WEBVTT - Examining China's Eco Growth 0:00:02.480 --> 0:00:10.480 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:10.520 --> 0:00:13.720 Daybreak Aisia podcast. I'm Doug Prisner. You can join Brian 0:00:13.800 --> 0:00:16.640 Curtis and myself for the stories, making news and moving 0:00:16.680 --> 0:00:19.560 markets in the Apec region. You can subscribe to the 0:00:19.600 --> 0:00:23.080 show anywhere you get your podcast and always on Bloomberg Radio, 0:00:23.320 --> 0:00:26.080 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:26.360 --> 0:00:29.560 Let's turn out to Homan Lee, senior macro strategist at 0:00:29.640 --> 0:00:33.320 Lombard Odier with a little bit of a closer look 0:00:33.360 --> 0:00:37.000 here at China. So you're neutral on the market with 0:00:37.200 --> 0:00:38.520 kind of a cautious view. 0:00:38.720 --> 0:00:46.400 Why, well, I guess the economy has, especially the manufacturing 0:00:46.440 --> 0:00:50.240 sector has done pretty well due to robust demand overseas 0:00:50.320 --> 0:00:55.120 and this increasing success at getting more market share overseas. 0:00:55.720 --> 0:00:58.480 So the combination of this will definitely create a bit 0:00:58.480 --> 0:01:02.840 of offside for twenty twenty four, so you know, the 0:01:02.840 --> 0:01:06.040 growth will be closer to five percent target. But can 0:01:06.080 --> 0:01:08.560 the economy do better? You know next year and the 0:01:08.640 --> 0:01:11.960 year after. We still have some structural issues that have 0:01:12.120 --> 0:01:15.720 not been resolved. The real estate sector continues to struggle 0:01:16.280 --> 0:01:21.280 despite you know, many easing measures from basing. It's also 0:01:21.360 --> 0:01:24.319 pretty clear that with their main asset class struggling, the 0:01:24.400 --> 0:01:28.120 domestic consumers are still relatively cautious. If you look at 0:01:28.120 --> 0:01:32.520 the bank loans for instance, four households, it's actually pretty weak. 0:01:33.400 --> 0:01:34.520 It was pretty weak in May. 0:01:35.319 --> 0:01:38.920 At the sentiment indicators is still pretty depressed, so and 0:01:39.240 --> 0:01:40.080 the prices. 0:01:39.760 --> 0:01:40.479 Are still pretty low. 0:01:40.560 --> 0:01:43.320 So the domestic you know, manufacturers and supplies are still 0:01:43.360 --> 0:01:47.400 struggling to get the secure margins for their own businesses. 0:01:47.440 --> 0:01:50.440 And the share of loss making business for the industrial 0:01:50.440 --> 0:01:52.920 sectors about a third. So in this kind of combination, 0:01:53.160 --> 0:01:55.960 it's very difficult to get the enthusiasm up well the 0:01:56.080 --> 0:01:59.160 medium to long term. But it's also true that the 0:01:59.240 --> 0:02:01.280 leadership is aware of this situation, so in. 0:02:01.280 --> 0:02:03.640 July it's possible to try to deliver. 0:02:03.840 --> 0:02:06.880 Some new reform measures for the real estate. So you know, 0:02:06.960 --> 0:02:09.679 these two factors basically, you know, cancel each other out, 0:02:09.800 --> 0:02:12.800 and that's the reason why we are still comfortable to 0:02:12.840 --> 0:02:14.520 maintain a neutral position on the market. 0:02:14.639 --> 0:02:17.080 That's an interesting point. It's kind of consistent with what 0:02:17.120 --> 0:02:19.880 the government is saying about really making sure that the 0:02:19.919 --> 0:02:24.280 manufacturing economy is doing well so that you know, the 0:02:24.639 --> 0:02:27.240 real estate segment can heal if that's the right word 0:02:27.360 --> 0:02:30.200 to use. I guess it's fair to say that China 0:02:30.240 --> 0:02:34.720 has really perfected the manufacturing economy. I mean, the efficiency, 0:02:35.360 --> 0:02:41.280 the modernization, automation, robotics, everything that's being deployed right now 0:02:41.280 --> 0:02:43.119 and has been for a number of years is really 0:02:43.200 --> 0:02:46.760 kind of you know, unmatched globally. But are you concerned 0:02:46.800 --> 0:02:50.720 now that we're talking about trade wars potentially in geopolitical 0:02:50.840 --> 0:02:53.440 risk that may be shifting slightly? 