Category: Audio and Podcasts

https://old.bfm.my/podcast/morning-run/market-watch/the-winners-and-losers-of-the-big-beautiful-bill
Although the US budget bill is stuck in the House, we examine who are the potential winners and losers with 

Tony Nash, CEO, Complete Intelligence. We also preview the US non-farm payroll figures and how that might influence the Fed fund rate.

 

https://www.channelnewsasia.com/listen/cna938-rewind/stock-take-today-markets-stay-calm-despite-tariffs-bitcoin-hits-new-high-5232721

On the daily markets analysis on Open For Business, Andrea Heng and Susan Ng speak with Tony Nash, Founder & CEO of Complete Intelligence.

This podcast was originally published by BFM 89.9 The Business Station. Find it here: https://www.bfm.my/podcast/morning-run/market-watch/magnificent-seven-us-fed-cpi

Guest speaker Tony Nash, CEO of Complete Intelligence, offers his insights on the market trends, particularly focusing on the impact of interest rates on sectors like banking, real estate, and construction. He discusses the potential outcomes of the earnings season, emphasizing the significance of passive investments in shaping market movements, especially in tech sectors and commodities like oil and gold.

Nash also touches upon the implications of decelerating inflation in the US on Asian markets, pointing out the role of international trade in influencing inflation rates. He underscores the importance of understanding market dynamics beyond mere forecasts, highlighting the interplay between global demand, asset valuation, and inflation expectations in shaping market outcomes.

The podcast emphasizes the resilience of markets amidst various uncertainties, showcasing the complexities of factors like interest rates, earnings reports, and commodity prices. The discussion sheds light on the nuanced relationship between market trends, economic indicators, and geopolitical dynamics, offering a comprehensive overview of the current market landscape.

Transcript

BFM

This is a podcast from BFM 89.9, The Business Station. Bfm 89.9. It’s 07:06. It’s Friday, the 12th of April, and you’re listening to The Morning Run. And in front of me is Philip Sea. I got your name right this time. And I’m Wong Shauwning. Do I get a medal? In about 30 minutes, we’ll take a look at the performance of the Asian Pacific Aviation Sector. But let’s recap how global markets closed yesterday.

BFM

Tell you who deserves a medal, US markets, because They are on a tear this year. The DAO was flat, but the S&P 500 up 0.7 %, and the Nasdaq up 1.7 %. Over across in Asia, the Nikkei was down 0.4 %, Hangseng down 0.3%, Cheungai Composite up 0.2%, Singapore’s STI down 0.3%. Back home, FBM, KLCI, DC also deserves a medal. It was closed for the Raya holiday, closed on Wednesday at 1,553, down 0.6%..

BFM

Okay, but still up 6.8% on a year-to-date basis, so a little bit of cheer there. For some insights on where international markets are heading, we speak to Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Always good to speak to you. Tony, please tell me what is happening in US markets because PPI numbers, US producer price increased in March from a year earlier by the most in 11 months, but yet markets rallied. What’s What’s happening?

Tony

Yeah, I think from the quant trading perspective, the PPI looked muted. And part of the reason was energy costs looked like they fell, which is not what we’re seeing on the ground in the US. So some of these government data, when they come out, the algos trade these based on the data that come out, but the actual data on the ground is different. So what we’re seeing is algos trading because they believe other algos will be trading. You have to look at today as one of those potentially strange trading days. Friday in the US, we’ll start to really understand what people see through the PPI data. Obviously, we saw CPI come out on Wednesday in the US, and it was elevated compared to what people thought. It’s possible that we see inflation peaking, but the real question there is, how many rate rises will there be? Expectations are now down to one or two, where it was something like five just two months ago. It’s puzzling when we see, like today, we see tech rally, tech shares rally, when the interest rate cuts are being put further off, and there are fewer. So markets are a little bit out of balance right now, and we’ll only know in the next few sessions where things really start to settle.

BFM

In the meantime, US earnings season starts in full swing. Friday your time. I think we’ve got J. P. Morgan, we’ve got Wells Fargo, we’ve got Citigroup reporting their numbers. How do you think results will be this quarter?

Tony

Yeah, I think with trading being active and with interest rates rising, that leaves more than an interest margin for banks. So I think banks will report well. I don’t think there’s been a huge rise in bad debt. There’s definitely been a rise in bad debt, but it hasn’t been huge. Banks will probably report fairly well. The larger banks, the regional banks, they’re still having trouble. With the removal of the Treasury program to fund those regional banks, they’re going to have difficulty for the next few quarters.

BFM

Well, talking about then the sensitivity to interest rates, I wonder what’s your take on sectors like real estate and construction, where they were hoping for perhaps some relief there, but that might not eventually happen now, Well, yeah, it’ll take a while.

Tony

The problem is these are sectors that got used to low interest rates, abnormally low interest rates. We’re actually in a more normal interest rate environment. In the US, you have things like housing, which is largely undersupplied. You have commercial real estate, which is oversupplied. The commercial side is facing serious headwinds, probably for years. The residential side will see strength for years. So it’s a little bit mixed, but with interest rates not coming down at the rate that people had hoped a few months ago, it’s going to present a challenging environment.

BFM

And, Tony, looking at earnings specifically, according to Bloomberg Intelligence, the Magnificent Seven, the likes of Apple, Microsoft, Alphab, Amazon, NVIDIA, Meta, and then finally, Tesla, apparently are on course to rise 38 8 %. These are profits in the first quarter. What happens if it doesn’t? Does it mean that there will be sharp corrections in the magnificent seven, which will in turn bring down the overall broader market?

Tony

Well, it depends on a number of things. Yes, it would definitely turn things around, but the magnitude really depends on the passive income investment. So ETFs, say technology ETFs and other ETFs that people are invested in, those are passive instruments. And so people don’t necessarily have to pay attention to say NVIDIA every day when they’re investing in a passive instrument. But when people start to see their technology returns declining, they’ll rotate into other sector ETFs. We can’t underestimate the power of those ETFs, which are fairly passive. That’s actually more powerful than individual stock buys and sells.

