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Financial Insights: Deciphering the Fed, Market Reactions, and Global Implications

This podcast was first and originally published by Peter Lewis’ Money Talk. Find the Substack here:

https://peterlewismoneytalk.substack.com/p/peter-lewis-money-talk-friday-22-6c2

Topics discussed:

  • Federal Reserve Chair Jerome Powell’s perceived dovish stance is critiqued for potentially leading to increased inflation and discontent among voters.
  • Market reactions to the Federal Reserve meeting were positive, resulting in a broad rally across various asset classes.
  • Concerns are expressed about the impact of new legislation in Hong Kong, particularly on foreign investors and the perceived shift towards authoritarianism.
  • The potential implications of stricter laws on data privacy and state secrets in Hong Kong are discussed, raising concerns about its impact on the region’s business environment.

Transcript

Peter Lewis

Tony, what are your thoughts? I mean, it’s interesting, isn’t it, because he’s raised the inflation forecast. He’s raised his growth forecast quite considerably, but no change to the number of rate cuts this year, although we did get one taken off for next year, didn’t we? There was going to be four next year. Now they’re only talking about three year. So I suppose one of the rate cuts has come out for next year. But what are your thoughts?

Tony Nash

I think it’s silly, Peter. We can’t be raising our economic expectations, seeing wages rise, seeing prices rise, raising our inflation expectations and saying, oh, yeah, we’re going to make money easier. Right. And he even said during the meeting that they were going to slow the pace of the offtake from the fed balance sheet. They’re cultivating an environment for pretty easy money where demand seems to be right now. And that’s how markets took it. Markets took it after the meeting and they just ran with it because he came across as very dovish. In fact, Powell has a way of coming across either way too hawkish or way too dovish. And then other Fed speakers have to course correct in the following days. So I think he probably came off way too dovish. And I think we’re going to see fed speakers over the next week. Correct. More on the hawkish side to say, whoa, that’s not really what we meant. And I really think that that’s what’s going to happen is they’ll make the three interest rate cuts seem more questionable than they are. Although the vote was unanimous, we did see a slightly more hawkish trend in the dots.

Tony Nash

Not a lot, but slightly more hawkish.

Peter Lewis

And what was also interesting was out of the 19 FOMC members, nine of them, so a minority, but a substantial minority, actually think the Fed is going to cut less than three times this year. So I think that’s maybe Jerome Powell is sort of out on a bit of a limb there, isn’t he?

Tony Nash

Yeah, I think you’re right. I do think that he does over calibrate either hawkish or dovish, depending on the direction, and I think he’s trying to signal the direction, but I think he always overdoes it just a little bit. He doesn’t have an easy job. Everyone reads everything into the way he holds his papers, the way he clears his throat or whatever. Right. I mean, everything is overly analyzed with him. But again, we have seen this where he comes out and he’s overly one way or the other. And I think, yeah, seeing those nine voters say hey, we’re not going to have three this year. I think as we’ve been talking about, my team has been talking about a resurgence in inflation for over a year, and we’ve seen it over the past couple of months, and we’re going to see that accelerate. They try to present Jan, Feb as just an aberration, but it’s not. And so it’s going to accelerate. Their expectations are going to be probably even exceeded. And it’s very difficult to have an interest rate cutting environment when you have inflation rising because it’s an election year.

Tony Nash

And consumers love, and voters love to complain justifiably about prices and prices keep rising. What did we see after the Fed meeting? We saw commodity prices soar. A lot of commodity prices soared after the Fed meeting, and that’s going to hit consumers within two. You know, this very unnecessarily dovish talk out of Powell has resulted in inflation definitely being locked in for at least two months.

Peter Lewis

Tony, I’m wondering what you think about this. Is the Fed taking a risk here? Because they basically seem to be saying the economy can run faster without generating significant overheating pressures and they’re willing to cut even while they’re still away from their target.

Tony Nash

Well, this is very similar to like a 2020 2021 argument when things were actually doing okay in the middle of COVID at least in the US, and people kept saying, hey, let it run hot. Let it run hot. Right. And it seems like we’re replaying that again, where, although people may not be using those words, the subtext is let it run hot. And I think the problem is, as Andrew was talking about GDP, the quality of that GDP is not great. It’s overwhelmingly government spending in terms of the growth areas. Okay, so we’re not having private sector growth as a contribution of GDP in the US. We’re having government spending as a growth area in GDP. And so what we’re seeing is heavy fiscal and we’re seeing dovish monetary. And so that’s great, but it just means that we’re going to see more inflation. Inflation is going to come back. Well, it already has, but it’s going to continue to accelerate. If this is the world that policymakers are comfortable with and if this is the world that policymakers are comfortable with, it makes us voters very unhappy because their pay rises are not keeping up with inflation.

Tony Nash

Now, what’s interesting, public sector pay rises are something like twice the size of private sector pay rises. So public sector wages are keeping up with inflation, but private sector wages aren’t and so this is the problem with an election year. American voters are really tired of it and inflation comes up in almost every discussion I have.

Peter Lewis


And I wonder what American voters also think about what he said about labor supply. He sort of mentioned the strength of the data on labor supply, but then he pointed to the strong pace of immigration as helping on that front. That’s rather a hot political topic to.

Tony Nash

It’s a lightning rod, and it’s not a very positive discussion in most parts of the US, even in very heavily democratic parts of the US, which favor inflation in state Massachusetts, New York, it is just a sour topic for people and it’s a very sensitive topic. So when the Fed chair gets up and says immigration is helping the labor market, it makes Americans very uncomfortable and it makes them not really like him.

Peter Lewis

Tony, what do you make of the market reaction to this? Jerome Powell didn’t talk down the rally at all, did he? In his press conference in either stocks or risk assets. He didn’t even acknowledge that this is easing financial conditions and maybe making their job a bit harder.

Tony Nash

He did not. And I think he turned it from a tech rally to an everything rally. If you look across markets at the close in the US today, and as you mentioned at the top of the program with Hong Kong was coming on strong this morning, international markets coming on strong this morning. I think with this, I think overly dovish Fed meeting, he turned the rally from a tech rally to an everything rally.

Peter Lewis

Do you think this is going to continue?

Tony Nash

It’s possible. I think we have to see how things go into the end of the week. If things stay strong into the end of the week, then look out. But I think if we start to see things stall out Thursday and Friday in the US, then we could see things settle back to the levels we had seen a few days ago.

Peter Lewis

Tony, if you look at the reaction of the yen to this, clearly the currency traders don’t think that this is the start of a sustained period of rate increases in Japan. And there’s still going to be that wide yield differential between US rates and Japanese rates.

Tony Nash

Yeah, it wasn’t a big statement. ET seems to be very conservative. He doesn’t want to be seen as shaking things up at the BOJ. He almost acts like a caretaker. And so I think currency traders expected something a little bit more. They want a little bit more in the end, want a little bit more. In terms of markets being slightly tighter, he’s not a big bold move maker and this just wasn’t it. So to see the end continue to weaken on this was just really interesting for me to watch this.

Peter Lewis

Okay. Okay, Tony, what are your thoughts? You’re obviously looking at this from overseas. As Andrew says, it’s no surprise it passed, and it passed with unanimous vote in ledge coat. But now that it has passed, and foreign investors are going to have a chance to scrutinize it and see the impact of it, is there anything to worry them?

Tony Nash

Oh, sure there is. I think the law allows trials without a jury. It allows trials behind closed doors. It allows handpicked judges. So anybody forming a company, anybody who’s a board member, anybody who’s an officer in a company, in a jurisdiction like Hong Kong, you have to worry. Why don’t you have a lot of international companies centered in Beijing because of laws like this, right? So Hong Kong, which 1020 years ago, 30 years ago, was the place to have a company because it was the most business friendly city in the world. Today it’s not that way. And if you’re an officer or director in a company, it’s got to be a little know, give you second. You know, one of the attractors for Hong Kong for a few decades has been media. There is great media in Hong Kong, but it’s no longer a media center, it’s no longer an arts center. And the sad part about that is a lot of that stuff is moving, or has moved to Singapore, which is a pretty strong state in terms of control of messages. So people are so worried about the impact of this new law on Hong Kong that they’re moving to Singapore and seeing it as a freer place than Hong Kong, completely 180 degrees from the way things were ten years ago?

Peter Lewis

John Lee and the government will say, what this Article 23 legislation does is it brings stability to Hong Kong. So will foreign investors look at that and say, yes, Hong Kong is more stable as a result of that, and that’s a positive.

Tony Nash

No, it brings opacity and it brings authoritarianism, in truth. And authoritarianism generally is stable until it. And so, you know, Singapore is an authoritarian place and it’s stable. It’s marginally freer than Hong Kong now, I guess. But no, authoritarianism doesn’t bring stability necessarily, or the stability it does bring is short lived. And again, Hong Kong was very vibrant, very creative, very interesting business hub. And I don’t think it’s totally gone, but I think the risks to officers, investors, board members and so on are much, much higher than they were before.

Peter Lewis

Tony, you are a financial analyst. If you were based in Hong Kong, would you be worried about this state secrets legislation or this state street secrets article that includes economic information, technological information on Hong Kong?

Tony Nash

Yeah, absolutely. So I used to be with a company called IHS, and it’s since been bought by S and P. But twelve or 15 years ago, there was an IHS analyst who lived in China who had some information on crude output or something like that, crude storage. And this person, from what I understand, got it from an industry association or something because they used it in a business environment. The chinese authorities prosecuted him and put him in jail for a long, long time. And at the time, I was working with the economist, but we were shocked at what was happening, because you used to be able to do research, find information, and if you could find information, you could use it to your advantage. And part of using things to your advantage is to trade on it. Right. And so if Hong Kong is to remain a vibrant financial center and a vibrant trading hub, you have to be able to dig for information. But if the Chinese authorities are going to prosecute people for finding information, then Hong Kong as a competitive center is no more. It just isn’t.

Peter Lewis

I mean, that’s what some people are worried about is that Hong Kong is becoming more like mainland China in terms of things like data privacy, state secrets, and what constitutes state secrets?

Tony Nash


Well, there are huge data centers in Hong Kong, right? I mean, there have been for 30 years. And so those data centers, I don’t know, a lot of foreign companies that people have their servers outside of China for a reason, and they have their data stored outside of China for a reason. These new laws allow the government to look into whatever they. So, you know, that stuff that has remained in Hong Kong, I’m sure at some point will move elsewhere if it’s remotely confidential.

Peter Lewis


Okay, well, thank you very much for your thoughts this morning. Great to hear you. That’s Tony Nash over in Texas, USA, who is the founder of Complete Intelligence.

Categories
Podcasts

BBC: Hong Kong’s Lawmakers Pass Tough Security Bill

This podcast is originally published by BBC Business Matters in this link with title “Hong Kong’s lawmakers pass tough security bill”: https://www.bbc.co.uk/programmes/w172yzs33f96cxs.

BBC’s Description:

The new law broadens the definition of state secrets in a way that could scare away investors. Will the city be able to maintain its place as a top financial hub?

The British band Chumbawamba is trying to prevent its biggest hit from being used by a politician in New Zealand. The lead singer tells us why.

And Star Wars creator George Lucas steps into the boardroom power battle at Disney to support the firm’s CEO, Bob Iger. Will the Force be with him?

Transcript

BBC


The new law also broadens the definition of state secrets to include information about the economic, technological and scientific development of Hong Kong or mainland China. And this has caused concerns among investors. Tony Nash is the CEO of AI forecasting platform complete intelligence. He also ran the Economist’s research business and their Asia headquarters in Hong Kong.

Tony Nash

Do I think first, we’ve seen legal agreements move to other jurisdictions, so that’s an easy thing to do. They can write it with UK law or something like that. We’ve also seen financial services staff and multinational staff move to other locations, like Singapore. I lived in Singapore for 15 years, and it’s a great place, but Hong Kong always had a very special buz. It had a level of hard work, creativity, intelligence. That Singapore, although it’s a really great pace, it didn’t have that special buz that Hong Kong had. So this stuff has people moving, it has business moving, and sadly, that specialness of Hong Kong is going with it.

BBC

Do you think there might be some businesses that might stick around in Hong Kong, or do you think that the rules are just too much for them?

Tony Nash

Sure, Hong Kong’s not dead. Companies still need people to do work in Hong Kong, but I think the decision makers and the people who are, say, the regional heads or the sea levels or the board members, those people will want to be in other places because of the potential liability that they have. Traders can trade on all kinds of information, and so if something is deemed a state secret and a trader uses some information that they’ve heard, there could be criminal prosecution for that. And so this was never a part of Hong Kong. Of course, things like insider trading are illegal, but I’ve been in the research business for a long time, and there’s a company called IHS that probably ten to twelve years ago had one of their researchers in China put in jail for getting some information that was relatively easy to get. It wasn’t hidden, but it was later deemed a state secret, and that person was put in was.

BBC

Sorry to interrupt you, Tony, but that uncertainty is just going to make it very difficult to do any business out there.

Tony Nash


That’s right, it is. And especially if decisions are made after the fact. Right. So this person had this information, it was deemed a state secret after this person had it, and that person went to jail for a long time. So these are the difficulties that executives and business leaders and researchers and media people face as and if they stay in Hong Kong.

Categories
Week Ahead

What happened in China?; Why did silver rally?; Fed & QRA

#China #Geopolitics #Silver

 

 

 

 

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Welcome to the latest episode of “The Week Ahead” with your host, Tony Nash! We’ve assembled a stellar lineup.

