October 6, 2025 • 24 mins
A rally in chipmakers sent stocks to all-time highs as Advanced Micro Devices Inc.'s deal with OpenAI added fuel to the artificial-intelligence frenzy that has powered Wall Street. Bonds fell. The dollar rose. OpenAI will deploy 6 gigawatts' worth of AMD graphics processing units over multiple years, according to the pact, which is just over half the size of an agreement the AI startup recently reached with Nvidia. It also sets the stage for OpenAI to acquire a large stake in the chipmaker. The deal represents a high-stakes test for AMD — one that could deliver tens of billions of dollars in new revenue and burnish its status as a serious contender in AI technology. There are also risks: It further ties AMD's prosperity to an AI market that some worry is in a bubble. For more on the markets, we turn to Ed Butowsky, managing partner of Chapwood Investments.
We turn to Japan, where they are set to have its first ever woman leader in Sanae Takaichi. Takaichi wants to become the country's version of her Idol, Margaret Tatcher. However, Bloomberg Opinion Columnist Gearoid Reidy writes that some might fear that she might be another Liz Truss. He joins us to explain.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:11):
Welcome to the Daybreak Asia podcast. I'm dek Krisner. We
had a rally in chip stocks in the States and
it came onward of a blockbuster deal between Advanced micro
Devices and open Ai. AMD is going to provide graphics
processing units to open Ai over multiple years. And interestingly,
this deal also sets the stage for open Ai to
(00:32):
acquire a large stake in AMD. Here is a MD CEO,
Lisa Sue.
Speaker 3 (00:38):
This is a huge milestone for AMD. You know, we
are so thrilled with the partnership with the open Ai team.
And it's also you know, a huge moment for the
AI industry because you know, when you get to the
write down to it, you need more AI.
Speaker 4 (00:51):
Compute. I mean, that's where we are today.
Speaker 3 (00:52):
Compute is a foundation for all of the intelligence we
can get from AI, and you know, we are a
compute provider. We have spent years on our roadmap, We've
spent years working with open Ai and Lisa.
Speaker 2 (01:04):
Sue there, she is the CEO of AMD, speaking earlier
to Bloomberg. By the way, shares an AMD rallied nearly
twenty four percent today and the Philadelphia Semiconductor index was
up about two point nine percent. At the same time,
during New York trading, we had the Japanese yen weakening
by nearly two percent. This is after the election over
the weekend of Sanai taka Ichi as head of the LDP,
(01:28):
And in a moment, we'll look at what her victory
means for Japan with Bloomberg opinion columnist Gerode Reedi. But
we begin with a look at US price action. Our
guest is Ed Butowski. He is managing partner at Chapwood Investments. Ed,
thank you so much. Can we talk first about the
price action that we had in the artificial intelligence trade today.
(01:48):
There's been a lot of talk about the fact that
we may be in a bubble right now, given where
valuations are. I just want you to weigh in. What's
your take.
Speaker 1 (01:58):
Yes, I absolutely think it's a crucial subject because the
spending that's going on is sort of like looking into
the globe or looking into space and knowing what we
see where there's Mars and there's the moon, but we
really don't know what else is beyond that, and the
spending is just outrageous. There's this frenzy of trying to
(02:20):
get money into the AI space. All my clients ask
me how to take advantage of the AI space, and
I tell them that it's sort of like it's going
to be like nanotechnology, where it's going to be a
part of businesses, but making money in AI is going
to be very, very difficult. And the analogy I was
starting to make was that you can look and see
only so far, but how much further does the universe go?
(02:44):
We just don't know, and we don't know what the
universe is going to hold for these AI stops.
Speaker 2 (02:50):
So is that going to put a lot of pressure
on the Magnificent seven in particular when we get quarterly
earnings coming up in the next few weeks and if
there is disappointment, maybe not on the most recent quarter,
but when it comes to guidance, it is the market
particularly vulnerable here?
Speaker 1 (03:06):
Do you think, Well, there's no question about it. The
Magnificent Seven is very very expensive based on today's predictions.
But we just don't know what the rest of the
world is going to look like for them, So it's
a very very difficult thing to forecast. But their earnings expectations,
they're probably going to meet their earnings because earnings expectations
(03:28):
have come down. But what they say is what's going
to be important and how much cap X spending they're
going to be able to do is also going to
be very crucial. They don't do a lot of cap
X spending, then they're probably going to get slaughtered.
Speaker 4 (03:41):
Yeah.
Speaker 2 (03:41):
I want to give a hat tip to Wired magazine.
I was reading today a piece in Wired talking about
projected spending in AI infrastructure this year at around four
hundred billion dollars. But if you look at where consumer
demand for AI is right now, it's only at around
twelve billion a year. So that seems to be a
pretty remarkable disconnect, does it not?
Speaker 1 (04:04):
Yeah, but then you have to ask yourself, what kind
of demand is there for AI other than perplexity, chat, GBT,
grock where you pay twenty dollars a month. How else
are we having this appetite for AI? I don't understand it.
