Inflation Is Cooling | Bloomberg Surveillance 07/13/23

>> WE HAVE CONSTANTLY UNDERESTIMATED THE RESILIENCE OF THIS ECONOMY. BUT WE ARE SEEING SOME MODERATION. >> THERE IS A LONG AND VARIABLE LAG TO TIGHTENING OF FINANCIAL CONDITIONS INTO THE REAL ECONOMY. >> WE ARE SEEING DECELERATION AND DISINFLATION IN THE U.S. ECONOMY. >> WE ARE SEEING DISINFLATION THAT IS GRADUALLY BECOMING MORE BROAD-BASED. >> I DON'T THINK IT CHANGES THE MOVE IN JULY FROM THE FED. THEY CANNOT TAKE THEIR FOOT OFF THE PEDAL YET. ANNOUNCER: THIS IS "BLOOMBERG SURVEILLANCE." JONATHAN: STOCKS UP, YIELDS LOWER, LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING, GOOD MORNING. THIS IS "BLOOMBERG SURVEILLANCE." ALONGSIDE TOM KEENE AND LISA ABRAMOWICZ, I'M JONATHAN FERRO. YIELDS ARE AGGRESSIVELY LOWER. LAST WEEK ON THURSDAY, 5.11% ON A TWO-YEAR. THIS MORNING 4.64%, A BIG TURNAROUND FOLLOWING CPI. TOM: I KNOW YOU HAVE A COMMENT FROM THE CROSS RATE STRATEGIST. IT IS GAME CHANGER THURSDAY. FOLLOWS ON FROM WHAT WE SAW YESTERDAY. WHAT I DO NOT SEE IS A LOT OF ANALYSIS OF HOW YESTERDAY'S DRAMA LINKS UP WITH TOMORROW'S JOBS REPORT. JOBS REPORT SCENARIO A, B, C, HOW DOES THE DISINFLATION REPORT FOLDER INTO THAT? JONATHAN: JULY, DONE DEAL FOR A RATE HIKE. GOING FORWARD FROM THERE, WHAT DOES SEPTEMBER BRING, WHAT DOES JACKSON HOLE BRING? WE NEED A FEW MORE DATA POINTS TO GET THIS FEDERAL RESERVE TO CHANGE ITS TUNE. THAT WAS JUST ONE DATA POINT FOR THEM. LISA: LIKELY THEY'RE GOING TO CONTINUE WITH HAWKISH RHETORIC. EVEN IF UNDERNEATH THEY ARE THINKING THIS IS THE LAST ONE AND WE CAN GO. WE HAVE TO TELL THEM THAT WE ARE GOING TO NECESSARILY GO BECAUSE THEY WANT TO GET LONG IN THE RATES UP. -- LONG AND RATES UP. JONATHAN: PEPSICO, FOR YOUR ORGANIC REVENUE 10%, THEY HAD SEEN 8%. A LIFT TO THE OUTLOOK. TOM: THIS IS THE HEART OF THE MATTER, PERFECTLY TIMED. I'M GOING TO GO TO JACKSON HOLE, THE PIONEER GRILL. I GO IN, AND YOU HAVE TO HAVE THE CHIPPED BEEF ON TOAST REAL COWBOYS ARE IN THERE AND DRINKING PEPSI FOR BRICK DUST -- FOR BREAKFAST. THAT IS HOW YOU GET TO 10% REVENUE GROWTH. LISA: THIS DOVETAILS WITH THE PRODUCER PRICE INDEX. IT IS LIKELY GOING TO COME IN LOWER THAN WHAT THE PRICES ARE THAT THESE COMPANIES CAN PAY. MARGINS HAVE BEEN EXPANDING SLOWLY IN A NUMBER OF DIFFERENT COMPANIES BECAUSE THEY HAVE PRICING POWER. HOW LONG CAN WE SEE THAT? THAT IS THE SILVER LINING WE KEEP SEEING. MAYBE CAMARO. TOM: LISA, YOU AND I PUT UP WITH THIS. JON IS SO HEALTHY, FOLKS, HE CAN RUN THE GAUNTLET IN THE FOOD COURT AND RUN BY THE CHEESE IT'S WITHOUT GRABBING ONE. JON, FRITO-LAY, THE REVENUE IS UP 14%. I NEVER IMAGINED THAT IN 30 YEARS. JONATHAN: THEY DO QUAKER OATS, DON'T THEY? ISN'T THAT THERE THING? TOM: I'M NOT SURE ABOUT THAT. JONATHAN: DOUBLE CHECK ON THAT. LISA: TOM SINGLE-HANDEDLY IS BOOSTING THEIR PROFIT MARGINS. JONATHAN: IS THAT WHAT YOU ARE DOING? TOM: THAT'S RIGHT. JONATHAN: COMING UP LATER, THE AIRLINES UP SOMETHING LIKE 50% YEAR-TO-DATE. CAP FOR THOSE NUMBERS LATER THIS MONEY. EQUITY IS POSITIVE, .3%, ADDING TO THE GAINS FROM YESTERDAY. ADDING TO THE LOSSES IN THE FX MARKET FOR THE DOLLAR, THE EURO-DOLLAR POSITIVE .4%, TAKING OUT THE HIGHS IN THE CURRENCY PAIR FOR THE YEAR SO FAR. YIELDS DOWN, DOLLAR WEAKER. TOM: THERE IS A SIMPLE BANNER TO PUT UP. USD, MAKES IN UNDER 17, TO A SHOCKING 16.88. I HAVE NEVER FRAMED A SUB-17 PESO. JONATHAN: GETTING CLOSER TO 1.12 ON THE EURO. LISA, JUST TO FINISH ON THE BOND MARKET, THE 10 YEAR, 2.81. LISA: THE PRODUCER PRICE INDEX, WE ARE EXPECTING THE PRODUCER PRICE INDEX TO COME IN TO 2.6%. THE KEY IS, HOW LONG CAN IT REMAIN BELOW WHERE WE SEE IN THE PRICES THAT COMPANIES CAN PAY? BASICALLY, OUR INPUT PRICES THAT MUCH LOWER THAN THE PRICING POWER THESE COMPANIES HAVE? WE JUST GOT PEPSI EARNINGS. WE ARE GOING TO GET A CALL THIS MORNING AROUND 8:1 5 A.M. DELTA WILL COME OUT AROUND -- PARTICULARLY FROM DELTA AFTER WHAT WE SAW THAT AIRLINE PRICES GOING DOWN EIGHT POINT 1% IN YESTERDAY'S CPI REPORT. FED GOVERNOR CHRIS WALLACE IS GIVING A SPEECH AT A NEW YORK EVENT. THEY ARE GOING TO BE HAWKISH. WHEN DID THEY START INDICATING THEY ARE MOVING AWAY FROM FUTURE RATE HIKES? RIGHT NOW THE MESSAGING HAS TO BE CONSISTENT THAT THEY HAVE NOT DONE ENOUGH AND THAT IS WHAT HAS BEEN CONSISTENT THROUGHOUT YESTERDAY. JONATHAN: GOVERNOR WALLER THIS TIME YESTERDAY -- THIS TIME LAST YEAR SAID UNEMPLOYMENT COULD REMAIN STABLE. IT TOOK A LOT OF CRITICISM FROM PEOPLE IN ACADEMIA. AND HERE WE ARE, CPI COMING DOWN TO 3%, UNEMPLOYMENT AROUND THE .5%. I HAVE NO IDEA WHAT THE FUTURE HOLDS. TOM: WALLER IS HUGELY RESPECTED WITHIN THE RESEARCH COMMUNITY. AGAIN, THAT DOVETAILS WITH DISINFLATION WEDNESDAY, AND HOW DO YOU LINK IN TOMORROW'S JOBS REPORT AND WHAT IT MEANS PARTICULARLY FOR THE BEARS IN THIS EQUITY MARKET? JONATHAN: THE CHIEF MARKET STRATEGIST AT CANACCORD GENUITY. TONY, HOW ARE YOU? TONY: I WAS WONDERING, WHAT HAPPENED TO THE CHINOS? I LOOK OVER AND THERE IS THIS GUY. JONATHAN: DID HE TAKE THEM ALL? [LAUGHTER] HE