Bloomberg Surveillance 12/27/2023

>> THE LAST TWO MONTHS TO FIND 2023 MARKETS. >> I THINK WE WILL MORE MONEY FLOW SIMPLY BECAUSE THOSE YIELDS WILL KEEP COMING DOWN. >> THE BIG SHOCK AND ALL BEHIND US. >> SEEING THESE ROLLING RECESSIONS WITH DIFFERENT CENTER -- I THINK THAT CONTINUES IN 24. >> 24 WILL BE THE YEAR WE HAVE A SERIOUS DISCUSSION ABOUT THE FEDERAL RESERVE'S CREDIBILITY. >> THIS IS BLOOMBERG SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO AND LISA ABRAMOWICZ. LISA: BEFORE WE GET THERE COULD WE SEE A NEW ALL-TIME HIGH ON THE S&P 500. A VERY GOOD MORNING FROM NEW YORK CITY UNDER AUDIENCES WORLDWIDE. ALONGSIDE MANUS CRANNY AND KATIE. I'M CAROL MASSAR. WE ARE ALSO WATCHING OIL CLOSELY BACKING OFF. WE WANT TO GET TO THE MARKET BOARDS FOR YOU. IT IS COMING AFTER A 2.7% GAIN YESTERDAY AS WE CONTINUE TO BE CONCERNED ABOUT ESCALATION IN THE MIDDLE EAST. LET'S BRING IN THE TEAM. ONCE AGAIN I FEEL LIKE WE EXPECT IT TO BE A QUIET DAY BUT THE THEMES CONTINUE. >> YOU SEE OIL TAKING A BIT OF A BREATHER. THAT WAS AFTER A PRETTY DRAMATIC TUESDAY THAT WE SAW. I KNOW WE WERE ASKING THE QUESTION ABOUT WHAT WAS GOING TO WAKE OIL UP. WHAT A SLIDE IT'S BEEN SINCE MID-OCTOBER. IT SEEMS IN GEOPOLITICAL PREMIUM COMING IN. >> I'M SURPRISED THE 6% IS ALL WE GOT IN TERMS OF THE REPRICING. IN THE PAST 24 HOURS WE DISCUSSED THE ATTACKS IN THE RED SEA AND THE U.S. APPROACH TO IRAQ BUT THE OVERNIGHT NEWS IS ABOUT THE CONVERSATIONS BETWEEN JOE BIDEN AND THE QATARI'S. THIS IS ABOUT HOSTAGE RELEASE, THIS IS ABOUT PUSHING THE POLITICAL NARRATIVE FORWARD. THERE IS AN URGENT EFFORT TO SECURE THE RELEASE OF ALL REMAINING HOSTAGES HELD BY HAMAS. THIS GOES BACK TO THE PUSH FORWARD ON POLITICS AS THE REALITY ON THE GROUND IS BECOMING MORE HEIGHTENED. CAROL: IT'S HARD TO SEE HOW THIS ENDS. I WAS READING A LOT, TRYING TO MAKE SENSE OF IT BECAUSE IT FEELS LIKE THERE'S A LOT OF MOVES GOING ON TRYING TO FIGURE OUT WOULD MEAN SOMETHING SIGNIFICANT IN A MOVE TOWARDS ESCALATION. YOU HAVE NONSTATE GROUPS TRYING TO MAKE -- KEEP TRACK OF. AS AN UNPREDICTABILITY OF WHAT ISRAEL MIGHT DO AND WHAT THE MILITARY MIGHT DO AND WHAT IRAN MIGHT DO IN TERMS OF RESPONSES. IT MAKES IT A COMPLICATED SITUATION TO FIGURE OUT DOES IT GET WORSE OR COULD WE FIND SOME KIND OF SOLUTION. KATIE: THE ESCALATION NO ONE WANTS INTO A WIDER CONFLICT. IT SEEMS LIKE THAT IS WHAT WE ARE MOVING TOWARDS. BUT THIS WEEK THE LAST TRADING WEEK OF THE YEAR THIS SEEMS TO BE THE CONVERSATION TO HAVE. YOU LOOK AT MARKETS AND THEY ARE SO QUIET AS YOU WOULD EXPECT ON DECEMBER 27. OBVIOUSLY GEOPOLITICS IN FOCUS. >> HITTING A RECORD YESTERDAY. IT IS UP 66% YEAR-TO-DATE. I HATE TO BE IRRATIONALLY EXUBERANT BUT IT'S HARD TO NOT IGNORE SOME OF WHAT WE GOT IN OCTOBER. MANUS: I CAN ONLY AFFORD ONE MORE IN EQUITY MARKETS. >> IT'S BECAUSE HE SAYS QATAR SO WELL. MANUS: ON A MORE SERIOUS NOTE, EUROPEAN BOND MARKETS ARE CATCHING UP. LOOK AT THE DROP IN U.K. YIELDS. HUGELY SUCCESSFUL AUCTION HERE YESTERDAY ON THE 52 WEEK. VERY MUCH GORGED UPON BY THE BIDDERS. SO U.K. YIELDS ARE DROPPING BRADEN AGAIN THERE'S THIS CATCH-UP TRADE IN EUROPE FROM AN EXTRA DAY OFF. >> THEY ALWAYS HAVE HOLIDAYS. KATIE: HAVE WE FIGURED OUT WHAT THAT IS? MANUS: IT'S CALLED LIVING. >> WE DON'T KNOW HOW TO DO THAT. IT'S A REMINDER FROM THE GUEST WE HAD YESTERDAY ABOUT IT BEING A GLOBAL BOND STORY. I DO THINK ABOUT THE CUMULATIVE EFFECT OF CENTRAL BANKS OF WHAT WE GET NEXT YEAR IN TERMS OF POSSIBLY VERY AGGRESSIVE EASING ENVIRONMENT. KATIE: A NICE REMINDER THERE ARE TREASURY AUCTIONS. CORPORATE AMERICA GOT THE MESSAGE. THE TREASURY DEPARTMENT STILL SELLING BONDS. >> WE GET THE WEEK AHEAD IT WAS JUST ABOUT A FEW AUCTIONS. >> DO YOU WANT TO SHOW THE MARKETS, DO WE DO THAT ALREADY. >> FRONT RUNNING YOURSELF CAROL? >> NEW YORK CRUDE DOWN ABOUT 6/10 OF 1%. THE NUMBER WE ARE WATCHING ON THE S&P ALL-TIME HIGH OF 4796. COULD WE GET IT WE ARE PRETTY QUIET THIS MORNING AND THE 10 YEAR. THAT IS A GREAT SET UP AND BACKDROP FOR OUR NEXT GUEST. CHIEF STRATEGIST AT INTERACTIVE FOCUS ON THIS WEDNESDAY. STEVE WHEN YOU LOOK BACK AT 2023 , HOW DO YOU THINK ABOUT THE YEAR. WHAT DO YOU WISH YOU HAD THOUGHT ABOUT DIFFERENTLY? STEVE: THE THING THAT I MISSED AND ALONG WITH MANY OTHERS WAS WE HAD THE YEAR, OF THE PAIN TRADE CAUGHT UP TO EVERYBODY. THE PAIN TRADE WAS WE WOULD RALLY DRAMATICALLY IN SPITE OF MONETARY TIGHTENING, IN SPITE OF A BANKING CRISIS THAT WE DID AVERT AND I THINK THIS RALLY THAT WE ARE SEEING NOW WAS SORT OF THE PAIN TRAIN IN EVIDENCE. CAROL: I'M GETTING THE T-SHIRTS MADE AS WE TALK TO YOU. STEVE: WE WILL WORK OUT ROYALTIES LATER. I DO THINK THIS WAS IT, THE ULTIMATE CATCH-UP TRADE. WE HAD PEOPLE UNDERINVESTED ALL YEAR. THEY WANTED IT IN AND IN A HURRY . THE OTHER THING TO KEEP IN MIND IS IF YOU'RE TALKING IN A TWO IN 20 THING. IT COUNTS JUST AS MUCH IN JANUARY. >> WE ARE NOT SEEING ANY OF IT. SO THAT'S MY CONCERN IS WE ARE GETTING INTO THIS ENVIRONMENT WHERE NO ONE WANTS TO GET IN FRONT OF SANTA'S SLEIGH BUT IT'S BEEN ON A ROLL FOR WELL BEFORE CHRISTMAS. AND CERTAINLY THIS IS THE WEEK YOU EXPECT TO SEE IT ANYWAY. MANUS: CAROL MAY WANT AN EXTRA PAY ON THE MONIKER. CAROL: WE ARE ALL LOOKING DISH -- MANUS: THAT'S ALSO THE INSTITUTIONAL ENVIRONMENT. EUROPEAN BOND MARKETS WAKING UP. U.S. BOND MARKETS ARE REALLY HITTING SOME EXTREME POSITIONING. THE QUESTION OF WEAPONIZED FALL MOBI COMES WHERE IS THE MOST WEAPONIZED FOAM OH. IS IT FOR EQUITY OR IS IT TO BE LONG OF BONDS? STEVE: IT IS KIND OF BOTH. MANUS: THAT'S A HEDGE. STEVE: EVERYBODY IS IN ON THE PARTY. I WAS OUT WITH A FEW FRIENDS RECENTLY. ONE OF THEM WAS A RETIRED BOND PORTFOLIO MANAGER AND HIS COMMENT WAS WE COULD NOT GIVE BONDS AWAY AT 5%. NOW AT 390, NO ONE CAN GET ENOUGH OF THEM. IT'S BEEN THIS HUGE CHANGE IN SENTIMENT. BONDS PORTFOLIO MANAGERS ARE NOT IMMUNE FROM THE PRESSURES OF MEETING THE BENCHMARKS. I DO THINK IT BECOMES A VIRTUAL CIRCLE. STOCKS START RUNNING AND PEOPLE START LOOKING AT FIXED INCOME. THAT'S ALWAYS GOOD FOR STOCKS. WE REALLY ARE JUST GETTING MONEY FLYING IN FROM ALL QUARTERS AND IT'S CHASING RETURNS AND I THINK IT'S INTERESTING THAT IT'S CHASING DURATION AS WE SEE FROM CONTINUING INVERTED YIELD CURVE. KATIE: LET'S TALK AT THE FRONT END OF THE YIELD CURVE BECAUSE THAT BID INTO CASH, NOTHING HAS BEEN ABLE TO STOP IT FOR OVER A YEAR. DO WE START TO SEE THE MONEY MIGRATE OUT. WHAT'S YOUR PREDICTION FOR WHERE PEOPLE PICK ALONG THE CURVE? STEVE: IT DEPENDS ON WHAT HAPPENS ON THE DESK IN THE ECONOMY. IT IS NOT MEANT AS A HEDGE, IT IS MEANT AS THE EXISTENTIAL QUESTION GOING FORWARD. IF WE ARE GOING TO KEEP A SOFT LANDING WE ARE NOT GETTING SIX RATE CUTS. IF WE ARE GOING TO GET SIX RATE CUTS WHICH DRIVES MONEY BACK INTO RISK ASSETS THAT'S PROBABLY BECAUSE THE ECONOMY STICKS. IT'S HARD TO RECONCILE BOTH OF THOSE AND THAT'S A QUESTION WE HAVE TO CONCERN OURSELVES WITH. WILL WE GET A SOFT LANDING OR THE HARD LANDING THAT WE STILL CAN'T RULE OUT AS BEING PRICED INTO BOND MARKETS WHEN THE FED SAYS WE WILL GIVE YOU MAYBE THREE RATE CUTS. MARKETS ARE EXPECTING FOUR AND THE MARKET SAYS I SEE YOUR THREE AND RAISE YOU TO SIX. CAROL: DON'T YOU FEEL LIKE THAT COULD BE THE BIG MESS? IF WE ARE SO OVER EXPECTING HOW AGGRESSIVE THEY COULD BE. KATIE: IT FEELS LIKE THE BIGGEST FIGHT BREWING INTO 2024. I'M NOT SAYING THAT YOU ARE HEDGING BUT LET'S TALK ABOUT HEDGING OVERALL. LOOKING AT THE VIX RIGHT NOW. WHEN IT COMES TO THAT HANDLE. WHEN YOU LOOK AT THE OPTIONS MARKET, WHEN YOU LOOK AT CALL RATIOS, IS THERE THAT APPETITE TO HEDGE OR IS THIS JUST A GREEN LIGHT TO GO IN ON RISK. STEVE: ARE YOU THINKING LIKE A CONTRARIAN OR FOLLOWING THE HERD. THE SHORT-TERM STRAIGHT -- TRADE , THE MARKET IS JUST SO EXUBERANT. WE STILL SEE VERY AGGRESSIVE CALL BIDS. ONE OF THE THINGS THAT'S INTERESTING IS THE VIX IS TURNING TWO INCH HIGHER EVEN OVER THE LAST COUPLE OF WEEKS WHICH BEARING IN MIND THE VIX IS A 30 DAY LOOK AHEAD, IT'S TELLING ME PEOPLE MIGHT BE -- CAROL: IT'S AT 13. STEVE: BELIEVE ME, PEOPLE ARE NOT HEDGING. THEY ARE DIPPING THEIR TO IN. THE VOLUME WE SEE IS IN CALL ACTIVITY. ONE OF MY COLLEAGUES SAID BEFORE THE HOLIDAYS EVERY DAY I JUST SEE PEOPLE COMING IN AND BUYING UP SPX. THAT IS STILL VERY MUCH THE MINDSET, PEOPLE AREN'T HEDGING. WHAT WE ARE STARTING TO SEE IS A LITTLE BIT OF THE VIX TAKE UP AND VIX FUTURES ARE STARTING TO LOOK -- THE CURB IS VERY STEEP. IN THE SHORT TERM PEOPLE DO NOT WANT TO GET IN THE WAY OF THIS RALLY AND IN THE LONGER TERM THERE MAY BE MORE CAUTIOUS AND EXPECTING MORE BACK-AND-FORTH VOLATILITY. REMEMBER ON THAT HIGH YOU MENTIONED AT THE TOP OF THE SHOW IS JANUARY 3, 2022 WE FINISHED JANUARY 2021 MUCH LIKE THIS. WHICH IS NOT TO SAY HISTORY REPEATS BUT THAT WAS ANOTHER PERIOD WHERE NO ONE WANTED TO GET IN THE WAY OF THE RALLY. >> ARE YOU WILLING TO MAKE A BIG BET IN 2024. GOING ALL IN ON ONE INVESTMENT IDEA, WHAT WOULD IT BE? STEVE: DON'T FIGHT THE PAIN TRADE. IT'S FOR MARKETS NOT TO CONTINUE RALLYING AND FOR BONDS TO BACK UP A LITTLE BIT. IF YOU GET THE SOFT LANDING LET'S TAKE A SOFT LANDING SCENARIO. YOU DON'T SEE YIELDS OF 385 OR 390 AND YOU DON'T SEE EQUITIES WHERE THEY ARE BECAUSE THEY CAN'T COPE WITH BONDS GOING UP. OR YOU HAVE THE SIX CUTS MATERIALIZING BECAUSE WE HAVE HAD A HARD LANDING WHICH IS ALSO CONSTRUCTIVE FOR EQUITIES. THAT TO ME IS THE BIGGEST RISK OUT THERE AND THE ONE THAT I CAN GET OUT OF THE BACK OF MY MIND EVEN AS MARKETS RALLY AND EVEN AS WE ARE FULL ON ENTHUSIASTIC. >> IT FEELS LIKE THERE ARE SOME SCENARIOS. I HAVE THIS EXPRESSION. IT'S THAT POINT OF THERE'S A LOT OF WAYS THIS COULD STILL GO. KATIE: I'M STILL WORKING AROUND THAT TONGUE TWISTER BRADEN MANUS: I'M NOT GOING TO TRY AND DO THAT. YOU ARE NOT GETTING THAT TRADITIONAL FLOW OF MONEY INTO THAT. PEOPLE SAY THAT'S A WASTE OF MONEY, WASTE OF EXPENDITURE FROM THE PORTFOLIO. IT'S A QUESTION THAT GOES BACK TO WHERE THE LARGE CUTS OR SMALL CUTS. SMALL CAPS WERE EARNED NEXT YEAR. THAT'S ONE OF THE BEST ENTRY POINTS. RELATIVE TO THE BIG CUTS AND THAT WILL BE THE DEBATE. WHAT IS THE CATCH-UP TRADE. >> RATE AT THE BOTTOM YOU HAVE UTILITIES DOWN ALMOST 11%. IT LEADS INTO WEAPONIZED FOAM OH. >> WE ARE GOING TO GET CAPS AS WELL. STEVE OF INTERACTIVE BROKERS WE THANK YOU FOR HIS TIME THIS MORNING. BRINGING UP THAT IDEA OF WE'VE SEEN SUCH AGGRESSIVE THOUGHT IN TERMS OF WHAT WE MIGHT GET FOR THE FED AND MAYBE THAT DOESN'T PLAY OUT. WHAT DO WE DO GET NOT THAT SOFT LANDING BUT A HARDER LANDING. >> SO MUCH OF THAT POWELL PIVOTED WAS POISED IN THERE. GLOBAL GROWTH WILL SLOW DOWN NEXT YEAR SO THE QUESTION IS DOES U.S. EXCEPTIONALISM DOMINATE RELATIVE TO THE REST OF THE WORLD. >> A LOT MORE TO TALK ABOUT WHEN IT COMES TO THE MARKETS. COMING UP DANA OF INVESTMENT SOLUTIONS. THIS ON A DAY WHERE IT IS QUIET. S&P FUTURES A LITTLE CHANGED. THIS IS BLOOMBERG. ♪ >> WHAT'S HAPPENING IS THE WORLD POSTURE OF OPPOSING ANY EXPANSION IS INEVITABLY ERODING. THEY ARE TESTING REDLINES AND THEY'RE ALSO NORMALIZING THE VIOLENCE. >> THAT'S NORMAN RULE. FORMER SENIOR INTELLIGENCE OFFICIAL MAKING COMMENTS. ALSO WATCHING THE MARKETS AGAIN WE CONTINUE TO SEE THE S&P 500 REALLY INCH TOWARDS THAT ALL-TIME HIGH. FUTURES -- FOLKS CALLED UNCHANGED. ACROSS WITH THE EURO, LOOKING AT THE 10 WITH 387. NEW YORK CRUDE THOUGH ALSO BACKING OFF THAT RALLY. A PRETTY SIGNIFICANT RALLY. HIGHER YESTERDAY ON CONCERNS ABOUT ESCALATION IN THE MIDDLE EAST. WE ARE DOWN ABOUT 7/10 OF 1%. A BIT OF A PULLBACK. LET'S TALK ABOUT THE MIDDLE EAST. WE HAVE A GREAT GUEST TO TALK ABOUT GEOPOLITICS HERE IN THE UNITED STATES. POLICY DIRECTOR OF THE TALLMAN CENTER FOR AMERICAN POLITICS. JOINING THE TEAM HERE. WE DO NEED TO START WITH THE MIDDLE EAST. WHEN YOU LOOK AT THE SITUATION IN THE NEWS FLOW. AND WE DO FEEL LIKE IT COMES CRYPTICALLY AND THERE'S MEETINGS AT THE WHITE HOUSE AND THEIR STUFF GOING ON OVERSEAS. WOULD YOU MAKE A BET ON FURTHER ESCALATION AS THIS BECOMES A MORE DIFFICULT SITUATION OR DO YOU SEE A MEANS TO AN END SOMEWHERE MAYBE IN THE NEW YEAR. >> I THINK THE PROBLEM FOR THE BIDEN ADMINISTRATION IS THESE OTHER SKIRMISHES MAY NOT BE DIRECTLY RELATED TO WHAT ISRAEL DECIDES TO DO IN TERMS OF BOMBING IN GAZA. ISRAEL HAS SAID THEY MAY NOT LET UP OR STOP AND SLOWDOWN. OF COURSE WE KNOW THEY CAN DECIDE THE OPPOSITE AND DECIDE DUE TO U.S. PRESSURE DEALING WITH EGYPT MAYBE THAT EVENTUALLY THEY ACCOMPLISH GOALS SOONER THAN THEY THINK AND IT WILL EASE UP ON THE BOMBING AND THEN YOU HAVE A MASSIVE REFUGEE CRISIS AND A REBUILD PROJECT IN GAZA. THAT'S ONE TERRITORY. IT COULD ALSO BE THAT IRAN DECIDES THEY WILL RAMP UP WITH THEIR PROXIES IN A LOT OF DIFFERENT AREAS. THOSE BECOME DISTINCT AND SEPARATE. THAT'S A PROXY WAR BETWEEN IRAN AND THE UNITED STATES. THAT'S A DIFFERENT BALL GAME AND THAT'S HARD TO EXPLAIN TO THE AMERICAN PEOPLE. THAT'S THE POLITICAL PROBLEM FOR THE BIDEN ADMINISTRATION. CAROL: WHAT DO YOU THINK THEIR MISSION OR GOAL IS IN ALL OF THIS? WENDY: THEY WANT TO DESTABILIZE THE UNITED STATES AND MAKE IT LESS INFLUENTIAL IN THE GLOBAL ECONOMIC AND MILITARY AND POLITICAL SPHERE. WE GAVE THEM ACCESS TO SOME OF THE MONEY THAT WAS THEIRS FROM SELLING FUEL AND OIL. AND THEN WE PULLED BACK ON THAT ACCESS AFTER OCTOBER 7. WE DO STILL CONTROL THEIR ACCESS TO MONEY AND STILL HAVE HEAVY SANCTIONS IMPOSED SUPPORTED BY A GREAT MANY COUNTRIES AROUND THE WORLD. THEY WANT TO GET OUT FROM UNDER THOSE SANCTIONS AND BE ABLE TO OPERATE LIKE ANY OTHER COUNTRY. THE ONLY WAY TO DO THAT IS TO DESTABILIZE THE WORLD. >> THAT'S WHERE THIS MULTI-FRONT PROXY ESCALATION IS THE CONCERN FOR EVERYBODY. WE SAW A READOUT FROM THE BIDEN WHITE HOUSE, THEY ARE NOW FOCUSED SQUARELY ON HOSTAGE RELEASE. DO YOU EXPECT ANOTHER SIGNIFICANT PROGRESS. IS THAT THE IN THE SAND TO KEEP AN ION. THE WHITE HOUSE SAYING THEY ALSO DISCUSSED INCREASED AID AND THE HOSTAGES BEING RELEASED WAS ON THAT AGENDA. HOW SIGNIFICANT IS THAT IN TERMS OF PROGRESS AND HELPING THE SITUATION. WENDY: IF HAMAS KNOWS WHERE THE HOSTAGES ARE. THEY FARMED OUT THE HOSTAGES THEY HAVE TAKEN TWO DIFFERENT SPLINTER GROUPS. SO IF THEY ACTUALLY DO CONTROL WHERE THEY ARE AND WHATEVER CONDITION THEY ARE IN THERE IS A POSSIBILITY THIS CAN CONCLUDE MORE QUICKLY AND THE HOSTAGES CAN BE RELEASED. THE AMERICAN PUBLIC DOES NOT KNOW AND IT'S UNCLEAR WHETHER THEY HAVE THAT KNOWLEDGE. THAT'S THE FIRST STEP. ADDING THE HOSTAGES RELEASED WILL DECREASE ANY REMAINING RESIDUAL SUPPORT FOR ISRAEL IN AGGRESSIVE BOMBING IN GAZA. OF COURSE THE ADMINISTRATION WANTS THAT TO BE THE LINCHPIN OF THE NEXT COUPLE OF WEEKS. MANUS: SHOULD THERE BE MORE PRESSURE AT THIS JUNCTURE ON NETANYAHU TO SEEK A PATHWAY TO DE-ESCALATE AND THE HOSTAGE RELEASE IS PERHAPS THE MOST VISIBLE VEHICLE FOR THAT. WILL THERE BE MORE PRESSURE FROM THE WHITE HOUSE. POLITICALLY, BIDEN BRING THAT TO BEAR ON NETANYAHU TO DE-ESCALATE IN ANY WAY? WENDY: ISRAEL IS NOT FEELING AS IF THEY -- THE WORLD IS FRIENDLY TO THE CAUSE BECAUSE OF THE SUBSEQUENT LOSS OF CIVILIAN LIFE IN GAZA. SO I AM NOT SURE HOW MUCH THE REST OF THE WORLD INCLUDING THE UNITED STATES CAN SAY TO ISRAEL, STOP. AS A COUNTRY WE HAVE NOT PASSED AN ADDITIONAL AID BILL FOR ISRAEL AND THAT PLAYS INTO THIS. IF WE CAN GET IN AID BILL -- AID BILL. THE INCENTIVES TO LISTEN OR DIMINISH IF OUR EFFECTIVENESS IN TERMS OF AID. SO THAT'S ONE ISSUE. TRUMP, WE HAVE NOT TALKED ABOUT TRUMP TRADE IF TRUMP WINS AS YOUR SEE US -- STARTS TO ROLL HE WILL RAMP UP ENORMOUS PRESSURE ON BIDEN NOT TO ABANDON ISRAEL, NOT TO PRESSURE ISRAEL AND HIS RHETORIC COULD BE REALLY INCENDIARY. THAT IS ANOTHER COMPLICATION WHEN IT COMES TO GETTING ANYTHING THROUGH THE REPUBLICAN-CONTROLLED HOUSE. KATIE: LET'S TALK MORE ABOUT BIDEN THE POLITICIAN, BIDEN THE CANDIDATE IN THE 2024 ELECTION. THERE WAS A REALLY INTERESTING POLL THAT FOUND SUPPORT FOR SENDING FINANCIAL AID TO ISRAEL TO FUND THE WAR IN HAMAS -- AGAINST MOSS IS CLEARLY -- IS DETERIORATING. 