Speaker 2 (04:20):
The other thing that was interesting today I mentioned the
records for the equity market. We also had a record
for the price of gold. We came very close to
four thousand dollars announce Here in New York, Bloomberg was
talking with Ken Griffin from Citadel and he was saying
that investors are starting to view gold as a safer
asset than the dollar, and this is something that is
(04:41):
very very concerning to him. Do you share that point
of view?
Speaker 1 (04:45):
Yeah, I think that gold has you know, it was
always thought to be an inflation protection, but you can
see that inflation has come lower and in gold prices
have gone higher. So I don't think anybody really understands
the movement of gold today. I certainly don't. I've been
doing this forty years and I've just seen gold kind
(05:06):
of remain flat, never really being an inflation hedge. And
you know, because of the weakening of the dollar, that's
one of the reasons that we've seen gold go higher,
But it has not been an inflation protection. So I
don't think anybody really truly understands that other than the
momentum that you're seeing with gold.
Speaker 2 (05:23):
What about the notion that tariffs will be inflationary Today,
As a matter of fact, the White House announced tariffs
of twenty five percent on medium and heavy duty trucks.
They will take effect November the first. Originally that was
supposed to have been an October first deadline. But talk
to me about the extent to which tariff policy will
(05:44):
impact future inflation.
Speaker 1 (05:46):
Yes, I think that you had to look at the
number that twenty five percent of what we use in
this country comes from outside the United States, it's only
twenty five percent is subject to teriffs. Then you have
to dice, you know, yet to splice up exactly which
tariffs are going to be impactful. You know, middle sized
trucks and small trucks. You know, you have to figure
(06:09):
out what percentage of our GDP does that represent, And
nothing really represents a lot. So I think the inflationary
pressure from tariffs is something that's misguided. I don't think
there's going to be a huge amount of inflation because
of tariffs.
Speaker 2 (06:24):
So does that necessarily mean then the Fed is clear
to begin with another rate cut this month?
Speaker 1 (06:30):
I don't think there's any question we're going to see
another rate cut. I think the GDP numbers and the
inflationary numbers are begging for a rate cut, probably one
this month, and then one next month, and then maybe
another one before the end of the year. But definitely
we're seeing a lower interest rate environment.
Speaker 2 (06:48):
To what extent is the equity market discounted that completely,
and if so, is further upside necessarily limited.
Speaker 1 (06:57):
I don't think further upside is limited, and I'm not
a raging bull, but I do look at things practically,
and lower interest rates are going to make the cost
of borrowing a lot cheaper. And I do believe answer specifically,
I do believe a lot of this is already factored
in to the market. If you look at the futures market,
they're looking at a ninety six to one hundred percent
(07:19):
probability of a rate cut this month. So that's that.
You know, the market is a great discount or of
future events, and I think they've already discounted it.
Speaker 2 (07:28):
So where are you finding opportunity these days?
Speaker 1 (07:31):
I love utilities. I have for quite some time. I
actually like utls, which is three times the utility of
bull market, and it takes the the utility index and
multiplies the times three, and my clients have done very
well by it, and I continue to believe that utilities
are going to excel.
Speaker 2 (07:51):
Doesn't that go back to the AI story? Though? When
you look at demand from data centers, isn't that really
the thesis here?
Speaker 1 (07:58):
Now? I don't look at it from that standpoint, although
that is a nice beneficiary. I look at it from
the standpoint that interest rates are going to drop and
the cost to generate energy has come down. So if
you look at what goes into utilities, those costs have
come down, those commodity prices, and that is kind of
a secret or a silent dividend to all of these
(08:20):
utility companies because the cost for them to do business
has gone down.
Speaker 2 (08:24):
So what is the average dividend that one of the
utility stocks? What does it kick off? On average?
Speaker 1 (08:30):
About three and a half percent. So I look at
them as growth plus income versus income plus growth. I
do look at the growth of the value of the
asset going higher plus getting about three and a half
percent income off of them. And they've been really wonderful,
and I truly believe they're going to continue to be
towards the end of the year.
Speaker 2 (08:50):
How are you feeling about the bond market. We've got
a ten year at around four point fifteen. You said
a moment ago you expect the FED to continue to
cut rates. Is this an opportunit unity maybe to take
a position in fixed income.
Speaker 1 (09:03):
Yes, although fixed income bores me to tears, it really
does unless we're dealing with distressed When high yield bonds,
those kind of excite me. But when you look at
a single aid corporate, you know, I mean, it's just
like buying, you know, a ten year treasury and it
just doesn't do much for me. So I'm not really
(09:24):
that interested.
Speaker 2 (09:25):
In beyond the coupon, though. I'm wondering if there's an
opportunity for a little capital gain if you were to trade.
Speaker 1 (09:31):
It a very little and you'd have to be dealing
with millions and millions of dollars to make it worthwhile.
Otherwise you're just getting about a four or five percent
increase in the value of the underlying security.
Speaker 2 (09:44):
Okay, Ed, we'll leave it there, Thank you so very much.
Edwutowski is managing partner at Chapwood Investments. Joining us here
on The Daybreak as your podcast. Welcome back to the
day Break Asia Podcast. I'm Doug Prisner. The weekend election
(10:05):
win by Sinai Takeiichi as leader of Japan's LDP is
still reverberating in markets. She is set to become Japan's
first female prime minister.