TAKES THEM HOME WITH THEM. TONY: THEY ARE FREE HERE. TOM: I HAVE AN INTERN FROM NORTHWESTERN, AND TANYA, YOU LOOK IN HER DRAWER, SHE HAS A YEARS SUPPLY IN THERE. JONATHAN: TONY, DO YOU SEE REASONS TO BE BULLISH NOW? TONY: I'M STILL THAT WAY. YOU ARE SEEING A BROADENING OUT, WHICH IS HEALTHY, BUT YESTERDAY WAS AN INTERESTING DAY. INFLATION SHOULD BE GOING DOWN. THE ECONOMY IS SLOWING. WE HAVE SEEN THAT IN THE FORD-LOOKING LABOR REPORTS. THE THING THAT IS INTERESTING IS THAT THE INDUSTRIALS AND OTHER CYCLICAL AREAS UNDERPERFORM. THE DOW JONES WAS ONLY UP .25% AFTER A HUGE START. BACK WHEN THEY HAD CANDLES THAT WERE ON SALE, BECAUSE THEY DIDN'T HAVE LIGHTS WHEN YOU AND I GOT INTO THE BUSINESS, REMEMBER THE DOW JONES? EVERY PORTFOLIO MANAGER USED IT. THAT WAS THE BENCHMARK. BUT THEN IT BECAME SO CONCENTRATED THAT THE PORTFOLIO COMMUNITY MADE THE S&P 500 THE BENCHMARK. IT SHIFTED IN THE LATE 1980'S, EARLY 1990'S BECAUSE OF THE CONCENTRATION FACTOR. I THINK THAT IS PROBABLY TRUE HERE AS WELL. LISA: YOU HAVE BEEN DEFENSIVE. YESTERDAY A LOT OF PEOPLE WERE SAYING IT IS A GAME CHANGER. JIM REED SAID IT IS HARD TO FIND ANY NEGATIVE SPIN. WE HAVE SEEN REAL DISINFLATION ACROSS ALMOST EVERY INPUT. WHAT WOULD IT TAKE FOR YOU TO CHANGE YOUR VIEW AND BECOME MORE CONSTRUCTIVE? TONY: OUR CALLS TEND TO BE LIGHT AND TIGHT. THE TIME TO BE SUPER NEGATIVE FROM A MARKET PERSPECTIVE WAS BACK LAST YEAR, EARLY IN THE YEAR, AS SOON AS JEROME POWELL USED THE WORD VOLCKER. WHEN YOU HAVE SO MANY COMPANIES THAT ARE STILL DOWN 50% OR 60% FROM THEIR 52-WEEK HIGH, THAT IS NOT THE TIME TO MAKE A MAJOR DOWNSIDE THAT. LIGHT AND TIGHT MEANS EXTRA CASH AND MORE OF A DEFENSIVE POSTURE TO TAKE ADVANTAGE OF A RECESSION-BASED WEEK. I STILL BELIEVE WE ARE TRENDING TOWARD A RECESSION BECAUSE OF THE LABOR MARKET. THE EMPLOYMENT TRENDS INDEX HAS NEVER GONE TO THE CURRENT LEVEL WITHOUT BEING IN A NEARBY RECESSION. EVEN YESTERDAY SMALL BUSINESS HIRING PLANS INDEX, THE OPTIMISM TAKE UP, BUT THE HIRING PLANS WENT DOWN. BUT IT WOULD TAKE COMMITTED CHANGES TO SEE THE LABOR MARKET INFLECT. IN OTHER WORDS, YOU ARE WEAKENING. WE WERE GOING TO GET THIS MYSTICAL SOFT LANDING, DESPITE A VERY -- I BELIEVE THE FED IS ALREADY 100 BASIS POINTS TOO TIGHT. THE IDEA WE SHOULD HAVE EXPECTED WE ARE GOING TO KEEP GOING UP IN RATES, LOOK AT THE DISINFLATION IN GOODS AND NONDURABLE GOODS. IT HAS BEEN EXTRAORDINARY. HOW IS THAT NOT GOING TO HAPPEN FOR SERVICES IF THE LABOR MARKET WEEKENDS? THAT IS WHAT HITS MARGINS. I'M KIND OF ON A RANT HERE. TOM: I DIDN'T NOTICE. LISA: I HAD TOO MANY CHIPS. TONY: THE MARGINS COMPRESSED ON A MACRO LEVEL WHEN REVENUES FAIL. THEY CAN COME DOWN A LITTLE BIT WHEN COSTS GO UP, IF YOU LOOK BACK AT PROFIT MARGINS HISTORICALLY FOR COMPANIES, FOR THE S&P 500 AND HOUSEHOLDS, WHEN YOU LOSE YOUR REVENUE STREAM YOU CANNOT CUT COSTS AS FAST. TOM: YOU ARE AN A CLAIMED -- HE WORE AN ACCLAIMED OPTIMIST. I WANT YOU TO WALK US TO THE PROCESS OF HOW BEARS RATIONALIZE WALKING AWAY FROM A BEAR CALL TO SOME FORM OF OPTIMISM IN APRIL. WHAT IS THE PROCESS? IS IT SECTOR BY SECTOR? HOW DO YOU MOVE FROM BEING A BEAR? TONY: JUNE 7, THERE IS FINALLY HUSTLE IN THE RUSSELL. IT IS A BROADENING OF THE MARKET. IT IS WHEN YOU GO FROM THE MEGA CAP TECH STOCKS. REMEMBER, THE TOP EIGHT TECH STOCKS IN EARLY OR LATE MAY REPRESENTED IN HUNDRED 17% OF THE GAIN YEAR TODAY. THAT HAS BROADER NOW. NOW IT IS ABOUT 70%. AGAIN, I THINK IT HAS TO BE ASSOCIATED -- ASSOCIATED WITH A SOFT LANDING SCENARIO. THERE ARE SO MANY INDICATORS THAT DO NOT PROVE THAT OUT THAT WHAT IS REALLY GOING TO CHANGE IS ULTIMATELY, YOU START TO RE-ACCELERATE EARNINGS OR YOU GO INTO A RECESSION. JONATHAN: EARNINGS TOMORROW MORNING, JP MORGAN, CITI. WHAT YOU FOCUSED ON? TONY: THE ONLY FOLKS DOING WELL OTHER PRIVATE CREDIT. WHAT I MAY HAVE GOTTEN WRONG -- I HAVE BEEN TOO DEFENSIVE. WHAT I DID NOT SEE AS MUCH AS PROBABLY HAPPENING IS THE IMPACT OF PRIVATE CREDIT. WHEN YOU IN -- WHEN YOU INVERT THE YIELD CURVE IT STOPS BANKS LENDING. I DON'T THINK WE'RE GOING TO HEAR THAT ALL OF A SUDDEN THE ECONOMY IS BOOMING AND BANKS ARE LENDING. CREDIT PEOPLE I TALK TO, THAT IS NOT ACCURATE. COMPANIES LIKE APOLLO AND OTHER NAMES LIKE THAT IN THE PRIVATE CREDIT MARKET -- PAC WEST, THEY SELL $2 BILLION WORTH OF BONDS. IF YOU SENT THAT INTO THE MARKET, YOU KNOW, IF ME A -- GIVE ME A BID, NOT GOOD. APOLLO TAKES IT DOWN ON ONE TRADE. SO THERE IS SOMETHING DIFFERENT IN THE CREDIT MARKET THAT WOULD BE BUFFERING WHAT WOULD NORMALLY HAPPEN IF YOU HAVE A FREE OPEN MARKET TRADING IN SECURITIES. JONATHAN: THIS WAS AWESOME. I CAN'T BELIEVE IT HAS BEEN THREE YEARS. TONY: I LOVE THE SHOW. YOU GUYS HAVE A GREAT FIVE AND ARE TERRIFIC. I'M GOING TO GO UP TO THE FOOD COURT FOR A LITTLE BIT. [LAUGHTER] JONATHAN: THAT IS WHAT ALL OF THIS PRAISES ABOUT. THE FREE FOOD UPSTAIRS. TONY: IT TOOK ME YEARS TO MARTEK, BUT YEAH. JONATHAN: TONY DWYER, GOING INTO THE DATA THIS MORNING, PPI, EARNINGS TOMORROW, JP MORGAN, NEXT WEEK, BANK