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Speaker 1: Good morning.

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Speaker 2: I'm Doug Prisner and I'm Brian Curtis. Here are the

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Speaker 2: stories we're following today. Three FED officials saying that higher

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Speaker 2: interest rates will be needed to curb price Pressures's Cleveland

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Speaker 2: FED President Lorettemester in.

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Speaker 3: Order to ensure that inflation is on a sustainable timely

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Speaker 3: path back to two percent. My view is that the

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Speaker 3: fund rate will need to move up somewhat further from

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Speaker 3: its current level and then hold there for a while

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Speaker 3: as we accumulate more information on how the economy is evolving.

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Speaker 2: In the meantime, FED Vice Chairman of Supervision Michael Barr

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Speaker 2: said there is a bit of work to do to

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Speaker 2: achieve restrictive rates. Also, San Francisco FED President Mary Daly

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Speaker 2: said that a couple more rate hikes are appropriate this year,

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Speaker 2: and she thinks future moves by the Fed will depend

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Speaker 2: on incoming data.

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Speaker 4: Now.

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Speaker 2: Atlanta FED President Raphael Bostik, as has been the case

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Speaker 2: of late, was the outlier. He argued today that officials

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Speaker 2: can be patient and see how prior increases play out

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Speaker 2: in slowing the economy. FMC meets next on July twenty

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Speaker 2: fifth and twenty six.

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Speaker 1: Well at the same time today we have the major

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Speaker 1: banks in the US facing one of the biggest regulatory

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Speaker 1: overhauls since the financial crisis. Today we heard from the

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Speaker 1: FED Vice Chair of Supervision. He is Michael Barr, and

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Speaker 1: he laid out recommendations for the nation's biggest lenders. He

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Speaker 1: said higher capital requirements should apply to banks and bank

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Speaker 1: holding companies with more than one hundred billion dollars in assets,

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Speaker 1: and Bar went on to say he also wants to

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Speaker 1: change the way banks assess risk.

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Speaker 5: The proposal would require banks to use a standardized approach

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Speaker 5: for hard to model risk, which is appropriate in light

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Speaker 5: of the weaknesses that were exposed in the two thousand

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Speaker 5: and eight financial crisis, when many firms did not have

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Speaker 5: acceptable models for their risks.

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Speaker 1: That is Michael Barr, he is the FED Vice Chair

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Speaker 1: for Supervision. He went on to say the fed's annual

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Speaker 1: stress tests should be reconfigured to better capture dangers that

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Speaker 1: firms can be facing. All of the changes stem from

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Speaker 1: a month's long review to align US rules with a

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Speaker 1: out of international standards known as Basel three.

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Speaker 6: Now.

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Speaker 1: Bar went on to say the changes will only take

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Speaker 1: effect if they are proposed and approved by the FED,

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Speaker 1: the FDIC, and the Office of the Comptroller of the Currency.

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Speaker 2: To Corporate News, Berkshire Hathaway Energy has agreed to buy

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Speaker 2: Dominion Energy stake in a Maryland LNG export project for

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Speaker 2: three point three billion dollars. We get more from Bloomberg's

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Speaker 2: Charlie Pellett.

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Speaker 7: Berkshire says the deal will boost the company's limited partnership

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Speaker 7: ownership of the terminal to seventy five percent, while a

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Speaker 7: unit of Brookfield Infrastructure Partners holds the remaining twenty five percent.

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Speaker 7: Berkshire first took a stake in the plant, with an

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Speaker 7: annual export capacity of five point two five million tons

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Speaker 7: in twenty twenty. The deal will give Berkshire control of

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Speaker 7: one of just seven operational US facilities, the connect Sport LNG,

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Speaker 7: at a time when the fuel has assumed an increased

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Speaker 7: economic and geopo polytical significance in New York. Charlie Pellett

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Speaker 7: Bloomberg Daybreak Asia.

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Speaker 1: Well, some of the big tech companies are drawing protest

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Speaker 1: as they try to shape a new US trade deal

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Speaker 1: with countries in the Indo Pacific. We have more from

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Speaker 1: Bloomberg's Juan Wong In Hong Kong.

