WEBVTT - Markets React to Powell Testimony, NATO Summit Day One 0:00:02.480 --> 0:00:06.800 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.640 --> 0:00:12.840 This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. 0:00:12.920 --> 0:00:15.400 You can join Brian Curtis and myself for the stories, 0:00:15.440 --> 0:00:18.520 making news and moving markets in the Apec region. You 0:00:18.600 --> 0:00:21.439 can subscribe to the show anywhere you get your podcast 0:00:21.520 --> 0:00:24.919 and always on Bloomberg Radio, the Bloomberg Terminal, and the 0:00:24.920 --> 0:00:26.120 Bloomberg Business app. 0:00:27.280 --> 0:00:31.000 Fedcher Jerome Powell said that officials are wary of potential 0:00:31.080 --> 0:00:34.880 risks to the labor market from higher interest rates. That's 0:00:34.960 --> 0:00:38.520 as they seek more evidence that inflation is slowing down. 0:00:39.560 --> 0:00:43.040 The most recent inflation readings, however, have shown some modest 0:00:43.040 --> 0:00:46.840 Further progress and more good data would strengthen our confidence 0:00:46.960 --> 0:00:50.000 that inflation is moving sustainably toward two percent. We continue 0:00:50.040 --> 0:00:53.680 to make decisions meeting by meeting. We know that reducing 0:00:53.720 --> 0:00:57.360 policy restraint too soon or too much could stall or 0:00:57.400 --> 0:00:59.680 even reverse the progress that we've seen on inflation. 0:01:01.360 --> 0:01:04.640 Powell careful not to offer any kind of timeline for 0:01:04.880 --> 0:01:08.399 interest rate cuts, However, investors are betting that the cuts 0:01:08.440 --> 0:01:11.600 will begin in September. The US Central Bank is weighing 0:01:11.640 --> 0:01:14.800 cuts after holding its benchmark at two decade highs for 0:01:14.840 --> 0:01:18.160 nearly a year. Palal also said that regulators are close 0:01:18.200 --> 0:01:20.960 to revamping a plan, a plan to force the big 0:01:21.000 --> 0:01:25.679 banks to hold significantly more capital. We're joined by James 0:01:25.680 --> 0:01:29.520 Demmer at cio at Main Street Research. James a little 0:01:29.520 --> 0:01:31.720 bit more on Pale here. It seems like he really 0:01:31.720 --> 0:01:34.720 wanted to acknowledge that they are fully aware of the 0:01:34.840 --> 0:01:39.039 challenges of the slowing in the labor market, but he 0:01:39.080 --> 0:01:41.240 also wanted to make the point quite strongly that the 0:01:41.280 --> 0:01:45.120 fight against inflation is not yet over, and he was 0:01:45.240 --> 0:01:48.840 really careful not to talk about the timing. Is that 0:01:48.840 --> 0:01:50.240 the right balance in your view? 0:01:51.320 --> 0:01:55.000 Yeah, they're bending him, but they haven't broken him yet. 0:01:55.040 --> 0:01:59.120 So it's getting closer to that point where he wants 0:01:59.160 --> 0:02:01.720 to get and I think he's right. You know, they 0:02:01.840 --> 0:02:05.760 really want to wait till the data really shows obviously 0:02:05.880 --> 0:02:09.960 that the inflation boogeyman is gone before they go ahead 0:02:10.000 --> 0:02:13.200 and they cut rates. And they've got to be careful here, 0:02:13.480 --> 0:02:16.359 you know, you do see the employment numbers coming down, 0:02:16.440 --> 0:02:18.920 the inflation numbers are obviously coming down and trending down. 0:02:19.560 --> 0:02:22.440 They do want to be careful waiting too long, and 0:02:22.520 --> 0:02:25.560 I think that's why he's sort of like starting the 0:02:25.600 --> 0:02:28.480 dialogue's changed right from a few quarters ago. He's starting 0:02:28.520 --> 0:02:32.200 to lean towards it's a question of when, not if. 0:02:32.400 --> 0:02:33.600 Then we do think it's this year. 0:02:33.800 --> 0:02:37.040 So the swaps market right now is projecting about two 0:02:37.120 --> 0:02:39.000 rate cuts between now and the end of the year. 0:02:39.600 --> 0:02:42.680 Maybe the first comes in September. Is that possible? Is 0:02:42.680 --> 0:02:43.960 that pretty much the way you see it. 0:02:45.680 --> 0:02:48.720 We do see