WEBVTT - New Tariffs Loom, China to End Real-Time Foreign Flow Data 0:00:02.480 --> 0:00:10.040 Bloomberg Audio Studios, podcasts, radio news. This is the. 0:00:10.000 --> 0:00:13.440 Bloomberg Daybreak Aisia podcast. I'm Doug Krisner. You can join 0:00:13.480 --> 0:00:16.239 Brian Curtis and myself for the stories, making news and 0:00:16.320 --> 0:00:19.439 moving markets in the APAC region. You can subscribe to 0:00:19.480 --> 0:00:22.200 the show anywhere you get your podcast and always on 0:00:22.239 --> 0:00:26.120 Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app. 0:00:26.960 --> 0:00:27.120 Well. 0:00:27.120 --> 0:00:29.240 One of our top stories that we've been talking about 0:00:29.240 --> 0:00:32.919 all morning, the Biden administration, according to our sources, will 0:00:33.000 --> 0:00:36.800 raise tariffs on some Chinese goods this week after nearly 0:00:36.880 --> 0:00:40.320 two years of review. We understand that Biden will target 0:00:40.479 --> 0:00:47.080 sectors like electric vehicles, solar cells, batteries, and steel and aluminum. 0:00:47.280 --> 0:00:50.880 Joining us now for some discussion of this is Steve Angel, 0:00:50.960 --> 0:00:52.680 who has a title that's too long to get to, 0:00:52.840 --> 0:00:56.520 but he's one of the top dogs on the TV side. 0:00:56.560 --> 0:00:58.120 Friend of the show is my title? 0:00:58.200 --> 0:01:02.480 Well, yeah, with the emphasis on dog anyway. Look, I 0:01:02.520 --> 0:01:05.039 mean a lot of this looks symbolic. It looks like 0:01:05.120 --> 0:01:09.080 it's a sort of political positioning and everything, because we 0:01:09.200 --> 0:01:13.039 know that, for instance, with evs, they're really not China 0:01:13.160 --> 0:01:15.920 is not really selling any evs in the United States. 0:01:16.080 --> 0:01:17.240 So what's the point here? 0:01:17.520 --> 0:01:19.840 I mean, the point is obviously something that the Bide 0:01:19.840 --> 0:01:22.360 administration has been going on about, and that is the 0:01:22.400 --> 0:01:26.440 overcapacity in China in the EV space, in solar space, 0:01:26.480 --> 0:01:29.520 in the new three that she dimping has been touting 0:01:29.560 --> 0:01:33.520 of course in green tech. And then that overcapacity has 0:01:33.560 --> 0:01:37.520 to go somewhere abroad to Europe. You were already hearing 0:01:37.560 --> 0:01:41.320 about tariffs. They're coming from the EC and Ursula Vandaleean 0:01:42.000 --> 0:01:44.800 and you know, the United States. You're absolutely right, they 0:01:44.800 --> 0:01:48.840 don't really have access for the Chinese evs, which you know, 0:01:48.880 --> 0:01:51.880 some of these byds are sub ten thousand US dollars. 0:01:52.400 --> 0:01:57.000 And the you know opponents mainly in the in Detroit, 0:01:57.360 --> 0:02:00.960 in the auto making places in the United States. They're concerned, 0:02:01.000 --> 0:02:04.680 obviously in this election year about jobs by administration definitely 0:02:04.720 --> 0:02:07.120 worried about jobs. But keep in mind EV's right now. 0:02:07.120 --> 0:02:10.160 According to Edmunds dot com, Brian make up just about 0:02:10.200 --> 0:02:14.040 one percent of US cars on the road. Now, proponents 0:02:14.040 --> 0:02:16.640 of allowing Chinese evs to come in and say, look, 0:02:16.680 --> 0:02:19.440 this can help the US and it's it's climate change fight, 0:02:19.760 --> 0:02:24.560 it will help inflation and give a cheaper access to 0:02:24.600 --> 0:02:27.680 these kind of technology to the American consumer. But really 0:02:27.840 --> 0:02:30.960 it's the politics that's driving this right now. So EV's well, 0:02:31.080 --> 0:02:33.280 the terifs will rise to one hundred and two percent 0:02:33.520 --> 0:02:36.639 from twenty seven and a half percent currently, increase of 0:02:36.680 --> 0:02:39.480 two hundred and seventy two percent, so quad nearly quadruple. 0:02:40.160 --> 0:02:42.480 It's kind of ironic too, isn't it, Steve? With the 0:02:42.600 --> 0:02:45.600 Zeker IPO happening on Friday night, it's in that big gain. 0:02:45.680 --> 0:02:50.120 I mean, you know, we are keeping products outside of 0:02:50.160 --> 0:02:52.799 the American market for understandable reasons, but at the same 0:02:52.880 --> 0:02:56.960 time allowing capital to be raised for those same Chinese companies. 