's in the West. They are controlling the 0:06:34.560 --> 0:06:39.400 next phase of EVS and the protest grummery. So Janet 0:06:39.480 --> 0:06:41.919 Yellen needs to do her best work, and even that 0:06:41.960 --> 0:06:44.760 won't be enough on the current tour because they are 0:06:44.800 --> 0:06:48.719 ready to unload lower cost products right across the board 0:06:48.720 --> 0:06:52.440 to the whole world. And that is good for China 0:06:52.440 --> 0:06:55.960 in itself, But from the investment point of view, this 0:06:56.080 --> 0:06:59.040 is the crux of it all. We are not putting 0:06:59.040 --> 0:07:02.800 finite capital in China for the last three years, we 0:07:02.880 --> 0:07:06.760 are buying earning some of those exporters to China, hence 0:07:06.760 --> 0:07:07.719 their energy overweight. 0:07:08.160 --> 0:07:10.679 It seems as though authorities in China are really caught 0:07:10.760 --> 0:07:12.800 between a rock and a hard place. I mean, I 0:07:12.880 --> 0:07:16.640 understand the weakness and the property market and how industrial 0:07:16.760 --> 0:07:20.080 policy as a driver of growth may be able to 0:07:20.120 --> 0:07:22.120 make up for some of that, but if you're dealing 0:07:22.200 --> 0:07:26.119 with over capacity in so many industries, it's not clear 0:07:26.200 --> 0:07:29.960 to me how you can continue to use industrial policy 0:07:30.360 --> 0:07:31.040 as a driver. 0:07:32.800 --> 0:07:33.480 No spot on. 0:07:35.120 --> 0:07:37.880 Sometimes some people would say there's some cognitive dissonance with 0:07:37.920 --> 0:07:40.080 some of the policy cutting out of Beijing, but in 0:07:40.120 --> 0:07:42.360 reality they're taking a step back from the grand to 0:07:42.480 --> 0:07:45.880 play the long term. They will unload cheaper products to 0:07:45.920 --> 0:07:48.400 the rest of the world that will allow it, and 0:07:48.440 --> 0:07:51.120 North America will maintain them. They've obviously died up those 0:07:51.160 --> 0:07:54.600 tariffs and the current administration from the previous one. They 0:07:54.600 --> 0:07:56.760 can allow these cheap goods to come through, which they 0:07:56.840 --> 0:08:00.360 won't and that would be very CPI will fall very quick. 0:08:00.640 --> 0:08:05.240 But in the main, China's just got a different playbook 0:08:05.240 --> 0:08:07.280 at the moment to where we're worth three years ago 0:08:07.480 --> 0:08:09.680 and the middle class of China going to pay that price. 0:08:10.040 --> 0:08:10.600 Look it is. 0:08:10.720 --> 0:08:14.960 It is a property construction collapse like we've never seen. 0:08:15.240 --> 0:08:17.000 It will take a decade to get out of that. 0:08:17.480 --> 0:08:20.560 But again in the main, China is just coordinating that 0:08:20.600 --> 0:08:23.280 middle class go through the pain, hold onto that pain. 0:08:23.640 --> 0:08:26.280 Aggregate data will get us over the edge. And they 0:08:26.320 --> 0:08:32.040 are producing some some key goods, particularly in the technology sector, 0:08:32.400 --> 0:08:34.920 in the energy transition sector, that the rest of the 0:08:34.920 --> 0:08:38.040 world needs at a lower price. And that's a nuance 0:08:38.080 --> 0:08:39.720 of it. Or how do they do? And we believe 0:08:40.120 --> 0:08:42.719 the risks are which you can't price see with geopolitical 0:08:43.080 --> 0:08:46.600 is that there's tariff's go even of off the current 0:08:47.160 --> 0:08:50.760 template which is really high, Tariff's just accelerate in twenty 0:08:50.880 --> 0:08:53.720 twenty five to another level. They're the risks for the 0:08:53.720 --> 0:08:54.560 global economy. 