Speaker 3 (10:15):
Now.
Speaker 2 (10:16):
Take Ichi has long been a critic of BOJ normalization,
and her fiscal stance suggests continued tolerance for ultra loose policy. Now,
there have been a couple of dramatic moves in markets
over the last twenty four hours. We had the knee
k soaring by four point seven percent on Monday as
the end sold off, and then in New York trading
(10:36):
on Monday, we had the end weakening by nearly two
percent against the dollar. For a closer look at what
Takeiichi's win means, I'm joined by Gerodridi of Bloomberg Opinion.
Thank you so much for making time to chat with me.
I got to begin by asking how surprised you may
have been at the outcome of this election.
Speaker 4 (10:55):
It certainly wantsn't the result that was most likely. I
think going into Saturday's vote at the same time, it
was highly likely that it was going to be Takeiichi
or shinjiokois Me. I think most of the money. If
you'd asked me on Friday, I would have bet on
coois Me. But as we got closer to the vote,
(11:16):
the sans seemed to be shifting. So it wasn't a
total surprise. And it makes a lot of sense when
you think about the position that the LDP finds itself
in losing support among conservatives, losing support among its base
and really needing someone to get the traditional LDP members
(11:37):
back on board. That wasn't going to be coison me
and certainly Takechi appeals to that segment.
Speaker 2 (11:43):
So I mentioned a moment ago the perception that markets
have of taka Ichi. Do you think they are accurate?
Speaker 4 (11:51):
They're accurate in terms of what she believes. I think
what she believes in what she achieves will be two
very different things. You know, Takeichi does see herself as
you know, a scion of the late Prime Minister Shinzo Abbe.
In the past, she has talked a lot about you know,
easy money policy, about as you say, opposing boj hikes.
(12:13):
She has been a lot more circumspects in this race
than she was before. She focused more on trying to
moderate her her line a little bit, focused more on
talking about responsible spending. Now she is more of a
believer in free spending than I think most of the
other candidates would have been. At the same time, she's
(12:35):
going to be very constrained about what she can actually achieve.
It's not it's not the same situation as it was
when Shinzo Abe came in and subsequently came in as
an LDP leader and then subsequently was swept back into
power with a huge majority and a huge mandate to
get a lot of stuff done. Takaichi is in a
(12:58):
minority in both houses of parliament. She's going to have
to make deals just to just to keep the lights on,
as it were. She's going to find it very hard
to get any big, bold policy, anything like ebonomics. I
don't think is on the you know, I don't think
he's on the cards in the near term. What she's
(13:19):
going to need to do in the near term is
going to be stuff that's going to immediately put cash
in the wallets of every day voters who are suffering
with and very unhappy with japan sustained inflation.
Speaker 2 (13:32):
I'm wondering if there is any evidence to suggest that
her thinking may be shifting in terms of the trade
relationship with the US and how to approach coming up
with a trade deal.
Speaker 4 (13:44):
She's been pretty reasonable, I think, pretty pragmatic in terms
of what she said. She said she was not going
to attempt to renegotiate the deal that has been made
with Ishiba and President Trump. Of course, we do have
reports that President Trump is going to visit Japan about
(14:04):
a handful of days after Takaichi is likely confirmed as
Prime Minister. But I wouldn't expect to see fireworks there.
I think, you know, Takaichi knows that probably that's the
best deal that they're going to have for the moment.
Over the long term they can think about. There's a
lot of questions in terms of that deal, in terms
of the five hundred and fifty billion dollar investment fund,
(14:27):
but I don't think she's going to be in any
position to tackle that immediately.
Speaker 2 (14:33):
You mentioned a moment ago the level of inflation in
Japan and how uncomfortable that is for so many consumers.
I'm curious about the reaction of the Takaichi win among
Japanese public.
Speaker 4 (14:46):
So far, the pulling has been quite supportive. I think
she's seen, as you know, potentially like a very strong
leader if she can get if she can get things right.
There was you know, me who, as I mentioned at
the start, was looking like the most likely to win.
He is popular among some parts of the public, but
(15:08):
there also is a large part of the public that
really does not like him. So I think there is
especially amongst conservative leaning voters. So there's a little bit
of a of a relief, and I think I saw
Paul yesterday that was like something in the region of
sixty eight percent of people had high expectations for her
(15:29):
as leader. Again, is she going to be able to
do anything quickly? We see over and over again with
new LDP leaders, with new prime ministers, that even if
the public goes in with high expectations for them, it's
quite hard to actually get stuff done. There's a lot
of interested bodies, there's a lot of negotiations that need
(15:53):
to be done. And that's even more true now than
it has been in the past with the LDP's minority position.
So you can see time and time again that starts
off high and just immediately tanks. Takeichi is going to
have to make sure that she avoids that situation if
she wants to stay in power.
Speaker 2 (16:10):
So you're right in your piece that Takeiichi had been
LDP president for all of five minutes when she generated
her first controversy. What happened?
