Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg
Speaker 1: Daybreak Asia podcast. I'm Doug Prisner. You can join Brian
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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. Let's take
Speaker 1: a closer look at this Nvidia story and the selloff
Speaker 1: in the chip sector. Dan Ives is with us. He's
Speaker 1: managing director also senior equity analyst at Webbush Securities. So
Speaker 1: it looks as though we've got concern on the part
Speaker 1: of anti trust regulators. Dan that in video maybe I
Speaker 1: don't want to say an abusive monopolist, but certainly of
Speaker 1: infringing on perhaps anti competitive practices. What do you think, Yeah, Look.
Speaker 2: I mean this is the theme that we've seen across
Speaker 2: big time, right, I mean, from Google to Apple to
Speaker 2: Amazon of course now in video, Look, they're the only
Speaker 2: game in town, but it's really because of the innovation while
Speaker 2: they're the only game in town. So I think this
Speaker 2: is one probably you know, the headlines scarier than probably
Speaker 2: the reality in the near term, but no doubt this
Speaker 2: is not the right day for this to come out,
Speaker 2: given the white knuckles we saw across chips.
Speaker 1: Yeah, you're in Soul today, which is kind of curious.
Speaker 1: And some of those high bandwidth memory chip manufacturers are
Speaker 1: in South Korea, and I'm thinking sk Heinis, I'm thinking
Speaker 1: Samsung from your perspective being there, what is the degree
Speaker 1: of the knock on effect? Is it great? Is there
Speaker 1: a pretty strong correlation between what happens in Nvidia stock
Speaker 1: and what happens with a company like say sk Heinix.
Speaker 2: Look, I think a huge correlation. And look, and that's
Speaker 2: why what we're seeing here for Semis is a once
Speaker 2: in a thirty forty year type of psychle But that's
Speaker 2: not stopping. And there was like we're going to have
Speaker 2: these periods of self just like we saw Tokyo Black Monday,
Speaker 2: like we saw today. But if you look at the
Speaker 2: demands outstrip and supply fifteen to one, so that continues
Speaker 2: to be a huge tow And for all of these
Speaker 2: chip players, what are you.
Speaker 1: Hearing on the ground there in South Korea. I'm curious
Speaker 1: just about what's going on in the US, and particularly
Speaker 1: in regard to AI.
Speaker 2: Look, I think there's a big focus not just from investors,
Speaker 2: but from the actual you know, from the tech players
Speaker 2: in terms of seeing where this demand curve.
Speaker 3: Is going to go.
Speaker 2: I think there's a lot of optimism that we are
Speaker 2: still in the early innings of where this is going.
Speaker 2: I think the big question is, Okay in Nvidia, everyone
Speaker 2: understands now, who are the next players to benefit? And
Speaker 2: I think that's really going to be the focus, not
Speaker 2: just here in Korea, what we see across Asia and
Speaker 2: really what we see across the goal because look in
Speaker 2: Vidio is the start, but it's a huge multiplier. If
Speaker 2: every dollar spend on video chip, we think there's an
Speaker 2: eight to ten dollars multiplier, that would be a clear benefit,
Speaker 2: especially some of the players here in South Korea.
Speaker 1: But when you consider a company like Advanced micro Devices,
Speaker 1: which is trying to do what in Vidia does with
Speaker 1: these graphics processors, what is the runway that AMD needs
Speaker 1: to even become competitive within video?
Speaker 2: Yeah, Look Betton against Lisa soon a AMDD and that's
Speaker 2: wrong that I think they will be major players in
Speaker 2: this race. They look in videos years ahead. But if
Speaker 2: you look, this is gonna be a trillion dollars of
Speaker 2: incremental AI capbacks. So if AMD gets five to ten
Speaker 2: percent a share, I don't believe that that's baked into
Speaker 2: the stock. And I think that's really the focus now.