0:02:57.440 --> 0:02:59.679 Yeah, Zeker is an interesting One's kind of the high 0:02:59.800 --> 0:03:03.600 end EV from the company Jujong Jeee, which of course 0:03:03.639 --> 0:03:06.520 they owned Volvo and others. But Zeker is a complete 0:03:06.600 --> 0:03:10.400 EV and made a lot of headlines and the buzz 0:03:10.400 --> 0:03:14.120 at the Beijing Auto Show last month. But they raised, 0:03:14.360 --> 0:03:17.360 you know, a lot of money in New York and 0:03:17.639 --> 0:03:21.000 the shares on the first day rose thirty five percent. 0:03:21.280 --> 0:03:23.880 The biggest Chinese IPO in the US by a Chinese 0:03:23.880 --> 0:03:25.959 company since twenty twenty one. I think it was d 0:03:26.080 --> 0:03:29.320 D Global was the last one. So yeah, it's a 0:03:29.360 --> 0:03:32.679 bit ironic. As again, if you've read David Fickling's The 0:03:32.680 --> 0:03:36.840 Bloomberg Opinion's latest call him, he's kind of saying, what's 0:03:36.880 --> 0:03:39.080 going on with the EV push in the United States. 0:03:39.120 --> 0:03:44.560 He calls it an astonishing loss of nerve in the US. Basically, 0:03:44.600 --> 0:03:49.200 the country that developed the modern automobile industry is kind 0:03:49.200 --> 0:03:52.440 of shying away because you know, EV sales just rose 0:03:52.480 --> 0:03:54.640 two point six percent year over year in the first quarter. 0:03:54.680 --> 0:03:57.320 That's after blistering growth a couple of years ago in 0:03:57.320 --> 0:03:57.960 the same period. 0:03:58.440 --> 0:04:02.640 Well, I suppose with the positioning on tariffs here, it 0:04:02.680 --> 0:04:04.720 sends a strong message at the moment, and it also 0:04:05.320 --> 0:04:09.760 will probably discourage, you know, the expansion down the road 0:04:09.960 --> 0:04:14.400 of Chinese manufacturers into the United States at least until 0:04:14.400 --> 0:04:15.360 the environment changes. 0:04:15.720 --> 0:04:17.919 I absolutely would agree with that, and that's something that 0:04:17.960 --> 0:04:22.480 Donald Trump seized on this morning. Essentially, he also said 0:04:22.520 --> 0:04:25.640 Biden should have done this on EV's some four years ago. 0:04:25.680 --> 0:04:28.159 But what he's also warning is that, look, the Chinese 0:04:28.160 --> 0:04:30.680 are going to come and use their manufacturing bases in Mexico, 0:04:31.080 --> 0:04:35.640 and then through the US Mexico Canada Agreement that Trump 0:04:35.640 --> 0:04:39.880 did sign, they could potentially export from Mexico into the 0:04:39.960 --> 0:04:42.800 United States those evs. But I'm sure there's some loopholes 0:04:42.800 --> 0:04:45.760 that would be closed there as well. But he says, 0:04:45.839 --> 0:04:48.960 you know, two hundred percent tariffs on Chinese cars made 0:04:49.040 --> 0:04:51.560 in Mexico is what he would do on top of 0:04:51.600 --> 0:04:54.400 course what he's already pledged on the campaign trail, sixty 0:04:54.400 --> 0:04:57.279 percent tariffs across the board on all Chinese products. 0:04:57.400 --> 0:04:59.680 So, Steve, how do you think this is being viewed 0:04:59.680 --> 0:05:02.040 by aging at the moment? I mean, is are they 0:05:02.120 --> 0:05:06.080 writing it off to just kind of election year politics? 0:05:06.120 --> 0:05:06.200 Is? 0:05:06.320 --> 0:05:09.320 Are there are there deeper concerns here about kind of 0:05:09.360 --> 0:05:11.839 protectionism and a further I don't want to use the 0:05:11.920 --> 0:05:16.160 term decoupling. I mean, but fred relations, let's let's put 0:05:16.200 --> 0:05:16.640 it that way. 0:05:17.360 --> 0:05:19.599 I think they're realistic about it. I think they know 0:05:19.880 --> 0:05:23.159 as well as an election year. There's no secret why 0:05:23.240 --> 0:05:28.160 Sijenping went to Hungary and Serbia in Europe. He found 0:05:28.240 --> 0:05:31.200 a friendly economy there that is building out the EV 