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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg

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Speaker 1: Daybreak Asia podcast. I'm Doug Prisner. You can join Brian

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Speaker 1: Curtis and myself for the stories, making news and moving

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Speaker 1: markets in the APAC region. You can subscribe to the

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Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app.

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Speaker 2: Chian Wong, chief Asia Pacific Economist at Vanguard Group, to

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Speaker 2: take a close little for the Asia Pacific, we take

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Speaker 2: a closer look at at global markets here. Chian Wong,

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Speaker 2: thank you very much for being with us. Let's start

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Speaker 2: off with China. We can go back to the US

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Speaker 2: up wraps in a few moments. So we have this

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Speaker 2: NDRC announcement coming tomorrow, just a little bit of kind

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Speaker 2: of you know, connecting the dots on some of the

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Speaker 2: stimulus should we expect a lot more clarity here in

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Speaker 2: terms of what's happening.

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Speaker 3: Thank you so much, Dovan, Brian, thanks for having me today.

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Speaker 3: I think you know having the nd r C pressing

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Speaker 3: tomorrow right like right after the Golden Holiday, but the

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Speaker 3: timing it itself can be sending a positive signal and

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Speaker 3: that the Chinese government is really moving fast because frankly speaking,

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Speaker 3: they are running out of a time trying to reach

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Speaker 3: that five percent target of this year. Right, So that

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Speaker 3: actually is positive the news. But on the other hand,

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Speaker 3: I think we do need to figure out, you know,

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Speaker 3: in terms of the size, in terms of the composition

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Speaker 3: of the of the for the you know, uh support measure.

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Speaker 4: Right.

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Speaker 3: Hopefully you know, they are going to emphasize on you know,

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Speaker 3: a better utilization of the existing physcal space as well

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Speaker 3: as you know, uh, hopefully they can announce a supplementary

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Speaker 3: physcal package that will be approved by the National People

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Speaker 3: Congress later this month. There is certainly a lot of

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Speaker 3: hope there, right, you know, currently we are expecting about

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Speaker 3: to trillion right fiscal package you know, supporting consumption, some investment,

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Speaker 3: alleviating local government that burden, and probably some injection to

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Speaker 3: bank capital. But I think that remained to be seen,

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Speaker 3: right you know, and I think investors are waiting to

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Speaker 3: figure out whether this is really whatever it takes moment

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Speaker 3: or still a continuation of just enough approach.

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Speaker 1: Do you think we're going to see sentiment move in

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Speaker 1: a positive direction as as soon as some of the

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Speaker 1: high frequency data from the Golden Week holiday, if there

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Speaker 1: is to be positive sentiment on from the consumers and

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Speaker 1: chin at all.

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Speaker 3: Well, I mean, if you look at the Golden there's

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Speaker 3: some high frequency data right, like the box office, like

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Speaker 3: the trouble railway tours, railway passenger outbound inbound trips. You know,

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Speaker 3: some of the number actually do see you know, positive

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Speaker 3: year on year growth. And also I would say in

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Speaker 3: Tier one cities we do see some boosted to the

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Speaker 3: housing market sentiment and activities over after the you know,

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Speaker 3: coordinated policy pivot in you know, a week ago. Right. So,

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Speaker 3: but I think at this moment a lot of people

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Speaker 3: are still rather skeptical, you know, because see, when I

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Speaker 3: think about policy stimulus, right, I think there are three

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Speaker 3: stages of policy support. The first stage is really about

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Speaker 3: supporting the liquidity and sentiment, and of course I think

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Speaker 3: they've already done that, right, you know. But the second

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Speaker 3: stage is that when the economy is really in an

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Speaker 3: liquidity truck, what is it missing is really credit demand,

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Speaker 3: not credited supply, and money free policy or ejecting money

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Speaker 3: into the equity market does not really solve that. So

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Speaker 3: that's where we get into the second stage, really focusing

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Speaker 3: on the fiscal policy, but still I think cechnical policy

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Speaker 3: does not really fix structural issues, right, So I think

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Speaker 3: the third stage is really we need to see what

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Speaker 3: the government is committed to solve those fundamental issues.

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Speaker 2: Yeah, that's that feeds. And the reason I was kind

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Speaker 2: of you know, getting you know, on the edge of

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Speaker 2: my seat was I was thinking that there's a possibility

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Speaker 2: that there may be a kind of permanent discount placed

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Speaker 2: on China, given that we've seen now that it comes

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Speaker 2: down to one man rule. And I think a lot

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Speaker 2: of investors really have their doubts that she Jiping is

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Speaker 2: really all behind this. He's kind of being dragged along

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Speaker 2: here a little bit because of conditions and such, but

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Speaker 2: that he may not be fully committed. Do you think

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Speaker 2: that permanent discount could be in place?

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Speaker 3: Well, I think there's a lot of skeptism, and I

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Speaker 3: think this is why at this moment is really a

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Speaker 3: critical moment for the Chinese government right to regain their

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Speaker 3: policy credibility. Right, So if the policy supports just continue

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Speaker 3: to be you know, moderate and just enough, then I

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Speaker 3: think that may actually make a lot of investors more disappointed,

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Speaker 3: you know, at this moment, I see it like two

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Speaker 3: fundamental issues in the common one has on the housing sector, right,

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Speaker 3: I mean, unless the central government is willing to leverage

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Speaker 3: its own balance sheet to address the oversupply issue, right

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Speaker 3: or the you know unfinished the housing unsold supply and

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Speaker 3: even land that's sold but not developed. You know, unless

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Speaker 3: central bank, central governments willing to do that, I don't

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Speaker 3: really see that they can stabilize the housing market in

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Speaker 3: a sustainable manner. And the second issue I think is

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Speaker 3: ultimately business confidence, which matters the most actually for household consumption.