45% OF REGISTERED VOTERS SAYING THEY WANT MORE AID FOR ISRAEL WHICH IS SIGNIFICANT BUT THAT'S DOWN FROM 54% IN NOVEMBER. HOW JUST BIDEN RUNNING FOR OFFICE TRY TO APPEAL TO AMERICAN VOTERS HANDLE THIS AND MESSAGE THIS. WENDY: THERE'S VOCAL CONSTITUENCIES ON A LOT OF SIDES. THERE SEEMS TO BE MASS PROTESTS FOR NOT GIVING ISRAEL THIS KIND OF AID. SOME POWERFUL VOICES SAYING WE SUPPORT OUR ALLIES AND ISRAEL AS A MILITARY ALLY IN THE MIDDLE EAST AND THAT'S THE YARD TO BE MADE. YOU CAN SEE IN THE HOUSE OF REPRESENTATIVES A NUMBER OF REPUBLICANS DO NOT WANT TO GIVE MONEY TO UKRAINE FOR EXAMPLE. THEY WANT TO SEPARATE THAT AID OUT. BIDEN SAYING NO. KNOWING HE WILL NEVER GET UKRAINIAN AID FROM THE HOUSE IF HE DECOUPLES THEM. THE APPETITE FOR SPENDING BILLIONS OF AMERICAN DOLLARS ON MUNITIONS IN PARTICULAR, I THINK IS DIMINISHING QUITE A BIT AND THAT IS A REAL PROBLEM POLITICALLY AND PRACTICALLY FOR THE PRESIDENT IN THE CONGRESS AMONGST HIS OWN PARTY MEMBERS BUT ALSO AMONGST REPUBLICANS. KATIE: OBVIOUSLY CONGRESS WAS NOT ABLE TO GET THAT UKRAINE AID THROUGH. REPUBLICANS STANDING THEIR GROUND AND STICKING THAT A BORDER SECURITY. WHAT DOES A POTENTIAL COMPROMISE LOOK LIKE IN EARLY 2024. WENDY: THAT DEPENDS ON WHAT HAPPENS WITH THE CURRENT CRISIS BREWING NOW. A VERY LARGE NUMBER OF MIGRANTS MAKING THEIR WAY TO THE BORDER. FIGURING OUT WHAT TO DO. THAT WILL SOAK UP A TREMENDOUS AMOUNT OF TENSION IN THE AMERICAN PUBLIC'S MIND AND I THINK THAT IS A VERY IMPORTANT CRISIS FOR THE BIDEN ADMINISTRATION GOING INTO THAT ELECTION YEAR. WE KNOW TRUMP OR NIKKI HALEY OR RON DESANTIS WILL MAKE THAT THEIR KEY ISSUE AND THERE ARE A LOT OF PEOPLE IN THIS COUNTRY WHO WILL VOTE ON THAT ISSUE RATHER THAN CASTING A VOTE. >> WHAT IS THE MOST IMPORTANT ISSUE, WHAT IS IT WHEN IT COMES TO AMERICAN VOTERS WHEN THEY GO TO THE POLL. >> IF THE ECONOMY IS GOOD AND I PROPOSE WE WILL HAVE THE ATTENTION ON FOREIGN AFFAIRS. IF THE ECONOMY IS SHAKY THAT'S WHAT THEY WILL WORRY ABOUT AND THEY WILL SAY WHY WE WORSE OFF THAN WE WERE YEARS AGO. I THINK THEY HAVE TO BE AN EDGE TO THE INCOMING PRESIDENT. >> THANK YOU SO MUCH AS ALWAYS WENDY. I DO THINK THAT'S INTERESTING. I WANT TO TALK ABOUT THE ECONOMY BECAUSE THE LABOR MARKET IS A TIGHT LABOR MARKET. WE TALK ABOUT HIGH PRICES ARE STILL PROBLEMATIC. HOW DOES THAT ULTIMATELY IMPACT BIDEN AS A STANDING PRESIDENT. >> ULTIMATELY IT'S WHAT KIND OF SLOWDOWN DO YOU GET. WAGES REMAIN STRONG. THEY REMAIN FIRM. AS LONG AS WAGES REMAIN FIRM THIS AMERICAN CONSUMER WILL REMAIN ROBUST. THE LONGEVITY OF SPENDING WILL ENDURE. AS LONG AS THERE IS NO MASSIVE BREAK OR HARD LANDING THAN THE CONSUMER REMAINS FINE. >> IS THAT ENOUGH? MANUS: THE BOTTOM LINE IS DUE THE ELECTORATE REALLY BELIEVE THAT BIDENOMICS HAS MADE THEM BETTER OFF. CAROL: PAUL KRUGMAN HAS TALKED ABOUT MESSAGING AND THE WHITE HOUSE NEEDS TO GET OUT THERE. COMING UP, KONA ON THE MARKET. THIS IS BLOOMBERG. ♪ >> VERY GOOD MORNING, THIS IS BLOOMBERG SURVEILLANCE LIVE ON TV AND RADIO. WE ARE IN FOR TOM JOHN AND LISA. A CHECK OF THE MARKET REPORTS. ANOTHER QUIET MORNING, S&P 500 FUTURES UNCHANGED. WATCHING TO SEE IF THE S&P CAN CONTINUE THIS LATE 2023 RALLY. AND SEE AN ALL-TIME HIGH. KATIE: I JUST THINK IT WOULD BE POETIC WHERE THE S&P 500 WAS PERFECTLY UNCHANGED. >> SHE JUST WANTS TO BE THE ONE WHO BREAKS THAT LINE. A NEW RECORD HIGH. CAROL: BACKING OFF OF YESTERDAY'S RALLY. THE ELVES ARE ASKING ME TO MOVE ON. UNDER SURVEILLANCE LET'S GET TO SOME OF THE TOP STORIES. WOLFGANG IS A KEY FIGURE IN GERMAN POLITICS AND HAS DIED, PARALYZED FROM THE CHEST DOWN AFTER BEING SHOT BY A GUNMAN AT A POLITICAL RALLY IN 1990. HE ROLLS THROUGH THE CHRISTIAN DEMOCRATIC UNION PARTY. SERVING AS ANGELA MERKEL'S FINANCE MINISTER PER HE WAS 81. IN TERMS OF CORPORATE NEWS, APPLE APPEALING A U.S. BAN ON SALES OF ITS U.S. WATCHES OF THE WHITE HOUSE REFUSED TO RETURN THE MEASURE. AFTER -- SELLING THE MODELS AFTER MATT -- THE TECH GIANT WILL CHALLENGE THE BAN IN THE U.S. COURT OF APPEALS AND HAS FILED A MOTION TO OF THE BAN LIFTED WHILE THE COURT APPEARS AND CONSIDERS ITS APPEAL. TESLA IS POISED TO LOSE ITS TITLE AS THE WORLD'S MOST POPULAR EV MAKER. THE CHINESE BYD SET TO OVERTAKE AS THEY ROLL OUT A REVAMPED VERSION OF ITS MODEL WHY VEHICLE. ACCORDING TO BLOOMBERG PRODUCTION ON THE NEW MODEL WHY IT WILL BEGIN IN MID OF NEXT YEAR. IN 2 -- WHAT'S CATCHING YOUR ATTENTION ON THIS STORY? KATIE: THIS IS WHAT WE WERE TALKING ABOUT WITH DAN IVES YESTERDAY. WHEN YOU THINK ABOUT THE DIFFERENT CASES OUT THERE FOR TESLA IT'S CHINA. IT'S KISMET TO SEE THIS ON THE TERMINAL TODAY. HERE'S A FUN STAT. TESLA ONLY SOLD 3456 MORE EV'S THAN BYD LAST QUARTER. IT SEEMS LIKE IT'S PRETTY CLOSE TO TAKING THE CROWN. MANUS: BACK TO THAT CONVERSATION. BETTY WHO USED TO WORK HERE IN 2011 HAD A CONVERSATION. WHAT DID HE SAY, HE WAS SNIPING. >> HE WAS LIKE NO PROBLEM. NOT GIVING THEM ANY PROPS. APPARENTLY THAT'S GOTTEN OUT AND HE'S THINKING DIFFERENTLY. >> HE CAN'T EXACTLY LAUGH RIGHT NOW. THERE WAS AN INTERESTING LITTLE EXCHANGE ONLINE. YOU WOULD TESLA OWNERS CLUB SHARING THAT CLIP IN MAY OF THAT 2011 CLIP AND THEN MUST WROTE BACK THAT BYD'S VEHICLES ARE HIGHLY COMPETITIVE THESE DAYS. THAT MAN WOULD KNOW. MANUS: IT LIVES FOR ETERNITY. >> TESLA'S ARE EXPENSIVE. MANUS: THEY'VE BEEN CUTTING PRICES ALL YEAR. ANOTHER HEADLINE AND ANOTHER PRICE CUT IN CHINA. AND AROUND THE WORLD IN TERMS OF THE MODEL. >> BYD OFFERING A LOT OF MODELS CERTAINLY FOR THE DOMESTIC MARKET. BUT THEY ARE AT LOWER PRICE POINTS ALMOST FROM THE GET-GO. >> MAY BE A SAVING GRACE IS WE ARE TALKING ABOUT CHINA. YOU CAN REALLY BY A CHINESE MADE EV. EUROPE IS TRYING TO -- YOU THINK ABOUT FOR TESLA'S GROWTH CHINA MATTERS A LOT. THOSE DOMESTIC VEHICLES ARE REALLY WOULD PEOPLE BY OVER THERE. >> I GREW UP IN THE U.K. AND EUROPE AND I GREW UP AS PART OF EUROPE. ONE OF THE FIGUREHEADS OF THE DEBT CRISIS IS EUROPE. HE'S PASSED AWAY, HE WAS 81. HE AND MERKEL WERE SYMBIOTIC OF WHAT GERMAN FISCAL PRUDENCE WAS. OVER THE PAST SIX MONTHS, HE WAS THE MAN THAT CHALLENGED THE GREEKS. HE SAID YOU DON'T WANT TO PLAY BY THE RULES DURING THE DEBT CRISIS AS IT WAS FAMED. AND HE SAID YOU KNOW WHAT IF YOU DON'T WANT TO PAY PLAY BY THE RULES, TAKE FIVE YEARS TIME. HE WAS A FORMIDABLE POLITICIAN AND A FORMIDABLE FINANCE MINISTER WHO IN MANY WAYS, HE MAY HAVE SAVE THE EURO BUT MERKEL AND SCHAEUBLE ARE WORTHY TRIFECTA. >> BRINGING HIM BACK IN AFTER THE CRISIS SO CRUCIAL IN TERMS OF THE GERMAN FINANCIAL SITUATION. THERE ARE PEOPLE WHO JUST HAVE TRAGEDY BUT SO IMPORTANT IN TERMS OF VERY SIGNIFICANT POINTS IN GERMANY'S HISTORY. AND GEOPOLITICALLY OVERALL. MANUS: FROM TESLA TO POLITICAL ICONS. IT'S TURN OUR ATTENTION TO ONE FORMER POLITICAL MINISTER IT'S THE FORMER U.K. PRIME MINISTER GORDON BROWN. NOBEL PRIZE-WINNING ECONOMIST MICHAEL SPENCE SAT DOWN WITH BLOOMBERG'S JONATHAN FERRO EARLIER THIS YEAR. THEY WERE TALKING ABOUT THE BOOK PERMIT CRISIS. A PLAN TO FIX A FRACTURED WORLD. THEY DISCUSS THE IMPACT OF AIN HOW THAT COULD HIT PRODUCTIVITY. >> GENERATIVE AI CAME ALONG AND I SAW THE CAPABILITY, THE FACT YOU CAN USE IT WITH NO TECHNICAL TRAINING. JUST A LITTLE BIT OF PRACTICE. AND IT'S APPLICABILITY PRETTY MUCH EVERYWHERE. I THOUGHT EVEN THOUGH IT'S EARLY DAYS AND WE ARE IN FOR X CORP -- EXPLORATION. I THINK IT'S A REASONABLE FORECAST. THAT THIS TOOL IS AN IMPORTANT PART OF A FUTURE PRODUCT OF RESEARCH. IF IT COMES IT WILL MAKE IT A LOT EASIER TO DO INCLUSIVE GROWTH PATTERNS BECAUSE IT WON'T BE A ZERO-SUM GAME. IT WILL BE EASIER TO INVEST MULTI-TRILLIONS OF DOLLARS IN THE ENERGY TRANSITION. IT WILL BE TERRIBLY DIFFICULT TO GET THAT DONE. WITH FISCAL SPACE DECLINING, RISING DEBT LEVELS AND INTEREST RATES. THAT'S WHY WE SPEND A FAIR AMOUNT OF TIME ITSELF IS THE ONLY THING. IT'S THAT IT ENABLES A LOT OF WHAT WE WANT TO ACCOMPLISH. >> WE ARE HEADING FOR A LOW GROWTH DECADE. THAT AI CAN GIVE US. I THINK WHAT MIKE IS POINTING OUT IS IT CAN TRANSFORM ALL RANGE OF INDUSTRIES. YOU'LL NEVER SEE THE LEGAL OR EVEN MEDICAL PROFESSIONS ARE TEACHING PROFESSION BE THE SAME AGAIN IF AI HAS THE IMPACT THAT MIKE THINKS IT WILL HAVE. EQUALLY WE HAVE TO HAVE THAT PRODUCTIVITY SEARCH. WITHOUT THAT THE INFLATION AND FISCAL SPACE BEING NARROWED, THE DEBT WE ARE RUNNING AND OF COURSE THE SUPPLY SIDE SHOCKS AND THE CONSTRAINTS MEAN THAT AS THINGS STAND WE ARE HEADING FOR A LOW GROWTH DECADE. AI IS THE WAY FORWARD. >> IT IS CRITICAL BECAUSE WE HAVE A DEBT ISSUE THAT HAS TO BE RESOLVED. WE NEED RESOURCES FOR CRITICAL TRANSITIONS. SO THE NOTION AS MIKE AND GORDON CORRECTLY SAID THAT HIGHER MORE INCLUSIVE GROWTH AND MORE SUSTAINABLE GROWTH IS A MASSIVE ENABLER TO DEAL WITH THESE PROBLEMS. >> IF GLOBALIZATION HOLLOWED OUT MANUFACTURING BASE IN PLACES LIKE AMERICA AS WELL. AND I'M ASKING THE QUESTION WHY WOULDN'T AI DO THE SAME THING TO SERVICES. MY QUESTION IS WHY WOULD I TRUST THE SAME PEOPLE ALL OVER AGAIN. WHO SHOULD I TRUST TO MANAGE THAT TRANSITION AND INTEGRATION FOR THE TECHNOLOGY. >> THAT'S WHAT MY CHILDREN SAY. THEY SAY YOU GUYS HAVE MESSED IT UP AND IT IS TRUE WE TRY TO CREATE A MORE INCLUSIVE SYSTEM. BUT WE COULDN'T GET THE AGREEMENT WE NEEDED. WE TRIED TO HAVE MORE EQUITY IN BETTER JOBS. I DO THINK WHEN I TALK TO YOUNG PEOPLE THEY WANT TO SEE THIS CHANGE. THE ISSUE IS NOT WHETHER YOU HAVE CHANGE OR NOT. AND WE'VE GOT TO MAKE THAT CHANGE INCLUSIVE. >> ERIC TALKED ABOUT THE TOURING TRACK. THE TURING TEST PUSHES YOU IN THE DIRECTION OF AUTOMATION. POLICY SHOULD BE PUSHING IN THE DIRECTION OF AUGMENTATION. GIVING PEOPLE POWERFUL TOOLS THAT MAKE THEM MORE PRODUCTIVE. THIS IS THE JOURNEY WE ARE SETTING ON BUT IT'S NOT -- I DON'T THINK RIGHT TO JUST CAPITULATE AND SAY PRODUCTIVITY PRODUCES EMPLOYMENT PROBLEMS. IT'S AT LEAST MORE COMPLICATED THAN THAT. >> TO BE CAPABLE OF DEALING WITH THIS. AND THE IMF HAS A CRISIS PREVENTION MECHANISM. IT CAN'T JUST BE THERE FOR CRISIS RESOLUTION. THE WORLD BANK HAS TO BECOME A GLOBAL PUBLIC GOODS BANK TO DEAL WITH THE ENERGY TRANSITION AS WELL AS HUMAN CAPITAL. THE WTO HAS TO FIND A WAY OF DIPLOMACY AND NEGOTIATION AND ARBITRATION WORKING BETTER THAN IT HAS IN THE PAST. WE NEED A BETTER CONCEPT OF BURDEN SHARING. I CANNOT UNDERSTAND WHY WHEN YOU HAVE THIS HUMANITARIAN CRISIS, ALWAYS SEEM TO BE ABLE TO DO IS PASS THE WRECKING BALL AROUND. WE HAVE A SYSTEM OF BURDEN SHARING WHETHER IT'S FOR THE ENVIRONMENT OR PUBLIC HEALTH OR WHETHER IT'S FOR SOME OF THE OTHER PUBLIC GOODS WE WANT TO DO NOW. IF YOU TALK TO PEOPLE. THEY ALL WANT THIS TO HAPPEN. WHAT WE NEED TO DO A SHOW THAT THIS CAN YIELD THE BEST RESULTS AND THEN CREATE THE POLITICAL WILL FOR THIS TO HAPPEN. >> I'M GETTING THE SAME FEELING THAT I GOT WHEN I READ THE BOOK. AND THEN I END UP IN THE SAME PLACE. IS THERE ANY EVIDENCE PEOPLE WILL VOTE FOR IT. YOU SAY IT'S INCREDIBLY POPULAR AND YOU SPEAK TO PEOPLE AND THEY ARE CONVINCED BY IT. I DON'T SEE ANY EVIDENCE FROM RECENT GENERAL ELECTIONS THAT ANYONE WANTS THIS VISION THAT THE THREE OF YOU HAVE. >> I THINK THE LESSON OF COVID AND OF THE ENERGY AND FOOD CRISIS AND PEOPLE'S REACTION TO THE WAR IN UKRAINE IS THINGS WILL BE BETTER THAN THIS AND I THINK THOSE LEADERS THAT CAN SHOW THAT THERE'S A HOPEFUL FUTURE. YOU'VE SEEN NEIL MOTLEY IN THE CARIBBEAN WITH HER PLAN FOR GLOBAL GROWTH. YOU SEE POLITICIANS IN AFRICA TALKING ABOUT GREEN GROWTH. I DO THINK THERE IS A MOVEMENT NOW THAT SAYS LOOK WE CANNOT HAVE POLITICS JUST AS A NEGATIVE SPORT WHERE PEOPLE ARE JUST ATTACKING EACH OTHER. I THINK PEOPLE WANT POLITICIANS -- THAT'S THE NEXT GENERATION. >> I THINK IS ABSOLUTELY RIGHT. PEOPLE WANT HOPE. THERE'S A RECOGNITION THAT THE ROAD WE ARE ON IS UNSUSTAINABLE AND IT'S GETTING MORE AND MORE BUMPY. AND THIRD WE ARE DEALING WITH A LOSS OF TRUST. AND IF WE DON'T DIRECTLY REESTABLISH TRUST IN OUR INSTITUTIONS AND POLICYMAKING AND GLOBAL COOPERATION THINGS WILL GET WORSE. I THINK THE REASON WE WANTED TO PUT THIS DOWN IS HOPING TO START A CONVERSATION ON A SET OF STEPS AND WE KEEP SAYING THERE IS NO SILVER BULLET. THIS IS NOT A BIG BANG, THIS IS BUILDING A FOUNDATION THAT TURNS VICIOUS CYCLES. >> THAT WAS JONATHAN FERRO IN CONVERSATION A LITTLE BIT EARLIER THIS YEAR. GREAT CONVERSATION ABOUT WHERE AI TAKES US. I THINK JONATHAN'S QUESTION WAS VERY PRESCIENT WHICH IS WILL THE ELECTORATE WANT TO VOTE TO ENABLE THIS AND ONE THING THAT COMES TO MIND IS THE REGULATION OF AI. AND WHERE OUR GOVERNMENTS IN THAT CONVERSATION. THE CONVERSATION I'M HAVING IS THERE'S VIRTUAL SILENCE FROM GOVERNMENT. THEY DID NOT GET IT RIGHT OVER THE INTERNET. MANY GLOBAL GOVERNMENTS. WHAT ARE THEY DOING TO REGULATE AI. WE BARELY KNOW WHAT AI MEANS. >> IT'S EARLY IN THE GAME. WE HAVE LEARNED FROM SOCIAL MEDIA THAT WE WERE TOO LATE IN THE GAME IN TERMS OF MONITORING AND OVERSIGHT. I THINK I'VE SAID IF AI CAN WRITE A SCRIPT FOR ME I LOVE IT. THAT TO ME -- KATIE: THEN YOU HAVE TO REALLY FACT-CHECK IT. IT WOULD BE EASIER TO WRITE IT YOURSELF BUT I DO THINK IT'S AN INTERESTING AND IMPORTANT QUESTION. YOU THINK ABOUT THE PUBLIC CONVERSATIONS THAT ARE HAPPENING. IT'S MOSTLY AROUND CHATBOTS. CAROL: WE USE AI ALREADY. >> TO WHAT EXTENT WILL IT EVOLVE. HOW QUICKLY WILL AI EVOLVE AND IMMERSE ITSELF. I REMEMBER WHEN I GOT THAT AND IT MIGHT'VE BEEN 2007. WE, AN EXCEPTIONALLY LONG WAY. I SETTLE NEVER WATCH A VIDEO ON THIS OR A TV PROGRAM ON THIS. WHAT ARE WE ALL DOING? YOU ARE NETFLIX, INSTAGRAM. >> AUTOCORRECT IS STILL SO BAD. THE FLAVORS OF AI IN OUR LIFE AND AUTOCORRECT. >> THE SPEED OF THE EVOLUTION, THAT WILL BE EVEN MORE AGGRESSIVE. >> I THINK THERE'S MORE IN TERMS OF THE MEDICAL COMMUNITY. WHEN WE TALK ABOUT DISRUPTIONS THERE CERTAIN SEGMENTS OF OUR ECONOMY THAT ARE STILL LAGGING. WHAT IT COULD DO IN DETECTING IRREGULARITIES AND SCANS AND SO FORTH. IT'S DIFFICULT FOR THE MEDICAL HUMANS TO DO THAT THEN THE SYSTEM AI COULD BE. KATIE: IT'S MORE THAN JUST WRITING SCRIPTS, THE MEDICAL IMPLICATIONS. CAROL: SOLVING ALL OF OUR SOLUTIONS, I DON'T KNOW. MAYBE IT'S A QUESTION FOR KONA BUT WE WILL TALK COMMODITIES WITH HER. ♪ >> EVERY WEEK THAT TRANSITORY AREA IS DIFFICULT. THE FIRST CONSEQUENCE WE ARE SEEING IS FREIGHT RATES -- THE SECOND CONSEQUENCE WE SEE IS THE SUPPLY CHAINS WILL BE DISTORTED HEAVILY LIKE WE SAW WITH EVER GIVEN. CAROL: TALKING TO US EARLIER THIS MONTH AS TENSIONS IN THE RED SEA ESCALATE. WE WANT TO TALK A LITTLE BIT ABOUT THE COMMODITIES MARKET. BEEN KEEPING A WATCH ON OIL BECAUSE OF THE CONCERNS ABOUT MIDEAST ESCALATION. CRUDE PULLING BACK JUST A LITTLE BIT. A $.55 DECLINE. 