1
00:00:02,480 --> 00:00:06,800
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

2
00:00:09,640 --> 00:00:12,840
Speaker 2: This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.

3
00:00:12,920 --> 00:00:15,400
Speaker 2: You can join Brian Curtis and myself for the stories,

4
00:00:15,440 --> 00:00:18,520
Speaker 2: making news and moving markets in the Apec region. You

5
00:00:18,600 --> 00:00:21,439
Speaker 2: can subscribe to the show anywhere you get your podcast

6
00:00:21,520 --> 00:00:24,919
Speaker 2: and always on Bloomberg Radio, the Bloomberg Terminal, and the

7
00:00:24,920 --> 00:00:26,120
Speaker 2: Bloomberg Business app.

8
00:00:27,280 --> 00:00:31,000
Speaker 3: Fedcher Jerome Powell said that officials are wary of potential

9
00:00:31,080 --> 00:00:34,880
Speaker 3: risks to the labor market from higher interest rates. That's

10
00:00:34,960 --> 00:00:38,520
Speaker 3: as they seek more evidence that inflation is slowing down.

11
00:00:39,560 --> 00:00:43,040
Speaker 4: The most recent inflation readings, however, have shown some modest

12
00:00:43,040 --> 00:00:46,840
Speaker 4: Further progress and more good data would strengthen our confidence

13
00:00:46,960 --> 00:00:50,000
Speaker 4: that inflation is moving sustainably toward two percent. We continue

14
00:00:50,040 --> 00:00:53,680
Speaker 4: to make decisions meeting by meeting. We know that reducing

15
00:00:53,720 --> 00:00:57,360
Speaker 4: policy restraint too soon or too much could stall or

16
00:00:57,400 --> 00:00:59,680
Speaker 4: even reverse the progress that we've seen on inflation.

17
00:01:01,360 --> 00:01:04,640
Speaker 3: Powell careful not to offer any kind of timeline for

18
00:01:04,880 --> 00:01:08,399
Speaker 3: interest rate cuts, However, investors are betting that the cuts

19
00:01:08,440 --> 00:01:11,600
Speaker 3: will begin in September. The US Central Bank is weighing

20
00:01:11,640 --> 00:01:14,800
Speaker 3: cuts after holding its benchmark at two decade highs for

21
00:01:14,840 --> 00:01:18,160
Speaker 3: nearly a year. Palal also said that regulators are close

22
00:01:18,200 --> 00:01:20,960
Speaker 3: to revamping a plan, a plan to force the big

23
00:01:21,000 --> 00:01:25,679
Speaker 3: banks to hold significantly more capital. We're joined by James

24
00:01:25,680 --> 00:01:29,520
Speaker 3: Demmer at cio at Main Street Research. James a little

25
00:01:29,520 --> 00:01:31,720
Speaker 3: bit more on Pale here. It seems like he really

26
00:01:31,720 --> 00:01:34,720
Speaker 3: wanted to acknowledge that they are fully aware of the

27
00:01:34,840 --> 00:01:39,039
Speaker 3: challenges of the slowing in the labor market, but he

28
00:01:39,080 --> 00:01:41,240
Speaker 3: also wanted to make the point quite strongly that the

29
00:01:41,280 --> 00:01:45,120
Speaker 3: fight against inflation is not yet over, and he was

30
00:01:45,240 --> 00:01:48,840
Speaker 3: really careful not to talk about the timing. Is that

31
00:01:48,840 --> 00:01:50,240
Speaker 3: the right balance in your view?

32
00:01:51,320 --> 00:01:55,000
Speaker 5: Yeah, they're bending him, but they haven't broken him yet.

33
00:01:55,040 --> 00:01:59,120
Speaker 5: So it's getting closer to that point where he wants

34
00:01:59,160 --> 00:02:01,720
Speaker 5: to get and I think he's right. You know, they

35
00:02:01,840 --> 00:02:05,760
Speaker 5: really want to wait till the data really shows obviously

36
00:02:05,880 --> 00:02:09,960
Speaker 5: that the inflation boogeyman is gone before they go ahead

37
00:02:10,000 --> 00:02:13,200
Speaker 5: and they cut rates. And they've got to be careful here,

38
00:02:13,480 --> 00:02:16,359
Speaker 5: you know, you do see the employment numbers coming down,

39
00:02:16,440 --> 00:02:18,920
Speaker 5: the inflation numbers are obviously coming down and trending down.

40
00:02:19,560 --> 00:02:22,440
Speaker 5: They do want to be careful waiting too long, and

41
00:02:22,520 --> 00:02:25,560
Speaker 5: I think that's why he's sort of like starting the

42
00:02:25,600 --> 00:02:28,480
Speaker 5: dialogue's changed right from a few quarters ago. He's starting

43
00:02:28,520 --> 00:02:32,200
Speaker 5: to lean towards it's a question of when, not if.

44
00:02:32,400 --> 00:02:33,600
Speaker 5: Then we do think it's this year.

45
00:02:33,800 --> 00:02:37,040
Speaker 2: So the swaps market right now is projecting about two

46
00:02:37,120 --> 00:02:39,000
Speaker 2: rate cuts between now and the end of the year.

47
00:02:39,600 --> 00:02:42,680
Speaker 2: Maybe the first comes in September. Is that possible? Is

48
00:02:42,680 --> 00:02:43,960
Speaker 2: that pretty much the way you see it.

49
00:02:45,680 --> 00:02:48,720
Speaker 5: We do see that. You know, we've been of the

50
00:02:48,760 --> 00:02:51,840
Speaker 5: thought that earnings are driving this market and the FED

51
00:02:51,960 --> 00:02:54,680
Speaker 5: might not even need to cut, but the most recent

52
00:02:54,760 --> 00:02:58,000
Speaker 5: data on inflation employment suggests yes, they're probably going to

53
00:02:58,080 --> 00:03:00,840
Speaker 5: have to come to it, and I'd say say as

54
00:03:00,880 --> 00:03:03,160
Speaker 5: early as September. They don't want to get them too

55
00:03:03,240 --> 00:03:06,320
Speaker 5: close to the election and be viewed as, oh gosh,

56
00:03:06,400 --> 00:03:08,800
Speaker 5: we're doing this from sort of political stance, so I

57
00:03:08,800 --> 00:03:12,320
Speaker 5: think they do it sooner then later in September would

58
00:03:12,360 --> 00:03:15,560
Speaker 5: make would make sense. And that's just another accelerant, if

59
00:03:15,560 --> 00:03:19,200
Speaker 5: you will, to this rocket launching bow market that we're in.