0:08:54.600 --> 0:08:56.439 George, Before I let you go, I have to get 0:08:56.480 --> 0:09:00.720 your take on Japan. We heard from Governor Uwaita speaking 0:09:00.800 --> 0:09:05.439 with Saji Shimboon, saying that really greater certainty is necessary 0:09:05.480 --> 0:09:08.600 before on the inflation story, before there is any more 0:09:08.640 --> 0:09:12.080 policy action in terms of raising infrastrates. Where are you 0:09:12.320 --> 0:09:13.800 on Japan right now? 0:09:15.600 --> 0:09:19.320 Firstly, Yuela has played it perfectly, engineered that he's nominal 0:09:19.400 --> 0:09:22.240 rates to zero very well, and it's obviously communicated in 0:09:22.320 --> 0:09:25.000 hindsight by a local press in Japan, and that's been 0:09:25.000 --> 0:09:28.040 a good nuance, and he's targeted that March April period. 0:09:28.080 --> 0:09:29.080 It's plant panned out. 0:09:29.960 --> 0:09:32.520 I think they're right to reinforce that they've got a 0:09:32.559 --> 0:09:35.640 pastoring more inflation obviously, the weakness of the yen, the 0:09:35.800 --> 0:09:40.240 issues for their corporate sector on that and passing those through. Yes, 0:09:40.280 --> 0:09:42.920 the way drives is already built in. I do think 0:09:42.920 --> 0:09:45.920 they've got this is at this stage. The current policy 0:09:46.080 --> 0:09:49.400 mix is good. The overweight to Japan as a consequence 0:09:49.480 --> 0:09:52.679 is reasonable. You can overgeneralize a calendar twenty three was 0:09:52.679 --> 0:09:55.480 a value play, Calendar twenty four is a growth play 0:09:55.480 --> 0:09:58.520 and guard play for earnings in Japan. And I do 0:09:58.600 --> 0:10:00.600 think sitting back in that lange which is giving us 0:10:00.679 --> 0:10:02.959 quite good so very happy with Japan, more predictive that 0:10:03.000 --> 0:10:04.000 it's bad for some. 0:10:04.040 --> 0:10:06.440 Time George, Thank you so much. George bar boris of 0:10:06.559 --> 0:10:09.400 K two Asset Management, joining us here on a daybreak 0:10:09.400 --> 0:10:20.600 Asia from Melbourne. Meredith Whitney is with us. She is 0:10:20.640 --> 0:10:23.439 the founder also the CEO of the Meredith with Me 0:10:23.720 --> 0:10:26.800 Advisory Group. Nice of you to stop by, good to 0:10:26.840 --> 0:10:28.920 see you. Thank you so much. I hope you're doing well. 0:10:29.520 --> 0:10:31.280 It was kind of interesting. And I don't know whether 0:10:31.320 --> 0:10:33.360 you've had a chance to listen to some of our 0:10:33.400 --> 0:10:35.720 FED coverage today. I know we had about a half 0:10:35.800 --> 0:10:40.720 dozen or so FED speakers today. Neil Kashkari caught my attention. 0:10:40.800 --> 0:10:43.520 He was saying that, hey, maybe we don't get any 0:10:43.600 --> 0:10:46.840 rate cuts this year. If inflation proves to be as 0:10:47.120 --> 0:10:50.480 stubborn as it may be, and the American economy holds 0:10:50.559 --> 0:10:53.119 up as well as it seems to be, maybe Cashkari 0:10:53.320 --> 0:10:54.760 is not going to be one of those that would 0:10:54.760 --> 0:10:56.760 advocate for a cut. What do you think about that. 0:10:57.360 --> 0:10:59.000 I think it's hard to argue with the fact that 0:11:00.120 --> 0:11:02.400 we all signals in the US economy continue to be 0:11:02.480 --> 0:11:06.560 very strong, so it's hard to imagine. And I came 0:11:06.559 --> 0:11:10.000 into this year not thinking there would be six rate cuts. 0:11:10.840 --> 0:11:14.200 Three even seemed aggressive. I think one would be at 0:11:14.240 --> 0:11:17.360 best maybe after the election, but the economy still strong. 