Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg Daybreak Asia podcast. I'm Doug Prisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the APAC region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app. Let's take a closer look at this Nvidia story and the selloff in the chip sector. Dan Ives is with us. He's managing director also senior equity analyst at Webbush Securities. So it looks as though we've got concern on the part of anti trust regulators. Dan that in video maybe I don't want to say an abusive monopolist, but certainly of infringing on perhaps anti competitive practices. What do you think, Yeah, Look.

Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg Daybreak Asia podcast. I'm Doug Prisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the APAC region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app. Let's take a closer look at this Nvidia story and the selloff in the chip sector. Dan Ives is with us. He's managing director also senior equity analyst at Webbush Securities. So it looks as though we've got concern on the part of anti trust regulators. Dan that in video maybe I don't want to say an abusive monopolist, but certainly of infringing on perhaps anti competitive practices. What do you think, Yeah, Look.

I mean this is the theme that we've seen across big time, right, I mean, from Google to Apple to Amazon of course now in video, Look, they're the only game in town, but it's really because of the innovation while they're the only game in town. So I think this is one probably you know, the headlines scarier than probably the reality in the near term, but no doubt this is not the right day for this to come out, given the white knuckles we saw across chips.

I mean this is the theme that we've seen across big time, right, I mean, from Google to Apple to Amazon of course now in video, Look, they're the only game in town, but it's really because of the innovation while they're the only game in town. So I think this is one probably you know, the headlines scarier than probably the reality in the near term, but no doubt this is not the right day for this to come out, given the white knuckles we saw across chips.

Yeah, you're in Soul today, which is kind of curious. And some of those high bandwidth memory chip manufacturers are in South Korea, and I'm thinking sk Heinis, I'm thinking Samsung from your perspective being there, what is the degree of the knock on effect? Is it great? Is there a pretty strong correlation between what happens in Nvidia stock and what happens with a company like say sk Heinix.

Yeah, you're in Soul today, which is kind of curious. And some of those high bandwidth memory chip manufacturers are in South Korea, and I'm thinking sk Heinis, I'm thinking Samsung from your perspective being there, what is the degree of the knock on effect? Is it great? Is there a pretty strong correlation between what happens in Nvidia stock and what happens with a company like say sk Heinix.

Look, I think a huge correlation. And look, and that's why what we're seeing here for Semis is a once in a thirty forty year type of psychle But that's not stopping. And there was like we're going to have these periods of self just like we saw Tokyo Black Monday, like we saw today. But if you look at the demands outstrip and supply fifteen to one, so that continues to be a huge tow And for all of these chip players, what are you.

Look, I think a huge correlation. And look, and that's why what we're seeing here for Semis is a once in a thirty forty year type of psychle But that's not stopping. And there was like we're going to have these periods of self just like we saw Tokyo Black Monday, like we saw today. But if you look at the demands outstrip and supply fifteen to one, so that continues to be a huge tow And for all of these chip players, what are you.

Hearing on the ground there in South Korea. I'm curious just about what's going on in the US, and particularly in regard to AI.

Hearing on the ground there in South Korea. I'm curious just about what's going on in the US, and particularly in regard to AI.

Look, I think there's a big focus not just from investors, but from the actual you know, from the tech players in terms of seeing where this demand curve.

Look, I think there's a big focus not just from investors, but from the actual you know, from the tech players in terms of seeing where this demand curve.

Is going to go.

Is going to go.

I think there's a lot of optimism that we are still in the early innings of where this is going. I think the big question is, Okay in Nvidia, everyone understands now, who are the next players to benefit? And I think that's really going to be the focus, not just here in Korea, what we see across Asia and really what we see across the goal because look in Vidio is the start, but it's a huge multiplier. If every dollar spend on video chip, we think there's an eight to ten dollars multiplier, that would be a clear benefit, especially some of the players here in South Korea.

I think there's a lot of optimism that we are still in the early innings of where this is going. I think the big question is, Okay in Nvidia, everyone understands now, who are the next players to benefit? And I think that's really going to be the focus, not just here in Korea, what we see across Asia and really what we see across the goal because look in Vidio is the start, but it's a huge multiplier. If every dollar spend on video chip, we think there's an eight to ten dollars multiplier, that would be a clear benefit, especially some of the players here in South Korea.

But when you consider a company like Advanced micro Devices, which is trying to do what in Vidia does with these graphics processors, what is the runway that AMD needs to even become competitive within video?

But when you consider a company like Advanced micro Devices, which is trying to do what in Vidia does with these graphics processors, what is the runway that AMD needs to even become competitive within video?

Yeah, Look Betton against Lisa soon a AMDD and that's wrong that I think they will be major players in this race. They look in videos years ahead. But if you look, this is gonna be a trillion dollars of incremental AI capbacks. So if AMD gets five to ten percent a share, I don't believe that that's baked into the stock. And I think that's really the focus now. It's who are the other beneficiaries? Second, third, fourth derivative because it's clearly something that's playing out, and I think we saw with the Vidia earnings last week. It's undeniable in terms of what this trend is. But you'll see sell offsite today, You'll see selfs like we did a few weeks ago. I still believe tech goes to all time highs, you know, over the next three six months.

