WEBVTT - TSMC Earnings Preview, Stocks Set Fresh Record on AI

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Welcome to the Daybreak Asia podcast. I'm dog prisner. US

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<v Speaker 2>equities advanced to record highs in the last session in

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<v Speaker 2>what was described as a resurgence of dip buyers. Even so,

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<v Speaker 2>there's still this robust debate over weather stocks have more

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<v Speaker 2>room to run given elevated valuations, and on Wednesday, the

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<v Speaker 2>Bank of England weighed in. The BOE said stretched valuations

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<v Speaker 2>for AI companies, along with challenges related to the fed's independence,

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<v Speaker 2>have fueled the risk of a sharp market correction. Well. Nonetheless,

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<v Speaker 2>in video rowse more than two percent. That was after

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<v Speaker 2>CEO Jensen wongtold CNBC demand for those Blackwell chips is

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<v Speaker 2>really really high. And at the same time, Cisco Systems

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<v Speaker 2>said it's releasing a new chip and networking system meant

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<v Speaker 2>to connect AI data centers across huns of miles. Later

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<v Speaker 2>today in Taiwan, TSMC will be releasing sales figures for

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<v Speaker 2>the latest quarter. For more on TSMC, let's bring in

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<v Speaker 2>Bloomberg's Debbie Wu, team leader for North Asia Tech. Debbie

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<v Speaker 2>is in Taipei. Thank you for making time to chat

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<v Speaker 2>with me so we get the sales figures today, Debbie.

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<v Speaker 2>TSMC will report earnings next week. Help me understand where

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<v Speaker 2>the focus will be.

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<v Speaker 1>I think investors and analyst they will be looking for

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<v Speaker 1>comments on AI demand. Bloomberg News just pushed out a

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<v Speaker 1>story trying to figure out whether all these recent investments

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<v Speaker 1>mostly on led by Nvidia, whether it's for real, or

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<v Speaker 1>whether it's really a big AI bubble after all. And

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<v Speaker 1>I'm hoping and I do believe that comments for not

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<v Speaker 1>TSMC management should be able to give investors some insight

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<v Speaker 1>into how while the demand for air chips really is.

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<v Speaker 1>And in conjunction with that, I think investors analyst they

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<v Speaker 1>will be keen to hear whether a TSMC is playing

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<v Speaker 1>even more capital expenditure this year in the coming year,

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<v Speaker 1>although they are unlikely to offer guidance on spending next

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<v Speaker 1>year yet. But who knows.

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<v Speaker 2>What about the competition from chip makers in China? I

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<v Speaker 2>know that Huawei has been making a lot of inroads,

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<v Speaker 2>particularly in terms of being able to compete with some

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<v Speaker 2>of the advanced chips from Nvidia. Is there any concern

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<v Speaker 2>here that what's happening on the mainland would represent any

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<v Speaker 2>type of threat to TSMC?

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<v Speaker 1>Right No, our sense is not really yet China is

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<v Speaker 1>still up at least a few years behind. That's our sense.

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<v Speaker 1>And then based on our our latest reporting on Huawei's

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<v Speaker 1>our latest AI chip, it is actually made with a

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<v Speaker 1>due or what we called an unpackaged chip from TSMC.

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<v Speaker 1>So this is the o stockpile or some of the

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<v Speaker 1>recent TSMC chips that Huawei obtained via show companies. And yeah,

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<v Speaker 1>so that kind of shows that Huawei is still need

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<v Speaker 1>foreign technology to make it them a chips happen.

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<v Speaker 2>So one of the things that's very interesting, I'm imagining

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<v Speaker 2>that TSMC is still abiding by some of the export

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<v Speaker 2>controls that the US and its partners like the Netherlands

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<v Speaker 2>and Japan have placed on some of the advanced chip

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<v Speaker 2>making equipment. Has there been any concern that perhaps that

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<v Speaker 2>relationship is beginning to break down at all, or is

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<v Speaker 2>TSMC still playing by the same rules.

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<v Speaker 1>It is definitely not in TSMC's interest not to abide

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<v Speaker 1>by the global export control rules, so the company has

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<v Speaker 1>been abiding by that. But at the same time, last

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<v Speaker 1>year we did report that Huawei was able to obtain

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<v Speaker 1>some of tsmcs advanced chips through intermediaries, but TSMC has

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<v Speaker 1>cut off from these are show companys, since in TSMC's case,

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<v Speaker 1>it is abiding via US and Taiwansa rules and to

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<v Speaker 1>make sure that none of its advanced chips is still

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<v Speaker 1>going to China, and let's particularly for Huawei for some

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<v Speaker 1>of the consumer electronics stuff, TSMC can still provide the

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<v Speaker 1>advanced chips as long as the rules allowed lot. So

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<v Speaker 1>I think we should understand that the US has not

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<v Speaker 1>totally put a blanket ban on all of TSMC's advanced chips.

