WEBVTT - Surveillance: Businessweek Scoop On China's Microchip Hack 0:00:00.080 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:32.040 Bloomberg dot Com, and of course on the Bloomberg. The 0:00:32.159 --> 0:00:33.960 markets are going to be a big part of the 0:00:34.000 --> 0:00:37.919 conversation today, as is a fantastic piece of reporting from 0:00:37.960 --> 0:00:41.160 our colleagues over at Bloomberg Business Week. A special shout 0:00:41.159 --> 0:00:44.160 out to Jordan Robinson and Michael Riley as they reveal 0:00:44.200 --> 0:00:47.160 how China used the smallest of chips in a hack 0:00:47.200 --> 0:00:50.239 that infiltrated some of the biggest companies in America. The 0:00:50.240 --> 0:00:54.400 attack by Chinese spies reaching almost thirty US companies by 0:00:54.440 --> 0:00:59.680 compromising America's technology supply chain. This all according to extensive 0:00:59.720 --> 0:01:02.760 intervie used with government and corporate sources. And I'm pleased 0:01:02.800 --> 0:01:05.040 to say, Tom Keane, we're gonna be talking about this 0:01:05.280 --> 0:01:07.520 a little bit later in the program, So really looking 0:01:07.520 --> 0:01:09.720 forward to doing that a little bit later right here 0:01:09.880 --> 0:01:12.280 on Bloomblock Surveillance to get to the price action and 0:01:12.319 --> 0:01:14.320 what's happening in markets. I'm also pleased to say that 0:01:14.400 --> 0:01:16.160 joining us here in New York is to buys the 0:01:16.240 --> 0:01:19.840 left of its city group, Global Markets Chief US equity strategist, 0:01:19.840 --> 0:01:21.920 Good morning to to Bias, good morning, how are you? 0:01:22.080 --> 0:01:24.840 Let's start with those yields ten years, thirty years, or 0:01:24.880 --> 0:01:27.720 breaking out what does it mean for the equity market. So, look, 0:01:27.920 --> 0:01:30.360 we've been worried about this environment for a while. The 0:01:30.400 --> 0:01:32.640 economy is strong enough for wage pressures are starting to 0:01:32.680 --> 0:01:34.920 grow and probably growth in further based on some of 0:01:34.920 --> 0:01:39.920 our analysis, So this was kind of almost in the cards. However, um, 0:01:40.040 --> 0:01:42.240 how much flexibility is there in the equity market to 0:01:42.280 --> 0:01:44.400 handle this? In our sense is that you've had a 0:01:44.520 --> 0:01:47.840 range on equity ris premium since the financial crisis of 0:01:47.920 --> 0:01:51.320 four to seven percentage points right. We're about four point 0:01:51.360 --> 0:01:54.160 four percent right now, so you have flexibility to get 0:01:54.160 --> 0:01:55.640 you to kind of about three and a half percent, 0:01:55.800 --> 0:01:59.200 offset by less risk premium because you believe the economy 0:01:59.240 --> 0:02:02.520 is growing beyond three and a half percent starts becoming 0:02:02.520 --> 0:02:05.120 more challenging on the tenure yield um, and I think 0:02:05.160 --> 0:02:08.520 that's where the pressure starts to evolve on on on valuation. 0:02:08.760 --> 0:02:10.680 The chapter of the Fed Reserve out with I think 0:02:10.760 --> 0:02:13.400 a really important common in the last twenty four hours 0:02:13.520 --> 0:02:16.840 that he thinks we're a long way away from hitting 0:02:16.840 --> 0:02:18.840 the neutral, right, But the FED, what do you think 0:02:18.840 --> 0:02:21.960 of that? Subus? So look, I wonder how much and 0:02:22.000 --> 0:02:24.800 again I'm trying to get into the motive behind saying that. 0:02:24.840 --> 0:02:27.280 How much of that is moral suation trying to prevent 0:02:27.919 --> 0:02:30.440 um the yield curve going flatter and footing, And how 0:02:30.520 --> 0:02:33.680 how much is that kind of FED speak to to 0:02:33.840 --> 0:02:37.360 force some steepening in the curve. I don't know his motive. 0:02:37.400 --> 0:02:39.919 I don't know if that is what he wanted to imply, 0:02:40.080 --> 0:02:43.639 But the FED historically has been able to utilize its 0:02:43.720 --> 0:02:47.080 language to kind of get its way in the market. 