>> THE REAL GROWTH PICTURE IS
PRETTY POOR EVERYWHERE. >> I THINK ALL OF US EXPECT A
DECELERATION, A SLOWER ECONOMY. >> YOU HAVE TO BE MORE NIMBLE. >> WE ARE CAUTIOUS AND THINK
CONDITIONS ARE THERE FOR A FULL-BLOWN RECESSION. >> WE WILL GET A LOT OF CLARITY
THIS WEEK. >> THIS IS BLOOMBERG
SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO AND LISA
ABRAMOWITZ. JONATHAN: LIVE FROM NEW YORK CITY THIS
MORNING, GOOD MORNING, GOOD MORNING, FOR OUR AUDIENCE
WORLDWIDE, THIS IS BLOOMBERG SURVEILLANCE ON TV AND RADIO.
YOUR EQUITY MARKET AND THE S&P 500 IS POSITIVE BY 0.1%.
AFTER THE CLOSE, EARNINGS FROM MICROSOFT AND GOOGLE.
AND LATER THIS MORNING IN WASHINGTON, D.C., THE TWO DAY
MEETING BEGIN WITH CHAIRMAN POWELL. TOM:
I'VE GOT TO PAY ATTENTION TO EARNINGS AND I WILL SAY THEY
WILL BE OUT FRONT WITH THE ECB BUT THE QUALITY AND THE
CHARACTER OF THIS GERMAN RECESSION WILL BE IN THE BACK
OF THE MIND OF THIS FED MEETING WITH SOME OPTIMISM TO THE
AMERICAN ECONOMY. JONATHAN: BUSINESS CONFIDENCE IS TERRIBLE
AND THERE IS A SPLIT WORLDWIDE. CHINA IS TRYING TO DELIVER SOME
STIMULUS AND EUROPE WITH GERMANY IN RECESSION.
WE HAD THE BANK LENDING SURVEY THIS MORNING AND DEMAND FOR
LOANS FROM CORPORATE DROP THE MOST ON RECORD.
DOESN'T SOUND LIKE A NICELY FUNCTIONING EUROPEAN ECONOMY.
TOM: THE OVERLAY TO ME IS WE HAVE THE BIDEN STIMULUS OR A SET OF
STIMULI. I LOOK AT THE AUSTERITY MESH
ACROSS EUROPE AND IS CATCHING UP WITH THEM.
WHERE IS THE STIMULUS? IF YOU ARE GOING TO HAVE A
SLOGAN LIKE THAT, I DON'T SEE THE STIMULUS AND IT WILL BE A
TOPIC IN THIS TWO FED MEETING. JONATHAN:
THE EURO IS NEGATIVE FOR SIX CONSECUTIVE SESSIONS. WE'RE DOWN TO ABOUT 110 AT THE
MOMENT BEST -- .10 OF THE MOMENT. TOM: THERE IS REAL QUESTION ABOUT
THE LIFT OVER THE NEXT TWO OR THREE YEARS. A NUMBER OF ANALYSTS HAVE COME
OUT AND REALLY RECONFIRMED THERE HAS TO BE A DEMAND LIFT
AT SOME POINT. JONATHAN: AFTER THE CLOSE, IT WILL BE
ABOUT WHETHER WE CAN VALIDATE MASSIVE GAINS YEAR TO DATE.
GOOGLE, ALPHABET, MICROSOFT. MICROSOFT IS UP THIS YEAR BY
44%. ALPHABET IS UP THIS YEAR BY 38%. CANDIDATE VALIDATE THOSE
MASSIVE GAINS LATER? TOM:
MICROSOFT IS UNDERPLAYED AND IT'S NOT COOL.
GOOGLE STILL HAS SOME OF THAT CASH A LEFT OVER.
MICROSOFT HAS A 35 PE AND 10% TO BEEN GROWTH IN THE YIELD
DOESN'T MATTER. THEY ARE ON THE CUSP OF TWO
POINT $5 TRILLION BUT I WILL WATCH MICROSOFT CAREFULLY.
THERE IS CONCERN ABOUT WHAT THEY ARE SPENDING ON A PRESUMED
AI ATTACK. THE FIRST QUOTE OF AI TODAY. WHEN WE MENTION AII HAVE A SIP
OF TANG. JONATHAN: TALLY UP EACH TIME YOU SAY AI.
TOM: TIM COOK PET OUT A MANDATE THAT
NO ONE AT APPLE COULD SAY AI? JONATHAN:
I IMAGINE HE WILL TALK ABOUT IT. LET'S DO THIS -- COMPARE AND
CONTRAST TWO QUOTES. ONE COAT FROM J.P.
MORGAN AND COMPARE IT TO ANOTHER QUOTE FROM MORGAN
STANLEY. BOTH OF THEM HAVE HAD THEIR
CALLS CHALLENGED BY THE MARKET ACTION OF THE YEAR SO FAR. MIKE WILSON SAID WE'VE BEEN
WRONG. COMPARE THAT TO THIS. JONATHAN:
I HAVE HUGE SYMPATHY BECAUSE I'VE BEEN WRONG WITH PEOPLE'S
REAL MONEY. I THOUGHT IT WAS MISREPORTED.
IT WAS NOT MISREPORTED, THEY JUST DIDN'T PUT UP A CALL THAT
HE REALLY DIDN'T CHANGE HIS PARAMETERS WERE ESTIMATES FOR
2000 23. -- 2023. HE SAID WE ARE WRONG BUT HE
DIDN'T CHANGE ANYTHING. YOU NAILED IT, MANY OTHER
PEOPLE DIDN'T. IT'S ONE THING TO SAY YOU ARE
WRONG BUT IF YOU ARE WRONG AND CHANGE YOUR CALL, THAT'S A
DIFFERENT STORY. BNP PERRY BOCK CAME OUT AND
SAID I WAS WRONG AND THEY LIFT THEIR ESTIMATES, THAT'S NEWS.
I DID NOT SEE THAT. IT DIDN'T CHANGE ANYTHING
YESTERDAY. JONATHAN: WE CERTAINLY DIDN'T SEE THAT
FROM J.P. MORGAN EITHER. TOM: THAT'S A DIFFERENT STORY. I DON'T FOLLOW THAT IS CLOSELY
BUT I WOULD SAY THE STRATEGIST INCLUDING ERIC FRIEDMAN, RUMOR
IS THEY PUT THEIR PANTS ON ONE LEG AT A TIME. FRIEDMAN WALKS ON WATER BUT
THIS IS A TOUGH BUSINESS. JONATHAN:
LET'S TURN TO THE PRICE ACTION ON THE S&P 500.
FUTURES ARE POSITIVE BY 0.4%. A MOMENT TO, SOME NUMBERS FROM
GM. IT'S ON THEIR CHINESE WEBSITE.
I WONDER IF THIS WAS AN ACCIDENT.
THEY RELEASED ON CHINESE ON THE WEBSITE, THE RANGE FOR THE FULL YEAR NET INCOME 9.3 ALIEN
BILLION DOLLARS- 0.2 BILLION. TOM:
WE'VE GOT PRECIOUS TIME -- MANY EARNINGS ARE EMBARGOED BECAUSE
WE CAN SEE THEM BUT WE CANNOT REPORT THEM AND SOMEONE GETS OUT FRONT OF THAT AREA THAT
CUTS TO THE CHASE AS THEY RELEASE IN CHINESE.
I'M WATCHING EURO-SWISS WITH A STRONGER SWISS. JONATHAN:
IS THAT WHICH YOU ARE FOCUSED ON? IT'S LIKE MARKET ROULETTE.
TOM: THE GM NUMBERS ARE GREAT AND I
LOOK AT THE LAUNCHPAD. I'M LOOKING AT BUREAU-SWISS AND
LIFE GOES ON. JONATHAN: LET'S GET TO ERIC FRIEDMAN. CATCH-UP TRADES IS THE FOCUS OF
SO MANY PEOPLE COMING INTO EARNINGS SEASON, ARE YOU
LOOKING FOR THE SAME THING? >> WE ARE, IT'S A MATTER OF
SEEING IF THIS MARKET ENVIRONMENT FANS OUT AND PEOPLE
DO IT SECTOR BY SECTOR BUT MARKET CAPITALIZATION IN THE
CATCH OF TRADE IS NOT CATCHING AS IT SHOULD.
DOMESTIC SMALL CAPS AS WELL AS DOMESTIC MID-BUT ALSO IN YOUR
BACKYARD OF THE U.K. AS WELL AS CONTINENTAL EUROPE
SO GIVEN THE GERMAN DATA OUT THIS MORNING, GIVEN THE
DISPARITY OF SERVICES AND MANUFACTURING, IT'S A TEST TO
SEE IF THIS MARKET DOES BITE INTO THE IDEA OF A SOFT LANDING
IN A GRADUAL RECOVERY. THAT WOULD SUGGEST YOU NEED TO
GET THE CATCHUP TRADE AND WE WOULD INCLUDE REAL ESTATE,
ENERGY AND UTILITIES IN THAT CATEGORY OF WHAT'S CALLED AREAS
THAT HAVE NOT BEEN REWARDED YET BUT COULD BE SHOULD BE SEE THE
SOFT LANDING MATERIALIZED. TOM: YOU AND I STUDIED THEORY YEARS
AGO. THE DOUBT LIFT SPECS NUMBER OF
DAYS SO WHAT IS THE SYMBOLISM OF THE BLUE-CHIP DOW JONES
AVERAGE UP EVERY DAY? >> THE SYMBOLISM IS IN THE FACE
OF DETERIORATING DATA WHICH IS WHAT WE ARE SEEING -- IF YOU
LOOK AT GERMANY AND OTHER PMI'S AND CHINESE DATA THIS MORNING,
THEY ARE CALLING THE RECOVERY TORTUOUS.
THOSE ARE FAIRLY EMOTIVE WORDS FOR WHAT IS A GRADUALLY
WEAKENING ECONOMY AND YET MARKETS ARE SAYING GIVE ME A
5.20 5% FED FUNDS RATE AND WE WILL STILL BUY EQUITIES HERE.
I THINK YOU ARE SEEING A LOW EXPECTATION SET ACROSS THE
MARKETPLACE FOR EARNINGS AS WELL AS FOR INDUSTRIALS AND
THAT'S BEING TORN UP ACROSS MARKETS WHICH IS
COUNTERINTUITIVE BUT WE DON'T INVEST IN DATA, WE INVEST IN
MARKETS. DO YOU SELL TECH OR DO YOU HOLD
IT AND USE CASH IN OTHER SECTORS? >> IT'S HARD TO SELL IT HERE
AND WE WILL SEE SOME DATA POINTS AFTER THE CLOSE TODAY. WHAT WE EXPECT FROM TECH CAP X
IS 3% GROWTH GLOBALLY THIS YEAR. WHAT'S DIFFERENT IS A MIGRATION
AWAY FROM ON PREMISE TO OFF PREMISE, CLOUD COMPUTING, BIG
DATA AND AI, THAT'S WITH CATCHING ATTENTION.
WE DON'T SEE A MATERIAL LIFT HIGHER IN OVERALL CAP EXPERT
THAT SHIFT IS CERTAINLY BENEFITING COMPANIES.
WE THINK THAT MOMENTUM CONTINUES. TOM:
WHAT IS YOUR BLENDED SHIFT OF REVENUES?
YOU'VE GOT A MYSTERY IN THE PRICE DYNAMIC OF REVENUES SO
WHAT'S YOUR SHIFT AT THE TOP LINE? >> THE SET UP FOR THIS QUARTER
IS A 3-4% DECLINE IN REVENUE AND EIGHT-9% DECLINE IN
EARNINGS. THAT'S PROBABLY TOO LOW.
INVENTORY BUILD HAS REALLY BEEN THE FACTOR.
WE HAVE GOTTEN TRUE ON THE RETAIL SIDE SO I DON'T THINK
IT'S SO MUCH THE RETAIL RESTOCKING.
IT WILL BE A QUESTION ABOUT MANUFACTURING.
THAT'S SPLIT BETWEEN SERVICES PMI AND MANUFACTURING PMI AND
THAT'S WHERE THE ACTION IS ON THE REVENUE SIDE. TOM:
YOU ARE DEALING WITH THIS EACH AND EVERY DAY, HUNDREDS AND
THOUSANDS OF RELATIONSHIPS WHERE PEOPLE COME IN SCARED
STIFF BECAUSE THEY HAVE MISSED THE POST-PANDEMIC RALLY.
MAYBE THEY MISSED THE RALLY SINCE 2008, WHATEVER.
HOW DO YOU CATCH OF CONSTRUCTIVELY? >> WE THINK THE PIECING IN FOR
THOSE WERE GRADUAL IN THEIR APPROACH IS THE RIGHT WAY TO DO
IT AS A FUNCTION OF TIME BUT NOT A FUNCTION OF PRICE.
WE GET FOCUSED ON PRICE AND MOST OF BEST THAT INVESTORS
WERE SCARED ABOUT GETTING IN WORRY ABOUT PRICE.
WE THINK ABOUT THINGS ON A TIME BASIS. IT COULD BE VERY MUCH THE SAME
WITHOUT A WEALTH CLIENT OR INSTITUTION THINKS ABOUT
INVESTING WITH A TIME PIECE OF IT AS OPPOSED TO A PRICE PIECE
OF IT. JONATHAN: THIS WAS GREAT, THANK YOU FOR
RESPONDING TO SOME OF THE NEWS IN THE LAST 24 HOURS.
LET'S TURN BACK TO THE NUMBERS FROM GM.
I'VE GOT THEM IN ENGLISH AND NOT IN CHINESE.
THEY ARE RAISING THEIR FULL YEAR FINANCIAL FORECAST. I'M
TERRIBLE AT MANDARIN. THEY WERE RACE OF THEIR FULL
YEAR FINANCIAL FORECAST. GM SAID WE HAVE WORKED WITH
DEALERS AND SUPPLY PARTNERS TO ADVANCE HER BUSINESS STRATEGY
AND WE CONTINUE TO REDUCE COSTS AND INCREASE EFFICIENCY.
WE WILL FOCUS ON THE MOST CRITICAL GROWTH AREAS LIKE
ELECTRIC VEHICLES, AUTONOMOUS DRIVING AND SOFTWARE TO IMPACT
FUTURE BUSINESS DEVELOPMENT. SOUNDS LIKE HE IS SAYING ALL
THE RIGHT THINGS. TOM:
THEY SEEM LIKE THEY ARE GETTING IT DONE.
IF I LOOK AT TOTAL RETURN OVER 10 YEARS, THE SECTOR IS A
MYSTERY. SPEAKING OF X, I DON'T KNOW
WHERE THE X AUTO COMPANY FITS INTO THIS AND I DON'T
UNDERSTAND THREE OR FIVE YEARS OUT WHAT WOULD BE CALLED
PRODUCT DISTINCTION MADE BY THE PUBLIC. IF YOU GOT 10 EV'S TO CHOOSE
FROM, HOW DO YOU SELECT? IT'S A MYSTERY TO ME. JONATHAN:
YOU SAW THE PUSHBACK FROM FORD AND THE GLOBAL NUMBERS FROM
TESLA. TOM: THE FANCY PEOPLE WANTEV'S .
THE FIRST WHEN I DROVE WAS IN JACKSON HOLE YEARS AGO UP TO
THE LODGE. IT EVOLVED FROM THAT TO PRETTY
MUCH THE SAME CONVERSATIONS. WOULD YOU RATHER DRIVE A BUICK? WOULD YOU RATHER DRIVE AN EV
AND THAT'S OPEN TO DEBATE IN AMERICA. JONATHAN: IN JUST A MOMENT, WE WILL CATCH
UP WITH BLOOMBERG INTELLIGENCE ON THESE EARNINGS COMING OUT.
AFTER THE CLOSE NUMBERS FROM ALPHABET AND MICROSOFT AS WELL.
TOM: I DIDN'T KNOW THERE WAS F1 THIS
WEEKEND. JONATHAN: THAT'S RIGHT, AWESOME. TOM:
IT'S GREAT, I THOUGHT THEY WOULD TAKE A BREAK. JONATHAN:
AND THEY GET A BREAK AFTER THAT? TOM:
I THINK THEY CALL IT A HOLIDAY. JONATHAN:
FUTURES ON THE S&P 500 ARE JUST ABOUT POSITIVE, FROM NEW YORK,
GOOD MORNING. >> I WOULD ARGUE THAT
VALUATIONS ARE QUITE HIGH AND WE UNDERSTAND THE TECH SECTOR
AND THE AI STORY BUT WE HAVE A RECESSION AND PROFITS ARE DOWN
AND IT LOOKS A BIT RICH RIGHT NOW FOR US SO WE WOULD BE
CAUTIOUS. WE DON'T THINK IT IS IMMUNE TO
A RECESSION. JONATHAN: THAT WAS THE CHIEF ECONOMIST AT
NATIONWIDE MUTUAL. YOU GOT HER TO TALK ABOUT
STOCKS YESTERDAY? TOM: I DID THAT ON PURPOSE.
I THINK THERE IS A LOT OF ECONOMIC BATTLE GOING ON.
PEOPLE THINK THEY ARE INEXTRICABLY LINKED.
A LOT OF THE SMART PEOPLE WE TALK TO MADE CLEAR THAT MAY BE
LESS THAN WE THINK. I THINK IT'S IMPORTANT RIGHT
NOW TO TALK TO EQUITY PEOPLE AND THE OTHERS ABOUT ECONOMICS
AND VICE VERSA. JONATHAN: EQUITY FUTURES ARE JUST ABOUT
POSITIVE ON THE S&P 500, ROLLING OVER IN THE LAST 50
MINUTES OR SO BUT JUST ABOUT EVEN.
THE BOND MARKET IS A LITTLE BIT HIGHER.
THERE IS THE WEAKNESS ON THE STREET AGAIN ON THE EURO, SIX
CONSECUTIVE DAYS OF EURO WEAKNESS AGAINST THE U.S.
DOLLAR AND THAT WOULD GO BACK TO LATE SEPTEMBER OF LAST WEEK. THIS TIME AROUND, .10.
PMI YESTERDAY AND BUSINESS CONFIDENCE TODAY AND DEMAND FOR
LOANS IN EUROPE JUST DROPPING OFF A CLIFF.
MAYBE YOU CAN MAKE THE ARGUMENT THAT'S WITH THE ECB WANTS TO
SEE BUT IT'S HAPPENING PRETTY QUICKLY. TOM:
I THOUGHT IT WAS SPUN AROUND AMBIGUOUSLY.
PEOPLE ARE SAYING THAT GDP IS DOWN SO LOANS ARE DOWN.
I THINK LOANS ARE DOWN BECAUSE PEOPLE DON'T WANT LOANS.
BANKING IS A HUGE DEAL AND LOANS ARE DOWN BECAUSE THE
APPETITE IS NOT THERE PARTLY BECAUSE OF INTEREST RATES BUT
ALSO BUSINESS IS NOT THERE. IT'S A HUGE DEAL. JONATHAN: A DIFFERENT BACKDROP IN THE
UNITED STATES WITH ENGINEERING A SOFT LANDING AND GERMANY IS
IN A RECESSION NOW. LATER, WE WILL TALK ABOUT
EARNINGS FROM BIG TECH WITH ALPHABET AND MICROSOFT AFTER
THE BILL. TOM: THIS IS THE MOST IMPORTANT
CONVERSATION OF THE DAY FOR ALL OF YOU ENAMORED BY AI.
THE SENIOR TECH ANALYST FOR BLOOMBERG INTELLIGENCE IS WITH
US. GREAT TO HAVE YOU HERE. YOU ARE ABSOLUTELY QUALIFIED TO
BRING SOME CLARITY HERE ON AI. MICROSOFT AND GOOGLE REPORT
TODAY AND THEY WILL MENTION IT THREE OR FOUR TIMES.
WHEN DOES IT BECOME A VALUE PROPOSITION? >> FROM A PRODUCT POINT,
SOMETIME NEXT YEAR. LOOKING AT THE STOCK
VALUATIONS, THEY ARE ALREADY ACCOUNTING FOR THE REVENUE
COMING IN. FROM A USAGE POINT OF VIEW, THE
ACTUAL PRODUCTS WILL TAKE 12-24 MONTHS. JONATHAN:
CAN YOU TELL ME ABOUT DECELERATING SALES TRENDS AND
THINGS LIKE THE CLOUD? YOU EXPECT THEM TO PICK UP AT
PLACES LIKE MICROSOFT? >> I THINK IT WILL BE THIS
QUARTER OR NEXT QUARTER WHERE WE WILL SEE THE BOTTOM IN THAT
GROWTH RATE IN A NUMBER OF HARD COMPARISONS FROM LAST YEAR WILL
BE COMING TO A POINT WHEN THEY GET EASY AND SOME OF THE
WORKLOADS FROM AI SHOULD HELP. JONATHAN:
WE SAY THE AI WHOM SHOULD LEAD TO INCREMENTAL CLOUD SPEND AND
I'M TRYING TO WORK THAT OUT. >> I THINK IT WILL BE SOMETIME
NEXT YEAR WHICH MEANS THE BOTTOMING OUT PROCESS
EITHER GOES BY THE END OF THE DAY TO DAY OR PERHAPS SOMETIME
IN OCTOBER OR NOVEMBER. IT'S BECAUSE PREDOMINANTLY THE
WORKLOADS ARE STILL THE ONES THAT COMPANIES ARE USING TO RUN
THEIR OPERATIONS IN OVER THERE, THEY ARE CUTTING BACK ON TECH
SPENDING WHICH IS WHY WE SHOULD SEE PRESSURE. TOM: I HAVE A COUNTABLE SET OF CHIPS
AT NVIDIA THAT WILL BENEFIT FROM AI. IF I SAY I DON'T HAVE THAT WITH
MICROSOFT, IF THEY ARE ON THE RECEIVING END OF THE CHIPS AND
HAS TO INTELLECTUALLY CREATE WITH AI, WHAT DO YOU LOOK FOR
IN THE EARNINGS TODAY? IS THERE ANYTHING TANGIBLE IN
THIS CALL? >> WHEN YOU LOOK AT THE GREATER
PUSH OF WORKLOADS BECAUSE OF AI, THAT'S A POSITIVE FACTOR.
