Looking for Clues From Fed | Bloomberg Surveillance 07/05/23

it feels like they're sort of locked in for this July hike if the inflation rate bottoms at three and starts drifting higher the fed's going to find this unacceptable disinflation without a downside and growth without an upside in unemployment is the Goldilocks soft Landing narrative expecting a soft Landing but that may be hotter than others are thinking we might see a recession that might be mild this is Bloomberg surveillance with Tom Keane Jonathan Farrow and Lisa abramowitz I would love to see that folks life for those of you on the radio on Pandora this morning good morning good morning for our audience worldwide this is Bloomberg Savannah Sun oxide Tom Keane I'm Jonathan Farah and belated happy fourth to all of you Stateside and welcome back to work Future's just about negative by 0.5 on the S P 500 TK big week ahead payroll's on Friday then the last CPI print before the next fed meeting we're just around the corner a big week ahead it's Wednesday I think we you know the week really starts there thanks to Katie grayfell for killing it on Monday with Ellen zettner in other words but you're right it is a wicked holiday short and work week Wednesday Thursday Friday all that economic data none of it matters because then we got to get to the inflation report before the feminine we've heard the script before and then earnings begin I think a lot of people starting to pricing from the Federal serve in July TK with very little data between the last meeting and the next meeting and then Senator Morgan Stanley setting the bar actually for what we'd need to see on payrolls on Friday to take that hike back something below 100 000 on payrolls on Friday soft CPI print as well next week she said that and we're distant from that we're distant from sub 100 000 I mean do you get there suddenly or is it a gradual move and I'd like to see 180 or 170 before I worry about under a hundred thousand but you know I take the point in while you were gone uh how many times you're gonna do this this morning well you're recording your sabbatical a host of characters and myself uh decided that earnings really matter July 14th it matters like it's never mattered before JP Morgan coming up so we need to talk about the data out of China as well Tom we know about the weakness worldwide of manufacturing it's about how manufacturing converges with Services over the next several quarters the weakness in China overnight in Services TK we've seen the weakness in manufacturing in the United States we've seen the robust nature of the date on the services side in America how does that converge over the coming quarters that of course is the secret the secret Source it holds the key to the inflation debate the recession debate of the rest of this year Leland Miller lights out a few days ago with China beige book and he agrees with a caution on China but he says it's a domestic International partition and domestic China is actually doing better than the Gloom he does take the point that manufacturing there is a huge challenge renminby this morning 7.24 really FX is pretty quiet all in all should we get to the price section features of itself to this morning let's whip through it let's have a look at the bond market the two year old came really really close to a five handle on a two-year yield in the last week or so backed away since then back in a way in the 10-year this morning down a couple of basis points the 383 70. in the FX Market year-to-date the Euro averaging about 108 not a million miles away from that number right now to 108 91 one just about positive on that currency Pair by 0.1 percent range burn most of FX didn't move since you were away but foreign exchange I'm sorry has a lot more value to me right now than the FX analysis we come back a little bit from the shock of Friday and Monday but Tuesdays spread out to 110 beeps where it's 105 beeps still that's an odd that's a jaw dropping number even with what we saw Friday triple digits it's amazing TK you go back to where the two-year was cycle high high of the Year 5.08 right before the banking relays of of March into April and we've taken it all back since then over the last couple of months it's a toxic brew and I'd look at the 10-year real yield which John literally followed tick by tick 1.58 it was 1.62 and again we've eased off on a Wednesday here and maybe it's that setup before the jobs report who are the scores year today going into the second half the NASDAQ 100 up 39 the S P 500 up by 16 and remember in the first half what we were told coming into a new year in 2023 the first half we would dip and then the second half we would rip and then the first half it was like Off to the Races just like that Jonathan stubb joins us now Equity strategist over at berenberg John for a lot of people waking up missing out on the rally looking ahead to the second half asking what on Earth should I do what should they do well I mean you know the the different rip hasn't happened it's been more sort of rip as you say um yeah European bosses Dax and caca are plus 50 in dollar terms from their sort of autumn 22 or full 22 levels as you say nasdaq's up a short 40 year to date so we've seen some phenomenal gains that's been driven by three things uh GDP upgrades big ones from economists you know one and a half two percent added to you know Global us European GDP expectations for this year in a couple of quarters earnings resilience number two and the dollar liquidity globally has been very supportive now looking ahead of the second quarter we need a new narrative or we need an extension of that we find that hard to see here so perhaps instead of the the dip and rip that we get the rip and dip John just to build on that a little bit more are you suggesting de-risking and how are you suggesting people should do that yeah we we wrote to note uh last week which was titles of Crash protection which was uh partly looking at some of the the risks in markets but also looking at active protection strategies now um again the US's center of attention U.S Equity Market remarkably is is heading heading you know towards 20 times forward earnings again we've only been higher than that twice in 50 years when we've had liquidity driven bull markets TMT post covert Etc um U.S tech against Global equities now an 80 percent fee premium um historically you've had a hundred percent uh 12 month forward lose ratio owning Tech at these valuation levels so it has to be different this time that's that's one option otherwise you're looking for active protection we quite like energy here because of the balance sheet strength the free cash flow it's unloved and we've pair that against Industrials to get a nice active hedge within markets we think Mark is a trading at risk as we go into uh the rest of the summer Jonathan can you double barrel the relative valuations on a PE basis and also with the energy sector I I'm really taken by the U.S valuation called a blended 19 p e and you publish it you've got UK equities at about a 40 discount 10.6 PE as well while we're afraid of U.S stocks do we want to buy United Kingdom ftse yeah I mean it's it's a good point I mean the the US clearly is the monster when it comes to equity markets and uh it keeps on growing uh the UK is a relative minnow but that valuation Gap is historically wide we think that gives the UK some resilience as we go into some sort of you know Global macro Market headwinds over the next couple of months um and when you look at the fundamentals within the UK uh corporate sector you know balance sheets are strong cash flow is strong so it's a it's a market that's unloved partly for macro partly for political headline reasons um that doesn't necessarily change overnight but we think at these levels we're certainly getting a a good offer out to International investors to come and look for a cheap and still big Equity market so we've been banging the table on on that valuation spread for sure what is the distinction between U.S big oil and EU Continental in UK Big Oil um I guess what we've you know we've seen over um you know over the whole energy energy space over the last few years has been increasing pressure from uh from the green machine from this of the the ESG Lobby and that sort of changed different different companies difference of sub-industry groups in different ways uh we started seeing a little bit of a pushback over over in Europe from uh from at least one of the majors which is sort of uh heading back to sort of Grassroots should we say um and and when we look across energy in general U.S U.S UK Europe it really doesn't matter as long as we find strong balance sheets and some of these companies are close to net cash as long as we find High free cash flow yields and some of these are in the teams free cash flow yields we're seeing a combination looks attractive yeah but Tech has the same combination of free cash flow yields I get the tax at a premium but they don't don't they have a a growth model that's far superior to energy yeah yeah yeah yeah correct and then then it's evaluation so the the my valuation Point earlier we're at a point for Tech where historically it's been right to light enough exposure you know they've had an incredible run so that's Point number one number two the technicals within Tech just looking at rsis and and breadth and everything suggests the same thing number three Tech remember Tech has rallied this year this monster rally against a backdrop of 10-year yields heading sideways so you know to save from today we're going to get another leg on the tech rally really given the macro relationship we should have 10-year yields collapsing and that's that's of macro negative in the US and that's probably also risk asset negative and Leadership negative which is Tech negative leadership and the final point on fundamentals is that technology US tech was awesome um you know post GFC because it had a additional surplus-free cash flow a surplus free cash flow premium to the s p and also a big yield pickup how have you measured it to two-year money now it has neither so we argue that the fundamental leadership supporting Tech has also gone shout out to Neil dutta of Renaissance macro who's been all over the home builders over the last 12 months or so Jonathan let's just finish that the home builders in America on the S P 500 are up 41 so far this year the two yield is close to five percent the Federal Reserve is threatening to hike more what evidence is there that monetary policy is sufficiently restrictive with home builders up something like 41 Plus well it's you know we we've we've all you know spent a long time now looking at sort of yield curve relationships you know Deltas on rates the fastest sort of tightening we've seen in the last three months we've seen an additional 100 basis points added to 12 months out um short-term rates around the world and the Market's been incredibly resilient around that when those facts alone suggest that central banks haven't gone far enough at this point in time so they need a lot of help from inflation if we are to see Peak rates anytime soon and need even more help if we're going to get a traditional significant falling rates over the next two years so markets are suggesting that perhaps you know the central banks will have to to push further or remain higher for longer and and that's a that's a headwind that markets have to digest we think what a move Jonathan great to catch up kick off the week with you Jonathan stubs there of barenberg as the U.S gets back to work with future slightly negative off the back of weaker data over in China look at some of these Cruise operators in America carnival it's not a thing for me can you imagine being trapped on a boat together well they're doing well and and you mentioned here we get back to work and that and that America does and you sit there and look at the shock of the first six months of 2023 and as I said corporations adapt we get back to work we adapt the great trend for me Jeff Curry nailed this at Goldman Sachs is this new rate regime which is 16 years old affects everything out there everything including the banks it affects this new rate structure affects everything and because of that people have to get back to work who's paying it who's paying five percent right now Grace study from the team up in the UK here at Bloomberg on this take a listen to this Tom this is some data for interest rates in the UK who's paying it who's receiving it a current interest rates save us collectively of earning 24 billion Sterling more a year than in November 2021 the month before they start asking interest rates okay mortgage borrowers are paying 14 billion more in debt interest so at the moment it's almost a net benefit now Thomas time goes on and there's a lot of people start to see their mortgages and their agreements with those Banks need to be Associated again then it's going to kick in the other way but currently that's the story at the moment in the UK and I think we'll have a conversation stay side too I I think it's it's everywhere and the key phrase there is as time goes on we are just out and I'm going to suggest that American corporation is going to adapt better than anyone it's not for me to be bullish or bearish but uh the The Humbling nature of this rally off the October bottom I don't hear many people setting up a second leg of a bull market like 1975-76 which was a shock no one expected that what I thought payrolls quickly 225 is the estimate is that the number 225 that's going to be a moving Target it's more estimates start to pour in but that's the medium right now in our Bloomberg survey 225 from a previous reader 339 for those of you interested in the unemployment rate the estimate there is some 3.6 looking for that to drop from 3.7 tomorrow Thursday we conflate continuing claims always on Thursday jolts we get there we get ISM services and we get ADP all together tomorrow tons this week well it's a short week then next week was Brave I came back home you like pretty girls red hair like you're still watching powder I watch it yeah you know Mrs poldark's you know she's like Tori oh you like folder nice nice [Music] you can work with China on various this is but they're also a competitor they're also a rival on on many other issues but I've been advocating for you know for a comprehensive European approach these are the uh China so we don't want to decouple and we frankly we can of the couple but we want to do this Miss attack is there the Greek Prime Minister with the brilliant Francine lacquer of Bloomberg an exclusive conversation over the last couple of days TK that line there a comprehensive European approach towards China how difficult is it going to be to get one of those I think this would be a huge deal because it's Europe and and you know the the what I noticed over the weekend in the reading and this goes of course to the French riots and and all that is the French German polarity right now of a successful French Ambrose Evans Pritchard captured this beautifully Germany basically flat on its manufacturing back if those two can't get together how does Greece help out with the China dial and you've seen macro in the last couple of months on the China front um making a bit of a fall of himself abroad embarrassing some of his peers as well within Europe with domestic issues really blowing up in his face at the moment too it's very strange to hear some of the comments from the Chinese leader at the moment Tom the leader of the Communist Party in China saying that he calls on All Nations to reject decoupling and severing Supply chains and those comments follow real action Chinese decisions control the export of two key Metals some of which go into chips the metals thing is a huge that's massive it's a massive massive deal for it I was reading a nickel Somewhere over the weekend and uh maybe that's the thing you know it's not wheat it's not you know other things we talk about than the Dynamics of it but maybe it is the metal issue yellow leaves today right is it today well you were going to Emory damage a little bit later she was working in eight hours a day I mean she went before I was watching red was it Reds Nationals this weekend I swear I saw her behind home plate and that's work you know it's work yeah the baseball yeah she's out there she's out there with somebody from the Pentagon I don't know who won the reds are killing it Reds are the most fun team I don't know I don't know who the the football equivalent is the soccer equivalent okay the Cincinnati Reds are just fun fun what about the Red Sox the Red Sox we don't want to talk about I mean it's painful it's really painful the Reds like their average age is 24. they're so dumb they don't know how good they are they got Joey Votto is a senior guy and you know Greg villier is going why are we talking baseball yeah with us to save us here someone from New Hampshire knows nothing about Johnny Bench Pete Rose and the Reds of the 70s and Joe Morgan uh Greg good morning to you Yellen goes to China does she have the same energy about the trip as the prime minister of Greece does I think she has a lot of energy and Tom let me go out on a limb and make a Fearless forecast this will be a fairly successful Summit I mean they're not going to cut explicit deals on semiconductors that's that's that would be way too uh optimistic but I think they have a very good dialogue they set the table or further talks this fall including a z Biden Summit later this fall so I think when she leaves it'll be viewed as a pretty good summit we're very U.S Centric on this to me Greg the whole thing is the urgency of Beijing to communicate whether it's to Greece or to Athens or Washington what do you see as the new