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Speaker 1: This is Bloomberg Day Break Asia for this Monday, May

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Speaker 1: eighth in Hong Kong, Sunday May seventh in New York,

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Speaker 1: and coming up today.

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Speaker 2: Treasury Secretary Yellen warns there are no good options for

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Speaker 2: solving a debt limit stalemate in Washington.

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Speaker 1: With US adding more jobs than expected in April, traders

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Speaker 1: are now looking for upcoming inflation data for clues on

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Speaker 1: the Fed's rate hype path.

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Speaker 2: And Warren Buffett predicts the good times may be over

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Speaker 2: with earnings falling this year.

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Speaker 3: Rare South Korea Japan Summit works on rebuilding relationship and

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Speaker 3: semiconductor agreement. South Korea US Summit this week on cybersecurity.

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Speaker 3: US prepares for biggest potential migrant increase since World War Two.

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Speaker 3: I'm at Baxter with Global News.

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Speaker 4: That's all straight ahead on Bloomberg day Break Asia, the

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Speaker 4: business news you need to start your day in just

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Speaker 4: one fifteen minute podcast available on Apple, Spotify, the Bloomberg

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Speaker 4: Business App, and everywhere you get your podcasts.

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Speaker 5: Good morning, I'm Brian Curtiz.

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Speaker 2: And I'm Doug Chrisner. Here are the stories we're following today.

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Speaker 1: Treasury Secretary Jennet Yellen saying that there are simply no

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Speaker 1: good options for solving the debt limit stalemate in Washington.

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Speaker 1: This comes as GOP leaders are demanding promises of future

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Speaker 1: spending cuts before they approve a higher debt ceiling. Now,

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Speaker 1: President Biden has insisted on a clean increase, with budget

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Speaker 1: talks kept fully separate. The Treasury Department has warned that

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Speaker 1: it could run out of money to meet its obligations

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Speaker 1: as soon as June first. Yellen told ABC's This Week

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Speaker 1: that it's Congress's job to fix this problem.

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Speaker 6: If Congress doesn't act, more likely to see financial market consequences.

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Speaker 6: In twenty eleven, there is a steep decline in the

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Speaker 6: stock market and are borrowing costs back in twenty eleven,

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Speaker 6: the US was downgraded by the credit rating agencies. There

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Speaker 6: would be permanently higher borrowing costs for Americans for buying

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Speaker 6: a home, buying a car, and a failure that would

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Speaker 6: cause a steep economic downturn.

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Speaker 1: That's Jenny Yellen heard right here on Bloomberg. She also

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Speaker 1: cautioned that resorting to use of the fourteenth Amendment would

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Speaker 1: provoke a constitutional crisis. President Biden has scheduled to meet

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Speaker 1: with House Speaker Kevin McCarthy and some other congressional leaders

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Speaker 1: on Tuesday to discuss the debt ceialing issue.

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Speaker 2: Well, on Friday here in the US, we heard from

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Speaker 2: the head of the Saint Louis FED, Jim Bullard. He

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Speaker 2: was saying policymakers will probably have to push rates higher

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Speaker 2: to cool inflation. Even so, he thinks the FED can

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Speaker 2: still achieve a soft landing.

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Speaker 7: Yes, the conry couldn't go into recession, but that's not

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Speaker 7: the base case. I think the base case is slow growth,

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Speaker 7: probably somewhat softer labor market, and declining inflation.

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Speaker 2: Billard went on to say he wants to use a

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Speaker 2: data dependent approach before decide on what moved to support

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Speaker 2: of the Fed's June meeting. To be fair, he is

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Speaker 2: a non voter on that rate setting committee this year. Separately,

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Speaker 2: Bullard said the April job stated was stronger than forecast,

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Speaker 2: but he didn't know. Job openings are still much higher

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Speaker 2: than they were before the pandemic. Now this Wednesday, we'll

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Speaker 2: get US retail inflation data and clues on whether the

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Speaker 2: Fed has the flexibility to pause in its rate hiking cycle.