0:02:47.120 --> 0:02:48.880 If it didn't, then it can go into the market 0:02:48.919 --> 0:02:52.520 and actually use its toolbox and crowbar kind of forced 0:02:52.560 --> 0:02:56.639 the outcome. Do you care what Indian rupees doing? I mean, 0:02:56.680 --> 0:03:00.360 I know city groups, you know, got branches and bay 0:03:00.400 --> 0:03:04.079 and you're selling toasters and all that. But I mean, 0:03:04.919 --> 0:03:06.920 the day after day John and I are watching e 0:03:07.080 --> 0:03:10.359 M blow up in you know, different ways, in different forms, 0:03:10.440 --> 0:03:13.560 and it seems like we're just rationalizing the revenue stream 0:03:13.600 --> 0:03:17.359 of Amazon or Apple or the other magic stocks. Doesn't 0:03:17.360 --> 0:03:20.040 a guy like you care about the knock on effects 0:03:20.040 --> 0:03:21.880 to e M. We have to worry about. I mean, 0:03:21.880 --> 0:03:23.400 one of the things that we watched, for example, is 0:03:23.440 --> 0:03:28.240 the dollar relative to the performance of US markets versus 0:03:28.280 --> 0:03:30.600 e M. And what do you see? It's very tight 0:03:30.639 --> 0:03:33.720 over like thirty years. So anytime the dollar goes up, 0:03:33.720 --> 0:03:36.880 you tend to see outflows from emerging markets UM, and 0:03:36.960 --> 0:03:40.040 it puts meaningful pressure not just on the currencies one 0:03:40.040 --> 0:03:42.760 of the economies as well as that foreign direct investment 0:03:42.840 --> 0:03:47.000 kind of leaves in a often bumpy and an erratic way. 0:03:47.360 --> 0:03:51.000 So do I care about the rupie personally? Maybe if 0:03:51.000 --> 0:03:53.520 I'm planning a trip to the taj mahal Um. Do 0:03:53.600 --> 0:03:57.560 we worry about it? From UM economic knock on effects 0:03:57.560 --> 0:04:00.640 to the US It's fairly small for US cutty markets. 0:04:00.640 --> 0:04:03.160 It's horrible if you're sitting in in the emerging markets 0:04:03.160 --> 0:04:05.560 equity world to bus when you look at US markets 0:04:05.560 --> 0:04:07.160 in a vacuum. And what I mean by that is 0:04:07.160 --> 0:04:10.400 just focusing on domestic issues. America looks great. The DP 0:04:10.560 --> 0:04:13.840 report yesterday was solid. The non manufacturing guy Sam was fantastic, 0:04:13.880 --> 0:04:15.200 and it looks like we're set up for a decent 0:04:15.200 --> 0:04:17.720 payrolls report. As well in a vacuum things look great. 0:04:17.920 --> 0:04:20.520 When you look at things internationally, you just wonder how 0:04:20.560 --> 0:04:23.400 US markets are holding up so well to bias. So 0:04:23.400 --> 0:04:25.760 so I'm getting a lot of those questions actually, like 0:04:25.839 --> 0:04:28.120 why is the US? Yeah, so so one is the 0:04:28.160 --> 0:04:32.039 economy where we you know, keep in mind, probably sent 0:04:32.120 --> 0:04:36.159 of the SMP five revenues are US driven. If it's 0:04:36.279 --> 0:04:39.479 if it's for example, Asian sales of semi conduckers, it 0:04:39.520 --> 0:04:41.680 really isn't. Those are products that are coming back here 0:04:42.040 --> 0:04:45.400 in the form of smartphones, tablets, computers, servers, et cetera, 0:04:45.520 --> 0:04:49.719 some apparently with rice like uh, espionage units on them. 0:04:49.720 --> 0:04:53.200 But the the the economy itself is for that's one thing. 0:04:53.279 --> 0:04:56.520 Number two, technology in particularly which is on the way 0:04:56.560 --> 0:05:00.000 to the SMP five um is phenomenal in terms of demand. 0:05:00.279 --> 0:05:04.080 And then lastly we have massive buyback activity. So that's 0:05:04.160 --> 0:05:06.280 that's kind of keeping us separate from the rest of 0:05:06.320 --> 0:05:09.039 the world. Exacuity, can we do a Surveilla's clarification not 0:05:09.120 --> 0:05:12.320 a correction? Chris from New Jersey emails in and says, 0:05:12.640 --> 0:05:16.800 did Tobias mean the old Trump taj Mahal that is 0:05:16.800 --> 0:05:20.480 now the hard rock cafe in Atlantic city. I haven't 0:05:19.440 --> 0:05:24.760 been many many Exactly I want to go. You want 0:05:24.760 --> 0:05:28.720 to get back there? Okay, I just lose money. Needs 0:05:28.720 --> 0:05:30.320 to worry about the rupeat. If he wants to go 0:05:30.440 --> 0:05:34.240 to New Jersey, tell Chris actually has been replaced. Just 0:05:34.320 --> 0:05:36.200 keep that in minded New Jersey. That's why it time 0:05:36.240 --> 0:05:39.240 to email. Oh god, I think it was a different Chris. 