75 A BARREL AFTER ABOUT A 2.7% RUN UP. WE SAW THAT ESCALATION 24 HOURS AGO. IT BUILT THROUGH YESTERDAY'S MORNING BUT WE TAKE A BREATHER THIS MORNING. LET'S GET TO COMMODITIES BECAUSE IT HAS BEEN AN INTERESTING YEAR. THERE'S A LOT OF MOVING PARTS TO THE SPACE. KONA JOINS US HERE ON BLOOMBERG SURVEILLANCE. GOOD MORNING, HAPPY HOLIDAYS. LET'S TALK ABOUT OIL TO BEGIN WITH. WHAT ARE YOUR THOUGHTS ABOUT WHAT'S HAPPENING IN THE MIDDLE EAST AND SHOULD WE AS INVESTORS BE MORE CONCERNED THAT THERE WILL BE MORE PRESSURE OVER THERE AND THAT'S GOING TO PLAY ITSELF OUT WHEN IT COMES TO OIL PRICES AND ENERGY PRICES. KONA: I THINK THE OIL IS INTERESTING. IT'S THE FIRST TIME IN 2023 WE SEE OIL PRICES DECLINE IN TWO YEARS. SO AS YOU WE ARE STARTING AT RELATIVELY CHEAP PRICES, 2024 YOU CAN ALMOST SAY OIL IS FAIRLY CHEAP. THE MARKETS ARE PUTTING SUPPLY AND WE ARE GOING INTO 2024 WITH DEMAND SLIGHTLY WEAKER BECAUSE AFTER ALMOST TWO YEARS OF RATE CUTS CLEARLY OIL CONSUMPTION MIGHT BE IMPACTED. ON TOP OF THAT NON-OPEC HAS BEEN PRODUCING A LOT. BUT AS YOU MENTIONED WE HAVE SO MUCH GEOPOLITICAL RISK OUT THERE AND I HAVE A FEELING YOU WILL BE VERY VULNERABLE TO OCCASIONAL SPIKES. REGULAR SPIKES I THINK AS THIS MIDDLE EASTERN CONFLICT STARTS TO DEVELOP. WORRIED SIGNS OF EXCAVATION. IF THAT GETS NOTCHED BACK THEN WE WILL SEE AN EQUIVALENT DROP. THE REASON WE HAVEN'T MOVED HIGHER IS BECAUSE THERE IS A FAIR AMOUNT OF SPARE CAPACITY. THE FACT THAT SAUDI ARABIA, RUSSIA AND THE BIG OIL PARTICIPANTS HAVE CUT BACK AND ARE PLEDGING TO CUT BACK IN 2024 IMPLIES A HEALTHY AMOUNT OF SPARE CAPACITY. MANUS: LET'S JUST PAUSE FOR A MOMENT ON THAT. WE WILL GET VOLATILE SPIKES. FIRST OF ALL USE A PRIZE YOU HAVEN'T SEEN A BIGGER SPIKE? IT'S NOT EXACTLY WHAT I CALL WAR PREMIUM. BUT YOU TALK ABOUT WHAT'S CAN HAPPEN IN THE FIRST QUARTER. THERE IS AN ASSUMPTION OF DEFICITS IN THE MARKET IN THE FIRST QUARTER? WILL THEY COME TO BEAR AS OPEC-PLUS HOPED? KONA: MY ASSUMPTION IS THE DEFICIT COMES IN AT THE SECOND PART OF 2024. THAT'S ASSUMING THEY MAINTAIN THE CUTBACKS. THE FIRST HALF IS FAIRLY OK. WE SEE THE DEMANDS NOT TOO TERRIBLY TIGHT AND SUPPLY THERE BEING DECENT. NOW CONSIDERING THAT ANY SPIKE DUE TO ESCALATIONS AND MIDDLE EASTERN CONFLICTS COULD BE MANAGED PROPERLY. IN THE SECOND HALF I THINK THAT'S WHEN THINGS BECOME MORE TIGHT. MY ASSUMPTION IS THAT'S WHEN THE MARKETS DEAL WITH THE DEFICIT ASSUMING THE PLEDGE CUTS TAKE PLACE. MANUS: WHERE IS THE FLOOR IN THE FIRST HALF AND DO YOU EXPECT SAUDI ARABIA AND RUSSIA WITHIN OPEC-PLUS TO HAVE TO SIGNIFICANTLY EXTEND THEIR CUTS THAT THEY HAVE PROMISED? >> I BELIEVE THEY WILL HAVE TO YES. MANUS: FOR THE WHOLE OF 2024? KONA: KONA: I THINK SO. THE DEMAND OUTLOOK IS NOT AS ROSY AS LAST YEAR. A CHINA STILL STRUGGLING AT 45% GDP GROWTH AND THE EUROPEAN ECONOMY ALSO IS STAGNANT. I THINK ALL AROUND WHEREVER YOU LOOK DEMAND IS NOT GOING TO BE THAT STRONG. MANUS: LET'S BROADEN THE CONVERSATION SLIGHTLY. WE WILL DEBATE WHERE THE DOLLAR GOES. WHETHER IT'S EXCEPTIONALISM THE TAKES HOLD NEXT YEAR. THE MARKET DEALING WITH 150, 160 IN PATE'S -- IN BASE CUTS. YOU WOULD SAY THE BASE LEVEL THINKING IS GOING TO BE WORTHY -- WHERE THE DOLLAR GOES. YOU SAY HOLD YOUR HORSES IT'S NOT THE DEMISE OF THE DOLLAR JUST YET. KONA: THAT'S MY VIEW. I THINK THE U.S. DOLLAR HAS DREW PROVEN TO BE STRONGER THAN THE MARKET LIKES TO THINK IT WILL BE. YES WE HAD QUITE A SERIOUS ESCALATION IN INTEREST RATES AND THE FED AND THAT HAS PROMPTED SUPPORT OF THE U.S. DOLLAR. IT DOESN'T NECESSARILY MEAN AS WE START CUTTING OR EVEN LEAVING PRICES AT THE RATES LOWER IT DOESN'T MEAN THE U.S. DOLLAR STILL COULD BE SUBSTANTIAL PURELY BECAUSE THE U.S. ECONOMY IS SO STRONG AND I BELIEVE THE U.S. WILL NOT BE ABLE TO CUT INTEREST RATES AS RAPIDLY OR AS EARLY AS MAYBE THE BANK OF ENGLAND OR THE ECB. THEREFORE I THINK THE EUROPEAN UNION, BANK OF JAPAN, ECB ALL OF THE CENTRAL BANKS WILL ACTUALLY END UP BECAUSE OF THE WEAKER ECONOMIES WILL HAVE TO CUT EARLIER THAN THE FED WOULD WHICH ULTIMATELY PUTS THE DOLLAR AT DIFFERENTIAL. KATIE: ON THE DOLLAR AND ITS RELATIONSHIP TO THE WORLD OF COMMODITIES IT'S BEEN FASCINATING WATCHING GOLD OVER THE PAST FEW MONTHS. JUST THIS MONTH GOLD HITTING A RECORD HIGH. YOU REALLY DID NOT HEAR A LOT OF HULLABALOO ABOUT THAT. HOW MUCH DOES YOUR VIEW ON GOLD AND THESE OTHER ECONOMIES DEPEND ON WHAT HAPPENS WITH THE DOLLAR. >> IF WE ASSUME IS I WAS THINKING THAT THE DOLLAR DOES NOT FALL TOO MUCH FROM THIS LEVEL I THINK A LOT OF THAT'S ALREADY HAPPENING. BUT IF THE DOLLAR STAYS STEADY AT OR AROUND THESE LEVELS AND IT HOLDS COMMODITIES LIKE GOLD FOR EXAMPLE MAINTAINING THOSE LEVELS THEY SHOULDN'T NECESSARILY RISE HIGHER. WHAT SUPPORTING GOLD IS GEOPOLITICAL TENSIONS AND SAFE HAVEN DEMAND, BUT ALSO GOLD. I THINK THE GOLD PRICES COULD DO WELL JUST ON THE FACT THERE WAS A STABLE DOLLAR IN CONTINUED SAFE HAVEN DEMAND. WHEN YOU'RE TALKING ABOUT OTHER COMMODITIES I WOULD SAY I AM NOT PARTICULARLY BULLISH, I THINK YOU HAVE TO LOOK AT INDIVIDUAL COMMODITIES. THE LIKES OF AGRICULTURE WITH WEATHER ISSUES CAUSING TIGHTNESS. BUT METALS ON THE OTHER HAND WE STRUGGLE PENDING ON DEMAND FROM CHINA. >> LET'S TALK ABOUT THOSE COMMODITIES BECAUSE THERE'S A LOT TO PICK OF RICE AT A 15 YEAR HIGH. YOU LOOK AT COCO AT A 46 YEAR HIGH, SOME AMAZING MOVES OUTSIDE THE WORLD JUST OF ENERGY AND OIL. IS THAT BASICALLY JUST EXPLAINED BY SOME OF THESE EXTREME WEATHER EVENTS GOING ON OR IS THAT A SUPPLY DEMAND STORY? KONA: IT'S BOTH. IT IS THE WEATHER WHICH IS PARTICULARLY DUE TO EL NIÑO, WEATHER PHENOMENON WHICH CAUSES PARTICULAR DRYNESS IN ASIA. THAT'S DIRECTLY IMPACTING RICE YIELDS IN THE LIKES OF INDIA, THAILAND AND CHINA. THAT'S SUPPLY DISRUPTIONS AND RICE. IN U.S. ALSO CAUSING WEATHER DISRUPTIONS IN WEST AFRICA SO COCO PRODUCERS HAVE SEEN REALLY DRY WEATHER THERE. SOME YIELDS THERE UNDER PRESSURE. I THINK THAT WILL REMAIN A RISK FOR A LOT OF THE AGRICULTURE COMMODITIES. GRAIN AFTER THE U.K. INVASION -- UKRAINE INVASION LED TO HUGE SUPPLY-SIDE RESPONSE. GRAIN MAY NOT SEE SUCH A SPIKE OUTSIDE OF THE U.S.. CAROL: I FEEL LIKE YOU CAN TALK COMMODITIES WITHOUT TALKING CHINA. HOW DO WE LOOK AT CHINA'S ROLE WHEN IT COMES TO COMMODITY DEMAND BROADLY? KONA: THIS IS WHERE THE PROPERTY SECTOR MATTERS. THERE ARE RUMORS THAT MARKETS ARE LIKING THE IDEA OF MORE STIMULUS. MAYBE COPPER WILL BENEFIT FROM TRANSITION. BUT OVERALL I THINK YOU CANNOT EXPECT CHINA TO BE LIKE IT WAS IN THE MID TO THOUSANDS. YOU JUST DON'T HAVE THAT GROWTH. THERE'S NOT THAT MUCH OF A POLL FOR COMMODITIES. >> CHINA CUTTING ITS USE IN DEMAND FOR SOYBEANS THEY'RE TRYING TO BOLSTER THEIR GRAIN SECURITY DOMESTICALLY. WE SEE THAT MOVE BY A LOT OF COUNTRIES. WHEN CHINA DOES IT IT AFFECTS SO MUCH. THANK YOU FOR JOINING US HERE ON THIS WEDNESDAY. I THOUGHT IT WAS INTERESTING WHEN YOU BROUGHT UP SOME OF THE COMMODITY PRICES. WE TALK SO MUCH ABOUT BONDS. IT'S AN IMPORTANT PART. KATIE: YOU HAVE TO LOOK AT AGRICULTURE, SOFT COMMODITIES. THESE WERE REALLY UNDERAPPRECIATED CORNERS OF THE COMMODITY MARKET. MANUS: THIS IS A TOM KEENE FLASHBACK MOMENT. IN 1991 ORANGE JUICE FUTURES. KATIE: NO KIDDING. CAROL: IS THIS TRADING PLACES? DID SOMETHING HAPPEN ALL OF A SUDDEN? VERY IMPORTANT. WE THOUGHT ABOUT THAT WITH THE WAR IN UKRAINE. WE WERE TALKING ABOUT THE GRAIN MARKET. COMING UP EVERYBODY DANNY DIOR OF INVESTMENT SOLUTIONS FOCUSING ON THE MARKET TRADE. THIS IS BLOOMBERG. ♪ >> REALLY THE LAST TWO MONTHS TO FIND MARKETS. >> I THINK WE WILL SEE MORE MONEY FLOW INTO THE EQUITY MARKETS SIMPLY BECAUSE THOSE YIELDS WILL KEEP COMING DOWN. >> WE ARE NORMALIZING SOMETHING ELSE BUT THE BIG SHOCK AND ALL IS BEHIND US. >> WITH DIFFERENT SECTORS DOING POORLY IN DIFFERENT ENVIRONMENTS. I THINK THAT CONTINUES. >> 2024 WILL BE THE YEAR WE HAVE A SERIOUS DISCUSSION ABOUT THE >> FEDERAL RESERVE'S CREDIBILITY. >>THIS IS BLOOMBERG SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO AND LISA ABRAMOWICZ. MANUS: FROM NEW YORK CITY FOR OUR AUDIENCE WORLDWIDE, THIS IS BLOOMBERG SURVEILLANCE LIVE ON BLOOMBERG TV AND RADIO. ALONGSIDE ME IS CAROL MASSAR AND KATIE. NOT YOUR USUAL LINEUP. DAY TWO IN THE BLOOMBERG SURVEILLANCE HOUSE. CAROL: I LOOKED JUST LIKE JOHN. MANUS: LET'S GET THE HEADLINE OUT IN TERMS OF THE POTENTIAL FOR A RED HEADLINE FOR A HIGH ON THE S&P 500. WE ARE .5% AWAY FROM THAT. FOUR POINT 5% AWAY FROM GLOBAL EQUITY MARKETS MAKING RECORD HIGHS. MY FAVORITE PHRASE TODAY, IT IS WEAPONIZED FOAM A FROM STEVE SAUL'S NICK WHICH IS YOU JUST -- FEAR BECOMES GREED. GREED FOR SOME PEOPLE IN EQUITY MARKETS IS GOOD. >> IF YOUR INVESTOR SAYS WHERE'S MY RETURN IT'S BECAUSE YOU MISSED OUT ON SOME OF THE MOMENTUM PLAYS. YOU HAVE TO ANSWER THAT. KATIE: EVEN WITH ALL THIS TALK, THAT EXPLAINS A LOT OF WHAT WE SEEN WE'VE REALLY SLOWED DOWN. YOU TALK ABOUT THAT .5% AWAY FROM THE ALL-TIME HIGH. IT HAS BEEN PAINFUL TO TRY GET THERE. >> DON'T YOU FEEL LIKE WHEN WE HAVE A LITTLE BIT OF A PAINFUL CLIMB IT'S A HEALTHIER MOOD THAT IT'S NOT JUST A RUN-UP WITHOUT THINKING ABOUT FUNDAMENTALS. >> ONE BIG SET OF MARKETS THAT ARE MOVING. YOU'VE GOT U.K. BONDS AND U.S. TREASURIES. THE EUROPEAN MARKETS ARE PLAYING THIS CATCH-UP TRADE TO THE UNITED STATES OF AMERICA. GERMAN TENURE GOVERNMENT BOND YIELDS AT THE MOST SINCE 2022. THIS IS THE MOMENTUM OF WHO WILL CUT FIRST, WHO WILL CUT FASTEST. I LOVE THE LINE AT 5% YOU COULDN'T GIVE U.S. TREASURIES AWAY BECAUSE EVERYONE WAS PARALYTIC WITH FEAR. BUT IT 3.5, 3.86% THERE IS A RACE, THERE IS A GORGING ON GLOBAL BONDS. CAROL: THAT THEY MIGHT HAVE TO CUT SOONER THAN THE U.S.. THIS IS WHERE WE START THINKING OF THE IMPACT ON CURRENCIES AND THE GAPS BETWEEN VARIOUS ASSETS GLOBALLY BUT THAT IT MIGHT TAKE THE U.S. LONGER TO GET TO THOSE CUTS. SO WE WILL START SEEING SOME DIFFERENCES IN TERMS OF THE POLE ON RATES. KATIE: THAT'S CERTAINLY THE EXPECTATION OF THE MARKET. FOR THE ECB AND THE FED IT'S PRETTY MUCH THE SAME WHEN IT COMES TO THE TOTAL MAGNITUDE OF THE RATE CUTS. IT SEEMS LIKE CONSENSUS OUT THERE IS THE ECB HAS TO GO FIRST. MANUS: LET'S CIRCLE BACK BECAUSE GLOBAL GEOPOLITICS IS AT PLAY. WHEN WE TOPPED OFF YESTERDAY MORNING WITH ATTACKS IN THE RED SEA. THERE'S BEEN AN EVOLUTION OVERNIGHT OF BIDEN WITH THE QATARI'S TALKING ABOVE THE HOSTAGE RELEASE SO IT SEEMS AS IF THE POLITICAL DISCOURSE HAS SHIFTED A DEER IN THE PAST 24 HOURS BETWEEN THE UNITED STATES AND THOSE BROKERS. CAROL: I DON'T KNOW. THERE'S A LOT OF DISCUSSIONS GOING ON. DOES IT LEAD TO ACTION OR SOME CHANGES. MANUS: THEY WERE INSTRUMENTAL IN DRIVING THE HOSTAGE RELEASES. THEY ARE PERHAPS UNFORTUNATELY ONE OF THE MOST DIRECT CONDUITS TO HAMAS. CAROL: FOR BETTER OR WORSE. KATIE: WE WILL SEE IF THAT MATERIALIZES IN HOSTAGE RELEASE. WE KNOW THE BIDEN ADMINISTRATION WOULD LIKE TO TAKE SOME OF THE ESCALATION FEARS OFF THE BOIL AND WOULD LIKE FOR ISRAEL TO MAYBE NOT CONTINUE WITH THIS FULL FRONT WAR HERE BUT A LOT OF BIG QUESTIONS FOR THE BIDEN ADMINISTRATION ESPECIALLY AS BIDEN THE CANDIDATE. CAROL: SAYING THEY WANT TO SEE SOME DESTABILIZATION -- IRAN WANTS TO SEE SOME DESTABILIZATION. I THINK ABOUT ALL OF THESE GLOBAL PLAYERS AND WHAT THEY WOULD LIKE TO SEE AS THE NATION THAT EVERYBODY TURNS TO WHEN THERE'S ECONOMIC UNCERTAINTY IN THE WORLD OR POLITICAL UNCERTAINTY. MANUS: IS THE BALANCE POINT BETWEEN TRYING TO DESTABILIZE AND ENABLE THOSE PROXIES. TO WHAT EXTENT DO THEY ALLOW THE PROXIES TO RUN RIOT VERSUS THE OPPORTUNITY TO GET MAJOR FUNDS RE-RELEASED TO THEM AND THAT IS THE ISSUE. A QUICK SNAPSHOT OF EQUITIES. EQUITIES ARE .5% AWAY. JUST A LITTLE BIT FLAT AT THE MOMENT. EURO-DOLLAR IS A LITTLE BIT BETTER THIS MORNING. THE DOLLAR WILL REMAIN. THAT WILL DRIVE YOUR QUALITY TRADE FOR NEXT YEAR. OIL IS DOWN AFTER BEING UP YESTERDAY. THE SNAPSHOT THIS MORNING. CO. CIO AT INVEST NET SOLUTIONS. GOOD TO HAVE YOU WITH US. THEY COULDN'T GIVE BONDS AWAY AT 5%. NOT MY WORDS. BUT THOSE OF ONE OF OUR GUESTS IN THE LAST HOUR. ARE YOU PREPARED TO FEAST ON BONDS? DO YOU FEEL SOME SENSE OF WEAPONIZED FOAM OF IN THIS MARKET? >> GOOD MORNING. I WOULD HAVE TO SAY YES AND YES TO BOTH OF THOSE BECAUSE AT THIS STAGE OF THE GAME I THINK IT'S A QUESTION OF WHEN THE FED CUTS AND HOW MUCH THEY CUT. I LAND IN THE CAMP THE MARKETS ARE PRICING IN THE LIKELIHOOD AT THIS POINT OF A MARCH CUT IS SO HIGH I THINK IT'S PROBABLY OVERSTATED AND WE ARE HITTING ONE OF THESE PRICE TO PERFECTION TYPE SCENARIOS. AT THE END OF THE DAY CUTS ARE PROBABLY COMING NEXT YEAR SO GETTING INTO BONDS NOW MAKES SENSE. OBVIOUSLY WE WORK WITH FINANCIAL ADVISORS. IF YOU ARE A FINANCIAL ADVISOR WORKING WITH A CLIENT AND YOU HAVEN'T MADE THIS TRADE YET AND MAKING SURE YOU HAVE THE CASH RATES FOR YOUR CLIENT THAT YOU SHOULD, YOU SHOULD BE DOING IT. CAROL: DOING IT NOW OR DO YOU WAIT A LITTLE BIT? >> I DON'T SEE ANOTHER RATE HIKE COMING. AT THIS POINT YOU'RE TRYING TO TIME IT TO WAIT FOR AN INCREASE IN RATES PER YEAR HOPING THERE'S MARKET DYNAMICS THAT DRIVE IT BACK UP BUT YOU KNOW YOU HAVE A PIECE OF INFORMATION THAT'S PRETTY CERTAIN THAT GOING INTO NEXT YEAR AT SOME POINT WE WILL HAVE RATE CUTS AND RATES ARE EFFECTIVELY -- IT IS AN ASYMMETRIC PAYOFF. CAROL: I FEEL LIKE IT'S THE NEW PARLOR GAME. WHEN DOES THE FED CUT RATES. HAVING SAID THAT I WANT TO TALK LARGE CAPS VERSUS SMALL CAPS BECAUSE SMALL CAPS YOU HAVE THE RUSSELL UP YEAR-TO-DATE WHICH COMPARES TO A 24% GAIN IN THE S&P 500. SINCE THE END OF OCTOBER SMALL CAPS ARE UP 30% VERSUS THE BUMP IN THE LARGE-CAP PLAYERS. SMALL CAPS, IT DEPENDS ON THE U.S. ECONOMY AND THAT RATE MOVED BY THE FED, WHAT DO YOU THINK COULD BE THE SCENARIO FOR SMALL CAPS? >> I AM AND HAVE BEEN A PROPONENT OF SMALL CAPS LARGELY BECAUSE THE LONG RESEARCH SUGGEST YOU OUTPERFORM THERE. THE SMALLEST GROWTH STOCK IS NOT THE CASE BUT SMALL CAPS TEND TO OUTPERFORM OVER LONG HAUL. SO GIVEN INVESTORS SHOULD HAVE SOME KIND OF TIME SPAN THERE EVEN IF YOU GET IN THIS ENVIRONMENT WHICH I DON'T SEE ANYTHING COMING IN THE NEAR FUTURE. SO IF YOU ARE GETTING IN YOU ARE PROBABLY STILL ENJOYING SOME OF THIS MOMENTUM. YOU PROBABLY STILL HAVE -- EVEN IF YOU GET IN AND THERE SOME EXOGENOUS EVENT, SOMETHING CHANGES. HOLDING ONTO THE SMALL CAPS NOW AND WAITING IT OUT IS -- STILL BEHOOVES YOU. AS LONG AS IT'S SMALL VALUE. I THINK THIS HAS