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<v Speaker 1>Mostly the restriction is targeted at AIS SAR raiders.

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<v Speaker 2>We know that TSMC is a major customer of ASML,

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<v Speaker 2>the Dutch company that manufactures chip making equipment. You mentioned

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<v Speaker 2>earlier about the fact that we don't really know whether

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<v Speaker 2>or not TSMC is still going to reveal a level

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<v Speaker 2>of CAPAC spending. Do you think it's likely the TSMC

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<v Speaker 2>is going to be needing a lot more of this

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<v Speaker 2>advanced chip making equipment from a company like ASML in

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<v Speaker 2>order to meet demand for these high end AI chips.

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<v Speaker 1>So there's a little bit of nuances here. So of

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<v Speaker 1>course analyst investors, they will treat TSMC suspending level, say,

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<v Speaker 1>leading indicator on how the global demand for AI chips is.

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<v Speaker 1>But at the same time, TSMC is also thinking about

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<v Speaker 1>its profit margins. And then sml does over the most

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<v Speaker 1>cutting edge machines, but at the same time it's some

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<v Speaker 1>most SMLS premium offering, what we call the high na

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<v Speaker 1>V machines. It costs about three hundred million dollars or

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<v Speaker 1>euros per unit, so that's quite a bit pricey, and

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<v Speaker 1>TSMC executives have previously said that Dala and SMLS latest

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<v Speaker 1>machines a bit expensive. So what the TSMC may do

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<v Speaker 1>is not purchasing less machines quite as aggressively as before.

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<v Speaker 1>They can still rely on an older generation of SMO

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<v Speaker 1>machines to make them. There are most advanced chips, so

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<v Speaker 1>it really depends on how TSMC is thinking about the expending.

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<v Speaker 1>It's a profit margins and so sometimes we can we

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<v Speaker 1>have seen them in the past earnings that when TSMC

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<v Speaker 1>delivers really are performing of results. Sometimes when TSMC delivers

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<v Speaker 1>better than expected results, SMLS results can be a little

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<v Speaker 1>bit diverging from TSMC's performance. And the reason for lot

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<v Speaker 1>is not necessarily a global demand is not good, but

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<v Speaker 1>it's more like TSMC is being more prudent about its

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<v Speaker 1>profitability and then maybe the speed that it is buying

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<v Speaker 1>the most cutting edge machines. So yes, SMOs are earnings

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<v Speaker 1>is coming up. So I think it will be interesting

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<v Speaker 1>to see what the two companies say about the demand

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<v Speaker 1>for the most cutting edge chips.

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<v Speaker 2>Before I let you go, Debbie, give me a sense

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<v Speaker 2>of how TSMC fits into the economy of Taiwan.

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<v Speaker 1>So TSMC is Taiwan's largest company by market cap, and

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<v Speaker 1>it is sort of leading this comprehensive chip making ecosystem

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<v Speaker 1>in Taiwan. Hundreds of companies in Taiwan are they exist

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<v Speaker 1>to support TSMC and other smaller chip makers in Taiwan.

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<v Speaker 1>So Taiwan's colony is really heavily dependent on the chip

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<v Speaker 1>exports and this ecosystem. They really are sort of have

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<v Speaker 1>TSMC sitting the center.

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<v Speaker 2>Debbie will leave it there. Thank you so very much.

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<v Speaker 2>Bloomberg's Wi Wu, who is team leader for North Asia Tech,

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<v Speaker 2>joining us on the Daybreak Asia podcast. Welcome back to

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<v Speaker 2>the Daybreak Asia Podcast. I'm Doug Chrisner. There certainly has

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<v Speaker 2>been a lot of talk in the US around a

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<v Speaker 2>bubble in tech stocks, especially those exposed to the ai trade.

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<v Speaker 2>Even the Bank of England is worried about stretched valuations

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<v Speaker 2>and the risk of a sharp correction in US equities

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<v Speaker 2>in the States. We heard from Michael Sheldon, he is

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<v Speaker 2>senior portfolio manager at Washington Trust Advisors.

