1 00:00:02,480 --> 00:00:10,480 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 2 00:00:10,520 --> 00:00:13,720 Speaker 1: Daybreak Asia podcast. I'm Doug Prisner. You can join Brian 3 00:00:13,800 --> 00:00:16,640 Speaker 1: Curtis and myself for the stories, making news and moving 4 00:00:16,680 --> 00:00:19,560 Speaker 1: markets in the APAC region. You can subscribe to the 5 00:00:19,600 --> 00:00:23,080 Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio, 6 00:00:23,320 --> 00:00:27,440 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. Let's take 7 00:00:27,440 --> 00:00:30,480 Speaker 1: a closer look at this Nvidia story and the selloff 8 00:00:30,520 --> 00:00:32,879 Speaker 1: in the chip sector. Dan Ives is with us. He's 9 00:00:32,960 --> 00:00:38,000 Speaker 1: managing director also senior equity analyst at Webbush Securities. So 10 00:00:38,040 --> 00:00:40,680 Speaker 1: it looks as though we've got concern on the part 11 00:00:40,720 --> 00:00:45,960 Speaker 1: of anti trust regulators. Dan that in video maybe I 12 00:00:45,960 --> 00:00:49,800 Speaker 1: don't want to say an abusive monopolist, but certainly of 13 00:00:50,240 --> 00:00:55,640 Speaker 1: infringing on perhaps anti competitive practices. What do you think, Yeah, Look. 14 00:00:55,520 --> 00:00:59,560 Speaker 2: I mean this is the theme that we've seen across 15 00:00:59,600 --> 00:01:03,200 Speaker 2: big time, right, I mean, from Google to Apple to 16 00:01:03,240 --> 00:01:06,360 Speaker 2: Amazon of course now in video, Look, they're the only 17 00:01:06,440 --> 00:01:10,600 Speaker 2: game in town, but it's really because of the innovation while 18 00:01:10,600 --> 00:01:12,560 Speaker 2: they're the only game in town. So I think this 19 00:01:12,640 --> 00:01:17,000 Speaker 2: is one probably you know, the headlines scarier than probably 20 00:01:17,040 --> 00:01:20,000 Speaker 2: the reality in the near term, but no doubt this 21 00:01:20,120 --> 00:01:22,040 Speaker 2: is not the right day for this to come out, 22 00:01:22,120 --> 00:01:25,560 Speaker 2: given the white knuckles we saw across chips. 23 00:01:25,720 --> 00:01:28,160 Speaker 1: Yeah, you're in Soul today, which is kind of curious. 24 00:01:28,200 --> 00:01:31,440 Speaker 1: And some of those high bandwidth memory chip manufacturers are 25 00:01:31,480 --> 00:01:34,039 Speaker 1: in South Korea, and I'm thinking sk Heinis, I'm thinking 26 00:01:34,120 --> 00:01:38,400 Speaker 1: Samsung from your perspective being there, what is the degree 27 00:01:38,440 --> 00:01:40,560 Speaker 1: of the knock on effect? Is it great? Is there 28 00:01:40,600 --> 00:01:44,319 Speaker 1: a pretty strong correlation between what happens in Nvidia stock 29 00:01:44,360 --> 00:01:47,320 Speaker 1: and what happens with a company like say sk Heinix. 30 00:01:48,360 --> 00:01:52,360 Speaker 2: Look, I think a huge correlation. And look, and that's 31 00:01:52,400 --> 00:01:57,040 Speaker 2: why what we're seeing here for Semis is a once 32 00:01:57,120 --> 00:02:01,440 Speaker 2: in a thirty forty year type of psychle But that's 33 00:02:01,560 --> 00:02:04,040 Speaker 2: not stopping. And there was like we're going to have 34 00:02:04,240 --> 00:02:08,160 Speaker 2: these periods of self just like we saw Tokyo Black Monday, 35 00:02:08,560 --> 00:02:11,720 Speaker 2: like we saw today. But if you look at the 36 00:02:11,760 --> 00:02:16,440 Speaker 2: demands outstrip and supply fifteen to one, so that continues 37 00:02:16,480 --> 00:02:18,440 Speaker 2: to be a huge tow And for all of these 38 00:02:18,520 --> 00:02:20,600 Speaker 2: chip players, what are you. 39 00:02:20,639 --> 00:02:23,359 Speaker 1: Hearing on the ground there in South Korea. I'm curious 40 00:02:23,440 --> 00:02:26,160 Speaker 1: just about what's going on in the US, and particularly 41 00:02:26,320 --> 00:02:27,440 Speaker 1: in regard to AI. 42 00:02:28,680 --> 00:02:32,400 Speaker 2: Look, I think there's a big focus not just from investors, 43 00:02:32,440 --> 00:02:35,560 Speaker 2: but from the actual you know, from the tech players 44 00:02:35,639 --> 00:02:39,560 Speaker 2: in terms of seeing where this demand curve. 45 00:02:39,360 --> 00:02:39,840 Speaker 3: Is going to go. 46 00:02:39,960 --> 00:02:42,880 Speaker 2: I think there's a lot of optimism that we are 47 00:02:42,919 --> 00:02:45,160 Speaker 2: still in the early innings of where this is going. 48 00:02:45,240 --> 00:02:49,080 Speaker 2: I think the big question is, Okay in Nvidia, everyone 49 00:02:49,160 --> 00:02:53,280 Speaker 2: understands now, who are the next players to benefit? And 50 00:02:53,320 --> 00:02:55,920 Speaker 2: I think that's really going to be the focus, not 51 00:02:56,120 --> 00:03:00,120 Speaker 2: just here in Korea, what we see across Asia and 52 00:03:00,120 --> 00:03:02,400 Speaker 2: really what we see across the goal because look in 53 00:03:02,560 --> 00:03:06,120 Speaker 2: Vidio is the start, but it's a huge multiplier. If 54 00:03:06,160 --> 00:03:08,800 Speaker 2: every dollar spend on video chip, we think there's an 55 00:03:08,800 --> 00:03:12,080 Speaker 2: eight to ten dollars multiplier, that would be a clear benefit, 56 00:03:12,160 --> 00:03:14,320 Speaker 2: especially some of the players here in South Korea. 57 00:03:14,360 --> 00:03:17,320 Speaker 1: But when you consider a company like Advanced micro Devices, 58 00:03:17,360 --> 00:03:21,080 Speaker 1: which is trying to do what in Vidia does with 59 00:03:21,280 --> 00:03:26,440 Speaker 1: these graphics processors, what is the runway that AMD needs 60 00:03:26,480 --> 00:03:28,680 Speaker 1: to even become competitive within video? 61 00:03:29,440 --> 00:03:32,280 Speaker 2: Yeah, Look Betton against Lisa soon a AMDD and that's 62 00:03:32,320 --> 00:03:36,520 Speaker 2: wrong that I think they will be major players in 63 00:03:36,560 --> 00:03:40,040 Speaker 2: this race. They look in videos years ahead. But if 64 00:03:40,040 --> 00:03:42,600 Speaker 2: you look, this is gonna be a trillion dollars of 65 00:03:42,640 --> 00:03:46,440 Speaker 2: incremental AI capbacks. So if AMD gets five to ten 66 00:03:46,480 --> 00:03:48,680 Speaker 2: percent a share, I don't believe that that's baked into 67 00:03:48,720 --> 00:03:51,400 Speaker 2: the stock. And I think that's really the focus now. 68 00:03:51,440 --> 00:03:55,400 Speaker 2: It's who are the other beneficiaries? Second, third, fourth derivative 69 00:03:56,080 --> 00:03:59,120 Speaker 2: because it's clearly something that's playing out, and I think 70 00:03:59,160 --> 00:04:02,600 Speaker 2: we saw with the Vidia earnings last week. It's undeniable 71 00:04:03,320 --> 00:04:06,520 Speaker 2: in terms of what this trend is. But you'll see 72 00:04:06,640 --> 00:04:09,680 Speaker 2: sell offsite today, You'll see selfs like we did a 73 00:04:09,720 --> 00:04:12,920 Speaker 2: few weeks ago. I still believe tech goes to all 74 00:04:13,000 --> 00:04:15,480 Speaker 2: time highs, you know, over the next three six months. 