urgency for China to speak to Yellen I think the new urgency is that their economic data has been awful it's been sputtering they have not really come back from the post-pandemic slump and you've got to say in the U.S we've got two new stories that make our economy perhaps a little soft one is growing labor problems hasn't gotten enough publicity time we've got some real labor problems Southern California hotels ups and we've got a real drop I think in real disposable income because of the student loan repayments which start in the fall so our economy could use a little boost as well Greg before we get told of that and before we speak about the U.S economy can we just sit on the latest decisions around trade from China and potentially from the United States as well we understand that China is going to restrict the export of some metals and perhaps you can weigh in on that there was some reporting yesterday from Dow Jones from The Wall Street Journal that maybe even there'd be some restrictions around access to cloud computing too Greg what's your read on how severe some of these decisions might be well they're talking tough now but I think maybe they could get it watered down a bit when they had the meetings I still think the biggest problem of all is chips computer chips is is a big big issue uh the U.S is not relented we we still haven't related on the Donald Trump terrorists so I think the chips issue may be the biggest of all this word de-risk Greg what does it actually mean in practice they're very very keen particularly in Europe to say this isn't about decoupling this is about de-risking what does that mean well first of all there's big currency issues and I think that the Chinese may have to offer some assurances to Yellen that they won't continue to weaken the renimbi I think that would be a a big deal plus there's all these loans that third uh the third world countries have from China that China has not restructured and I think that's a big risk as well I mean Greg part of this is the travel and it seems to me like every President we have a president now enjoying the distraction of international affairs over a painful Fourth of July weekend what did we learn about our domestic politics set us up for July August if we dare say America will get to Labor Day yeah I think that it's going to heat up quite a bit although to my surprise Donald Trump did not campaign during this holiday Biden barely campaigned yeah so it's it's left up to a lot of second and third tier candidates the Republicans are going to have to start line down the field I think they're up to 12 or 13 maybe 15. maybe throw his head in the ring that's in Republic the code for the Italian vote Greg what's going to drive that what's going to drive them actually getting around a table and saying some of us need to drop out why would that happen anytime soon all the polls uh John I think the polls will show that people are just wasting their money and time uh running if you're at two percent and you haven't raised much money I still think that Chris Christie will be a player I think he is so blunt and actually kind of fun to watch but I think he's going to stick in this race for quite a while so Greek festival I think is next month is that right in August late August yeah with Fox I believe Greg how many people do you think are going to be on that stage probably a dozen and it and most interestingly maybe not Donald Trump who may feel he's got nothing to gain and everything to lose by being in a field that big interesting Greg just build on that a little bit more you actually think the former president won't go on that stage in August well he loves publicity we have to concede that guys but at the same time I think he might feel that uh he would get this lost in in all of the Babel that will go on if you're if you're up by 30 points which he is well why take a risk i i i you're up by 30 points Greg I think we're missing something here I don't summary of the Carnage by guns this weekend in America I got a geography of I think it's Philadelphia someplace down south it's almost like Greg and correct me if I'm wrong we've become benumbed by where we are in our domestic politics is it going to be a benumbed campaign Well for now Tom we're in an odd number year so in an odd numbered year you have New Jersey and Virginia and that's about it for a gubernatorial races so this is not in my opinion surprising I think the issues though are going to be fascinating all the shootings we had this weekend uh China lots and lots of issues I think will be interesting for us to talk about but you've got to get that feel that Republican feel cut in half by the Fall Greg awesome to get your input on this correct value of HF Investments amh is she lining this morning and Marie's going to come up I believe in about an hour from now to weigh in on some of this as well TK what was that cocaine in the White House over the last couple days I haven't even I can't that's happened in the United States yeah some of these stories and was like what really yeah I'm glad we brought this up and for you to come back seriously folks I mean I'm busting John's chops but you know he needed the time off he's British you know all the British people they take like four weeks off and you know it's holidays the Continental we got footage too we're gonna we're gonna bring this up in a bit here we have footage of sojourn Pharaoh how did you get hold of that ah just you know you know you know the Bramble Camp all right I look forward to that you should have seen the Bramble cam on Katie greifeld how did that guy she was she was a toxic bro is Katie coming back anytime soon oh she's still running Foley up next [Music] [Music] live from New York City welcome back stateside and a happy July 4th the belated happy July for the airlines to those of you just taking a day off I have to say Tom for me no big delays pretty smooth sailing International anyway domestically I've heard all the stories in the United States it's a two-part thing we're trying to get Scott Kirby on folks we've made that effort and we'll continue to effort from United an invest in a Delta but Scott's in the news and he's been a good friend of the show we'll get him on as we we can but I agree with the partition Mrs Keane's on the far side of the world same thing flight was up just to be clear he's in the news because he flew private when flights were getting closer that's the Scandal but far more it's this outrage of like a family like Bramble brammo tried to go somewhere I don't know where Bramble is I thought she was up at Tupper Lake in the Adirondacks but but she's stuck in an airport somewhere with three brats I mean she flies I didn't know that she's stuck you know I got an email from her they're not even away they're like in terminal C somewhere stuck yeah the last couple of days fun painful we wish you the best Bremo hopefully she's going to be coming back soon equity's right now on the S P 500 futures a little bit softer if you are just tuning in overnight data out of China on the services side not fantastic we're down about 0.4 on the S P 500 let's see if that sticks coming into Wednesday three-day winning streak on the S P 500 yeah today you know the scores but here they are again up around 40 of the NASDAQ 100 this year so far going into the second half with the S P 500 up 16 big moves not just big Tech and let's be clear about that it's some of the more focused players on travel you talked about the airlines Target let's talk about Carnival Royal Caribbean Norwegian those names flying the home builders on the S P those names flying quickly while you were gone I did a banner of 24 months SPX up three percent Dow up three percent NASDAQ up I think six percent whatever but we're looking at a six-month track record instead of a 24-month track record which is down town we went and we just barely made it back we even made record high shut on a lot of this what happened to the banking crisis look at the front end of the yield curve two is 10 30s and then we can compare it to a year and a ten year two year ten year that's spread right now negative let's call it 105 base yeah it was 110. the two year 489 came pretty close to five percent basically going into the banking malaise we were north of five percent on a two-year deal yeah came all the way back down and Tom we've come all the way back up and we're talking about more rate hikes from the Federal Reserve I don't know which island I pronounced that wrong I'm really worried after that New York Times article which I'm sure that you've read that it's going to get spoiled yeah good morning to BMP Perry about Paris that informed me I was pronouncing issue wrong it's yeah I didn't know that okay which is did you have a TV on the boat in ischia so you could see sintra and the four central banks Shane Foley Washington Reds Seth Carpenter's rap of what did he say Seth was there and he made a really interesting point it was about what they didn't discuss yes Financial broadability yes that's almost Unthinkable compared to where we were a couple of months ago that you would go to sintra Bailey legard Powell dogs they wouldn't be talking about bank failures Jane Foley watched every second of Centro she reports now with rob a bank here and what the dollar will do off of the Central Bank confusion Jane Foley that we saw what is your gross dollar call out 12 months well you know in terms of the pattern of the dollar we had anticipated that it was sort of peak around about now but as we go into the end of the year that we could see some moderate softness because the market will be anticipating that the FED would be cutting interest rates into 2024 but you know a large part of where the dollar will actually lie depends very much on this debate really this friction between the resilience of the economy and the perceptions that really that we could be going into recession I mean the yoga has been averted now for a year so um the first half of the year I think was dominated by resilience to what extent is there's sort of the recession going to get the upper hand or the recession scenario is going to get the upper hand in the second half of the year because if they do you know that would chase money out of risky assets and support the dollar so we don't see the dollar um selling off heavily in the second half of the year because if we do get recessionary conditions that will support it as a safe haven even though the market begins to anticipate that the FED will be cutting rates in 2024. Jane the heritage of Rabobank is a great hedging institution it's flows of money so like you take Germany flat on its back with a manufacturing slowdown or all the challenges with China as secretary Yellen visits what do flows look like over the next six months and how do they change a gross dollar call comfortable well you know I I think in terms of actual trade flows um you know I think that's already pretty evident in terms of manufacturing particularly there's definitely slower there we can see the German export numbers uh slower and that of course is reflecting to some degree that the slower growth in in China we can see this through a number of Commodities too we can see this through shipping prices for instance a lot of those supply side constraints that drove inflation um in in the early parts of the pandemic and the latter parts of the pandemic even you know have more or less been repaired so there is a evidence that flows have altered but with respect to you know the dollar the dollar remains you know on 80 percent of um on one side of 80 of all trades a dollar remains at that dominant currency is so even though the flows may have slowed the Dom the dollar is still very dominant and and you know in terms of um fears of recession that is something which will support the outlook for the dollar let's do currency winners Sterling I went on the beautiful wcrs function on the Bloomberg terminal broke it down year today terminal on the boat had a look yesterday evening beautiful thing Sterling the big winner of 2023 and G10 the dominant player now Jane when I look at yields in the UK and let's break this down together at the moment the two-year is at about 5 29. back in September when everyone wanted to see Liz truss out the door at number 10 Downing Street we were pushing 470 something on a two-year Sterling was down at 103.50 Sterling right now is at something like 127. Jane why have we got Sterling strength now and tons of Sterling weakness back then so you know I think that raises a couple of really interesting points you know the first thing is that when we first started to get Sterling strength this year it was around about marchesh maybe late February and that's when we began to see some better than expected economic data and then we sort of quickly went into the spring and realized that the bank of England's forecast of late last year of a five set five quarter recession wasn't going to happen you know that the economic growth was going to be better so hence you get this repricing of Sterling now that has continued into early June as the market priced in even more interest rate hikes from the bank of England because of the stickiness of UK inflation but I think there is a but even though UK fundamentals have improved significantly in terms of growth relative to where we thought they were at the end of last year it's still not a great lineup you've still got you know too much inflation you've still got pretty weak growth so you've got stagflation you've got a high debted government you've still got a current account deficit although it has shrunk you've still got you know low productivity growth low investment growth all of these things which ultimately mean that I think there's a point at which investors will say look Okay so we've now got long Euro long Sterling positions but we don't really want to extend them much more because their fundamentals just aren't good enough and we've got to bear in mind that what Sterling is the best performing currency G10 currency in the year to date it's still well below its long-term averages against both the dollar and the Euro Janu said we get to that point where people feel maybe it's gone too far it's 127 that point you know I think we may be at that point already if you look just for instance at the cftc data they jumped up you know the early part of June at the last set of data they don't jump up a bit further but not so much so but these these positions speculators positions in in Sterling are at multi-year highs you know and and can we honestly answer the US answer the question that that's Justified given the UK fundamentals you know that's you know that's really debatable so I think we might already be at the point where Sterling finds it pretty difficult to push much further I looked in at where we are and still on the hedging around the broader macro you're still going to make money where's the opportunistic trade right now we're going to make three four big figures on a given pair you know what I think what you've got to look at today is uh for the next of the year is probably some choppy ranges you know I think a lot of people come on wondering if it's gonna you know I I think this is the the reality of what we got because you know ultimately if we look at the debates that are going on in terms of the the Outlook it's really highly polarized you've got people thinking well look you know we've had all this resilience stock markets did well in the first half of the year maybe we'll have more on that and on the other hand you've got you know but many economists say no no yeah I get there but come on give me your parents it's Wednesday it'll work I think I think we can wait till the end of the year wait a little bit further and then I think the Aussie will be you know a pretty good play but probably not yet um Australian fundamentals are better than most of their peers but but right now the market is so focused on the interest rate debate and now it's like well they're going to pause so nobody's going to go in and heavily buy a currency when when the market is speculating that the central banks are going to pause but I think later in the year I think that those some of those fundamentals will begin to shine through I think the Aussie probably late in the end until next year could be a good one but right now you know I think the Market's just trying to get its head around this polarized debate and I think that just means pretty pretty range trading range trading may be but I don't think we're going to have too much in terms of huge directional plays for the for the short term changes finally I know this is a big topic of debate over in the UK it is actually in Australia as well what do these housing markets blow up from interest rates this high again you know if you'd ask many economists six months ago they'd probably said that should have already happened and it hasn't again we've proved to have a lot more resilience there's a lot more demand certainly in some countries the UK there's a lot of technicalities behind that for instance a lot of um landlords selling because of Regulation because they can't afford their mortgages for instance and and you know that's a factor too there's demographics which mean that there's a generally a lot of demand there's a lot of people living longer there's a lot of people living in more single person units then perhaps there would have been 20 years ago this is all for pushing into it but but right now you know I think we will have a Slowdown in in the property Market in in the UK but perhaps not as drastic as as many people would have anticipated given the scale of the interest rate hikes that we've seen yeah certainly not where we were expected to be a year or so ago not