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<v Speaker 3>Evaluation in the market is historically on the high side,

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<v Speaker 3>but if you take out the MAC seven stocks, for example,

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<v Speaker 3>things are a little more even so. For example, the

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<v Speaker 3>S and P five hundred is currently trading at about

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<v Speaker 3>twenty two point eight times, but the average stock in

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<v Speaker 3>the market is trading at about seventeen point three times.

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<v Speaker 2>Michael Sheldon there from Washing and Trust Advisors for a

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<v Speaker 2>closer look. I'm joined now by Charles Lieberman. He is

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<v Speaker 2>co founder and chief investment officer at Advisor's Capital Management. Chuck,

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<v Speaker 2>thank you so much for making time. Where do you

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<v Speaker 2>come down in this debate about valuations in US equities.

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<v Speaker 4>I think they're just trying to discourage the government, the

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<v Speaker 4>US government from intervening or trying to continue to push

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<v Speaker 4>pale in a particular direction. The fact of the matter is,

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<v Speaker 4>if that is independent, they behave that way. They do

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<v Speaker 4>what they think is right for the most part, and

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<v Speaker 4>I think that's going to continue to be the case

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<v Speaker 4>with regard to valuation. One weakness that the Bank of

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<v Speaker 4>England has is that its companies are not among the

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<v Speaker 4>mag seven. Those companies are really almost unique in Vidia

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<v Speaker 4>for trillion dollar market cap but growing it well in

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<v Speaker 4>excess of fifty percent a year, which is just astonishing.

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<v Speaker 4>So it deserves to trade at a very high multiple.

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<v Speaker 4>The right multiple is hard to discern, and two different

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<v Speaker 4>people can look at it. One can say it's expensive

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<v Speaker 4>and another can say it's cheap. But it really depends

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<v Speaker 4>on how quickly and video continues to grow over the

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<v Speaker 4>next three to five years, and obviously we don't know that.

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<v Speaker 2>So record today for the S and P, for the

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<v Speaker 2>Nasdaq comp and the Nasdaq one hundred and gold rising

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<v Speaker 2>to another record. We're trading about four thousand dollars an ounce,

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<v Speaker 2>a big milestone. There's been a three year bull run

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<v Speaker 2>in gold. Some skeptics have kind of been looking at

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<v Speaker 2>this and shrugging, Are you one of them?

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<v Speaker 4>Well, I think gold is being driven by a couple

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<v Speaker 4>of things, one of which is, oddly enough, the behavior

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<v Speaker 4>of China. China had a huge amount of money invested

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<v Speaker 4>in it's foreign exchange reserves in US treasuries, and after

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<v Speaker 4>the US sort of attack or expropriated Russias for an

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<v Speaker 4>exchange reserves. China does not want to be in the

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<v Speaker 4>same position if something if there were a conflict between

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<v Speaker 4>China and the United States, and there could be over Taiwan.

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<v Speaker 4>So China has been systematically reducing its holdings of US

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<v Speaker 4>treasuries and it's got to go somewhere else. The question

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<v Speaker 4>is where else can it go? There aren't too many options.

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<v Speaker 4>Gold is one of the few, and so they've been

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<v Speaker 4>consistently buying gold, and that presents a very strong tailwind

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<v Speaker 4>for gold prices. And then, of course the environment in

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<v Speaker 4>general is very positive for financial assets and that helps

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<v Speaker 4>gold as well.

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<v Speaker 2>It's great that you bring up that point because in

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<v Speaker 2>terms of financial assets, we had the minutes from the

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<v Speaker 2>last FED meeting. Today they show a willingness to lower

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<v Speaker 2>rates further this year. And back in September after the

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<v Speaker 2>last meeting, we learned that generally speaking, the FED expects

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<v Speaker 2>two more quarter point cuts by the end of the year.

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<v Speaker 2>The other thing that becomes very clear and looking at

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<v Speaker 2>these minutes, many at the FED are very cautious about

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<v Speaker 2>where inflation may be headed. And let's talk about the

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<v Speaker 2>possibility that there is a little bit of asset inflation

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<v Speaker 2>happening right now. We talked about the AI trade, we

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<v Speaker 2>talked about what the Bank of England had to say.

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<v Speaker 2>We also talked just a moment ago about what's going

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<v Speaker 2>on with gold. Is there the possibility that we are

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<v Speaker 2>seeing evidence of inflation reflected in asset prices.

