WEBVTT - Treasury Secretary Bessent Plays Down Foreign Bond Dumping Claim

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner.

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<v Speaker 2>China appears to be done retaliating against President Trump's exorbitant tariffs.

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<v Speaker 2>Beijing has called the Trump administration's actions a joke that

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<v Speaker 2>it no longer considers worthy of matching. So the question

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<v Speaker 2>now is whether President Chijinping will find a more potent

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<v Speaker 2>weapon to strike back at his opponent. For a closer look, now,

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<v Speaker 2>I am joined by Bloomberg opinion columnist Shuley Wren her

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<v Speaker 2>latest column titled why wouldn't China weaponize its treasury holdings?

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<v Speaker 2>Shuley joins us from Hong Kong. It's always a pleasure

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<v Speaker 2>in this piece. Shuley, you remind us that last Friday

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<v Speaker 2>in Beijing, leadership essentially reiterated its vow to fight to

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<v Speaker 2>the end, and might not this fighting include selling US treasuries?

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<v Speaker 3>That's the worry. So last week we saw a pretty

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<v Speaker 3>big treasury bound route right and with a treasury ten

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<v Speaker 3>year yi old up by fifty basis points, and some

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<v Speaker 3>of the sharpest bikes occurred during the Asia hours, leading

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<v Speaker 3>to speculations that you know, maybe some Asian central banks

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<v Speaker 3>on the move, and the japan has come out saying

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<v Speaker 3>that they were not weaponize their treasury holdings, and by

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<v Speaker 3>the Treasury Department's data, they're the biggest foreign creditor, but

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<v Speaker 3>China is next, So there are worries that China is

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<v Speaker 3>going to create a little bit of a chaos to

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<v Speaker 3>the US government bomb market.

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<v Speaker 2>So on Monday, we caught up with Treasury Secretary Scott

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<v Speaker 2>Bessant during a trip to Buenos Aires and we asked

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<v Speaker 2>him whether foreign holders were dumping US treasuries. Here's what

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<v Speaker 2>he had to say.

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<v Speaker 4>I don't think there's a dumping, and I think we

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<v Speaker 4>saw in the TIC data either today or Friday that

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<v Speaker 4>actually foreign ownerships picked up. We had two we had

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<v Speaker 4>three big auctions last week, and on the longer in

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<v Speaker 4>auction ten year, thirty year, we saw increase foreign competition.

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<v Speaker 4>So I actually think this is one of those occasional

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<v Speaker 4>var shocks that you get in the trading community. I

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<v Speaker 4>think a lot of people got very leverage, maybe out

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<v Speaker 4>over their skis, and then you combine that with some

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<v Speaker 4>real money selling and you get these moves.

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<v Speaker 5>So you don't think it's sovereigns potentially it's hedge funds unwinding.

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<v Speaker 5>I have no.

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<v Speaker 4>Evidence that it's sovereigns and look Emory the not you.

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<v Speaker 4>But the nature of journalism is to create a headline

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<v Speaker 4>that ten days ago when tenure yields hit three ninety said, well,

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<v Speaker 4>Secretary Besson got what he wanted, he got ten years

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<v Speaker 4>yields down. But it's the wrong reason. Now I figet

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<v Speaker 4>what they hit on Friday, maybe for forty something.

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<v Speaker 5>We saw a fifty basis move last week and ten

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<v Speaker 5>year yield at the same time that the dollar was

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<v Speaker 5>weakening nearly three percent. How do you simultaneously look at

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<v Speaker 5>that situation. It feels like investors are dumping US assets.

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<v Speaker 4>Well, look, I've learned that not to look at what

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<v Speaker 4>happens over a week. I, for better or worse, have

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<v Speaker 4>lived through a lot of these things in trading. In

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<v Speaker 4>one's personal trading history is the scar tissue that sticks

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<v Speaker 4>with you the most. I can tell you exactly where

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<v Speaker 4>I was standing in nineteen ninety eight when the long

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<v Speaker 4>term capital the backle happened. That had nothing to do

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<v Speaker 4>with anything other than a bunch of geniuses up in

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<v Speaker 4>Greenwich who had too much leverage.

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<v Speaker 2>Treasury Secretary Scott Besson during his trip to Buenos Aires

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<v Speaker 2>speaking to Bloomberg Examary hor Dern. Surely you heard what

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<v Speaker 2>he had to say. Are you buying it?