in the property Market this number this data comes from UBS great right up from the team over in the UK here at Bloomberg on what's happening with the UK property Market at the moment they started on 1.4 million in the UK due to remortgage this year sounds like a lot but it represents only a fifth of all households with a mortgage and five percent of the total number of households so Tom they're the numbers for this year there may be the bite point the pain point is further out yeah I'll go with further out but what it is is dramatically different than the United States and to conflate the analysis which I'm seeing way too much of I think his problem I think it's really a problem in the United States Tom yeah but it stays there's nothing for sale I mean everywhere I look in geography there's basically nothing for someone who speaks to why home builders are up so much yeah yeah I did see a couple units in the 60s and the 70s well they're near Ms so they're expensive but you know it's deep into that new store I've been to the new store I got a tour I haven't called me up it looks beautiful it looks beautiful Andrew is Keeper of the bow ties it's really something and they're replicating it the Dumont families replicating it worldwide as well sort of like what Louis Vuitton's doing with Tiffany's you should do the Stephanie's store I haven't done that yet I I heard a number which I don't remember on the amount of money they put into it it's outrageous you know Jillian Schnabel paintings and they got Audrey heppard and stuff and and that we we've got a video in here folks finally it's out of the photo lab we wanted to give this to you two three weeks ago when John was deep into his trip Pharaoh you know it's it's this is a a Viva Riva Aqua Mara I think it's called for Rama Aquarama thank you have you been on one of these what is it I wish they're beautiful bites you know who's been on one of these Scott Johnson really guy Johnson guy Johnson today uh it looks like it's a Manus thing with the company a number of years ago TK you use one of those boats really to go on to say a like or something like that like Como yeah you were more on you well this is like you know Sophia Loren when you're in the Open Seas I don't think the river gets it done quite as much plus I want a bit of shadow in fact that might be have you got any video of guy guy Johnson I don't know in the archives yeah so so seriously these gorgeous boats at five hundred thousand dollars each and UPS Lake votes not so there I am conquer the Marine beautiful looking at these three Yachts next to each other TK and I've always got a line about these boats it doesn't matter how big you think you are there's always someone with a bigger boat do you know Paul's up Jerry Jones synthesize that thing that bow TK is a monster it's an absolute monster you want to come up next time I'm trying to get an Uber past you know Lennox Hospital can I get an Uber please what I mean a four minute wait people sometimes ask why then you had to do as Saudi Arabia the voluntary cut and my answer is very simple we had to do it because there was another ask for the market a more immediate ask or a more immediate expectations of the of the market that the upper class would need to do so that was the Crown Prince abdulates bin Salman the Saudi energy Minister speaking at the OPEC seminar in Vienna live from New York City this morning give money to you here's your Equity Market S P 500 futures on the S P just a bit softer and negative here as we kick our face shortened trading week for those of you that took Monday off and took yesterday took Monday off yeah some of us didn't I know yeah just to be clear just to be clear I went I knew this would come up today oh you did so I went through the internal records you have had 10 days off this year I've had 10 days off this year okay 10 10. yeah you used to strategically put them around vacations where national holidays where it's like it's like a British strategic that's what you should do why didn't you go to teachers conferences you know you should do the same thing let me complete the market check outside of what's happening with equity is just not the same in the bond market you're coming back just a touch going into payrolls on Friday still looking for a number in at around 200 000 to set us up potentially for the FED to hike again in July remember between the June meeting and the July meeting only one CPI report only one payrolls report that payroll support comes on Friday Tom that CPI report comes next week your 10-year at the moment about 384 383 70. if get out of the chart and look at oil you will go back and notice a log rate of change called 1986. it was the fear it is a skeleton in the closet for OPEC OPEC plus OPEC plus plus and also Madness cranny he joins us now on his latest junket to Vienna we are jealous as well star of Bloomberg television Dubai Manus good morning how much is 1986 haunting the discussion for the royal family of Saudi Arabia with their haunted Tom by the way 1986 brilliant year I went to Queen's University it was the start of a whole new world more than later yeah they are they are haunt they are haunted by that in their Tom because is Royal harness princess Ben Salman has a major political mission to deliver which is a break even on oil which keeps his brother in an accelerated form of economic transformation keeping destinations like a Lula the Red Sea and neon those dreams those economic dreams alive and I think what's most prescient this morning about what he just said on the podium is that Russia you remember them Tom they're in the plus plus we'll actually do the big plus they're coming on board they're squaring up shouldering their burden they're taking 500 000 of a drop in exports that's what we need to measure not the promise drop in production and this is an interesting political geopolitical ramp up from four weeks ago when I was here all's done nothing 74 bucks and change but the political narrative has changed between Riyadh and Moscow okay it's Championship but I just I I want to understand around all of the politics and frankly folks Madness is wicked wicked expert on this is is Riyadh driving the OPEC bus right now I'm nervous none yes in a word yes uh but they've always been driving the OPEC bus stop I mean there's nothing new in that I mean they are the Central Bank of oil and I think when the oil Market looks at this and they go 74 bucks oh and the Russians are on board now that's three percent of Global Supply off the table there's a wonderful phras I used this morning you cannot put lipstick on a pink Tom we have a global manufacturing recession from China to Europe to the United Kingdom the United States of America you cannot dress that up okay the thing I really want to know about the Madison this goes back to the brilliant work years ago of Adam simensky and Paul Sankey at Deutsche Bank you got to keep track of where the supply is for a guy like you for for Will Kennedy in Bloomberg hydrocarbons do we know what Global Supply is or is it an unknown it's 80 percent known and 20 is your variable but that's a high Unknown Known if you know what I mean and I'm talking about Iran at a four-year high in terms of production the Emirates met with the Iranians at the Kapinski before they came over here mazrui who's the UAE at the UAE uh Minister basically saying we're not joining in on the voluntary Cuts so there's a lot of dark pools of oil around the world from various producers you're bang on the money those are you know you know Donald Rumsfeld you probably interviewed them but those are the known unknowns which will always weigh on this Market quite incredibly in terms of dark Supply and dark fleets Tom John is Lisa there and she got a day off there's a lot of days off the only one day bananas the the unreliant to be here is me because I'm the one with no life continue John A man is just a final question from me don't start talking Italian just you know I'm not going to do that okay but he can do it with you I can't take us inside the meeting Menace because I have to say from my perspective the cartel is sounding more and more irritable and when I irritated and when when I hear about your coverage Menace and your ability to actually get in there being curtailed over the last couple of months man can you tell us just what's going on yeah look we are this is a very empty press poo let me just stand aside for one second okay there's me I'm here I'm standing outside the Bloomberg print team I'll be able to break news and read headlines despite that people do talk to us on the way in and in the hallways and in the bars of Kapinski the bottom line is they are worried they are incredibly worried Missouri talked about the generosity of societies in terms of the delivery 1 million barrels a day in terms of a cut but the emiratis are not getting on board without at the moment and the bottom line is you know mazruly and the UAE got an extra 200 000 barrels of a quota Jonathan I can't use off of the back of other other nations but they saw a window to jump through and get extra quarter for themselves and they took it there is a disquiet that we have not made better head roads from a near three percent drop in Supply from where we were a month ago but I am a Lone Ranger I'm out here it's 28 degrees I Will Survive manuscript thank you sir Manus we appreciate it over in Vienna for the OPEC it was longer than the meeting was last time I think so how long was the meeting and it's it's like it's like in and out I thought we're going to get manuscript on 1986 then well we were we talk about that in a moment but seriously folks they have this paranoia never forget 1986 where the price dropped like cratered where they lost control and that's something no one's looking for here that OPEC actually loses what you make about certain journalists being looked at the room and somebody just manage this point these these organizations that have been pushed out of the road we're still breaking news doing a fantastic job but what'd you make of that well I think I'm not going to speak for John micklethwait or editor-in-chief but I think Mr mickelthwait and the rest of Bloomberg is all over this with other news organizations just saying look this is the way we do this it's a it's an Institutional meeting and we need access it's kind of odd right oh huge it's a bit strange they're trying to on the rule book as well what I remember about 1986 and what Liverpool did to the tots that year was terrible was four to one Ian Rush was awesome but you know liver that was right that was the beginning of the Liverpool magic that was the beginning of the yeah the dynasty of Sylvia balasgani and I see Milan yeah the mid-1980s I had a Plymouth Barracuda used you could see through the floor you could watch the road go by you could see through the floor it was great you know nice coming up shortly oh David Global Market's trying to test over JPMorgan Asset Management he's going to be with us around the table in about six minutes time looking forward to that conversation TK tons to talk about with him this starts at a year unexpected by so many people if you go back to December where all the year ahead outlooks started to drop and people talked about a tough first half and maybe a better second half and then the first half started just phenomenal gains inequity out of the panda and this is Central out of the pandemic there's no theoretical structure and I didn't hear a call coalesced monetary Theory Etc they're all flying massively exposed massively by the seat of their pants and it makes Jackson Hole that much more interesting and the latest data suggesting they should do more Jackson Hole I agree with you will be interesting we'll talk about Jim Bianco here in the next hour his call is stunning which he gave us on Monday when you were away where the chairman Powell can actually set up a pause in late August it's um I think people thought that was going to take place a couple of months ago and yeah that's not where we are now once Brian will come back next week Monday Monday it's a British thing you're very sensitive about time is it a British thing is it really is it really just a British thing I think it is in America slowly coming on board with this idea maybe time off that's a good thing I said to them they said no you got to lecture the interns so I'm you know given that's why your hands matches it's the high point of the year for them the interns are like you know like 80 of them have air conditioning we're worried about the other two this is the longest hour of my the last 30 days for me oh I think you know we've got another two good this show Works have a have a what do you call them the little pink Drink fizzy drink Italian he Spritz which spreads it feels like they're sort of locked in for this July hike if the inflation rate bottoms at three and starts drifting higher the fed's going to find this unacceptable disinflation without a downsiding growth without an upside in unemployment is the Goldilocks soft Landing narrative expecting a soft Landing but that may be harder than others are thinking we might see a recession that might be mild this is Bloomberg surveillance with Tom Keane Jonathan Farrow and Lisa abramowitz live from New York City this morning good morning good morning for our audience worldwide this is Bloomberg surveillance on TV and radio alongside Tom Keane I'm Jonathan Farrow your Equity Market on the S P 500 a little softer negative on the S P going into payrolls on Friday some fed minutes a little bit later on this afternoon at TK before we get there we need to talk about the data out of China manufacturing worldwide not great right now we all know that Services data around the Chinatown disappointing another disappointing set out of China and of course the backdrop of this is the Secretary of Treasury will visit uh Beijing and talk about that economic slowdown and what it means for the chinese-american dialogue but far more importantly is this wicked holiday shortened work week and it starts today Wednesday and where we are in 72 hours I have no clue it's not just about a jobs analysis a lot of economic data and how the market reacts well we can talk about where we've been and some a lot of people have been talking about we're trying to imagine around the table with their family yesterday on July 4th we can talk about my Island Tour a little bit later thank you the games here today TK the amount of people that would have missed out on a 40 move in the NASDAQ 100 a 16 move on the S P 500 a 40 plus move on home builders in America on the S P what's that about what a run this is a huge deal and we're going to address it in two minutes here with someone really qualified David Leibowitz of JP Morgan but John I agree the reset of June 30 make it July 4 is truly like it's never been in in all the time I've been doing it and the reset in the bond market again banking crisis who do you call up and fire today if you're behind I mean it's so sort of you suggested that's what people should say no I'm not suggesting that but somebody at the Fourth of July picnic is like on the phone Wednesday saying we missed it what do we do missed it it's like a real question because cash gives you something like five percent with Katie gray thought it was ridiculous I had to do Bitcoin every 48 minutes and Doge what did she say about it she was I think she was just being responsible for me I think she's you know well that's good that's good to hear she's being all crypto but this is not about making you know quick thinking crypto this is somebody whose retirement plan off the pandemic is actually behind by 150 basis points and they just had the catch up but they didn't participate because they didn't know I'm just slim and a milk and Stanley talked about this repeatedly over the last couple of months he's been great on it yeah you sit there at five percent in cash it feels good it feels good it feels good then all of a sudden it doesn't feel good anymore I totally agree and we're kind of at that point right we're at that point and the other thing identified John which was a big topic while you're away was we came off the October low what I'm calling the acumpor yardeni low how do you form a second leg of a bull market I think that's the other thing some people still calling this a bear Market yes clear about that so you can't grow up without that Equity markets right now Futures negative 0.4 a bit softer worldwide as we start to get into the final straight of the week going towards payrolls and they fed minutes a little bit later most people expect in a July hike what would it take to take that hike away from this fellow Reserve look to payrolls and incentive and the team over at Morgan Stanley reckoned something south of 100K on payrolls something around 0.2 percent month on month in CPI might be enough to say to the Federal Reserve don't do it but for a lot of people TK they think that bar is pretty high that this Federal Reserve is going to hike and someone like Ellen recalibrated I'm going to say six seven eight days ago and went to a July uh lift here I'd say most people on the left but what's fabulous and McKee mentioned this while you're away the wirp function's been adjusted with a beautiful chart that shows we're still modeling red cuts really so yeah right now 490 with us around the table David liebovitz Global markets trying to just a JP Morgan Asset Management David wonderful to catch up with you sir post July 4th and I hope you had a wonderful holiday let's start there you missed it what do you do now so I I think what's interesting is that we we all missed it you know people came into this year with a view that okay maybe you get a little bit of a bounce because 2022 was so