Yeah, Look Betton against Lisa soon a AMDD and that's wrong that I think they will be major players in this race. They look in videos years ahead. But if you look, this is gonna be a trillion dollars of incremental AI capbacks. So if AMD gets five to ten percent a share, I don't believe that that's baked into the stock. And I think that's really the focus now. It's who are the other beneficiaries? Second, third, fourth derivative because it's clearly something that's playing out, and I think we saw with the Vidia earnings last week. It's undeniable in terms of what this trend is. But you'll see sell offsite today, You'll see selfs like we did a few weeks ago. I still believe tech goes to all time highs, you know, over the next three six months.

You know, Dan, When I think of Nvidio, I think of TSMC, the big foundry in TYPEI is there a conversation where you are now in South Korea around diversifying the chip supply chain maybe and allocating a little bit more on the foundry side in South Korea.

You know, Dan, When I think of Nvidio, I think of TSMC, the big foundry in TYPEI is there a conversation where you are now in South Korea around diversifying the chip supply chain maybe and allocating a little bit more on the foundry side in South Korea.

Yeah.

Yeah.

Look, I think theoretical, but for right now, I mean TSMC has hearts and lungs, and I think this is something that's really going to be playing out over the next twelve, eighteen twenty four months in terms of the supply chance. It's just going to continue to expand. Part of it is not just about TSMC, it's just demand is so strong relative to supply. There's gonna be a lot of players that benefit that today I don't believe are on the radar from a global perspective.

Look, I think theoretical, but for right now, I mean TSMC has hearts and lungs, and I think this is something that's really going to be playing out over the next twelve, eighteen twenty four months in terms of the supply chance. It's just going to continue to expand. Part of it is not just about TSMC, it's just demand is so strong relative to supply. There's gonna be a lot of players that benefit that today I don't believe are on the radar from a global perspective.

Investors, Dan, it's always a pleasure. Thanks for making time to chat with us. Dan Ives is the managing director. He's also senior equity analyst ad web Bush Securities. Adam Koon's the co CIO at Winthrop Capital Management. Joining us from the heartland of Indianapolis, Indiana. Thanks for making time for us, Adam. Let's talk about this ISM date. I think that really in large parts helped to put the market on the back foot, wouldn't you agree today, fir.

Investors, Dan, it's always a pleasure. Thanks for making time to chat with us. Dan Ives is the managing director. He's also senior equity analyst ad web Bush Securities. Adam Koon's the co CIO at Winthrop Capital Management. Joining us from the heartland of Indianapolis, Indiana. Thanks for making time for us, Adam. Let's talk about this ISM date. I think that really in large parts helped to put the market on the back foot, wouldn't you agree today, fir.

So, thanks for having me and yeah, I do totally agree.

So, thanks for having me and yeah, I do totally agree.

IM is one of those indicators that does have a lot of correlation to, you know, where the economy is heading. You know, you look at employment and things like that. There's tend to be quite lagging indicators. But this continued deterioration in ISM does give me more caution about, you know, kind of where the economy is heading.

IM is one of those indicators that does have a lot of correlation to, you know, where the economy is heading. You know, you look at employment and things like that. There's tend to be quite lagging indicators. But this continued deterioration in ISM does give me more caution about, you know, kind of where the economy is heading.

One of the things I think the market seems to be indicating here is that the rate cut that we're expecting in a couple of weeks less than two weeks time, will be twenty five basis points. But we do have a lot of data to consider on the labor market this week. It culminates, obviously with the employment report on Friday. If in aggregate these data really come in much below expectations, is there a risk do you think of a fifty basis point rate cut this month?

One of the things I think the market seems to be indicating here is that the rate cut that we're expecting in a couple of weeks less than two weeks time, will be twenty five basis points. But we do have a lot of data to consider on the labor market this week. It culminates, obviously with the employment report on Friday. If in aggregate these data really come in much below expectations, is there a risk do you think of a fifty basis point rate cut this month?

I think it's possible, I've said kind of along from our perspective. You got to look at the entire cycle of this fit of reserve, and at the front end they were very slow to act. They wanted to make sure that the data was really pointing towards inflation, and really obviously probably waited too long to act and then took quite a bit of action to increase interest rates. It's hard to see how they're going to have different behavior at the back end of the cycle, because there's still just enough data to show that the economy is still somewhat okay. Like you said, the employment number is a big factor in that, But I think the bigger scare is.

I think it's possible, I've said kind of along from our perspective. You got to look at the entire cycle of this fit of reserve, and at the front end they were very slow to act. They wanted to make sure that the data was really pointing towards inflation, and really obviously probably waited too long to act and then took quite a bit of action to increase interest rates. It's hard to see how they're going to have different behavior at the back end of the cycle, because there's still just enough data to show that the economy is still somewhat okay. Like you said, the employment number is a big factor in that, But I think the bigger scare is.

Really reigniting inflation.

Really reigniting inflation.

I think that's what the Fed's really focused on They're going to let employment start to slip a bit before they act, because there's still is room in the employment market. You know, yes, obviously, you know mid foors is higher than where we were.

I think that's what the Fed's really focused on They're going to let employment start to slip a bit before they act, because there's still is room in the employment market. You know, yes, obviously, you know mid foors is higher than where we were.

But I think the.

But I think the.