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<v Speaker 3>I mean, there is the sense that basis trade hatch

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<v Speaker 3>funds and winding basis trade rate is some turmoil in

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<v Speaker 3>the treasury market. But I think what treasure d Squary

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<v Speaker 3>Bess said. He cited the take data basically, it's it's

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<v Speaker 3>a data release provided by his own department. I think

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<v Speaker 3>that that's only part of the picture because this data

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<v Speaker 3>collects information from US custidium banks. So say I was

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<v Speaker 3>a China central bank, my holdings with US custidian banks

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<v Speaker 3>will be will be disclosed in the Treasury data. But

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<v Speaker 3>I can also have treasury holdings with European custidian banks

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<v Speaker 3>in Europe, stay in Belgium with the clear and that

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<v Speaker 3>that is not reflected in the data that the Treasury

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<v Speaker 3>Secretary can see.

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<v Speaker 2>So in my mind, thinking of data, China's got about

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<v Speaker 2>seven hundred and sixty billion dollars in US Treasury securities,

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<v Speaker 2>three trillion dollars in US dollars held in reserve. So

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<v Speaker 2>there's a lot of pressure here that China could apply.

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<v Speaker 2>Right if this trade negotiation or whatever we're in right

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<v Speaker 2>now doesn't go well. And what you point out is

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<v Speaker 2>that the abrupt turn that President Trump made last week

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<v Speaker 2>essentially exposes the White House's Achilles heel. And I'm just

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<v Speaker 2>wondering how effective the Trump administration can be in these

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<v Speaker 2>trade negotiations with this sort of damicles kind of hanging

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<v Speaker 2>over its head.

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<v Speaker 4>Exactly.

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<v Speaker 3>I'm not sure President Trump knows what the art of

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<v Speaker 3>the deal is, or definitely it doesn't seem like he

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<v Speaker 3>knows what the art of the war is. Basically, he

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<v Speaker 3>showed the world his pain point last week, right he

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<v Speaker 3>basically said, Okay, I'm halting the terriffs on the rest

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<v Speaker 3>of the world because I saw the bomb market was

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<v Speaker 3>not doing so well. Then everyone knows that's Trump's pain point.

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<v Speaker 3>And I think, I mean, of course, the Chinese government

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<v Speaker 3>doesn't have strong incentives to basically fire sale and the

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<v Speaker 3>dumb or its usual US dollars because you know, it

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<v Speaker 3>will have to encour some losses, right, But it could tease,

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<v Speaker 3>It could tease Trump because Besson, he is in charge

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<v Speaker 3>of terraff negotiations and he is a self acclaimed the

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<v Speaker 3>biggest bound salesman in the US, right, and he talks

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<v Speaker 3>about like how much he cares about the bound market

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<v Speaker 3>and the bound yields. He said that the one percentage

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<v Speaker 3>point rise in tenure will cause the US government one

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<v Speaker 3>hundred billion dollars, so we all know that's their pain point.

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<v Speaker 2>So surely I'm wondering whether or not these moves and

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<v Speaker 2>the conversations around them is really fueling talk of d

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<v Speaker 2>dollarization and whether major central banks around the world will

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<v Speaker 2>become even more aggressive in moving away from the dollar.

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<v Speaker 3>I think it's already happening. If you look at the

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<v Speaker 3>IMF data, US dollar accounted for over seventy percent of

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<v Speaker 3>global foreign exchange reserves twenty years ago. Now it's less

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<v Speaker 3>than sixty percent, And especially in the last couple of years, right, Like,

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<v Speaker 3>the US treasures have been very volatile and the total

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<v Speaker 3>returns have not been good. So it's not just China,

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<v Speaker 3>it's everyone else as well, trying to diversify a little bit.

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<v Speaker 2>One of the other topics that came up during the

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<v Speaker 2>conversation with Treasury Secretary Besant was independence of the FED

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<v Speaker 2>and the fact that the administration is going to be

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<v Speaker 2>looking for a replacement for FED. Shair J. Powell when

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<v Speaker 2>his term is up, and those conversations will happen in

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<v Speaker 2>the fall. We've talked a little bit in the past

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<v Speaker 2>about the possibility that the FED would face pressure from

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<v Speaker 2>the White House, and I'm wondering whether or not. Maybe

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<v Speaker 2>the pressure wouldn't come in terms of adjusting the policy rate,

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<v Speaker 2>but I'm wondering about pressure to use the balance sheet

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<v Speaker 2>as a way of controlling what's happening in the treasury market.