75 00:04:15,680 --> 00:04:17,400 Speaker 1: You know, Dan, When I think of Nvidio, I think 76 00:04:17,440 --> 00:04:21,320 Speaker 1: of TSMC, the big foundry in TYPEI is there a 77 00:04:21,360 --> 00:04:24,880 Speaker 1: conversation where you are now in South Korea around diversifying 78 00:04:24,960 --> 00:04:28,200 Speaker 1: the chip supply chain maybe and allocating a little bit 79 00:04:28,200 --> 00:04:29,960 Speaker 1: more on the foundry side in South Korea. 80 00:04:30,880 --> 00:04:31,040 Speaker 4: Yeah. 81 00:04:31,120 --> 00:04:34,400 Speaker 2: Look, I think theoretical, but for right now, I mean 82 00:04:34,480 --> 00:04:38,359 Speaker 2: TSMC has hearts and lungs, and I think this is 83 00:04:38,480 --> 00:04:41,920 Speaker 2: something that's really going to be playing out over the 84 00:04:41,960 --> 00:04:45,240 Speaker 2: next twelve, eighteen twenty four months in terms of the 85 00:04:45,279 --> 00:04:48,120 Speaker 2: supply chance. It's just going to continue to expand. Part 86 00:04:48,120 --> 00:04:51,280 Speaker 2: of it is not just about TSMC, it's just demand 87 00:04:51,560 --> 00:04:55,080 Speaker 2: is so strong relative to supply. There's gonna be a 88 00:04:55,120 --> 00:04:58,120 Speaker 2: lot of players that benefit that today I don't believe 89 00:04:58,120 --> 00:05:01,520 Speaker 2: are on the radar from a global perspective. 90 00:05:01,640 --> 00:05:04,760 Speaker 1: Investors, Dan, it's always a pleasure. Thanks for making time 91 00:05:04,800 --> 00:05:07,000 Speaker 1: to chat with us. Dan Ives is the managing director. 92 00:05:07,040 --> 00:05:17,679 Speaker 1: He's also senior equity analyst ad web Bush Securities. Adam 93 00:05:17,760 --> 00:05:21,680 Speaker 1: Koon's the co CIO at Winthrop Capital Management. Joining us 94 00:05:21,960 --> 00:05:25,960 Speaker 1: from the heartland of Indianapolis, Indiana. Thanks for making time 95 00:05:26,160 --> 00:05:28,880 Speaker 1: for us, Adam. Let's talk about this ISM date. I 96 00:05:28,920 --> 00:05:31,599 Speaker 1: think that really in large parts helped to put the 97 00:05:31,640 --> 00:05:35,360 Speaker 1: market on the back foot, wouldn't you agree today, fir. 98 00:05:35,240 --> 00:05:37,760 Speaker 4: So, thanks for having me and yeah, I do totally agree. 99 00:05:38,360 --> 00:05:41,800 Speaker 3: IM is one of those indicators that does have a 100 00:05:41,839 --> 00:05:45,880 Speaker 3: lot of correlation to, you know, where the economy is heading. 101 00:05:47,680 --> 00:05:49,480 Speaker 3: You know, you look at employment and things like that. 102 00:05:49,480 --> 00:05:54,080 Speaker 3: There's tend to be quite lagging indicators. But this continued 103 00:05:54,279 --> 00:06:00,760 Speaker 3: deterioration in ISM does give me more caution about, you know, 104 00:06:00,880 --> 00:06:02,239 Speaker 3: kind of where the economy is heading. 105 00:06:02,760 --> 00:06:05,080 Speaker 1: One of the things I think the market seems to 106 00:06:05,120 --> 00:06:07,200 Speaker 1: be indicating here is that the rate cut that we're 107 00:06:07,200 --> 00:06:10,240 Speaker 1: expecting in a couple of weeks less than two weeks time, 108 00:06:10,640 --> 00:06:12,719 Speaker 1: will be twenty five basis points. But we do have 109 00:06:12,760 --> 00:06:14,920 Speaker 1: a lot of data to consider on the labor market 110 00:06:14,920 --> 00:06:18,800 Speaker 1: this week. It culminates, obviously with the employment report on Friday. 111 00:06:19,080 --> 00:06:24,400 Speaker 1: If in aggregate these data really come in much below expectations, 112 00:06:24,520 --> 00:06:26,880 Speaker 1: is there a risk do you think of a fifty 113 00:06:26,920 --> 00:06:28,680 Speaker 1: basis point rate cut this month? 114 00:06:30,080 --> 00:06:34,080 Speaker 3: I think it's possible, I've said kind of along from 115 00:06:34,120 --> 00:06:37,000 Speaker 3: our perspective. You got to look at the entire cycle 116 00:06:37,040 --> 00:06:40,760 Speaker 3: of this fit of reserve, and at the front end 117 00:06:41,000 --> 00:06:43,040 Speaker 3: they were very slow to act. They wanted to make 118 00:06:43,080 --> 00:06:47,080 Speaker 3: sure that the data was really pointing towards inflation, and 119 00:06:47,160 --> 00:06:50,760 Speaker 3: really obviously probably waited too long to act and then 120 00:06:51,320 --> 00:06:54,279 Speaker 3: took quite a bit of action to increase interest rates. 121 00:06:54,839 --> 00:06:57,520 Speaker 3: It's hard to see how they're going to have different 122 00:06:57,560 --> 00:07:02,000 Speaker 3: behavior at the back end of the cycle, because there's 123 00:07:02,000 --> 00:07:05,680 Speaker 3: still just enough data to show that the economy is 124 00:07:05,800 --> 00:07:09,720 Speaker 3: still somewhat okay. Like you said, the employment number is 125 00:07:09,800 --> 00:07:12,480 Speaker 3: a big factor in that, But I think the bigger 126 00:07:12,520 --> 00:07:13,440 Speaker 3: scare is. 127 00:07:13,400 --> 00:07:16,480 Speaker 4: Really reigniting inflation. 128 00:07:16,560 --> 00:07:18,760 Speaker 3: I think that's what the Fed's really focused on They're 129 00:07:18,760 --> 00:07:22,320 Speaker 3: going to let employment start to slip a bit before 130 00:07:22,400 --> 00:07:27,480 Speaker 3: they act, because there's still is room in the employment market. 