bad but certainly not 15 on the s p in in the first half of the year and so I I think what you do is is you actually don't do all that much because what we don't want people to do is begin chasing this rally you know we do see some storm clouds on the horizon we do think that the risk of recession has risen I do think that the FED is going to continue hiking rates yes we've had a very good run in Risk assets but but I wouldn't chase this rally too much I would stick to your plan stick to your asset allocation rather than moving things around one way or the other I'll get that but you have to identify a second leg of a bull market as JP Morgan allowed with all your economic work hasn't ferroli to say we have the underpinning of what can be a legitimate broadening out bull market so I guess there there are two things that give me pause about that that possibility of broadening out from a bull market perspective the first is that the majority the entirety effectively of the rally that we've seen year to date has been driven by multiple expansion right so earnings sort of hasn't really participated and so what we need to see in order to remain constructive on risk assets here is evidence that you know the the potential downside on earnings is potentially not as bad as what a lot of people would expect if we do hit a slower patch in the economy potentially a recession I think you're looking at earnings estimates which are signaling that profits will continue to rise and to me that's a tough pill to swallow in the real world of sitting around when you know we celebrate that the colonies won and we're sitting around and we're having mustard not catch up on our hot dogs and there's one guy there livid in a given institution let's pick on JP Morgan and saying okay what's the plan to catch up what's the JP Morgan plan to catch up if I was above average but nothing like what Nvidia did so I I think the the best thing that people can do today is try to preserve their optionality and we would encourage two ways first would be by not forgetting about fixed income right you know we talked about how sitting in cash feels comfortable and obviously you're getting paid from the bond market once again we still think that that optionality maintaining a relatively short duration could work in your favor because if you get a big pullback in equities you're going to be able to deploy that capital and and try to catch up to to your question the other thing is we would maintain that shorter duration on the equity side as well focus on the dividend payers focus on the high cash flow companies again there's a lot of excitement and a lot of enthusiasm about things like artificial intelligence and I do think that it'll boost productivity over the longer term but I'm not sure it's going to boost productivity tomorrow and I'm not sure it means that we're going to avoid some sort of soft patch in the economy over the course of the next 12 months so this all feels very sentiment driven that's why we're so focused on profits and the optionality that those cash flows can provide Nvidia is making money matters making money what is Tech fit into that just to build on that a little bit more no and we talked about this a couple of months ago what was really interesting about watching Tech into the end of 2022 in the beginning of this year is that they've been taking their medicine right they've been laying people off they've been sending that margin they don't necessarily have the type of pricing power that you're seeing from say the airlines in the current environment and so you're actually seeing Tech margins hang in there and I think that that does limit the downside to the market if we do hit a slow patch or a recession in the economy but you know my general take is that even if inflation is still above the fed's Target and real growth is slowing tough to see how earnings in aggregate continue to expand it just goes for the top 10 on the S P 500 yet today and video we all know that nine meta then you've got these Cruise operators carnival up by 135 percent Royal Caribbean Up 109 yet today Norwegian up 79 there's a home builder in there up by close to 70 what's all that about so I think that this this is the big question and I think this is part of why so many people have gotten the the market wrong this year it feels like we're seeing these rolling recessions in the economy where first it was the cyclical Parts the rate sensitive parts like housing obviously you had Services shut down during the panda endemic and things have continued to bounce there quite nicely the the path to a soft Landing here is that everything fails to roll over at the same time and we just see these little kind of mini explosions and mini soft patches which isn't completely unfeasible but I think what you're seeing in terms of the top performers outside of the tech names Services people are still out there spending money they're still going on vacation I was in Orlando the other week the airport was full you look at home builders right when it comes to mortgage rates it's the big move that puts things on ice now people look at the numbers and they say well the house is more expensive rates are more expensive but I don't think that they're necessarily going to continue to rise and so you're beginning to see that stabilization in those parts of the economy and I think that that's why people continue to gravitate to the soft Landing thesis although it seems like a bit of a story so I think that bonds for us the shorter end of the curve continues to look most attractive you're not getting paid to go all the way out I think selectively adding duration when you get a 10-year that edges up towards four percent makes a lot of sense because over 12 months right if rates end up falling that's going to work if the Zeitgeist this weekend John while you're away was simple people are stunned at how retail and particularly older retail is all in stocks the lessons we learned CFA kind of chit chat it's been thrown out the window by a public just buying and buying and buying stocks so let's talk about something that's going to come up a lot you'll hear people on programs like this talking about triple digit inversion two-year ten year negative 105 basis points for a lot of people listening and they've heard this a million times the curves inverted that's dangerous that's bad isn't it what does that mean negative 105. so that's close to as inverted as the curve has right we have to go all the way back to the 80s and you know again you think about history and it doesn't always repeat itself Health but it does tend to rhyme and I think what the yield curve is telling us is is something that you know a lot of people I think know in the back of their minds but but hesitate to really wrap their arms about is that squeezing the last little bit of water out of this inflation sponge is probably going to be more difficult than a lot of people expect and it's arguably going to require a recession and I think that that's what the yield curve is saying it said the FED has recognized that if they want to prioritize controlling prices they're going to need to potentially crash the plane and I think that that's why you're seeing the curve as inverted as it is just to finish on that then David does that imply this fed has to sit at 550 for a longer time than people expect or does that imply that this fed needs to go higher than 550 and maybe even closer to six percent so I think that the risk to rates is still to the upside obviously my boss's boss thinks that six percent is uh is potentially in in play um it wouldn't surprise me but I think at a minimum what investors need to be prepared for is the Fed going to somewhere around 550 and then not blinking until the labor market deteriorates in a way that they can no longer ignore it right three point seven percent on unemployment is not going to catch the fed's attention four and a half well it's David's slow news day uh can can you state that Mr Diamond's looking for a six percent level in fed funds rate he came out and said that he came out and said that he said he thought we were going to sex you know that's not news you're trying to get him in trouble I I don't know David writes his annual letter you know it's like a 58-page load was writing that for today they go come on write this thing for us I can find a word on that well I think what's interesting is that it wasn't too long ago that people were highly skeptical that we were going to five right and this is a Fed that has taken the inflation problem personally they've already made one policy error right they started too late I don't think that they're going to make another question we're in the office five days a week five days a week are you gonna get a view of Parker Avenue in Grand and uh uh you know the down at the end of park there Pan Am building or are you going to be looking out over New Jersey in the Hudson River where how do we fit that in right I think time will tell I heard it's uh how good I am at calling the FED it's called determine where my new set is six percent fed leave us got a star office view David thank you it's good to see you guys thank you very much David Levitz there fjp Morgan Asset Management if you want just tuning in welcome to the program the S P 500 this morning negative negative by 0.5 coming up at about 8 30 Eastern time so about an hour and 15 minutes from now Ed heimet of evacore what a wonderful conversation TK there's certain people that you sit alongside that I really look forward to hearing this guy knew coming up in about an hour and 15 minutes Ed Heimer Tom Keane in conversation coming up shortly we're going to talk with Mr Hyman about his car for recession and particularly his call for disinflation Jim Bianco on Monday pushed against that big time Ed is looking for a slow down and the stickiness will Drift Away Bianco is saying down we go to a certain level and then the shock of 23 and into 24 is a stickiness where inflation rates may actually bounce back higher just to build on something that David told us just a moment ago it reminds me of what Sarah House of Wells Fargo said several months ago the last mile inflation fight this is brutal it's going to be tough yeah and and the reset here academically and this wasn't addressed at Centro to my chagrin but the reset here of this academic debate over where the new 1.8 percent is say off of a off of a two percent model is is huge John I'm learning new things every day I had no idea thank God you told me on the break you don't put Prosecco in an app or all Spritz anymore you lose a Prosecco and you use something called pet net which is a it's just a fancy sparkling wine oh nice fishy or whatever it is you lose you know you don't do it this is what you've been learning in the Ugly Americans Ugly Americans drink apparel spritzes that peach nice I think she has a lot of energy and Tom let me go out on a limb and make a Fearless forecast this will be a fairly successful Summit I mean they're not going to cut it's explicit deals on semiconductors that's that's that would be way too uh optimistic but I think they have a very good dialogue they set the table for further talks this fall Jenny Ellen the treasury secretary taking off and heading to Beijing a little bit later on today that was Greg Vanier the chief U.S policy strategist at agf Investments on that trip to China following comments from Xi Jinping the leader of the Chinese Communist Party calling on Nations to reject decoupling and quote severing Supply chains TK this coming after moves from China to contel the export of Qatar the exporter two key metals on top of that the Wall Street Journal the Dow Jones publication Tom reporting that maybe we restrict access to cloud computing as well Stateside team a lot of back and forth just tension simmering as Janet makes a way over there summer is the right word but to me the backdrop here and this is still in the Zeitgeist which surprises me long ago and far away John we were at the IMF and the bombshell there was a five-year 2028 view of I'm going to call it Global lethargy to get away from the hysteria of it and the backdrop to me of this for China is if you model out subpar GDP what do they do with all those all those people you know I don't I don't see it the services data not great overnight manufacturing hasn't been great for a while all this talk about stimulus coming out of China A lot of people are focused on the same thing Tom in social media you see a lot of the young kids graduating and they're doing some lethargy thing I don't it's like a you know it's like what's that it's a tick tock thing what is it I don't know they're protesting that they don't have jobs or something oh right because youth unemployment there's a history there's a shot it's not a tick tock because Tick Tock wasn't invented but maybe an early early Twitter where it's Anne-Marie Horton sleeping on a park bench because she's protesting because she can't get a job that was amh protesting back in the day she's protesting back she'd sleep on a park bench what kind of protest is that it's a protest that the economy sucks so I can't get a job and that's how a lot of Chinese feel okay big time Big Time joining us now Bloomberg protest correspondent surviving the Fourth of July I thought I saw her sitting behind uh Nationals baseball as they played the American sport in Washington and Marie Horton joins us right now and this morning Emory I'm absolutely fascinated if we had a Republican president and the Secretary of Treasury of a Republican president was traveling to Beijing how would it be different than secretary Yellen as a democratic Secretary of Treasury I don't think there's a tremendous amount of daylight between the Democrats and Republicans at this moment when it comes to policies on China remember the Biden Administration kept in place the trump-arid tariffs on Chinese consumer goods and then they've just ramped it up since then whether or not it's export controls or more penalties they're looking at what Jenny Leonard and I reporting by the end of this month potentially that's when you're going to get that executive order and outbound investment The Wall Street Journal is looking at the semiconductors that are needed in the AI industry space as well as potentially companies like Microsoft or Amazon having to go to the government before they can have contracts when it comes to cloud computing in China so you're just going to see a lot more of this whether or not it's Republican or a Democrat when you have the treasury secretary going over um this is just really setting more of these guard rails about how they are going to conduct business and Greg bellier said to you guys earlier he thinks it's actually going to be a productive conversation with Janet Yellen heading over to Beijing today yeah I I look Anne-Marie at the foundational theories we have of the relationship across the Pacific and I'm going to go to the great Catherine man now at the bank of England she codified our dysfunction and our codependency forget about the the Tom Keane world and the John Farrell World your world of politics what is the political codependency that we have with Beijing well it's that and we're going to see it on full display as we go into 2024 it's that China is a very easy target to hit politically from the right and the left which is why many would argue you saw the Biden Administration keep the Trump arid tariffs on consumer products even when inflation was incredibly high they kept those tariffs on because China politically you need to continuously be seen not just talking tough but taking tough actions on it's also why in the House of Representatives um not just the policy work they want to do but the messaging and the socializing they want to do they have a China select committee so this is only going to get in terms of the rhetoric more heated as we head towards November of 2024. MH of course less interested in the rhetoric and much more interested in the action so let's talk about that a little bit more you mentioned it just a little bit China's decision to control the export of two key Metals how is the White House responded to that there was a suggestion in the Wall Street Journal in the last 24 hours that perhaps that you'd get some kind of restrictions around cloud computing what are you hearing well I'm not sure if it's going to be an exact Tit for Tat for these two critical medals but obviously the White House they are going to be tracking this and what China is doing which sounds similar to some of uh the reasoning the United States talked about is saying this is off of National Security concerns but we should really talk about how key these two critical medals are germanium and gallium they are used in energy sector the defense sector think night vision goggle material think uh uh cyber optic Fiber Optic Cables a number of critical uses for these metals and China has the out but um the Outsourcing of this not just the raw materials but the processing of it and it is just incredible how much they dominate this market for one of these Metals it's almost 95 and the U.S for most of these is a net importer so this could potentially be a problem I would say when we saw this happen in 2015 2010 when China started to potentially loosen up uh you know tighten up some of his exports of metals what the U.S did in other countries is they want to take it to the WTO and what they started to do was strategically make sure they were starting to build their own Supply chains for Metals so where you're going to see the U.S want to do is go to places like Canada go to places like Africa make sure that inside the United States they're setting up these processing plants but I'm not sure at the moment we're