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<v Speaker 2>Do you think that's a real risk.

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<v Speaker 3>I think it's very much on the table. In this sense.

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<v Speaker 3>The Treasury Department and the Federal Reserve aligned US government

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<v Speaker 3>does not have incentives to see its boring soaring right.

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<v Speaker 3>It's not good for the is called condition. It's also

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<v Speaker 3>not good for the broad economy because US government bundk

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<v Speaker 3>yield is the benchmark for everything, for blondgages, for corporate loans.

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<v Speaker 3>So in this case, if the ten year your bikes

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<v Speaker 3>to like say four point seven percent, I think the

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<v Speaker 3>FED could make them move.

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<v Speaker 2>Well, leave it there. Surely it's always a pleasure. Thank

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<v Speaker 2>you so much. Bloomberg opinion columnist July Wren, in her

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<v Speaker 2>latest piece, writing why wouldn't China weaponize its treasury holdings?

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<v Speaker 2>Surely joining us from Hong Kong here on the Daybreak

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<v Speaker 2>Asia podcast. Welcome back to the Daybreak Asia podcast. I'm

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<v Speaker 2>Ded Krisner. So a measure of calm seem to return

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<v Speaker 2>to financial markets today after seven sessions of volatility. We

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<v Speaker 2>had US equities pushing higher, with the S and P

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<v Speaker 2>picking up around eight ten to one percent. All but

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<v Speaker 2>one of the S and p's eleven industry groups, Advanced

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<v Speaker 2>Consumer Discretionary was the only decliner. Joining me now for

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<v Speaker 2>a closer look at the price section is Ross Mayfield.

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<v Speaker 2>He is investment strategist at Baird Ross. Thank you for

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<v Speaker 2>joining us. So this news on trade policy has been

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<v Speaker 2>so dynamic and it's created a lot of volatility we've

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<v Speaker 2>seen that. Do you expect this volatility to be the

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<v Speaker 2>new normal?

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<v Speaker 1>I do think so, because this policy is being rendered

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<v Speaker 1>via executive action and not going through the kind of normal,

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<v Speaker 1>you know, legislative process. I think even as some of

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<v Speaker 1>the tariff threats get pulled back and negotiations keep occurring,

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<v Speaker 1>it's going to be hard for business leaders to ever

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<v Speaker 1>feel a sense that they can invest for the next

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<v Speaker 1>three to five years because a lot of these policies

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<v Speaker 1>can be reversed back on overnight and even levied in

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<v Speaker 1>some sort of exchange that's not really trade or economic related.

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<v Speaker 1>We've seen that with deportations, fentanyl, things like that. So

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<v Speaker 1>it's really hard to have confidence, and that lack of

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<v Speaker 1>confidence leads to volatility.

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<v Speaker 2>No doubt, I mean, President Trump. They flow to the

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<v Speaker 2>possibility of temporary exemptions for auto parts. Over the weekend,

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<v Speaker 2>there was this idea that maybe some of the tech

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<v Speaker 2>sector could be immune at least temporarily as well. And

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<v Speaker 2>now we're learning that the administration has started investigations on

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<v Speaker 2>the impact of certain imports like semiconductors and pharmaceuticals on

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<v Speaker 2>US national security. So it's difficult to kind of identify

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<v Speaker 2>the next potential pressure point and then as a result

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<v Speaker 2>making adjustment and avoid that space, is it not, Yes.

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<v Speaker 1>Extremely so, I mean it's it's difficult for business owners.

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<v Speaker 1>I imagine it's also difficult for investors to get a

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<v Speaker 1>sense of how this might play out. Obviously, I think

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<v Speaker 1>you can feel, you know, to extend, you can feel

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<v Speaker 1>confident about anything right now, you can feel little confidence

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<v Speaker 1>that at a minimum that Trump put is still somewhere

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<v Speaker 1>out there. The bond market activity, you know, reversed the

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<v Speaker 1>worst possible outcome of this policy prescription. You know, we

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<v Speaker 1>saw the negotiations, we've seen the ninety day pause, so

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<v Speaker 1>I think at a minimum you can feel confident that

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<v Speaker 1>they're some sort of tail risk downside scenario that's removed.