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Speaker 8: Tech companies including Alphabet and IBM will take part in

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Speaker 8: a fourth round of trade talks in Busan, South Korea,

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Speaker 8: this week, their giving input on the drafting of the

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Speaker 8: Indo Pacific Economic Framework. Activists are worried the companies will

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Speaker 8: use the agreement as a backdoor to heading off domestic

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Speaker 8: regulation and the enforcement of antitrust laws. Corporations have often

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Speaker 8: helped guide trade discussions in the past, but activists say

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Speaker 8: the big tech companies have gone too far in trying

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Speaker 8: to get car fouts, and in some cases have held

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Speaker 8: closed door meetings for negotiators. In Hong Kong, Joan Wong,

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Speaker 8: Bloomberg Day Briga Asia.

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Speaker 2: China is stepping up support for its ailing property market.

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Speaker 2: Bloomberg's Bunnyao has the story from Hong Kong.

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Speaker 9: In China, regulators have stepped up pressure on financial institutions

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Speaker 9: to east terms for property companies. They're encouraging negotiations to

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Speaker 9: extend relief measures through next year. China's real estate crisis

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Speaker 9: is struggling to recover. Home sales resumed declines in June

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Speaker 9: after a brief rebound earlier this year, and that's adding

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Speaker 9: pressure to dead layden developers. The regulators said the relief

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Speaker 9: measures are aimed at ensuring the delivery of homes that

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Speaker 9: are under construction in Hong Kong. I'm Bonnie al Bloomberg,

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Speaker 9: day Break Asia.

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Speaker 2: I'm Brian Curtis along with Doug Christner and Doug, you know,

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Speaker 2: there's a big difference between using a sledgehammer to crush

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Speaker 2: inflation and trying hard to thread the needle for a

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Speaker 2: soft landing. Now, the pause that we're in now sort

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Speaker 2: of leans on the ladder. But I wonder whether or

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Speaker 2: not we're about ready to see I mean, given the

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Speaker 2: audio that we just heard from some Fed policy makers,

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Speaker 2: we're about ready to switch with the FED moving to

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Speaker 2: the former and getting much more aggressive. And what does

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Speaker 2: that mean for markets? What does that mean for jobs?

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Speaker 1: Very strange as you heard from Mary Daily, and she

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Speaker 1: basically reflected what was or captured what was reflected in

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Speaker 1: the dot plot from the last meeting, another fifty basis

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Speaker 1: points of tightening. But look the price action in the

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Speaker 1: bond market today with the yields dropping. And I noted

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Speaker 1: earlier that the New York Fed's measure of inflation expectations

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Speaker 1: going out one year was down to a rate of

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Speaker 1: three point eighty three percent. So directionally things are moving lower.

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Speaker 1: We'll see how much confirmation we get on Wednesday with

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Speaker 1: the CPI print. But you're right, it's kind of very

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Speaker 1: confounding what the FED is saying and how markets are reacting.

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Speaker 2: And isn't it so interesting that we still have this

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Speaker 2: inflation issue with the US and now we're dealing with

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Speaker 2: deflation issues in China. It's completely the opposite story, And

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Speaker 2: so can we find some parallels? Well, if you think

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Speaker 2: about this, Chinese policymakers, they stuck too long with COVID

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Speaker 2: zero and they put in motion a deflationary force on

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Speaker 2: the economy that even though they switched down, it's been

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Speaker 2: what seven months, and they can't turn it around. So

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Speaker 2: once you get this kind of direction going, it's very,

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Speaker 2: very difficult to make wholesale changes to the direction of

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Speaker 2: an economy as complex and big and you know, multifaceted

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Speaker 2: as you see with the US or Chinese economy. So

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Speaker 2: I don't know, it seems like the Chinese economy is

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Speaker 2: now sliding into deflation and they're struggling to try to

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Speaker 2: turn things around.

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Speaker 1: Boy they are. Indeed, I think nine straight months for

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Speaker 1: factory gate deflation on the mainland, and I want to

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Speaker 1: touch very quickly on the Berkshire Hathway deal that we

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Speaker 1: unpacked a moment ago, buying the stake in this Maryland

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Speaker 1: liquefied natural gas project. It's known as Cove Point LNG

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Speaker 1: and it's fully contracted on a long term basis to

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Speaker 1: two Japanese companies, Tokyo Gas and Sumi Toomol Corporation. So

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Speaker 1: that's consistent with the bet that Warren Buffett has been

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Speaker 1: making on Japan.

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Speaker 2: Yeah, absolutely strong bet on Japan. And you wonder whether

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Speaker 2: or not ultimately, you know, China will enter the picture

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Speaker 2: on something like this too. Now we need to get

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Speaker 2: into the details and the capabilities, and because a lot

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Speaker 2: of these export terminals, you know that they have some limitations.