0:05:40.080 --> 0:05:42.440 I guess, but I don't care what. Maybe you don't 0:05:42.480 --> 0:05:45.440 understanding I literally do not understand the appeal of gambling. 0:05:45.440 --> 0:05:51.320 I really don't. Well, let's let's people think what you 0:05:51.440 --> 0:05:53.560 do is gambling. I mean, come on, so let me 0:05:53.560 --> 0:05:55.920 give you so far off? Can I can? I give 0:05:55.960 --> 0:06:01.120 me two very important statistical days. Okay, um, nearly seventy 0:06:01.160 --> 0:06:03.200 eight percent at the time. If you buy equities the 0:06:03.279 --> 0:06:05.480 SMP five hundred, you will be up a year later. 0:06:05.520 --> 0:06:08.919 If you look back over fifty sixty years, if you 0:06:09.000 --> 0:06:12.480 go to a casino, there is a fifty six percent 0:06:12.560 --> 0:06:14.719 probability that you will lose money. Okay, how do you 0:06:14.720 --> 0:06:16.800 respond to the doubt chart? I have from two thousand 0:06:16.920 --> 0:06:21.400 seven that five of the thirty three stocks rather have 0:06:21.520 --> 0:06:25.080 outperformed Amazon, Visa, Nike, and there's two others. I can't 0:06:25.080 --> 0:06:28.120 remember right now, ge on the bottom clearly, but I 0:06:28.200 --> 0:06:30.880 use the SMP five. But if you don't gamble and 0:06:30.960 --> 0:06:33.919 get those five stocks, you don't get elpit, do you. 0:06:34.080 --> 0:06:37.000 But if you bought the index, the Dow Jones Index, 0:06:37.040 --> 0:06:39.359 you would have been fine. If you're trying to I 0:06:39.400 --> 0:06:42.640 think for most individuals trying to pick that wonderful stock 0:06:42.680 --> 0:06:44.720 that's gonna make you ten times your money, you're you're 0:06:44.720 --> 0:06:49.279 probably gonna lose because that probably approach. You know, I 0:06:49.320 --> 0:06:52.479 always shove around with you. I own a few penny stocks. 0:06:52.480 --> 0:06:55.160 They did didn't start out that way. Um, so all 0:06:55.200 --> 0:06:57.400 of us will make a mistake buying stocks. But but 0:06:57.680 --> 0:07:01.279 if you're buying stocks in aggregate, it's it's a winning 0:07:01.320 --> 0:07:05.880 combination over time. The statistics Aretty, thank you for so 0:07:05.920 --> 0:07:08.200 many things, but thank you for joining us this morning 0:07:08.200 --> 0:07:11.640 to bars Left City Group Global Markets chief US. Can 0:07:11.680 --> 0:07:14.720 you see that we're both you are troubled today on 0:07:15.000 --> 0:07:18.040 both of us were watching Leaves Canadians last night. We 0:07:21.160 --> 0:07:23.880 are talking about that one because in the real world, 0:07:24.040 --> 0:07:28.320 least Canadians really matters in certainly in Canada matters. And 0:07:28.320 --> 0:07:34.040 when Toronto beats Montreal, it really hurts us. Montreal or Toronto, 0:07:45.840 --> 0:07:48.600 John Farroll and Tom Keane, And in terms of the 0:07:48.640 --> 0:07:53.000 diplomacy and the international relations of our Bloomberg Business Week 0:07:53.040 --> 0:07:56.920 effort on spying by China by elements of the People's 0:07:56.960 --> 0:08:00.960 Liberation Army by placing microchips on over boards that ended 0:08:01.040 --> 0:08:05.120 up being used by thirty American corporations, and illusions occurse 0:08:05.280 --> 0:08:09.400 over to our defense and intelligence establishment. It is good 0:08:09.920 --> 0:08:12.760 to speak to the eleventh United States Ambassador to China, 0:08:12.800 --> 0:08:16.760 the gentleman from Montana, Max BACKUS Ambassador book is wonderful 0:08:16.800 --> 0:08:20.600 to have you with us up today. Many in government 0:08:20.760 --> 0:08:25.720 have known about these efforts by China for years. Bloomberg 0:08:25.760 --> 0:08:29.800 now publishes the history of this from two thousand fourteen 0:08:29.840 --> 0:08:34.160 and definitely two thousand fifteen bring us to the present 0:08:34.360 --> 0:08:38.920 right now. Is cyber attack, spying whatever