0:05:31.320 --> 0:05:34.680 infrastructure in there at a time when Brussels is kind 0:05:34.720 --> 0:05:37.919 of trumping or not trumpeting, I should say, actually talking 0:05:37.960 --> 0:05:41.600 about you know, more protectionist measures, possible tariffs on those 0:05:41.680 --> 0:05:45.640 Chinese evs, whereas the United States, it's just non existent 0:05:45.720 --> 0:05:47.960 market for Chinese EV's right now and it will be 0:05:48.000 --> 0:05:50.000 for quite some time. And I think they're realistic about that. 0:05:50.080 --> 0:05:52.840 Across the board, generally, both Europe and the United States 0:05:52.839 --> 0:05:56.040 are talking about overcapacity. They've kind of shied away from 0:05:56.120 --> 0:05:58.680 subsidies because they themselves are offering subsidies. 0:05:58.760 --> 0:06:02.200 Yeah, yeah, absolutely right, there's no question there is. Everyone 0:06:02.240 --> 0:06:04.520 I talked to at the Beijing Auto Show said, look, 0:06:04.560 --> 0:06:07.560 we've been to these factories. There's some factories that you know, 0:06:07.600 --> 0:06:10.839 their capacity utilization rate is just you know, so low, 0:06:11.920 --> 0:06:14.120 and there's over capacity everywhere, and they do need to 0:06:14.160 --> 0:06:14.840 sell that somewhere. 0:06:14.880 --> 0:06:17.400 Putin comes to China this week, right, Yeah, what do 0:06:17.400 --> 0:06:17.840 you expect? 0:06:17.960 --> 0:06:20.240 Right? Well, I think there's just going to be more 0:06:20.240 --> 0:06:22.839 of the doubling down on their relationship. It will be 0:06:22.880 --> 0:06:25.960 interesting to see what kind of word Shi Jinping uses, though, 0:06:26.000 --> 0:06:28.200 as the war in Ukraine goes into a third year. 0:06:28.279 --> 0:06:31.640 He did get an earfull in Europe from Macron, from 0:06:32.120 --> 0:06:36.159 vander Layan as well on the nascent support if you will, 0:06:36.440 --> 0:06:39.080 Moscow as a de facto support for the war and 0:06:39.120 --> 0:06:42.159 the double use technologies that are sold into the Russian economy. 0:06:42.200 --> 0:06:44.640 So hear how she words that? 0:06:44.880 --> 0:06:47.880 All right, Steve, Thanks very much. Steven Engel, Bloomberg's chief 0:06:48.000 --> 0:06:58.680 North Asia TV correspondent, joining us in our studios for 0:06:58.760 --> 0:07:02.560 a closer Loogod Markets George Merris, Global Equity CIO and 0:07:02.720 --> 0:07:05.919 principal Asset Management. George, thank you for coming into the 0:07:05.960 --> 0:07:08.800 studios here. So for the S and P five hundred, 0:07:09.080 --> 0:07:11.400 it's on track to post earnings growth in the first 0:07:11.480 --> 0:07:15.480 quarter seven point one percent. That almost doubles the analyst 0:07:15.560 --> 0:07:19.000 preseason estimates of three point eight percent. But the one 0:07:19.120 --> 0:07:23.440 interesting factor is that traders have really punished companies that 0:07:23.520 --> 0:07:28.760 delivered weaker than expected forecasts. So that's one thing to note. 0:07:28.800 --> 0:07:31.560 But the other interesting thing to note is that some 0:07:31.600 --> 0:07:34.440 of these companies like ARM and Meta that got drilled 0:07:34.720 --> 0:07:37.080 on the day of their earnings, they've come back, They've 0:07:37.160 --> 0:07:39.960 recouped all of the losses. So it's like the trader 0:07:40.080 --> 0:07:43.200 slam them and then the true believers come back in. 0:07:43.520 --> 0:07:46.000 So how are you approaching earnings that you've seen this 0:07:46.040 --> 0:07:46.640 first quarter? 0:07:46.960 --> 0:07:49.200 So I think that's an excellent way of phrasing it, 0:07:49.240 --> 0:07:51.120 which is that there's a trading activity and there's a 0:07:51.160 --> 0:07:54.400 longer term investment activity. And I think the trading activity 0:07:54.600 --> 0:07:56.600 is part and parcel of a change where we've seen 0:07:56.720 --> 0:08:01.240 much more retail and sys systematic activity markets much more 0:08:01.280 --> 0:08:07.480 momentum oriented, very fast again headline and even quicker type 0:08:07.480 --> 0:08:10.560 of activity. But I do think in areas, so for example, 0:08:10.600 --> 0:08:13.240 with ARM and others in meta, there's this long term 0:08:13.280 --> 0:08:16.920 secular wind that is at their backs, AI and other 0:08:17.600 --> 0:08:20.800 high process computing developments that are going to continue to 0:08:20.840 --> 0:08:23.280 be powerful, and you're going to see longer term investors 0:08:23.280 --> 0:08:27.360 take advantage of volatility and continue to increase their stakes 0:08:27.360 --> 0:08:28.040 in these companies. 