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Speaker 3: You know there because I think the most important factor

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Speaker 3: to drive consumption is really the job and income prospects,

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Speaker 3: and that's where I think the government need to revive

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Speaker 3: the animal spirit and business competency, especially in the private sector.

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Speaker 1: That is a very good point, and I'm curious to

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Speaker 1: get your take on why the government has not yet

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Speaker 1: used its balance sheet, whether it's the central bank or

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Speaker 1: the other means. I'm assuming what you mean is that

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Speaker 1: the PBOC would would put its balance sheet, I want,

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Speaker 1: not necessarily at risk, but would certainly add to it

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Speaker 1: in a substantial way. Why do you think there's been

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Speaker 1: so much resistance to that idea?

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Speaker 3: Well, I think at this moment. You know, a lot

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Speaker 3: of people are expecting a bazooka you know package, right,

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Speaker 3: But I think still I think in Chinese government's mindset,

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Speaker 3: probably they still want to follow our you know, touching

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Speaker 3: the stone and acrossing the river, right. I mean, because

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Speaker 3: you know, if you look at the Chinese government, what

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Speaker 3: we have seen over the past several years is that

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Speaker 3: they are trying to balance multiple policy goals. Right, growth

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Speaker 3: rate is one thing, but growth quality, financial stability, you know,

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Speaker 3: and the income and wealth equality. There's many other goals

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Speaker 3: they try to balance. Oh yeah, right, have development. So

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Speaker 3: I think that's where they do want to take. You know,

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Speaker 3: watch closely, say, Okay, we don't want to We want

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Speaker 3: to support the economy growth for sure, but we don't

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Speaker 3: want to overstimulated, and that actually would threaten the financial

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Speaker 3: stability down the road.

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Speaker 2: Let's circle back quickly to the US, because that's also

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Speaker 2: a big, big, important part of all this. How should

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Speaker 2: we interpret the stronger data of late a good thing

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Speaker 2: or a worrisome thing because of the inflation implications.

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Speaker 3: Well, I think definitely this is actually suggesting that the

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Speaker 3: US economy is you know, pretty resilient, right, surprisingly resilient.

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Speaker 3: In fact, so I think that does come the recession

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Speaker 3: fear and move the risk to the US upper side. Still,

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Speaker 3: you know, we don't really expect us off lending or

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Speaker 3: no landing. Actually, we still expect the ecomy to have

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Speaker 3: a lending in twenty twenty five, what we call a

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Speaker 3: turbulent lending, which means we are going to see some

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Speaker 3: below trund growth like average one percent next year, and

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Speaker 3: that nective apple gap will be able to bring inflation,

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Speaker 3: you know, towards the the two percent target. Right, So

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Speaker 3: this is where we steal, you know, expecting fed tool.

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Speaker 2: Yeah, a little sobering position, turbulent landing, right, yeah, Queluckily,

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Speaker 2: I was getting all excited and then Chien Wong had

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Speaker 2: to pour some cold water on us. Anyway, but a

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Speaker 2: very nice conversation. I think I learned a lot. And

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Speaker 2: Doug two Chien Wang, chief Asia Pacific Economists at Vanguard Group,

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Speaker 2: looking at the Asia Pacific end a little bit on

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Speaker 2: the US economy. Will McDonough, founder, chairman and CEO at

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Speaker 2: Corestone Capital for a closer look at markets. Will the

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Speaker 2: US economy with this latest data on jobs and some

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Speaker 2: of the other data, we are going to see higher

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Speaker 2: yields that seems seems certain our market's ready for that.

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Speaker 5: I think markets are realizing that the data that's coming

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Speaker 5: out today is that a significant lag to the reality.

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Speaker 5: You know, we liken it to the adjustment of your

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Speaker 5: thermostat in your home. You might change the degrees in

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Speaker 5: the morning to be up a little hotter. It doesn't

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Speaker 5: get hot immediately. It takes a little time for that

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Speaker 5: to adjust. It's the same when you see interest rates adjust.

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Speaker 5: It's the same when you see FED activity. It takes

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Speaker 5: a while for that data to get into the market.

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Speaker 5: And so why I think the markets reacted positively this

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Speaker 5: week is because we are very close to the first

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Speaker 5: adjustment from Powell with the cut. To see data this

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Speaker 5: close to that so positive, it's leading people to believe

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Speaker 5: that maybe things weren't as bad as we might have

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Speaker 5: thought over the summer months. And so if we follow

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Speaker 5: that up into the new year with a couple more cuts,

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Speaker 5: people seem to think that we might get some momentum

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Speaker 5: into the new year. And I think people are really

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Speaker 5: hoping for that.

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Speaker 1: Bloomberg spoke with Ed Yardeni last week and he was

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Speaker 1: saying the FED might not cut again this year. Is

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Speaker 1: that too bold a statement.

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Speaker 5: I think it's too bold of a statement. We're predicted

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Speaker 5: one full point for the year, so they're they're halfway there.

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Speaker 5: I think if we got two more twenty five bip

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Speaker 5: cuts into the year end, I think that's kind of

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Speaker 5: what the market's expecting, and I think if we got

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Speaker 5: less than that, the market might react negatively to thinking

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Speaker 5: that they're not doing enough.

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Speaker 2: The chief, the chief consideration must be, or the chief

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Speaker 2: concern must be, that you get a pick up in

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Speaker 2: inflation with this added growth. I mean, if we are

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Speaker 2: reinvigorating and re energizing in the economy, isn't it a

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Speaker 2: fear that inflation picks up with it.