131 00:07:27,480 --> 00:07:35,000 Speaker 3: You know, yes, obviously, you know mid foors is higher 132 00:07:35,880 --> 00:07:36,600 Speaker 3: than where we were. 133 00:07:36,680 --> 00:07:37,800 Speaker 4: But I think the. 134 00:07:37,760 --> 00:07:39,840 Speaker 3: FED is going to need to really see the fact 135 00:07:39,880 --> 00:07:43,040 Speaker 3: that inflation has come quite a bit closer to their 136 00:07:43,040 --> 00:07:45,240 Speaker 3: two percent target before they move beyond a twenty five 137 00:07:45,280 --> 00:07:46,120 Speaker 3: basis point cut. 138 00:07:46,360 --> 00:07:47,480 Speaker 4: I do think if you. 139 00:07:47,440 --> 00:07:51,559 Speaker 3: Know, the chances of not cutting are pretty much zero. 140 00:07:51,840 --> 00:07:53,760 Speaker 3: I think it'd be a disaster if they, you know, 141 00:07:53,800 --> 00:07:57,720 Speaker 3: didn't cut at all a fifty basis point cut. What 142 00:07:57,760 --> 00:08:00,240 Speaker 3: that would tell me is that the FED sees more 143 00:08:00,640 --> 00:08:06,120 Speaker 3: underlying data pointing to a prsure economic slow down, you know, 144 00:08:06,240 --> 00:08:08,880 Speaker 3: to use a soft landing hard landing term, that they're 145 00:08:08,920 --> 00:08:12,160 Speaker 3: starting to see a hard landing scenario. But I'm just 146 00:08:12,200 --> 00:08:13,800 Speaker 3: not seeing that right now, so it's hard for me 147 00:08:13,840 --> 00:08:15,720 Speaker 3: to believe that the Fed's gonna to take that kind 148 00:08:15,720 --> 00:08:16,040 Speaker 3: of action. 149 00:08:16,280 --> 00:08:17,960 Speaker 1: I want to get your reaction to what we had 150 00:08:17,960 --> 00:08:20,760 Speaker 1: in the equity sell off today where tech led the decline, 151 00:08:20,880 --> 00:08:23,640 Speaker 1: especially the chip makers we were talking about in video 152 00:08:23,680 --> 00:08:25,840 Speaker 1: a moment ago. In the regular session, this stock was 153 00:08:25,840 --> 00:08:28,240 Speaker 1: down nine and a half percent. Yeah, it's part of 154 00:08:28,240 --> 00:08:31,040 Speaker 1: the AI story. We know of that. But does this 155 00:08:31,280 --> 00:08:33,880 Speaker 1: come as a surprise to you or is it logical 156 00:08:34,679 --> 00:08:37,679 Speaker 1: given the tremendous run up that we have seen in 157 00:08:37,760 --> 00:08:41,040 Speaker 1: many of these names connected to artificial intelligence. 158 00:08:42,679 --> 00:08:45,680 Speaker 4: No, it doesn't give me that much of a surprise. 159 00:08:46,400 --> 00:08:46,719 Speaker 5: I don't know. 160 00:08:46,720 --> 00:08:48,280 Speaker 3: I feel like I saw its coming because I didn't 161 00:08:48,480 --> 00:08:52,840 Speaker 3: see that, you know, had that crystal wall. But you know, 162 00:08:52,920 --> 00:08:54,640 Speaker 3: when you start to see that, that's the point when 163 00:08:54,679 --> 00:08:57,960 Speaker 3: you start to see valuations get stretched and a more 164 00:08:58,080 --> 00:09:01,679 Speaker 3: narrative based in investing in environment. What that does is 165 00:09:01,840 --> 00:09:05,840 Speaker 3: it creates the opportunity for bigger sell offs. So it's difficult. 166 00:09:05,880 --> 00:09:08,400 Speaker 3: You don't want to time it. But that's why we've 167 00:09:08,400 --> 00:09:12,079 Speaker 3: been moving more defensively because we didn't we don't know 168 00:09:12,640 --> 00:09:15,200 Speaker 3: if the equity markets are going to completely roll over. 169 00:09:15,480 --> 00:09:18,839 Speaker 3: But when valuations get this stretched and they're not by 170 00:09:18,880 --> 00:09:23,640 Speaker 3: any means, you know, bubble territory, but we do all 171 00:09:23,679 --> 00:09:25,719 Speaker 3: we can all see that that valuations are on the 172 00:09:25,760 --> 00:09:27,920 Speaker 3: high side. So that's the time to start playing a 173 00:09:27,960 --> 00:09:30,720 Speaker 3: little bit more defense. That doesn't mean move to cash, 174 00:09:30,800 --> 00:09:33,120 Speaker 3: but you're just kind of moving into higher quality, lower 175 00:09:33,160 --> 00:09:33,800 Speaker 3: beta names. 176 00:09:34,360 --> 00:09:36,280 Speaker 4: So that you avoid scenarios like today. 177 00:09:36,360 --> 00:09:38,480 Speaker 3: And it's it's not a surprise that tech would lead 178 00:09:38,600 --> 00:09:40,800 Speaker 3: a sell off like this because it's obviously led to 179 00:09:40,840 --> 00:09:43,200 Speaker 3: the upside and that's where the valuations are the most 180 00:09:43,200 --> 00:09:47,400 Speaker 3: stretched and so and they're obviously semiconductors are one of 181 00:09:47,440 --> 00:09:51,640 Speaker 3: the most cyclical sectors within the SMP. So as we 182 00:09:51,679 --> 00:09:56,400 Speaker 3: start to see a shift towards a potential faster slowdown, 183 00:09:56,679 --> 00:09:59,839 Speaker 3: that obviously will affect the sale. And we heard it 184 00:09:59,880 --> 00:10:03,120 Speaker 3: in earnings, you know previously a couple of weeks ago 185 00:10:03,360 --> 00:10:05,440 Speaker 3: from some of the big tech where they were saying that, hey, 186 00:10:05,480 --> 00:10:10,600 Speaker 3: we're decelerating our spend on chips because you know, demand 187 00:10:10,640 --> 00:10:14,200 Speaker 3: is starting to slow overall, whether it's cloud, AI or like. 188 00:10:14,280 --> 00:10:17,360 Speaker 3: So it's not a surprise that, you know, a small 189 00:10:17,360 --> 00:10:19,400 Speaker 3: piece of what can seem like a small piece. 190 00:10:19,200 --> 00:10:24,000 Speaker 4: Of news can make very big moves in stocks because 191 00:10:24,040 --> 00:10:25,120 Speaker 4: of that valuation piece. 192 00:10:25,240 --> 00:10:28,199 Speaker 1: So I hear what you're saying, higher quality, low beta names, 193 00:10:28,240 --> 00:10:31,000 Speaker 1: but that's the equity space, are you inclined? And I 194 00:10:31,040 --> 00:10:33,280 Speaker 1: also hear when you say, you know, we don't really 195 00:10:33,320 --> 00:10:36,120 Speaker 1: want to park in cash or cash equivalent at the moment, 196 00:10:36,160 --> 00:10:39,400 Speaker 1: but are there opportunities in the fixed income space that 197 00:10:39,480 --> 00:10:42,400 Speaker 1: you like the corporate bond market. Do things look attractive there? 