0:11:17.440 --> 0:11:19.920 Wages are going to I think, remain strong. I think 0:11:20.000 --> 0:11:22.640 jobs are going to remain strong because we have a 0:11:22.640 --> 0:11:26.400 real labor shortage in the US. So that'll call. You know, 0:11:26.480 --> 0:11:28.719 people don't want to hear that. People don't want to 0:11:28.760 --> 0:11:32.160 believe that. Everyone thought that that the FED didn't was 0:11:32.160 --> 0:11:35.079 signaling things that they didn't really mean. And I think 0:11:35.120 --> 0:11:38.160 as the year progresses, they'll appreciate the fact that the 0:11:38.200 --> 0:11:41.000 FED has been saying they're data dependent and the data 0:11:41.040 --> 0:11:45.120 is stronger than would allow them to eat to cut. 0:11:45.240 --> 0:11:47.040 That's an interesting point. Do you have a sense of 0:11:47.080 --> 0:11:50.320 why the Fed, why Powell and company back in let's 0:11:50.320 --> 0:11:53.280 say November December period of last year, were so optimistic 0:11:53.320 --> 0:11:56.640 that they could be maybe as aggressive as to cut 0:11:56.640 --> 0:11:59.520 seventy five basis points. What did they see then? What 0:11:59.520 --> 0:12:03.240 what did they understand about the trajectory that allowed them 0:12:03.240 --> 0:12:03.720 to say that. 0:12:04.559 --> 0:12:06.440 It's hard to see because I look at things in 0:12:06.480 --> 0:12:09.440 a very bottoms up basis, and I think that the 0:12:09.440 --> 0:12:12.800 FED is looking at a lot of twenty year thirty year 0:12:12.840 --> 0:12:18.200 old measures to value the economy and what you know 0:12:18.320 --> 0:12:21.800 statistically as well as anecdotally is that we have real 0:12:21.880 --> 0:12:25.760 shortage of labor and healthcare and home healthcare AIDS. We 0:12:25.800 --> 0:12:32.359 have a chronic and I think a systemically dangerous shortage 0:12:32.400 --> 0:12:38.240 in basic trade. So these are steel workers, these are electricians, 0:12:38.280 --> 0:12:41.360 these are plumbers from the steel workers at welders rather 0:12:41.600 --> 0:12:45.360 from the welder's perspective. That's where I say it's an 0:12:45.400 --> 0:12:48.160 issue of national security, and so it's very hard to 0:12:48.200 --> 0:12:54.120 imagine that that abates anytime soon. So you've seen layoffs, 0:12:54.440 --> 0:12:57.160 the most prolific in the tech sector that had over hired, 0:12:57.840 --> 0:13:01.479 and you see really basic no impact in the unemployment 0:13:01.600 --> 0:13:04.760 and in the jobs data with over five hundred thousand 0:13:05.320 --> 0:13:08.080 lost jobs in the tech industry. I would argue, and this, 0:13:08.160 --> 0:13:11.800 by the way, is you know federal FED data and 0:13:11.880 --> 0:13:16.160 Census data and BLS data. Is the fact that you know, 0:13:16.280 --> 0:13:21.360 since COVID more college educated workers are working multiple jobs. 0:13:21.840 --> 0:13:26.000 Prior to COVID, thirty percent of folks working multiple jobs 0:13:26.000 --> 0:13:29.080 were college educated. Post COVID, it's over over fifty. And 0:13:29.120 --> 0:13:32.200 I think that's probably understated because people working full time, 0:13:32.320 --> 0:13:34.320 high paid jobs are probably not going to admit in 0:13:34.360 --> 0:13:37.720 a survey that they're working multiple jobs. But this is why, 0:13:38.080 --> 0:13:40.200 you know. I just think you've got to go below 0:13:40.320 --> 0:13:42.880 the surface. And there are a lot of very smart 0:13:42.880 --> 0:13:45.680 people at the FED, but they're looking at traditional metrics, 0:13:45.679 --> 0:13:47.120 which I don't think apply today. 