you want to 0:08:38.960 --> 0:08:42.200 call it from China? Is it a growing issue or 0:08:42.240 --> 0:08:46.240 is it a stable issue that's a growing issue, Um, 0:08:46.679 --> 0:08:49.040 It's probably one of the biggest issues we have. During 0:08:49.040 --> 0:08:53.480 the time I served UM in China, I pressed the 0:08:53.640 --> 0:08:55.679 government as hard as I could to try to admit 0:08:55.800 --> 0:09:00.840 that that made me a distinction between them for security 0:09:00.840 --> 0:09:03.319 purposes and science for commercial purpose. I couldn't even get 0:09:03.320 --> 0:09:05.440 them agree to that. Finally we got the goods on 0:09:05.480 --> 0:09:08.800 them when we are able to document that one of 0:09:08.840 --> 0:09:15.640 their patriot companies, DTE was Transparent Technology against uh as 0:09:15.640 --> 0:09:18.760 a proliferation statute and that's akin to what they've been doing. 0:09:19.000 --> 0:09:22.480 We also during the OPR investigation found it. So they 0:09:22.520 --> 0:09:27.560 sold about fifty million records of the US citizens, and 0:09:27.960 --> 0:09:30.559 we had the goods on them, and they didn't admit it, 0:09:30.600 --> 0:09:33.800 of course, but they did agree that we started to 0:09:33.840 --> 0:09:38.120 sanction them, that they agreed to the security agreements with 0:09:38.120 --> 0:09:41.560 with with US and which was there's five parts to it, 0:09:42.160 --> 0:09:49.080 namely to them. So that's good to first admit it. Okay, 0:09:49.120 --> 0:09:53.000 we're spying, which just something about it. Right within this 0:09:53.080 --> 0:09:56.480 ambassador is the idea of what should be our approach. 0:09:57.000 --> 0:09:59.920 Things move slowly in the legislative body of a wor 0:10:00.640 --> 0:10:04.320 do we have time to go through a slow American 0:10:04.480 --> 0:10:09.560 process to protect our cyber technology or do we do 0:10:09.679 --> 0:10:13.120 we have to speed things up. We're gonna have to 0:10:13.120 --> 0:10:17.199 speed things up. I think this is the biggest problem 0:10:17.280 --> 0:10:20.120 we have, not just with China but frankly the world. 0:10:20.280 --> 0:10:23.600 That is, we are behind the eight ball, we Americans. Um, 0:10:23.720 --> 0:10:27.520 it's just technology that's growing so quickly, and that's good. 0:10:28.080 --> 0:10:32.400 Uh reach a point where countries are going to have 0:10:32.480 --> 0:10:36.080 to realize that they we've got to home reach some 0:10:36.160 --> 0:10:38.720 kind of agreements otherwise it's it's gonna be wild. Wise. 0:10:39.640 --> 0:10:41.040 I think we've got some problems with a line. So 0:10:41.280 --> 0:10:50.679 we'll have to apologize the technical difficulties with us this 0:10:50.720 --> 0:10:52.559 morning that there's an important interview and you could hear 0:10:52.600 --> 0:10:54.520 the heat there in the in the history that the 0:10:54.679 --> 0:10:58.040 ambassador Backus was directly involved in with z T E 0:10:58.320 --> 0:11:00.640 and z T is brought up in the store. Worry 0:11:00.840 --> 0:11:04.920 is sort of iteration one, and now this is iteration too. 0:11:05.000 --> 0:11:08.559 So I think traditionally when we think about cyber protection 0:11:08.960 --> 0:11:11.840 at cyber warfare with thinking about the software Tom And 0:11:11.880 --> 0:11:15.080 what's interesting about Bloomberg's reporting today and reporting from our 0:11:15.120 --> 0:11:17.439 colleagues at Business Week, is this is about the hardware. 0:11:17.800 --> 0:11:20.160 And of course, as everyone listening knows, a lot of 0:11:20.200 --> 0:11:24.040 this hardware is made in China, So what can you 0:11:24.160 --> 0:11:30.360 do to national that the hardware is made in But 0:11:30.559 --> 0:11:33.520 you nailed the luxury and I mentioned this on television 0:11:33.559 --> 0:11:37.200 and Kinneth Rogoff of Harvard ten years out front on this. 0:11:37.760 --> 0:11:41.600 We're addicted to the capitalism to the price theory of 0:11:41.679 --> 0:11:45.240 cheap stuff from China, whether it's you know, bow Tizer 0:11:45.440 --> 0:11:48.400 or whatever. Well, guess what. Some of this stuff is 0:11:48.440 --> 0:11:51.960 important and involves espionage and that and my question the 0:11:51.960 --> 0:11:55.320 ambassador was going to be, Okay, if we don't make 0:11:55.360 --> 0:11:59.559 it in China, where do we make it in America? 