0:08:28.440 --> 0:08:30.680 When you look at what Warren Buffett did recently and 0:08:30.800 --> 0:08:33.480 kind of lightening up on his position in Apple and 0:08:33.520 --> 0:08:37.120 accumulating a bit more cash. Yes, he's a value investor 0:08:37.200 --> 0:08:39.720 and he's got very high standards when it comes to 0:08:40.280 --> 0:08:42.280 where to put money to work. But does he have 0:08:42.320 --> 0:08:45.520 a point? Are there far fewer opportunities right now if 0:08:45.520 --> 0:08:50.960 you're concerned about maybe stretched valuations, Far fewer opportunities where 0:08:51.000 --> 0:08:54.559 to find you chances to really put good money to 0:08:54.600 --> 0:08:56.120 work over a long period of time. 0:08:57.360 --> 0:08:59.520 I think the number of opportunities that are out there 0:08:59.559 --> 0:09:01.559 that we're out there, let's say this time last year, 0:09:01.559 --> 0:09:04.000 I have shrunk. The market was a lot much lower 0:09:04.120 --> 0:09:05.800 this time last year than it is now. We've had 0:09:05.840 --> 0:09:10.520 a spectacular run, whether it's US domestic equities, whether it's abroad, 0:09:11.320 --> 0:09:14.360 again a substantial move. At the same token, you can 0:09:14.360 --> 0:09:18.640 get five percent holding cash, so your opportunity cost of 0:09:18.960 --> 0:09:21.160 doing something is just that much higher. So why not, 0:09:21.520 --> 0:09:24.240 you know, a really, why not just sit back, hold 0:09:24.280 --> 0:09:27.040 some cash and wait for opportunities to arise, especially if 0:09:27.080 --> 0:09:29.320 you think the volatility that's out there is going to 0:09:29.360 --> 0:09:30.760 give you chances. Over the next year or two. 0:09:31.120 --> 0:09:34.760 We have two massive events coming up, particularly the consumer 0:09:34.800 --> 0:09:39.160 Price Index data this week, and then you know, retail 0:09:39.200 --> 0:09:42.599 sales is also kind of interesting. The consumer is a 0:09:42.640 --> 0:09:45.160 little bit in question. I think the next big one 0:09:45.160 --> 0:09:49.040 after that is Nvidia's earnings on May twenty second, So 0:09:49.920 --> 0:09:53.079 you could perhaps understand a little bit of caution over 0:09:53.120 --> 0:09:54.800 these next two weeks with those things. 0:09:54.640 --> 0:09:58.480 Looming for sure. Look right now, inflation is the key 0:09:58.520 --> 0:10:01.160 factor not only driving markets, but striving politics, as we're 0:10:01.160 --> 0:10:04.959 seeing in polls everywhere. The inflation data has been stickier 0:10:04.960 --> 0:10:09.120 than we thought it has been. We've seen expectations of 0:10:09.120 --> 0:10:11.360 FED rate cuts go from six to now a little 0:10:11.360 --> 0:10:13.959 bit over one through the course of five months. So 0:10:14.040 --> 0:10:17.040 clearly the market is on tenderhooks determining whether or not 0:10:17.559 --> 0:10:19.520 what's going to happen with inflation, and then related to 0:10:19.559 --> 0:10:21.280 that is what's happening with the state of the consumer. 0:10:21.320 --> 0:10:24.000 The consumer has been carrying the global economy for a 0:10:24.000 --> 0:10:26.520 long period of time. Are we seeing weakness, particularly within 0:10:26.559 --> 0:10:29.840 the United States? If we do see that weakness, it's 0:10:29.880 --> 0:10:32.800 going to create a much more difficult environment going forward. 