Speaker 4 (16:21):
So in her acceptance speech for immediately after she won
the vote to be president, she pledged that she was
going to she was going to work work, work, work, work,
is what she said, and she encouraged all of the
lawmakers to also join her in working and said that
she was going to no longer use the phrase work
(16:43):
life balance and dedicate herself to working. Now she was
talking to the lawmakers, she was encouraging lawmakers to work hard. Immediately,
this got a reaction online in terms of, you know,
advocates for promoting work life balance. Obviously, Japan in the
past has had issues in terms of overwork, in terms of,
(17:06):
you know, there have been many cases of deaths from overwork,
and immediately there was this reaction to how is she
encouraging everyone in the country to work themselves to death? Now,
that is not at all what she meant, and her
quote has been taken very much out of context. There
that is a little bit of something that you can
(17:27):
expect to see, because just as I mentioned that there
is a segment of the public who did not like Koizumi,
there is a segment of the public that does not
like Takichi at all and does not like the school
of thought, you know, the shinzo Abe kind of school
of thought that she comes from. That school has been
(17:47):
relatively quiet over the past couple of years because they've
been happy enough with Ishiba and his predecessor Funiyokishida, who
were very much centrist or center left. People within the
LDP Takeiichi's very much on the right wing, and so
you're going to see a lot of situations like that
where people are deliberately or otherwise taking what she says
(18:10):
out of context.
Speaker 2 (18:11):
So what do you believe to be the first major
challenge that taka Ichi will confront?
Speaker 4 (18:17):
The very first challenge that she has is essentially is
making sure that she can become prime minister at all.
So the LDP has its long standing coalition member Kometo,
that has been a coalition for for many years. But
Komeito have been making noises even before the election that
suggests that they're not super happy with the prospect of
(18:39):
Takaichi winning. They are a much more kind of moderate
force than she would than she would be seen as,
and they're putting out some noises now suggesting they're not
super happy with the vote Kmeto or also, I should say,
they've also been bleeding support over the past couple of years.
First of all, she's going to have to make sure
(19:00):
that she can secure She needs their votes and also
some other votes to even just become prime minister. At all.
So either she needs to repair that bridge with the
coalition partner or potentially find a new coalition partner. There's
talk of Takeji has sort of like suggested that she
(19:23):
might seek either a new or another coalition partner, the
most likely being the DPP. That's going to be the
very first port of call before she can even be
confirmed as prime minister, because despite President Trump tweeting his
congratulations for her being elected prime Minister she hasn't actually
(19:45):
been elected prime minister yet. That still needs to go
through Parliament sometime next week.
Speaker 2 (19:49):
So beyond the issue of inflation, a couple of the
hot button issues right now, from what I understand are
defense and immigration. Where is Takeiichi in this regard?
Speaker 4 (19:59):
I tend to I think that takei shee her despite
her reputation as being, you know, sometimes people accuse her
of being, you know, an ultra conservative or a radical
right winger. A lot of the stuff that she said
on immigration, which as you point out, it is definitely
a huge topic of conversation here at the moment, you know,
(20:21):
no less than than it is in other places. A
lot of stuff that she said on this occasion in
terms of policy was quite practical. She she opposes, you know,
illegal immigration, visa overstairs people who don't obey the rules.
I don't particularly consider that to be a radical stance,
(20:43):
and certainly the Japanese public would not consider that to
be a radical stance. When whereas other people, other candidates
for the LDP presidency, they suggested phrases like building a
society where, you know, where we don't have to depend
on immigrants. I found that to be a very irresponsible
(21:05):
thing to say, because with Japan's labor shortage, there is
no option but to depend on immigrants at the moment.
She didn't say stuff like that, and she also passed
up the opportunity to advocate for, let's say, a restriction
on how many immigrants are brought in per year. So
(21:25):
I think she's perfectly reasonable, at least in terms of
the policy she's advocating. The tone that she brought up
was a little a little reckless in terms of the
tone that she was using, But I think if you
look at the substance, I'm not I think she's quite
practical on that front, and there is a big conversation
to be had that the country has not had over immigration. Essentially,
(21:53):
Japan has had quite a large not large compared to
shall we say, the US, or to many other Western countries,
but compared to its past, it has had a big
policy of bringing in immigrants. Over the last decade, it
has not had the conversation around that, and that is
(22:14):
I think a mistake by the late Shinzo Abbe, and
I think it's important now to have that conversation and
to to talk about what Japanese society should look like,
and how society wants to integrate and assimilate immigrants, and
how it's going to deal with some of the challenges
(22:36):
around that, including around tourism, around over tourism, around foreign
purchases of real estate, which is a big topic of
conversation at the moment. So that's immigration. On defense, I
think she's obviously she is a conservative. On defense. She
wants a strong nation, she wants a strong she wants
(22:59):
me Aultimately, she wants a country that can declare that
it has a strong army. Any talk of constitutional revision
obviously that is going to be further, much further down
the line. But I think she's going to be very
practical on that, and I think certainly President Trump will
find someone who he can talk to who's going to
want to spend on defense and going to want to
(23:22):
make a strong a nation that has a strong ability
to defend itself.
Speaker 2 (23:26):
Garoad will leave it there. Thank you so very much.