0:02:55.160 --> 0:02:58.280 That's exactly right. The part of this development is actually 0:02:58.280 --> 0:03:00.920 not sustainable in the long run because it will you know, 0:03:00.960 --> 0:03:05.119 definitely intensify frictions with the trading partners. We already had 0:03:05.840 --> 0:03:09.200 you know, reaction from European Union for the EV sector. 0:03:09.320 --> 0:03:13.240 But that dispute, even though the recent announcement was a 0:03:13.280 --> 0:03:16.720 bit mild and I will expect it so uh, that's 0:03:17.000 --> 0:03:19.280 that was slightly encouraging. But the thing is that dispute 0:03:19.320 --> 0:03:22.400 will spread to the other sectors as well, like solar panels, 0:03:22.480 --> 0:03:26.720 you know, wind turbines, semiconductors and uh and the other sectors. 0:03:26.720 --> 0:03:30.200 So and and you know, you you're aware that you know. 0:03:30.240 --> 0:03:34.480 Canada is beginning to think about the e V related tariff. UH. 0:03:34.560 --> 0:03:37.480 You know, Japan is now beginning to increase restrictions for 0:03:37.760 --> 0:03:41.160 a trade related to maybe you know, Russia and Ukraine. 0:03:41.240 --> 0:03:45.400 So so these issues are as set to worsen. So 0:03:45.440 --> 0:03:47.920 the fact that China is genny gain in the market. 0:03:47.640 --> 0:03:49.640 Share is partly in the near term. 0:03:50.160 --> 0:03:52.640 But that tension is definitely there and it will be 0:03:52.760 --> 0:03:54.000 it will be even more. 0:03:53.880 --> 0:03:56.240 Difficult for the exporters are going forward the medium to 0:03:56.280 --> 0:03:56.680 long term. 0:03:56.880 --> 0:03:59.040 It's the first time in a long time that China 0:03:59.080 --> 0:04:01.680 seems to be a little bit more concerned about this 0:04:01.800 --> 0:04:04.280 than Europe and the United States. I mean, you look 0:04:04.320 --> 0:04:07.880 at the speech from Chinese Premier Li Chiang yesterday at 0:04:07.920 --> 0:04:11.800 the World Economic Forum, and basically he's talking about the 0:04:11.960 --> 0:04:16.280 regressive actions of decoupling and that there would be negative consequences. 0:04:16.320 --> 0:04:18.880 He thinks that it would drag the world into a 0:04:18.960 --> 0:04:22.279 destructive spiral. You're not hearing Europe and the United States 0:04:22.320 --> 0:04:25.880 talk about, you know, losing a bit of contact with 0:04:26.000 --> 0:04:28.160 China as being that big of a thing on the 0:04:28.200 --> 0:04:32.359 global front, but China is. Does that show you that 0:04:32.440 --> 0:04:35.040 they're quite significantly nervous about this. 0:04:35.040 --> 0:04:40.479 This decoupling, the decompanying is real, and it's already happening, 0:04:40.480 --> 0:04:42.440 and it'd be very difficult to reverse it given the 0:04:42.440 --> 0:04:46.000 political sensitivities and different capitals around the world, you know, 0:04:46.080 --> 0:04:49.719 including Beijing. So the loss of trust here in the 0:04:49.760 --> 0:04:52.839 system is really sad thing to watch, and you will 0:04:52.839 --> 0:04:57.000 definitely reduce efficiency at the global economic level, at the 0:04:57.000 --> 0:04:59.040 global level going forward. 0:04:59.279 --> 0:05:02.279 So it's really you know, a setback, you know for 0:05:02.320 --> 0:05:03.400 a long term outlook. 0:05:03.800 --> 0:05:07.520 But you're absolutely right, you know this, Uh, you know, 0:05:07.680 --> 0:05:10.040 loss of trust is going to stay. 0:05:11.000 --> 0:05:14.320 And you know, especially with the you know, the political 0:05:14.760 --> 0:05:16.560 you know event coming up in the US. 0:05:17.320 --> 0:05:20.200 You know the dialogue will likely worse. And and you know, 0:05:20.240 --> 0:05:23.680 as far as the Chinese exporters outlook is concerned, uh, 0:05:23.720 --> 0:05:24.760 you know, they're doing well. 0:05:25.600 --> 0:05:25.800 Uh. 0:05:25.880 --> 0:05:28.200 And and you know part of this is in fact, you. 0:05:28.160 --> 0:05:32.880 Know, the actual innovation happening in China, but the reaction 0:05:33.040 --> 0:05:35.960 to it will will definitely get stronger. 