0:10:32.800 --> 0:10:36.360 So I think those results are critical. And I also 0:10:36.400 --> 0:10:39.559 think in Nvidia again, AI is the secular power behind 0:10:39.559 --> 0:10:42.040 the markets, so much activity not only on that first order, 0:10:42.080 --> 0:10:44.800 but also in terms of investing behind AI. So people 0:10:44.880 --> 0:10:46.479 want to see that that trend continues. 0:10:47.040 --> 0:10:48.920 George, did the FED make a mistake at the end 0:10:48.960 --> 0:10:51.200 of last year when it signaled it the all clear 0:10:51.679 --> 0:10:54.880 in terms of further rate hikes? Maybe it should have 0:10:55.120 --> 0:10:57.880 you adopted a different position. We can say this in 0:10:57.960 --> 0:11:01.520 hindsight now given the stickiness of inflation, but perhaps there 0:11:01.559 --> 0:11:03.760 was a bit of a policy error at that time. 0:11:05.400 --> 0:11:07.719 Coyensien's always twenty twenty. If you were to look back 0:11:07.720 --> 0:11:09.719 in time, they shouldn't have. They should have been much 0:11:09.720 --> 0:11:13.280 more circumspect with respect to guidance in terms of the 0:11:13.360 --> 0:11:16.800 all clear, I would tell you that that as I 0:11:16.840 --> 0:11:18.920 look at you know, this is my own personal view, 0:11:19.040 --> 0:11:22.560 the sticky elements of inflation continue apace. And if you 0:11:22.640 --> 0:11:26.480 think about where the where the economy is, I worry 0:11:26.559 --> 0:11:28.959 just about just as much about inflation as I am 0:11:29.000 --> 0:11:32.240 about anything else. And when you consider the economies generally 0:11:32.320 --> 0:11:35.800 humming along, and you know, unemployments sticking below four percent, 0:11:36.559 --> 0:11:38.480 I didn't you know, it's hard to see and markets 0:11:38.480 --> 0:11:42.200 were up strongly, hard to see what was driving a 0:11:42.320 --> 0:11:46.160 rate cut, you know, moral for the FED. So I 0:11:46.200 --> 0:11:47.760 do think it's probably overly aggressive. 0:11:48.679 --> 0:11:52.479 We have actually seen some broadening out in the marketplace. 0:11:52.960 --> 0:11:55.360 We've seen tech kind of level off. I think if 0:11:55.360 --> 0:11:57.240 you look at the cues over the past three months, 0:11:57.520 --> 0:12:02.200 basically flat. You've seen it in dust drills, sore materials, 0:12:02.240 --> 0:12:05.720 soar finance is now soaring. I mean, the banks have 0:12:05.800 --> 0:12:10.280 done very well here of late. You know, it does 0:12:10.440 --> 0:12:13.840 almost beg the question, though, I mean, where else do 0:12:13.920 --> 0:12:16.160 we turn out? Emerging markets are starting to move, and 0:12:16.160 --> 0:12:18.560 we've seen China really pick up a little bit. Is 0:12:18.600 --> 0:12:20.520 that the thing? Now? You kind of want to switch 0:12:20.559 --> 0:12:24.000 to other areas? How are you approaching it. 0:12:24.280 --> 0:12:28.280 I think that's right. Look, there's tremendous enthusiasm around not 0:12:28.360 --> 0:12:31.360 just AI but also the Max seven. They posted phenomenal 0:12:31.400 --> 0:12:34.880 earnings growth. We're seeing that broaden ow you talked about 0:12:34.880 --> 0:12:37.880 seven percent earnings growth in Q one already, we're seeing 0:12:37.880 --> 0:12:41.720 that continue to increase. Estimates are increasing as the year progresses, 0:12:41.760 --> 0:12:45.079 and you're seeing sectors outside the mag seven do well 0:12:45.120 --> 0:12:49.040 as well. Again, broadening out of opportunities, I think as 0:12:49.080 --> 0:12:52.520 you get outside that Max seven, whether it's moving to 0:12:52.679 --> 0:12:56.000 different sectors beyond just technology and communications, but also outside 0:12:56.040 --> 0:12:59.520 the United States. We're seeing a substantial catchup in China 0:12:59.559 --> 0:13:04.000 equity this year. We're seeing Japanese equities continue to power along. 0:13:04.000 --> 0:13:06.439 We're seeing a rebound in European equities. There are all 0:13:06.520 --> 0:13:09.040 many of those are coming off of very depressed levels, 0:13:09.440 --> 0:13:12.040 and we're seeing a strengthening or at least a stabilizing 0:13:12.040 --> 0:13:14.720 of the economy and gets a natural tendency to look 0:13:14.760 --> 0:13:18.720 for other opportunities that have been probably you know, discarded 0:13:18.760 --> 0:13:19.720 over the last year and a half. 0:13:19.840 --> 0:13:23.160 So, George, your firm principal asset management, from what I understand, 0:13:23.240 --> 0:13:26.760 has about a little over seven hundred billion under management 0:13:26.880 --> 0:13:29.200 right now. I'm curious about the cash position. 