60
00:03:19,480 --> 00:03:21,040
Speaker 5: You know, when the FED comes, that's just going to

61
00:03:21,040 --> 00:03:24,440
Speaker 5: be more fuel, another booster for this rocket.

62
00:03:25,800 --> 00:03:29,200
Speaker 3: James, do you go back and forth about being really

63
00:03:29,280 --> 00:03:34,320
Speaker 3: comfortable with market conditions and being also very worried or

64
00:03:34,440 --> 00:03:36,680
Speaker 3: are you steadfast in either one of the two.

65
00:03:38,040 --> 00:03:41,320
Speaker 5: I am in a constant state of optimism and concern.

66
00:03:43,920 --> 00:03:45,560
Speaker 3: Here here join the group.

67
00:03:46,360 --> 00:03:49,280
Speaker 5: Thirty five years of this. But I will say this

68
00:03:49,360 --> 00:03:52,040
Speaker 5: isn't one of the best setups I've seen for equities

69
00:03:52,120 --> 00:03:56,600
Speaker 5: this year than I've seen in decades. So the optimism

70
00:03:56,680 --> 00:03:59,640
Speaker 5: definitely overtakes a concern. And you know, we think this

71
00:03:59,720 --> 00:04:02,640
Speaker 5: is the certainly the first phase of a very powerful

72
00:04:02,680 --> 00:04:05,200
Speaker 5: ball market, and that's the phase investors don't want to miss.

73
00:04:05,400 --> 00:04:07,000
Speaker 5: You know, if you look back at any bowl markets

74
00:04:07,000 --> 00:04:08,680
Speaker 5: the first year and a half, where you get this

75
00:04:08,800 --> 00:04:13,040
Speaker 5: acceleration like rocket launch like acceleration, then you get to

76
00:04:13,120 --> 00:04:16,000
Speaker 5: cruising speed, which I think is probably into next year

77
00:04:16,279 --> 00:04:20,080
Speaker 5: and beyond. But so here where you know, my optimism

78
00:04:20,279 --> 00:04:24,240
Speaker 5: is overwhelming a concert there are concerns we have. I

79
00:04:24,279 --> 00:04:26,000
Speaker 5: do think we're going to get a five percent at

80
00:04:26,080 --> 00:04:29,000
Speaker 5: least seven percent correction between now and the end of

81
00:04:29,000 --> 00:04:32,360
Speaker 5: the year, even though we do have high target numbers

82
00:04:32,400 --> 00:04:35,159
Speaker 5: for the end of the year on markets in general.

83
00:04:35,440 --> 00:04:39,000
Speaker 2: So in addition to addressing monetary policy today, Powell was

84
00:04:39,040 --> 00:04:43,880
Speaker 2: talking about new banking regulations, and he indicated that regulators

85
00:04:43,880 --> 00:04:46,560
Speaker 2: are close to agreeing to some type of modification to

86
00:04:46,600 --> 00:04:49,839
Speaker 2: that plan to force the big banks to hold more capital,

87
00:04:49,960 --> 00:04:53,200
Speaker 2: so maybe they'll be required to hold a little bit less.

88
00:04:53,320 --> 00:04:55,919
Speaker 2: I thought it interesting that the financials actually led the

89
00:04:56,000 --> 00:04:57,800
Speaker 2: S and P five hundred higher today. It was only

90
00:04:57,920 --> 00:05:00,760
Speaker 2: up a tenth of one percent. Nonetheless, the entire group

91
00:05:00,960 --> 00:05:04,080
Speaker 2: looked pretty robust. We've got earnings at the end of

92
00:05:04,080 --> 00:05:06,039
Speaker 2: the week from some of the money centers. How are

93
00:05:06,120 --> 00:05:08,119
Speaker 2: you feeling about the big banks these days?

94
00:05:09,640 --> 00:05:12,599
Speaker 5: You know, Brian, this is a or Doug, this is

95
00:05:13,480 --> 00:05:16,600
Speaker 5: a period where investors really want to own the banks.

96
00:05:17,000 --> 00:05:21,680
Speaker 5: These are historically low pe ratios on the financials, in

97
00:05:21,720 --> 00:05:25,520
Speaker 5: the banks specifically, and I think the banks even shrugged

98
00:05:25,560 --> 00:05:28,400
Speaker 5: that off today based on the fact that the earnings

99
00:05:28,440 --> 00:05:29,960
Speaker 5: are coming. I think the earnias are going to be

100
00:05:29,960 --> 00:05:33,000
Speaker 5: better than expected. The multiples are low, and the FED

101
00:05:33,120 --> 00:05:36,960
Speaker 5: is nodding to lowering rates, and that is going to

102
00:05:36,960 --> 00:05:40,279
Speaker 5: be a boon for the banks, particularly the big ones.

103
00:05:40,560 --> 00:05:42,840
Speaker 5: So I think investors want to be really careful about

104
00:05:42,839 --> 00:05:46,040
Speaker 5: avoiding them. I think investors want to step in here

105
00:05:46,400 --> 00:05:48,520
Speaker 5: or at any weakness and own them.

106
00:05:49,040 --> 00:05:51,920
Speaker 3: It's tricky with the banks, obviously, I mean the big

107
00:05:51,960 --> 00:05:55,400
Speaker 3: banks in particular, JP Morgan's done very well this year.

