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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Welcome to the Daybreak

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Speaker 1: Asia Podcast. I'm Doug Chrisner. Today, President Trump said the

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Speaker 1: US is in a trade war with China. Earlier in

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Speaker 1: the day, Treasury Secretary Scott Besson proposed extending the pause

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Speaker 1: on increased US tariffs on those Chinese goods. Betson said

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Speaker 1: it would be done in exchange for Beijing putting off

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Speaker 1: its recently announced plan to tighten limits on rare earth

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Speaker 1: elements and the exportation of those out of China. Now,

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Speaker 1: these minerals are critical to many industries as we know.

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Speaker 1: Here is Treasury Secretary Best right now.

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Speaker 2: We are currently in a ninety day role on the tariffs,

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Speaker 2: So is it possible that we could go to a

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Speaker 2: longer role in return for a delay perhaps, But all

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Speaker 2: that's going to be negotiated in the coming weeks.

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Speaker 1: Now, this week in Washington, G seven finance ministers will

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Speaker 1: consider a joint response to discourage Beijing's planned move to

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Speaker 1: control those rare earth minerals. And the timing is interesting too,

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Speaker 1: because next week Australian Prime Minister Anthony Albinizi is set

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Speaker 1: to meet with President Trump in Washington. Perhaps the most

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Speaker 1: important topic is critical minerals. For a closer look, now,

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Speaker 1: I'm joined by Bloomberg's Paul Allen, who is in Sydney. Paul,

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Speaker 1: thanks for making time. You and I have talked in

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Speaker 1: the past about Australia's vast supply of rare earths. So

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Speaker 1: if you had to kind of gauge what a deal

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Speaker 1: between the US and Australia would look like in terms

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Speaker 1: of rare earth minerals, give me a sense of what

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Speaker 1: that might look like.

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Speaker 3: Well, there's certainly a lot of speculation around the stog

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Speaker 3: the prospect of a deal around critical minerals, because we've

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Speaker 3: heard President Trump talking in the past about ideas like

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Speaker 3: well maybe we could take over Greenland or involvement in Ukraine.

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Speaker 3: And at the core of a lot of the statements

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Speaker 3: is these countries and nations critical mineral reserves. In Australia,

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Speaker 3: depending on how you slice and dice, it has either

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Speaker 3: the largest or the second largest critical minerals deposits in

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Speaker 3: the world. But the limitation here is the refining of

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Speaker 3: those deposits. Australia's got the minds, It certainly has the

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Speaker 3: scope for plenty more critical minerals minds, but all of

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Speaker 3: the processing happens offshore, mostly in China. Some of it

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Speaker 3: happens in Korea as well, So any discussion around a

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Speaker 3: potential deal likely to focus in on how these minerals

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Speaker 3: get processed. And there's been some speculation in the media

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Speaker 3: that there could be some sort of deal with the

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Speaker 3: US and the range of seven to eight hundred million dollars,

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Speaker 3: but beyond that we don't know anything. The government's been

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Speaker 3: very tight lipped about this, which again leads to future

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Speaker 3: speculation that we very well could see something get announced

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Speaker 3: when Anthony Alberanezi meets President Trump.

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Speaker 1: So what's holding Canberra from building up refining capacity in

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Speaker 1: Australia when it comes to the processing of these rare earths.

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Speaker 3: Well, certainly the political will exists. I think the question

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Speaker 3: is more a commercial one. I can give you an

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Speaker 3: example of one company. It's a small company called Australian

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Speaker 3: Strategic Minerals. It's seen a very healthy run up in

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Speaker 3: its stock price on the ASX. So this is despite

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Speaker 3: the fact that it doesn't actually have a mine in Australia.

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Speaker 3: For as long as I can remember working for Bloomberg

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Speaker 3: and Australia, ASM has been talking about starting a mine

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Speaker 3: in a near a town called Dubbo in New South Wales.

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Speaker 3: It's still about to start its pre feasibility stage, so

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Speaker 3: it's taking a long long time. There's certainly a desire

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Speaker 3: to get this done, but critical minerals processing very energy intensive.

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Speaker 3: It generates a lot of toxic waste as well, so

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Speaker 3: putting together these things seems to be the major hiccup.

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Speaker 3: The biggest mineral critical mind Generals miner listed on the

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Speaker 3: ASX as Linus, but it does all the bits refining

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Speaker 3: in Malaysia, for example, but it does have a mine

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Speaker 3: here in Australia. So it does speak to this broader

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Speaker 3: problem of the cost, the pollution, the regulation of getting

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Speaker 3: processing underway in Australia.