Bloomberg's Gerode Ready. He is an opinion columnist helping us
understand the weekend election win by Sanai taka Ichi as
leader of Japan's LDP here on the Daybreak Asia podcast.
Thanks for listening to today's episode of the Bloomberg Daybreak
Asia Edition podcast. Each weekday, we look at the story
(23:49):
shaping markets, finance, and geopolitics in the Asia Pacific. You
can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
or anywhere else you listen once again tomorrow for insight
on the market moves from Hong Kong to Singapore and Australia.
I'm Doug Prisoner and this is Bloomberg
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:11):
Welcome to the Daybreak Asia podcast. I'm dek Krisner. We
had a rally in chip stocks in the States and
it came onward of a blockbuster deal between Advanced micro
Devices and open Ai. AMD is going to provide graphics
processing units to open Ai over multiple years. And interestingly,
this deal also sets the stage for open Ai to
(00:32):
acquire a large stake in AMD. Here is a MD CEO,
Lisa Sue.
Speaker 3 (00:38):
This is a huge milestone for AMD. You know, we
are so thrilled with the partnership with the open Ai team.
And it's also you know, a huge moment for the
AI industry because you know, when you get to the
write down to it, you need more AI.
Speaker 4 (00:51):
Compute. I mean, that's where we are today.
Speaker 3 (00:52):
Compute is a foundation for all of the intelligence we
can get from AI, and you know, we are a
compute provider. We have spent years on our roadmap, We've
spent years working with open Ai and Lisa.
Speaker 2 (01:04):
Sue there, she is the CEO of AMD, speaking earlier
to Bloomberg. By the way, shares an AMD rallied nearly
twenty four percent today and the Philadelphia Semiconductor index was
up about two point nine percent. At the same time,
during New York trading, we had the Japanese yen weakening
by nearly two percent. This is after the election over
the weekend of Sanai taka Ichi as head of the LDP,
(01:28):
And in a moment, we'll look at what her victory
means for Japan with Bloomberg opinion columnist Gerode Reedi. But
we begin with a look at US price action. Our
guest is Ed Butowski. He is managing partner at Chapwood Investments. Ed,
thank you so much. Can we talk first about the
price action that we had in the artificial intelligence trade today.
(01:48):
There's been a lot of talk about the fact that
we may be in a bubble right now, given where
valuations are. I just want you to weigh in. What's
your take.
Speaker 1 (01:58):
Yes, I absolutely think it's a crucial subject because the
spending that's going on is sort of like looking into
the globe or looking into space and knowing what we
see where there's Mars and there's the moon, but we
really don't know what else is beyond that, and the
spending is just outrageous. There's this frenzy of trying to
(02:20):
get money into the AI space. All my clients ask
me how to take advantage of the AI space, and
I tell them that it's sort of like it's going
to be like nanotechnology, where it's going to be a
part of businesses, but making money in AI is going
to be very, very difficult. And the analogy I was
starting to make was that you can look and see
only so far, but how much further does the universe go?
(02:44):
We just don't know, and we don't know what the
universe is going to hold for these AI stops.
Speaker 2 (02:50):
So is that going to put a lot of pressure
on the Magnificent seven in particular when we get quarterly
earnings coming up in the next few weeks and if
there is disappointment, maybe not on the most recent quarter,
but when it comes to guidance, it is the market
particularly vulnerable here?
Speaker 1 (03:06):
Do you think, Well, there's no question about it. The
Magnificent Seven is very very expensive based on today's predictions.
But we just don't know what the rest of the
world is going to look like for them, So it's
a very very difficult thing to forecast. But their earnings expectations,
they're probably going to meet their earnings because earnings expectations
(03:28):
have come down. But what they say is what's going
to be important and how much cap X spending they're
going to be able to do is also going to
be very crucial. They don't do a lot of cap
X spending, then they're probably going to get slaughtered.
Speaker 4 (03:41):
Yeah.
Speaker 2 (03:41):
I want to give a hat tip to Wired magazine.
I was reading today a piece in Wired talking about
projected spending in AI infrastructure this year at around four
hundred billion dollars. But if you look at where consumer
demand for AI is right now, it's only at around
twelve billion a year. So that seems to be a
pretty remarkable disconnect, does it not?
Speaker 1 (04:04):
Yeah, but then you have to ask yourself, what kind
of demand is there for AI other than perplexity, chat, GBT,
grock where you pay twenty dollars a month. How else
are we having this appetite for AI? I don't understand it.
Speaker 2 (04:20):
The other thing that was interesting today I mentioned the
records for the equity market. We also had a record
for the price of gold. We came very close to
four thousand dollars announce Here in New York, Bloomberg was
talking with Ken Griffin from Citadel and he was saying
that investors are starting to view gold as a safer
asset than the dollar, and this is something that is
(04:41):
very very concerning to him. Do you share that point
of view?
Speaker 1 (04:45):
Yeah, I think that gold has you know, it was
always thought to be an inflation protection, but you can
see that inflation has come lower and in gold prices
have gone higher. So I don't think anybody really understands
the movement of gold today. I certainly don't. I've been
doing this forty years and I've just seen gold kind
(05:06):
of remain flat, never really being an inflation hedge. And
you know, because of the weakening of the dollar, that's
one of the reasons that we've seen gold go higher,
But it has not been an inflation protection. So I
don't think anybody really truly understands that other than the
momentum that you're seeing with gold.