ON THE NEGATIVE SIDE, WE ARE SEEING CORPORATE SPENDING
SLOWING DOWN PRETTY DRAMATICALLY. COMPANIES ARE SHOWING LESS
BOOKINGS, LESS GROWTH IN CONSULTING AND PEOPLE NOT
SPENDING THAT MUCH MONEY AND THAT IS A NEGATIVE FACTOR FOR
USAGE. TOM: ARE YOU LOOKING FOR A
DISAPPOINTMENT FROM MICROSOFT TODAY? >> I THINK IT WILL BE MUTED BUT
IT'S POSSIBLE THE CALL WILL TALK ABOUT WORKLOADS COMING IN
THAT PEOPLE WILL OVERLOOK THAT. JONATHAN:
WHAT DO WE EXPECT FROM AD SALES? PEOPLE ARE DISCUSSING WHETHER
WE HAVE A GOOD OR BAD ECONOMY. WHAT HAS THE COMPANY SAID ABOUT
THE TRAJECTORY OF SALES THE YEAR? >> I THINK THEY ARE LOOKING FOR
A BOTTOMING OUT AGAIN IN QUARTER OR NEXT WHEN IT COMES
TO THAT PROCESS. IT HAS BEEN A TOUGH YEAR FOR
THEM. IF YOU LOOK AT THE CYCLICAL
TRENDS, SOONER OR LATER, IT HAS TO BOUNCE BACK.
THAT'S THE NATURE OF THESE BUSINESSES BUT IT'S A QUESTION
OF TIMING. TOM: I AM FASCINATED WITH YOUR
ENCYCLOPEDIC KNOWLEDGE OF TWITTER BECOMINGX.
TO ME IT'S A BIZARRE THING. I KNOW IT'S A MARKETING THING
IN A SOCIAL THING AND ALL THAT BUT WHAT DO YOU THINK ABOUT X? >> WHEN IT COMES TO CONSUMER
TECHNOLOGY, IT'S VERY FICKLE. PEOPLE MOVE THEIR HABITS
QUICKLY AND WE SAW THE SUCCESS OF THREADS.
I THINK THEY HAVE LOST A LOT OF THE AD REVENUE AND I DON'T
THINK A LOT OF IT COMES BACK FOR THEM BECAUSE PEOPLE TRY NEW
THINGS IN TECHNOLOGY. I THINK SOME OF IT WILL STICK
AROUND. JONATHAN: WHAT DID HE BUY TWITTER FOR IF
IT WASN'T THE BRAND? COULD HE HAD BUILT IT HIMSELF
FOR $44 BILLION? TOM: I AM LOST ON IT OTHER THAN TO
TALK TO OTHER PEOPLE ABOUT IT. IT'S SUCH A JUMBLE AND THERE IS
SO MUCH DISCOURSE OUT THERE FROM PEOPLE THAT I WANT TO
LISTEN TO THE EXPERTS. JONATHAN: THANK YOU SO MUCH.
WE WILL HEAR MORE THIS WEEK WHEN WE GET EARNINGS FROM
ALPHABET AFTER THE CLOSE LATER. I STILL DON'T GET X. TOM:
HOW DO YOU PRONOUNCE XEET? JONATHAN: ZEET? TOM:
IT'S A CURTIS TAN WORD, A SOUTHERN TURKEY WORD. -- CURTIS TAN - KURDISTAN WORD. JONATHAN:
WE WANTED TO BE SUCCESSFUL AND WE WANT HIM TO SUCCEED BUT
ANYONE IS PART OF THE PLATFORM WANTS TO SEE IT DO BETTER BUT
YOU STILL HAVE THESE GOLDEN MOMENTS. THE BASKETBALL PLAYER WAS
JOKING ABOUT HOW HE WOULD TAKE THE OFFER FROM SAUDI ARABIA. THOSE ARE THE KIND OF MOMENTS
YOU ONLY GET ON TWITTER. TOM: AND ALSO FOR BREAKING NEWS.
WE USE IT TO CONFIRM SPECULATION IN REAL NEWS.
IT'S BEEN A TOOL FOR US. WHAT'S THE UPDATE ON FUTBOL?
JONATHAN: MASSIVE OFFERS ARE COMING FROM
SAUDI ARABIA. I'M SURE THE CLUB IS ENGAGING
IN THOSE TALKS FROM WHAT REPORT SAY BUT I HAVEN'T HEARD THE
PLAYER IS ANYWHERE. TOM: DOES HE CONTROL THE DEBATE? DOES HE CONTROL HIS DESTINY?
JONATHAN: HE'S GOT A YEAR LEFT ON HIS
CONTRACT. THEY DON'T WANT TO LOSE HIM FOR
FREE NEXT YEAR BECAUSE HE WOULD BE ABLE TO LEAVE IN A FREE
TRADE. THEY WANT TO GET SOME MONEY FOR
HIM BUT DOES HE WANT TO GO TO SAUDI ARABIA? I DON'T THINK SO.
I THINK HE WANTS TO GO TO REAL MADRID. TOM:
IF HE WANTS TO GO TO TOTS HE GOES THERE. JONATHAN:
HARRY IS GOING TO BUY HIM. TOM: SONALI: JONATHAN:
TUESDAY MORNING, GOOD MORNING TO YOU. EQUITIES ARE IN POSITIVE
TERRITORY A LITTLE BIT. ZERO POINT 06% ON THE S&P 500.
IT'S GOING TO BE A LOT OF ATTENTION ON THAT INDEX TODAY
WITH SOME REPORTING INCLUDING ALPHABET AND MICROSOFT AFTER
THE CLOSE TODAY AND METHOD TOMORROW. DOWN BY FOUR OR FIVE BASIS
POINTS ON THE TWO YEAR AND THE TENURE IS HIGHER BY A COUPLE OF
BASIS POINTS. LOTS OF DATA THROUGH THIS WEEK
BUT THE MAIN FOCUS, THE EGG ATTENTION WILL BE CHAIRMAN
POWELL TOMORROW IN HIS CONFERENCE WITH THE FED
DECISION WITH PROBABLY ANOTHER FED HIKE.
THAT CONVERSATION WILL BE IN WASHINGTON, D.C.
A LITTLE BIT LATER. TOM:
MY READER GOES UP WHEN NO NEWS IS EXPECTED.
THEY DON'T WANT ALL THIS ANTICIPATION GARBAGE.
THEY WANT MICHAEL MCKEE TO STAND UP IN THE MIDDLE OF THE
PRESS CONFERENCE. WILL WE SEE THAT TOMORROW?
JONATHAN: LOOKING FORWARD TO MICHAEL
MCKEE'S QUESTIONS AND THAT PRESS CONFERENCE. REMEMBER SUB PARITY IN LATE
DECEMBER? WE HAVE COME LOWER AND WE WERE
TALKING ABOUT A WINNING STREAK FOR THE EURO A WEEK OR SO AGO
BUT THAT HAS TURNED AROUND AND THE EURO IS WEAKER AND THE
DOLLAR IS A LITTLE BIT STRONGER THIS MORNING. TOM: I'M WATCHING THE MEXICAN PESO
AND THAT CONTINUES TO SHOW PERSISTENT STRENGTH.
THERE ARE OTHER STORIES BUT I AGREE THAT THE EURO IS FRONT
AND CENTER. DX WHY IS SHOWING RECENT
STRENGTH. JONATHAN:
TECH EARNINGS WILL RAMP UP WITH RESULTS FROM MICROSOFT AND
ALPHABET AFTER THE CLOSING BELL INVESTORS LOOKING AT ARTIFICIAL
INTELLIGENCE. MICROSOFT, 44% HIGHER YEAR TO
DATE, ALPHABET UP 38%. TOM: ARE THEY UP BECAUSE OF AI OR OR
THEY -- OR ARE THEY UP FROM THE PREMIUM OF GROWTHINESS? IT'S ABOUT GROWTH. JONATHAN:
THE DOMINANCE OF U.S. TECH CONTINUES.
THE BACKDROP FOR THE EUROPEAN ECONOMY -- WE GET A BANK
LENDING SURVEY FROM THE ECB AND IT WAS PUBLISHED TODAY AND IT
SHOWED A DEMAND FOR CORPORATE LOANS IN THE EURO ZONE SINKING
BY THE MOST ON RECORD IN THE SECOND QUARTER.
THE RATE HIKES CYCLE OVER THE LAST 12 MONTHS CLEARLY IS
AFFECTING MORTGAGES AND BORROWING BUT THIS IS HAPPENING
QUICKLY IN EUROPE AREA GERMANY IS IN RECESSION AND DEMAND FOR
LOANS OR DROPPING OFF A CLIFF. TOM:
THERE IS THE SIMPLE FACT THAT IT IS NOT THE SAME AS AMERICA.
WE ARE MORE EQUITIZED. IT'S AN EQUITY WORLD IN AMERICA
VERSUS EUROPE WHICH IS MUCH MORE LOAN BASED AND MUCH MORE
BANK BASIN AND WHEN YOU SEE LOAN DEMAND DOWN, IT HAS A
BIGGER WALLOP. JONATHAN:
WE DIDN'T HAVE THE CREDIT MARKET THE SAME WAY IN THE
UNITED STATES. THIS TIME YESTERDAY, WE GOT
HEADLINES FROM THE POLITBURO IN CHINA LED BY XI JIN PING THAT
CAME OUT WITH STIMULUS -- POTENTIAL STIMULUS MEASURES.
THIS IS THE REACTION TO THAT THIS MORNING AND THROUGH THE
SESSION IN CHINA. THE HANG SENG ENTERPRISES INDEX
WHICH TRACKS THE MAJOR CHINESE COMPANIES IS GAINING MORE THAN
5%. THE BIGGEST POP GOING BACK TO
NOVEMBER. IN NOVEMBER, IT WAS THE TALK OF
CHINA REOPENING. ANOTHER POP THIS MORNING. TOM: I'VE ALWAYS LOOKED AT THE DECKS
AS THE ROULETTE WHEEL OF EUROPE. THEY SAID CHINA WOULD SAVE THE
DAY AND EVERYTHING WOULD PICK UP.
WE LOOK AT GERMANY AND CHINA. JONATHAN:
THAT'S THE WHOLE POINT. EUROPE NEEDS THE STIMULUS AS
ANYONE AT THE MOMENT. THE EUROPEAN CENTRAL BANK IS,
MAYBE THIS IS WHAT THEY WANT. IF YOU ARE LONG EUROPE, YOU
WANT SOME ENCOURAGEMENT. TOM: LET US SEGUE TO MICHAEL ZIZAS.
HE IS IN MUNICIPAL FINANCE AND IT NOW AS GLOBAL HEAD OF FIXED
INCOME RESEARCH AT MORGAN STANLEY.
I CANNOT SAY ENOUGH, THE IDEA OF A GUY WITH MASSIVE POLICY
CREDIBILITY AND THE GRANULARITY OF BONDS IN AMERICA DOING FIXED
THEM -- FIXED INCOME RESEARCH. IT'S RADICALLY DIFFERENT THAN
MOST GLOBAL HEADS OF FIXED INCOME? >> AT A HIGH LEVEL, TO OWN MARKETS IN GENERAL, YOU HAVE AN
INTERACTION WITH PUBLIC POLICY THAT WE USED TO JUST BE THE
AREA FOR EMERGING MARKETS. YOU NEED THESE INTERACTING
SKILL SETS. ON A DAY LIKE TODAY AND
TOMORROW WHEN WE WAIT ON THE FED, IT'S IMPORTANT TO
UNDERSTAND THE PUBLIC POLICY NUANCE BEHIND ALL THIS.
ONE REASON WE ARE SO CONSTRUCTIVE ON THE BOND
MARKETS NOW IS THAT THE FED FOR THE LAST 18 MONTHS HAS GONE ON
THIS TRAJECTORY WHERE IT WAS GRATING SUBSTANTIAL UNCERTAINTY
IN THE BOND MARKET IN ORDER TO DEAL WITH INFLATION THAT
ARGUABLY WAS CREATED BY SOME OF THE FISCAL POLICY CHOICES BY
THE U.S. GOVERNMENT AND BOTH PARTIES
UNDERSTANDING THAT TRAJECTORY MEANS WHETHER OR NOT THE FED
GOES THROUGH WITH THE SECOND HIKE IN SEPTEMBER THAT THEY ARE
SIGNALING THAT THE JOB IS ALMOST DONE OR THEY'VE ALMOST
GOT INFLATION UNDER CONTROL. YOU SWITCH FROM MASSIVE
UNCERTAINTY IN THE BOND MARKET IN THE WAY MUNICIPAL BOND
INVESTORS UNDERSTAND. WHEN YOU HAVE ELEVATED
VOLATILITY AND YIELDS GOING HIGHER, REGARDLESS OF THE
FUNDAMENTALS, THAT'S A NEGATIVE BACKDROP.
WE ARE REVIEW CONVERSING THAT RIGHT NOW.
-- WE ARE REVERSING THAT RIGHT NOW. TOM:
WE ALL HAVE A LEGACY OF SHADOWS OUT THERE RIGHT NOW.
ALL MY RADAR IS UP ON LOANS. DOES MORGAN STANLEY FIXED
INCOME RESEARCH FIELD THERE ARE CHALLENGES IN THE FIXED INCOME
SPACE, SHADOWS WE CANNOT -- WE CANNOT OBSERVE? >> FOR EXAMPLE, ONCE WE GET
INTO 2024 AND IT ESCALATES THROUGH 2028 AND LEVERAGED
FINANCE, THERE IS A SUBSTANTIAL WALL OF MATURITIES.
UNLESS YOU GET A MEANINGFUL AMOUNT OF SUBSTANTIAL FREE CASH
GROWTH, THINGS WILL GO DOWN. IF YOU DON'T GET ANY FREE CASH
FLOW GROWTH, ONE THIRD OF SINGLE B'S HAVE ONE-TIME
COVERAGE AND THAT'S A REAL CHALLENGE AND IT'S ONE OF THE
STRUCTURAL CHALLENGES THAT HIS CAP SPREADS RELATIVELY
ATTRACTIVE ANOTHER ONE IT IS THE BANK ISSUE AND HOW THIS
CHANGES THE REGIONAL BANKING CRISIS.
THESE ARE THINGS WE HAVE TO WATCH ON THE HORIZON.
THE SET UP FOR HIGH-GRADE BONDS RIGHT NOW IS PRETTY POSITIVE
INTO YEAR END BECAUSE WE ARE TAKING AWAY THE UNCERTAINTY FOR
THE FED AND FIGHTING INFLATION. JONATHAN:
WHO IS ACTUALLY PAYING THESE MARKET RATES?
WHAT'S THE DIFFERENCE BETWEEN WHAT A COMPANY'S COUPON IS FROM
DEBT ISSUED IN THE LAST COUPLE OF YEARS TO WHAT THE MARKET
RATES FOR THAT INTEREST IF THEY CAME TO THE MARKET TODAY?
HOW WIDE IS THAT? >> OUR CHIEF STRATEGIST WROTE
ABOUT THIS SUNDAY AND IT'S FASCINATING.
IN A LOT OF WAYS ACROSS THE CAPITAL STRUCTURE OF THE
MARKETS, THE BOND YIELD, IF THE BOND IS YIELDING MORE THAN THE
ASSET ITS FINANCING IT'S UPSIDE DOWN. IT YIELDS ABOUT FIVE .4% AND
THE RUSSELL 1000 EARNINGS YIELD IS ONLY 4.8%. THAT'S NOT TOTALLY
UNPRECEDENTED BUT IT'S ONLY HAPPENED 2% OF THE TIME IN THE
LAST 20 YEARS. THAT DIFFERENCE KIND OF MAKES
SENSE IF YOU THOUGHT WE WERE ABOUT TO ACCELERATE ECONOMIC
GROWTH SUBSTANTIALLY BUT WE'VE GOT THE OPPOSITE.
WE HAVEN'T SLOWED DOWN AS MUCH AS WE THOUGHT WE WOULD BUT
WITHOUT THAT GROWTH, THERE IS A PROBLEM IF YOU HAD TO FINANCE
WITH A HIGHER YIELD THAN YOU'RE EARNING. JONATHAN:
WHEN DOES THIS START TO BITE? IT'S GOING TO BITE CERTAIN
PARTS OF THE ECONOMY MORE THAN OTHERS. >> I THINK IT'S ALREADY
STARTING TO BITE. LAST CPI PRINCE SHOWED THAT AND
IT'S PART OF THE REASON RE: THOMAS WILL TELL YOU THAT THE
FED WILL HIKE THIS MONTH BUT ULTIMATELY, THEY WILL PROBABLY
NOT HIKE IN SEPTEMBER BECAUSE THE ACCUMULATED EFFECT OF
EVERYTHING THAT'S BEEN DONE SO FAR IS GOING TO BE TIGHTENING
OVER THE COURSE OF THE REST OF THE YEAR.
THAT IS ALSO A GOOD SET UP FOR BONDS AND BOND YIELDS. TOM: I'M LOOKING AT A MICROSOFT
BECAUSE THE EARNINGS ARE OUT TODAY. I GO OUT 10 YEARS WITH
MICROSOFT 2 5/8 AND I'VE ENJOYED A PRICE DECLINE FROM
130-97. WHAT'S THE LIKELIHOOD OF SUSTAINED HIGH RATES THAT WE
SEE A PRICE BREAK DOWN? >> I DON'T KNOW THAT YOU
NECESSARILY GET A SUBSTANTIAL PRICE RATE DOWN.
A LOT OF IT WILL COME OFF OF THE YIELD COMPONENT.
IT'S MOSTLY BECAUSE THE FED COULD BE CLOSER TO THE END OF
HIKING. THERE IS STILL THE SECULAR
HEADWINDS, THE BANK DEMAND HEADWIND, LINGERING CREDIT
ISSUES. IT'S NOT NECESSARILY AN ENVIRONMENT WHERE YOU GET
YIELDS MOVING LOWER OR SPREADS MOVING TIGHTER.
CLIPPING A COUPON IS QUITE ATTRACTIVE RIGHT NOW RELATIVE
TO EQUITIES WHICH WILL PROBABLY BE MORE CHALLENGED IN OUR
ESTIMATE. TOM:
HOW MUCH DO YOU AND THE EQUITY GUYS TALK TO EACH OTHER? >> A LOT. TOM: SOME HAVE NOT CHANGE THEIR
VIEWS BUT HOW DOES FIXED INCOME WORK GOING BACK-AND-FORTH AND
FORTH WITH EQUITY? >> THE COLLABORATION IS
CONSTANT AND WE ARE ON THE SAME FLOOR AND WE ARE ON CALLS ALL
THE TIME MAKING SURE WE ARE CHALLENGING EACH OTHER.
THE ANSWER IN SHORT IS A LOT. JONATHAN:
THIS WAS GREAT AND IT'S GOOD TO SEE YOU. AWESOME AS ALWAYS. LET'S TURN BACK TO GM.
IN THE LAST 41 MINUTES OR SO, GENERAL MOTORS
, 41 MINUTES AGO, GENERAL MOTORS CAME UP AND RELEASED
PARTIAL RESULTS IN CHINESE ON THEIR OWN WEBSITE AND THEN
RELEASE THE ACTUAL RESULTS 30 MINUTES AFTER THAT.
THEY RAISE THEIR OUTLOOK FOR THE YEAR IN THE STOCK IS
SLIGHTLY POSITIVE IN THE PREMARKET. TOM:
I WONDER WHAT IT WILL DO TWO EMBARGOES. I'M SURE THEY ARE SITTING THERE
IN DETROIT AND EVERY COMPANY IS LOOKING AT THIS AND GOING WHAT
IS THE VALUE OF MAKING THAT MISTAKE? JONATHAN: THEY PUBLISHED IT ON THEIR OWN
WEBSITE IN A DIFFERENT LANGUAGE, THAT'S SLIGHTLY
BIZARRE. TOM: THERE IT IS IN IT'S GOOD
NUMBERS. I GUESS THEY GO WITH IT. I DON'T UNDERSTAND HOW YOU MAKE
MONEY OVER LONG TERM. I GET THE IDEA YOU CAN GET A
CYCLICAL POP IN THE AUTOMOBILE COMPANIES BUT I'M LOOKING AT GM.
IT'S RALLYING 3.5% PER YEAR FOR THE LAST 10 YEARS.
I DON'T GET IT. I DON'T GET TESLA EITHER.