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Speaker 1: Well, the White House is downplaying the need to curb

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Speaker 1: short selling of banks. That's even as President Biden has

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Speaker 1: not ruled out any options to ensure the stability of

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Speaker 1: the banking system. Shares of regional banks have been under

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Speaker 1: pressure following failures at First Republic SVB and Signature Bank,

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Speaker 1: as well as Silvergate. We heard from Heather Bouchet, a

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Speaker 1: member of Biden's Council of Economic Advisors, the.

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Speaker 8: Information that we have at this point is the situation

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Speaker 8: remains under control. Certainly, the FDIC and Treasury are watching

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Speaker 8: these things very closely.

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Speaker 1: We've been able to.

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Speaker 8: See stability back into that system, and we've seen deposit

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Speaker 8: flows again stabilized, So I think they are indications that

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Speaker 8: we are in a better place certainly, and we continue

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Speaker 8: to watch the situation as it unfolds.

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Speaker 1: The KBW Regional Banking Index has dropped about thirty percent

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Speaker 1: this year. However, as we heard from Doug a few

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Speaker 1: moments ago, rebound across regional banking stocks on Friday into

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Speaker 1: that selling pressures had gone a little too far, Pack

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Speaker 1: West leading the way, soaring more than eighty percent. Following

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Speaker 1: the route that saw it shares tumbling to a record low.

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Speaker 2: We go next to the Oracle of Omaha, Warren Buffett,

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Speaker 2: who is warning of an economic slowdown, and he's also

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Speaker 2: calling for some bank executives to be punished. More from

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Speaker 2: Bloomberg's th Nase Pellegrini.

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Speaker 9: Berkshire Hathaway is reporting a jump in quarterly operating income,

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Speaker 9: but the billionaire chairman and CEO also warned earnings could

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Speaker 9: decline across Berkshire's units going forward, and at the annual

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Speaker 9: shareholder meeting in Omaha, Buffett also said execs failed banks

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Speaker 9: should be held accountable from mistakes hiding in plain sight,

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Speaker 9: including lex mortgage lending. He says at First Republic. Buffet

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Speaker 9: also says Berkshire isn't planning and buying the rest of

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Speaker 9: Occidental Petroleum it doesn't already own, and he reaffirmed his

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Speaker 9: choice of greg Abel as heir apparent at the conglomerate

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Speaker 9: Denise Pelgriny Bloomberg day Break Asia.

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Speaker 1: Australian Treasurer Jim Chalmers said that China is the economic

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Speaker 1: rebound cannot offset the impact of the Australian budget from

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Speaker 1: the global economic downturn. That's despite China being Australia's largest

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Speaker 1: trading partner. Here is Chalmer speaking in an interview with Bloomberg.

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Speaker 10: The Global economy more broadly has been a bit a

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Speaker 10: bit softer than what people were anticipating. China maybe a

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Speaker 10: little bit stronger, but you know, overall, we want to

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Speaker 10: make sure that we're making the most of these trading relationships.

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Speaker 10: That's been a big priority for US. China is important

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Speaker 10: to our economy and to our budget. Not the whole story,

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Speaker 10: but important part of it.

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Speaker 1: Chalmers is also expected to announce Australia. Ellia's economy has

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Speaker 1: returned to surplus for the first time in fifteen years.