Speaker 2 (05:23):
What about the notion that tariffs will be inflationary Today,
As a matter of fact, the White House announced tariffs
of twenty five percent on medium and heavy duty trucks.
They will take effect November the first. Originally that was
supposed to have been an October first deadline. But talk
to me about the extent to which tariff policy will
(05:44):
impact future inflation.
Speaker 1 (05:46):
Yes, I think that you had to look at the
number that twenty five percent of what we use in
this country comes from outside the United States, it's only
twenty five percent is subject to teriffs. Then you have
to dice, you know, yet to splice up exactly which
tariffs are going to be impactful. You know, middle sized
trucks and small trucks. You know, you have to figure
(06:09):
out what percentage of our GDP does that represent, And
nothing really represents a lot. So I think the inflationary
pressure from tariffs is something that's misguided. I don't think
there's going to be a huge amount of inflation because
of tariffs.
Speaker 2 (06:24):
So does that necessarily mean then the Fed is clear
to begin with another rate cut this month?
Speaker 1 (06:30):
I don't think there's any question we're going to see
another rate cut. I think the GDP numbers and the
inflationary numbers are begging for a rate cut, probably one
this month, and then one next month, and then maybe
another one before the end of the year. But definitely
we're seeing a lower interest rate environment.
Speaker 2 (06:48):
To what extent is the equity market discounted that completely,
and if so, is further upside necessarily limited.
Speaker 1 (06:57):
I don't think further upside is limited, and I'm not
a raging bull, but I do look at things practically,
and lower interest rates are going to make the cost
of borrowing a lot cheaper. And I do believe answer specifically,
I do believe a lot of this is already factored
in to the market. If you look at the futures market,
they're looking at a ninety six to one hundred percent
(07:19):
probability of a rate cut this month. So that's that.
You know, the market is a great discount or of
future events, and I think they've already discounted it.
Speaker 2 (07:28):
So where are you finding opportunity these days?
Speaker 1 (07:31):
I love utilities. I have for quite some time. I
actually like utls, which is three times the utility of
bull market, and it takes the the utility index and
multiplies the times three, and my clients have done very
well by it, and I continue to believe that utilities
are going to excel.
Speaker 2 (07:51):
Doesn't that go back to the AI story? Though? When
you look at demand from data centers, isn't that really
the thesis here?
Speaker 1 (07:58):
Now? I don't look at it from that standpoint, although
that is a nice beneficiary. I look at it from
the standpoint that interest rates are going to drop and
the cost to generate energy has come down. So if
you look at what goes into utilities, those costs have
come down, those commodity prices, and that is kind of
a secret or a silent dividend to all of these
(08:20):
utility companies because the cost for them to do business
has gone down.
Speaker 2 (08:24):
So what is the average dividend that one of the
utility stocks? What does it kick off? On average?
Speaker 1 (08:30):
About three and a half percent. So I look at
them as growth plus income versus income plus growth. I
do look at the growth of the value of the
asset going higher plus getting about three and a half
percent income off of them. And they've been really wonderful,
and I truly believe they're going to continue to be
towards the end of the year.
Speaker 2 (08:50):
How are you feeling about the bond market. We've got
a ten year at around four point fifteen. You said
a moment ago you expect the FED to continue to
cut rates. Is this an opportunit unity maybe to take
a position in fixed income.
Speaker 1 (09:03):
Yes, although fixed income bores me to tears, it really
does unless we're dealing with distressed When high yield bonds,
those kind of excite me. But when you look at
a single aid corporate, you know, I mean, it's just
like buying, you know, a ten year treasury and it
just doesn't do much for me. So I'm not really
(09:24):
that interested.
Speaker 2 (09:25):
In beyond the coupon, though. I'm wondering if there's an
opportunity for a little capital gain if you were to trade.
Speaker 1 (09:31):
It a very little and you'd have to be dealing
with millions and millions of dollars to make it worthwhile.
Otherwise you're just getting about a four or five percent
increase in the value of the underlying security.
Speaker 2 (09:44):
Okay, Ed, we'll leave it there, Thank you so very much.
Edwutowski is managing partner at Chapwood Investments. Joining us here
on The Daybreak as your podcast. Welcome back to the
day Break Asia Podcast. I'm Doug Prisner. The weekend election
(10:05):
win by Sinai Takeiichi as leader of Japan's LDP is
still reverberating in markets. She is set to become Japan's
first female prime minister.
Speaker 3 (10:15):
Now.
Speaker 2 (10:16):
Take Ichi has long been a critic of BOJ normalization,
and her fiscal stance suggests continued tolerance for ultra loose policy. Now,
there have been a couple of dramatic moves in markets
over the last twenty four hours. We had the knee
k soaring by four point seven percent on Monday as
the end sold off, and then in New York trading
(10:36):
on Monday, we had the end weakening by nearly two
percent against the dollar. For a closer look at what
Takeiichi's win means, I'm joined by Gerodridi of Bloomberg Opinion.