BFM

Can we just have your perspective on commodities, particularly oil? I mean, it’s up around 17% this year. Just now you were already mentioning that the algos are not reflecting that accurately. What’s your take and prognosis on the future? If all continues to rise, what’s the broader implications to the global economy then?

Tony

If oil continues to rise, I saw somebody put forward a potential oil price of $1,000 a barrel a a few days ago. When we get to the point of the cycle where people are putting forward those types of ridiculous forecasts, we know we’re getting, I feel like we’re getting toward the end of that. We’re not there now, but it’s the beginning of the end when we start to see these ridiculous forecasts. If you remember in, say, 2020 when Crude was, obviously it went negative one day, but generally in the ’20s or ’30s, Citibank came out and said it would be at $10 when it trading, say, in the ’30s. So you know things are getting toward the end of that, either high or low cycle, when we start to see these extreme forecasts. So do I think we’re going to see $1,000 oil? No. I actually believe it’s going to trade sideways to slightly down for the next few months based on what we’re forecasting a complete intelligence. And we’ve been pretty right for the last year or so. So I’m not expecting to see, say, $130 a barrel of or something. I think we’re in the zone for the next few months.

BFM

But, Tony, we have seen a lot of other commodities, hard commodities, actually, Raleigh, Beat, Copper, Iron. Are those all indications of global demand improving, or is it just basically money chasing assets that hadn’t gone up so much?

Tony

Yeah, well, you see things like gold. You’ve seen the pop in gold because people are afraid that inflation is going to continue to to accelerate, which we’re seeing inflation rise, but it’s not necessarily accelerating. You see copper popping because people believe that that’s an extension of the AI boom and so on. So I think to some extent People are seeing what they want in markets, and that’s great. That’s how markets work. People come up with a hypothesis. But if inflation doesn’t continue to grow at a very rapid rate, we’re going to see gold slow pretty quickly. If things like, say, NVIDIA and other chips, Intel just came out with a competitive chip yesterday. If we start to see some of those AI names mute, we’ll also see copper mute a little bit. Some of these are self-fulfilling hypotheses, and those things will tail off as that hype declines.

BFM

Which then begs the question, I think what you’re saying is inflation is decelerating, right? It’s just not moving in the fast pace. What does decelerating inflation the US mean for Asian markets then?

Tony

Yeah, that’s a great question. I think, well, if we look at China, for example, there was an issue a few days ago where Janet Yellen was in China and scolding the Chinese about exporting Chinese electric vehicles at below cost or something. Now, for the US and Europe, and Southeast Asia for that matter, China exporting deflation is helpful for consumers. So that helps reduce inflation in the US. And the US benefited from China exporting deflation for 20 some years. So it could potentially bring down the cost of EVs, EV components, and so on, if China is incentivized to subsidize those goods and export them at below their cost. I’m not necessarily saying that’s the right policy move or the wrong policy move. I’m just saying the The reality of trade in markets is that international trade helps to bring down inflation. And if we see China and other places with a devalued Japanese Yen, we see Japanese products coming to market at much lower prices with a devalued JPY. Why? So these sorts of things help out consumers in the US, where we’re seeing persistent inflation, helps those consumers out over time.

BFM

All right. Thank you very much for your time. That was Tony Nash, CEO of Complete Intelligence giving us his views on markets, saying that, oh, looks like gold is ripe for a correction. And results, he didn’t pay attention to that, although he doesn’t think that even if the Magnificent Seven disappoint, there might be a correction across the board because there’s just so much passive money in those seven names.

BFM

Yeah, he’s, I think, emphasizing the resilience of the markets, right? I mean, he’s saying, look, the bank earnings are going to be projected quite good. As you said, there’s still quite a lot of flood, cash, flood, flood, Floating around.

BFM

Yes, flushed. We’re just flushed. Flushed with cash. I personally know, but markets are.

BFM

I think all of us in the studio are not necessarily flushed with cash. So I think that’s interesting. The interesting thing also is about oil, I think, where there are all these outlandish forecast there, but it’s not about- Thousand.

BFM

I was like, Is that for real?

BFM

Yeah, but it’s not the actual forecast that matters, but it’s the trigger, what it means, right? That actually you’re near the specific cycle there.

BFM

Yeah, because all is one of those things. When prices go up, there is natural demand destruction. So there seems to be a ceiling. The ceiling can shift a little bit depending on geo-politics, global economy, but it doesn’t shift that much. You have been listening to a podcast from BFM 89.9, The Business Station. For more stories of the same kind, download the BFM app.

This podcast is originally and first published by BFM 89.9 in this link: https://www.bfm.my/podcast/morning-run/market-watch/oil-gold-bitcoin-markets-up-asset-classes-investment

BFM Description:

We appear to be living in strange times as almost all asset classes are up in tandem. We ask Tony Nash, CEO of Complete Intelligence to explain this conundrum and how to invest in these confusing times.

Transcript

BFM

So joining us on the line to tell us what’s going to be moving markets in the weeks ahead, we speak to Tony Nash, CEO of complete intelligence. Good morning, Tony. Now, let me ask you about what your views are in terms of the US CPI numbers, because it came in slightly higher than expected. I believe the figure was 3.2% for Febre, thanks to a pickup in housing and energy prices. Is inflation actually stickier than we think?

BFM

And what does this then mean for the Fed fund rate?

Tony

Yeah, it is stickier than we think. And if you annualize that, so that 3.2% was month on month. So if you annualize that, that inflation is back at 5.4%. So keep in mind that the Fed’s target is 2% inflation on an annualized basis. So we’re more than double that in America. So what does that mean? Well, there is a hope among, well, the current administration really wants a rate cut this year, and there are a lot of people in markets who are hoping for a rate cut. But as we see persistent inflation at the grocery store, with things like flights, with energy costs, with housing and other things, that cut is less and less likely.

BFM

And Tony, let’s look specifically at some of the sectors. I think the first one that really has caught my eye are the banks. Right now, they’ve paid out large dividends over the past year and also a lot of share buybacks. But with the net interest margins set to go down as a result of these expected rate cuts, will they be able to keep those payouts?

