WEBVTT - US Launches Probe on Potential DeepSeek-Nvidia Link 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:11.119 --> 0:00:14.400 Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner. 0:00:14.720 --> 0:00:17.040 On today's episode, we'll be taking a look at the 0:00:17.079 --> 0:00:20.000 global macro landscape. In a moment, we'll be chatting with 0:00:20.120 --> 0:00:24.400 David Spell, co CIO at Mount Lucas Management. Plus a 0:00:24.480 --> 0:00:27.360 discussion on the fed's path ahead with Bill Adams. He 0:00:27.440 --> 0:00:30.560 is the chief economist at Comerica Bank. But we begin 0:00:30.640 --> 0:00:34.239 in Tokyo. Joining us now is Katherine Thorbeck. She is 0:00:34.400 --> 0:00:38.479 Asia tech columnist for Bloomberg Opinion. She's been very busy 0:00:38.520 --> 0:00:41.560 this week writing about the story on a Deep Seek, 0:00:41.920 --> 0:00:45.160 the Chinese AI startup. Catherine, thank you for making time 0:00:45.159 --> 0:00:46.800 to chat with us. I know it's been a busy 0:00:46.800 --> 0:00:49.320 week for you. What I want to begin with the 0:00:49.440 --> 0:00:52.760 story that just broke late in the day US time. 0:00:53.000 --> 0:00:58.960 American officials are investigating whether Deep Seek essentially circumvented restrictions 0:00:59.040 --> 0:01:03.520 on advanced semiconductors from Nvidia. Now we know that the 0:01:03.520 --> 0:01:07.000 Biden administration cut off China's access to a range of 0:01:07.040 --> 0:01:11.399 some of Nvidia's most powerful products. Now Sands seemed to 0:01:11.400 --> 0:01:13.560 be shifting a little bit. Can you fill us in 0:01:13.560 --> 0:01:15.160 on what you understand the story to. 0:01:15.120 --> 0:01:18.679 Be, right. So this news just came out, as you mentioned, 0:01:19.360 --> 0:01:21.360 just a few hours ago, and I don't think it 0:01:21.400 --> 0:01:24.320 really caught anybody by surprise that the US would launch 0:01:24.319 --> 0:01:27.640 a probe into, you know, what sort of chips Deep 0:01:27.680 --> 0:01:29.560 Seek was using to train its models and whether it 0:01:29.640 --> 0:01:33.480 was able to circumvent export controls. And it's too soon 0:01:33.560 --> 0:01:37.160 to sort of know the outcome of that investigation, but honestly, 0:01:37.200 --> 0:01:39.960 it wouldn't entirely surprise me if they were able to 0:01:40.000 --> 0:01:42.280 get their hands on some Nvidia chips, some of the 0:01:42.319 --> 0:01:44.640 more advanced chips that have been cut off to China. 0:01:45.360 --> 0:01:49.440 You know, these export controls have proven pretty porous in 0:01:49.480 --> 0:01:53.280 a number of instances. That said, we don't know at 0:01:53.280 --> 0:01:57.240 this point in time, and deep seek has it is 0:01:57.280 --> 0:01:59.200 out there that Deep Seek was hoarding some of the 0:01:59.240 --> 0:02:02.280 older in video chips before these export controls came in, 0:02:02.320 --> 0:02:04.120 and whether they were able to get their hands on 0:02:04.120 --> 0:02:06.520 the more advanced models, that's sort of the question now. 0:02:07.760 --> 0:02:09.280 And I think a lot of people in the US, 0:02:09.320 --> 0:02:12.240 you know, are just very curious how they were able 0:02:12.240 --> 0:02:15.119 to create these AI models with the technology that they had. 0:02:15.200 --> 0:02:18.200 So it makes sense that the US would launch this investigation. Now, 0:02:18.600 --> 0:02:20.840 it wouldn't entirely surprise me if they were able to 0:02:20.880 --> 0:02:23.760 obtain some of these more advanced chips. I'm not sure 0:02:23.760 --> 0:02:26.839 that would necessarily change the narrative about how deep seak 0:02:26.880 --> 0:02:29.560 has sort of upended big tech and BAI race. Right now, 0:02:29.560 --> 0:02:32.040 I still think that they were able to prove that they, 0:02:32.520 --> 0:02:34.880 you know, are able to come up with AI breakthroughs 0:02:35.200 --> 0:02:37.600 despite all of these restrictions, and I think that that 0:02:37.800 --> 0:02:41.040 still is very much top