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Speaker 1: So how have these stocks and these Australian mining companies

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Speaker 1: been performing lately?

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Speaker 3: Have they been advancing, Yes, they have been advancing without

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Speaker 3: I can't give you too many details on the movements

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Speaker 3: today because they're also volatile. They do shift around a lot.

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Speaker 3: But the overwhelming theme has been one of optimism, a

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Speaker 3: sense of opportunity for Australian critical minerals miners, and some

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Speaker 3: of the big players are involved in it as well.

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Speaker 3: Rio Tinto was a major miner of critical minerals. So

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Speaker 3: it was South thirty two which was spun out of

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Speaker 3: PHP some time ago. There was another company called a

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Speaker 3: Luca as well. They've all seen healthy rallies in their

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Speaker 3: stock price inspired by this need for critical minerals. But

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Speaker 3: as I say, this issue has been around for probably

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Speaker 3: a decade or more, the need to diversify where these

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Speaker 3: come from. It seems getting that diversification to happen that's

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Speaker 3: the difficult part.

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Speaker 1: So I mentioned a moment ago that President Trump was

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Speaker 1: saying earlier that the US is in fact into trade

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Speaker 1: war with China. How is this being viewed in Australia

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Speaker 1: right now? The tension between Washington and Beijing.

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Speaker 3: It has forever been a very very difficult type grope

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Speaker 3: for Australia to walk because on the one hand, China

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Speaker 3: is Australia's largest trade partner by some considerable distance, and

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Speaker 3: it was not that long ago when Scott Morrison was

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Speaker 3: Prime Minister that the country was reeling under trade strikes

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Speaker 3: from China for all sorts of things from coal to

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Speaker 3: wine to bali. And when the new government got elected

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Speaker 3: here four years ago, the Albanese government that was seen

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Speaker 3: as something of a reset and Moost trade strikes have

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Speaker 3: since been wound back in the relationship. Ship's improved again.

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Speaker 3: But it's well known that China is no fan of

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Speaker 3: the AUCAS agreement between the United States and the United Kingdom.

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Speaker 3: The United States is Australia's most important ally. The relationship

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Speaker 3: there is very very close as well on a diplomatic level.

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Speaker 3: We heard from the prior to Deputy Prime Minister Richard

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Speaker 3: Marles saying that no country is closer to the US

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Speaker 3: than Australia in terms of how we engage in the

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Speaker 3: level of trust that is there. So navigating that tightrope,

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Speaker 3: particularly when your closest ally is calling saying it'sn't a

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Speaker 3: trade war with your closest trading partner, it's a really

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Speaker 3: difficult foreign policy balancing act.

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Speaker 1: So I know you talked daily about the weakness of

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Speaker 1: the Chinese economy, and I'm curious about the current trade

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Speaker 1: relation right now between Australia and China and the degree

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Speaker 1: to which Australia's exports, particularly of things like iron ore,

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Speaker 1: have been kind of steamied a bit by some of

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Speaker 1: the struggles that China is enduring right now.

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Speaker 3: Yeah, somewhat, life has not been as great for Australia's

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Speaker 3: big miners as it has been in the past. And

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Speaker 3: you know, even though I mentioned those trade strikes have

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Speaker 3: been wound back, we still see evidence of tension bubbling

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Speaker 3: up from time to time. BHP the world's the biggest

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Speaker 3: of minor for example, that's one of the biggest well

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Speaker 3: often depending on the fluctuations of market cap, the biggest

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Speaker 3: listed company on the ASX at the moment having difficulty

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Speaker 3: getting its iron or into China over a pricing dispute.

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Speaker 3: So that's still getting ironed out. But we had another

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Speaker 3: listed company, Treasury Wine Estates, announcing not that long ago,

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Speaker 3: a few days ago, that it was abandoning its twenty

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Speaker 3: twenty six guidance against the backdrop of this tension. You know,

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Speaker 3: it's two biggest markets are the United States and China.

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Speaker 3: They're in a trade war and the word President Trump

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Speaker 3: at the moment. So Treasury Wine Estates said, look, we

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Speaker 3: can't give reliable guidance at the moment. And we saw

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Speaker 3: the stock price falling eleven percent this week and over

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Speaker 3: the course of this year it's values dropped by about half.

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Speaker 3: And if you're going to point the finger of blame,

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Speaker 3: what calls this the catalyst. It's that trade tension.

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Speaker 1: Paul will leave it there. Thank you so very much.