JONATHAN: TESLA GOT HAMMERED LAST WEEK
OFF THE BACK OF DISAPPOINTING EARNINGS AS WELL AS NETFLIX. IF WE GET THE SAME FATE FOR
MICROSOFT AND ALPHABET LATER THIS AFTERNOON, THAT'S WHERE
THE ATTENTION WILL SHIFT. IT'S ONTO META ON WEDNESDAY.
I WAS LED TO BELIEVE THAT AMAZON CAME UP THIS THURSDAY
BUT IT COMES OUT NEXT THURSDAY. TOM:
WE GOT THE CALENDAR WRONG AND IT HAPPENS.
ONE OF THE GREAT THINGS TO DO IS THE DES SCREEN WILL GIVE YOU
THE GUESSTIMATE OF WHEN EARNINGS WILL COME OUT.
SOME COMPANIES ARE REPETITIVE ON THAT AND OTHERS ARE A
SURPRISE BUT AMAZON I BELIEVE COMES OUT WITH APPLE ON THE
SAME DAY. JONATHAN:
IT'S NEXT THURSDAY AFTER THE BANK OF ENGLAND WITH
CENTRAL-BANK DECISIONS THIS WEEK AND THE FEDERAL RESERVE
MEETING BEGINS TODAY THEN ONTO THE ECB THURSDAY AND THE BE OJ
FRIDAY. WE WILL TALK ABOUT THAT COMING
UP. EQUITY FUTURES RIGHT NOW ON THE
S&P 500 ARE POSITIVE BY ALMOST 0.1%. FROM NEW YORK, THIS IS
BLOOMBERG. >> I THINK IT'S VERY LIKELY AND IT WOULD BE REASONABLE TO PAUSE
AT THE -- AT THE ECB. IT'S UNCLEAR WHETHER THE
INFLATIONARY PRESSURE HAS BEEN OVERCOME ENTIRELY.
WE KNOW CORE INFLATION IS STUBBORN. IT'S AN OPEN QUESTION HOW THIS
GOES ON BUT THE CURRENT SITUATION WITH THE WEAKENING ECONOMY
IN EUROPE, IT WOULD BE
ADVISABLE TO HALT. JONATHAN: THAT WAS GERMAN BUSINESS
CONFIDENCE. MOST PEOPLE ANTICIPATE A HIKE
IN EUROPE. THE PMI LOOKS PRETTY TERRIBLE
BUT INFLATION IS STILL A PROBLEM AND I THINK THIS IS THE
LESSON FOR THE REST OF THE WORLD AS YOU CAN HAVE A WEAKER
ECONOMY AND STILL HAVE AN INFLATION PROBLEM. THAT'S THE NIGHTMARE SCENARIO
FOR CHAIRMAN POWELL A LITTLE BIT LATER THIS YEAR.
AS FAR AS THINGS STAND, HE DOESN'T HAVE THAT PROBLEM.
THE HOPES AND DREAMS OF A SOFT LANDING ARE STILL ON THE TABLE
IN TERMS OF THE DATA. TOM: THE THEME OF THIS SUMMER'S
AMERICAN EXCEPTIONALISM. THE BANK OF JAPAN IS A
THEORETICAL MYSTERY. ALSO THE COMPLEXITIES OF EUROPE.
TOO MUCH OF THE FANCY ANALYSIS DOES NOT MENTION THE ISSUE OF A
WAR IN UKRAINE. THERE IS A LEGITIMATE WAR GOING
ON IN THE CONTINENT OF EUROPE. JONATHAN:
THE CRISIS OF EUROPE THAT WASN'T, THE ENERGY CRISIS THAT
THEY MANAGED TO AVOID THROUGH THE WINTER, THAT WAS THE GOOD
NEWS FOR THE EUROPEAN ECONOMY. WHAT WE ARE STARTING TO SEE IS
SOME REAL ECONOMIC WEAKNESS START TO EMERGE AND SOME OF
THAT IS BY DESIGN BECAUSE OF THE RATE HIKING CYCLE OF THE
ECB AND YOU SEE SOME OF THAT IN LOANS BUT HAVE WE GOT TO A
POINT WHERE THE ECB NEEDS TO BACK AWAY?
IT WILL BE AN INTERESTING THURSDAY DECISION. TOM:
WE NEED SOMEONE TO SYNTHESIZE THIS ON A GLOBAL BASIS.
WE HAVE THE SENIOR FELLOW AT THE COUNCIL ON FOREIGN
RELATIONS. SHE'S QUITE GOOD AT TYING IN
THESE DIFFERENT THREADS IN A CONFUSING POST-PANDEMIC TIME.
LET ME GO TO ONE OF YOUR HEADLINES WHICH GETS OUT FRONT
AND SAYS THIS COULD BE A SUCCESSFUL FED.
IT COULD BE A SUCCESSFUL JEROME POWELL AND YOU STATE WE NEED TO
BEGIN TO FRAME THE IDEA OF JAY POWELL IS A HERO.
DISCUSS HOW THE CHAIRMAN OF THE FEDERAL RESERVE SYSTEM COULD BE
THE 2024 HERO. >> I THINK YOU HAVE TO GIVE HIM
A LOT OF CREDIT FOR COMING THROUGH COVID.
WE BLOCKED OUT PART OF COVID BUT THE FACT THAT HE MANAGED
THROUGH COVID, THAT HE IS DEFYING MANY EXPECTATIONS,
PARTICULARLY ON THE MACRO ECONOMIC PRIESTHOOD HE IS NOT
PART OF WHO VERY MUCH DOUBTED HE WOULD BE ABLE TO NAVIGATE
THE WATERS COMING OUT OF COVID. WE DO HAVE THE HIGHER
PROBABILITY OF A SOFT LANDING. IF HE IS ABLE TO STICK THAT, I
THINK IT WILL BE IN HEROIC FEET. HE IS AIMING FOR THAT BALANCE IN BOTH LABOR AND TAMING
INFLATION. WE HAVE SEEN A LOT OF PROGRESS. WE ARE SEEING THAT BALANCE
FALLBACK INTO MUCH MORE MANAGEABLE SPACES. ALL OF THE DEBATE OVER THE PAST
SEVERAL WEEKS OVER WHETHER HE SHOULD CHANGE THAT 2% TARGET
MISSED THE FACT THAT THERE IS A GREAT DEAL OF CREDIBILITY TIED
TO THAT TARGET. I DON'T THINK HE WILL CHANGE
THAT OVER TIME. TOM: WITHIN YOUR WRITINGS, YOU ARE A
GREAT STUDENT OF EUROPE. I'M INTERESTED HOW YOU FEEL THE
INFLATION , NETHERLANDS, AUSTRIA AND THE
CORE OF EUROPE AND THEIR ANCIENT CONCERN FOR INFLATION,
WHAT POWER, WHAT SWAY THEY HOLD THAT THE ECB RIGHT NOW? >> IT'S HUGE. THE FOCUS ON THE ECB DECISION
THIS WEEK IS KEY. CHRISTINE LOOK ARDEN, --
CHRISTINE LUG GUARD, I DON'T THINK THERE IS A LOT OF DEBATE
ABOUT WHAT WE ARE LIKELY TO SEE OUT OF THE FED AND THE ECB THIS
WEEK. THERE IS A HISTORY OF FEAR OF
INFLATION AND MUCH MORE CONCERNED ABOUT GROWTH IN
EUROPE RIGHT NOW. WE HAVE TO REMEMBER THAT THERE
IS A WAR. WAR IS INFLATIONARY AND WE ARE
SEEING GRAIN PORTS BOMBED BY RUSSIA.
THERE IS A CHANCE WE COULD SEE WEAPONIZATION OF ENERGY AGAIN
AND PRICES SPIKING IN EUROPE THIS WINTER. EUROPE IS NOT READY FOR AN
ALL-OUT SPIKE IN ENERGY AGAIN. YOU CANNOT JUST PRAY FOR GOOD
WEATHER IS A STRATEGY. I AM SLIGHTLY CONCERNED THIS
WINTER MIGHT BE A TOUGHER ONE. JONATHAN:
HOW MUCH OF THE SLOWDOWN WE'VE SEEN BEFORE WE GET TO WINTER IS
BY DESIGN? DOES THE ECB WANT TO SEE THIS
TAKE PLACE? >> IT'S A MATTER OF BALANCE. IT'S A MATTER OF BALANCING
GROWTH, BRINGING DOWN INFLATION. I THINK WE ALSO HAVE TO LOOK AT
WHAT'S HAPPENING IN CHINA GIVEN THE WAY THE CHINESE ECONOMY HAS
BEHAVE. YOU HAVE A SLOW DOWN THAT COULD
HAVE SHOCKS ON THE GLOBAL ECONOMY THAT WE MIGHT NOT BE
PAYING ATTENTION TO. JONATHAN: THE POLITBURO CAME OUT WITH A
RANGE OF MEASURES SUPPORTING CONSUMPTION DOMESTICALLY AND
DOING THINGS WITH EV'S. I WAS WONDERING HOW MUCH OF
THIS I SHOULD TAKE SERIOUSLY. >> I THINK THE POLITICAL
MESSAGING IS STARK. YOU HAD THE PARTY IN THE STATE
COUNCIL COME OUT LAST WEEK WITH MEASURES, VERY DELIBERATE
MESSAGING THAT THE PRIVATE SECTOR WILL BE SUPPORTED
EQUALLY . YOU HAVE A LOT OF MESSAGING IN
MEETING WITH INVESTORS WITH LARGE INSTITUTIONAL INVESTORS,
THEY WANT INVESTMENT. THE RHETORIC HAS TO BE MET AND
WHAT IT WILL TAKE TO GET THAT INVESTMENT BACK, IT REALLY HAS
A LOT TO DO WITH THE TRANSPARENCY OR LACK OF
TRANSPARENCY HEADING IN THE WRONG DIRECTION WITH THE FACT
THAT YOU CAN SEE A REACTION THAT WE SAW OVER THE PAST TWO
YEARS TOWARDS THE GROWTH OF TECH. TOM: WHAT YOU TOUCHED ON IS THE
ABSOLUTE KEY ISSUE. IS CHINA SO DESPERATE FOR OUR
FOREIGN INVESTMENT INTO CHINA THAT IT COULD CHANGE THE POLICY
CERTITUDE OF BEIJING AND THE DICTATORSHIP? >> YOU HAVE THE MESSAGING.
YOU NEED THE DEEDS TO MAKE THE MESSAGE. THERE HAS BEEN A SIGNIFICANT
INITIATIVE TO MESSAGE TO FOREIGN INVESTORS THAT CHINA
WANTS THEM BACK. WHETHER THAT WILL HAPPEN, THERE
IS A MYRIADS OF RISKS FOR THOSE INVESTORS TO COME BACK INTO THE
MARKET AND THE REALITY IS, AS JANET YELLEN POINTED OUT, THE
U.S. IS PRIORITIZING IN THAT AREA OF
NATIONAL SECURITY OVER COMMERCE. THE CHINESE DO THAT ON STEROIDS.
THEY HAVE DONE FOR QUITE SOME TIME SO YOU HAVE TO BALANCE
THOSE RISKS IF YOU GO BACK IN FULL THROTTLE TO THE CHINESE
MARKET. IT REALLY HAS A LOT MORE TO DO
WITH WAR MORE THAN WORDS. JONATHAN:
THANK YOU AS ALWAYS FOR JOINING US. SOME OF THE CHALLENGES
DOMESTICALLY, THE EFFORT TO BALANCE OPPOSING FORCES IN
PLACES LIKE CHINA. TOM: THIS IS TEXTBOOK WHERE SHE
TALKS ABOUT THE GREATER THEME OF CHINA AND ALL THE THINGS IN
HER HEAD AND DISTILLS IT RIGHT DOWN TO WHAT THE CHINESE NEED
FROM US. THEY NEED INVESTMENT. HOW CAN WE GIVE THEM INVESTMENT
GIVEN THE POLITICS AND GIVEN THE MICRO DECISIONS MADE OUT OF
BEIJING. ALSO THE ONES MADE OUT OF
WASHINGTON. JONATHAN: WE ARE ALSO WAITING ON AN
OUTBOUND RESTRICTION PACKAGE FROM WASHINGTON.
IT'S THE ACTION FROM CORPORATIONS AS WELL.
WAS THE EASY ANSWER IF YOU ARE A CORPORATION? UNLESS YOU ARE X.
JONATHAN: I WOULD LOVE THE BACK STORY OF
WHAT HAPPENED OVER THE WEEKEND. DAN GREENHOUSE WILL JOIN US
SHORTLY, A BIG AFTERNOON FOR EARNINGS COMING UP LATER. >> THE REAL GROWTH PICTURE IS
PRETTY PRONE EVERYWHERE. >> FROM AN ECONOMIC PERSPECTIVE
WE ARE EXPECTING A DECENT ITERATION OF A SLOWING ECONOMY. >> THIS ECONOMY, YOU HAVE TO BE
MORE NIMBLE. >> WE ARE CAUTIOUS, THINGS ARE
READY FOR A FULL-BLOWN RECESSION. >> THIS IS "BLOOMBERG
SURVEILLANCE." JONATHAN: THE WEEK BEGINS TODAY.
LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING, GOOD
MORNING FOR OUR AUDIENCE WORLDWIDE.
I'M ALONGSIDE TOM KEENE, JONATHAN FERRO. LISA IS STILL OUT.
SHE WILL BE BACK TOMORROW. TOM: SO SHE SAYS. JONATHAN:
TECH EARNINGS KICKING OFF IN A BIG WAY.
MICROSOFT AND ALPHABET ARE AROUND THE CORNER AFTER GAINS
OF 30% YEAR TO DATE. TOM: IT WILL BE INTERESTING TO SEE.
DIVING INTO EARNINGS SEASON. GUESTS COMING UP ARE
ENTHUSIASTIC ON THE UPSIDE. ONE OF THE GREAT THINGS HERE IS
THAT CORPORATIONS ADAPT. WE SAW THAT MOMENTS AGO. THOSE NUMBERS, PLANNING TO CUT
1000 JOBS AND WHAT'S CRITICAL IS THEY ONLY HAVE 9000
EMPLOYEES. THAT'S LIKE A REAL CUT.
HEADLINES MATTER. IT'S A PERCENTAGE CHANGE ON
RIGHTSIZING. WILL TECH CONTINUE TO RIGHT
SIZE? THESE ARE THE QUESTIONS ON THE
CONFERENCE CALL. JONATHAN: HOW MUCH CAN BE DO BY TALKING
ABOUT AI REPEATEDLY? TOM: I WAS POLITE WITH ANNA, BUT I
THINK YOU ARE DEAD ON. AI, YEAH?. JONATHAN:
WE GET TO COUNT HOW MANY TIMES THAT PHRASE COMES UP. TOM:
I'M GOING TO CUT THEM SLACK. I DON'T THINK IT'S
NANOTECHNOLOGY, WHICH I THOUGHT WAS BS FROM THE GET-GO.
REMEMBER NANO? JONATHAN: IT WAS GOOD. TOM:
BUT WHAT I HEAR FROM THE ADULTS IS THAT IF YOU GO OUT, MARK
MAIN, YOU'VE GOT TO GO OUT AND PINE. JONATHAN:
LOOKING FORWARD TO CATCHING UP WITH THEM. WE DID IT AT 9:40.
GREAT GUEST WITH US NOW AND THE EQUITY MARKET.
EQUITY FUTURES ON THE S&P 500 ARE POSITIVE.
THERE'S A LIFT IN THE BOND MARKET YIELD, HIRED BY A COUPLE
OF BASIS POINTS. HERE IS THE MOVE IN THE EURO.
NOT BIG ON THE DAILY BASIS INTRADAY BUT IT IS RELENTLESS
OVER THE PREVIOUS SIX DAYS. EURO WEAKNESS AFTER STRENGTH.
-0.2%. THE FACT OF THE MATTER IS THAT
DATA IN EUROPE AT THE MOMENT DOES NOT LOOK GREAT AND THE ECB
IS GOING TO HIKE IT ON THURSDAY. TOM: THE BIGGEST RISK, WE HAVE
IDENTIFIED THAT RIGHT NOW. BUT THERE IS NO JACKSON HOLE
AND WHAT'S THE DEBATE ON ECB INTO Q3 AND Q4? THERE'S A HUGE MYSTERY ABOUT Q3
Q4 IN ECONOMICS. SOME OF THAT WILL BE CLARIFIED
AT JACKSON HOLE. JONATHAN: PRESIDENT LAGARDE, THURSDAY.
TOM: SHALL BE ON THE SHOW? JONATHAN: NO BUT SHE HAS A NEWS
CONFERENCE YOU CAN ATTEND IN GERMANY IF YOU WOULD LIKELY TO
FLY YOU OUT. TOM: INTERESTING. JONATHAN: DAN, GOOD TO SEE YOU.
WE GOT THE SPOILER THERE. YOU ARE OPTIMISTIC ON EARNINGS
SEASON. CONSTRUCTIVE. TELL US WHY. AND:
FIRST OF ALL LET'S LOOK AT WHO HAS REPORTED.
AIRLINE DEMAND IS STRONG. HOMEBUILDERS REPORTING HAS SAID
DEMAND IS STRONG. BANKS WERE TERRIFIC. UNDERREPORTED STORY, THE CEO OF
PNC BANK. THEY ARE OBVIOUSLY NOT JP
MORGAN BUT IT IS A TREMENDOUSLY LARGE BANK WITHIN A NORMA'S
LONE BOOKING AND ASKED ABOUT THE CURRENT STATE OF THE
ENVIRONMENT THE CEO OF PNC CUT HIMSELF OFF AND SAID WE ARE
HAVING A SOFT LANDING RIGHT NOW, THE ECONOMY HAS BEEN QUITE
STRONG. FROM MY STANDPOINT I THINK THAT
WILL TRANSLATE INTO ACTUAL OPERATING RESULTS.
THAT HASN'T FULLY MATERIALIZED OF YET BUT I HAVE BEEN
OPTIMISTIC THIS WILL BE A BIGGER THAN EXPECTED EARNINGS
SEASON. TOM: FOR THE GOALIE CREW, WHERE IS
THE GREATEST MISJUDGMENT? REVENUE? DOWN THE LINE?
IN -- THE INPUT COSTS DEBATE? WHAT IS THE THING THE BLOOM
CREW IS GETTING THE MOST WRONG? DAN:
GLOOM CREW IS A SMALL GROUP AT THIS POINT.
PRICE ACTION HAS ARRIVED. THERE IS CONCERN ON THE TOP
LINE . I MEAN THERE IS A GOOD RELATIONSHIP BETWEEN NOMINAL
GDP AND NOMINAL EARNINGS IN THE S&P 500 AND AS IT COMES DOWN,
THE TOPLINE GROWTH HAS SLOWED AND IS CONTINUING TO SLOW.
I DON'T MEAN TO SUGGEST THAT ALL IS WELL BUT WHAT I'M
OPERATING ON IS IT'S MORE OF A RELATIVE ARGUMENT, MORE SO THAN
THE NEGATIVE ARGUMENTS OF 2022 THAT FULLY CARRIED OVER INTO 23
AND DON'T APPEAR TO BE MATERIALIZING IN THE WAY SOME
PEOPLE EXPECTED. TOM: YOU AND I SIT ON THE CONFERENCE
CALLS. YOU GET A CHARACTER THERE.
WHAT'S THE CHARACTER OF TECH THIS WEEK?
0 THEY ARE GOING TO TRY TO RIDE THE AI TRAIN AS FAR AS POSSIBLE.
WE HAVE ALL BEEN AROUND THE BLOCK A FEW TIMES.
HOW MANY TIMES HAVE YOU SEEN THE SAME HEADLINE HIT THE TAPE
TO GOOSE ASSET PRICES REPEATEDLY AND HOW MANY TIMES
CAN YOU THROW UP YOUR HANDS AND SAY WE ALREADY KNOW THIS.
ON THE AI SIDE OF THINGS THAT WILL PROBABLY BE THE CASE AGAIN.
ALTHOUGH ADMITTEDLY IT'S A REAL THING. PRESUMABLY ORDERS ARE MATERIALIZING, COMPANIES ARE
ACTUALLY IMPLEMENTING THIS IN A MATERIAL AND COST-EFFECTIVE
MANNER THAT WILL HAVE REAL-WORLD BENEFITS FOR
COMPANIES IN THE IMMEDIATE. SO I THINK THAT CAN BE
MEASURABLE AND ULTIMATELY IT MAY NOT SIMPLY BE THE SAME
HEADLINE OVER AND OVER AGAIN IF THE DATA BACKS IT UP. JONATHAN: THE NEW ROTATION WAS AWAY FROM
EGG TECH. WHERE DO YOU STAND ON THAT NOW?
DAN: LISTEN THE RALLY HAS BEEN
BROADENING AND TO BE CLEAR TO THE SPRING IT WAS UNDOUBTEDLY
THE SO CALLED SEVEN. THERE IS A BIT OF REVISIONIST
HISTORY GOING ON THAT SOMEHOW THE BROAD RALLY IS ALWAYS THE
CASE. BUT YOU HAVE TREMENDOUS CATCH
UP NOW ON THE PART OF SMALL AND MID-CAPS AS WE KNOW AND THE
REST OF THE INDEX IS PLAYING A BIT OF CATCH-UP AS WELL.