198 00:10:43,480 --> 00:10:43,840 Speaker 4: I do. 199 00:10:44,120 --> 00:10:48,160 Speaker 3: Corporate spreads are historically, you know, on the tight side. 200 00:10:48,559 --> 00:10:50,280 Speaker 3: But with that said, you know, when you look at 201 00:10:50,320 --> 00:10:53,679 Speaker 3: higher quality corporates, you could even look at treasuries or 202 00:10:53,960 --> 00:10:58,800 Speaker 3: mortgage backed securities. It's one of the most asymmetric restory 203 00:10:58,880 --> 00:11:01,480 Speaker 3: ward profiles I've seen in a long time, meaning that 204 00:11:02,200 --> 00:11:05,040 Speaker 3: you know, the risk of interest rates going much higher 205 00:11:05,080 --> 00:11:07,000 Speaker 3: from here is very very low. 206 00:11:07,200 --> 00:11:09,640 Speaker 4: And so your other two scenarios where the interest rates day. 207 00:11:09,520 --> 00:11:12,840 Speaker 3: Where they are, and I'm very happy to clip you know, 208 00:11:13,000 --> 00:11:18,280 Speaker 3: five to six percent coupons while I wait, or you know, 209 00:11:18,360 --> 00:11:21,760 Speaker 3: on the upside scenarios, we see interest rates collapse because 210 00:11:21,800 --> 00:11:24,959 Speaker 3: the economy is slowing down, and then you're going to 211 00:11:25,000 --> 00:11:27,960 Speaker 3: see that price appreciation of those bonds. So yeah, within 212 00:11:28,000 --> 00:11:33,040 Speaker 3: our asset allocation, going longer duration fixed income is that 213 00:11:33,160 --> 00:11:36,160 Speaker 3: is our you know, highest conviction trade ab of what 214 00:11:36,160 --> 00:11:37,880 Speaker 3: else we're doing in the equity side. 215 00:11:37,960 --> 00:11:40,840 Speaker 1: So I'm curious about the house view at Winthrom Capital, 216 00:11:40,920 --> 00:11:44,920 Speaker 1: given the fact that September is historically a tough month 217 00:11:45,320 --> 00:11:47,840 Speaker 1: for the stock market, are you expecting more in the 218 00:11:47,840 --> 00:11:48,760 Speaker 1: way of downside. 219 00:11:50,880 --> 00:11:51,480 Speaker 4: Yes we are. 220 00:11:51,640 --> 00:11:54,240 Speaker 3: And and the way I'll say it is, what we're 221 00:11:54,280 --> 00:11:57,480 Speaker 3: really seeing or what we are expecting, is heightened volatility. 222 00:11:57,960 --> 00:11:59,800 Speaker 3: There are a lot of things happening right now. Right 223 00:12:00,200 --> 00:12:04,800 Speaker 3: there's a there's a big election coming up. 224 00:12:05,040 --> 00:12:06,480 Speaker 4: Yeah, it is obvious. 225 00:12:06,800 --> 00:12:08,839 Speaker 3: And then on top of that, you've got the fact 226 00:12:08,840 --> 00:12:11,559 Speaker 3: that that you know, what the Fed may or may 227 00:12:11,600 --> 00:12:15,280 Speaker 3: not do has been what's driving markets for the past year, 228 00:12:15,440 --> 00:12:19,760 Speaker 3: and that's just going to accelerate the further we get 229 00:12:19,800 --> 00:12:23,679 Speaker 3: into you know, twenty twenty four, and there's these expectations 230 00:12:23,760 --> 00:12:26,520 Speaker 3: kind of come to a head and whether the FED cuts, 231 00:12:27,720 --> 00:12:30,079 Speaker 3: whether the reason and it comes down to the reason 232 00:12:30,120 --> 00:12:33,160 Speaker 3: of that they're cutting, and how uh, you know, how 233 00:12:33,360 --> 00:12:37,000 Speaker 3: dramatically they cut, because large cuts mean that the economy 234 00:12:37,120 --> 00:12:39,760 Speaker 3: is really in tough shape. And so that in and 235 00:12:39,840 --> 00:12:42,320 Speaker 3: of itself could lead to equity markets selling off just from 236 00:12:42,320 --> 00:12:46,120 Speaker 3: that trying to understand why the Fed is saying or 237 00:12:46,160 --> 00:12:48,360 Speaker 3: doing what they're doing. So, yeah, at the end of 238 00:12:48,360 --> 00:12:52,360 Speaker 3: the day, heightened volatility is almost a guarantee at this point, 239 00:12:52,640 --> 00:12:55,120 Speaker 3: and and that comes with some bigger down moves. It could, 240 00:12:55,160 --> 00:12:57,320 Speaker 3: It could at the end of the day right through it, 241 00:12:57,360 --> 00:13:01,520 Speaker 3: and in the year up. That's that's probably the higher likelihood. 242 00:13:01,920 --> 00:13:03,959 Speaker 4: But in the short term, yeah, we're going to see 243 00:13:03,960 --> 00:13:04,560 Speaker 4: a lot of chop. 244 00:13:04,960 --> 00:13:07,320 Speaker 1: All right, we'll leave it there on the chop. Adam, 245 00:13:07,400 --> 00:13:09,080 Speaker 1: good stuff. Thank you so much for being with us. 246 00:13:09,080 --> 00:13:12,640 Speaker 1: Adam Koons, the co CIO at Winthrom Capital Management, joining 247 00:13:12,679 --> 00:13:23,959 Speaker 1: from Indianapolis. John Davey, founder CEO CIO at A Story 248 00:13:24,000 --> 00:13:27,720 Speaker 1: of Portfolio Advisors, joining us from here in New York. John, 249 00:13:27,800 --> 00:13:30,880 Speaker 1: thanks for joining us. A lot to take apart. Let's 250 00:13:30,920 --> 00:13:33,959 Speaker 1: begin with that is m pm I kind of a 251 00:13:34,040 --> 00:13:38,920 Speaker 1: disappointment to many with continued weakness in the manufacturing economy. 252 00:13:38,920 --> 00:13:43,480 Speaker 1: Are you concerned about what's been happening on the manufacturing side. 253 00:13:43,760 --> 00:13:46,080 Speaker 6: Well, it's been in contraction, as you said, you know, 254 00:13:46,080 --> 00:13:48,959 Speaker 6: for five straight months, but it was a small improvement 255 00:13:49,040 --> 00:13:51,760 Speaker 6: from July. I think, you know, the idea from our 256 00:13:51,880 --> 00:13:53,960 Speaker 6: side of story is that you've got to barbell your 257 00:13:54,000 --> 00:13:57,280 Speaker 6: portfolio because as much as you know, on one hand, 258 00:13:57,280 --> 00:13:59,719 Speaker 6: you've got bad growth data like today, I mean, there 259 00:13:59,720 --> 00:14:03,640 Speaker 6: has been some recent data, whether it's retail sales, non 260 00:14:04,440 --> 00:14:08,280 Speaker 6: manufacturing survey. We had upward revisions in GDP, we have 261 00:14:08,360 --> 00:14:10,640 Speaker 6: better job less claim, so there is some good data, 262 00:14:10,960 --> 00:14:13,679 Speaker 6: So it's just mixed overall growth to slow and that's 263 00:14:13,720 --> 00:14:15,040 Speaker 6: why the Fed is going to cut rates. 