Speaker 2: It's who are the other beneficiaries? Second, third, fourth derivative
Speaker 2: because it's clearly something that's playing out, and I think
Speaker 2: we saw with the Vidia earnings last week. It's undeniable
Speaker 2: in terms of what this trend is. But you'll see
Speaker 2: sell offsite today, You'll see selfs like we did a
Speaker 2: few weeks ago. I still believe tech goes to all
Speaker 2: time highs, you know, over the next three six months.
Speaker 1: You know, Dan, When I think of Nvidio, I think
Speaker 1: of TSMC, the big foundry in TYPEI is there a
Speaker 1: conversation where you are now in South Korea around diversifying
Speaker 1: the chip supply chain maybe and allocating a little bit
Speaker 1: more on the foundry side in South Korea.
Speaker 4: Yeah.
Speaker 2: Look, I think theoretical, but for right now, I mean
Speaker 2: TSMC has hearts and lungs, and I think this is
Speaker 2: something that's really going to be playing out over the
Speaker 2: next twelve, eighteen twenty four months in terms of the
Speaker 2: supply chance. It's just going to continue to expand. Part
Speaker 2: of it is not just about TSMC, it's just demand
Speaker 2: is so strong relative to supply. There's gonna be a
Speaker 2: lot of players that benefit that today I don't believe
Speaker 2: are on the radar from a global perspective.
Speaker 1: Investors, Dan, it's always a pleasure. Thanks for making time
Speaker 1: to chat with us. Dan Ives is the managing director.
Speaker 1: He's also senior equity analyst ad web Bush Securities. Adam
Speaker 1: Koon's the co CIO at Winthrop Capital Management. Joining us
Speaker 1: from the heartland of Indianapolis, Indiana. Thanks for making time
Speaker 1: for us, Adam. Let's talk about this ISM date. I
Speaker 1: think that really in large parts helped to put the
Speaker 1: market on the back foot, wouldn't you agree today, fir.
Speaker 4: So, thanks for having me and yeah, I do totally agree.
Speaker 3: IM is one of those indicators that does have a
Speaker 3: lot of correlation to, you know, where the economy is heading.
Speaker 3: You know, you look at employment and things like that.
Speaker 3: There's tend to be quite lagging indicators. But this continued
Speaker 3: deterioration in ISM does give me more caution about, you know,
Speaker 3: kind of where the economy is heading.
Speaker 1: One of the things I think the market seems to
Speaker 1: be indicating here is that the rate cut that we're
Speaker 1: expecting in a couple of weeks less than two weeks time,
Speaker 1: will be twenty five basis points. But we do have
Speaker 1: a lot of data to consider on the labor market
Speaker 1: this week. It culminates, obviously with the employment report on Friday.
Speaker 1: If in aggregate these data really come in much below expectations,
Speaker 1: is there a risk do you think of a fifty
Speaker 1: basis point rate cut this month?
Speaker 3: I think it's possible, I've said kind of along from
Speaker 3: our perspective. You got to look at the entire cycle
Speaker 3: of this fit of reserve, and at the front end
Speaker 3: they were very slow to act. They wanted to make
Speaker 3: sure that the data was really pointing towards inflation, and
Speaker 3: really obviously probably waited too long to act and then
Speaker 3: took quite a bit of action to increase interest rates.
Speaker 3: It's hard to see how they're going to have different
Speaker 3: behavior at the back end of the cycle, because there's
Speaker 3: still just enough data to show that the economy is
Speaker 3: still somewhat okay. Like you said, the employment number is
Speaker 3: a big factor in that, But I think the bigger
Speaker 3: scare is.
Speaker 4: Really reigniting inflation.
Speaker 3: I think that's what the Fed's really focused on They're
Speaker 3: going to let employment start to slip a bit before
Speaker 3: they act, because there's still is room in the employment market.
Speaker 3: You know, yes, obviously, you know mid foors is higher
Speaker 3: than where we were.
Speaker 4: But I think the.
Speaker 3: FED is going to need to really see the fact
Speaker 3: that inflation has come quite a bit closer to their
Speaker 3: two percent target before they move beyond a twenty five
Speaker 3: basis point cut.