108
00:05:55,680 --> 00:05:57,920
Speaker 3: I think the banks generally have done well. They've been

109
00:05:57,960 --> 00:06:01,600
Speaker 3: one of the sectors that has been putting on gains

110
00:06:01,720 --> 00:06:05,559
Speaker 3: up there, close to with the tech companies JP Morgan

111
00:06:05,600 --> 00:06:08,360
Speaker 3: going from one to seventy up to you know, between

112
00:06:08,360 --> 00:06:11,800
Speaker 3: two hundred and ten. But then you know you've got

113
00:06:11,880 --> 00:06:15,880
Speaker 3: various segments in there. Regional banks, no, no, you know

114
00:06:15,920 --> 00:06:20,880
Speaker 3: you've got companies like you know, the credit card companies

115
00:06:20,880 --> 00:06:23,160
Speaker 3: that have done very well. How do you actually target

116
00:06:23,240 --> 00:06:27,120
Speaker 3: that area instead of buying buying, say, you know, a

117
00:06:27,120 --> 00:06:29,000
Speaker 3: big ETF that puts them all in.

118
00:06:30,040 --> 00:06:32,880
Speaker 5: Yeah, that's a really good question. I think investors have

119
00:06:32,960 --> 00:06:35,160
Speaker 5: been way better off this year by by being more

120
00:06:35,200 --> 00:06:38,719
Speaker 5: selective and not owning let's say a whole sector, because

121
00:06:39,200 --> 00:06:41,800
Speaker 5: that way you can avoid the regionals really can't get

122
00:06:41,839 --> 00:06:43,840
Speaker 5: out of their own way, and it makes sense they

123
00:06:43,880 --> 00:06:47,240
Speaker 5: need they need rates to really come down for sure.

124
00:06:47,480 --> 00:06:50,120
Speaker 5: There's a lot of commercial real estates attached to them

125
00:06:50,720 --> 00:06:52,520
Speaker 5: and they don't have the strong balance sheets of the

126
00:06:52,600 --> 00:06:55,640
Speaker 5: larger banks. So you know, this is the sort of cycle,

127
00:06:56,200 --> 00:06:58,280
Speaker 5: this phase of it where you want to be a

128
00:06:58,320 --> 00:07:01,000
Speaker 5: stock selector, and I think think you want to go

129
00:07:01,080 --> 00:07:04,880
Speaker 5: with Larger is better, right, Bigger market share is better

130
00:07:04,920 --> 00:07:07,839
Speaker 5: balance sheets in the banks, and then we use that

131
00:07:07,880 --> 00:07:10,920
Speaker 5: same litmus test across other sectors like tech, you know,

132
00:07:11,240 --> 00:07:14,600
Speaker 5: in healthcare and industrials. So bigger is better, particularly in

133
00:07:14,640 --> 00:07:17,000
Speaker 5: the beginning of a new bowl market where investors, you know,

134
00:07:17,200 --> 00:07:20,080
Speaker 5: haven't even gotten fully invested yet. There's still trillions of

135
00:07:20,080 --> 00:07:23,480
Speaker 5: dollars of uninvested assets laying around that needs to come

136
00:07:23,520 --> 00:07:26,280
Speaker 5: into the market, and so people are going to safety

137
00:07:26,320 --> 00:07:29,480
Speaker 5: trade first. Big is better, better balance sheets.

138
00:07:29,520 --> 00:07:31,080
Speaker 2: So if we can agree that there's a little bit

139
00:07:31,120 --> 00:07:33,120
Speaker 2: of dry powder on the side I heard, I thought,

140
00:07:33,160 --> 00:07:35,040
Speaker 2: I heard you say a moment ago seven to ten

141
00:07:35,120 --> 00:07:38,600
Speaker 2: percent correction sometime here in the near term. What is

142
00:07:38,640 --> 00:07:39,800
Speaker 2: the catalyst for that?

143
00:07:41,800 --> 00:07:44,600
Speaker 5: Yeah, First of all, I would say it's way over due,

144
00:07:45,480 --> 00:07:47,400
Speaker 5: but I think it could be. You know, we got

145
00:07:47,400 --> 00:07:50,840
Speaker 5: earning season here again, which I think is going to

146
00:07:50,880 --> 00:07:54,400
Speaker 5: be robust, but it would not take much if you

147
00:07:54,560 --> 00:07:57,800
Speaker 5: had one tech company kind of come in. You know,

148
00:07:57,880 --> 00:08:02,120
Speaker 5: expectations have gone up a lot in the tech analyst community,

149
00:08:02,440 --> 00:08:05,800
Speaker 5: and if they're a little bit too high and one

150
00:08:05,840 --> 00:08:08,600
Speaker 5: company comes in a little miss here or there, I

151
00:08:08,640 --> 00:08:11,440
Speaker 5: think it could rattle the market. I'd say more like

152
00:08:11,520 --> 00:08:15,920
Speaker 5: a five to seven percent correction, which is still more

153
00:08:16,240 --> 00:08:19,600
Speaker 5: shallow than normal. And that's only because there's so much cash.

154
00:08:19,760 --> 00:08:21,480
Speaker 5: Every time there's a bit of a pullback, right, all

155
00:08:21,520 --> 00:08:24,520
Speaker 5: that trillions of dollars in cash is trying to get

156
00:08:24,520 --> 00:08:27,160
Speaker 5: in on that weakness. But I think it might be

157
00:08:27,200 --> 00:08:29,760
Speaker 5: an earning type of thing that you see a bit

158
00:08:29,800 --> 00:08:32,280
Speaker 5: of a pullback, and I tell you investors, if they

159
00:08:32,320 --> 00:08:35,240
Speaker 5: haven't been in this market, they really need to use

160
00:08:35,320 --> 00:08:39,080
Speaker 5: that next sort of mini correction to put that money

161
00:08:39,120 --> 00:08:40,559
Speaker 5: to work towards the end of the year.

162
00:08:41,200 --> 00:08:44,800
Speaker 3: Quick question on PCs recovering, What does that tell.

