Indonesia’s New Finance Minister Vows Fiscal Discipline Amid Questions Over Growth Ambitions

LIVE FROM SYDNEY, I'M PAUL ALLEN AND THIS IS INSIGHT WHERE WE DIVE DEEPER INTO THE STORIES THAT MATTER WITH CRUCIAL CONTEXT AND SHARP ANALYSIS. TREASURY YIELDS TREASURING MARKETS AGAIN WITH YOUR DECADE HIGHS. INVESTORS SEARCH FOR SIGNS OF STABILIZATION. THE PIMCO PRESIDENT JOINS US EXCLUSIVELY ON THE SHOW. RISING RATES AND WHAT THEY MEAN FOR THE AI LED EQUITY RALLY. THE PENTAGON IS SENDING ANOTHER CARRIER STRIKE GROUP TO THE GULF, RAISING RISK FOR THE OIL MARKET. WE ARE CREDIBLE, WE ARE GOING TO DO WHAT WE THOUGHT AND MAINTAIN CONSISTENCY AND MAKING SURE IT CAN BE IMPLEMENTED. PAUL: WE WILL HEAR EXCLUSIVELY FROM THE NEW INDONESIAN FINANCE MINISTER WHO STRESSES CREDIBILITY AND CONSISTENCY AMID SCRUTINY AND RISING PRICES. ASIAN MARKETS STRUGGLING TO FIND DIRECTION TODAY, HONG KONG TECH STOCKS LEADING REGIONAL LOSSES WHILE U.S. EQUITY FUTURES MODESTLY HIGHER, TREASURY YIELDS EDGING UP AGAIN. THE BIG QUESTION FOR INVESTORS IS WHETHER RISING OIL PRICES AND HIGHER YIELDS WILL KEEP RUSHER ON RISK ASSETS HEADED INTO TODAY'S U.S. PAYROLLS REPORT. LET'S GET MORE WITH AVRIL HONG. AVRIL: WE ARE SEEING ASIAN MARKETS FOR THE MOST PART ON THE BACK FOOT GIVEN HOW BRENT IS STILL IN THE TRIPLE DIGITS, GAINING FOR A THIRD DAY. IT'S HOW ENERGY PRICES ARE DRIVING INFLATION AND RATE HIKE CONCERNS. THE VULNERABILITIES IN EUROPE TO THESE ENERGY CONCERNS IS WHAT DROVE IN PART YIELDS HIGHER IN THAT PART OF THE WORLD. THAT ALSO PUTS STRESS ON SOME EUROPEAN BANKING STOCKS. TODAY WE ARE SEEING IN THE ASIA-PACIFIC FINANCIAL RELATED NAMES LIKE HSBC AMONG THE DRAGS ON THE HANG SENG TODAY ALONG WITH TECH STOCKS AS YOU JUST HIGHLIGHTED. THAT BEING SAID, THE CAREER GAUGE ALONG WITH TAIWAN EXTENDING SOME OF YESTERDAY'S GAINS, THEY BE SOME OPTIMISM AROUND REPORTS OF THE MID-NOVEMBER IPO BY ANTHROPIC. THE MAJOR MARKET CONCERN WILL BE THE U.S. NONFARM PAYROLLS, IF WE GET A HOTTER PRINT THAT COULD RESURFACE THE BOND SELLING. OVERNIGHT WE SAW THE SELLOFF FROM EUROPE DRIVING DEMAND FOR SAFE HAVENS AND IN TERMS OF THE ASIA PERFORMANCE, TREASURIES MOSTLY HOLDING ON TO OVERNIGHT GAINS. PAUL: THANK YOU. JOINING US NOW IS GRACE TAM, DEPUTY ASIA CIO AT BNP PARIBAS WEALTH MANAGEMENT. WE'VE GOT YIELDS PULLING BACK A LITTLE TODAY, PARTICULARLY ON THE SHORT-TERM BUT THERE STILL PRESSURE. AS YOUR RISK -- HAS YOUR RISK APPETITE CHANGED AT ALL IN THE LAST 24-48 HOURS? OF COURSE WE STILL HAVE CONCERNS THAT MAYBE WE WILL SEE HIGH YIELDS ESPECIALLY LONG ENDS. HIGH-END LONG AND YIELDS COULD TIGHTEN FINANCIAL CONDITIONS AND THAT DOESN'T BODE WELL FOR RISK ASSETS. I THINK FOR NOW, ESPECIALLY IN THE COMING WEEKS, THERE'S A LOT OF FOCUS ON TONIGHT NONFARM DATA AND THEN LATER THE CPI DATA TO GAUGE THE INFLATION AND WHAT IT COULD HINT FOR THE NEXT FED MOVE. PAUL: YOU'RE EXPECTING MORE VOLATILITY, IS THERE ANYTHING IN PARTICULAR YOU ARE AVOIDING? WE ARE NOT AVOIDING THE ENVIRONMENT, WE ARE NAVIGATING HIGHER VOLATILITY. THERE ARE POTENTIALLY FACTORS THAT COULD DRIVE UPCOMING VOLATILITY IN THE COMING WEEKS. WE MENTIONED HIGHER YIELDS, AND I THINK THE MIDTERM ELECTIONS, THERE STILL A LOT OF UNCERTAINTY AND ESPECIALLY SINCE IT IS EXPECTED THE REPUBLICANS WILL GET THE SENATE AND THE DEMOCRATS THE HOUSE, THERE'S ALSO A SCENARIO THAT I THINK THE MARKETS UNDERESTIMATED, WHAT IF DEMOCRATS HAVE A BLUE SWEEP? I THINK THE MARKET UNDERESTIMATED THESE KIND OF SCENARIOS AND WE MAY SEE MORE VOLATILITY GOING FORWARD WHEN WE GET CLOSER TO THE MIDTERM ELECTIONS. OF COURSE, WE THINK THE UPCOMING POTENTIAL, ANOTHER EFFORT -- ANOTHER LARGE LANGUID IPO, ANTHROPIC, WHETHER IT IS NOT TO HER -- WHETHER IT IS OCTOBER ON NOVEMBER. IN TERMS OF THE SIZE, EVEN FIGURE THAN SPACEX. IT COULD HAVE LIQUIDITY DRIVEN VOLATILITY. PAUL: A LOT OF MEGA IPO'S COMING, ANTHROPIC IS NOT THE ONLY ONE. WHEN YOU LOOK AT THESE BIG IPO'S IN THE AI SPACE, IS THIS SOMETHING THAT INTERESTS YOU AND HOW ARE YOU NAVIGATING THE AI SPACE MORE GENERALLY RIGHT NOW? GRACE: FOR NOW I