WEBVTT - Fund With 76% Gain Says Market Wrong on Fed, China 0:00:01.960 --> 0:00:05.320 Last week, China had its annual NPC meeting in Beijing, 0:00:05.800 --> 0:00:07.880 laying out a growth target for the year of about 0:00:07.960 --> 0:00:11.880 five percent and boosting planned spending by the most in 0:00:11.960 --> 0:00:17.080 three decades. Shortly afterwards, President Trump spoke to Congress, defending 0:00:17.160 --> 0:00:20.439 tariffs and reminding investors that China's goals won't be so 0:00:20.560 --> 0:00:21.200 easy to reach. 0:00:21.880 --> 0:00:24.639 And don't forget announcements by Europe and also China to 0:00:24.720 --> 0:00:28.880 increase their defense spending. These rapid fire developments are almost 0:00:28.960 --> 0:00:32.720 becoming the norm, and it's becoming harder for many investors 0:00:33.080 --> 0:00:36.280 to make big decisions. But one set of investors seem 0:00:36.360 --> 0:00:39.440 to be thriving in this chaos. And then macro hedge funds. 0:00:41.760 --> 0:00:44.839 You're listening to Asia Centric and today we want to 0:00:44.880 --> 0:00:47.600 unpack how investors should be thinking about this new era. 0:00:48.200 --> 0:00:52.599 We're speaking with kaal Bin, CEO of Kaifeng Investment Management, 0:00:52.800 --> 0:00:56.400 which oversees about one point three billion dollars in assets. 0:00:56.560 --> 0:00:59.320 The macro hedge fund made a seventy six percent return 0:00:59.400 --> 0:01:03.880 last year, not too shabby. Ben, welcome to the show. 0:01:04.560 --> 0:01:06.520 Really glad to be here. Thanks about having me. 0:01:06.840 --> 0:01:09.600 Thanks for being here. Now I want to start with 0:01:09.640 --> 0:01:12.560 the NPC. It just happened, and I know it's on 0:01:12.600 --> 0:01:15.560 your mind. It's definitely on our minds. Interesting to get 0:01:15.560 --> 0:01:18.440 your thoughts as a macro investor. First of all, big question, 0:01:18.680 --> 0:01:21.680 do you think officials will be able to reach five percent? Why? 0:01:21.720 --> 0:01:22.000 Why not? 0:01:22.840 --> 0:01:26.720 I think they will. The first thing is that the 0:01:27.040 --> 0:01:31.840 four percent budget as you mentioned, plus one point eight 0:01:31.880 --> 0:01:35.120 trillion dollars special treasury bond plus a four point four 0:01:35.160 --> 0:01:39.000 trillion special local government bound all take out amount to 0:01:39.480 --> 0:01:42.880 twelve trillion R and B. That's about eighty percent of GP. 0:01:43.000 --> 0:01:46.280 Is quite significant. And the other thing is you need 0:01:46.319 --> 0:01:50.280 to spend them wisely, and spending area seems to be 0:01:50.360 --> 0:01:55.800 focused on to upgrades and two keys they called liang 0:01:55.800 --> 0:02:01.000 shin in Chinese. The two upgrades include the first one 0:02:01.160 --> 0:02:05.200 is a industrial equipment upgrade and the second one is 0:02:05.320 --> 0:02:10.240 consumer products upgrade. The former is linked to the use 0:02:10.320 --> 0:02:15.880 of more efficient equipment which is also greener, and the 0:02:15.960 --> 0:02:20.280 letter is similar to cash for clunkers. Basically, they want 0:02:20.400 --> 0:02:25.280 consumers to consume and that's an area China is a 0:02:25.720 --> 0:02:29.320 lack of inter economic growth. But more important, I think 0:02:30.080 --> 0:02:33.800 is the exclusion of the other two keys. The first 0:02:33.880 --> 0:02:39.000 key is called execution of key National strategies. A second 0:02:39.440 --> 0:02:45.560 is the capacity building in key areas of national security. Essentially, 0:02:45.639 --> 0:02:49.440 they are investment high technologies in the competition with the US. 0:02:49.680 --> 0:02:53.920 And the important thing of this is that we have 0:02:54.040 --> 0:02:58.399 actually seen some estimates puts the multiplier at the two 0:02:58.440 --> 0:03:01.920 point eight to three point five. This is in contrast 0:03:02.040 --> 0:03:06.200 to the old ways of infrastructure spending where the multiplier 0:03:06.280 --> 0:03:11.040 has dropped to point eight from one twenty. 