A LOT OF THAT HAS TO DO WITH THE ECONOMY NOT BEING IN A
RECESSION . WE TALKED ABOUT THAT THE LAST
TIME I WAS HERE. AROUND THE MIDDLE OF THIS YEAR,
MY GROUP EXPECTED SOMETHING RESEMBLING RECESSION OR A WORSE
ECONOMIC ENVIRONMENT. NOW IT SEEMS CLEAR WE ARE HERE.
NOT ONLY IS IT NOT THE CASE BUT WE ARE VERY UNLIKELY AS IT
STANDS NOW GOING TO HAVE RECESSION EVEN THIS YEAR AND IF
THAT'S THE CASE YOU ARE GOING TO START TO SEE AND INDEED HAVE
SEEN A ROTATION AWAY FROM BIG NAMES INTO OTHER NAMES BECAUSE
THE SUPPOSE IT ECONOMIC WEAKNESS THAT I FORECAST AND BY
EXTENSION THE EARNINGS WEAKNESS THAT WOULD MATERIALIZE AS A
RESULT IS NOT HERE. JONATHAN: HOW STICKY IS THAT MONEY IN THE
MONEY MARKET FUNDS? WHAT DOES THAT LOOK LIKE? DAN:
YEAH I DON'T HAVE THE ANSWER. 5% OUTSIDE THE RISK COMMERCIAL
PAPER. THEN YOU COULD GET 6%. FROM A RETURN STANDPOINT IF YOU
BUILD A PORTFOLIO OR ADJUST A PORTFOLIO TO HAVE A CORE OF 5%
TO 6% LET'S SAY AND AROUND THAT YOU BUILD A DIVERSIFIED
PORTFOLIO OF HIGH-YIELD CORPORATE BONDS AND EQUITIES,
YOU CAN HAVE A PRETTY ATTRACTIVE RETURN STREAM WITH A
LOWER BETA THAT FOR MOST PEOPLE INSTITUTIONAL AND OTHERWISE IS
NOT UNATTRACTIVE. FOR US, WE DO A LOT OF HIGHER
RISK HIGH-YIELD BOND DISTRESS TYPE INVESTING AND THAT RETURN
STREAM WILL BE CONSIDERABLY MORE VOLATILE NO MATTER WHAT.
ON BALANCE I THINK THAT WHEN YOU CAN HAVE THE CORE OF YOUR
PORTFOLIO RETURNING FIVE, 6% ON 90 DAY PAPER, THAT'S REALLY
HARD TO ARGUE WITH. TOM: DOES DIVERSIFICATION WORK HERE
OR IS IT A TIMEFRAME OF CONCENTRATED BETS? DAN:
IN GENERAL I SUBSCRIBED TO THE WARREN BUFFETT LINE OF
THINKING, WHY SHOULD I PUT MY MONEY INTO MY SIX THE BEST IDEA
WHEN I SHOULD PUT MORE MONEY INTO MY FIFTH THE BEST IDEA.
TOM: THAT'S THE JON FERRO THEORY.
JONATHAN: WHAT'S THE DIFFERENCE? [LAUGHTER] DAN:
HARD TO TELL THEM APART. DAN:
WE ARE INSTITUTIONAL INVESTORS, PRESUMABLY LONG-LASTING AND
STICKY. DEPENDS. BUT FOR A LOT OF RETAIL
INVESTORS I THINK IT IS VERY HARD FOR THEM.
THEY HAVE BEEN TAUGHT, FINANCIAL ADVISORS HAVE BEEN
TAUGHT FOR YEARS THAT DIVERSIFICATION BENEFITS
SECTORS AND GEOGRAPHICALLY AND I DON'T THINK THAT'S GOING TO
BE A THOUGHT THAT'S GOING TO BREAK ANY TIME SOON AND FOR A
LARGE DEGREE FOR THAT INVESTMENT CLASS I DON'T THINK
IT SHOULD BE BROKEN ANYTIME SOON. JONATHAN:
WRAPPING UP ON HIGH-YIELD, PHRASES THEY GET THROWN AT ME
EVERY TIME I TALK ABOUT CREDIT, THEY SAY THEY ARE UP IN QUALITY.
WHATEVER THAT MEANS. CAN YOU TELL ME WHAT YOU ARE
DOING IN HIGH-YIELD SPECIFICALLY GIVEN HOW TIGHT WE
SEE SPREADS? JONATHAN: COMING -- DAN:
COMING INTO THE YEAR THAT WAS THE ARGUMENT, UP IN THE CAPITAL
STRUCTURE AND SAFER BECAUSE THE EQUITY MARKET WAS SUPPOSED TO
BE MOVING LOWER. THAT HASN'T BEEN THE CASE.
LOANS THAT WERE HIGHER UP IN THE CAPITAL STRUCTURE HAD THEIR
FIRST CLAIM ON A NUMBER OF ASSETS AND HAVE DONE BETTER
THAN HIGH-YIELD BONDS. MUCH LIKE WHAT HAPPENED IN THE
EQUITY MARKET IT HAS BEEN A BIT OF A SURPRISE.
FOR US WE ARE NOT LIKE A CAUSATIVE INDEX.
WE ARE NOT TRYING TO DO CAPITAL ARBITRAGE TRADES.
WE ARE A CAPITAL RETURN VEHICLE AND THE LOWER STRUCTURE HAS
BEEN REWARDING. WE'VE DONE A LOT ON THE ENERGY
SPACE THOUGH ADMITTEDLY THERE'S VERY LITTLE TROUBLED DISTRESS
ENERGY COMPANIES ANYMORE BUT WHAT WE FOUND WAS A LOT OF
COMPANIES ON THE CONSUMER LEISURE SIDE OF THINGS THAT
LOOK MISPRICED TO US AND BETTER PERFORMANCE CONTINUES TO BE
GENERATED IN A LOT OF THOSE NAMES LIKE HOTELS, MOVIES,
CRUISE LINES. ANYTHING THAT, PUBLIC EVENTS.
ANYTHING THAT INVOLVES THE CONSUMER DOING THINGS WE
THOUGHT WAS MISPRICED. JONATHAN: I'VE SEEN THAT EQUITY IN A
MASSIVE WAY FOR THE CRUISE LINES, ITS OWN STORY.
DEFAULT CYCLE, ANY SIGNS ANYWHERE THAT IT'S STARTING TO
PICK UP? DAN: YOU ARE BACK TO AVERAGE DEFAULT
RATES, NOT SAYING MUCH BUT ON THE BACK OF LARGE STRUCTURES
LIKE ENVISION HEALTH CARE THINGS HAVE TICKED UP INTO
LET'S CALL IT THE 3% RANGE AND MY EXPECTATION IS THAT THAT
WILL CONTINUE IF YOU INCLUDE WHAT WE CALL DISTRESSED
EXCHANGES. THE DEFAULT RATE WILL CONTINUE
TO TICK UP AND THIS IS AN IMPORTANT STORY THAT OUR CEO
HAS BEEN TELLING INVESTORS FOR AS LONG AS I'VE BEEN AT THE
FUND. YOU DON'T NEED DEFAULT DISTRESS
CYCLES AND WE HAVE SEEN THAT REPEATEDLY THROUGH HISTORY,
PICK UP IN DEFAULT DISTRESS ACTIVITY INDEPENDENT OF THE
ECONOMIC CYCLE THAT APPEARS TO BE HOLDING IN QUITE WELL BUT
THE INTERESTING STORY IS GOING TO BE SIX MONTHS, NINE MONTHS,
12 MONTHS DOWN THE ROAD, IF THE ECONOMY FALLS UNDER THE WEIGHT
OF WHAT THE FEDERAL RESERVE HAS DONE, THERE'S NO GUARANTEE THAT
THAT IS THE CASE AND WHAT WE HAVE SEEN IS THE TIP OF THE
ICEBERG. JONATHAN: FASCINATING. DAN GREEN HOUSE, GREAT TO SEE
YOU. DAN GREENHOUSE OF SOLACE ALTERNATIVE ON THIS MARKET.
MORE CONSTRUCTIVE VIEW ON EARNINGS AND PARTICULARLY ON
THE OPPORTUNITIES YIELD THAT WE HAVEN'T HEARD MUCH OF AN THE
LAST YOU MONTHS. TOM: WELL AS LISA MENTIONED AS WELL,
THE SPREAD MARKET FEET -- SPEAKS VOLUMES, VOTING FOR
EQUITIES TO SUSTAIN. I WOULD GO BACK TO MY THEME
THAT COMPANIES ADAPT AND THAT'S WHAT WE ARE SEEING RIGHT NOW,
WHETHER IT IS GENERAL MOTORS OR MICROSOFT THIS AFTERNOON.
PAINT COMPANY SHERWIN-WILLIAMS, AND ALL-AMERICAN NAME.
WITH PAINT, JOHN, YOU GET A NEW PLACE, YOU MOVE INTO A NEW
PLACE WITH FOUR BEDROOMS AND A VIEW. JONATHAN: YOU BOUGHT ONE?
TOM: THINKING OF OTHER PEOPLE. YOU'VE GOT TO GO OUT AND
SHERWIN-WILLIAMS PAINT IS UP 6.3%. JONATHAN:
WELCOME TO THE PROGRAM IF YOU ARE JUST TUNING IN.
THE S&P 500, CURRENTLY POSITIVE. COMING UP IN ABOUT 30 MINUTES
WE ARE CATCHING UP WITH THE GENERAL MOTORS CFO AFTER THEY
RAISED THEIR GUIDANCE ABOUT AN HOUR AGO.
GENERAL MOTORS THIS MORNING, THE CFO LATER THIS HOUR. TOM:
IT WILL BE INTERESTING TO SEE WHAT HE SAYS.
HE'S A SOUTHERN GUY. MANUFACTURING FROM THE MIDWEST
TO THE SOUTH, IT WILL BE INTERESTING.
THERE ARE SOME DISTRACTIONS HERE WITH THE EARNINGS
ANNOUNCEMENT THIS MORNING, THE EMBARGO STUFF AND ALL THAT BUT
THE BIG DISTRACTION FOR ME IS EV, WHAT ARE THEY AND THE
OTHERS DOING WITH EV. JONATHAN: AND WHETHER THIS IS IT, THE
REAL DEAL. TOM: BUT YOU HAVE NAILED THE THING I
CAN'T GET AN ANSWER TO. ARE THE EV'S THERMODYNAMICALLY
ON AN ENERGY BASIS PLUS PLUS VERSUS INTERNAL COMBUSTION?
I DON'T HAVE AN ANSWER. JONATHAN:
AND WHAT HAPPENS IF THEY ARE WRONG SITTING ON THESE MASSIVE
INVESTMENTS? TOM: WHY'S IT SO HARD TO FIND AN
ANSWER? JONATHAN: WELL THEY ARE COMMITTED TO IT,
THAT'S FOR SURE. EQUITY FUTURES ON THE S&P 500
ARE POSITIVE. LATER THIS HOUR, FROM NEW YORK,
GOOD MORNING. ♪ >> PART OF THE ARGUMENT AGAINST
HIGH-YIELD HAS BEEN THE SPREADS. YOU CAN CREATE A BUNCH OF PARTS
IN THE FIXED INCOME MARKET THE UR GETTING.
LIKE EUROPEAN HIGH-YIELD IF YOU ARE A DOLLAR INVESTOR, SWAPPING
BACK DOLLARS GETTING PAID WELL INTO THE NINES.
THAT'S TRACING AS FAIR. JONATHAN:
THAT WAS THE GLOBAL FIXED INCOME CIO OVER AT BLACKROCK.
IT IS SUMMER. HE'S ALLOWED TO HAVE A TAN AND
WE RESTED. TOM: UNLIKE YOU AND ME. [LAUGHTER]
JONATHAN: TAN AND NOT RESTED. BUSY SUMMER GETS BUSIER THIS
WEEK, FOR SURE. TONS OF EARNINGS, CENTRAL BANK
DECISIONS IN A MOMENT. SLIGHTLY POSITIVE ON THE S&P
500. JUST A SMALL LIFT TO KICK OFF
THIS TUESDAY. JONATHAN: WE HAVEN'T MENTIONED IT TODAY
BUT THE FINANCIAL CONDITIONS INDEX MENTIONS WHAT CHAIRMAN
POWELL DOESN'T WANT. PULLING BACK MORE OVER 24
HOURS, DECIDEDLY MORE ACCOMMODATIVE THAN ANYBODY IN
CENTRAL BANKING WOULD LIKE TO SEE. MAYBE 25 ON TOP OF THAT. JONATHAN:
TO STATE THE OBVIOUS I WOULD SAY THAT HE IS LESS CONCERNED
ABOUT THAT NOW THAN HE WAS MONTHS AGO.
VERY DIFFERENT BACKDROP. TOM:
MAYBE DAN IS ADVISING JEROME POWELL. JONATHAN:
OPTIMISM THERE. IT'S WELCOME. TOM: IT IS.
THE OPTIMISM AROUND THE MARKET WITH S&P FUTURES UP SIX. DR. ECONOMY IS WORKING FOR THE
SECRETARY OF COMMERCE AND IS NOT AVAILABLE FOR MEDIA.
SHE HAS BEEN DEFINITIVE ON THE FRAGILITY OF BEIJING AND
CHINESE LEADERSHIP. ANNMARIE HORDERN IS OUR
BLOOMBERG WASHINGTON CORRESPONDENT WITH AN
ANNOUNCEMENT THAT WAS MADE IN THE LAST 10 MINUTES THAT THE
FORMER HEAD OF FOREIGN POLICY WILL TAKE OVER AGAIN IN THE
FORMER AMBASSADOR TO THE UNITED STATES IS OUT THE DOOR.
THIS HAS BEEN WIDELY SPECULATED, A NUMBER OF GOOD
WRITE UPS ON THIS IN THE LAST 24 HOURS.
I'M GOING TO SUGGEST THAT THIS IS NOT A SURPRISE, BUT I WOULD
SUGGEST THERE IS A MASSIVE MYSTERY TO THIS.
WHAT DOES WASHINGTON BELIEVE HAPPENED? AND READ: -- ANNMARIE HORDERN:
YESTERDAY THIS WAS COMING DOWN THE PIPELINE BUT WE STILL DON'T
KNOW WHAT HAPPENED TO THE FORMER U.S. AMBASSADOR.
HE WAS ELEVATED AT A YOUNG AGE, ONE OF THE YOUNGEST WE HAVE
SEEN IN YEARS. HE'S BEEN MISSING FOR A MONTH.
WE HAVEN'T SEEN HIM SINCE HE TOOK DIPLOMATIC ENGAGEMENTS ON
JUNE 25 AND THERE WAS A LOT OF SPECULATION WITHIN THE CHINESE
PRESS THAT HAS NOT BEEN CENSORED BY THE CHINESE
GOVERNMENT THAT HE HAD AN EXTRAMARITAL AFFAIR.
WE KNOW HOW CHINA FEELS WHEN YOU START TO POKE AROUND ON
OFFICIALS. MAYBE A HEALTH CONCERN.
BUT WHEN ASKED, HE SAID WE DON'T KNOW. SO THERE IS GOING TO REMAIN A
LOT OF SPECULATION ABOUT THIS BUT CHINA WAS CLEARLY UNDER
PRESSURE TO MAKE SURE THEY HAD AN INDIVIDUAL TO REPRESENT THEM
BECAUSE SOME FOREIGN DIPLOMATS WERE STARTING TO CANCEL TRIPS.
JONATHAN: -- TOM:
THAT'S A BEAUTIFUL SUMMARY THAT WE ONLY GET FROM ANNMARIE
HORDERN. MY FOCUS IS ON THE AMBASSADOR
TO CHINA FROM THE UNITED STATES, A HUGE SUPPORTER OF
WHAT BLOOMBERG SURVEILLANCE HAS DONE OVER THE YEARS.
RECENT ACTIVITY THERE ABOUT EMAILS LEAKING OUT, THIS AND
THAT AND THE OTHER THING. WITH THIS CHINESE UPSET, HOW
DOES IT AFFECT THE AMBASSADOR'S RELATIONSHIP WITH BEIJING?
ANNMARIE: THIS IS AN INDIVIDUAL THAT THE
AMERICAN FOREIGN POLICY APPARATUS, YOU KNOW WHO WANG YI
IS. IT'S AN INDIVIDUAL EVERYONE IS
WELL-VERSED IN. I'M NOT SURE IT CHANGES THAT
MUCH BESIDES PALACE INTRIGUE AND CONCERNS OVER WHAT ELSE IS
GOING ON BEHIND THE IRON CURTAIN WHEN IT COMES TO XI
JINPING AND OTHER MEMBERS OF HIS GOVERNMENT.
THIS IS SOMETHING THEY KEEP VERY CLOSE.
THERE SHOULD BE A LOT OF INTEREST INTO WHAT HAPPENED TO
HIM. WHEN YOU LOOK AT NICK BURNS, OF
COURSE, THIS HAS BEEN ANOTHER SALVO BETWEEN WASHINGTON AND
BEIJING AND IT REALLY JUST HEATS UP ATTENTION.
NOT JUST HIS EMAILS WERE HACKED AT A NUMBER OF OTHERS AS WELL.
AND OBVIOUSLY THAT IS QUITE CONCERNING IF YOU ARE AN
AMBASSADOR TO THAT COUNTRY BUT I DON'T THINK THAT ANYONE WAS
ACTUALLY SURPRISED THE CHINESE GOVERNMENT WAS TRYING TO HACK
INTO THEIR COUNTERPART'S EMAILS. JONATHAN:
IF YOU WANTED TO FIND OUT WHAT WAS GOING ON WOULD YOU CALL
BLINKEN OR KISSINGER MARK -- KISSINGER? ANNMARIE: HENRY KISSINGER GOT A MEETING
THAT NO ONE IN AMERICA HAS BEEN ABLE TO GET, A SIT DOWN WITH
THE DEFENSE MINISTER IN CHINA. HE HAS YET TO MEET WITH HIS
ACTUAL COUNTERPART, LLOYD AUSTIN, BECAUSE OF SANCTIONS
THAT ARE ON HIM. THE CHINESE GOVERNMENT
MAINTAINED THAT UNTIL THE SANCTIONS ARE LIFTED HE WILL
NOT BE ABLE TO MEET. WE SHOULD NOTE THAT HAVING
THESE SANCTIONS DOESN'T MEAN HE CAN'T HAVE A SIT DOWN WITH HIS
COUNTERPART BUT KISSINGER HAD ALL THE ACCESS RECENTLY IN
CHINA AND WILL LIKELY BE BRIEFING THE BIDEN
ADMINISTRATION. HE'S THE ONE I'D WANT TO HAVE A
CONVERSATION WITH. TOM: YOU ARE GOING TO BE ON THE
PLANE TO BEIJING, I BELIEVE BIDEN WILL BE MEETING WITH
CHINESE LEADERSHIP HERE. NOVEMBER IS MY OPERATIVE GAS.
DOES THAT CHANGE THINGS? HOW IS THAT NUANCED IN THE
COMING DAYS? ANNMARIE: I'M DEFINITELY NOT GOING ON A
PLANE TO BEIJING. IF BIDEN IS SET TO MEET WITH XI
JINPING IN NOVEMBER THAT WILL BE IN THE UNITED STATES.
WE WILL BE GOING ALL OF US TO SAN FRANCISCO, WAKING UP EARLY
TO MAKE SURE THAT WE HIT THE 6 A.M.
EASTERN TIME FOR SURVEILLANCE. THAT WILL BE HAPPENING AT THE
APEC SUMMIT. TOM: SEE HOW SHE DOES THAT? JONATHAN:
LOVE IT. ANNMARIE: THE TWO OTHERS COULD MEET AT
THE G 20 INDIA SUMMIT. YOU MIGHT WANT SOME MORE TIME
IN NOVEMBER BUT THIS IS OBVIOUSLY A GUESSING GAME AND
WE EXPECT THE TWO TO MEET AND HAVE A PHONE CALL.
WHEN IS THAT PHONE CALL THAT FIVE KEEP SAYING HE IS PLANNING
TO HAVE WITH XI JINPING? I DON'T THINK THAT THE PATHWAY
HAS CHANGED BUT THERE IS A LOT OF CURIOSITY GROWING WITHIN THE
STATES AND WASHINGTON, D.C. ABOUT WHAT HAPPENED TO THE
FORMER AMBASSADOR AS HE WAS REALLY A RISING STAR IN THE
CHINESE GOVERNMENT APPARATUS. JONATHAN:
AT THE MOMENT THE PRESIDENT IS GOING INTO AN ELECTION YEAR.
THE STATUS QUO BETWEEN CHINA AND THE UNITED STATES,
BENEFICIAL TO THE PRESIDENT? ANNMARIE:
STATUS QUO AT THE MOMENT IS THEY ARE TRYING TO SET A FLOOR,
WHICH THEY HAVE BEEN TRYING TO DO SINCE NOVEMBER.
BIDEN SAT DOWN WITH HIS USING PAYING IN BALI.
I WAS THERE FOR THE MEETING AND THE WHOLE POINT OF THE MEETING
WAS TO SET GUARDRAILS AND CONDUCT WASHINGTON TO BEIJING
COUNTERPART TO COUNTERPART CONVERSATIONS.
WHAT WE HAVE SEEN IN THE LAST MONTH AND A HALF OR SO IS A
NUMBER OF THOSE MEETINGS TAKE PLACE.