OF AMERICA AND GOLDMAN. TOM: DID YOU SEE MY BRAIN FREEZE? I WAS UP ALL NIGHT DEALING WITH SETH AND THIS RED SOX THING WE ARE DOING. JONATHAN: I THOUGHT YOU WERE TALKING ABOUT TOMORROW AS IN NEXT MONTH'S JOBS REPORT. TOM: I LITERALLY THOUGHT -- LISA: I WAS WAITING FOR YOU TO GRACEFULLY PUT IT IN THERE. [LAUGHTER] JONATHAN: I THOUGHT YOU MEANT TOMORROW'S PAYROLLS REPORT WAS NEXT MONTH. TOM: YOU ARE FAR TOO BRITISH. LISA: COMPANIES THAT ARE GOING TO REPORT EARNINGS TOMORROW. JONATHAN: I USUALLY TRY TO SMOOTH OVER THE CRACK. TOM: YOU SHOULD HAVE JUST WAITED. IT'S NOT JOBS DAY TOMORROW. THANK EARNINGS I CAN FOLD INTO THE DISINFLATIONARY STORY. JONATHAN: HOW DID THE EPISODE GO ON THE RED SOX? TOM: I'M HUMBLED BY THE PEOPLE I WORK WITH. FORGET ABOUT ME AND ALL THAT, THIS IS ABOUT THE RED SOX, THE PENGUINS, AND A LOT OF LIVERPOOL. MUCH MORE IN ENGLISH FOOTBALL THAN I THOUGHT SETH WOULD DO. IT IS THIS GREAT TEAM OF PEOPLE HE HAD THAT SAID, OH MY GOD, WE HAVE TO TRY TO MAKE THIS BETTER. I AM HUMBLED. WE JUST HEARD FROM THE RED SOX MOMENTS AGO. JONATHAN: THEY ARE HAPPY? TOM: I SAID TO JULIE ON TWITTER YESTERDAY, PICK UP A OTANI FROM THE ANGELS AND MAKE THIS GOOD. LISA: JUST UPSET THE SUBJECT A LITTLE BIT. JONATHAN: A LITTLE BIT. DON'T OFFEND THEM SO MUCH THEY WON'T COME BACK. TOM: DID DWYER YOU OK? JONATHAN: >> WE HAVE GREAT NEWS TODAY THAT INFLATION HAS BEEN CUT LIKE TWO THIRDS, SO MY MESSAGE IS TAKE YES FOR AN ANSWER, CHAIR POWELL, AND LET'S STOP WITH RATE INCREASES. DONE. JONATHAN: DONE. SENATOR WARREN OF MASSACHUSETTS CATCHING UP WITH THE TEAM YESTERDAY AFTERNOON ON "BLOOMBERG POLITICS." YOU SHOULD TUNE IN LATER ON IN THE AFTERNOON. GUESS WHAT? APPARENTLY THEY ARE NOT DONE. MORGAN STANLEY SAID THEY ARE GOING TO HIKE. MICHAEL CAPON, THE FED WILL RAISE RATES BY 25 BASIS POINTS IN JULY. MAYBE IT CHANGES THE GAME FOR SEPTEMBER. ANDREW HALLMAN HORSE AT CITY HAS BEEN SAYING HE THINKS THEY GO IN JULY AND AGAIN IN SEPTEMBER. THIS IS WHAT HE HAD TO SAY YESTERDAY. JULY HIKE IS LIKELY. SOFTER CPI RAISED THE BAR FOR A SEPTEMBER HIKE WHICH COULD INSTEAD BE PUSHED TO NOVEMBER. TOM: COME ON. JONATHAN: THAT IS THE LATEST CALL ON WALL STREET. TOM: LISA, YOU ARE BETTER AT THIS THAN I AM. WHAT WAS THE THING, WHAT DID WE SAY 10 DAYS AGO, HAWKISH PAUSE? WHAT HAPPENED TO THAT? JONATHAN: TO BE FAIR THEY ARE GOING TO HIKE POTENTIALLY THIS MONTH. TOM: WE ARE STACKING -- STAGGERING AROUND ON THE DATA. THE DATA YESTERDAY WAS JAW-DROPPING. FORGET ABOUT THE PHRASES AND DOTS. THE CENTER TENDENCY. I WILL GIVE YOU. THE DISPERSION IS A PARLOR GAME. LISA: THIS IS THE REASON A LOT OF PEOPLE ARE SAYING BY NOVEMBER THE DATA WILL HAVE CHANGED ENOUGH THEY WILL NOT HAVE THE AMMUNITION TO HIKE. WHICH IS THE REASON WHY SO MANY PEOPLE THINK THE LAST ONE BE THE ONE WE GET ON JULY 26. TOM: I DON'T KNOW WHAT TO SAY. I'M LOOKING AT FUTURES ARE OUT THERE, THEY ARE BEGINNING TO TEST THE 4600 LEVEL. THERE ARE ALSO GAME CHANGES IN POLITICS RIGHT NOW. WE ARE GOING TO STAGGER OVER TO THE JULY ZEITGEIST OUT THERE. JOINING US TERRY HAINES, FOUNDER OF PANGEA POLICY. GREG VALLEY IS CAUSING TROUBLE THIS MORNING. IT IS ALWAYS BROUGHT UP, IT IS A THIRD PARTY. I WROTE BACK TO GREG, I SAID THE HAINES TICKET LOOKS GOOD, BUT IT WOULD BE THIRD-PARTY PAIN. ARE WE REALLY GOING TO HAVE A ROSS PEROT 2024, OR JOHN ANDERSON? TERRY: THAT IS THE CURRENT WASHINGTON PARLOR GAME, YOU ARE CRIED -- QUITE RIGHT. I THINK THE CHANCES OF THAT ARE SLIM. PARTICULARLY IN TAKING ANY SORT OF DENT. PEOPLE ALWAYS FORGET, EVEN IF THEY REMEMBER ROSS PEROT, THAT PEROT GOT SOMETHING LIKE 19% OF THE POPULAR VOTE DID NOT GET A SINGLE I -- SINGLE ELECTORAL COLLEGE ABOUT. -- VOTE. I THINK DISSATISFACTION IS VERY MUCH OVERSTATED. THERE ARE 40% OF INDEPENDENTS AND ALL OF THE REST. YOU DIG DEEPER AND ASKED WHICH PARTY THEY WOULD PROBABLY END UP WITH, OR CANDIDATE, IT IS 80% TO 90% THE PLACE WHERE THEY CAME FROM. YOU CAN ALREADY SEE THE BEGINNINGS OF BOTH POLITICAL PARTIES TRYING TO LIGHT THE LABELS ON FIRE. TOM: TERRY HAINES, I LOOK AT THE BIPARTISAN UNDERSTANDING THAT PAIR -- THAT PRESIDENTS LOVE TO GO TO FOREIGN EVENTS, GET A PHOTO SHOOT, SHAKE SOME HANDS, THEN THEY HAVE TO COME HOME. DOES PRESIDENT BIDEN WANT TO HAVE A PHOTO SHOOT WITH WHEN HE GETS BACK TO THE WHITE HOUSE? WHAT IS TOPIC ONE FOR THE WHITE HOUSE AFTER NATO GLORY? TERRY: I THINK PROBABLY IN THE PHOTO OP CATEGORY, PROBABLY THE AMBASSADOR TO UKRAINE FOR THE UNITED STATES. AND AFTER THAT THE EUROPEAN UNION AMBASSADOR. THE STORY THIS WEEK IS BIDEN IS HAVING A GOOD WEEK BETWEEN THE INFLATION NUMBERS AND NATO RESOLVED, BUT I THINK THE REAL STORY IN NATO, FRANKLY, IS EUROPE GETTING MUCH MORE SERIOUS ABOUT COMMON DEFENSE AFTER ALL OF THESE YEARS. RECALL GOING BACK TO THE PREVIOUS ADMINISTRATION, EUROPE GREETED WITH MANY CONSTITUENT NATIONS IN THE EUROPEAN UNION, GREETED WITH HORROR THE IDEA THERE WERE GOING TO ASK -- THERE WERE GOING TO MAKE GOOD ON THEIR PROMISE TO SPEND 2% GDP ON DEFENSE. WE ARE WAY OVER THE HUMP ON THAT