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<v Speaker 1>But past that, we could go anywhere from here. And

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<v Speaker 1>I don't think anyone should be surprised.

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<v Speaker 2>If there's a beneficiary or a group of beneficiaries. I

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<v Speaker 2>think you have to look at the big banks, right,

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<v Speaker 2>I mean today we had Goldman reporting its highest ever

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<v Speaker 2>quarter in terms of overall trading revenue, and the story

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<v Speaker 2>was similar for both JP, Morgan Chase, and Morgan Stanley.

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<v Speaker 2>So to be fair, there are some bright spots right

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<v Speaker 2>when you look at this market volatility, you got to

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<v Speaker 2>look at the guys who are trading and generating revenue, right.

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<v Speaker 1>Yeah, absolutely, And the banks and financials are one of

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<v Speaker 1>the kind of cleanest ways to lever up this new administration. Anyway,

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<v Speaker 1>even if you didn't expect this coming, you saw a

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<v Speaker 1>deregulatory environment coming down the pipe, potentially a ramp up

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<v Speaker 1>in m and A and IPO activity with a more

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<v Speaker 1>you know, typically business friendly administration. So the banks and

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<v Speaker 1>obviously not super leveraged. Tariffs and trade either pretty pretty domestic.

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<v Speaker 1>I know they do some lending. So yeah, the banks

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<v Speaker 1>and the financials look in about as good a position

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<v Speaker 1>as you could hope for.

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<v Speaker 2>Let's talk a little bit more about the bond market,

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<v Speaker 2>because we heard today from Treasury Secretary Scott Bessant, and

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<v Speaker 2>one of the questions that we put to him was

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<v Speaker 2>whether or not foreign holders were dumping US treasuries. He

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<v Speaker 2>pushed back on that a bit, saying he didn't think

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<v Speaker 2>there was any dumping. But I'm wondering whether you think

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<v Speaker 2>the conversation around tariffs and trade tensions more broadly might

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<v Speaker 2>cause foreign holders of US treasuries to perhaps take a

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<v Speaker 2>second look and maybe even lighten a position. Yeah.

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<v Speaker 1>Absolutely, I think I think that's part of a larger

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<v Speaker 1>trade you've seeing here where the dollar has been down

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<v Speaker 1>as well, maybe against expectations for a country putting on tariff.

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<v Speaker 1>So yeah, I think at a minimum, other countries are

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<v Speaker 1>going to want to continue to diversify you away from

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<v Speaker 1>the dollar, if only so that they're not you know,

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<v Speaker 1>so linked and so potentially vulnerable in negotiations with the US.

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<v Speaker 1>You know, we've seen this big move in gold. I

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<v Speaker 1>imagine that has a lot to do with central bank

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<v Speaker 1>diversification as well. So yeah, I think it's it's completely

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<v Speaker 1>on the table.

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<v Speaker 2>So I'm curious about the trading strategies that you're using

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<v Speaker 2>right now. Given everything that we're describing, what are you

0:13:08.280 --> 0:13:09.600
<v Speaker 2>doing well?

0:13:09.720 --> 0:13:12.000
<v Speaker 1>When you get a big sell off, a big sharp

0:13:12.080 --> 0:13:15.000
<v Speaker 1>sell off, you typically are rewarded if you go, you know,

0:13:15.160 --> 0:13:17.360
<v Speaker 1>risk on as long as you can can stomach the

0:13:17.440 --> 0:13:19.600
<v Speaker 1>next you know, six to twelve months, Usually your returns

0:13:19.600 --> 0:13:22.720
<v Speaker 1>are strong year out. So just just generally buying the dip,

0:13:23.000 --> 0:13:27.400
<v Speaker 1>but focusing on high quality companies, knowing that even in

0:13:27.520 --> 0:13:29.880
<v Speaker 1>this kind of uncertain scenario, you still are in a

0:13:29.960 --> 0:13:34.559
<v Speaker 1>higher for longer rate environment. So sticking high quality and

0:13:34.640 --> 0:13:38.160
<v Speaker 1>then you know, to the extent you can zooming out

0:13:38.240 --> 0:13:40.520
<v Speaker 1>past the next couple of years of trade war and

0:13:40.600 --> 0:13:44.240
<v Speaker 1>tariffs and thinking about you know, adding to secular winners,

0:13:44.400 --> 0:13:47.839
<v Speaker 1>things in the AI space, for example, that might be

0:13:47.960 --> 0:13:50.599
<v Speaker 1>rocky over the next year or two, but have that

0:13:50.720 --> 0:13:53.360
<v Speaker 1>long term growth potential in a slower growth world.