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Speaker 1: Bloomberg's Paul Allen in Sydney joining us here on the

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Speaker 1: Daybreak Asia podcast. Welcome to the Daybreak Asia Podcast. I'm

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Speaker 1: Doug Krisner. In the US, the equity market closed mostly

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Speaker 1: higher in the last session, given upbeat signs on the

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Speaker 1: American economy. Factory activity in New York State unexpectedly expanded,

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Speaker 1: and at the same time, Bank of America reported third

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Speaker 1: quarter earnings and revenue above expectations. For closer look now

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Speaker 1: at the US price action, I'm joined by Keith Buchanan.

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Speaker 1: He is senior portfolio manager at Globalt. Keith is on

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Speaker 1: the line from Atlanta, Georgia. Keith, thank you so much.

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Speaker 1: Can we begin by kind of summarizing what you heard

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Speaker 1: from the big banks? Some record breaking numbers for the

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Speaker 1: fourth quarter, obviously a lot of deal activity, trading revenue

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Speaker 1: was very strong as well. What's your takeaway, Daren, thanks

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Speaker 1: again for having me that.

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Speaker 4: What we our biggest takeaway thus far this earning season

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Speaker 4: when it comes to larger money center banks is you know,

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Speaker 4: things are really just telling along at the pace that honestly,

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Speaker 4: we feel like it's been somewhat not appreciated on the

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Speaker 4: larger scale of what the market's focused on. I think

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Speaker 4: the lack of data from the government from a macroecadomic

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Speaker 4: standpoint possibly could kind of clear the way for some

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Speaker 4: of the read through from the larger banks to really

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Speaker 4: hit home with the marketplace, and they're really hammering home

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Speaker 4: the fact that a the macroeconomic environment is really growing

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Speaker 4: at a clip that really doesn't you know, really doesn't

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Speaker 4: vibe with what some of the ngative record we've seen

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Speaker 4: in the in the labor market particularly, but also the

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Speaker 4: consumer environment and what they've seen as far as the

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Speaker 4: consuming behavior and the lack of deterioration on the consumer's

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Speaker 4: part in a way that also voves with the jobs

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Speaker 4: reports that we're seeing recently. Really has us focus on

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Speaker 4: the spending that the economy is in need at this moment,

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Speaker 4: and the consumer is pitching in.

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Speaker 5: It's more than its fast air.

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Speaker 1: So tomorrow we'll begin hearing from some of the regional

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Speaker 1: banks and a few analysts. We're saying today, if there

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Speaker 1: is trouble ahead beyond the shutdown or beyond the US

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Speaker 1: China trade tensions, the regionals really are the place to look.

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Speaker 1: I thought it was interesting today that the KBW Regional

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Speaker 1: Bank index was down about two point three percent. How

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Speaker 1: do you feel about the regional banks right now?

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Speaker 4: Sure, and the larger scale, the larger modiicineer banks have

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Speaker 4: more levers of pull in order to drive earnings growth

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Speaker 4: just in a general sense, and the region is are

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Speaker 4: more more dependent on this net interest income and the

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Speaker 4: drivers of loan growth and being able to make that

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Speaker 4: spread of lending on the long end and boring on.

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Speaker 5: The short end.

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Speaker 4: Pure banking aspect of how banks traditionally made made earnings

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Speaker 4: is more you know, kind of focused with the larger

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Speaker 4: regional banks than it is with sort of money center

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Speaker 4: banks that have trading and other aspects and investment banking

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Speaker 4: that can really smooth out earnings. Regionals are more cyclical

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Speaker 4: and you kind of can have a better read through

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Speaker 4: as to the demand for money and demand from consumers

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Speaker 4: also a small businesses as well.

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Speaker 1: It's interesting today too we heard some commentary from leadership

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Speaker 1: at some of the money center banks talking about the

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Speaker 1: exuberance in AI City Group CFO Mark Mason was saying

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Speaker 1: some sectors are likely frothy and overvalued, and David Solomon,

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Speaker 1: the CEO of Goldmen Sachs, alluded to the dot com bubble.

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Speaker 1: How is your shop viewing the AI trade right now?

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Speaker 4: We felt like there's a while to go before we

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Speaker 4: can really put it up against what happened in the

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Speaker 4: late nineties. We don't think that that's impossible. But right now,

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Speaker 4: when we're on the cycle, we feel like the the

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Speaker 4: some of the stories of some of the pick accidents

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Speaker 4: and shovels of this new gold era of AI.

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Speaker 5: Investing, that investing is real.

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Speaker 4: It's hitting the top line and bottom line of so

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Speaker 4: of each corporation they're able to transfer that into cash flow.

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Speaker 4: We feel like the on the front end of that

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Speaker 4: investment phase is real and is hitting the ground right now.