Thank you so much for making time to chat with me.
I got to begin by asking how surprised you may
have been at the outcome of this election.
Speaker 4 (10:55):
It certainly wantsn't the result that was most likely. I
think going into Saturday's vote at the same time, it
was highly likely that it was going to be Takeiichi
or shinjiokois Me. I think most of the money. If
you'd asked me on Friday, I would have bet on
coois Me. But as we got closer to the vote,
(11:16):
the sans seemed to be shifting. So it wasn't a
total surprise. And it makes a lot of sense when
you think about the position that the LDP finds itself
in losing support among conservatives, losing support among its base
and really needing someone to get the traditional LDP members
(11:37):
back on board. That wasn't going to be coison me
and certainly Takechi appeals to that segment.
Speaker 2 (11:43):
So I mentioned a moment ago the perception that markets
have of taka Ichi. Do you think they are accurate?
Speaker 4 (11:51):
They're accurate in terms of what she believes. I think
what she believes in what she achieves will be two
very different things. You know, Takeichi does see herself as
you know, a scion of the late Prime Minister Shinzo Abbe.
In the past, she has talked a lot about you know,
easy money policy, about as you say, opposing boj hikes.
(12:13):
She has been a lot more circumspects in this race
than she was before. She focused more on trying to
moderate her her line a little bit, focused more on
talking about responsible spending. Now she is more of a
believer in free spending than I think most of the
other candidates would have been. At the same time, she's
(12:35):
going to be very constrained about what she can actually achieve.
It's not it's not the same situation as it was
when Shinzo Abe came in and subsequently came in as
an LDP leader and then subsequently was swept back into
power with a huge majority and a huge mandate to
get a lot of stuff done. Takaichi is in a
(12:58):
minority in both houses of parliament. She's going to have
to make deals just to just to keep the lights on,
as it were. She's going to find it very hard
to get any big, bold policy, anything like ebonomics. I
don't think is on the you know, I don't think
he's on the cards in the near term. What she's
(13:19):
going to need to do in the near term is
going to be stuff that's going to immediately put cash
in the wallets of every day voters who are suffering
with and very unhappy with japan sustained inflation.
Speaker 2 (13:32):
I'm wondering if there is any evidence to suggest that
her thinking may be shifting in terms of the trade
relationship with the US and how to approach coming up
with a trade deal.
Speaker 4 (13:44):
She's been pretty reasonable, I think, pretty pragmatic in terms
of what she said. She said she was not going
to attempt to renegotiate the deal that has been made
with Ishiba and President Trump. Of course, we do have
reports that President Trump is going to visit Japan about
(14:04):
a handful of days after Takaichi is likely confirmed as
Prime Minister. But I wouldn't expect to see fireworks there.
I think, you know, Takaichi knows that probably that's the
best deal that they're going to have for the moment.
Over the long term they can think about. There's a
lot of questions in terms of that deal, in terms
of the five hundred and fifty billion dollar investment fund,
(14:27):
but I don't think she's going to be in any
position to tackle that immediately.
Speaker 2 (14:33):
You mentioned a moment ago the level of inflation in
Japan and how uncomfortable that is for so many consumers.
I'm curious about the reaction of the Takaichi win among
Japanese public.
Speaker 4 (14:46):
So far, the pulling has been quite supportive. I think
she's seen, as you know, potentially like a very strong
leader if she can get if she can get things right.
There was you know, me who, as I mentioned at
the start, was looking like the most likely to win.
He is popular among some parts of the public, but
(15:08):
there also is a large part of the public that
really does not like him. So I think there is
especially amongst conservative leaning voters. So there's a little bit
of a of a relief, and I think I saw
Paul yesterday that was like something in the region of
sixty eight percent of people had high expectations for her
(15:29):
as leader. Again, is she going to be able to
do anything quickly? We see over and over again with
new LDP leaders, with new prime ministers, that even if
the public goes in with high expectations for them, it's
quite hard to actually get stuff done. There's a lot
of interested bodies, there's a lot of negotiations that need
(15:53):
to be done. And that's even more true now than
it has been in the past with the LDP's minority position.
So you can see time and time again that starts
off high and just immediately tanks. Takeichi is going to
have to make sure that she avoids that situation if
she wants to stay in power.
Speaker 2 (16:10):
So you're right in your piece that Takeiichi had been
LDP president for all of five minutes when she generated
her first controversy. What happened?