0:03:11.400 --> 0:03:13.280 So more bang, they're getting more bang for their book. 0:03:13.440 --> 0:03:16.160 Yeah, I believe that. So if we say it's got 0:03:16.200 --> 0:03:19.120 two point eight two three point five multiplier, effect eight 0:03:19.280 --> 0:03:24.200 hundred billion of this spending translate to two point four trilling. 0:03:24.639 --> 0:03:29.200 That's still significant. Beijing has been very concerned in terms 0:03:29.280 --> 0:03:33.639 of the government spending for the last few years, and 0:03:33.720 --> 0:03:35.840 as far as I remember, even back in twenty sixteen, 0:03:35.880 --> 0:03:39.760 while I was in Beijing talking two officials, they were 0:03:39.840 --> 0:03:43.240 reluctant to open the tap. They basically argue that I 0:03:43.240 --> 0:03:46.120 don't know where to spend because they don't get a multiplier. 0:03:46.680 --> 0:03:51.960 But recently Deepsek changed the situation. With Deepsey coming out, 0:03:52.200 --> 0:03:56.600 Beijing seemed to be more confident in terms spending this area. 0:03:57.080 --> 0:03:59.640 And so that's why you guys a high multiplier. 0:04:00.680 --> 0:04:04.320 But can this spending, even with the higher multipliers, you say, 0:04:04.520 --> 0:04:08.160 counteract the impact of tariffs and this sort of growing 0:04:08.200 --> 0:04:09.920 protectionism we're seeing globally. 0:04:10.200 --> 0:04:15.840 There's I mean, the tariffs is definitely highway for China, 0:04:15.880 --> 0:04:20.520 but I think that people tend to overestimate the tariff's 0:04:20.560 --> 0:04:24.920 impact on China's growth. We have seen it in twenty eighteen. 0:04:25.080 --> 0:04:27.880 It tend to be that if I want to put 0:04:27.920 --> 0:04:32.599 tariffs on the other country, I would do the one 0:04:32.760 --> 0:04:36.080 which hurts the other country the most and it's best 0:04:36.120 --> 0:04:38.880 for me, right, And that's what Trump did in the 0:04:38.960 --> 0:04:43.520 first term. So whatever new terriffsy put in there is 0:04:43.600 --> 0:04:47.640 going to be less impactful. And the tariff has actually 0:04:47.680 --> 0:04:51.560 lowered China's export to the US. The one number I 0:04:51.560 --> 0:04:55.000 think a lot of people don't talk about is China's 0:04:55.360 --> 0:04:59.600 total exports to the US. It's a two pout six, 0:05:00.040 --> 0:05:03.719 only eight percent of China's GDP. I mean not saying 0:05:03.760 --> 0:05:08.000 that's not significant, it's a significant. But and let's say 0:05:08.600 --> 0:05:11.400 the terriff is so high China does not directly export 0:05:11.440 --> 0:05:14.360 to you as I need more nothing. Let's say that's 0:05:14.400 --> 0:05:16.359 a s creme case. That's two one eight percent of 0:05:16.400 --> 0:05:22.239 GDP off China's So China can really increase the pascal 0:05:22.360 --> 0:05:26.320 spending if that it's the case, and the China does 0:05:26.400 --> 0:05:29.520 have the room to do the pascal spending unlike many 0:05:29.520 --> 0:05:32.120 pear and China is a really leverage. 0:05:31.800 --> 0:05:35.800 Under that, So you're basically saying that China is less 0:05:35.800 --> 0:05:39.760 exposed to exports and the domestic economy is much more important. 0:05:40.440 --> 0:05:43.320 And I wanted to talk about the consumer sector, and 0:05:43.360 --> 0:05:47.840 you mentioned cash for clunkers, But has authorities done enough 0:05:47.880 --> 0:05:49.680 to boost consumer spending? 0:05:50.200 --> 0:05:55.200 Uh, the government they do not want to do the 0:05:55.400 --> 0:05:59.240 US style, you know, flowers of the economy with all 0:05:59.240 --> 0:06:03.680 the liquidity, you with the massive leverage built up, and 0:06:04.120 --> 0:06:08.719 they were quite slow right after the pandemic. They could 0:06:08.760 --> 0:06:13.600 have done more. But since September last year they did 0:06:13.880 --> 0:06:18.920 do a lot more than before. Incrementally they have been 0:06:19.360 --> 0:06:24.880 giving copounds cash to consumers. But during the pandemic some 0:06:25.000 --> 0:06:29.120 local government tried to provide the cash and the copounds. 