0:13:47.240 --> 0:13:49.079 Can I ask why you were in Hong Kong? But 0:13:49.200 --> 0:13:51.880 are you speaking with clients? Are you kicking the tires 0:13:51.920 --> 0:13:54.880 on some opportunities there? Why are you in hk. 0:13:55.280 --> 0:13:57.520 Well forst starters, I love being in Hong Kong. I 0:13:57.600 --> 0:13:59.559 love my clients in Hong Kong. And I'm on a 0:13:59.640 --> 0:14:03.480 board and Hong Kong and it's just, you know, it's 0:14:03.679 --> 0:14:06.200 it's hyper speed in terms of learning and a very 0:14:06.320 --> 0:14:09.840 very smart investor base. So I come here at least 0:14:10.200 --> 0:14:13.240 once a year. Obviously during COVID I missed a few years, 0:14:13.280 --> 0:14:15.120 but I've been a regular Hong Kong visitor. 0:14:15.240 --> 0:14:17.920 What is the view on putting money to work in 0:14:18.040 --> 0:14:21.480 China right now? I mean, the consensus opinion is you 0:14:21.520 --> 0:14:23.880 want to avoid it at all costs right now. In 0:14:24.200 --> 0:14:27.240 one of our surveys, we spoke I think to seven 0:14:27.280 --> 0:14:31.560 different financial firms in Shanghai. All but one said that 0:14:31.640 --> 0:14:34.840 the economy is yet to bottom. We're looking for further weakness. 0:14:34.960 --> 0:14:37.120 Is that the sense that you're getting that it will 0:14:37.160 --> 0:14:40.560 remain a week outlook for for the Chinese economy in 0:14:40.600 --> 0:14:41.800 twenty four It. 0:14:41.720 --> 0:14:44.640 Depends on who you ask. So they're perma China bowls 0:14:44.640 --> 0:14:48.600 in Hong Kong and the US. You know, China is 0:14:48.640 --> 0:14:54.080 a four letter word, so so it's it's very difficult. 0:14:54.160 --> 0:14:58.000 You know, you see a real disparity in valuations. Right, 0:14:58.080 --> 0:15:01.280 Chinese stocks are incredibly cheap stocks. A lot of US 0:15:01.320 --> 0:15:05.680 stocks are arguably very expensive. So there is a point 0:15:05.720 --> 0:15:09.640 where you know, global managers are going to be underweight China, 0:15:09.720 --> 0:15:12.280 and when is that point that they'll have to reallocate 0:15:12.280 --> 0:15:17.200 their portfolios. It's hard to argue the demographics are on 0:15:17.360 --> 0:15:20.840 anybody's side in China. So it's hard to argue that 0:15:20.880 --> 0:15:23.360 the real estate market is truly bottomed. It's hard hard 0:15:23.360 --> 0:15:27.000 to argue that unemployment is not a problem. So there, 0:15:27.880 --> 0:15:29.720 I don't you know, you're always going to make the 0:15:29.720 --> 0:15:32.360 most money when nobody wants to go into a market. 0:15:33.320 --> 0:15:35.560 You know, I'm not an expert on China, but it 0:15:35.920 --> 0:15:38.880 still seems a little a little you know, evaluation. If 0:15:38.920 --> 0:15:42.160 you're a if you're a classic Chinese investor, you're you're 0:15:42.160 --> 0:15:47.240 not going to be swayed by so much aversion to 0:15:47.280 --> 0:15:49.520 the Chinese market, but it's all question of timing, and 0:15:49.600 --> 0:15:50.480 I'm not sure it's right. 0:15:50.760 --> 0:15:51.200 Meredith. 0:15:51.240 --> 0:15:53.640 Before I let you go twenty seconds, the biggest surprise 0:15:53.720 --> 0:15:55.560 that you have had during your time in Hong Kong 0:15:55.680 --> 0:15:56.000 is what. 0:15:57.360 --> 0:15:59.040 The fact that so many people think Trump's going to 0:15:59.040 --> 0:15:59.880 win the election here? 0:16:00.080 --> 0:16:03.480 Hmm. Interesting? Interesting, And that certainly is going to factor 0:16:03.520 --> 0:16:07.720 into the equation, particularly during Janet Yellen's visit to Beijing, 0:16:08.040 --> 0:16:10.680 which is underway now, and whether or not leaders in 0:16:10.760 --> 0:16:13.360 China are going to be betting more