0:13:53.280 --> 0:13:55.679
<v Speaker 2>So higher for longer rates. And when I hear you

0:13:55.840 --> 0:14:00.319
<v Speaker 2>say that is okay, tariffs will probably be inflationary, and

0:14:00.440 --> 0:14:02.640
<v Speaker 2>the Fed is going to be on guard and keep

0:14:02.760 --> 0:14:05.040
<v Speaker 2>rate steady, and the idea that we're going to see

0:14:05.080 --> 0:14:08.040
<v Speaker 2>multiple rate cuts this year may need to be rethought.

0:14:08.160 --> 0:14:08.640
<v Speaker 4>Is that right?

0:14:09.360 --> 0:14:10.760
<v Speaker 1>I think so. I mean, if you you know, the

0:14:10.840 --> 0:14:13.520
<v Speaker 1>Fed can change your mind quickly as spots of weakness

0:14:13.600 --> 0:14:16.640
<v Speaker 1>pop up, and certainly the bond market has been under pressure.

0:14:18.200 --> 0:14:21.920
<v Speaker 1>But yeah, they've basically said they're worries and concerns about

0:14:21.920 --> 0:14:25.680
<v Speaker 1>the inflationary impact of tariffs outweighs their concerns about growth

0:14:25.760 --> 0:14:29.120
<v Speaker 1>right now, even as you know, the underlying economy is

0:14:29.240 --> 0:14:30.960
<v Speaker 1>cooling in many spots. And then you do have the

0:14:31.000 --> 0:14:34.200
<v Speaker 1>pressure on the long end just from the uncertainty around

0:14:34.240 --> 0:14:37.880
<v Speaker 1>this policy prescription so high for longer rate environment very

0:14:37.920 --> 0:14:40.840
<v Speaker 1>different from the twenty tens, and I think that, you know,

0:14:40.960 --> 0:14:43.440
<v Speaker 1>lends a credence to focusing on companies that are generating

0:14:43.520 --> 0:14:47.280
<v Speaker 1>cash flow, not relying on capital markets to a large extent.

0:14:47.400 --> 0:14:50.280
<v Speaker 2>I'd like to get your take on the US consumer.

0:14:50.480 --> 0:14:54.480
<v Speaker 2>Interesting today that LVMH, one of the bell weathers when

0:14:54.520 --> 0:14:57.760
<v Speaker 2>it comes to the luxury industry, reported sales that were

0:14:57.800 --> 0:15:01.360
<v Speaker 2>down more than expected. Obviously, we've weak demand coming out

0:15:01.400 --> 0:15:04.560
<v Speaker 2>of China, maybe a little bit of surprise there. The

0:15:04.640 --> 0:15:07.320
<v Speaker 2>fact that the US showed some weakness as well, did

0:15:07.360 --> 0:15:10.680
<v Speaker 2>that kind of change your opinion of where the consumer

0:15:10.800 --> 0:15:12.640
<v Speaker 2>is right now? A lot of times we get very

0:15:12.680 --> 0:15:15.960
<v Speaker 2>concerned about the down market participation, but now we're talking

0:15:16.040 --> 0:15:20.160
<v Speaker 2>about a company that caters to the luxury sector. Yeah.

0:15:20.320 --> 0:15:23.160
<v Speaker 1>I think it's across the board. Uncertainty has kind of

0:15:23.200 --> 0:15:26.240
<v Speaker 1>put a pause in consumer spending. Maybe we entered the

0:15:26.320 --> 0:15:29.040
<v Speaker 1>year not with the robust consumer we'd seen in twenty

0:15:29.160 --> 0:15:31.560
<v Speaker 1>twenty three and twenty four, but certainly not in a

0:15:31.600 --> 0:15:34.880
<v Speaker 1>bad spot and not over levered. I think importantly, you know,

0:15:35.000 --> 0:15:37.720
<v Speaker 1>debt to income ratios are largely in check. But this

0:15:37.920 --> 0:15:41.960
<v Speaker 1>uncertainty that's weighing on the economy via tariffs and the