YELLEN, JOHN KERRY, BLINKEN WENT OVER.
BUT OBVIOUSLY WHAT HAS REALLY CHANGED?
NOT MUCH BESIDES A DIALOGUE THEY WANTED TO DO ALMOST A YEAR
AGO. AND WE ARE STILL GOING TO SEE
THIS ADMINISTRATION COME OUT WITH MORE MEASURES AGAINST
CHINA WHEN THEY LOOK AT NATIONAL SECURITY ACCORDING TO
THE TREASURY SECRETARY AND WE CAN SEE AS EARLY AS THIS MONTH,
AND OF NEXT MONTH, THE EXECUTIVE ORDER IN OUTBOUND
INVESTMENT WILL BE GOING OUT THE DOOR. TOM: WHAT'S GREAT ABOUT THIS, WHAT
ANNMARIE DOES, SHE'S NOT HOITY-TOITY POSH, SHE'S TOP OF
THE MARK. SHE GOES TO THE TOP OF THE
MARK, THE ICONIC WORLD WAR II BAR IN SAN FRANCISCO AND GOES
DIRECTLY TO THE 312 HIT WITH US. TOP OF THE MARKET SAN
FRANCISCO, ANNMARIE IS GOING TO DO TOP OF THE MARKET AND GO
STRAIGHT TO OUR TIME WITH US IN THE 6:00 A.M. NEW YORK HOUR.
JONATHAN: EAST COAST WEST COAST, IT'S
BRUTAL. IF YOU ARE LISTENING, THE TEAM
OVER AT PIMCO, I FEEL FOR YOU. TOM:
AND YOU NEVER GET USED TO IT. MOHAMMED TOLD ME THAT YEARS AGO.
JONATHAN: I DON'T KNOW HOW THEY GET IT, I
DON'T KNOW HOW THEY ARE DOING IT RIGHT NOW, IT'S TOUGH.
ANNMARIE, THANK YOU. PROSPECT AT THE END THERE FOR A
MEETING BETWEEN TWO LEADERS. TOM: WITHIN THE CHINESE TURMOIL,
WITH -- DIPLOMACY CIRCLES SAY THAT TODAY IS TOMORROW.
JONATHAN: TOSSING THE SLOTH TO APOLLO
MOMENTS AGO ON THE DEFAULT CYCLE.
WE WILL GET INTO SOME OF THAT, TOO.
EQUITY FUTURES ARE POSITIVE. THIS IS BLOOMBERG. JONATHAN: FOUR DAYS OF SPX
OUTPERFORMANCE. BASICALLY THE NASDAQ
UNDERPERFORMING OVER THE LAST FEW DAYS.
GREATER ON THE S&P, LOOKING SOMETHING LIKE THAT.
FUTURES POSITIVE BY 0.1%. OUTPERFORMANCE AND THE NASDAQ,
ATTENTION VERY MUCH ON BIG TECH, COMING UP LATER, WE WILL
TALK ABOUT THOSE EARNINGS IN JUST A MOMENT.
IN THE BOND MARKET 10 YEAR, TWO-YEAR YEAR, 30 YEAR YIELDS
IN , FOUR BASIS POINTS. COVERING IT ON THE 10 YEAR, TOM.
THE CURVE STEEPENING A LITTLE BIT TODAY WITH THE TWO YEAR
LOWER AND 10 YEAR HIGHER. JONATHAN: -- TOM: EARNINGS SEASON IN PARIS IS IN.
I KNOW IT'S NOT THE SIZE AND CAPITALIZATION OF BIG TECH BUT
THERE ARE SOME REAL NICETIES THERE ABOUT THE DELINEATION OF
LUXURY THAT YOU HAVE MENTIONED WITH LVMH IN THE OTHERS.
JONATHAN: WEAKNESS IN AMERICA, WHICH
WE'VE HEARD IN THE LAST COUPLE OF WEEKS.
THEY ARE THE BRACELET WITH A NAIL.
YOU GET A NAIL FOR MORE MONEY THAN GOD AT HOME DEPOT.
I DON'T KNOW HOW YOU GET IT ONTO YOUR WRIST. JONATHAN:.
FASHIONABLE. IT WORKED SEVERAL YEARS AGO AND
YOU SEE PEOPLE WITH THE MOLE IN THEIR ARM.
IT'S A NAIL, YOU'VE DESCRIBED IT. TOM: YEAH THAT IT'S SOMETHING YOU
USE WITH A TWO BY FOUR. JONATHAN:
I'M SURE CODEY -- CARTIER LOVES THIS CONVERSATION.
SIX DAYS OF EURO WEAKNESS CONTINUES. -0.2% ON EURO-DOLLAR.
TECH EARNINGS RAMPING UP WITH RESULTS FROM MICROSOFT AND
ALPHABET AFTER THE BELL AND INVESTORS LOOKING TO SEE IF THE
OUTLOOK FOR ARTIFICIAL INTELLIGENCE CAN CONTINUE TO
JUSTIFY A MONSTER RUN UP. YOU ARE FAMILIAR WITH GAINS BUT
IT'S WORTH GOING OVER AGAIN. MICROSOFT, YEAR-TO-DATE,
ALPHABET AND GOOGLE, 30 8%. WHAT A MOVER SO FAR. TOM: BIG MOVES AND THEN YOU SAY
THAT'S THE ZEITGEIST. I LOVE HOW DAN GREEN PUSHED AGAINST
THAT, I CHARACTER OF EARNINGS THAT'S IN EVERY SECTOR OF THE
CONFERENCE CALL, AWAY FROM THE AI IDIOCY AND IT WILL BE
INTERESTING TO SEE WHAT MICROSOFT SAYS JUST ABOUT A
THREE YEAR STRATEGY. CLOUD, ENTERPRISE, THE REST OF
IT MOVING FORWARD. JONATHAN: YOUTUBE AS WELL, GIVEN THE
COMPETITIVENESS. TOM: I'M NOT UP ON GOOGLE OTHER THAN
IT'S A SEARCH ENGINE. WE SPENT 10 YEARS BEING WRONG.
JONATHAN: I THOUGHT BEING IS GOING TO
TAKE OVER. TOM: LIKE THREADS. I WENT THERE AND SAID GOODBYE.
WHAT ELSE IS UNDER SURVEILLANCE? JONATHAN:
LOOK AT THE DATA, PMI YESTERDAY WITH BUSINESS CONFIDENCE OUT OF
GERMANY. LOOK AT THIS, THE LENDING
SURVEY COMING FROM THE ECB SHOWING DEMAND FOR CROAK --
DEMAND FOR CORPORATE LOANS DROPPING OFF A CLIFF.
THE RATE HIKE HITTING DEMAND FOR MORTGAGES AND CONSUMER
BORROWING AND A SLOWDOWN THERE. YOU CAN SEE IT IN DEMAND GROWTH
AND IN THE ECONOMY. TOM: EVERYONE TALKS ABOUT THE DRAMA
BUT THE BOTTOM LINE IS THE NITTY-GRITTY.
THE BRIAN MOYNIHAN OF IT. WHAT ARE WE DOING WITH DEPOSITS
AND LOANS? THIS IS ON THE LOAN SIDE.
AS I MENTIONED IN THE LAST HOUR. IT'S HUGELY IMPORTANT,
OVERWEIGHT IN EUROPE BECAUSE OF THE BANK LOAN FIXED INCOME
NATURE OF EUROPE VERSUS THE FINANCIAL IS ASIAN OF AMERICA.
TOM: -- JONATHAN:
PRESIDENT LAGARDE ANTICIPATED TO HIKE INTEREST RATES BUT THIS
STORY IS NOT THE SAME AS THE ONE FOR THE FEDERAL RESERVE AND
THE UNITED DATES. IT'S JUST NOT. IT'S BECOME REALLY DIFFERENT
AND AS SOMEONE POINTED OUT TO ME EARLY THIS MORNING, OBVIOUS,
DIFFERENT SINGULAR MANDATE ON THE ECB.
INFLATION, GOT TO HIT IT. UNITED STATES, WHAT'S THAT GOOD
STUFF? TOM: I TAKE THAT POINT, IT'S VERY
IMPORTANT, BUT THAT SAID IS IT ARE THEY BEYOND EUROSCLEROSIS?
WE TALKED TO THE FORMER PRIME MINISTER OF ITALY ABOUT THIS.
I DON'T HEAR ANYONE TALKING ABOUT IT.
WE HAVE MOVED BEYOND IT MAYBE TO A BETTER PLACE.
BUT IS THERE A BUOYANCY TO THE GAME? I'M NOT SURE. JONATHAN:
SUSTAINED EURO STRENGTH MEANS SOMETHING BIG COMING OUT OF
CHINA. MY WORDS, NOT HIS. STOCKS RALLYING AFTER PLEDGES
YESTERDAY FROM USING PAYING AND THE POLITBURO, THE LEADING
POLICY BODY IN CHINA TO BOOST ECONOMIC GROWTH.
YOU HAVE GOT THE CHINESE ENTERPRISE INDEX UP BY MORE
THAN 5% IN HONG KONG, TRACKING THE BIG CHINESE COMPANIES
LISTED. THAT MOVE, THE BIGGEST SINCE
NOVEMBER AND REMEMBER NOVEMBER THAT WAS AROUND THE CHINA
REOPENING STORY. THERE'S A BOUNCE, THERE.
LET'S SEE IF IT IS SUSTAINABLE. TOM: I WOULD EMPHASIZE BOUNCE.
IN A STANDARD DEVIATION IT'S NOT MUCH OF A MOVE.
I'M GOING TO SUGGEST THAT WE WOULD HEAR FROM STEVE ENGLE AND
OTHERS REPORTING FROM CHINA THAT YOU CANNOT CONFLATE THE
DIPLOMACY AND FOREIGN AFFAIRS HEADLINES OF 20 MINUTES AGO
INTO AN ECONOMIC FINANCE ANALYSIS.
I DON'T THINK YOU CAN BUNDLE THEM TOGETHER. JONATHAN:
IT'S ALL HANGING ON THAT RIGHT NOW ISN'T IT? TOM: IT'S CRAZY. FUTURES ARE UP FOR MARILYN
WATSON BRIEFS. HEAD OF GLOBAL FIXED INCOME
STRATEGY AT BLACKROCK. INCREDIBLY IMPORTANT
CONVERSATION, FOLKS, ON THE FORWARD PRESCRIPTION, WHICH IS
TO BE FLEXIBLE AND NIMBLE, EDITORIALIZING INTO 2020 FIVE.
HOW AM I FLEXIBLE AND NIMBLE CLIPPING COUPONS IN FIXED
INCOME? >> WELL FIXED INCOME AT THE
MOMENT I THINK YOU NEED TO BE FLEXIBLE AND NIMBLE BECAUSE
IT'S A VERY UNCERTAIN ENVIRONMENT. STILL.
AT THE MOMENT YOU CAN GET VERY ATTRACTIVE CARRY AT THE
FRONT-END OF THE CURVE AND IN COMMERCIAL PAPER IN SOME SHORT
DATED INVESTMENT GROUP BONDS. AT THE MOMENT, IT PAYS TO NOT
TAKE TOO MUCH RISK BUT CLIPPED THOSE COUPONS AND GET THE
INCOME . AS THE ECONOMY EVOLVES IN THE
U.S., EUROPE, AND ELSEWHERE, AS WE GET MORE INFORMATION FROM
THE FED TOMORROW AND THE ECB ON THURSDAY, OVER THE NEXT FEW
WEEKS AND COUPLE OF MONTHS AS WE CONTINUE TO SEE MORE
ECONOMIC DATA FROM THE U.S. AND EUROZONE, WHICH AS YOU
MENTIONED EARLIER HAS SEEN SOME PRETTY WEAK DATA, WE WILL
CONTINUE TO SEE A SHIFT IN THE YIELD CURVE AND OPPORTUNITIES
THAT ARE AVAILABLE . AT THE MOMENT I THINK IT PAYS
TO GET THE CARRY. NOT TAKE TOO MUCH RISK.
BUT THEN BE ABLE TO REALLY DEPLOY THE DRY POWDER WHEN THE
OPPORTUNITY ARRIVES. TOM: I NEED TO CONFLATE THE NEWS,
TORSTEN WRITING FOR APOLLO, LOANS IN THE PREVIOUS HOUR,
IT'S A MYSTERY TO ME. THE DEFAULT RATE OF HIGH YIELD
IN SUCH. IS THE MARKET TOO COMPLACENT
ABOUT WHAT IS TO COME IN COMMERCIAL REAL ESTATE?
WHAT IS TO COME IN THESE STRANGE LEVERAGED LOAN VEHICLES
AND THE DERIVATIVES WITHIN YOUR WORLD? ARE WE TOO COMPLACENT? >> I DON'T KNOW THAT IT IS TOO
COMPLACENT BUT I DON'T THINK THERE IS A CLEAR VIEW ON THE
TRAJECTORY MOVING FORWARD. AT THE MOMENT WE THINK THE U.S.
IS IN RECESSION AND WHILE IN RESULT -- WHILE RESILIENT IT
REMAINS ON SOLID FOOTING. WHEN YOU LOOK AT THE COMMERCIAL
REAL ESTATE SECTOR, IT HAS ALREADY BEEN NEGATIVELY
IMPACTED BY THE VERY AGGRESSIVE RATE HIKES BUT PERHAPS NOT AS
MUCH AS SOME PEOPLE MIGHT HAVE EXPECTED WHEN YOU LOOK AT THE
INDIVIDUAL LOANS AND ELSEWHERE. HIGH-YIELD OVERALL HAS
PERFORMED VERY WELL THIS YEAR AND AT THE MOMENT I THINK A LOT
OF INVESTORS ARE STILL LOOKING AT REALLY GETTING IN FROM THE
BOTTOM UP, FUNDAMENTALS. THERE'S A BIG DIFFERENCE
BETWEEN THE DIFFERENT BONDS AND ISSUERS THAT YOU CAN BUY WITHIN
THE HIGH-YIELD SECTOR, THE SPREAD IN TOTAL YIELD THAT YOU
CAN GET THERE AS WELL AND AT THE MOMENT I DON'T THINK THERE
IS A CONSENSUS ON THE TRAJECTORY OF THE ECONOMY AND
HOW BAD, IF BAD AT ALL, IT WILL BE NEXT YEAR.
I DON'T KNOW THAT IT IS COMPLACENT BUT I THINK THERE IS
NOT YET ENOUGH DATA IN THE MARKET TO TELL. JONATHAN:
GOOD MORNING GOOD MORNING, THE FULL QUOTE IS THAT MARKETS ARE
NOT TAKING THE ONGOING RISE SERIOUSLY AND INVESTORS ARGUE
ITS NORMALIZATION OR COMPANIES NOBODY HAS HEARD ABOUT.
THE REALITY IS MORE AND MORE COMPANIES ARE DEFAULTING
BECAUSE THE COSTS OF CAPITAL IS HIGHER AND THAT'S PRECISELY HOW
MONETARY POLICY WORKS, MAKING IT MORE DIFFICULT TO GET
FINANCING. FED HIKES ARE HITTING HARDER
AND ALL INVESTORS SHOULD HAVE A VIEW ON HOW HIGH THEY THINK
DEFAULT RATES SHOULD GO AND THE CYCLE.
CAN YOU HAVE A VIEW ON THAT TODAY AND WOULD IT LEAD YOU TO
BELIEVE THAT YOU SHOULD BACK AWAY FROM MOST OF THE MARKET
THAT WILL FACE HIGHER FUNDING COSTS WHEN THEY COME BACK TO
MARKET IN 12 TO 18 MONTHS? >> YEAH I THINK YOU SAYING, AT
THE MOMENT YOU DON'T NEED TO TAKE THE CREDIT RISK IN THE
HIGH-YIELD SECTOR WHEN YOU CAN GET VERY DECENT CARRY ELSEWHERE.
MUCH HIGHER UP THE CREDIT SPECTRUM.
I THINK ALSO WHEN YOU ARE LOOKING AT YOUR OVERALL
ALLOCATION, LOOKING AT THE EQUITY MARKET AS OPPOSED TO THE
HIGH-YIELD MARKET WE LIKE THE ENERGY MARKET SO YOU DON'T NEED
TO TAKE THAT RISK OR THAT CREDIT RISK.
YOU CAN TAKE A VIEW. OUR POSITIONING AT THE MOMENT
IS RELATIVELY CAUTIOUS. RELATIVELY HIGH QUALITY.
AND WE'VE BEEN VERY NIMBLE, STEERING CLEAR OF TOO MUCH
SATURATION RISK, THAT WE HAVE ADDED A LITTLE BIT THERE AND
ARE BEING CAUTIOUS FROM A BOTTOM UP PERSPECTIVE AND WE
WANT TO KNOW AND UNDERSTAND EXACTLY WHAT WE ARE BUYING IN
EVERY SINGLE ISSUER AND SECURITIZED ASSET.
WE WANT TO UNDERSTAND THE EXACT FUNDAMENTALS FROM A BOTTOM UP
PERSPECTIVE ON THE ISSUE ITSELF. I THINK YOU CAN TAKE A VIEW AND
AT THE MOMENT WE DON'T THINK IT PAYS TO TAKE THE RISK FURTHER
DOWN THE CREDIT SPECTRUM. JONATHAN:
YOU MENTIONED TAKING ON CREDIT RISK.
CAN YOU GIVE US MORE COLOR, WHAT HAVE YOU BEEN DOING? >> WE HAVE BEEN ADDING ON
MARGINS BECAUSE OUR VIEW IS THAT THE FED WILL HIKE AGAIN
THIS WEEKEND THEN MAYBE PAUSE. THE FED ITSELF HAS INDICATED IN
THE PREVIOUS SUMMARY OF ECONOMIC PROJECTIONS
POTENTIALLY ONE MORE HIKE BUT WE DON'T KNOW THAT YET.
WE OBVIOUSLY NEED TO SEE A LOT MORE DATA TO SEE IF THAT COMES
THROUGH OR NOT. BUT WE HAVE BEEN ADDING MORE
DURATION IN THE FRONT-END VALUE OF THE CURVE IN THE U.S.
AND IN THE EURO ZONE. WE THINK THE ECB WILL HIKE
AGAIN THIS WEEK. THEY MAY HIKE AGAIN IN
SEPTEMBER BUT THAT'S NOWHERE NEAR A CLEAR CUT SCENARIO
ANYMORE, GIVEN THE DATA. IT DOES, WE DO THINK IT NOW
PAYS TO TAKE MORE DURATION RISK. GET A LITTLE BIT MORE YIELD AND
LOCK IN THE RATES. JONATHAN:
I FIND THAT INTERESTING. ENJOY LONDON, MARYLAND.
GOOD TO SEE YOU. WE'VE GOT A DECISION AT THE ECB
ON THURSDAY WITH LAGARDE AND ULTIMATELY YOU GOT HAWKS ON THE
COMMITTEE , NETHERLANDS AND THE LAST
COUPLE OF WEEKS, WHO WON'T COMMIT TO ANYTHING BEYOND JULY,
WHICH I THINK SPEAKS VOLUMES. TOM:
I HAVE TALKED TO THE GUY FROM THE NETHERLANDS OFTEN.
HE'S MUCH MORE ANGLO AMERICAN WITHIN HIS CENTRAL BANKING.
AGAIN IT'S GOING TO BE FASCINATING.
COMES DOWN TO THE HEART OF THE MATTER ITS OPPRESSOR. JONATHAN:
THIS THURSDAY. IF YOU ARE JUST TUNING INTO THE
PROGRAM, WELCOMING -- WELCOME TO THE PROGRAM.
COMING UP, STEPHANIE ROTH WILL BREAK DOWN THE ECONOMIC DATA WE
ARE LOOKING FOR THIS WEEK AND LOOK AHEAD TO THE FEDERAL
RESERVE DECISIONS, TOM. WEDNESDAY AND BEYOND.
SEPTEMBER IS THE ONE? NOT JUST THE ECB BUT THE
FEDERAL RESERVE. IT'S NOT JUST THIS WEEK, IT'S
ABOUT COMMUNICATING WHAT HAPPENS NEXT. JONATHAN:
JONATHAN: -- TOM: TAKING IT EVEN FURTHER TO
NOVEMBER 1, THERE'S A TRADITION THAT THE DECEMBER MEETING
DOESN'T MATTER. I DON'T HAVE A STRONG OPINION
ABOUT THAT THE COMBO IS NOT SO MUCH IS SOMEBODY GOING TO GET
THE CALL RIGHT OR WRONG. IT'S HOW THEY AMEND ON WHAT
THEY SEE TOMORROW. FOR THE OTHER SIDE OF THE COIN,
HOW WILL SOMEONE LOOKING FOR NO RATE RISES AT ALL, HOW WILL
THEY ADJUST OFF OF THE MOVE YESTERDAY? JONATHAN: IT'S THE NEW WINDOW FOR
ECONOMIC WEAKNESS THAT WAS PUSHED DOWN TO THE END OF THE
YEAR. WHEN STUDENT LOAN REPAYMENTS
RESUME. THAT'S THE NEW SPOT FOR THE
BEARS. END OF THE YEAR. TOM: I LIKE WHAT CLAUDIA SET ABOUT
LOOKING AT THE DATA. THE DATA IS MIXED NATIONWIDE,
STATE TO STATE. JONATHAN: EARNINGS ARE NEXT, THE GENERAL
MOTORS CFO IS ON THE PROGRAM. FROM NEW YORK, THIS IS
BLOOMBERG. >> CHINA IS 15% AROUND THE
REVENUE BASE AND ITS SIGNIFICANT FOR US.