FED is going to need to really see the fact that inflation has come quite a bit closer to their two percent target before they move beyond a twenty five basis point cut.

FED is going to need to really see the fact that inflation has come quite a bit closer to their two percent target before they move beyond a twenty five basis point cut.

I do think if you.

I do think if you.

Know, the chances of not cutting are pretty much zero. I think it'd be a disaster if they, you know, didn't cut at all a fifty basis point cut. What that would tell me is that the FED sees more underlying data pointing to a prsure economic slow down, you know, to use a soft landing hard landing term, that they're starting to see a hard landing scenario. But I'm just not seeing that right now, so it's hard for me to believe that the Fed's gonna to take that kind of action.

Know, the chances of not cutting are pretty much zero. I think it'd be a disaster if they, you know, didn't cut at all a fifty basis point cut. What that would tell me is that the FED sees more underlying data pointing to a prsure economic slow down, you know, to use a soft landing hard landing term, that they're starting to see a hard landing scenario. But I'm just not seeing that right now, so it's hard for me to believe that the Fed's gonna to take that kind of action.

I want to get your reaction to what we had in the equity sell off today where tech led the decline, especially the chip makers we were talking about in video a moment ago. In the regular session, this stock was down nine and a half percent. Yeah, it's part of the AI story. We know of that. But does this come as a surprise to you or is it logical given the tremendous run up that we have seen in many of these names connected to artificial intelligence.

I want to get your reaction to what we had in the equity sell off today where tech led the decline, especially the chip makers we were talking about in video a moment ago. In the regular session, this stock was down nine and a half percent. Yeah, it's part of the AI story. We know of that. But does this come as a surprise to you or is it logical given the tremendous run up that we have seen in many of these names connected to artificial intelligence.

No, it doesn't give me that much of a surprise.

No, it doesn't give me that much of a surprise.

I don't know.

I don't know.

I feel like I saw its coming because I didn't see that, you know, had that crystal wall. But you know, when you start to see that, that's the point when you start to see valuations get stretched and a more narrative based in investing in environment. What that does is it creates the opportunity for bigger sell offs. So it's difficult. You don't want to time it. But that's why we've been moving more defensively because we didn't we don't know if the equity markets are going to completely roll over. But when valuations get this stretched and they're not by any means, you know, bubble territory, but we do all we can all see that that valuations are on the high side. So that's the time to start playing a little bit more defense. That doesn't mean move to cash, but you're just kind of moving into higher quality, lower beta names.

I feel like I saw its coming because I didn't see that, you know, had that crystal wall. But you know, when you start to see that, that's the point when you start to see valuations get stretched and a more narrative based in investing in environment. What that does is it creates the opportunity for bigger sell offs. So it's difficult. You don't want to time it. But that's why we've been moving more defensively because we didn't we don't know if the equity markets are going to completely roll over. But when valuations get this stretched and they're not by any means, you know, bubble territory, but we do all we can all see that that valuations are on the high side. So that's the time to start playing a little bit more defense. That doesn't mean move to cash, but you're just kind of moving into higher quality, lower beta names.

So that you avoid scenarios like today.

So that you avoid scenarios like today.

And it's it's not a surprise that tech would lead a sell off like this because it's obviously led to the upside and that's where the valuations are the most stretched and so and they're obviously semiconductors are one of the most cyclical sectors within the SMP. So as we start to see a shift towards a potential faster slowdown, that obviously will affect the sale. And we heard it in earnings, you know previously a couple of weeks ago from some of the big tech where they were saying that, hey, we're decelerating our spend on chips because you know, demand is starting to slow overall, whether it's cloud, AI or like. So it's not a surprise that, you know, a small piece of what can seem like a small piece.

And it's it's not a surprise that tech would lead a sell off like this because it's obviously led to the upside and that's where the valuations are the most stretched and so and they're obviously semiconductors are one of the most cyclical sectors within the SMP. So as we start to see a shift towards a potential faster slowdown, that obviously will affect the sale. And we heard it in earnings, you know previously a couple of weeks ago from some of the big tech where they were saying that, hey, we're decelerating our spend on chips because you know, demand is starting to slow overall, whether it's cloud, AI or like. So it's not a surprise that, you know, a small piece of what can seem like a small piece.

Of news can make very big moves in stocks because of that valuation piece.

Of news can make very big moves in stocks because of that valuation piece.

So I hear what you're saying, higher quality, low beta names, but that's the equity space, are you inclined? And I also hear when you say, you know, we don't really want to park in cash or cash equivalent at the moment, but are there opportunities in the fixed income space that you like the corporate bond market. Do things look attractive there?

So I hear what you're saying, higher quality, low beta names, but that's the equity space, are you inclined? And I also hear when you say, you know, we don't really want to park in cash or cash equivalent at the moment, but are there opportunities in the fixed income space that you like the corporate bond market. Do things look attractive there?

I do.

I do.

Corporate spreads are historically, you know, on the tight side. But with that said, you know, when you look at higher quality corporates, you could even look at treasuries or mortgage backed securities. It's one of the most asymmetric restory ward profiles I've seen in a long time, meaning that you know, the risk of interest rates going much higher from here is very very low.