0:15:42.000 --> 0:15:44.320
<v Speaker 1>potential for higher inflation, I think has really just put

0:15:44.360 --> 0:15:47.000
<v Speaker 1>a chill on things. You know, you look at some

0:15:47.080 --> 0:15:49.840
<v Speaker 1>of the soft data, like consumer confidence falling to lows

0:15:50.000 --> 0:15:53.120
<v Speaker 1>not seen since the financial crisis, and you can get

0:15:53.160 --> 0:15:55.720
<v Speaker 1>a sense that consumers are on pause for now, similar

0:15:55.800 --> 0:15:58.640
<v Speaker 1>to how businesses are acting just because of the uncertainty.

0:15:58.760 --> 0:16:02.160
<v Speaker 1>So I think there not a trouble point, but certainly

0:16:02.240 --> 0:16:04.640
<v Speaker 1>cooling and this policy uncertainty isn't helping.

0:16:04.640 --> 0:16:07.640
<v Speaker 2>I'm wondering whether you're looking offshore at all in the

0:16:07.720 --> 0:16:10.120
<v Speaker 2>current environment, and whether or not there is still some

0:16:10.320 --> 0:16:13.200
<v Speaker 2>attraction to stocks in Europe right now. I know they've

0:16:13.240 --> 0:16:15.520
<v Speaker 2>been on an amazing run so far this year. Do

0:16:15.600 --> 0:16:17.080
<v Speaker 2>you think Europe's got more upside?

0:16:17.720 --> 0:16:22.320
<v Speaker 1>I definitely do. I think, first and foremost, I think

0:16:22.440 --> 0:16:27.880
<v Speaker 1>international diversification becomes much more important in this post trade,

0:16:28.040 --> 0:16:31.280
<v Speaker 1>post packs Americana kind of world. You just have much

0:16:31.360 --> 0:16:35.040
<v Speaker 1>more correlated or uncorrelated return streams from different trading blocks.

0:16:35.960 --> 0:16:39.040
<v Speaker 1>The dollar perhaps not as dominant, So I think international

0:16:39.120 --> 0:16:42.160
<v Speaker 1>diversification in general is going to be more important. And

0:16:42.160 --> 0:16:45.520
<v Speaker 1>then on Europe, I mean they're still stimulating at a minimum.

0:16:45.600 --> 0:16:48.480
<v Speaker 1>You look at their economy and you see those fiscal promises,

0:16:48.560 --> 0:16:50.920
<v Speaker 1>and you see what the aerospace and defense stocks are doing,

0:16:51.800 --> 0:16:55.600
<v Speaker 1>you know, anticipation of getting to the NATO defense spend requirements,

0:16:56.080 --> 0:16:59.040
<v Speaker 1>and you say, well, at least that's an economy that's stimulating.

0:16:59.160 --> 0:17:02.360
<v Speaker 1>China's stimulates, So I think there's plenty of opportunity abroad,

0:17:02.520 --> 0:17:05.920
<v Speaker 1>even if this trade war kind of helps no one

0:17:05.960 --> 0:17:06.560
<v Speaker 1>and aggregate.

0:17:06.720 --> 0:17:08.680
<v Speaker 2>We'll leave it there, Ross, thank you so much, Always

0:17:08.680 --> 0:17:12.040
<v Speaker 2>a pleasure, Ross Mayfield. There he's the investment strategist at Baird.

0:17:12.440 --> 0:17:18.080
<v Speaker 2>Joining us here on the Daybreak Asia Podcast. Thanks for

0:17:18.160 --> 0:17:22.760
<v Speaker 2>listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.

0:17:23.119 --> 0:17:26.200
<v Speaker 2>Each weekday, we look at the story shaping markets, finance,

0:17:26.600 --> 0:17:29.679
<v Speaker 2>and geopolitics in the Asia Pacific. You can find us

0:17:29.720 --> 0:17:33.880
<v Speaker 2>on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

0:17:33.920 --> 0:17:37.000
<v Speaker 2>else you listen. Join us again tomorrow for insight on

0:17:37.080 --> 0:17:41.200
<v Speaker 2>the market moves from Hong Kong to Singapore and Australia.

0:17:41.640 --> 0:17:44.080
<v Speaker 2>I'm Doug Chrisner, and this is Bloomberg