that. You know, we've been of the 0:02:48.760 --> 0:02:51.840 thought that earnings are driving this market and the FED 0:02:51.960 --> 0:02:54.680 might not even need to cut, but the most recent 0:02:54.760 --> 0:02:58.000 data on inflation employment suggests yes, they're probably going to 0:02:58.080 --> 0:03:00.840 have to come to it, and I'd say say as 0:03:00.880 --> 0:03:03.160 early as September. They don't want to get them too 0:03:03.240 --> 0:03:06.320 close to the election and be viewed as, oh gosh, 0:03:06.400 --> 0:03:08.800 we're doing this from sort of political stance, so I 0:03:08.800 --> 0:03:12.320 think they do it sooner then later in September would 0:03:12.360 --> 0:03:15.560 make would make sense. And that's just another accelerant, if 0:03:15.560 --> 0:03:19.200 you will, to this rocket launching bow market that we're in. 0:03:19.480 --> 0:03:21.040 You know, when the FED comes, that's just going to 0:03:21.040 --> 0:03:24.440 be more fuel, another booster for this rocket. 0:03:25.800 --> 0:03:29.200 James, do you go back and forth about being really 0:03:29.280 --> 0:03:34.320 comfortable with market conditions and being also very worried or 0:03:34.440 --> 0:03:36.680 are you steadfast in either one of the two. 0:03:38.040 --> 0:03:41.320 I am in a constant state of optimism and concern. 0:03:43.920 --> 0:03:45.560 Here here join the group. 0:03:46.360 --> 0:03:49.280 Thirty five years of this. But I will say this 0:03:49.360 --> 0:03:52.040 isn't one of the best setups I've seen for equities 0:03:52.120 --> 0:03:56.600 this year than I've seen in decades. So the optimism 0:03:56.680 --> 0:03:59.640 definitely overtakes a concern. And you know, we think this 0:03:59.720 --> 0:04:02.640 is the certainly the first phase of a very powerful 0:04:02.680 --> 0:04:05.200 ball market, and that's the phase investors don't want to miss. 0:04:05.400 --> 0:04:07.000 You know, if you look back at any bowl markets 0:04:07.000 --> 0:04:08.680 the first year and a half, where you get this 0:04:08.800 --> 0:04:13.040 acceleration like rocket launch like acceleration, then you get to 0:04:13.120 --> 0:04:16.000 cruising speed, which I think is probably into next year 0:04:16.279 --> 0:04:20.080 and beyond. But so here where you know, my optimism 0:04:20.279 --> 0:04:24.240 is overwhelming a concert there are concerns we have. I 0:04:24.279 --> 0:04:26.000 do think we're going to get a five percent at 0:04:26.080 --> 0:04:29.000 least seven percent correction between now and the end of 0:04:29.000 --> 0:04:32.360 the year, even though we do have high target numbers 0:04:32.400 --> 0:04:35.159 for the end of the year on markets in general. 0:04:35.440 --> 0:04:39.000 So in addition to addressing monetary policy today, Powell was 0:04:39.040 --> 0:04:43.880 talking about new banking regulations, and he indicated that regulators 0:04:43.880 --> 0:04:46.560 are close to agreeing to some type of modification to 0:04:46.600 --> 0:04:49.839 that plan to force the big banks to hold more capital, 0:04:49.960 --> 0:04:53.200 so maybe they'll be required to hold a little bit less. 0:04:53.320 --> 0:04:55.919 I thought it interesting that the financials actually led the 0:04:56.000 --> 0:04:57.800 S and P five hundred higher today. It was only 0:04:57.920 --> 0:05:00.760 up a tenth of one percent. Nonetheless, the entire group 0:05:00.960 --> 0:05:04.080 looked pretty robust. We've got earnings at the end of 0:05:04.080 --> 0:05:06.039 the week from some of the money centers. How are 0:05:06.120 --> 0:05:08.119 you feeling about the big banks these days? 0:05:09.640 --> 0:05:12.599 You know, Brian, this is a or Doug, this is 0:05:13.480 --> 0:05:16.600 a period where investors really want to own the banks. 