0:05:36.279 --> 0:05:39.200 So we know that because I'm sorry home and the 0:05:39.279 --> 0:05:43.120 challenges in China typically create rippel effects across the apex. 0:05:43.440 --> 0:05:45.560 You're in South Korea, can you give us a sense 0:05:45.600 --> 0:05:48.800 of how you're seeing what China is going through kind 0:05:48.839 --> 0:05:53.479 of resonate through the South Korean economy. 0:05:53.600 --> 0:05:56.880 So for sure, one of the successes of you know, 0:05:56.960 --> 0:05:59.400 the factors that drove the success of South Korea in 0:05:59.440 --> 0:06:02.880 past twenty years was the globalization and the collaboration with China. 0:06:03.400 --> 0:06:06.800 So the fact that the coupling is happening, you will 0:06:06.880 --> 0:06:08.400 create some ramifications for. 0:06:08.440 --> 0:06:09.440 The business sector. Here. 0:06:09.480 --> 0:06:11.760 For instance, if you think think about the memory sector 0:06:11.800 --> 0:06:14.760 in South Korea, a huge chunk of the instaal capacity 0:06:14.839 --> 0:06:18.279 is still in China, and you know, the leading manufacturers 0:06:18.279 --> 0:06:21.280 need to figure out how to you know, manage that 0:06:21.320 --> 0:06:24.680 the exposure going forward, especially because they're not beginning to 0:06:24.720 --> 0:06:29.280 build facilities in the US under the US conditions. So 0:06:29.320 --> 0:06:31.440 these are the issues that they need to deal with. 0:06:32.080 --> 0:06:35.119 But at the same time, some businesses, you know, feeling 0:06:35.200 --> 0:06:37.560 a bit more optimistic because you know, there is this 0:06:37.720 --> 0:06:40.680 expectation that may be the greater restrictions from the US 0:06:40.680 --> 0:06:44.800 in Europe could create opportunities. But South Korea a battery sector, 0:06:44.839 --> 0:06:48.240 for instance, the leading battery manufacturers in South Korea, they 0:06:48.279 --> 0:06:51.800 were losing market share to China, so potentially this new 0:06:51.839 --> 0:06:54.960 tariff that's coming up could open the door for them. 0:06:55.040 --> 0:06:59.279 So it cuts both ways. But definitely the navigation devigating 0:06:59.279 --> 0:07:01.520 this is not going to be easy so. 0:07:01.520 --> 0:07:04.280 Put that all together, like, for instance, this morning, we're 0:07:04.279 --> 0:07:08.200 seeing a rebound in in Tokyo Electron and ske Heinex 0:07:08.279 --> 0:07:10.280 is some more than three percent. What's your number one 0:07:10.280 --> 0:07:13.560 call at the moment, Well. 0:07:13.400 --> 0:07:17.040 The number one call in Asia is that we are 0:07:17.560 --> 0:07:21.280 still long dollar against the select Asian currencies. 0:07:21.640 --> 0:07:23.720 We do think yen yuen. 0:07:24.120 --> 0:07:28.000 Will soften a bit against dollar going forward given the 0:07:28.120 --> 0:07:32.840 macro challenges there, and for Japan, we do think the 0:07:32.880 --> 0:07:36.360 adjustments by Banko Japan will come up in the July 0:07:36.480 --> 0:07:37.120 policy meeting. 0:07:37.720 --> 0:07:40.240 All right, well, we've got weakness in the end. This morning, 0:07:40.560 --> 0:07:44.520 dollar yen's at one fifte seventy eight. Homan, thank you 0:07:44.560 --> 0:07:48.800 for joining us. Homan Lee, senior macro strategist at Lombard Odier. 0:07:56.120 --> 0:07:58.200 Well joining us now on the program to take a 0:07:58.240 --> 0:08:01.800 closer look at markets. Is Jeff you, senior EMEA market 0:08:01.840 --> 0:08:05.080 strategist to at B and why Jeff, thanks very much 0:08:05.120 --> 0:08:09.760 for being with us inequities. We've actually had considerably more 0:08:10.160 --> 0:08:13.960 volatility in some of the individual stock performance than we 0:08:14.040 --> 0:08:17.560 have seen at the index level. So in some ways, 0:08:17.840 --> 0:08:20.520 I suppose you could say that what that translates to 0:08:20.760 --> 0:08:22.800 is it's a good time to be a stock picker, 