Tony

Yeah. So if we don’t see cut in rates, let’s say we don’t see cut in rates. We don’t expect we’ll see a rate cut before maybe Q three of this year, maybe even further than that if we continue to see persistent inflation. I’m not particularly worried about net interest margin for banks. I think initially rate cuts will not be as large as we saw them hike at the start. So I think we’d see tepid rate cuts at the start unless we saw a pretty dramatic downturn in the US. Now, in terms of buybacks with both banks and other segments, it’s really interesting to look at the amount of corporate debt announced in January and February. It’s a record, at least for the last ten years. And something like 20% to 30% of corporate debt issued is done for share buybacks. So we’re going to have to see what is announced for share buybacks probably in April May time period. But we expect there to be a lot of share buybacks this year, especially for those companies that issued debt in Janfeb.

BFM

So if we can look maybe, perhaps at some of the potential headwinds ahead, we are going to see US federal elections in November. It’s most likely going to be a Biden versus Trump rematch. How do you think investors are going to hedge potential political risks, particularly in equities?

Tony

Well, I think for Biden, I think they’re going to have to be careful of inflation because we’ve seen a lot of federal government spending under Biden. And of course, it was under Trump during COVID and Trump was a spender. But we’ve seen it accelerate under Biden, and we don’t see it slowing down necessarily. So in a second Biden administration, we’d expect the US debt to accelerate, especially if Janet Yellen is still the treasury secretary. She’s very good at issuing T bills to spend, and she’s very politically well connected, so she can get the authority to issue that from Congress. Under Trump, yeah, we would expect spending to slow a bit. And the way to hedge that play under a Trump administration is to look at, say, defense sectors. Under a Trump administration, defense likely wouldn’t do as well under Biden. We’ve seen wars in the Middle east and Ukraine, and we would expect things to at least stay where they are under Biden. Under Trump, there weren’t any wars. So we would expect that the defense sector wouldn’t really do very well under a Trump administration.

BFM

But, Tony, who is better for markets? Biden or.

Tony

Think? I think it cuts both ways. I’m a Republican, so I’m pulling for my party. It doesn’t matter who’s running. I think under Trump, we did see healthy markets without a lot of stimulus. And then, of course, the pandemic hit. And what we’ve seen since the pandemic is wave after wave of stimulus in the US that has really hit markets in a good way. Right? So under Trump, I don’t think we would see the level of stimulus that we would see under Biden. But Trump has also been vocal, saying that he would fire Jerome Powell, who he hired, who he put in place under his regime. So Trump is saying that he would want to cut interest rates. So it’s tricky both ways. And of course, presidents don’t like higher interest rates because they think that it slows down the economy in a very simplistic way. So I think it’s really a coin toss who’s better for markets? It really depends on the amount of fiscal and monetary firepower. I think the Democrats would bring fiscal firepower. I think the Republicans would bring monetary firepower.

BFM

And if we take a look at maybe another aspect, which is crude oil, we do see that oil prices have been rising on the back of diminishing US crude stockpiles. Why are oil inventories being depleted? And will the replenishing of those stocks push oil prices even further?

Tony

Yeah, oil prices are being depleted partly on production caps and partly on maintenance and other things. But crude markets, especially in the Middle east, very tight right now. They’re very tight. So as the US continues to replenish oil stocks in the SPR and other things, that will definitely push crude prices higher. They’ll try to buy opportunistically when prices are low. But as they refill the SPR and as other kind of storage in the US is refilled, that will definitely push prices higher, because the supply globally is so tight right now for both crude and for refined, you know, it’s really hard to see a downward spiral for crude in the next, say, month or two.

BFM

Tony, I have a question, because I’m stuck. If you look at cryptocurrencies, especially bitcoin, it’s like record high. $73,000, but gold, also record high. What does it tell you about markets, or at least sentiment, when equities are also at all time high? Aren’t those the two asset classes I mentioned earlier, defensive ones and commodities?

Tony

This is the problem with inflationary markets. It tells you that there’s a lot of money supply out there. It tells you that there’s more demand than there is supply. And I know people who invest in crypto, I know people who are aggressive crypto. I don’t see the inherent value of crypto, so I wouldn’t recommend anybody either way on that. But I think we do see, especially in the US, we see demand rising because it has to. Because we have inflationary markets. Demand is measured in dollars, it’s not measured in activity. So people will say, oh, the US economy is booming. Well, it’s booming because inflation is high. Right. And so because inflation is high, people have to consume more goods now. And that’s why we see so much demand on things, both because of the nominal value and because prices are going up. So it’s really hard to see anything fall until it does. Right. And those of us who’ve been around markets for 20 plus years, the music does kind of turn off and there are a lot of books I could recommend to you. But once interest rates rise, there is a lag before markets respond.

Tony

So things like cryptocurrency, that’s rallying because they’re in funds, they’re into index funds or, sorry, into ETFs and stuff. But other things, it’s because people are buying because the prices, they believe the prices will continue to rise. We haven’t seen any evidence that prices will fall outside of places like Europe and China, where they’re facing both economic headwinds and demographic headwinds. So that’s why we see things. Japan, China, Europe are slow because they have demographic issues. Of course, that’s a very slow issue, but they’re also seeing demand issues domestically in those markets.

BFM

Tony, thanks very much for speaking with us. That was Tony Nash, CEO of Complete Intelligence, giving us his take on some of the trends that he sees moving markets in the days and weeks ahead. We have a little bit of time on the clock, so we are going to turn our attention to some of the international corporate headlines that we’re watching this morning. We’ve got news coming out of Adidas. Adidas faced its first loss in over 30 years following the termination of its collaboration with Kanye west, which included the highly profitable Yeezy sneaker line. Despite the loss, though, Adidas shares performed well. They outperformed competitors like Nike and Puma. But the company’s decision to maintain its earnings forecast for 2024 at an operating profit of about €500 million did disappoint investors who were anticipating a more optimistic outlook.

BFM

I think the buyers of the stock are fans of the Adidas samba, which.

BFM

Is like the next cult is the big issue, right?