LEGS TO RUN AND IT'S AMAZING HOW WE GET THIS BULL MARKET, UP TO YOUR POINT IN THE LAST COUPLE OF MONTHS TO WHAT HAS BEEN NOTHING BUT THE MEGA CAPS ALL YEAR LONG. SO YES DEFINITELY A PROPONENT IF YOU HAVEN'T DIVERSIFIED INTO SMALL-CAP STOCKS YOU ARE MISSING OUT ON THAT. >> NOT A BLANKET RECOMMENDATION TO BUY SMALL CAPS. SMALL-CAP VALUE MAY BE LOOKING MORE ATTRACTIVE BUT WHAT COUNTS AS A VALUE STOCK TO YOU? HOW DO YOU DEFINE THAT LOOKING AT THE SMALL-CAP UNIVERSE? >> WE HAVE HAD JUST THE DISTORTION THAT THE MEGA CAPS OF THE MAGNIFICENT SEVEN HAVE CREATED STARTS TO REALLY DISTORT EVEN THOSE DEFINITIONS BETWEEN VALUE AND SMALL. I AM A PROPONENT OF USING A DIVERSIFIED DEFINITION PRICE TO EARNINGS AND CASH FLOW. PUT THOSE TOGETHER SO THAT YOUR DEFINITION OF SMALL-CAP VALUE IN THAT SPACE IS DIVERSIFIED ENOUGH THAT YOU'RE SHOWING THE ECONOMIC UNDERPINNING OF THE IDEA BUYING IT A LOW PRICE AS OPPOSED TO GETTING A PARTICULAR TRACK. WHEN YOU'RE LOOKING AT YOUR OPTIONS. IT'S EASY TO GET INTO THIS SPACE NOW. THERE'S ETF'S FOR EVERYTHING. IT'S NOT A HARDWARE TYPE OF SITUATION FOR MOST. YOU FIND A GOOD ETF WITH A GOOD METHODOLOGY BEHIND THE METRICS AND YOU'VE GOT A GOOD POSITION IN THE SPACE. >> WE WILL TALK ETF'S LATER IN THE PROGRAM. ONE OF MY FAVORITE TOPICS THERE. LET'S TALK ABOUT SMALL CAPS BECAUSE THE RALLY WE'VE SEEN SINCE THE END OF OCTOBER HAS JUST BEEN EXTRAORDINARY. YOU LOOK AT THE RUSSELL 2000 UP SOMETHING OVER 20% IN THAT TIME WELL OUTPERFORMING THE S&P 500. CAN THAT DEGREE OF RALLY AND OUTPERFORMANCE CONTINUE OR DID SOME OF THAT GET PULLED FORWARD? >> I THINK YOU ARE RIGHT. DEFINITELY WHEN YOU HAVE THIS RISK ON FOAM A, WEAPONIZED FOAM OH FOR SURE YOU ARE NOW SEEING JUST THE SPHERE OF -- WHAT HAPPENS IN THAT CASE IS ITS INDISCRIMINATE. YOU DON'T HAVE PEOPLE REALLY LOOKING. THERE'S A BIG DIFFERENCE BETWEEN THE LARGE-CAP GROWTH STOCKS AND THE FUNDS THAT HAVE ACCESS TO CASH AND REALLY DON'T NEED TO GO CAPITAL MARKETS AND SMALL GROWTH COMPANIES THAT ARE ON THE OTHERS OF THESE MARKETS. NEED TO HIT CAPITAL MARKETS EVEN IF THEY HAVE TURNED DOWN THEIR DEBT THEY WILL STILL BE FACING HIGHER RATES THAN THEY FACED EVER BEFORE AS THEY ROLLOVER THEIR DATA. THAT INTEREST RATE SENSITIVITY EVEN WITH THE FED CUTTING NEXT YEAR WHICH IS DRIVING A GOOD PIECE OF THIS, FROM A CORPORATE MANAGEMENT PERSPECTIVE THAT STILL MORE DIFFICULT THAN THE ENVIRONMENT THEY HAVE BEEN IN FOR THE LAST SEVERAL YEARS SO 100% YOU ARE GETTING SOME INDISCRIMINATE BUYING THEIR AND THOSE SMALLEST GROWTH STOCK IN PARTICULAR CAN BE DANGEROUS. CERTAINLY OVER TIME. MANUS: THE VOICE OF REASON AND RAISING A RED FLAG FOR US. THANK YOU VERY MUCH. OUR GUEST WHO HAS MAYBE WE WERE A LITTLE BIT TOO MUCH ON WHAT THE FED CAN DO. >> DON'T YOU FEEL LIKE PEOPLE ARE SAYING LET'S CALM DOWN A BIT. MAYBE WE DON'T NEED TO THINK THE FED WILL CUT IT. KATIE: NOW THAT WE'VE HAD A COUPLE OF DAYS SINCE THAT FED MEETING. MANUS: THEY HAVE TO PULL BACK ON THE BRIDLE. RACING IS HUGE AT THIS TIME IN IRELAND. KATIE: A HALF TALL IN DRESSAGE SPEAK. I'M MORE OF A -- I LIKE TO STAY PRETTY CONTROLLED, STAY ON THE GROUND. I WOULD IMAGINE IT RELATES TO MONETARY POLICY. CAROL: I DO WONDER INTO THE NEW YEAR WE HAVE EARNINGS AND FED SPEAK. HOW DO THEY START TO -- MANUS: I THINK THEY WILL COME OUT HARD. A SNAPSHOT OF WHAT'S GOING ON IN THE EQUITY MARKETS. YOU CAN ALMOST SMELL THE RECORD HIGH. .5% AWAY THIS MORNING. THAT IS BARELY UNCHANGED DOWN .05% FLAT ON THE DOLLAR. IT'S NOT TOO LATE TO GET YOURSELF SOME BONDS, THAT'S WHAT OUR GUESTS SAID IN THE LAST CONVERSATION. GET IN THERE. CAROL: IS THAT PART OF WEAPONIZED FOAM OH? -- FOMO? KATIE: THAT MOVE FROM 5% UNDER 4%, THAT FEELS LIKE FOMO. MANUS: WHEREVER YOU ARE TUNING IN, VANQUISHED OR THE VIGILANTES AND WELL DONE. IT HASN'T MADE EXACTLY THE TARGET HE'S CALLED FOR BUT HE IS STUCK TO HIS GUNS THROUGHOUT THE YEAR. HE'S BEEN ABSOLUTELY RESOLUTE. CAROL: NOT EASY TO DO THAT. MANUS: POLITICS COMING UP. PRESIDENT OF THE COMMITTEE FOR RESPONSIBLE FEDERAL BUDGET IS JOINING US IN JUST A MOMENT. ♪ >> COULD ALSO BE THAT IRAN DECIDES THEY WILL RAMP UP WITH THEIR PROXIES IN DIFFERENT AREAS , OBVIOUSLY SYRIA AND YEMEN. THOSE BECOME DISTINCT AND SEPARATE. THAT'S A PROXY WAR BETWEEN IRAN AND THE UNITED STATES. THEY WANT TO DESTABILIZE THE UNITED STATES AND MAKE IT LESS INFLUENTIAL IN THE GLOBAL ECONOMIC AND MILITARY AND POLITICAL SPHERE. MANUS: A CLEAR DELINEATION, SEPARATION OF WHAT IS A PROXY WAR FOR IRAN AGAINST THE UNITED STATES AS OPPOSED TO THE ISRAEL HAMAS CONFLICT. A DIFFERENTIATION TO BE AWARE OF. WITH THE TEAM THIS MORNING A LITTLE BIT EARLIER. TWO MARKETS. IF YOU ARE COMING BACK IN IN EUROPE, THIS IS WHAT YOU ARE LOOKING AT. THE QUESTION IS WILL THE LAGGARDS PICK UP. IT WAS THE UTILITIES THAT WERE THE LAGGARDS OF 2023. WHO WILL BE THE VANGUARDS OF 2024? WILL IT BE TECH, BIG TECH. BONDS TRADED AT THIS MORNING. WE HAVE THIS WONDERFUL PHRASE, WE HAVE WEAPONIZED FOMO ACROSS EQUITIES AND BONDS IN EQUITABLE AMOUNTS. OIL GIVES BACK ONE HALF OF 1%. YESTERDAY CONCERNS ABOUT THE SITUATION IN THE RED SEA AND THE U.S. ACTIONS IN IRAQ. THERE COULD BE MORE DISRUPTION AHEAD ON THE FISCAL FRONT. THAT'S WHAT WE WILL DISCUSS WITH THE PRESIDENT FOR THE COMMITTEE FOR RESPONSIBLE FEDERAL BUDGET. THANK YOU FOR JOINING US THIS MORNING. THERE WERE LOTS OF TENSE MOMENTS AND FISCAL POLICY IN THE UNITED STATES, SHUTDOWN DRAMA IN CONGRESS IN TERMS OF WHO LEADS IT. YOU WOULD SAY WE HAD A STRONG YEAR FISCALLY IN TERMS OF ENACTING DEFICIT REDUCTION. MAYBE THAT'S WHAT THE BOND MARKET GOT THE MESSAGE MORE THAN THE REST OF US DID. WHEN YOU LOOK AT THE FISCAL DEBATE IN THE NEXT MONTH. WHAT IS THE BIGGEST RISK AS YOU SEE IT LAYING ON THE TABLE NOW IN THIS DEBATE FISCALLY? >> CONGRESS WILL BE COMING BACK TO A LOT OF UNFINISHED BUSINESS. 2023 WAS QUITE A GOOD YEAR DESPITE COUNTDOWN CLOCKS. WHICH WAS A TERRIBLE WAY TO RUN THE GOVERNMENT. OVERALL THERE WERE SIGNIFICANT SAVINGS OF WELL OVER $1 TRILLION FROM THE LEGISLATION THAT WAS PASSED. MUCH OF THAT IS BECAUSE OF SO MUCH OF CONGRESS'S REAL WORK REMAINED UNFINISHED BUSINESS. IN JANUARY THEY HAD HUGE ISSUES TO DEAL WITH. STARTING OFF WITH OUR THE GOING TO FUND EMERGENCY FUNDING WHICH I THINK THE MAJORITY MEMBERS ACTUALLY WANT. SECOND, ALONG WITH THAT THEY'VE WANTED TO DO QUICK POLICY CHANGES WITH MORE. THERE IS MAJOR DISAGREEMENTS OVER HOW TO STRUCTURE THAT. AND THE BIGGEST ISSUE IS THEY STILL HAVEN'T FUNDED THE GOVERNMENT. ONE QUARTER OF THE WAY THROUGH FISCAL YEAR 2024. THAT'S GOING TO BE A BIG DEAL IN JANUARY AND FEBRUARY AND COULD -- THERE'S A POTENTIAL FOR A GOVERNMENT SHUTDOWN IF THEY CAN COME TO AN AGREEMENT ON THOSE BASIC NUMBERS. >> BEFORE WE GET TO THE SHUTDOWN AND THE HANDWRINGING IN JANUARY. LOU -- YOU MAKE THE POINT THAT THE LEGISLATIVE AND EXECUTIVE ACTIONS THAT WERE PUT IN PLACE THIS YEAR SO FAR WOULD REDUCE THIS BY 1.3 TRILLION DOLLARS OVER THE COMING DECADE. YOU MAKE THE POINT THE POLICY WOULD UNDO THAT. A LOT OF PEOPLE WOULD FIND THAT $1.3 TRILLION PROJECTION REALLY SURPRISING. >> THAT WAS NEVER THE POLITICAL NARRATIVE OF WHAT WAS GOING ON BECAUSE THAT SAVINGS GOT PUT IN PLACE AMIDST ABSOLUTE CHAOS. AROUND THE NEED FOR DEFICIT. CONGRESS ENDED UP PUTTING IN FISCAL RESPONSIBILITY WHICH PUT IN PLACE SAVINGS ON -- THAT WOULD AFFECT BOTH THIS YEAR AND NEXT YEAR. IF THEY STICK TO THOSE LEVELS THAT WOULD BE THE LARGEST AMOUNT OF SAVINGS IN WELL OVER A DECADE BUT BECAUSE THE AGREEMENTS WERE REALLY NOT CLEAR YOU NOW HAVE SIDES RENEGOTIATING THAT. EVEN THOUGH THAT WAS A GREAT START IT ONLY FOCUSED ON DOMESTIC DISCRETIONARY. THEY DIDN'T TALK ABOUT MEDICARE. EVERYTHING WITH THE REAL STRUCTURES ARE. IT'S POLITICALLY DIFFICULT AND ALL YOU HAVE TO DO IS WATCH THE BUDGET PROCESS AND SEE THIS IS BROKEN. GREAT YEAR ON PAPER. IF WE KEEP TO THAT AGREEMENT IT COULD HAVE A BIG DIFFERENCE IN TERMS OF GETTING US STARTED ON SOME SAVINGS BUT WE STILL HAVE TO DO THE HARD WORK OF BUDGETING TO FIGURE OUT WHERE THOSE SAVINGS ON THE SPENDING CAPS WILL BE PUT IN PLACE IN THE ACTUAL BUDGET. THAT'S WHERE CONGRESS MAY BREAK DOWN ON THAT. >> I'M THINKING WE COULD HAVE A SIMILAR CONVERSATION. YOU HAVE BEEN FOLLOWING THE INS AND OUTS OF CONGRESSIONAL SPENDING AND BUDGETS HERE IN THE UNITED STATES FOR A LONG TIME AS YOU LOOK AT THIS CONGRESS AND THIS GOVERNMENT, WHERE WE ARE, WHAT KIND OF GRADE WOULD YOU GIVE IT AND WHY? >> IT IS A DEPRESSING QUESTION AS SOMEONE WHO'S BEEN FOCUSED ON THIS ISSUE FOR QUITE SOME TIME. THE STEADY DECLINE HAS AN INTERPLAY BETWEEN POLITICS GOVERNING AND ARE FISCAL POLICY CHOICES. I THINK THE POINT WHERE WE ARE SO POLARIZED IN A WAY THAT CONCERN SO MANY OF US WE ARE UNABLE TO MAKE DECISIONS THAT ARE FOCUSED ON THE LONG-TERM, FOCUSED ON COMPROMISE AND DO HARD THINGS. ALL OF THOSE NEED TO HAVE FOR SCHOOL DEALS THAT WILL KEEP THE GOVERNMENT DEBT UNDER CONTROL. OUR DEBT HAS BEEN GROWING NOT JUST DURING EMERGENCIES WHEN IT SHOULD HAVE BUT DURING STRONG ECONOMIC GROWTH LIKE LEADING UP TO COVID AND SINCE THE PANDEMIC HAS BEEN OVERPAID WE NOW BORROW FOR POLITICAL EXPEDIENCY. THAT'S THE WORST I'VE SEEN AT. WE DON'T EVEN PASS BUDGETS. THERE'S A GLIMMER OF HOPE WHICH THERE ARE BIPARTISAN MEMBERS TRYING TO START TO WORK TOGETHER TALKING ABOUT FISCAL COMMISSION, ALL AREAS OF THE BUDGET. WE WILL SEE IF WE CAN GET ENOUGH PEOPLE ENGAGED IN THOSE REALISTIC DISCUSSIONS. WHAT I THINK A BIG SWITCH WAS FISCAL POLICY IT'S AS MUCH NATIONAL SECURITY AS IT IS ECONOMIC POLICY AND THAT STARTING TO BRING MORE PEOPLE. I HOPE THAT WILL ENHANCE THE DISCUSSION. >> WE HAD SOME HEADLINES IN TERMS OF DOMESTIC SECURITY. THE PANDEMIC TAUGHT US A LOT. LONG-TERM PLANNING AND THIS HAS BEEN SOMETHING THE U.S. GOVERNMENT NEEDS TO DO MORE OF. HOW IS THE U.S. HANDICAPPED BY ITS ROLE ON A GLOBAL LEVEL THAT IT PREVENTED FROM DOING SOME OF THE THINGS IT NEEDS TO DO DOMESTICALLY WHEN IT COMES TO SPENDING OR CUTS? >> THE U.S. HAS COMMITMENTS WE MADE AROUND THE WORLD. THOSE THINGS WILL BECOME MORE EXPENSIVE IF WE STICK TO THE SAME POLICIES IN THE PAST. VERY LIKELY OUR DEFENSE BUDGET WILL BE GROWING EVEN BY A COUPLE PERCENTAGE POINTS OF GDP IN THE COMING DECADE IF THINGS TO BE AS RISKY AS THEY APPEAR TO BE. THAT SQUEEZES OUT OTHER AREAS OF THE BUDGET BUT THE BIGGEST PART OF OUR BUDGET IS PUTTING PRESSURE ON THE REST OF IT IS THE PART THAT HAS TO DO WITH AGING, HEALTH CARE COSTS AND INTEREST PAYMENTS ON THE NATIONAL DEBT. IN JUST A FEW YEARS INTEREST PAYMENTS WILL BE MORE THAN WE SPEND ON ALL OF DEFENSE SPENDING. SOME OF THESE ARE LONG-TERM INVESTMENTS. IT'S NOT AN ISSUE THAT WE CANNOT DO THINGS. IF WE ARE GOING TO DO THEM WE HAVE TO PAY FOR THEM AND THE ONGOING POLICY OF BORROWING JUST ABOUT EVERYTHING WEAKENS THE U.S. FISCAL FOUNDATIONS SO DANGEROUSLY. >> AND MAYBE PUTS MORE PRESSURE ON THE IDEA WE NEED TO SEE BIG CUTS FASTER AND MORE QUICKLY. THE INTEREST BILL ON THE BORROWING IS PRETTY AGGRESSIVE. THANK YOU SO MUCH. THE COMMITTEE OF RESPONSIBLE FEDERAL BUDGET, THANK YOU VERY MUCH. TWO HOT WARS AND THE POTENTIAL FOR ONE OTHER IN TAIWAN. THAT PUTS THAT DEFENSE SPENDING ALMOST IN A SACROSANCT BUCKET. EVERYTHING ELSE IS PERHAPS GOING TO BE MUCH MORE VULNERABLE TO THE DEFENSE BUDGET. >> IT'S INTERESTING POLITICALLY HERE IN THE UNITED STATES WE THINK THAT'S A REPUBLICAN PLAY. THAT IS LONG GONE. THE IMPORTANCE OF PROTECTING AND PLAYING ON THE GLOBAL SCALE. KATIE: YOU THINK ABOUT THIS WAS ONE OF THE BIG CONSTERNATION'S AND THE BOND MARKET OVER THE SUMMER WITH THE DEFICIT AND TREASURY ISSUANCE AS WELL. THAT HAS SINCE FALLEN BY THE WAYSIDE BUT FOR A WHILE IT'S ALL WE TALKED ABOUT. MANUS: IT WAS A GOOD YEAR FOR FISCAL PRUDENCE, DID ANYBODY NOTICE THAT. ♪ MANUS: FOR OUR AUDIENCE WORLDWIDE A VERY GOOD MORNING IT IS BLOOMBERG SURVEILLANCE LIFE ON TV AND RADIO. I AM MANUS CRANNY. A SNAPSHOT OF RISK FOR YOU AS YOU GO INTO THIS HOLIDAY. YOU HAVE A WEAPONIZED FOMO. THE CONSENSUS SEEMS TO BE ONE OF THE BEST ENTRY POINTS INTO THE RUSSELL 2000, SMALL CAPS CATCHING UP WITH VALUE. THEY ARE GORGING GLOBALLY ON BONDS. LET'S SEE WHAT THE FIVE AND SEVEN'S ARE DOING WE SAW A HEALTHY DEMAND ON 52 WEEK T-BILLS. THE GLOBAL BOND MARKET RALLY AS WELL. LET'S HAVE A LOOK AT THE FX, THE DOLLAR WILL REMAIN RESPLENDENT, CAME, VICTORIOUS NEXT YEAR. THE EURO IS UP A LITTLE IN THE DOLLAR IS DOWN BY 1%. WE HAVE TENSIONS IN THE RED SEA. THERE ARE CONTINUED ATTACKS ON SHIPS AND THE HOUTHIS CLAIM RESPONSIBILITY ON SHIPS. THE U.S. AND OTHER NATIONS ARE FORMING A MARITIME TASK FORCE TO PROTECT SHIPPING IN THE RED SEA. THIS IS PART OF THE SPOOK IN THE OIL MARKET. BUT THESE ADDITIONAL ATTACKS FROM THE HOUTHI REBELS ARE PROXY WARS ON THE UNITED STATES . KATIE: JUST FOCUSING ON THE RED SEA AND THAT SHIPPING ROUTE. WHEN YOU SEE THESE BIG CARGO SHIPS UNDER U.S. PROTECTION A FEW OF THOSE CONTAINER LINES PLANNED TO DO THAT WE WILL SEE HOW IT GOES. CAROL: IT'S THE SUPPLY CHAIN STORY I KNOW IT'S MUCH MORE COMPLICATED AND LIVES ARE AT STAKE. IT GOES BACK TO THE STORY THAT IMPACTED THE STORY POST-PANDEMIC. MANUS: ONE THING THAT WILL IMPACT THE ECONOMY IS A I. A FORMER APPLE VETERAN TANG TAN WILL DEVELOP NEW HARDWARE. HE LEFT APPLE BUT HE IS FAMOUS FOR HIS WORK ON THE IPHONE, AND IPAD AND WORKING FOR STEVE JOBS. CAROL: THOSE ARE TWO NAMES THAT YOU WANT TO KNOW WHAT THEY ARE UP TO. KATIE: MAYBE IT'S A CHIP THAT GOES INTO OUR BRAIN? I CAN'T IMAGINE APPLE IS TOO PLEASED ON THIS. SINCE 2019, 14 MEMBERS OF IVES FORMER TEAM HAVE LEFT. MANUS: MAYBE IT'S A CATHARTIC MOMENT FOR APPLE TO GET NEW BLOOD IN BECAUSE THE ACCUSATION AGAINST APPLE. CAROL: SO IMPORTANT TO THE LOOK AND FEEL OF THE DEVICES AND SO KEY TO CREATING THAT VALUABLE COMPANY. AIRBNB, FOR ROBBERY, PEOPLE ARE LINING UP TO DO BUSINESS WITH THEM. MANUS: FOR ROBBERY CAN DO ANYTHING ON ITS OWN. -- FERARRI CAN DO ANYTHING ON THEIR OWN. SALES GREW 3% COMPARED TO 7% LAST YEAR. THE DATA SHOWS A SHIFT AWAY FROM BRICK-AND-MORTAR TO ONLINE SALES . NONE OF THIS BRICKS AND MORTAR STUFF FOR YOU. KATIE: THE CONVENIENCE OF AMAZON AND FOR SOMEONE WHO HATES SHOPPING, THOSE STORES DON'T EXIST. CAROL: CONSUMERS ARE SPENDING IN A DELIBERATE MANNER. MANUS: WERE YOU DELIBERATE IN YOUR SPENDING? CAROL: YES TRAVELING. I HAVE ENOUGH STUFF, I'M GETTING RID OF STUFF. DO YOU NEED MORE STUFF? KATIE: IF YOU LOOK AT MY APARTMENT, I KEEP BUGGING MY HUSBAND TO GET RID OF THIS. MANUS: WERE GOING TO GET CALLS NOW , . CAROL: IF THE CONSUMER SLOWS DOWN DRAMATICALLY DOES THE MARKET ADAPT QUICKLY OR AGGRESSIVELY? MANUS: ROARING AHEAD. CAROL: LET'S SWITCH GEARS A LITTLE BIT. WE HAVE AN INTERESTING CONVERSATION WE WANT TO TALK ABOUT AND IT HAS TO DO WITH PENNY PRITZKER. SHE SAID IT'S IMPORTANT TO HAVE DIVERSE VOICES LEADING BUSINESSES. SHE DISCUSSED HAVING A FEMALE ON PRIVATE EQUITY FIRM. THIS IS ON PEER TO PEER CONVERSATIONS. >> IT BECAME OBVIOUS TO ME THAT IN SEMICONDUCTORS WE WOULD HAVE A PROBLEM WITH THE SHORTAGE OF SEMICONDUCTORS AND WE WOULD RUN INTO A NATIONAL SECURITY CHALLENGE BECAUSE WE WERE DESIGNING OUR SEMICONDUCTORS BUT NOT PRODUCING THEM. I GALVANIZE THE DEPARTMENT TO WRITE A REPORT TO THE ADMINISTRATION AND FEDERAL GOVERNMENT ABOUT THIS. THAT TURNED OUT TO BE THE FOUNDATION OF THE CHIPS IN SCIENCE ACT. BEEN ROADS AND OTHERS WHO WERE RESPONSIBLE FOR THE TRANSITION ASKED ME ABOUT A NUMBER OF THINGS AND I SAID, YOU HAVE TO FOCUS ON THE SEMICONDUCTOR CHALLENGE WE FACE. WE DID ALL KINDS OF THINGS THAT HAVE HAD A HUGE IMPACT WITH SUCH A DIVERSE DEPARTMENT YOU GET TO BE INVOLVED IN A LOT OF THINGS. >> YOU ARE NOW AT PSP PARTNERS IN MAKING INVESTMENTS AND AMONG OTHER THINGS YOU ARE BUILDING REAL ESTATE COMPANIES AND BUILDING THINGS WITH OTHER WOMEN. IS IT IMPORTANT TO YOU TO HAVE WOMEN IN BUSINESS? ARE YOU TRYING TO BE A ROLE MODEL? HOW DO YOU BECOME A ROLE MODEL FOR BUSINESS IN THE BUSINESS WORLD? >> I THINK IS IMPORTANT TO HAVE DIVERSE VOICES AT THE TABLE NO MATTER WHAT YOU ARE DOING. IN BUSINESS PARTICULARLY BECAUSE MOST CONSUMERS ARE WOMEN. I HAVE BUILT TO BUSINESSES IN PARTNERSHIP WITH WOMEN. 