0:08:23.160 --> 0:08:24.040 are you that, dude? 0:08:25.640 --> 0:08:28.080 Well, at this point, I think with respect to stock markets, 0:08:28.080 --> 0:08:30.720 we've got to take into account seasonality. You know, there's 0:08:30.880 --> 0:08:33.360 month ender, so somebody balancing going on as course to 0:08:33.440 --> 0:08:36.360 rend as well, so it amplifies things. But I think 0:08:36.760 --> 0:08:38.839 it's not just in equity markets where you want to 0:08:38.880 --> 0:08:41.240 be a stock picker. I want to be a quote 0:08:41.320 --> 0:08:45.160 unquote stockpicker in currency markets as well, and bond markets. 0:08:45.160 --> 0:08:49.439 To idiosyncratic risk and countries are the same as looking 0:08:50.200 --> 0:08:56.040 at company fundamentals as well. So to your point, broadbrush 0:08:56.240 --> 0:08:58.960 risk on environment that certainly doesn't really apply, and more 0:08:59.040 --> 0:09:02.040 especially with effet common so that you've just played, especially 0:09:02.080 --> 0:09:03.800 if it's a high for longer environment, then you've got 0:09:03.840 --> 0:09:06.160 to be very careful in ass allocation where you want 0:09:06.200 --> 0:09:07.960 to own, who you want to own, and how you 0:09:08.000 --> 0:09:08.560 deploy money. 0:09:09.080 --> 0:09:12.200 Yeah, we're fortunate to be speaking with you from Beijing, 0:09:12.360 --> 0:09:14.160 so i'd like to get your take on the overall 0:09:14.200 --> 0:09:16.839 economy in China, But talk to me about some of 0:09:16.880 --> 0:09:20.360 the geopolitical risks that you see right now. Yesterday we 0:09:20.360 --> 0:09:24.080 were talking about Canada imposing terrorff sun Chinese evs. We 0:09:24.120 --> 0:09:27.000 know the state, what the situation here in terms of 0:09:27.320 --> 0:09:30.120 the terror of situation is with the US also Europe, 0:09:30.240 --> 0:09:32.240 and then a moment ago we were talking about open 0:09:32.280 --> 0:09:36.800 AI taking additional steps to curb Chinese access to AI software. 0:09:37.280 --> 0:09:41.280 How do you view the geopolitical environment right now, the 0:09:41.360 --> 0:09:42.439 US versus China. 0:09:43.640 --> 0:09:46.320 Well, I think, you know, broadly, all of this is 0:09:46.360 --> 0:09:49.440 being factored into ass allocation, right so, you know, to 0:09:49.480 --> 0:09:51.520 the point we're regarding the last question about you know, 0:09:51.600 --> 0:09:54.640 stop picking, and I think these premiums or discounts are 0:09:54.640 --> 0:09:57.440 being factored in as well, you know, but all sides 0:09:57.480 --> 0:10:00.719 are talking at this point, you know, China, EU discussing 0:10:01.320 --> 0:10:05.240 the situation with you know, tariffs up ahead, how that's 0:10:05.280 --> 0:10:08.920 going to impact industry. But broadly speaking, when it comes 0:10:09.000 --> 0:10:11.800 to the domestic economy, I think that still is going 0:10:11.840 --> 0:10:14.400 to be the focus. How to continue to a lift 0:10:14.440 --> 0:10:17.600 sentiment and an asse allocation terms for much of Asia 0:10:17.800 --> 0:10:21.960 where we see significant underweights from our own client flow, 0:10:22.200 --> 0:10:24.680 there is an opportunity there. But at the same time 0:10:24.800 --> 0:10:27.520 we need to see policies follow up as well. So 0:10:27.800 --> 0:10:30.640 let's not get too distracted on the international side of things, 0:10:30.720 --> 0:10:33.319 and let's see if Asia as a whole can pick 0:10:33.360 --> 0:10:36.319 itself up in terms of generating growth and a challenging environment. 0:10:36.360 --> 0:10:39.439 I like ad One of the things about stock picking 0:10:39.760 --> 0:10:43.160 that I think resonates is it's about the stories. And 0:10:43.200 --> 0:10:45.840 I think you could apply that to all asset classes, 0:10:45.880 --> 0:10:51.520 including your specialties the bond market and currencies for instance. 