Corporate spreads are historically, you know, on the tight side. But with that said, you know, when you look at higher quality corporates, you could even look at treasuries or mortgage backed securities. It's one of the most asymmetric restory ward profiles I've seen in a long time, meaning that you know, the risk of interest rates going much higher from here is very very low.

And so your other two scenarios where the interest rates day.

And so your other two scenarios where the interest rates day.

Where they are, and I'm very happy to clip you know, five to six percent coupons while I wait, or you know, on the upside scenarios, we see interest rates collapse because the economy is slowing down, and then you're going to see that price appreciation of those bonds. So yeah, within our asset allocation, going longer duration fixed income is that is our you know, highest conviction trade ab of what else we're doing in the equity side.

Where they are, and I'm very happy to clip you know, five to six percent coupons while I wait, or you know, on the upside scenarios, we see interest rates collapse because the economy is slowing down, and then you're going to see that price appreciation of those bonds. So yeah, within our asset allocation, going longer duration fixed income is that is our you know, highest conviction trade ab of what else we're doing in the equity side.

So I'm curious about the house view at Winthrom Capital, given the fact that September is historically a tough month for the stock market, are you expecting more in the way of downside.

So I'm curious about the house view at Winthrom Capital, given the fact that September is historically a tough month for the stock market, are you expecting more in the way of downside.

Yes we are.

Yes we are.

And and the way I'll say it is, what we're really seeing or what we are expecting, is heightened volatility. There are a lot of things happening right now. Right there's a there's a big election coming up.

And and the way I'll say it is, what we're really seeing or what we are expecting, is heightened volatility. There are a lot of things happening right now. Right there's a there's a big election coming up.

Yeah, it is obvious.

Yeah, it is obvious.

And then on top of that, you've got the fact that that you know, what the Fed may or may not do has been what's driving markets for the past year, and that's just going to accelerate the further we get into you know, twenty twenty four, and there's these expectations kind of come to a head and whether the FED cuts, whether the reason and it comes down to the reason of that they're cutting, and how uh, you know, how dramatically they cut, because large cuts mean that the economy is really in tough shape. And so that in and of itself could lead to equity markets selling off just from that trying to understand why the Fed is saying or doing what they're doing. So, yeah, at the end of the day, heightened volatility is almost a guarantee at this point, and and that comes with some bigger down moves. It could, It could at the end of the day right through it, and in the year up. That's that's probably the higher likelihood.

And then on top of that, you've got the fact that that you know, what the Fed may or may not do has been what's driving markets for the past year, and that's just going to accelerate the further we get into you know, twenty twenty four, and there's these expectations kind of come to a head and whether the FED cuts, whether the reason and it comes down to the reason of that they're cutting, and how uh, you know, how dramatically they cut, because large cuts mean that the economy is really in tough shape. And so that in and of itself could lead to equity markets selling off just from that trying to understand why the Fed is saying or doing what they're doing. So, yeah, at the end of the day, heightened volatility is almost a guarantee at this point, and and that comes with some bigger down moves. It could, It could at the end of the day right through it, and in the year up. That's that's probably the higher likelihood.

But in the short term, yeah, we're going to see a lot of chop.

But in the short term, yeah, we're going to see a lot of chop.

All right, we'll leave it there on the chop. Adam, good stuff. Thank you so much for being with us. Adam Koons, the co CIO at Winthrom Capital Management, joining from Indianapolis. John Davey, founder CEO CIO at A Story of Portfolio Advisors, joining us from here in New York. John, thanks for joining us. A lot to take apart. Let's begin with that is m pm I kind of a disappointment to many with continued weakness in the manufacturing economy. Are you concerned about what's been happening on the manufacturing side.

All right, we'll leave it there on the chop. Adam, good stuff. Thank you so much for being with us. Adam Koons, the co CIO at Winthrom Capital Management, joining from Indianapolis. John Davey, founder CEO CIO at A Story of Portfolio Advisors, joining us from here in New York. John, thanks for joining us. A lot to take apart. Let's begin with that is m pm I kind of a disappointment to many with continued weakness in the manufacturing economy. Are you concerned about what's been happening on the manufacturing side.

Well, it's been in contraction, as you said, you know, for five straight months, but it was a small improvement from July. I think, you know, the idea from our side of story is that you've got to barbell your portfolio because as much as you know, on one hand, you've got bad growth data like today, I mean, there has been some recent data, whether it's retail sales, non manufacturing survey. We had upward revisions in GDP, we have better job less claim, so there is some good data, So it's just mixed overall growth to slow and that's why the Fed is going to cut rates.

Well, it's been in contraction, as you said, you know, for five straight months, but it was a small improvement from July. I think, you know, the idea from our side of story is that you've got to barbell your portfolio because as much as you know, on one hand, you've got bad growth data like today, I mean, there has been some recent data, whether it's retail sales, non manufacturing survey. We had upward revisions in GDP, we have better job less claim, so there is some good data, So it's just mixed overall growth to slow and that's why the Fed is going to cut rates.

It's a key week for a lot of data on the labor market. It'll culminate, I think on Friday with the employment report. How are you reading the labor market these days? Have things been deteriorating to the point where maybe the Fed is going to consider something that is greater than twenty five basis points in terms of a rate cut.