BFM

Yeah, it is the big couch shoe. So maybe people are thinking, who cares about these yeezys easys. We’re moving on. But if you look at the stock, actually yesterday it hit its all time high, traded at 200 and €1.55. Now, what does the street think of this? Are they optimistic? Because there were some write offs earlier on even before these results. And it’s somewhat evenly mixed because it’s 15 buys, 14 holes, just seven sells. Consensus target price for this german listed company, €187.91. Like I say, yesterday was an all time high. So it looks like markets. Who’s buying, I wonder? Maybe samba users.

BFM

Yeah, the fashionistas. I suppose you do see that. I think if we look at sales performance, north american sales are expected to decline due to market saturation. But really other markets are predicted to grow significantly. Yeah. Footwear sales grew by 8%, probably those sambas, while apparel sales fell by 13%. Okay, turning our attention to another stock and company, but this one in pretty big trouble. We see country garden. They’ve missed a coupon payment on a yuan bond for the first time, the latest difficulty faced by the chinese developer that is facing a lawsuit seeking its liquidation in Hong Kong. In response to this, the company said its main onshore unit hasn’t fully prepared a 96 million yuan coupon due on Tuesday for a 4.8% yuan bond maturing in 2026, and further emphasized that there is a 30 trading day grace period for this payment. So they’re trying to buy themselves some time.

BFM

I don’t know how much more time they can buy because they already defaulted on the offshore bonds. And then added to their pressure is the liquidation order by the Hong Kong courts where I think some people still argue, can it be enforced in China? So even the share price is really like all time low, down 25% on a year to date basis. The question is, I don’t think anybody’s going to buy this stock. It’s a question, can it survive? But amazingly, there’s still six buys on this name. Nine holes, six cells. This is listed in Hong Kong. It’s only fifty eight cents. Hong Kong Tiger price $0.63. Wow.

BFM

Some very brave six analysts there to still have a buy call. All right, 719 in the morning. We are going to head into some messages, but we’ll come back to cover the top stories in the newspapers and portals this morning. Stay tuned. BFM 89.9.

BFM

You have been listening to a podcast from BFM 89.9, the business station. For more stories of the same kind, download the BFM app.

This podcast was originally and first published by Business Matters.

BBC Description

Polls are beginning to close across the 15 primary states in the U.S as Super Tuesday comes to an end. Our presenter Roger Hearing will be bringing us up to date on what the polls are saying.

We’ll be hearing from voters who have made up their minds and those who are still considering.

And we find out if the fact that the US economy is beginning to show signs of strength, will affect the outcome in November.

Roger will be joined throughout the programme by two guests: Tony Nash, Chief Economist, Complete Intelligence who’s in Houston and Laura Schwartz, former Advisor to Bill Clinton and democratic strategist, who’s in Chicago.

Transcript

BBC

Hello, and welcome to Business Matters. I’m Roger Herring. Coming up on the program today, millions of voters in the US choose their party’s candidate for the November presidential election on what’s called Super Tuesday. But how are they feeling about the prospect of Biden versus Trump round two?

BBC

Well, we’re going to be hearing from those who have made up their minds and those who are still considering and ask if the fact that the US economy is beginning to show signs of strength will affect the outcome in November. And I’ll be joined throughout the program by two guests, Tony Nash, chief economist, Complete Intelligence, who’s joining us on the line from Houston. Tony, I should say hello to you.

Tony

Hello, Roger.

BBC

Good to have you there with us. And, Tony, I mean, for the Republicans, it is pretty much a coronation, wouldn’t you say?

Tony

Overall, yeah, there’s nobody left. I mean, you may have the four republican voters in Vermont vote for Nikki Haley, but aside from that, I really don’t think she’s going to win much today.

BBC

All right. Fair point. Well, we shall see. She hasn’t said her campaign is over yet. We’ll talk about that. But let’s just bring ourselves up, just be, to what has been happening, because it has been the biggest day so far in the US election year. Millions of people voting in what’s known as Super Tuesday. And the idea is you decide who should be the Republican and who should be the Democrat candidate for November’s presidential election. Now, polling has been taking place in more than a dozen states. The results are only expected to reinforce, as we said, the near certainty that Joe Biden and Donald Trump will face each other again in November. Well, speaking to reporters a little bit earlier, President Biden was pretty defiant about his polling. All right. Well, thanks very much for the moment, Michel. We’ll come back to you in a little while, a little bit later in the program to get an update and see what’s happening and perhaps get some sense of other issues that may be working their way through this election year. But now let me come to my guests, Tony and Laura. So, Tony, first of all, let me come to you.

BBC

Do you get the sense then that this process, this primary process, isn’t really what we’ve had in the past, what we’ve expected, where there’s been at least an element of doubt as to the outcome? And so for that reason, is it more of a drama? Have any issues come up in the process that have been useful?

Tony

Well, one thing about your earlier conversation, there are states where you vote in a partisan primary, but you don’t necessarily have to be a member of that party. So we have, like in Virginia, according to Exopolan, I was just looking at half of the people who voted for Nikki Haley were Democrats. And so this is how the different parties game some of these. And I would say this is a pretty big issue, especially in this primary.

BBC

Sorry, just run that one past me. You’re saying that the Democrats, people who are registered Democrats, can vote for the Republican candidates in some states.

Tony

So I live in Texas. In Texas, you do not have to be a registered Republican to vote in the republican primary. And so this is something that’s been happening for, I don’t know, the past three, four election cycles where party members will go in and vote in the other party’s primary to kind of try to push things one way or another. So since there is really nobody running against Joe Biden because he’s the incumbent, it really is kind of open and fair game for Democrats to try to change the republican primaries. So I voted here in Texas. I’m a Republican. And there were all of the previous names on the ballot. It wasn’t just Donald Trump. There were, I think, seven or eight Republicans to choose from. So just so your listeners understand, Republicans don’t just walk in the door, and Donald Trump is the only name on the ballot. There are many names. If those names are submitted to the state and qualify in time for the primary.

BBC

Interesting. We’ll see about that. Tony, let me bring you in on this, because that point that Laura was making about the court case, and we do know that one criminal trial will happen at least before the election. How much do you think that actually will matter in terms of voters, particularly GOP voters?