163
00:08:44,679 --> 00:08:49,800
Speaker 5: You, Well, you know, the bigger buyer of PCs, you know,

164
00:08:49,800 --> 00:08:52,600
Speaker 5: there's obviously corporate money spent there, but there's a lot

165
00:08:52,640 --> 00:08:59,040
Speaker 5: of individuals and consumers doing that. I was really interested

166
00:08:59,080 --> 00:09:02,160
Speaker 5: to see Apples that was really fantastic. We've been a

167
00:09:02,160 --> 00:09:05,200
Speaker 5: fan of Apple for quite some time. I think that

168
00:09:05,240 --> 00:09:08,679
Speaker 5: it shows that the economy is still very resilient.

169
00:09:09,520 --> 00:09:12,679
Speaker 3: Yep, all right, James, Thanks, good session. James Demmert there

170
00:09:12,800 --> 00:09:22,360
Speaker 3: cio at Main Street Research. We are chatting now with

171
00:09:22,480 --> 00:09:26,959
Speaker 3: Sean Monahan, visiting fellow in Europe, Russia and Eurasia Program

172
00:09:27,280 --> 00:09:31,079
Speaker 3: at the CSIS, the Center for Strategic and International Studies

173
00:09:31,520 --> 00:09:35,880
Speaker 3: in Washington, d C. So the NATO meeting today and

174
00:09:35,960 --> 00:09:39,720
Speaker 3: the speech by President Biden, Biden no doubt made more

175
00:09:39,720 --> 00:09:43,520
Speaker 3: friends in Europe with the speech today, a strong defense

176
00:09:43,559 --> 00:09:48,080
Speaker 3: of NATO, strong defense of Europe, strong defense of global institutions.

177
00:09:48,120 --> 00:09:52,120
Speaker 3: And Biden said Sean that NATO is as strong as ever.

178
00:09:53,000 --> 00:09:54,040
Speaker 3: Did he get that right?

179
00:09:55,400 --> 00:09:55,600
Speaker 1: Yeah?

180
00:09:55,640 --> 00:09:56,000
Speaker 6: I love that.

181
00:09:56,120 --> 00:09:59,160
Speaker 7: Thanks for having me. Well, I think Biden did. I mean,

182
00:09:59,240 --> 00:10:01,400
Speaker 7: NATO needs to be as strong as it's ever been,

183
00:10:01,480 --> 00:10:04,440
Speaker 7: because it's now the most challenging time really that NATO

184
00:10:04,520 --> 00:10:07,000
Speaker 7: has ever faced. I mean, the Alliance is seventy five

185
00:10:07,080 --> 00:10:10,480
Speaker 7: years old, created in nineteen forty nine as a bullwork

186
00:10:10,520 --> 00:10:13,679
Speaker 7: against Soviet aggression in Europe. But now with Russia's war

187
00:10:13,800 --> 00:10:18,040
Speaker 7: in Ukraine, war raging in Europe, the US, NATO's main

188
00:10:18,080 --> 00:10:21,880
Speaker 7: ally kind of pivoting to East Asia. NATO really needs

189
00:10:21,880 --> 00:10:24,120
Speaker 7: to up its game. This is a really dangerous time.

190
00:10:24,160 --> 00:10:26,720
Speaker 7: And this week in Washington, I think we can expect

191
00:10:26,760 --> 00:10:30,199
Speaker 7: allies to announce a series of measures that demonstrate that

192
00:10:30,240 --> 00:10:31,160
Speaker 7: they're really stepping up.

193
00:10:31,600 --> 00:10:34,439
Speaker 2: So mister Biden has been on the defensive as I'm

194
00:10:34,440 --> 00:10:36,880
Speaker 2: sure you're well aware since the debate a couple of

195
00:10:36,880 --> 00:10:40,880
Speaker 2: weeks back, and he had an interviewer sit down last Friday.

196
00:10:40,920 --> 00:10:42,720
Speaker 2: One of the things that he was addressing in terms

197
00:10:42,760 --> 00:10:46,880
Speaker 2: of accomplishments was the expansion of NATO. So during his

198
00:10:46,920 --> 00:10:50,160
Speaker 2: presidency we have seen the addition of Finland and Sweden.

199
00:10:50,800 --> 00:10:54,840
Speaker 2: Give us an understanding of Biden's influence on the Alliance

200
00:10:54,840 --> 00:10:56,640
Speaker 2: in these last three and a half years.

201
00:10:57,880 --> 00:11:00,120
Speaker 7: Sure. Well, the first thing that President Biden said, I

202
00:11:00,120 --> 00:11:03,360
Speaker 7: think when he came into office with something like America

203
00:11:03,440 --> 00:11:06,920
Speaker 7: is back and alliances are back, and he's really put

204
00:11:06,960 --> 00:11:11,880
Speaker 7: that into practice. Yeah, the main achievement you mentioned it

205
00:11:11,960 --> 00:11:15,360
Speaker 7: Finland and Sweden have joined NATO. NATO is now two members,

206
00:11:15,400 --> 00:11:18,120
Speaker 7: two allies larger. Now, of course that's not just down

207
00:11:18,160 --> 00:11:21,320
Speaker 7: to President Biden. The real reason that people of Finland

208
00:11:21,360 --> 00:11:24,280
Speaker 7: and Sweden decided to join the NATO Alliance was because

209
00:11:24,320 --> 00:11:27,840
Speaker 7: of mister Putin's actions. Mister Putin, if you like, has

210
00:11:28,160 --> 00:11:31,840
Speaker 7: seen kind of Newton's third law of international politics in action,

211
00:11:31,920 --> 00:11:35,080
Speaker 7: which is that every action has an equal and opposite reaction,

212
00:11:36,040 --> 00:11:38,520
Speaker 7: and in reaction to his invasion of Ukraine, Finland as

213
00:11:38,600 --> 00:11:42,040
Speaker 7: Weeden ad opted to join NATO. But under mister Biden's watch,

214
00:11:42,080 --> 00:11:44,679
Speaker 7: I mean, spending has gone up in Europe. The perennial

215
00:11:44,679 --> 00:11:48,600
Speaker 7: complaint from Washington that Europeans weren't pulling their weight. And

216
00:11:48,679 --> 00:11:50,760
Speaker 7: in the four years mister Biden has been in office,

217
00:11:50,960 --> 00:11:55,400
Speaker 7: we've seen a drastic increase in defense spending by European allies.