It's a key week for a lot of data on the labor market. It'll culminate, I think on Friday with the employment report. How are you reading the labor market these days? Have things been deteriorating to the point where maybe the Fed is going to consider something that is greater than twenty five basis points in terms of a rate cut.

I think the.

I think the.

Odds right now are about forty forty rate cut, So I wouldn't say that that's high. I think the market in reality probably would get freaked out if they sore fifty BIPs because that would imply that, you know, the growth is really significantly slow. And so I think the idea is, you know, we want a series of twenty five bit rate cuts while growth still remains good. And I think that will sustain multiples, It'll keep a lit in the market and we won't have the kind of price action we saw it today.

Odds right now are about forty forty rate cut, So I wouldn't say that that's high. I think the market in reality probably would get freaked out if they sore fifty BIPs because that would imply that, you know, the growth is really significantly slow. And so I think the idea is, you know, we want a series of twenty five bit rate cuts while growth still remains good. And I think that will sustain multiples, It'll keep a lit in the market and we won't have the kind of price action we saw it today.

Yeah, some of that had to do with what we had in tech. The chips were hammered, I mean in Vidio down nine and a half percent today, and then more weakness with the news of the subpoenas and this anti trust investigation, how are you viewing big cap tech now?

Yeah, some of that had to do with what we had in tech. The chips were hammered, I mean in Vidio down nine and a half percent today, and then more weakness with the news of the subpoenas and this anti trust investigation, how are you viewing big cap tech now?

Well, I mean our big call for the last year was kind of tilt away from big cap megacap growth. I mean, I would just say that, you know, for it's been a tremendous run in the last ten years for tech in general. You know, seven stocks dominated most of returns. You know, seven stocks make up you know, north to thirty five percent of the s and P five hundred here in the US. I mean that's obviously dangerous.

Well, I mean our big call for the last year was kind of tilt away from big cap megacap growth. I mean, I would just say that, you know, for it's been a tremendous run in the last ten years for tech in general. You know, seven stocks dominated most of returns. You know, seven stocks make up you know, north to thirty five percent of the s and P five hundred here in the US. I mean that's obviously dangerous.

It cuts both ways.

It cuts both ways.

So we've been suggesting people to kind of tilt away from that for quite some time. So we like equally weighted strategies. We like barbelling our portfolio where we still like owning tech. We just don't want like seven stocks to make up most of those tech es. On one hand, you know, we use equally weighted strategies, and the other hand, I do think it's time to kind of get things like you know, USMV, the min voality tf xl V, the healthcare etf XL you to utility staples.

So we've been suggesting people to kind of tilt away from that for quite some time. So we like equally weighted strategies. We like barbelling our portfolio where we still like owning tech. We just don't want like seven stocks to make up most of those tech es. On one hand, you know, we use equally weighted strategies, and the other hand, I do think it's time to kind of get things like you know, USMV, the min voality tf xl V, the healthcare etf XL you to utility staples.

You know, we like DJRW, which is a quality tiff that has.

You know, we like DJRW, which is a quality tiff that has.

A value tilt. The bottom line is we're saying barbell it right. So most advisors that I oversee, I oversee it close to billion dollars, you know, thousands and thousands of accounts. Most of them are still long queues, quall spy, and we're just saying tilt away, take a third of it and rotate into something that's more defensive.

A value tilt. The bottom line is we're saying barbell it right. So most advisors that I oversee, I oversee it close to billion dollars, you know, thousands and thousands of accounts. Most of them are still long queues, quall spy, and we're just saying tilt away, take a third of it and rotate into something that's more defensive.

How are you thinking about the sixty forty portfolio? I mean a little bit of fixed income in there or do you think that trade is already or trained? I should say left the station.

How are you thinking about the sixty forty portfolio? I mean a little bit of fixed income in there or do you think that trade is already or trained? I should say left the station.

Good question.

Good question.

I think you know bonds have a place for sure, I mean rate cuts.

I think you know bonds have a place for sure, I mean rate cuts.

You know, we are longer duration, so.

You know, we are longer duration, so.

We're playing like that roll down you know, convexity move on rates. I think that you know the bond market, if it were up to them, we'd get two hundred BIPs of rat cuts.

We're playing like that roll down you know, convexity move on rates. I think that you know the bond market, if it were up to them, we'd get two hundred BIPs of rat cuts.

I don't think. I think there's more down moves to go and yield.

I don't think. I think there's more down moves to go and yield.

But I do think that you want to own you know, some alternatives, I mean alternatives. It was a product that really couldn't be sold in an etif rapper. Most people just still looking at private credit, private private equity, but an etiff rapper you know, we've seen some you know, interesting like BUFFERYTF downside protection. I think that makes a lot of sense kind of giving where we are in the cycle, and you know, the growth looks very very you know, mixed and asymmetric in general.

But I do think that you want to own you know, some alternatives, I mean alternatives. It was a product that really couldn't be sold in an etif rapper. Most people just still looking at private credit, private private equity, but an etiff rapper you know, we've seen some you know, interesting like BUFFERYTF downside protection. I think that makes a lot of sense kind of giving where we are in the cycle, and you know, the growth looks very very you know, mixed and asymmetric in general.

From a risk standpoint, Are you focused solely on what you're seeing here in the States or are you attempted to look off short at this point?