Tony

Obviously, it won’t matter. I mean, honestly, I live in the suburbs. I know both men and women. I’m a relatively social person, and I don’t know a single person who that matters for. And so we see this as responses, but I haven’t heard of a single person. Donald Trump being a dog is. I mean, that’s old news, so nobody really cares. I think that the biggest issue that people are facing right now is immigration, and that’s what everybody’s talking about. And that will weigh on Biden more than anything else. More than his corruption, his son’s corruption, his brother’s corruption. Immigration will weigh on Biden. And that campaign more than anything else, because there was some news, I think, out today saying the administration flew 300,000 illegal immigrants into the US. They flew them in to avoid the optics of them crossing the border. And so american citizens are paying for that. They’re paying for these people to be illegally transported and to reside illegally in the US. So we see what’s happening in New York City. We see what’s happening outside of Boston. We see what’s happening in Chicago. These very traditionally democratic cities are having to contend with the things that people like me in Texas on the border.

BBC

Because, I should say, of the movement of people coming over the border, often by republican governors in the south up to these cities.

Tony

Yes and no. Yes. I mean, our governor in Texas has done a lot of that to start that, to bus people up to DC and New York and Boston and Chicago and other places. But the Biden administration itself has flown in 300,000 illegal immigrants into the US. This was just a story out today. So they’re paying airfare, they’re taking Americans off of planes, they’re flying on flights, and then they’re getting vouchers and debit cards once they arrive here. And that’s a massive, massive issue for.

BBC

So you think that will actually dictate where a lot of people go in November will be that issue more than anything else?

Tony

Yes. Especially as we see more layoffs from companies. The displacement that that cohort has for, say, inner city and lower wage workers is huge. And so, again, these are traditionally Democrat voters. And so that immigration issue, it just won’t stop and everybody is talking about it.

BBC

Well, we shall see. That’s a very interesting line that you put there and one I have heard as well before. Anyway, we’re going to move on to the next part of the program. We’re going to be looking at some of what the economy might do to that vote in November. We’re going to say, Tony, let me pick that theme up with you, because do you feel, as someone working in the US economy, do you feel that things are getting better? I mean, you can see, I guess, from the stock market is certainly seeming to reflect that.

Tony

Yeah. So there are a couple of different things. First is inflation. It’s undoubtedly, on average, things are, I think, 24% more expensive today than they were in 2019. So inflation is without a doubt another massive issue this year. The stock market is really about four concentrated stocks, okay? It’s about Microsoft, it’s about Nvidia, it’s about Amazon and it’s about Apple. So when we see the general indices move up and down every day. Money is so concentrated in Nvidia, Microsoft and so on, that’s not necessarily impacting the stock market as a whole. So these are people betting on artificial intelligence. If you look at general stock market performance on the year, it’s down, I think, high single or low double digits so far this year. The general stock market, if you take out those four stocks, and we do see a lot of layoffs, other things. So it’s hard to argue that we’re in a terrible economy. I’m not saying that’s the case at all. But when we look at inflation and when we look know if people are standing still, they’re losing money. Right. Why is that happening? Well, it initially happened because of Fed policy.

Tony

Loose fed policy. Right. And so today it’s happening because Janet Yellen is using the treasury general account as her own personal kind of campaign funds. She’s spending the treasury general account like wildfire. And that is helping to sustain the prices in the US and keeping things up. So Congress has very limited power to stop her from doing that. But Yellen spending from the TGA is one of the biggest issues that nobody talks about, and it’s really keeping inflation up in the US.

BBC

Okay, well, listening to all that, Tony Nash. Tony, I guess that didn’t really surprise you, the kind of things we were hearing there.

Tony

No, it completely validated things that I’ve been telling you for the last 45 minutes. I mean, people on the ground are feeling it. If you’re sitting in New York or Boston or DC, and if you, Roger, are interviewing a talking head sitting in one of those places, they’re not going to tell you this stuff. But you just interviewed two people on the ground and they’re telling you exactly the stresses that they’re feeling.

BBC

Okay, well, let’s. Nash in Houston. It is interesting to hear where these things are going and interesting that John Zogby certainly seemed to think that the legal troubles of Trump may be actually quite instrumental. And I know you disagree with that. You’re not convinced, are you?

Tony

I’m not. I really think inflation and immigration and the people I talk to, and they’re across, I have 20 somethings who work for me and I have a 60 year old who works for me and I talk to, of course, people who don’t work for me. But I get a cross section across every day and I’m not hearing Trump’s legal concerns as an issue. But I’m sure in places like New York or San Francisco or DC, it’s a major issue where media is. But I think, Roger, the major, I think issue this November will be who will show up to vote. And if people are ambivalent about Biden and they don’t show up, then Trump’s going to win. If people are ambivalent about Trump and they don’t show up, then Biden’s going to win. I think that’s a bigger fact than anything because we got a couple of 80 year olds running. It’s really hard to get enthused. You can’t have like an Obama wave.

BBC

Well, I think we seem to have.

Tony

2008 or even a Trump wave.

BBC

We’re just losing the line a little bit to you there, Teddy.

Tony

And with all this other stuff and.

BBC

The partisanship, people, I think we’re just losing the line to you slightly there. But yeah, just a final thought. Does it matter very briefly in a word, or could, we heard you there a little bit there, Tony, thanks very much there. The line getting in the way of that at the end. But I hope we got a decent picture there of Super Tuesday and what it means, just to let you know that at the top of the hour, polls will close in Colorado, Minnesota and Texas. And we’ll bring you up to speed, of course, with projections from that. But that’s it from this special edition of Business matters on super cheesy bye.

This podcast is originally and first published by BFM 89.9 The Business Station for their program called Morning Run. Find the original source at https://www.bfm.my/podcast/morning-run/market-watch/ai-hype-substance-sustainability-tech-stocks-monetary-policy

Investor excitement over AI has been driving up valuations of tech stocks, but to what extent is this optimism substantiated? Tony Nash of Complete Intelligence weighs in on the sustainability of the tech rally, as well as the outlook for Fed monetary policy, among others.

