1 00:00:00,120 --> 00:00:02,760 Speaker 1: Let's get to Adam Coon's He is the chief portfolio 2 00:00:02,800 --> 00:00:06,479 Speaker 1: manager at Winthrop Capital Management on the line from Indianapolis. 3 00:00:06,680 --> 00:00:08,719 Speaker 1: Thanks for being with us, Adam. It's all about the FED. 4 00:00:08,800 --> 00:00:12,280 Speaker 1: We know that this aggression, though, is starting to create 5 00:00:12,280 --> 00:00:14,880 Speaker 1: a little bit of concern and markets. Mohammad l Area 6 00:00:14,960 --> 00:00:17,720 Speaker 1: today saying the FED is slamming on the brakes and 7 00:00:17,760 --> 00:00:20,759 Speaker 1: the economy is beginning to go through the windshield? Is 8 00:00:20,800 --> 00:00:24,479 Speaker 1: he being a little too hyperbolic? First off? Thanks for 9 00:00:24,480 --> 00:00:28,760 Speaker 1: having me done. Um, you know, in some regards, know, 10 00:00:28,960 --> 00:00:32,080 Speaker 1: if you look at what the Bank of England's doing, uh, 11 00:00:32,120 --> 00:00:35,440 Speaker 1: they're basically uh doing the same thing that they're kind 12 00:00:35,440 --> 00:00:37,640 Speaker 1: of putting a stake in the ground. They're saying, we're 13 00:00:37,640 --> 00:00:40,559 Speaker 1: not going to budge and you know, we're going to 14 00:00:41,240 --> 00:00:45,479 Speaker 1: change the narrative that the central banks actually have control 15 00:00:45,479 --> 00:00:47,720 Speaker 1: of the system and we're willing to do whatever it 16 00:00:47,760 --> 00:00:52,080 Speaker 1: takes to gain that control. So when we look at 17 00:00:52,080 --> 00:00:55,760 Speaker 1: what the FEDS narrative has been over the course of 18 00:00:55,800 --> 00:01:00,360 Speaker 1: two two it's been you know, intent on raising interest rates, 19 00:01:00,360 --> 00:01:04,720 Speaker 1: tightening monetary monetary policy and and kind of putting an 20 00:01:04,720 --> 00:01:08,280 Speaker 1: into this this inflation that we've seen. And so it 21 00:01:08,319 --> 00:01:12,280 Speaker 1: seems that they will do that at any cost. Yeah, 22 00:01:12,319 --> 00:01:14,959 Speaker 1: we're getting quite a lot of colorful metapholds. As the 23 00:01:15,120 --> 00:01:18,040 Speaker 1: fit continues to tipening be it going through the window. 24 00:01:18,160 --> 00:01:20,800 Speaker 1: A number of commentators are saying, something's going to break. 25 00:01:21,360 --> 00:01:25,520 Speaker 1: If something does break, what's it gonna look like. Well, 26 00:01:25,560 --> 00:01:28,199 Speaker 1: I think it's important to remember or or think about 27 00:01:28,280 --> 00:01:31,160 Speaker 1: the fact that really what we're experiencing right now is 28 00:01:31,160 --> 00:01:34,600 Speaker 1: is a liquidity issue, and so that that that's the 29 00:01:34,720 --> 00:01:39,880 Speaker 1: driver of these, you know, exceptional moves and guilt, is 30 00:01:39,920 --> 00:01:42,560 Speaker 1: that there's a lack of liquidity. And you're seeing the 31 00:01:42,600 --> 00:01:44,800 Speaker 1: same thing here in the US with with our treasury 32 00:01:44,840 --> 00:01:48,600 Speaker 1: market and and and bonds as a whole. Is that 33 00:01:48,640 --> 00:01:52,280 Speaker 1: there's just no natural buyer right now. And and there's 34 00:01:52,320 --> 00:01:54,320 Speaker 1: there's two parts of that. One is obviously that the 35 00:01:54,360 --> 00:01:57,520 Speaker 1: FED has removed the punch bowl and there's no longer 36 00:01:57,560 --> 00:02:00,880 Speaker 1: that natural buyer of from from the Fed. But also 37 00:02:01,160 --> 00:02:04,800 Speaker 1: the fear and uncertainty of what the next move has 38 00:02:04,840 --> 00:02:08,840 Speaker 1: caused so many across across the street to uh, just 39 00:02:08,919 --> 00:02:11,520 Speaker 1: kind of back away from markets, move into cash and 40 00:02:11,560 --> 00:02:14,840 Speaker 1: wait this out. And so I think what we need 41 00:02:14,880 --> 00:02:19,520 Speaker 1: to think about here is that as this liquidity issue builds. 