THINK WE ACTUALLY THINK AI, ESPECIALLY THE UPSTREAM STORY REMAINS INTACT. WE JUST HAD THE MACRON RESULTS ON EARNINGS. THERE'S STILL A LOT OF DEMAND FOR AI, ADOPTION IS INCREASING AND WE ARE ALSO SEEING A LOT OF HARDWARE AND UPSTREAM SECTORS. I THINK WE STILL HAVE VERY GOOD EARNINGS VISIBILITY. WE THINK ANY KIND OF VOLATILITY OR PULLBACKS WOULD STILL BE VERY GOOD BUYING OPPORTUNITIES. PAUL: I ASKED ABOUT ASSETS YOU MIGHT BE AVOIDING AND YOU SAID YOU ARE NAVIGATING THEM. I.T. SERVICES, IS THAT SOMETHING YOU WOULD BE NAVIGATING WITH EXTREME CAUTION RIGHT NOW? GRACE: YES, EXACTLY. WITHIN AI, UPSTREAM, FOR I.T. SERVICES, WE WORRY ABOUT THE AI DISRUPTION. FOR NOW, FOR INDIA, WE ARE STILL NEUTRAL BUT OVERWEIGHT TAIWAN, KOREA, TAIWAN IS NOT ASIA. WE STILL HAVE UPSTREAM EXPOSURE AND WE THINK THE OUTLOOK IS STILL VERY GOOD, ESPECIALLY WITH A LOT OF THE HYPERSCALERS THAT ARE INCREASING CAPEX AND THE MONEY FOR THE CAPEX IS GOING TO BE THE REVENUE OF THE HARDWARE AND SEMICONDUCTORS. PAUL: I WANT TO CIRCLE BACK TO THE BOND SPACE FOR A MOMENT. WHEN YOU LOOK AT WHAT'S HAPPENING, PARTICULARLY AT THE LONGER END OF THE YIELD CURVE, HOW MUCH MORE DO YOU SEE YIELDS RISING? GRACE: I THINK FOR NOW WE ARE TURNING MORE POSITIVE ON GERMAN BUNDS. WE THINK YIELDS ARE HIGH ENOUGH AND THEY TURN POSITIVE AND THIS IS DOING BONDS GRADUALLY. MAYBE THERE COULD BE A CHANCE TO SPIKE TOWARD 5.5%. IT'S A GOOD TIME FOR LIMBO BONDS. IN TERMS OF THE YIELDS, FOR NOW, IF THERE'S ANY RISE IN YIELDS OF THE TOTAL RETURN WILL BE REALLY GOOD IN THE NEXT 12 MONTHS AND OF COURSE, WHAT WE EXPECT THAT YIELDS MAY BE GOING DOWN OR NORMALIZED IN THE NEXT 12 MONTHS, LIKE TREASURY, 12 YEAR, NORMALIZED BACK TO 4.75%. THE TOTAL RETURN IS BETTER. PAUL: HAVE YOU IN THE LIGHT OF THE PCI DATA, WE ARE WAITING ON JOBS NUMBERS OBVIOUSLY, YOU'VE BEEN REEVALUATING YOUR EXPECTATIONS AROUND THE FEDS CYCLE? GRACE: I THINK FOR NOW, THE MARKET HAS BEEN PRICING IN THREE TO FOUR HIKES BY THE END OF NEXT YEAR. WE THINK THAT'S TOO MUCH. WE THINK MAYBE TWO MORE HIKES IN DECEMBER OR JANUARY AND THEN MAYBE THE CYCLE IS DONE. WE ARE SEEING HIGHER YIELDS, NEGATIVE IMPACT GROWTH, AND BASICALLY ENERGY PRICES AND ALSO FOR AI BEFORE IT COMES INFLATIONARY. A LOT OF THE CHIP PRICES, BUT THAT'S ALL SUPPLY DRIVEN. ON THE DEMAND SIDE, FOR EXAMPLE, WHEN WE LOOK AT THE RANGE, IT'S OK. WE ARE STILL TRENDING DOWNWARD. AS LONG AS ENERGY PRICES ARE GOING DOWN, WE THINK THE SUPPLY DRIVEN PRESSURES COULD BE REDUCED AND THE MARKET WILL REDUCE THE RATE HIKE EXPECTATIONS AND WE MAY SEE A RELIEF RALLY. PAUL: ALL RIGHT, GRACE IS STAYING WITH US. PLENTY MORE TO TALK ABOUT AND PLENTY AHEAD, OR EXCLUSIVE INTERVIEW WITH THE INDONESIAN FINANCE MINISTER IN A MOMENT. THIS IS BLOOMBERG. PAUL: WELCOME BACK, YOU ARE WATCHING "INSIGHT." INDONESIA'S NEW FINANCE MINISTER SAYS HE'S COMMITTED TO BUDGET DEFICIT CAPPED AT 3% GDP AND SIGNALS A CLEAR LINE BETWEEN HIMSELF, THE CENTRAL BANK SOVEREIGN WEALTH FUND. HE SPOKE EXCLUSIVELY WITH HASLINDA AMEN, WHO JOINS US NOW. HASLINDA: IT WAS A WIDE-RANGING CONVERSATION LASTING ABOUT AN HOUR. WHAT CAME THROUGH HIS POLICY CONTINUITY, THAT ARE COMMUNICATION AND FISCAL RESPONSIBILITY AND CREDIBILITY. AS YOU KNOW THESE ARE THE ISSUES PLAGUING THE INDONESIAN MARKET, SENDING INVESTORS FOR THE EXIT. THE INDONESIAN RUPIAH HAVE BEEN SMACKED, ABOUT 18,000 HER UST -- PER USD. THIS IS ON THE BACK OF UNCERTAINTY ABOUT POLICIES IN THE COUNTRY. IN MY CONVERSATION WITH THE FINANCE MINISTER, HE TALKED ABOUT HOW INDONESIA MAINS COMMITTED TO THE 3% BUDGET DEFICIT AND IT'S BEEN ON THE BACK OF PARLIAMENT HAVING DISCUSSIONS ABOUT POSSIBLY RAISING THE NUMBER. HE SAYS INDONESIA REMAINS COMMITTED, NO WORRY ABOUT THAT, AND HE WILL ENSURE THE VARIOUS ARMS LIKE THE BANK OF INDONESIA AND STATE OWNED ENTERPRISES WILL WORK IN ALIGNMENT. TAKE A LISTEN TO WHAT HE HAD TO SAY. INDONESIA HAS BEEN VERY CREDIBLE. IN THE LAST 30, 35 YEARS. FROM TIME TO TIME WE HAVE TO RENEW OUR COMMITMENT AND TELL THE AUDIENCE WE INTEND TO CONTINUE TO DO SO, OBSERVE THE FISCAL ROLE, AND