Key takeaways from this episode:

• Fed likely to delay rate cut to July unless significant economic changes occur.
• Market expectations of 3 to 5 rate cuts for the year but unlikely to be as aggressive as initial rises.
• Tech companies like Microsoft and Nvidia driving market rally, but concerns over valuations exist.
• Nvidia’s high valuation raises questions about benefit versus risk.
• US oil production impacts OPEC and Russia’s influence on oil prices.
• Japanese Yen weak against USD, potential for intervention due to undesirable levels.
• Cisco reports revenue decline, plans to cut workforce by 5%.
  

In this podcast from BFM 89.9, Tony Nash shares insights, indicating that the Fed views the hot CPI number as a sign of strong policy and hints at a potential rate cut in July 2024.

The conversation shifts to the stock market rally and the performance of tech giants like Microsoft and Nvidia. Tony highlights the concentration of the rally in specific stocks, raising concerns about valuations and market dynamics. He questions the sustainability of Nvidia’s growth and the risk associated with its current valuation levels.

The discussion then changes to the oil and gas sector, focusing on the US’s significant oil production and its impact on global supply dynamics. Tony explains how the US’s supply has influenced geopolitical risk premiums and natural gas prices, reshaping the market landscape. The conversation also touches on the Japanese Yen’s depreciation against the US Dollar and potential interventions by Japan.

Transcript

BFM

All right, for some thoughts on what’s moving international markets, we have on the line with us Tony Nash, CEO of Complete Intelligence. Tony, good morning. Thanks as always for joining us. So, hotter than expected, US CPI numbers have dampened market expectations of a rate cut. How do you think the Fed will view those figures? And where do you think they’ll place the timing for the first rate cut of 2024?

Tony

Yeah, I think the Fed sees the hot CPI number as their policy just not having enough time to work. So jobs are relatively strong, inflation is reinserting itself. So it’s definitely higher for longer. There had been an expectation of, say, a March rate cut, but that’s definitely gone now. Markets have wanted an earlier cut, which is why we saw so much activity in stocks. So we’re seeing some stuttering in valuations, a lot of the choppiness in valuations at the moment as investors try to figure out where is fair value. So the next rate cut is likely July. So it’s pushed back pretty dramatically from what we expected, unless we see something change. If we see recession come in or job cuts or deflation or something like that. But what we’ve seen over the past couple of years is the Fed has proven that it’s determined and that it’s patient. So they’re not in a rush to cut.

BFM

What does this then mean for the quantum of cuts? Tony, I think market is expecting a range between three, probably now three to five cuts for this year. What are your expectations?

Tony

Yeah, I definitely don’t see cuts coming at the rate at which they started. Meaning, remember, those first two rate rises were 75 basis points. We’re definitely not going to see 75 basis point rate cuts unless we see some dramatic problems in, say, housing or equities or something like that. If it’s really just dialing down because inflation has slowed, then there’ll be minimal rate cuts and they’ll be spaced out over time because we’re really just getting back to kind of a normal rate environment. So we’ve been in a zero interest rate environment for so long that people are not accustomed to actually having a real cost of money, which is what interest rates are. And so we’re probably in a zone between, say, 4% to 5% where they may actually want to keep interest rates in that zone to have a normal cost of money and cost of risk.

BFM

Tony, with this in mind, and the stock market rally that we’ve been seeing in the past couple of weeks or so, along with how well tech companies like Microsoft and Nvidia have been doing, what do you foresee going into the coming weeks as far as the market is concerned?

Tony

Yeah. Companies like Microsoft and Nvidia are really in their own realm. You know, the mag stocks, they’re pulling the entire market. So when we see a rally, it’s not a market-wide rally, it’s largely concentrated in those stocks. Last week, for example, we saw Facebook rise by 21% in one day. That’s unbelievable. And for a company that size to see a 21% rise in their value, it’s really strange. So investors will have to see a dramatic change in news, or they’ll have to see investment funds dump shares before they give up their current positions. One telling factor, maybe Jeff Bezos’s sale of a large tranche of Amazon stock this week. He could be signaling that he thinks the market is at a top, so he’s cashed in for now. So if that’s what he’s communicating to markets, we’ll have to see if investors really receive that and what they do with those tech shares.

BFM

Okay, can I talk about Nvidia? Because that’s another stock that’s just gone gangbusters, right? It’s up almost 50% on a year to date basis. I’m looking at Bloomberg forward P’s of 60 times. It overtook Alphabet and Amazon. In terms of market cap, are we putting too much money and too much faith into AI?

Tony

I don’t think we’re putting too much faith in AI. I think we need to examine the earnings of those AI companies harder to understand the quality of those earnings. If Nvidia is rallying and other semiconductor companies are not rallying, we have to ask why and look really deeply into their value chain and understand what their sales process looks like. I’m not sure that a lot of these investors have really looked that deeply into what Nvidia actually does, what risks they actually have, what their value chain is like, how they get revenues and so on. It’s just that it’s seen as the picks and shovels for AI, which is great, but we all saw what. Well, maybe we didn’t. I saw what happened with Cisco Systems in the.com bubble in 2000, right. And some people were around for that. The underlying theory there was, well, Cisco has the picks and shovels for the Internet, and that’s great until it’s not, and then it loses a lot of value. So I think Nvidia is in a place where people are so bowled up on it. And my problem, I’m not making any investment recommendations here, but how much benefit is there versus the risk of the valuation?

Tony

I don’t know. That’s something that I try to run every day. I run an artificial intelligence software company and I don’t understand the upside left in Nvideo. You know, but maybe there is. I don’t compete with them at all. So this isn’t a jab at Nvidia. I’m just saying I don’t understand these valuations and I don’t understand where that additional alpha comes from with a company like Nvidia. But maybe I’m just missing it.

BFM

Can we turn our attention to perhaps the oil and gas sector, where we see the US is producing around 13 million barrels of crude per day, which is more than any country on the globe, including Saudi Arabia. How do you think this is affecting the influence of OPEC and Russia in determining supply factors such as price? And where do you see oil price trending over the next quarters or so?