Speaker 4: I do think if you.
Speaker 3: Know, the chances of not cutting are pretty much zero.
Speaker 3: I think it'd be a disaster if they, you know,
Speaker 3: didn't cut at all a fifty basis point cut. What
Speaker 3: that would tell me is that the FED sees more
Speaker 3: underlying data pointing to a prsure economic slow down, you know,
Speaker 3: to use a soft landing hard landing term, that they're
Speaker 3: starting to see a hard landing scenario. But I'm just
Speaker 3: not seeing that right now, so it's hard for me
Speaker 3: to believe that the Fed's gonna to take that kind
Speaker 3: of action.
Speaker 1: I want to get your reaction to what we had
Speaker 1: in the equity sell off today where tech led the decline,
Speaker 1: especially the chip makers we were talking about in video
Speaker 1: a moment ago. In the regular session, this stock was
Speaker 1: down nine and a half percent. Yeah, it's part of
Speaker 1: the AI story. We know of that. But does this
Speaker 1: come as a surprise to you or is it logical
Speaker 1: given the tremendous run up that we have seen in
Speaker 1: many of these names connected to artificial intelligence.
Speaker 4: No, it doesn't give me that much of a surprise.
Speaker 5: I don't know.
Speaker 3: I feel like I saw its coming because I didn't
Speaker 3: see that, you know, had that crystal wall. But you know,
Speaker 3: when you start to see that, that's the point when
Speaker 3: you start to see valuations get stretched and a more
Speaker 3: narrative based in investing in environment. What that does is
Speaker 3: it creates the opportunity for bigger sell offs. So it's difficult.
Speaker 3: You don't want to time it. But that's why we've
Speaker 3: been moving more defensively because we didn't we don't know
Speaker 3: if the equity markets are going to completely roll over.
Speaker 3: But when valuations get this stretched and they're not by
Speaker 3: any means, you know, bubble territory, but we do all
Speaker 3: we can all see that that valuations are on the
Speaker 3: high side. So that's the time to start playing a
Speaker 3: little bit more defense. That doesn't mean move to cash,
Speaker 3: but you're just kind of moving into higher quality, lower
Speaker 3: beta names.
Speaker 4: So that you avoid scenarios like today.
Speaker 3: And it's it's not a surprise that tech would lead
Speaker 3: a sell off like this because it's obviously led to
Speaker 3: the upside and that's where the valuations are the most
Speaker 3: stretched and so and they're obviously semiconductors are one of
Speaker 3: the most cyclical sectors within the SMP. So as we
Speaker 3: start to see a shift towards a potential faster slowdown,
Speaker 3: that obviously will affect the sale. And we heard it
Speaker 3: in earnings, you know previously a couple of weeks ago
Speaker 3: from some of the big tech where they were saying that, hey,
Speaker 3: we're decelerating our spend on chips because you know, demand
Speaker 3: is starting to slow overall, whether it's cloud, AI or like.
Speaker 3: So it's not a surprise that, you know, a small
Speaker 3: piece of what can seem like a small piece.
Speaker 4: Of news can make very big moves in stocks because
Speaker 4: of that valuation piece.
Speaker 1: So I hear what you're saying, higher quality, low beta names,
Speaker 1: but that's the equity space, are you inclined? And I
Speaker 1: also hear when you say, you know, we don't really
Speaker 1: want to park in cash or cash equivalent at the moment,
Speaker 1: but are there opportunities in the fixed income space that
Speaker 1: you like the corporate bond market. Do things look attractive there?
Speaker 4: I do.
Speaker 3: Corporate spreads are historically, you know, on the tight side.
Speaker 3: But with that said, you know, when you look at
Speaker 3: higher quality corporates, you could even look at treasuries or
Speaker 3: mortgage backed securities. It's one of the most asymmetric restory
Speaker 3: ward profiles I've seen in a long time, meaning that
Speaker 3: you know, the risk of interest rates going much higher
Speaker 3: from here is very very low.