of mind for big tech 0:02:41.120 --> 0:02:41.520 right now. 0:02:41.600 --> 0:02:44.880 So our reporting indicates when it comes to the chip story, 0:02:44.919 --> 0:02:47.840 that American officials are looking at whether they were acquired 0:02:48.120 --> 0:02:50.920 these Nvidia chips through a third party or a third 0:02:50.960 --> 0:02:54.400 parties plural in Singapore. But there are a number of 0:02:54.480 --> 0:02:58.760 other investigations going on in regards to deep seek, and 0:02:58.800 --> 0:03:02.200 that would include Microsoft often open Ai looking at whether 0:03:02.240 --> 0:03:05.960 open aiyes model was somehow used in training deep seek. 0:03:06.080 --> 0:03:10.359 Is that right, that's correct? And so right now Microsoft 0:03:10.400 --> 0:03:14.280 is probing whether deep seek used outputs from open AI's 0:03:14.360 --> 0:03:17.240 models to train their own model, which would technically be 0:03:17.400 --> 0:03:19.799 a breach of the terms of service for open using 0:03:19.840 --> 0:03:23.320 open AI's models. But to me, this this really reeked 0:03:23.360 --> 0:03:25.840 of a lot of irony. You know, open ai has 0:03:25.880 --> 0:03:29.080 trained its models by basically scraping writing and art from 0:03:29.120 --> 0:03:33.359 the entire internet, you know, without really getting meaningful consent 0:03:33.440 --> 0:03:36.280 from artists and writers to do that. So it did 0:03:36.320 --> 0:03:37.880 seem a little bit odd and it has rubbed a 0:03:37.880 --> 0:03:39.440 lot of people sort of the wrong way. A lot 0:03:39.440 --> 0:03:41.640 of jokes have been made about Oh now open a 0:03:41.920 --> 0:03:44.600 open ai all the sudden cares about, you know, intellectual 0:03:44.640 --> 0:03:48.560 property rights. You know, whether deep Seak obtained this data 0:03:48.560 --> 0:03:51.360 improperly or not is still sort of the subject of investigation. 0:03:51.440 --> 0:03:53.360 But I think it does put open ai in a 0:03:53.400 --> 0:03:55.240 little bit of an awkward spot right now. 0:03:55.480 --> 0:03:57.920 So what does the deep Seek story tell us or 0:03:58.680 --> 0:04:02.400 allow us to understand about the evolution of the AI 0:04:02.560 --> 0:04:03.640 industry in China? 0:04:04.400 --> 0:04:07.120 Right So, I think deep seek really caught the West 0:04:07.160 --> 0:04:10.040 by surprise when it released its most recent model on 0:04:10.080 --> 0:04:13.560 January twentieth, And I don't think it necessarily had to 0:04:13.600 --> 0:04:16.640 catch so many people entirely off guard, and you know, 0:04:16.880 --> 0:04:21.000 caused this multi billion dollar stock market sort of route, 0:04:21.720 --> 0:04:23.760 and some of those losses have been paired back over 0:04:23.880 --> 0:04:26.600 over the week. But you know, I first wrote about 0:04:26.600 --> 0:04:28.839 deep Seek back in June more than six months ago 0:04:28.880 --> 0:04:31.440 when it released its V two model, one of its 0:04:31.480 --> 0:04:34.520 earlier AI models, and I was just saying that this 0:04:34.640 --> 0:04:36.960 is actually a very impressive AI model. You know, for 0:04:37.000 --> 0:04:40.160 a long time, the West and Silicon Valley has sort 0:04:40.200 --> 0:04:43.320 of claimed dominance in the AI race, and they've thought 0:04:43.320 --> 0:04:46.640 there were years ahead of China, and I think policymakers 0:04:46.640 --> 0:04:48.760 in Washington have thought, you know, the export controls, the 0:04:49.240 --> 0:04:53.359 restrictions on chips that they've been putting towards China that 0:04:53.400 --> 0:04:56.160 would really hold China back, and Deep Seek really up 0:04:56.240 --> 0:04:59.080 ended that narrative. You know, they showed that Chinese AI, 0:04:59.520 --> 0:05:02.080 Chinese AI startups are actually really able to innovate and 0:05:02.120 --> 0:05:04.200 are able to do it at a fraction of the 0:05:04.240 --> 0:05:07.680 cost that these Silicon Valley tech giants have been doing. 