0:13:30.320 --> 0:13:34.040 So the firm is always again, we have substantial balance sheet, 0:13:35.200 --> 0:13:37.880 you know, liabilities that we have to manage, so we're 0:13:37.920 --> 0:13:40.480 we always take a very conservative, prudent view of that. 0:13:40.880 --> 0:13:42.480 I think that continues to persist. 0:13:43.600 --> 0:13:47.240 And you mentioned earlier that actually the consumer is doing okay, 0:13:47.280 --> 0:13:50.040 it's fine, but you know, there are perhaps a few 0:13:50.520 --> 0:13:54.600 warning signs when you when you know what what does 0:13:54.679 --> 0:13:57.480 what does go bump in the night? For for for 0:13:57.559 --> 0:14:00.959 the guy whose name or rhymes with rawd maris. 0:14:01.720 --> 0:14:04.280 So again, a lot of things to be concerned about. 0:14:04.360 --> 0:14:07.760 I do worry about the potential for stagflation in the 0:14:07.840 --> 0:14:12.240 United States. Everybody cheered the weaker employment numbers last week. 0:14:12.720 --> 0:14:15.160 Markets certainly rallied off of that. I'm not sure that's 0:14:15.200 --> 0:14:18.280 such great news. I mean, seeing weaker employment and sticky 0:14:18.280 --> 0:14:21.840 inflation is stagflationary. That is a very bad outcome. The 0:14:21.880 --> 0:14:24.960 Fed's hands are a little bit tied to respond to that. 0:14:25.040 --> 0:14:28.240 And I think you've seen a bifurcated economy in the 0:14:28.320 --> 0:14:30.680 US with respect to consumers. You're starting to see the 0:14:30.720 --> 0:14:34.280 lower end consumer struggle a bit more. Inflation is biting 0:14:34.280 --> 0:14:37.920 them harder. The real person's cost index when you look 0:14:37.920 --> 0:14:41.080 at food, when you look at petrol and gas, is 0:14:41.120 --> 0:14:43.240 a lot higher than the aggregate numbers, and so those 0:14:43.280 --> 0:14:44.080 folks are suffering. 0:14:44.160 --> 0:14:46.160 So if that's your assessment, is it fair to say 0:14:46.200 --> 0:14:49.400 that you skew away from fixed income and you're forced 0:14:49.440 --> 0:14:52.360 to really look for opportunities solely in the equity space. 0:14:52.440 --> 0:14:53.760 Or maybe I've got that wrong. 0:14:54.880 --> 0:14:58.160 My fixed income colleagues will view this very differently. But 0:14:58.240 --> 0:15:01.520 I find an environment where inflation is sticky and likely 0:15:01.560 --> 0:15:03.560 to be stickier longer to be one where I want 0:15:03.560 --> 0:15:07.360 to get exposed to more cyclical equities. Cyclical equities can 0:15:07.520 --> 0:15:10.080 pass on the effects of inflation, they have the benefits 0:15:10.080 --> 0:15:12.760 of operating leverage, and right now they're not priced for 0:15:12.840 --> 0:15:15.400 that kind of growth. So I am geared towards more 0:15:15.400 --> 0:15:16.360 cyclical equities. 0:15:16.640 --> 0:15:19.360 So you know that brings in some of those sectors 0:15:19.800 --> 0:15:24.040 I raised before. What about staples? Is that interesting then? 0:15:24.400 --> 0:15:27.440 So I'm less convicted around staples, and staples have suffered 0:15:27.520 --> 0:15:29.960 relative to other sectors over the last year and a 0:15:29.960 --> 0:15:32.720 half two years, but it's worth knowing they had a 0:15:32.800 --> 0:15:35.720 huge bull run over the last five years solely because 0:15:35.760 --> 0:15:38.320 of zero and negative interest rate policies which put a 0:15:38.360 --> 0:15:42.200 premium on stable like earnings. Again, they're essentially a proxy 0:15:42.240 --> 0:15:45.560 for the bond market. I think that likely comes in 0:15:45.640 --> 0:15:47.840 and continues to come in play. I think, frankly, a 0:15:47.880 --> 0:15:49.960 more interesting play that gives you a lot of features 0:15:50.240 --> 0:15:53.960 like consumer staples will be defense defense trades more cheaply 0:15:54.400 --> 0:15:56.600 and right now, as we've all seen, the world is 0:15:56.680 --> 0:15:59.320 under invested in defense and geopolitics are not exactly in 0:15:59.360 --> 0:15:59.880 a good place. 