0:05:17.000 --> 0:05:21.680 These are historically low pe ratios on the financials, in 0:05:21.720 --> 0:05:25.520 the banks specifically, and I think the banks even shrugged 0:05:25.560 --> 0:05:28.400 that off today based on the fact that the earnings 0:05:28.440 --> 0:05:29.960 are coming. I think the earnias are going to be 0:05:29.960 --> 0:05:33.000 better than expected. The multiples are low, and the FED 0:05:33.120 --> 0:05:36.960 is nodding to lowering rates, and that is going to 0:05:36.960 --> 0:05:40.279 be a boon for the banks, particularly the big ones. 0:05:40.560 --> 0:05:42.840 So I think investors want to be really careful about 0:05:42.839 --> 0:05:46.040 avoiding them. I think investors want to step in here 0:05:46.400 --> 0:05:48.520 or at any weakness and own them. 0:05:49.040 --> 0:05:51.920 It's tricky with the banks, obviously, I mean the big 0:05:51.960 --> 0:05:55.400 banks in particular, JP Morgan's done very well this year. 0:05:55.680 --> 0:05:57.920 I think the banks generally have done well. They've been 0:05:57.960 --> 0:06:01.600 one of the sectors that has been putting on gains 0:06:01.720 --> 0:06:05.559 up there, close to with the tech companies JP Morgan 0:06:05.600 --> 0:06:08.360 going from one to seventy up to you know, between 0:06:08.360 --> 0:06:11.800 two hundred and ten. But then you know you've got 0:06:11.880 --> 0:06:15.880 various segments in there. Regional banks, no, no, you know 0:06:15.920 --> 0:06:20.880 you've got companies like you know, the credit card companies 0:06:20.880 --> 0:06:23.160 that have done very well. How do you actually target 0:06:23.240 --> 0:06:27.120 that area instead of buying buying, say, you know, a 0:06:27.120 --> 0:06:29.000 big ETF that puts them all in. 0:06:30.040 --> 0:06:32.880 Yeah, that's a really good question. I think investors have 0:06:32.960 --> 0:06:35.160 been way better off this year by by being more 0:06:35.200 --> 0:06:38.719 selective and not owning let's say a whole sector, because 0:06:39.200 --> 0:06:41.800 that way you can avoid the regionals really can't get 0:06:41.839 --> 0:06:43.840 out of their own way, and it makes sense they 0:06:43.880 --> 0:06:47.240 need they need rates to really come down for sure. 0:06:47.480 --> 0:06:50.120 There's a lot of commercial real estates attached to them 0:06:50.720 --> 0:06:52.520 and they don't have the strong balance sheets of the 0:06:52.600 --> 0:06:55.640 larger banks. So you know, this is the sort of cycle, 0:06:56.200 --> 0:06:58.280 this phase of it where you want to be a 0:06:58.320 --> 0:07:01.000 stock selector, and I think think you want to go 0:07:01.080 --> 0:07:04.880 with Larger is better, right, Bigger market share is better 0:07:04.920 --> 0:07:07.839 balance sheets in the banks, and then we use that 0:07:07.880 --> 0:07:10.920 same litmus test across other sectors like tech, you know, 0:07:11.240 --> 0:07:14.600 in healthcare and industrials. So bigger is better, particularly in 0:07:14.640 --> 0:07:17.000 the beginning of a new bowl market where investors, you know, 0:07:17.200 --> 0:07:20.080 haven't even gotten fully invested yet. There's still trillions of 0:07:20.080 --> 0:07:23.480 dollars of uninvested assets laying around that needs to come 0:07:23.520 --> 0:07:26.280 into the market, and so people are going to safety 0:07:26.320 --> 0:07:29.480 trade first. Big is better, better balance sheets. 0:07:29.520 --> 0:07:31.080 So if we can agree that there's a little bit 0:07:31.120 --> 0:07:33.120 of dry powder on the side I heard, I thought, 0:07:33.160 --> 0:07:35.040 I heard you say a moment ago seven to ten 0:07:35.120 --> 0:07:38.600 percent correction sometime here in the near term. What is 0:07:38.640 --> 0:07:39.800 the catalyst for that? 0:07:41.800 --> 0:07:44.600 Yeah, First of all, I would say it's way over due, 0:07:45.480 --> 0:07:47.400 but I think it could be. You know, we got 0:07:47.400 --> 0:07:50.840 earning season here again, which I think is going to 0:07:50.880 --> 0:07:54.400 be robust, but it would not take much if you 0:07:54.560 --> 0:07:57.800 had one tech company kind of come in. You know, 0:07:57.880 --> 0:08:02.120 expectations have gone up a lot in the tech analyst community, 0:08:02.440 --> 0:08:05.800 and if they're a little bit too high and one 0:08:05.840 --> 0:08:08.600 company comes in a little miss here or there, I 0:08:08.640 --> 0:08:11.440 think it could rattle the market. I'd say more like 0:08:11.520 --> 0:08:15.920 a five to seven percent correction, which is still more 0:08:16.240 --> 0:08:19.600 shallow than normal. And that's only because there's so much cash. 0:08:19.760 --> 0:08:21.480 Every time there's a bit of a pullback, right, all 0:08:21.520 --> 0:08:24.520 that trillions of dollars in cash is trying to get 0:08:24.520 --> 0:08:27.160 in on that weakness. But I think it might be 0:08:27.200 --> 0:08:29.760 an earning type of thing that you see a bit 0:08:29.800 --> 0:08:32.280 of a pullback, and I tell you investors, if they 0:08:32.320 --> 0:08:35.240 haven't been in this market, they really need to use 0:08:35.320 --> 0:08:39.080 that next sort of mini correction to put that money 0:08:39.120 --> 0:08:40.559 to work towards the end of the year. 0:08:41.200 --> 0:08:44.800 Quick question on PCs recovering, What does that tell. 0:08:44.679 --> 0:08:49.800 You, Well, you know, the bigger buyer of PCs, you know, 0:08:49.800 --> 0:08:52.600 there's obviously corporate money spent there, but there's a lot 0:08:52.640 --> 0:08:59.040 of individuals and consumers doing that. I was really interested 0:08:59.080 --> 0:09:02.160 to see Apples that was really fantastic. We've been a 0:09:02.160 --> 0:09:05.200 fan of Apple for quite some time. I think that 0:09:05.240 --> 0:09:08.679 it shows that the economy is still very resilient. 0:09:09.520 --> 0:09:12.679 Yep, all right, James, Thanks, good session. James Demmert there 0:09:12.800 --> 0:09:22.360 cio at Main Street Research. We are chatting now with 0:09:22.480 --> 0:09:26.959 Sean Monahan, visiting fellow in Europe, Russia and Eurasia Program 0:09:27.280 --> 0:09:31.079 at the CSIS, the Center for Strategic and International Studies 0:09:31.520 --> 0:09:35.880 in Washington, d C. So the NATO meeting today and 0:09:35.960 --> 0:09:39.720 the speech by President Biden, Biden no doubt made more 0:09:39.720 --> 0:09:43.520 friends in Europe with the speech today, a strong defense 0:09:43.559 --> 0:09:48.080 of NATO, strong defense of Europe, strong defense of global institutions. 0:09:48.120 --> 0:09:52.120 And Biden said Sean that NATO is as strong as ever. 0:09:53.000 --> 0:09:54.040 Did he get that right? 0:09:55.400 --> 0:09:55.600 Yeah? 0:09:55.640 --> 0:09:56.000 I love that. 0:09:56.120 --> 0:09:59.160 Thanks for having me. Well, I think Biden did. I mean, 0:09:59.240 --> 0:10:01.400 NATO needs to be as strong as it's ever been, 0:10:01.480 --> 0:10:04.440 because it's now the most challenging time really that NATO 0:10:04.520 --> 0:10:07.000 has ever faced. I mean, the Alliance is seventy five 0:10:07.080 --> 0:10:10.480 years old, created in nineteen forty nine as a bullwork 0:10:10.520 --> 0:10:13.679 against Soviet aggression in Europe. But now with Russia's war 0:10:13.800 --> 0:10:18.040 in Ukraine, war raging in Europe, the US, NATO's main 0:10:18.080 --> 0:10:21.880 ally kind of pivoting to East Asia. NATO really needs 0:10:21.880 --> 0:10:24.120 to up its game. This is a really dangerous time. 0:10:24.160 --> 0:10:26.720 And this week in Washington, I think we can expect 0:10:26.760 --> 0:10:30.199 allies to announce a series of measures that demonstrate that 0:10:30.240 --> 0:10:31.160 they're really stepping up. 0:10:31.600 --> 0:10:34.439 So mister Biden has been on the defensive as I'm 0:10:34.440 --> 0:10:36.880 sure you're well aware since the debate a couple of 0:10:36.880 --> 0:10:40.880 weeks back, and he had an interviewer sit down last Friday. 0:10:40.920 --> 0:10:42.720 One of the things that he was addressing in terms 0:10:42.760 --> 0:10:46.880 of accomplishments was the expansion of NATO. So during his 0:10:46.920 --> 0:10:50.160 presidency we have seen the addition of Finland and Sweden. 0:10:50.800 --> 0:10:54.840 Give us an understanding of Biden's influence on the Alliance 0:10:54.840 --> 0:10:56.640 in these last three and a half years. 