218
00:11:55,920 --> 00:11:58,040
Speaker 7: Back four years ago and in nine of them spent

219
00:11:58,120 --> 00:12:01,040
Speaker 7: the two percent of DP on defense. Now twenty three

220
00:12:01,080 --> 00:12:03,200
Speaker 7: of them do. That's an impressive achievement.

221
00:12:04,320 --> 00:12:07,720
Speaker 3: So the action today the air defense systems, five long

222
00:12:07,800 --> 00:12:11,680
Speaker 3: range air defense systems and F sixteen fighters. This is

223
00:12:11,720 --> 00:12:14,640
Speaker 3: a show of unity. Does it make a difference, Will

224
00:12:14,679 --> 00:12:18,000
Speaker 3: it in any way intimidate President Vladimir Putin?

225
00:12:19,760 --> 00:12:23,160
Speaker 7: I mean yes and no. The need for more air

226
00:12:23,200 --> 00:12:26,760
Speaker 7: defense systems and in particular the interceptors, the missiles that

227
00:12:26,760 --> 00:12:30,000
Speaker 7: are fired from the ground at incoming missiles, was really

228
00:12:30,040 --> 00:12:34,360
Speaker 7: demonstrated by the horrific, tragic attack really on the children's

229
00:12:34,360 --> 00:12:36,880
Speaker 7: hospital in Ukraine that we saw a couple of days

230
00:12:36,920 --> 00:12:41,920
Speaker 7: ago in an incredibly cynical move. That attack came alongside

231
00:12:42,080 --> 00:12:45,840
Speaker 7: a wealth of other attacks across Ukraine by Russia's missile

232
00:12:45,960 --> 00:12:49,920
Speaker 7: missile forces. And so you know the US, the West.

233
00:12:50,000 --> 00:12:54,640
Speaker 7: NATO has been helping supporting Ukraine, providing a wealth of

234
00:12:54,960 --> 00:12:57,440
Speaker 7: equipment and systems, and air defense has really been top

235
00:12:57,440 --> 00:13:00,480
Speaker 7: of Kiev's shopping list for some time. They've got some

236
00:13:00,520 --> 00:13:03,360
Speaker 7: more systems, but they need a lot more. And this

237
00:13:03,400 --> 00:13:05,080
Speaker 7: is where NATO this week is going to have to

238
00:13:05,120 --> 00:13:09,040
Speaker 7: announce some measures to commit in more aid in the

239
00:13:09,080 --> 00:13:12,199
Speaker 7: long term to Ukraine and also to commit to boost

240
00:13:12,520 --> 00:13:17,160
Speaker 7: NATO allies owned defense industrial basis to produce that equipment

241
00:13:17,160 --> 00:13:20,040
Speaker 7: in fruture, both for Ukraine and for NATO's own purposes.

242
00:13:20,160 --> 00:13:22,160
Speaker 2: Do you think about the rise that we have seen

243
00:13:22,280 --> 00:13:25,679
Speaker 2: in some far right parties, whether it's Italy or France,

244
00:13:26,720 --> 00:13:29,040
Speaker 2: as having an impact on NATO at some point?

245
00:13:31,880 --> 00:13:34,440
Speaker 7: It's hard to say. Look, NATO is a collection and

246
00:13:34,520 --> 00:13:37,320
Speaker 7: alliance of democracies. There's thirty two of them now so

247
00:13:38,200 --> 00:13:40,600
Speaker 7: over seventy five years, and there were twelve nations to

248
00:13:40,640 --> 00:13:44,680
Speaker 7: beginning with. There's been many elections, many changes in governing

249
00:13:44,720 --> 00:13:48,920
Speaker 7: parties among NATO allies, and through all of that volatility,

250
00:13:49,480 --> 00:13:53,320
Speaker 7: NATO has endured, and NATO endures because it offers a

251
00:13:53,360 --> 00:13:55,960
Speaker 7: clear deal to the allies that are part of it.

252
00:13:56,040 --> 00:14:00,280
Speaker 7: That strength in numbers together, they are stronger and can

253
00:14:00,320 --> 00:14:03,480
Speaker 7: deter threats like Russia. NATO is also not just a

254
00:14:03,520 --> 00:14:06,800
Speaker 7: military alliance, but of course it's a security community of

255
00:14:07,480 --> 00:14:10,920
Speaker 7: nations with common values, so it endures for those reasons too.

256
00:14:11,000 --> 00:14:14,000
Speaker 7: So it's celebrating seventy five years. I think we'll see

257
00:14:14,080 --> 00:14:16,079
Speaker 7: many more years out of NATO.

258
00:14:15,920 --> 00:14:20,760
Speaker 3: Yet, Sean, you're there in Washington, d C. I take it,

259
00:14:21,240 --> 00:14:25,880
Speaker 3: And I'm curious about your perception of the President's performance.

260
00:14:25,920 --> 00:14:28,720
Speaker 3: It's been so much in the spotlight, given the weakness

261
00:14:28,720 --> 00:14:32,320
Speaker 3: in the debate a week and a half ago. Did

262
00:14:32,320 --> 00:14:34,480
Speaker 3: he sound like a commander in chief? Did he look

263
00:14:34,600 --> 00:14:37,120
Speaker 3: like the president of the United States? Your take?

264
00:14:38,200 --> 00:14:40,760
Speaker 7: Yeah, of course. So yeah, I'm here in Washington, DC,

265
00:14:41,320 --> 00:14:43,280
Speaker 7: and this is a talk of the town at the moment,

266
00:14:43,760 --> 00:14:46,280
Speaker 7: and of course it's NATO summit. There's lots of functions.