0:06:29.360 --> 0:06:32.239 But I still believe that given at the national level, 0:06:32.760 --> 0:06:36.159 and the multiplier should definitely be much bigger than the 0:06:36.200 --> 0:06:39.760 infrastrust spending. If you ask me that whether that's enough, 0:06:40.160 --> 0:06:42.800 I don't really know the answer. I think that's so 0:06:42.880 --> 0:06:45.160 far the evidence looks to be good. I think the 0:06:45.200 --> 0:06:48.880 important thing is whether China government or Beijing had the will. 0:06:49.360 --> 0:06:51.520 If there's a will, there's a way. But of course 0:06:51.520 --> 0:06:55.040 you need to have the room, and China definitely hads 0:06:55.080 --> 0:06:58.520 the room in terms of physical leverage. And also they 0:06:58.520 --> 0:07:00.360 have not done q They can do the que as well. 0:07:00.400 --> 0:07:03.559 If they won't, I think that's what's most like to happen, 0:07:03.920 --> 0:07:06.640 rather than that's the one time they are always say 0:07:06.880 --> 0:07:09.920 they will. Given Actually, the head of a NDRC mentioned 0:07:10.280 --> 0:07:15.720 there's a special program for consumption in the press conference. 0:07:16.360 --> 0:07:18.480 We don't know whether that is, and the rumor says, 0:07:18.520 --> 0:07:22.520 okay is going to be another few hundred billion R 0:07:22.560 --> 0:07:25.960 and B if that comes out. I think that's definitely enough. 0:07:26.520 --> 0:07:29.400 Yeah, seems like they're hyper focused on the consumer this time. 0:07:29.440 --> 0:07:31.840 I mean even in the speech, right, that was one 0:07:31.840 --> 0:07:34.840 of the first things out of the premier's mouth on 0:07:34.880 --> 0:07:37.840 the consumer. As a hedge fund, how do you translate 0:07:37.960 --> 0:07:41.040 this thinking and your view of what's going to happen 0:07:41.080 --> 0:07:43.960 in China and the Chinese economy this year into action? 0:07:44.440 --> 0:07:45.320 What are you investing in? 0:07:47.120 --> 0:07:50.560 So we are in a transition, you know, we are 0:07:50.600 --> 0:07:52.720 not really like trying to say, Okay, you are really 0:07:52.760 --> 0:07:55.240 bullish on China's economics, say no, no, no, we are not 0:07:55.360 --> 0:07:58.640 really bullish in the sense that we don't see China 0:07:58.680 --> 0:08:01.600 growing at six percent, seven or whatever is it used 0:08:01.600 --> 0:08:06.320 to be. Actually, we are structly bullish on certain parts 0:08:06.360 --> 0:08:10.600 of the economy and we're being cautious in other parts 0:08:10.640 --> 0:08:15.120 of the economy. I mentioned the multiplier for instruct spending 0:08:15.200 --> 0:08:18.000 is very long now, and the government knows that. That's 0:08:18.000 --> 0:08:21.440 why the government not eager to save property now, the 0:08:21.480 --> 0:08:24.560 eager to spend a lot on infrastructure, and that translates 0:08:24.560 --> 0:08:29.120 to low demand for commodities. So we are generally short 0:08:29.240 --> 0:08:33.680 on the community side, but we're generally more bullish equities 0:08:34.080 --> 0:08:39.320 because the government transition from infstruct spending to consumers, and 0:08:39.360 --> 0:08:44.480 the consumer demand can drive the demand for products, and 0:08:44.559 --> 0:08:48.480 the products may translate into corporate profits because a lot 0:08:48.520 --> 0:08:51.720 of the consumers are willing to spend. That translates into 0:08:51.880 --> 0:08:53.680 potential for stock pus rally. 0:08:54.600 --> 0:08:57.880 Asian Centric is produced by Bloomberg Intelligence were more than 0:08:57.920 --> 0:09:01.920 five hundred experienced analysts strategists work around the clock to 0:09:01.960 --> 0:09:05.520 bring you timely, world class research. Our coverage spans two 0:09:05.600 --> 0:09:09.840 hundred market industries, currencies, commodities, and industries, as well as 0:09:09.880 --> 0:09:12.960 over two thousand equities and credits. To learn more about 0:09:13.000 --> 0:09:17.679 Bloomberg Intelligence, visit bi go on the Bloomberg terminal. If 0:09:17.679 --> 0:09:20.120 you like what you're here, don't