December 1, 2025 • 21 mins
Asian stocks staged a rebound on Tuesday following a selloff that saw cryptocurrencies lead declines in global risk assets. Japanese government bonds were in focus ahead of an auction of 10-year debt. For more on the outlook on emerging market opportunities in Asia, we spoke to Joy Yang, Head of Product Management and Marketing at MarketVector Indexes.
Plus - Almost $1 billion of leveraged crypto positions were liquidated during another sharp drop in prices on Monday that brought fresh momentum to a wide-ranging selloff. For more on what this for the broader market, we spoke to Tim Pagliara, Founder, Chairman, and Chief Investment Officer at CapWealth.
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Speaker 1 (00:00):
Bloomberg Audio Studios, podcasts, radio News. Welcome to the Daybreak
Asia podcast. I'm Doug Chrisner. Equity markets across the Asia
Pacific are advancing despite some weakness in the US, and
(00:20):
today a lot of focus on Japan because Monday we
had the BOJ Governor Uwaita talking up the prospect for
a rate hike. Money markets now suggest an eighty percent
probability of the BOJ raising its policy rate on December nineteenth.
Just a week ago that probability was below twenty five percent.
And speaking of central banks, we've got the Fed's decision
(00:43):
on December tenth. Now we know that EM stocks and
currencies have been benefiting from expectations for a FED rate cut.
For a closer look now at EM I'm joined by
Joey Young. She is head of product management and marketing
at Market Vectors. Index's joy joining from just outside of
New York City. Thank you for making time to chat
with me. We know that EM equities generally speaking, are
(01:07):
on track for their best year since about twenty sixteen,
I think, and it's interesting that these gains have occurred
against a backdrop of not only higher tariffs, but a
struggling Chinese economy. How do you make sense of that?
Speaker 2 (01:22):
I think one you you know, it's an emerging market,
so there are risks, whether it's to data or individual companies.
But not all companies within China are an investible which
is where we had started probably at the end of
last year, until we saw that. You know, these are
(01:44):
companies that benefit from AI and we see that in Ali,
Baba and concent and these are also companies that are
participating in the same growth stories that are driving develop
markets such as gold. You know, gold miners in China
have done extremely well. So investors have to look carefully
not just at the country, but the themes within the country.
(02:08):
And even China is an interesting case because when investors
consider China, we're seeing a lot of domestic Chinese stocks
now listed in Hong Kong, so you know, you should
include these Hong Kong listed names that are exposed to
domestic Chin Chinese economics, so you know whether that's good
(02:31):
or bad.
Speaker 1 (02:32):
So that's the trade essentially. Maybe you focus on things
like artificial intelligence or robotics in terms of the Chinese
equity market, but you avoid things with a lot of
exposure to domestic demand, which as we know has been stalling,
and the housing market at the same time remains under duress.
Speaker 2 (02:52):
Yeah, I mean, essentially, these are the risks that you're
taking in emerging market, whether it's China or even Indian.
We saw India again in twenty twenty four had just
the superb outperformance and it's looking expensive now. But within India,
you know, digital economy is doing well, and so we
(03:13):
think that investors, you know, should focus within India on
things like digital economy and infrastructure.
Speaker 1 (03:20):
So we mentioned artificial intelligence as it relates to China.
But as you well know, the intricacies of the supply chain,
whether you're talking about high bandwidth memory chips or the
chips that Nvidia produces manufactured by TSMC and Taiwan, a
lot of the raw materials that are necessary to produce
those semiconductors, all of this is very interrelated, and I'm
(03:45):
wondering how you're approaching that right now, whether you're looking
at markets like Taiwan, like South Korea as a way
to leverage that AI trade.
Speaker 2 (03:54):
Absolutely, so, I think if you think about emerging markets
as a whole, was kind of written off. You know,
people were under allocating to emerging markets so they had
higher risk premiums because you know, you know, most investors
thought that they would be negatively impacted by the tariffs,
(04:17):
but as we know, these terrors still have you know,
a lot of noise in there. There's been taco you know,
strategies and reversals and terroriffts.