0:11:59.640 --> 0:12:03.880 Which is President Trump's theme? And you hear a thundering silence, 0:12:03.920 --> 0:12:06.160 And if and if the hardware is compromise, what can 0:12:06.200 --> 0:12:07.880 you do? Tom? You're going to check every single life 0:12:07.880 --> 0:12:10.400 fund that's produced out of China. You're going to check 0:12:10.440 --> 0:12:13.160 every single chip that has produced out of China. Yeah. 0:12:13.160 --> 0:12:15.319 I want to make clear that within the reporting and 0:12:15.720 --> 0:12:20.000 speaking with Jordan Robertson, that this is not about consumer 0:12:20.040 --> 0:12:24.200 goods and iPhones here, and I'm certainly not trying to 0:12:24.200 --> 0:12:26.400 infer that that's what this is about. What I'm saying, Tom, 0:12:26.480 --> 0:12:28.839 is that much of the hardware is produced there. So 0:12:28.880 --> 0:12:31.319 how on earth do you have some kind of cyber 0:12:31.360 --> 0:12:35.760 protection scheme, initiative policy that protects you from what has 0:12:35.800 --> 0:12:38.280 happened and what our reporting reveals. And and again, as 0:12:38.360 --> 0:12:41.600 Max Park has said, there, we've negotiated and got nowhere 0:12:41.600 --> 0:12:43.640 and sort of you really wonder where it goes. And 0:12:43.720 --> 0:12:47.760 I would suggest that all Democrats, um would give a 0:12:47.880 --> 0:12:51.520 victory lap to the president for at least identifying the 0:12:51.720 --> 0:12:56.640 urgency and immediacy. Was with Secretary Ross about this, but 0:12:56.679 --> 0:12:58.520 I think it makes it very public. It makes it 0:12:58.640 --> 0:13:00.480 very public, and it comes want to day you that 0:13:00.520 --> 0:13:03.080 we're expecting Vice President Mike pens to come. I'm glad 0:13:03.080 --> 0:13:06.360 you mentioned and layout allegations of Chinese election medaling in 0:13:06.400 --> 0:13:09.760 a harshly worded speech to expecting late today um Dan 0:13:09.880 --> 0:13:21.480 in Washington, Tom, so look out for that. One of 0:13:21.480 --> 0:13:24.360 our most popular guests over the years. Luisia Mata joins 0:13:24.440 --> 0:13:28.439 us now from Luisia Mata Technical Research. Louise, I'm just 0:13:28.480 --> 0:13:31.880 going to cut to the chase. You look at consolidation 0:13:32.400 --> 0:13:36.440 and distribution, the minute price changes that are seen in 0:13:36.559 --> 0:13:40.080 point and figure charting. Can you be long equities today? 0:13:41.440 --> 0:13:44.760 We are growing much more cautious. I think I would 0:13:44.800 --> 0:13:48.280 be taking money off the table in the groups and 0:13:48.360 --> 0:13:53.840 stocks that are underperforming and that are showing monthly momentum 0:13:53.880 --> 0:13:56.600 sales signals, and we have more and more. Give us 0:13:56.600 --> 0:14:00.640 an example of those sectors. Does it include banking? Okay, yeah, 0:14:00.679 --> 0:14:04.679 it does include the financials, utilities of course, reads, materials, 0:14:05.120 --> 0:14:10.280 industrials s flirting with the cell signals, financials and staples 0:14:10.320 --> 0:14:12.360 at this moment. And we have to see how the 0:14:13.000 --> 0:14:17.960 new consumer discretionary in the communications groups evolved, because what 0:14:18.160 --> 0:14:22.720 SMP did was not start them new with the the 0:14:22.240 --> 0:14:25.880 news the new sectors. Yeah yeah, yeah, they they encourage 0:14:25.920 --> 0:14:28.400 them and change the devices. We will see over time. 0:14:28.680 --> 0:14:30.360 In folks, I think all of you know that I'm 0:14:30.360 --> 0:14:32.760 in fully on board with point and figure charting, going 0:14:32.760 --> 0:14:36.160 back to and the I have no time function on 0:14:36.200 --> 0:14:39.920 the X axis, Louise. What everybody wants to know is 0:14:40.000 --> 0:14:45.120 can you use traditional technical analysis to benefit on a 0:14:45.200 --> 0:14:49.480 bi