 

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Transcript

[00:00:22.090] – Tony Nash

Hi, everyone, and welcome to the week ahead. I’m Tony Nash. Today we’re joined by Albert Marco, Vince Lancey and Blake Morrow. We’ve got a few key themes. The first one, when I went out to ask about this show, the first response I got back from Twitter was, what the hell happened in China this week? So that’s the first thing we’re going to cover. The second is, why was silver rallying? This week we’re going to talk to Vince about silver and gold. And then with Blake, we’ll talk about the Fed and the QRA. CI Markets has been recognized as one of the top stock forecasting tools for 2024 by Techopedia, a leading tech authority. Why? Because it predicts future price movements with a 94.7% accuracy rate. It covers over 1600 assets with weekly re forecasts of stocks, etfs, currencies, commodities and major equity indices. It has an easy to use interface optimized for web and mobile, and pricing plans to fit your needs, including a free option. Stop playing guessing games with your investments. Take control of your portfolio with CI markets. Learn more about CI Markets today@completeintel.com. Slash markets let’s get right into it, Albert.

 

[00:01:33.830] – Tony Nash

We’re playing kind of the where’s Albert this week. So I like your background. That looks really good, and I think you’re a great guy to answer the question, what the hell happened in China this week? So we had a pretty big turnaround in China in the equity markets. We’ve got a chart for Shanghai Composite on the screen. Of course, the Hong Seng did even better than the Shanghai composite. The central government just talked about putting a few hundred billion dollars into the markets. They didn’t actually do it. They greenlit corporate share buybacks to prop up markets. They reduced the Triple R, the reserve requirements so banks can push more cash out into the economy. And of course, we saw that pretty dramatic turnaround in equity markets. So all of this got markets back to where they were about two weeks ago. CNY gained a little bit. It’s off. Blake, maybe you can talk through some of those dynamics. But the question is this, what does this all mean? What did they do? Right, Albert, and what do you think they should have done that they didn’t do?

 

[00:02:38.850] – Albert Marko

What they should have done is a different animal altogether. But what was happening was the narrative was just becoming overwhelming for the chinese economy of systemic collapse of the chinese system from top to bottom. And they had to step in and guarantee, I know that they haven’t done it yet, but close to $300 billion is probably going to be levered up to five to ten times that to prop up the economy. And their entire gambit was to just change the narrative. They didn’t want those headlines that China was collapsing. They’re going to have to step in, for sure. They’re going to step in. There’s no question about that. And it was all to prop up the Hong Kong markets, really. They don’t really care about Shanghai, the mainland or whatnot. But this was specifically to prop up.

 

[00:03:30.310] – Tony Nash

The, you know, we’ve seen all these over the past probably six months. We’ve seen all these year on year comparisons. X is up triple digits in China for trade or double digits or whatever, year on year. And everyone knows the year before things were closed and these year on year things in China haven’t really matter all that much because they were closed for a year and a half or whatever. So I think what I’m seeing in things like global trade, the trade numbers actually don’t look bad, but things in China, we’re seeing deflation, we’re seeing really a lot of bad news. Politically, things are kind of sketchy. They’ve had two of their central committee members just kind of disappear over the last six months. So can money injected. I’m saying that diplomatically, Vince, can money being injected into markets solve that uncertainty? Or is this just kind of a first step? Like, have they just started and there’s a long term plan? Because we’ve been hearing about chinese stimulus for three years now and this is really the first. Aside from some kind of stupid rail investment or whatever, this is really the first tranche of cash that we’ve seen.

 

[00:04:43.210] – Albert Marko

Well, I mean, politically, G is taking advantage of the situation right now, getting rid of his opposition party members that are causing him issues or potentially going to cause him issues. I mean, that’s what anyone really in leadership would do to take advantage in this type of scenario. Yellen has her foot on their throats at the moment and she’s been hitting the sell button on China and keeping the dollar elevated. And rates being up close to 6% is almost the abyss for the chinese market. So they’re definitely playing the defensive. They’re trying to prop up the CNY, they’re trying to prop up the economy. Is it enough? No, absolutely it’s not enough. They’re absolutely going to have to keep going on for the next four to five years. This is not going to be a one year pop and it’s going to fix everything. This is going to be five years down the road of them doing multiple, staggered steps of stimulus to get the economy back in order.

 

[00:05:44.320] – Tony Nash

Yeah. I mean, if we want to make an analogy to the US, imagine if the secretary of state just literally disappeared five months ago. And imagine if the defense secretary just literally disappeared, right? And all of a sudden there’s some new junior person in their place. Right? and so the political uncertainty in China is huge. We saw massive shifts in chinese money into japanese and us etfs over the past two weeks. Right, and so the chinese investment itself is not showing support for the chinese markets. I was in China in June of 2015 when markets fell apart. And at that point, chinese mainlanders were encouraged by the government to put their money back in markets. They did it based on faith in the CCP. I don’t see that happening this time.

 

[00:06:35.390] – Albert Marko

No. And the outflows from China have propped up the bond market and the US equities. I mean, it’s been just absolutely staggering of how much money has left Asia and even Europe and flowed into the United States. And this was all calculated by Janet Yellen. I mean, she knows what she’s doing. She’s been the Fed chair. She’s got her fingers on all the buttons at the treasury. They know that if China starts taking off inflation, it’s going to be another problem right now. And I’m sure our guests will talk about silver and commodities, because that’s a big key part of it. If China is firing on all cylinders, commodities are going to skyrocket again. Lithium. Copper.

 

[00:07:14.330] – Blake Morrow 

Albert, I want to jump in here just because talking about commodities for the markets that I follow, especially like the australian dollar. Copper. Unresponsive to all the actions for us traders in the currency space and the commodity space, we look at it as like a shotgun approach. Yeah, maybe this might have been more of a bigger slug, I guess, that came out of this shotgun shot. But still, you can see the muted response that we’re getting in commodities and currencies. And I think you guys draw a really strong correlation, which should definitely be noted, between the Nike, the market’s definitely shunning China in favor of the Warren Buffett, Berkshire Hathaway trade of Japan, even Germany, and a lot of european equities. And us equities, they’re all beneficiaries. But then again, if we do see China turn the corner a little bit, which I think it’s too early to tell, maybe that takes a little bit of the air out of some of the other markets around the globe.

 

[00:08:26.610] – Tony Nash

Can you talk to us a little bit about CNY dynamics, it really hasn’t moved much.

 

[00:08:31.360] – Blake Morrow 

No, it hasn’t. I don’t focus on the CNY as much as my european counterparts do because my colleagues that traded. Because as a us based trader, it’s prohibited for a lot of brokers to be involved. But it’s a lever that China uses and one of the other things that if they want to really kind of kickstart their economy a little bit, they’ll weaken the CNH a little bit more. But we are up at dire levels because as Albert pointed out, this is more of a confidence, I think, topic. So if you start to see the CNH really come under pressure because the PBOC pulls that lever, next thing you know, yeah, it might help the chinese economy a little bit, but to what extent does it hurt sentiment, equities and sentiment in general? I mean, there has not been a time, I can’t really recall a time that I’ve seen a singular market so just shunned upon right now. Like you are seeing in China, right?

 

[00:09:44.590] – Tony Nash

Yep.

 

[00:09:46.250] – Vince Lanci 

Can I go ahead?

 

[00:09:47.560] – Blake Morrow 

Yeah.

 

[00:09:48.990] – Vince Lanci 

The two statements, blake’s comment about the muted effect on commodities as well as the emerging market. Currencies, commodity currencies, and the comment about them being too safe. I guess what I’m trying to say is in the past when they changed the reserve requirements, I had seen commodity currencies and commodities do better than chinese stocks. It’s one data point, but this time chinese stocks, as low as they are, responded very appropriately. I’m wondering if the whole lack of buying of commodities compared to stocks this time is not a comment on China saying what China’s leadership saying. We need people to buy stocks and stop buying pet rocks like gold. So anyway, I think the lack of confidence in China’s economy has been one of the reasons they’ve been buying gold at the retail level anyway, or at the individual level, and they need to change that or they’re going to have a deflationary crisis. And I just think both those things are.

 

[00:11:04.790] – Tony Nash

Those are all great points. I think the Hong Shang was up between four and 5% this week. It’s still down like 20% over the last six months. Shanghai composite was up two point something this week. So we’ve seen a turnaround, but we haven’t seen a dramatic turnaround. Right. We haven’t seen a 15%. It’s not as if they’ve kind of backed up the truck, put in trillions of dollars. I think they’re being very careful fiscally because they do have to balance a huge amount of government debt that China has and, well, they can, but they’re very careful not to print right away. But my worry is, and if we look at the, you know, they’ve made arrr move, is that beginning, middle, end? Where do you guys think we are on that?

 

[00:11:59.190] – Albert Marko

Well, I mean, going back to what Blake said, we are only in stage one of a long game here of what China has to do to get back on track. It’s going to be years on down the road until anything meaningful really happens with the chinese economy. Of course, we’re going to get stock market pops up and down because that’s just the nature of the stock market globally at the moment. I mean, normally you would see, like Vincent said, commodities would just rip on any kind of chinese news, but that’s just not the case anymore. So, I mean, it’s going to be a nuanced approach from this point on.

 

[00:12:32.210] – Vince Lanci 

Maybe if we stop buying chinese made laundry furniture, I mean patio furniture, they’ll stop buying commodities to make them. Maybe that’s what’s going on, right?

 

[00:12:42.210] – Tony Nash

Could be. I think it’s really interesting this week we’ve seen so many Asia equity analysts say, hey, China is a huge value right now. You need to get in and nobody’s buying it. I don’t know if anybody’s buying it, but I don’t see.

 

[00:12:54.580] – Albert Marko

No, there are, Tony, there are big funds buying it clandestinely at the moment they’re starting to get in because honestly, if you look at a systemic collapse of China, they’re not going to let that happen. The US nor China will allow that to happen. So at some point it’s a decent play, long term to get into China. Long term. Long term. I’m not saying next six months, but next two, three, four years. Absolutely. You would be wise to put a position on.

 

[00:13:23.070] – Tony Nash

Yeah, my biggest worry here has been that $278,000,000,000. The market looks at it and shrugs. And that’s kind of what we’ve seen. Right. And the problem with filling holes in markets is that if you don’t put enough in, they just get bigger and bigger and bigger and hungrier and hungrier. So is there a danger of that, of we open next week and markets just kind of yawn at the $278,000,000,000 and all of a sudden China has to scurry to put out a bigger number sooner?

 

[00:13:52.410] – Albert Marko

Well, I think we have to wait until the actual mechanism of what China is going to use to do that. I know they’re going to be using offshore funds and accounts and lever it up. So we really have to wait until the data comes out because I assure you it’s not going to be just 278,000,000,000. It’ll probably in the trillion, over the trillion range.

 

[00:14:10.930] – Blake Morrow 

I also read, and correct me if I’m wrong, if you heard something different, that there’s a lot of calls being made to institutional, chinese institutional clients that stop shorting the market. Only be on the long side kind of throwing those warnings out, which is I find really interesting. But the sentiment is interesting. I’ve always found it my quarter century of trading the markets, a very interesting dynamic in the markets because sentiment, you could almost use the analogy, it’s like inflation. It’s that genie that you can’t get back in the bottle sentiment. When it’s sour, it’s sour. It takes a lot to turn. And you could look at the polar opposite of the US economy right now and the optimism that people feel and regulators understand what that is. And I think Xi has a very good understanding of that sentiment and why he’s trying to turn it.

 

[00:15:10.050] – Tony Nash

Great, okay.

 

[00:15:11.250] – Tony Nash

Hey, I’d like to make sure you know that you can access our AI driven market forecasting tool called CI markets for free, no strings attached, and it does not require any credit card information. Go to completeintel.com slash markets to subscribe. CI Markets is the perfect addition to your analysis toolbox. This free account includes Nikki stocks, major currency pairs and global economics. Of course, we offer much more in our paid account, but this lets you experience CIA markets before making a financial commitment. CIA Markets uses the power of AI to help you make better trading investment decisions. It’s absolutely free. Again. Go to completeintel.com slash markets to subscribe to. CI Markets free. Let’s move on to precious metals. Vince, you put out a piece earlier this week on silver. Okay. On Tuesday you’re talking about why you bought silver this week. I know it’s retreated as we’ve headed into the end of the week, but I’ve got a gold silver chart on screen. A lot of this has to do with China, which is really interesting to me. Can you talk us through why you got in, what levels you looked for and what are you looking for going forward?

 

[00:16:19.050] – Vince Lanci 

Sure, I’m happy to do that. First of all, it’s a short term trade. It’s not a macro trade. It was more like a win for one day, win for a week and then just keep running with it. If it continues to win. It stopped winning yesterday as far as I was concerned. But we’ll get to that. The thing with silver and gold is they’ve completely diverged in the public eye. Looking at the china demand for gold, looking at the BriCs demand for gold, looking at using gold as an alternative to the treasury or maybe a little bit of a hedge for the treasury as a reserve asset, that increase, well that’s kind of left silver in the dust. That’s the first leg, right? Silver is not precious enough and it takes a lot more space to store it if you are having to deal with something like that. And so that’s one leg that gets kicked out on silver and this is all going to lead to why I bought it actually. And the second leg that gets kicked out on silver is very flow oriented. The last 1015 years of behavior in precious metals have been silver isn’t good for anything.

 

[00:17:32.590] – Vince Lanci 

As a silver bug I have to see what the enemy says. But the reality of it is if you’re pitching an investment or a trade, if you’re saying risk off, you buy gold. If you’re looking at metals, right? If you say risk on, you buy copper because it’s an economic metal, right. And this is manifested out of China as well. For years, every time they throw a little stimulus out there, it’s like buy steel, buy iron by copper, and then eventually you buy silver. So that’s the pecking order in precious metals on the economic side.

 

[00:18:07.690] – Tony Nash

Never heard it put that way. That’s great, thank you for that. I’ve never heard it put that way.