13 YEARS AGO MY PARTNER DEB HARMON AND I STARTED THE FIRST FEMALE OWN PRIVATE EQUITY FIRM IN THE UNITED STATES. TODAY, WE COMPETE WITH CARLISLE. WE HAVE BUILT A REAL FIRM IN ONE OF OUR AMBITIONS WITH THE FIRM, MY PARTNER DEB AND I, WE HAD SPENT 20 YEARS IN REAL ESTATE. IT'S A VERY MALE DOMINATED FIELD. ONE OF OUR MISSIONS WAS TO BE EXCELLENT, SUPERB TO DELIVER GREAT RETURNS AND HELP DIVERSIFY INDUSTRY. CAROL: THAT WAS FORMER COMMERCE SECRETARY PENNY PRITZKER BUT TALKING ABOUT DIVERSITY AND INCLUSION OF WOMEN IN THE WORKPLACE KELSEY BUTLER COVERS EQUALITY FOR BLOOMBERG. GOOD TO HAVE YOU HERE, HAPPY HOLIDAYS. WHEN IT COMES TO WOMEN, THEY CONTINUED TO BE THE SAME CONVERSATION WE HAD 5, 10 YEARS AGO. WHY IS IT STILL SO DIFFICULT WITH WOMEN IN THE WORKPLACE? >> WE KNOW EMPLOYERS ARE MISSING THE MARK ON CHILD CARE. ONLY 4% OF EMPLOYERS PROVIDE ANY SUBSIDIZED CHILDCARE FOR THEIR WORKFORCE. CAROL: IN THE UNITED STATES? >> MOST WORKPLACES ARE NOT PROVIDING SUPPORT AND SOME OF OUR COLLEAGUES HAVE TALKED ABOUT THAT EVEN THE MONEY YOU PUT AWAY HAS NOT CHANGED SINCE THE 80'S. CAROL: THE COST OF TAKING CARE OF KIDS HAS NOT CHANGED AT ALL. KATIE: YOU HAD A PIECE OUT ON THE COST OF CHILDCARE. WALK THROUGH SOME OF THE NUMBERS. KELSEY: THE PRICES HAVE SKYROCKETED, OF 32% ACCORDING TO BANK OF AMERICA. IF YOU ARE LOOKING FOR FULL-TIME IN CARE THAT'S $40,000 FUND IN SOME CITIES, 45,000 A YEAR, SAN FRANCISCO IS 36000 AND. THAT IS MORE THAN COLLEGE TUITION. KATIE: TO COPE WITH THOSE COSTS DO YOU SEE PARENTS TAKE ON SECOND JOBS, SIDE HUSTLES. WHAT KIND OF SIDE HUSTLES WORK IF YOU ALSO HAVE A FULL-TIME JOB? KELSEY: I HEAR A OF THINGS. ONE OF THE STORIES THAT STUCK IN MY MIND SHE WORKS AT AN S&P 500 COMPANY, A CORPORATE JOB, SHE WORKS PART-TIME AT A CHILDCARE CENTER TO GET A DISCOUNT ON HER KIDS CARE. SHE SAVES 3500 A MONTH DOING THAT. OTHER PEOPLE TRY FOR LIFT ON THE SIDE OR PULLING DOUBLE DUTY. CAROL: AND THEN NOT SLEEPING AT NIGHT BECAUSE THERE ARE NO HOURS LEFT. IT IS PRETTY ROUGH. CHECK OUT THIS ARTICLE ON THE BLOOMBERG TERMINAL. KELSEY, THANK YOU SO MUCH. MANUS: LET'S GIVE YOU A SNAPSHOT ON WHAT IS HAPPENING IN MARKETS. EQUITIES ARE FLAT AT THE MOMENT. ONE PHRASE WE HAVE BEEN DEALING WITH IS WEAPONIZED FOMO, DO YOU WANT TO STEP INTO THE MARKETS? BONDS ARE TRADING AT 3.86. GLOBAL CPI AT THE END OF 2024 WAS 5% DOWN FROM 6.2%. WHAT IS THE NEXT LEG FOR A GLOBAL CPI? IT TAKES A LITTLE BIT OF HEAT OUT OF THE RALLY AFTER THOSE ATTACKS IN THE RED SEA. S&P 4822.75. CAROL: IT'S EXPECTED AFTER THAT RUN AND A LOT OF PEOPLE SAYING I'M JUST GOING TO TAKE A YEAR OFF AND WAIT FOR THE NEW YEAR. DURING A QUIET WEEK WE FOCUS ON THINGS OVERSEAS AND TRY TO FIGURE OUT HOW THAT WILL IMPACT US IN THE NEW YEAR. KATIE: YOU THINK ABOUT WHAT THAT MEANS FOR MARKETS, THE FIRST ORDER EFFECT IS IN THE ENERGY MARKET. AND EVEN THERE YOU SEE IT BACK OFF. IT'S BEEN INTERESTING TO FOLLOW ENERGY EQUITIES BECAUSE THE ENERGY SECTOR HAS BEEN THE WINNER FOR TWO YEARS AND THAT STREAK IS BREAKING THIS YEAR. ENERGY SET TO CLOSE THE YEAR DOWN AND BACK TO TECH LEADERSHIP. MANUS: WE WILL BE BACK TO TALK MORE ABOUT THAT BUT THE OTHER BIG RISK , THERE ARE NUANCES GOING THROUGH THE BOND MARKET. ACCORDING TO THE BANK OF JAPAN. UP NEXT IS STEVE COOK ON THE RISING TENSIONS ON THE GEOPOLITICAL ISSUES IN THE MIDDLE EAST. IF THE FED IS GOING TO CODE-6, SEVEN TIMES IS PROBABLY SOMETHING OTHER THAN INFLATION. AS WE GET INTO 2024, THAT POSITIONING MISMATCH WILL BE LARGELY BEHIND US. WE WILL NOT NORMALIZE 2019. THE BIG SHOCK AND AWE ARE BEHIND US. MANUS: MICHAEL FERGUS FROM CAPITAL ADVISORS. HOW DO WE LOOK FOR RISK AT THIS TIME? WE ARE FLAT ON THE S&P 500 AT 4.823. THE BOND MARKETS DID WELL, 52 WEEK T-BILLS WERE WELL RECEIVED. LET'S SEE HOW THAT GOES AND OIL RALLY 3% AFTER THE ATTACKS ON THE RED SEA. AT THE MOMENT THE TRAJECTORY OF THE DOLLAR WILL DEFINE WHERE WE GO NEXT ON THE FX MARKET. CAROL: THIS IS ONE OF OUR MOST MEN'S STORIES SAYING THEY WILL KEEP THEIR VESSELS AWAY FROM THE RED SEA EVEN AFTER THE LAUNCH OF THE TASK FORCE. THEY ARE SAYING IT'S JUST TOO DANGEROUS. YOU SEE A SHIFT IN HOW COMPANIES HAVE TO DO BUSINESS AND THIS COULD LEAD TO HIGHER COST. KATIE: YOU WONDER HOW WELL-EQUIPPED THESE COMPANIES ARE TO PROTECT THESE SHIPS. IT IS JUST REROUTING AFTER THE EXPERIENCE WITH THE PANDEMIC A LOT OF THESE CARGO LIENS ARE BETTER EQUIPPED THAN THEY WOULD BE A FEW YEARS AGO. CAROL: BUT THEY REROUTE AROUND THE CAPE OF GOOD HOPE. THAT BRINGS A WHOLE DIFFERENT COST EQUATION. MANUS: IT CHANGES THE COST OF STORAGE AND CARRIAGE. THERE ARE A WHOLE BOAST OF TENTACLES IN THE STORY. CAROL: 12% OF GLOBAL TRADE GOING THROUGH THE RED SEA. THIS IS WHY IT IS ON OUR RADAR AND WHY WE WANT TO GET TO OUR NEXT GUEST, STEPHEN COAT HE IS THE FOLLOW ON FOREIGN RELATIONS AND HE HAS BEEN WRITING ABOUT IT. THANK YOU FOR TAKING TIME OUT IT SEEMS LIKE IT'S TOP OF MIND FOR YOU. HOW ARE YOU ASSESSING THIS CURRENT SITUATION AS IT FEELS LIKE IT IS ESCALATING. STEPHEN: THE HOUTHIS ARE THE OTHER, A IN IRANIAN PROXY , THERE IS A SIGNIFICANT RISK OF ESCALATION THERE THE AMERICAN ANNOUNCEMENT TO PROTECT SHIPPING IS A GOOD THING BUT IT MAY NOT WARD OFF THE WHO THESE. -- HOUTHIS. MANUS: IS A PROXY WAR WHICH IS DIRECTED AGAINST THE UNITED STATES TO WHAT EXTENT, IS THERE A POINT AT WHICH A RAN WILL KEEP SOME CONSTRAINT OF THEIR PROXIES , ARE THEY ULTIMATELY THE ARBITER OF ESCALATION? STEPHEN: THERE IS A RANGE OF AUTONOMY CERTAINLY WHEN IT COMES TO THE THREATS TO SHIPPING IN THE RED SEA THERE WERE REPORTS THAT THE IRANIANS WERE DIRECTING THESE ATTACKS ON THESE SHIPS. AS LONG AS THEY REMAIN UNADDRESSED IN THEIR ABILITY TO ARM AND FINANCE THESE GROUPS WE WILL BE CONTENDING WITH THESE PROBLEMS AND 12% OF GLOBAL TRADE GOES THROUGH THE RED SEA. THIS IS HOW EACH OF EARNS HARD CURRENCY AND THERE ARE ALL KINDS OF GEOPOLITICAL INDICATIONS TO MENACE THE GLOBAL ECONOMY IN THIS WAY. KATIE: IT SEEMS THAT THE U.S. IS CONSIDERING STRIKES ON THESE HOUTHI BASES. WHAT WOULD DETER THEM FROM GOING ON THE OFFENSE? STEPHEN: THEY SEEM SATISFIED SETTING UP A TASK FORCE. THERE IS PRECEDENT FOR THE UNITED STATES TO PROTECT SHIPPING BACK IN THE 1980'S THEY PROTECT OIL TANKERS FROM IRANIAN OIL TANKERS BUT THAT CAME IN PARALLEL WITH DIRECT MILITARY ACTION AGAINST IRANIAN FORCES TO PREVENT THEM FROM THREATENING SHIP PING. I THINK THEY WANT TO REMAIN ON THE OFFENSE. KATIE: WILL THE TASK FORCE BE STRONG ENOUGH DETERRENCE? STEPHEN: THERE ARE ALREADY WARSHIPS ON THE RED SEA THAT HAVE TAKEN ACTION TO DEFEND AGAINST HOUTHI ATTACKS. AN IMPORTANT PART OF DETERRENCE IS THE WILLINGNESS TO USE MILITARY FORCE TO ESTABLISH RULES OF THE ROAD. THEY SEEM DETERMINED TO WIDEN THIS CONFLICT WITH THE UNITED STATES ON THE DEFENSIVE. CAROL: DOES THE U.S. NEED TO BE MORE ON THE OFFENSIVE IN SOME REGARD? THIS IS A HEADLINE CROSSING ON TWITTER, A POLITICAL REPORTER FROM AXIOS SAYING ANTONY BLINKEN EXPECTED TO TRAVEL TO THE MIDDLE EAST TO TALK ABOUT THE MIDDLE EAST CONFLICT. THAT'S A PRETTY BIG TRIP AND THEY HAVE SOME PLANS TO MOVE THIS FORWARD IN SOME REGARD. HOW DO YOU READ THAT AND WHAT DOES THE U.S. ROLE NEED TO BE? STEPHEN: SECRETARY BLINKEN HAS TAKEN THE LEAD TO TRY TO STABILIZE THE REGION AND ACCELERATE ISRAEL'S WAR AGAINST HAMAS IN ORDER TO BRING IT TO AN END. WHEN IT COMES TO THE RED SEA THIS IS SOMETHING FOR THE DEPARTMENT OF DEFENSE AND IT STRIKES ME THAT THE UNITED STATES DOES NEED TO TAKE MORE ACTION AGAINST THE WHO THESE OTHERWISE THE SHIPPING AND THE RED SEA WILL COME UNDER THREAT AND WE WILL BE LIVING WITH THE CONSEQUENCES OF THE SITUATION FOR SOME TIME. CAROL: WHAT WILL YOUR HEADLINE BE ON YOUR STORY? STEPHEN: THE UNITED STATES NEEDS TO GO ON THE OFFENSIVE. CAROL: THANK YOU SO MUCH, I KNOW IT'S A BUSY MORNING FOR YOU. STEPHEN COOK OF THE COUNCIL OF FOREIGN RELATIONS. MANUS: IT HAS NOT CARRIED THROUGH TO THE OIL MARKET. IT'S PRESSING THAT HE SAYS THEY NEED TO BE MUCH MORE AGGRESSIVE PUSH BACK AGAINST THE HOUTHI REBELS. THE WAR PREMIUM OVER THE PAST FOUR DAYS IS 6%, IS THAT ENOUGH OF A MOVE HIGHER? TO ALLOW FOR THE RISKS IN THE RED SEA? CAROL: WE ARE TRYING TO MAKE SENSE OF THE HEADLINES, IS THERE AN ESCALATION, WAS THE TIMELINE? WE ARE ALL TRYING TO ASSESS IT. MAYBE THAT'S WHY THE MARKETS TAKE A LITTLE BIT OF A BREATHER TO FIGURE OUT WHAT IS NEXT. KATIE: I LIKE THE POINT YOU MADE EARLIER THAT THIS DOES NOT SEEM LIKE MUCH OF A WAR PREMIUM IN THE MARKETS. MAYBE WERE BACK TO THE SUPPLY STORY. CAROL: IT'S THE IDEA ABOUT WHAT SUPPLY MEASURES ARE OUT THERE THAT REALLY PILLAI AND THAT PRICE. -- PLAY INTO THAT PRICE. MANUS: OF NEXT WE WILL HAVE NADIA MARTIN WIGGEN. AN EXCERPT FROM ANGOLA FROM OPEC-PLUS. WE WILL TALK ABOUT THAT AND MORE. >> MAY BE THE FED WILL BE MORE FRIENDLY AND 2024 WITH THE INTEREST RATE. >> IT IS HARD TO JUSTIFY RATE CUTS AT THIS POINT. IF WE ARE HEADING INTO A RECESSION THAT COULD CUT EARLIER THAN THAT. I'M NOT GOING TO BE BULLISH ON EQUITY. THE BEST LINE THAT WE HAVE HAD ALL MORNING IS THAT THEY COULD NOT GIVE BONDS AWAY UP 5%. THERE YOU GO, THERE IS THE S&P 500. HAVEN'T GOT THEM IN THE PORTFOLIO. THE U.K., GERMAN RATES, ALL IN TIME FOR THE HOLIDAY. CAROL: BOXING DAY? MANUS: THIS COMES TO THE ENERGY SPACES. NADIA MARTIN NADIA MARTIN WIGGIN IS JOINING US TO TALK A LITTLE BIT ABOUT THE TRADE AND ENERGY AND MORE. I AM LOOKING BACK IN 2022, WE HAD ABOUT 91 A BARREL. A BARREL. HOW ARE YOU THINKING ABOUT THE PRICE ACTION? DO YOU FEEL COMFORTABLE WITH THE LEVEL OUT FOR 2024? >> WHAT THE MARKET REALLY WANTS TO SEE, WE HAVE THE SUPPLY SIDE STORY COMING FROM THE U.S. AND THE MARKET WANTS TO SEE INVENTORY DROP AND PRIOR TO THIS ESCALATION WE SAW BIG BILL COMING IN IN AND WE WILL START TO SEE DRAWS IN FEBRUARY AND MARCH AND THAT'S WHERE WE CAN START TO SEE THE INCREASE IN PRICE. WE HIT A CEILING AT $95 AND BARREL IN TERMS OF THE FUTURES MARKET. ESPECIALLY WITH THE STRENGTH OF THE U.S. DOLLAR, WE SAW INDIA, CHINA, WE HAD A BACKUP OF WEST AFRICAN CRUDE FROM ANGOLA LIKE WE HAVE NOT SEEN SINCE COVID IN TERMS OF UNSOLD OIL. WE WILL NOT SEE THAT FEBRUARY WE WILL NOT SEE THAT FEBRUARY PARSING LIKE WE SAW WHEN RUSSIA INVADED UKRAINE. MANUS: THEY MUST BE HAPPY AT THE WHITE HOUSE CONCERT ABLE TO SELL -- FILL UP THE RESERVE OIL. BUT THE PRICE CAP PUSHED BY THE AMERICANS WILL THAT COME BACK ON THE SLATE IN 2024 AND THEY WILL PUSH FOR TIGHTER SANCTIONS AND PERHAPS A LOWER CAP? RUN ME THROUGH WHERE YOU THINK THAT FALSE? >> I DON'T THINK THEY WILL LOWER THE CAP BUT THEY WILL ENFORCE THE CAP. WHEN WE DIG DOWN INTO THE 60'S THAT GAVE THEM A GREEN LIGHT THAT WE WERE UNCOMFORTABLE LEVELS WHEN THEY CAME TO OIL PRICING. THEY TOLD THE SAUDI'S RIGHT BEFORE THE INVASION OF ISRAEL BY HAMAS, 79 DOLLARS IS OK. THEY ARE IN THAT COMFORTABLE RANGE. IF WE WERE TO SEE A BACKUP IN THE 90'S THAT WILL INCREASE THE STRESS BUT NOW THAT THEY ARE GOING AFTER THE TANKERS AND THINGS PACKED UP BECAUSE THE COST OF FREIGHT AND SHIPPING IS GOING HIGHER. YOU START TO HAVE THE COMPLETE COST COME TOGETHER FOR THE REFINER AND IT HEATS THEIR MARGINS. WE SAW TWO DOLLARS COME OFF THE REFINERY MARKET. THAT CAN BECOME PROBLEMATIC. THAT IS WHERE IT COULD BE AN EFFECTIVE PRICE CAP UNTIL WE GET TOO HIGH. MANUS: WHEN WILL THEY TURN THE SCREWS ON IRANIAN OIL? THEY HAVE BEEN EASY ON THE RED MAN -- IRANIAN CRUDE. NADIA: WE HAVE SEEN GROWTH IN THE IRAN, BUT THE BIDEN ADMINISTRATION HAS BEEN NERVOUS DOING THAT BECAUSE ALL OF THE AGENCIES HAVE BEEN TALKING SINCE THE WAR IN UKRAINE BEGAN AND WE WILL LOSE ONE MILLION A DAY IN RUSSIAN OIL AND NOW THEY HAVE FINALLY GIVEN UP IN THE MARKET IS THINKING WE WILL GET 200,000 LESS EXPORTS IN THE FIRST QUARTER. BUT THOSE ARE STILL BIG NUMBERS. IF THE U.S. WERE TO REALLY GO AFTER THOSE TWO COUNTRIES. WHATEVER HAPPENED TO ALTERNATIVE FUELS IN THE DISCUSSIONS AROUND THAT. CAROL: I WANT TO KEEP THE CONVERSATION ON DISCUSSION. JUST TO GO THROUGH SOME OF THESE NUMBERS . NADIA: WE WERE A BIT SKEPTICAL ABOUT THAT, THE MARKET IS DOING WELL, WE HAVE SEEN ENERGY STOCK PRICES COME DOWN. THERE IS THE SEASONALITY AND YOU TEND TO SEE THAT IN THE SECOND HALF OF THE YEAR. THEY HAVE HAD TO REVISE OF THE PRODUCTION. WHEN WE LOOK TOWARDS NEXT YEAR, THE PRODUCTION IS UP 400,000 A DAY. AND TYPICALLY, THAT'S A VERY LOW NUMBER. I THINK WE WILL SEE THE SLOWING IN THE FIRST PART OF THE YEAR. IT WILL HELP OPEC TO THINK ABOUT BRINGING BACK SOME PARTS OF THE PRODUCTION. THEY NEED TO BE CAREFUL BECAUSE YOU HAVE THIS CATCH UP. WE HAVE HAD 3 MILLION, 4 MILLION LATERALS. THIS IS SOMETHING THAT THE MARKET IS AWARE THAT COULD HAPPEN. WE WILL BE MUCH MORE AWARE OF IT AND PREPARED. CAROL: IT SOUNDS LIKE U.S. SHALE PRODUCTION WILL GET CLOSER TO THE SAME PAGE? NADIA: THEY WANT TO SUPPORT THE MARKET LONG TERM. THEY ARE DOING A LOT IN TERMS OF ACTIVITY IN PRODUCTION. THEY'RE TRYING TO FIND A HAPPY BALANCE AND WHEN YOU THINK ABOUT MOBILE TRADE, IS GOOD FOR AMERICA'S ENERGY SECURITY. YOU HAVE THESE ALTERNATE ROUTES AND OF COURSE IT TAKES UP MUCH LONGER BUT IN EUROPE THEY ALSO HAVE THE LEVEL OF PRODUCTION TO SUPPORT IT. CAROL: THANK YOU SO MUCH NADIA MARTIN WIGGINS JOINING US WHEN WE SEE CRUDE A LITTLE LOWER. HAVING SAID THAT, A LITTLE MOVEMENT ON S&P FUTURES ARE DOWN DOWN .03%. WE HAVE BEEN SAYING SINCE YESTERDAY IT WILL BE QUITE A WEEK. WE'VE BEEN TALKING ABOUT WHAT'S GOING ON IN THE MIDDLE EAST AND IN THE EQUITY MARKETS IS A LITTLE LOWER. KATIE: I HAVE A FUN FACT. IT WOULD BE SO POETIC IF IT MOVED 0.00%. IT IS ONLY HAPPENED ABOUT 10 TIMES SINCE 1980. DON'T QUOTE ME ON THAT, IT HAS BEEN A WHILE. MANUS: WILL SEMICONDUCTORS DO THIS YEAR WHAT THEY DID LAST YEAR? YOU HAVE ALL THE MOMENTUM FOR THE AI EXPLOSION SO WHO WILL WIN THAT WAR? WILL IT BE EUROPE, ASIA, SEMICONDUCTORS UP 70% THIS YEAR. CAROL: MY BROTHER SAID HE REMEMBERS READING ABOUT THIS YEARS AGO. COMING UP, WE WILL SPEAK TO