Tony

Yeah, I think with oil prices. I think part of the reason we haven’t seen a geopolitical risk premium with the conflict in the Middle East is because of the supply that the US has put on the market. If the US didn’t have, let’s say we were in 2007 or something, and we had the conflict in the Middle East that we have, we would definitely see a larger geopolitical risk in the crude price. I also think that natural gas is a factor as well. So if we look at Europe, for example, the US provides, I think, more than 40% of the natural gas for Europe, which just two or three years ago it wasn’t anywhere close to that because they were taking Russian nat gas. But nat gas prices are declining and continue to decline because the US has put so much nat gas and so much lng on the market. So those prices are somewhat paired in European and Asian markets. And again, part of it is the geopolitical risk premium isn’t there because of supply the US has put on the market. The other part is the US has flooded the market with Nat gas in Europe. The US provides 21% of LNG to China and so on. So this supply has really helped to keep those prices down.

BFM

Tony, can we just look at the Japanese Yen? It hit high knots against the US Dollar. Well, the weakest against the US Dollar not seen since the 1990s. Nearly ¥151 to the dollar overnight. What’s your outlook on this, especially since the finance minister himself did give a warning that what he’s seeing is undesirable. Does it signal some kind of intervention, maybe?

Tony

Yeah, I mean, they’ve signaled that they’re not happy with this a couple of times over the past, say, quarter or so, but they change policy at the edges. They typically don’t make dramatic policy changes. So what I’d see is maybe a small intervention, but I think they’ll likely just talk about it. And I don’t think they’re necessarily going to fight the US data, CPI or other US data. We have to keep in mind Japan is really sandwiched between a booming US and a really faltering Chinese economy. And so they can’t get too tight on monetary policy because China is such a big trade partner for them and there are so many Japanese companies with manufacturing sites and even headquarters in China. And so they have to be really careful to play between the two.

BFM

The GDP data is coming out later this morning. Any idea what we can expect?

Tony

Yeah, it’ll probably be moderately strong. I don’t think it’s going to be crazy strong. If we look at it in Yen terms, it might look very strong. But if we look at it, say, in Dollar terms, I think it will be maybe moderately strong.

BFM

Tony, thanks as always for the chat. That was Tony Nash, CEO of Complete Intelligence, giving us his take on some of the trends that he sees moving markets in the days and weeks ahead.

This podcast is originally produced and published by BFM 89.9 and can be found at https://www.bfm.my/podcast/morning-run/market-watch/2024-tech-stock-nvidia-amd-ai-equity-us-fed.

With CI Markets Free, our goal is to democratize financial insights. We believe that everyone should have access to powerful forecasting tools, enabling them to make informed decisions that align with their financial goals.

The podcast covers the impact of UK inflation on Wall Street and Asian markets, as well as the expectations for US equity markets. CEO Tony Nash provides insights on the US equity market, expecting incremental growth with volatility, and discusses the potential impact of the Fed’s rate decisions on equity markets. Furthermore, the discussion touches on the performance of companies like Charles Schwab and Verizon, highlighting challenges and anticipated financial results.

The segment also provides an overview of recent market performances and insights into the factors influencing equity markets, including the impact of UK inflation on global markets, expectations for US equity markets, and the financial outlook for specific companies.

Transcript:

BFM

Good morning at on Thursday the 18 January 2024. I’m Shazana Mokhtar with Wong Shou Ning and Keith Kam. In about half an hour we’re going to be discussing the market outlook for anti obesity medication, which has really taken the world by storm over the past couple of years. But as always, we’re going to kick start the morning with how global markets closed overnight.

BFM

Yeah, Wall Street saw its first, its third straight losing session overnight and that was because Europe was also down as UK inflation unexpectedly picked up. The Dow Jones was 0.3% lower, the S&P 500 was down 0.6%. The Nasdaq closed 0.6% lower. Earlier in the day was also quite a red day for Asia. Japan’s Nikkei was down 0.4%, Hong Kong’s Hang Seng was down 3.7%. Shanghai’s composite was down 2.1%. Singapore’s STI was down 1.3% and the FBMKLCI closed 0.2% lower at 1491 points. Like we don’t even remember that Monday was above 1500 anymore.

BFM

Well, it was a red day all across the board. For some insights on where international markets could be heading, we have on the line with us Tony Nash, CEO of Complete Intelligence. Tony, good morning. Thanks for joining us. Now, roughly thirty S&P. Five hundred companies have reported fourth quarter results thus far with 78% beating expectations. Yet the equity market in general hasn’t been reacting as bullishly to those results as one might expect. I think all of the three major indices are down on a year to date basis. Why is that the case?

Tony Nash

Yeah, a big part of it is that, first of all, those expectations are much lower than they were a couple years ago, even last year. So those expectations that they’ve beat are pretty low. But in general, us equity markets are really priced for perfection. So if a company doesn’t come in with the perfect results, valuations are so stretched that investors kind of beat them down. Today in the US, we had retail sales numbers come out and the sales for December were very good, which could potentially build the case for a Fed higher for longer scenario, which goes against the Fed expectations for easing kind of as soon as possible that a lot of investors are really hoping for. So the retail sales numbers are really what it’s kind of good news is bad news in the US right now, because if there is good news for the economy, it means the Fed will not ease or is unlikely to ease. So when we look at valuations in the US, they’re very stretched. When we look at earnings in the US, earnings are below 5% on average. Expect to be below 5% on average, year on year earnings growth, that is.

Tony Nash

But when we look at earnings over the past few years, it’s really mirrored the inflation picture. And we’ve talked about this several times before where when there isn’t underlying inflation, then there isn’t a justification for companies to expand their margins. So if your underlying product, let’s say it’s steel, if steel inflation is say 10%, you as a steel manufacturer or whatever are going to add another couple of percent on top of that. Right? So everybody takes their cut. If we see a static or even deflationary environment, the ability for companies to grow their earnings is really low and it’s just a much more difficult environment for them. So what we’re looking at now, and not many people are willing to talk about this right now, but we’re about to enter a cost cutting cycle for companies because the ability to grow those earnings is really disappearing. So they’re going to have to cut costs to grow earnings.