forget to subscribe and 0:09:20.120 --> 0:09:25.240 share in You guys, you made seventy six percent return 0:09:25.360 --> 0:09:28.520 last year. Can you tell us what home runs did 0:09:28.520 --> 0:09:30.800 you make last year? And then what do you like? 0:09:30.920 --> 0:09:31.240 Now? 0:09:31.640 --> 0:09:33.320 Okay, I need to be totally clear here. You know, 0:09:33.360 --> 0:09:36.320 we have two accounts. The highly leverage account is seventy 0:09:36.320 --> 0:09:40.040 plus and the other one the lower leverage that's close 0:09:40.120 --> 0:09:42.280 to forty percent, and it's still good. But I want 0:09:42.320 --> 0:09:46.360 to be still good as well. We basically have two 0:09:46.440 --> 0:09:49.360 books in both the last same a lot one books 0:09:49.360 --> 0:09:52.760 that were called a China replication. Remember we define our 0:09:52.880 --> 0:09:58.120 fund ads are China focus like Global Macro the China replication. 0:09:58.360 --> 0:10:01.120 What we did there is exactly what I just described. 0:10:01.200 --> 0:10:06.400 Last year. We were short commodities and we were long 0:10:06.640 --> 0:10:12.200 China equities and unfortunately we were number one opportunistic in 0:10:12.280 --> 0:10:16.120 terms of long China equities last year. Which equities we 0:10:16.120 --> 0:10:21.199 were long the Hongsung tag. We were long China's five hundred. 0:10:21.559 --> 0:10:24.280 Basically we were long index. We don't do individual equities anymore, 0:10:25.120 --> 0:10:29.920 and even more fortunate our exposure in long equities towards 0:10:30.440 --> 0:10:32.120 relatively large in September. 0:10:32.640 --> 0:10:33.680 Oh wow, good timing. 0:10:33.760 --> 0:10:37.000 Yeah. The reason for it in the sense that what 0:10:37.040 --> 0:10:40.880 do we see is that China's growth or Chinese economy 0:10:41.640 --> 0:10:43.240 was definitely not as strong as it used to be. 0:10:43.880 --> 0:10:46.319 But what do we see in more troubling is the 0:10:46.360 --> 0:10:51.360 perception of China. It's terrible. There's a disconnect China definitely. 0:10:51.400 --> 0:10:53.640 Oh yes, China is not going as well. But it's 0:10:53.800 --> 0:10:55.640 China that bad all one says. 0:10:55.800 --> 0:10:55.880 No. 0:10:56.440 --> 0:10:58.720 Actually, I think what need to change is the perception 0:10:58.840 --> 0:11:03.120 of China. Everybody looks for that big stimulus, right, but 0:11:03.320 --> 0:11:05.640 we are not looking for that big stimulus. Word we 0:11:05.679 --> 0:11:09.000 are looking for is the perception change. And we see 0:11:09.280 --> 0:11:15.280 like August last year the Olympics. The Olympics got China 0:11:15.360 --> 0:11:17.400 on the world stage and people see, okay, it's the 0:11:17.400 --> 0:11:22.360 country athletes look at quite normal and they did well. 0:11:23.480 --> 0:11:25.960 And I was also making the argument that into this 0:11:26.080 --> 0:11:30.080 world of social media, perception changed very quickly. In December, 0:11:30.120 --> 0:11:33.840 you have TikTok refugee to Shogunhu to later random and 0:11:33.880 --> 0:11:35.800 that had DeepC right, all of a sudden, the perception 0:11:35.880 --> 0:11:39.320 on China really changed, right. I think that's what it's 0:11:39.320 --> 0:11:42.240 a driving the stock market up. And of course the 0:11:42.240 --> 0:11:47.800 septembers China's a policy change also affected people's perception. 0:11:48.080 --> 0:11:51.280 And it sounds like you're still quite positive on Chinese equities. 0:11:52.040 --> 0:11:54.520 Yeah, opposition is similar right now in the sense we're 0:11:54.559 --> 0:11:58.840 still a long Chine equities, infrastructure, property sensitive commodities. And 0:11:58.880 --> 0:12:01.559 the other thing we did welllast year was I saw 0:12:01.920 --> 0:12:05.760 that Japan definitely is going to raise the interest rate 0:12:06.120 --> 0:12:08.600 because the infliction was really going up. So last year 0:12:08.600 --> 0:12:12.160 we were shouting gdb's and they also made the right argument. 