NOW. EUROPE'S RISE AS A MORE SERIOUS ENTITY FOR ITS, DEFENSE WAS THE BIG STORY THERE THIS WEEK. LISA: THERE ARE OTHER VIEWS THAT CAME OUT, INCLUDING THIS ONE FORMER AMBASSADOR TO GERMANY, CORN BLUHM, WHO WROTE ABOUT THE COMMUNIQUE FROM NATO THAT IT SCREAMS FEAR AND INSECURITY FROM EVERY WORD. UKRAINE'S FUTURE IS WITH NATO, FINE, BUT NOT AS CALM NATO ENTRY WILL HAPPEN. JUST MAKE SOME UNIDENTIFIED REFORMS AND WE WILL SEE. DID YOU SEE UNITY AND COHESION BEHIND THE MESSAGE, EVEN IF CLOUDED IN UNCERTAINTY? TERRY: YEAH, I THINK I DID. THEY ARE ALL TRYING TO SHUFFLE TOGETHER, RIGHT? AND PAY ATTENTION. IT IS WRONG TO THINK OF THIS AS A UNITED STATES-LED COALITION. THIS IS A GROUP THAT NEEDS TO UNDERSTAND WHERE THEY ARE IN SPECIFICS AND NEEDS COMMONALITY OF PURPOSE. THEY FIND IT DIFFICULT TO GET THERE A LOT OF TIMES, BUT THEY ARE GETTING THERE. I THINK THERE WERE SOME MESSES AND CLEANUP NEEDED, BUT FUNDAMENTALLY I THINK THAT WAS AROUND THE EDGES. WHAT YOU GOT OUT OF THIS WAS A PRETTY GOOD STATEMENT OF PURPOSE AND PRETTY GOOD STATEMENT OF WHERE THEY ARE GOING FORWARD. ASK CHINA AND RUSSIA HOW THEY FEEL THIS MONEY. THEY ARE ALREADY HUDDLING, TRYING TO FIGURE THAT OUT THIS WEEK. LISA: IN CONGRESS YOU ARE SEEING DISCUSSION AROUND ADDITIONAL DEFENSE SPENDING AND POSSIBLE SOCIAL PROVISIONS PUT AROUND SAID DEFENSE SPENDING BY NUMBER OF REPUBLICANS. ARE YOU EXPECTING THIS TO BE HELD UP? ARE YOU EXPECTING THIS TO BECOME A PROBLEM IN WASHINGTON? TERRY: DEFENSE SPENDING? NO, I DON'T THINK SO. MY VIEW ON THE DEBT CEILING BUDGET WILL STARTING THE DAY AFTER WAS, IT WAS NOT A BUDGET DEAL IN THE SENSE OF IT BEING BINDING AT ALL. WHAT YOU WERE GOING TO GET WAS INCREASED DEFENSE SPENDING. IT WAS JUST A MATTER OF HOW AND WHEN. FRANKLY, WASHINGTON WILL TAKE THE NEXT SIX MONTHS TO FINALIZE THAT, AND ABSENT ANY EMERGENCY NEEDS ON THE UKRAINIAN SIDE IN PARTICULAR, I THINK WHAT YOU END UP WITH IS A PRETTY ORDERLY PROCESS ON DEFENSE, JUST THE WAY IT ALWAYS IS. JONATHAN: I WANT TO FINISH WITH THE LATEST NEWS IN WASHINGTON, D.C. IT IS CONCERNING FOR THIS ADMINISTRATION. COMMERCE SECRETARY GINA RAIMONDO, AMONG THOSE WHOSE EMAILS WERE HACKED. MICROSOFT SAYING THAT HACK ORIGINATED FROM CHINA. WHAT IS YOUR RESPONSE TO THAT THIS MORNING AFTER WE HAVE SEEN BLINKEN AND YELLEN GO TO CHINA? TERRY: SPY CRAFT IS STATECRAFT. WE ARE NOT GOING TO STOP SPYING ON THE CHINESE, OR MANY OF OUR ALLIES. CHINA IS NOT GOING TO STOP WITH US. CYBER WARFARE IS A BATTLEFIELD AND IT WILL CONTINUE TO BE SO. I HAVE ALWAYS THOUGHT IS THAT OUR STRUCTURES, OUR INFRASTRUCTURE, WHETHER IT BE IN THE EU WORLD OR PIPES OR PHONE LINES AND THE LIKE, WE HAVE SPENT WHAT AMOUNTS TO A GENERATION PUTTING THOSE ISSUES AND PROBLEMS ARE NOT THERE, AND WE HAD BETTER HUSTLE TO ACTUALLY BRING OUR SYSTEMS UP TO SNUFF. THAT IS CERTAINLY NOT THE CASE IN THE FEDERAL GOVERNMENT, BUT THEY REALLY NEED TO BE WORKING ON THAT. JONATHAN: TERRY HAINES OF PANGEA POLICY. OFFICIALS SAY THE BREACH WAS LIMITED IN SCOPE. NOT JUST THE UNITED STATES, BUT REPORTEDLY AGENCIES IN WESTERN EUROPE ALSO AFFECTED. TOM: IT IS A WHOLE THE WORLD. THAT'S ALL THERE IS TO IT. I WOULD LIKE TO BELIEVE, LIKE A LOT OF PEOPLE, THAT WE HAVE AN ENTIRE INFRASTRUCTURE WE DO NOT KNOW ABOUT THAT IS DOING SOMETHING ABOUT THIS, THAT IS HOW YOU GET IN TROUBLE. TERRY COMMENTED, WHAT IS THE INITIATIVE TO MAYBE TAKE THE HYPER-SECRET AND MAKE IT MORE VISIBLE? JONATHAN: THE LATEST OUT OF WASHINGTON. COMING UP, ALAN RUSKIN OF DEUTSCHE BANK LOOKING AT WHAT IS DEVELOPING IN THE FX MARKET. THE DOLLAR WHOLE LOT WEAKER OFF OF YIELDS THAT ARE A WHOLE LOT LOWER. THE EURO AGAINST THE DOLLAR, TAKING OUT HIGHS FOR THE YEAR. A NEW HIGH FOR THE SESSION, ONE POINT 1174. ALAN RUSKIN ON WHY THAT CAN CONTINUE, NEXT. JONATHAN: THREE-DAY WINNING STREAK ON THE S&P 500. EQUITY FUTURES NOW POSITIVE BY .3%. BEST DAY OF GAINS OF THE MONTH SO FAR IN YESTERDAY'S SESSION, FOLLOWING DISINFLATION. INFLATIONARY DATA SHOWING SOME:. -- SOME CULLING. WHAT A RIDE WE HAVE SEEN ON THE TWO-YEAR. FOLLOWING THE ADP REPORT, THERE WE GO AGAIN, HERE WE GO AGAIN. RATE HIKES, RATE HIKES, RATE HIKES. YIELDS UP ON THE TWO-YEAR, THEN ALL OF A SUDDEN BACK DOWN TO 4.65 ON A TWO-YEAR THIS MORNING. THE 10 YEAR, ABOUT 3.82. TOM: WHAT ARE WE HEARING FROM THE FED SPEAKERS? JONATHAN: IF YOU BACK OFF TOO SOON INFLATION COMES BACK STRONG, WHICH REQUIRES THE FED TO DO EVEN MORE. OUR TARGET IS 2%. I BELIEVE YOU ARE GOING TO HEAR MORE OF THAT FOR THE TIME BEING. TO FINISH ON THE FX MARKET, THEN I HAVE SOME EARNINGS FOR YOU. THE EURO NEAR THE HIGHS OF THE SESSION, NEAR THE HIGHS OF THE YEAR. WE ARE POSITIVE BY .3%. HERE WE GO AGAIN ON RAISING THE OUTLOOK. DELTA SEEING FULL-YEAR ADJUSTED EPS AT SIX DOLLARS TO SEVEN DOLLARS. THAT IS THE CURRENT RANGE FOR THE OUTLOOK. AN UPGRADE THERE TO THE OUTLOOK. DELTA IN THE PREMARKET UP 3%. LISA: A NEW RECORD FOR INDUSTRY PASSENGER VOLUME IN JUNE. NONBUSINESS TRAVEL THAT WE SAW OVER THE PAST FEW WEEKS, THEY EXPECT THEIR NON-FUEL UNIT COSTS