0:05:08.120 --> 0:05:10.400 So it really sort of I think people were really 0:05:10.400 --> 0:05:12.640 really impressed by this R one model that they put 0:05:12.680 --> 0:05:17.120 out on January twentieth, And this R one model, it 0:05:17.160 --> 0:05:20.240 can really it's a reasoning model, so it can really 0:05:20.320 --> 0:05:22.760 sort of think through questions the way you know a 0:05:22.839 --> 0:05:26.640 human would think through questions. It's been on par with 0:05:26.839 --> 0:05:29.960 you know, open AIS models on a number of industry benchmarks, 0:05:31.000 --> 0:05:34.039 and it really I think, you know, caught the sort 0:05:34.040 --> 0:05:36.760 of tech billionaires in the US, some of these very 0:05:36.760 --> 0:05:39.040 powerful companies totally off guard this week. 0:05:39.200 --> 0:05:42.279 To what extent do you believe there is an entrenched 0:05:42.360 --> 0:05:46.400 bias that China doesn't innovate, that it merely copies. 0:05:47.000 --> 0:05:49.200 So I think we've seen this narrative for a while, 0:05:49.480 --> 0:05:52.839 and I think that there's a number of reasons why 0:05:52.880 --> 0:05:54.680 this comes up over and over again and why we're 0:05:54.680 --> 0:05:59.279 continually shocked by China's tech breakthroughs. And you know, some 0:05:59.360 --> 0:06:01.480 of these, I think, you know, a language barrier, separate 0:06:01.520 --> 0:06:04.920 social media ecosystems, and sort of a shrinking number of 0:06:04.920 --> 0:06:07.800 foreign reporters actually in China give the US very little 0:06:07.880 --> 0:06:10.960 visibility into some of the more exciting sort of developments 0:06:11.000 --> 0:06:14.280 in China's tech sector right now. And I also think 0:06:14.400 --> 0:06:17.040 that there's sort of an insular mindset in the US 0:06:17.160 --> 0:06:20.120 that you know, Silicon Valley and sort of these the 0:06:20.240 --> 0:06:22.640 Silicon Valley leaders, a lot of them seem to think 0:06:22.680 --> 0:06:24.240 that they're the only ones who can really lead the 0:06:24.320 --> 0:06:27.240 charge here, and I think it leaves huge blind spots 0:06:27.279 --> 0:06:29.240 to what's going on in China. A lot of sort 0:06:29.240 --> 0:06:30.720 of the coverage of China that we read in the 0:06:30.800 --> 0:06:34.120 US is very focused on geopolitical rivalries and a lot 0:06:34.160 --> 0:06:36.880 of you know, voices in Washington see any sort of 0:06:36.880 --> 0:06:38.840 tech breakthroughs in China as you know, a threat to 0:06:38.880 --> 0:06:42.400 democracy everywhere. And whether or not that's true, I think 0:06:42.440 --> 0:06:45.359 it does create these big blind spots to some of 0:06:45.360 --> 0:06:48.159 the sort of actual people working in China, and you know, 0:06:48.200 --> 0:06:50.200 the more than one billion people that live there and 0:06:50.240 --> 0:06:52.200 a lot of times are innovating and sort of driving 0:06:52.240 --> 0:06:55.800 tech forward despite their government and not because of it. 0:06:56.320 --> 0:06:58.359 I know, the TikTok story is something that you and 0:06:58.440 --> 0:07:02.320 I have discussed in the past, and the proprietary nature 0:07:02.360 --> 0:07:05.560 of that algorithm something that Chinese would like to protect. 0:07:06.040 --> 0:07:09.479 I found it curious that in the case of deep Seek, 0:07:10.160 --> 0:07:14.440 the developers opted for kind of an open system. Did 0:07:14.440 --> 0:07:15.960 that surprise you at all? 0:07:16.800 --> 0:07:19.440 It didn't entirely surprise me. I think that they were 0:07:19.480 --> 0:07:21.680 sort of working with what they've got, and you know, 0:07:21.760 --> 0:07:25.480 open source models you can sort of tweak and a 0:07:25.480 --> 0:07:27.040 lot of people can work on them at once, and 0:07:27.080 --> 0:07:30.120 you can sort of they're they're a little bit cheaper 0:07:30.160 --> 0:07:32.800 to run than sort of what open ai is doing, 0:07:32.800 --> 0:07:36.239 which is just training bigger and bigger and bigger proprietary models, 0:07:36.520 --> 0:07:38.520 So it didn't totally surprise me that