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Speaker 1: Bloomberg economists predict that tomorrow's fiscal blueprint will show a

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Speaker 1: three point six billion dollars shortfall, or about a quarter

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Speaker 1: of a percent of GDP. Australia is expected to benefit

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Speaker 1: from surging revenues from commodities, exports and a persistently strong

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Speaker 1: labor market. We'll get the full Australian budget on Tuesday,

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Speaker 1: seven pm, Sydney time. All Right, I'm Brian Curtis, along

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Speaker 1: with Doug christ and Rashad Salama will join us in

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Speaker 1: a few moments, so Doug more talk of a short

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Speaker 1: selling ban on regional banks. That's one interesting bit of

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Speaker 1: the news flow, and I think also Warren Buffett saying

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Speaker 1: the good times may be over. However, a few moments

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Speaker 1: ago I mentioned good news. It's nice when good news

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Speaker 1: is good news, but then you know good news is

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Speaker 1: actually bad news to some and the reverse, so we

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Speaker 1: have to kind of explain ourselves. I would see the

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Speaker 1: jobs report as on balance good news, and it's interesting

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Speaker 1: because it seems that the market may have to come

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Speaker 1: around more to the Fed's position than the reverse, and

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Speaker 1: I think that's something that we'll get at all throughout

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Speaker 1: the morning.

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Speaker 2: I think that's a very interesting point, particularly in light

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Speaker 2: of the fact that we still don't have the data

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Speaker 2: on the current data on inflation. Will get that this

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Speaker 2: week CPI Wednesday, PPI on Thursday. If those numbers come

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Speaker 2: in on the soft side, maybe maybe the Fed has

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Speaker 2: a little bit of room to pause. But I hear

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Speaker 2: what you're saying, Brian. When it comes to those jobs

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Speaker 2: numbers coming in above forecast, Okay, perhaps we can avoid recession,

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Speaker 2: but the implication here is that inflationary pressures will remain.

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Speaker 1: Well, that's my point, and that's what Jay Powell has

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Speaker 1: been saying. He's saying we're not likely to cut, and

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Speaker 1: the market says we're going to cut this year and

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Speaker 1: he's saying no because he doesn't see recession and also

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Speaker 1: because he doesn't see inflation coming down quickly. So it

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Speaker 1: seems like at least at the moment. And you know,

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Speaker 1: this is funny because the market, the market is like

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Speaker 1: millions of people. But at least at the moment, the

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Speaker 1: Fed policy makers have a better grasp of this than

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Speaker 1: what the market is suggesting, because the market only is

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Speaker 1: saying one of two things is going to happen. Either

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Speaker 1: inflation is going to come down, it doesn't look like

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Speaker 1: that's going to happen, or that there's a serious downturn

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Speaker 1: in the economy which will force the FED to bring

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Speaker 1: interest rates down, and the Fed's saying not, we don't

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Speaker 1: see it.

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Speaker 2: Well, I think that's what the bond market is hoping for.

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Speaker 2: We know that employment is a lagging indicators, so maybe

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Speaker 2: an abrupt decline in the number of nonfarm jobs created

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Speaker 2: and perhaps some contraction of the labor market, and that

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Speaker 2: then maybe would justify the two twenty five bases point

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Speaker 2: rate cuts that the market is pricing in before the

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Speaker 2: end of the year.

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Speaker 1: Yeah, we did get a little bit of a rationalization

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Speaker 1: on the work from what it was before. So is

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Speaker 1: it two now then it was three before, I think,

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Speaker 1: so that's right. Yeah, it's a real moving target.

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Speaker 5: All right. Now it's time for Global News.

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Speaker 1: In a rare summit, South Korea and Japan has struck

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Speaker 1: a court of unity in a rare summit over the weekend.

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Speaker 1: A backs to with Global News in the nine to

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Speaker 1: sixty newsroom in San Francisco.

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Speaker 3: Ed, yeah, right, Brian. It is rare. President yunsuk yu

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Speaker 3: Ol Prime Minister Fumio Kishita agreeing to cooperate fully with

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Speaker 3: each other and the US on security in the region

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Speaker 3: from North Korea also agree to implement a deal meant

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Speaker 3: to heat an historic rift between our heel, I should say,

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Speaker 3: an historic rift between the two going back to Japan's

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Speaker 3: colonial rule from ten to ten or nineteen ten to

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Speaker 3: nineteen forty five, and to work on an agreement on semiconductors.