TO DECLINE YEAR-OVER-YEAR. THIS SPEAKS TO LOWER INPUT PRICES AS THEY CHARGE MORE TO CONSUMERS. EVERY CURIOUS AT THE 10:00 A.M. CALL ABOUT WHAT WE HEAR ABOUT GOING FORWARD, THE PRICING POWER. SUPPOSEDLY AIRPLANE TRICK -- AIRPLANE TICKETS DROPPED 8.1%. ALL OF US WERE INCREDIBLY SKEPTICAL, ESPECIALLY GIVEN THESE PROFIT MARGINS THEY ARE EXPECTING. JONATHAN: I WOULD LOVE TO KNOW HOW THEY MEASURE THAT. TOM, AMERICAN AIRLINES YEAR-TO-DATE, THE SAME AMOUNT. UNITED AIRLINES, PRETTY MUCH THE SAME AMOUNT. TOM: IT BEGINS AN EXCITING EARNINGS SEASON. LISA IS REALLY EXCITED ABOUT THE WALL OF EARNINGS WE ARE GOING TO SEE AND TO INTERPRET IT IN REAL TIME. JONATHAN: SOME CALLS ON THE EURO. TO GET TO THIS FROM ALAN RUSKIN ON -- IN DEUTSCHE BANK. THE FED'S LEADERSHIP IN THE GLOBAL RATE CYCLE WILL INCREASINGLY PLAY AGAINST THE DOLLAR AS CENTRAL BANKS PIVOT FROM RATE HIKING WRIGHT COUNTY. WE EXPECT THE EURO-DOLLAR TO END THE YEAR AT 1.15 BY THE END OF 2023, AND EXTEND THE TREND TO THE MID 1.20S IN 2020 FOUR BEFORE FLATTENING OUT IN 2025. TOM: MY EXPERIENCE IS, PEOPLE LISTEN WHEN ALAN RUSKIN SPEAKS. PUTTING TOGETHER HOLISTIC GLOBAL RESEARCH FOR DEUTSCHE BANK. THE CHIEF INTERNATIONAL STRATEGIST, JOINS US ON WHAT I'M CALLING GAME CHANGER THURSDAY. HOW MUCH DID THE GAME CHANGED YESTERDAY, ALAN RUSKIN, WITH DISINFLATION CODIFIED IN THE UNITED STATES? ALAN: I DON'T KNOW WHETHER DISINFLATION WAS CODIFIED, THINGS DID CERTAINLY CHANGE IN THE FX MARKET. WE HAVE BEEN ENTRENCHED IN THIS NARROW RANGE FOR MOST OF THIS YEAR. EURO-DOLLAR IN PARTICULAR WAS SEEMINGLY CAP THAT 1.1090. THREE BROKE THAT LEVEL IT HAS OPENED THE FLOODGATES AND THE DOLLAR IS ON THE DEFENSIVE AGAINST ALL CURRENCIES. IT HAS CODIFIED A CHANGE IN THE FX MARKET. TOM: I LOOKED AT A VERY FANCY REGRESSION OF THE BLENDED DXY INDEX BACK 20 YEARS, AND CERTAINLY OFF THE GREAT FINANCIAL EVENT OF 2008 I CAN LOOK FOR FURTHER 8% DOLLAR WEAKNESS. DO YOU SEE THAT KIND OF SCALE TO GO FURTHER WITH DOLLAR WEAKNESS? ALAN: TOM, I DO. WHEN YOU LOOK AT THESE BIG DOLLARS CYCLES, YOU KNOW, HISTORICALLY WE USED TO HAVE SIX OR SEVEN YEARS OF UPTAKE, THEN NINE, MAYBE 10 YEARS OF DOLLAR FAMINE, AS IT WERE. THIS CYCLE GOT BROKEN UP BECAUSE OF COVEN IN PARTICULAR, AND WE HAD A LONGER UPTAKE -- UPTICK. 25% DOWN ON THE INDEX, SO WE HAVE PROBABLY GONE MAYBE A QUARTER OF THE WAY THROUGH A PARTICULAR DOWN CYCLE. EVEN IF WE HAVE HALF A CYCLE WE COULD CERTAINLY GET THAT A PERCENT YOU SUGGEST AND IT COULD BE SUBSTANTIALLY MORE THAN THAT. LISA: WHEN DOES FUNDAMENTAL GROWTH MATTER AGAIN? WE ARE TALKING ABOUT THE RATE HIKING CYCLE, IT IS A QUESTION OF FUNDAMENTAL STRENGTH THE U.S. SEEMS TO BE DISPLAYING EVEN AS EUROPE FACES HEADWINDS AND INTENTIONALLY MORE RATE HIKES INTO WEAKNESS. ALAN: THE WAY I LOOK AT IT IS THERE IS A CONTINUUM WHERE YOU THINK IN TERMS OF STRONG GROWTH, SORT OF A NO LANDING SITUATION, THEN A SOFT LANDING STORY WHERE YOU CAN EVEN HAVE A RECESSION, BUT IT IS A SHALLOW RECESSION. OR YOU COULD HAVE A HARD LANDING, WHERE THE FED PUSHES TO THE POINT WHERE SOMETHING REALLY BREAKS. IN THE MOMENT ON THAT CONTINUUM YOU HAVE SHIFTED TOWARDS THAT SORT OF SOFT LANDING ARENA, WITH THE FED PIVOTING IN 2024. THAT IS THE WORST SCENARIO AS FOLLOWS THE -- AS FAR AS THE DOLLAR IS CONCERNED, BECAUSE RISK TRADE IS OK AND BONDS IN GENERAL LIKE IT, EQUITIES LIKE IT, THE DOLLAR DOES NOT REALLY LIKE THAT SCENARIO. IT TENDS TO DO POORLY AGAINST G10, AND IT DOES NOT DO WELL AGAINST EM, BECAUSE RISK IS TRADING OK AS WELL. LISA: I'M THINKING ABOUT TYPICAL CYCLES WHEN THE DOLLAR DOES WORSE. USUALLY THAT IS A RISK-ON SCENARIO. HOW DOES THAT DOVETAIL WITH THE POTENTIAL WEAKNESS AND GREATER WEAKNESS IN OTHER NON-US AREAS AT A TIME WHEN THE U.S. IS SHOCKINGLY RESILIENT AND SHOWING A FASTER PACE OF DISINFLATION? ALAN: I THINK WE ARE CERTAINLY LOOKING AT THE U.S. BEING ONE OF THE SLOWEST MAJOR ECONOMIES IN TERMS OF GDP GROWTH FOR 2024. THE U.K. WILL PROBABLY OUTDO US ON A GDP Q4 BASIS FOR 2024, BUT U.S. IS PRETTY MUCH UP THERE. WE ARE NOT SEEING AND DO NOT EXPECT THAT OTHER ECONOMIES WILL QUITE MATCH THE DEGREE OF SLOWING WE WOULD ANTICIPATE FOR THE FIRST HALF OF 2024. OBVIOUSLY THAT IS NOT MATERIALIZED. IT GIVES THE DOLLAR A BOOST BECAUSE YOU ARE NOT GOING TO GET THE RATE CUTS THAT WE ARE EXPECTING FOR 2024. TOM: WHERE IS A TRADABLE PAIR HERE? WHERE IS THE OPPORTUNITY HERE, THE BIG FIGURE TRADE YOU WOULD SUGGEST FOR DEUTSCHE BANK CLIENTS? ALAN: I THINK IF YOU WANT SORT OF A SOUPED-UP EURO TRADE THEN I LIKE THE NORWEGIAN KRONE PARTICULARLY. I THINK IT IS GROSSLY UNDERVALUED BY EVERY METRIC WE LOOK AT. THEY ALL TELL YOU THE SAME STORY, THAT THE NORWEGIAN KRONE IS GROSSLY UNDERVALUED. IN A WORLD WHERE THE NORWEGIAN KRONE HAS A LONG WAY TO GO STILL. TOM: YOU HAVE NORWAY THERE. IS THAT AN OIL PLAY, WHERE IT IS LINKED INTO A DEUTSCHE BANK RECOVERY AND THE PRICE OF OIL, EVEN BETTER TIMES, GIVEN BETTER GLOBAL DEMAND? ALAN: I THINK IT IS MORE OF A HIGH-PETER EURO TRADE, REALLY. IT HAS GOTTEN DRAWN DOWN A