 

[00:18:12.350] – Vince Lanci 

Cool, thank you. So that’s how I used to trade it because I would. Whatever, oh, copper’s up. I’ll buy silver if it’s during Asia. If copper was up during the US, I would sell silver. It’s like a time trade, but bringing it back to why I actually bought silver, the commodity trading advisors, the CTAs, they tend to move in groups like a herd, and they frequently lose money on short term moves. And when they make money, it’s on big term move, long term moves. I would call them momentum. Most of them are momentum traders and they sell weakness and they buy strength. And right about the time people started talking about recession, your commodity trading advisors in the US started putting their clients into shorting oil, shorting silver, shorting copper and shorting aluminum. Those that did trade aluminum, and they do that. It’s kind of interesting because it’s so facile, but it works. Instead of selling their stocks, they hedge the economic exposure by selling commodities. And oil trended lower. They made money, silver trended lower. Despite gold’s strength coming out of China, silver was constantly beat upon and copper trended lower despite calls for a super cycle and what have you, which will come eventually, just not when we’re looking at it.

 

[00:19:41.310] – Vince Lanci 

So when the markets get thin or when there’s not a lot going on, now you have a big cohort of shorts and silver and oil. I’ll put silver, oil and gold in this triangle here, right? So everyone at the CTA level, whether it be small managed money or medium sized managed money, is looking at gold having been shorted twice and gotten killed in a little bit of a shortcoming rally when the Ukraine war started and then getting killed when the Hamas Israel war started. They’re staying away from it, or they’re long. That’s their hedge. Right. Meanwhile, they’re, you know, silver, I think I’ll short that. So they’ll short that as well, economically. And when there’s nothing going on and people start talking about the Fed easing, where the Fed cuts, stocks go up and silver stops going down, oil stops going down, copper stops going down, and then one day you just see all those commodities have like a little bit of a v shaped bottom. Oil, silver. Well, oil wasn’t v shaped. Oil, silver, and the grains. Gold is nowhere, right? And they start to move up. And at that moment, I know from historical perspective and from analysis that I look at that the CTAs, which are the first to move, right, they’re the first to move.

 

[00:21:06.820] – Vince Lanci 

They’re buying silver, they’re buying oil, they’re buying copper, they’re buying grains, and they’re probably selling gold, posing the whole thing out. And for three days, that worked out very nicely. And then the market paused today. So that’s why I bought it. Right? That’s why I bought. I thought, okay, maybe the Fed’s going to ease. I’m long stocks, I’ll buy silver. I kind of the opposite of what they do. And it worked for a couple of days, and then it just kind of flatlined on the flows that I saw. And I said, okay, ctas have covered, but they don’t have any money to put into it. And we talk about markets that climb walls of worry. Gold is up, stocks up over the last three years, and there’s just no, so much money on the sidelines in stocks, and yet stocks are up. And when you look at gold, it’s like, well, the macro investor speculators, they don’t even care about gold anymore, and yet gold is up. There’s such a lack of participation in silver on the american side, except for all the lunatics that think silver is going to go to the moon tomorrow, which they’re friends of mine, so I’m going to defend them, and I’m probably one of them, but I try and keep a lid on it for times like this. Nobody buys silver on the follow through. So I got out of my lungs today and I actually shorted a little bit of gold because I think China is going to get filled on their buying underneath.

 

[00:22:34.410] – Vince Lanci 

So that’s it. I think in the short term it could continue to go higher, but it won’t be because of what I saw. I wouldn’t know what drives it higher in the longer term, I think if stocks drop, silver gets hit more. If stocks drop, gold gets hit. If stocks drop, oil should get hit. But oil is its own animal right now. It seems it’s got its own thing going on. So longer term, I’m very constructive on silver, but that was a trade that just came and went.

 

[00:23:04.650] – Tony Nash

We’re just looking for the catalyst. Right, I’m sorry, catalyst. We’re looking for the long term catalyst. So, Vince, you sent me a Goldman chart. Can you walk us through this? You’ve already covered some of this, but can you walk us through this Goldman chart? And then can you walk us through what some of the catalysts might be? And I’m also curious, what happens if we don’t see a rate cut in March?

 

[00:23:27.970] – Vince Lanci 

Yeah. Okay. The chart that you’re putting up there, I think it’s basically a graphic depiction of what I described, and it confirmed what I had thought. The chart describes several things, but it’s basically a year of performance. And the dark blue part of the body, forget the wicks above and wicks below. I forget what they’re called. But the dark blue body represents how long, if you go up on the chart and how short investors get in these assets. And if you look on the left, you see oil there. And what we’re focused on for this conversation is this green star. The green star shows you that, generally speaking, of all the money that investors, that CTA investors, these are small and medium sized at best. This is a sentiment indicator. Actually, when you think about what Blake was talking about, this is a sentiment indicator. The oil people had been extremely bearish and short out the wazoo. Conversely, if you go to the right side of the chart, you’ll see that they’re also long gold, and that’s because of the war. What have you, SVB, bank or whatever the reason. And then you look at silver and you say, look at silver.

 

[00:24:47.030] – Vince Lanci 

Silver on the far right is they’re extremely short based on how that star is positioned. And silver is behaving in the minds of the normal person. Silver is like copper. It’s behaving like copper.

 

[00:25:01.020] – Tony Nash

When they diverge like that, how long do they usually diverge like that?

 

[00:25:05.490] – Vince Lanci 

Gold and, oh, they can diverge like that for months. And that’ll happen when the market is dominated by fed behavior, right? So if we’re just talking about domestic politics and rates and fed stuff and everything is fine in neo keynesian world, well then you’re going to see buy gold, sell silver, buy gold, sell silver, and they won’t even buy that much gold. They’ll just happily sell silver because every time they’re buying stock, they’re raising capital using something else. But when there’s a global geopolitical problem, doesn’t have to be a war. You had like Brexit was an example of one, Brexit was another one more recently. The guilt when they had the problem there with that mini budget. I forget what the actual. But anyway, what ended up happening there was, what ends up happening is everyone’s long gold and short silver and they’re just happy. And then one day they wake up and silver is $0.50 higher and they say, oh, maybe we should cover that. And so then they cover it. And so basically when the market is focused on american economics, that will stay stretched for a long period of time. But when an event happens, like the Ukraine war, for example, they all bought gold and they all sold silver at that moment.

 

[00:26:28.830] – Vince Lanci 

And then a month later, gold kept going up, so they ended up buying silver. So those are your interesting domestic versus geopolitical, that’s what changes the don’t.

 

[00:26:38.450] – Blake Morrow 

I don’t have a mean, aside from being, I come from the camp, I don’t like shorting precious metals. I like to own precious metals like physical, right? I try not to trade them on the short side. If I’m going to trade them, I like to be on the long side. But why? Just because I have my technical views and I actually think silver is going lower. Just throwing that out there.

 

[00:27:03.900] – Blake Morrow 

I know I might be both, but why did silver outpace gold so excessively during the COVID lockdowns?

 

[00:27:17.390] – Vince Lanci 

Yeah, well, during the COVID lockdowns, that was a special situation. The situation.

 

[00:27:26.380] – Blake Morrow 

You can say that again.

 

[00:27:27.860] – Vince Lanci 

No, but actually it’s directly Covid related. I mean, you’re basically right. This is kind of bizarre. And as a physical person, I think you’d appreciate this. There was an artificial problem, and it manifested more in silver than in gold. Then here’s what happened. It’s actually nice little story. The late George Giro and I were talking about this during COVID A lot of the flows in the US are, if you want to buy metal on the Comex, let’s say you’re going to take delivery on the Comex, right? If you’re going to take delivery on the Comex, what really happens is you buy it on the Comex, the bullion bank does an ARB, an EFPR, right? And they buy it on the Comex, and they end up taking delivery in London. They send it to a refiner to change it to Comex specs, and boom, it comes over here. If you’re the US mint, that’s what you’re doing. You have to buy domestic, so you buy Comex, and the bullion banks are just like they’re doing their arb, their little EFP, and then the London bullion market gives them the metal, they refine it there, and then it comes back here.

 

[00:28:26.870] – Vince Lanci 

I don’t know, it’s blanks or whatever, even Spider man coins, who the heck knows, right? But that’s what happens during COVID and it happened for both sides, meaning gold as well as silver during COVID And I actually watched this like I actually had it on a map of it. Most of the refiners, most of the, there’s other words, smelters or what have you, they’re in northern Italy, in Switzerland. And so during that timeframe, in the Lombardi region of Italy, Lombardi was hit ridiculously hard during COVID They shut them down. You know what it was? It was regulatory arbitrage. You can see this, right? So you had these specs, I’ll use the gold one because it’s easier to understand. The gold bar in London is 300oz. The gold bar in the US is 100oz. They were not fungible, you couldn’t take. So during that time, you take the 300 ounce bar, you take it over to northern Italy, you have it broken into 3100 ounce bars, and you send it over. They were all shut. So, for a very short time frame, and you’re a trader, so you’re going to appreciate this for a very short time frame.

 

[00:29:39.170] – Vince Lanci 

In the US, we had a venue short squeeze, so everyone wanted Comex gold and Comex silver, preferably silver. Why would they not take London? Because of the regulatory differences. And for a time frame, you could not take delivery of London silver and London gold in the US. And they fixed that by creating a swap contract. But for a time frame, you had deep backwardation in the Comex front, months to one year out, 5% spread. And then you had spot in London trading below because there was no one working. So that’s what happened then.

 

[00:30:17.340] – Blake Morrow 

Interesting. Yeah.

 

[00:30:18.490] – Vince Lanci 

And of course the whole kicker about the economics, the money going into the hot, but that’s what happened. And in fact, if you look back at history, if you look back at history, it was just fascinating because I was like, oh, look at that backwardation on the Comex. Silver and gold must be in the moon in London. Where is it? Plenty of silver here. Why don’t you send it over there? Can’t do that. You guys won’t take it anyway, so that’s what happened then.

 

[00:30:47.150] – Blake Morrow 

Oh, thanks. That’s interesting to know. I know one of my partners at Forex analytics was all over silver, around $15, just buying the living Jesus out of it. And I was like, anyway, okay, great to know.

 

[00:31:00.930] – Vince Lanci 

Thank you. That was the kicker. He was right for a different reason. I’m sure that was the kicker. Look, the silver market is a broken market. I’m going to say this about paper, and I’m not even going to get into the paranoid conspiracy stuff. What I mean is the contract is so big that you can’t buy a fifth of a contract. There’s no one who trades the micro. And so you accumulate, and then you’ve got a problem. It’s made for producers. Speculators are hung out to drive very frequently.

 

[00:31:32.120] – Blake Morrow 

There. Got it.

 

[00:31:36.270] – Tony Nash

That’s great. Okay. A lot of detail there. Watch this.

 

[00:31:41.310] – Vince Lanci 

To digest my first time, I had to. I want to be asked back. And so you can say, vince, you’re really cool. Thanks for coming.

 

[00:31:49.750] – Tony Nash

Of course, of course. Speaking of being asked, doc Blake, I’m always impressed when someone as respectable as you comes back on our program. So thanks for making your performance. I really appreciate that.

 

[00:32:00.070] – Blake Morrow 

Thanks for having me and I appreciate the comments. Thank you.

 

[00:32:02.890] – Tony Nash

You told me that you’re watching Fed and QRA next week, and I think we’re all watching Fed and QRA next week. We saw Christine Lagarde speak this week at the ECB. They’re holding rates. I think there’s an expected cut in April or something.

 

[00:32:20.340] – Blake Morrow 

Right.

 

[00:32:20.660] – Tony Nash

So Europe is a mess. I’m not really sure I really trust what they say, but I think they’re trying to do all they can to manage their market. So Europe is Q two in terms of a cut. Are you looking for similar messaging from the Fed next week?

 

[00:32:39.810] – Blake Morrow 

I’m not actually first of all, I have to take a step back and say, what does the Fed have to gain by doing that?

 

[00:32:50.500] – Tony Nash

The Fed.

 

[00:32:51.290] – Blake Morrow 

And you take, like Chairman Powell, he’s really good at telegraphing and giving the market what it wants. That’s, that’s, that’s a whole nother animal. But I’ve talked a lot with a lot of different macro analysts about financial conditions, and financial conditions have eased quite a bit for a lot of the United States and a lot of businesses, a lot of individuals. And you could actually even see the pending home sales today was just bonkers. Right. So the problem that you’re going to have, if you’re the Fed, is that you have to make sure you cap those expectations a little bit or the function of getting inflation sustainably below their 2% target is going to be a little bit more difficult. So I think if I was the Fed chair, I’d have to push back a little bit on expectations just to keep the market from getting too frothy. A lot of people might say that stocks are frothy right now. I mean, we are at all time highs. And you can’t ignore the fact where we’re at right now. And there is a thing called trickle down effect. Yes, the top 10% or 5% of americans own the majority of the stock market.

 

[00:34:15.250] – Blake Morrow 

But if I feel wealthier, I’m going to spend more at this restaurant and it’s going to trickle down. And there is something to that. And it does ease conditions a bit. So I think the Fed’s got to walk a fine line. I don’t think they’re going to give us a whole lot. I think the bigger deal is going to be the quarterly refinance announcement, quarterly requirement announcement, QRA, the acronyms. And it’s late in the week. For me, the QRA is going to be more of the kicker that happens, actually, the morning of the FOMC and the markets, they got a bit of a gift. I was talking to one of my, they got a bit of a gift this last quarterly announcement in November that on top of the Fed, on top of Waller, who became a little bit more dovish. Now, if you think about where we’re at right now, and I was talking to one of my colleagues, a gentleman by the name of k man, he made a great point that Janet Yellen was know on the wires yesterday, she sounded pretty upbeat. She’s the lever puller, if you, you know, she could very easily tweak the QRA a bit because she’s feeling a little bit better.

 

[00:35:29.660] – Blake Morrow 

About where we’re at. I don’t know if that’s necessarily going to be the case, but that’s going to be something that I think is going to be closely watched from that allocation of notes and going back over to bonds. And I don’t know if there’s going to be a change there, but I think the whole market is very queued up into it. And with the Fed, there’s a lot of risk. If you own stocks at these levels, you have to be nervous about next week. And I think if you own risk in general. One other thing I want to point out is the dollar is holding up exceptionally well in this current environment. So with that being said, I think currency traders, myself included, and I happen to have both short and long dollar exposure at the moment, but more long dollar exposure at the moment. On balance, I think if you’re short dollars, you’re going into next week a little nervous. And I think that the Fed and the QRA is going to have a lot to do with what happens not only in the currency market, but what happens in yields and what happens ultimately in equities as well.