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Speaker 4: But as far as what the market is pricing in

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Speaker 4: going forward, we really are conscious of how the exuberance

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Speaker 4: and the behavior of mechanisms of market participates, particularly since

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Speaker 4: our environment now is more a little more retail oriented.

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Speaker 4: As far as the day to day trading, how that

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Speaker 4: can get out of hand very quickly and almost you know,

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Speaker 4: have a circular logic as to the justification of valuations.

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Speaker 5: Is the hype and the hype justifies.

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Speaker 4: Evaluations, and that leads to a phase of investing and

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Speaker 4: sentiment that we feel like is not quite where we

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Speaker 4: are right now, but we're really conscious of the concentration

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Speaker 4: of hype and valuation and market cap and those names

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Speaker 4: that could potentially in that direction if ever hiccup in

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Speaker 4: the investment or ever a doubt as we saw a

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Speaker 4: couple of years ago, about how quickly those investments can

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Speaker 4: really turn the cash for some of these corporations.

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Speaker 1: It's interesting that you make the point about the retail

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Speaker 1: crowd because today in the US the S and P

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Speaker 1: five hundred was in the red for less than thirty minutes,

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Speaker 1: and it really points to this idea that retail continued

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Speaker 1: to buy the dip. City Group was saying today that

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Speaker 1: retail investor trading volume increased to an all time high,

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Speaker 1: defying a typically week October when you look at things seasonally,

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Speaker 1: and I'm wondering whether or not this speaks to some

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Speaker 1: type of inherent risk in the overall market when you

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Speaker 1: have that type of retail psychology taking hold.

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Speaker 4: Yes, And that's one of the things that we feel

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Speaker 4: like more kin to what we saw in the nineties

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Speaker 4: is just how pervasive it's become as well as the

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Speaker 4: flow into ETFs and how those trade on a day

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Speaker 4: to day basis also really causes a lot of changing

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Speaker 4: dynamics says as to what really drives day to day

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Speaker 4: movements as far as technicals and centiment as well.

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Speaker 5: So we really are we think that's a fascinating.

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Speaker 4: Part of how the market is evolving right now, and

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Speaker 4: we don't think it's necessarily something that will shift back

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Speaker 4: in any violent way. So we want to make sure

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Speaker 4: we get our arms around how the market perceived those

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Speaker 4: changes as well as how our class can benefit frankly

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Speaker 4: from some of those shifts and how markets move because

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Speaker 4: of what we feel like is driving markets, whether than

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Speaker 4: the institutional space really doing that.

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Speaker 5: It's more than retail space, and it's almost inevitable at

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Speaker 5: this point.

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Speaker 1: Keith, I'd like to get your take on this debasement trade.

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Speaker 1: We have both gold and silver trading at record levels.

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Speaker 1: Here are you participating in this at all? How do

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Speaker 1: you view this?

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Speaker 4: Sure, we have our class with positions in silver and goal,

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Speaker 4: and we've come at it from a few different angles.

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Speaker 4: It captures a lot of risks that we felt like

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Speaker 4: we're clear and present more than a year ago, so

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Speaker 4: we've been there for a while now. We have before

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Speaker 4: it was coin debasement, the debasement trade.

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Speaker 5: And what we're looking at now is that we're short underweight.

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Speaker 4: Fixed income as well, kind of in the same theme

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Speaker 4: of the budget situation, not only here in the US

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Speaker 4: we globally cause us a lot of concern in our part,

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Speaker 4: but also we're looking at safe havens that are typical

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Speaker 4: of this type of cycle. Again, we've seen things shift

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Speaker 4: from how the consumers retailer of crowd is involved in

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Speaker 4: market conditions as well as you know, just how sovereign

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Speaker 4: governments have started to grapple with some of the concerns

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Speaker 4: that we are grappling with here as global investors. So

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Speaker 4: we participated there and we feel like that's a place

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Speaker 4: that we want to continue being.

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Speaker 5: We've trimmed some very recently in gold.

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Speaker 4: But we still feel like that offers a good risk

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Speaker 4: reward even these levels for our class portfolio.

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Speaker 1: So we have a FED meeting around the corner. Market

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Speaker 1: is expecting right now, I think a twenty five basis

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Speaker 1: point right. Got a lot of concern about the weakness

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Speaker 1: in the labor market. A couple of FED officials have

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Speaker 1: really spoken to that quite succinctly, and there are maybe

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Speaker 1: some questions around the strength of the American consumer. I

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Speaker 1: know that's a big kind of category and there are

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Speaker 1: different segments along that spectrum. But today I was struck

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Speaker 1: by the fact that Edmunds dot Com reported the level

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Speaker 1: of underwater car loans now to four year high, so

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Speaker 1: just over twenty eight percent of trade ins toward the

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Speaker 1: purchase of a new vehicle carried negative equity. Are you

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Speaker 1: concerned about the strength of the American consumer?