INSHORE ARE FISCAL POLICY, THE STATE BUDGET, CONTINUES TO GROW THE ECONOMY, AND IT PROTECTS THE PEOPLE AND IT CONTINUES TO BE CREDIBLE AND HEALTHY. THESE COMBINATIONS I THINK ARE IMPORTANT TO BE RECOGNIZED BY OUR INTERNATIONAL COMMUNITY, THE BUSINESS SECTOR, THE MARKET AND SO ON. OF COURSE FROM TIME TO TIME, WE LOOK AT INDONESIA IN THE LAST 20 YEARS, SINCE WE DO FINANCE IN THE MODERN WAY, WE KNOW DIFFERENT CHALLENGES ARE ALWAYS FACING US AND OF COURSE WE HAVE DIFFERENT CHALLENGES AND RIGHT NOW THE GLOBAL HEADWINDS, WHAT HAPPENS WITH THE GLOBAL GEOPOLITICAL TENSION IS VERY IMPORTANT TO ACT ACCORDINGLY. HASLINDA: IF THERE IS FISCAL CREDIBILITY, IS THE ISSUE WITH COMMUNICATION. COMMUNICATION IS ONE THING AND IT'S ONE OF THE THINGS THE COMMUNITIES ARE WAITING FOR US. THE OTHER THING IS THE QUALITY OF THE POLICY. THE POLICY THAT ALLOWS US TO GROW AND CAN BE PUT ON THE IMPLEMENTATION AND SOMETIMES IT MUST BE COMMUNICATED AS WELL. NOT ONLY THE STATE BUDGET BUT WHAT IS THE INTENTION OF THE POLICY? SOMETIMES THE POLICY IS NOT WELL UNDERSTOOD IN THE SHORT-TERM BUT IT MAKES SENSE IN THE LONG TERM. HASLINDA: SO YOU WILL BE DOING THINGS DIFFERENT, ENSURING THAT POLICY IS UNDERSTOOD BY THE INTERNATIONAL COMMUNITY -- WOULD YOU BE DIFFERENT FROM YOUR PREDECESSOR? I WILL MAINTAIN MUNICATION, CONSISTENCY, AND I THINK IN MY PREVIOUS ASSIGNMENT, WHEN I WAS THE CHAIRMAN OF THE FISCAL POLICY OFFICE AND I DID MY TERM AS MINISTER OF FINANCE, WE WORKED VERY CLOSELY WITH THE COMMUNITIES AND ANALYSTS AND INVESTORS AND SO ON. IT'S VERY IMPORTANT. IT'S NEVER COMPLETELY DETACHED FROM THE GLOBAL COMMUNITY AND WHAT HAPPENS IN THE ECONOMY. HASLINDA: ONE OF THE KEY ISSUES FOR INTERNATIONAL INVESTORS IS THE BUDGET DEFICIT, YOU SAY YOU ARE COMMITTED TO 3%. IS IT HINDERING DENISHA FROM GETTING WHERE IT NEEDS TO BE AND IS IT HINDERING INDONESIA FROM GETTING TO A PERCENT GROWTH THE PRESIDENT WANTS? THE 3% BUDGET DEFICIT IS THE ANNUAL PARAMETER RECOGNIZED BY OUR LAW, WE ARE WORKING WITH THE CURRENT LAW AND IT'S ALSO RECOGNIZED BY OUR INVESTORS AS A SYMBOL OF HOW DISCIPLINED WE ARE. IT'S BEEN THERE SINCE 2003. HASLINDA: SINCE THE ASIAN FINANCIAL CRISIS? WE REWROTE THE RULEBOOK OF WHAT HAPPENS. THE STATE FINANCE LAW WAS ENACTED IN 2003 AND THE TREASURY LAW WAS ENACTED IN 2004. ACCORDING TO THAT, WE STOPPED TO LOOK AND ENGAGED WITH THE MARKET MORE INTENSIVELY. PREVIOUSLY, WE HAVE CONSULTED THE GROUP ON INDONESIA, WHAT INDONESIA WOULD LIKE TO BORROW FROM THE INTERNATIONAL COMMUNITY, WE TALKED -- CONSULTED THE GROUP ON INDONESIA. THEN WE STARTED TO TALK TO THE MARKET. WE HAVE TO UNDERSTAND THE LOGIC OF THE MARKET BUT WE SHOULD NOT BE COMPLETELY -- SORRY, WE SHOULD NOT BE COMPLETELY DRIVEN ONLY BY THE MARKET. WE HAVE TO SET THE PATH FOR OUR OBJECTIVES BUT WE HAVE TO COMMUNICATE WITH THE MARKET. HASLINDA: MIGHT YOU HAVE TO RETHINK THE 3% TO ENSURE YOU ARE GETTING TO THE GROWTH YOU ARE TARGETING? RIGHT NOW WE ARE COMMITTED TO THE 3% ROLE AND MAXIMUM DEBT TO GDP RATIO. THAT'S SIGNALING THE CONFIDENCE OF THE MARKET. HASLINDA: I ALSO ASKED AND HE SAID IT DEPENDS ON THE EXTERNAL ENVIRONMENT. PAUL: OK, THANK YOU. LET'S GET BACK TO GRACE FROM BNP PARIBAS. I'M INTERESTED IN YOUR TAKEAWAYS NOW FROM THAT INTERVIEW AS WELL. WHAT ARE YOU TELLING CLIENTS ABOUT INVESTING IN INDONESIA AT THE MOMENT? GRACE: ESPECIALLY WHEN YOU LOOK AT THE INDONESIA EQUITY MARKETS, THE MARKET DIDN'T REACT POSITIVELY AND THERE ARE STILL CONCERNS AND QUESTIONS. THEY DO SAY THEY HAVE QUITE AGGRESSIVE GROWTH TARGET BUT AT THE SAME TIME, THAT VISIT WILL BE CAPPED AT 3% SO HOW THEY ACHIEVE THE GROWTH TARGET AND I THINK THERE'S ALSO MORE CONCERNS BROADLY, ESPECIALLY FOR NOW THAT THE DOLLAR IS STRENGTHENING AND WE'VE BEEN SEEING CURRENCY WEAKENING. THEY ARE TRYING TO DO A LOT TO STABILIZE THE CURRENCIES. AT THE SAME TIME THERE'S CONCERNS ABOUT INFLATION AND THE INFLATION NUMBER IS SLIGHTLY BETTER THAN EXPECTED. STILL, COMPARED TO LAST MONTH, WE ARE SEEING INFLATION ACCELERATING. IT COULD ALSO MEAN THERE COULD BE A RATE HIKE GOING FORWARD. I