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Speaker 3: Although they did not release any details. Kishita says he

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Speaker 3: sees talks going forward in dynamic manner, and Ewn says

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Speaker 3: he looks forward to shuttle diplomacy. Meanwhile, South Korea and

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Speaker 3: the US will meet this week to strengthen their cooperation

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Speaker 3: in responding to cybersecurity threats. Janhapp says part of the

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Speaker 3: Cyber Cooperation Working Group schedule for today and tomorrow. In

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Speaker 3: two days, US President Joe Biden will sit down with

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Speaker 3: Congression leaders to talk about how to stave off crisis

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Speaker 3: that could be caused by the government running out of

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Speaker 3: cash be the first time in history. Treasury Secretary Janet

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Speaker 3: Yellen today on ABC has heard on Bloomberg blaming Congress.

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Speaker 6: It simply is unacceptable for Congress to threaten economic calamity

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Speaker 6: for American assholds.

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Speaker 3: And the Senate Majority leader Chuck Schumer says social security crisis.

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Speaker 11: In fact, there could be a Social Security check shutdown

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Speaker 11: unless they can get their act together and we can

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Speaker 11: have a clean debt ceiling.

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Speaker 3: But Republican Senator James Lankford on ABC has heard here

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Speaker 3: on Bloomberg, says the GOP has said we'll.

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Speaker 5: Be tied to the deadlmit because we've got to have

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Speaker 5: this conversation again.

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Speaker 3: Yellen says the deadline is the first few days of June.

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Speaker 3: All maneuvering is exhausted at that point. She says. The

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Speaker 3: head of the Department of Homeland Security, Alejandro Maorkas, is

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Speaker 3: warning that this week we'll see a potential influx of

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Speaker 3: migrants bigger than anything the US has seen since World

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Speaker 3: War Two. My arcis on CBS as Homeland is working

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Speaker 3: on plants, but its hands basically are tied.

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Speaker 12: We need immigration reform. Everything that the Department of Homeland

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Speaker 12: Security is doing, everything that our partners across the federal

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Speaker 12: government are doing, is within a broken immigration system.

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Speaker 3: Fifteen hundred troops have been sent to the border to

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Speaker 3: help with processing, but not law enforcement. Alan Texas mourning

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Speaker 3: the loss of another US mass shooting. Eight people killed,

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Speaker 3: at least nine injured. Police Chief Brian Harvey says response

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Speaker 3: was very quick, but it could have been much worse.

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Speaker 13: One of our officers was on an unrelated call at

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Speaker 13: the Outlet mall. He heard gun shots, went to the gunshots,

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Speaker 13: engaged the suspect and neutralized the suspect.

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Speaker 3: Police identify the man as being thirty three years old,

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Speaker 3: armed with a semi automatic weapon. They say he'd had

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Speaker 3: gun training to be a security guard. Global News powered

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Speaker 3: by more than twenty seven hundred journalists and analysts in

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Speaker 3: over one hundred and twenty countries. In San Francisco, I'm

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Speaker 3: at Baxter and this is Bloomberg.

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Speaker 1: IM Brian Curtis along with rushad' Salama. We are here

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Speaker 1: in Hong Kong.

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Speaker 5: George B.

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Speaker 1: Boris joins us now head of Research K two Asset Management.

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Speaker 5: George is in Melbourne.

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Speaker 1: So George, great to have you with us on a

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Speaker 1: Monday morning here in the Asia Pacific. Warren Buffett predicting

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Speaker 1: that the good times may be over. He's the Sage

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Speaker 1: of Omaha. What does the Sage of Melbourne tell us

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Speaker 1: on this Monday morning?

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Speaker 5: Opportunities?

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Speaker 14: Good morning, Yes, always opportunities.

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Speaker 15: That's why we have as allocation and we're always looking

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Speaker 15: for low correlations across the act classes, which is another

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Speaker 15: way of saying, always opportunities at different stages of the cycle.