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Speaker 2: But it is a very interesting story. It's time for

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Speaker 2: Global News. Turkey has agreed to have its parliament vote

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Speaker 2: on Sweden's membership bid for NATO at back to with

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Speaker 2: Global News in the nine to sixty news room in

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Speaker 2: San Francisco, ed.

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Speaker 6: Yeah, major turnaround today, Brian source to say Turkey received

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Speaker 6: assurances on some key demands, including Stockholm's approach to supporters

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Speaker 6: of Kurdish separatists operating in its territory. Now NATO Secretary

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Speaker 6: General Jahan Stoltenberg says, an issue important to all allies.

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Speaker 10: It's important that we stand together in the fight against tourism,

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Speaker 10: but at the same time it's also important dot we

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Speaker 10: address the legitimate security concerns of all allies that don't

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Speaker 10: want to see Sweden as a member of the Alliance

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Speaker 10: as soon as possible.

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Speaker 6: Now, as I said, there's a turnaround today for Turkey.

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Speaker 6: Earlier in the day, President recept high Up Airedwan was

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Speaker 6: demanding Turkey be given assurances that it would be considered

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Speaker 6: for EU membership. Well, sources say it got those assurances

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Speaker 6: and the process would be sped up, as well the

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Speaker 6: reports that it got US assurances of F sixteen sales.

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Speaker 6: The White House has issued a statement saying President Biden

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Speaker 6: is standing by to work with air Dewan and enhancing

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Speaker 6: defense and deterrence in the Euro Atlantic area. So with

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Speaker 6: a major feat already accomplished now for NATO, Bloomberg's Margaret

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Speaker 6: Collins on Balance of Power says, for Ukraine.

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Speaker 11: Certainly, the overhang of this meeting is, you know, as

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Speaker 11: the NATO discussions keep going on, is like where do

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Speaker 11: we go from here with this now very long conflict

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Speaker 11: between and war between Russia and the Ukraine, and where

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Speaker 11: do leaders go and how much longer are they ready

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Speaker 11: to support this?

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Speaker 6: As well? The Hill is reporting that presidents of Biden

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Speaker 6: and Zelenski will meet on the sidelines of NATO as

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Speaker 6: well during the meetings, pomp and ceremony at Windsor Castle

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Speaker 6: today as US President Joe Biden meets with King Charles. Yeah,

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Speaker 6: Biden taking part in what's being called a climate engagement

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Speaker 6: with King Charles on his visit to Windsor, Climate Envoy

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Speaker 6: John Kerry says, the message is very clear when scientists.

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Speaker 4: Are telling us that they are terrified by what they're seeing,

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Speaker 4: and when we hear most same scientists telling us that

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Speaker 4: we are in uncharted territory.

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Speaker 6: Now, Kerry says, a commitment to figure out how to

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Speaker 6: attack and invest in the fighting climate change. And then

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Speaker 6: a meeting for Biden with UK Prime Minister Rishu Sunak

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Speaker 6: as they prepare for the NATO summit. This is soun a.

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Speaker 12: We head from here to NATO and Vilnius.

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Speaker 5: Well, we stand as two of the firmest.

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Speaker 12: Allies in that alliance, and I know want to do

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Speaker 12: everything we can to strengthen your Atlantic security.

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Speaker 6: Yeah, Sunak says continue also working on their bilateral agreement

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Speaker 6: on North Atlantic security. China has issued an unusual warning

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Speaker 6: to its citizens traveling to the US. It says beware

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Speaker 6: of rap meant by American law enforcement. Quote Chinese nationals

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Speaker 6: who travel to the US should be more vigilant and

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Speaker 6: beware of falling into US snares and arrest entrapment. China

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Speaker 6: regularly reminds its citizens of gun and racial violence in

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Speaker 6: the US, but now rarely arbitrary detention. And from Vermont

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Speaker 6: to North Carolina cruise making sure that people are safe

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Speaker 6: from the torrential rain that hit the area over the weekend.

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Speaker 6: Kathy Hokel, the governor, saying it's a one in a

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Speaker 6: thousand year cycle and the horrific heat that has plagued

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Speaker 6: the US Southwest forecast to last at least into the weekend.

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Speaker 6: Global news power by more than twenty seven hundred journalists

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Speaker 6: and analysts in over one hundred twenty countries. In San Francisco,

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Speaker 6: I'm Ed Baxter, and this is Bloomberg.