 

[00:36:39.870] – Tony Nash

Yeah, I want to dig into that a little bit. First, let’s step back to the Fed for a it seems to me that you think that the Fed rates are going to be pushed or the rate cuts are going to be pushed back further than people. Vince said. If you don’t have a March rate cut, it could impact markets. Seems like you’re thinking the Fed’s going to cut after the thing, but tell me where I’m wrong on that. And second, you’re not QT. Are they going to ease off QT? Are we going to see it accelerate, stay at the same rate? We’re not going to hear about it anymore. What’s going to happen there?

 

[00:37:15.290] – Blake Morrow 

I don’t see why they would change the rate of QT right now. Why? Because the market’s not broken at the moment, so why change the pace of that? But as far as rates go, as far as expectations go, I think what we’re going to see next week is we’re going to see a little bit of a shift. The market has been pretty, it’s been the talk of the markets for the last couple of months, and about market expectations, know what the Fed thinks? I think they have to bring those expectations down a little bit. But what I have to also add is equity markets and risk in general, you can call it, has been very nonchalant about adjusting their expectations regardless of what the Fed says. Looking at the US economy. And a lot of the talk about soft landing. I mean, how is the Fed supposed to allow expectations to continue to be inflated like this for a great cut in this current environment without making financial conditions even looser and making their job a little bit more difficult?

 

[00:38:32.610] – Tony Nash

PCe came in above expectations, housing came in above expectations, markets are rallying. Why do you need a cut right now? I just don’t understand why we keep hearing about cuts if all of this stuff is happening.

 

[00:38:45.880] – Blake Morrow 

Well, because people think that the trajectory is going in the direction where inflation will eventually be below 2%. I look at, they’ve taken their revolver, I use a gun analogy, they’ve taken their revolver and they expended all their bullets, you know, years ago, bringing rates down to zero. They’ve currently loaded their whole chamber up now, and they could expend a couple of bullets, maybe prematurely, preventatively, if you will, because they’re looking into what’s going to happen, what potentially could happen in 2024. 2025. That would be the argument. I don’t know if I necessarily buy that argument. That’s why I think the Fed’s going to be fairly reserved in doing know, I like to use analogies. Quite a. You’re when know, running a marathon, and I’ve used this over the last six, eight months, you’re running a marathon and you’re trying to get to the very end of the marathon. Your last mile or two is going to be the most difficult, and that’s the fight against inflation. Naturally, it was coming down. Naturally, as we approach that 2% target, it’s going to be a little bit more difficult for the Fed. They’re not going to help themselves any further by not putting a cap on interest rate cut expectations, in my opinion.

 

[00:40:08.350] – Tony Nash

Right. Okay. And speaking of rates, as we look at the QRA, I’ve got marketable treasury debt on the screen. What do you expect? I mean, I expect going into an election year, Yellen is just going to expand. Her comments on Thursday seem to indicate we’re going to have a lot of fiscal this year to aid the administration. How aggressive do you think the forward look is with that QRA?

 

[00:40:40.030] – Blake Morrow 

Well, first of all, I don’t want to just give you answers, just to give you answers. I’m not one that’s going to follow all the debt issuance, but I will tell you that as far as I know, and everybody else will tell you probably in the comments down below, there’s a lot of issuance coming forward. There is now the QRA is going to be what that balance looks like.

 

[00:41:03.480] – Vince Lanci 

I’m sorry, can I ask you a question, just to clarify so we don’t have to go back, when you say coming forward, do you mean it’s coming up or coming up forward on the yield curve? Okay.

 

[00:41:12.820] – Blake Morrow 

No, like all the issuance that’s coming out.

 

[00:41:15.290] – Vince Lanci 

I mean, how much new issuance, right?

 

[00:41:17.210] – Blake Morrow 

Yeah, new issuance is coming out. So as a result, we have to keep in mind that it is coming. And you’re right, it’s going to continue to expand. What the ratio is, is what the market is going to be focused more on. So like I said, I’m not a bond expert, but I do understand the fact that the Fed continues to auction off long term maturities and the takeup has been good. Bond auctions have been pretty strong despite a lot of people thinking they won’t be.

 

[00:41:54.420] – Vince Lanci 

I have a question about the Fed. Can we circle back to that 1 second?

 

[00:41:57.420] – Tony Nash

Sure. Absolutely, Tony.

 

[00:41:58.300] – Vince Lanci 

Or should I just wait a little bit, go for know, like, I feel like the market, this is a question I don’t have an answer to. So it’s not rhetorical in any way. When he seemed to come out as very dovish that first, know, a couple months ago when stock started to take market, the market interpreted that the initial comment was, everyone’s got a narrative in the story was, he doesn’t want to be seen as impeding Biden. It’s an election year. I personally don’t think they’re easing in. So that’s, that’s, I thought QT would maybe taper off, but that’s my bias. No, easing QT might taper off. That’s what I thought. But when he did that, and the markets really rallied and they started coming out, fed speakers started coming out, talking a little bit tougher, slowed it down a little bit, I couldn’t help but wonder. Your comment was essentially, he’s walking a line. The last mile or so are hard, and I guess he’s trying to let the animal spirits out without letting them rush out too hard. But how would this be different if we didn’t have an election year, if it would be different at all?

 

[00:43:24.830] – Vince Lanci 

I feel like. Is he doing anything to make sure he doesn’t appear biased in any way, shape or form?

 

[00:43:34.770] – Blake Morrow 

Well, first of, is JPAL political? I’m going to tell you this much. If I was JPAL, I wouldn’t want to face who I think I’m going to be facing coming up in about nine months. So he’s dealt with President Trump before. He’s probably going to be dealing with him again. And I have to imagine that I would assume and again, assumption that the Biden administration is not as forceful with JPAL as a Trump administration would. He’s, I think he’s actually genuinely trying to do what’s best for the people.

 

[00:44:16.690] – Vince Lanci 

I don’t mean that I wasn’t being conspiratorial at all. I think so as well. I’m just trying to figure out if there were an election, would he not have talked nice before he got tough? I mean, look, I’m kind of threading needles here. I’m just kind of feeling like the market was so adamant for mtes that if he didn’t say something like that, it would have been like he was hurting Biden. And we don’t think he wants to hurt Biden, of course. But I’m just looking at it like it just seemed like such a departure for him after having gotten through SVB, SNB, and all these other problems, for him to just say, you know what, we might ease rates when really inflation isn’t under 2% yet. The six month outlook trajectory is definitely under 2%. But why would he do that? That’s what I understand.

 

[00:45:02.440] – Blake Morrow 

Yeah. And I don’t know when you’re talking about inflation, first of all, why he came out the way as dovish as he was. It was a bit of a head scratcher for us, trading the markets.

 

[00:45:17.090] – Vince Lanci 

A rare tactical error, I thought.

 

[00:45:19.080] – Blake Morrow 

Yeah. And the other thing is, I hear all these debates, especially in the mainstream financial media, if you listen to Bloomberg or CNBC and they talk about people on the street, that they don’t feel like inflation is under control either. That’s because the average person doesn’t understand inflation. People don’t understand. They, they think prices go up, they come back down, but people don’t understand that prices go up and they stay up. Inflation is the rate that prices are going higher versus everybody’s like, oh, my cost of my bread has gone up to whatever it is, $4 a loaf versus $3 a loaf. So it’s eventually going to come back down to three. And that would be inflation is coming down, but that’s actually deflation. And that’s something that’s very rarely seen. So the problem that we are dealing with at this moment with inflation is people have these unrealistic expectations as Americans, just in general, because we’ve never dealt with inflation. For the majority of Americans, you can talk to anybody who’s 65 and older and they understand what real inflation is. But for us that are under the age of 60, which I’m in my 50s, we don’t know what it’s like.

 

[00:46:38.450] – Blake Morrow 

And most Americans don’t know what it’s like.

 

[00:46:42.290] – Tony Nash

I’m going to push back a little bit on that. I mean, we’ve had average 24% inflation since pre Covid. So I’m not saying you’re wrong. I really do think people do understand things hurting their pocketbook. Right.

 

[00:47:01.370] – Blake Morrow 

No, I agree.

 

[00:47:02.220] – Tony Nash

Germany, 1920, of course.

 

[00:47:04.630] – Blake Morrow 

But the disconnect is when prices don’t come down. Right. That’s going to be the disconnect. And I think that’s what’s going to eventually bite the US. Consumer sentiment in general is going to be when prices don’t come down over a long period of time. And then you have the Fed that can’t reach that 2% inflation goal and then rates aren’t coming down and then consumer sentiment starts to turn sour. That’s where it all feeds together. And I think that hits somewhere in this 2024 year.

 

[00:47:38.660] – Tony Nash

Actually, no, I’ve never understood about the inflation discussion is gasoline prices go up and they go down. They go up and they go down. We never really hear about deflation in gasoline prices.

 

[00:47:49.130] – Blake Morrow 

No.

 

[00:47:49.700] – Tony Nash

And so I hear these deflationary arguments, and what that means to me ultimately is that corporate profits collapse. Right. And as corporate profits collapse, wages are pulled back and other things. Right. So there is that follow on effect. But we have something that all of us buy every week, unless you’re on public transport in some big city or whatever, and there’s deflation in gasoline all the time. And it’s never really, I mean, this stupid discussion about gas prices falling is like a tax cut, which is ridiculous. But we never hear people saying, oh, there’s deflation in gasoline.

 

[00:48:28.390] – Blake Morrow 

No, they don’t, because it’s the ultimate variable that’s moving around so quickly for most people, not even Americans. This is like globally, consumers, no matter where their benchmark is for what gas prices are, it’s the one that makes you feel better. Right. If I was just spending $100 to fill my gas tank and now I’m spending 65, that’s a huge savings to me.

 

[00:48:54.990] – Tony Nash

It’s a tax cut.

 

[00:48:56.280] – Blake Morrow 

Yeah, it’s a tax cut. There we go. Right. And that’s why for a lot of people to bet against prices coming down during an election year, it’s a tough bet. It’s a tough trade. Right. Because if you’re a politician and you’re the Biden administration. Yeah. You want prices to come down because you want people to say, hey, prices have come down. I feel better. I’ll vote for you again.

 

[00:49:24.020] – Tony Nash

Your July 4 barbecue is $0.14 cheaper.

 

[00:49:27.290] – Blake Morrow 

Right. Exactly. It’s crazy. But what I think is going to be a big shock for not just Americans, I think the global consumer is that prices for most things, they’ve risen and then they’ll stay higher. And if you look back in history and you go back to way back in the, could buy this for five cents and now it’s eighty cents. Well, there’s a reason for that.

 

[00:49:57.070] – Tony Nash

A lot more money now, right?

 

[00:49:59.230] – Vince Lanci 

You’re old. That’s the reason.

 

[00:50:01.710] – Blake Morrow 

We’re old.

 

[00:50:03.070] – Tony Nash

Okay, guys. So we have a lot to look forward. I think what you’re saying with Fed and treasury, and I don’t want to put words in your mouth, but we’re kind of at a point of uncertainty. Right. There are a lot of expectations in the market, but it doesn’t necessarily look like there’s the catalyst to change things one way or the other. Is that in general a takeaway from.

 

[00:50:24.330] – Blake Morrow 

What you’re just, I’ll just add this, and I’m sure Vince wants to chime in here, this is a very pivotal week for the market. And I think people underestimate the gravity of how big this next week is for the markets in general. Whether you’re talking about risk stocks, china, monetary policy expectations, the dollar, precious metals, as Vince has been alluding to, this is going to be a very pivotal week for the markets. And this is not one to sleep on. This is not one where you’re going to go rearrange your sock drawer. You want to be in front of your computers managing what you trade.

 

[00:51:06.680] – Tony Nash

That’s right. Exactly. Vince, any closing thoughts on the week coming up?

 

[00:51:10.810] – Vince Lanci 

Well, I don’t have anything to add to that. That’s pretty much it. You have a lot of events converging in March, and I think Fed policy will, Fed’s in a reactive situation, I believe right now. So they may want to or not want to ease. They may want to or not want to taper QT, but they need to wait. The data has been kind of choppy. This week was strong, but the data in general has been up and down. So maybe they’re just going to stay the course until they get a distinct trend in the economy weakening with the inflation weaker.

 

[00:51:48.910] – Tony Nash

Yeah, and I think staying the course was going to disappoint a lot of.

 

[00:51:53.330] – Blake Morrow 

To, I forgot to mention this and just bringing it up. One thing that we have to also keep in mind, the FOMC is an open market committee. It’s a committee where he’s looking for a know decision one way or the, you know, going back to Vince, you asked about the Fed and why the Fed chair was so dovish. A lot of that thought back then and I’m just thinking about it now, but I wanted to throw this in there is because he wanted to appease a lot of the doves that were in the FOMC. And I think he’s done that and I think the market has responded to it. Obviously, in retrospect now I think he’s going to have to rein that in a little bit and be a little bit more hard stance and maybe a little bit more hawkish.

 

[00:52:47.410] – Vince Lanci 

I didn’t think of it that way. So it helps to think of Powell as representing the committee. Yes, he may disagree with the committee, but he’s got to represent the committee.

 

[00:52:55.570] – Blake Morrow 

Yes.

 

[00:52:56.360] – Vince Lanci 

Behind closed doors he’s probably saying, told you.

 

[00:52:59.110] – Blake Morrow 

Are you freaking? You know, he’s probably doing a lot of that. And I’m sure. And remember, when we get the FOMC meeting minutes, they do give us what we want to hear or what they think the market wants to hear, not necessarily what you.

 

[00:53:14.220] – Tony Nash

Highly edited. Heavily edited.

 

[00:53:16.250] – Blake Morrow 

Yeah.

 

[00:53:17.020] – Tony Nash

Guys, thank you so much. This has been really informative. I really appreciate your time, all your thoughts, and I just hope you have a great weekend and a great week ahead.