Speaker 3 (04:27):
And we've seen that.
Speaker 2 (04:28):
Emerging markets and aggregate have adapted really well to the
tariff noise because they've been able to either pivot away
from some of the noise by trading towards China or
the rest of the world, and they have also been
beneficiaries from the west of the world trying to put
pivot away from the US, and that includes you know,
(04:50):
countries like Taiwan, which is still a significant part.
Speaker 3 (04:54):
Of the ai story, as well as Korea.
Speaker 2 (04:58):
And Korea is another interesting case where at the beginning
of the year we were talking about martial law and
crisis in the government, so a lot of people shied
away from Korean markets. Year to day, Korea is the
highest performing country in the market. So I think investors
(05:20):
have to be constantly reassessing, repricing the risks that they've
placed in some of these countries.
Speaker 1 (05:29):
I'm curious about Vietnam right now, the country seems to
be on the cosp of being a frontier market, maybe
early stage em How do you look at Vietnam these days?
Speaker 2 (05:41):
I think Vietnam is also another one of these growth stories,
not just on the back of fundamentals, because they've restructured
their debt and they've invested in the infrastructure.
Speaker 3 (05:54):
They are also beneficiaries of.
Speaker 2 (05:55):
The China alternative manufacturing story. But again, as you mentioned,
they're on the verge of graduating from front tier market
to emerging market status, and that's going to be a
benefit with trade shifts and allocations towards you know, this
country coming into the broad emerging market class. And again
(06:21):
this is kind of the overall emerging market story is
that you know, some of these countries and both equities
and bonds have you know, seeing really good restructurings and
financial discipline to the point that some of these debt
are even better than their developed market counterparts.
Speaker 3 (06:43):
And you know, we're seeing now they're.
Speaker 2 (06:45):
The adults in the room, given the.
Speaker 3 (06:48):
High level of debt and developed markets.
Speaker 1 (06:51):
I'm so glad you brought up the debt side of
the story because I'm wondering how you feel about EM
debt or EM credit broadly speaking.
Speaker 2 (07:00):
At the moment, and again, not all emerging markets are
the same, but at the moment, there are some really
high quality emerging market country debt because they've been restructuring
and improving over the years, they've really brought their debt
levels down, you know, relative to what we're seeing in
developed markets, and they're benefiting from the dollar weakness because
(07:24):
their barring costs are also shrinking.
Speaker 1 (07:28):
So, Joey, you pointed out that it has been a
pretty good year for em broadly speaking, and I'm wondering
whether it would be prudent now in the final month
of the year to take a little bit of risk
off the table. Is this a time to d risk?
Do you think?
Speaker 2 (07:43):
Well, essentially, everybody seems to be de risking at the
moment given the volatility increase in volatility that we're seeing.
But I think again, investors think in terms of calendar year,
but you know, you really have to take a longer
view when you're thinking about your strategic allocation in terms
(08:06):
of de risking itself, depending on what your portfolio shape
looks like. But I think investors are also when they
took take a broader longer term view, you know, it's
you know, markets are still like we talked about markets
coming down today, but markets are still trending up. It's
(08:26):
up sixteen seventy percent year to date, and this is
on the back of two strong, you know, over twenty
percent return years, and it's very unusual to see three
strong years in a role with volatility so low. So
you know, one of two things have to happen. Either
(08:47):
returns have to come down or volatility needs to go up.
And if that's the case, you have to readjust your
own position, given your risk tolerance.
Speaker 1 (08:56):
Does it suggest to you in any way that they
what you've justici described as an illustration that there is
still ample liquidity in the system and what we are
seeing in price action may be a reflection of that.
Speaker 2 (09:10):
I think it's a reflection of the nervousness in the
markets as they're waking up to the fact that they
may you know, not have priced in the full picture
of the risks that are in some of these assets.
You know, AI n video. These are all risky assets,
you know, as well as bitcoins, So investors need to
(09:32):
really understand what their risk tolerance is and what they're
pricing in to some of these companies they're invested in.