Speaker 4 (16:21):
So in her acceptance speech for immediately after she won
the vote to be president, she pledged that she was
going to she was going to work work, work, work, work,
is what she said, and she encouraged all of the
lawmakers to also join her in working and said that
she was going to no longer use the phrase work
(16:43):
life balance and dedicate herself to working. Now she was
talking to the lawmakers, she was encouraging lawmakers to work hard. Immediately,
this got a reaction online in terms of, you know,
advocates for promoting work life balance. Obviously, Japan in the
past has had issues in terms of overwork, in terms of,
(17:06):
you know, there have been many cases of deaths from overwork,
and immediately there was this reaction to how is she
encouraging everyone in the country to work themselves to death? Now,
that is not at all what she meant, and her
quote has been taken very much out of context. There
that is a little bit of something that you can
(17:27):
expect to see, because just as I mentioned that there
is a segment of the public who did not like Koizumi,
there is a segment of the public that does not
like Takichi at all and does not like the school
of thought, you know, the shinzo Abe kind of school
of thought that she comes from. That school has been
(17:47):
relatively quiet over the past couple of years because they've
been happy enough with Ishiba and his predecessor Funiyokishida, who
were very much centrist or center left. People within the
LDP Takeiichi's very much on the right wing, and so
you're going to see a lot of situations like that
where people are deliberately or otherwise taking what she says
(18:10):
out of context.
Speaker 2 (18:11):
So what do you believe to be the first major
challenge that taka Ichi will confront?
Speaker 4 (18:17):
The very first challenge that she has is essentially is
making sure that she can become prime minister at all.
So the LDP has its long standing coalition member Kometo,
that has been a coalition for for many years. But
Komeito have been making noises even before the election that
suggests that they're not super happy with the prospect of
(18:39):
Takaichi winning. They are a much more kind of moderate
force than she would than she would be seen as,
and they're putting out some noises now suggesting they're not
super happy with the vote Kmeto or also, I should say,
they've also been bleeding support over the past couple of years.
First of all, she's going to have to make sure
(19:00):
that she can secure She needs their votes and also
some other votes to even just become prime minister. At all.
So either she needs to repair that bridge with the
coalition partner or potentially find a new coalition partner. There's
talk of Takeji has sort of like suggested that she
(19:23):
might seek either a new or another coalition partner, the
most likely being the DPP. That's going to be the
very first port of call before she can even be
confirmed as prime minister, because despite President Trump tweeting his
congratulations for her being elected prime Minister she hasn't actually
(19:45):
been elected prime minister yet. That still needs to go
through Parliament sometime next week.
Speaker 2 (19:49):
So beyond the issue of inflation, a couple of the
hot button issues right now, from what I understand are
defense and immigration. Where is Takeiichi in this regard?
Speaker 4 (19:59):
I tend to I think that takei shee her despite
her reputation as being, you know, sometimes people accuse her
of being, you know, an ultra conservative or a radical
right winger. A lot of the stuff that she said
on immigration, which as you point out, it is definitely
a huge topic of conversation here at the moment, you know,
(20:21):
no less than than it is in other places. A
lot of stuff that she said on this occasion in
terms of policy was quite practical. She she opposes, you know,
illegal immigration, visa overstairs people who don't obey the rules.
I don't particularly consider that to be a radical stance,
(20:43):
and certainly the Japanese public would not consider that to
be a radical stance. When whereas other people, other candidates
for the LDP presidency, they suggested phrases like building a
society where, you know, where we don't have to depend
on immigrants. I found that to be a very irresponsible
(21:05):
thing to say, because with Japan's labor shortage, there is
no option but to depend on immigrants at the moment.
She didn't say stuff like that, and she also passed
up the opportunity to advocate for, let's say, a restriction
on how many immigrants are brought in per year. So
(21:25):
I think she's perfectly reasonable, at least in terms of
the policy she's advocating. The tone that she brought up
was a little a little reckless in terms of the
tone that she was using, But I think if you
look at the substance, I'm not I think she's quite
practical on that front, and there is a big conversation
to be had that the country has not had over immigration. Essentially,
(21:53):
Japan has had quite a large not large compared to
shall we say, the US, or to many other Western countries,
but compared to its past, it has had a big
policy of bringing in immigrants. Over the last decade, it
has not had the conversation around that, and that is
(22:14):
I think a mistake by the late Shinzo Abbe, and
I think it's important now to have that conversation and
to to talk about what Japanese society should look like,
and how society wants to integrate and assimilate immigrants, and
how it's going to deal with some of the challenges
(22:36):
around that, including around tourism, around over tourism, around foreign
purchases of real estate, which is a big topic of
conversation at the moment. So that's immigration. On defense, I
think she's obviously she is a conservative. On defense. She
wants a strong nation, she wants a strong she wants
(22:59):
me Aultimately, she wants a country that can declare that
it has a strong army. Any talk of constitutional revision
obviously that is going to be further, much further down
the line. But I think she's going to be very
practical on that, and I think certainly President Trump will
find someone who he can talk to who's going to
want to spend on defense and going to want to
(23:22):
make a strong a nation that has a strong ability
to defend itself.
Speaker 2 (23:26):
Garoad will leave it there. Thank you so very much.
Bloomberg's Gerode Ready. He is an opinion columnist helping us
understand the weekend election win by Sanai taka Ichi as
leader of Japan's LDP here on the Daybreak Asia podcast.
Thanks for listening to today's episode of the Bloomberg Daybreak
Asia Edition podcast. Each weekday, we look at the story
(23:49):
shaping markets, finance, and geopolitics in the Asia Pacific. You
can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,
or anywhere else you listen once again tomorrow for insight
on the market moves from Hong Kong to Singapore and Australia.
I'm Doug Prisoner and this is Bloomberg
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