Speaker 4: And so your other two scenarios where the interest rates day.
Speaker 3: Where they are, and I'm very happy to clip you know,
Speaker 3: five to six percent coupons while I wait, or you know,
Speaker 3: on the upside scenarios, we see interest rates collapse because
Speaker 3: the economy is slowing down, and then you're going to
Speaker 3: see that price appreciation of those bonds. So yeah, within
Speaker 3: our asset allocation, going longer duration fixed income is that
Speaker 3: is our you know, highest conviction trade ab of what
Speaker 3: else we're doing in the equity side.
Speaker 1: So I'm curious about the house view at Winthrom Capital,
Speaker 1: given the fact that September is historically a tough month
Speaker 1: for the stock market, are you expecting more in the
Speaker 1: way of downside.
Speaker 4: Yes we are.
Speaker 3: And and the way I'll say it is, what we're
Speaker 3: really seeing or what we are expecting, is heightened volatility.
Speaker 3: There are a lot of things happening right now. Right
Speaker 3: there's a there's a big election coming up.
Speaker 4: Yeah, it is obvious.
Speaker 3: And then on top of that, you've got the fact
Speaker 3: that that you know, what the Fed may or may
Speaker 3: not do has been what's driving markets for the past year,
Speaker 3: and that's just going to accelerate the further we get
Speaker 3: into you know, twenty twenty four, and there's these expectations
Speaker 3: kind of come to a head and whether the FED cuts,
Speaker 3: whether the reason and it comes down to the reason
Speaker 3: of that they're cutting, and how uh, you know, how
Speaker 3: dramatically they cut, because large cuts mean that the economy
Speaker 3: is really in tough shape. And so that in and
Speaker 3: of itself could lead to equity markets selling off just from
Speaker 3: that trying to understand why the Fed is saying or
Speaker 3: doing what they're doing. So, yeah, at the end of
Speaker 3: the day, heightened volatility is almost a guarantee at this point,
Speaker 3: and and that comes with some bigger down moves. It could,
Speaker 3: It could at the end of the day right through it,
Speaker 3: and in the year up. That's that's probably the higher likelihood.
Speaker 4: But in the short term, yeah, we're going to see
Speaker 4: a lot of chop.
Speaker 1: All right, we'll leave it there on the chop. Adam,
Speaker 1: good stuff. Thank you so much for being with us.
Speaker 1: Adam Koons, the co CIO at Winthrom Capital Management, joining
Speaker 1: from Indianapolis. John Davey, founder CEO CIO at A Story
Speaker 1: of Portfolio Advisors, joining us from here in New York. John,
Speaker 1: thanks for joining us. A lot to take apart. Let's
Speaker 1: begin with that is m pm I kind of a
Speaker 1: disappointment to many with continued weakness in the manufacturing economy.
Speaker 1: Are you concerned about what's been happening on the manufacturing side.
Speaker 6: Well, it's been in contraction, as you said, you know,
Speaker 6: for five straight months, but it was a small improvement
Speaker 6: from July. I think, you know, the idea from our
Speaker 6: side of story is that you've got to barbell your
Speaker 6: portfolio because as much as you know, on one hand,
Speaker 6: you've got bad growth data like today, I mean, there
Speaker 6: has been some recent data, whether it's retail sales, non
Speaker 6: manufacturing survey. We had upward revisions in GDP, we have
Speaker 6: better job less claim, so there is some good data,
Speaker 6: So it's just mixed overall growth to slow and that's
Speaker 6: why the Fed is going to cut rates.
Speaker 1: It's a key week for a lot of data on
Speaker 1: the labor market. It'll culminate, I think on Friday with
Speaker 1: the employment report. How are you reading the labor market
Speaker 1: these days? Have things been deteriorating to the point where
Speaker 1: maybe the Fed is going to consider something that is
Speaker 1: greater than twenty five basis points in terms of a
Speaker 1: rate cut.