hole cell basis with modern stocks like Apple Computer 0:14:49.640 --> 0:14:55.880 and particularly with Amazon of course, yeah, you mean the 0:14:55.880 --> 0:14:58.120 point and figure charts And what do they say then, okay, 0:14:58.160 --> 0:15:00.720 you could use them. What do they say right now? Well, 0:15:00.800 --> 0:15:04.600 the the Apple is continuing in an uptrend just the 0:15:04.600 --> 0:15:06.600 way it is on a bar chart. There. You know 0:15:06.920 --> 0:15:10.240 they have similarities and Amazon as well, so you you're 0:15:10.400 --> 0:15:12.840 you're gonna hold those right now? Can you acquire new 0:15:12.920 --> 0:15:16.760 shares of Apple and Amazon? In particularly the idea that 0:15:16.800 --> 0:15:19.320 the market so underweight to Apple that they gotta they 0:15:19.320 --> 0:15:23.120 gotta level up by the end of the year. Well, 0:15:23.160 --> 0:15:25.840 the stock has been doing incredibly well. I mean, if 0:15:25.840 --> 0:15:29.320 you have no positions, I think you could probably nibble 0:15:29.400 --> 0:15:33.120 a little. But things are getting quite extended, and given 0:15:33.160 --> 0:15:36.720 the fact that we're starting to see some underlying um 0:15:36.720 --> 0:15:39.520 starting to see over the past months of this year, 0:15:39.560 --> 0:15:42.920 we've been seeing negative divergences in new highs, new lows, 0:15:42.960 --> 0:15:46.120 and volume momentum and stocks above the two hundred day 0:15:46.240 --> 0:15:49.200 moving averages which now for the New York Stock Exchange 0:15:49.200 --> 0:15:53.400 has broken below and is a clear warning for the 0:15:53.480 --> 0:15:57.520 overall market. So the divergences have been going on for 0:15:57.560 --> 0:16:00.680 several years, so we're getting closer and closer. What what 0:16:00.720 --> 0:16:04.120 would happen next? Which would concern us would be uh 0:16:04.360 --> 0:16:08.920 monthly momentum sell signals on our industries. The European industries 0:16:08.960 --> 0:16:11.800 are all on monthly sales. Most of the Asian that 0:16:11.840 --> 0:16:14.880 we follow are, with the exception of Japan and India. 0:16:15.000 --> 0:16:17.360 Luisia Matta. In the last twenty four hours, it's been 0:16:17.360 --> 0:16:22.000 amazing split between large cap and small cap with small 0:16:22.080 --> 0:16:25.480 kept John correct me small cap self right smoke cap 0:16:25.480 --> 0:16:27.720 movie sound What do you mean, this is right in 0:16:27.760 --> 0:16:31.200 the heart of Luisia Mata's research. Note, why do you 0:16:31.320 --> 0:16:35.120 parse small, mid and large cap. Well, the small in 0:16:35.160 --> 0:16:38.160 the meter starting to roll over. They've been under performing, 0:16:38.200 --> 0:16:41.160 but now the prices are actually starting to roll over, 0:16:41.200 --> 0:16:44.080 while the down the SMP have been inching higher. We 0:16:44.160 --> 0:16:47.200 still have upward potential in the down in the SMP. 0:16:47.440 --> 0:16:50.720 But I think one has to be growingly cautious than 0:16:50.760 --> 0:16:54.560 watching one sports individual stocks in the portfolios, because a 0:16:54.560 --> 0:16:57.920 lot of individual stocks around cell signals. Also, he's told 0:16:57.920 --> 0:17:00.320 to me about the sound signals you see abroad and 0:17:00.360 --> 0:17:01.840 the fact that you don't see that trend in the 0:17:01.920 --> 0:17:07.520 United States, and how unique that difference is. Well, you've 0:17:07.560 --> 0:17:10.800 got sell signals on the foot, see the CAC, the docks, 0:17:10.920 --> 0:17:16.359 the Italian market, Spain and Switzerland. Uh so there there 0:17:16.400 --> 0:17:20.240 clearly has been a pattern of distribution in those countries. 0:17:20.640 --> 0:17:22.840 Whether or not they can grip at some point and 0:17:22.880 --> 0:17:27.119 turn up is questionable with those monthly cell signals in place. 0:17:27.160 --> 0:17:31.080 But the US is still in the lead. And uh 0:17:31.280 --> 0:17:35.320 of course the interest rate perspective is also intriguing. If 0:17:35.359 --> 0:17:38.560 you're interested covering that, well, we know we do we 0:17:38.600 --> 0:17:41.240 cover into come on, Louise, we cover interest rates a 0:17:41.280 --> 0:17:44.440 little bit. Do we have a true breakout on tenure 0:17:44.680 --> 0:17:49.160 or thirty year or they within the Yamada range absolutely breakout. 