0:12:12.280 --> 0:12:16.160 Last year. We were arguing that the US race was 0:12:16.160 --> 0:12:19.400 going nowhere last year, and so we treated the US 0:12:19.520 --> 0:12:22.120 rates well last year. Well, at the beginning of last year, 0:12:22.120 --> 0:12:24.240 when US race was quite low, a lot of people 0:12:24.240 --> 0:12:26.280 think by in the US bound, they's a really good trade. 0:12:26.880 --> 0:12:28.800 It turned out to be not right last year the 0:12:28.840 --> 0:12:31.360 US race basically when the up came down and went 0:12:31.480 --> 0:12:34.079 up again. And I'm quite lucky in terms of trying 0:12:34.200 --> 0:12:38.080 to think about the Trump's chance of winning or losing. 0:12:38.320 --> 0:12:41.040 Each of the last three elections. So I was thinking 0:12:41.080 --> 0:12:44.199 that Trump's chance of winning last year was much higher 0:12:44.200 --> 0:12:48.160 than the market price in. So we did some Trump triderarily, 0:12:49.080 --> 0:12:52.200 especially the raids of steepeners and the resteeping the work, 0:12:52.440 --> 0:12:56.160 and also some Asian currencies. We think they're actually quite 0:12:56.280 --> 0:12:59.600 good Asian currencies where the treating dynamics will be very 0:12:59.600 --> 0:13:04.000 different from ten years ago or nineteen ninety seven. Yeah, 0:13:04.040 --> 0:13:06.319 so that's right. Now, it's a market to mispress in 0:13:06.360 --> 0:13:06.760 some of that. 0:13:07.320 --> 0:13:09.680 Then I saw you on Bloomberg TV, and you have 0:13:09.800 --> 0:13:14.600 a counter consensus view. You think the market is underpricing 0:13:14.840 --> 0:13:18.200 US rate cuts next year. Yes, can you sort of 0:13:18.200 --> 0:13:19.480 explain more to the listener. 0:13:20.040 --> 0:13:22.320 I don't really know what's going to happen to yesterdays 0:13:22.320 --> 0:13:26.520 this year. I actually invented a term. I coined the term. 0:13:26.840 --> 0:13:30.240 I call it the Poker rule. The Poker rule is 0:13:30.679 --> 0:13:34.400 essentially a combination of Powell with a Voker. 0:13:34.760 --> 0:13:38.559 Okay, so former FED chairman Paul Volker from the seventies 0:13:38.600 --> 0:13:42.000 eighties and then current FED Chairman Dron Powell. 0:13:42.080 --> 0:13:45.640 Right, you think that Powell is facing similar problems Volk 0:13:45.840 --> 0:13:49.320 was facing inflation. Inflation was now that high, right, Volker 0:13:49.480 --> 0:13:52.120 was facing like fifteen percent inflation. Well right now it's 0:13:52.120 --> 0:13:55.400 still like a four or five. So in discussing the 0:13:55.440 --> 0:13:58.640 poker rule, I argued one thing, I don't think the 0:13:58.679 --> 0:14:02.080 market it's current in the sense if you look at Powell, 0:14:02.240 --> 0:14:05.760 it's very different from the fat governor we used to have. 0:14:06.280 --> 0:14:11.520 They were all economists, where Powell is a lawyer by education, 0:14:11.600 --> 0:14:15.400 by training. Right, So what's the difference between economists and lawyer. 0:14:15.960 --> 0:14:20.040 Economists tend to be you know, tough minded guys. They 0:14:20.040 --> 0:14:23.120 have a theory and they have a bias. A Hakage 0:14:23.160 --> 0:14:26.360 governor is always hawkish governor. A Dolfwish governor is always 0:14:26.440 --> 0:14:30.160 doltish governor. Walker is a very hawkish grispand and the 0:14:30.200 --> 0:14:34.000 Brananki are very dolwish. But low Yeer's very different. Lawyer 0:14:34.120 --> 0:14:37.200 does not use their theory to project what's going to happen. 0:14:37.240 --> 0:14:38.320 Lawyer looks at evidence. 0:14:38.480 --> 0:14:42.840 Gotcha. So economists kind of have this bias hawkish or dubbish. 0:14:43.480 --> 0:14:45.920 They lean either way. But Powell is a bit different 0:14:45.960 --> 0:14:48.840 from that. He needs to have data presented to him, 0:14:48.880 --> 0:14:51.920 so maybe could take a bit more time to act. 0:14:52.400 --> 0:14:55.320 Yeah, so this year, what evidence do we have evidence 0:14:55.480 --> 0:14:58.240 is that inflation is still elevated. I this is the 0:14:58.240 --> 0:15:02.040 infliction level. I think it's very reluctant to cut ry. 0:15:03.040 --> 0:15:05.520 But the market pricing harmony right now, pricing more than 0:15:05.600 --> 0:15:10.400 three cuts, and also the teriff's treating big or small. 