Speaker 1 (09:41):
Joy will leave it there always a pleasure. Thank you
so very much. Joy Young is head of product management
and marketing to market Vector Indexes. Joy joining from just
outside of New York City. Here on the Daybreak Asia podcast.
(10:01):
Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner.
A bit of uneasiness seemed to grip the US equity
market in the last session thanks to a sell off
in cryptocurrencies. We had Bitcoin dropping more than six percent
in New York trading to around eighty five thousand, and
that decline forced liquidation of nearly a billion dollars of
(10:22):
leveraged crypto positioning for closer look at the price action,
I'm joined by Tim Pagliara. He is founder, chairman and
also the CIO at Cap Wealth. Tim joining from just
outside of Nashville, Tennessee. Tim, thank you so much for
joining us. I'd like to begin by getting your take
on the correlation between crypto and certain pockets in the
(10:43):
equity market that may be described as a little risk here.
Speaker 4 (10:47):
You know, it's it's really hard to say, Doug. I mean,
there's lots of rumors about you know the impact that
tightening regulations in China and Asia are having in general
on crypto, so you know it's a risk off trade.
Bill Ackman suggested last week that it potentially is some
(11:09):
deleveraging margin type calls. People that have been attracted to
crypto in one sense have been leveraged into some of
these other names, and you know when it all starts collapsing,
so to speak. That's what happens when you get a
broad sell off in an asset like that.
Speaker 1 (11:29):
We also had a backup in yields today right across
the treasury curve, more so at the long end. This
seemed to be tied to a little bit of volatility
in the Japanese set market. Overnight two year borrowing cost
on the short end of the curve in Japan jumped
above one percent for the first time in seventeen years.
So it seems as though the market is now better
prepared for the possibility that the Bank of Japan is
(11:51):
going to hike interest rates, maybe as soon as this month.
We'll have to wait and see. But when you look
at the treasury market here in the US, how does
it peer to you, particularly as we've got a Fed
decision less than two weeks away.
Speaker 4 (12:06):
Well, I think it's you know, our market, our treasury
market is stable. You know, as we all know, the
FED doesn't control the long end of the curve, but
they can't impact the short end of the curve. What
you mentioned about Japan is is interesting and it's it's
part of a much bigger problem because they're having to
unwind a trade that has worked for a number of years.
(12:30):
Where you know, in Japan they essentially have a tax
on their pension funds because their pension funds are required
to own Japanese securities, and so they set that rate
at very It's been at a very very low rate
for years and years, and then they created an arbitrage
by buying US treasuries, so they were making a spread
(12:54):
and financing their deficits. So their deficit they're off the charts.
It's two hundred percent of GDP. And so that's a
situation that we watch very closely. And how much the
Japanese economy can absorb with higher rates now that inflation
(13:17):
is back and their deflationary spiral has stopped is something
of significant concern on a macro global basis.
Speaker 1 (13:24):
So I mentioned the FED decision that happens on December tenth,
This Friday, we're going to get the Fed's preferred measure
of inflation, the PCEE reading. It's expected to show, at
least if you look at the Bloomberg Survey, that inflationary
pressures may be stable, but they're still sticky and above
that two percent target. Do you think it's a foregone
(13:44):
conclusion that we're going to get a quarter point cut
in rates.
Speaker 4 (13:49):
I think we'll get this quarter point cut, and then
after that I think it is wait and see. They'll
get more data. You know, there's a lot of indications,
for example, with auto loan delinquencies, rising, inventories among the
car manufacturers, other things that would suggest that the employment
(14:11):
situation is slowing and would justify some type of move
on the Fed's part. The other thing that's important I'm
looking at not so much interest rates, but the money
supply and the quantitative tightening really needs to stop because
we're in an artificial intelligence war, a build out that's
(14:34):
going to take trillions of dollars, and so we're not
even halfway through that, and so we it's almost a
national security issue at this point that we're allowed to
finish that and then deal with some of the fallout
that inevitably comes from one of these boom and bus cycles.