 

[00:53:25.040] – Blake Morrow 

Thank you very much for having us.

 

[00:53:26.130] – Tony Nash

Thank you.

 

[00:53:26.720] – Blake Morrow 

All right.

 

[00:53:27.810] – Vince Lanci 

Thank you. Have a good weekend.

 

[00:53:29.430] – Tony Nash

Thank you.

 

Categories
Visual (Videos)

CNA: US Banking Giants Optimistic Amid Nasdaq Drop, Market Resilience in Question

The full episode was posted at https://www.channelnewsasia.com. It may be removed after a few weeks. This video segment is owned by CNA.

US banking giants express optimism for the year ahead despite warning of potential risks to the economic recovery. Sachs reports a 51% increase in earnings, driven by strong performance in asset and wealth management. However, Morgan Stanley’s net income falls over 30% due to charges, reflecting a mixed performance in the banking sector. The market sell-off is attributed to concerns about the resilience of US markets, potential volatility in the coming months, and uncertainty surrounding the upcoming presidential election and US fiscal spending.

Additionally, Wall Street is affected by the mixed reports from Goldman Sachs and Morgan Stanley weighing on market sentiment.

The show also discusses the upcoming reports from middle regional banks to gauge the performance of commercial lending, consumer activity, and the overall tone for corporate finance and insurance in the next quarter. Overall, market sentiment remains cautious due to uncertainties surrounding economic indicators, the upcoming election, and fiscal spending in the US.

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Transcript

CNA

US banking giants are finally calling the bottom, signaling a deal making comeback in the coming months. Executives of two major lenders expressed optimism for the year ahead as they reported fourth quarter earnings. But they also warned of risks that could disrupt the economic recovery. And Goldman Sachs stuck the landing after tumultuous year for the bank. Its earnings jumped 51% in the fourth quarter from a year ago. A strong performance from its asset and wealth management business supported the profit boost, offsetting weaker investment banking, and its shares ended up about seven tenths of a percent. Meantime, Morgan Stanley also topped revenue estimates on an investment banking rebound. But the net income fell more than 30% due to one of charges, pushing its shares lower by more than 4% there. Now it is the first scorecard under new CEO Ted pick, who warned of two major downside risks, including concerns around geopolitics and the health of the US economy. Those bank earnings results posing one of the biggest drags on Wall street, pushing all three major indices lower overnight. Now the S&P 500 had been trading near its all time closing peak, reached in 2022 over the past several sessions, but it is now down about 1% from that record high.

CNA

Meantime, the tech heavy Nasdaq shed about two tenths of a percent. Boeing was the biggest loser in the Dow, shedding about 8%. The plane maker has yet to regain investor confidence after us aviation regulators extended the grounding of its seven three seven max nine jets indefinitely for new safety checks. Spirit Airlines, though, losing more altitude over a blocked acquisition deal. A federal judge ruled against JetBlue’s nearly $4 billion takeover proposal of spirit airlines over antitrust issues. And as equities tumbled, US treasury yields rose with the dollar amid easing rate cut expectations. Yields on benchmark tenure notes are back above 4%. Again on hawkish remarks from Fed governor Christopher Waller. Tony Nash, founder and CEO at Complete Intelligence, joins us for more now. Tony, we’re looking at Wall Street’s sell off accelerating. We’re hearing at the that, you know, markets may have gotten ahead of themselves regarding how deep and how fast those policy rate cuts could be. Your take on that and how we can expect markets to move?

Tony Nash

Sure, the problem with us markets right now is that they’re priced for perfection. So if anything goes wrong, if the Fed signals an overly hawkish message or an overly dovish message, or say, a government macroeconomic data print comes out that isn’t perfect, or if company earnings don’t come out that aren’t perfect, then we can really see some wobbles in us markets. So I’m not really sure about the resilience of markets here. I think what we’ve been telling our customers is you’re going to see some intramonth volatility for the next few months until investors become confident in the direction of the Fed.

CNA

At the same time, this year is a pretty big one. For the US. It is election year. How much of this of lack last step performance is actually due to this? S&P 500 historically performs well in an election year, but it typically sees a slower start first, or is this just part of what is usually happening?

Tony Nash

Yeah, a lot of this really depends on Janet Yellen, the treasury secretary. If she can sell enough bonds to have cash to spend money from the US government, then we can really see markets rally pretty hard. But if Yellen can’t get the authority and can’t sell the bonds necessary to do that, then the US fiscal spending will be problematic. We also have a budget that’s going through in the US and a tentative budget agreement. If the Republicans halt that agreement and make more fiscal spending cut demands, then that could weigh on the US economy as well. Yes, traditionally markets do well in a presidential year, but I think there’s a little bit uncertainty around the election. And people, I think people are a little bit hesitant to spend partly because they’re a little bit loaded up on debt or a lot loaded up on debt. And we’ve seen a really robust 22 and 23. And so really people are wondering how far can we push this in 2024?

CNA

Indeed, dampening sentiment there. Big bank earnings. We’ve got Goldman and Morgan did the latest two report appears to be quite a mixed bag, but mostly not so great this quarter. And that’s weighed on Wall street as well. How do you read the latest earnings report? Are we talking bad debt, the lingering effects of high for longer rates? And what does it tell you about the consumer?

Tony Nash

Yeah, I think that what we’re really waiting for is some of these middle regional banks to see how they report because we’ll know how, say, commercial lending is doing and how commercial real estate lending and how consumers are doing. It’ll be much more evident as we see these regional and mid sized banks report. The larger banks, they’ll be fine. They are fine. They know how to manage and trade off the different lines of business that they have. It really is the mid sized banks that we’re waiting on and that will set the tone for a lot of the corporate finance and banking and insurance for the next quarter.

CNA

All right, Tony, appreciate time this morning. Tony Nash, founder and CEO at Complete Intelligence.

Categories
Podcasts

Global Elections 2024: A Year of Political Significance

This podcast was first and originally published by Peter Lewis’ Money Talk. Find the Substack here:

https://peterlewismoneytalk.substack.com/p/peter-lewis-money-talk-thursday-4-be5

Topics discussed:

  • The upcoming Taiwan election and its potential impact on Taiwan-China relations, with observations on the evolving stance of the Democratic Progressive Party (DPP).
  • The potential weakening of democratic institutions globally, influenced by factors such as economic success, illiberalism, and the impact of the pandemic.
  • The involvement and engagement of young people in politics are considered, with emphasis on their potential interest in national elections and the impact on their lives.
  • The possibility of a Trump presidency, its potential implications, and the dynamics within the Republican party are also discussed, including the potential influence of the primaries.

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✅ 94.7% market forecast accuracy.
✅ 1,600+ assets forecasted every week.

Subscribe to CI Markets for free. Learn more.

Transcript

Peter Lewis


I’m joined now by Tony Nash, who is founder of Complete Intelligence over in Texas in the USA. Very good morning, Tony. Happy New year to you.

Tony Nash


Hi, Peter. Happy New year.

Peter Lewis


Thank you. Looking forward to 2024. Lots of things to talk about, but I think one of the things that’s going to be interesting is elections this year is going to be dominated by elections in a way in which we haven’t seen before. Eight of the ten most populous countries in the world are going to hold elections. More than 70 countries, about 2 billion people, half the adult population of the globe, is going to have the chance to vote in 2024. It’s a record for one year. This is going to be pretty important, isn’t it? And we got some pretty significant ones, maybe starting with one in just a few days time in Taiwan.

Tony Nash


Right. Yeah, it’s a really interesting year. And the Taiwan election is also very interesting with the DPPKMT and some other things happening there. I think it’ll be interesting to see if there’s a clear winner and who it is. It’s also interesting to see the mainland’s discussion around the Taiwan election, too, which they do this every election. Right. So here in the US, there’s a lot made about the mainland discussion around Taiwan, but this is something that we see every election cycle.

Peter Lewis


It seems to be, though, the rhetoric seems to be ratcheting up this time, doesn’t it? Because this is going to be now, if the DPP wins, the Democratic Progressive Party, it’s going to be their third victory in a row, really broke the stranglehold that the KMT used to have on elections in Taiwan. So it feels like this one in particular is going to be very significant and is going to have some implications for markets as well, as. Well, of course, as relations between Taiwan and China. Mainland China.

Tony Nash


Yeah, it could be significant. I don’t necessarily get the sense that the DPP is as kind of polar opposite of, say, KMT nationalism as they have been in the past. I think the DPP’s moderated just a little bit. Of course, they don’t want unification, but they’ve moderated just a little bit. I think they’ve come a little bit more to the center. And so I think that’s why they’re appealing, and that’s why it’s possible that they have a third term. I think it makes the mainland a little bit uncomfortable. But again, I think this is not something that is completely unique, although it’s ratcheting up. The other thing to remember, and I know your listeners in Asia will know this. But Taiwan has really only had direct elections since the 1990s. And so we hear a lot about kind of the democracy in Taiwan versus the mainland, but there really hasn’t been direct elections for more than 30 years. So it’s really interesting to see how Taiwan has really gravitated to that and how they do elections incredibly well.

Peter Lewis


I mean, these are proper democratic elections, aren’t they? Unlike maybe in some of the countries that are going to hold elections this year where it’s either already a foregone conclusion or do you get the feeling, though, that maybe there is a bit of a recession going on in democracies around the world, that maybe there’s this spreading sort of illiberalism and a weakening of democracy around the world?

Tony Nash


Well, I think a couple of factors have played into that. I think the economic success that we’ve seen in the mainland over the last 30 years has really contributed to, say, I would say maybe an academic and maybe media and other, say, political institutional view that maybe a less liberal approach. And we could even look at Singapore, where people look at a potentially less liberal approach as one that maybe gets more economic success. At least that’s some of the perception. I don’t necessarily think that democracy is weakening, but I do think that those ideas. Does less liberal governance allow more, say, success or economic success or I think a central government strategy? People complain a lot here in the US about the US not having a strategy. I think illiberalism lends itself to having a central strategy. I think one of the other contributing factors is the pandemic, quite frankly. I mean, I think a lot of social liberties were taken away from people for a period of time. And I think it’s driven a lot of maybe thought and or paranoia about growing illiberalism.

Peter Lewis


I mean, I’m thinking maybe one example this year is going to be India, obviously, elections coming up in India as well. That seems to be one country where there does seem to be a weakening of sort of democratic institutions despite the fact that this is still the biggest democracy in the world.

Tony Nash


Yeah, it is a big democracy. The BJP is very, very popular. And it’ll be very interesting to see what happens in India because we do have a very vocal media in India. We have a very vocal population. And so I think as there are or if there are issues around the elections, I think we’ll hear about them. And I don’t think people will be quiet about it.

Peter Lewis


And then, of course, we have some other key elections going on around the world as well. I mean, one of the things that I’m wondering is about young people. I mean, they’re a key voting group in many of these elections, probably in all of these elections that are going on, do you get the feeling that maybe young people are becoming more disengaged? They just don’t feel that democracy is working for them, that elections are making any big difference for them, which is why we’re seeing maybe some of these sort of radical leaders win, populist leaders win in places such as Argentina.

Tony Nash


Well, I don’t know. So here in the US, we have the boomers, Gen X, millennials, and then Gen Z. I have three kids that are Gen Z, and I find them, the discussions that they have about politics are pretty informed. I wouldn’t say very informed, but pretty informed. Their friends who talk about politics, they’re pretty informed. Again, they’re getting a lot from social media, but I think they do have the opportunity to dig into issues. And so I think there’s always an observation from older generations that kind of younger people don’t care as much about politics, but the fact is they’re not paying as much in taxes. They may or may not own property. They may or may not have kids attending a school. So they just may not be as interested in particularly some of those local issues. Right. But I wouldn’t necessarily say that we’re seeing, I would say more extreme candidates because of, say, the Gen Z population. I think it’s a balance of, say, here in the US, it’s a balance of baby boomers. And when we look at the disposable income that people can put toward campaigns here in the US, it’s really overwhelmingly the baby boomers who lend to campaigns that then become extreme.

Tony Nash


So I don’t know what it looks like in other countries, but I know that the level of disposable income and the giving to campaigns here in the US is largely done by baby boomers.

Peter Lewis


And when your kids discuss elections, do they feel that the outcome is likely to make any difference to them personally, to their livelihoods, to their chances of getting a better job or a higher paying job?

Tony Nash


I think potentially, yes, I think they do. One of the things here in the US, obviously, we have local elections and then we have state elections, and then we have national elections. The national elections are what gets most of the attention. But the things that have the most, the races that have the most to do with them getting jobs really are the local and state elections. Is a state more appealing economically? Is there a regulation locally? These sorts of things, but they’re paying more attention to the national elections, of course, because that’s what’s in media. But I think they find the local elections pretty boring, quite frankly. And so they are paying attention to the national elections. And I think they do see that as an opportunity for them. Again, they’re not incredibly well informed, but I think they do see the national elections in terms of social policy and economic policy as something that will impact their lives.

Peter Lewis


And, of course, we’ve got to mention the US election coming up in November. Do we have any sense of what a potential Trump presidency is going to look like?

Tony Nash


That’s a big assumption, Peter. I don’t know. I think there is more of a competition on the republican side than we’re led to believe. I don’t know. It’s probably going to be Trump, but I think it’s possible that there is a different candidate. I don’t know exactly who would be, but I think there’s more of a competition on the republican side than some of the polls today are showing because what we’re seeing are a lot of national polls, and we don’t necessarily vote nationally in the US. We vote at a state level, which awards representatives who vote proportionally to the number of representatives that we have in the. So I think it’ll be more of a contest than we’re led to believe. Now, if Trump is know, I’m not really sure because the last time around, he was not a great administrator. He definitely speaks from the bully pulpit, but he’s not a great administrator. And I think many people who are, say, middle aged or younger in the US look at the current president Biden, and they look at Trump as a potential candidate, and they’re both 80 years old, give or take. And I think the concern from a lot of voters is they want a president who has to live with the consequences of their own policies.