267
00:14:46,280 --> 00:14:50,040
Speaker 7: I've just actually come from a function following the President's speech,

268
00:14:50,120 --> 00:14:51,720
Speaker 7: and a lot of people were really saying that he

269
00:14:51,760 --> 00:14:55,760
Speaker 7: put in an excellent performance as commander in chief. He

270
00:14:55,840 --> 00:14:59,920
Speaker 7: was very strong and decisive, didn't hesitate, and also the

271
00:15:00,040 --> 00:15:03,920
Speaker 7: bit of a surprise where he gave current sectory General

272
00:15:04,000 --> 00:15:07,120
Speaker 7: Jan Stoltenburg the Medal of honor the highestvillion holla, and

273
00:15:07,160 --> 00:15:10,240
Speaker 7: that was Yen Stoloma looked quite emotional. Actually, it was

274
00:15:10,320 --> 00:15:11,800
Speaker 7: a bit of a surprise. So that was a nice

275
00:15:11,840 --> 00:15:14,800
Speaker 7: a nice touch too. So I think Biden. President Biden

276
00:15:14,880 --> 00:15:18,520
Speaker 7: always saw this week as a really important one. It's

277
00:15:18,560 --> 00:15:21,000
Speaker 7: even more important for him now he's got the first

278
00:15:21,040 --> 00:15:23,080
Speaker 7: speech out of the way. He's done really well. So

279
00:15:23,200 --> 00:15:25,440
Speaker 7: on to the next two days of the summit.

280
00:15:25,240 --> 00:15:27,760
Speaker 2: Sean, before we let you go. In the event that

281
00:15:27,840 --> 00:15:30,600
Speaker 2: there is a second Trump administration, and I'm sure there

282
00:15:30,600 --> 00:15:36,840
Speaker 2: has been a conversation across European countries, NATO Alliance countries

283
00:15:37,320 --> 00:15:40,800
Speaker 2: in particular, about the changes that would happen under another

284
00:15:41,320 --> 00:15:45,400
Speaker 2: Trump administration. Can you shed any perspective on that, what

285
00:15:45,520 --> 00:15:49,760
Speaker 2: the nature of these conversations may have been or maybe yeah.

286
00:15:49,800 --> 00:15:53,080
Speaker 7: Of course, as I said, NATO's and alliance of democracies

287
00:15:53,120 --> 00:15:56,080
Speaker 7: and a feature of a NIS the democracies, elections happen

288
00:15:56,200 --> 00:15:59,880
Speaker 7: very often, so particularly when the election is in the biggest,

289
00:16:00,080 --> 00:16:04,800
Speaker 7: most powerful state in NATO, the US. You know, allies

290
00:16:04,920 --> 00:16:08,000
Speaker 7: capitals are watching. But I think what they see is

291
00:16:08,160 --> 00:16:10,600
Speaker 7: if it's Biden or if it's Trump. As I said,

292
00:16:10,720 --> 00:16:14,920
Speaker 7: NATO presents a kind of very clear argument. It's really

293
00:16:14,920 --> 00:16:17,880
Speaker 7: in the interest of Europeans and Americans to have a

294
00:16:18,000 --> 00:16:22,280
Speaker 7: very strong NATO. Deterring war in Europe against NATO allies

295
00:16:22,360 --> 00:16:25,600
Speaker 7: is far cheaper than fighting it. You know, European security

296
00:16:25,680 --> 00:16:27,760
Speaker 7: is still American security at the end of the day.

297
00:16:27,760 --> 00:16:30,680
Speaker 7: We'll learnt that throughout the twentieth century, and depending on

298
00:16:30,680 --> 00:16:32,600
Speaker 7: the color of the government, I don't think that fundamental

299
00:16:32,640 --> 00:16:36,080
Speaker 7: coret argument changes and I think the American people kind

300
00:16:36,080 --> 00:16:37,240
Speaker 7: of seem to realize that too.

301
00:16:38,000 --> 00:16:41,560
Speaker 3: Just to the battlefield. One final question on Ukraine in

302
00:16:41,600 --> 00:16:44,840
Speaker 3: your assessment, does either side look ready for any kind

303
00:16:44,880 --> 00:16:45,400
Speaker 3: of breakthrough?

304
00:16:48,360 --> 00:16:51,480
Speaker 7: Not so much at the minute. I mean, I think

305
00:16:51,520 --> 00:16:54,320
Speaker 7: mister if he was able to make a breakthrough, he

306
00:16:54,320 --> 00:16:58,320
Speaker 7: would have done so to spoil the NATO summit. What

307
00:16:58,440 --> 00:17:01,360
Speaker 7: was clear from the tax this week, which includes the

308
00:17:01,400 --> 00:17:02,800
Speaker 7: attack on the fieldpil all.

309
00:17:02,800 --> 00:17:05,199
Speaker 3: Right, Sean, thanks so much, Sean Monaghan. There from the

310
00:17:05,240 --> 00:17:16,560
Speaker 3: csis the Center for Strategic and International Studies. We're joined

311
00:17:16,560 --> 00:17:20,880
Speaker 3: by Adam Kohn's chief portfolio manager at Winthrop Capital Management.

312
00:17:21,440 --> 00:17:21,720
Speaker 6: So J.

313
00:17:21,920 --> 00:17:24,760
Speaker 3: Powell seems to have laid out this kind of script

314
00:17:24,800 --> 00:17:28,600
Speaker 3: and it is pretty well scripted. It seems acknowledge a

315
00:17:28,640 --> 00:17:33,119
Speaker 3: little softness in jobs, prepare the market, now watch the data,

316
00:17:33,400 --> 00:17:36,760
Speaker 3: then updated jackson Hole, and then finally pull the trigger

317
00:17:36,880 --> 00:17:39,840
Speaker 3: in September. Does the script need any editing?

318
00:17:40,600 --> 00:17:40,800
Speaker 1: You know?