264 00:14:15,440 --> 00:14:18,280 Speaker 1: It's a key week for a lot of data on 265 00:14:18,320 --> 00:14:20,840 Speaker 1: the labor market. It'll culminate, I think on Friday with 266 00:14:20,880 --> 00:14:25,120 Speaker 1: the employment report. How are you reading the labor market 267 00:14:25,160 --> 00:14:28,480 Speaker 1: these days? Have things been deteriorating to the point where 268 00:14:28,640 --> 00:14:31,280 Speaker 1: maybe the Fed is going to consider something that is 269 00:14:31,760 --> 00:14:34,160 Speaker 1: greater than twenty five basis points in terms of a 270 00:14:34,240 --> 00:14:34,800 Speaker 1: rate cut. 271 00:14:36,240 --> 00:14:36,680 Speaker 7: I think the. 272 00:14:36,640 --> 00:14:40,520 Speaker 6: Odds right now are about forty forty rate cut, So 273 00:14:40,560 --> 00:14:43,120 Speaker 6: I wouldn't say that that's high. I think the market 274 00:14:43,880 --> 00:14:47,080 Speaker 6: in reality probably would get freaked out if they sore 275 00:14:47,160 --> 00:14:49,640 Speaker 6: fifty BIPs because that would imply that, you know, the 276 00:14:49,680 --> 00:14:53,000 Speaker 6: growth is really significantly slow. And so I think the 277 00:14:53,080 --> 00:14:55,080 Speaker 6: idea is, you know, we want a series of twenty 278 00:14:55,080 --> 00:15:01,280 Speaker 6: five bit rate cuts while growth still remains good. And 279 00:15:01,600 --> 00:15:04,040 Speaker 6: I think that will sustain multiples, It'll keep a lit 280 00:15:04,040 --> 00:15:05,560 Speaker 6: in the market and we won't have the kind of 281 00:15:05,600 --> 00:15:06,880 Speaker 6: price action we saw it today. 282 00:15:07,040 --> 00:15:08,680 Speaker 1: Yeah, some of that had to do with what we 283 00:15:08,760 --> 00:15:11,640 Speaker 1: had in tech. The chips were hammered, I mean in 284 00:15:11,800 --> 00:15:14,480 Speaker 1: Vidio down nine and a half percent today, and then 285 00:15:14,560 --> 00:15:17,640 Speaker 1: more weakness with the news of the subpoenas and this 286 00:15:17,840 --> 00:15:22,640 Speaker 1: anti trust investigation, how are you viewing big cap tech now? 287 00:15:24,000 --> 00:15:26,240 Speaker 6: Well, I mean our big call for the last year 288 00:15:26,480 --> 00:15:29,400 Speaker 6: was kind of tilt away from big cap megacap growth. 289 00:15:29,400 --> 00:15:30,960 Speaker 6: I mean, I would just say that, you know, for 290 00:15:31,160 --> 00:15:33,280 Speaker 6: it's been a tremendous run in the last ten years 291 00:15:33,280 --> 00:15:37,120 Speaker 6: for tech in general. You know, seven stocks dominated most 292 00:15:37,160 --> 00:15:39,800 Speaker 6: of returns. You know, seven stocks make up you know, 293 00:15:39,920 --> 00:15:41,440 Speaker 6: north to thirty five percent of the s and P 294 00:15:41,480 --> 00:15:44,840 Speaker 6: five hundred here in the US. I mean that's obviously dangerous. 295 00:15:44,880 --> 00:15:45,920 Speaker 7: It cuts both ways. 296 00:15:45,960 --> 00:15:48,280 Speaker 6: So we've been suggesting people to kind of tilt away 297 00:15:48,280 --> 00:15:51,120 Speaker 6: from that for quite some time. So we like equally 298 00:15:51,160 --> 00:15:54,760 Speaker 6: weighted strategies. We like barbelling our portfolio where we still 299 00:15:55,560 --> 00:15:58,160 Speaker 6: like owning tech. We just don't want like seven stocks 300 00:15:58,160 --> 00:16:01,000 Speaker 6: to make up most of those tech es. On one hand, 301 00:16:01,520 --> 00:16:04,040 Speaker 6: you know, we use equally weighted strategies, and the other hand, 302 00:16:04,200 --> 00:16:06,520 Speaker 6: I do think it's time to kind of get things 303 00:16:06,600 --> 00:16:09,440 Speaker 6: like you know, USMV, the min voality tf xl V, 304 00:16:09,680 --> 00:16:13,080 Speaker 6: the healthcare etf XL you to utility staples. 305 00:16:13,560 --> 00:16:16,080 Speaker 7: You know, we like DJRW, which is a quality tiff 306 00:16:16,160 --> 00:16:16,520 Speaker 7: that has. 307 00:16:16,440 --> 00:16:19,200 Speaker 6: A value tilt. The bottom line is we're saying barbell 308 00:16:19,280 --> 00:16:22,960 Speaker 6: it right. So most advisors that I oversee, I oversee 309 00:16:23,000 --> 00:16:27,120 Speaker 6: it close to billion dollars, you know, thousands and thousands 310 00:16:27,120 --> 00:16:31,080 Speaker 6: of accounts. Most of them are still long queues, quall spy, 311 00:16:32,400 --> 00:16:34,320 Speaker 6: and we're just saying tilt away, take a third of 312 00:16:34,360 --> 00:16:37,280 Speaker 6: it and rotate into something that's more defensive. 313 00:16:37,400 --> 00:16:40,800 Speaker 1: How are you thinking about the sixty forty portfolio? I 314 00:16:40,840 --> 00:16:42,840 Speaker 1: mean a little bit of fixed income in there or 315 00:16:42,880 --> 00:16:45,640 Speaker 1: do you think that trade is already or trained? I 316 00:16:45,640 --> 00:16:46,760 Speaker 1: should say left the station. 317 00:16:49,240 --> 00:16:49,880 Speaker 7: Good question. 318 00:16:50,040 --> 00:16:52,840 Speaker 6: I think you know bonds have a place for sure, 319 00:16:52,960 --> 00:16:53,840 Speaker 6: I mean rate cuts. 320 00:16:53,880 --> 00:16:55,560 Speaker 7: You know, we are longer duration, so. 321 00:16:55,520 --> 00:16:58,880 Speaker 6: We're playing like that roll down you know, convexity move 322 00:16:58,960 --> 00:17:01,680 Speaker 6: on rates. I think that you know the bond market, 323 00:17:02,080 --> 00:17:03,760 Speaker 6: if it were up to them, we'd get two hundred 324 00:17:03,800 --> 00:17:05,040 Speaker 6: BIPs of rat cuts. 325 00:17:05,280 --> 00:17:08,199 Speaker 7: I don't think. I think there's more down moves to 326 00:17:08,240 --> 00:17:08,800 Speaker 7: go and yield. 327 00:17:08,880 --> 00:17:11,919 Speaker 6: But I do think that you want to own you know, 328 00:17:12,000 --> 00:17:14,800 Speaker 6: some alternatives, I mean alternatives. It was a product that 329 00:17:14,880 --> 00:17:17,800 Speaker 6: really couldn't be sold in an etif rapper. Most people 330 00:17:18,000 --> 00:17:21,040 Speaker 6: just still looking at private credit, private private equity, but 331 00:17:21,080 --> 00:17:24,280 Speaker 6: an etiff rapper you know, we've seen some you know, 332 00:17:24,480 --> 00:17:28,119 Speaker 6: interesting like BUFFERYTF downside protection. I think that makes a 333 00:17:28,160 --> 00:17:29,720 Speaker 6: lot of sense kind of giving where we are in 334 00:17:29,760 --> 00:17:32,440 Speaker 6: the cycle, and you know, the growth looks very very 335 00:17:33,359 --> 00:17:35,760 Speaker 6: you know, mixed and asymmetric in general. 336 00:17:35,800 --> 00:17:38,800 Speaker 1: From a risk standpoint, Are you focused solely on what 337 00:17:38,840 --> 00:17:40,880 Speaker 1: you're seeing here in the States or are you attempted 338 00:17:40,880 --> 00:17:42,639 Speaker 1: to look off short at this point? 339 00:17:43,720 --> 00:17:46,480 Speaker 6: Well, I mean the textbooks would say, you know, FED 340 00:17:46,640 --> 00:17:50,560 Speaker 6: cuts rates, dollar weekends, emerging markets you know would do better. 341 00:17:52,440 --> 00:17:53,600 Speaker 4: It's been a tough call. 342 00:17:53,760 --> 00:17:55,000 Speaker 7: We prefer India. 