Tony Nash


So I think Americans are looking at these older candidates who are at the extreme end of electable and saying, look, these guys, I’m not really sure that they should govern because they’re really too old to live with the consequences of their policies. So that’s why I think we may see more of a contest on the republican side than we’re being led to believe right now.

Peter Lewis


Mean, on the Republicans. I mean, there are candidates, aren’t there, who are quite considerably younger than Trump who could present an alternative? I’m thinking of people like Nikki Haley, Ron DeSantis. They’re all sort of candidates who would have to live with the consequences of their decisions.

Tony Nash


That’s right. And so until we start seeing some of the primaries come in with Iowa, New Hampshire, and some of these early primaries, I don’t know that we’ll necessarily understand what people on the ground are thinking. And let’s say, for example, Trump doesn’t win Iowa. Well, we’ll hear, well, Iowa is not really important. And then if he doesn’t win New Hampshire, we’ll hear him say that, well, New Hampshire is not really important, these sorts of things. But I do believe that as we start to see some of these early primaries come in, other Americans will get a view of what those early voters are thinking, because these candidates have spent a lot of time on the ground in Iowa, in New Hampshire and other places. And so they’re really reflective or starting to reflect what some of these people on the ground are hearing and seeing.

Peter Lewis


And if Trump were to win, I mean, the way he’s talking at the moment, it sounds like his presidency is going to be quite a vindictive one. It’s going to be about taking revenge on all the people he feels have slighted him over the last sort of four years or so.

Tony Nash


Yeah, I think it’s really interesting to see the mood in 2016 was very different from what it is now. And the mood in 2016 was that people just wanted to see some sort of change. They felt like their voice wasn’t heard. At least this is on the republican side. Right? They really wanted to see change. I think Trump today is an angrier candidate and a more vindictive candidate than he was in 2016. In 2016, he came across as frustrated but constructive. He now comes across as vindictive and angry. And I don’t know how many people that’s going to appeal to. I know there are a lot of frustrated voters, but I’m not really sure that having that angry of a message can really attract the voters that he needs.

Peter Lewis


And he’s also coming across as being fairly illiberal as well. He’s going to tear down some democratic institutions that have been around for a long time and doesn’t seem to respect some of those institutions.

Tony Nash


Well, we’ll see. I mean, does he have the power to do see a lot? We’ve seen a lot of, say, directive government from the executive office. We saw it under Obama, we saw it under Trump. We see it under Biden, where these things are then taken to the federal courts and they’re struck down. So can he actually disassemble some of those institutions? I think it would be really hard.

Peter Lewis


Well, look, Tony, it’s going to be a fascinating year. Look forward to talking to you more about some of these issues as the year develops. As we said, Taiwan’s elections coming up in just a few days time. So thank you very much for your contribution this morning. Have a happy new year. Look forward to speaking to you.

Tony Nash


Thank you, Peter. Happy New Year.

Peter Lewis


That’s Tony Nash, who is the founder of Complete Intelligence.

Categories
Podcasts

BFM 89.9 Market Watch: AI Premium Overdone

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/nasdaq-sell-down-tech-ai-premium-us-corporate-results-season.

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.

In terms of the oil and gas industry, the geopolitical crisis in the Middle East is not expected to have a significant impact on the industry. Despite the volatility in oil prices, there have been consolidation deals within the industry, as companies look to prepare for the future and navigate the shift towards green energy.

In the US markets, there is a sense of nervousness regarding the future of AI and tech valuations. The recent earnings reports have shown that 77% of S&P 500 companies have beaten street expectations, but this could be attributed to a game of meeting or beating numbers rather than a true reflection of corporate America’s performance. Business activity in the US has picked up in October, driven by a rebound in factory demand and an easing in service sector inflation. This trend is expected to continue into 2024. The Yen has weakened against the dollar, but the BOJ is not expected to intervene unless it reaches a level of discomfort.

Meta, formerly known as Facebook, reported better-than-expected third-quarter profits and revenues, driven by a recovery in digital advertising. The company’s operating margin doubled to 40%, its best in two years, largely due to cost-cutting measures. However, its augmented reality division, the metaverse, has incurred significant operating losses. Despite this, Meta’s CEO, Mark Zuckerberg, remains committed to the metaverse. The company expects revenue to be between $36.5 billion and $40 billion for the fourth quarter. Meta is also facing a legal challenge over its addictive qualities and impact on the mental health of younger users.

Transcript:

BFM


BFM 89.9, it’s 7:06 AM on Thursday, the 26th of October. You’re listening to The Morning Run. I’m Shazana Mokhtar with Wong Shou Ning. We’re going to kickstart this rather lovely-looking Thursday morning with a recap on how global markets closed overnight.

BFM


Okay, it’s a nice day, but it wasn’t such a nice night for US markets. They all ended in the red. The Dow is down 0.3 %. And I want to highlight on a year to date basis, it is now in negative territory. It is down on a year to date basis also by 0.3 %. And Nasdaq had its worst day so far this year, down almost 2.5 %. So it’s only up 22 % on a year to date basis. Meanwhile, we look at the S&P 500, it was also down 1.4 %, only up nine % on a year to date basis. So all these earlier gains that we saw throughout the year seem to be slowly disappearing. Meanwhile, if we look at the Asian markets, the Nikkei225, however, was up 0.7 %. Hang Seng was up 0.6 %. Shanghai Composite up 0.4 %. The Singapore Straits Times were however down by 0.2 %, while our very own FBMKLCI was actually up by 0.5 %.

BFM


So 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. I would like to start with oil and gas. So Shell Oil has given the US some measure of energy independence, but the number of operating oil rigs, a barometer for activity has dropped 16 % to 502, compared with the same time last year. How do you see the geopolitical crisis in the Middle East affecting the fortunes of this industry?

Tony Nash


Yeah, it’s a great question. At this point, I don’t see too much impact at this point. There is a lot of pressure to continue to reduce crude prices. And we’ll see actions in markets, we’ll see intervention by, say, central banks to try to reduce crude prices. But I think we’ll also see, even with the geopolitical risk in the Middle East, we’ll see the supply from Iran continue to hit global markets. We saw with the geopolitical issues in Russia and Ukraine that Russian oil continued to hit markets. I think the go-to place for crude traders is, Oh, gosh, geopolitical risk in the Middle East, that must mean crude prices are going to rise. Not necessarily the case. If they don’t rise, you probably won’t see those rigs come back online.

BFM


Meanwhile, Tony, we have seen a lot of consolidation or quite some pretty big consolidation deals within the oil and gas industry. I think despite the volatility in oil prices. How do you see this trend moving forward?

Tony Nash


Well, yeah, I think these companies are seeing that if the 2030, 2035 goals are kept by a lot of the companies that have… Sorry, national legislatures and regulatory bodies that are trying to push green energy and force, say, electric cars by 2035, which I believe California is doing other things, then really the for these guys are capped, so it’s time to start consolidating. But if that doesn’t happen, which we’re starting to see some pushback on that, then it’s also a great time to consolidate because we’re in a sweet spot where crude prices are, it’s not too high, it’s not too low. And so we’ll likely see more of these deals, not a lot more, but a couple more of these deals on the horizon.

BFM


And let’s talk about U. S. Markets. Well, Nasdaq had a pretty rough day down 2.5 %, pretty much the worst for the year. We did see Meta and IBM come out with their numbers, both actually beating street expectations. What’s driving this nervousness?

Tony Nash


I think a lot of people are feeling that, at least for now, AI has played out. You even had Bill Gates today come out and say that large language models are not what people think they are in terms of the level of innovation, that thing. I think large language models and AI are really cool, and I think there’s a lot more room to run. But I do think valuations are very stretched right now. With interest rates rising, it’s very hard to stretch tech valuations much further. A lot of these companies for the past, say, four quarters, you can count the number of times they say AI in their quarterly earnings calls, and it’s just increased. As they’ve said AI more and more, it’s just helped their share price. But I think that’s a little bit played out. I think until people start to see real gains from AI outside of the chip makers, like CONVIDIA, real gains within corporate sectors, real gains within the user sectors, then I think we may see valuations as stretched as they can be, at least for now.

BFM


Okay, so far, about a quarter of the S&P 500 companies have reported earnings, and apparently, 77 % of them have actually beat street expectations. I’m not sure whether it’s just the street being conservative or really corporate America is doing better than I expected. So is there some contradiction? Because everyone’s been talking about that recession that’s coming, but just never seems to happen yet.

Tony Nash


Yeah. The recession calls are a big game, too. It’s a little bit of conservatism on behalf of analysts and a meeting of the minds between, say, the CFO to the publicly traded companies and analysts, and everyone wants to beat their earnings, right? So it’s a game. Everything, it’s a game. We saw MetaBeat and we saw Microsoft Beat and all this stuff. That’s great, but it’s a game number. Nobody’s going to put a number out there that they knowingly that they’re going to either meet or not meet. They all want to beat everything by a certain amount. It’s a bit of a game. I think we’ve seen in sectors like real estate where things haven’t gone so well. We’ve seen in energy where things haven’t gone so well. Again, those energy valuations are down a bit and that’s created some room for some of those deals that we just talked about. Sectors like materials and health care, they’re down a bit as well compared to a year ago. So even though some of these current firms beat, they are a bit sensitive to market conditions of debt and other things. And so it’s not all good all around.

BFM


Can we talk about US business activity, which picked up in October after back to back months of stagnation, helped by a rebound in factory demand and an easing in service sector inflation? So do you see this trend continuing into 2024?

Tony Nash


Yes. What we’ve seen with business activity is we have seen some prices come off a little bit. With service sector activity, really service sector inflation comes down to the wages of service sector workers for the most part. As the rate of inflation for those service sector wages have started to slow, you’ve seen on a relative basis, more activity. A lot of this is really inflation-slowing and the impact of interest rate rises hitting markets. In some ways, like we said, real estate and some other sectors, it’s not a good thing. But in services, as we start to see some pressure on those prices, it can be a better thing for consumption because we do have wages rising in a lot of the economy, but costs have just continued to rise, especially in services. So as people are seeing some of their service costs slow down a little bit and in some cases even decline, people are more willing to spend.

BFM


Okay, I’ve got a quick question on the Yen. It’s slumpab past $150 per dollar, weakest level this year. BOJ, are they going to intervene?

Tony Nash


I think at 150, it’s okay. I think at 155, it becomes a little bit uncomfortable. I think it’s a delicate balance, and they’ll try to keep it at 150 as long as they can. But it really all depends on what happens with the dollar. With geopolitical risk, the dollar becomes more appealing generally, not in all cases, but it becomes more appealing generally as a safe haven. The Yen is a secondary safe haven currency, but it really depends on their monetary policy. If they continue with YCC and some of these other policies, they really need to tighten slightly. Not a lot, but slightly. I’m sure you guys remember 2012. Maybe you were in school. I don’t know, but maybe I’m sure you remember 2012 when Abenomics first came into discussion. The Yen was trading at ’76, I think, right? And then within a month or two, it was in the ’80s or ’90s, and it ripped really quickly.

BFM


Yeah, Tony, I’m the only one in the room that remembers that. You and I.

BFM


I read history books.

Tony Nash


That’s right. The Yen can really fluctuate. It hits these extremes. Once they change policy, it can really boomerang back fairly quickly. If they made some policy tweaks, we could see a Yen at 1:30 or 1:35 or something like that. It sounds like it’s a long way from here, but it’s actually not.

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. A lot to watch there, especially as we’re in the thick of earning season. Speaking of that, let’s talk about some of the earnings that have crossed our table this morning. A Meta, third quarter profit and revenue beat analyst expectations thanks to a recovery in digital advertising ahead of the holiday season. We saw this exact same trend with Alphabit yesterday. They also saw digital advertising recover. So Meta is also seeing the same thing. Revenue rose by 23 %. It’s the fastest rate of growth since 2021. They achieved $34.2 billion better than the expected $33.6 billion.

BFM


Okay, so at the same time, their operating margin in the third quarter doubled to 40 %. It’s best in two years. Now, a lot of it is actually driven by their cost cutting measures, right? They’re keeping an eye on this because they’re a bit uncertain in terms of the outlook. So the best thing to do is just really just not spend very much money. Remember their augmented virtual reality thing that they.

BFM


Are so The metaverse. It was all the rage a while back. It’s largely forgotten right now.

BFM


Well, it’s cost them $3.74 billion in operating losses. So you might have forgotten, but they’re paying the price of your forgetfulness. Clearly, it’s not going to turn around so quickly. Since the start of 2022, this division has lost close to $25 billion. But Mark Zuckerberg is plowing ahead. He’s not giving it up. So the outlook, they expect revenue to come in between 36 and a half to 40 billion for the fourth quarter. Analyst will however expect sales for that quarter of 38.5, like the analysts being a bit chicken and really coming in the middle. Now, does the street like this name? The answer is still yes. 60 buys, seven holds, two sells. Consensus target price, 373 US dollars and 87 cents. During regular market hours, the stock was actually down $13. $2.99 to $299.53. The stock’s still up 148 % on a year to date basis.

BFM


Well, Meta has found itself in a bit of a legal pickle over in the US. We’ve got several states that are actually filing a lawsuit against Meta for its addictive qualities impacting the mental health of the younger generation. We are going to get more into that social media impact a little later in the show. 7:19 in the morning, we’re 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 to BFM 89.9.

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Podcasts

BBC: Getting aid into Gaza

This podcast is originally published by BBC Business Matters in this link: https://www.bbc.co.uk/programmes/w172yzrsng5klrk.

BBC’s Description:

The World Health Organisation says it needs urgent safe passage to send supplies as people are ‘dying unnecessarily from a lack of water and medical care’.

President Biden and other world leaders have called on Egypt to open the border known as the Rafah crossing as tonnes of aid piles up.

Sam Fenwick discusses this and more business news from around the world with Tony Nash, chief economist at Complete Intelligence, in Texas, and Rachel Cartland, author, writer and expert on Hong Kong.