going to see a Tit for Tat for this or at least they're not going to socialize it as it is a tit for tap for this but the ramping up on the U.S wanting to make sure they're conducting their business with China that is going to continue Xi Jinping is calling on Nations to reject decoupling the Europeans are saying we don't want to decouple we want to de-risk a question I asked last time Marie I'd love your view on this what does that mean what's the distinction between decoupling and de-risking it's a great question we ask a lot of U.S officials this if they can explain it I think for the U.S and Europeans decouple seems more severe we're going completely sever more ties in certain industries with China de-risking has this idea and how they explain it is that we are just looking to continue business some business with China I mean we also need to look at the data here there's massive amounts of business between the United States and China Europe especially Germany and China but we are also at the same time going to make sure we are fortifying Supply chains outside of China around the world and make sure those Supply chains and those business ties are strengthening look at what's happening with India the U.S just had a state dinner for Modi that's where the G20 is going to be held this is going to be a critical player in terms of fortifying Supply chains outside of China and that is what you see businesses and countries continue to do G7 or G20 next year in Italy which one is it Emery oh just want to secure G20 will be in India in September G7 will be in Italy uh the Italians are hosting the G7 in Puglia will be the leader Summit give me a date um I'm not sure the exact days off the top of my head but okay not just because it remembers no uh it's not far what you would need to do is take the train from Bari to Naples ferry from Naples to istia I'm trying to get the train to Lexington 59th and she's like Barry you've got the Adriatic Coast poolia then you've got Campania on the other side which is where Napoli is and then you get the boat over as amh suggested Emery thank you we're going to go to that I think Summit can we go on one of those Wooden Boats gotta make that happen you want to go on a river boats yeah okay I've never been to try and fix that up you know try and fix that out of my Speedo I'll take you back to the childhood Roots Tom in the south of Italy would you like that gone a little bit I like that seriously yeah it'd be nice the romance of it all Future's negative this is Bloomberg [Music] Georgia Maloney writes in mid-june 2024 I think we could all make that happen can't we what a beautiful location for that to take place well it is 12 months from now if you're wondering seriously you wonder where Southern uh Europe will be but the success of Greece and all with Francine lacrosse conversation with the Prime Minister great conversation of Greece and Italy in turmoil is how our voted politically after the death of burlesconi and all you wonder where will they be France in turmoil yeah I mean and where will the whole set of European continent uh people be in a year I don't know we've got a major issue we have to stop the show on equities bonds currencies what's that Commodities I didn't know this besides I'm mispronouncing it stop mentioning ishia it's like an island and it's like what's it like Martha's Vineyard no it's beautiful not that Martha's Vineyard isn't but it's absolutely beautiful it is less busy than I would say Capri it's bigger too it's really really big Escape you'd be surprised oh really it's like a big island it's a big island it's big island it has projected nearby fish you can have fish in the afternoon yeah yeah that's not my breakfast choice in the morning sir there is a beach there are some beaches we're stop met stop mentioning it's on because we don't want it to get busy we like that it's quiet okay there's more romance there than maybe the uh the champagne popping of Capri and all the money and all the glitz and all the glasses spritzers and they serve spritzes okay we should probably move on I'm sure our producers are very frustrated with this country they shouldn't be it's a magical moment we're just it's like let's go to stocks there we go beautiful perfect timing you know let's go through some boards the s p i missed you I really did please 0.5 on the S P 500 bits after three day winning streak on the S P coming into Wednesday on the NASDAQ we're down about 0.6 as well so amount of performance on a sort of small caps down by three quarters of one percent you know where the performance has been though year today just the wow performance of the NASDAQ 100 just Monster moves up something like 39 year today on the S P up 16 the two-year almost reclaiming five percent and not really making a dent in the equity Market 491 on a two-year this morning he ought to come back a couple of basis points the curve steepens just a little bit but Tom look at this curve two-year 10-year negative 104 or yeah call it negative 105 basis points unreal okay I just noticed this off the launch pad where we look at equities bonds currencies Commodities quietly the Bloomberg Financial conditions index has moved out ever more accommodative that's not what chairman Paul wants and he's leaning into the idea that the majority of the committee want to hike again two more stops for that debate the payrolls report on Friday and CPI next week just to check in on the FX Market just briefly the Euro against the dollar just south of 109 this morning and change to 108 79 TK in the FX Market just a bit of a churn no big moves here on the Euro against the dollar today in your Equity belief we're going to bring it over to the fixed income space Thomas thesaurus Jones has now had a fixed income research at stratigus it is a beard company you have the huge Advantage time of working with one Jay trennert who does beautiful quality stock free cash flow persistency of profit analysis did it without a Hyman will join us here later you you guys on The High Ground on the linkage of equity analysis into your bond analysis what is your bond analysis say about a second leg of a bull market uh highly unlikely and with that said we recognize that the equity Market seems to disagree with that hypothesis but when we look at that inverted yield curve what we see is a market an economy which has already is already facing excessive tightening from the Federal Reserve that is the Federal Reserve has already tightened to the point where Main Street is feeling the pinch but when you see as you mentioned earlier Financial conditions easing what you also see is a financial Market where the FED has not tightened enough on Wall Street so one of the ways we phrase this is when you use the FED funds rate to tighten you put most of the pain on Main Street when you use the balance sheet to tighten you put most of the pain on Wall Street the FED has not tightened enough on Wall Street by using the balance sheet to reduce liquidity in the financial system they've already tightened excessively on Main Street so a recession still seems inevitable to us in the second half of the Year and that has got to impact earnings on the equity side as a thermometer I'm going to look at the inflation adjusted 10-year yield there's other metrics as well that are sophisticated Lexus Source uses but I'm going to look at the 10-year real yield at 1.58 percent maybe it was 1.62 getting a little lofty do you anticipate that that will break out to a higher real yield and what level is normal of a higher real yield well a normal might be keep in mind we only have about 25 years of actual data unreal years yesterday back to the tips Market of 97.98 normal might be a 150 basis points so we're roughly at what you might expect to be a normal interesting on 10-year treasury now with that said we do not necessarily expect 10-year real yields to rise much from here because we expect inflation expectations or inflation itself is getting close to bottoming this cycle we think it's going to be very difficult for the FED to get inflation low three percent and we've already gotten expectations below three and the headline there John is on the edge of Bianco I mean this is the second time in 48 hours I almost thought you misspoke you think inflation expectations are bottoming for this cycle yes and and that's because we buy into the hypothesis that inflation is going to remain sticky and that the FED does not have the stomach to do what it takes to permanently bring this structural inflation back to a neutral by that we mean do excessive damage to the labor market bring aggregate demand well below potential that's what's required and that's a pretty deep recession we don't think the FED has the appetite to do that you don't buy into the volca risk delivery of chairman pound in late August last year no I don't um if they were serious about bringing inflation in line with long-run targets they would have reduced the balance sheet at probably three times the pace they're going out so just to be clear on the planet sheet cool you think they should be more aggressive with QT you don't think they will be oh absolutely exactly both to the yes to both of those uh we think they should have been more aggressive but we think they will not be I I'm fascinated by this Jim Bianco out in Chicago and you guys have a call of a dis disinflation we're going to disinflate come down and then at three percent what do we do reverse and go up how much what's that model show well right now we're expecting a bottom around three percent we'll call it year-over-year a headline CPI on a quarter of a quarter basis we might see inflation dip below three percent fairly easily but you start to see around three percent the FED gets weak knees you start to see that the labor market is getting to a point where to bring inflation down much lower you got to do a substantial amount of damage because all of a sudden businesses are no longer hoarding staff they're laying off staff they do need and that's demand destruction and that's a bigger recession ahead of 2024 that the FED probably but again just bring it over to Jason trenet's work if I have a sustained three percent which is your minimum call maybe actually higher that gives me a nominal GDP that's extraordinary does that that support well-run companies in America well that supports companies that have low borrowing costs that supports companies that have bargaining power or pricing power in their industry and strong management and have basically uh barriers to entry as well it doesn't support companies that describes John Ford stocks out of 500 and we'll look at the Russell uh 2000 45 of the companies in the Russell 2000 don't fit that they're the exact opposite these are because if you're expecting inflation expectations to bottom out what is that leaf fixed income for people sitting in the 10-year right now taking on a bit more duration what are you telling them well right now let's say 10-year treasury at 385 that actually looks attractive to us in a environment where the US economy goes into recession real yields come down inflation expectations really don't move much they might even go up you still have downside and 10-year treasury yield up down to maybe a three percent to three and a quarter percent but let's put that in perspective the average recession sees a 10-year Treasury dropped 225 to 250 basis points that's probably not going to happen this cycle at most we're looking at that 10-year going from 4 30 where it peaked last year maybe down to a 320 to 3 percent this is really important stuff what we're discussing here is ultimately how the bond market is going to behave and what you've described and I'll put a name on it in a stockflationary world yep is that correct yes exactly and and now again we're looking at positive Total return in a 10-year treasury we'll call it a seven percent Total return upside when yields drop and if you're levered three times like many funds are that's a 20 return that offsets maybe a 25 to 30 percent loss on the equity side but the thing is you're not looking at a 50 return in treasuries you're looking at a six percent seven percent levered up to twenty percent amazing some just amazing I I I I really can't say enough you know we're making jokes about it folks we're into the summer we're getting lazy and sloppy like everybody else it's an incredibly holiday shortened week we're compressing three days John of serious economic analysis and I got two competent shops Bianco and strategus saying the same thing that we're going to dis I'm making this word up dis disinflate well that's all brand new that phrase just this idea that inflation expectations are bottoming out for the cycle that is not what this Federal Reserve Tom wants to hear at all at all no so 25 in July is what most people anticipate some people say maybe another 25 the committee suggesting that might be the direction of travel and then you think they're done as well I think so and let's keep this in mind the higher they go with the FED funds rate the more likely they are to reach their target of two percent inflation but we just don't think that they have the stomach to keep doing this there's going to be demand destruction and you got to also look at the second half of the year the two stories in the second half of the Year obviously recession risk is one of them the other one is you're looking at massive liquidity drain from the treasury raising cash and adding back to its treasury general account and you're looking at the FED continuing to reduce its balance sheet albeit at a very slow pace so if the FED were to go to let's say a six percent fed funds rate of course the chances of them bringing inflation down are much higher but I don't see them doing that because there's already liquidity drag or liquidity drain coming in the second half well you're calling recession anyway yep and a recession that comes without right cuts for now yes because I do think where the FED will be sticky and keep in mind I don't think the FED is going to go to six percent fed funds rate but I do think they're going to hold the funds rate at whatever they terminate five and a quarter five and a half whatever it is they're gonna hold it there for as long as possible and then they're going to cut so that means now we're looking at those first Cuts probably coming in February of next year the what would you describe so stagflation a fed that's not willing to crush inflation hopefully might start cutting next year sounds pretty dreadful for risk assets doesn't it recession as well all these calls that you've got it absolutely does and I think the Silver Lining here is that eventually they do cut and because you're looking at an economy that is still relatively balanced for the most part this point you're not looking at extreme excesses in housing in energy investment your recession is shallow and there should be more of a v-shaped bounce off of it once we reach that trough well how did you get the V if it's shallow just to build on that just finally because you do get a Fed that does eventually cut aggressively in 2024 or 2025 and this is one of those conversations that later on today I'm going to replay and listen back to this was great tomtasaurus there a strategist Tom with some I would say some big coals on several fronts there a monetary policy on the economic backdrop all of the above I mean this is something new for the end of June and into July this disinflation is a huge deal if that's an outcome no one's modeling that in I mean I don't think no one Tom good to see you thanks for this from New York if you are just tuning in to the program welcome to the program the S P 500 right now Equity Futures negative 0.44 coming up in about let's call it 48 minutes time sitting down with Ed Hyman of evercore ASI Tom Keane to build on this debate Tom weigh in on this well it's gonna be great to see because Ed heyman's going to give us a talk about disinflation and the idea what the FED will do here and I think it dovetails into nicely what Tom said as well so we're gonna have a lengthy conversation with at home and I believe Michael McKee will join it's all we're going to really you know Grill him on where we are because he's done so well with the tendency here and of course the inbred Hyman optimism on America John I'm doing the the response thank you so much for the response Folks by Twitter and email what say to the Italian islands of of Jennifer did you did you visit the castle in yeah they have a castle they don't have when I was a kid Cleopatra was this huge movie I wasn't allowed to see it and it was Liz Taylor and Richard Burton that's where they found it lots of movies and have you ever watched steel Postino great movie maybe I'm a long time ago that's on the net the island nearby I should take a visit and they also of course talk about you know how it falls into your jet setting life and it's it's ischia in The Talented Mr Pharaoh I mean you're very bitter for that when you're taking vacation you should dabble Tom you should dabble in a bit how do you get to this how do you get the issue what's your flight aware it's anapoly into Naples Naples and they can get a ferry from there tots want somebody from Napoli I don't know who do they want I can't pronounce it I don't know well it's good to see that you're up to Spain on some of the challenges he wants this guy in Napoli except it's Naples that's that's the latest information on Tottenham September 23. okay we'll try and make that all right we'll go [Music] billions of people depend on our commodity oil for daily life this is an inescape of reality that warrants respect that is why OPEC pursues Market stability of course as an industry we want to ensure that we have an