THE EURASIA GROUP. ♪ THEY ARE SUFFERING FROM THE FOUR D, THE LACK OF DEMAND AND THE FISCAL POLICY ON THE PART OF THE CHINESE THEY HAVE AN AVERSION SUPPORT INTO THE HOME SECTOR INSTEAD THEY SHIP THROUGH THE PUBLIC SECTOR. CAROL: THAT WAS BILL LEE SPEAKING TO US EARLIER THIS MONTH. WE CONTINUE ON THIS WEDNESDAY WITH A QUICK CHECK ON THE MARKETS. IT STILL QUIET, S&P 500 FUTURES WILL KATIE GET HER WISH? THEY ARE UP POINT 04%. WE CONTINUE TO WATCH NEWS OUT OF THE MIDDLE EAST, A DIFFERENT TREND THAN WHAT WE SAW IN YESTERDAY'S TRADE. THE CHINESE INDEX IS DOWN 17% THIS YEAR. ITS LOWEST LEVEL SINCE 1998. MANUS: THE GOLDMAN THEORY, WHEN YOU LOOK AT CHINA IT HIS DRIVE TO THE WHOLE NARRATIVE DOWN. WHETHER YOU BELIEVE IN THE COMMON PROSPERITY TRADER NOT. KATIE: THE CONCEPT OF UNBUNDLING EM, NOT LOOK AT EMS A BLOCK OF INTERNATIONAL COUNTRIES BUT YOU NEED TO GO COUNTRY BY COUNTRY IN THIS PERIOD WE ARE ENTERING INTO. CAROL: HOW LONG CAN YOU BE A GROWTH STOCK? YOU GROW DIFFERENTLY IN YOUR ECONOMY CHANGES. KATIE: AS AN INVESTOR, MAYBE YOU CAN PICK OUT CHINA BUT IF YOUR COMPANY DOING BUSINESS GLOBALLY YOU CAN IGNORE CHINA. MANUS: WHAT HAPPENS WITH CENTRAL BANK POLICY? MANY OF THE EMERGING MARKETS WERE MUCH FURTHER AHEAD THAN DEVELOPED NATION IN TERMS OF THE RATE HIKING CYCLE THEY WERE FAR OUT IN FRONT. CAROL: WE WILL MOVE TO ANNA ASTON, FROM THE EURASIA GROUP. IT'S GREAT TO HAVE YOU HERE. THERE IS ALWAYS SOMETHING COMING OUT HERE, MAKING COMMENTS ABOUT THEIR ECONOMY AND HOW IT NEEDS TO PROCEED. YOU HAVE PRODUCTION NUMBERS COMING OUT THIS MORNING. SHOWING IMPROVEMENT IN THE MONTH OF NOVEMBER BUT IT STILL DOWN IF YOU LOOK AT WHERE THEY WERE A YEAR AGO. HOW DO YOU SEE CHINA RIGHT NOW? HOW ARE INVESTORS THINKING ABOUT CHINA? >> IS CENTRAL TO HOW THEY WANT TO SHIFT THEIR GROWTH MODEL MOVING FORWARD. THEY WANT TO BE FOCUSED ON BRINGING UP STRATEGIC INDUSTRIES AND THEY HAVE TO GET CONSUMPTION MORE ROBUST BUT THERE'S NOT A CLEAR PATH TO THAT IN THE NEAR TERM AND FOR THAT REASON, ONE OF THE KEY THINGS TO THINK ABOUT AND 2024 IS HOW CHINA'S RELATIONSHIPS WITH THE U.S. AND OTHER TRADING PARTNERS WILL EVOLVE AND ALTHOUGH THERE ARE A LOT OF REASONS WHY THERE COULD BE LESS STABILITY THAN WE'VE SEEN IN RECENT MONTHS, THE FACT THAT CHINA DOES NOT HAVE AN EASY WAY FORWARD TO GET THIS ECONOMY BACK ON TRACK MEANS THEY WILL CONTINUE TO BE MORE INCLINED TO HAVE US STAY BE FOREIGN POLICY WITH UNITED STATES. MANUS: WE HAVE SEEN ANTONY BLINKEN, JANET YELLEN, AND BIDENS RESPONSE ABOUT PRESIDENT XI. THE REALITY IS, TIME ONE HAS AN ELECTION AND THEY COULD COME UP AS A HIGHER PIQUANT POINT. YOU THINK IT'S GOING TO BE DIFFERENT IS IT AROUND TAIWAN OR IS IT OTHER ISSUES? ANNA: IT MIGHT BE AROUND TAIWAN. WE ARE EXPECTING THE ELECTION IN JANUARY IS GOING TO BE A SOURCE OF TURBULENCE FOR U.S.-CHINA RELATIONS BECAUSE MORE THAN LIKELY, THE VICE PRESIDENT AND DEMOCRATIC PROGRESSIVE PARTY CANDIDATE IS THE FORWARD LEANING ON TAIWAN INDEPENDENCE HE WILL PROBABLY WIN THE ELECTION AND THEY ARE NERVOUS ABOUT HIM LEAVING TAIWAN FOR THE NEXT 10 YEARS. THEREFORE, THERE IS LIKELY TO BE A REACTION FROM BEIJING, A SHOW OF FORCE COMPARED TO WHAT HAS BEEN DONE IN PREVIOUS VOTES AND SOME ECONOMIC MEASURES. THAT WILL PROMPT RESPONSE FROM WASHINGTON WHICH WILL BE CALLED TO BE MORE CLEAR FOR HIS SUPPORT FOR TAIWAN. KATIE: SOME OF THE NEWS WE GOT LAST WEEK THAT PRESIDENT XI AT THE APEC SUMMIT TOLD JOE BIDEN THERE ARE PLANS TO REUNIFY WITH TAIWAN. HOW NEW WAS THAT? HOW DIFFERENT IS THAT FROM WHAT PRESIDENT XI HAS BEEN SAYING OVER THE PAST FEW YEARS? ANNA: IT'S NOT NEW. IT'S THE EXACT SAME THING HE HAS BEEN SAYING. IT'S BEEN CHINA LONG-STANDING POSITION ON TAIWAN THAT THERE NEEDS TO BE REUNIFICATION. THE FACT THAT IT WAS CONVEYED PERSONALLY, IT IS NOTEWORTHY. I DON'T THINK THERE IS ANYTHING SIGNIFICANT OR DIFFERENT ABOUT THE MESSAGE AND LOTS OF OTHER SENIOR CHINESE OFFICIALS OF SAID THIS PUBLICLY AND EMPHATICALLY IN THE PAST COUPLE OF YEARS. CAROL: WE HAVE A HOT WAR UNDERWAY IN THE MIDDLE EAST AND ATTACKS GOING ON IN THE RED SEA AND IN THOSE SITUATIONS WE HAVEN'T HEARD MUCH FROM CHINA. IT HASN'T BEEN INVOLVED UP TO THIS POINT. IS THAT THEIR MO HERE? ANNA: IT HAS ALWAYS BEEN THEIR MO TO BE UNINVOLVED IN INTERNATIONAL CONFLICTS BUT THAT HAS CHANGED SOMEWHAT IN RECENT YEARS AS THEY HAVE BECOME A SIGNIFICANT PLAYER ON THE WORLD STAGE AND WE SEE THEM TRYING TO NAVIGATE SPECIFICALLY IN THE CONTEXT OF RUSSIA AND UKRAINE. I WOULD NOT BE SURPRISED IF CHINA TAKES A MORE FORWARD LEANING POSITION ON CONFLICTS GOING FORWARD BUT THERE IS NO UPSIDE FOR CHINA TO WADE INTO MIDDLE EAST CONFLICTS BEYOND WHAT IT IS DONE SO FAR. WHICH IS SAYING THAT CIVILIAN DEATHS NEEDS TO BE AVOIDED. CAROL: THE MATURATION OF CHINA EMERGING INTO A DEVELOPED ECONOMY ON A LOT OF DIFFERENT LEVELS. IN ITS PURSUIT , HOW DOES IT IMPACT THE UNITED STATES? ANNA: HOW DO WE THINK ABOUT CHINA BECOMING A MORE DEVELOPED MARKET? CAROL: IN TERMS OF THEIR RELATIONSHIPS WITH THE UNITED STATES? ANNA: THAT DEPENDS ON THE UNITED STATES. CHINA WANTS TO BE ABLE TO HAVE A FUNCTIONAL RELATIONSHIP WITH THE UNITED STATES. BUT CHINA HAS ITS OWN DOMESTIC GOALS AND TRADITIONS AND THERE IS THIS REALITY THAT THE UNITED STATES USE CHINA AS A STRATEGIC COMPETITOR AND TO THE EXTENT THAT IT ERODES CHINA'S ABILITY TO SET ITS OWN GOALS. THEY WILL DOUBLE DOWN ON THEIR OWN PLANS TO PURSUING THOSE GOALS WITH OR WITHOUT THE UNITED STATES. CAROL: AND THAT'S WHAT MAKES A GLOBAL ECONOMY? ANNA, THANK YOU SO MUCH FROM THE EURASIA GROUP. IT'S NOT APPLES TO APPLES IN TERMS OF THE GOVERNMENT CHINA VERSUS THE UNITED STATES BUT THE UNITED STATES IS COMPETITIVE AS WELL. MANUS: IF YOU LOOK AT THE NARRATIVE FOR CHINA, IT CAN HIT 5% GROWTH. THE FBI IS A FOUR YEAR LOW AND UNLESS I'D TURNS IT WILL BE HARD TO KEEP THAT 5% GOAL ALIVE. KATIE: THAT COMES BACK TO CONFIDENCE. CAROL: COMING UP NEXT, WE WILL BE TALKING ETF'S. ANALYST. ERIC, IT'S GREAT TO SEE YOU. HAPPY ALMOST A YEAR, LET'S TALK ABOUT 2023, MY BIGGEST TOPICS THIS YEAR WHEN IT COMES TO ACCESS AND LAUNCH DISCLOSURES. WHAT STUCK OUT TO YOU AS THE THEME FOR 2023? >> A LOT OF MONEY WENT INTO ETF'S A MONEY MARKET MUTUAL FUNDS. THERE WAS A SIX-MONTH DROUGHT OF CASH COMING INTO THE EQUITY ETF'S. WHEN PEOPLE'S FEAR OF MAUVE -- FEAR OF MISSING OUT. THAT WAS AN INTERESTING PLAY IN A BASICALLY RISK-FREE MONEY MARKET MUTUAL FUND. THE OTHER ONE IS THE RISE OF ACTIVE. 80% OF EVERY NEW ETF LAUNCHED WAS ACTIVE. I LIVE AND BREATHE THIS STUFF AND I COULD NOT OF PREDICTED IT WOULD BE THAT BIG. THE NEW LUNCHES ESPECIALLY, THAT WAS A LITTLE BIT OF A FORESHADOWING TO WHAT WE CAN EXPECT IN THE FUTURE. WHEN YOU LOOK AT THAT NUMBER, A LOT OF ACTIVE MONEY WAS COMING OVER FROM MUTUAL FUNDS. IT WAS A REALLY NEW MONEY OR TARGET ORIENTED ACTIVE. SO THE STOCK PICKER IS STILL STRUGGLING BUT THERE IS ROOM FOR THIS NEW EVOLUTION ON ACTIVE. CARKATIE: ACTIVE FLOWS ARE GOING AND PASSIVE PRODUCTS. I WANT TO GO OVER THAT POINT YOU WERE MAKING. YOU HAVE MONEY MARKET GOING INTO ETF'S BUT IT'S INTERESTING TO SEE HOARDS OF MONEY COMING INTO EXPENSIVE MONEY MARKET MUTUAL FUNDS. THEY ARE PRETTY MUCH THE SAME THING AS SHORT DATED ETF'S. THAT HAS NOT DETERRED THE FLOW OF TRAFFIC BUT A LOT OF MONEY GOING THROUGH THOSE RELATIVELY EXPENSIVE MUTUAL FUNDS. ERIC: THIS WAS A BIG DEAL FOR WALL STREET BECAUSE HER SHORT-TERM TREASURY ETF CHARGES 15 BASIS POINTS OR LOWER, SOME BELOW FIVE. A MONEY MARKET MUTUAL FUND IS BETWEEN 20 AND 50 BASIS POINTS, 4, 5 TIMES THE COST. THIS IS A BIG BOON FOR WALL STREET, VANGUARD'S MARKET FUND IS DIRT CHEAP BUT THE REST ARE ON THE HIGHER SIDE BECAUSE PEOPLE HAVE A PLATFORM OR AN ADVISOR AND THEY USE THE SAME BRAND SO THEY ARE LESS PICKY WHEN IT COMES TO MONEY MARKET MUTUAL FUNDS. THE AVERAGE MUTUAL FUND HAS 22 BILLION IN ASSETS WHERE THE AVERAGE TREASURY ETF HAS A BILLION. WHEN YOU SEE THAT HIGH OF AN ASSET VERSE PRODUCT RATIO, WE HAVEN'T SEEN A NEW MUTUAL FUND BEING ISSUED. I HAVE HEARD RUMBLINGS PEOPLE WILL TRY THEIR BEST TO PUT THEIR MONEY MARKET CONCEPT INTO AN ETF ALTHOUGH IT WOULD BE IMPOSSIBLE TO DO, BUT WHERE THERE IS CASH THERE IS A WILL AND WHEN THERE IS A WILL THERE'S A WAY. MANUS: WHERE IS THE RISK IF SOMETHING BREAKS? I WANT TO FOCUS ON SMALL CAPS BECAUSE YOU'VE COME UP WITH A STAGGERING STACK. THE SMALL-CAP CASH FLOW, 100 ETF'S DEFIED PHYSICS. THE BACKWARDNESS OF SMALL CAPS AND UNDERPERFORMANCE BUT THIS IS AMAZING. ERIC: THIS ETF CAP WENT OUT AND CHOSE A GROUP OF SMALL CAPS THAT WAS ABLE TO NOT ONLY DOUBLE AND BE THE S&P. THERE WERE POCKETS OF WINNERS. WHAT WAS THE FACTOR? THE ANSWER IS QUALITY. THIS LOOKS FOR CASH FLOW YIELDS AND THAT IS USUALLY CORRELATING WITH QUALITY AND IN LARGE CAPS THE QUALITY FACTOR WAS THE BEST ONE. IF YOU WERE IN THE QUALITY AREA YOU PROBABLY DID WAY BETTER THAN THE INDEX. NEXT YEAR, WHEN WE TALK ABOUT THESE AREAS CATCHING UP IN THE LEFT BEHIND AREAS CATCHING UP. WILL THIS STILL HAVE ROOM TO RUN? THE MONEY FLOWING INTO THIS IS EXTRAORDINARY, 44 MONTHS OF INFLOWS. THAT IS INCREDIBLE FOR AN INDIE BREAKTHROUGH HEAD OF THE YEAR. CAROL: FOR THOSE ON RADIO, WHEN IT COMES TO SMALL CAPS CASH FLOW , I WONDER ABOUT THE MAGNIFICENT SEVEN AND THIS FEAR OF MOVING OUT AND MOMENTUM TRADE THAT BUILDS. IS THAT WHAT YOU ARE GETTING TO? ARE YOU WORRIED THAT THIS IS WHAT IT COULD BECOME? ERIC: THAT'S WHAT WE CALL A GRASSROOTS CRAZE. OBLIVION FOR FIVE YEAR AND THEN YOU START TO SEE THIS IMPERFECT PATTERN THAT BUILDS OVER A YEAR OR TWO. AT SOME POINT THE SOCCER BALL GETS KICKED TO A DIFFERENT PART OF THE FIELD AND THIS THING WILL START UNDERPERFORMING. ANYTHING OUTSIDE OF BETA WILL HAVE ITS MOMENTS. I DO THINK WHEN YOU THINK OF SMALL CAPS YOU THINK OF JUNK STOCKS. I THINK THE THESIS ON THIS A SOLID RELATIVE TO SOMETHING REALLY HIGH GROWTH. LET'S FACE IT, IF IT STARTS TO UNDERPERFORM ON THE RUSSELL 2000 AND SEVEN THIS MONEY WILL COME OUT. KATIE: IT'S ALWAYS GREAT TO TALK TO YOU WE DIDN'T EVEN GET TO TALK ABOUT ETF'S. ERIC BELL TUNIS, THANK YOU SO MUCH. COMING UP TOMORROW AT 730 WE HAVE CATHIE WOOD THE FOUNDER AND CEO OF ARK INVESTMENT'S. HER PERFORMANCE THIS YEAR HAS BEEN PRETTY IMPRESSIVE TO SAY THE LEAST. CAROL: NOBODY GETS YOU GOING LIKE CATHIE WOOD AND ARIK. THAT FUND IS UP BUT STILL DOWN FROM 65 AND 2021 BUT NONETHELESS, SHE IS SOMEONE WE ALWAYS WANT TO WATCH. WE HAVE A LOT OF QUESTIONS. MANUS: LET'S SAY WHAT SHE HAS TO SAY ABOUT JAPAN. EVERYBODY HAS BEEN SO ENTHUSIASTIC ABOUT JAPAN. WHY SHE MADE HER MOST RECENT PURCHASE IN THE THINKING BEHIND THAT. THAT WILL BE AN INTERESTING CONVERSATION. CAROL: THE S&P, FUTURES OF LITTLE CHANGED JUST ABOUT .03%. WE WILL SEE IF WE GET A NEW RECORD. THIS COULD BE A DAY WHERE TRADERS JUST WANT TO GET IT OVER THE MARK AND MOVE BACK. MANUS: GLOBAL STOCKS ARE LOGGING ON THE S&P 500. TO WHAT EXTENT DOES THE UNITED STATES REMAIN IN ISOLATION FROM THE REST OF THE WORLD? KATIE: IT COMES BACK TO BIG TECH . THE TECH SECTOR POWERING ALL OF THE BENCH MARK INDEXES AND THAT JUST DOES NOT EXIST IN EUROPE. THE NASDAQ 100, IT HAS ALREADY GOT THERE. THE S&P 500 IS THE HOLDOUT. MANUS: EUROPE HAS EXPOSURE TO THE CHIPS. THAT IS WHERE THEY HAVE THE TECH EXPOSURE, NOT TO THE SAME QUALITY BUT THE SAME SIZE. TECHNOLOGY IS IN THE LEAD IN EUROPE AS WELL. CAROL: OUR WHOLE WORLD THIS TECHNOLOGY. MANUS: TECH WAS UP 32% IN THE U.S.. CAROL: WE WILL CONTINUE EVERYBODY. COMING UP WE WILL GET THE 2020 OUTLOOK FOR HEALTH CARE. THERE IS A LOT GOING ON WHEN IT COMES TO M&A. THIS IS BLOOMBERG. ♪ >> THE LAST TWO MONTHS TO FIND 2023 MARKETS. I DON'T THINK NEXT YEAR WILL BE THAT MEANINGFUL AS IT RELATES TO EVERYTHING RELYING ON THE FED. I THINK ECONOMIC DATA WILL MATTER MORE. THE SOFT DATA HAS LED TO BLIND BEFORE. CAROL: TALKING ABOUT FED POLICY THAT WAS MATT MISHKIN. WE ARE TALKING ABOUT YOUR BACKDROP ON THIS WEDNESDAY MORNING. COULD WE GET A NEW ALL-TIME HIGH ON THE S&P 500. THE NUMBER TO WATCH IS 4796.56. IT IS NOT UNCHANGED KATIE GREIFELD, CLOSE BUT NO CIGAR. HAVING SAID THAT, SOMETHING WE HAVEN'T TALKED ABOUT IS A LOT OF ACTIVITY IN THE HEALTH CARE SECTOR. KATIE: YES, YES. CAROL: I THINK A LOT OF US GET LOST IN THE HIGH TECH BUT THERE HAS BEEN A LOT OF INFORMATION COMING OUT. KATIE: DO YOUR POINT ON THE OVERALL MARKET, WE HAVE SEEN ELI LILLY AND NOVO NORDISK BUT THE SECTOR OVERALL, SAW ITS FIRST LOSS IN DECADES. IT WAS A REAL FEAST OR FAMINE FROM NAMES IN THAT SECTOR. CAROL: BIOTECH IS UP 22%. ENJOYING THAT RALLY MORE BROADLY. MANUS: BRISTOL SPENT 44 MILLION, SO IS THIS THE YEAR THAT ELI LILLY CATCHES UP WITH NOVO NORDISK? CAROL: EVERYONE CHECKING THEIR PIPELINE IT'S NOT ALL ABOUT COVID DRUGS. WE GAVE YOU SOME OF THE MACRO BACKDROP BUT THERE IS STUFF GOING ON, A LOOK BACK ON 2023 IN THE TRENDS WE SAW WILL IT CARRY OVER TO 2024? >> THANK YOU FOR HAVING ME. WE SAW SIGNIFICANT VARIANCES AND PERFORMANCES FROM COMPANIES. THE SECTOR OVERALL HAS BEEN WEAKER COMPARED TO OTHER SECTORS. THE SP HEALTH CARE INDEX WAS DOWN COMPARED TO THE MARKET OVERALL. WE EXPECT 2024 , THE OVERALL MARKET SHOULD PROVIDE NICE OPPORTUNITIES. MANUS: SO DO WE NEED TO SEGREGATE THE HEALTH CARE MARKET IN THE SAME WAY YOU HAVE TO BE MORE DISCERNING? HOW DO WE SEGREGATE OUT THE WINNERS AND LOSERS? WE TALK ABOUT WEIGHT LOSS DRUGS AND WHERE THEY GO. THOSE ARE THE BIG BLOCKBUSTERS. YOU HAVE NOVO NORDISK'S OF 47% YEAR TO DATE. WHERE CAN I ACHIEVE A SIMILAR RETURN IN A MORE DIVERSIFIED FIELD? >> WHEN I LOOK AT THE PERFORMANCE OF THE HEALTH CARE SECTOR DURING 2023, WAS SUPPLIES WERE CLEAR PERFORMERS HERE TODAY. BUT HEALTHCARE SERVICES AND TECHNOLOGY, THEY WERE SOME OF THE WORST PERFORMERS. AS YOU MAY KNOW A NUMBER OF COMPANIES HAVE SEEN A SHARP DECLINE SINCE COVID-19 REVENUE. YOU ARE SEEING GRADUALLY RECOVER Y IN THE CARDS. SO YOU COULD SEE A RECOVERY IN THE BEATEN-DOWN HEALTHCARE SERVICES. KATIE: LET'S TALK ABOUT SOME OF THESE WEIGHT LOSS DRUGS BECAUSE THAT'S ALL ANYONE HAS WANTED TO TALK ABOUT FOR THE PAST FEW MONTHS. YOU HAVE SEEN CERTAIN COMPANIES HAVE RUN AWAY SUCCESS, THE LIKES OF NOVO NORDISK AND ELI LILLY BUT IT'S INTERESTING, IT'S TAMPING DOWN THE REST OF THE SECTOR WHEN YOU THINK ABOUT THE SECTOR. THE OZEMPIC EFFECT ON SOME OF THE OTHER COMPANIES IN THE HEALTH CARE SECTOR. >> WE THINK ELI LILLY WILL CONTINUE TO BECOME A VIABLE COMPANY GOING INTO 2024. WE ARE VERY BULLISH ON ELI LILLY , IT IS ALSO A WELL DIVERSIFIED IN OTHER AREAS. ONCOLOGY IS STILL A VERY BIG AREA. WE THINK MERCK AND ELI LILLY ARE THE BEST POSITION COMPANIES FOR ONCOLOGY CHOICES. KATIE: I COME BACK TO A CALL FROM BMO EARLIER THIS MONTH EXPECTING AND GENTILE PERFORM WITH THEIR OBESITY MEDICINE AND THAT CAME DOWN TO EVALUATION IN THE PROM ISE THEIR DRUG DOES NOT MATCH WHAT ELI LILLY HAS AT THE MARKET. BUT IT'S TIME TO LOOK AT THE LESS EXPENSIVE OPTIONS. WHEN YOU ARE THINKING ABOUT ANALYZING ELI LILLY, HOW MUCH ARE YOU TAKING VALUATION INTO ACCOUNT? >> WE THINK VALUATIONS, WE SEE SEVERAL CATALYSTS. IT IS NOT ONLY THEIR PORTFOLIO, FORTIFYING DEVELOPMENT IN THEIR RECENT ACQUISITIONS. AND THEY HAVE A STRONG BALANCE SHEET. WE THINK WE COULD BE SEEING OTHER INDICATIONS WHICH WILL BE IMPORTANT. MANUS: WE SAW ANOTHER HEADLINE WITH BRISTOL-MYERS PUTTING A 4 BILLION DOLLAR OFFER ON THE TABLE. WHAT JUSTIFIES A MEGA MERGERS? WHAT DO YOU EXPECT NEXT YEAR? WHAT WOULD JUSTIFY DOING THIS IN 2024? WILL IT BE SOMETHING SIGNIFICANT? >> FOR PHARMACEUTICAL COMPANIES, THEY CAN HELP COMPANIES STRUGGLING TO GROW INTERNALLY. WE HAVE COMPANIES TURNING TO M&A THIS YEAR. WE THINK FOR 2024 WE WILL SEE SIMILAR ACTIVITY. YOU WILL SEE ANTITRUST RISK ON THE RISE. WE THINK THESE LARGE COMPANIES WILL NOT LOOK SO MUCH FOR THESE LARGE DEALS BUT INNOVATION. CAROL: THANK YOU SO MUCH, SOL HARDY MAKES A REALLY GOOD POINT. WHEN YOU TALK ABOUT TECH THERE ARE SO MANY MOVING PARTS AND IT'S THE SAME FOR THE HEALTH CARE SPACE. MANUS: THERE IS A WORLD BEYOND THE MAGNIFICENT SEVEN. THE SMALL-CAP STORIES, YOU CAN HAVE ACTIVE FUND MANAGERS ARE ACTIVE ETF'S WHICH SEARCH FOR QUALITY GROWTH BUT THAT'S THE SAME NARRATIVE IN TECH. THAT WILL BE THE HALLMARK OF 2024. KATIE: THOSE ACTIVE MANAGERS HAVE TO LOOK AT THE S&P 500. YOU CANNOT PERFORM IN SMALL CAPS. CAROL: SUPREME COURT RULING AGAINST THE COLORADO SUPREME COURT. TRYING TO REMOVE TRUMP FOR THE 2024 BALLOT. THIS IS BLOOMBERG. ♪ >> THINKING THE FED IS GOING TO BE FRIENDLY. 