From a risk standpoint, Are you focused solely on what you're seeing here in the States or are you attempted to look off short at this point?

Well, I mean the textbooks would say, you know, FED cuts rates, dollar weekends, emerging markets you know would do better.

Well, I mean the textbooks would say, you know, FED cuts rates, dollar weekends, emerging markets you know would do better.

It's been a tough call.

It's been a tough call.

We prefer India.

We prefer India.

We think that there's demographic issues, there's a good growth story. China is very very challenging for most US based investors. You know, growth to slow there, there's you know, just issues in general from like a macro policy standpoint. But you know this pockets of emergent markets that we think are attractive and we would definitely start to nibble, especially if you get these rate cuts again, it's been ten years.

We think that there's demographic issues, there's a good growth story. China is very very challenging for most US based investors. You know, growth to slow there, there's you know, just issues in general from like a macro policy standpoint. But you know this pockets of emergent markets that we think are attractive and we would definitely start to nibble, especially if you get these rate cuts again, it's been ten years.

Of just dramatic US AT performance.

Of just dramatic US AT performance.

So in our global portfolios we do have allocations to rige of markets and Developed Europe Japan as well. I would just say that that's contrarian because you know, most people here in the States. All they want to do is talk about US, and we are trying to inch our advisors to look abroad.

So in our global portfolios we do have allocations to rige of markets and Developed Europe Japan as well. I would just say that that's contrarian because you know, most people here in the States. All they want to do is talk about US, and we are trying to inch our advisors to look abroad.

Well, one of the things that may be relevant here. If you believe that the boj is going to raise interest rates and we see a flight of capital leaving places in the developed world ex Japan, and being repatriated back into the Japanese market, maybe we're looking at a little bit more downside. And I know that you know this well that historically September can be a challenging month for stocks. Are we at risk right now in terms of Japanese players that they begin to repatride and bring money home.

Well, one of the things that may be relevant here. If you believe that the boj is going to raise interest rates and we see a flight of capital leaving places in the developed world ex Japan, and being repatriated back into the Japanese market, maybe we're looking at a little bit more downside. And I know that you know this well that historically September can be a challenging month for stocks. Are we at risk right now in terms of Japanese players that they begin to repatride and bring money home.

Yeah, I would say, you know, we we want to be overweight more in the US for some of the risks that you're outlining to begin with them. Usually when you go into the recession, you know, US usually kind of leads the way in and leads the way out.

Yeah, I would say, you know, we we want to be overweight more in the US for some of the risks that you're outlining to begin with them. Usually when you go into the recession, you know, US usually kind of leads the way in and leads the way out.

So we're we.

So we're we.

Tend to be more over with US. Just you know, once you get past those seven stocks, the rest of the US equity market isn't that expensive. And it's certainly you know, while EM is cheaper and DM is cheaper, it's not like it's egregious at this point.

Tend to be more over with US. Just you know, once you get past those seven stocks, the rest of the US equity market isn't that expensive. And it's certainly you know, while EM is cheaper and DM is cheaper, it's not like it's egregious at this point.

So we're a little bit of a vulnerable period for equity markets.

So we're a little bit of a vulnerable period for equity markets.

You know, the valuations are generally extended, So I think it's good to like own some of these alternatives, some of these buffer ETFs downside protection. We've used bt A L, which is like a long short marct neutrale ETF. You know, I think the idea is like September is expected to be volatile, and you know, it all starts with obviously Friday's non front payroll.

You know, the valuations are generally extended, So I think it's good to like own some of these alternatives, some of these buffer ETFs downside protection. We've used bt A L, which is like a long short marct neutrale ETF. You know, I think the idea is like September is expected to be volatile, and you know, it all starts with obviously Friday's non front payroll.

Most definitely quick. In the time that we have left, which is about a minute, I want to get your take on the election. Economist over at Goldman Sachs published a note saying that if Trump were to win, that US GDP could face a hit. Different story of Vice President Kamala Harris were to win and then also have it her back Democrat control of both chambers in Congress, maybe there's a positive outcome for GDP. How are you viewing the election.

Most definitely quick. In the time that we have left, which is about a minute, I want to get your take on the election. Economist over at Goldman Sachs published a note saying that if Trump were to win, that US GDP could face a hit. Different story of Vice President Kamala Harris were to win and then also have it her back Democrat control of both chambers in Congress, maybe there's a positive outcome for GDP. How are you viewing the election.

Well, it's definitely, you know, it's a lot more uncertained. Obviously with you know, Kamala being nominated. I think with Biden, you know, the probability was you know, Trump victory for sure. So again more of a reason for these asymmetric risks. I think longer term, you know, where the opinion that you know, deficit will continue to grow. I think the gold market is kind of screaming and saying that, you know, hey, we have a deficit problem, and you know the fact that gold is outperforming equities your date, you know, and that's with gold entering into a period where it historically actually works the best, which is when you get this economic slowdown and you get ray cut. So we would lean on gold to play a lot of the election uncertainty for sure.