0:15:10.520 --> 0:15:13.640 It's the inflationary So in this environment, I think the 0:15:13.640 --> 0:15:19.560 market means pricing the fad in the sense that they're 0:15:19.560 --> 0:15:23.000 pricing too many cuts. However, nothing priced in next year, 0:15:23.840 --> 0:15:27.040 but for next year. Remember the fat governor change. I 0:15:27.080 --> 0:15:30.480 think Trump definitely taking someone who's lawyer and who's faithfully 0:15:30.560 --> 0:15:35.280 execute his view. That means lower interest rate. So I 0:15:35.280 --> 0:15:38.680 think the next fat government comes in in May next year, 0:15:39.320 --> 0:15:42.160 the race is going to be cut much lower. And 0:15:42.200 --> 0:15:45.120 they may ask me, okay, what if the inflication remains high, Well, 0:15:45.200 --> 0:15:48.160 we have seen that episode before. The fat can make 0:15:48.160 --> 0:15:51.160 an argument, Oh, you know, the infliction induced the better 0:15:51.320 --> 0:15:54.120 terrific high. The terriff is a one time price high, 0:15:54.360 --> 0:15:55.600 so it's a transitory. 0:15:56.280 --> 0:15:58.240 What about the chances of a very recession though, I 0:15:58.240 --> 0:15:59.920 mean this is all assuming that there won't be a 0:16:00.160 --> 0:16:04.080 session this year, which I mean I don't think any 0:16:04.120 --> 0:16:07.520 economists are pricing in necessarily, but the risk has definitely 0:16:07.560 --> 0:16:07.920 gone up. 0:16:08.040 --> 0:16:11.600 Yeah, with the equity price drop. Now, I've seen some 0:16:11.840 --> 0:16:16.640 analysts calling for recession risk rising from ten percent to 0:16:16.760 --> 0:16:21.200 twenty percent something like that. I think that the Trump's terriffs, 0:16:21.760 --> 0:16:25.120 it's going to definitely increase the chance of a recession 0:16:25.200 --> 0:16:29.000 next year. So this year is somewhat like a stackflation 0:16:29.560 --> 0:16:32.320 in the sense that you increase the tariff, the invlasion 0:16:32.360 --> 0:16:36.360 goes up, the economy weaken somewhat in the stack deflation 0:16:36.680 --> 0:16:40.200 time the second part of poker we're coming to play. 0:16:40.360 --> 0:16:44.360 I argue that with the inflation at this stage, Powell 0:16:44.520 --> 0:16:48.720 is unlikely to cut interestry. There's an angle. Powell is 0:16:48.800 --> 0:16:52.240 a close land the term, and he had done great 0:16:52.320 --> 0:16:55.400 job in the Siviny economy during pandemic, and it also 0:16:55.560 --> 0:16:59.400 raised the interest rate high enough without causing a collapse 0:16:59.400 --> 0:17:02.280 of US economy. I know he deserves the full credit 0:17:02.800 --> 0:17:06.400 and his close to his end term. He doesn't want, 0:17:06.840 --> 0:17:09.680 you know, make a mistake into the cutting too much. 0:17:09.800 --> 0:17:11.640 I think that the market need to price in cut, 0:17:11.800 --> 0:17:15.760 but shouldn't be all in this year and nothing next year, right, 0:17:15.960 --> 0:17:19.520 it should be spread out. Basically, what we're doing now 0:17:19.720 --> 0:17:22.800 is that we are buying the well, We're not exactly. 0:17:22.880 --> 0:17:26.160 Buying butt is similar. We are buying the two year 0:17:26.400 --> 0:17:29.520 point of the US Treasury. Or let's say we are 0:17:29.640 --> 0:17:31.680 betting that two year point rates are going to go 0:17:31.800 --> 0:17:34.560 lower and we're bet one year point actually go higher. 