Speaker 7: I think the.
Speaker 6: Odds right now are about forty forty rate cut, So
Speaker 6: I wouldn't say that that's high. I think the market
Speaker 6: in reality probably would get freaked out if they sore
Speaker 6: fifty BIPs because that would imply that, you know, the
Speaker 6: growth is really significantly slow. And so I think the
Speaker 6: idea is, you know, we want a series of twenty
Speaker 6: five bit rate cuts while growth still remains good. And
Speaker 6: I think that will sustain multiples, It'll keep a lit
Speaker 6: in the market and we won't have the kind of
Speaker 6: price action we saw it today.
Speaker 1: Yeah, some of that had to do with what we
Speaker 1: had in tech. The chips were hammered, I mean in
Speaker 1: Vidio down nine and a half percent today, and then
Speaker 1: more weakness with the news of the subpoenas and this
Speaker 1: anti trust investigation, how are you viewing big cap tech now?
Speaker 6: Well, I mean our big call for the last year
Speaker 6: was kind of tilt away from big cap megacap growth.
Speaker 6: I mean, I would just say that, you know, for
Speaker 6: it's been a tremendous run in the last ten years
Speaker 6: for tech in general. You know, seven stocks dominated most
Speaker 6: of returns. You know, seven stocks make up you know,
Speaker 6: north to thirty five percent of the s and P
Speaker 6: five hundred here in the US. I mean that's obviously dangerous.
Speaker 7: It cuts both ways.
Speaker 6: So we've been suggesting people to kind of tilt away
Speaker 6: from that for quite some time. So we like equally
Speaker 6: weighted strategies. We like barbelling our portfolio where we still
Speaker 6: like owning tech. We just don't want like seven stocks
Speaker 6: to make up most of those tech es. On one hand,
Speaker 6: you know, we use equally weighted strategies, and the other hand,
Speaker 6: I do think it's time to kind of get things
Speaker 6: like you know, USMV, the min voality tf xl V,
Speaker 6: the healthcare etf XL you to utility staples.
Speaker 7: You know, we like DJRW, which is a quality tiff
Speaker 7: that has.
Speaker 6: A value tilt. The bottom line is we're saying barbell
Speaker 6: it right. So most advisors that I oversee, I oversee
Speaker 6: it close to billion dollars, you know, thousands and thousands
Speaker 6: of accounts. Most of them are still long queues, quall spy,
Speaker 6: and we're just saying tilt away, take a third of
Speaker 6: it and rotate into something that's more defensive.
Speaker 1: How are you thinking about the sixty forty portfolio? I
Speaker 1: mean a little bit of fixed income in there or
Speaker 1: do you think that trade is already or trained? I
Speaker 1: should say left the station.
Speaker 7: Good question.
Speaker 6: I think you know bonds have a place for sure,
Speaker 6: I mean rate cuts.
Speaker 7: You know, we are longer duration, so.
Speaker 6: We're playing like that roll down you know, convexity move
Speaker 6: on rates. I think that you know the bond market,
Speaker 6: if it were up to them, we'd get two hundred
Speaker 6: BIPs of rat cuts.
Speaker 7: I don't think. I think there's more down moves to
Speaker 7: go and yield.
Speaker 6: But I do think that you want to own you know,
Speaker 6: some alternatives, I mean alternatives. It was a product that
Speaker 6: really couldn't be sold in an etif rapper. Most people
Speaker 6: just still looking at private credit, private private equity, but
Speaker 6: an etiff rapper you know, we've seen some you know,
Speaker 6: interesting like BUFFERYTF downside protection. I think that makes a
Speaker 6: lot of sense kind of giving where we are in
Speaker 6: the cycle, and you know, the growth looks very very
Speaker 6: you know, mixed and asymmetric in general.
Speaker 1: From a risk standpoint, Are you focused solely on what
Speaker 1: you're seeing here in the States or are you attempted
Speaker 1: to look off short at this point?