they did this. 0:07:40.080 --> 0:07:42.440 I think it does sort of raise larger questions of 0:07:43.080 --> 0:07:45.480 sort of the future direction of the AI sector and 0:07:45.520 --> 0:07:48.520 whether it will be you know, dominated by these like 0:07:48.600 --> 0:07:52.320 smaller startups that are really perfecting and tweaking these open 0:07:52.320 --> 0:07:56.200 source models, or whether sort of the open AI route, 0:07:56.200 --> 0:07:58.120 which is just you know, creating bigger and bigger and 0:07:58.160 --> 0:08:01.600 bigger models and spending more and building out these models, 0:08:02.040 --> 0:08:04.480 whether that will sort of prove superior and we'll have 0:08:04.520 --> 0:08:06.240 to see how it does play out in the long run. 0:08:06.520 --> 0:08:08.800 So we were talking a moment ago about open ai, 0:08:08.960 --> 0:08:12.040 and you reference the fact that open ai essentially was 0:08:12.080 --> 0:08:15.920 trained using the US intranet, and I'm wondering, from the 0:08:15.960 --> 0:08:19.280 point of view of deep seek, do we know much 0:08:19.400 --> 0:08:21.640 about how this model was trained at all? 0:08:22.240 --> 0:08:25.080 So I think it's interesting. I think when it comes 0:08:25.080 --> 0:08:27.720 to deep Seek. One of the big issues that sort 0:08:27.760 --> 0:08:30.400 of as the swarm of American and international users have 0:08:30.480 --> 0:08:33.840 discovered as they've logged on and you know, downloaded this 0:08:33.880 --> 0:08:35.640 app and it's you know, shot up to the top 0:08:35.679 --> 0:08:38.040 of Apple's app store this week. One of the things 0:08:38.040 --> 0:08:41.480 that they've discovered, is you know what's off limits behind 0:08:41.600 --> 0:08:44.439 China's Great Firewall and whether that's you know, talking about Shijinping, 0:08:44.600 --> 0:08:48.960 talking about China's human rights record in Shinjong, where you know, 0:08:49.240 --> 0:08:53.079 there have been documented human rights abuses of weager Muslim minorities, 0:08:53.559 --> 0:08:56.120 and right now, when you chat with deep seek about that, 0:08:56.320 --> 0:08:59.120 you know it'll initially say, let's change the subject, let's 0:08:59.160 --> 0:09:02.360 talk about something else. There are sort of workarounds that 0:09:02.440 --> 0:09:04.320 I was able to play around with this week where 0:09:04.360 --> 0:09:08.000 I did get it to say and sort of encode. 0:09:08.240 --> 0:09:11.360 You know that Xi Jinping has faced international criticism for 0:09:11.400 --> 0:09:14.720 his treatment of Hong Kong protesters and political dissidents. So 0:09:14.760 --> 0:09:17.600 it does show that deep Seek was trained on data 0:09:17.679 --> 0:09:20.200 beyond the Great Firewall, and I'm sure that's going to 0:09:20.200 --> 0:09:23.040 cause a headache for deep Seek. You know, I don't 0:09:23.040 --> 0:09:25.080 think Chinese authorities are going to crack down on this 0:09:25.160 --> 0:09:28.319 tool that you know has brought such a positive international 0:09:28.400 --> 0:09:32.520 spotlight to its tech sector and tech capabilities. But what 0:09:32.600 --> 0:09:34.880 I do think that this all shows is that there's 0:09:34.920 --> 0:09:37.720 a lot more at stake in this global race for 0:09:37.800 --> 0:09:40.439 AI dominance between the US and China. You know, as 0:09:40.440 --> 0:09:43.440 more people turn to these tools for research, for homework help. 0:09:44.000 --> 0:09:46.679 They could also be used to sort of covertly influence 0:09:47.000 --> 0:09:50.640 our ideas and influence our ideologies, whether that's from Beijing 0:09:50.840 --> 0:09:53.040 or from the US. So I think that, you know, 0:09:53.120 --> 0:09:55.360 there's obviously a lot of money in stock market value 0:09:55.360 --> 0:09:58.280 at stake here, but these tools are also very powerful 0:09:58.320 --> 0:10:01.040 and they have the power to really influence people. And 0:10:01.080 --> 0:10:02.480 I think that that we're going to see more of 0:10:02.480 --> 0:10:04.680 that sort of play now in the long run. 0:10:04.880 --> 0:10:07.480 Catherine will leave it there always a pleasure. Katherine Thorbeck, 0:10:07.600 --> 0:10:11.360 Asia tech columnist for Bloomberg Opinion, joining us here on 0:10:11.400 --> 0:10:22.600 the Daybreak Asia podcast. Welcome back to the Daybreak Asia Podcast. 