WHAT WE ARE SEEING IS A MARKET THAT IS BETTER THAN WHAT WE
ANTICIPATED AT THE BEGINNING OF THE YEAR.
NOT AS GOOD AS WHAT A LOT OF PEOPLE THOUGHT IT WAS GOING TO
BE WHEN CHINA REOPENED IN MARCH. JONATHAN: HE'S NOT ALONE.
CHINA, DISAPPOINTING IN MANY WAYS. THE REOPENING BOOM DIDN'T
MATERIALIZE. WHAT WE ARE SEEING NOW IS A RED
TRUCK SUPPORTING THE ECONOMY AND AS WE WROTE ABOUT THIS
MORNING, XI JINPING THROWING A LIFELINE TO INTERNATIONAL
MARKETS. GOOD MORNING TO YOU. EARNINGS LOOK LIKE THIS, GOING
INTO IT LATER THIS AFTERNOON WITH A HOST OF CENTRAL BANK
DECISIONS LATER THIS WEEK, STARTING TOMORROW WITH THE
FEDERAL RESERVE. YIELDS ARE A LITTLE BIT HIGHER
BY A COUPLE OF BASIS POINTS. THE EURO, WEAKER, BAD DATA ON
THE EURO AGAIN TODAY. EARNINGS ARE IN THE MIX BEFORE
WE GET TO MICROSOFT AFTER THE CLOSE LATER.
THE HEADLINE FROM GENERAL MOTORS IN THE LAST COUPLE OF
HOURS, RAISING THEIR PROFIT TARGET FOR THE YEAR BY
BILLION. TOM: I REMEMBER WHEN YOU WHISPER TO
ME SOMEWHERE IN 2020. GENERAL MOTORS WILL DO IT.
20 TO 60. AND THEN THE CHALLENGED LAST
YEAR TO SAY THE LEAST, EVAN FLOW OF 35 TO 40.
IT'S BEEN A CHALLENGE FOR GENERAL MOTORS THROUGH THE
PANDEMIC. NOW THEY ARE LOOKING TOWARDS
PROFITABILITY. JOINING US IS THE CHIEF
FINANCIAL OFFICER DRIVING THE RATIOS INTO THE COMPLEXITIES OF
THE FUTURE, PAUL JACOBSON JOINS US THIS MORNING.
DEFINE PROFITABILITY. WHERE ARE YOU ZERO IN ON
PROFITABILITY, OUT 20 FOUR MONTHS, FIVE YEARS FOR GENERAL
MOTORS? >> GOOD MORNING, TOM.
THANKS AGAIN FOR HAVING US. ESPECIALLY ON A DAY LIKE TODAY
WHERE WE ANNOUNCE THE TREMENDOUS RESULTS THE TEAM
HAVE PUT FORWARD AND I WANT TO EXTEND A GREAT BIG THANKS TO
THEM WORLDWIDE FOR THE RESULTS THEY POSTED DURING THE QUARTER.
YOU KNOW, WHEN WE ARE LOOKING AT PROFITABILITY IT'S A WHOLE
RANGE OF OUTCOMES. ONE OF THE THINGS WE HAVE BEEN
REALLY FOCUSED ON THAT HAS WORKED FOR US IS THE
CULMINATION OF MARKET SHARE, MARGIN, AND GROWTH.
AT THE END OF THE DAY IT'S NOT JUST ABOUT PRODUCING AND
SELLING MORE VEHICLES, IT’'S ABOUT MAKING SURE THAT WE
MAINTAIN AND EXPAND MARGINS GOING FORWARD AND WHEN YOU LOOK
AT OUR TRACK RECORD OVER THE LAST SIX MONTHS, REALLY SIX
QUARTERS, THE TEAM HAS DONE AN AMAZING JOB PRODUCING VEHICLES
CUSTOMERS DEMAND. OUR BIGGEST CHALLENGE IS WE
CANNOT GET THEM FAST ENOUGH BUT CUSTOMERS HAVE REALLY RESPONDED
AND WE APPRECIATE THAT. THAT'S RIGHT WHERE I WANT TO GO.
IN EVERY COMPANY EVERYONE WANTS THE SAME CAR, THERE'S A
SHORTAGE. DO YOU HAVE A LOT OF PRICING
FLEXIBILITY NOW AND INTO 2000 24? CAN YOU RAISE PRICES? WELL I'M -- PAUL: WELL I'M NOT
SURE WE WILL BE ABLE TO RAISE THEM ACROSS THE BOARD BUT
SOMETHING THAT HAS REALLY MANIFESTED ITSELF IS CUSTOMERS
DEMANDING HIGHER LEVELS. OVER THE LAST THREE MONTHS WE
CREATED THE ULTIMATE, HIGHER AND LEVEL ON THE YUKON IN
RESPONSE TO CUSTOMERS WANTING THEM.
NOW WHAT WE SEE WHEN YOU LOOK AT THE TRUCKS AND SUVS IS 75%
OF THEM ARE BEING PRICED AT PREMIUM LEVELS.
CUSTOMERS ARE DEMANDING THAT. I THINK WE HAVE DONE A GOOD JOB
RESPONDING TO WHERE CUSTOMER DEMAND IS AND WHAT THEY ARE
LOOKING FOR IN THE PRODUCTS. AS FAR AS CORE PRICES, THE
BUSINESS IS VERY COMPETITIVE. WE FOCUSED ON PRICE STABILITY
AND THE RESULTS SHOW WE HAVE DONE A GOOD JOB WITH THAT. TOM: A PICKUP TRUCK, YOU USED TO
WANT AN OLD ONE THAT YOU COULD DRIVE AROUND WITH YOUR GUITAR
NEXT TO YOU. DOWN AT AUBURN, YOU GET THAT
OLD PICKUP TRUCK THAT YOUR DAD PAID $3000 FOR, YOU COULD SEE
THE ROAD THROUGH THE FLOOR. GMC SIERRA. THE ULTIMATE. READY QUESTION MARK $91,000.
THAT'S WHAT PAUL IS SELLING THEM FOR TODAY. JONATHAN:
YOU ARE TELLING US YOU ARE EXPECTING HIGHER AVERAGE
SELLING PRICES IN THE SECOND HALF? PAUL: YEAH WE SAW THAT IN THE SECOND
QUARTER, 600 HIGHER THAN THE FIRST QUARTER SEQUENTIALLY.
WE WILL CONTINUE TO WATCH IT. WE HAVE TAKEN THE WHOLE YEAR
WITH A BIT OF CAUTION, JUST UNDERSTANDING THE MACRO THAT'S
OUT THERE. WHAT WE SAID AT THE BEGINNING
OF THE YEAR WAS THAT IF THE CUSTOMER HELD IN AND WE COULD
MAINTAIN PRICING, WE EXPECTED TO SIGNIFICANTLY OUTPERFORM THE
GUIDANCE WE POSTED. THEN AFTER THE FIRST QUARTER WE
RAISED GUIDANCE ON THAT LINE AND WE ARE NOW RAISING IT BY
BILLION AND WE SEE A LOT OF STABILITY IN THE MARKET.
WE ARE JUST KIND OF TAKING IT ONE DAY, ONE MONTH AT A TIME,
WATCHING THE RESULT COME IN. WE'VE GOT TO BE FOCUSED ON
QUALITY AND GETTING PRODUCTION INTO THE VEHICLES THAT
CUSTOMERS WANT. JONATHAN: WE SAW SOME RECENT DATA ABOUT
PEOPLE BEING REJECTED FOR AUTO LOANS.
CAN YOU GIVE US AN IDEA OF HOW SOME OF THESE PURCHASES ARE
BEING FINANCED AND THE TRENDS YOU ARE SEEING DEVELOPING? PAUL:
WE'VE GOT A LOT OF GOOD INSIGHT ON THAT THROUGH RGM FINANCIAL
CAPTIVE COMPANY AND THE RESORTS -- RESULTS ARE STRONG.
WE CONTINUE TO WRITE NEW LOANS. WE HAVE WRITTEN A HIGHER SHARE
IN THE FIRST HALF OF THE YEAR THAN TRADITIONALLY, BAD THING.
WE ARE THERE TO MEET OUR CUSTOMERS WHERE THEY NEED US
AND GM FINANCIAL HAS DONE A GREAT JOB OF THAT.
WE HAVE SEEN THE CREDIT METRICS ON A WEEKLY BASIS GO UP ACROSS
THE PORTFOLIO AND THERE'S NOTHING THAT GIVES US REASON
FOR CONCERN. WE HAVE REALLY GOOD HIGH
QUALITY BORROWERS ON NEW VEHICLES.
THE CREDIT IS PERFORMING QUITE WELL FROM THAT.
SO WE UNDERSTAND OBVIOUSLY IN THE SUBPRIME WORLD AND THE USED
CARS WHERE THE BANKS ARE TIGHTENING A BIT, THAT'S NOT
NECESSARILY OUR FORTE BUT CERTAINLY WHEN WE LEND ON NEW
VEHICLES THE RESULTS ARE PRETTY STRONG. TOM: I'M GOING TO PICK ON YOUR
COLLEAGUES AT CITIGROUP. FROM THE END OF THE PANDEMIC
THEY GOT SHAREHOLDER RETURN OF 3% TO 4% PER YEAR.
WHATEVER THE NUMBER IT'S LOW SINGLE-DIGIT AND CLEARLY NOT
ACCEPTABLE. THE FACT IS THAT SOMEONE AS
KNOWLEDGEABLE AS THE TEAM OVER THERE AT BLOOMBERG
INTELLIGENCE, THEY ARE LOOKING FOR HUGE SHARE PRICE
PERFORMANCE FROM GM. WHAT IS GOING TO BE THE
CATALYST FOR PEOPLE TO REALIZE THE NEW PROFITABILITY?
WHAT'S THE THING THAT'S GOING TO GET ME INTO THE PRICE
TARGET, WHICH IS A DOUBLE? PAUL: YEAH THAT'S THE QUESTION OF THE
DAY AND ONE WE SPENT A LOT OF TIME THINKING ABOUT FOR OUR
SHAREHOLDERS. ONE OF THE THINGS WE HAVE GOT
TO DO IS CONTINUE TO CONSISTENTLY PERFORM.
I'M A BIG BELIEVER THAT THE MARKET CANNOT IGNORE
FUNDAMENTALS FOR TOO LONG AND WHEN YOU LOOK AT THE
PERFORMANCE WE HAVE BEEN DRIVING, WE HAVE ESTABLISHED A
GOOD TRACK RECORD OF CREDIBILITY.
THAT'S THE FIRST JOB. ON THE MACRO SIDE THERE IS A
BIT OF A HEADWIND OVER THE LAST 18 MONTHS AS EXPECTATIONS ARE
CONSISTENTLY DOWNWARD FROM WHERE WE ARE.
WHICH IS WHY IT IS SO IMPORTANT NOW THAT WE HAVE HAD TWO
QUARTERS WITH A RAISE ON THE GUIDANCE.
THIS YEAR WILL BE REALLY STRONG. OVERCOMING PENSION HEADWINDS
AND NORMALIZATION AT GM FINANCIAL EARNINGS.
THE RESULTS ARE GOING TO BE VERY SIMILAR IF NOT POTENTIALLY
BETTER THAN LAST YEAR. THAT'S WHAT WE ARE FOCUSED ON. I THINK THE MARKET WILL COME
AROUND. WE HAVE TO MAKE SURE THE MACRO
CLEARS UP OVER THE LAST COUPLE OF MONTHS AND THAT WE REACH
AGREEMENT WITH UAW. NOT JUST FOR US BUT AS AN
INDUSTRY BECAUSE THERE IS OBVIOUSLY UNCERTAINTY AROUND
THAT IN THE EYES OF INVESTORS BUT WE ARE FOCUSED ON EXECUTING
AND GETTING A DEAL THAT WORKS FOR OUR PEOPLE AND REWARDS THEM
FOR THEIR TREMENDOUS WORK. JONATHAN:
WE'VE ONLY GOT A COUPLE OF MINUTES LEFT BUT I HAVE TO GET
THIS IN. SUBTLE INDICATORS WORLDWIDE
THAT EV DEMAND IS TAILING OFF. I'M ASKING THIS QUESTION TO YOU
AS A CFO. HOW DO YOU MANAGE THE RISK OF A
MASSIVE INVESTMENT CYCLE AND A HUGE PUSH WHOLESALE GOING INTO
EV NOT WORKING OUT AND IN FIVE YEARS TO 10 YEARS CONSUMERS
DON'T WANT THIS STUFF. WE SEE GREATER EFFICIENCY
THROUGH HYBRIDS OR EVEN FANTASTIC SUSTAINABLE FUELS.
HOW DO YOU MANAGE THE RISK, PAUL? PAUL: I THINK IS EQUATE -- A GREAT
QUESTION BUT WHEN I LOOK AT OUR PORTFOLIO OF VEHICLES WITH
GREAT INTERNAL COMBUSTION AND A GROWING EV BUSINESS OFF THE
PLATFORM WHERE WE DESIGNED THEM FROM THE GROUND UP, A LOT OF
THE ONES ON THE MARKET ARE TRADITIONAL ICE VEHICLES WHERE
COMPANIES PUT A BATTERY SOLUTION INTO IT.
IT'S NOT OPTIMIZED FROM THAT STANDPOINT.
WHEN YOU LOOK AT THE PLATFORM OF VEHICLES WHERE WE GROW
PRODUCTION RAPIDLY, WE THINK WE HAVE GOT VEHICLES THAT
CUSTOMERS ARE DEMANDING AND YOU CERTAINLY SEE THAT IN THE BOOKS
ACROSS THE BOARD. ONE OF THE THINGS YOU HAVEN'T
SEEN FROM US IS THE TYPE OF RISING VOLATILITY THAT MANY OF
OUR COMPETITORS ARE EXPERIENCING WITH SOME OF THE
VEHICLES THAT WERE EARLY TO MARKET.
WHEN YOU LOOK AT THE SILVERADO, 40% WERE MORE RANGED THAN
ANYTHING ELSE OUT THERE. WE THINK WE CAN WIN CUSTOMERS
OVER IN THE LONG TERM AND WE HAVE GOT A VERY GOOD PORTFOLIO
TO FALL BACK ON THAT IS DRIVING INCREDIBLE PERFORMANCE FOR US.
JONATHAN: THAT WAS NOT FAIR BECAUSE WE
NEED A MUCH LONGER CONVERSATION IN THE FUTURE. THE REAL GROWTH PICTURE DISPLAY
GOOD EVERYWHERE. FROM AN ECONOMIC PERSPECTIVE WE
ACCEPT A DECELERATION. THIS IS AN ENVIRONMENT WHERE
YOU HAVE TO BE MORE NIMBLE. WE THINK THE CONDITIONS ARE
THERE FOR A FULL-BLOWN RECESSION. >> THIS IS WHEN GROUP
SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO AND LISA
ABRAMOWICZ. TOM: ABRAMOWITZ IS ON ASSIGNMENT
BUT SHE WILL BE BACK WITH US TOMORROW. I WILL SHOW UP WHENEVER THEY
SAY AND DO FANTASIZE TOMORROW. WE HAVE A REAL FOCUS HERE ON
BIG TECH BUT THERE IS MORE GOING ON THERE INCLUDING WHAT
WE HEARD FROM GM. JONATHAN: CORPORATE AMERICA IS WORRIED
ABOUT IS SLOW DOWN. GM HAS RAISED THEIR OUTLOOK, 3M
HAVE RAISED THEIR OUTLOOK AS WELL. A LOT OF COMPANIES WITH
EXPOSURE , SHOW NO TURNAROUND. TOM:
3M IS FIGHTING FOR THEIR RIGHT -- LIFE. COST CUTS GAIN TRACTION.
DO WE SEE RATIONALIZATIONS? JONATHAN:
IF WE SEE A DECELERATION AND GROWTH, FURTHER DISINFLATION
WHAT IS THAT MEAN FOR THE EARNINGS OUTLOOK?
TOPLINE REVENUE GROWTH SPECIFICALLY AND CAN THEY COST
-- CUT COSTS? TOM: LET'S FOCUS ON THE FED, HE WILL
PICK UP THE PAPER. AND MIKE MCKEE
SOMEWHERE IN THERE WILL BE DIRECTION. JONATHAN:
THEY CAN LEAN ON THE FORECAST OF THE JACKSON HOLE MEETING. YOU LEAD ON THE FORECAST AND
ECONOMIC PROJECTIONS WHICH INDICATE ONE COMMENT TO HIKES. TOM: BOJ AND ECB WITH THE FRENCH
SLOW DOWN AS WELL. THEY ARE MASSIVELY DATA
DEPENDENT. MAYBE WE ARE GETTING BACK TO
TRADITIONAL ECONOMICS? I DON'T SEE IT. IF WE WENT TO SINTRA AND TOOK
THE ENTIRE TEAM WE WOULD GO TO SYMPOSIA? JONATHAN:
A LITTLE BIT OF A LIFT IN THIS EQUITY MARKET. 10-YEAR AT 3.8944. EURO-DOLLAR IS 1.10. SIX CONSECUTIVE DAYS OF EURO
DATA. THINGS ARE LOOKING GREAT ON THE
CONTINENT. TOM: THE DOWN IS UP 11 HOWEVER MANY
DAYS IN A ROAD. I AM FASCINATED BY THE DOUBLE
BARREL OF TECH OUT TO AUGUST THIRD. DOUBLE-BARRELED WITH THE LUXURY
WHICH I BELIEVE STARTS TODAY. IT WILL BE INTERESTING TO SEE
THE HIGH MULTIPLE OF TECH AND LUXURY. SHOULD I GO OVER TO 57TH AND
ASKED THEIR? JONATHAN:
DO YOU WANT TO GO THERE? TOM: THEY DO HAVE A TIFFANY THING
GOING AND THAT'S BEEN A BIG THING HERE.
I THINK WE WILL FIND OUT AND EARNINGS CALL. WERE GOING TO GET INTO IT WITH
AN OPTIMIST. TRUE MADISON, HE IS BEEN WONDERFUL ABOUT THE
OPTIMISM. LET'S BEGIN WITH METLIFE? >> THERE HAS NOT BEEN A
RECESSION THIS YEAR BUT THE BAD NEWS IS THAT IT IS COMING. WE THINK CONSUMERS ARE IN THIS
BALLGAME. THEY ARE IN THIS YOU ONLY LIVE
ONCE MENTALITY. WHEN WE GET TO THE START OF NEXT YEAR, YOU WILL HAVE
HEADWINDS AND THOSE POINT TO A RECESSION.
WE THINK THE TURN OF THE YEAR IS THE RIGHT TIME. TOM: IT'S A GREAT ECONOMIC DEBATE,
WITH HER R-STAR. METLIFE IS RIVETED TO THE
ACTUARIAL RETURN AND LONG-TERM PORTFOLIOS.
HAVE YOU ADJUSTED THAT VIEW? HAVE YOU LOWERED YOUR
EXPECTATIONS FOR YOUR RETURNS? DREW: LET'S GET PAST THE NEXT
RECESSION. WE THINK IT IS NEXT YEAR BUT
WAS SAY IN THE FUTURE. WHEN YOU COME OUT OF THAT
RECESSION WHAT WILL YOU HAVE? NO HIGHER POTENTIAL GROWTH
RATES. WE THINK THERE IS A POTENTIAL
FOR A PARTICIPATION RATE REBOUND BEYOND WHAT WE ARE
SEEING. HIGHER PRODUCTIVITY. WE EXPECT A REBOUND IN
PRODUCTIVITY AND EXPECT POTENTIAL GROWTH WILL BE HIGHER
AND WITH GROWTH HIGHER WE EXPECT NEUTRAL INTEREST RATES
TO ALSO BE HIGHER. JONATHAN: WHAT WILL DRIVE HIGHER
PRODUCTIVITY, GROWTH, WHERE DOES THAT COME FROM? DREW: FROM A WORKER PERSPECTIVE, I
THINK ABOUT PEOPLE ENGAGING IN THE WORKFORCE OVER A LONGER PER
IODS OF THEIR LIVES. AND I THINK THAT'S A
CONSEQUENCE OF SOME OF THE GAINS WE HAVE MADE AND BIOTECH
DURING COVID. SECONDLY, WORK FROM HOME WILL
ENCOURAGE PEOPLE TO STAY IN THE WORKFORCE LONGER AND FIRMS WILL
RESPOND TO THAT TO MAKE IT EASIER FOR OLDER WORKERS TO
STAY LONGER. NOT ONLY WILL WE POTENTIALLY
HAVE THIS REBOUND IN THE PRIME WORKING AGE GROUP.
WE WILL SEE OTHER GROUPS ENGAGE MORE AGGRESSIVELY IN THE
WORKFORCE WHICH IS GOOD FOR THE ECONOMY. PRODUCTIVITY WISE, I AM WORKING
FOR MY OFFICE VIA ZOOM. IN THE PROCESS WOULD HAVE BEEN
DIFFICULT TO PULL OFF AND IT'S MUCH MORE CONVENIENT.