LITTLE BIT BY THE SWEDISH KRONA, WHICH HAS HAD ITS OWN SET OF PROBLEMS WHICH DO NOT NECESSARILY RELATE CLOSELY TO NORWAY, BUT IT IS GETTING TAGGED ALONG. I SEE THIS REALLY AS A EURO PLAY, BUT WITH A HIGH-BEATER CURRENCY THAT IS UNDERVALUED. TOM: TODAY THE ABSOLUTE SHOCK OF A PESO, COMFORTABLE 21 POINT 20, AND IMAGINE THE MEXICO PESO STRENGTHENING THROUGH 17. I DID NOT FRAME THAT. HOW CAN THAT HAPPEN? HOW DOES MEXICO IMPROVE FROM HERE TO 15 OR A 14 LEVEL? ALAN: I THINK PEOPLE HAVE BEEN PLAYING THE MEXICO TRADE NOW FOR A COUPLE OF YEARS. HE JUST SAW A SQUEEZE BECAUSE A LOT OF PEOPLE WERE LONG MEXICO VERSUS THE YEN, AND THE YEN SQUEEZED QUITE BRAT -- SQUEEZE QUITE BADLY. MEXICAN FUNDAMENTALS HAVE BEEN REMARKABLY RESILIENT. FOR A COUPLE OF REASONS. IT IS UNDER BANKED AND THERE IS VERY LITTLE LEVERAGE IN THE SYSTEM. WHEN RATES GO UP THE MEXICAN ECONOMY DOES PROVE RESILIENT. AND I THINK THERE IS A STRUCTURAL PLAY WHEREBY PEOPLE ARE RELOCATING, CLOSER-ENSURING TO THE U.S. AND AWAY FROM ASIA, AND CHINA IN PARTICULAR. THOSE ELEMENTS ARE STILL THERE. THE DATA STILL LOOKS OK. WHEN THE TRADE ACCOUNTS START TO DETERIORATE WE KNOW IT IS A MUCH STRONGER SIGNAL THAT THE MEXICAN PESO IS SIGNIFICANTLY OVERVALUED. AT THE MOMENT IT LOOKS OVERVALUED, BUT WE DO NOT REALLY SEE IT IN THE TRADE DATA. LISA: WE ARE SPEAKING WITH ALAN RUSKIN OF DEUTSCHE BANK. THE DOLLAR IS THE STRONGEST GOING BACK MORE THAN A YEAR. THE POSSIBILITY OF A 1.20 EURO. LUCK TO ALL OF THOSE EUROPEAN VACATIONS. I'M WONDERING HOW MUCH OF A BOOST THIS WILL GIVE U.S. BUSINESSES, INTERNATIONAL BUSINESSES THAT HAVE SUFFERED WITH A STRONG DOLLAR IN TERMS OF THEIR SALES OVERSEAS? DOES THIS GIVE A HEADWIND TO U.S. GROWTH DOWN THE LINE IN A SORT OF ON THE MARGINS LEVEL? ALAN: YEAH, I THINK YOU USED THE RIGHT WORD. AT THE MARGINS THIS IS GOING TO BE HELPFUL FOR U.S. CORPORATIONS, HELPFUL FOR EXPORTS, HELPFUL FOR THE EQUITY MARKET AS WELL. YOU KNOW, YOU HAVE SOME CONSTRUCTIVE ELEMENTS THERE. EXPORTS HAVE HELD UP QUITE WELL IN THE GRAND SCHEME OF THINGS IN THE U.S. RELATIVE TO OTHER COUNTRIES. THIS IS GOING TO BE A FURTHER BOOST. I THINK THERE ARE SOME HELPFUL THINGS HAPPENING IN U.S. MANUFACTURING. THE DEFENSE INDUSTRY IS DOING EXTREMELY WELL. YOU HAVE HAD THIS RELOCATION IN TERMS OF SEMICONDUCTOR PLANTS BACK TO THE U.S.. YOU HAVE SOME VERY HELPFUL ELEMENTS THERE. SO, YOU KNOW, THIS IS ALL THE MORE GOOD NEWS AS FAR AS RESILIENCE YOU WERE SPEAKING ABOUT EARLIER. JONATHAN: SIX DAYS OF DOLLAR WITNESS AGAINST THE EURO. ALAN RUSKIN AT DEUTSCHE BANK ON THE FX MARKET. EQUITY FUTURES WITH A LEFT ON THE S&P 500. LIKEWISE ON THE NASDAQ. WE NEED TO LOOK AT TWO NAMES THIS MORNING. DELTA BEATING EARNINGS EXPECTATIONS, RAISING GUIDANCE. ED BASTIAN SAYING THIS, THERE IS SIGNIFICANT GROWTH AHEAD. FLYING, TOM, THE NUMBER ONE PRIORITY FOR DISCRETIONARY SPENDING. THAT STOCK UP BY 3%. TOM: I WONDER WHERE WE ARE IN 12 MONTHS. I SAY THIS BECAUSE TO ME IT IS ALMOST -- THIS ECONOMIC BATTLE -- BABBLE WE TALK ABOUT, A JUMP CONDITION. THE ACROPOLIS IN ATHENS IS OVERWHELMED WITH TOURISTS. IT IS HAPPENING EVERYWHERE. HOW IS THAT HAPPENING? FROM AN AIRLINE STANDPOINT HOW CAN THEY SUSTAIN THAT? IS IT A POST-PANDEMIC ONCE OFF OR SOMETHING BEYOND THAT? JONATHAN: TO THAT POINT THERE IS A RANGE OF THEORIES, A RANGE OF DATA POINTS, AND YOU GET TO DECIDE HOW MUCH WEIGHT YOU WANT TO PUT ON EACH. WHAT WE DID WITH SERVICES WAS PUSH IT ALL OUT. WE ARE EXPERIENCING THAT OVER THE LAST COUPLE OF YEARS. IF YOU TAKE THE NEAR DEBTOR VIEW OF THE WORLD, INFLATION DOWN, WAGE GROWTH GREAT, THAT IS ONE THING. YOU CAN SAY, LOOK AT THE SAVINGS PILE DWINDLING AND THINGS MAKE IT HARDER THIS YEAR. TOM: THIS IS SOME JUSTIN WOOFERS, THE ECONOMIST FROM THE UNIVERSITY OF MICHIGAN. HE SHOULD GO TO THE WHITE HOUSE JUST TO BREATHE SOME AUSTRALIAN LEVITY INTO THE WHITE HOUSE. JONATHAN: YOU THINK WE NEED SOME AUSSIES IN THE WHITE HOUSE? TOM: WE CAN'T GET THEM IN THE FED. JUSTIN WOOLFORD HAS THE CHART YOU JUST DESCRIBED, AND GUESS WHAT? THE REAL WAGE LINE CROSSES THE INFLATION LINE. FACT. LISA: THERE IS ANOTHER STORY WE HAVE TO .2 WHEN WE TALK ABOUT AIRLINES. SPENDING ON JET FUEL DROPS 24% ON LOWER PRICES PER GALLON. WHEN YOU TALK ABOUT HOW MUCH LOWER THEIR EXPENSES ARE, THERE YOU GO. THERE ARE OTHER EXPENSES COMING IN AS THEY STRIP OUT ALL OF THE LUXURIES OR AMENITIES YOU ARE USED TO EXPERIENCING. I'M JUST EDITORIALIZING, MY POINT IS HERE THAT THEY ARE FACING THESE DECLINES THAT MIGHT BE ONE OFFICE. HOW MUCH IS THE ENTIRE CONVERSATION INFLUENCED BY LOWER OIL PRICES IN A WAY THAT HAS BEEN PRETTY GERMANIC AND UNEXPECTED? JONATHAN: FOR THE CONSUMER AS WELL. AIRLINES PASS THOSE SAVINGS ON TO THE CUSTOMER. LISA: A LITTLE BIT. JONATHAN: IS THAT WHAT CPI CAPTURED YESTERDAY? I STILL DON'T UNDERSTAND WHAT THAT WAS ABOUT. YOU HAVE YOUR REAL-LIFE EXPERIENCE, PERSONAL EXPERIENCE WITH THE WORLD. TOM: TELL ME ABOUT IT. LISA: LET'S TALK ABOUT YOUR PERSONAL EXPERIENCE. [LAUGHTER] JONATHAN: THEN YOU HAVE THE CPI DATA TELL YOU AIRFARE IS DOWN. LISA: MAYBE THEY ARE DOWN, BUT THEN YOU GET NO PEANUTS, NO CHIPS, NO DRINKS. >> WE STILL HAVE A LOT OF PROBLEMS. WE HAVE TOO MUCH CONCENTRATION IN THE BANKING INDUSTRY. WE HAVE MORE TOO BIG TO FAIL BANKS THEN WE DID IN 2008. AND THE TOO BIG TO FAIL BANKS ARE BIGGER THAN THEY WERE BACK THEN. YOU KNOW, WE ARE NOT OUT OF THE WOODS YET, BUT I FEEL A LOT BETTER WHEN I READ MICHAEL BARR TALKING ABOUT HOW WE NEED TO TIGHTEN DOWN ON BANK REGULATION. GO, MICHAEL. JONATHAN: SENATOR WARREN NEVER SAID THAT ABOUT QUAILS, DID SHE? SENATOR WARREN OF MASSACHUSETTS. DO YOU THINK IN ANOTHER 15 YEARS THIS WILL BE ALL SENATOR WARREN WILL BE TALKING ABOUT? 