Well, it's definitely, you know, it's a lot more uncertained. Obviously with you know, Kamala being nominated. I think with Biden, you know, the probability was you know, Trump victory for sure. So again more of a reason for these asymmetric risks. I think longer term, you know, where the opinion that you know, deficit will continue to grow. I think the gold market is kind of screaming and saying that, you know, hey, we have a deficit problem, and you know the fact that gold is outperforming equities your date, you know, and that's with gold entering into a period where it historically actually works the best, which is when you get this economic slowdown and you get ray cut. So we would lean on gold to play a lot of the election uncertainty for sure.

All right, John, we'll leave it there. Thank you so much. John Davey from a story of portfolio advisors joining us from here in New York City. Burns McKinney is with us. He is a managing director also a senior portfolio manager at NFJ Investment Group. Hey, he is in Dallas, Texas and joining us here on day break Asia. Thanks for dropping by. Can we start with the eco data, the PMI that we had from the ISM. This manufacturing activity picture does not look good at all, and I'm curious as to whether or not it changes your view on how to put money to work.

All right, John, we'll leave it there. Thank you so much. John Davey from a story of portfolio advisors joining us from here in New York City. Burns McKinney is with us. He is a managing director also a senior portfolio manager at NFJ Investment Group. Hey, he is in Dallas, Texas and joining us here on day break Asia. Thanks for dropping by. Can we start with the eco data, the PMI that we had from the ISM. This manufacturing activity picture does not look good at all, and I'm curious as to whether or not it changes your view on how to put money to work.

Well.

Well.

We we always first of all, we always tell our clients to to maybe don't, you know, put too much weight on a single data point. You know, definitely, today's data showed the manufacturing portion of the US economy is still in contraction, and it was a little bit weaker than expected, and you know that that certainly led to you know, maybe you know, higher fears of a recession. But you know, we also have to take under consideration, for one, the den employment rate, although it has been you know, creeping upward, it's still very low by historical standards, as well as the fact that you know, the manufacturing portion is really the part of the economy that's been weakened by the high real interest rates for quite some time. And so once the Fed does start reducing rates, most likely as soon as this month, then that should in fact give a little bit of a tailwind to to boost that manufacturing portion of these economies. So it's slowing, but we're not necessarily worried about a recession in the near term.

We we always first of all, we always tell our clients to to maybe don't, you know, put too much weight on a single data point. You know, definitely, today's data showed the manufacturing portion of the US economy is still in contraction, and it was a little bit weaker than expected, and you know that that certainly led to you know, maybe you know, higher fears of a recession. But you know, we also have to take under consideration, for one, the den employment rate, although it has been you know, creeping upward, it's still very low by historical standards, as well as the fact that you know, the manufacturing portion is really the part of the economy that's been weakened by the high real interest rates for quite some time. And so once the Fed does start reducing rates, most likely as soon as this month, then that should in fact give a little bit of a tailwind to to boost that manufacturing portion of these economies. So it's slowing, but we're not necessarily worried about a recession in the near term.

Does that make the job stated that we're going to get the end of the week all that more important?

Does that make the job stated that we're going to get the end of the week all that more important?

And absolutely, I think that's that's definitely we've you know, we've been living in this world for the last two years where the most important catalyst or data point that we see month to month has been the inflation figures. And you know, really as of the last FED meeting, when the you know, Jay Powell basically suggested, Okay, you know we're there on inflation. Now we're worried about the other side of the Fed's mandate, i e. The jobs portion as such for the coming months. That'll probably be the biggest catalyst. You know, you don't want to be You don't want it to be too hot and maybe turn the Fed off from cutting rates, But likewise you don't want it to show that employment is in fact rapidly getting worse.

And absolutely, I think that's that's definitely we've you know, we've been living in this world for the last two years where the most important catalyst or data point that we see month to month has been the inflation figures. And you know, really as of the last FED meeting, when the you know, Jay Powell basically suggested, Okay, you know we're there on inflation. Now we're worried about the other side of the Fed's mandate, i e. The jobs portion as such for the coming months. That'll probably be the biggest catalyst. You know, you don't want to be You don't want it to be too hot and maybe turn the Fed off from cutting rates, But likewise you don't want it to show that employment is in fact rapidly getting worse.

So are you, on balance kind of poised to be a little bit more defensive right now? Would you think that that's a part of your strategy.

So are you, on balance kind of poised to be a little bit more defensive right now? Would you think that that's a part of your strategy.

We absolutely are, And it's it's really, I think, more than anything just having to do with valuations. We're in a world for which you certainly have some you have a slowing amy anyway, Now, the Fed is poised to reduce rates, and that's normally a good thing for stocks, but this has been a long telegraphed rate cut and to the point that not only is a twenty five basis point cut in September priced in, but the markets are halfway there to pricing in a fifty depth cut. And so we don't really see a whole lot of ways in which the Fed's get to pleasantly surprised in investors, and in fact, if anything, they could be negatively surprised. And you know, the biggest portion is the fact that with the S and P five hundred trading at around twenty two times earnings, that's more expensive than it's been three quarters of the time over this millennium, and so the markets really aren't pricing in that much downside risk.