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Speaker 5: We're absolutely laser focus on the.

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Speaker 4: Strength or like thereof in different parts of the spectrum

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Speaker 4: of the consumer experience as well. The higher income owners

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Speaker 4: have obviously driven spending more high proportion they have in

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Speaker 4: recent history, as well as the lower end of the

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Speaker 4: consumer has as weather a lot more layoffs in this

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Speaker 4: economic phase we're in, whether it's a driven or just

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Speaker 4: more productivity on the part of corporations as.

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Speaker 5: Well, so we feel like they're there.

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Speaker 4: If that gap is widening in a way that's concerning

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Speaker 4: us as far as the the balance of spending and

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Speaker 4: and and there and therefore an inherent risk of downturn

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Speaker 4: and markets affecting that spending more so than it has

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Speaker 4: in the past. We feel like that correlation or relationship

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Speaker 4: between those two shouldn't be discounted because of just how

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Speaker 4: how much of the earnings and the the stock returners

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Speaker 4: can benefit those with with those portfolios that they can

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Speaker 4: spend from and and those that don't have those those

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Speaker 4: means those more blue color wage earners don't have that luxury.

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Speaker 5: So we're really.

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Speaker 4: Concerned with just how that really manifests itself given the

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Speaker 4: labor environment that we feel like is started to soften

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Speaker 4: in different areas of our marketplace as well as you know, stock.

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Speaker 5: Market that is training that evaluations that are.

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Speaker 4: That are historically high, so that those two ends of

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Speaker 4: that conversation, you know, calls some risk in our pinion

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Speaker 4: of what the market can go from here.

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Speaker 1: Keith, Before I let you go, I want to get

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Speaker 1: your view on the government shutdown. We are now at

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Speaker 1: day fifteen. Today, a federal judge in California paused what

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Speaker 1: the administration was attempting to do in terms of the

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Speaker 1: layoff of federal workers. To what extent is this noise

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Speaker 1: or do you think it represents something that the market

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Speaker 1: really needs to be focused on, maybe a little bit

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Speaker 1: more than it is.

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Speaker 5: Well The most.

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Speaker 4: Immediate impacts that we see are, of course, the spending

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Speaker 4: that stops, whether it's not only direct payments to those

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Speaker 4: employees that are in a wage but also the you know,

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Speaker 4: those ancilar businesses that are dependent on that spending from

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Speaker 4: those consultants and lobbyists and those employees as well. So

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Speaker 4: that's the most direct, very real time impact that this undernoborn,

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Speaker 4: and that will come.

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Speaker 5: We feel like we'll come.

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Speaker 4: Through the data as being somewhat looked through and somewhere transitory,

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Speaker 4: if I can use that word. But as we go forward,

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Speaker 4: how how much more often will these happen? I think

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Speaker 4: the political environment of less you know, less collaboration and

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Speaker 4: cooperation on Capitol Hill poses a risk that they just

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Speaker 4: don't get done in a way that appeases what the

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Speaker 4: market demands of the largest economy and the government that

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Speaker 4: controls largest economy in the world.

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Speaker 5: So that that's one of.

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Speaker 4: The larger concerns for us is just what does this

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Speaker 4: mean we're going from a from a nation and from

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Speaker 4: Capitol Hill. As for us being able to get things

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Speaker 4: done in a way that we can be rest easy

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Speaker 4: and that those decisions will be made in a way

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Speaker 4: that investors can invest with with clear conscious of you know,

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Speaker 4: the more of animal spirits driving those valuations and those

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Speaker 4: landscape of investing, rather than the puts and tastes of

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Speaker 4: each political week to week.

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Speaker 1: Okay, Keith, we'll leave it there. Thank you so much.

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Speaker 1: Keith Buchanan. He is senior portfolio manager at Globalt, joining

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Speaker 1: from Atlanta, Georgia. Here on the Daybreak Asia Podcast. Thanks

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Speaker 1: for listening to today's episode of the Bloomberg Daybreak Asia

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Speaker 1: Edition podcast. Each weekday, we look at the story shaping markets, finance,

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Speaker 1: and geopolitics in the Asia Pacific. You can find us

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Speaker 1: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere

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Speaker 1: else you listen. Join us again tomorrow for insight on

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Speaker 1: the market moves from Hong Kong to Singapore and Australia.

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Speaker 1: I'm Doug Chrisner, and this is Bloomberg