0:10:52.120 --> 0:10:55.079 You know, these are these are comments that play out 0:10:55.120 --> 0:11:01.280 pretty well within video. It's probably, you know, a difficult 0:11:01.320 --> 0:11:03.640 thing to short at this time, to get your head 0:11:03.679 --> 0:11:08.600 handed back to you basically just because of valuation. You know, 0:11:08.679 --> 0:11:13.040 it's a story that seemingly is still intact. Don't overthink it. 0:11:13.520 --> 0:11:16.360 Are there some parallel stories that you see with other 0:11:16.400 --> 0:11:17.200 asset classes? 0:11:18.520 --> 0:11:22.000 Well to one or two weeks ago, when we're talking 0:11:22.000 --> 0:11:26.360 about the situation in France and we're asked about safe havens, right, so, 0:11:27.120 --> 0:11:29.679 what would you consider as a safer asset right now? 0:11:29.800 --> 0:11:33.600 The European government dead or tech stocks in the US. 0:11:33.679 --> 0:11:36.559 And I suppose a lot of asset allocators would pivot 0:11:36.559 --> 0:11:40.800 towards the latter right now, which does sound counterintuitive to 0:11:40.840 --> 0:11:44.320 some extent, but many times now I would say clients 0:11:44.360 --> 0:11:46.520 take the approach, if it ain't broke, don't fix it, 0:11:46.640 --> 0:11:50.120 right and being in tech being invested in the US 0:11:50.160 --> 0:11:52.520 has worked. You know, we actually have to acknowledge that. 0:11:53.000 --> 0:11:55.560 So rather you know, think about valuations in the US, 0:11:55.720 --> 0:11:59.440 let's think about the discounts in Europe. Why European companies 0:11:59.440 --> 0:12:02.480 are why you're bonds struggling to attract the kind of 0:12:02.520 --> 0:12:06.880 flows that US tech is generating right now on a 0:12:06.960 --> 0:12:10.000 volatility adjusted basis as well. I look at real rates 0:12:10.000 --> 0:12:12.079 in the US, and then I look at real rates south. 0:12:11.880 --> 0:12:13.080 Of the border in Mexico. 0:12:13.320 --> 0:12:16.280 We're talking one percent in the US compared to four 0:12:16.360 --> 0:12:18.840 or five percent for a Mexican equivalent. You know, Yet 0:12:18.920 --> 0:12:20.920 over the last few weeks or so, we've seen the 0:12:20.960 --> 0:12:24.280 dollar outperformer as well. So is it too much of 0:12:24.320 --> 0:12:27.120 a premium in US assets or a discount elsewhere? That's 0:12:27.160 --> 0:12:30.880 worthy of discussion. But time and time again US stocks 0:12:30.920 --> 0:12:32.800 have shown their worth and so I think that is 0:12:32.840 --> 0:12:34.920 basically cornering market investments right now. 0:12:34.920 --> 0:12:37.440 So what is the level of risk in Europe? Even 0:12:37.440 --> 0:12:41.520 if the ECB begins to accommodate and apply a few 0:12:41.559 --> 0:12:44.280 more rate cuts here, is that enough to assuage your 0:12:44.320 --> 0:12:46.160 concerns at all? 0:12:46.520 --> 0:12:49.720 Actually, if I look at the euro where it's some trading, 0:12:50.559 --> 0:12:54.840 what I am concerned about somewhat counter into is the ECB. 0:12:55.000 --> 0:12:58.120 And if there are many, many reasons and to be 0:12:58.120 --> 0:13:00.800 bearish on the Euro right now, and perhaps the European 0:13:00.840 --> 0:13:03.880 economy politics, oddly enough, is actually not one of them. 0:13:04.240 --> 0:13:06.200 So the French debt reaction, I think that was more 0:13:06.280 --> 0:13:09.160 due to overpositioning ahead of time, ahead of the election announcement, 0:13:09.559 --> 0:13:14.480 rather than fundamentals itself. I look at manufacturing PMI in Europe, 0:13:14.679 --> 0:13:18.679 the cornerstone of European industry, the car industry in particular, 0:13:18.840 --> 0:13:21.280 that has been contracting for god knows how long now, 0:13:21.600 --> 0:13:26.120 Yet the ECB's focused on the more narrowly defined services inflation. 0:13:26.320 --> 0:13:28.000 So I do think that the PO will need to 0:13:28.040 --> 0:13:30.440 cut a lot what that would assuage my concerns. So, 0:13:30.480 --> 0:13:32.640 if anything, ECB is not cutting enough right now. 0:13:33.080 --> 0:13:36.560 Yeah, and that wouldn't even strengthen a dollar more. Yeah, 0:13:36.760 --> 0:13:39.280 I'm curious what you think about this. I've listened to 0:13:39.320 --> 0:13:42.240 so many sessions with you and Tom Keane on surveillance. 