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Speaker 5: I think that's a good fear. I think I think

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Speaker 5: that's a well warranted fear, and that's a real fear,

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Speaker 5: and that is exactly what could happen. The problem with

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Speaker 5: this Q four in the traditional economic calendar is we

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Speaker 5: get way better real time data from consumer spending around

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Speaker 5: the holidays, and that's our real litmus test for how

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Speaker 5: much money is in everyone's pocket, how much money are

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Speaker 5: they spending, and when we start to see those numbers

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Speaker 5: between now and you know, Christmas, in the holiday season,

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Speaker 5: If those numbers are off, that's going to strike a

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Speaker 5: ton of fear into people. And so I think markets

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Speaker 5: right now are in a little bit of a wait

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Speaker 5: and see to see how these numbers spit out, and

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Speaker 5: they want the Fed to continue to lean into it

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Speaker 5: because we don't know what we're going to see. You know,

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Speaker 5: COVID era savings are down tremendously, inflation is still up

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Speaker 5: massively compared to where it was pre COVID, and so

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Speaker 5: those two things don't line up for a big holiday

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Speaker 5: season of spending and that could prove to be really

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Speaker 5: hard as we roll through Q four.

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Speaker 1: So kate data this week will be CPI, PPI Thursday Friday, respectively.

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Speaker 1: Do you have a sense of what we're looking at

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Speaker 1: here in these numbers?

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Speaker 5: I mean, they're going to be at a leg to

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Speaker 5: the reality, and so, you know, while markets are going

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Speaker 5: to make bets on whether or not that's going to

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Speaker 5: come in hot or not, we actually zoom out a

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Speaker 5: little bit more. I'm less focused on you know, this

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Speaker 5: week over week, month over month number because it's really

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Speaker 5: reflecting August July realities, and so I'm way more concerned

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Speaker 5: and focused on the holiday season, you know, and how

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Speaker 5: that's going to affect the global macro environment. We can't forget.

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Speaker 5: You know, between now and holidays we have a pretty

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Speaker 5: contested election cycle where the economy is front and center,

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Speaker 5: and so you're going to see I think a lot

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Speaker 5: of the focus go away from the numbers and the

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Speaker 5: tangible numbers because those are going to be less real time.

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Speaker 5: You're going to see how the US markets are voting

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Speaker 5: truly at the polls and therefore with their wallets, and

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Speaker 5: then you're going to see right after that how they're

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Speaker 5: spending at the register. And that's going to give us

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Speaker 5: a real true test for the realities of the US markets.

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Speaker 2: Have you been thinking about China and the strong impetus

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Speaker 2: there for market action, you know, reflecting the change in

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Speaker 2: policymakers approach to things. Is that something you like or

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Speaker 2: are you in that camp that's a little concerned that

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Speaker 2: it's moved too far, too fast.

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Speaker 5: I think about China more often than I care to admit.

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Speaker 5: I'm horrified by I think it's amazing that what they're doing.

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Speaker 5: I don't trust a lot of data that comes out

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Speaker 5: of China, but when they are leaning into and throwing

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Speaker 5: the kitchen sink, if you will at their own economy

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Speaker 5: and trying to stimulate things. That does reverberate around the

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Speaker 5: globe because of how much we depend on their output

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Speaker 5: and how much we depend on their exports, and how

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Speaker 5: much they define, you know, the cost structures of a

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Speaker 5: lot of goods, goods that travel around the world, and so,

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Speaker 5: you know, China does keep me up at night and

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Speaker 5: wake me up in the morning. And when they do

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Speaker 5: things like they're doing recently and really come over the

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Speaker 5: top with with their movements against their own economy, it

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Speaker 5: does make me a little bit fearful about the realities

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Speaker 5: under their hood.

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Speaker 1: Hard to believe. We're already at earning season this week,

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Speaker 1: right Delta Airlines on Thursday, some of the big banks

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Speaker 1: Friday with I think JP Morgan and Wells Fargo. How

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Speaker 1: do you feel about the earning season?

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Speaker 5: I think that the you know, consumer activity through the

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Speaker 5: summer is probably going to be fine. I do think

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Speaker 5: that the banks are going to be a better litmus

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Speaker 5: test because you know, the data that they're going to

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Speaker 5: be reporting off is going to be the last segments

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Speaker 5: of the market, hopefully with high interest rates, and so

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Speaker 5: how did they operate in a high interest rate environment?

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Speaker 5: Because when interest rates are coming down and interest rates

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Speaker 5: are good, banks do well. People are borrowing, people are

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Speaker 5: engaging with the markets more. And when interest rates are high,

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Speaker 5: that's when things are really hard on banks. You know,

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Speaker 5: activities down a lot for them, transactions are down, Emina

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Speaker 5: activities down, investment banking activities down. And so I do

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Speaker 5: think that those banking numbers that come out this week

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Speaker 5: are going to be important to monitor. And I don't

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Speaker 5: predict that they're going to be spectacular, but if they

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Speaker 5: are good, I think that you know, paired with the

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Speaker 5: election cycle and people's promise of maybe some economic policy

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Speaker 5: shift and like I say, the consumer activity into your end,

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Speaker 5: we're going to come into this new year with a

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Speaker 5: really good grasp on where there's a economy stands, and

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Speaker 5: I'm truly hopeful for it.

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Speaker 2: Well, the big bull case would be that, you know,

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Speaker 2: you've got the FED leaning toward cutting interest rates into

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Speaker 2: an economy that's not only okay, but seems to be reaccelerating.

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Speaker 2: And then you've got all this stimulus that's coming in China.

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Speaker 2: I mean, you can make the argument that this is

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Speaker 2: a unique and very interesting period for taking on risk.