THINK IN GENERAL WE ARE FOR NOW NEUTRAL INDONESIA. WE STILL PREFER THE NORTH ASIA BECAUSE OF THE NARRATIVE ON AI, IT STILL LIKE JAPAN -- WE STILL LIKE JAPAN AND TAIWAN AND KOREA. WE STILL SEE THE AI LED RALLY IN NORTH ASIA THAT WILL CONTINUE. PAUL: THE MINISTER REFUSING TO PICK UP THE GAUNTLET OF THE DEFICIT CAP INTERFERING WITH THE GROWTH RATE. PUTTING THAT TO ONE SIDE, WHAT REFORMS WOULD YOU LIKE TO SEE IN INDONESIA TO CHANGE HER MIND ABOUT? GRACE: I THINK ALSO THE QUALITY POLICIES, MONITORING NEW QUALITY POLICIES THAT COULD DRIVE GROWTH. I THINK THERE ARE SENTIMENTS AND CONCERNS ABOUT A LOT OF POLICIES THAT AREN'T MARKET FRIENDLY OR BUSINESS FRIENDLY. I THINK IF THEY ARE GOING TO HAVE A REFORM ON THOSE MORE BUSINESS FRIENDLY AND MARKET POLICY -- MARKET FAMILY POLICIES, THAT WOULD BE RECEIVED WELL BY MARKETS. PAUL: IN INDIA, WE SAW A LOT OF FOREIGN OUTFLOWS, MARKETS ON A HOLIDAY TODAY, DO YOU SEE THAT CHANGING, DO YOU SEE INVESTORS RETURNING? GRACE: IN THE SHORT-TERM, IF THE MARKETS ARE STILL FOCUSED ON AI, INCLUDING INDIA AND AS WE MENTIONED EARLIER, WE ARE WORRIED ABOUT THE CONTINUED DISRUPTIONS SO EARNINGS IS NOT GOING TO BE GOOD. OF COURSE THERE COULD BE ANOTHER SIDE OF INDIA, GROWTH IS STILL OK. I KNOW FINANCIAL SECTORS ARE ALSO DOING OK BUT OVERALL WE MAINTAIN A NEUTRAL STANCE BECAUSE A LOT OF THE FUND FLOWS WILL BE MORE FOCUSED ON THOSE WITH MORE AI EXPOSURES. PAUL: A LOT OF PRESSURES THE ECONOMIES ARE FEELING DUE TO ELEVATED ENERGY PRICES, JUST BRIEFLY, 30 SECONDS, IF THERE WERE TO BE PEACE BREAK OUT IN THE MIDDLE EAST WHAT THAT CHANGE YOUR VIEW? GRACE: I THINK YOU ARE RIGHT ON THIS POINT ON ENERGY PRICES. OF COURSE FOR THE RISING ENERGY PRICES, IT DOESN'T BODE WELL FOR SOUTH ASIA AND IF THERE IS AN END TO WAR, THERE COULD BE CHANGES AND BODE BETTER FOR THE SOUTH ASIAN ECONOMIES BUT FOR NOW, ESPECIALLY BEFORE THE MIDTERM ELECTIONS, WE DON'T THINK THERE IS A GOOD RESOLUTION ON THE WAR. ENERGY PRICES COULD STAY HIGH. PAUL: WE ARE OUT OF TIME PAUL: WELCOME BACK. THE BOND MARKET REMAINS THE FOCUS FOR INVESTORS WITH THE U.S. 10 YEAR YIELD HOVERING NEAR MULTI-DECADE HIGHS. BRENT CRUDE IS BACK ABOVE $100, RAISING FRESH CONCERNS THAT INFLATION COULD STAY ELEVATED, KEEPING RATES HIGHER FOR LONGER. MINNEAPOLIS FED PRESIDENT NEEL KASHKARI SAYS HE'S PAYING CLOSE ATTENTION TO WHAT TREASURIES MAY BE SIGNALING, POINTING TO AN UNUSUALLY LARGE GAP BETWEEN THE FED'S RATE PROJECTIONS AND WHERE THE TWO YEAR YIELD IS ACTUALLY TRADING. HE SPOKE TO BLOOMBERG AS TRADERS LOOK FOR CLUES ABOUT THE FED'S PLAN TO ADDRESS INFLATION CONCERNS. WE WILL DO WHAT WE NEED TO DO TO GET INFLATION BACK DOWN TO OUR TARGET. THE QUESTION IS ULTIMATELY HOW HIGH DO RATES HAVE TO GO? I DON'T KNOW THE ANSWER TO THAT. WE WERE BOTH JUST TALKING ABOUT MASSIVE DEMAND FOR INVESTMENT CAPITAL. I THINK ABOUT THAT IN THE CONTEXT OF WHAT DOES IT DO TO THE NEUTRAL RATE? THE NEUTRAL RATE IS SET BY THE BALANCE OF SAVINGS AND THE INVESTMENT IN THE ECONOMY, AND IF THERE'S MASSIVE DEMAND FOR INVESTMENT CAPITAL, THAT HAS TO COME FROM SAVINGS AND THAT HAS A HIGHER CLEARING PRICE. THAT MEANS RATES GO HIGHER. ONE OF THE QUESTIONS THAT ARISES IS WHAT TIMEFRAME ARE YOU LOOKING AT FOR NEUTRAL? BECAUSE WE ARE HAVING THIS ENORMOUS SPEND ON AI WHICH IS BOOSTING THE NEUTRAL RATE, EVERYONE AGREES. HOW LONG DOES THAT LAST? CAN YOU GET YOURSELF OFF SIDE BY MOVING TOO MUCH? GREAT QUESTION. SEP HAS THIS LONG RUN DOT, THEORETICAL INTEREST RATE THAT BALANCE THIS ALL OUT WHEN THE SHOCKS HAVE PASSED THE ECONOMY. IT IS LIKE THIS NIRVANA STATE THAT WE WILL NOT EXPERIENCE IN SOMETIME IN THE FUTURE. A NEAR TERM NEUTRAL IS WHAT YOU ARE GETTING AT. THE QUESTION IS HOW LONG DOES THIS AI BOOM CONTINUE? AND ARE THE RETURNS TO THIS INVESTMENT, DO THEY MATERIALIZE THE WAY THE INVESTORS EXPECT? IF AI PROVES TO BE AS PRODUCTIVE AS PEOPLE HOPE IT WILL BE, THEN THIS INVESTMENT CYCLE CAN GO ON FOR A LONG TIME. IF IT ENDS UP BEING NOT AS PRODUCTIVE AS THE INVESTORS ARE HOPING, THEN MAYBE IT WON'T GO ON FOR AS LONG. I DON'T KNOW THE