emissions-free future I'd love to know what that means and hopefully he can explain that one day the OPEC Secretary General speaking at the OPEC seminar in Viano can you make sense of that Tom there's an industry we want to ensure that we have an emissions free it's a cartel future only in the old business not that I have a problem with the old business you know that's enough for me to make any suggestion that I would have a problem with your business but to come out and say those things and what does that mean that we want an emissions-free future so they don't want us to use oil anymore we can pause here we've got a lot to talk about but but I I must admit in the first half of the year did we see a climate change debate adjustment Amendment or persistence I should say on ESG and the rest of it as well I don't think from financial institutions as well yeah the politics get him really interesting these are things we can talk about sadio as you know in focus at the OPEC seminar it's their football league making headlines at the moment too signing the lights that Karim Benzema Cristiano Ronaldo all in the last 12 months or so Bloomberg's David Hillier writing the following the Saudi pro league is discussing the option of new broadcast deals Partnerships with private Equity companies to grow the competition's appeal as the kingdom Tom Works to become a Powerhouse in a world of professional sport it's all according to people familiar with the strategy TK it's not just football it's golf as well that's been in the news over the last few weeks it's it's a lot of things it's a lot of things flashing your money as well what we're going to do this is really a special treat here I was hugely influenced years ago in Reading I'll say five books on the Kingdom of Saudi Arabia and all the romance back to 75 millimeter Lawrence of Arabia a million years ago of this experiment that is a Saudi family Alan Wald is definitive on this we usually talk to her about the major Revenue maker which is oil maybe a ramco at formula one but today we digress and with Ellen Wald we speak of this royal family and what they're doing to Global Sports Ellen are you surprised that the Saudis want to acquire entertainment prestige no I'm not uh I think that this really goes along very well with their uh kind of General search for Global Prestige especially uh in terms of the West and you know they're not really getting it from oil anymore um yes they still are providing this incredibly vital resources as you just mentioned to the world but um it doesn't necessarily come with prestige in fact it comes with a bit of uh the the opposite given uh how prominent the climate issues are today and how prominent they are in discussion uh you even saw the OPEC Secretary General making reference to the fact that of course we want an admissions-free future well really aren't you guys a bunch of oil producers so um so I think that they are searching for other avenues to acquire Prestige and that generally for the Saudis involves throwing money at it my amateur take on this off Lacey and off your work is the basic idea that these are try Clans tribal families whether it's United Arab Emirates Kuwait the originality of the experiment in Jordan Etc give us an update on the power structure of the royal family in Saudi Arabia does it harken back to Faisal or is it something new so I think it's kind of a combination of both in in effect because um the Saudis have always looked for ways to show their Prestige and so way back when you had uh you know Abdul Aziz even so he would basically uh you know before he had oil his way of showing his kind of rule and affirming his rule over uh the various tribes in Saudi Arabia was to go around and basically promise uh them stuff so people would show up and they'd ask for things and he promised them and then they'd have to show up at his uh you know Treasurer and the treasurer would have to Dole out the money and and you know before oil there wasn't that much money so uh as soon as it was gone he kind of pack up and slink away um but still the Saudi king would kind of keep promising things well now they've got tons of oil and tons of money and so they're promising things you know in terms of of going out and trying to acquire Big Time footballers or do this deal with PGA which is essentially going to allow them to kind of bankroll this commercial entity uh for for golf around the world and it's basically a way of ensuring that people don't say bad things about them but also ensuring to their people hey look we're doing all this great stuff and um you know we're behind it and and we're we're funding it and none of this is new as as you've Illustrated that China tried to do this with football it wasn't very successful Russia's trying to do this in a various ways to use sport as a vehicle to basically achieve certain goals whether it be the Winter Olympics a Formula One race World Cup for football and I want to understand from your perspective what would success look like for the Saudis what does that actually look like that's a good question I think success is it partially it's it's so uh the welding remember there was a whole big controversy about the Saudis trying to acquire a football club in in England and then they they didn't get the one that they wanted so they got a lesser one so they've got to do well but they've also got to kind of make money out of it so even if they don't win it's not so much about winning it's more about you know being on TV and getting that Prestige and people kind of showing them deference uh you know their big time people get invited to all the big events and they show them on camera and they you know say good things about them and nobody says anything bad about them so this is a way of kind of ensuring oh that khashoggi thing uh that happened back there you know no one no one remembers that because now we've got you know rumayan at you know the center of the PGA Golf Tournament and you know MBS can show up to whatever football game he wants and uh you know they'll show him on camera and and say you know if not good things at least they won't say bad things are you expecting the West to close their door to this well I do think that there's going to be pushback but money is a really powerful uh motivator and it's very hard to say no when uh you know there's a deep pocket here I mean look at look at PGA and um you know as long as there isn't any kind of major human rights issue that pops up of course I do think that that kind of thing is inevitable there will be another big human rights issue that comes up and uh the issue will be will these leagues be able to say no we don't want your money anymore or will they say oh well we do want your money we just want you right Ellen you're away from what Edmar says Jeff Curry and the rest of the bandits and hydrocarbon analysis what's your price barrel of oil that you think the royal family needs in Saudi Arabia do you have a Brent crude price that gets it done for them I think that anything above you know 60 65 is getting it done for them they don't need to cover their budget with the price of oil so I know the IMF says you know oh they need 80 or 85 oil to cover their budget that's not how the Saudis are thinking they don't they don't need to cover their budget with oil they can uh you know they can take loans they've done that uh and not necessarily they have other sources of revenue I think they would love 80 or 85 in order to keep expanding their Investments and and keep having more money to just throw at these Prestige things but you know to to be perfectly satisfied I think honestly they're fine with 60. they can make it even at 40 or 50. and just to be clear on the record Newcastle United is a lesser team is that right Ellen well you know I'm not really up on my uh British football teams that's what I heard that's okay in shepherdson a Pantheon macroeconomics United right yeah well Ellen had to wait to come on because my soccer talk was so lame well you were going brammo really helped obviously yeah uh Ian shepherdson and pan and then we are tied it into Saudi Arabia's investment within Newcastle United and the one was it fourth place the wonderful fourth place finish secure Champions League football yeah it was great but you know my question is to two of you we got another 15 minutes with Ellen I think I'm kidding I think we got 50 seconds you and I got to talk F1 racing and a ramco's investment there and well thank you Alan thank you that was good it was great you see Max over the weekend Max was stapping yeah yeah it was awesome so happy and get the fastest lap I don't give a damn about this and for years Ken Pruitt said Tom watch F1 but like you got me into this and I love it Ken tried and I'm pleased finally yeah I love it if you get Max on the program Simon's killing it Simon's just killing it goodness very cool and maletti of all spring on equities coming up shortly Equity Futures negative 0.5 in and around session lows foreign Health it can be the economic recession but what about the earnings recession there becomes risk when valuations get so stretched money is not free anymore and I think there's a catch-up that has to come we think if there is a Slowdown or a recession the credit spreads could widen we've seen a big credit shock and we're going to continue to see that this is Bloomberg surveillance with Tom Keane Jonathan Farrow and Lisa abramowitz good morning everyone Jonathan Farrell Lisa Ramos and Tom King brahmo to toxic Peru she's up in Tupper Lake on some Portage on the racket River Jonathan Farrell returns and what he returns to is a conversation on the path of inflation in this week of a jobs report well we heard from Jim Bianco there on Monday uh John what we're here for Thompson Taurus of strategus here moments ago the discs of disinflation where inflation comes down and then sits there at TK what's hunted tourist just said in the last hour was phenomenal he thinks that inflation expectations are bottoming for the cycle he thinks inflation is going to be a whole lot stickier and even with a recession he's anticipating in the second half now as for that recession what recession has been the conversation the equity Market because the surprise of the year so far has just been this monster rap performance inequities NASDAQ have 40 s p up 16 and not just Tech take a look at say Carnival Royal Caribbean Norwegian the cruise sector flying take a look at what's happening with home builders up square feet outside Milwaukee how's that working out it's great she's got an entire room it's a Bloomberg room with three Terminals and Melody coming up very shortly looking forward to that conversation TK these are big big moves here today and this Federal Reserve is starting to talk about more Heights it wraps around the nine call of the last six months as we begin Q3 here in earnest done this Wednesday and that is the recession call I wonder what the dis disinflation does to recession calls around the world what does it do to China what does it do to a beleaguered United Kingdom except I'm told London's booming we have a recession in manufacturing we don't have a recession in Services how those two converge is a big debate Miss life at JP Morgan together with Marco kalanovic over the last week they think Services converges down to manufacturing that ultimately you get the Rosenberg is and you get a legitimate the same thing Ed Hyman in this hour Global Wall Street stay with us we're thinking 8 17 18. we're trying to track a minute to Edward Hyman we're trying to track him in Ellie you know he's great we should well I'll explain who he is later but what you need to know if you're not part of global Wall Street is Ed Hyman is who the adults lean forward to and he's been with your guys at JP Morgan looking for disinflation we get some Services data a little bit later this week get a ton of jobs data too ADP jobless claims jolts payrolls on Friday all of that going into next week CPI next week Tom JP Morgan earnings two so Bank earnings and earnings more broadly kick off in the next week or so while you're away the theme that I had with uh what's brammo with Bremo you forgot you know it's been a whirlwind here greifeld saved the day we had to talk crypto we don't have to talk crypto or malady do we no we don't I don't think Anne wants to talk about crypto anyways bramo is gung-ho on the earnings season I believe she will come back for it and it's amazing how I don't know what's going to happen with Revenue Dynamics and earning Dynamics forget about the banks across everything yeah I just don't I can't believe we're in July already tell do we do a data let's get to equity Futures right now on s p we're negative by 0.5 touch softer not a big deal yield to touch Higher by basis point Tom 380 64 on a 10 year a lot of focus on the front end of the curve we've added more weight into that a bigger yield a high yield over the last couple of weeks 4 and 92 on a 2 we're down a couple of basis points there but certainly repriced higher if you think about whether it's two years been and I can work it out on a Bloomberg for you very quickly we were north of five percent in early March going into the svb Fiasco we dropped as low as 275 over the last 12 months that's the 52-week low Tom back 12 months ago but following SVP we dropped to about 350. 350 at the lows following the bank malaise and we've added 100 basis Points Plus back into the two-year rather than 40 basis points the two is extraordinary I'm gonna bounce that off 105 basis points two's ten vanilla spread we're out to 110 John even rounded up 111 basis points 1.11 percentage points difference with the two-year and in tenure I don't know how normal business gets done with that John I just you know Jewish thing makes a difference you know I'm not going to do XYZ because of that I think in business investment it makes a difference because of The Oddities here and it's the BET of What Not what the two-year will do but what the tenure will do I don't hear much talk about will the two-year yield come plunging down some said three percent and lost that he said you can come down to three yeah but that's it call it a different kind of cycle what we're going to do is recalibrate here on Q3 and we can do this unveil you a beaten up phrase with Anne miletti Global Investments head of active Equity at all spring and of course this is the entire strong excellence in wisdom out of the last number of decades in her Wisconsin and Melody thank you so much uh the first six months of the year let's move on how do you recalibrate here the value proposition well Tom you know it's an interesting time because no one expected what happened in the first half and so I would say look at all spring we are looking forward and thinking about where our investors should be and we're sober about the future knowing that there's a lot of signals that signal a possible recession um that being said we also know that on the equity side what's important is the time you spend in the market and not trying to time the market history suggests that if you stay in the market through Cycles you're going to do great and that's what we're telling our investors that we're trying to be tactical um around what we invest in and really think about stock selection there's all sorts of research that says mid cap cycle after cycle are a place to be okay I'll buy your idea that mid caps not large caps of the glory 20 stocks is a play place to be but on an innovation basis are there Apple Computers within mid caps well as you know Tom Apple Nvidia all of those stocks started off as mid cap companies and so what we like to do is try to find the innovators the winners the big companies that are going to be the next big cycle players and you know there's a lot of those in the mid cap space that's why it's so interesting to us especially with the risk reward we're that today where you've had those really large cap names and again it's really just a couple a handful of really large cap names that have accelerated and are trading at really high multiples and so you know the risk reward may be less favorable then you can buy some of those mid cap names much lower multiples still great opportunities out there and these big moves elsewhere we've talked about them through this morning we've discussed them over the last several weeks the cruise operators the cruise lines just absolutely flying the home builders on the S P 500 what are you telling clients about some of those moves they're monster moves year today in just like six months home builders up by 40 something percent what is that all about a lot about of it has been about demand supply and demand um Jonathan as you guys know you talk about this all of the time travel demand has come back really strong housing demand is still out there despite what we all see with interest rates there's a shortage of Housing and so housing Supply is low demand is strong and so it's not too shocking to see that demand and those housing those home builders are still doing pretty well even in this type of economy but I think there's The Balancing Act that we have to play again those names have seen really good returns is that the place you want to be over the next six months those are the things that we're looking more closely at the thing I'm trying to work out and is just how relevant the rates debate is to the equity market performance at the moment as you've discussed text flying rates are of five percent as we've just mentioned there are reasons for the home builders to be up 40 year today but this is happening with rates at five percent and mortgage rates of course much much higher and as we know that's because ultimately people around 30-year mortgages and they've got 30-year mortgages