0:17:34.840 --> 0:17:36.520 So in the sense we are doing a one year 0:17:36.640 --> 0:17:40.479 two year cuting technical term one year three flatner right 0:17:40.560 --> 0:17:44.040 now from under this year under next year. The market 0:17:44.119 --> 0:17:47.360 is only pricing in uh last night it was only 0:17:47.440 --> 0:17:51.680 seven basis point, so people say, okay, there'll be no 0:17:51.800 --> 0:17:54.960 cut next year. Okay, So you're basically betting that rates 0:17:55.000 --> 0:17:57.720 will come down a lot more than the market expects 0:17:57.920 --> 0:18:01.400 in twenty twenty six. And just for the listeners out there, 0:18:01.520 --> 0:18:03.920 this is not investment advice, though I don't. 0:18:03.800 --> 0:18:07.399 Know if retail investors can express their views in rates, 0:18:08.280 --> 0:18:11.359 but I wanted to sort of change the topic a bit. 0:18:11.720 --> 0:18:15.040 You're a macro hedge fund based in Hong Kong. Now, 0:18:15.119 --> 0:18:17.480 Hong Kong is home to a lot of hedge funds, 0:18:17.560 --> 0:18:21.120 but they're mostly equity long short and when you think 0:18:21.160 --> 0:18:23.600 of macro hedge funds, you think of you know, Stanley 0:18:23.680 --> 0:18:26.800 Drunken Miller, you know George Soros, litile spaking. They're always 0:18:26.840 --> 0:18:30.320 based in New York, maybe in London. What's it like 0:18:30.520 --> 0:18:32.640 being a macro guy in Hong Kong? 0:18:33.400 --> 0:18:38.280 That feels good. I think it's interesting for the Asia 0:18:38.440 --> 0:18:43.400 macro hatch fund quite a few false starts in ninety seven. 0:18:43.480 --> 0:18:45.639 You have Asian financial crisis. It's supposed to be a 0:18:45.720 --> 0:18:48.520 perfect time for you know, a macro hatch fund, right, 0:18:49.200 --> 0:18:52.159 and then you seven which is not Asia LAD, is 0:18:52.200 --> 0:18:56.159 the US LAD and Asia cutter factors as well. But 0:18:56.280 --> 0:18:58.680 I think that's interesting is if you look at you know, 0:18:59.119 --> 0:19:05.320 Sorrows Drugler, they are quite close to the center backs, 0:19:06.240 --> 0:19:10.440 or at least they understand the fat the BOE much 0:19:10.520 --> 0:19:14.480 better than I would say a guy here, Yes, so 0:19:15.280 --> 0:19:18.760 a guy like us here, we are proud of ourselves 0:19:18.800 --> 0:19:24.560 for understanding PBOC or even BOJ better than those guys. 0:19:24.680 --> 0:19:24.800 Right. 0:19:25.720 --> 0:19:29.600 The interesting thing is that BOJ didn't matter for a 0:19:29.640 --> 0:19:32.640 long time. Japan was like the last decades, the people 0:19:32.680 --> 0:19:36.720 who it doesn't matter either, Well, Beijing's policy matters to 0:19:37.240 --> 0:19:40.200 manufacturing part of the economy. For a long time, it 0:19:40.280 --> 0:19:44.240 did not matter to financial part of the global economy. 0:19:45.320 --> 0:19:48.439 Back in twenty sixteen twenty seventeen, I wrote a piece 0:19:48.680 --> 0:19:53.879 to my masts basically arguing that twenty to fifteenths R 0:19:53.880 --> 0:19:58.000 and B depegging from the US dollar was going to 0:19:58.119 --> 0:20:02.840 have huge impact in ten years, not at that moment. 0:20:03.800 --> 0:20:07.880 So in ten year's time I argued that decisions out 0:20:07.880 --> 0:20:13.840 of Beijing will be as important as, if not more important, 0:20:14.160 --> 0:20:20.960 than decisions out of Washington, New York, Tokyo, London, Berlin, Brussels. 0:20:21.880 --> 0:20:26.600 We are witnesses right now. Not Bejing decisions definitely affects 0:20:27.119 --> 0:20:30.639 the global financial market, not just Chinese market anymore so. 0:20:31.280 --> 0:20:34.959 Being a microphone in this region, we have a certain 0:20:35.320 --> 0:20:39.680 information advantage. Instance of that, or you call it the 0:20:39.720 --> 0:20:44.400 analytics advantage. We understand China much better than most microphounds 0:20:44.440 --> 0:20:48.480 sitting in London and sitting in New York. Beijin used 0:20:48.480 --> 0:20:52.119 to be relatively transparent. That's going to the direction of 0:20:52.240 --> 0:20:55.720 more transparency, but over the last few years it seems 0:20:55.760 --> 0:21:00.600 to be becoming less transparent. So the yin free information 0:21:00.720 --> 0:21:03.200 symmetry for those guys sitting in London in New York. 0:21:03.640 --> 0:21:07.600 For US, we also get less information, but at least 0:21:07.840 --> 0:21:13.119 we are still better connected or closer to understand what's 0:21:13.320 --> 0:21:16.600 happening than those guys in London New York. That's something 0:21:16.680 --> 0:21:18.040 we think it's our advantage. 