0:17:49.359 --> 0:17:52.960 We've we've been suggesting that a little tick above three 0:17:53.359 --> 0:17:55.840 for the tenure was a breakout. You have eight to 0:17:55.920 --> 0:17:59.240 ten year basing that's taken place in these duh in 0:17:59.359 --> 0:18:04.200 these um treasuries also for the two year. And we 0:18:04.280 --> 0:18:08.480 know that reversals from falling rate cycles to rising rate 0:18:08.520 --> 0:18:13.119 tacles take time because they've all experienced deflationary pressures. Historically 0:18:13.119 --> 0:18:15.800 it's been two to fourteen years, and here we are 0:18:16.000 --> 0:18:18.280 eight to ten years, and I think it's a very 0:18:18.359 --> 0:18:21.760 valid change. We're now in a new rising rate cycle. So, Louise, 0:18:21.760 --> 0:18:23.320 I want to watch you about this because so many 0:18:23.320 --> 0:18:25.640 people have a different level and they plot the thirty 0:18:25.720 --> 0:18:29.800 year bull market in treasuries and they try and identify 0:18:29.880 --> 0:18:31.760 the point where we have a real breakout, where the 0:18:31.760 --> 0:18:34.960 bull market is over. Do you have that point in mind? 0:18:35.080 --> 0:18:37.520 And how far through it are we? It was three 0:18:38.119 --> 0:18:41.560 three percent has been the the threshold for the thirty 0:18:41.680 --> 0:18:44.520 and for the ten and you're clearly through it. I 0:18:44.560 --> 0:18:47.240 think you have our report from this month and there's 0:18:47.280 --> 0:18:50.719 a very interesting study showing that we've now put in 0:18:50.760 --> 0:18:55.680 the first lower lower in price, higher low in field, 0:18:56.040 --> 0:18:59.720 and that signifies to us the point which the trend 0:18:59.760 --> 0:19:02.000 has change. John, we gotta be careful because lose your 0:19:02.000 --> 0:19:04.560 model will hang up on us. If that's the case. 0:19:05.080 --> 0:19:06.960 And if you take and you're gonna love this, John, 0:19:07.240 --> 0:19:09.960 if you take a three box horizontal account and you 0:19:09.960 --> 0:19:13.160 get to some high yield of Louisia Mada two yields 0:19:13.200 --> 0:19:16.959 finally compete with dividends. Forget about Louisia model Louise if 0:19:17.000 --> 0:19:20.399 you're a fundamental person, is higher yields finally going to 0:19:20.480 --> 0:19:24.359 compete with dividend and the assumption of dividend growth. Well, 0:19:24.400 --> 0:19:27.480 I certainly think at this point that a conservative investor 0:19:27.560 --> 0:19:31.399 could move into a two year note, if not a 0:19:31.480 --> 0:19:34.679 one year bill where you're getting two point five, and 0:19:34.880 --> 0:19:37.160 compare that to some of the yields, and then think 0:19:37.160 --> 0:19:40.280 about whether or not your stockings having difficulties. I would 0:19:40.359 --> 0:19:42.679 rather move to the safety of a short end. You 0:19:42.720 --> 0:19:45.280 don't want to go long end when you're moving into 0:19:45.280 --> 0:19:48.560 a rising interest rate cycle. You don't want the ten yere, 0:19:48.640 --> 0:19:51.119 you don't want the thirty year because if you go 0:19:51.240 --> 0:19:54.040 with a one year or a two year and they come, 0:19:54.119 --> 0:19:58.199 do you can roll that money into a higher yield 0:19:58.240 --> 0:20:01.200 at that point in time in tense Consluisia Mata thumb 0:20:01.280 --> 0:20:07.320 up on gold or down down? Okay, there you go, Okay, 0:20:07.320 --> 0:20:09.840 neutral best but down that's fair. Luisa Manta, Thank you 0:20:09.880 --> 0:20:13.840 so much. Louisa Manta Technical service. We're really just brilliant. 0:20:14.240 --> 0:20:17.240 Were brilliant. No, we protect the copyright John of our notes. 0:20:17.320 --> 0:20:21.879 But she's like old school, like the old trends distribution. 0:20:21.960 --> 0:20:25.720 She said, an eight year base in the tenure yield. 