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Speaker 5: It is, and one side of the coin is that

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Speaker 5: that's a house of cards with a lot of different

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Speaker 5: stakeholders who you know, who have a lot to gain

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Speaker 5: from their own personal activity, and those are compounding off

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Speaker 5: of each other. But the other thing is, you know,

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Speaker 5: we can't be negative about the fact that the data

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Speaker 5: and the CPI and you know, the the non farm

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Speaker 5: payrolls and those have been stronger than people thought they

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Speaker 5: would be. And so it's giving people hope that maybe

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Speaker 5: some of this political activity actually did you know, keep

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Speaker 5: things afloat through some pretty trying times. And if we

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Speaker 5: do come out of that on strong footing, you know,

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Speaker 5: you could predict that the market persists in the right

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Speaker 5: direction and it might just go down as a case

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Speaker 5: study for how to handle a crisis, which you know,

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Speaker 5: I'm yet to celebrate that, but you are correct that

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Speaker 5: it has the setup you know, to be a win.

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Speaker 1: It's kind of amazing. I mean, so far this year,

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Speaker 1: I think the S and P is up roughly twenty percent,

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Speaker 1: eight trillion added to market cap. A lot of that

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Speaker 1: has to do with the AI trade. How are you

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Speaker 1: feeling about megacap tech AI in particular.

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Speaker 5: I'm bullish on megacap tech and AI and its influence.

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Speaker 5: You know, I do really spend a lot of time

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Speaker 5: trying to figure out where the energy is going to

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Speaker 5: come from to support all of this computing power necessary

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Speaker 5: for AIRE. We're spending a lot of time, you know,

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Speaker 5: assessing that and think that. You know, we made a

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Speaker 5: big move into copper last year, which is performed well

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Speaker 5: over seventeen percent year to date, and we think copper

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Speaker 5: will continue in that direction. You know, I think the

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Speaker 5: two different sides of the aisle have different energy policies,

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Speaker 5: and those policies are really going to drive actually tech earnings,

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Speaker 5: which is just a crazy commingling that you know, more

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Speaker 5: so than ever because of how much computing power these

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Speaker 5: you know, large language models require for AI and the

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Speaker 5: queries that are coming from it. So I do think

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Speaker 5: that the haves and the have nots are going to

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Speaker 5: become more pronounced, and those with big balance sheets, like

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Speaker 5: the big techs have will continue to succeed because they're

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Speaker 5: able to lean in and double down. And we're feeling

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Speaker 5: good about that.

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Speaker 2: All right, Will, thanks very much. Will McDonough, who is founder,

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Speaker 2: a chairman and CEO at Corestone Capital. James Abat, Managing

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Speaker 2: director and Chief Investment Officer, of Center Asset Management, James,

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Speaker 2: how should we interpret the stronger economic data that we've

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Speaker 2: seen here of late good news because it seems like

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Speaker 2: good news or worrisome and that inflation might get restoked.

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Speaker 4: Well, it hasn't been uniform, right. The ISM Manufacturing Index

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Speaker 4: released last week continued to show a great degree of

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Speaker 4: weakness in the manufacturing segment of the economy. And clearly

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Speaker 4: the labor report, which showed a gain to two hundred

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Speaker 4: and forty five thousand jobs, and as you pointed out,

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Speaker 4: the unemployment rate falling down to four point one percent,

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Speaker 4: kind of puts us back in the no landing environment

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Speaker 4: at this point in time. I think there are three

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Speaker 4: issues that one can take exception to. I mean, the

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Speaker 4: first is that when you drill down into the numbers,

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Speaker 4: the average work week actually fell, so the aggregate number

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Speaker 4: of hours of work actually declined. In the most recent

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Speaker 4: report I think two nearly all the job growth was

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Speaker 4: in government, education, and leisure. So it's essentially a bull

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Speaker 4: market for job growth in bureaucrats and bartenders, I guess,

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Speaker 4: because if you look at the manufacturing sector, it actually

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Speaker 4: declined by seven thousand, so you know, we're seeing the

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Speaker 4: fiscal stimulus continue to offset you know, cyclical and private

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Speaker 4: sector weakness that we have. And you know, going back

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Speaker 4: to that ISM report that we had earlier in the week,

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Speaker 4: if you look at the sub sector which is the

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Speaker 4: ISM labor component, it showed the biggest drop since the

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Speaker 4: COVID lockdowns of mid twenty twenty. I mean, that's a

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Speaker 4: real indicator. That's something consistent from business, which is very

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Speaker 4: consistent with the FEDS page book. It's not a statistical

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Speaker 4: figure released by the Department of Labor, who you know,

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Speaker 4: I hate to say it. I don't want to, you know,

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Speaker 4: question their credibility, but you know, just last month, the

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Speaker 4: same Department of Labor revised the number of jobs down

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Speaker 4: by eight hundred thousand lowers. So you don't have to

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Speaker 4: wait and see because if you look at the bottom line,

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Speaker 4: if you're recession may may now be on hold for

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Speaker 4: the time being, but it's not gone completely. As the

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Speaker 4: global economy seems still to be stuck. In first year,

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Speaker 4: we saw Germany GDP estimates coming at negative zero point

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Speaker 4: two percent, and I still think we're vulnerable to some

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Speaker 4: type of demand shock and have a hard time seeing

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Speaker 4: a rapid acceleration of economic and profit growth.

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Speaker 1: But for the moment, does it change. You're thinking into

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Speaker 1: what the Fed may do next. Ed Yard Denny was

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Speaker 1: saying last Friday in the wake of that Job's day,

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Speaker 1: to Hey, the Fed may not cut again this year.