0:13:42.320 --> 0:13:43.880 I feel like I know you and. 0:13:43.840 --> 0:13:44.160 I know you. 0:13:44.200 --> 0:13:46.600 Look at the US, I think most people would probably 0:13:46.640 --> 0:13:49.080 think that the neutral rate on the economy in the 0:13:49.120 --> 0:13:51.880 US is somewhere between two and a half and three percent, 0:13:52.240 --> 0:13:55.080 the funds rates at five thirty seven and a half. 0:13:55.120 --> 0:13:58.040 How long can that go on without doing some damage? 0:13:59.280 --> 0:14:02.800 Well, how can that go on, you know in terms 0:14:03.240 --> 0:14:06.040 of you tightening financial conditions. But we just have to 0:14:06.080 --> 0:14:09.319 go back to the data and the data right now 0:14:09.880 --> 0:14:12.880 as many FED members of highlighters just not showing signs 0:14:12.880 --> 0:14:14.760 are slowing down. So there may be an argument that 0:14:15.120 --> 0:14:18.080 for high for longer or long term equilibrium rates are being. 0:14:17.920 --> 0:14:18.640 Pushed higher now. 0:14:19.320 --> 0:14:22.680 A recent speech by the Swiss National Banks President Thomas 0:14:22.760 --> 0:14:26.320 Jordan also highlighted that equilibrim rates in the in Switzerland, 0:14:27.120 --> 0:14:29.480 known for low inflation in the past, may be a 0:14:29.480 --> 0:14:32.000 bit harder than expected. So to your point about a 0:14:32.400 --> 0:14:35.600 structural level of rates and the level at which they 0:14:35.640 --> 0:14:38.800 need need to be to do some damage, maybe higher 0:14:38.920 --> 0:14:42.320 across the board than we previously expected. So I think 0:14:42.400 --> 0:14:44.960 now that is a really supportive of the dollar right now. 0:14:45.040 --> 0:14:46.960 And to be frank, apart from the Swiss and the Yen, 0:14:47.280 --> 0:14:49.160 you know, maybe dollar downside is going to be quite 0:14:49.160 --> 0:14:49.960 limited at this point. 0:14:50.120 --> 0:14:52.240 Jeff, very quickly, before we let you go, since you're 0:14:52.280 --> 0:14:54.840 in China, let's do a little bit of walk about economics. 0:14:54.840 --> 0:14:56.840 What is the situation there on the ground. 0:14:58.080 --> 0:14:59.640 So you know, right now, you know, we always say 0:14:59.680 --> 0:15:02.560 this can be a stronger, you know than we would 0:15:03.000 --> 0:15:05.800 like it to be. But there is an effort scene 0:15:06.080 --> 0:15:10.680 to try to support the economy. And also the PBOC 0:15:10.960 --> 0:15:13.960 comments I think throughout the yeah, they are redoubling efforts 0:15:14.320 --> 0:15:16.440 to do so, you know, what are the castalysts And 0:15:16.480 --> 0:15:19.480 for some I just don't think with my international hat on, 0:15:19.520 --> 0:15:21.640 there is enough focus and on some of the opportunities. 0:15:21.640 --> 0:15:22.480 I'm here at this point. 0:15:22.560 --> 0:15:25.960 So we remain positive on ass allocation in China, mostly 0:15:25.960 --> 0:15:30.520 because the extent of waitings is actually quite soft. Okay, 0:15:30.560 --> 0:15:32.760 so you know sometimes you think about price action. No 0:15:32.800 --> 0:15:35.200 one owns China at this point, you know, that's the 0:15:35.200 --> 0:15:37.560 point I look at our flows. No one owns emerging 0:15:37.560 --> 0:15:40.160 markets in general. Yeah, that's where the opportunities are. 0:15:39.960 --> 0:15:42.120 We got to go, Jeff. But that's why I was wow, 0:15:42.200 --> 0:15:44.960 you know, it's it's it's it's it's interesting to hear. 0:15:45.160 --> 0:15:47.680 We'll say that for the next time. Details Jeff, you 0:15:48.040 --> 0:15:58.200 from BN one. Let's get to our guest, Mark Machini, 0:15:58.400 --> 0:16:03.520 chief investment strategist Jenny Montgomery Scott, Mark, thank you for 0:16:03.560 --> 0:16:07.760 coming on the program. We had the FED Governor Michelle Bowman, actually, 0:16:08.040 --> 0:16:12.160 I'm worried about upside risk on inflation. It's a little 0:16:12.200 --> 0:16:14.440 counter to what we've seen in the past couple of months. 