ANSWER TO THAT RIGHT NOW. FOR A LONG TIME, THE FED WAS DRIVING WITH THE YIELD CURVE LOOKS LIKE BECAUSE THEY WERE BUYING BONDS. NOT DOING THAT ANYMORE. ARE YOU GETTING THE KIND OF CLEANER SIGNAL THAT KEVIN WARSH SAYS HE WANTS IN TERMS OF WHAT THE MARKET THINKS PRICES SHOULD BE? > I THINK A PLACE WHERE I AM FOCUSING NOW -- THE LONG END IS GETTING ATTENTION. THERE'S A BIG GAP BETWEEN THE TWO YEAR AND THE SHORT RATES. FOR EXAMPLE, MY STAFF AND I COMPUTED AND APPLIED TO YOUR YIELD FROM THE S&P DOT. THIS IS THE BIGGEST GAP BETWEEN THE ACTUAL TWO YEAR YIELD AND THE IMPLIED TWO YEAR YIELD FROM THE SEP. AROUND 4.88. MY IMPLIED TWO YEAR YIELD IS AROUND A LITTLE ABOVE 4%. THAT'S A LARGE GAP. THERE HAVE BEEN OTHER TIMES WHERE THERE HAVE BEEN GAPS BEFORE. I THINK MARKETS ARE PRETTY GOOD WHEN THEY WANT TO SET THE SIGNAL. THEY WILL SEND A SIGNAL REGARDLESS OF WHAT THE FED IS TELLING THEM. IF YOU GO BACK IN TIME POST FINANCIAL CRISIS, THE FED KEPT FORECASTING THAT WILL RAISE RATES AND THE MARKET SAID YOU ARE WRONG. IT TURNED OUT THE MARKETS WERE MORE RIGHT THAN THE FED WAS. THERE'S A LITTLE BIT OF LOOKING IN THE MIRROR. THE MARKETS ARE LOOKING AT US, WE ARE LOOKING AT THE MARKETS. I HAVE A LOT OF CONFIDENCE WHERE MARKETS HAVE A VIEW, THEY ARE NOT EXPRESSED -- SHY ABOUT EXPRESSING THOSE VIEWS. PAUL: NEEL KASHKARI THEIR SPEAKING TO BLOOMBERG'S MICHAEL MCKEE. RISK IS BUILDING IN THE BOND MARKET. FISCAL PRESSURE IN EUROPE IS READILY GOVERNMENT DEBT WHILE THE PARAMOUNT AND'S GUIDANCE DEAL SHOWS HOW HEAVY BORROWING AND WEAKER DEMAND ARE EXPOSING RISKS IN CORPORATE BONDS. AVRIL, WHERE ARE THE BIGGEST VULNERABILITIES? AVRIL: THE FOCUS IS ON EUROPEAN DEBT AT THE MOMENT, PARTICULARLY IN FRANCE WHERE WE SAW A HOT INFLATION PRINT AND INVESTOR CONCERNS THAT THE COUNTRY IS NOT BEING ABLE TO GET A GRIP ON RUNAWAY PUBLIC FINANCES. WE SAW THE SELLOFF IN FRENCH BONDS AND INVESTORS HAVE BEEN FLOCKING TO GERMAN DEBT, SEEN AS THE SAFER ASSET IN THE REGION. WE ARE SEEING THIS SPREAD FOR THE 10 YEAR AT THE WIDEST IN A LONG TIME. FLIP THE BOARD BECAUSE GIVEN THESE MACRO CONCERNS, THAT IS ALSO PUTTING PRESSURE ON THE RISKIEST CORNERS OF THE MARKET? CASE IN POINT, PARAMOUNT THIS WEEK IN TERMS OF ITS JUNK BOND AMONG THE HARDEST HIT INTERNATIONAL TRADING. THE ENTERTAINMENT COMPANY HAS HAD TO ISSUE DEBT TO THE TUNE OF 50 PLUS BILLION DOLLARS AND THIS IS IN ORDER TO FUND ITS TAKEOVER OF WARNER BROS.. WE HAVE BEEN SEEING JUST HOURS, BASED ON BLOOMBERG REPORTING, HOURS INTO THE SALE THAT INVESTORS WERE NURSING ALREADY ABOUT $100 MILLION WORTH OF LOSSES, PROMPTING VERY ANGRY CALLS FROM SOME MONEY MANAGERS. A SIGN PERHAPS OF SOME OF THE CONCERNS FROM MARKET PARTICIPANTS. PAUL? PAUL: THANKS, AVRIL. JOINING US NOW IS THE PRESIDENT OF PIMCO, WHICH MANAGES MORE THAN $2 TRILLION. THANK YOU SO MUCH FOR JOINING US TODAY. I WANT TO PICK UP ON THAT PARAMOUNT STORY THAT AVERILL WAS TALKING ABOUT. $52 BILLION IN DEBT ISSUE TO FUND THE WARNER BROS. DISCOVERY PURCHASE. A LOT OF TRADERS CALLING BANKS. NOT HAPPY WITH HOW THIS WAS HANDLED. HOW DID IT GO SO WRONG? CHRISTIAN: THANKS FOR HAVING US ON. WE GENERALLY WILL COMMENT ON INDIVIDUAL DEALS LIKE THAT. I THINK YOU CAN SORT OF STEP BACK AND SAY ANYTHING THIS LARGE IN THE CYCLICAL SPACE THAT IS GOING THROUGH A LOT OF TRANSITION, OF COURSE, WE'LL HAVE A LOT OF QUESTIONS AROUND IT. WE WILL SEE HOW THAT MOVES. THE BIGGER PICTURE, IT IS YET ANOTHER INDICATOR OF HOW MARKETS ARE WATCHING ANY AMOUNT OF RISK RIGHT NOW AND ARE LOOKING FOR MORE RESILIENT PROFILES OUT THERE. AND THAT IS NOT AT ALL IN THIS DEAL WE SAW YESTERDAY BUT ACROSS SO MANY DIFFERENT THINGS GOING ON RIGHT NOW. PAUL: ON THE THEME OF MORE RESILIENT PROFILES, THIS IS SOMETHING YOU WARNED ABOUT , INCREASINGLY COMPLEX DEBT STRUCTURES. SOME OF WHICH ARE REMINDING YOU OF SUBPRIME MORTGAGE SECURITIES. DO YOU FEEL LIKE THIS IS SYMPTOMATIC OF A REPRICING OR IS IT JUST A HEALTHY CORRECTION? CHRISTIAN: YEAH, MUCH MORE THE LATTER FOR NOW IN WHAT WE ARE SEEING, ESPECIALLY IF YOU LOOK AT INVESTMENT GRADE SPREADS, THE DRIVER