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Speaker 15: The thing to reinforce is higher level of course, building

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Speaker 15: on from the great man Warren Buffett and many other

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Speaker 15: good ones. And I'm just a mere humble acid allocator

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Speaker 15: and front manager. Is is you looking through the scenario

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Speaker 15: of a shallow technical economic recession in North America with

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Speaker 15: the tight labor market and FED policy? What it should

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Speaker 15: be hawkish to deal with something that's quite stubborn and concerning.

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Speaker 14: With the core inflation.

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Speaker 15: But there's the reality is there's an unevenness in all

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Speaker 15: Western economies across the different sectors for equities, but also

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Speaker 15: across the economy, And you're saying it amplified obviously with

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Speaker 15: regional banks, small caps in North America versus the core

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Speaker 15: superbanks and then the big tech driving the aggregate earnings

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Speaker 15: through and beating expectations. But we come around in circle

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Speaker 15: again and have to deal with inflation. What are the

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Speaker 15: consequences of the policy that demand destruction? Things are breaking

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Speaker 15: at the margin, but it really isn't a traditional recession

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Speaker 15: that's going to be right across in aggregate.

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Speaker 14: Stan's hurting North America.

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Speaker 1: So does I mean you can Does that mean you

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Speaker 1: can just kind of ignore it and just play as

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Speaker 1: you would normally play because the recession isn't going to

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Speaker 1: be that deep.

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Speaker 15: In part, you can never ignore it. We are data dependent,

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Speaker 15: like the Federal observes. We're always looking to data week

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Speaker 15: by week. But what what is happening and what we're

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Speaker 15: expecting going forward is unlike the past fifteen years. And

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Speaker 15: some of the many consequences of that is that we're

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Speaker 15: looking for again low correlations before the asset classes and

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Speaker 15: fixed income behaving as it should be when you have

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Speaker 15: that in your portfolio versus equities. And then when you're

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Speaker 15: in equities, obviously there's a big tilt to defensives and

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Speaker 15: the big texts and some of the big banks relative

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Speaker 15: to the smaller ones. Industrials obviously looking at an opportunity

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Speaker 15: in North America and parts of Europe. But the point

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Speaker 15: being is we're getting more traditional cycles and the risk

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Speaker 15: free rate being elevated for longer is something that was

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Speaker 15: experience over fifteen years ago, and that's where we're getting

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Speaker 15: into that sort of operating platform Georgia.

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Speaker 11: You know, then as an asset allocator, you look at

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Speaker 11: what's going on and did you stay away from US

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Speaker 11: assets for the tone being.

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Speaker 15: No, we like US assets because there's a little bit

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Speaker 15: more predictability to the source of those revenues from again

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Speaker 15: largerous corporates, the majors.

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Speaker 14: And you're saying it, you got very with the quarterly numbers.

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Speaker 15: Earnings are much louder whether we're a year ago, but

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Speaker 15: the much better versus expectations, and you're getting a good

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Speaker 15: high concentration being delivered again by big tag, big big

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Speaker 15: American industrials and some of the larger banks, and that's

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Speaker 15: replicated around the world in Australia. So in essence, the

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Speaker 15: predictability is a little bit better for the large cap

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Speaker 15: and the broadcap, but not so much for the med

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Speaker 15: and small cap, which is a typical story around the

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Speaker 15: developed markets.

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Speaker 5: Well difficult times.

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Speaker 1: So we've had a few guests on the program of

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Speaker 1: late saying, go with the you know, with the best performer.

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Speaker 5: In these industries.

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Speaker 1: So you're looking at JP Morgan and the banks, maybe

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Speaker 1: looking at someone like United Healthcare in managed care in

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Speaker 1: the healthcare area. You know, obviously every industry has its superstars,

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Speaker 1: the best balance sheets, the best performers excellon in.

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Speaker 5: The energy patch.