42 00:02:19,560 --> 00:02:24,280 Speaker 1: It's effectively a circular kind of doom loop where you 43 00:02:24,280 --> 00:02:28,520 Speaker 1: you you see that the lack of liquidity actually pushes 44 00:02:28,600 --> 00:02:32,600 Speaker 1: rates higher and and eventually that that could break the markets. 45 00:02:32,600 --> 00:02:34,440 Speaker 1: And I think that's what everyone is starting to be 46 00:02:34,480 --> 00:02:38,200 Speaker 1: fearful of. And Adam Doug was suggesting before the break 47 00:02:38,280 --> 00:02:40,600 Speaker 1: or wondering if we're at the bottom yet, is the 48 00:02:40,600 --> 00:02:43,520 Speaker 1: worst price then in terms of what's coming down the pipe? 49 00:02:43,560 --> 00:02:46,480 Speaker 1: And is this perhaps a good name time to add 50 00:02:46,520 --> 00:02:51,880 Speaker 1: some quality names? Yeah? So, I mean, you know, it's 51 00:02:51,919 --> 00:02:54,119 Speaker 1: really difficult to call the bottom of any market. So 52 00:02:54,639 --> 00:02:58,320 Speaker 1: what investors should look at his valuation? And and we're 53 00:02:58,320 --> 00:03:01,519 Speaker 1: looking at fixed income markets, we do see this as 54 00:03:01,560 --> 00:03:05,040 Speaker 1: at least the um it will work. We don't want 55 00:03:05,040 --> 00:03:07,640 Speaker 1: to call at the bottom, but but literally the the 56 00:03:07,840 --> 00:03:10,320 Speaker 1: overall peak and an interest rates we see four percent 57 00:03:10,400 --> 00:03:14,120 Speaker 1: on the tenure um kind of as a stopping point 58 00:03:14,200 --> 00:03:17,919 Speaker 1: and while they may go slightly higher, we are extending 59 00:03:17,960 --> 00:03:20,920 Speaker 1: duration across our portfolio. Is because of the conviction behind 60 00:03:21,520 --> 00:03:25,120 Speaker 1: lower interest rates long run. On the equity side, um 61 00:03:25,200 --> 00:03:29,320 Speaker 1: evaluations have become uh much more reasonable. And when you're 62 00:03:29,320 --> 00:03:31,640 Speaker 1: looking at the SMP five dred a sixteen times earnings. 63 00:03:32,720 --> 00:03:35,880 Speaker 1: We do see this as a as an opportunity. We 64 00:03:35,960 --> 00:03:39,560 Speaker 1: are adding uh incrementally at this point where where we 65 00:03:39,600 --> 00:03:43,320 Speaker 1: have cash. But one of the bigger opportunities we're seeing 66 00:03:43,600 --> 00:03:46,600 Speaker 1: across markets is in China and UM. You know this 67 00:03:46,680 --> 00:03:48,880 Speaker 1: is this is a market that has had a very 68 00:03:48,920 --> 00:03:53,120 Speaker 1: difficult year in in the COVID zero policies have have 69 00:03:53,200 --> 00:03:56,760 Speaker 1: really set them back. But when we model this out 70 00:03:57,080 --> 00:03:59,760 Speaker 1: going forward and we see some some changes happening within 71 00:03:59,800 --> 00:04:04,360 Speaker 1: that COVID zero policy, uh, you know, we're actually modeling 72 00:04:04,520 --> 00:04:08,040 Speaker 1: above six percent GDP growth in China in the second 73 00:04:08,080 --> 00:04:11,520 Speaker 1: quarter of two three. Uh. Meanwhile, at the same time, 74 00:04:11,560 --> 00:04:15,400 Speaker 1: we're modeling that that the US economy is hitting a 75 00:04:15,400 --> 00:04:17,640 Speaker 1: recession at that point in the first and second quarter 76 00:04:17,680 --> 00:04:21,039 Speaker 1: of of of two three. So while we still like 77 00:04:21,120 --> 00:04:24,719 Speaker 1: US markets as a whole, when we're looking across the 78 00:04:24,839 --> 00:04:29,800 Speaker 1: universe of you know, investible securities, Uh, you look at Europe, 79 00:04:30,200 --> 00:04:32,320 Speaker 1: it's effectively a train wreck. I mean when you see 80 00:04:32,320 --> 00:04:35,840 Speaker 1: what's happening in in England right now, Germany is is 81 00:04:36,560 --> 00:04:39,160 Speaker 1: in some form of a recession right now, and then 82 