We absolutely are, And it's it's really, I think, more than anything just having to do with valuations. We're in a world for which you certainly have some you have a slowing amy anyway, Now, the Fed is poised to reduce rates, and that's normally a good thing for stocks, but this has been a long telegraphed rate cut and to the point that not only is a twenty five basis point cut in September priced in, but the markets are halfway there to pricing in a fifty depth cut. And so we don't really see a whole lot of ways in which the Fed's get to pleasantly surprised in investors, and in fact, if anything, they could be negatively surprised. And you know, the biggest portion is the fact that with the S and P five hundred trading at around twenty two times earnings, that's more expensive than it's been three quarters of the time over this millennium, and so the markets really aren't pricing in that much downside risk.

I'm sure you saw the meltdown that we had in technology today, particularly the chip makers. That may not have come as a surprise to you. I'm curious to get your take. What did you make of it?

I'm sure you saw the meltdown that we had in technology today, particularly the chip makers. That may not have come as a surprise to you. I'm curious to get your take. What did you make of it?

Well, it's really it's primarily a continuation of what we seen, says na Videa's earnings. I mean, their earnings results were pretty stolid, but you know, they beat the they beat the consensus. They they guide it upward, but they didn't meet the whisper number. And you know that really just points out that you know, with with great expectations comes great responsibility. It's uh, you know kind of kind of you know, you think about the opposite of value investing. The whole premise behind value investing is find companies for which low expectations are baked in versus right now, a lot of the mega tech, uh megacap tech is pricing and high expectations, and so you think, well, what makes the most sense. Ye I like to, you know, make the analogy. You know, you have two kids, you know, one of which is a straight A student that maybe comes home with an A minus, and you have the other kid that typically gets C minuses and they come home with a B. You know whose parents are going to be, you know, pleased the upside surprise and buy on ice cream, you know, probably the other one. And so you know, that's really a lot of what's probably been driving our thesis and what the markets are seeing about this rotation away from what's been working so well the past year towards maybe what hasn't been. That means you know, small caps, it definitely means value stocks. You know, some of the financial firms as well as overseas stocks.

Well, it's really it's primarily a continuation of what we seen, says na Videa's earnings. I mean, their earnings results were pretty stolid, but you know, they beat the they beat the consensus. They they guide it upward, but they didn't meet the whisper number. And you know that really just points out that you know, with with great expectations comes great responsibility. It's uh, you know kind of kind of you know, you think about the opposite of value investing. The whole premise behind value investing is find companies for which low expectations are baked in versus right now, a lot of the mega tech, uh megacap tech is pricing and high expectations, and so you think, well, what makes the most sense. Ye I like to, you know, make the analogy. You know, you have two kids, you know, one of which is a straight A student that maybe comes home with an A minus, and you have the other kid that typically gets C minuses and they come home with a B. You know whose parents are going to be, you know, pleased the upside surprise and buy on ice cream, you know, probably the other one. And so you know, that's really a lot of what's probably been driving our thesis and what the markets are seeing about this rotation away from what's been working so well the past year towards maybe what hasn't been. That means you know, small caps, it definitely means value stocks. You know, some of the financial firms as well as overseas stocks.

Well, talk to me a little bit about what you're seeing overseas. Are there areas or themes that you can unpack a little bit.

Well, talk to me a little bit about what you're seeing overseas. Are there areas or themes that you can unpack a little bit.

You know, looking overseas, I think the primary theme that we're looking at is just again low valuations. We're contrarian by nature, and so you want to find things for which you know the good news isn't already priced in yet. And you know, if there's one sort of area that kind of peaks our interest a little bit, it might just be the emerging markets and the news the story has been bad for a long time. They've lagged the broader markets for you know, over a decade now, and as a result, relative valuations since you know, ten, fifteen years ago, and so you know, there's some opportunities there. You know, obviously, investors have to be choosy.

You know, looking overseas, I think the primary theme that we're looking at is just again low valuations. We're contrarian by nature, and so you want to find things for which you know the good news isn't already priced in yet. And you know, if there's one sort of area that kind of peaks our interest a little bit, it might just be the emerging markets and the news the story has been bad for a long time. They've lagged the broader markets for you know, over a decade now, and as a result, relative valuations since you know, ten, fifteen years ago, and so you know, there's some opportunities there. You know, obviously, investors have to be choosy.

You know.

You know.

One one way that we're recommending our clients, if you want to play the emerging markets, maybe do it within companies there that pay dividends. It's kind of a unique subset whereby people don't think of stodgy dividend pairs and emerging markets in the same sentence. But you know, what it really does is it means that you're focused on companies in the emerging market space. They still have that growth dynamic, but maybe they're a little bit more mature in their life cycle. It means they're producing a lot of free cash flow and maybe a little bit more defensive way of getting that exposure.

One one way that we're recommending our clients, if you want to play the emerging markets, maybe do it within companies there that pay dividends. It's kind of a unique subset whereby people don't think of stodgy dividend pairs and emerging markets in the same sentence. But you know, what it really does is it means that you're focused on companies in the emerging market space. They still have that growth dynamic, but maybe they're a little bit more mature in their life cycle. It means they're producing a lot of free cash flow and maybe a little bit more defensive way of getting that exposure.

Good conversation, Burns, thank you so much for being with us. Burns McKenny. He is Managing director also senior portfolio manager at MFJ Investment Group in Dallas, Texas. This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.

Good conversation, Burns, thank you so much for being with us. Burns McKenny. He is Managing director also senior portfolio manager at MFJ Investment Group in Dallas, Texas. This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.