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Speaker 4: That's possible. I mean, we've never been sitting here with

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Speaker 4: the pom poms ow cheerleading the Fed, you know, needed

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Speaker 4: to go to another fifty basis points. Our guide post

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Speaker 4: has always been the two year note, and the two

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Speaker 4: year note right now is around four percent. And we've

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Speaker 4: said if the FED can get to four percent on

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Speaker 4: the FED funds rate, which it's still not there yet,

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Speaker 4: whether that's in twenty five base points increments or you know,

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Speaker 4: maybe even less, and depending upon the time, that would

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Speaker 4: be an ideal situation. I mean, what you're thinking about

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Speaker 4: at that stage is two percent inflation and two percent

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Speaker 4: real rate, which would be, you know, theoretically, monetary policy nirvana.

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Speaker 2: So I'm a little yeah, I'm a little confused on

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Speaker 2: whether or not you're concerned about the future. It seems

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Speaker 2: like with your first answer, you are a little concerned

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Speaker 2: about the US economy, yet you don't really think that

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Speaker 2: interest rates are needed, which might suggest that you're more

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Speaker 2: like it's kind of cruising along sideways here, and that's

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Speaker 2: not such a bad thing.

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Speaker 4: Yeah, that's exactly right. I think that the market is

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Speaker 4: already priced in much of what's occurred in terms of

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Speaker 4: the easing. I mean, let's look at large corporations. They're

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Speaker 4: doing fine. I mean, credit spreads relative to treasuries are

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Speaker 4: already very tight. There's no indication of any kind of

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Speaker 4: financial stress. I mean, if you look at ratios and

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Speaker 4: at least total debt to capital, there are cycle lows

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Speaker 4: right now for the average SMP five hundred company, as

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Speaker 4: is the debt to EBITDA ratio. I mean, when you

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Speaker 4: think about it, providing the rally that we've seen in

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Speaker 4: bond yields, it means provided some benefits to regional banks.

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Speaker 4: I mean the biggest beneficiary, let's just not let's cut

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Speaker 4: to the chase. I mean, the biggest beneficiary of the

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Speaker 4: cut in interest rates is the US Treasury. I mean

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Speaker 4: the average maturity of the enormous thirty five trillion dollar

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Speaker 4: US debt is you know, six years. So US deficits

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Speaker 4: are highly impacted by the cuts of short term interest rates,

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Speaker 4: as interest costs now top one point one trillion dollars

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Speaker 4: a year. It's a quarter of the federal budget. So

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Speaker 4: I mean, unfortunately, if you look back Treasury Secretary Yelling,

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Speaker 4: it's probably the only person in the country who had

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Speaker 4: a huge mortgage and didn't lock in low cost, long

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Speaker 4: duration funding when the opportunity was there in twenty twenty

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Speaker 4: one and twenty year bonds yielded less than two percent.

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Speaker 4: I mean, Alexander Hamilton was probably rolling in his grave

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Speaker 4: over this blunder by the Treasury.

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Speaker 1: Yeah, but to be fair, anything that's on the Fed's

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Speaker 1: balance sheet in terms of US treasuries, I mean that

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Speaker 1: money goes back to the Fed's account at Treasury, So

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Speaker 1: the Treasury is a little bit of a winner there

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Speaker 1: as we still unwind the balance sheet. How are you

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Speaker 1: feeling about earnings right now?

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Speaker 4: I mean earnings right now. Expectations for Q three are

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Speaker 4: relatively modest. They're about five percent. My biggest concern is

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Speaker 4: that when we look out to twenty and fifteen, the

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Speaker 4: estimated earnings growth rate for the S and P five

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Speaker 4: hundred is fifteen percent for the full year. Well, we

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Speaker 4: have a very high hard time reconciling that number with

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Speaker 4: is the fact that most companies that we're analyzing from

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Speaker 4: a bottom up perspective, are you know, cutting back. They're

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Speaker 4: cutting back capotics, they're cutting back on employees, they're restructuring.

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Speaker 4: We're not seeing the pricing power that was evident a

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Speaker 4: couple of years ago. So fifteen percent seems to be

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Speaker 4: a very high hurdle rate, and we think that we're

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Speaker 4: at a point in time where this concept of disappointment

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00:23:59,040 --> 00:24:02,159
Speaker 4: is evident. And given where the market is trading at

435
00:24:02,200 --> 00:24:06,000
Speaker 4: twenty two times forward earnings, we think that you could

436
00:24:06,040 --> 00:24:09,600
Speaker 4: see some type of either time correction or maybe even

437
00:24:09,640 --> 00:24:14,080
Speaker 4: a price correction in indices if guidance this quarter is

438
00:24:14,119 --> 00:24:16,600
Speaker 4: not as robust as perhaps the market anticipates.

439
00:24:17,280 --> 00:24:19,240
Speaker 2: One of the things we tease that you'd be willing

440
00:24:19,280 --> 00:24:22,680
Speaker 2: to talk about was what some people might think is

441
00:24:23,240 --> 00:24:27,960
Speaker 2: a terrible idea to tax unrealized capital gains. And you

442
00:24:28,040 --> 00:24:31,359
Speaker 2: pose the question, is their merit to it? What say you?