0:10:22.640 --> 0:10:25.880 I'm Doug Chrisner. There was certainly volatility in the currency 0:10:25.920 --> 0:10:29.000 markets in late New York trading today and the catalyst 0:10:29.080 --> 0:10:32.199 was President Trump. He said that he will follow through 0:10:32.320 --> 0:10:34.920 on his threat to impose twenty five percent tariffs on 0:10:35.040 --> 0:10:39.080 imports from Canada and Mexico this Saturday. For a closer 0:10:39.120 --> 0:10:42.400 look now at how these tariffs might affect the macro outlook, 0:10:42.760 --> 0:10:45.520 I'm joined by David Aspell. He is partner also co 0:10:45.640 --> 0:10:50.439 CIO at Mount Lucas Management, joining us from just outside Philadelphia. 0:10:50.960 --> 0:10:52.800 Thank you for making time to chat with us. David, 0:10:52.840 --> 0:10:55.480 do you have a sense of what the tariff threat 0:10:55.559 --> 0:10:58.439 may mean to global markets generally speaking? 0:10:59.240 --> 0:11:01.360 I mean, there's a lot of uncertainty, doesn't it. 0:11:01.360 --> 0:11:04.240 You know, we've got a new administration that's just come 0:11:04.280 --> 0:11:07.720 in that you know, it's clearly sees volatility as a feature, 0:11:07.880 --> 0:11:11.079 not a bug. And you know they're using tariffs, amongst 0:11:11.080 --> 0:11:16.080 other things, for negotiating leverage to try and push through 0:11:16.120 --> 0:11:20.520 some pretty large macro policy goals. And these policy goals 0:11:20.600 --> 0:11:24.800 run directly through currency markets, through bond yields, and they're 0:11:24.800 --> 0:11:26.800 going to have large impacts on economies everywhere. 0:11:26.840 --> 0:11:28.480 It's going to be a fascinating four years. 0:11:28.480 --> 0:11:31.359 I think, yeah, definitely, the dollar has been a big beneficiary. 0:11:31.600 --> 0:11:33.880 We can talk about FED policy in a moment. But 0:11:33.960 --> 0:11:37.240 do you expect the dollar to remain very strong here 0:11:37.280 --> 0:11:38.120 against the matures? 0:11:38.960 --> 0:11:40.600 I think it's hard to say. 0:11:40.679 --> 0:11:42.400 I think what's going on is that, you know, we've 0:11:42.400 --> 0:11:45.320 gone through a period of US exceptionalism over the past 0:11:45.840 --> 0:11:50.240 few years, where the US economy has been stronger than others, 0:11:50.480 --> 0:11:53.440 and so that's why you've seen it particularly against Japan 0:11:53.600 --> 0:11:56.319 or against the Euro. You know, the euro has been 0:11:56.440 --> 0:11:58.160 weak because the European economy has been weak. 0:11:58.160 --> 0:12:00.520 It's the same with the UK. And if you think 0:12:00.559 --> 0:12:01.200 why that. 0:12:01.200 --> 0:12:04.040 Is, it's because the US has had has higher rates 0:12:04.080 --> 0:12:07.560 currently and it can survive higher rates because it's got 0:12:07.600 --> 0:12:11.360 a slightly different type of economy where mortgage rates don't 0:12:11.360 --> 0:12:13.600 feed through in quite the same way. And now you've 0:12:13.600 --> 0:12:17.600 got an administration that seems like it's unleashing some animal spirits. 0:12:17.640 --> 0:12:19.760 So as long as that continues and the US does 0:12:19.800 --> 0:12:22.600 better than others, then yeah, I think the US dollar 0:12:22.679 --> 0:12:24.800 can stay can stay fairly well bid. 0:12:25.000 --> 0:12:27.240 There's been some debate in Washington as whether or not 0:12:27.320 --> 0:12:30.160 these policies regarding tariffs are inflationary. Do you have a 0:12:30.240 --> 0:12:30.640 view on that. 0:12:31.240 --> 0:12:32.240 I don't think they are. 0:12:32.880 --> 0:12:34.880 I think they might be for a short period of 0:12:34.960 --> 0:12:37.280 time as a macro trader, and how I look at