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Speaker 2: I'm Brian Curtis along with Doug Chrisner. Our guest is

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Speaker 2: Brian frank Cio at Frank Funds to take a look

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Speaker 2: at the markets, Brian. As Doug mentioned, with yields moving

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Speaker 2: lower this morning, is that the market expressing a little

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Speaker 2: bit of fear that the Fed may go too far

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Speaker 2: and thus you bring sort of recession more clearly into

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Speaker 2: the picture.

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Speaker 12: Oh hi, Brian, thanks for having me. Yes, I agree

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Speaker 12: with that statement absolutely. I think any sustained move lowers

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Speaker 12: just one day in rates here could definitely show that

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Speaker 12: the market is much more worried about economic activity, a

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Speaker 12: lack of growth, and the Fed perhaps is definitely going

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Speaker 12: too far.

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Speaker 1: It's going to be very interesting to take a look

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Speaker 1: at these earnings reports in the coming week. The big

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Speaker 1: banks begin on Friday, so it's JP Morgan, City Group, Wells.

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Speaker 1: Bloomberg's Gina Martin Adams was saying today there's earnings risk here,

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Speaker 1: particularly among the financials where top line growth may weeken.

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Speaker 1: How do you feel about the banks these days?

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Speaker 12: I would one hundred percent agree with that.

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Speaker 7: Yeah.

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Speaker 12: If you look at the Dallas Fed Banking Condition survey

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Speaker 12: that came out just a few weeks ago, it just

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Speaker 12: showed across the board tightening in credit. Not only are

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Speaker 12: the banks reluctant to increase the support live loans, but

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Speaker 12: the actual demand for credit is going down as well,

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Speaker 12: so the interest rates are definitely biting here, and that

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Speaker 12: that's really going to make for a tough situation on

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Speaker 12: earnings for banks.

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Speaker 2: I guess it puts a lot of focus on the

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Speaker 2: forecasts that we get from companies during earnings, and obviously

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Speaker 2: with the banks, it's difficult for them to see exactly,

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Speaker 2: you know, what will happen going forward. But with other companies,

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Speaker 2: do you think the picture might be clearer?

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Speaker 12: I think just you know, even looking at Apple, it's

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Speaker 12: training at thirty times earnings and earnings are actually down,

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Speaker 12: so it's not so much what they're going to report

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Speaker 12: and what the expectations are, which you know, certainly we

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Speaker 12: have to look at it's already what's priced in. You know,

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Speaker 12: these valuations are extremely high, especially on the megacap tech stocks.

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Speaker 12: So I find it very difficult to believe that, you know,

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Speaker 12: the market is kind of the it's kind of price

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Speaker 12: for perfection here. I really think if there's any kind

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Speaker 12: of weakness up ahead, any kind of forward guidance that's

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Speaker 12: lower here, there's definitely a lot of thin air underneath.

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Speaker 12: Because we've come so far, you know, it's been probably

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Speaker 12: the best first half of the Nasdaq in its history.

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Speaker 12: It's that's usually an environment you would see when the

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Speaker 12: economy is growing really well, in credit is increasing. But

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Speaker 12: I think the equities are certainly looking at a different

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Speaker 12: market than bonds are looking at.

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Speaker 1: So when you're talking about inequity trade, I'm sorry to interrupt, Brian.

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Speaker 1: So when you talk about inequity trade, is the move

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Speaker 1: just to become defensive across the board.

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Speaker 12: I'm certainly there. In our mid cap fund, the Frank

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Speaker 12: Value Fund, we've gotten mostly out of cyclicals and we're

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Speaker 12: much more in defensives and that served us well. In

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Speaker 12: twenty twenty two, the fund was actually up and we're

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Speaker 12: one of the only two percent of funds that's actually

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Speaker 12: up last year and up this year. So defenses are defensive.

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Speaker 12: Stocks are still paying you. We're finding lots of good

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Speaker 12: dividend yields. We're finding these defensive stocks are being shareholder friendly,

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Speaker 12: so they're buying back shares, and because their valuations are lower,

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Speaker 12: they're able to buy back a material amount of shares.

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Speaker 12: Unlike a big tech company, say that's you know, rallied

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Speaker 12: fifty percent this year. It's just a lot more expensive

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Speaker 12: for those guys. So it's odd with seemingly consensus expectations

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Speaker 12: showing a recession in the second half, you would think

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Speaker 12: defensive stocks would be more expensive than the market. But

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Speaker 12: we're able to fill out a portfolio with defensives that

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Speaker 12: are cheaper than the market. So it doesn't make a

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Speaker 12: lot of sense. But you get to hang on and

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Speaker 12: get those dividends and share repurchases and wait for perhaps

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Speaker 12: sentiment to change on equities.