0:16:00.120 --> 0:16:02.520 So do you like the electrification? You know, sort of 0:16:03.000 --> 0:16:05.800 a part of the utilities trade without question. 0:16:05.960 --> 0:16:08.960 Not only is AI going to continue to drive electrification, 0:16:09.000 --> 0:16:11.480 we're hearing about Microsoft looking at a one hundred billion 0:16:11.560 --> 0:16:14.360 dollar data center, but I think that you're continuing to 0:16:14.360 --> 0:16:18.000 see again infrastructure spend happened globally. 0:16:18.080 --> 0:16:21.000 Yeah, all right, George, thank you, good session, Thanks for 0:16:21.000 --> 0:16:24.080 coming into our studios. George Merris, Global Equity CIO at 0:16:24.080 --> 0:16:36.600 Principal Asset Management. One year consumer inflation expectations rising to 0:16:36.680 --> 0:16:40.640 three point five percent. That's the highest sense November. This 0:16:40.880 --> 0:16:43.840 was very much front and center in markets late last week. 0:16:43.920 --> 0:16:46.480 Joining us now for some discussion about markets is Anna 0:16:46.600 --> 0:16:52.680 rothbun CIO at CBIZ Investment Advisory, services, So you have 0:16:53.160 --> 0:16:57.800 inflation expectations rising there would you feel more comfortable on 0:16:58.080 --> 0:17:00.280 if we got something from the Fed which who was 0:17:00.400 --> 0:17:02.680 more or less like, we're not sure if the next 0:17:02.720 --> 0:17:03.560 move is up or down. 0:17:05.640 --> 0:17:10.600 Good evening evening here in Eastern time the United States. 0:17:11.040 --> 0:17:14.600 I think the FED has been pretty clear that we 0:17:14.720 --> 0:17:17.560 have to wait and see. There isn't any kind of 0:17:17.640 --> 0:17:21.639 clear trajectory right now for the rates. And I believe 0:17:21.720 --> 0:17:24.080 the last time the FED spoke to us, in the 0:17:24.080 --> 0:17:29.119 form of FOMC meeting and the press conference afterwards, Powell 0:17:29.119 --> 0:17:33.600 basically said a hike isn't really in the future. We 0:17:33.680 --> 0:17:37.639 do believe it's going to be higher for longer. I 0:17:37.680 --> 0:17:40.399 think the one year expectation of inflation there that you 0:17:40.480 --> 0:17:45.240 talked about is probably more powerful than the CPI we're 0:17:45.280 --> 0:17:48.359 going to get because it is backward looking, right. So 0:17:48.960 --> 0:17:51.880 I wouldn't feel better necessarily one way or another what 0:17:51.920 --> 0:17:54.879 the FED says. I do think that the FED will 0:17:55.040 --> 0:17:58.400 ultimately be practicing higher for longer as we had thought 0:17:58.480 --> 0:17:59.880 they would at the beginning of the year. 0:18:00.600 --> 0:18:03.119 To what extent are you hearing the word or the 0:18:03.240 --> 0:18:07.560 term stagflation enter the conversation that you've been having with clients. 0:18:09.560 --> 0:18:14.280 More than we have before. So inflation it seems to 0:18:14.320 --> 0:18:17.159 be settling a lot higher than where we would like 0:18:17.240 --> 0:18:19.479 it to be or where the FED would like it 0:18:19.520 --> 0:18:23.040 to be. But we are seeing slow down in the economy. 0:18:23.240 --> 0:18:26.800 And look, a lot of our clients are small business owners, 0:18:27.280 --> 0:18:30.359 mid sized business owners. They're seeing it before we do 0:18:30.560 --> 0:18:34.760 in the aggregated aggregated data, so they are starting to 0:18:34.840 --> 0:18:38.400 talk about potential stagflation what that may mean for their businesses. 