Speaker 1 (14:54):
Yeah, we had another deal in the AI space today,
Nvidia investing about two billion in the chip does design
software maker Synopsis. Where are you right now in this
AI trade? Do you think it's still viable? Are we
maybe wrong in expecting some type of moderation or a
pullback here at least in the near term.
Speaker 4 (15:14):
Well, it's it's very difficult when you look at the
amount of money that's going to be invested. One of
the firms put out an article about seven trillion dollars
in AI spending, would suggest that you need one and
a half trillion dollars worth a profit to support that,
(15:36):
and that becomes very problematic. If you took all the
dividends and all the stock buybacks at the mag seven
and you stop them, that gets you just under six
hundred billion dollars, you know. So there's a lot of
money that has to flow into that space and complete it.
(15:56):
Our favorite name and we classify it as a deep
value name in AI relative to everything else, is a
company called Lumen. Once these hyperscalers are in full operation
and they're moving data. The existing network is not fast enough,
it's not secure enough. It needs tremendous build out. And
(16:19):
there's over one hundred over one thousand hyperscalers that have
adopted Lumen and they have the largest independent fiber network
basically in the country, possibly the world. Right now, all
of these hyperscalers are going to have to connect. They
move data at four hundred megabytes per second. In your home,
(16:39):
you're moving data at four hundred megabits per second. So
Luhmen transmits data between these centers eight times faster than
what you can get in your home. And that's what's
going to be necessary to really support this. It's the
train tracks of moving data between these big centers.
Speaker 1 (17:03):
As I'm listening to, I'm wondering whether or not a
company like Luhman would use artificial intelligence to manage the network.
Speaker 4 (17:11):
Absolutely. In fact, they entered into an agreement with Palenteer.
Alex Karp and Kate Johnson. We're in an interview recently
and Alex Karp called Luhman the backbone of the AI revolution.
So it just naturally follows. We've been consistent about this.
(17:33):
You go from chips to the applications and the software applications.
But then you've got to be able to move that data.
You've got to move it at a commercially reasonable pace.
It has to be secure. Luhman has Internet has security
provisions between these centers that are gaining widespread adoption. In fact,
(17:55):
Microsoft last week announced that they were going to use
their Defender offering to bolster Internet security. Microsoft has been
in an agreement with them. They entered into it over
two years ago. Corning entered into an agreement with Lumen
two years ago to provide Lumen with ten percent of
(18:16):
all the fiber they could produce over the two to
three year period. So there's more coming. And like I said,
we've got to finish it. It's like a subdivision with homes.
They've been on temporary power, they've been on temporary water
and sewer, they get their occupancy permit. Now they have
to be lit up. And that's what's going to happen
(18:39):
over the next twelve months to three years, and all
of a sudden, it's going to be a big issue.
And I think the market's recognizing that.
Speaker 1 (18:48):
So, Tim, you and I both know that December is
historically a very good month for the equity market. A
first day of trading here, we were negative across the board.
Does that cause you maybe to take a breath and
to say, hmmm, I'm wondering about how we're going to
finish the month of December. Will we get a Santa
Claus rally here? How are you feeling about equities going
(19:10):
into the end of the year.
Speaker 4 (19:12):
Well, I think the Federal Reserve will help, you know,
with a rate cut, but I don't think that will
you know, be enough stimulus. I think what's happening right
now in the market, I think is very very healthy
because people are asking questions. Finally, you know, you've seen
a company like Ocklow, who admittedly they have a bright
(19:35):
future in providing you know, small reactor nuclear power to
meet electricity demands, but they don't they don't even have
a system operational yet. They're still on the roughly on
the drawing board. And it got up to over twenty
two billion dollars worth of market cap, no earnings, no revenue, nothing.
(20:00):
So I think you're going to continue to see companies
like that pair back as some of the speculative aspect
of the market, you know, starts to wind back down.
So I think it's healthy. Yeah, we may not, you know,
get what everybody wants. In terms of a Santa Claus rally.
(20:23):
My view is that the market will be very muted
between now and your end.