Speaker 6: Well, I mean the textbooks would say, you know, FED
Speaker 6: cuts rates, dollar weekends, emerging markets you know would do better.
Speaker 4: It's been a tough call.
Speaker 7: We prefer India.
Speaker 6: We think that there's demographic issues, there's a good growth story.
Speaker 6: China is very very challenging for most US based investors.
Speaker 6: You know, growth to slow there, there's you know, just
Speaker 6: issues in general from like a macro policy standpoint. But
Speaker 6: you know this pockets of emergent markets that we think
Speaker 6: are attractive and we would definitely start to nibble, especially
Speaker 6: if you get these rate cuts again, it's been ten years.
Speaker 7: Of just dramatic US AT performance.
Speaker 6: So in our global portfolios we do have allocations to
Speaker 6: rige of markets and Developed Europe Japan as well. I
Speaker 6: would just say that that's contrarian because you know, most
Speaker 6: people here in the States. All they want to do
Speaker 6: is talk about US, and we are trying to inch
Speaker 6: our advisors to look abroad.
Speaker 1: Well, one of the things that may be relevant here.
Speaker 1: If you believe that the boj is going to raise
Speaker 1: interest rates and we see a flight of capital leaving
Speaker 1: places in the developed world ex Japan, and being repatriated
Speaker 1: back into the Japanese market, maybe we're looking at a
Speaker 1: little bit more downside. And I know that you know
Speaker 1: this well that historically September can be a challenging month
Speaker 1: for stocks. Are we at risk right now in terms
Speaker 1: of Japanese players that they begin to repatride and bring
Speaker 1: money home.
Speaker 6: Yeah, I would say, you know, we we want to
Speaker 6: be overweight more in the US for some of the
Speaker 6: risks that you're outlining to begin with them. Usually when
Speaker 6: you go into the recession, you know, US usually kind
Speaker 6: of leads the way in and leads the way out.
Speaker 7: So we're we.
Speaker 6: Tend to be more over with US. Just you know,
Speaker 6: once you get past those seven stocks, the rest of
Speaker 6: the US equity market isn't that expensive. And it's certainly
Speaker 6: you know, while EM is cheaper and DM is cheaper,
Speaker 6: it's not like it's egregious at this point.
Speaker 7: So we're a little bit of a vulnerable period for
Speaker 7: equity markets.
Speaker 6: You know, the valuations are generally extended, So I think
Speaker 6: it's good to like own some of these alternatives, some
Speaker 6: of these buffer ETFs downside protection. We've used bt A L,
Speaker 6: which is like a long short marct neutrale ETF. You know,
Speaker 6: I think the idea is like September is expected to
Speaker 6: be volatile, and you know, it all starts with obviously
Speaker 6: Friday's non front payroll.
Speaker 1: Most definitely quick. In the time that we have left,
Speaker 1: which is about a minute, I want to get your
Speaker 1: take on the election. Economist over at Goldman Sachs published
Speaker 1: a note saying that if Trump were to win, that
Speaker 1: US GDP could face a hit. Different story of Vice
Speaker 1: President Kamala Harris were to win and then also have
Speaker 1: it her back Democrat control of both chambers in Congress,
Speaker 1: maybe there's a positive outcome for GDP. How are you
Speaker 1: viewing the election.
Speaker 6: Well, it's definitely, you know, it's a lot more uncertained.
Speaker 6: Obviously with you know, Kamala being nominated. I think with Biden,
Speaker 6: you know, the probability was you know, Trump victory for sure.
Speaker 6: So again more of a reason for these asymmetric risks.
Speaker 6: I think longer term, you know, where the opinion that
Speaker 6: you know, deficit will continue to grow. I think the
Speaker 6: gold market is kind of screaming and saying that, you know, hey,
Speaker 6: we have a deficit problem, and you know the fact
Speaker 6: that gold is outperforming equities your date, you know, and
Speaker 6: that's with gold entering into a period where it historically
Speaker 6: actually works the best, which is when you get this
Speaker 6: economic slowdown and you get ray cut. So we would
Speaker 6: lean on gold to play a lot of the election
Speaker 6: uncertainty for sure.