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<v Speaker 4>That is definitely a possibility. But also consider that if

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<v Speaker 4>interest rates remain relatively low, and I think of them

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<v Speaker 4>as low, with the possibility that the FED could cut

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<v Speaker 4>a bit more. And then you throw in the fact

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<v Speaker 4>that the US economy continues to grow at a pretty

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<v Speaker 4>good clip, Corporate earnings are doing very well. We should

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<v Speaker 4>start getting the next quarters round of earnings reports beginning

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<v Speaker 4>next week, and I think that's going to get and

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<v Speaker 4>be good news for the market. So when you put

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<v Speaker 4>all of that together, there is every reason for stock

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<v Speaker 4>prices to perform quite well. And so we remain positive

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<v Speaker 4>on the outlook for the US markets.

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<v Speaker 2>So we know that the economic data from the government

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<v Speaker 2>has been essentially non existent given the shutdown. How are

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<v Speaker 2>you going about reading what's been happening in the macro

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<v Speaker 2>without having access to what the government provides.

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<v Speaker 4>Well, there are some numbers that you get outside of

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<v Speaker 4>the government, there are various private sources that produce numbers,

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<v Speaker 4>so that's available, and then we will get a lot

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<v Speaker 4>of insight from listening to corporate leaders that when they

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<v Speaker 4>do their earnings releases and talk about what they're seeing

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<v Speaker 4>in their businesses. You sort of get a steady flow

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<v Speaker 4>of that anyway through interviews people like you talking to

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<v Speaker 4>the leaders of various companies. So you just have to

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<v Speaker 4>pay more attention to that kind of information.

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<v Speaker 2>When you look at what the government had to say

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<v Speaker 2>today in terms of the budget deficit one point eight

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<v Speaker 2>trillion for fiscal twenty twenty five, little changed from twenty four,

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<v Speaker 2>even though the Trump administration has been touting this big

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<v Speaker 2>surge in tariff revenues. Is the fact that we're at

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<v Speaker 2>one point eight trillion dollars now in the budget deficit

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<v Speaker 2>of a concern to you.

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<v Speaker 4>Absolutely. The budget deficit is running at a pace that

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<v Speaker 4>any outside any objective observer would say is unsupportable and

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<v Speaker 4>cannot be continued. The problem with my statement is that

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<v Speaker 4>there's no time associated with it. The market at some

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<v Speaker 4>point will gag on the volume of treasury debt that

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<v Speaker 4>has to be issued to finance the government, but that

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<v Speaker 4>gagging may not occur in twenty twenty five. In fact,

0:14:53.760 --> 0:14:56.440
<v Speaker 4>it's unlikely to occur in twenty five. I would say

0:14:56.480 --> 0:15:01.080
<v Speaker 4>it's unlikely in twenty six, twenty seven. Somewhere out there

0:15:01.480 --> 0:15:05.720
<v Speaker 4>the market will be unable to absorb all of that debt.

0:15:05.880 --> 0:15:08.560
<v Speaker 4>But it's not on the visible horizon as of yet,

0:15:08.640 --> 0:15:13.520
<v Speaker 4>so it's better to address the problem early. You know,

0:15:13.560 --> 0:15:16.800
<v Speaker 4>there's this old expression, A stitch in time saves nine.

0:15:17.600 --> 0:15:20.720
<v Speaker 4>Much better to address it now than five or ten

0:15:20.800 --> 0:15:24.360
<v Speaker 4>years from now, but eventually it's got to be addressed.

0:15:24.920 --> 0:15:27.520
<v Speaker 2>I want to turn our attention quickly to what's going

0:15:27.560 --> 0:15:30.160
<v Speaker 2>on in Japan. The country's on the verge of electing

0:15:30.160 --> 0:15:34.840
<v Speaker 2>its first female prime minister, so now a Takeiichi may

0:15:34.880 --> 0:15:38.440
<v Speaker 2>be able to kind of move a lot of policy

0:15:38.480 --> 0:15:41.520
<v Speaker 2>forward in terms of trying to stimulate the economy at

0:15:41.520 --> 0:15:44.520
<v Speaker 2>a time when the Bank of Japan is trying to

0:15:44.720 --> 0:15:47.360
<v Speaker 2>deal with an inflation rate that's been above target now

0:15:47.360 --> 0:15:51.760
<v Speaker 2>for over three years, and before the election of Takeiichi

0:15:51.880 --> 0:15:55.240
<v Speaker 2>is head of the LDP, the expectation was that the

0:15:55.280 --> 0:15:58.600
<v Speaker 2>boj would be raising interest rates this month. Is that

0:15:58.800 --> 0:15:59.880
<v Speaker 2>still your expectation.