0:21:18.119 --> 0:21:19.680 What do you think they get wrong? You know, you're 0:21:19.680 --> 0:21:21.399 saying that the folks in New York, in London, what 0:21:21.440 --> 0:21:24.000 do you think they're getting wrong about the PBOC and 0:21:24.080 --> 0:21:25.080 about China right now? 0:21:25.320 --> 0:21:29.400 So for example December in the Central Work Economic Conference 0:21:29.680 --> 0:21:31.679 and they said, okay, we're going to lose the Montreal policy. 0:21:31.960 --> 0:21:35.439 What happened. Yes, that means they may cut a triple 0:21:35.600 --> 0:21:38.159 r the cut interest rate. And if you look at 0:21:38.160 --> 0:21:41.240 the ripple market versus the official rate, the marketing market 0:21:41.359 --> 0:21:44.040 is quite tight right now. The reform market is somewhere 0:21:44.119 --> 0:21:47.520 around one point eight to two percent. Well, the official 0:21:47.680 --> 0:21:50.760 seven day PBOC rate is one point five percent. This 0:21:50.960 --> 0:21:54.320 divergence is actually quite high. If the cutting interest rates, 0:21:54.320 --> 0:21:56.159 the rate should be one two percent. So we are 0:21:56.200 --> 0:22:00.480 looking at, you know, really lose Montibal percent says the 0:22:00.920 --> 0:22:04.160 market price of two percent. And the arybody's arguing, okay, 0:22:04.280 --> 0:22:07.280 this is the temper phenomenon Chinese New Year. The money 0:22:07.400 --> 0:22:10.480 tied after Chinese New Year, the red remained high. The 0:22:10.560 --> 0:22:13.280 reason for other the you know, one is that the 0:22:13.359 --> 0:22:15.680 economy is not that bad, so they're not in a hurry. 0:22:16.320 --> 0:22:19.160 And the other one is the people who have mentioned 0:22:19.280 --> 0:22:22.880 quite a few times the long term Chinese government bound rate. 0:22:23.720 --> 0:22:26.720 It's too low. They did not say specifically too low, 0:22:26.840 --> 0:22:30.199 but they talked about it many times. If you look 0:22:30.200 --> 0:22:32.719 at thertainy year, China's garment bomb right now, it's one 0:22:32.760 --> 0:22:36.439 point eighty percent. Japan is two point three four percent. 0:22:36.920 --> 0:22:40.719 This makes no sense, right, and we understand why it's happening. 0:22:41.080 --> 0:22:43.960 Who's buying it? Why is going that way? I don't 0:22:44.000 --> 0:22:46.719 think that the guy's sitting in londoness And actually it's 0:22:46.720 --> 0:22:48.879 as a matter of fact, we're talking to some investors 0:22:48.920 --> 0:22:51.560 and they said, yeah, you argue that the long term 0:22:51.600 --> 0:22:55.080 of China rates is going to be higher, but this 0:22:55.240 --> 0:22:57.920 has been going lower for the last one year and 0:22:58.160 --> 0:22:59.840 in the bloom of TV. I think that the whole 0:23:00.280 --> 0:23:03.720 asking me that the low long term rate, does that 0:23:03.920 --> 0:23:07.960 signal that people are quite passimistic about China. Well, I say, okay, 0:23:08.600 --> 0:23:13.160 interpret that way, but that's not exactly the right price 0:23:13.720 --> 0:23:16.280 for the China's long term growth. This is a two low. 0:23:16.440 --> 0:23:20.520 So I actually want to position for China reads higher. 0:23:21.119 --> 0:23:23.879 The question is the number one? Is one? The second? 0:23:23.920 --> 0:23:24.800 And what's trigger? 0:23:25.000 --> 0:23:25.119 Right? 0:23:25.320 --> 0:23:27.520 Yeah, what's going to say in how many years and 0:23:27.560 --> 0:23:28.160 how many years. 0:23:28.720 --> 0:23:31.439 I mean for me, like we we have some position 0:23:31.480 --> 0:23:33.879 there as well, and we don't think this is the 0:23:33.960 --> 0:23:35.879 moment a way of back like this isn't going to 0:23:35.920 --> 0:23:38.080 go back to three percent and run them soon, but 0:23:38.240 --> 0:23:41.080 we want to watch for inflation for girls of whether 0:23:41.119 --> 0:23:43.840 there's the girls will continue with the girls continue, Let's 0:23:43.840 --> 0:23:46.800 say the inflation the forecasted the government the lower the 0:23:46.840 --> 0:23:50.080