inflation, 0:12:37.400 --> 0:12:40.000 how I think the FED looks at inflation is maybe 0:12:40.000 --> 0:12:42.200 a little different to how people on main street see it. 0:12:43.120 --> 0:12:45.600 What inflation to me is. 0:12:45.120 --> 0:12:48.480 Is an ongoing process of higher prices for a period 0:12:48.520 --> 0:12:50.400 of time, whereas tariffs to me are a one off 0:12:50.440 --> 0:12:53.199 price shock. Now it could be that they get embedded, 0:12:53.240 --> 0:12:55.480 particularly at a time when people are nervous about inflation, 0:12:55.880 --> 0:12:59.960 but I think that the negatives of inflation will take 0:13:00.240 --> 0:13:02.720 you know, as they slow down the economy in some places, 0:13:03.000 --> 0:13:05.440 if people are nervous about them, will take the edge 0:13:05.440 --> 0:13:07.640 off them. And I think generally if the inflation part 0:13:07.679 --> 0:13:10.679 of me seems quite well set over the next few years, 0:13:10.720 --> 0:13:11.800 partly because of housing. 0:13:12.200 --> 0:13:14.320 Just a few weeks ago, the debate in the bond 0:13:14.360 --> 0:13:16.240 market was whether or not we were going to see 0:13:16.280 --> 0:13:18.559 a five percent yield on the tenure. I'm looking at 0:13:18.559 --> 0:13:21.120 something now that's closer to four and a half percent. 0:13:21.400 --> 0:13:23.640 What's your view on yields going forward? 0:13:24.000 --> 0:13:27.400 Unless something goes very wry in inflation, which is possible 0:13:27.400 --> 0:13:28.199 but seems unlikely. 0:13:28.240 --> 0:13:30.679 I think we've seen the peak and yields. I think 0:13:30.760 --> 0:13:32.120 the economy can survive them. 0:13:32.160 --> 0:13:34.360 But I think you've got a FED that wants to 0:13:34.440 --> 0:13:37.199 reduce rates and is able to reduce rates over time. 0:13:37.679 --> 0:13:39.640 If you look at where the FED projections were at 0:13:39.679 --> 0:13:41.360 the end of the year, you know they thought that 0:13:41.360 --> 0:13:44.439 with a two point five percent core PC at the 0:13:44.559 --> 0:13:47.679 end of this year, they would have rates down at 0:13:47.720 --> 0:13:50.480 three point nine, which to me seems like they're making 0:13:50.600 --> 0:13:53.800 an easier bar to cut rates rather than a higher bar. 0:13:53.720 --> 0:13:55.560 So I think they offer good value. 0:13:55.760 --> 0:13:59.680 It seems that they're useful in a portfolio context currently 0:14:00.080 --> 0:14:02.160 because if the economy slows down, the FED is able 0:14:02.200 --> 0:14:03.360 to cut which I think. 0:14:03.280 --> 0:14:03.959 Is real helpful. 0:14:04.360 --> 0:14:06.840 In terms of the story across the Asia Pacific, it's 0:14:06.880 --> 0:14:10.840 mainly been about weak domestic demand in China and sluggishness 0:14:11.040 --> 0:14:13.760 in the industrial economy. Do you have a sense of 0:14:13.800 --> 0:14:16.320 what China is going through, where we are now in 0:14:16.360 --> 0:14:19.000 this cycle, and whether or not things are beginning to improve. 0:14:19.400 --> 0:14:19.600 Yeah. 0:14:19.640 --> 0:14:21.760 I think that that's been one of the major stories 0:14:21.800 --> 0:14:24.000 in the global economy over the past few years. The 0:14:24.040 --> 0:14:26.360 extent to which China has been slowing. They've clearly got 0:14:26.800 --> 0:14:30.600 a consumption problem. That their economy is incredibly unbalanced. They 0:14:30.720 --> 0:14:33.680 run very large surpluses and rely on other people to 0:14:33.760 --> 0:14:35.120 soak up those surpluses, and. 0:14:35.160 --> 0:14:37.440 The rest of the world has decided that rightly. 0:14:37.480 --> 0:14:39.360 I think that it's not going They're not willing to 0:14:39.400 --> 0:14:43.240 absorb those surpluses, which has led to some slow down 0:14:43.240 --> 0:14:47.960 in China. I think what they're doing is slowly they 0:14:48.000 --> 0:14:52.360 are trying to rebalance, and I thought that the stimulus 0:14:52.400 --> 0:14:56.720 policies they put in around rates and the other loosenings 0:14:56.720 --> 0:14:58.600 and the cleaning up a balance sheets. I thought they 0:14:58.600 --> 0:15:02.240 were quite powerful. Just about now starting to see those, 0:15:02.920 --> 0:15:04.880 to see those come to fruition. The data seems like 0:15:04.920 --> 0:15:07.359 it's starting to turn up. It seems like the stimulus 0:15:07.440 --> 0:15:08.840 was powerful around the consumer. 