OF THE WIDENING INVESTMENT GRADE SPREADS IS REALLY THE SUPPLY WE ARE SEEING IN THE HYPERSCALERS AND ADJACENT NAMES IN THE AI COMPLEX. A LOT LIKE WHAT NEEL KASHKARI, FORMER PIMCO COLLEAGUE OF OURS, WAS SAYING PRETTY ELOQUENTLY IN THE SPOT YOU TO JUST BEFORE THIS. A LOT OF THIS IS DEMAND FOR CAPITAL AS OPPOSED TO AN EROSION OF INEQUALITY OR ADDITIONAL RISK IN THE SYSTEM. THAT DEMAND FOR CAPITAL IS REALLY DRIVING UP SPREADS IN THAT PART OF THE ENERGY MARKET AND THE IG MARKET IS GROWING AS A PERCENTAGE OF THE OVERALL IG MARKET. NATURALLY, IT DRIVES IG SPREADS HIGHER. FOR NOW, WE ARE NOT SEE ANY EROSION OF CREDIT QUALITY IN IG. VERY IMPORTANTLY, THE BANKS THEMSELVES HAVE UNDERGONE A MASSIVE AMOUNT OF RECAPITALIZATION, DE-RISKING. NO REAL TRENDS TO THE CONTRARY IN RECENT MONTHS. SO, BANKS NORMALLY ARE THE CONTAGION CHANNEL OF PROBLEMS IN HIGH YIELD, ELSEWHERE IN FINANCIAL MARKETS INTO IG. FOR NOW, THAT'S NOT HAPPENING REALLY AT ALL. PAUL: NEEL KASHKARI SAID ALSO THAT MARKETS ARE GOING TO SEND THE FED A MESSAGE REGARDLESS OF WHAT THE FED IS TELLING THEM. WE ARE SEEING SOME INTERESTING MOVEMENTS IN GLOBAL YIELDS AT THE MOMENT. WHAT MESSAGE THE MARKET SENDING TO THE FED? CHRISTIAN: WELL, THE MARKET IS SAYING TO THE FED AND REALLY TO ALL THE REST OF MARKET PARTICIPANTS IS THAT THERE IS A DELEVERAGING GOING ON IN THE SYSTEM AND WHAT WE'VE SEEN OVER THE COURSE OF THE LAST SEVERAL WEEKS HAS BEEN ONE AFTER ANOTHER OF POPULAR CARRY TRADES IN THE SYSTEM COMING DOWN AND GETTING THE WRIST AND DELEVERAGED. -- DE-RISKED AND DELEVERAGED. YOU HAVE SEEN THAT IN CURVE TRADES IN THE U.S. IN MORTGAGE SPREADS IN THE U.S. AND NOW YOU ARE STARTING TO SEE IT SPILL INTO EUROPE AS WELL WHERE YOU SEE A NUMBER OF POPULAR CARRY TRADES IN EUROPE. THESE ARE MOSTLY CARRY TRADES THAT HEDGE FUNDS HAVE HAD ON. NOT JUST HEDGE FUNDS WHERE YOU ARE SEEING SOME OF THOSE TRADE START TO COME UP AS WELL. THAT IS A NATURAL REFLECTION OF RISK AND UNCERTAINTY AS HIGH GOING INTO THE MIDTERMS AND AROUND WHAT'S GOING ON WITH IRAN. ALSO, JUST THE FACT THAT FUNDING COSTS ARE HIGHER AS WELL ON THE BACK OF THAT UNCERTAINTY. IT IS DRIVING THIS DELEVERAGING OF THE SYSTEM RIGHT NOW. TO DATE, IT IS PRETTY HEALTHY. YOU DO WANT TO KEEP AN EYE ON SOME OF THE CORE RISK SIGNALS OUT THERE LIKE SOME OF THE EUROPEAN SOVEREIGN SPREADS. PAUL: GIVEN -- KEVIN WARSH HAS MADE IT PRETTY CLEAR THAT THE FED IS NOT IN THE FORWARD GUIDANCE BUSINESS ANYMORE. IF THE FED WAS GIVING SOME FORWARD GUIDANCE AT THE MOMENT, DO YOU FEEL LIKE THE MESSAGE THE MARKET WAS SENDING COULD BE A BIT DIFFERENT? CHRISTIAN: WELL, I THINK YOU HAVE TO UNPACK WHAT IS THE MARKET SAYING? IS A MARKET SAYING THE FED DEFINITELY NEEDS TO HIKE RATES FOUR TIMES OVER THE NEXT YEAR OR SO? OR IS THE MARKET SAYING THAT TWO, MAYBE THREE RATE HIKES OVER AN AMOUNT OF TIME MAY BE APPROPRIATE IN THE CONTEXT OF A STRONG U.S. ECONOMY, OF INFLATION THAT IS STILL ABOVE TARGET MAY BE DOWN, LOOKS TO BE COMING DOWN BUT STILL ABOVE TARGET, AND A VERY STRONG CAPEX CYCLE THAT IS KEEPING THE ECONOMY ALIVE AND ALSO CREATING SOME SCARCITY AND SOME -- IN SOME PARTS OF THE LABOR MARKET. ALL OF THAT COULD REQUIRE A COUPLE MORE RATE HIKES. ALSO, PROBABLY THE MARKET WHICH THE MARKET THINKS PROBABILISTICALLY. THE MARKET IS SAYING THERE IS A RANGE OF OUTCOMES TO EXPECT. ONE OF THOSE RANGE OF OUTCOMES COULD BE A MORE SERIOUS RISE IN INFLATION FEARS, COMMODITIES PRICES, ETC. BUT THROUGH ALL OF THIS, I THINK WITH THE FED IS KEEPING AN EYE ON AND CERTAINLY WHAT PIMCO IS KEEPING AN EYE ON IT IS PROBABLY THE MOST IMPORTANT THING RIGHT NOW WHICH IS BREAKEVEN INFLATION EXPECTATIONS WHICH YOU CAN READ OUT OF THE U.S. TREASURY INFLATION PROTECTED SECURITIES, THE TIPS MARKET. BREAKEVEN INFLATION EXPECTATIONS HAVE BEEN ROCKSOLID AT AROUND 2.3% FOR ALL OF THIS YEAR, PLUS OR MINUS A FEW BASIS POINTS. THE MARKET IS SAYING THE FED HAS CREDIBILITY. THE MARKET IS SAYING WHAT KASHKARI SAID WHICH WAS THE FED WILL DO WHAT IT NEEDS TO DO TO GET INFLATION DOWN TO THE TARGET. THAT IS AN EXTREMELY HEALTHY INDICATOR