Speaker 1: All right, John, we'll leave it there. Thank you so much.
Speaker 1: John Davey from a story of portfolio advisors joining us
Speaker 1: from here in New York City. Burns McKinney is with us.
Speaker 1: He is a managing director also a senior portfolio manager
Speaker 1: at NFJ Investment Group. Hey, he is in Dallas, Texas
Speaker 1: and joining us here on day break Asia. Thanks for
Speaker 1: dropping by. Can we start with the eco data, the
Speaker 1: PMI that we had from the ISM. This manufacturing activity
Speaker 1: picture does not look good at all, and I'm curious
Speaker 1: as to whether or not it changes your view on
Speaker 1: how to put money to work.
Speaker 4: Well.
Speaker 5: We we always first of all, we always tell our
Speaker 5: clients to to maybe don't, you know, put too much
Speaker 5: weight on a single data point. You know, definitely, today's
Speaker 5: data showed the manufacturing portion of the US economy is
Speaker 5: still in contraction, and it was a little bit weaker
Speaker 5: than expected, and you know that that certainly led to
Speaker 5: you know, maybe you know, higher fears of a recession.
Speaker 5: But you know, we also have to take under consideration,
Speaker 5: for one, the den employment rate, although it has been
Speaker 5: you know, creeping upward, it's still very low by historical standards,
Speaker 5: as well as the fact that you know, the manufacturing
Speaker 5: portion is really the part of the economy that's been
Speaker 5: weakened by the high real interest rates for quite some time.
Speaker 5: And so once the Fed does start reducing rates, most
Speaker 5: likely as soon as this month, then that should in
Speaker 5: fact give a little bit of a tailwind to to
Speaker 5: boost that manufacturing portion of these economies. So it's slowing,
Speaker 5: but we're not necessarily worried about a recession in the
Speaker 5: near term.
Speaker 1: Does that make the job stated that we're going to
Speaker 1: get the end of the week all that more important?
Speaker 5: And absolutely, I think that's that's definitely we've you know,
Speaker 5: we've been living in this world for the last two
Speaker 5: years where the most important catalyst or data point that
Speaker 5: we see month to month has been the inflation figures.
Speaker 5: And you know, really as of the last FED meeting,
Speaker 5: when the you know, Jay Powell basically suggested, Okay, you
Speaker 5: know we're there on inflation. Now we're worried about the
Speaker 5: other side of the Fed's mandate, i e. The jobs
Speaker 5: portion as such for the coming months. That'll probably be
Speaker 5: the biggest catalyst. You know, you don't want to be
Speaker 5: You don't want it to be too hot and maybe
Speaker 5: turn the Fed off from cutting rates, But likewise you
Speaker 5: don't want it to show that employment is in fact
Speaker 5: rapidly getting worse.
Speaker 1: So are you, on balance kind of poised to be
Speaker 1: a little bit more defensive right now? Would you think
Speaker 1: that that's a part of your strategy.
Speaker 5: We absolutely are, And it's it's really, I think, more
Speaker 5: than anything just having to do with valuations. We're in
Speaker 5: a world for which you certainly have some you have
Speaker 5: a slowing amy anyway, Now, the Fed is poised to
Speaker 5: reduce rates, and that's normally a good thing for stocks,
Speaker 5: but this has been a long telegraphed rate cut and
Speaker 5: to the point that not only is a twenty five
Speaker 5: basis point cut in September priced in, but the markets
Speaker 5: are halfway there to pricing in a fifty depth cut.
Speaker 5: And so we don't really see a whole lot of
Speaker 5: ways in which the Fed's get to pleasantly surprised in investors,
Speaker 5: and in fact, if anything, they could be negatively surprised.