AS YOU LOOK THROUGH THE COST OF PUTTING OBJECTS IN SPACE WHICH
HAS DETERIORATED SIGNIFICANTLY. WHEN YOU LOOK AT GAINS OF
BIOTECH, FOR 25 YEARS WE WERE PROMISED MIRACLES AND BIOTECH
AND NOW WE'VE SEEN SOME AND WE WERE DISTRACTED. THOSE THINGS ARE A LOT UP AND
WILL INTERACT WITH EACH OTHER IN WAYS THAT I CAN PROBABLY
FATHOM HOW THEY WILL INTERACT. THEY WILL BE PRODUCTIVITY
ENHANCING AND WE ARE IN FOR A BIG PRODUCTIVITY DRIVE.
JONATHAN: HOW EXTENSIVE DO YOU THINK THE
PRODUCTIVITY WILL BE? DREW: EVERY ECONOMY IS RATE SENSITIVE.
IN SOME WAYS THE DIE IS CAST IN SOME INDUSTRIES. YOU ARE SEEING THE LOWER END OF
PRICING, THAT HAS ALREADY HAPPENED.
FOR NOW, IT'S A MATTER OF HOW DO WE EXPLAIN THAT BEST IN MY FORECAST IS COMING IN
FROM AM I RIGHT OR AM I WRONG? THE HISTORY HAS SHOWN YOU
SHOULD BE OPTIMISTIC, NOT PESSIMISTIC. TOM: WITH YOUR GDP ESTIMATE ON THE
LONGER, BROADER TERM. WHAT IS YOUR GDP RATE?
CAN YOU GET ABOVE 10%? DREW:
I WOULD PUT GROWTH CLOSER TO THREE THEN 2.5%. TOM: 3% GDP.
THAT IS A WALLACE STATISTIC. I CAN CONVEY HOW OFTEN NORM
THAT IS AND THAT IS IN THE GHOST OF THE RESPONSIBILITIES
OF INSURANCE WHERE THEY ARE FOCUSED ON THE LONG-TERM VIEW.
JONATHAN: IF WE GET A RATE HIKE THIS
WEEK, MAY BE ANOTHER ONE. WHEN THEY START CUTTING, WHAT
DID THEY CUT BACK TO? THERE IS CONSISTENT --
CONSENSUS AND WON'T BE ZERO. DREW:
I THINK IT WILL BE THREE TO 01 HANDLE.
I'M SURPRISED AT WHERE THE YIELD CURVE IS GIVEN THE
EXPECTATION THAT WE WILL HAVE A SOFT LANDING. WHEN YOU THINK ABOUT A SOFT
LANDING IT MEANS THAT THE FED WOULD NOT HAVE TO REVERSE
COURSE SO THEY WILL BE STUCK AT 5% FOR A FED FUNDS RATE.
WHAT SHOULD THAT YIELD CURVE BE SHAPED LIKE?
I DON'T SEE THAT REFLECTING THAT BELIEF. JONATHAN: TWO-YEAR, 10 YEAR, JUST AROUND
97, 98. THANK YOU DREW MATUS. TOM: WHAT HE SAYS THERE ABOUT A RUN RATE OF 3%, REAL GDP.
THAT IS AN EXTRAORDINARY STATEMENT BY DREW MATUS.
JONATHAN: IN THE FUTURE. IF YOU'RE JUST RUNNING THIS
MORNING, LIVE FROM NEW YORK MARKET POSITIVE BY 0.1%. YIELDS HIGHER 3.88924.
WE TALK ABOUT WEAKNESS IN THE EUROPEAN DATA BUT WE HAVE NOT
TALKED ABOUT JAPAN. THE BOJ DECISION THIS ON FRIDAY
AND WE WILL SEE THE OUTLOOK FOR INFLATION.
THE DIFFERENCE BETWEEN THE FED AND THE ECB ON WEDNESDAY AND
THURSDAY AND THE FED AND BOJ ON FRIDAY. TOM:
ON THE PACIFIC RIM HAVE THE BOUNCE OFF JAPAN AND THEIR
UNIQUE EXPERIMENT. FOREIGN EXCHANGE IS THE LITMUS
TEST. THE ANSWER IS, IS ONE BIG MYSTERY.
I WOULD GO BACK TO THE SLOWNESS OF EUROPE TO THE JAPANIFICATION
OF EUROPE. JONATHAN: GERMANY IS IN RECESSION. TOM: THE CONCERN IS THE NOMINAL GDP
OF ITALY HAS FLATLINED FOR A DECADE.
THE BOTTOM LINE, THE ANIMAL SPIRIT OF THE SELECTED
ECONOMIES INCLUDING JAPAN. THEY ARE TRYING TO IMPUTE
INFLATION AND JUMPSTART LOUSY GDP. JONATHAN: A ONCE-IN-A-LIFETIME
OPPORTUNITY. THERE IS THE FEAR OF LOSING
SOME OF THE TOURIST SEASON. TOM: THIS IS SERIOUS AND IT CREEPS
NORTH OFF THE SAHARA AND THE MEDITERRANEAN. JONATHAN: >> HOPEFULLY WHAT WE WILL DO IS
ACKNOWLEDGE THERE HAS BEEN SOME SOFTENING ON THE PART OF
INFLATION BECAUSE THAT IS FACTUALLY CORRECT BUT IT'S TOO
EARLY TO CALL VICTORY ON INFLATION AND AFTER THAT WHAT I
THINK THEY SHOULD DO IS LEAVE ALL THE DOORS OPEN SO THEY CAN
GO AGAIN IN NOVEMBER OR THIS CAN BE THE END. JONATHAN: THAT'S A DECENT DESCRIPTION OF
WHAT MOST PEOPLE EXPECT OF CHAIRMAN POWELL GOING INTO
TOMORROW. THE TWO DAY MEETING BEGINS IN
D.C.. ON THE S&P 500, EQUITIES HIGHER.
GM LOOKING THE OUTLOOK. 3M IS RAISING THEIR OUTLOOK AS
WELL. TOM: THANK YOU FOR BRINGING US UP.
MY MOTHER GREW UP IN MINNEAPOLIS AND WE HAVE A BIAS
FOR MINNESOTA MANUFACTURING. 3M, SUCH OPTIMISM.
16 HOLDS, FOR CELLS. A BLUE-CHIP COMPANY, THIS ONE
DEEPLY TROUBLED. THERE ARE NO BYES.
THERE ARE ZERO BYES ON THE BLOOMBERG SCREEN. JONATHAN:
I WAS TOTALLY UNAWARE OF THAT. TOM:
THAT SHOW YOU THE NUANCE AWAY FROM MICROSOFT AND GOOGLE WHICH
YOU AND I ARE GUILTY OF. WE ARE TRYING TO GIVE YOU
EARNINGS SEASONS EARNINGS. JONATHAN:
HOW MANY OF THOSE HOLES ARE ACTUALLY CELLS? TOM:
I AM AND THEY CAN. I HAVE BEEN IN THE ROOM WHERE THE GENERAL COUNSEL SAID WE
CAN'T SAY SO WE HAVE TO SAY HOLD. THE HOLD IS THE CELL. WE WILL GET TO THIS QUICKLY
, I CAN'T SAY ENOUGH ABOUT WHAT WE JUST HEARD FROM DREW MATUS.
WE BEGIN THE HEADLINE WITH THE THIRD CORNER, THE IDEA OF THE
OPTIMISM OF PRODUCTIVITY LIFT, TECHNOLOGY SUCCESS TO 3%
ADJUSTED GDP. JONATHAN: THE FEDERAL RESERVE THEY DO CUT
HE SAYS HE BELIEVES THEY ONLY COME BACK TO 3% WHICH IS THE
OLD WORLD. THE LAST 15 YEARS HAVE BEEN AN
OPERATION. TOM: THE SALIENT TALKING POINT IN
JACKSON HOLE. OUR GLOBAL ECONOMY
CORRESPONDENT WITH ENCYCLOPEDIC KNOWLEDGE ON HIS PANDEMIC
COVERAGE IN HONG KONG. THE FOREIGN MINISTER UPSET IN BEIJING TO THE ECONOMICS OF
FINANCE AND INVESTMENT CHALLENGES IN BEIJING? >> I DON'T THINK ANYONE HAS ANY
REAL INSIGHT. WE HAD A EXTRAORDINARY
SITUATION WHERE THE FOREIGN MINISTER DISAPPEARED FROM THE
PUBLIC STAGE. WE DON'T KNOW HOW LONG HE'LL
REMAIN IN THE JOB OR IF YOU WILL NAME SOMEBODY ELSE FOREIGN
MINISTER. THEY DECIDED THE FOREIGN
MINISTER IS OUT AND WE DON'T YET KNOW WHY. TOM: I WILL FLOAT THIS QUESTION AND
IT IS GROSSLY UNFAIR. ANNMARIE HORDERN BROUGHT UP THE
BACKDROP AND MENTIONED IN SOME WAY EXTRAMARITAL AFFAIRS.
ARE THOSE KIND OF PERSONAL MATTERS HOLDING INTO THIS
DEBATE OR WAS THIS MORE DISCRETE AND ABOUT PROFESSIONAL
FOREIGN DIPLOMACY? ENDA: PERSONAL CONDUCT CAN BE CITED
AGAINST OFFICIALS. CORRUPTION CASES HAVE FEATURED
IN THEIR CONVICTIONS. WE DON'T KNOW IF THAT'S THE
ISSUE HERE. IT HAS BEEN CENTRAL TO THE
SPECULATION, WIDELY REPORTED ON SOCIAL MEDIA. BUT THERE ARE THOSE WHO SAY IT
SHOULD NOT BE ENOUGH TO KNOCK OFF SOMEONE AND SENIORITY.
THERE IS A SURPRISE SINCE SOMEONE LIKE THAT WOULD FALL
FROM GRACE SO QUICKLY. JONATHAN: LET'S BUILD OUT WHAT WE DID
HERE, CAN YOU GET YOUR HANDS AROUND FIRM POLICY MEASURES
THAT HAVE BEEN ANNOUNCED IN THE LAST 24 HOURS THAT I COULD HAVE
AN EFFECT ON GROWTH? ENDA: IT'S THE DETAILS. THEY DROPPED THE STATEMENT THAT
HOUSES ARE FOR LIVING IN A NOT SPECULATING.
MAYBE THEY WILL CRACK DOWN ON THE HOUSING SECTOR AND WILL
ALLOW DEVELOPERS AND OTHERS TO GET ON TO BUILDING MORE HOUSES.
SOME PEOPLE ARE SEIZING ON THAT PHRASE. ON THE CONSUMER SIDE, A LOT OF
FOLKS ARE LOSING CONFIDENCE. SHORT OF HARD MEASURES THERE
WAS THOUGHT OF SELLING MORE BONDS OF THE LOCAL GOVERNMENT
LEVEL TO BUILD INFRASTRUCTURE BUT ALSO COMMENTARY ABOUT
NEEDING TO CONTROL DEBT. MIXED SIGNALS BUT THE TAKEAWAY
SEEMS TO BE ON THE BUILDING SIDE, WHATEVER THEY ARE PLAYING
WITH COULD BE ENOUGH TO GET THE ECONOMY TO HIT 5%. IT WOULD BE WRONG TO EXPECT TO
COMPARED TO 2008. JONATHAN: A BALANCED SHE RECESSION WOULD
BE SOMETHING NEW BUT ANTICIPATED BY PEOPLE FOR A
LONG TIME. HAVE YOU SEEN EVIDENCE OF THE
BALANCE SHE RECESSION IS OCCURRING IN CHINA? ENDA: IS BECOMING A TALKING POINT.
THERE IS STILL A LOT OF POTENTIAL IN THE ONE DEFENSE IS
THE POTENTIAL OF THE MIDDLE-CLASS CONSUMER. STRUCTURALLY, THE DEMOGRAPHIC
STORY IS LEANING AGAINST IT. THE GOVERNMENT HAS A BIG JOB TO
TURN THINGS AROUND AND IN THE COMING MONTHS. JONATHAN:
WE WILL CATCH UP SHORT OF THE, LOOKING FORWARD TO THAT.
A DEEP UNDERSTANDING OF THE ECONOMY OF THE CHINESE ECONOMY. WE NEED TO TALK ABOUT COSBY
DIFFERENCE BETWEEN WHAT IS EMERGING IN CHINA AS A POST
THROUGH A STIMULUS IN EUROPE AS THEY TRY TO CONTAIN A FALLOUT
FROM GERMANY. THE U.S. WITH HOPES AND DREAMS OF A SOFT
LANDING. WE WILL SPEAK WITH MARK MAHANEY.
TOM: MARK MAHANEY I HAVE KNOWN FOR
AGES AND HE IS BULLETPROOF ON BASIC SECURITIES ONE ON ONE.
HE HAS NOT BEEN DAZZLED BY AI. JONATHAN:
HE IS NOT COUNTING HOW MANY TIMES THEY USE AI. TOM: BACK AT CITIGROUP AND EVERCORE,
WHEN ED HYMAN SAID WHAT SHOULD I DO WITH APPLE?
THEY TURNED TO MARK MAHANEY. WHAT IS GREAT ABOUT MAHANEY HE
CAN TAKE A FENDER BASS AND PLAYS A COMPLETELY DIFFERENT
FROM A STANDUP BASE. JONATHAN: BUT FACES EASIER RIGHT? TOM: NO, YOUR BASE WILL CANCEL ON
YOU. JONATHAN: I ALWAYS THOUGHT YOU JUST
WANTED TO JOIN THE BAND SO YOU STARTED WITH BASE. TOM:
DON'T CANCEL US, PLEASE. TOM:
BLOOMBERG SURVEILLANCE, WE SAY GOOD MORNING TO YOU. A REALLY EVENTFUL DAY.
IMPORTANT OUT OF PARIS, YOU WILL BEGIN TO SEE LUXURY IN
FRANCE. WE WILL SEE WHAT THEY DO. WE GO ONTO TECH EARNINGS THIS
AFTERNOON, WITH ROMAINE BOSTICK AT ALL WE ARE DOING THIS
AFTERNOON. WE GET A 30 MINUTE PREBRIEF ON
THE ECONOMICS OF THE DAY, THE HOUSING DATA. RIGHT NOW, PHILADELPHIA FED
MANUFACTURING TO PROVIDE BILLIONS -- BRILLIANCE. MIKE:
IT IS NOT NEARLY AS OLD AS THE MANUFACTURING INDEX AND
REGIONAL INDEXES DO NOT MAKE AS MUCH OF A DIFFERENCE.
1.4 IS THE NUMBER, IT WAS -16.6 BEFORE.
THIS FLIES IN THE FACE OF THE OTHER SERVICE INDUSTRY NUMBER
WE GOT THIS WEEK, THE S&P GLOBAL PMI'S.
THOSE WENT DOWN A LITTLE BIT. THERE IS SO MUCH GOING ON IN
THE ECONOMY RIGHT NOW, I CANNOT IMAGINE THAT THIS ADDS ANYTHING
-- PROBABLY. TOM: YOU AND I WOULD GO TO
CONFERENCES. I WAS THUNDERSTRUCK BY A
NEGATIVE STATISTIC ON ONE OF THE SERIES, FLAT ON THE OTHER
SERIES. DO YOU PRESUME THAT WE WILL GET
-12 MONTH TRAILING STATISTICS ON HOUSING? MIKE:
I HAVE NOT DONE THE MATH, BUT WE COULD GET THERE.
THEY DO A SURVEY THAT IS EXTRAPOLATED, INDIVIDUAL
HOUSING MARKETS ARE DIFFERENT, AS WE HAVE SEEN OVER THE YEARS.
IT IS HARD TO KNOW WHERE WE END UP. THE THING THAT SURPRISED EVERYBODY WAS THE LACK OF
DEMAND, BECAUSE THERE ARE NO HOUSES FOR SALE.
LACK OF SUPPLY MEANS PRICE TENDS TO GO UP.
IN THIS CASE, THEY ARE STARTING TO COME DOWN, OR AT LEAST
FLATTEN OUT. THAT IS MORE OF WHAT THE FED IS
LOOKING FOR WHEN PUSHING UP INTEREST RATES. TOM:
WHAT DOES JEROME POWELL NOT WANT TO TALK ABOUT?
WHAT DOES HE WANT TO AVOID IN THE PRESS CONFERENCE TOMORROW?
MIKE: HE ALWAYS WANTS TO AVOID THE R
WORD, THEY WILL NEVER SAY RECESSION.
MINUTES HAVE SHOWN THE LAST COUPLE OF MINUTES, THE STAFF
HAS FORECAST RECESSION. WHEN ASKED ABOUT IT, HE SWEEPS
IT ASIDE AND SAYS I DO NOT WANT TO TALK ABOUT STAFF FORECASTS
BECAUSE HE DOES NOT WANT TO BE ON RECORD AS SAYING ANYTHING TO
DO WITH A RECESSION. HE DOES NOT WANT TO SAY
ANYTHING ABOUT WHAT THEY ARE GOING TO DO OR WHETHER THE
COMMITTEE IS DIVIDED OVER WHAT THEY ARE GOING TO DO AT THE
NEXT MEETING. TOM: ONE THING I WANTED TO BRING UP,
IT WILL BE A CONSTANT THING FOR ME.
WE WILL TALK TO STEPHANIE ROTH ABOUT THIS IN A MOMENT. THE INHERIT OPTIMISM HIT ME
OVER THE HEAD WITH 3% REAL GDP OUTLOOK LONG-TERM, THE METLIFE
SHORT-TERM IS FIVE YEARS. A HUGE OPTIMISM.
DO WE NEED A MASSIVE BOOST IN PRODUCTIVITY TO GET TO?
THE OPTIMISM? MIKE: WE COULD NEED THAT.
WE ARE NOT SURE WHERE THE LABOR SUPPLY IS GOING.
IT HAS BEEN GROWING AND WE ARE SEEING MORE IMMIGRATION.
DOES LABOR SUPPLY CONTINUE TO GROW TO HELP BOOST POTENTIAL
GROWTH? IF NOT, YOU NEED SOMETHING ON
THE PRODUCTIVITY SIDE. A WEEK AGO, I WAS OUT AT A
CONFERENCE WITH A BUNCH OF CEOS WHO WERE SAYING IT IS HARD TO
FIND WORKERS AND ELEPHANT WORKERS, SO WE ARE PUTTING MORE
INTO AUTOMATION. AT SOME POINT, YOU WOULD THINK
THAT SHOWS UP IN PRODUCTIVITY STATISTICS, BUT IT HAS NOT YET.
TOM: WHAT A LIFE, STEPHANIE ROTH
JOINS US WITH JP MORGAN. I HAVE GOT TO RAMP IT UP, YOU
CAN DO THIS WITH A GREAT COMBINE TEAM AT JP MORGAN. THERE IS POTENTIAL GDP, BASED
ON DEMOGRAPHIC AND TOXIC BREWS OF THE ECONOMY, THEN THERE ARE
GROWTH OPTIMISTS. CAN YOU BE A GROWTH OPTIMIST?
STEPHANIE: I THINK IT IS HARD TO BE THAT
OPTIMISTIC ON GROWTH. THAT SAID, THE DATA WE HAVE
SEEN ON THE LABOR SUPPLY FRONT IS MORE OPTIMISTIC THAN WE HAVE
BEEN. IMMIGRATION TRENDS HAVE BEEN
QUITE POSITIVE, THE COMBINATION OF THAT PLUS FEMALE LABOR FORCE
PARTICIPATION HAS ADDED 1.5 MILLION PEOPLE ABOVE WHAT WE
EXPECTED. TOM: I LOOK AT YOUR BACKGROUND,
BRINGING A WHOLE DIFFERENT TEMPLATE TO ECONOMICS.
DO YOU HAVE CONFIDENCE IN DATA RIGHT NOW?
DO YOU HAVE CONFIDENCE IN PROBABILITY DISTRIBUTIONS?
DO YOU HAVE A STATISTICAL CONSTRUCT YOU CAN BELIEVE IN?
STEPHANIE: HONESTLY, NO. THIS IS BEEN ONE OF THE PERIODS
WHERE IT IS HARD TO HAVE CONFIDENCE.
YOU HAD REVISIONS AND SEASONABLE ADJUSTMENTS THAT
HAVE BEEN DIFFICULT TO ADJUST SINCE THE COVID PANDEMIC AND
THAT RESULTED IN MASSIVE DATA REVISIONS AND INCREDIBLE
UNCERTAINTY. ON TOP OF THAT, MODELS DO NOT
REALLY WORK FOLLOWING COVID, YOU HAVE TO BE QUITE CAUTIOUS
ABOUT YOUR OUTLOOK. MIKE: I WILL THROW ONE MORE THING IN
THERE THAT WE HAVE NOT STARTED TALKING ABOUT, THE IMPACT OF
LABOR STRIKES UNEMPLOYMENT NUMBERS. WE WILL NOT GET AN ACCURATE
COUNT ON ARTISTS AND WRITERS AND ACTORS BECAUSE ACTORS DID
NOT GO ON STRIKE UNTIL AFTER THE REFERENCE WEEK.