2025 FROM AN INTEREST RATE PERSPECTIVE. >> THE FED IS IN A TOUGH POSITION. >> IT IS HARD TO JUSTIFY RATE CUTS AT THIS POINT. >> WE ARE HEADING INTO SOME TYPE OF RECESSION. >> F7 CONS ARE REALLY COMING, I WILL NOT BE AS BULLISH. >> THIS IS BLOOMBERG SURVEILLANCE. JONATHAN: FROM NEW YORK CITY FOR OUR AUDIENCE WORLDWIDE. THIS IS BLOOMBERG SURVEILLANCE. A VERY GOOD MORNING. I AM MANUS CRANNY. HERE WE ARE, LADIES. A RECORD HIGH. GLOBALLY, 4.5% AWAY. I CAN SMELL A RECORD. >> WHAT DOES IT SMELL LIKE? >> IT SMELLS RICH. >> A NICE OKIE SMELL THERE. WE WILL SEE IF IT IS A SLOW CLIMB. I BELIEVE IT IS JUST UNDER 4800. WE ARE VERY CLOSE. THERE YOU GO. >> ALMOST TWO YEARS AGO. WE COULD WAIT UNTIL THE NEW YEAR. >> THERE IS A WORLD BEYOND THE TREASURY, BUT WE ARE SEEING A TAILWIND. I HAVE NOT GOT THE PAST PART -- PASSPORT OR GREEN CARD YET. BUT YOU KNOW WHAT? MAYBE TO MAKE MORE MONEY OUTSIDE THE U.S. WHAT IS THIS? THE AMERICAN ADVANCING? IT IS ALL RIGHT. WHERE I COME FROM, IT IS THE FIGHTING IRISH AS WELL. U.K. TAILWIND AS WELL DOWN SEVEN POINTS. THE QUESTION IS THIS, WHO IS GOING TO CUT THE MOST AND WHO WILL CUT THE MOST -- CUT FIRST. THAT WAS THE CORE OF WHAT HE WAS SAYING. >> WHO IS GOING TO CUT FIRST OR WHO HAS TO CUT FIRST -- >> YOU HAVE STAGNATION IN THE UNITED KINGDOM AND SLOWDOWN ALL AROUND. >> MAYBE IT IS THE ECB BEING DRAGGED THERE. THINK BACK TO THE DECISIONS THAT WE HAD. CHRISTINE LAGARDE SEEMED LIKE SHE TRYING TO BE HAWKISH BUT IT WENT THE OTHER WAY. BUT SHE WAS PRETTY ADAMANT, ESPECIALLY AFTER WHAT WE GOT FROM JEROME POWELL, PLAYING UP EVERYONE'S DOVISH FANTASIES. >> IT WAS TIME. >> OK, JERSEY GIRLS, LET'S LEAVE IT THERE. THE SENIOR INVESTMENT-GRADE STRATEGIST. DO NOT MESS WITH THESE WOMEN ON THIS SET THIS MORNING. THEY ARE PLAYING HARD AND FAST. WE WILL TALK ABOUT THIS. IN THE CREDIT WORLD, HE WOULD SAY IT SPREAD SINCE 2021. HIGH-GRADE IS NOT CHEAP. WITH THAT IN MIND, IS THIS TIGHT SPREAD NARRATIVE COMPLETELY PREDICATED ON THE PRESUMPTION OF 150 BASIS POINTS OF CUTS NEXT YEAR? >> I DO NOT THINK IT IS COMPLETELY PREDICATED ON IT. I WOULD SAY, AS WE LOOK AHEAD, WE ARE EXPECTING THE FED TO CUT FIRST. SINCE EARLY OCTOBER, ACTUALLY. IT WAS A DIFFICULT MESSAGE TO DELIVER TO CLIENTS AT THAT POINT. THEY HAD NOT INDICATED THE SAME KIND OF DISINFLATION THAT WE HAD SEEN, SO NOW WE HAVE ALMOST 150 BASIS POINTS PRICED IN AND WE ARE THINKING -- WE ARE THINKING THAT THE FED CAN GO BEFORE THE ECB BUT IT WILL COME DOWN TO DISCUSSING, DOES THE ECONOMY FALL INTO RECESSION? IS THE ECB FORCED TO CUT? WE THINK THE FED GOES FIRST AND GOES MORE THAN THE OTHER CENTRAL BANKS. >> LET'S TALK ABOUT HOW THAT BLEEDS INTO THE CREDIT MARKET. TAKE A LOOK AT SPREADS RIGHT NOW AT ABOUT 100 BASIS POINTS WITH THE POTENTIAL TO TIGHTEN FURTHER FROM HERE. WHERE IS THAT COMING FROM? IS THAT PREDICATION OR IS THAT IMPROVING CORPORATE FUNDAMENTALS GETTING PRICED IN? >> WE EXPECT FUNDAMENTALS TO STAY STURDY. WHEN WE THINK ABOUT WHAT WILL DRIVE INCREMENTAL TIGHTENING, WE THINK IT IS THE TECHNICAL TAILWIND, NORMALIZING POLICY. THEY START TO MOVE OUT WITH BUT THE CREDIT -- WE THINK THAT CAN BE AN INCREMENTAL SPREAD AND IT HAPPENS IN THE FIRST COUPLE MONTHS OF THE YEAR. YOU HAVE PROBABLY SEEN SOME OF IT ALREADY. ONCE WE THINK ABOUT THE FISCAL PICTURE, PERHAPS THERE ARE SOME BUMPS IN THE ROAD. VERY LITTLE INCREMENTAL TIGHTENING FROM WHERE WE ARE TODAY. THERE WAS A LITTLE BIT MORE SPREAD TIGHTENING, BUT WE HAVE SEEN SOME OF IT ALREADY. SOME OF THIS TECHNICAL TAILWIND HAS PERHAPS ALREADY PLAYED OUT AT THE END OF THIS YEAR. KATIE: A LOT OF PEOPLE MIGHT LOOK AT 100 BASIS POINTS AND SAY THAT LOOKS PRETTY EXPENSIVE OR FULLY PRICED. YOU WRITE IN YOUR NOTES THAT CREDIT LOOKS CHEAP TO EQUITIES. WALK US THROUGH THAT. >> S&P 500, COMPARE IT TO THE WORST INVESTMENT-GRADE INDEX AND IT IS THE WORST AND HAS BEEN OVER 15 YEARS. WHEN WE CONSIDER WHERE ALL THIS CASH COULD GO, LOOKING AT A RELATIVE VALUE PERSPECTIVE, WE THINK THAT HIGH QUALITY FIXED INCOME LOOKS PRETTY GOOD, STILL LOOKING AT THE S&P 500, WE THINK IT EXTENDS TO HIGH-YIELD CREDIT AND COMPARING IT TO SMALL STOCKS. IT LOOKS CHEAP RELATIVE TO THE PAST 15 YEARS, SO IT IS A MORE ATTRACTIVE OPPORTUNITY TO GO INTO FIXED INCOME. LISA: WE CAME OUT WITH COLUMN A COUPLE WEEKS AGO AND IT SAID EVERYONE IS A LENDER NOW. HE TALKS ABOUT THE GROWTH BEING TOO RAPID AND SPARKING A GLOBAL SEIZURE. AND THEN, IT DOES NOT MATTER. IT WAS A BUMP IN THE ROAD AND WE SAW THE RISE IN CREDIT TAKE OFF. HAVING SAID THAT IT IS NOT JUST TRADITIONAL LENDERS, SO WHAT DO WE NEED TO BE WATCHING OUT FOR? WHAT ARE THE FLAWS IN THE MARKET? >> NOT SAYING MUCH IN TERMS OF FLAWS. JUST THINKING ABOUT OVERALL SUPPLY OF FIXED INCOME IN 2024, A LOT OF IT HAS COME FROM THE TREASURY MARKET. SO WHEN YOU COUPLE THAT WITH THE INVESTMENT-GRADE MARKET, WE ARE LOOKING FOR 1.3 TRILLION IN SUPPLY, MORE OR LESS MATCHING WHAT WE SAW THIS YEAR. AN IMMENSE AMOUNT OF FIXED INCOME FOR THE MARKET TO DIGEST. THAT IS WHAT WE HAVE HIGHLIGHTED FOR SPREADS AND YIELDS, JUST LOOKING AT THE CONSENSUS, THERE IS NOT MUCH OF A CALL FOR YIELDS TO RISE BACK AROUND THAT. IT SEEMS LIKE THE NARRATIVE FROM LATE SUMMER AND EARLY FALL HAS COME DOWN IN TERMS OF FISCAL SUPPLY. ALL THAT SUPPLY COMING TO THE MARKET IS SOMETHING THAT WE ARE KEEPING AN EYE ON. LISA: NOW 92% OF THE WORLD'S COMBINED GDP. THAT WAS KIND OF THEIR BENCHMARK IN TERMS OF MEASURING. HE TO PUT TO WORK. WHERE'D DO WE PUT IT NOW? >> HIGH-YIELD CREDIT IN THE U.S. -- WE THINK IT IS AN ATTRACTIVE OPPORTUNITY. WE THINK ABOUT THE INVESTMENT-GRADE AROUND 8%. IT STILL LOOKS VERY ATTRACTIVE. WHEN WE THINK ABOUT THE BALANCE OF RISK, PERHAPS WE ARE MORE COMFORTABLE TAKING THAT DURATION RISK NOW THAN WE WOULD HAVE BEEN A COUPLE MONTHS AGO WHEN WE HAD THAT MOMENTUM TRADE HIGHER IN YIELDS. WE LOOK BACK AT HISTORICAL TRENDS AND THE BIGGER DRIVER HAS BEEN A SHIFT IN MONETARY POLICY. WE THINK THIS POLICY NORMALIZATION THAT WE SEE IS GOING TO BE A BOON IN 2024. MENACE: ISSUANCE IS UP 18% THIS YEAR. ARE THERE GOING TO BE BIG OPPORTUNITIES? IF SO, WHERE? >> WE SEE MORE SUPPLY, BUT WE HAVE MORE OF A BALANCED RISK APPROACH. WE DO NOT SEE RETURNS AS ATTRACTIVE AS WE SEE IN HIGH-YIELD, CONSIDERING THE LOW RATED NATURE OF THE MARKET. WE PREFER HIGH-YIELD BONDS TO THE LOANS. YOU SAW PERFORMANCE OF THE ASSET CLASS. MENACE: IT IS GOING TO COME DOWN TO THE LEVEL THAT YOU HAVE. YOU PENCILED IN FOR THE YEAR 2024, WHICH SEEMS REASONABLE. THANK YOU SO MUCH. KATIE, YOU WERE RIGHT. IT IS ABOUT HOW THOSE SPREADS BEHAVE. THOSE SPREADS, TO A CERTAIN EXTENT ARE TIGHTENED UP ON MAY CUTS. THAT IS WHERE WE STARTED THE CONVERSATION. >> IT WAS INTERESTING TO SEE HIM GO BACK TO MONEY MARKET MUTUAL FUNDS. WHERE IS THAT CASH GOING TO MIGRATE OUT OF? MENACE: IT WAS FROM THE S&P 500. THAT IS HOW WE LOOK AT SOME OF THE MARKETS. UNCHANGED. KATIE: THAT WE GO. WE DID A. LISA: IT IS NOT OVER YET. MENACE: THE IS TRADING HIGHER. NEW JERSEY GIRLS ARE DANGEROUS. TAKING DOWN EVER SO SLIGHTLY. ONE NARRATIVE CAME THROUGH IN THE MORNING. I LIKE THE WAY THEY SET UP THE AGENDA. IT COULD NOT GIVE BONDS AWAY AT 5%. THERE WAS A TURMOIL, TALKING THAT 6% OR 7% POTENTIAL RATES. REMEMBER THOSE DAYS? HE DID NOT SAY THAT WE WOULD GET THAT. >> WE HAD GUESTS COMING ON SAYING THAT. THE PRESSURE WAS TO THE UPSIDE. KATIE: YOU THINK ABOUT THE NARRATIVES BREAKING ABOVE 5%. WE WERE TALKING ABOUT BIG TREASURY ISSUANCE AND U.S. DEFICITS. MENACE: IT WAS ALL ABOUT THE REFUNDING. IT WAS AROUND THE FIRST WEEK OF THE WAR. THEY WERE TALKING ABOUT THE POTENTIAL IN TERMS OF THE TREASURY FUNDING REQUIREMENT, HOW MUCH WOULD THAT BE AND HOW MUCH COULD THE MARKET ABSORB? KATIE: AND WHETHER WE WOULD HAVE FORMED BUYERS COMING INTO TAKE UP OUR DEBT. LISA: THESE ARE THINGS THAT ARE GOING TO PLAY OUT THE MARKET ENVIRONMENT AND INVESTMENT ENVIRONMENT. MENACE: THE BANK OF JAPAN FEELS LIKE THEY HAVE A LITTLE BIT MORE TIME BEFORE THEY NEED TO RIP THE BAND-AID OFF AND MAKE A MATERIAL ADJUSTMENT. >> WHETHER IT IS THE REGIONAL BANK OR ANOTHER, THE HAMAS ATTACK ON ISRAEL, BUT OF THE ESCALATION, THE CONTINUATION IN UKRAINE OR TENSIONS WITH CHINA COME THEY GO ON, BUT WHAT WE LOOK AT IS WHAT GOES ON. THE ECONOMY HAS GROWN. THE BANK HAS DONE VERY WELL. MENACE: BANK OF AMERICA CEO SPEAKING WITH THE BLOOMBERG TEAM EARLIER THIS MONTH ON THE STATE OF U.S. BANKING. GOOD MORNING TO YOU. WHAT IS THE STORY, LADIES? IF IT DID NOT HAVE J.P. MORGAN IN THE TITLE, IT WAS NOT A BANK WERE TALKING ABOUT. SO, LET'S START THAT CONVERSATION. LISA: IT IS LIKE EVERYTHING THAT THEY TOUCH. KATIE: WHAT WAS THE OUTCOME OF IT? JP MORGAN GOT BIGGER. MENACE: CAN ANYBODY BEAT THEM? TECHNICALLY COME AGAIN DOWN 0.3%. KATIE, I KNOW THAT YOU LIKE TO BE PRECISE. WHAT DRIVES THE EURO-DOLLAR? WHO CUTS FIRST AND FASTEST? YOU NEED TO LOAD UP ON YOUR BONDS. A NARRATIVE HAS COME THROUGH IN THE MORNING. CRUDE GIVES BACK. ON THE HEIGHTENED TENSIONS IN THE RED SEA. BUT LET'S TALK A LITTLE BIT MORE BECAUSE IS THERE ANYBODY REALLY WHO CAN BEAT JP MORGAN? HE SAVED THE U.S. BANKING SYSTEM, JAMIE DIMON AND -- DID. OF COURSE, WE ARE TALKING ABOUT JAMIE DIMON, JP MORGAN. IS THERE ANYBODY YOU CAN CATCH UP TO JP MORGAN? ARE THEY INVINCIBLE? EVERYBODY HAS A LITTLE BIT OF A RISK. >> THIS YEAR HAS BEEN A GREAT YEAR, LED BY JAMIE DIMON. THEY WILL PUT OUT SOME STRONG NUMBERS THIS YEAR AND IT HAS BEEN A FLIGHT TO SAFETY FOR MANY INVESTORS. EARLIER IN THE YEAR, WE REMEMBERED WHAT HAPPENED WITH THE SIGNATURE FAILURES AND THEN IN MAY. INVESTORS WERE QUITE SHAKEN BY THOSE EVENTS AND AS A RESULT, THEY WENT INTO SAFETY WITH JP MORGAN. THAT HAS STARTED A CHANGEOVER. THE LAST FOUR TO FIVE WEEKS, THEY HAVE TAKEN PRESIDENTS OVER RISK OFF. BUT NOW YOU ARE SEEING SOME OF THE OTHER BANKS THAT PEOPLE WERE MORE NERVOUS ABOUT. BANK OF AMERICA WITH THEIR UNREALIZED BOND LOSSES DOES NOT SEEM TO BE AS MUCH OF AN ISSUE TODAY. LISA: YOU SHARED WITH US A LINEUP OF NAMES OF BANKS THAT HE WOULD ONE TO INVEST IN OR OWN. JP MORGAN IS NOT ON THAT LIST. >> WHAT WE SUGGEST FOR 2024, WE WANT TO GO RISK ON, AND IF THERE IS AN INVESTOR THAT IS STILL CONCERNED ABOUT THE U.S. ECONOMY OR CONCERNS ABOUT THE BANKING SYSTEM, CERTAINLY, JP MORGAN IS THE WAY TO GO, BUT WE SEE AND 2020 FOR THE ECONOMY DOING A SOFT LANDING, IF YOU WILL. WE SEE THE FED BEING DONE WITH RAISING INTEREST RATES. THIS IS SHAPING UP TO BE VERY SIMILAR TO 1995, WHICH COMPARED TO 1994 WAS AN AWFUL YEAR FOR BANKS. EVERYONE WAS WORRIED ABOUT WHAT WAS GOING ON. THE HARD LANDING NEVER CAME AND STOCKS WERE UP 55%. SOFT LANDING IS VERY POSITIVE FOR RISK ON BANKS. LISA: A 34% AND LET'S LOOK AT THE REGIONALS, OBVIOUSLY FRONT AND CENTER THIS YEAR. UP ALMOST 40%. IT HAS BEEN INTERESTING TO SEE THE MOMENTUM HERE BUT ESPECIALLY IN THE FINANCIAL SECTOR. BANK OF AMERICA IS ON A. WESTERN ALLIANCE. IS THERE A COMMON THEME AMONG THESE NAMES THAT YOU THINK INVESTORS MIGHT WANT TO SUGGEST ADDING THESE TO THEIR PORTFOLIOS? ? OF THE COMMON THEMES IS THAT THE STOCKS ARE NOT TERRIBLY INSANE. WHEN YOU LOOK AT THE VALUATIONS OF THE BANKS TODAY AND COMPARE IT TO HISTORICAL LEVELS, WE ARE NOT AT OR ABOVE HISTORICAL VALUATION LEVELS. THE OTHER THING WE HAVE TO REMEMBER IS THAT WHEN YOU TAKE A LOOK AT THE CHANGEABLE BOOK VALUE PER SHARE NUMBERS FOR ALL THE BANKS, THAT INCLUDES THE UNREALIZED BOND LOSSES IN THE FOR SALE PORTFOLIOS. WITH THE BOND YIELD FALLING CLOSE TO 5% IN OCTOBER TO UNDER 4%, THOSE LOSSES ARE GOING TO DROP MEETING. MAKING THE STOCKS EVEN MORE ATTRACTIVE WHEN YOU ADJUST FOR THESE LOSSES. KATIE: WHEN WE THINK ABOUT THE BUSINESS OF BANKS, IT FEELS LIKE TREATING HAS BEEN GOOD BUT THE DEALMAKING SIDE OF THINGS HAS BEEN PRETTY DEPRESSED THIS YEAR AND LAST YEAR. DO YOU EXPECT THAT DYNAMIC TO FLIP IN 2024 OR FOR A DEALMAKING TO SEE A LITTLE BIT OF A REVIVAL? >> YOU ARE RIGHT, IT HAS BEEN VERY DEPRESSED. THE MAIN CULPRIT HAS BEEN INTEREST RATE. WHEN YOU THINK ABOUT IT, THE BUYER OF ANOTHER BANK HAS TO MARK IT. IF YOU HAVE THAT ASSET COMING TO REDUCE THE VALUE OF THAT ASSET AND IT HAS PREVENTED DEALS FROM HAPPENING BECAUSE THE MARKS ARE TOO LARGE. RATES CONTINUE TO FALL AND AS THOSE ESSENCE PAY, THEY WILL DIMINISH. WE THINK WE WILL SEE A LOT OF ACTIVITY BUT WE ARE NOT BULLISH ON BIG ACTIVITY. WE HAVE REGULATORY CHANGES COMING. MANY BANKS WANT TO WAIT TO SEE THE FINAL PROPOSALS BEFORE THEY MOVE. IT IS WEIGHING ON ACTIVITY WITHIN THE INDUSTRY. MENACE: THAT HAS A CONSEQUENCE FOR THE DEFENDANT AND PAYOUT SCENARIO. TALK ABOUT THAT FOR BUYBACKS AND DIVIDENDS. IS IT DELAYED BUT NOT DENIED? >> DIVIDENDS ARE NOT GOING TO BE DELAYED. THE BANKS HAVE BEEN INCREASING THE DIVIDENDS, MAYBE NOT AS MUCH AS THEY HAVE DONE RECENT YEARS. ENEMY EXPECT THAT TO CONTINUE. THERE HAVE BEEN DELAYS IN BUYBACKS BECAUSE BANKS REALLY WANT TO SEE WITH THE NEW CAPITAL REQUIREMENTS WILL BE. THEY ARE GOING TO BE A LITTLE BIT MORE CAUTIOUS. THERE SHOULD BE SOME PROPOSALS FLOATED. I THINK THE BUYBACKS WILL THE GOOD FOR THE SECOND HALF OF THE YEAR BECAUSE THE BANKS ALL HAVE SUFFICIENT CAPITAL TO EXCEED THE NEW GUIDELINES. THEY JUST NEED TO KNOW WHAT THOSE WILL BE. MENACE: THANK YOU VERY MUCH. NOT ON YOUR HOT TICKET LIST. LISA JAMIE DIMON IS CALLING, BY THE WAY. MENACE: YOU ARE IN THE DANGER ZONE WITH THE LADIES OF THE SHOW. WE ARE GOING TO TALK A LITTLE BIT ABOUT MARKETS. WE HAVE THE PHRASE OF THE DAY, WHICH IS -- WE ARE .5 PERCENT AWAY. WE ARE INTO THE NINTH WEEK OF GAINS. CANNOT EXTEND IS THE QUESTION. >> WE HAVE BEEN ON AIR SINCE 6:00, WATCHING THOSE