443
00:24:33,359 --> 00:24:36,360
Speaker 4: Well, when you think about it again, I'm probably very

444
00:24:36,440 --> 00:24:38,840
Speaker 4: unlike other people that you talk to, but I think

445
00:24:38,840 --> 00:24:42,840
Speaker 4: there's actually an argument for taxing unrealized capital gains above

446
00:24:43,000 --> 00:24:46,720
Speaker 4: a certain threshold. And if the person is simply borrowing

447
00:24:46,720 --> 00:24:50,880
Speaker 4: against stockholdings for consumption, I mean frankly, so Jeff Bezos

448
00:24:50,920 --> 00:24:54,160
Speaker 4: of Amazon not pay any income taxes like he has

449
00:24:54,200 --> 00:24:57,000
Speaker 4: over the past several years. There's a court case going

450
00:24:57,040 --> 00:24:59,760
Speaker 4: back with a Supreme Court in nineteen sixteen. It's Eyes

451
00:25:00,080 --> 00:25:04,199
Speaker 4: versus Macma. It regarded as stock dividend and the Supreme

452
00:25:04,280 --> 00:25:07,880
Speaker 4: Court rule that a person needed to physically sell an asset,

453
00:25:08,080 --> 00:25:11,080
Speaker 4: stock bond, or building, whatever it might be and reach

454
00:25:11,160 --> 00:25:13,560
Speaker 4: some money before it could be taxed. But when you

455
00:25:13,600 --> 00:25:16,200
Speaker 4: look at some of these tech locals, right, isn't paying

456
00:25:16,240 --> 00:25:19,560
Speaker 4: yourself a dollar in salary like most of these guys do,

457
00:25:19,960 --> 00:25:22,879
Speaker 4: but then getting sweetheart borrowing arrangements like we saw with

458
00:25:23,040 --> 00:25:27,159
Speaker 4: Silicon Valley Bank from these lenders, you know, gents, your

459
00:25:27,160 --> 00:25:32,320
Speaker 4: stockholdings to fund the lavish lifestyle like Bezos does, constituted

460
00:25:32,359 --> 00:25:36,399
Speaker 4: the facto sale subject to a capital gains tax. Also

461
00:25:37,280 --> 00:25:40,800
Speaker 4: when done perpetually, I mean there are states will avoid

462
00:25:40,880 --> 00:25:43,399
Speaker 4: taxes and entirety due to the step up rules. So

463
00:25:43,800 --> 00:25:46,160
Speaker 4: I think it's rocked fair, and I think the Democrats

464
00:25:46,480 --> 00:25:48,760
Speaker 4: are likely to challenge us if they take Congress in

465
00:25:48,840 --> 00:25:49,439
Speaker 4: the next election.

466
00:25:50,240 --> 00:25:53,520
Speaker 1: That seems less clear to me at this point. I mean,

467
00:25:53,560 --> 00:25:56,880
Speaker 1: there's a chance maybe that the Senate goes Republican. Maybe

468
00:25:57,200 --> 00:26:00,720
Speaker 1: the Democrats do take the House, and who knows what happen.

469
00:26:00,400 --> 00:26:03,199
Speaker 4: At the other thing, the other impediment is that the

470
00:26:03,240 --> 00:26:06,520
Speaker 4: Democratic donors are very much of the tech billionaire crowd,

471
00:26:06,840 --> 00:26:08,479
Speaker 4: you know, do they want to basically turn on their

472
00:26:08,480 --> 00:26:09,080
Speaker 4: own donors?

473
00:26:09,200 --> 00:26:12,280
Speaker 2: A good point, James, Thank you so much for joining us.

474
00:26:12,320 --> 00:26:14,520
Speaker 2: Always interesting, James Abote, And we didn't even get a

475
00:26:14,600 --> 00:26:18,200
Speaker 2: chance to talk about utilities and three Mile Island in Microsoft. Anyway,

476
00:26:18,240 --> 00:26:29,960
Speaker 2: next time, James Abonte from Center Asset Management. Adam Coons,

477
00:26:30,119 --> 00:26:34,320
Speaker 2: co chief investment Officer and portfolio manager at Winthrop Capital Management.

478
00:26:34,800 --> 00:26:37,600
Speaker 2: So we've seen this bump up in yields that could

479
00:26:37,600 --> 00:26:41,760
Speaker 2: be just reflecting a better economy, which is sort of

480
00:26:41,760 --> 00:26:44,639
Speaker 2: reflected by the recent data, but it could also be

481
00:26:44,720 --> 00:26:48,520
Speaker 2: some fears now about inflation kicking back in. How do

482
00:26:48,560 --> 00:26:49,840
Speaker 2: you see it at them?

483
00:26:50,640 --> 00:26:52,040
Speaker 6: Yeah, I mean, I think it's a mix of both.

484
00:26:52,119 --> 00:26:55,879
Speaker 6: I think, you know, the reality is the economic data

485
00:26:55,960 --> 00:26:59,680
Speaker 6: still is showing that the US economy has plenty of

486
00:27:00,760 --> 00:27:03,480
Speaker 6: and so as you see the possibilities of the Fed

487
00:27:03,640 --> 00:27:05,879
Speaker 6: cutting rates further and how much they're really going to

488
00:27:05,960 --> 00:27:08,760
Speaker 6: cut and what the effect of those cuts will be

489
00:27:09,840 --> 00:27:12,400
Speaker 6: is what's kind of pushing yields higher. I mean, obviously

490
00:27:12,560 --> 00:27:16,399
Speaker 6: the short term, but when you have things like this

491
00:27:16,520 --> 00:27:21,800
Speaker 6: hurricane and some of the labor issues with you know,

492
00:27:22,119 --> 00:27:26,960
Speaker 6: just different different unions shutting down working, that can be

493
00:27:27,000 --> 00:27:29,639
Speaker 6: inflationary in the short term. So I think that's some

494
00:27:29,720 --> 00:27:33,160
Speaker 6: of the fears, and then the other fears just that frankly,

495
00:27:33,200 --> 00:27:35,159
Speaker 6: the Fed's not going to cut nearly as much as

496
00:27:35,640 --> 00:27:38,840
Speaker 6: some have forecasted, because when you look at the labor data,

497
00:27:38,840 --> 00:27:42,520
Speaker 6: it's still showing some strength, and then the consumer continues

498
00:27:42,560 --> 00:27:44,960
Speaker 6: to be strong. So it's really just this kind of

499
00:27:45,080 --> 00:27:48,719
Speaker 6: everyone's trying to find a clear crystal ball into what

500
00:27:48,760 --> 00:27:51,360
Speaker 6: FED policy is, and you know, really how much they're

501
00:27:51,400 --> 00:27:53,400
Speaker 6: going to cut rates, and like I said, how that's

502
00:27:53,400 --> 00:27:56,800
Speaker 6: going to affect inflation through twenty twenty five.