0:10:57.880 --> 0:11:00.120 Sure. Well, the first thing that President Biden said, I 0:11:00.120 --> 0:11:03.360 think when he came into office with something like America 0:11:03.440 --> 0:11:06.920 is back and alliances are back, and he's really put 0:11:06.960 --> 0:11:11.880 that into practice. Yeah, the main achievement you mentioned it 0:11:11.960 --> 0:11:15.360 Finland and Sweden have joined NATO. NATO is now two members, 0:11:15.400 --> 0:11:18.120 two allies larger. Now, of course that's not just down 0:11:18.160 --> 0:11:21.320 to President Biden. The real reason that people of Finland 0:11:21.360 --> 0:11:24.280 and Sweden decided to join the NATO Alliance was because 0:11:24.320 --> 0:11:27.840 of mister Putin's actions. Mister Putin, if you like, has 0:11:28.160 --> 0:11:31.840 seen kind of Newton's third law of international politics in action, 0:11:31.920 --> 0:11:35.080 which is that every action has an equal and opposite reaction, 0:11:36.040 --> 0:11:38.520 and in reaction to his invasion of Ukraine, Finland as 0:11:38.600 --> 0:11:42.040 Weeden ad opted to join NATO. But under mister Biden's watch, 0:11:42.080 --> 0:11:44.679 I mean, spending has gone up in Europe. The perennial 0:11:44.679 --> 0:11:48.600 complaint from Washington that Europeans weren't pulling their weight. And 0:11:48.679 --> 0:11:50.760 in the four years mister Biden has been in office, 0:11:50.960 --> 0:11:55.400 we've seen a drastic increase in defense spending by European allies. 0:11:55.920 --> 0:11:58.040 Back four years ago and in nine of them spent 0:11:58.120 --> 0:12:01.040 the two percent of DP on defense. Now twenty three 0:12:01.080 --> 0:12:03.200 of them do. That's an impressive achievement. 0:12:04.320 --> 0:12:07.720 So the action today the air defense systems, five long 0:12:07.800 --> 0:12:11.680 range air defense systems and F sixteen fighters. This is 0:12:11.720 --> 0:12:14.640 a show of unity. Does it make a difference, Will 0:12:14.679 --> 0:12:18.000 it in any way intimidate President Vladimir Putin? 0:12:19.760 --> 0:12:23.160 I mean yes and no. The need for more air 0:12:23.200 --> 0:12:26.760 defense systems and in particular the interceptors, the missiles that 0:12:26.760 --> 0:12:30.000 are fired from the ground at incoming missiles, was really 0:12:30.040 --> 0:12:34.360 demonstrated by the horrific, tragic attack really on the children's 0:12:34.360 --> 0:12:36.880 hospital in Ukraine that we saw a couple of days 0:12:36.920 --> 0:12:41.920 ago in an incredibly cynical move. That attack came alongside 0:12:42.080 --> 0:12:45.840 a wealth of other attacks across Ukraine by Russia's missile 0:12:45.960 --> 0:12:49.920 missile forces. And so you know the US, the West. 0:12:50.000 --> 0:12:54.640 NATO has been helping supporting Ukraine, providing a wealth of 0:12:54.960 --> 0:12:57.440 equipment and systems, and air defense has really been top 0:12:57.440 --> 0:13:00.480 of Kiev's shopping list for some time. They've got some 0:13:00.520 --> 0:13:03.360 more systems, but they need a lot more. And this 0:13:03.400 --> 0:13:05.080 is where NATO this week is going to have to 0:13:05.120 --> 0:13:09.040 announce some measures to commit in more aid in the 0:13:09.080 --> 0:13:12.199 long term to Ukraine and also to commit to boost 0:13:12.520 --> 0:13:17.160 NATO allies owned defense industrial basis to produce that equipment 0:13:17.160 --> 0:13:20.040 in fruture, both for Ukraine and for NATO's own purposes. 0:13:20.160 --> 0:13:22.160 Do you think about the rise that we have seen 0:13:22.280 --> 0:13:25.679 in some far right parties, whether it's Italy or France, 0:13:26.720 --> 0:13:29.040 as having an impact on NATO at some point? 