IN FINANCIAL MARKETS RIGHT NOW. THERE'S A LOT OF RISK IN FINANCIAL MARKETS AND A LOT OF TROUBLING INDICATORS, BUT THAT CORE MESSAGE COMING FROM BREAKEVEN INFLATION RATES, THE MARKET EXPECTS AND BELIEVES THAT THE FED WILL SUCCEED IN BRINGING INFLATION BACK DOWN TO TARGET HELPS TO GIVE A LOT OF CONFIDENCE AROUND WHERE ULTIMATELY OUTCOMES WILL COME. PAUL: WHAT IS THE PATH TO THAT SUCCESS? HOW MANY RATE HIKES AND WHEN IS NEEDED TO GET THERE? CHRISTIAN: I'D SAY THAT IT WOULD WHO SAYS THEY KNOW ABOUT THIS IS GETTING THEMSELVES. IT CERTAINLY LOOKS LIKE AT LEAST ONE MORE TO COME FROM THE FED. HOW MUCH MORE BEYOND THAT IS REALLY GOING TO BE DRIVEN BY A LOT OF THINGS THAT ARE FRANKLY UNCERTAIN. I KNOW THAT IS UNSATISFYING TO HEAR, BUT I THINK IT IS IMPORTANT TO BE INTELLECTUALLY HONEST ABOUT THE AMOUNT OF UNCERTAINTY THAT THERE IS AND BAKE THAT UNCERTAINTY INTO PORTFOLIOS. THAT UNCERTAINTY IS AROUND THE MIDTERMS, AROUND THE WAR. THAT UNCERTAINTY IS AROUND THE PATH OF HIGHER COMMODITIES PRICES AND WHETHER THERE IS AN INFLATIONARY DYNAMIC THAT EMERGES OUT OF THAT. THERE ARE OTHER UNCERTAINTIES OUT THERE AS WELL. WE WOULD SAY ALL OF THAT SPEAKS TO MAKING SURE YOU HAVE GOT BALANCE, RESILIENT PORTFOLIOS THAT CAN SURVIVE THROUGH A MULTITUDE OF DIFFERENT SCENARIOS. YOU KNOW THAT IF THERE ARE FOUR RATE HIKES, IT IS GOING TO BE QUITE DIFFICULT FOR LOWER STRUCTURE CLAIMS PARTICULARLY IN THE CORPORATE MARKET. THAT IS WHERE WE ARE SEEING IN TRIPLE C'S AND LOWER SINGLE BEES I'M A BANK LOANS, HIGH YIELD. IT IS NOT A MARKET TO MARKET EXERCISE BUT IT WILL BE HAVING SOME PROBLEMS AS WELL. ADDITIONAL PROBLEMS ON TOP OF ALREADY PRETTY ALARMING LEVELS OF PROBLEM LOANS IN DIRECT LENDING PORTFOLIOS. THOSE WILL ACCELERATE IF RATES GO SEVERAL MORE HIKES. THAT IS NOT OUR CALL AT PIMCO BUT OUR CALL IS TO BUILD RESILIENT PORTFOLIOS THAT CAN WEATHER A STORM IF IN FACT THERE ARE THAT MANY RATE HIKES TO COME. PAUL: I WANT TO ASK ABOUT WHAT A RESILIENT PORTFOLIO LOOKS LIKE IN A MOMENT BUT COULD WE UNPACK ONE OF THOSE VARIABLES YOU MENTIONED AND THAT IS THE ONGOING U.S.-IRAN WAR. WHEN YOU ARE LOOKING AT INFLATION, HOW MUCH OF THE STORY IS DUE TO THE HIGHER ENERGY COSTS, HIGHER FERTILIZER COSTS? THE WAR WILL END EVENTUALLY. WHEN IT DOES, HOW QUICKLY DO YOU IMAGINE THOSE PRESSURES WILL DISAPPEAR? CHRISTIAN: IN THE SHORT-TERM, A LOT OF THE SHORT-TERM DISAPPOINTMENT ON INFLATION THIS YEAR HAS BEEN EXACTLY WHAT YOU JUST SAID. EITHER FUEL OR DERIVATIVES OF FUEL DRIVING INFLATION HIGHER, HEADLINE INFLATION AND TO A LESSER EXTENT, THINGS LIKE AIRLINE FARES AND OTHER THINGS THAT ARE HEAVILY DEPENDENT ON FUEL PRICES. THAT WILL CONTINUE PROBABLY THROUGH THIS YEAR AND INTO SOME OF NEXT YEAR AS WELL. THEN, THAT CAN FADE OR NOT FADE DEPENDING ON THE PATH OF THE WAR AND/OR THERE ARE OTHER WORKAROUNDS IN TERMS OF THE COMMODITIES MARKET. WHAT WE SAY IS THAT THAT IS NOT THE WHOLE STORY IN TERMS OF WHAT IS DRIVING RATES HIGHER. IF ANYTHING, IT IS PROBABLY ONLY A SMALL PART OF WHAT IS DRIVING THE BELLY TO THE LONG END OF THE CURVE HIGHER. THAT HAS REALLY BEEN THE DEMAND FOR CAPITAL. THAT DEMAND PARTICULARLY TO BUILD OUT THE AI STORY, THE AI ECOSYSTEM KEEPS SURPRISING US TO THE UPSIDE -- THE AMOUNT OF CAPEX HYPERSCALERS AND OTHER TECH COMPANIES ARE DEPLOYING IN THE SPACE KEEPS SURPRISING US AND BY US I MEAN NOT JUST PIMCO BUT THE MARKET AS A WHOLE TO THE UPSIDE. WE SAW ANOTHER INDICATOR WHEN MICRON CAME OUT WITH EARNINGS WHICH WERE FANTASTIC AND REVISED CAP X HIGHER. THE DEMAND FOR CAPITAL TO DRIVE MAYBE ONCE-IN-A-LIFETIME TECHNOLOGICAL DISRUPTION AND REAP THE REWARD OF THAT DISRUPTION, THE DEMAND IS INTENSE AND IT IS DRIVING REAL RATES HIGHER AND THE REAL RATE, THE RISE HAS PULLED YIELDS HIGHER. IT IS NOT A RISE IN INFLATION EXPECTATIONS AS WE ALREADY DISCUSSED AND WE THINK ON THE ONE HAND THAT'S SOMETHING TO GRAPPLE WITH BECAUSE AS NEEL KASHKARI MENTIONED, YOU DON'T KNOW HOW MUCH FURTHER IT GOES AND HOW MUCH ADDITIONAL-ADDITIONAL CAPEX ESTIMATES THERE MIGHT BE BUT WHAT IS HEALTHY IS IT IS ALL ABOUT SUPPLY AND