503
00:27:56,960 --> 00:27:59,000
Speaker 1: Do you think we're going to get any more rate

504
00:27:59,040 --> 00:28:00,320
Speaker 1: cuts before the end of the year.

505
00:28:02,000 --> 00:28:02,400
Speaker 5: I do.

506
00:28:02,680 --> 00:28:05,879
Speaker 6: I think, you know, originally markets we're pricing in another

507
00:28:05,960 --> 00:28:08,159
Speaker 6: fifty to seventy five basis points through the rest of

508
00:28:08,240 --> 00:28:11,640
Speaker 6: the year. I think the reality is probably one more

509
00:28:11,680 --> 00:28:14,959
Speaker 6: cut twenty five basis points is probably all we're going

510
00:28:15,040 --> 00:28:19,280
Speaker 6: to get unless there's some significant data point, you know,

511
00:28:19,359 --> 00:28:23,320
Speaker 6: showing that labor is deteriorating quicker and that the consumer

512
00:28:23,880 --> 00:28:25,960
Speaker 6: is really tapped out. But there's just there's not enough

513
00:28:25,960 --> 00:28:28,280
Speaker 6: time in the year. There's not enough data points that

514
00:28:28,400 --> 00:28:32,239
Speaker 6: I think can push the FED to justify that a

515
00:28:32,280 --> 00:28:34,040
Speaker 6: move greater than twenty five basis points.

516
00:28:34,560 --> 00:28:36,560
Speaker 2: So, Adam, I mean, we look at this as a

517
00:28:36,600 --> 00:28:39,280
Speaker 2: tradeoff because if you don't get as much in the

518
00:28:39,320 --> 00:28:42,800
Speaker 2: way of rate cuts, obviously that that doesn't lower your

519
00:28:42,840 --> 00:28:45,680
Speaker 2: cost if you're a small and medium sized company as

520
00:28:45,760 --> 00:28:48,840
Speaker 2: much as you perhaps had hoped. But a better economy

521
00:28:48,920 --> 00:28:50,440
Speaker 2: means the top line is going to look a lot

522
00:28:50,520 --> 00:28:53,160
Speaker 2: better right now, you think most companies would prefer this

523
00:28:53,320 --> 00:28:57,080
Speaker 2: environment with stronger growth and a more solid economy than

524
00:28:57,120 --> 00:28:59,560
Speaker 2: they would with you know, marginally lower costs if you

525
00:28:59,600 --> 00:29:00,000
Speaker 2: borrow mynd.

526
00:29:01,480 --> 00:29:05,600
Speaker 6: Yeah, this is one of those perplexing pieces of capital

527
00:29:05,640 --> 00:29:09,760
Speaker 6: markets where good news is somewhat bad news. Because I

528
00:29:10,000 --> 00:29:13,320
Speaker 6: agree with you is that overall, you know, a stronger economy,

529
00:29:13,880 --> 00:29:17,479
Speaker 6: it should be better for everyone. And what you'll see is,

530
00:29:17,480 --> 00:29:21,320
Speaker 6: you know, kind of market volatility. The tier is picking up,

531
00:29:21,320 --> 00:29:23,080
Speaker 6: and you'll see equity markets roll.

532
00:29:22,960 --> 00:29:25,520
Speaker 2: Over, especially at a time when you were worried about

533
00:29:25,520 --> 00:29:29,160
Speaker 2: growth and how to grow scare in early September. So

534
00:29:29,560 --> 00:29:31,880
Speaker 2: you know that's what I mean is like, oh, okay, yeah,

535
00:29:31,880 --> 00:29:32,560
Speaker 2: this is different.

536
00:29:33,200 --> 00:29:34,960
Speaker 6: It is and so you know, I think it's just

537
00:29:34,960 --> 00:29:37,480
Speaker 6: because so many people are trying to bet on what

538
00:29:37,520 --> 00:29:39,480
Speaker 6: the Fed is going to do, and when that they

539
00:29:39,480 --> 00:29:42,120
Speaker 6: get that wrong. I think they're more worried about getting

540
00:29:42,120 --> 00:29:44,760
Speaker 6: what getting it wrong means. But the reality is on

541
00:29:44,800 --> 00:29:47,280
Speaker 6: a long term basis, when we're looking over the next three, six,

542
00:29:47,440 --> 00:29:51,480
Speaker 6: twelve months, a stronger economy will be better because you'll

543
00:29:51,480 --> 00:29:55,600
Speaker 6: continue to see profit margins wider, You'll see the labor

544
00:29:55,640 --> 00:29:58,480
Speaker 6: force continue to be strong, the consumer will continue to

545
00:29:58,480 --> 00:30:01,040
Speaker 6: be strong. And cause you're already hearing a lot of

546
00:30:01,040 --> 00:30:03,840
Speaker 6: this rhetoric around oh we're going to have another earnings recesion. Well,

547
00:30:03,880 --> 00:30:06,600
Speaker 6: if the economy remains strong, then no, we're not going to.