0:16:15.160 --> 0:16:17.560 And the FED Governor Lisa Cook went the other direction, 0:16:17.720 --> 0:16:22.200 saying that she sees inflation gradually improving this year. We 0:16:22.240 --> 0:16:26.520 had Steve Eisman on surveillance last night, my time, and 0:16:26.560 --> 0:16:29.120 he said, it doesn't matter. You know, five hundred and 0:16:29.200 --> 0:16:32.440 fifty basis points of upside one move here, one or two, 0:16:32.560 --> 0:16:34.840 It just doesn't matter. How do you see this? 0:16:36.600 --> 0:16:39.680 Well, I think there's a case be made that could 0:16:39.680 --> 0:16:43.320 probably defend both Fed Governor's positions. At the same time, 0:16:43.360 --> 0:16:47.680 though several of the leading indicators that we consider in 0:16:47.920 --> 0:16:53.280 factoring in the somewhat guesstimate work that goes into ascertaining 0:16:53.320 --> 0:16:57.160 the likely direction of inflation suggests it's more likely to 0:16:57.280 --> 0:17:01.960 continue to cool than necessarily reh Now, maybe in the 0:17:02.000 --> 0:17:05.119 case of Governor Bowman, there was an acknowledgement of the 0:17:05.480 --> 0:17:07.320 earlier in the year readings that came in a little 0:17:07.359 --> 0:17:10.800 bit hotter than expected. That can't obviously be dismissed at 0:17:10.840 --> 0:17:13.320 this juncture just because we've stacked a couple of good 0:17:13.720 --> 0:17:18.240 inflation readings subsequent to that. So again it's a heavy 0:17:18.280 --> 0:17:23.800 reliance and data and lack of commitment or conviction on 0:17:23.880 --> 0:17:27.119 the part of the Federal Reserve members with regard to 0:17:27.160 --> 0:17:29.879 what their next move might be, allowing for the data 0:17:30.040 --> 0:17:33.880 to serve their reaction function as opposed to speculating. 0:17:34.359 --> 0:17:36.720 So, if you're right and we do see evidence of cooling, 0:17:36.800 --> 0:17:40.879 it may manifest Friday with that PCEE data. If we 0:17:41.000 --> 0:17:45.560 know it's the feds preferred measure, will that change consumer behavior? 0:17:45.680 --> 0:17:48.120 I mean, if we start to see inflation come down. 0:17:48.440 --> 0:17:52.720 I noted today that the Conference Board's consumer sentiment index 0:17:53.160 --> 0:17:55.919 eased a bit. I mean, the survey also pointed to 0:17:56.040 --> 0:17:59.400 a more muted outlook for business conditions and some softness 0:17:59.400 --> 0:18:01.560 in the labor mard and an incomes as well. I mean, 0:18:01.600 --> 0:18:05.800 so I'm wondering whether if inflation comes down, that the 0:18:05.960 --> 0:18:08.720 consumer may react in a way that suggests a little 0:18:08.720 --> 0:18:09.640 bit of positivity. 0:18:11.280 --> 0:18:16.440 Perhaps ultimately, certainly, the University of Michigan survey is tied 0:18:16.480 --> 0:18:19.520 more closely to inflation readings, and is that of the 0:18:19.560 --> 0:18:21.760 Conference Board, which tends to be a little bit more 0:18:22.160 --> 0:18:26.560 waged and job market driven, but nonetheless you know, I 0:18:26.600 --> 0:18:30.040 think the angst in the consumer at the moment is 0:18:30.160 --> 0:18:32.520 not so much the fact that they don't recognize that 0:18:32.560 --> 0:18:35.480 inflation has been cut by two thirds from its peak 0:18:35.560 --> 0:18:38.960 back in June to twenty two of nine point one percent. 0:18:39.960 --> 0:18:43.840 Is that prices in general aren't falling, and so is 0:18:43.880 --> 0:18:46.960 the elevation of prices rather than the rate of change 0:18:47.080 --> 0:18:51.480 in inflation that is causing some anxiety on the part 0:18:51.520 --> 0:18:53.840 of the consumer that you're seeing by way of perhaps 0:18:53.920 --> 0:19:00.280 some modest slowdown weakness and spending. That evidence in the 0:19:00.320 --> 0:19:03.119 most recent retail sales figures. So you know, it's always 0:19:03.119 --> 0:19:05.240 the function to watch what they do, not what they say. 0:19:05.320 --> 0:19:08.440 But at the same time, you