0:13:31.880 --> 0:13:34.440 It's hard to say. Look, NATO is a collection and 0:13:34.520 --> 0:13:37.320 alliance of democracies. There's thirty two of them now so 0:13:38.200 --> 0:13:40.600 over seventy five years, and there were twelve nations to 0:13:40.640 --> 0:13:44.680 beginning with. There's been many elections, many changes in governing 0:13:44.720 --> 0:13:48.920 parties among NATO allies, and through all of that volatility, 0:13:49.480 --> 0:13:53.320 NATO has endured, and NATO endures because it offers a 0:13:53.360 --> 0:13:55.960 clear deal to the allies that are part of it. 0:13:56.040 --> 0:14:00.280 That strength in numbers together, they are stronger and can 0:14:00.320 --> 0:14:03.480 deter threats like Russia. NATO is also not just a 0:14:03.520 --> 0:14:06.800 military alliance, but of course it's a security community of 0:14:07.480 --> 0:14:10.920 nations with common values, so it endures for those reasons too. 0:14:11.000 --> 0:14:14.000 So it's celebrating seventy five years. I think we'll see 0:14:14.080 --> 0:14:16.079 many more years out of NATO. 0:14:15.920 --> 0:14:20.760 Yet, Sean, you're there in Washington, d C. I take it, 0:14:21.240 --> 0:14:25.880 And I'm curious about your perception of the President's performance. 0:14:25.920 --> 0:14:28.720 It's been so much in the spotlight, given the weakness 0:14:28.720 --> 0:14:32.320 in the debate a week and a half ago. Did 0:14:32.320 --> 0:14:34.480 he sound like a commander in chief? Did he look 0:14:34.600 --> 0:14:37.120 like the president of the United States? Your take? 0:14:38.200 --> 0:14:40.760 Yeah, of course. So yeah, I'm here in Washington, DC, 0:14:41.320 --> 0:14:43.280 and this is a talk of the town at the moment, 0:14:43.760 --> 0:14:46.280 and of course it's NATO summit. There's lots of functions. 0:14:46.280 --> 0:14:50.040 I've just actually come from a function following the President's speech, 0:14:50.120 --> 0:14:51.720 and a lot of people were really saying that he 0:14:51.760 --> 0:14:55.760 put in an excellent performance as commander in chief. He 0:14:55.840 --> 0:14:59.920 was very strong and decisive, didn't hesitate, and also the 0:15:00.040 --> 0:15:03.920 bit of a surprise where he gave current sectory General 0:15:04.000 --> 0:15:07.120 Jan Stoltenburg the Medal of honor the highestvillion holla, and 0:15:07.160 --> 0:15:10.240 that was Yen Stoloma looked quite emotional. Actually, it was 0:15:10.320 --> 0:15:11.800 a bit of a surprise. So that was a nice 0:15:11.840 --> 0:15:14.800 a nice touch too. So I think Biden. President Biden 0:15:14.880 --> 0:15:18.520 always saw this week as a really important one. It's 0:15:18.560 --> 0:15:21.000 even more important for him now he's got the first 0:15:21.040 --> 0:15:23.080 speech out of the way. He's done really well. So 0:15:23.200 --> 0:15:25.440 on to the next two days of the summit. 0:15:25.240 --> 0:15:27.760 Sean, before we let you go. In the event that 0:15:27.840 --> 0:15:30.600 there is a second Trump administration, and I'm sure there 0:15:30.600 --> 0:15:36.840 has been a conversation across European countries, NATO Alliance countries 0:15:37.320 --> 0:15:40.800 in particular, about the changes that would happen under another 0:15:41.320 --> 0:15:45.400 Trump administration. Can you shed any perspective on that, what 0:15:45.520 --> 0:15:49.760 the nature of these conversations may have been or maybe yeah. 0:15:49.800 --> 0:15:53.080 Of course, as I said, NATO's and alliance of democracies 0:15:53.120 --> 0:15:56.080 and a feature of a NIS the democracies, elections happen 0:15:56.200 --> 0:15:59.880 very often, so particularly when the election is in the biggest, 0:16:00.080 --> 0:16:04.800 most powerful state in NATO, the US. You know, allies 0:16:04.920 --> 0:16:08.000 capitals are watching. But I think what they see is 0:16:08.160 --> 0:16:10.600 if it's Biden or if it's Trump. As I said, 0:16:10.720 --> 0:16:14.920 NATO presents a kind of very clear argument. It's really 0:16:14.920 --> 0:16:17.880 in the interest of Europeans and Americans to have a 0:16:18.000 --> 0:16:22.280 very strong NATO. Deterring war in Europe against NATO allies 0:16:22.360 --> 0:16:25.600 is far cheaper than fighting it. You know, European security 0:16:25.680 --> 0:16:27.760 is still American security at the end of the day. 0:16:27.760 --> 0:16:30.680 We'll learnt that throughout the twentieth century, and depending on 0:16:30.680 --> 0:16:32.600 the color of the government, I don't think that fundamental 0:16:32.640 --> 0:16:36.080 coret argument changes and I think the American people kind 0:16:36.080 --> 0:16:37.240 of seem to realize that too. 0:16:38.000 --> 0:16:41.560 Just to the battlefield. One final question on Ukraine in 0:16:41.600 --> 0:16:44.840 your assessment, does either side look ready for any kind 0:16:44.880 --> 0:16:45.400 of breakthrough? 