Speaker 1 (20:27):
Tim will leave it there always a pleasure. Thank you
so very much, and if I don't speak to you
before then, happy holidays. Tim Pagliara's founder, chairman and CIO
at cap Wealth, joining from just outside Nashville, Tennessee here
on the Daybreak Asia podcast. Thanks for listening to today's
episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,
(20:48):
we look at the story 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
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. Welcome to the Daybreak
Asia podcast. I'm Doug Chrisner. Equity markets across the Asia
Pacific are advancing despite some weakness in the US, and
(00:20):
today a lot of focus on Japan because Monday we
had the BOJ Governor Uwaita talking up the prospect for
a rate hike. Money markets now suggest an eighty percent
probability of the BOJ raising its policy rate on December nineteenth.
Just a week ago that probability was below twenty five percent.
And speaking of central banks, we've got the Fed's decision
(00:43):
on December tenth. Now we know that EM stocks and
currencies have been benefiting from expectations for a FED rate cut.
For a closer look now at EM I'm joined by
Joey Young. She is head of product management and marketing
at Market Vectors. Index's joy joining from just outside of
New York City. Thank you for making time to chat
with me. We know that EM equities generally speaking, are
(01:07):
on track for their best year since about twenty sixteen,
I think, and it's interesting that these gains have occurred
against a backdrop of not only higher tariffs, but a
struggling Chinese economy. How do you make sense of that?
Speaker 2 (01:22):
I think one you you know, it's an emerging market,
so there are risks, whether it's to data or individual companies.
But not all companies within China are an investible which
is where we had started probably at the end of
last year, until we saw that. You know, these are
(01:44):
companies that benefit from AI and we see that in Ali,
Baba and concent and these are also companies that are
participating in the same growth stories that are driving develop
markets such as gold. You know, gold miners in China
have done extremely well. So investors have to look carefully
not just at the country, but the themes within the country.
(02:08):
And even China is an interesting case because when investors
consider China, we're seeing a lot of domestic Chinese stocks
now listed in Hong Kong, so you know, you should
include these Hong Kong listed names that are exposed to
domestic Chin Chinese economics, so you know whether that's good
(02:31):
or bad.
Speaker 1 (02:32):
So that's the trade essentially. Maybe you focus on things
like artificial intelligence or robotics in terms of the Chinese
equity market, but you avoid things with a lot of
exposure to domestic demand, which as we know has been stalling,
and the housing market at the same time remains under duress.
Speaker 2 (02:52):
Yeah, I mean, essentially, these are the risks that you're
taking in emerging market, whether it's China or even Indian.
We saw India again in twenty twenty four had just
the superb outperformance and it's looking expensive now. But within India,
you know, digital economy is doing well, and so we
(03:13):
think that investors, you know, should focus within India on
things like digital economy and infrastructure.
Speaker 1 (03:20):
So we mentioned artificial intelligence as it relates to China.
But as you well know, the intricacies of the supply chain,
whether you're talking about high bandwidth memory chips or the
chips that Nvidia produces manufactured by TSMC and Taiwan, a
lot of the raw materials that are necessary to produce
those semiconductors, all of this is very interrelated, and I'm
(03:45):
wondering how you're approaching that right now, whether you're looking
at markets like Taiwan, like South Korea as a way
to leverage that AI trade.
Speaker 2 (03:54):
Absolutely, so, I think if you think about emerging markets
as a whole, was kind of written off. You know,
people were under allocating to emerging markets so they had
higher risk premiums because you know, you know, most investors
thought that they would be negatively impacted by the tariffs,
(04:17):
but as we know, these terrors still have you know,
a lot of noise in there. There's been taco you know,
strategies and reversals and terroriffts.
Speaker 3 (04:27):
And we've seen that.
Speaker 2 (04:28):
Emerging markets and aggregate have adapted really well to the
tariff noise because they've been able to either pivot away
from some of the noise by trading towards China or
the rest of the world, and they have also been
beneficiaries from the west of the world trying to put
pivot away from the US, and that includes you know,
(04:50):
countries like Taiwan, which is still a significant part.