can't ignore those confidence 0:19:08.520 --> 0:19:11.360 ratings that do suggest, particularly as it relates to their 0:19:11.400 --> 0:19:15.400 responses to their intentions to buy durable goods items or 0:19:15.440 --> 0:19:19.000 take vacations or what have you, are still really weak. 0:19:19.440 --> 0:19:22.080 But you know, that's where time figures in, because in 0:19:22.160 --> 0:19:24.239 time people would get used to the current rates as 0:19:24.240 --> 0:19:26.240 long as they're not going up. But I think it's 0:19:26.280 --> 0:19:29.000 kind of interesting when you think about, Okay, if you 0:19:29.040 --> 0:19:32.680 have growth faltering a little and you have inflation coming down, 0:19:33.040 --> 0:19:35.240 it's kind of a no brainer that the FED might 0:19:35.280 --> 0:19:38.320 want to cut. You still don't know when. But what's 0:19:38.320 --> 0:19:41.359 interesting is what if you have inflation come down but 0:19:41.440 --> 0:19:45.320 growth remains firm. Could the Fed stay higher for longer 0:19:45.520 --> 0:19:46.360 in that environment? 0:19:48.240 --> 0:19:50.880 I think they could if inflation would come down, though 0:19:50.920 --> 0:19:53.360 they'd have no reason to. I mean, their battle right 0:19:53.359 --> 0:19:56.400 now seems to be solely focused on inflation, since they're 0:19:56.480 --> 0:19:59.600 still at or maybe even slightly below what they deem 0:19:59.680 --> 0:20:01.960 to be all employment in the country, so that side 0:20:02.000 --> 0:20:07.200 of their dual mandate is still in line with their goal. 0:20:08.119 --> 0:20:12.240 So if they've in fact feel increasingly confident they can 0:20:12.760 --> 0:20:17.800 declare victory over stamping out the ravages of rapidly rising inflation, 0:20:17.960 --> 0:20:20.160 then there's no reason for them to continue to hold 0:20:20.760 --> 0:20:25.119 interest rates high. If in fact, the economy seems to 0:20:25.160 --> 0:20:28.000 be motoring along at a trend or above trend base 0:20:28.800 --> 0:20:32.520 and at the same time concurrent with falling inflation that 0:20:32.720 --> 0:20:35.120 is on a slide path that they have a high 0:20:35.160 --> 0:20:38.440 degree of certainty is going to land adder near their 0:20:38.480 --> 0:20:39.359 two percent target. 0:20:39.520 --> 0:20:41.760 So, Mark, I'd like to apply everything that you've been 0:20:41.800 --> 0:20:44.520 saying into an investment strategy. What would that look like 0:20:44.560 --> 0:20:45.119 at this point? 0:20:46.800 --> 0:20:49.639 Well, I think you know, for me, it tends to 0:20:49.680 --> 0:20:52.920 be that you know, your bias should be at worse 0:20:53.000 --> 0:20:56.119 to be you know, market weight whatever that is congluned 0:20:56.200 --> 0:21:00.400 with one's target weighting for equities in a portfolio, sent 0:21:00.600 --> 0:21:04.600 or balanced in a sixty forty allocation, whatever might be appropriate, 0:21:05.040 --> 0:21:07.480 and go overweight at times in which we've seen a 0:21:07.520 --> 0:21:10.520 deep enough pullback that would weren't, you know, either shifting 0:21:10.560 --> 0:21:13.560 money into equities from bonds or adding new moneys to 0:21:13.640 --> 0:21:16.320 the equity market. I think the only time you'd want 0:21:16.359 --> 0:21:20.080 to consider underweighting equities is when we're in the midst 0:21:20.119 --> 0:21:22.680 of a condition that, by all accounts, appears that a 0:21:22.760 --> 0:21:26.000 recession is inevitable, because that's where you experience the bear 0:21:26.080 --> 0:21:30.040 market drawdowns of significant orders of magnitude, and for the moment, 0:21:30.680 --> 0:21:32.800 that doesn't seem to be an imminent threat. So I 0:21:32.840 --> 0:21:36.520 think the window for equity prices to continue to advance, 0:21:36.760 --> 0:21:39.640 perhaps not quite at the same pace as we've seen 0:21:39.680 --> 0:21:42.600 over the first call it half of twenty twenty four, 0:21:42.920 --> 0:21:46.720 but nonetheless advance is still open, and I think investors 0:21:46.760 --> 0:21:49.360