343 00:17:55,200 --> 00:17:58,840 Speaker 6: We think that there's demographic issues, there's a good growth story. 344 00:17:59,359 --> 00:18:03,640 Speaker 6: China is very very challenging for most US based investors. 345 00:18:04,840 --> 00:18:07,399 Speaker 6: You know, growth to slow there, there's you know, just 346 00:18:07,520 --> 00:18:10,960 Speaker 6: issues in general from like a macro policy standpoint. But 347 00:18:11,119 --> 00:18:13,440 Speaker 6: you know this pockets of emergent markets that we think 348 00:18:13,720 --> 00:18:16,240 Speaker 6: are attractive and we would definitely start to nibble, especially 349 00:18:16,240 --> 00:18:19,280 Speaker 6: if you get these rate cuts again, it's been ten years. 350 00:18:19,080 --> 00:18:21,040 Speaker 7: Of just dramatic US AT performance. 351 00:18:21,080 --> 00:18:24,159 Speaker 6: So in our global portfolios we do have allocations to 352 00:18:24,359 --> 00:18:28,520 Speaker 6: rige of markets and Developed Europe Japan as well. I 353 00:18:28,560 --> 00:18:31,200 Speaker 6: would just say that that's contrarian because you know, most 354 00:18:32,040 --> 00:18:33,520 Speaker 6: people here in the States. All they want to do 355 00:18:33,560 --> 00:18:35,200 Speaker 6: is talk about US, and we are trying to inch 356 00:18:35,240 --> 00:18:37,080 Speaker 6: our advisors to look abroad. 357 00:18:37,680 --> 00:18:39,920 Speaker 1: Well, one of the things that may be relevant here. 358 00:18:40,320 --> 00:18:43,560 Speaker 1: If you believe that the boj is going to raise 359 00:18:43,640 --> 00:18:47,120 Speaker 1: interest rates and we see a flight of capital leaving 360 00:18:47,520 --> 00:18:51,680 Speaker 1: places in the developed world ex Japan, and being repatriated 361 00:18:51,760 --> 00:18:55,600 Speaker 1: back into the Japanese market, maybe we're looking at a 362 00:18:55,600 --> 00:18:57,879 Speaker 1: little bit more downside. And I know that you know 363 00:18:57,960 --> 00:19:01,720 Speaker 1: this well that historically September can be a challenging month 364 00:19:02,000 --> 00:19:04,639 Speaker 1: for stocks. Are we at risk right now in terms 365 00:19:04,640 --> 00:19:08,400 Speaker 1: of Japanese players that they begin to repatride and bring 366 00:19:08,800 --> 00:19:09,359 Speaker 1: money home. 367 00:19:11,240 --> 00:19:13,520 Speaker 6: Yeah, I would say, you know, we we want to 368 00:19:13,560 --> 00:19:15,680 Speaker 6: be overweight more in the US for some of the 369 00:19:15,800 --> 00:19:19,520 Speaker 6: risks that you're outlining to begin with them. Usually when 370 00:19:19,560 --> 00:19:22,920 Speaker 6: you go into the recession, you know, US usually kind 371 00:19:22,920 --> 00:19:24,840 Speaker 6: of leads the way in and leads the way out. 372 00:19:24,920 --> 00:19:25,600 Speaker 7: So we're we. 373 00:19:25,640 --> 00:19:28,919 Speaker 6: Tend to be more over with US. Just you know, 374 00:19:29,040 --> 00:19:31,359 Speaker 6: once you get past those seven stocks, the rest of 375 00:19:31,359 --> 00:19:35,480 Speaker 6: the US equity market isn't that expensive. And it's certainly 376 00:19:36,240 --> 00:19:39,040 Speaker 6: you know, while EM is cheaper and DM is cheaper, 377 00:19:39,119 --> 00:19:41,000 Speaker 6: it's not like it's egregious at this point. 378 00:19:41,080 --> 00:19:43,439 Speaker 7: So we're a little bit of a vulnerable period for 379 00:19:43,480 --> 00:19:44,360 Speaker 7: equity markets. 380 00:19:44,800 --> 00:19:48,600 Speaker 6: You know, the valuations are generally extended, So I think 381 00:19:48,640 --> 00:19:50,840 Speaker 6: it's good to like own some of these alternatives, some 382 00:19:50,880 --> 00:19:55,200 Speaker 6: of these buffer ETFs downside protection. We've used bt A L, 383 00:19:55,280 --> 00:19:58,159 Speaker 6: which is like a long short marct neutrale ETF. You know, 384 00:19:58,200 --> 00:20:00,679 Speaker 6: I think the idea is like September is expected to 385 00:20:00,680 --> 00:20:03,400 Speaker 6: be volatile, and you know, it all starts with obviously 386 00:20:03,440 --> 00:20:05,320 Speaker 6: Friday's non front payroll. 387 00:20:05,640 --> 00:20:08,600 Speaker 1: Most definitely quick. In the time that we have left, 388 00:20:08,640 --> 00:20:10,159 Speaker 1: which is about a minute, I want to get your 389 00:20:10,200 --> 00:20:14,200 Speaker 1: take on the election. Economist over at Goldman Sachs published 390 00:20:14,200 --> 00:20:17,800 Speaker 1: a note saying that if Trump were to win, that 391 00:20:18,240 --> 00:20:22,080 Speaker 1: US GDP could face a hit. Different story of Vice 392 00:20:22,080 --> 00:20:25,080 Speaker 1: President Kamala Harris were to win and then also have 393 00:20:25,200 --> 00:20:30,000 Speaker 1: it her back Democrat control of both chambers in Congress, 394 00:20:30,160 --> 00:20:33,439 Speaker 1: maybe there's a positive outcome for GDP. How are you 395 00:20:33,520 --> 00:20:34,600 Speaker 1: viewing the election. 396 00:20:36,040 --> 00:20:38,919 Speaker 6: Well, it's definitely, you know, it's a lot more uncertained. 397 00:20:38,920 --> 00:20:42,600 Speaker 6: Obviously with you know, Kamala being nominated. I think with Biden, 398 00:20:42,680 --> 00:20:45,800 Speaker 6: you know, the probability was you know, Trump victory for sure. 399 00:20:46,320 --> 00:20:49,360 Speaker 6: So again more of a reason for these asymmetric risks. 400 00:20:49,760 --> 00:20:52,760 Speaker 6: I think longer term, you know, where the opinion that 401 00:20:52,840 --> 00:20:56,600 Speaker 6: you know, deficit will continue to grow. I think the 402 00:20:56,640 --> 00:21:00,240 Speaker 6: gold market is kind of screaming and saying that, you know, hey, 403 00:21:00,280 --> 00:21:03,920 Speaker 6: we have a deficit problem, and you know the fact 404 00:21:03,920 --> 00:21:07,239 Speaker 6: that gold is outperforming equities your date, you know, and 405 00:21:07,280 --> 00:21:11,000 Speaker 6: that's with gold entering into a period where it historically 406 00:21:11,080 --> 00:21:13,119 Speaker 6: actually works the best, which is when you get this 407 00:21:13,240 --> 00:21:16,520 Speaker 6: economic slowdown and you get ray cut. So we would 408 00:21:16,600 --> 00:21:18,600 Speaker 6: lean on gold to play a lot of the election 409 00:21:19,119 --> 00:21:20,200 Speaker 6: uncertainty for sure. 410 00:21:20,400 --> 00:21:22,359 Speaker 1: All