DEMAND FOR CAPITAL AND LESS ABOUT FEARS OF THE DISORDERLY RISE IN INFLECTION -- INFLATION EXPECTATIONS. PAUL: YOU MENTIONED ROLE IN THIS ENVIRONMENT IS TO BUILD BALANCE, RESILIENT PORTFOLIOS FOR CLIENTS. TALK TO US ABOUT HOW YOU CALCULATE THAT, WHEN IS THE CEILING FOR THE 10 YEAR, HOW MUCH HIGHER CAN IT GO? CHRISTIAN: SURE, WE ARE TELLING CLIENTS, WE ARE IN SINGAPORE IN ASIA THIS WEEK WITH A NUMBER OF IMPORTANT CLIENT ENGAGEMENT EVENTS AND TELLING CLIENTS, AS YOU LOOK AT IT, IF YOU ARE BUYING 18 YEAR AT 5.3% -- BUYING A 10 YEAR AT 5.3%, YOU ARE GENERALLY RETURNING 5.3 PERCENT. OVER TIME THERE IS A NORMALIZATION, WE SEE THAT OVER AND OVER AGAIN. A FIVE-POINT SENT -- 5.3% ON A TREASURY, 7.5% RETURN ON MORE DIVERSIFIED PORTFOLIO OF HIGH QUALITY BONDS IS A PRETTY ATTRACTIVE RETURN PROFILE, ESPECIALLY WHEN THERE ARE A LOT OF QUESTIONS AROUND EQUITIES AND HOW STRETCHED THEY ARE, HOW VULNERABLE THEY MIGHT BE, DISAPPOINTMENTS IN TERMS OF MONETIZATION OF AI. IN TERMS OF BALANCING PORTFOLIOS INTO THIS HIGH-QUALITY, HIGH-YIELDING FIXED INCOME IN OUR VIEW IS AN INTERESTING ALTERNATIVE, ESPECIALLY FOR PORTFOLIOS THAT HAVE BEEN LOADED UP ON A NUMBER OF DIFFERENT RISKS, NOT JUST EQUITIES BUT DIRECT LENDING AND OTHER RISKY ASSETS THAT ARE NOT GOING TO PERFORM WELL IN THE DELEVERAGING OF THE SYSTEM WE ARE SEEING. PAUL: CHRISTIAN, INC. YOU SO MUCH FOR YOUR TIME AND INSIGHTS TODAY. PRESIDENT OF PIMCO. STILL AHEAD, PLANS FOR A $15 BILLION AI DATA CENTER PROJECT PAUL: JAPAN'S LARGEST POWER GENERATOR IS PARTNERING WITH DELL AND U.K. BASED AI DEVELOPER ON AN INFRASTRUCTURE PROJECT WITH APOLLO GLOBAL MANAGEMENT SET TO PROVIDE FINANCING. WE WERE TOLD MORE ABOUT THE DEAL AND WHY JAPAN MAY HAVE THE BIGGEST AI DRIVEN POWER DEMANDS IN ASIA OUTSIDE OF CHINA. YESTERDAY WE ANNOUNCED A COLLABORATION PACKAGE WITH DELL TECHNOLOGY. AND WHY THIS IS SO IMPORTANT. THREE MONTH AGO I MET WITH MICHAEL DELL, AND WE TALKED TOGETHER ON A COUPLE OF THINGS. FIRST IS A LESS STANDARDIZED AI DATA CENTER FROM ENGINEERING SPECIFICATIONS AND ARRANGEMENT. SECOND IS IF YOU WANT TO DO AN AI DATA CENTER, YOU NEED LNG FOR A QUICK SOLUTION. THE AI DID CENTER VALUE CHAIN IS VERY LONG. -- DATA CENTER VALUE CHAIN IS VERY LONG. PIPELINES, TERMINALS, LNG SHIPPING ARRANGEMENT, AND GLOBAL ENERGY PROCUREMENT. SOMEBODY NEEDS TO INTEGRATE THE WHOLE PROCESS AND STANDARDIZE AND RUN IT. THREE COMPANIES WILL COVER THE WHOLE SPECTRUM OF THE VALUE CHAIN. YOU ARE HOPING TO EXPAND THIS EVEN OVERSEAS? YES. ANOTHER THING WE AGREE, THE CONCEPT IS GREAT AND ONCE WE CAN STANDARDIZE, WE CAN REPEAT THAT PROJECT AND SCALE THE DATA CENTER IN A QUICK MANNER. BUT IF WE DON'T HAVE A CONCRETE PROJECT TO REALIZE THE CONCEPT IT'S JUST TALK. JERRY DECIDED TO PROVIDE THE BEST LOCATION IN TOKYO -- JERA DECIDED TO PROVIDE THE BEST LOCATION IN TOKYO, WE CAN PUT A DATA CENTER AND THE GREAT CONNECTION IS ALREADY THERE, THE INFRASTRUCTURE IS ALREADY THERE. THE KEY TO SPEED IS POWER. HYPERSCALERS REALLY WANT POWER. WITHIN ONE OR TWO YEARS. WHAT DOES THAT MEAN FOR JERA, IF YOU ARE NOT JUST A POWER PROVIDER BUT AI INFRA STRUCTURE PLAYER YOURSELF? THAT'S A GOOD QUESTION. WE ARE SITTING ON THE POWER SUPPLY SIDE, THE VALUE CHAIN SIDE AND WORKING WITH A DATA CENTER PLAYER LIKE DELL TECHNOLOGIES BUT WE SIT TOGETHER AND EXCHANGE INFORMATION TO CONNECT THE DATA CENTER SIDE AND LNG VALUE CHAIN SIDE. WE ARE ON THE POWER SUPPLY SIDE IN SHORT. THE FACT YOU ARE PUTTING SO MUCH ENERGY INTO THE AI EVER PLAY RIGHT NOW, IS THAT COMING FROM THE CONFIDENCE THAT AI DEMAND WILL BE SUSTAINABLE AND DURABLE IN JAPAN AND THE REST OF THE WORLD? RIGHT NOW THEY'RE STILL SKEPTICISM ABOUT WHETHER THESE WILL LEAD REAL RETURNS SOON ENOUGH. IF YOU LOOK AROUND THE WORLD, U.S. AND CHINA ARE THE EPICENTER OF THE GROWING DATA CENTER DEMAND. THE REST OF THE WORLD IS JUST BEGINNING. SAME IN ASIA. DEMAND WILL PICK UP FROM THERE. IN ASIA OUTSIDE CHINA, JAPAN MAY BE THE BIGGEST DATA CENTER POTENTIAL. PAUL: THAT IS THE JERA CEO. THAT'S IT FOR "INSIGHT." KEEP IT HERE WITH US, THIS IS BLOOMBERG. ♪