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Speaker 1: Is that a way to play it or can you

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Speaker 1: be or do you need to be a lot more subtle?

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Speaker 14: Yeah, that's how we're playing it.

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Speaker 15: So predictability with energy, the transition, energy exporters, materials, metals, rare, earth, healthcare,

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Speaker 15: large cap, big super tech, they're the things that we

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Speaker 15: are long in. We don't talk about our shorts across

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Speaker 15: the world. But that's opportunistic and it comes from many

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Speaker 15: different reasons. But that's the reality is that in aggregate,

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Speaker 15: the earnings are very reasonable given the tightening there. But

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Speaker 15: once again it's an oversimplification risk free rate higher for

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Speaker 15: longer pressing and rate carts.

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Speaker 14: Is reasonable by the mud market, but unrealistic. They just

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Speaker 14: price them out again then pross them back in again.

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Speaker 15: But you get the sense that this is unlike policy

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Speaker 15: of the past fifteen years.

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Speaker 14: We need to erase that a little bit and go forward.

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Speaker 15: They're really doing something because of that stubborn services core inflation,

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Speaker 15: which is concerning on a year on your basis, because

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Speaker 15: it's not dissolved yet the other parts that are resolved.

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Speaker 11: George, I mean, they're just essentially normalizing, aren't they having

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Speaker 11: themselves more wiggle room and bullets to put in the

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Speaker 11: chamber should there be another big bundturn.

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Speaker 14: Spot on.

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Speaker 15: And that's good policy, and that's why the hawkish starts

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Speaker 15: would be there from a retric But again we.

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Speaker 14: Are wake by wake from the Fed.

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Speaker 15: We're week by way every other central bank in the

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Speaker 15: world looking at the data. More demand destruction has to happen,

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Speaker 15: More breakage will be a consequence of it. The market

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Speaker 15: will have a conniption and bolotilla is spiked for a

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Speaker 15: few days here and there, and unfortunately the unemployment rate

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Speaker 15: as a consequence needs to be one to two percentage

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Speaker 15: points higher, which is still a reasonable long run situation

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Speaker 15: to be in to get the outcome that they're looking for,

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Speaker 15: and that is stable price stability in economies. Because of

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Speaker 15: the consequence, it's much worse for investors and everyone in

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Speaker 15: the economy.

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Speaker 5: So the real rates at least positive.

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Speaker 1: Now, that's a good start, and you know, still room

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Speaker 1: to go, room to move. I know that you said

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Speaker 1: K two doesn't reveal it short, so you don't have

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Speaker 1: to be specific. Are there some areas that you think

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Speaker 1: might might warrant some attention there that are still you know,

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Speaker 1: sort of vulnerable to the downside that could be exploited

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Speaker 1: by a short position.

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Speaker 14: Yeah, shorts tend to happen.

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Speaker 15: The way to answer that one, and I'm not a politician,

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Speaker 15: but shorts tend to be overvaluation, like expensive or sectors

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Speaker 15: that you're trying to avoid and and generally no outright

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Speaker 15: sector we want to avoid. I mean, there's highly cyclical

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Speaker 15: sectors that we weary of. But in essence, there's some

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Speaker 15: financials have been short and active. Again, not to go

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Speaker 15: down in that pathway, but the way if I can

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Speaker 15: tilt at my way and be the answer is that

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Speaker 15: the divergence of mid small banks versus large banks and

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Speaker 15: the developed economy is a big signal of the concern

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Speaker 15: out there from people. And it's also amplified by the

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Speaker 15: term deposits being offered in the West and well by

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Speaker 15: MidCap small cat banks versus the majors and.

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Speaker 14: The and that's still called a britual relationship. So that

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Speaker 14: gap is quite wide. Yes, it is. It is a

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Speaker 14: crack in it. It's a crack in the system, and

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Speaker 14: just be wary of it.

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Speaker 15: And that's where shorts are actively playing and testing that proposition.

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