0:16:01.960 --> 0:16:07.240
<v Speaker 4>Yeah, that's likely, but obviously less likely there's no doubt

0:16:07.240 --> 0:16:11.720
<v Speaker 4>that she would like to stimulate the Japanese economy. In

0:16:11.760 --> 0:16:14.440
<v Speaker 4>one area that she may be spending more money on

0:16:14.560 --> 0:16:19.760
<v Speaker 4>is defense. So there's some reasons to expect some more spending.

0:16:20.680 --> 0:16:23.920
<v Speaker 4>But the BOJ has its own areas of responsibility and

0:16:23.960 --> 0:16:27.200
<v Speaker 4>focusing on inflation is clearly one of them. And then

0:16:27.240 --> 0:16:30.520
<v Speaker 4>there are other issues that Japan has. The population is aging,

0:16:30.880 --> 0:16:35.080
<v Speaker 4>the labor force is shrinking. Those are also constraints, and

0:16:35.160 --> 0:16:36.560
<v Speaker 4>it's a lot to juggle.

0:16:36.920 --> 0:16:38.960
<v Speaker 2>Before I let you go, Chuck, can you give me

0:16:39.000 --> 0:16:41.840
<v Speaker 2>a sense of where you're finding opportunity in markets these days?

0:16:43.840 --> 0:16:47.840
<v Speaker 4>Well, Golden, back to the US market, if you exclude

0:16:47.920 --> 0:16:53.400
<v Speaker 4>the mag seven or the top ten, the average p

0:16:53.720 --> 0:16:56.920
<v Speaker 4>multiple in the market is much lower. It's at least

0:16:56.920 --> 0:17:02.080
<v Speaker 4>three percentage points lower. And then the whole industries, where

0:17:02.160 --> 0:17:06.439
<v Speaker 4>very good companies traded multiples of ten to twelve. The

0:17:06.480 --> 0:17:09.800
<v Speaker 4>banking sector is a perfect example, and I'm very positive

0:17:09.840 --> 0:17:13.600
<v Speaker 4>there because the administration is likely to be a lot

0:17:13.640 --> 0:17:17.880
<v Speaker 4>more favorable or to permit more bank mergers. We saw

0:17:17.920 --> 0:17:21.159
<v Speaker 4>a big one announced less than a week ago, so

0:17:21.200 --> 0:17:23.720
<v Speaker 4>I think more of that is coming, and I really

0:17:23.800 --> 0:17:27.960
<v Speaker 4>like the banking sector. The energy sector is another area

0:17:28.000 --> 0:17:32.040
<v Speaker 4>that I think is relatively cheap, especially the pipelines, where

0:17:32.080 --> 0:17:36.560
<v Speaker 4>you're taking less commodity risk and just basing the earnings

0:17:36.600 --> 0:17:40.560
<v Speaker 4>outlook on volumes. That's going to continue to be positive.

0:17:41.720 --> 0:17:45.679
<v Speaker 4>The healthcare sector has gotten quite cheap. It's been a

0:17:45.800 --> 0:17:48.840
<v Speaker 4>laggard in terms of its performance, so I think there

0:17:48.840 --> 0:17:52.160
<v Speaker 4>are a lot of opportunities there. There's an old joke

0:17:52.320 --> 0:17:53.640
<v Speaker 4>you can find a lot if you look.

0:17:54.160 --> 0:17:56.359
<v Speaker 2>Okay, we'll leave it there, Chuck, It's always a pleasure.

0:17:56.400 --> 0:17:59.680
<v Speaker 2>Thanks so much. Charles Lieberman, co founder and chief investment

0:17:59.680 --> 0:18:02.960
<v Speaker 2>office at Advisors Capital Management, joining us here on the

0:18:03.000 --> 0:18:07.960
<v Speaker 2>Daybreak Asia Podcast. Thanks for listening to today's episode of

0:18:08.000 --> 0:18:12.120
<v Speaker 2>the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look

0:18:12.119 --> 0:18:15.919
<v Speaker 2>at the story shaping markets, finance, and geopolitics in the

0:18:15.960 --> 0:18:19.240
<v Speaker 2>Asia Pacific. You can find us on Apple, Spotify, the

0:18:19.240 --> 0:18:23.280
<v Speaker 2>Bloomberg Podcast YouTube channel, or anywhere else you listen. Join

0:18:23.359 --> 0:18:26.359
<v Speaker 2>us again tomorrow for insight on the market moves from

0:18:26.359 --> 0:18:30.840
<v Speaker 2>Hong Kong to Singapore and Australia. I'm Doug Risner, and

0:18:30.960 --> 0:18:32.119
<v Speaker 2>this is Bloomberg