TRENDS. WE ARE .5% AWAY. MENACE: WHAT DID YOU DO TO THE OIL MARKET? KATIE: I TOOK A NAP. LISA: SHE HAS CRAZY DREAMS. MANUS: CHRISTINA HOOPER, WE'LL CATCH UP WITH HER AT INVESCO AND GOOD MORNING FROM NEW YORK. ♪ MANUS: WELCOME BACK TO BLOOMBERG SURVEILLANCE, ESPECIALLY EDITION. MOMENTS AWAY FROM THE OPENING OF THE CASH TRADING AND MARKETS. DOWN JUST 0.8%. YOU CAN PLAY WITH ANY NUMBER OF SUPERLATIVES. THIS IS THE HOPEFUL EXTENSION OF A RALLY. JUST BECAUSE EVERYONE SEES APRIL MARKET. RAY MUCH FOCUS THERE. RETURNING TO GREEN ON THE EURO-DOLLAR. BONDS COME HE COULD NOT THEM AWAY. IF THEY ARE NOT PART OF YOUR PORTFOLIO, PERHAPS YOU HAVE A SPECIAL CASE. GIVING BACK SOME OF THE GEOPOLITICAL ANGST. BUT TO WRAP UP THE MARKET, ABIGAIL DOOLITTLE IS HERE WITH THE MOVERS. ABIGAIL: THIS MIGHT BE A -- WE DO HAVE SOMETHING HAPPENING THAT IS UNUSUAL WHICH IS TITLED QINETIQ'S HAVING THE BEST DAY EVER. THE BIOPHARMACEUTICAL COMPANY HAS AN EXPERIMENTAL HEART DRUG THAT HELPS WITH AILMENTS. IT SPREAD RUMORS OF A POTENTIAL TAKEOVER. POINTING TO A HEALTHY BACKDROP. THE DRUG IMPROVED OXYGEN UPTAKE. THERE IS A SHORT SQUEEZE. SPEAKING OF EXERCISE, THIS IS A HOLDING COMPANY. THERE IS A HIGH SHORT INTEREST. ROBERT IS STEPPING DOWN. IT IS NOT CLEAR WHY THE SENIOR VP IN CONTROL -- CONSTRUCTIVE ON DELIVERY FOR THE FOURTH QUARTER, TRACKING SLIGHTLY AHEAD OF THE NEARLY 500,000 DELIVERY UNIT. SOME STRONG DATA OUT OF CHINA OF ALL PLACES. WHAT A DIFFERENCE A YEAR MAKES. LAST YEAR THE STOCK WAS PLUNGING. FINALLY, LET'S LOOK AT APPLE. WE HAVE THIS APPLE SMARTWATCH SAGA CONTINUING. THEY ARE TRYING TO DEFEND THEIR BUSINESS AND APPEALING A U.S. BAN OVER A PATENT DISPUTE WITH MOSSIMO. THE WHITE HOUSE HAS FAILED TO VETO THAT RULING, SO THE COMPANY IS TRYING TO GET IT OVERTURNED IN FEDERAL COURT. IT IS SOMETHING TO KEEP AN EYE ON. MANUS: I NEVER THOUGHT THAT APPLE WEARABLES COULD BE AT THAT REVENUE. OF COURSE, THEY WILL APPEAL TO THE FEDERAL COURTS REMOVE THE BOND. LET'S SEE WHAT IT MEANS FOR YOU WITH YOUR WEARABLE WATCHABLE'S. >> SNACK OPPOSE, WEARABLES, WATCHABLE'S. SQUISHABLES. MANUS: NICE TO HAVE YOU HERE THIS MORNING. APPLE WILL BE PRETTY IMPORTANT. CHRISTINA HOOPER IS HERE. GOOD MORNING. LET'S KICK IT OFF WITH TECH. WILL IT BE SOME VAGUE THAT YOU HAVE TO ABSOLUTELY OWN AND THEN BROADEN TO PERFORM WELL IN 2024? GOOD MORNING. >> GOOD MORNING. GREAT TO BE ON. THE KEY TO 2024 IS TO BE WELL DIVERSIFIED. WE SAW STRONG PERFORMANCE FROM THE MAGNIFICENT SEVEN AND AREAS OF TECHNOLOGY, BUT THIS STORY FOR 2024 IS ABOUT EXPECTATIONS OF AV CELEBRATION IN THE BACK HALF OF THE YEAR. THAT SUGGESTS THAT WE WILL SEE SMALLER CAPS PERFORMING BETTER AND WE WILL SEE CYCLICALS PERFORMING BETTER. WE WANT EXPOSURE TO TECHNOLOGY. THERE ARE ARGUMENTS FOR WHY TECH WILL BE ONE OF THE BETTER PERFORMING SECTORS. IT IS IMPORTANT TO HAVE THAT EXPOSURE BECAUSE THEY SHOULD BENEFIT FROM A DISCOUNTING OF RECOVERY IN THE BACK HALF OF THE YEAR. LISA: WHEN YOU LOOK BACK AT 2023, IS THERE SOMETHING THAT YOU MISSED THAT YOU WISH YOU HAD SEEN EARLIER AND THAT IS SHAPING HOW YOU ARE THINKING ABOUT THE ENVIRONMENT AND 2024? >> THAT WAS A MUCH EASIER QUESTION STARTING OUT 20 23, BECAUSE I THINK 2022 SURPRISE MANY BY HOW QUICKLY THE FED HIKE RATES AND THE DAMAGE TO MAJOR ASSET CLASSES. LOOKING BACK, I THINK THAT WAS AN ENVIRONMENT IN WHICH WE EXPECTED TO SEE SOMETHING OF A BUMPY LANDING. IT DID NOT COME AS QUICKLY AS WE ANTICIPATED AND THERE ARE A LOT OF PEOPLE WHO EXPECTED HIM KIND OF LANDING THAT DID NOT SEE IT. I'M STILL IN THE CAMP THAT ANTICIPATES A BUMPY LANDING. THAT IS NOT THE CONVENTIONAL WISDOM TODAY, BUT MY VIEW IS THAT WE SAW SO MUCH AGGRESSIVE TIGHTENING, AND IT WAS QUITE SYNCHRONIZE, SO I DO NOT THINK WE ARE GOING TO GET AWAY WITH A TRULY SOFT LANDING, BUT I THINK WE WILL SEE A BUMPY LANDING IN THE FIRST HALF OF THE YEAR. IT WILL BE BRIEF AND THEN WE CAN GET THAT OUT OF THE WAY. LISA: I WONDER WHAT OTHER BANKS WILL BE DOING DIFFERENTLY. HOW DOES THAT ROLL INTO YOUR THESIS? >> I DO NOT THINK THERE WILL BE A LOT OF DIFFERENCE. THE MORE IMPORTANT TAKE AWAY IS THAT THEY ARE ALL GOING TO BE EASING AND I THINK IT WILL BE SIGNIFICANT THIS YEAR, ESPECIALLY FOR THE FED. I DO NOT THINK THE ECONOMY IS GOING TO DETERIORATE DRAMATICALLY, BUT BECAUSE FED OFFICIALS THEMSELVES HAVE ADMITTED THAT WHERE POLICY IS TODAY IS VERY RESTRICTIVE. IF WE SEE CONTINUED DISINFLATION , I THINK IT WILL ACTUALLY ACCELERATE FROM HERE. THE FED WILL BE FORCED TO CUT TO GET OUT OF RESTRICTIVE TERRITORY. KATIE: MOVING TO THE DOWNSIDE WHEN CUTTING RATES. HOW DOES THAT PLAY OUT IN GLOBAL EQUITY MARKETS? DOES THAT LEAD TO ANOTHER YEAR WHERE THEY ARE OUTPERFORMING? >> I THINK WE WILL SEE A FED CUT MORE THEN CENTRAL BANKS. A CONTINUATION OF U.S. DOLLAR WEAKENING AND THAT SHOULD BE POSITIVE FOR OTHER AREAS OF THE WORLD. WHAT WE ARE LIKELY TO SEE IS THE EUROPEAN STOCK MARKET BENEFITING FROM MORE EXPOSURE TO CYCLICALS AS MARKETS DISCOUNT WE ACCELERATION. I MOST POSITIVE ON EMERGING MARKETS, WHICH I THINK WILL BENEFIT FROM AN EASY U.S. DOLLAR. KATIE: I GOT IT IN THERE. LISA: CHRISTINA, WE ARE GETTING A LOT OF FLAK FROM HIM THAT WE ARE TO U.S. CENTRIC. MANUS: JONATHAN WOULD SAY TO FOCUS ON THE U.S. STOCK, WHICH IS FAIR ENOUGH. KATIE: I WOULD IMAGINE SO, BUT COME INTO ANOTHER DEBATE -- MONEY MARKET FUNDS. THERE ISN'T MUCH CASH IN MONEY MARKET FUNDS BY SOME ESTIMATE. WINDOWS THAT CASH COME OUT, IF AT ALL? HOW STICKY IS IT AND IS A BELONG TO RISK ASSETS? >> I THINK THE QUESTION IS, HOW OVERWEIGHT ARE INVESTORS IN MONEY MARKET? SOME EXPOSURE MAKES SENSE. THAT IS PART OF BEING WELL DIVERSIFIED, BUT THERE -- THERE IS A SIGNIFICANT OVERWEIGHT FOR SOME INVESTORS, AND I THINK THAT COMES OUT. IT IS INTERESTING BECAUSE IT COULD BE SOMETHING OF A PERFECT STORM THIS YEAR, WHERE WE SEE RATES START TO GO DOWN. THE MONEY MARKET LOOKS LESS ATTRACTIVE, AS A BROADENING OF THE STOCK MARKET LOOKS MORE ATTRACTIVE. AN IMPORTANT DESTINATION FOR SOME OF THAT EXCESS MONEY MARKET ASSETS IS LIKELY TO BE LONGER DURATION FIXED INCOME. IN PARTICULAR, I'M EXCITED ABOUT INVESTMENT GRADE BONDS. LISA: IN THE U.S.? >> YES, AND TO THE LESSER EXTENT , TO EUROPE. I'M ALSO EXCITED ABOUT EMERGING-MARKET DEBT. MANUS: YOU ARE LOOKING AT 26 POINT $5 BILLION GOING INTO EQUITY ETF'S. GOLDMAN SACHS HAS HAD THEIR VEHICLE THE -- HAD THEIR MOMENT. DO YOU WANT TO BE LONGER OF EQUITY THEN YOU ARE WITH DEBT? >> I DO NOT THINK YOU STRIP ABOUT CHINA, THOUGH IT PROBABLY MAKES SENSE, SINCE IT IS SUCH A MAJOR DESTINATION, TATTED AS A SEPARATE ALLOCATION, BUT I'M INCLUDING CHINA IN THERE. I THINK THERE IS POTENTIAL THERE, ESPECIALLY WITH A ROLLOUT OF POLICIES THAT IS STIMULATIVE AND ADDRESS THE PROPERTY SECTOR. IT SHOULD BENEFIT FROM AN IMPROVING CHINESE ECONOMY, BUT ALSO A LOT OF THINGS IN THEIR FAVOR. THINK ABOUT SOME OF THE ASIA AND EM COUNTRIES. IT IS INTERESTING AND VALUATIONS LOOK QUITE ATTRACTIVE. LISA: WE WILL BE TALKING THE GEOPOLITICS. VERY QUICKLY, 30 SECONDS, HOW ARE YOU THINKING ABOUT THAT? >> THEY SHOULD NOT LET WHAT IS GOING ON, THE HEADLINES, WHICH CAN BE CONCERNING, TAKE THEM AWAY FROM A LONG-TERM INVESTMENT PLAN THAT IS WELL DIVERSIFIED. WE ARE LIKELY TO SEE GYRATIONS THAT ARE MORE SHORT-TERM IN NATURE, BUT FOR THE MOST PART, IT IS ALL ABOUT BEING WELL DIVERSIFIED AND PUTTING ON POLITICAL BLINDERS. MANUS: WE HAVE THE BLINDERS ON. OF COURSE, THAT IS IN PART TIED TO THE RECORDS. S&P 500 STILL DESPERATELY TRYING TO GET A NEW RECORD HIGH. NOW TURNING INTO THE GREEN BY 0.5%. LISA: IS IT REALLY DESPERATE? IT LOOKS A LITTLE LIMP THERE. MANUS: YOU HAVE TO REINVIGORATE YOUR JOB IS TO MAKE THESE THINGS COME ALIVE. KATIE: UNCHANGED SINCE 2017? I JUST WANT TO TWEET THAT OUT. MANUS: WHALE IS GIVING BACK NEARLY 1%. AS I SAID, I'M VERY SURPRISED THAT YOU DO NOT HAVE MORE OF A PREMIUM. YOU ARE LOOKING AT A 5% RALLY. IT DOES NOT CONSTITUTE ANY KIND OF ESCALATION EVEN THOUGH YOU IGNITED MORE IN THE RED SEA. DO NOT FORGET, THE U.S. IS REFILLING AT THESE LEVELS. LISA: IT FEELS LIKE WE ARE AWASH, WHEN IT COMES TO ENERGY AND HYDROCARBONS. IT IS JUST INTERESTING. KATIE: WHEN IT COMES TO THE WERE PREMIUM, EMILY CAME AROUND THE END OF SEPTEMBER. REALLY SINCE WE HAVE SEEN THE ISRAEL AND HAMAS WAR BREAK OUT, IT HAS BEEN A LAG LOWER FOR OIL. MANUS: THE PHASE IS PREEMPTIVE, PROACTIVE, PROTECTIVE ACTIONS BY THE OPEC-PLUS MEMBERS. THAT IS WHEN THEY EXTEND. LISA: THERE ARE A LOT OF CONVERSATIONS GOING ON BECAUSE EVERYBODY IS WATCHING IT. MANUS: THE COALITION TO PROTECT 12%. 12% OF GLOBAL TRADE GOING THROUGH THE RED SEA. COMING UP, THE U.S. -- BILL MARTIN FROM U.S. BANK WEALTH MANAGEMENT JOINS US. ♪ QUEST WASHINGTON DC HAS DECIDED THAT THEY ARE GOING TO RUN THIS U.S. ECONOMY HAVE EMPLOYMENT AT FULL COST. IT WILL BE DIFFICULT TO GET THE CONSUMER TO PULL BACK. THIS WILL BE THE YEAR THAT WE HAVE A SERIOUS DISCUSSION ABOUT THE CREDIBILITY AS AN INDEPENDENT ENTITY. MANUS: HEAD OF RESEARCH ON THE CREDIBILITY OF THE FEDERAL RESERVE GOING INTO 2024. DO THEY FRONTLOAD THOSE? THIS WILL BE SLIGHTLY MORE INTERESTING ONE. WE HAVE HAD VARIOUS GUESTS SAYING THAT THEY THINK THE FED WILL GO FIRST AND BE MORE AGGRESSIVE RELATIVE TO THE ECB AND THE U.K. WILL BE BOUNCED INTO THAT MOST AGGRESSIVELY? LISA: ESPECIALLY WHEN THEY SAY MAYBE IT DOES NOT START UNTIL JUNE OR JULY? NOVEMBER 1? ABSOLUTELY OFF THE TABLE. KATIE: THEY DO NOT CARE IF THEY GO IN MARCH, APRIL OR JUNE. THE MARKET AND ALL OF US WILL TWIST OURSELVES INTO NOT TRYING TO DEBATE. MANUS: THINK ABOUT HOW WE TWISTED OURSELVES IN KNOTS ABOUT HOW IT WAS POISED TO PIVOT. SHE IS PROBABLY SOMEWHERE FAR AWAY AND ENJOYING HERSELF, BUT I THINK IT IS. I THINK WE HAVE BECOME OBSESSED WITH THIS. WHAT DOES IT MEAN? WHAT DOES IT MEAN FOR THE HOCKS AND THE DIVES IN TERMS OF THE RATE CUTS THAT YOU WILL GET? >> ALWAYS THE CONCERN IS, DOES THE FED MOVE FASTER OR SOONER RATHER THAN LATER? IS IT MAYBE NOT A SOFTER LANDING? YOU KNOW THE CONVERSATIONS WE WILL HAVE THE POWER AND PRICE EVERYTHING. MANUS: YOU HAVE GERMAN GOVERNMENT GOONS. KATIE: OTHER COUNTRIES HAVE BONDS? MANUS: OK. THIS IS THE JERSEY GIRL RISE UP AGAINST A POOR IRISH GUY. >> OH PLEASE. KATIE: YOU MAKE A GOOD POINT THOUGH. THEY ARE MOVING LOWER. MANUS: THE QUESTION WE WILL PUT TO OUR YES IS DO YOU BUY BONDS AND IF SO, WHAT ALLOCATION DO YOU MAKE TO 2024? PEOPLE SEE IT WILL BE THE YEAR OF THE BOND. U.S. BONDS DELIVERED AT 2% RETURNED. CAN WE EXTEND THAT RALLY INTO 2024? GOOD MORNING. >> GOOD MORNING. IF YOU ARE HAVING A LOT OF FUN ON THAT THERE THIS MORNING. CAPITAL MARKETS -- THE PAST TWO YEARS HAVE BEEN DOMINATED BY THE BATTLE AGAINST INFLATION AND INTEREST RATE EXPECTATIONS. IT WILL BE VERY MUCH THE SAME AS WE MOVE INTO A PERIOD OF TIME WHERE THERE IS AN EXPERT TATIAN OF THE FED WITH EXPECTATIONS AROUND RATE CUTS AS EARLY AS MARCH THIS YEAR, BUT THERE REMAINS THIS DIFFERENTIAL BETWEEN CAPITAL MARKET EXPECTATIONS AND WHAT THE FED HAS COMMUNICATED. IT IS REALLY THAT DIFFERENTIATION. EXPECTATION FOR THE MARKINGS LEAVING 100 50 BASIS POINTS AND STARTING A MARCH THAT WILL DETERMINE THE MOMENTUM AS WE MOVE INTO NEXT YEAR. AS IT RELATES TO BONDS, MOST PEOPLE STARTED 2023, LOOKING AT THOSE JUICY CASH TRADE AND THINKING FOUR TO 5% BY THE END OF THE YEAR IS SOMETHING THAT SHOULD POPULATE PORTFOLIOS. YOU ARE LOOKING AT A POTENTIAL RECORD CLOSE. MAN PRODUCED VERY SUBSTANTIAL RETURNS. >> TIMING AND MAGNITUDE DO MATTER. WE ARE NOT QUITE SURE ABOUT THE TIMING AND MAGNITUDE. >> OUR EXPECTATION IS THAT WE WILL EXPERIENCE THIS MYTHICAL SOFT LANDING AS WE MOVE THROUGH THE BALANCE AND INTO 2024, EXPECTING THAT THE FRONT HALF WILL LIKELY MARK ECONOMIC EXPANSION, BUT WE HAVE TO ACKNOWLEDGE THAT THERE ARE A LOT OF RISKS. AGAINST THAT BACKDROP, WE RECOGNIZE THE OPPORTUNITIES GROWING NEXT YEAR. ESTIMATES MIGHT BE A LITTLE BIT HIGH AT THIS POINT, BUT CONTINUED EXPANSION. IT LEAVES US WITH HOW WE ARE POSITIONING PORTFOLIOS AGAINST LONG-TERM GOALS. EQUAL WEIGHT FIXED INCOME AND WE WILL LOOK FOR THAT NEXT PITCH TO MAKE A TACTICAL ALLOCATION AWAY. THAT DIDN'T INCOME IN THE WAY OF MONETARY POLICY. >> WHAT IS A NONZERO PROBABILITY? >> OUR BASE CASE IS FOR A SOFT LANDING. THEY ARE EXPECTING THAT WE WILL HAVE SOMETHING NORTH OF 1% GROWTH FROM YEAR INTO THE SECOND HALF, BUT WE HAVE TO ACKNOWLEDGE THAT THERE IS A WHOLE HOST OF RISK FACTORS THAT EXIST. AS HE MOVED THROUGH YOUR PRIOR SEGMENTS, YOU NOTED SOME OF THE INSTABILITY AROUND THE GLOBE. WE ARE MOVING INTO AN ELECTION CYCLE IN THE U.S. THERE IS A SIGNIFICANT AMOUNT LAG EFFECT THAT HAS NOT BEEN ADJUSTED BY OUR OWN PARTY AND IMPACTS ON THE GLOBE THAT HAVE YET TO BE FULLY DIGEST DID. WE HAVE TO RESPECT THE FACT THAT THERE IS A PROBABILITY, AND WHEN WE PUT 10% OR 20% ON THAT, WE MIGHT HAVE SOME DEGREE OF SMALL CONTRACTION. KATIE: IT SOUNDS LIKE A TAIL RISK. LET'S TALK ABOUT HOW YOU POSITION THE PORTFOLIO. WHAT DO YOU NEED TO SEE TO NOTCH THAT UP BACK TO NORMAL? >> SOME OF THAT DEPENDS ON HOW HE ARRIVED AT THE NEXT SET OF RATE CUTS THAT WOULD BE THE PRIMARY FACTOR TO DRIVE MARKETS. IT IS PURELY A FUNCTION OF INFLATION REMAINING UNDER CONTROL, ABLE TO MOVE BACK INTO A NEUTRAL RATE, IT PROBABLY SETS UP REALLY WELL AND ALLOWS CORPORATE EARNINGS TO GROW. IT MAY NOT MANIFEST IN THE FULL 50 POINTS RATE CUTS. IF THEY MUST GO 150 BASIS POINTS OR MORE BASED ON ECONOMIC WEAKNESS, THAT PROBABLY SETS UP FOR A MORE CHALLENGING SET OF CIRCUMSTANCES AND CORPORATE EARNINGS ENVIRONMENT THAT WILL IMPAIR FUNDAMENTALS. AS WE PREPARE FOR THAT, IT HAS BEEN A NARROW LEADERSHIP YEAR AS WE TALK ABOUT. MANUS: WE'RE IN THE LAST MINUTE OF THE SHOW AND WE ARE CURIOUS. WE HAVE BEEN DEBATING ABOUT THE MONEY MARKET FUNDS AND RESIDUAL FUND THAT ARE THERE. ARE YOU PREPARING TO DRAW DOWN THE CASH AND INVEST AHEAD OF THE RATE CUTS IN THE FIRST QUARTER? >> WE COULD CASH LOW-LEVEL, BUT WE ACKNOWLEDGE THAT CLIENTS, WHETHER THAT IS INSTITUTIONS OR THE WHOLE -- WE WOULD RECOMMEND THAT PEOPLE BEGIN TO DEPLOY THAT CASH INTO LONGER-TERM INVESTMENT OPPORTUNITIES IN A BALANCED PORTFOLIO. WE BELIEVE THAT FULL INVESTMENT WILL SERVE INVESTORS WELL AS THEY MOVE INTO THE NEXT CALENDAR YEAR. MANUS: DEPLOY YOUR CASH AHEAD OF THOSE POTENTIAL RATE CUTS COMING DOWN THE PIKE. TOMORROW, WE HAVE A PRETTY IMPORTANT CONVERSATION. FOUNDER AND CEO OF ARC INVESTMENT. ONCE GOING TO BE AT THE TOP OF THE AGENDA? KATIE: WE HAVE NOT SEEN THE FLOWS TO MATCH IT IN CHINA. >> THERE IS SO MUCH THAT WE ARE GOING TO COVER. MANUS: WE WILL ASK THOSE QUESTIONS TOMORROW.

Channel: Bloomberg Television

Views: 90,294

Keywords: Anna Ashton, Bill Northey, Carol Massar, Dana D'Auria, Eric Balchunas, Gerard Cassidy, Interactive Brokers Group, Katherine Greifeld, Kona Haque, Kristina Hooper, Manus Cranny, Maya Macguineas, Nadia Martin Wiggen, RBC Capital Markets, Russel Hardy, Steve Sosnick, Steven Cook, Wendy Schiller

Id: z-IH63v7Rxw

Length: 211min 18sec (12678 seconds)

Published: Wed Dec 27 2023