WE DID NONE OF WILL HAPPEN WITH UPS, SO WE COULD HAVE MESSED UP
LABOR NUMBERS. IT MAKES IT HARDER FOR THE FED. IF MODELS DO NOT WORK AND YOU
DO NOT HAVE A LOT OF CONFIDENCE, HOW DO YOU KNOW WE
MIGHT GO INTO A RECESSION AND HOW WOULD YOU PUT TOGETHER A
RATIONALE FOR A VOTE ONE WAY OR THE OTHER? STEPHANIE:
EVERYONE HAS BEEN USING HISTORY AS A GUIDE.
WHEN THE FED HIKES RATES OF 500 BASIS POINTS, SOMETHING BREAKS. HISTORY WILL TELL YOU WE SHOULD
BE IN RECESSION RIGHT NOW, BUT THE DATA HAVE BEEN CONFLICTING
WITH THAT. OVER THE COURSE OF THE YEAR, WE
HAD TO BECOME MORE OPTIMISTIC JUST BECAUSE DATA HAS COME IN
MORE RESILIENT, YOU ARE SEEING HOUSING START TO STABILIZE.
YOU STILL GET A SLOW DOWN, BUT MUCH MORE MILD THAN WHAT WE
THOUGHT OF A COUPLE OF MONTHS AGO. I THINK YOU GET A CONTINUAL
SLOWDOWN THROUGHOUT THE COURSE OF THIS YEAR, THAN THE FIRST
HALF OF NEXT YEAR IS WHERE YOU SEE SLUGGISH GROWTH AROUND 0%.
TOM: I LOOK AT HOW YOU DOVETAIL
ECONOMICS INTO WHAT YOU DO WITH INVESTMENT.
DO YOU HAVE AN OUTLOOK ON THE BROADER AMERICAN ECONOMY THAT
GIVES YOU AN OUTLOOK ON EQUITY MARKETS? STEPHANIE:
WHAT WE CAN FEEL GOOD ABOUT HIS MARKETS HAVE RALLIED THIS YEAR,
FOR GOOD REASON. INFLATION HAS COME DOWN MORE
THAN ANYONE ANTICIPATED, IT IS TRENDING AROUND 3%, WHICH IS
NOT THE 4% TO 5% WE THOUGHT WE WERE A COUPLE OF MONTHS AGO.
MAYBE MARKETS HAVE CERTAINLY RALLIED, BUT THERE ARE PARTS IN
THE MARKET THAT LOOK ATTRACTIVE. THAT IS MID-CAP EQUITIES OR
EUROPEAN EQUITIES, WERE YOU HAVE VALUATION SUPPORT IN AN
ENVIRONMENT WHERE FUNDAMENTALS ARE OK AND WE ARE AVOIDING
NAMES THAT ARE PARTICULARLY OVERVALUED. TOM: I DIDN'T WANT TO GET YOU IN
TROUBLE WITH YOUR COMPLIANCE, BUT IT JP MORGAN PRIVATE BANK,
IF YOU WERE LUCKY AND OWN THE TECH STOCKS, DO YOU MAINTAIN
OWNERSHIP OF THEM? I AM TALKING MORE AS A COSMIC
EVENT. I OWN THIS STUFF, DO I SELL IT
AND GO TO VALUE PROPOSITION? STEPHANIE:
A LOT OF OUR CLIENTS ARE VERY OVERWEIGHT TECH STOCKS, SO WE
ARE COMFORTABLE. WE WOULD ADD NEW MONEY TO SOME
OF THE OTHER AREAS, LIKE MID-CAPS OR EQUAL WEIGHTED S&P
INDEX. MIKE: WHAT ARE YOU TELLING PEOPLE
ABOUT INVESTING OVERSEAS? WITH THE U.K.
IN DEEP ECONOMIC TROUBLE, WITH THE EURO ZONE BEHIND THE U.S.
IN TERMS OF GROWTH AND UNEMPLOYMENT, IS IT WORTH IT TO
VENTURE OUTSIDE THE BORDERS? STEPHANIE:
WHEN WE LOOK AT PROPRIETARY DATA OF CLIENTS, THEY TEND TO
BE OVERWEIGHT U.S. WE ARE SUGGESTING THEY HAD A
LITTLE BIT OF MONEY OVERSEAS, ONE OF OUR FAVORITE PLACES TO
ZERO. YOU ARE STARTING TO SEE INFLATION COME DOWN, VALUATIONS
ARE SUPPORTIVE AND EARNINGS GROWTH SHOULD BE GOOD. WE TALK ABOUT CHINESE EQUITIES,
BUT A LOT OF CLIENTS ARE HESITANT TO ADD MONEY. TOM: I WANT TO GET BACK TO
STATISTICS AND ANALYSIS. SPEAK TO OUR VIEWERS AND
LISTENERS ABOUT HOW YOU INTERPRET THE DATA VERACITY OF
AMERICAN LABOR DATA. IS IT GOOD DATA? STEPHANIE:
WE HAVE TO TAKE THE DATA GIVEN. TOM:
SAY THAT ABOUT CHINA AS WELL, LOOK AT WHERE THAT GOT US.
IN AMERICA, DO YOU TRUST THE DATA? STEPHANIE: WE HAVE TO BE CAUTIOUS, PAY
ATTENTION TO THE SEASONALS. DO NOT JUST FOLLOW ONE
INDICATOR. GENERALLY SPEAKING, IT IS
TELLING US THAT LABOR DEMAND HAS SOFTENED SOME.
WAGE GROWTH, WE WILL SEE WHAT HAPPENS.
THERE IS GOOD REASON TO BELIEVE WE SHOULD GET A SOFTER PRINT,
ESPECIALLY TO THE EXTENT WE COULD GLEAN SOMETHING FROM
THAT, THAT IS LABOR SENSITIVE. THAT HAS COOLED QUITE A BIT.
TOM: CAN YOU TALK TO MR. DIMON ABOUT
GETTING LOCKDOWN BACK IN PLACE IN WASHINGTON SO MICKEY --
MCKEE CAN GO DOWN AND SIT IN THE AIR-CONDITIONED ROOM LIKE
THE OLD DAYS? [LAUGHTER] WE MISS THAT, INSTEAD OF THE
DELAY DATA: 30. STEPHANIE: WE WOULD MUCH PREFER THAT. TOM: STEPHANIE ROTH, THANK YOU.
BRINGING A TWISTED INTERPRETATION OF ECONOMIC
STATUS WITH STATISTICS. ON THE DATA FRONT, I WANT TO GO
THROUGH THIS BECAUSE I THINK IT IS FASCINATING.
IN TERMS OF VISIBLE EARNINGS, IT REALLY BEGINS -- I AM
GAMING, THREE HOURS IS MY GUESS. WE ARE GOING TO GET A PARIS
SHUT DOWN, YOU WILL FIRST SEE LVMH COME OUT WITH EARNINGS
LATER THIS MORNING. YOU WILL SEE THE FIRST BIG
EARNINGS FROM A DOMINANT PROVIDER IN ONE OF THE GO-GO
STOCKS OF THE MOMENT. TWO YEAR YIELD 4.87%, ELEVATED
UP JUST A 10TH OF A PERCENT. WE WELCOME ALL OF YOU HERE ON A
FED DAY. WHEN DO YOU GO DOWN? MIKE: I WILL BE GOING DOWN THIS
AFTERNOON. TOM: HOW DO THEY PICK THE
QUESTIONING? DO YOU KNOW IN ADVANCE WHEN YOU
GET CALLED? IS THERE RHYME OR REASON TO IT?
MIKE: THE CHIEF OF STAFF OF THE FED
IS THE ONE THAT CALLS ON YOU , THEIR MODEL IS TO CALL ON MAJOR
PRINT PUBLICATION FIRST THEN TV PEOPLE. TOM:
WHY DO THEY DO THAT? MIKE: I SHOULD SEND YOU DOWN THERE TO
MAKE THEM LISTEN. TOM: THEY CALL ON PRINT FIRST, JUST
DATA TRADITION? MIKE: YES. TOM: WHEN HE READS A STATEMENT OFF,
DO YOU MAKE NOTE? IS IMPORTANT -- THE ANSWER IS
SO IMPORTANT HE HAS TO READ A PREPARED STATEMENT, OR IT IS
NOT A BIG DEAL? MIKE:
A LOT OF IT IS WORD FOR WORD WHAT IS IN THE STATEMENT, YOU
ARE LISTENING TO ANYTHING ADDITIONAL OR ON TOP OF THAT.
YOU ARE LISTENING WHILE YOU LOOK AT YOUR LIST OF QUESTION
BECAUSE YOU WANT TO MAKE SURE HE DOES NOT ANSWER A QUESTION
IN HIS OPENING STATEMENT. TOM: HOW MANY TIMES HAS IT HAPPENED
TO YOU WHERE YOU'VE GOT FIVE QUESTIONS LINED UP IN THE NEW
YORK TIMES ASKS ONE, THEN ANOTHER, THEN THE WASHINGTON
POST? MIKE: THAT IS WHERE YOU GO IN WITH
MORE THAN FIVE QUESTIONS. WHEN THEY PUT OUT SURVEYS OR
STATEMENT, THERE ALWAYS QUESTIONS THAT ARISE. TOM:
THIS IS NOT EASY, THE FIRST TIME I SAW THIS WAS WITH SIMON
KENNEDY AND JOHN SNOW. THOSE PRESS CONFERENCES ARE
POWER. TOMORROW, THE FED DECIDES, LOOK
FOR THAT. >> I AM CRITICAL OF POWELL
BECAUSE THE USE OF PORTION OF THE DATA, THEY DID NOT SEE
INFLATION WHEN IT WAS HERE. WHEN IT SHOWED UP, THEY SHOWED
UP LATE AND BIG. IF WE HAD TO INCREASE RATES, WE
SHOULD HAVE DONE IT EARLIER. IT STOPPED SO MUCH EARLIER, WE
DID NOT NEED HIM TO DO THAT. WHEN HE STOPPED, HE WENT THE
OTHER DIRECTION. JUST WAIT. JONATHAN:
ALWAYS TIMELY, NOW NEVER MORE SO THAN WHAT WE SEE WITH
COMMERCIAL REAL ESTATE. THIS IS A CONVERSATION,
BLOOMBERG WILL WITH DAVID RUBENSTEIN -- WEALTH WITH DAVID
RUBENSTEIN. I CANNOT SAY ENOUGH ABOUT
LOOKING FOR THIS, WE ARE BUILDING OUT OUR YOUTUBE
ABILITIES. NOW JOINING US, THE DAVID
RUBENSTEIN WITH THE CARLYLE GROUP. WHAT A TIMELY CONVERSATION,
WHAT DID HE SAY ABOUT THE COMMERCIAL REAL ESTATE DEBACLE
TO COME? DAVID: WELL, HE THINKS IT IS GOING TO
BE A HURRICANE, KIND OF A CATEGORY FIVE HURRICANE. WHAT YOU HAVE IS A COMBINATION
OF PEOPLE NOT GOING BACK TO WORK PHYSICALLY AND PEOPLE
REALLY, BECAUSE OF HIGHER INTEREST RATES , NOT VALUING
THOSE BUILDINGS IS MUCH AS THEY USED TO.
THE RESULT IS YOU HAVE AN ENORMOUS AMOUNT OF COMMERCIAL
OFFICE SPACE IN THIS COUNTRY WORTH A FRACTION OF WHAT WAS
SUPPOSED TO BE WORTH. AT SOME POINT NEXT COUPLE OF
YEARS AGO, THIS REAL ESTATE IS GOING TO HAVE TO GO INTO
DEFAULT ONE WAY OR THE OTHER. THE BANKS WILL ALL BE ABLE TO
JUSTIFY THE DEPTH -- DEBT THEY HAVE.
YOU WILL SEE A LARGE EFFORT TO SELL ALL OF THE DEBT DISCOUNT
WILL CAUSE PROBLEMS IN THE BANKING COMMUNITY AND REAL
ESTATE COMMUNITY. TOM: THERE IS A SUBTLENESS TO HIS
CAREER. WE WILL -- I WOULD LIKE TO SAY
WE WILL EXTEND THE DISCUSSION FOR ONE HOUR, BUT JONATHAN
FERRO WOULD BE UPSET AT 9:00. WHO IS VERY STERN LOOK AND WHY
DO PEOPLE LIKE YOU LEAN FORWARD -- WHO IS BARRY AND WHY DO
PEOPLE LIKE YOU LEAN FORWARD? DAVID:
HE BUILD A LARGE COMPANY IN THE COMMERCIAL OFFICE BUILDING AND
COMMERCIAL REAL ESTATE WORLD, BUT HE ALSO BUILT A LARGE HOTEL
COMPANY. IT WAS ONE OF THE LARGEST HOTEL
COMPANIES IN THE UNITED STATES, MAJOR BRANDS LIKE WESTON AND
SHERIDAN, AMONG OTHERS. HE INVENTED A BRAND THAT IS
OWNED BY MARRIOTT. WHEN HE SOLD ALL OF THAT TO
MARRIOTT, HE KEPT HIS REAL ESTATE COMPANY, ONE OF THE
LARGEST IN THE UNITED STATES AND OWNS ENORMOUS AMOUNT OF
PROPERTY ACROSS THE SPECTRUM OF REAL ESTATE PROPERTIES.
A LOT OF IS STRUGGLING. HE HAS TO TURN SOME BACK TO THE
LENDERS AS MOST REAL ESTATE DEVELOPERS AND OWNERS ARE
BEGINNING TO DO. HE MADE HIS NAME IN THE LATE
1980'S BUYING DISTRESSED REAL ESTATE AND THINKS THERE WILL BE
A LOT OF DISTRESSED REAL ESTATE IN THE NEXT COUPLE OF YEARS.
TOM: DISTRESSED REAL ESTATE CLEARLY
MEANS THE JAPANESE SHOW UP, WE ARE SEEING THE CRANES WRITING
OUT NEW JAPANESE INTEREST IN THE ISLAND OF MANHATTAN AS WELL.
WILL HISTORY REPEAT ITSELF IN THE COMMERCIAL REAL ESTATE
DEBACLE WHEN FOREIGNERS SHOW UP? DAVID: USUALLY WHAT HAPPENS IS
FOREIGNERS SHOW UP BEFORE THE DEBACLE OCCURS, NOT AFTER. ANYBODY WHO IS WATCHING THIS
SHOW KNOWS THAT WHEN YOU GO TO A MAJOR OFFICE BUILDING IN NEW
YORK OR OTHER CITIES, YOU DO NOT SEE A LOT OF PEOPLE.
THE PEOPLE USING THAT REAL ESTATE ARE GOING TO SAY I DO
NOT NEED AS MUCH SPACE AS I USED TO BECAUSE PEOPLE ARE
WORKING FROM HOME AND THEREFORE I WILL SHRINK IN MY NEXT LEASE
THE AMOUNT OF SPACE I HAVE. YOU WILL SEE ENORMOUS SHRINKAGE
IN THE USAGE OF OFFICE BUILDING AND THE RESULT IS VALUE OF
LEASES WILL GO DOWN. IN SOME CASES, BANKS WILL BE
FORCED TO TAKE OVER THE BUILDING BECAUSE THE LAND COURT
CANNOT AFFORD TO SERVICE THE DEBT ANY LONGER. TOM: IS HE AN OPTIMIST ON THE
DURABILITY OF WORK FROM HOME AND MIGRATION OF COMMERCIAL
REAL ESTATE OFFICE TO INDIVIDUAL RESIDENCES?
DOES HE THINK WE CAN PULL THAT OFF? DAVID:
HE THINKS WE ARE NOT LIKELY OVERNIGHT TO GO BACK TO FIVE
DAYS A WEEK AND USING ALL OF THE SPACE WE USE TO, HE IS
COGNIZANT OF THE FACT THE WORLD HAS CHANGED. OUTSIDE THE U.S., PEOPLE ARE
GOING BACK TO OFFICES AND IT IS NOT QUITE THE PHENOMENON WE
HAVE IN THE U.S. FOR A NUMBER OF REASONS. HE IS A VERY TALENTED REAL
ESTATE INVESTOR, I HAVE KNOWN HIM FOR QUITE SOME TIME. HE MOVED HIS ENTIRE OPERATIONS
FROM THE NORTHEAST TO MIAMI, AHEAD OF EVERYONE ELSE MOVING
TO MIAMI, SO HE WAS AHEAD OF THE CURVE. HE IS OPERATING QUITE
EFFECTIVELY. HIS COMPANY HAS OVER ONE
HUNDRED BILLION DOLLARS OF REAL ESTATE PROPERTIES. WHILE HE HAS GIVEN SOME BACK TO
LENDERS, ON THE WHOLE HE IS IN GOOD SHAPE. TOM: IT IS ICONIC WITHIN HOTELS,
WHAT DID HE SAY ABOUT THE FUTURE OF HOTELS? EVERY TIME A CALL A HOTEL, THE
PRICE IS DRAMATICALLY HIGHER THAN IT WAS 12 MONTHS AGO OR 24
MONTHS AGO. DAVID: THEY KNOW YOU ARE GOING TO STAY
THERE, THEY ARE JACKING UP THE RATE BECAUSE THEY ARE SURE YOU
CAN AFFORD IT. THE HOTEL BUSINESS IS COMING
BACK FROM THE DEPTHS OF THE COVID PERIOD OF TIME WHEN NO
ONE WAS USING HOTELS AND STOP PRICES WERE WAY DOWN.
NOW, HOTELS ARE COMING BACK BECAUSE WE ARE SEEING AN
ANONYMOUS AMOUNT OF SPENDING ON DISCRETIONARY TRAVEL,
DISCRETIONARY GOING AWAY FROM HOME KIND OF THINGS. RESTAURANTS, VISION PARKS AND
HOTELS. SPENDING IS UP NICELY AND
HOTELS ARE COMING BACK. HE IS NOT SO MUCH IN THE HOTEL
BUSINESS AS HE WAS, HE IS A LEADING LIGHT IN TERMS OF
THOUGHT PROCESSES. HE HELPED CREATE A NUMBER OF
BRANDS. TOM: IN THE TIME WE HAVE GOT LEFT, I
HAVE TO BRING UP A BOMBSHELL INTERVIEW EARLIER THIS MORNING. DREW MATTIS WITH EXCEPTIONAL
OPTIMISM ON THE AMERICAN ECONOMY LOOKED FOR LONG-TERM
GROWTH THAT WOULD APPROACH 3% REAL GDP, THAT IS A HUGELY
OPTIMISTIC VIEW OUT OF AMERICAN EXCEPTIONALISM. DO YOU SHARE THE OPTIMISM THAT
WE UNDERPLAY WHAT REAL GDP GROWTH IS AND WHAT IT WILL MEAN
TO OUR FINANCIAL SYSTEM? DAVID: THAT IS A REALLY HIGH REAL GDP
GROWTH. ECONOMY OF OUR SIZE, REAL GDP
GROWTH AROUND 2% OR 2.3 PERCENT IS PROBABLY REALISTIC IN THE
CURRENT ENVIRONMENT. 3% OR GREATER WHEN INFLATION IS
REASONABLY HIGH I THINK IS QUITE HIGH-GROWTH. IF YOU HAVE 3% INFLATION AND
ARE SAYING 3% REAL GROWTH, IT IS REALLY 6% GDP GROWTH THE WAY
IT IS MEASURED AND THAT IS NOT LIKELY IN AN ECONOMY OF OUR
SIZE. WE DID GROW 6% AT ONE QUARTER
AFTER COVID BECAUSE WE WERE SO LOW.
I THINK REAL GDP GROWTH, 2% IS PROBABLY REALISTIC. TOM: THE MOST TIMELY INTERVIEW, YOU
WILL SEE IT TONIGHT ON BLOOMBERG TELEVISION.
BLOOMBERG 12 9:00 P.M. TONIGHT. I CANNOT SAY ENOUGH ABOUT
DIGITAL DISTRIBUTION, REALLY PUTTING A LOT OF EFFORT INTO
WHAT WE ARE DOING AT BLOOMBERG.COM AND ON YOUTUBE,
WE ARE BLOWING UP TO THE YOUTUBE SITE TO MAKE IT MORE
ACCESSIBLE AND USER-FRIENDLY. ACCESSIBLE AS WELL WILL BE THE
FED DECIDES, WE DO THIS TOMORROW.
LISA ABRAMOWICZ IS RULED TO BE -- RUMORED TO BE ON THE
GULFSTREAM, I AM NOT SURE IF SHE WILL BE BACK FOR THE SHOW
TOMORROW MORNING. HER PEOPLE SAY SHE WILL BE HERE
FOR THE FED DECIDES, MAYBE SHE WILL SLIP IN BEFORE THE 2:00
START DATE AND WE WILL HAVE THE PRESS CONFERENCE WITH MICHAEL
MCKEE IN WASHINGTON. RED AND GREEN ON THE SCREEN,
WAITING FOR MICROSOFT AND GOOGLE EARNINGS. LUXURY OUT HERE IN A COUPLE OF
HOURS, STAY WITH ALIX STEEL -- SHE IS NOT HERE I DON'T THINK,
SHE IS OFF SOMEPLACE WHERE I SHOULD BE. DOING SOMETHING COOL.
10:00 TO 12:00, LUXURY EARNINGS OUT OF PARIS.
THE VIX 13 POINT 98 SHOWS OPTIMISM ON THE MARKET OVER THE
LAST THREE OR FOUR DAYS. ON BLOOMBERG TELEVISION, VERY
IMPORTANT.