0:18:39.880 --> 0:18:44.280 What's interesting about playing all of this in the markets 0:18:44.400 --> 0:18:47.600 is that even though we haven't seen a cut from 0:18:47.760 --> 0:18:49.920 the FED, they've talked about it, but it's just talk. 0:18:51.240 --> 0:18:54.080 You know, rates are high, and look at the earnings 0:18:54.200 --> 0:18:57.239 estimates they've they've they've not only the earnings have not 0:18:57.280 --> 0:19:00.560 only come in good, but the earnings asked are being 0:19:00.640 --> 0:19:04.080 raised now at the fastest pace in two years. So 0:19:04.119 --> 0:19:05.960 you kind of have to wonder whether or not a 0:19:06.000 --> 0:19:09.520 little bit higher inflation, a little bit higher for longer 0:19:09.560 --> 0:19:14.360 FED is really hurting earnings. It may be slowing the economy, 0:19:14.400 --> 0:19:16.040 but is it hurting earnings in your view? 0:19:17.240 --> 0:19:21.119 Well, I think depends on each company's cash flow profile 0:19:21.160 --> 0:19:23.719 as well as their debt profile. Look a lot of 0:19:23.760 --> 0:19:28.639 the earnings increases. In frankly, the spectacular earnings performance that 0:19:28.680 --> 0:19:31.679 we've seen are in companies that are really flushed with 0:19:31.760 --> 0:19:34.199 cash where the rates don't matter as much. If you 0:19:34.280 --> 0:19:39.000 go down the well capitalization and go into small caps, 0:19:39.040 --> 0:19:41.520 you have a different story there. So I think it 0:19:41.600 --> 0:19:44.600 really depends on the company, and the longer we keep 0:19:44.760 --> 0:19:49.000 rates high, the more difficult it will be. And I 0:19:49.040 --> 0:19:52.879 think we're going to see some deterioration going forward. Large caps, 0:19:52.920 --> 0:19:56.480 it's just going to be not as impacted as much 0:19:56.480 --> 0:19:57.520 as small caps. 0:19:58.040 --> 0:20:00.880 Is that the area that your most let's say focused 0:20:00.920 --> 0:20:04.520 on these days mid caps small caps as opposed to 0:20:04.560 --> 0:20:07.080 the you know, the big blue that we used to 0:20:07.119 --> 0:20:08.680 say we're members of the Dow. 0:20:10.040 --> 0:20:13.399 Well, the large caps have definitely performed a lot better, 0:20:14.000 --> 0:20:17.159 both in terms of earnings in terms of prices. We 0:20:17.240 --> 0:20:20.080 do not ignore large caps. Large caps are way too powerful. 0:20:20.119 --> 0:20:23.159 The momentum there is too powerful. We had a little 0:20:23.200 --> 0:20:27.160 blip in April and then now they're back up, which 0:20:27.200 --> 0:20:30.560 is interesting because they're moving based on you know, these 0:20:30.640 --> 0:20:32.960 macro data and what the FED might do, and it 0:20:33.080 --> 0:20:36.560 really they're they're they're more immune to it than some 0:20:36.640 --> 0:20:40.440 of the smaller companies. We do invest in smaller companies, 0:20:40.640 --> 0:20:42.800 but the smaller companies we have to be a little 0:20:42.800 --> 0:20:45.479 bit more careful because they are more rate sensitive. I mean, 0:20:45.480 --> 0:20:48.320 if you look at the debt side of it, most 0:20:48.440 --> 0:20:50.880 investment great companies are going to be large, and there's 0:20:50.920 --> 0:20:55.359 definitely more comfort in the size, whereas a lot of 0:20:55.400 --> 0:20:58.120 the small companies tend to be higher yield where they 0:20:58.160 --> 0:21:01.399 have to pay for it with even a high credit spread. 0:21:02.920 --> 0:21:05.720 Some of what we're talking about here is really cyclical 0:21:05.720 --> 0:21:10.440 in nature. In terms of secular adjustments, you do have 0:21:10.800 --> 0:21:16.080 the reindustrialization of the US economy, which which may augur 0:21:16.240 --> 0:21:20.560 for accepting a little bit slower pace in consumer spending. 0:21:20.880 --> 0:21:23.679 Do you agree or do you think that that's more hype. 0:21:25.920 --> 0:21:28.520 Do you mean the reshoring or onshoring? 0:21:29.000 --> 0:21:32.679 Yeah, the reshoring, the encouragement of companies to you know, 0:21:32.760 --> 0:21:35.920 retain workers in the United States and to produce locally. 0:21:36.720 --> 0:21:39.120 You know, you've got this big push really right across 0:21:39.160 --> 0:21:43.119 the board. You've got a deglobalization process that is playing 0:21:43.119 --> 0:21:44.639 out over over years. 0:21:46.040 --> 0:21:48.600 Yeah, that's going to take a really long time. I mean, 0:21:48.640 --> 0:21:51.400