and more that 0:16:13.360 --> 0:16:14.920 they're not going to have to deal with a Biden 0:16:14.960 --> 0:16:17.760 administration a year from now. Meredith, thank you so much. 0:16:17.800 --> 0:16:21.640 Always a pleasure, Meredith Whitney of the Meredith Whitney Advisor 0:16:21.680 --> 0:16:31.880 Group joining us from our studios in Hong Kong, Garfield Reynolds, 0:16:32.200 --> 0:16:35.680 Bloomberg's chief rates correspondent for Asia. He joins us from 0:16:35.680 --> 0:16:38.560 our studios in Sydney Garfield. It's always a pleasure. Maybe 0:16:38.560 --> 0:16:40.440 we don't get a rate cut at all this year. 0:16:40.760 --> 0:16:41.600 What do you think of that? 0:16:43.040 --> 0:16:46.280 Well, it certainly has to be a possibility, you're given 0:16:46.720 --> 0:16:51.800 the extremely strong start of the year we've had from 0:16:51.840 --> 0:16:55.800 the US economy, and as he said, if that continues, well, 0:16:55.840 --> 0:16:59.000 then why would you cut rights. I mean, that's kind 0:16:59.040 --> 0:17:03.720 of one of the underlying questions around the globe is 0:17:03.760 --> 0:17:08.640 that most economies looking pretty strong, especially your job markets 0:17:08.720 --> 0:17:13.879 are just fine. Unemployment levels are the kind of place 0:17:14.000 --> 0:17:18.359 where five ten years ago you would have been ecstatic 0:17:18.600 --> 0:17:21.439 about those and you would certainly not be thinking you 0:17:21.480 --> 0:17:28.600 need to ease policy as a result. Inflation also remains elevated, 0:17:28.680 --> 0:17:31.320 even though it's come down from those extreme highs. So 0:17:31.880 --> 0:17:34.960 all of those reasons say you have to consider it 0:17:34.960 --> 0:17:38.360 as an option that rates don't come down. But you know, 0:17:39.320 --> 0:17:43.399 the caveat is that with inflation having come down as 0:17:43.480 --> 0:17:48.119 much as it has, what we now have are restrictive rates. 0:17:48.160 --> 0:17:51.159 In real terms, the cash rate is well above the 0:17:51.200 --> 0:17:51.840 inflation rate. 0:17:51.960 --> 0:17:54.080 You're right about that, but I think the Fed is 0:17:54.119 --> 0:17:57.560 looking at the labor market in particular as well as inflation. Yes, 0:17:57.640 --> 0:18:00.960 but the labor market may now be showing signs of 0:18:01.000 --> 0:18:03.639 a little bit of softening. Weekly jobless claims at our 0:18:03.720 --> 0:18:07.040 highest level since January, although our Michael McKee was saying 0:18:07.080 --> 0:18:10.000 it's not exceptionally high. And then I was struck by 0:18:10.000 --> 0:18:14.000 a survey from the National Federation of Independent Business. The 0:18:14.040 --> 0:18:17.320 firms they surveyed, only eleven percent of those firms intend 0:18:17.400 --> 0:18:19.520 to add workers in the next three months on a 0:18:19.560 --> 0:18:23.399 net basis. So it's possible that we're beginning to see 0:18:23.480 --> 0:18:27.159 maybe a peak in the level of employment now. A 0:18:27.200 --> 0:18:29.679 lot more is going to become clear tomorrow with the 0:18:29.760 --> 0:18:33.199 March jobs numbers in the US. We're expecting to see 0:18:33.480 --> 0:18:35.639 healthy gains and payrolls and maybe a little bit of 0:18:35.680 --> 0:18:39.000 moderation in wages. So would you think that it's fair 0:18:39.119 --> 0:18:42.240 that the Fed remains very much focused on what's happening, 0:18:42.440 --> 0:18:45.680 not only on the inflation story, but the labor market especially. 