0:16:48.360 --> 0:16:51.480 Not so much at the minute. I mean, I think 0:16:51.520 --> 0:16:54.320 mister if he was able to make a breakthrough, he 0:16:54.320 --> 0:16:58.320 would have done so to spoil the NATO summit. What 0:16:58.440 --> 0:17:01.360 was clear from the tax this week, which includes the 0:17:01.400 --> 0:17:02.800 attack on the fieldpil all. 0:17:02.800 --> 0:17:05.199 Right, Sean, thanks so much, Sean Monaghan. There from the 0:17:05.240 --> 0:17:16.560 csis the Center for Strategic and International Studies. We're joined 0:17:16.560 --> 0:17:20.880 by Adam Kohn's chief portfolio manager at Winthrop Capital Management. 0:17:21.440 --> 0:17:21.720 So J. 0:17:21.920 --> 0:17:24.760 Powell seems to have laid out this kind of script 0:17:24.800 --> 0:17:28.600 and it is pretty well scripted. It seems acknowledge a 0:17:28.640 --> 0:17:33.119 little softness in jobs, prepare the market, now watch the data, 0:17:33.400 --> 0:17:36.760 then updated jackson Hole, and then finally pull the trigger 0:17:36.880 --> 0:17:39.840 in September. Does the script need any editing? 0:17:40.600 --> 0:17:40.800 You know? 0:17:40.840 --> 0:17:44.600 I think that's what the market is saying, is that 0:17:44.640 --> 0:17:47.400 we're going to get rate cuts in September. But that's 0:17:47.440 --> 0:17:52.240 dependent on this economic gata continuing to get worse and worse, 0:17:52.320 --> 0:17:54.560 and I think it has to get fairly bad before 0:17:54.560 --> 0:17:55.080 the FED is. 0:17:55.040 --> 0:17:56.359 Going to cut any rates. 0:17:57.040 --> 0:17:58.760 I keep coming back to the fact, you've got to 0:17:58.800 --> 0:18:02.800 look at the entire site of this FED, and when 0:18:02.840 --> 0:18:06.679 we go back to the beginning, when we kind of 0:18:06.720 --> 0:18:10.159 had this transitory talk, inflation was picking up, it was 0:18:10.359 --> 0:18:15.520 very apparent that inflation was an issue, yet the FED 0:18:15.640 --> 0:18:16.960 was very slow to act. 0:18:17.000 --> 0:18:19.280 Then. I think the reality is they're going to have. 0:18:19.280 --> 0:18:21.520 That same stance on the back end of the cycle, 0:18:21.560 --> 0:18:24.959 where they're going to be slow to respond to one 0:18:25.119 --> 0:18:26.600 or two data points. I think we're gonna have to 0:18:26.640 --> 0:18:33.600 see multiple consecutive data points pointing to both inflation decelerating 0:18:33.760 --> 0:18:38.920 and employment becoming an issue. So their dual mandate needs 0:18:38.960 --> 0:18:41.520 to be addressed before they're going to cut any rates. 0:18:41.680 --> 0:18:44.679 Sounds like a recipe for a policy mistake is that 0:18:44.720 --> 0:18:45.600 the way you see it. 0:18:47.240 --> 0:18:50.000 I think it's it's a setup for a potential because 0:18:50.160 --> 0:18:53.000 you know, they're they're walking a tight rope. 0:18:53.520 --> 0:18:55.600 Over the last year, it's looked pretty good. 0:18:55.640 --> 0:18:59.280 They've done a good job maintaining you know, people have 0:18:59.400 --> 0:19:02.120 used the narrative of soft landing or no landing, and 0:19:02.480 --> 0:19:06.359 we've seen that the US economy has remained extremely resilient 0:19:06.520 --> 0:19:08.760 despite higher interest rates. 0:19:09.440 --> 0:19:13.000 The problem is if you wait too long, and if 0:19:13.000 --> 0:19:16.359 you wait until the economy has completely rolled over to 0:19:16.480 --> 0:19:19.359 change policy, at that point, it's too late, and the 0:19:19.400 --> 0:19:22.280 policy mistake really would be that you push the US 0:19:22.280 --> 0:19:25.080 economy into disinflation or even worse, deflation. 