BFM

Okay. I guess we’re seeing that in terms of the number of jobs eliminated, tech sector, financial sector, but that’s right. Tony, my question is, okay, if we assume that the Fed is really not going to be so aggressive with cutting rates, I think initially people were saying five, six times. I think the number’s been brought down to three and four times for this year. What does this then mean for equity markets? Because it’s likely that the US dollar will continue to remain strong, and we are seeing that now. So doesn’t the money still stay in us equities versus an outflow into emerging markets? Perhaps.

Tony Nash

Yes. So our expectation of Complete Intelligence is for incremental equity valuation growth on the broad index scale, okay, we have individual stock forecasts, but on the broad indices it’s incremental growth with a lot of intramonth volatility. So when we talk about incremental growth, that’s kind of small, positive movements month on month on average. Okay. But intramonth, we’re going to see a lot of up and down. Now with the Fed in terms of their raising interest rates, our sense is that it’s probably not going to happen until May or June. There are some people who are hopefully saying March, but we can’t continue to get readings like we’ve been getting in the macroeconomic data and expect the Fed to cut just because equity markets are pulling back doesn’t mean the Fed will cut. They don’t do that for equity markets. They do that for things like recession. They do that for things like deflation and so on.

BFM

Then again, Tony, we are looking at share prices of stocks linked to AI, like Nvidia and AMD. They are still soaring. Is tech, especially those related to AI, still going to be outperformers this year, no matter what happens politically or economically? And I was wondering how this ties into what you said just now about most companies going through a cost cutting cycle eventually.

Tony Nash

Yeah, I think we have those two opposing forces, right? So one is the corporate drive to improve profit. So that would tell you, hey, they’re probably cutting back on capital spending. The other one is kind of the seemingly endless hype about AI. And so obviously the hype about AI means underlying strength in chips. Okay? If companies are cost cutting, that likely means that individual companies are unlikely to build their own AI and ML machine learning platforms. They’re likely to outsource it to people like Microsoft or Amazon or something like that. So that would mean that those guys like Microsoft and Amazon would be buying more chips to power the AI that companies are going to use. So here in the US, I run an artificial intelligence company, and a lot of companies over the past couple years have tried to build their own artificial intelligence platforms. And that is just crazy because it’s like every company trying to build their own word processing software, right, when you just end up buying Microsoft Word or whatever. So we’re likely to see CTOs and CIOs come back to their senses and say, hey, we can’t build this stuff in house. We need to have someone outside do this.

Tony Nash

Now, when you look at Nvidia and AMD specifically, Nvidia is trading at, I think, 73 times earnings right now. So that means they have to make the current earnings for 73 years to justify their price. AMD is trading at 1423 times earnings, which is just crazy. So that tells me either AMD is going to have an incredible quarter next quarter or next year to recalibrate that valuation, or their share price is really in danger. I don’t actually know. I mean, we have our own forecasts on this stuff, but personally, I don’t know. But it seems to me that the AI hype cycle is maturing. We’re not having the rate of growth and hype that we had last year. That hype cycle is maturing. So are we going to see the rate of rise of individual share prices like we did last year? It’s going to be really hard to do that. So does that mean that we’re going to see a crash in these? It doesn’t necessarily have to be the case. They could just taper off or slow their growth rate.

BFM

Tony, thanks very much for speaking with us. That was Tony Nash, CEO of Complete Intelligence, giving us his take on some of the trends that he sees moving markets in the days and weeks ahead. A lot to look out for, I think, as earnings season continues to unfold. And let’s take a look at that, some of the earnings that have come out overnight, we’re beginning with Charles Schwab. They have reported fourth quarter profit that fell 47% to $1 billion on the back of bigger interest payments on its client deposits and debt, offsetting gains from increased asset management fees.

BFM

Net interest revenue fell 30% to about $2 billion. Charles Schwab, like major banks, are affected by the US Fed’s aggressive rate hikes. The brokerage paid an average of 1.4% on deposits, compared to 0.5% a year earlier. They also borrowed from the federal Home loan bank in the first half of 2023 to supplement its funding sources. And it paid an interest of $423,000,000 on those loans. That was four times higher than the year earlier. So it really, really adds up.

BFM

Okay, so this is the granddaddy of online trading. It emerged way back in the 2000s. But their CEO is basically saying they’ve never seen such difficult times. I think for them, it’s a confluence of factors. They, of course, were hit by the higher interest rates, so they had to pay much more for their deposits. Brokerage also came down as a result. New assets fell as much as 48%. So, basically, I think, tough times ahead for this company. And if you look at just the analysts, what are their recommendations for this stock? The current, they’re just, well, still. Okay, 19 buys five holes, two sells. Consensus target price for this stock, $74 at $0.65 during regular market hours. At one time, it was down 7%, but it did close just down eighty six cents to sixty three us dollars and forty five cents. But after this very negative earnings call, I won’t be surprised if many analysts go out and cut their numbers.

BFM

Well, speaking of negative earnings call, we’re not expecting Verizon’s fourth quarter results until next week, January 23. But perhaps they’re starting to manage expectations by issuing this statement that it will take a 6 billion US dollar write down in the fourth quarter as it reduces the value of its declining wireline business, which includes legacy voice and data services.

BFM

And this segment has been under particular pressure from strong competition, an uncertain economy and a broader shift to wireless services. The company cut its financial projections for its business unit, which caters to businesses and government clients after a five year review, and those account for more than a fifth of the company’s revenue.

BFM

Not very hot on Wall Street, 14 buys, 15 holes, four sells. Consensus target price for this job? $41.65. Current share price, $38.87. But, guys, this is fourth quarter, so I can imagine a lot of corporates doing as much kitchen sinking as possible and releasing as bad results as possible. It’s all about managing expectations. And then they can say, look, 2023 bad. Okay, never mind. We move on. Everyone just look to 2024.

BFM

All right? We’ll see what comes out of their earnings results next week. 718 in the morning, we’re going to head into some messages, but we’ll come back to cover more of the top stories in the newspapers and portals today. Stay tuned. BFM 89.9.