right, John, we'll leave it there. Thank you so much. 411 00:21:22,520 --> 00:21:25,720 Speaker 1: John Davey from a story of portfolio advisors joining us 412 00:21:25,920 --> 00:21:34,720 Speaker 1: from here in New York City. Burns McKinney is with us. 413 00:21:34,800 --> 00:21:38,200 Speaker 1: He is a managing director also a senior portfolio manager 414 00:21:38,400 --> 00:21:42,639 Speaker 1: at NFJ Investment Group. Hey, he is in Dallas, Texas 415 00:21:42,680 --> 00:21:44,760 Speaker 1: and joining us here on day break Asia. Thanks for 416 00:21:44,800 --> 00:21:47,399 Speaker 1: dropping by. Can we start with the eco data, the 417 00:21:48,240 --> 00:21:53,080 Speaker 1: PMI that we had from the ISM. This manufacturing activity 418 00:21:53,119 --> 00:21:55,840 Speaker 1: picture does not look good at all, and I'm curious 419 00:21:55,840 --> 00:21:58,480 Speaker 1: as to whether or not it changes your view on 420 00:21:58,520 --> 00:21:59,960 Speaker 1: how to put money to work. 421 00:22:01,880 --> 00:22:02,160 Speaker 4: Well. 422 00:22:02,320 --> 00:22:04,560 Speaker 5: We we always first of all, we always tell our 423 00:22:04,640 --> 00:22:07,760 Speaker 5: clients to to maybe don't, you know, put too much 424 00:22:07,800 --> 00:22:11,360 Speaker 5: weight on a single data point. You know, definitely, today's 425 00:22:11,440 --> 00:22:15,000 Speaker 5: data showed the manufacturing portion of the US economy is 426 00:22:15,040 --> 00:22:17,840 Speaker 5: still in contraction, and it was a little bit weaker 427 00:22:17,840 --> 00:22:20,800 Speaker 5: than expected, and you know that that certainly led to 428 00:22:20,960 --> 00:22:24,400 Speaker 5: you know, maybe you know, higher fears of a recession. 429 00:22:24,480 --> 00:22:26,760 Speaker 5: But you know, we also have to take under consideration, 430 00:22:26,880 --> 00:22:29,800 Speaker 5: for one, the den employment rate, although it has been 431 00:22:29,880 --> 00:22:33,919 Speaker 5: you know, creeping upward, it's still very low by historical standards, 432 00:22:34,080 --> 00:22:36,480 Speaker 5: as well as the fact that you know, the manufacturing 433 00:22:36,520 --> 00:22:38,399 Speaker 5: portion is really the part of the economy that's been 434 00:22:38,440 --> 00:22:41,880 Speaker 5: weakened by the high real interest rates for quite some time. 435 00:22:41,960 --> 00:22:46,119 Speaker 5: And so once the Fed does start reducing rates, most 436 00:22:46,160 --> 00:22:48,679 Speaker 5: likely as soon as this month, then that should in 437 00:22:48,760 --> 00:22:50,600 Speaker 5: fact give a little bit of a tailwind to to 438 00:22:50,640 --> 00:22:53,639 Speaker 5: boost that manufacturing portion of these economies. So it's slowing, 439 00:22:53,680 --> 00:22:55,760 Speaker 5: but we're not necessarily worried about a recession in the 440 00:22:55,800 --> 00:22:56,280 Speaker 5: near term. 441 00:22:56,400 --> 00:22:58,280 Speaker 1: Does that make the job stated that we're going to 442 00:22:58,280 --> 00:23:00,000 Speaker 1: get the end of the week all that more important? 443 00:23:00,040 --> 00:23:05,240 Speaker 5: And absolutely, I think that's that's definitely we've you know, 444 00:23:05,240 --> 00:23:07,200 Speaker 5: we've been living in this world for the last two 445 00:23:07,280 --> 00:23:11,399 Speaker 5: years where the most important catalyst or data point that 446 00:23:11,440 --> 00:23:13,680 Speaker 5: we see month to month has been the inflation figures. 447 00:23:13,760 --> 00:23:16,280 Speaker 5: And you know, really as of the last FED meeting, 448 00:23:16,280 --> 00:23:19,600 Speaker 5: when the you know, Jay Powell basically suggested, Okay, you 449 00:23:19,600 --> 00:23:22,280 Speaker 5: know we're there on inflation. Now we're worried about the 450 00:23:22,320 --> 00:23:25,000 Speaker 5: other side of the Fed's mandate, i e. The jobs 451 00:23:25,040 --> 00:23:28,879 Speaker 5: portion as such for the coming months. That'll probably be 452 00:23:28,920 --> 00:23:30,760 Speaker 5: the biggest catalyst. You know, you don't want to be 453 00:23:31,000 --> 00:23:32,720 Speaker 5: You don't want it to be too hot and maybe 454 00:23:32,720 --> 00:23:35,399 Speaker 5: turn the Fed off from cutting rates, But likewise you 455 00:23:35,400 --> 00:23:38,640 Speaker 5: don't want it to show that employment is in fact 456 00:23:38,720 --> 00:23:39,760 Speaker 5: rapidly getting worse. 457 00:23:40,040 --> 00:23:44,240 Speaker 1: So are you, on balance kind of poised to be 458 00:23:44,280 --> 00:23:46,480 Speaker 1: a little bit more defensive right now? Would you think 459 00:23:46,520 --> 00:23:48,240 Speaker 1: that that's a part of your strategy. 460 00:23:50,680 --> 00:23:53,400 Speaker 5: We absolutely are, And it's it's really, I think, more 461 00:23:53,440 --> 00:23:56,679 Speaker 5: than anything just having to do with valuations. We're in 462 00:23:56,680 --> 00:23:59,359 Speaker 5: a world for which you certainly have some you have 463 00:23:59,400 --> 00:24:02,200 Speaker 5: a slowing amy anyway, Now, the Fed is poised to 464 00:24:02,560 --> 00:24:05,480 Speaker 5: reduce rates, and that's normally a good thing for stocks, 465 00:24:05,520 --> 00:24:09,119 Speaker 5: but this has been a long telegraphed rate cut and 466 00:24:09,440 --> 00:24:11,520 Speaker 5: to the point that not only is a twenty five 467 00:24:11,560 --> 00:24:15,359 Speaker 5: basis point cut in September priced in, but the markets 468 00:24:15,359 --> 00:24:17,680 Speaker 5: are halfway there to pricing in a fifty depth cut. 469 00:24:17,720 --> 00:24:20,240 Speaker 5: And so we don't really see a whole lot of 470 00:24:20,280 --> 00:24:23,120 Speaker 5: ways in which the Fed's get to pleasantly surprised in investors, 471 00:24:23,119 --> 00:24:27,040 Speaker 5: and in fact, if anything, they could be negatively surprised. 