25 YEARS, 30 YEARS, 35 YEARS? TOM: I TAKE IMMENSE ISSUE WITH HER CRITICS TO HER WITH A CERTAIN LEVEL OF THE FOOLERY. SHE IS WORLD-CLASS IN BANKRUPTCY LAW. THIS IS A LEGIT PROFESSOR. MAYBE IT IS NOT BANK REGULATION OR SUPERVISION, THERE IS AT LEAST AN ADJACENCY TO IT. HOW MANY OTHER POLITICIANS COULD BE SAY THAT ABOUT? JONATHAN: I WOULD AGREE WITH YOU. BUT PLAYS POLITICS WITH EVERY FINANCIAL ISSUE THAT COMES TO THE SURFACE. TOM: IN A LIBERAL MASSACHUSETTS WAY. JONATHAN: I'M NOT HERE TO DEFEND TOO BIG TO FAIL AND MASSIVE BANKS. WHAT DO YOU THINK WOULD HAVE HAPPENED IN MARCH IF EVERY BANK WAS THE SIZE OF SVB? TOM: OH, I THINK AS PEOPLE WELL KNOW I'M COMPLETELY THE OTHER WAY. I ADORE THE CANADIAN MODEL. I THINK THE CANADIANS DO IT RIGHT. LISA: RANDY QUARLES KIND OF RESPONDED YESTERDAY. HE WAS TALKING ABOUT HOW IF MICHAEL BARR GOES THROUGH WITH THIS IT WILL BE HARMFUL AND UNNECESSARY, SO PUSHING BACK. I TAKE YOUR POINT, ELIZABETH WARREN HIGHLY QUALIFIED, SHE PUTS HER STUFF OUT THERE AS SAYING, JUST STOP, JUST MAKE IT STOP. IT IS OBVIOUSLY AN INCREDIBLY COMPLICATED DISCUSSION ABOUT WHAT TO DO WITH RATES, AND SHE KNOWS THAT AS WELL AS ANYBODY ELSE. BECAUSE SHE IS A PROFESSIONAL. TOM: IT'S GOING TO BE INTERESTING TO SEE. JONATHAN: WOULD YOU LIKE TO SAY THAT AGAIN? WITH THE UTMOST RESPECT. LISA: I'M NOT KIDDING. TOM: JONATHAN: DO YOU THINK WITH JONATHAN: THE RIGHT CYCLE OVER THE LAST 12 MONTHS IT HAS BEEN HELPFUL? VERY EDUCATED, THAT IS GOOD TO KNOW. TOM: LET'S PICK OUT ONE DATA POINT, THE REAL YIELD. THAT IS A CLEAR INDICATOR OF THE DISINFLATIONARY TENDENCY. JONATHAN: NOMINAL YIELDS ARE DOWN 10 BASIS POINTS. TOM: WE NEED TO GET YOU TO FRIDAY, WHERE I THOUGHT IT WAS A JOBS REPORT, AND JON CORRECTED ME AND SAID IT IS ABOUT BANKS. ERIKA NAJARIAN JOINS US NOW, LARGE-CAP BANKS AND CONSUMER FINANCE EXPERT AT UBS. JUST A GENERAL QUESTION TO BEGIN THE DISCUSSION. WHAT WILL YOU LOOK FOR IN THE BEGINNING OF THE PRESS RELEASES TOMORROW, INTO MONDAY, INTO TUESDAY? WHAT IS THE THEME YOU WILL LOOK FOR? ERIKA: THERE ARE REALLY THREE THINGS I'M GOING TO LOOK FOR. FIRST IS CAPITAL. LIKE IT OR NOT, A LOT OF INVESTORS ARE LASER-FOCUSED ON CAPITAL AND HOW BANKS ARE BUILDING CAPITAL. NOT JUST BECAUSE THE RULES ARE GETTING TOUGHER, BUT ALSO BECAUSE THERE CONTINUES TO BE UNCERTAINTY IN THE ECONOMY IN TERMS OF THE OUTLOOK. NO MATTER WHAT THE MACRO PRINTS ARE SAYING. THE SECOND THING AM GOING TO LOOK AT IS NET INTEREST INCOME AND DEPOSIT GROWTH. ALTHOUGH A LOT OF INVESTORS ARE THINKING WE ARE IN THE LATE INNINGS OF THAT BEING A NEGATIVE CATALYST FOR STOCKS. THE THIRD THING I'M GOING TO LOOK FOR IS ANY SIGNS CREDIT IS DETERIORATING UNDERNEATH THE SURFACE. AS ALL THREE OF YOU KNOW, THE MARKET IS VERY SENSITIVE FOR ANY HICCUPS IN COMMERCIAL REAL ESTATE. THOSE ARE REALLY THE TOP THREE THINGS I'M GOING TO LOOK FOR. TOM: HOW DO YOU WAIT YOUR LARGE-CAP WORLD WITH THE SUPER REGIONALS AND SVB -- THE SMALLER BANKS OUT THERE? WHAT IS THE LEVEL OF IMPORTANCE OF THE NEXT THREE OR FOUR DAYS, VERSUS EVERYTHING ELSE IN BANK EARNINGS SEASON? ERIKA: I WILL SAY IT IS PROBABLY AN EVEN MORE PIVOTAL TIME FOR THE REGIONAL BANKS, PARTICULARLY THE SUPER REGIONAL BANKS THAT ARE WITHIN THE SCOPE OF THE BARR SPEECH, WITH REGARDS TO NEW REGULATION. JP MORGAN, CITIGROUP, MORGAN, GOLDMAN, THOSE HAVE GONE THROUGH THE FIRST ITERATION OF THE RULE CHANGE. THEN WE WENT THROUGH BASEL TO BASEL FRAMEWORK AND PUT ON THESE NEW CAPITAL RULES AND NEW LIQUIDITY RULES POST-2008. WE HAVE CLEAR EVIDENCE THEY HAVE BEEN ABLE TO SURVIVE AND THRIVE UNDER THAT REGIME. I THINK THE SUPER REGIONALS ARE IN A DIFFERENT SPOT, WHERE REGULATORY RULES ARE GETTING MUCH STRICTER FOR THEM, SO THEY SORT OF HAVE TO BALANCE AND TELL THEIR INVESTORS HOW THEY WANT TO DEAL WITH THAT. ARE THEY GOING TO CONTINUE LENDING? ARE THEY GOING TO PAUSE BUYBACK FOR LONGER? HOW ARE THEY GOING TO GROW CAPITAL? THE GOOD NEWS IS THE BARR SPEECH IS INDICATING THESE SUPER REGIONAL BANKS DO HAVE TIME BEFORE THESE RULES BECOME FINAL. LISA: THERE ARE QUESTIONS AROUND THE LARGEST BANKS, GOLDMAN SACHS IN PARTICULAR HAS BEEN GUIDING DOWN ITS GUIDANCE AGGRESSIVELY. AND WITH A BREAK FROM SOME OF ITS PAST PRACTICES IN TERMS OF NOT GIVING INTRA-EARNINGS GUIDANCE. THIS IS LIKELY TO BECOME THE WORST QUARTER SINCE DAVID SOLOMON BECAME THE CEO. WHAT ARE YOU