319
00:17:40,840 --> 00:17:44,600
Speaker 6: I think that's what the market is saying, is that

320
00:17:44,640 --> 00:17:47,400
Speaker 6: we're going to get rate cuts in September. But that's

321
00:17:47,440 --> 00:17:52,240
Speaker 6: dependent on this economic gata continuing to get worse and worse,

322
00:17:52,320 --> 00:17:54,560
Speaker 6: and I think it has to get fairly bad before

323
00:17:54,560 --> 00:17:55,080
Speaker 6: the FED is.

324
00:17:55,040 --> 00:17:56,359
Speaker 1: Going to cut any rates.

325
00:17:57,040 --> 00:17:58,760
Speaker 6: I keep coming back to the fact, you've got to

326
00:17:58,800 --> 00:18:02,800
Speaker 6: look at the entire site of this FED, and when

327
00:18:02,840 --> 00:18:06,679
Speaker 6: we go back to the beginning, when we kind of

328
00:18:06,720 --> 00:18:10,159
Speaker 6: had this transitory talk, inflation was picking up, it was

329
00:18:10,359 --> 00:18:15,520
Speaker 6: very apparent that inflation was an issue, yet the FED

330
00:18:15,640 --> 00:18:16,960
Speaker 6: was very slow to act.

331
00:18:17,000 --> 00:18:19,280
Speaker 1: Then. I think the reality is they're going to have.

332
00:18:19,280 --> 00:18:21,520
Speaker 6: That same stance on the back end of the cycle,

333
00:18:21,560 --> 00:18:24,959
Speaker 6: where they're going to be slow to respond to one

334
00:18:25,119 --> 00:18:26,600
Speaker 6: or two data points. I think we're gonna have to

335
00:18:26,640 --> 00:18:33,600
Speaker 6: see multiple consecutive data points pointing to both inflation decelerating

336
00:18:33,760 --> 00:18:38,920
Speaker 6: and employment becoming an issue. So their dual mandate needs

337
00:18:38,960 --> 00:18:41,520
Speaker 6: to be addressed before they're going to cut any rates.

338
00:18:41,680 --> 00:18:44,679
Speaker 2: Sounds like a recipe for a policy mistake is that

339
00:18:44,720 --> 00:18:45,600
Speaker 2: the way you see it.

340
00:18:47,240 --> 00:18:50,000
Speaker 6: I think it's it's a setup for a potential because

341
00:18:50,160 --> 00:18:53,000
Speaker 6: you know, they're they're walking a tight rope.

342
00:18:53,520 --> 00:18:55,600
Speaker 1: Over the last year, it's looked pretty good.

343
00:18:55,640 --> 00:18:59,280
Speaker 6: They've done a good job maintaining you know, people have

344
00:18:59,400 --> 00:19:02,120
Speaker 6: used the narrative of soft landing or no landing, and

345
00:19:02,480 --> 00:19:06,359
Speaker 6: we've seen that the US economy has remained extremely resilient

346
00:19:06,520 --> 00:19:08,760
Speaker 6: despite higher interest rates.

347
00:19:09,440 --> 00:19:13,000
Speaker 1: The problem is if you wait too long, and if

348
00:19:13,000 --> 00:19:16,359
Speaker 1: you wait until the economy has completely rolled over to

349
00:19:16,480 --> 00:19:19,359
Speaker 1: change policy, at that point, it's too late, and the

350
00:19:19,400 --> 00:19:22,280
Speaker 1: policy mistake really would be that you push the US

351
00:19:22,280 --> 00:19:25,080
Speaker 1: economy into disinflation or even worse, deflation.

352
00:19:26,000 --> 00:19:28,800
Speaker 3: So you see that as the main policy mistake because

353
00:19:28,800 --> 00:19:31,359
Speaker 3: it could be the way too soon or too or

354
00:19:31,359 --> 00:19:31,880
Speaker 3: too late.

355
00:19:33,280 --> 00:19:37,879
Speaker 6: I mean, it's a terrible tough job to have. I

356
00:19:37,920 --> 00:19:41,080
Speaker 6: do not envy pal, So yeah, I mean that is

357
00:19:41,480 --> 00:19:45,320
Speaker 6: the potential, right. If you cut too soon, you reignite inflation,

358
00:19:45,800 --> 00:19:48,040
Speaker 6: and you kind of have some of the things we've

359
00:19:48,040 --> 00:19:52,280
Speaker 6: seen historically historically where inflation seems to be done, seems

360
00:19:52,280 --> 00:19:55,080
Speaker 6: to be dead, and then because policy moves too quickly

361
00:19:55,080 --> 00:19:57,560
Speaker 6: in the other direction, inflation picks back up, So that

362
00:19:58,119 --> 00:20:00,000
Speaker 6: is a risk. I do think that's a lower risk

363
00:20:00,560 --> 00:20:03,440
Speaker 6: then the other side of that waiting too long and

364
00:20:03,480 --> 00:20:05,359
Speaker 6: then seeing us move into disinflation.

365
00:20:05,600 --> 00:20:08,800
Speaker 2: So how are you translating what you believe in the

366
00:20:08,800 --> 00:20:12,040
Speaker 2: macro into an investment strategy? What are you doing these days?

367
00:20:13,720 --> 00:20:18,199
Speaker 6: Well, I mean, for us, the conviction call for probably

368
00:20:18,240 --> 00:20:22,000
Speaker 6: the last twelve months has been high quality long duration bonds.

369
00:20:22,000 --> 00:20:25,120
Speaker 6: I know it's not exciting, but for us, we look

370
00:20:25,160 --> 00:20:28,160
Speaker 6: at the asymmetry of whatever investment we're in, and when

371
00:20:28,160 --> 00:20:31,680
Speaker 6: we look across the universe of potential investments, long duration

372
00:20:31,760 --> 00:20:35,800
Speaker 6: bonds have the biggest asymmetry, meaning that the potential for

373
00:20:35,920 --> 00:20:40,600
Speaker 6: interest rates to go much higher is fairly low. So

374
00:20:40,680 --> 00:20:43,920
Speaker 6: the other two scenarios are one, interest rates stay where

375
00:20:43,920 --> 00:20:46,280
Speaker 6: they are for a longer period of time, and.