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.

Transcript

BBC


Ask our guests today who join us from Hong Kong and Houston, Texas. Good evening to Tony Nash, CEO of Complete Intelligence. It’s an AI forecasting firm, so you should be quite well-placed to talk to us about chips and AI.

Tony Nash


Absolutely, yes. Thank you for having me.

BBC


It’s always good to have you on the show, Tony. Thank you for joining us. I want to just come to Tony Nash on this. As we say, Joe Biden arriving in the region on Wednesday had planned meetings with Jordanian which have now been canceled, also had a meeting with President Abbas of the Palestinian Authority and President CC of Egypt, all of which have been postponed according to the White House. What do you think Mr. Biden will want to achieve from this visit now?

Tony Nash


I think the biggest thing that Biden wants to achieve is the release of American hostages. And if that’s all that can be coordinated, then that’s a major win. It looks very good for the domestic population in the US, and it brings American citizens free and clear from this conflict. I really think that that’s the main priority for Biden’s visit at this moment.

BBC


Okay, thank you, Tony Nash. Let’s bring in Tony Nash. He’s the CEO of Complete Intelligence, and it’s an AI forecasting firm. He’s based in Houston in Texas. As we said, this policy has been in place 12 months. Do you think it has done anything more than just annoy chip makers in the United States?

Tony Nash


NVIDIA says that they comply with the laws that are in place, and they’ve already said that any announcement they made today really won’t have a meaningful hit on their business.

BBC


Although their shares nose-dived, and lots of other chip companies did the same.

Tony Nash


Yeah, they did. There was an estimate that it would hit about $100 billion for their business. It’s really unclear, but they’re a regulated company, they have to comply with what are called ITAR regulations, which is International Technology Regulations that the US government puts out. The real issue here is, will NVIDIA chips be used for Chinese military applications? That’s really what the US government is worried about. And so there are a thousand ways to circumvent the regulation, ship into a third country, all these sorts of things. So it’s not as if the chips won’t get into China. There have been ways to circumvent these regulations for hundreds of years. So they’ll find a way to get them. The real question is, will they get them at the scale that they want them?

BBC


We talked about this time, 12 months ago, we were having the conversations about why this policy had been brought in. And it seemed to be, prior to this, it had been about keeping China and the technology 20 years behind the advancements of the US. And now the policy had changed and they wanted to stop all advancements completely, just cut them off. It doesn’t sound like it’s working from what you’ve said.

Tony Nash


I don’t think anybody expects China’s advancements to stop completely, but I think having the state-of-the-art technology shipped into China to be placed in Chinese military equipment when China has been threatening Taiwan, they’ve been making other threats, the US has been threatening China, these sorts of things, of course, you want to hamper your adversary as much as you can. I think this is just normal technology regulation, export controls. Whoever has the leading edge technology wants to control the leading edge technology. Will China continue to develop its chips? Yeah, absolutely. Are they behind what NVIDIA is producing? Yes, they are. Will it take them a few years to catch up? Yeah, it’ll take them 5-10 years to catch up. But I think over time, China will definitely catch up with where the US is. It’s just going to take some time.

BBC


Now, apparently, NVIDIA was selling an A-800 and an H-800 type of chip, and they were able to do that because it went around the original ban, and then now those have been banned. Will it be that these chip companies will just make a chip that isn’t covered by the ban, and then the government will change the goalpost again?

Tony Nash


Well, that’s the way it works, right? That’s how regulatory arbitrage works. So NVIDIA will look to the letter of the law and conform a chip to match the letter of the law. And then if the trade regulators in the US want them to change, they’ll change. These types of regulations change pretty regularly, and technology companies have to adjust their output according to what the regulators say. This sounds extreme. It’s actually not extreme because there are ITAR regulations, technology export control regulations in most countries. It’s just because it applies to AI-specific chips that it’s really getting this level of attention.

BBC


Let’s talk to Tony Nash first. What do you make of this plan? Do you think it could rival the Panama Canal?

Tony Nash


Yeah, absolutely. I think it’s a great plan. I live in Texas, which is on the US border with Mexico. I think this railway plan is fantastic. There is already a lot of electronics manufacturing moving from Asia to Mexico to service the US. I think three years ago is the first year in 20 years that the US imported more televisions from Mexico than from China. So televisions are pretty straightforward to assemble now. And so more and more sophisticated electronics is moving to Mexico. What your guest said about obviously transiting things across Mexico, but also manufacturing things in Mexico, I think that’s very much on the table, especially as we see more trade regionalization and manufacturing regionalization.

BBC


Is that because of what we’re calling nearshoring, this thing that occurred during the pandemic?

Tony Nash


That’s right. Exactly. Similar. So the risks of having a majority of your manufacturing concentrated, I think Northeast Asia makes 35, 40 % of the world’s manufacturing goods. And so during the pandemic, we saw all the supply chains lengthened because they were bottlenecks. Whereas if we had had those, whether they’re in, say, Eastern Europe or for Europe or Mexico for the US or something like that, I think it reduces a lot of that transit risk for a lot of people. And I think East Asia is probably facing some reinvestment over the next, say, 10 years because that nearshoring or regionalization is a real… It’s definitely on the horizon.

BBC


What was interesting, Tony, is that Benjamin there was talking about investors from the US being interested in building that original rail line a century ago.

Tony Nash


Yes, and obviously, the US was very instrumental in building the Panama Canal as well. The US is very interested in developing Mexico and developing Central America. It doesn’t surprise me that that was the case 120 years ago. It doesn’t surprise me that that’s the case today.

BBC


Tony, there were concerns or have been concerns about what’s known as debt trap diplomacy, that if you borrow money off China, then they will somehow have you over a barrel. Has that come… That still a worry for the US, do you think?

Tony Nash


For the US? Not necessarily, but certainly for African countries. I remember speaking with African representatives probably six or seven years ago, talking to me about how can they restructure their debt for the Belt and Road. The really strange part about the Belt and Road is it’s fully financed in US dollars. We have a time right now where the US dollar is appreciating. Not only is that debt at a relatively high rate, I wouldn’t say it’s sky high, but a relatively high rate, but you have it in a currency that’s appreciating against most emerging market currencies. It’s very difficult for companies to pay back or countries to pay back. I think one of the things about Belt and Road that really isn’t covered that much is the Belt and Road peaked in 2017 and 2018. The funding that you have going into the Belt and Road today is about a fifth of what you had in 2017 and 2018. Construction projects like the transport construction projects that you highlighted, those things all happened in 2013 through 2018, really. The largest portion of investment coming out of Belt and Road right now today in 2023 is for mining. It’s not construction, it’s investment.

Tony Nash


When you look at what’s tabulated as Belt and Road investment, it’s really Chinese money going into mining worldwide.

BBC


Just gives us time at the end of the show to ask our two guests who’ve joined us today, Rachel Cartland and Tony Nash. What are your side hustles? Rachel, you tell me what you’re earning money from.

Rachel Cartland


What’s your side hustle? I’m retired. My husband is constantly reminding me that I’m busy all the time, but with nothing that brings in a dollar, although I have endless voluntary commitments, which are great things to do. I think it’s what they call a portfolio, isn’t it? -bits and pieces of things –

BBC


Absolutely.

Rachel Cartland


-rather than a side hustle.

BBC


-it sounds very satisfying. Tony Nash, do you have time for a side hustle when you’re doing your AI forecasting?

Tony Nash


I make time, Sam. I have to make time. So I run an AI company during the day. On the weekends, I have my own coffee roastery called Nerve Roaster, and I sell coffee as my side hustle because it’s what I love.

BBC


You love drinking coffee?

Tony Nash


Sorry?

BBC


You love drinking coffee?

Tony Nash


I love roasting coffee, so I sell roasted beans.

BBC


Fantastic. I had no idea, Tony. You are a man of many talents. Thank you very much for joining us on Business Matters. And thank you also to Rachel Cartland, author, writer, and expert on Hong Kong. That was Business Matters. Thank you so much for listening. My name was Sam Fenwick. The producer today was Hannah Malane. I’ll be back the same time tomorrow. Don’t join me if you can.

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Audio and Podcasts

Fitch Is Late To Game

This podcast is originally produced by BFM 89.9 and published in https://www.bfm.my/podcast/morning-run/market-watch/fed-markets-economy-interest-rates-dollar-fitch

In this podcast, the hosts discuss the performance of global markets and provide insights from Tony Nash, CEO of Complete Intelligence.

The US and Asian markets experienced declines, with concerns arising over potential downgrades of US banks. Nash believes the stock market has reached its highs for the year and advises caution in investment choices.

The conversation then shifts to the challenges facing the Chinese property sector, highlighting the impact on property developers and risks to China’s economy. The Eurozone’s GDP numbers show stagnation or decline, with Ireland’s outperformance driven by foreign companies. JPMorgan downgrades its forecast for Chinese GDP growth. The discussion also covers Target’s missed sales expectations and Cisco’s weaker outlook for its 2024 fiscal year.

The podcast also mentions the expectation of a slowdown in capital spending by cloud and telecom consumers in 2024, despite the dominance of cloud services offered by companies like Amazon and Microsoft. Stock details are provided, including the consensus target price and the number of buys, holds, and sales.

Chapters

01:21 Fed Meeting Minutes
02:11 Concerns about US Banks
03:15 Performance of Major Indices
04:45 Outlook for Market Direction
05:46 Investing in Stable Assets
06:04 China’s Property Sector Challenges
07:49 Eurozone GDP and Employment Figures
09:45 Consumer Stocks and US Retailers’ Performance
12:38 Cloud and telecom spending expectations

Transcript

Shazana

For some thoughts on what’s moving international markets, we have on the line with us, Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Thanks, as always, for joining us. Let’s start off with the latest Fed meeting minutes that were just released for July. How much of Fed chairman Powell’s Davish tone was shared by the other Fed policymakers?

Tony

Yes, some, but to be honest, not a lot. The Fed officials really see no recession for the rest of 2023. They’re saying spending is strong, real activity is stronger than anticipated. They really don’t see a recession at all. There’s really no reason for dovishness there. They still see inflation risks and they still see a potential need for higher rates. They’re also saying that quantitative tightening, meaning the shrinking of the money supply, will continue once interest rates stop because they’ve got a bunch of these items on their balance sheet that they’ll continue to let expire. So that will continue to put upward pressure on the dollar as well as higher interest rates.

Mark

Now, there are mountain concerns that Fitch could continue to downgrade US banks, including tier-one names like JPMorgan. So how do we get from a stable situation for US financial institutions a year ago to this current state of affairs?

Tony

Yeah, I think for the tier ones, this is really late. It doesn’t make a whole lot of sense. The tier ones are effectively US government institutions. And when they were buying the regional banks back in March, them taking on some extra risk probably made a lot of sense. But even those regional banks, for the most part, have gotten much stronger. Their balance sheets have gotten stronger. Their net interest margin and other things have gotten stronger over that time. This seems to be 4-5 months late. Unless these guys are expecting a massive real estate wipe out or some massive market event or something like that, this just doesn’t make a whole lot of sense because it should have already been done some time ago if it were going to happen.

Wong

Okay, can we talk about markets? Because if I look at the performance of the major indices, look at NASDAQ. It’s only up 28 % on a year to date basis. S&P.

Tony

Only?

Wong

Only, only. Yes, I love to use the word only. And S&P 500, 14 % up. So there has been some retracement. Do you expect further retracement? Because results season pretty much over about 80 % done. Where are markets going from here?

Tony

Yeah, I think we’ve seen the highs for the year. I don’t think we’re going much higher. It’s either sideways or marginally down from here. I think you’re going to see a lot of people say, Oh, gosh, we’re just getting started. There’s a GDP now in the US right now. The estimate on this quarter’s GDP is over 5 % or something right now, and people are saying, “We haven’t even gotten started on equity markets,” that sort of thing. And there are people who still believe we’re going into a massive recession. And it’s possible that we line up somewhere in the middle, which is what the Fed’s been trying to do. And it’s possible that things are volatile, but not necessarily directionally up or directionally down. I think generally for the rest of the year, that’s probably where we’re going to be. But we’re going to have days that look really good and we’re going to have days that look really bad. And there will be commentators that will extrapolate that out to either fantastic or dire.

Wong

Okay, so while markets trade sideways, where should we park our money?

Tony

Well, I think you have to look at what’s happening with, say, interest rates. I mean, it depends on how aggressive you are, but you really have to look at what’s stable. You have to look at what’s continuing to give value. I’d be careful of things that don’t give strong signals because with interest rates staying higher for longer, valuations are likely going to be compressed a bit. I’m not saying valuations are going to crash, but there’s likely going to be some valuation compression, and margins for companies are likely to continue to be compressed. So it just makes things difficult for companies that are just doing okay. So I would be really careful and I would look for some of those characteristics.

Shazana

Let’s turn our attention over to China because we do know that China is facing mounting headwinds in the property sector. How are you viewing this? Is this a storm in a teacup? Or are there signs that it could spill over to markets outside the mainland, especially in Hong Kong? What does that mean for investability in that region?

Tony

It’s a big problem. Real estate demand in China is very poor. We just had a report, I think it was out this morning in Asia, among 70 cities in China, 49 saw new home prices fall month over month from July. That was a previous month we saw prices fall in 38 cities. Real estate prices are falling. Of course, this is a major source of wealth for people in China. Property developers don’t have money because prices are falling, and so the amount coming in is falling and the value of the houses they have are falling. They can’t service their debt, they can’t service their existing properties, and it’s just a very difficult situation. When you look at the debt from Country Garden and Evergrande, their combined liabilities are approximately the size of the PBOC’s official non-performing loans for all of China. Okay, so those two companies on their own, they’re effectively equivalent to the debt that the PBOC claims for the rest of China. So it’s pretty bad. And today or sorry, yesterday, Asia time, Country Garden is warning of onshore bond default. So it’s not just an offshore phenomenon. Early on in this, this was an offshore phenomenon.