0:20:27.160 --> 0:20:41.600 Spend the whole day talking about fundamentals. It's nice. John 0:20:41.600 --> 0:20:44.000 Farrell and Tom came from her studios in New York. 0:20:44.200 --> 0:20:48.720 We said, good morning FM Washington, where Jordan Robertson is 0:20:48.760 --> 0:20:51.600 taking a victory lap with Michael Reiley. He is an 0:20:51.640 --> 0:20:57.360 author of a forever changing article on cyber attacks America 0:20:57.560 --> 0:21:01.200 in our naivete of the Chinese Jordan. There's about eight 0:21:01.200 --> 0:21:03.520 ways to go here. John Farrell has three or four 0:21:03.560 --> 0:21:06.400 of them's own. I want to focus on one thing. 0:21:07.119 --> 0:21:10.520 You have a pregnant sentence early in your Business Week 0:21:10.680 --> 0:21:15.440 article where you basically say operatives of part of the 0:21:15.480 --> 0:21:19.439 People's Liberation Army. The p l A to me is 0:21:19.440 --> 0:21:23.199 in a museum display up at the met in ninety eight, 0:21:23.320 --> 0:21:27.120 like Red Guardish and all that. Obviously I'm wrong. Who 0:21:27.240 --> 0:21:32.480 are operatives of the People's Liberation Army? Sure as uh yeah, 0:21:32.520 --> 0:21:35.000 as the story shows, you know, U S Intelligence agencies 0:21:35.000 --> 0:21:38.800 have attributed this attack, the hardware modification attack, to a 0:21:38.880 --> 0:21:42.160 unit of the p l A that specializes in hardware modification. 0:21:42.359 --> 0:21:43.879 And you know the n s A. Here in the 0:21:43.920 --> 0:21:45.600 U S. We we have units that do these kinds 0:21:45.600 --> 0:21:47.760 of things too, but the differences in China, you know, 0:21:47.880 --> 0:21:50.640 you have the manufacturing base for the for the worldwide 0:21:50.920 --> 0:21:55.080 you know, the global computer supply chain, computer equipment and 0:21:55.080 --> 0:21:57.600 supply chain. So from what we understand, this is a 0:21:57.680 --> 0:22:00.080 very specialized unit of the p l A. Uh that, 0:22:00.160 --> 0:22:03.720 in addition to doing cyber you know, having cyber capabilities, uh, 0:22:03.760 --> 0:22:08.679 you know, specializes in manipulating hardware. So the cyber hardware synthesis, 0:22:08.720 --> 0:22:10.680 I mean, other than the fact that John Farrell looks 0:22:10.680 --> 0:22:13.320 a lot like Daniel Craig, I mean it's out of 0:22:13.320 --> 0:22:15.480 a Bond movie or it's what's his name, Keno Reeves 0:22:15.520 --> 0:22:19.800 as I pronounced it right, the guy in the matrix question. 0:22:19.840 --> 0:22:23.560 But come on, it's science fiction. Are these guys in uniform? 0:22:23.920 --> 0:22:27.119 Are they peeky engineers who went where at Caltech? But 0:22:27.560 --> 0:22:29.360 I want to last you about that, just how difficult 0:22:29.359 --> 0:22:33.040 it is to access the manufacturing process of some of 0:22:33.080 --> 0:22:36.440 these goods, and at one point they infiltrate it that 0:22:36.480 --> 0:22:39.880 process to get this chip into the hardware. Yeah. One 0:22:39.920 --> 0:22:41.840 of the things that we've encountered in reporting this story 0:22:41.920 --> 0:22:44.439 is people here are reporting, they say, why would you 0:22:44.480 --> 0:22:47.600 go to those lengths And the answer is if you're China. Well, 0:22:47.640 --> 0:22:49.640 the answer is because you can. You know, if you're 0:22:49.720 --> 0:22:52.840 China and you're trying to infiltrate highly sensitive, highly secured 0:22:53.160 --> 0:22:56.000 government or corporate networks, you know, that's really the only 0:22:56.040 --> 0:22:58.240 justification for going to these lengths. I mean, just to 0:22:58.280 --> 0:23:01.080 be clear, the Chinese government has no incentive to do this. 0:23:01.520 --> 0:23:04.119 For your mass market consumer devices, they would get caught, 0:23:04.640 --> 0:23:06.600 it wouldn't be targeted. But if you're trying to infiltrate 0:23:06.680 --> 0:23:09.680 highly sensitive, highly secure facilities, that's really the only thing 0:23:09.720 --> 0:23:12.359 that justifies the time and effort. To one example in 0:23:12.480 --> 0:23:15.080 Lockeed Martin, I believe is not in your reporting, correct me? 0:23:15.119 --> 0:23:18.960