0:15:09.560 --> 0:15:10.920 It's just I worry that it's. 0:15:10.840 --> 0:15:15.040 Going to run into a buzzsaw of the new administration 0:15:15.120 --> 0:15:16.480 and tariffs, and I hope that we can get a 0:15:16.520 --> 0:15:21.000 deal done that rebalances their economy and means that we 0:15:21.040 --> 0:15:22.440 don't have to the rest of the world doesn't have 0:15:22.480 --> 0:15:25.400 to soak up their surpluses without too much collateral damage. 0:15:25.600 --> 0:15:29.760 I'm curious about whether you're finding any value across markets 0:15:29.760 --> 0:15:33.560 in Asia. Now, Chinese assets may be inexpensive on a 0:15:33.640 --> 0:15:36.480 relative basis, we can go there, but I'm also curious 0:15:36.480 --> 0:15:37.840 about what you're seeing in Japan. 0:15:38.880 --> 0:15:42.200 I would say that we generally do systematic trend following, 0:15:42.240 --> 0:15:44.600 So what we're doing is just following prices. If things 0:15:44.640 --> 0:15:47.440 are going up, we're along them. If things are going down, 0:15:47.480 --> 0:15:49.400 with short them, which means you know, we've been in 0:15:49.480 --> 0:15:51.600 the in the yen trade for a long period of time. 0:15:52.040 --> 0:15:54.440 We have been long dollars and short yeah, and that's 0:15:54.480 --> 0:15:56.320 been good. I think that trade can continue because of 0:15:56.360 --> 0:16:00.600 the interest rate differential. Alongside on the discretion side where 0:16:00.600 --> 0:16:03.720 we run macro strategies, I think the Chinese equity market 0:16:03.960 --> 0:16:05.400 is incredibly cheap. 0:16:05.240 --> 0:16:06.880 As long as it can do the things. 0:16:07.080 --> 0:16:09.440 It just needs to be able to do the rebalancing 0:16:09.720 --> 0:16:11.960 to get through this period and come to a trade 0:16:11.960 --> 0:16:15.600 agreement and operate in a much more normal way as 0:16:15.880 --> 0:16:20.520 something closer to a regular emerging market economy. If it 0:16:20.560 --> 0:16:22.920 can do that, then the equity market there is incredibly cheap. 0:16:23.120 --> 0:16:25.560 If it cannot do that, then I think we'll end 0:16:25.640 --> 0:16:27.440 up this will be another false down of which you've 0:16:27.440 --> 0:16:30.160 had a few over the past years. But I'm pretty 0:16:30.160 --> 0:16:32.680 hopeful that the new administration is able to do a 0:16:32.720 --> 0:16:35.800 trade deal and we see some brighter times ahead in Asia. 0:16:35.920 --> 0:16:38.320 David, we'll leave it there, Thanks so much. David Spell, 0:16:38.400 --> 0:16:42.120 partner co CIO at Mount Lucas Management, joining us here 0:16:42.160 --> 0:16:46.640 on the Daybreak Aasia podcast. So let's turn our attention 0:16:46.720 --> 0:16:49.920 now to the US economy. Today, we learn that economic 0:16:49.960 --> 0:16:53.000 growth expanded at a solid pace in the fourth quarter, 0:16:53.160 --> 0:16:57.840 albeit a little less than forecast. Fourth quarter GDP growing 0:16:57.880 --> 0:16:59.960 at a rate of two point three percent, and can 0:17:00.000 --> 0:17:03.720 consumer spending advancing at an annual rate of four point 0:17:03.760 --> 0:17:07.040 two percent. Let's take a closer look now with Bill Adams. 0:17:07.119 --> 0:17:10.040 He is the chief economist at Comerica Bank. Bill, thanks 0:17:10.040 --> 0:17:12.399 for making time to chat with us. Give me your 0:17:12.480 --> 0:17:15.159 overall impression of this GDP print. What do you think 0:17:15.240 --> 0:17:15.880 it tells us? 0:17:16.600 --> 0:17:20.480 So the headline was a slowdown, but the details were strong. 