00:04:39,240 --> 00:04:44,719 Speaker 1: Japan UM has has outperformed in over the last you 83 00:04:44,760 --> 00:04:48,200 Speaker 1: know year, or so relative to to US markets, and 84 00:04:48,200 --> 00:04:49,960 Speaker 1: we're kind of seeing it begin to hit a wall. 85 00:04:50,360 --> 00:04:52,680 Speaker 1: So when we look outside of the US, China is 86 00:04:52,720 --> 00:04:56,640 Speaker 1: really the bright spot from from a country that uh, 87 00:04:56,800 --> 00:04:59,400 Speaker 1: we see growth potential. We see a lot of companies 88 00:04:59,720 --> 00:05:02,760 Speaker 1: uh that that are you know, cash full machines, great 89 00:05:02,839 --> 00:05:07,320 Speaker 1: business models, and we think the delisting risk is overstated. 90 00:05:07,640 --> 00:05:11,400 Speaker 1: We think that the zero COVID policy is overstated going forward, 91 00:05:11,800 --> 00:05:14,080 Speaker 1: and we think that ultimately, you know, the party's going 92 00:05:14,160 --> 00:05:19,040 Speaker 1: to stand behind uh propelling that economy back to you know, 93 00:05:19,160 --> 00:05:23,960 Speaker 1: kind of the superpower uh form that they were moving towards. 94 00:05:24,040 --> 00:05:26,840 Speaker 1: And when you look at evaluations there, I mean, trading 95 00:05:26,880 --> 00:05:30,160 Speaker 1: at ten times earnings in China right now, it's never 96 00:05:30,200 --> 00:05:33,279 Speaker 1: been cheaper. So I'd be very curious to get some 97 00:05:33,400 --> 00:05:35,719 Speaker 1: themes from you because one of the things that I 98 00:05:35,720 --> 00:05:39,760 Speaker 1: think that's looming for China right now, if the US 99 00:05:39,880 --> 00:05:44,080 Speaker 1: is successful in preventing China from accessing some of the 100 00:05:44,120 --> 00:05:48,919 Speaker 1: super high technology semiconductor technology, that may present a huge 101 00:05:49,000 --> 00:05:52,200 Speaker 1: risk for a lot of high tech in China. Give 102 00:05:52,240 --> 00:05:56,200 Speaker 1: me sixty seconds on the industries that you're focused on 103 00:05:56,360 --> 00:06:00,120 Speaker 1: in China right now. Yeah, So what we're focused more 104 00:06:00,120 --> 00:06:03,360 Speaker 1: on on the kind of software as a service companies 105 00:06:03,360 --> 00:06:07,520 Speaker 1: where they're not as dependent on the actual hardware. So 106 00:06:07,560 --> 00:06:10,680 Speaker 1: when you look at companies like ten Cent, Ali, Baba 107 00:06:10,800 --> 00:06:14,400 Speaker 1: j D, we think those are still the bright spot 108 00:06:14,839 --> 00:06:18,480 Speaker 1: Bay do as well. So while there is some dependency 109 00:06:18,480 --> 00:06:22,560 Speaker 1: on technology either, obviously technology companies uh from from the 110 00:06:22,600 --> 00:06:27,400 Speaker 1: pure dependency on on hardware, like a company like Wowwei, 111 00:06:27,960 --> 00:06:31,600 Speaker 1: who obviously is dependent on on US chips, we wouldn't 112 00:06:31,600 --> 00:06:34,000 Speaker 1: be buying that. But when you're looking at software companies 113 00:06:34,440 --> 00:06:38,800 Speaker 1: that are expanding their footprint across the globe, but those 114 00:06:38,839 --> 00:06:42,120 Speaker 1: are the type of companies that we like. Adam very 115 00:06:42,200 --> 00:06:44,560 Speaker 1: very quickly, Tang seconds you mentioned much earlier in the 116 00:06:44,600 --> 00:06:45,920 Speaker 1: end of view. A lot of people have a cash 117 00:06:45,960 --> 00:06:51,080 Speaker 1: position right now, what's yours Like ours is about five percent, 118 00:06:51,160 --> 00:06:54,839 Speaker 1: and it's going down. We're chipping away at every day, alright, 119 00:06:54,880 --> 00:06:57,800 Speaker 1: Adam Coons will leave it there. Adam is chief portfolio 120 00:06:57,920 --> 00:07:01,039 Speaker 1: manager at Winthrop Capital Manage. Thanks so much for joining 121 00:07:01,120 --> 00:07:03,080 Speaker 1: us on the Bloomberg Daybreak Asia Today.