that are not at five six seven percent they're much lower than that and I'm not jealous of course of course I'm jealous and but that's the story for another time I'm trying to work out what is the relevance of five percent interest rates to the equity Market at the moment given the performance we've seen across the equity Market I do think it's relevant Jonathan and that's why I'm I would call myself more of a sober bull at this point um there's risk in the market it's clear that there's a lot of risk in the market I'm paying attention to the bond market I'm paying attention to a lot of the economic data not all that suggests things are great out there I live in the midwest as you all know and I'm you know my friends my family are all dealing with inflationary pressures every single day so it's it's pretty sobering out there I also have lived through you know a couple of Decades of the equity markets where you've seen signals in signs six to nine months in advance where the market still goes that has in rallies tries to bring investors in and then all of a sudden you see where the real pain gets created and so we're cautious but I think it's about stock selection at this point where's not the value trap I mean on a sector basis I'm thinking energy consumer whatever where's the value opportunity that is not a value trap yeah Tom is a great question and I you know you were talking about energy early on this morning you um that's that's an area um that hasn't gotten a lot of love um so far this year obviously if we go into a recession that's going to be still a tough area to play but again the the supply has really been cut back there's more talks of Supply being cut back that could be more interesting um as a longer term play Healthcare again hasn't gotten its fair share of love it really hasn't recovered well since the pandemic and there's some real good values within health care I would even say you know selective REITs out there I know real estate is a tough area to talk about now um we're not loving the office real estate space and some of the retail space but there's a lot of other good real estate space in the Reit sector for invest Equity investors out there but but you know it's hard to limit just to a few Industries because as you look down cap and as you look you know in those areas there's been a lot that has been ignored and we just saw that broad now in June where you know small cap finally got a little love value finally got a little love I think growth and value you know were treated pretty equally in the month of June and small cap rally just as much as the s p did so you saw some broadmeat out but still not every name really you know saw the appreciation it probably deserved I must say that continues and thank you I'm a lady there I've all sprink on the equity Market if you aren't just tuning into the program welcome to the program the S P 500 right now Equity is a little softer we are negative 0.6 that's a session Low T cake as we go into a conversation with Ed Hyman of evercore a conversation this morning really kicked off I think by Thompson Soros earlier in the last hour talking about the lack of disinflation he anticipates in our future in the U.S the surprise here and Heim has been great on this is the disinflation in place and we'll talk about the distance inflation as well John this moments ago from Tom Reese off the London desk this is JP Morgan modeling out an unanchored seven percent by the Boe which I can't get my head around and the key word here from uh Tom Reese is the idea of it becomes unanchored there's that risk there that a central bank gets loses a little bit of control you come out to six you go out to seven this might not be biting in a major way right now Tom but slowly you start to get more and more remortgaging through this year and I talked about some of the data from UBS and a team here at Bloomberg breaking some of that down 1.4 million due to remortgage this year in the UK there will be more again next year Tom and then you start to see the fight more and more that's just the illustration the real life illustration of the lacks in policy so to speak Alan marks mentions lots of caveats I get that but maybe it's lots of caveats second half 2023 how blind are we right now that's something I want to talk to Ed Hyman about well let's go back to where we were last year yeah Jackson Hole August 2022 eight minutes freezing cold pain seven pounds talking about pain here we are where's the pain oh I think for no I thought Major Market pain major economic pain and all everyone has done is push back that kill just push it further around push it further out the fancy people have done well but there's half of America that's got the I agree on that I totally agree on I I do but more broadly at the aggregate level we were talking about recession and bear markets and here we are close to 12 months later talking about anything but Ed Hyman coming up shortly from New York equities in the session lows we're down zero point six percent what we don't want people to do is begin chasing this rally you know we do see some storm clouds on the horizon we do think that the risk of recession has risen I do think that the FED is going to continue hiking rates yes we've had a very good run in Risk assets but but I wouldn't chase this rally too much I would stick to your plan stick to your asset allocation rather than moving things around David liebovitz have JP Morgan Asset Management acknowledging how many people miss the rip roaring rally of 2023 so far yeah today in the first half at a couple of days of July we've got an S P 500 up 16 and that's that 100 up close to 40 in Futures this morning slightly negative we're down 0.5 percent Tico going into payrolls on Friday CPI next week some earnings next week and a ton of data in between and still remodeling two percent growth or whatever you know every every even at home and got the recession call wrong you know it's out there and it's like we're just pushing it out pushing it further out although some people might say that technically you know two quarters of negative growth maybe that was it yeah sure do you look at that Hyman's research nobody sent over to us it doesn't send me US research it's too expensive for me I was charging so much money I can't read it in that time I had a paragraph in an agreement with the hedge fund once true story folks didn't miss that it didn't work out but there was a paragraph on page 42 whatever that said I must have 24 7 the research of Sanford Bernstein and Edward S Hyman at isi that was literally written into it because that's how much in the in the old days and frankly the present days you have to have every leader in the world folks wants to get this research and they live to get his black marker on the white cuff of their sleep explain that story she sits at a table that's right they've got like 42 floors on on Madison Avenue wherever it is Fifth Avenue excuse me and he sits there at a little table and they give him the note and then he takes out a black pen and marks it up like this one day ruined one of my shows how much editing this dude and Emmanuel get because done he's lucky he's you know he's he's over in the cheap seats so the hockey players talking joining us now for a substantial amount of time this morning we're thrilled to bring you the chairman of evercore isi Ed Hyman joins us for a mid-year update I want to do a little history here John's got like six serious questions I'm calling the October bot and the Ralph and capora Edward yardeni bottom many other people were out there as optimistic but Ed yard Denny absolutely nailed the bottom you basically gave him his job you were at CJ Lawrence a million years ago I read your research worship play and you went out the door to set up your own shop and yard Denny replaced you is that true so I had a deal with my boss then Jim mulch who ran the firm uh that I wouldn't leave until we got a replacement and so Jim came in and said Ed you can leave I said oh the imprint optimism that Ed Hyman has and Ed yard Denny has what is the crew get wrong here about the need to understand America will persevere so I think we're going to have a recession and I follow Ed yardini closely and I just read his piece over the weekend where he's doesn't have a recession and I've been through this more times than anybody on your show the yield curve works and the yield curve is really inverted and then if that doesn't do it you have a contraction in the money supply the most since the 1930s and then you have a significant increase in rates plus QT and so Mike Tyson could get you with any one of those much less he's got three shots and so I just have to add that uh for when the yield curve inverts it can take 18 months for the economy to go into recession and just before it goes into recession it looks great it's it's a very humbling business and Tom I got to say I have not been forecasting a recession for the past year I fought last year the two down quarters like crazy and I have the uh third quarter down which seems too aggressive but I'm pretty flexible but I'm sure it's coming does this have a pre-08 feel to it in that regard not really uh just except for the yield curve but the the way I meant specifically oh for sure on that uh and it's playing out pretty much like that but you don't have the housing bubble you don't have something that would cause a severe recession like we had in 0809 where are you on the inflation backdrop at the moment we had a guest in the last hour or so who suggested that inflation expectations are bottoming here bottoming for the cycle that ultimately inflation is going to be sticky and a recession won't address it yeah so I'm I'm on the other side big time so I just looked before I came over here at gasoline prices which have a big influence on inflation expectations inflation expectations have come down significantly but they also are influenced by gasoline prices and the Futures have gasoline prices going down another 10 cents in the next six weeks not a big move but not up 20 cents and gasoline prices where they were 15 years ago so inflation is is coming down around the world they just reported this morning the PPI for the Eurozone was now in deflation minus one and a half percent which you reported and then last week the Spain CPI went below two percent for the first time so I try and connect the dots as best I can uh and it looks to me as inflation is really going down and with that policy backdrop I mentioned it's going to keep going down well let's build on that so we've got you on growth got you on inflation build on the policy backdrop most people anticipating now the FED goes again this month right maybe goes again after that where are you and the team now so uh Krishna Gohan does our fed work he has one more and done and so that's what I would follow at this point the one more is baked in the cake I think anything from now is a mistake they're just creating a deeper recession or the more likelihood of a recession but um you know five and a quarter with the bond yield at 380 they're pretty much done and inflation slowing the FED hiked rates in March of 2022 and at that point inflation had already gone crazy and they were still doing the transitory and then they were still doing QA they were still doing QE and so and there's I can tell by the time they by the time they cut rates inflation will be so far down and it'll make them look uh a little wrong-footed again two years you've been you've been considered for a Fed president certainly as a Fed governor and as well Ed what did this fed get wrong was it too much communication were we advantaged with the Silence of Greenspan I think it's very difficult to have 300 phds make a forecast not uh buttering you up Tom but I'd rather have you make that forecast than 300 phds Mike said I can't do that Mike walked in one day said Tom I don't need any forecasts on air continue and so I think it's just it's just part of the uh stickiness of the decision making it's about committing it's by committee and I also tend to try and always go where the puck is going to put it in your terms and boy the evidence okay the evidence that things are slowing on inflation is really pretty awesome we're going to have you back but you hired Gretzky how's Julian Emmanuel doing to me like his his weekly note during earnings season is the most valuable thing that comes over the transom and what I want to say is this guy captured the equity Market left maybe not all tech tech he didn't tell you to buy Nvidia but is Julian Emanuel doing okay over at the show doing great so we have an open Office I learned from Mike Bloomberg so I have a desk and I have Rich Ross and then I have Julian Emmanuel and we're within I wouldn't say shouting distance where they're in talking distance is he talking about a second leg of the bull market like Ed Hyman nailed got to be quick here but second leg of the bull market I was 76 cautious cautiously up very cautiously they separate Tom and I in the office do you know that I didn't sort of we're not allowed to sit next to each other but we can we can throw things at each other and it works out pretty well yeah but it works out because we got interns that help us they just go between Ed's gonna stick with us at Hyman of evacore I'll take you through the opening pal in about 30 minutes from now from New York this is Bloomberg [Music] Bloomberg's surveillance Jonathan Farrell Lisa Brown what's the time Keith thank you for your huge response here as we stagger into queue and through lots of interesting topics and even some new things invented in the last 72 hours we'll address that mightily in this you know make a joke holiday length and work week boy does this feel like it we are compressing everything into Wednesday Thursday Friday Michael McKee is going to be medicated after he speaks to us here in this block because tomorrow's an impossible amount of data Mike it's amazing how we get all this data dumped on us Wednesday Thursday Friday yeah we're going to compress the week as you said Tom And it is going to be a lot of data that's going to matter to people because it's all about employment this week and that's something the FED is really focused on the most interesting number of the week besides the jobs report is probably tomorrow's jolts number because that's of course what the fed's hung the idea of a tight labor market on so we'll see if job openings go down and the quit rate goes down uh that'll be interesting and of course we got also claims tomorrow and ADP so you're going to be busy or well I'm going to take over a lot of your air time put it that way I mean we've got durable goods Factory orders and that Enlighten us on Ward's total vehicle sales sometime along today how does the Auto industry work into the McKee calculus well Autos go into uh GDP on sort of the unit sales basis not in the retail sales numbers uh dollar volume because they're counting what goes out of the factories uh dollars and they also count uh the uh orders from rental car companies and things like that as business Investments so they're not quite in the auto uh department but it does matter a lot because there's an awful lot of spending on Autos we did see a slight decline last month but uh we'll see if it picked up this month as people want to go out and get convertibles to ride around in this sun Mike I'm gonna go to Ed Hyman here and finish a conversation he's got a busy day ahead of him and before I do that Mike what is the dynamic here on non-farm payrolls Ellen zentner Morgan Stanley says we rapidly go under 100 000 non-farm payrolls I find that almost unimaginable is that possible well it's possible it I I would say it's unlikely that it would happen that fast uh that companies would all together decide at the same time to stop hiring but it is certainly impossible I think more likely is that it gradually Peters out at least that's the FED scenario but to get to the numbers they've been talking about in terms of unemployment Etc we're going to need a rapid move down a far the second half of a year uh or we're going to still see unemployment below four percent Michael McKee back with us here in a number of minutes to really get you prepared for the jobs data ADP and claims tomorrow on the same day not Wednesday Thursday and then to the Friday jobs report I continue with the gentleman from evercore isi Edward S Hyman Ed Hyman I want you to talk about the Hallmark of your work back to CJ Lawrence and that's the granularity of studying data does the granularity of freight rates this that the greenspanian data study still work in a modern high-tech age or it's even better why because there is so much high quality data now you know generated by computers and so I really think that my success in studying the economy and forecasting comes from being more granular so the FED seems to look at one data point that comes out like the super core and I've looked at maybe 20 at that point and like what Michael was talking about on the employment number there's a lot of data points and they're generally pretty darn strong for employment so we're estimating 220 Alexander I think is terrific but I don't see that sub 100 number a really low number in the data that we get so far like unemployment claims or we survey employment agencies once a week I look at the data and to me the Hallmark here across the decades is we used to aggregate off the revolution of 1947 the way we bring in macro data do you whatever core isi still aggregate or are you partitioning out now for different quintiles deciles or John Edwards to Americas can you aggregate still uh yes but you have to take into account the different pieces and right now the manufacturing sector is pretty weak uh maybe in