472 00:24:27,160 --> 00:24:29,320 Speaker 5: And you know, the biggest portion is the fact that 473 00:24:29,320 --> 00:24:31,040 Speaker 5: with the S and P five hundred trading at around 474 00:24:31,040 --> 00:24:34,360 Speaker 5: twenty two times earnings, that's more expensive than it's been 475 00:24:34,840 --> 00:24:37,760 Speaker 5: three quarters of the time over this millennium, and so 476 00:24:38,119 --> 00:24:42,040 Speaker 5: the markets really aren't pricing in that much downside risk. 477 00:24:43,240 --> 00:24:45,360 Speaker 1: I'm sure you saw the meltdown that we had in 478 00:24:45,680 --> 00:24:49,000 Speaker 1: technology today, particularly the chip makers. That may not have 479 00:24:49,040 --> 00:24:51,080 Speaker 1: come as a surprise to you. I'm curious to get 480 00:24:51,080 --> 00:24:52,720 Speaker 1: your take. What did you make of it? 481 00:24:54,720 --> 00:25:00,240 Speaker 5: Well, it's really it's primarily a continuation of what we seen, 482 00:25:00,320 --> 00:25:02,679 Speaker 5: says na Videa's earnings. I mean, their earnings results were 483 00:25:02,680 --> 00:25:06,440 Speaker 5: pretty stolid, but you know, they beat the they beat 484 00:25:06,480 --> 00:25:09,400 Speaker 5: the consensus. They they guide it upward, but they didn't 485 00:25:09,400 --> 00:25:12,080 Speaker 5: meet the whisper number. And you know that really just 486 00:25:12,240 --> 00:25:15,600 Speaker 5: points out that you know, with with great expectations comes 487 00:25:15,600 --> 00:25:18,399 Speaker 5: great responsibility. It's uh, you know kind of kind of 488 00:25:18,440 --> 00:25:20,320 Speaker 5: you know, you think about the opposite of value investing. 489 00:25:20,359 --> 00:25:23,240 Speaker 5: The whole premise behind value investing is find companies for 490 00:25:23,320 --> 00:25:26,800 Speaker 5: which low expectations are baked in versus right now, a 491 00:25:26,840 --> 00:25:30,040 Speaker 5: lot of the mega tech, uh megacap tech is pricing 492 00:25:30,040 --> 00:25:33,080 Speaker 5: and high expectations, and so you think, well, what makes 493 00:25:33,119 --> 00:25:34,840 Speaker 5: the most sense. Ye I like to, you know, make 494 00:25:34,880 --> 00:25:36,800 Speaker 5: the analogy. You know, you have two kids, you know, 495 00:25:36,840 --> 00:25:38,800 Speaker 5: one of which is a straight A student that maybe 496 00:25:38,800 --> 00:25:40,639 Speaker 5: comes home with an A minus, and you have the 497 00:25:40,680 --> 00:25:43,360 Speaker 5: other kid that typically gets C minuses and they come 498 00:25:43,400 --> 00:25:45,479 Speaker 5: home with a B. You know whose parents are going 499 00:25:45,520 --> 00:25:48,120 Speaker 5: to be, you know, pleased the upside surprise and buy 500 00:25:48,119 --> 00:25:50,119 Speaker 5: on ice cream, you know, probably the other one. And 501 00:25:50,200 --> 00:25:52,439 Speaker 5: so you know, that's really a lot of what's probably 502 00:25:52,440 --> 00:25:55,000 Speaker 5: been driving our thesis and what the markets are seeing 503 00:25:55,000 --> 00:25:59,360 Speaker 5: about this rotation away from what's been working so well 504 00:25:59,440 --> 00:26:02,520 Speaker 5: the past year towards maybe what hasn't been. That means 505 00:26:02,560 --> 00:26:05,919 Speaker 5: you know, small caps, it definitely means value stocks. You know, 506 00:26:05,960 --> 00:26:09,080 Speaker 5: some of the financial firms as well as overseas stocks. 507 00:26:09,280 --> 00:26:10,920 Speaker 1: Well, talk to me a little bit about what you're 508 00:26:10,960 --> 00:26:14,440 Speaker 1: seeing overseas. Are there areas or themes that you can 509 00:26:14,520 --> 00:26:15,480 Speaker 1: unpack a little bit. 510 00:26:17,760 --> 00:26:20,920 Speaker 5: You know, looking overseas, I think the primary theme that 511 00:26:20,960 --> 00:26:24,560 Speaker 5: we're looking at is just again low valuations. We're contrarian 512 00:26:24,680 --> 00:26:26,840 Speaker 5: by nature, and so you want to find things for 513 00:26:26,920 --> 00:26:29,720 Speaker 5: which you know the good news isn't already priced in yet. 514 00:26:29,840 --> 00:26:33,199 Speaker 5: And you know, if there's one sort of area that 515 00:26:33,400 --> 00:26:35,480 Speaker 5: kind of peaks our interest a little bit, it might 516 00:26:35,520 --> 00:26:37,919 Speaker 5: just be the emerging markets and the news the story 517 00:26:37,920 --> 00:26:40,399 Speaker 5: has been bad for a long time. They've lagged the 518 00:26:40,440 --> 00:26:43,480 Speaker 5: broader markets for you know, over a decade now, and 519 00:26:43,520 --> 00:26:48,199 Speaker 5: as a result, relative valuations since you know, ten, fifteen 520 00:26:48,280 --> 00:26:51,160 Speaker 5: years ago, and so you know, there's some opportunities there. 521 00:26:51,480 --> 00:26:53,640 Speaker 5: You know, obviously, investors have to be choosy. 522 00:26:54,640 --> 00:26:54,760 Speaker 4: You know. 523 00:26:54,880 --> 00:26:57,159 Speaker 5: One one way that we're recommending our clients, if you 524 00:26:57,160 --> 00:26:59,800 Speaker 5: want to play the emerging markets, maybe do it within 525 00:27:00,240 --> 00:27:03,560 Speaker 5: companies there that pay dividends. It's kind of a unique 526 00:27:03,600 --> 00:27:06,720 Speaker 5: subset whereby people don't think of stodgy dividend pairs and 527 00:27:06,760 --> 00:27:09,119 Speaker 5: emerging markets in the same sentence. But you know, what 528 00:27:09,119 --> 00:27:10,919 Speaker 5: it really does is it means that you're focused on 529 00:27:10,960 --> 00:27:13,840 Speaker 5: companies in the emerging market space. They still have that 530 00:27:13,880 --> 00:27:16,359 Speaker 5: growth dynamic, but maybe they're a little bit more mature 531 00:27:16,400 --> 00:27:18,200 Speaker 5: in their life cycle. It means they're producing a lot 532 00:27:18,200 --> 00:27:21,080 Speaker 5: of free cash flow and maybe a little bit more 533 00:27:21,080 --> 00:27:22,680 Speaker 5: defensive way of getting that exposure. 534 00:27:23,240 --> 00:27:25,879 Speaker 1: Good conversation, Burns, thank you so much for being with us. 535 00:27:25,920 --> 00:27:29,600 Speaker 1: Burns McKenny. He is Managing director also senior portfolio manager 536 00:27:29,720 --> 00:27:36,239 Speaker 1: at MFJ Investment Group in Dallas, Texas. This has been 537 00:27:36,240 --> 00:27:39,600 Speaker 1: the Bloomberg Daybreak Asia podcast, bringing you the stories making 538 00:27:39,640 --> 00:27:42,680 Speaker 1: news and moving markets in the Asia Pacific. Visit the 539 00:27:42,680 --> 00:27:46,239 Speaker 1: Bloomberg Podcast channel on YouTube to get more episodes of 540 00:27:46,280 --> 00:27:49,840 Speaker 1: this and other shows from Bloomberg. Subscribe to the podcast 541 00:27:49,880 --> 00:27:53,639 Speaker 1: on Apple, Spotify, or anywhere else you listen, and always 542 00:27:53,640 --> 00:27:57,280 Speaker 1: on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.