0:17:20.600 --> 0:17:23.640 If you look at my preferred measure of core real 0:17:23.680 --> 0:17:27.639 GDP that's real final sales to private domestic purchasers. That 0:17:27.800 --> 0:17:31.280 tracks GDP's trend by leaving out the effects of inventories, 0:17:31.359 --> 0:17:34.120 leaving out the effects of trade and government spending. That 0:17:34.160 --> 0:17:36.879 grew three point two percent annualized in the fourth quarter. 0:17:37.200 --> 0:17:41.679 So that's good news. The US economy is in good shape. 0:17:42.240 --> 0:17:45.320 Growth momentum is stronger than the headline in the fourth 0:17:45.400 --> 0:17:48.880 quarter and closer to the annual growth rate two point 0:17:48.920 --> 0:17:52.400 eight percent, which is excellent for the US economy. 0:17:52.560 --> 0:17:54.880 So at the same time, today we learned that weekly 0:17:54.960 --> 0:17:58.040 jobless claims came in well below estimates. And I'm wondering 0:17:58.080 --> 0:18:00.680 whether when you look at the claims day on top 0:18:00.720 --> 0:18:04.240 of the GDP data, you come away with a conclusion that, yeah, 0:18:04.280 --> 0:18:06.480 the Fed's going to be on hold for a bit longer. 0:18:06.960 --> 0:18:11.040 It sure looks like it. The labor market data in 0:18:11.280 --> 0:18:14.160 the second half of twenty twenty four, we're worrying the Fed. 0:18:15.240 --> 0:18:17.160 You'll recall that was when we were all talking about 0:18:17.160 --> 0:18:20.560 the Psalm rule, form of FED economist Claudia Sam's observation. 0:18:21.240 --> 0:18:23.520 When the three month moving average of the unemployment rate 0:18:23.600 --> 0:18:25.720 rises by half a percent or more from it's twelve 0:18:25.800 --> 0:18:29.720 month low, typically the economy has been in recession, and 0:18:29.800 --> 0:18:32.720 so that Psalm rule triggered, and I think that was 0:18:32.760 --> 0:18:34.800 one of the big contributors to why the Fed cut 0:18:34.840 --> 0:18:38.440 interest rates a full percentage point between September and December. 0:18:39.240 --> 0:18:42.399 But now we have this solid GDP growth data in hand, 0:18:42.600 --> 0:18:46.200 Labor market data like that claims data like the jobs 0:18:46.240 --> 0:18:50.560 report have stabilized, and that means that the FED is 0:18:50.640 --> 0:18:53.640 less worried about the economic outlook and they can they 0:18:53.640 --> 0:18:56.240 feel they have the latitude to refocus their attention on 0:18:56.320 --> 0:18:59.000 bringing inflation closer to that two percent target. 0:18:59.080 --> 0:19:01.520 So, Bill, I'm curious to get your take on how 0:19:01.680 --> 0:19:05.080 the policies from the Trump administration as they relate to 0:19:05.280 --> 0:19:08.240 deportations may impact the labor market. Do you have a 0:19:08.280 --> 0:19:08.800 sense of that. 0:19:09.480 --> 0:19:13.720 So directionally, if the US labor market has fewer workers, 0:19:13.760 --> 0:19:17.400 that would tend to push the unemployment rate down. That's 0:19:17.480 --> 0:19:20.680 just labor demand is not going to decline as much 0:19:20.680 --> 0:19:23.440 as labor supply would, and so it's a question of 0:19:23.680 --> 0:19:27.399 magnitude how large this effect is going to be. But 0:19:28.119 --> 0:19:31.040 I think the Fed is clearly taking a wait and 0:19:31.080 --> 0:19:35.440 see approach to see how much the change in immigration 0:19:35.520 --> 0:19:39.320 policies affects labor supply over the next twelve months, next 0:19:39.359 --> 0:19:42.239 twenty four months, as well as waiting and see this 0:19:42.800 --> 0:19:49.119 for what exactly happens with tariff policies tax policies. But directionally, 0:19:49.160 --> 0:19:52.120 it all kind of points to either a tighter job 0:19:52.160 --> 0:19:57.199 market with changes in immigration policy, or higher prices for 0:19:57.280 --> 0:20:01.399 consumers and for businesses if teriff rates go up, or 0:20:01.440 --> 0:20:04.280 just an overall hotter economy if we have tax cut 0:20:04.840 --> 0:20:07.359 directed stimulus. So all of that would be reasons for 0:20:07.440 --> 0:20:12.119