Speaker 3 (04:54):
Of the ai story, as well as Korea.
Speaker 2 (04:58):
And Korea is another interesting case where at the beginning
of the year we were talking about martial law and
crisis in the government, so a lot of people shied
away from Korean markets. Year to day, Korea is the
highest performing country in the market. So I think investors
(05:20):
have to be constantly reassessing, repricing the risks that they've
placed in some of these countries.
Speaker 1 (05:29):
I'm curious about Vietnam right now, the country seems to
be on the cosp of being a frontier market, maybe
early stage em How do you look at Vietnam these days?
Speaker 2 (05:41):
I think Vietnam is also another one of these growth stories,
not just on the back of fundamentals, because they've restructured
their debt and they've invested in the infrastructure.
Speaker 3 (05:54):
They are also beneficiaries of.
Speaker 2 (05:55):
The China alternative manufacturing story. But again, as you mentioned,
they're on the verge of graduating from front tier market
to emerging market status, and that's going to be a
benefit with trade shifts and allocations towards you know, this
country coming into the broad emerging market class. And again
(06:21):
this is kind of the overall emerging market story is
that you know, some of these countries and both equities
and bonds have you know, seeing really good restructurings and
financial discipline to the point that some of these debt
are even better than their developed market counterparts.
Speaker 3 (06:43):
And you know, we're seeing now they're.
Speaker 2 (06:45):
The adults in the room, given the.
Speaker 3 (06:48):
High level of debt and developed markets.
Speaker 1 (06:51):
I'm so glad you brought up the debt side of
the story because I'm wondering how you feel about EM
debt or EM credit broadly speaking.
Speaker 2 (07:00):
At the moment, and again, not all emerging markets are
the same, but at the moment, there are some really
high quality emerging market country debt because they've been restructuring
and improving over the years, they've really brought their debt
levels down, you know, relative to what we're seeing in
developed markets, and they're benefiting from the dollar weakness because
(07:24):
their barring costs are also shrinking.
Speaker 1 (07:28):
So, Joey, you pointed out that it has been a
pretty good year for em broadly speaking, and I'm wondering
whether it would be prudent now in the final month
of the year to take a little bit of risk
off the table. Is this a time to d risk?
Do you think?
Speaker 2 (07:43):
Well, essentially, everybody seems to be de risking at the
moment given the volatility increase in volatility that we're seeing.
But I think again, investors think in terms of calendar year,
but you know, you really have to take a longer
view when you're thinking about your strategic allocation in terms
(08:06):
of de risking itself, depending on what your portfolio shape
looks like. But I think investors are also when they
took take a broader longer term view, you know, it's
you know, markets are still like we talked about markets
coming down today, but markets are still trending up. It's
(08:26):
up sixteen seventy percent year to date, and this is
on the back of two strong, you know, over twenty
percent return years, and it's very unusual to see three
strong years in a role with volatility so low. So
you know, one of two things have to happen. Either
(08:47):
returns have to come down or volatility needs to go up.
And if that's the case, you have to readjust your
own position, given your risk tolerance.
Speaker 1 (08:56):
Does it suggest to you in any way that they
what you've justici described as an illustration that there is
still ample liquidity in the system and what we are
seeing in price action may be a reflection of that.
Speaker 2 (09:10):
I think it's a reflection of the nervousness in the
markets as they're waking up to the fact that they
may you know, not have priced in the full picture
of the risks that are in some of these assets.
You know, AI n video. These are all risky assets,
you know, as well as bitcoins, So investors need to
(09:32):
really understand what their risk tolerance is and what they're
pricing in to some of these companies they're invested in.
Speaker 1 (09:41):
Joy will leave it there always a pleasure. Thank you
so very much. Joy Young is head of product management
and marketing to market Vector Indexes. Joy joining from just
outside of New York City. Here on the Daybreak Asia podcast.
(10:01):
Welcome back to the Daybreak Asia Podcast. I'm Doug Chrisner.