Tony

They had taken USD debt or something like that, and they were going to default on that. And that’s fine. That’s for rent, lenders. But defaulting onshore is something that’s relatively new.

Mark

Well, obviously not very good news for China, but now let’s switch our attention to Europe, where preliminary second quarter GDP from the Eurozone came out last night along with employment figures. What do the numbers tell you about the state of play in Europe and would they dodge a hard lending?

Tony

Yeah, it’s great for Ireland, really not great for the rest of Europe. So Ireland way outperformed pretty much everywhere else underperformed economic growth. So the EU generally, again, outside of Ireland, is either stagnating or declining. And a lot of the Ireland performance is based on foreign companies that have their headquarters in Ireland. So they’re reporting in Ireland, and it counts for economic growth there. So the underlying growth was weaker, of course, well, probably weaker than the GDP growth that was stated. So it was 0.3 % quarter-on-quarter. But again, like I said, given the 3.3 % jump with Irish GDP, it doesn’t really look good for the rest of the EU. Employment was up, which is great. But things, I guess, on the top line look stable. But if you take out Ireland’s performance, things really don’t look good. We now have a few countries in recession. Estonia, Hungary, and the Netherlands are in recession, which obviously is very difficult. We have industrial production. Industrial production was up the most in Ireland, which is great, but it’s also up in Denmark and Lithuania. So this isn’t a broad based economic success story. You have places like Germany and France, huge economies that are really struggling.

Tony

And you have powerhouse economies that punch above their weight, trading economies like the Netherlands, which are in a recession. So it’s a tough place for Europe right now.

Shazana

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. Commenting on a range of economies there. We’ve got the US, China, and ending with the Eurozone in the mix.

Mark

And not very good news for China as well. And JPMorgan, which at one time was very bullish on the Chinese GDP growth, predicting 6.4 % this year, has actually downgraded and lowered its full year forecast down to 4.8 %. I think this is one of the first few banks that come out to say GDP is going to be below 5 %. And for next year, they’re predicting it will only be a 4.2 % growth rate for China.

Shazana

All right. Well, meanwhile, if we take a look at what’s happening over in the US, I think, as Tony mentioned, recession is less and less likely, it seems, over there. But at the same time, we are seeing consumer stocks taking a hit due to softening consumption. We see Target missed its sales expectations even as it beat estimates for earnings in the second quarter. Revenue came in at $24.8 billion. This was a 5% drop from the previous year, while net income was $835 million, up from 183 million in the same period.

Mark

Last year. The retailer also cut both its full year’s sales and profit expectations because it’s struggling to convince customers to spend more than just necessities. This merchandise mix, which includes many fun and impulse-driven items, has become a liability as consumers focus on needs rather than wants.

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Audio and Podcasts

BFM 89.9: Don’t Panic, Debt Default Will Not Happen

This podcast was originally published by BFM 89.9. Find the original link at https://www.bfm.my/podcast/morning-run/market-watch/us-debt-ceiling-2023-global-markets-concerns.

In this podcast episode from BFM 89.9, the hosts discuss the latest updates on global markets and dive into the US debt talks. They are joined by Tony Nash, CEO of Complete Intelligence, who shares his perspective on the debt ceiling and its potential impact on the markets. Tony believes that a US debt default is unlikely and views the current concerns as overblown political maneuvering. He highlights that the debt ceiling issue arises regularly and is often resolved at the last minute, causing frustration among Americans.

The conversation then shifts to the state of the US economy, particularly the labor market. Tony notes that there is fatigue in jobs growth, with ongoing layoffs in various industries, including tech companies. The hosts also discuss the recent rise in the US April services PMI, indicating a shift from goods to services and suggesting continued growth in the services sector.

Nvidia’s quarterly results become the focus of the discussion, as the company outperformed expectations and experienced significant stock price growth. Tony explains that Nvidia is a key player in the AI infrastructure space and has benefited from the increasing adoption of AI and machine learning technologies. However, he cautions that the high valuation and potential impact of a recession on corporate infrastructure spending could affect Nvidia’s future performance.

The podcast concludes with a recap of Nvidia’s financial performance and analyst expectations, noting the positive sales figures and high target price. The hosts question whether a company involved in AI deserves the current forward PE ratio of 66 times.

Overall, this podcast provides insights into the US debt ceiling issue, the state of the labor market, and the performance of Nvidia in the context of the broader market trends.

Transcript

BFM

This is a podcast from BFM 89.9. The Business Station. BFM 89.9. It’s 7:06 A.M. On Thursday the 25 May. You’re listening to the Morning Run. I’m Shazana Mokhtar, with Wong Shou Ning and Mark Tan. In half an hour, we’re going to be discussing the outlook for Netflix and the US streaming services. But as always, we’re going to kick start the morning with a recap on how global markets closed overnight.

BFM

The markets are all red, probably thanks to the jitters surrounding the US debt talks. In the US markets, the Dow Jones was down 0.8%, S&P500 down 0.7%, and Nasdaq down 0.6%. Over here in the Asian markets, Nikkei down 0.9%, Hang Seng down 1.6%, Shanghai Composite down 1.3%, STI down 0.1%, and our own FBM KLCI down 0.1%.

BFM

All right, so for more insights on what’s moving markets we have on the line with us, Tony Nash, CEO of Complete Intelligence. Tony, good morning. Thanks, as always, for joining us. So let’s start with what seems to be keeping markets on tenterhooks. In recent commentary, though, you’ve opined that a US debt default really isn’t on the table. So why do you say that? And why are current concerns of a debt default overblown, in your view?

Tony

Yeah, so the debt ceiling literally happens every other year in the US. And it’s happened for the past 15 years. So I’ve said this many times. This is shameless partisan positioning intended to show politicians coming to the rescue of a crisis that they created themselves. So they’ll get media attention. Then at the last minute, probably after the deadline, they’ll miraculously find a solution when everything seems the most chaotic. So this is something that most Americans are really frustrated by. It’s like we know they’re not going to default. If they do, it’s ridiculous, and it’s just shameless partisanship. So are people here worried? To be honest, not really. I think a bunch of portfolio managers are being very careful in markets, but on a personal level, I seriously doubt that many people are all that worried.

BFM

So, putting aside the political shenanigans, of much greater importance to global markets is the state of the US economy, particularly the labor market. Is there a sense of fatigue in jobs growth or more room for expansion?

Tony

There’s definitely fatigue. If we look at the data since the end of COVID there’s a metric that the Fed…

Tony

Okay, we’re going to try and get Tony back to talk more about what’s happening with the US labor market. But as he said earlier about the debt ceiling, he’s taken a little bit of a, I guess, sanguine tone on it. He’s less worried that debt default will actually have long term implications. He thinks things will be resolved, just that it’ll take a lot of drama to get there.

BFM

Yeah, but the consequences are already being felt. I mean, I’m seeing this headline on Bloomberg, United States may be cut by Fitch on debt limit fight because US ratings have been placed on Watch Negative from Outlook Stable by Fitch. So the rating watch reflects the increased political partisanship that is hindering reaching a solution to race or suspend a debt limit despite the fast approaching, as we call it, X State. This is the first rating agency that has already given them some warning snakes, right? And once this happens, what this means is that the cost of borrowing is going to rise quite significantly on top of the fact that the interest rate in the US is already 5.2%. I mean, the Feds have raised it what, ten times since last year?

BFM

There’s a lot of moving parts to this picture, and I think there’s also discussion on what is it that other stakeholders in the US government can do if Congress can’t get its act together, what can the Treasury do? Can the Fed do anything? In any case, I think the Treasury will probably try to prioritize the debts that it owes, which means that some people will may not receive their bills. I think looking at Social Security and Medicaid and Medicare, hospitals, roads, who’s going to maintain all that?

BFM

Well, I do think that we have Tony back on the line. Tony, can you hear us?

Tony

Hi, guys. There you go. Sorry about that.

BFM

No worries.

Tony

On the debt ceiling. What’s interesting what’s happened is this week people in Congress asked Janet Yellen how she did her calculation on finding that X date. So it’s a kind of mysterious calculation and nobody knows. So people are trying to dig into that to understand when actually is the date, because nobody’s showing any math, nobody’s showing any data around it. And again, it seems like this is being hyped as a political ploy. So what you rightly point out about if it does come, the US government will have to prioritize payments. Right? And that’s fine. But again, voters and legislators don’t actually know how she’s coming up with that X date and a lot of people just don’t trust her.

BFM

Well, coming back to the point we were discussing earlier on the labor market, Tony, what’s your sense of how jobs is doing there?

Tony

Yes, jobs are in a rough spot. So there’s a metric called continuous unemployment claims and they’re at their highest level since the end of 2021. So I know that isn’t a long period, but stimulus is worn off, consumer credit levels are rising really fast, and tech companies are still laying off staff. So Verizon, a big telecom carrier here, just announced today that they’re going to be doing layoffs. So we’ve seen the Amazon and Facebook. Facebook yesterday announced another layoff. And so what’s happening now? That those initial layoff announcements were made to give a boost to stock prices. But now that that boost is largely expanded, people are simply not hiring. So they’re choosing not to hire for open jobs as a way to contain their workforce through just retirements and quits and that sort of thing.

BFM

Now, Tony, the US April services PMI rose from 55.1 from 53.6, surpassing the market expectation of 52.6. Isn’t this further evidence that at least in this sector, growth hasn’t been tempered by inflation or the rate hikes?

Tony

Yeah, well, certainly I think what it’s showing is an ongoing shift from goods to services. So during COVID everyone loaded up on goods. For the past twelve to 18 months, we’ve seen a trade off of goods purchases to services purchases. That services PLI will likely continue for the next two to three months, partly because the summer here in the US is holiday season, it’s vacation season, and so services will continue to thrive through that period. So we would expect a services PMI decline, maybe not necessarily contraction, but at least decline in Q3, probably mid Q3.

BFM

Okay, Tony, can we talk about one results, one set of results that came out last night, and that’s Nvidia. Right. They really beat street expectations up 20 over percent stock price. This is one tech stock that has done exceptionally well, I think a lot to do with AI. Are you bull on this name?

Tony

Well, Nvidia has done very well, and definitely top line growth surpassed expectations. So Nvidia is to the AI boom, which Cisco was to the Internet boom 20 plus years ago. Right. So they’re selling the infrastructure for AI and machine learning and a lot of these new capabilities, and people need them. And that same infrastructure is used for crypto mining and other things. So they planned extremely well, and they’re kind of reaping the profits of that right now. So as long as we continue to see companies adopting and expanding AI and machine learning capabilities, the value in Nvidia should be there. I don’t necessarily want to make a prediction on the stock price where it is right now. It’s a pretty high price in terms of valuation and other things. But I think in terms of corporate performance, it’s certainly strong and will remain strong.

BFM

So do you think any stock that has an edge or have first mover advantage when it comes to AI deserves a premium? Just pretty much like Tesla when it comes to electric vehicles?

Tony

Well, I think when you’re looking at a stock value, you have to look at the forward expectations. And so do you believe, or does an investor believe that that company that provides either AI software or AI hardware or something like that, do they believe there’s growth in that area? And if they believe there’s growth, so what’s the multiple on that growth and how quickly will it come? That’s how people come up with those price expectations.

BFM

Yeah, because when I look at Nvidia, the Bloomberg showing a PE of 66 times forward PE. So it looks like markets are really expecting a lot of growth.

Tony

Oh, yeah, they do. And I think part of the problem is people really load up on hardware first. And so that growth may very well continue at that same pace. But it really all depends on what happens to corporate infrastructure spending. And if that corporate infrastructure, meaning IT infrastructure spending continues, then it’s really good news for Nvidia. If we do hit a recession, then corporate infrastructure spending could be hit and that could hit Nvidia in a negative way.

BFM

Tony, thanks as always for the chat. That was Tony Nash, CEO of Complete Intelligence, talking to us about some of the trends that he sees moving markets in the days and weeks ahead. Capping the conversation there with just some thoughts on how Nvidia has performed. And we do have their results coming out overnight, right? They did really well, performing well beyond Wall Street expectations. Their sales in the three months ending July will be about $11 billion, which is 53% higher than what analysts were foreseeing.

BFM

Revenue for the first quarter was $7.2 billion versus 6.5 expected, while earnings per share was $1.9 adjusted versus the $0.92 expected.

BFM

Okay. Sorry.

BFM

Net income was $2.5 billion versus $1.62 billion from the same period last year.

BFM

Okay. I’m so excited to tell you how many analysts cover this. Well, a lot. 44 buys, 13 holds. No sells at all. At all. Okay. So consensus target price, $307, which is already very, very close to the regular market hours share price, which was down one dollars. And but I know aftermarket hours, the stock boomed, shattered by ceiling by going up by 20%. So I won’t be surprised if a lot of the analysts actually rush out to upgrade. But the ceiling to me is the fact that PE forward PES are 66 times. Do you think a company involved in AI deserves 66 times? Which was my question for Tony.

BFM

That’s right. And I think AI is going to be driving a lot of investor interest in these kinds of stocks. But let’s turn to another stock in the tech sector that hasn’t been doing so well or hasn’t done so well recently. Then that’s snowflake. Their sales outlook for the current quarter fell short of analyst expectations, and this did lead to a share downturn. Snowflake software helps businesses organize data in the cloud, and their quarterly revenue is expected to be growing at 34%, but well below Wall Street expectations.

BFM

Snowflake also cut its outlook for the fiscal year, saying product revenue will be about $2.6 billion versus 2.7 it predicted early in March. Analysts had feared that a slowdown demand for cloud services would dance. Snowflake’s pay as you go model.

BFM

Okay.

BFM

But still quite popular with analysts. 29 buys, 13 holds, two sells, albeit not as popular as Nvidia. Consensus target price for the stock, $188. Last time, priced during regular market hours, it was up all right at 718 in the morning.

BFM

We’re going to take a quick break, but we’ll come back to cover more top stories in the newspapers and portals this morning. Stay tuned BFM 89.9.

BFM

You 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.