recession and many other parts of the economy are doing quite well services like over the holiday July 4th and you also have home buildings now actually coming back it's been very strong and uh has accelerated in the past couple of months right you took a kufaula announcer slide rule from Texas to MIT I don't know if you studied with with solo there after 57 productivity but explain the evercore isi view on America's productivity given the new technology overlayer you're an optimist or not I'm an optimist but it's not in the numbers one of the phrases is productivity is everywhere but in the numbers but uh you know what what you do has enormous productivity and what I do frankly has enormous productivity but it's but you're not getting it period right now in the numbers employment's good uh but the economy is still slowing I think what do you think about the frenzy Gloom crew particularly they come out every Friday Friday seems to you know you publish for the weekend and and and that but the I mean we've always worried back I mean think of 87 or the August of 1998 the worry The Angst has always been there but there seems to be a different character to have Bloom now how do you respond to that so the forecast for recession was virtually unanimous a few months ago and now there are many people going to a non-recession forecast uh I am the most bearish I've ever been on the economy without being in a recession and because of the yield curve the contraction of money and QT at the same time their hiking rates that three uh blow hit to the economy is going to cause a recession but it doesn't happen overnight so can you own stocks given the statement you just made that you're the most gloomy you've ever been are you all in cash or can you own somebody's and participate so uh I mentioned uh I think three times now the uh 0607 going into 08. and the s p went up 20 percent and peaked like two months before the Great Recession hit boy is it tough uh and so right now I think the economy uh is doing well and the stock market is going up the technicals are good and so I think we'll keep going up until it looks like we're about to hit the recession and that's not today I got two minutes left you're the only one who hasn't moved to Florida you are part of the New York City fabric explain how you view the future of this great City it's very tough because so many people are moving to Florida but this city is so vibrant uh just being here with you which I know you love the city and all the institutions in it never bet against New York that's the only reason I got this job I said that to the mayor at the time he said you're hired anyway as long as Mike Bloomberg is here I think we're here okay what do we do with the FED one final question what's the FED uh Ed Hyman fed strategy here forward yeah so they're gonna hike one more and then they're done when do they cut uh probably you know I think toward the end of this year but maybe early next year but uh I can I can look down the street I can't see around the corner but when I get to the corner you'll have a much better idea that's a smoke from Canada that's why I can't see that Hyman thank you so much I know you've got a run here he is with evercore isi and truly iconic on the street someone who reads the market economics of uh Ed Hyman is Michael McKee and he rejoins us right now here with a brief on the labor economy John ADP claims tomorrow do I care Michael do I care claims she care about because of the big surprise last week when we dropped so many and went back to a previous level so does it go back up again and as Ed was just saying when you're looking to see some sort of weakening of the labor market you're looking at jobless claims and we're just not seeing it at this point uh the ADP numbers are always traded on but they don't matter all that much they uh they even say they're not a data point that's going to forecast the jobs numbers so um yeah we'll get some action on that but we could in theory see more action on jobless claims if they went one way or another to a significant extent what are wages doing and you know Alexander mentioned this and Ed Hyman has a killer chart we protect the copyright of all our guests get that from ever court isi or Mike McKee but Mike on wages do you look at wages wages or inflation-adjusted wages where's the best value Friday at 8 30. well you're going to want to look at the hourly earnings which are uh not uh adjusted because of course nominal spending nominal wages uh are the way you're going to be able to compare those but it is average hourly earnings uh that the FED is looking at to see if we're starting to see some sort of progress on uh the idea of companies having to pay up for labor and if that comes down some more they will feel better we have seen inflation fall below uh wages and earnings particularly for the ECI and that is uh good for the American uh public for for people who are getting paychecks but it doesn't mean that we are seeing a decline in the inflationary pressures and what we're not seeing uh as Ed was just saying is productivity that would make up for the higher wages so right now that's something that has to come down or productivity has to go up but what about the technology overlay do you yeah and I say this folks with immense respect for Mike's encyclopedic knowledge of the data and what it represents Allah Paul Romer the Nobel Laureate on technology does our present clumsy math of productivity capture what technology is doing to this nation there's a lot of debate about that Tom and productivity is hard to measure especially with technology and the way we use it but the one thing you have to note is that for the last decade or so most of the technological improvements that we've seen have been in the Leisure category your phone uh the fact that you can carry around all the uh streaming TV in your pocket kind of thing what we're waiting for is something that really affects the workplace like computers did in the 1990s now maybe that's going to come with artificial intelligence and that does seem to be moving forward quickly we don't know exactly how it will be adopted or how quickly but if it is anything like the 1990s we could see a nice run of productivity increases let me do the data here right now and uh we're going to come back with Michael McCann a really important discussion fermenting over the weekend Futures down half a percent down 24. I'll wait to the tape here in the last number of minutes with the vix not a 13 the vix out to 14.48 the s p percent move point five four percent we say good morning and on radio and television a really eventful Wednesday Thursday Friday I really want to look forward to Friday and the the 8 30 jobs report we'll go beneath the headline data but far more is we're just loaded with data forward including in an hour and 20 minutes Michael McKee in Washington with a look at our durable economic data Michael McKee over the weekend and this goes to my book of The Summer with Olivier Blanchard is this raging debate of our starred now we're not doing it's July Mike we're not doing wonky difference equations or that but I want you to frame the two camps John Williams just reaffirmed we go back to where we were some form of lower run rate for the economy codified by the Econo Babel of our start others disagree and they're out at a new r-starred which is elevated who are those two camps well first let's define our star it's basically the neutral level of interest rates which means they don't stimulate or hold back uh inflation and so uh what you're looking for is The Sweet Spot which you cannot identify uh except in hindsight but uh John Williams at the FED along with the late Tom lobach and Catherine Holston came up with a formula to try to estimate where it is and during the pandemic they suspended that because they couldn't get enough accurate numbers and now they've brought it back and what they say is under their new formula the way they've accounted for the pandemic Etc it means that this R star number the neutral rate goes back uh in a relatively short period of time down towards two percent or less which means less inflation we're going to continue not going to happen we're gonna if that's gonna go we're going to see but we will continue this discussion with McKee on the way to Jackson Hole this is Bloomberg's stay with for this good morning you should bottom at three percent and start drifting towards four percent now I'm assuming no major downturn no no kind of Crisis that comes along if the inflation rate bottoms to three and starts drifting higher the fed's going to find this unacceptable and that two rate hikes that we have priced in for the rest of the year will happen if not three Jim Bianco would arguably the interview of the week with great respect to Edward Hyman here who we just spoke to I'm going to codify this because it's going to be the conversation into this week and into all of July Jim Bianco and I would give a major shout out to the team at strategist research as well are talking about yes we get disinflation as Ed Hyman just codified but the basic idea is and then it stops and Bianco is so bold as to say it will actually rise up as well again that is a discussion for July and we welcome all of you as we stagger into Q3 of 2023. usually we'd wait with Helene Becker I mean the only reason we have Helene Becker on she's with TD Cowan is because she can get me tickets to Paris nobody else can but Helene Becker joins us now on the at the tragedy which is domestic air travel what I learned over the weekend Elaine in two instances one with John Farrell who actually got on an airplane and got home as international travel is actually pretty good and domestic travel is an absolute train wreck you drive out of Denver and you and I remember the horrific Stapleton International Airport with the winds going sideways and you were lucky you could land this is ancient history and you're going across the fields of Denver East and there are those teepees in the distance which was a huge success of Denver d-e-n built a stunning 27 years ago why can't we build new airports in America that's a great question Tom so the number one issue is space we don't have enough space um there's if you think about Newark Airport to the right you have one Highway and to the left you have the New Jersey Turnpike so there's no place to put a third parallel Runway that would alleviate some of the problem and then people don't want big airports in their backyard the reason Denver was able to be built is because they bought so much of the land um out there that you you can have I think there's four parallel runways now and I think they can go up to six or eight so they have the space for growth most of the rest of the country is built around cities and you just don't have that within that Scott Kirby of United beleaguered I believe he called in from Teterboro we're trying to get them on the phone but Scott Kirby of United made clear they will do less flights out of EWR the companies you follow is that the future which is they're just going to have fewer flights yep absolutely we've been seeing that Tom as you know for a couple of years now for at least five or seven years it's it's going to be more seats per departure so bigger aircraft and it's going to be fewer departures per day you remember um you and I talked about this newer the the Secretary of Transportation asked the four big Airlines serving the New York area Delta American United and Jeff Lowe to cut their summer capacity by 10 percent because air traffic control is understaffed and you add that you add to an understaffed air traffic control system then you you add to that winter or summer rather thunderstorms and you have all the aircraft have to land especially the ones coming in from overseas and then nothing's taking off so you you get right um you get those issues with with aircraft that can't find Gates and the next thing you know people are trapped one final question on this insanity and I actually want to talk Ram Dodd and Cottle with you actual adult Securities analysis not so much who do you blame but years ago weren't there thunderstorms as well I mean I don't get why thunderstorms are now a new thing right exactly so so the biggest issue is when thunderstorms roll through the area they're number one unpredictable so you don't really know where the cells are you cannot have because of all that metal if there's lightning in the area you cannot have your people on the ramp loading and unloading your bags they have to come in you can't refuel so they have to come in so that's to your point that doesn't change but what has changed is the the entire system is just over taxed and it goes back to years it goes back decades the system has been under invested in and that's infrastructure it includes airports it includes government right and it includes Airlines let's talk Securities analysis buy hold cell only Becker and say to pick out United Airlines I did a log regression of United Airlines back to 2 2008 where they cratered in the the great contraction great they could go up a hundred percent off that log uh that log extrapolation out based pre-pandemic do you envision these Airlines going up 50 80 indeed a hundred percent in the near term of the 2008 basis um yeah there's no reason why they shouldn't maybe not a hundred percent but certainly doubles um from here even from here I mean it's not going to be as robust as it would have been without the pandemic because with the exception of Delta and I think Alaska Air everybody else issued Equity so if we thought they could earn like United I think for example our best idea for 23. if we thought they could earn 3.13 a share um at the Peak at a 10 multiple would be 130 but now you have to adjust for the increase you know in shares outstanding so 13 becomes 12 and 130 becomes 120 and the Stock's at 55-ish 54. so no reason why I can't go up from here especially given the fact that we think we're in a multi-year growth phase where you're going to have these issues these are not issues that are going to be solved speedily for a short 3 000 air traffic controllers and we only train five or six hundred a year that's a five or six year problem right there so curious to what Scott will say but um yeah it's kind of probably Elaine this is important because I remember I treasure my conversation with Robert Crandall uh you know American Airlines and all that he did in the history of Aviation the romance of what Helene Becker covers great the bottom line is have they found a new maturity of persistent cash flow or are the group of planes are they still sharks where they boom that bust they boom they bust is it a new regime you know I mean I I just I don't know the answer to that specifically I I don't think I can I would never have forecasted the pandemic right and I know in fact I famously said that in one of my reports that you can't shut down the world and it turned out we did and you could it's just turning it back on is not that easy and I think that's a big problem we we stopped figuring out how to make this work and the fix is a multi-year fix um but but in the interim there will always be um shocks to the system that will cause the the earnings to decline um will cause losses will cause you know Airlines to go bankrupt again but I think in the main because of all these infrastructure issues a lack of OEM deliveries that um our good friend Kai Von rumor are my colleague at TD Calvin talk about all the time right um the the ATC system that we've talked about you add all those issues together plus you have tens ten thousand at this point Kyle's retiring in this decade and it's hard to replace them and so on so by the time you're done with all of this yeah it's it's really problematic um because air travel is just gonna get more expensive well real quick here Elaine you get to breathe the same air as Kai Von rumor I mean he's the giant for all of us within Airline Transportation Security analysis is Kai van rumor optimistic on the future of Boeing whether they're out of Seattle or Chicago or I think they're moving to Washington this week is he still plus plus on ba yeah I think so I think he he it's one of his um one of his top picks okay Helene thank you so much Helene Becker there with TD Cowan on an upper thanks to all your anecdotal comments over the weekend on domestic travel and I've had a couple very worried messages about brahmo and I'm really not sure which airport she's in but I you know it's you know how does they set up the airports and there's no place to lay down because they don't want people laying down and so you know she's got a fold-out thing where she puts it across the railings of the chair so at least the cherubs could sleep but she's had her Fair a fair share of the domestic travel as well I didn't think it was going to be a boring day I didn't think Monday was extraordinary I really was quite surprised by that but I really got to say where are we going to be nine o'clock and Friday I don't have a clue I also don't have a clue where we're going to be say July 17th after we get three days of Bank earnings as well there's a huge mystery to what we're covering here at Bloomberg News and we're going to continue to bring that Bloomberg News not only that but Bloomberg opinion as well including that bill Dudley essay last week of a fed to four and a half percent yields we will see Futures at negative 25 Dow futures negative 200 the vix elevated 14.5 zero I know Brent crude 76 dollars a barrel stay with us through the day this is Bloomberg good morning foreign

Channel: Bloomberg Television

Views: 32,450

Keywords: Jon Ferro, Lisa Abramowicz, Tom Keene

Id: blRQDhuwlBo

Length: 145min 43sec (8743 seconds)

Published: Wed Jul 05 2023