376
00:20:46,240 --> 00:20:46,879
Speaker 1: I'm okay with that.

377
00:20:46,920 --> 00:20:50,080
Speaker 6: I'm okay clipping you know, five percent coupons for the

378
00:20:50,119 --> 00:20:53,520
Speaker 6: next you know, twelve months or so. Or The upside

379
00:20:53,520 --> 00:20:56,400
Speaker 6: of that asymmetry is that interest rates come down. They

380
00:20:56,400 --> 00:21:00,879
Speaker 6: collapse because either the Fed starts cutting or the market

381
00:21:00,880 --> 00:21:03,760
Speaker 6: sees that, you know, the economy is rolling over quicker

382
00:21:03,760 --> 00:21:05,919
Speaker 6: than we expected. And then you're gonna see rates come down,

383
00:21:05,920 --> 00:21:07,399
Speaker 6: You're gonna see the price of bonds go up, so

384
00:21:07,400 --> 00:21:09,240
Speaker 6: that that has been the highest conviction call for US.

385
00:21:09,920 --> 00:21:13,280
Speaker 3: So for those people worried about recession coming on quickly,

386
00:21:13,640 --> 00:21:17,480
Speaker 3: today you had Apple, Google, Walmart, and Costco hit all

387
00:21:17,520 --> 00:21:21,240
Speaker 3: time highs. And that's a pretty good mix of consumer

388
00:21:21,280 --> 00:21:24,760
Speaker 3: facing companies, right. Doesn't that tell you that recession's not

389
00:21:24,920 --> 00:21:26,120
Speaker 3: very likely anytime soon?

390
00:21:28,240 --> 00:21:30,960
Speaker 6: Well, I mean I think, you know, look, a stock

391
00:21:31,160 --> 00:21:36,080
Speaker 6: in some ways is going to lead with what we

392
00:21:36,280 --> 00:21:39,040
Speaker 6: what we see right now. It's not looking out to

393
00:21:39,800 --> 00:21:42,360
Speaker 6: you know, what a company is going to be doing

394
00:21:42,359 --> 00:21:45,119
Speaker 6: twelve months from now. And on the other side of that,

395
00:21:45,119 --> 00:21:47,560
Speaker 6: I would say the companies just listed could probably weather

396
00:21:47,640 --> 00:21:50,280
Speaker 6: that storm fairly well. I think when you look at

397
00:21:50,280 --> 00:21:52,159
Speaker 6: the other side of the market, where you've seen you know,

398
00:21:52,240 --> 00:21:54,800
Speaker 6: things like Tesla and n Video that have had corrections,

399
00:21:55,160 --> 00:21:59,280
Speaker 6: that's a bigger tell of overvaluation met with a potential

400
00:21:59,359 --> 00:22:01,879
Speaker 6: for a rolling over of the economy.

401
00:22:02,119 --> 00:22:06,119
Speaker 1: And really what I would call what you just described

402
00:22:06,520 --> 00:22:07,479
Speaker 1: is a flight to quality.

403
00:22:07,480 --> 00:22:09,959
Speaker 6: I mean, when you look at those names, those are

404
00:22:10,119 --> 00:22:13,440
Speaker 6: high quality, large cat names that they're high cash flowing,

405
00:22:13,760 --> 00:22:18,680
Speaker 6: low debt, with actual earnings growth revenue growth. So when

406
00:22:18,680 --> 00:22:20,840
Speaker 6: I look at those, I'm looking at a flight to quality,

407
00:22:20,880 --> 00:22:24,520
Speaker 6: not necessarily just stocks taking off because they're consumer based

408
00:22:24,520 --> 00:22:27,800
Speaker 6: and because the economy is necessarily waring, it's more of

409
00:22:27,800 --> 00:22:30,560
Speaker 6: that defensive stance, even though those are some of those

410
00:22:30,640 --> 00:22:32,240
Speaker 6: names are high growth names.

411
00:22:32,200 --> 00:22:35,520
Speaker 2: Very quickly, Adam, as we look to earning season guidance,

412
00:22:35,520 --> 00:22:37,440
Speaker 2: do you think we're going to get disappointing guidance?

413
00:22:38,480 --> 00:22:38,920
Speaker 1: I don't.

414
00:22:38,960 --> 00:22:41,680
Speaker 6: I actually think we'll see will continue to see guidance

415
00:22:42,800 --> 00:22:44,240
Speaker 6: somewhat better than expected.

416
00:22:44,480 --> 00:22:47,320
Speaker 1: I think that'll come from margin expansion. You'll continue to

417
00:22:47,359 --> 00:22:48,040
Speaker 1: see things.

418
00:22:47,840 --> 00:22:51,520
Speaker 6: Like job cuts help prop up earnings because margins are expanding.

419
00:22:52,720 --> 00:22:55,280
Speaker 3: Hey, Adam, thanks very much for joining us. It's always good.

420
00:22:55,320 --> 00:22:57,320
Speaker 3: You never know what questions you'll get and you handle

421
00:22:57,400 --> 00:23:02,000
Speaker 3: them well. Adam Coombs, their chief portfolio Winthrop Capital Management.

422
00:23:04,240 --> 00:23:07,199
Speaker 2: This has been the Bloomberg Daybreak Asia podcast, bringing you

423
00:23:07,280 --> 00:23:10,360
Speaker 2: the stories making news and moving markets in the Asia Pacific.

424
00:23:10,880 --> 00:23:14,000
Speaker 2: Visit the Bloomberg Podcast channel on YouTube to get more

425
00:23:14,040 --> 00:23:17,639
Speaker 2: episodes of this and other shows from Bloomberg. Subscribe to

426
00:23:17,680 --> 00:23:21,480
Speaker 2: the podcast on Apple, Spotify, or anywhere else you listen,

427
00:23:21,560 --> 00:23:24,679
Speaker 2: and always on Bloomberg Radio. The Bloomberg Terminal and the

428
00:23:24,680 --> 00:23:25,760
Speaker 2: Bloomberg Business app.