0:19:26.000 --> 0:19:28.800 So you see that as the main policy mistake because 0:19:28.800 --> 0:19:31.359 it could be the way too soon or too or 0:19:31.359 --> 0:19:31.880 too late. 0:19:33.280 --> 0:19:37.879 I mean, it's a terrible tough job to have. I 0:19:37.920 --> 0:19:41.080 do not envy pal, So yeah, I mean that is 0:19:41.480 --> 0:19:45.320 the potential, right. If you cut too soon, you reignite inflation, 0:19:45.800 --> 0:19:48.040 and you kind of have some of the things we've 0:19:48.040 --> 0:19:52.280 seen historically historically where inflation seems to be done, seems 0:19:52.280 --> 0:19:55.080 to be dead, and then because policy moves too quickly 0:19:55.080 --> 0:19:57.560 in the other direction, inflation picks back up, So that 0:19:58.119 --> 0:20:00.000 is a risk. I do think that's a lower risk 0:20:00.560 --> 0:20:03.440 then the other side of that waiting too long and 0:20:03.480 --> 0:20:05.359 then seeing us move into disinflation. 0:20:05.600 --> 0:20:08.800 So how are you translating what you believe in the 0:20:08.800 --> 0:20:12.040 macro into an investment strategy? What are you doing these days? 0:20:13.720 --> 0:20:18.199 Well, I mean, for us, the conviction call for probably 0:20:18.240 --> 0:20:22.000 the last twelve months has been high quality long duration bonds. 0:20:22.000 --> 0:20:25.120 I know it's not exciting, but for us, we look 0:20:25.160 --> 0:20:28.160 at the asymmetry of whatever investment we're in, and when 0:20:28.160 --> 0:20:31.680 we look across the universe of potential investments, long duration 0:20:31.760 --> 0:20:35.800 bonds have the biggest asymmetry, meaning that the potential for 0:20:35.920 --> 0:20:40.600 interest rates to go much higher is fairly low. So 0:20:40.680 --> 0:20:43.920 the other two scenarios are one, interest rates stay where 0:20:43.920 --> 0:20:46.280 they are for a longer period of time, and. 0:20:46.240 --> 0:20:46.879 I'm okay with that. 0:20:46.920 --> 0:20:50.080 I'm okay clipping you know, five percent coupons for the 0:20:50.119 --> 0:20:53.520 next you know, twelve months or so. Or The upside 0:20:53.520 --> 0:20:56.400 of that asymmetry is that interest rates come down. They 0:20:56.400 --> 0:21:00.879 collapse because either the Fed starts cutting or the market 0:21:00.880 --> 0:21:03.760 sees that, you know, the economy is rolling over quicker 0:21:03.760 --> 0:21:05.919 than we expected. And then you're gonna see rates come down, 0:21:05.920 --> 0:21:07.399 You're gonna see the price of bonds go up, so 0:21:07.400 --> 0:21:09.240 that that has been the highest conviction call for US. 0:21:09.920 --> 0:21:13.280 So for those people worried about recession coming on quickly, 0:21:13.640 --> 0:21:17.480 today you had Apple, Google, Walmart, and Costco hit all 0:21:17.520 --> 0:21:21.240 time highs. And that's a pretty good mix of consumer 0:21:21.280 --> 0:21:24.760 facing companies, right. Doesn't that tell you that recession's not 0:21:24.920 --> 0:21:26.120 very likely anytime soon? 0:21:28.240 --> 0:21:30.960 Well, I mean I think, you know, look, a stock 0:21:31.160 --> 0:21:36.080 in some ways is going to lead with what we 0:21:36.280 --> 0:21:39.040 what we see right now. It's not looking out to 0:21:39.800 --> 0:21:42.360 you know, what a company is going to be doing 0:21:42.359 --> 0:21:45.119 twelve months from now. And on the other side of that, 0:21:45.119 --> 0:21:47.560 I would say the companies just listed could probably weather 0:21:47.640 --> 0:21:50.280 that storm fairly well. I think when you look at 0:21:50.280 --> 0:21:52.159 the other side of the market, where you've seen you know, 0:21:52.240 --> 0:21:54.800 things like Tesla and n Video that have had corrections, 0:21:55.160 --> 0:21:59.280 that's a bigger tell of overvaluation met with a potential 0:21:59.359 --> 0:22:01.879 for a rolling over of the economy. 0:22:02.119 --> 0:22:06.119