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Speaker 2: So you like utilities obviously, what about consumer staples? Some

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Speaker 2: of those are even more expensive than utilities, with pees

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Speaker 2: up there in the twenty eight, twenty nine to thirty range,

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Speaker 2: which if you think about it, for a consumer staple

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Speaker 2: like a proper and gamble or Coca Cola, these types

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Speaker 2: of companies, is pretty high.

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Speaker 12: Oh yeah, certainly. I really don't think this is the

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Speaker 12: mar to blanket by, you know, an ETF and utilities

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Speaker 12: or consumer staples, both of them, like you said, are

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Speaker 12: over twenty times earnings, and traditionally, if we end up

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Speaker 12: in a bad bear market because of a recession, those

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Speaker 12: valuations that come down, so you really have to stock

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Speaker 12: pick there. I prefer more of the middle of the market,

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Speaker 12: kind of the midcaps, you're finding some of these that

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Speaker 12: are ignored. Perhaps they're entering into the indices and the

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Speaker 12: ets and getting some flows that way. But you can

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Speaker 12: definitely find low double sorry like price earnings ratio is

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Speaker 12: in like the ten to twelve range in some of

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Speaker 12: these MidCap utilities and consumer staples. And you can also

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Speaker 12: find things that are recession proof there as well, you know,

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Speaker 12: companies that do well in a recession or able to

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Speaker 12: resist declining consumer spending.

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Speaker 1: So when you survey global markets, Brian, what are you seeing?

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Speaker 1: I mean, we talked earlier about the difficulties of facing

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Speaker 1: the Chinese economy. Right now we know what the situation

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Speaker 1: in Europe seems to be. Japan's seems to be enjoying

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Speaker 1: a bright moment here in terms of equity market price action. Yes,

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Speaker 1: we're all from three decade highs just a bit, but

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Speaker 1: there seems to be a lot of positivity in terms

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Speaker 1: of momentum, and clearly the economy seems to be forming

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Speaker 1: a little bit better. Are you apt to put any

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Speaker 1: money to work offshore?

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Speaker 12: Yes, we've actually we had a great run in One

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Speaker 12: of the frank value funds holding is Coca Cola FEMSA,

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Speaker 12: which is the largest coke distributor in the world, and

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Speaker 12: their markets are primarily Mexico and Brazil, and kind of

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Speaker 12: following that company down the rabbit hole, Brazilian assets have

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Speaker 12: just been wiped out, you know, because of all the

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Speaker 12: political fears going on there. But we were able to

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Speaker 12: actually find another company we haven't disclosed yet in Brazil.

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Speaker 12: So there's a good chunk of the fund that's invested

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Speaker 12: in Brazil because the valuations are just so bombed out.

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Speaker 12: But if you look at the global picture, and I

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Speaker 12: think that's what Buffet is seeing in Japan, the companies

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Speaker 12: that are able to provide resources to Japan, specifically being Brazil,

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Speaker 12: a big producer there, are actually in a great position

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Speaker 12: because we're not building enough commodity supply even for the

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Speaker 12: Green Revolution. A lot of that stuff runs on copper

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Speaker 12: and steel. So Brazil, I think, is in a great

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Speaker 12: spot because the expectations are so low there, but they're

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Speaker 12: still in a phenomenal position with their riches and their resources.

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Speaker 2: Just briefly, probably the last question, could could you see

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Speaker 2: earnings actually kind of troth in this next quarter or so,

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Speaker 2: and you know, if you start to see improvement there,

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Speaker 2: then the valuations don't look so high. Could that ensue?

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Speaker 12: Well, anything could happen. That's why you don't make a

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Speaker 12: market call. That's why we try and stay fully invested

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Speaker 12: most of the time. But I just think the expectations,

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Speaker 12: even if we do get some surprises on the upside

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Speaker 12: on earnings, I think the expectations are there for surprises.

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Speaker 12: We saw on Nvidia beat expectations by fifty percent. That's

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Speaker 12: always one of the largest beats I ever saw last quarter,

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Speaker 12: so I think the analysts are starting to catch up

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Speaker 12: and everybody's kind of excited. So I'm much more in

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Speaker 12: the camp of disappointment. But of course we could always

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Speaker 12: surprise on the upside. A lot of this stuff is lagging.

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Speaker 12: Earnings are quoted in nominal terms, so we still have

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Speaker 12: some inflation. So definitely anything could happen. But the expectations

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Speaker 12: to me seem pretty high.

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