Speaker 5: And you know, the biggest portion is the fact that
Speaker 5: with the S and P five hundred trading at around
Speaker 5: twenty two times earnings, that's more expensive than it's been
Speaker 5: three quarters of the time over this millennium, and so
Speaker 5: the markets really aren't pricing in that much downside risk.
Speaker 1: I'm sure you saw the meltdown that we had in
Speaker 1: technology today, particularly the chip makers. That may not have
Speaker 1: come as a surprise to you. I'm curious to get
Speaker 1: your take. What did you make of it?
Speaker 5: Well, it's really it's primarily a continuation of what we seen,
Speaker 5: says na Videa's earnings. I mean, their earnings results were
Speaker 5: pretty stolid, but you know, they beat the they beat
Speaker 5: the consensus. They they guide it upward, but they didn't
Speaker 5: meet the whisper number. And you know that really just
Speaker 5: points out that you know, with with great expectations comes
Speaker 5: great responsibility. It's uh, you know kind of kind of
Speaker 5: you know, you think about the opposite of value investing.
Speaker 5: The whole premise behind value investing is find companies for
Speaker 5: which low expectations are baked in versus right now, a
Speaker 5: lot of the mega tech, uh megacap tech is pricing
Speaker 5: and high expectations, and so you think, well, what makes
Speaker 5: the most sense. Ye I like to, you know, make
Speaker 5: the analogy. You know, you have two kids, you know,
Speaker 5: one of which is a straight A student that maybe
Speaker 5: comes home with an A minus, and you have the
Speaker 5: other kid that typically gets C minuses and they come
Speaker 5: home with a B. You know whose parents are going
Speaker 5: to be, you know, pleased the upside surprise and buy
Speaker 5: on ice cream, you know, probably the other one. And
Speaker 5: so you know, that's really a lot of what's probably
Speaker 5: been driving our thesis and what the markets are seeing
Speaker 5: about this rotation away from what's been working so well
Speaker 5: the past year towards maybe what hasn't been. That means
Speaker 5: you know, small caps, it definitely means value stocks. You know,
Speaker 5: some of the financial firms as well as overseas stocks.
Speaker 1: Well, talk to me a little bit about what you're
Speaker 1: seeing overseas. Are there areas or themes that you can
Speaker 1: unpack a little bit.
Speaker 5: You know, looking overseas, I think the primary theme that
Speaker 5: we're looking at is just again low valuations. We're contrarian
Speaker 5: by nature, and so you want to find things for
Speaker 5: which you know the good news isn't already priced in yet.
Speaker 5: And you know, if there's one sort of area that
Speaker 5: kind of peaks our interest a little bit, it might
Speaker 5: just be the emerging markets and the news the story
Speaker 5: has been bad for a long time. They've lagged the
Speaker 5: broader markets for you know, over a decade now, and
Speaker 5: as a result, relative valuations since you know, ten, fifteen
Speaker 5: years ago, and so you know, there's some opportunities there.
Speaker 5: You know, obviously, investors have to be choosy.
Speaker 4: You know.
Speaker 5: One one way that we're recommending our clients, if you
Speaker 5: want to play the emerging markets, maybe do it within
Speaker 5: companies there that pay dividends. It's kind of a unique
Speaker 5: subset whereby people don't think of stodgy dividend pairs and
Speaker 5: emerging markets in the same sentence. But you know, what
Speaker 5: it really does is it means that you're focused on
Speaker 5: companies in the emerging market space. They still have that
Speaker 5: growth dynamic, but maybe they're a little bit more mature
Speaker 5: in their life cycle. It means they're producing a lot
Speaker 5: of free cash flow and maybe a little bit more
Speaker 5: defensive way of getting that exposure.
Speaker 1: Good conversation, Burns, thank you so much for being with us.
Speaker 1: Burns McKenny. He is Managing director also senior portfolio manager
Speaker 1: at MFJ Investment Group in Dallas, Texas. This has been
Speaker 1: the Bloomberg Daybreak Asia podcast, bringing you the stories making
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