A bit of uneasiness seemed to grip the US equity
market in the last session thanks to a sell off
in cryptocurrencies. We had Bitcoin dropping more than six percent
in New York trading to around eighty five thousand, and
that decline forced liquidation of nearly a billion dollars of
(10:22):
leveraged crypto positioning for closer look at the price action,
I'm joined by Tim Pagliara. He is founder, chairman and
also the CIO at Cap Wealth. Tim joining from just
outside of Nashville, Tennessee. Tim, thank you so much for
joining us. I'd like to begin by getting your take
on the correlation between crypto and certain pockets in the
(10:43):
equity market that may be described as a little risk here.
Speaker 4 (10:47):
You know, it's it's really hard to say, Doug. I mean,
there's lots of rumors about you know the impact that
tightening regulations in China and Asia are having in general
on crypto, so you know it's a risk off trade.
Bill Ackman suggested last week that it potentially is some
(11:09):
deleveraging margin type calls. People that have been attracted to
crypto in one sense have been leveraged into some of
these other names, and you know when it all starts collapsing,
so to speak. That's what happens when you get a
broad sell off in an asset like that.
Speaker 1 (11:29):
We also had a backup in yields today right across
the treasury curve, more so at the long end. This
seemed to be tied to a little bit of volatility
in the Japanese set market. Overnight two year borrowing cost
on the short end of the curve in Japan jumped
above one percent for the first time in seventeen years.
So it seems as though the market is now better
prepared for the possibility that the Bank of Japan is
(11:51):
going to hike interest rates, maybe as soon as this month.
We'll have to wait and see. But when you look
at the treasury market here in the US, how does
it peer to you, particularly as we've got a Fed
decision less than two weeks away.
Speaker 4 (12:06):
Well, I think it's you know, our market, our treasury
market is stable. You know, as we all know, the
FED doesn't control the long end of the curve, but
they can't impact the short end of the curve. What
you mentioned about Japan is is interesting and it's it's
part of a much bigger problem because they're having to
unwind a trade that has worked for a number of years.
(12:30):
Where you know, in Japan they essentially have a tax
on their pension funds because their pension funds are required
to own Japanese securities, and so they set that rate
at very It's been at a very very low rate
for years and years, and then they created an arbitrage
by buying US treasuries, so they were making a spread
(12:54):
and financing their deficits. So their deficit they're off the charts.
It's two hundred percent of GDP. And so that's a
situation that we watch very closely. And how much the
Japanese economy can absorb with higher rates now that inflation
(13:17):
is back and their deflationary spiral has stopped is something
of significant concern on a macro global basis.
Speaker 1 (13:24):
So I mentioned the FED decision that happens on December tenth,
This Friday, we're going to get the Fed's preferred measure
of inflation, the PCEE reading. It's expected to show, at
least if you look at the Bloomberg Survey, that inflationary
pressures may be stable, but they're still sticky and above
that two percent target. Do you think it's a foregone
(13:44):
conclusion that we're going to get a quarter point cut
in rates.
Speaker 4 (13:49):
I think we'll get this quarter point cut, and then
after that I think it is wait and see. They'll
get more data. You know, there's a lot of indications,
for example, with auto loan delinquencies, rising, inventories among the
car manufacturers, other things that would suggest that the employment
(14:11):
situation is slowing and would justify some type of move
on the Fed's part. The other thing that's important I'm
looking at not so much interest rates, but the money
supply and the quantitative tightening really needs to stop because
we're in an artificial intelligence war, a build out that's
(14:34):
going to take trillions of dollars, and so we're not
even halfway through that, and so we it's almost a
national security issue at this point that we're allowed to
finish that and then deal with some of the fallout
that inevitably comes from one of these boom and bus cycles.
Speaker 1 (14:54):
Yeah, we had another deal in the AI space today,
Nvidia investing about two billion in the chip does design
software maker Synopsis. Where are you right now in this
AI trade? Do you think it's still viable? Are we
maybe wrong in expecting some type of moderation or a
pullback here at least in the near term.