0:18:46.080 --> 0:18:49.119 Well, I mean, those are its two basic mandates. And 0:18:49.440 --> 0:18:52.000 the other thing the factor in is your Keshkari, who 0:18:52.040 --> 0:18:55.640 doesn't vote, is definitely hawkish. Powell has been far more 0:18:55.680 --> 0:18:59.320 consistent in saying that do expect the cut rights and 0:18:59.320 --> 0:19:02.080 that do expect to meet the three rate cuts that 0:19:02.119 --> 0:19:05.960 they're projected in the top plots. And that makes sense 0:19:05.960 --> 0:19:09.560 from the point of view of in March, they boosted 0:19:09.560 --> 0:19:13.919 their forecasts for economic growth and yet they stuck with 0:19:14.000 --> 0:19:17.359 their rate cuts. So to some extent, the way the 0:19:17.400 --> 0:19:21.800 economy is traveling now is not hugely at variance with 0:19:21.920 --> 0:19:25.080 how the FED was seeing things developing when they had 0:19:25.119 --> 0:19:29.480 their last meeting. So they're still thinking they're going to 0:19:29.480 --> 0:19:32.399 cut rates, given that if there's a downside surprise for 0:19:32.520 --> 0:19:38.280 jobs that will bring rate cuts roaring back into play. 0:19:38.560 --> 0:19:43.520 Market will probably overshoot, but certainly the current pricing for 0:19:44.200 --> 0:19:48.400 June as a likely rate cut venue will firm, ride up, 0:19:48.720 --> 0:19:51.919 and we'll get back to betting on three rate cuts 0:19:51.920 --> 0:19:54.640 this year. That's still the base case scene of the markets. 0:19:54.640 --> 0:19:59.520 But there's a small a small constituency looking for maybe 0:19:59.560 --> 0:20:03.359 only two two. But yeah, a week payrolls print would 0:20:03.400 --> 0:20:04.600 put us back to three. Yeah. 0:20:04.600 --> 0:20:06.320 We had a lot of FED speak today, I think 0:20:06.359 --> 0:20:08.400 a half dozen of FED speakers, and one of them 0:20:08.480 --> 0:20:10.520 was Tom Barkman of the Richmond Fed. He was saying, 0:20:10.520 --> 0:20:13.359 it's smart to take your time to get clarity about 0:20:13.400 --> 0:20:15.600 where inflation is before you cut rates. But if you 0:20:15.640 --> 0:20:18.240 look at the way the bond market behave today, yields 0:20:18.240 --> 0:20:22.840 were actually down. Obviously, the equity market got hammered, and 0:20:22.920 --> 0:20:27.080 the dollar I think softened just a bit. These perhaps 0:20:27.080 --> 0:20:30.280 suggested to your point that maybe things are on track 0:20:30.359 --> 0:20:34.240 for cuts, because there will be on the horizon and 0:20:34.240 --> 0:20:36.480 maybe in the near term of softening in the in 0:20:36.520 --> 0:20:39.520 the American economy, and markets are beginning to kind of 0:20:39.520 --> 0:20:40.400 anticipate that. 0:20:41.480 --> 0:20:43.960 Yeah, I think. I think also, you know, the overnight 0:20:44.040 --> 0:20:51.840 action very much is smelled like investors repositioning into jobs 0:20:52.000 --> 0:20:55.480 to looking, okay, where have we gone maybe a bit 0:20:55.560 --> 0:20:58.439 too far considering we think things are going to develop. 0:20:58.920 --> 0:21:02.560 Yields are up a lot still on the week, you know, 0:21:02.640 --> 0:21:04.800 in the ten year yield hit four point four percent 0:21:05.200 --> 0:21:07.600 earlier on, which was a level we haven't seen since 0:21:07.640 --> 0:21:12.480 ya back in November, So that that makes sense to 0:21:12.480 --> 0:21:15.080 pull back from that. And stocks as well, stocks had 0:21:15.119 --> 0:21:19.800 been marching on pretty much unconcerned. They got a little 0:21:19.840 --> 0:21:22.800 bit of course, for concern with what's been going on 0:21:22.880 --> 0:21:24.960 in the Middle East and what that is the oil price. 0:21:25.400 --> 0:21:28.960 Also with your people like Kashkari laying out the potential 0:21:29.080 --> 0:21:32.480