548
00:30:06,720 --> 00:30:09,160
Speaker 6: So I think all of those things long term support

549
00:30:09,200 --> 00:30:11,800
Speaker 6: equity markets to stay higher. I think it's just going

550
00:30:11,880 --> 00:30:13,720
Speaker 6: to come with a lot more volatility as we head

551
00:30:13,720 --> 00:30:16,800
Speaker 6: into a lot of just noise with the election and

552
00:30:17,360 --> 00:30:19,960
Speaker 6: other things globally through the rest of the year.

553
00:30:20,080 --> 00:30:24,280
Speaker 1: So you mentioned earnings there. Bloomberg Analysis is estimating that

554
00:30:24,360 --> 00:30:27,440
Speaker 1: companies in the S and P will report four point

555
00:30:27,520 --> 00:30:31,400
Speaker 1: seven percent increase in quarterly earnings from last year. Are

556
00:30:31,440 --> 00:30:35,240
Speaker 1: you feeling pretty positive about what we're going to learn

557
00:30:35,280 --> 00:30:36,960
Speaker 1: in the days and weeks ahead.

558
00:30:38,680 --> 00:30:39,040
Speaker 4: I am.

559
00:30:39,120 --> 00:30:41,920
Speaker 6: I mean, I think that bar has been lowered. It

560
00:30:42,000 --> 00:30:44,960
Speaker 6: was when you look at the mid kind of summer numbers,

561
00:30:45,480 --> 00:30:47,720
Speaker 6: it was closer to eight percent was what was the

562
00:30:47,800 --> 00:30:50,920
Speaker 6: expected earnings growth year of year. So it has come down,

563
00:30:50,920 --> 00:30:54,400
Speaker 6: which obviously lowers the bar for companies to beat. But

564
00:30:54,560 --> 00:30:57,360
Speaker 6: like every earnings over the last several quarters, it's going

565
00:30:57,400 --> 00:30:59,920
Speaker 6: to be really focused on what's next. And I think

566
00:31:00,080 --> 00:31:03,240
Speaker 6: that the large focus is going to be on guidance

567
00:31:03,520 --> 00:31:07,240
Speaker 6: of holiday season consumers. What they're going to do, you know,

568
00:31:07,640 --> 00:31:09,600
Speaker 6: our inventory is going to be high or are they

569
00:31:09,640 --> 00:31:11,719
Speaker 6: going to you know, come into the holiday season with

570
00:31:11,720 --> 00:31:14,640
Speaker 6: lower inventories so that they don't have to slash prices

571
00:31:14,640 --> 00:31:17,080
Speaker 6: with sales. Those are the things I think that you know,

572
00:31:17,120 --> 00:31:18,880
Speaker 6: investors are really going to be focused on. That's what

573
00:31:18,920 --> 00:31:20,720
Speaker 6: I'm going to be focused on, and I think that's

574
00:31:20,760 --> 00:31:23,360
Speaker 6: what we're going to see drive you know, whether we

575
00:31:23,440 --> 00:31:25,440
Speaker 6: get you know, the so called Santa Claus rally at

576
00:31:25,440 --> 00:31:27,880
Speaker 6: the you know in here at the end of the year,

577
00:31:28,600 --> 00:31:30,440
Speaker 6: it's really gonna be lever to the consumer.

578
00:31:31,040 --> 00:31:33,680
Speaker 2: You're a little cautious. You don't really buy into this

579
00:31:34,000 --> 00:31:37,160
Speaker 2: rotation story, do you not?

580
00:31:37,280 --> 00:31:37,560
Speaker 5: Really?

581
00:31:37,640 --> 00:31:40,840
Speaker 6: I mean, it made a lot of sense where you know,

582
00:31:41,160 --> 00:31:43,440
Speaker 6: equities and large caps had had run a little bit

583
00:31:43,520 --> 00:31:46,560
Speaker 6: too far too fast, you know, obviously all the hype

584
00:31:46,560 --> 00:31:48,600
Speaker 6: around the Max seven. So it made sense that people

585
00:31:48,600 --> 00:31:50,960
Speaker 6: would start to take some of those profits and shift away.

586
00:31:52,400 --> 00:31:54,120
Speaker 6: And that's really just profit taking. And then what are

587
00:31:54,120 --> 00:31:55,440
Speaker 6: you going to do with profits while you're going to

588
00:31:55,480 --> 00:31:57,520
Speaker 6: put them into some of the places maybe you're underweight

589
00:31:58,080 --> 00:32:01,760
Speaker 6: because of the imbalance of your portfolio where now you're

590
00:32:02,080 --> 00:32:05,560
Speaker 6: way overweight gross stocks, But that's short lived, and so

591
00:32:05,600 --> 00:32:08,240
Speaker 6: I think we've already seen that flush itself out, and

592
00:32:08,280 --> 00:32:10,560
Speaker 6: so I think, you know, really, going forward, you got

593
00:32:10,600 --> 00:32:13,680
Speaker 6: to look at just large cab us equities because that's

594
00:32:13,720 --> 00:32:14,880
Speaker 6: where the most value is right now.

595
00:32:14,920 --> 00:32:17,760
Speaker 2: Okay, all right, Adam, thanks very much for joining us.

596
00:32:17,800 --> 00:32:21,480
Speaker 2: Adam Koon's co chief investment Officer and PM at Winthrom

597
00:32:21,600 --> 00:32:22,640
Speaker 2: Capital Management.

598
00:32:25,800 --> 00:32:28,720
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599
00:32:28,800 --> 00:32:31,920
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600
00:32:32,400 --> 00:32:35,520
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