Speaker 4 (15:14):
Well, it's it's very difficult when you look at the
amount of money that's going to be invested. One of
the firms put out an article about seven trillion dollars
in AI spending, would suggest that you need one and
a half trillion dollars worth a profit to support that,
(15:36):
and that becomes very problematic. If you took all the
dividends and all the stock buybacks at the mag seven
and you stop them, that gets you just under six
hundred billion dollars, you know. So there's a lot of
money that has to flow into that space and complete it.
(15:56):
Our favorite name and we classify it as a deep
value name in AI relative to everything else, is a
company called Lumen. Once these hyperscalers are in full operation
and they're moving data. The existing network is not fast enough,
it's not secure enough. It needs tremendous build out. And
(16:19):
there's over one hundred over one thousand hyperscalers that have
adopted Lumen and they have the largest independent fiber network
basically in the country, possibly the world. Right now, all
of these hyperscalers are going to have to connect. They
move data at four hundred megabytes per second. In your home,
(16:39):
you're moving data at four hundred megabits per second. So
Luhmen transmits data between these centers eight times faster than
what you can get in your home. And that's what's
going to be necessary to really support this. It's the
train tracks of moving data between these big centers.
Speaker 1 (17:03):
As I'm listening to, I'm wondering whether or not a
company like Luhman would use artificial intelligence to manage the network.
Speaker 4 (17:11):
Absolutely. In fact, they entered into an agreement with Palenteer.
Alex Karp and Kate Johnson. We're in an interview recently
and Alex Karp called Luhman the backbone of the AI revolution.
So it just naturally follows. We've been consistent about this.
(17:33):
You go from chips to the applications and the software applications.
But then you've got to be able to move that data.
You've got to move it at a commercially reasonable pace.
It has to be secure. Luhman has Internet has security
provisions between these centers that are gaining widespread adoption. In fact,
(17:55):
Microsoft last week announced that they were going to use
their Defender offering to bolster Internet security. Microsoft has been
in an agreement with them. They entered into it over
two years ago. Corning entered into an agreement with Lumen
two years ago to provide Lumen with ten percent of
(18:16):
all the fiber they could produce over the two to
three year period. So there's more coming. And like I said,
we've got to finish it. It's like a subdivision with homes.
They've been on temporary power, they've been on temporary water
and sewer, they get their occupancy permit. Now they have
to be lit up. And that's what's going to happen
(18:39):
over the next twelve months to three years, and all
of a sudden, it's going to be a big issue.
And I think the market's recognizing that.
Speaker 1 (18:48):
So, Tim, you and I both know that December is
historically a very good month for the equity market. A
first day of trading here, we were negative across the board.
Does that cause you maybe to take a breath and
to say, hmmm, I'm wondering about how we're going to
finish the month of December. Will we get a Santa
Claus rally here? How are you feeling about equities going
(19:10):
into the end of the year.
Speaker 4 (19:12):
Well, I think the Federal Reserve will help, you know,
with a rate cut, but I don't think that will
you know, be enough stimulus. I think what's happening right
now in the market, I think is very very healthy
because people are asking questions. Finally, you know, you've seen
a company like Ocklow, who admittedly they have a bright
(19:35):
future in providing you know, small reactor nuclear power to
meet electricity demands, but they don't they don't even have
a system operational yet. They're still on the roughly on
the drawing board. And it got up to over twenty
two billion dollars worth of market cap, no earnings, no revenue, nothing.
(20:00):
So I think you're going to continue to see companies
like that pair back as some of the speculative aspect
of the market, you know, starts to wind back down.
So I think it's healthy. Yeah, we may not, you know,
get what everybody wants. In terms of a Santa Claus rally.
(20:23):
My view is that the market will be very muted
between now and your end.
Speaker 1 (20:27):
Tim will leave it there always a pleasure. Thank you
so very much, and if I don't speak to you
before then, happy holidays. Tim Pagliara's founder, chairman and CIO
at cap Wealth, joining from just outside Nashville, Tennessee here
on the Daybreak Asia podcast. Thanks for listening to today's
episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday,
(20:48):
we look at the story 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
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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