EXPECTING AND WHY THE NEGATIVE RESULTS WE ARE EXPECTING? ERIKA: NOT TO DEFER YOUR QUESTION, ACTUALLY DON'T COVER GOLDMAN SACHS. GIVEN THE VAGARIES OF TRADING VOLATILITY IN THE QUARTER, YOU KNOW, A LOT OF THE BANKS HAVE BEEN GIVING MID-QUARTER UPDATES, BUT ALSO SAYING A LOT CAN CHANGE OVER THE NEXT FEW WEEKS. LISA: WHAT IS GOING TO BE THE MAIN PRESSURE YOU ARE LOOKING FOR? IS IT GOING TO BE LOAN-LOSS RESERVES AT THE BIG TANKS? IS HE GOING TO BE INTEREST MARGINS? IS IT GOING TO BE HOW MUCH THE DEPOSIT DATA IS INCREASING AS THEY COMPETE FOR DEPOSITS? ERIKA: THAT IS A GREAT QUESTION. I THINK BECAUSE THE BANK FAILURES PUT DEPOSIT COSTS AND DEPOSIT GROWTH IN THE SPOTLIGHT, IT FEELS LIKE THAT IS ALREADY PRICED INTO THE STOCKS IN TERMS OF FURTHER PAIN. I THINK THE CPI PRINT GIVES BANK STOCKS RELIEF AS WE CAN SEE THE LIGHT AT THE END OF THE PROVERBIAL TUNNEL, IN TERMS OF FED TIGHTENING. THE BARR SPEECH WAS PRE-MUCH DOWN THE FAIRWAY, SO TO SPEAK, WITH REGARDS TO WHAT THE MARKET IS EXPECTING IN REGULATORY TIGHTENING. THE BIGGEST HURDLE IN TERMS OF BUYING STOCKS, BUYING BANK STOCKS HERE, IS THAT SPECTER OF CREDIT. I THINK THAT IS REALLY THE ONE THING THAT EVERYBODY IS LOOKING BACK, LOOKING OVER THEIR SHOULDER AND SAYING, IS IT REALLY TIME TO BUY BANK STOCKS? I DON'T KNOW WHAT IS HAPPENING IN THE ECONOMY. MAYBE THE LAST THING I WANT TO DO HIS OWN BANK STOCKS INTO A DOWNTURN. TOM: VERY QUICKLY, WHAT IS THE SINGLE BEST BUY RIGHT NOW GOING INTO EARNINGS SEASON? WE ARE GOING TO TAKE THIS, LAY IT BACK ON THURSDAY. ERIKA: BANK OF AMERICA. TOM: THAT WAS SHORT AND BRIEF. THANK YOU. JONATHAN: YOU DID ASK FOR A SINGLE BEST BUY. TOM: THERE YOU GO. JONATHAN: IT SEEMS WE ARE UP AGAINST THE CLOCK, TOM. ERIKA: I FOLLOW INSTRUCTIONS, TOM. [LAUGHTER] JONATHAN: JONATHAN: THANK YOU. B OF A, TK? TOM: ONE OF THE GREAT MOMENTS OF THE LAST YEAR, THE LAST TIME WE WERE IN DAVOS, WE TALKED TO BRIAN MOYNIHAN AND YOU AND I DECIDED WE WERE NOT GOING TO ASK HIM WHAT THE FED WOULD DO. [LAUGHTER] I'M SORRY TO SAY, LIKE WE WOULD TALK TO JAMIE DIMON, I TALKED TO HIM ABOUT BANKING. MONAHAN WAS ENCYCLOPEDIC. THAT IS WHAT YOU WANT TO SAY. JONATHAN: I FEEL LIKE WE DO THIS EVERY QUARTER. I'M PRETTY SURE I HAVE ASKED BRIAN ABOUT FED POLICY ONCE OR TWICE. WHAT HE IS GREAT AT AND WHAT I THINK HE IS BRILLIANT AT -- AND I HAVE SAID THIS A MILLION TIMES -- HE IS ONE OF THOSE CEOS WHICH SEEMS TO TRUST AND HAVE FAITH IN HIS RESEARCH DEPARTMENT. WHEN HE IS ASKED ABOUT THOSE THINGS, HE KNOWS WHAT HIS RESEARCH DEPARTMENT THINKS ABOUT THEM AND WILL GO OUT THERE AND SAY WHAT MICHAEL CAPON IS THINKING, WHAT THE TEAM IS THINKING ABOUT THE ECONOMY. IF HE IS ASKED ABOUT MARKETS HE CAN IN ON SOME RESEARCH. THAT MAKES SENSE AS THE LEADER OF A FINANCIAL INSTITUTION AND I HAVE RESPECT FOR BRIAN FOR DOING SO. TOM: THIS IS ERICA'S BY, BUT THE IDEA HERE OF MORE HAND PICKING UP THE PIECES OUT OF THE GREAT FINANCIAL CRISIS FROM KEN LEWIS, AND I WAS MENTIONING THIS TO SOMEONE THE OTHER DAY AND I REALIZE THE PERSON I WAS TALKING TO HAD NO UNDERSTANDING THAT BANK OF AMERICA IS NOT A BANK IN SAN FRANCISCO OR WELLS FARGO IS NOT A BANK WITH A STAGECOACH. THESE ARE MELTED TOGETHER, WIDE SETS OF MERGERS, SOMETIMES UNDER STRESS. JONATHAN: DO YOU THINK PEOPLE THOUGHT WELLS WAS A BANK THAT WENT AROUND WITH A STAGECOACH, TOM? TOM: THEY WOULD LIKE YOU TO THINK THEIR HERITAGE IS A STAGECOACH GOING ACROSS THE PLAINS OF AMERICA. MY POINT IS, THEY ARE AVOIDING -- THEY AVOID THE FACT THEY MAKE TOO MUCH MONEY. THEY ARE AVOIDING THE FACT THAT THEY ARE A MERGED HODGEPODGE OF 30 ENTITIES. JONATHAN: YOUR FRIEND WOULD LIKE THEM TO GO BACK TO BEING STAGECOACHES THAT GO ACROSS THE COUNTRY. >> WE CONSTANTLY UNDERESTIMATED THE RESILIENCE OF THIS ECONOMY BUT WE ARE SEEING MODERATION. >> THERE IS A VARIABLE LAG TO TIGHTENING OF CONDITIONS. >> WE ARE SEEING DISINFLATION EVERYWHERE. WE ARE SEEING DISINFLATION IN THE U.S. ECONOMY. >> WE ARE SEEING DISINFLATION IN THE U.S. ECONOMY THAT IS GRADUALLY BECOMING MORE BROAD-BASED. >> I DO NOT THINK IT CHANGES THE MOVE IN JULY. THEY CANNOT TAKE THEIR FOOT OFF THE PEDAL YET. ANNOUNCER: THIS IS "BLOOMBERG SURVEILLANCE" WITH J TOM KEENE, LISA ABRAMOWICZ AND JONATHAN FERRO. LISA A.: GOOD MORNING. JONATHAN: THIS IS "BLOOMBERG SURVEILLANCE". THIS MORNING PEPSICO AND DELTA. DELTA WITH A BEAT AND A RAISE TO THE OUTLOOK. TOM: THE RISK IS THE REPEAT NO ONE IS IMAGINING. I REMEMBER THE SHOCK AND AWE 90 DAYS AGO WHEN, OH, THE REVENUE GROWTH IS PRETTY GOOD. JONATHAN: DELTA AT 4%. DELTA PEPSICO UP 2.5%. TOM: FRITO-LAY LOOKING PRETTY GOOD. JONATHAN: YIELDS ARE LOWER BY 10 BASIS POINTS OFF THE BACK OF INFLATION DATA YESTERDAY. THIS INTUITIVE DYNAMIC OFF THE BACK OF THAT INFORMATION AND THE DOLLAR WEAKER. LISA A.: STRATEGISTS SAYING THE JULY RATE HIKE WILL BE THE LAST IN THIS CYCLE. THAT SEEMS TO BE THE CONVICTION IN FUTURES PRICING AND ANALYST NOTES. WHAT DOES THAT IMPLY FOR THE BACKDROP? WHAT DOES THAT IMPLY FOR THE LABOR MARKET? EVERY ANALYST HAS SAID THEY ARE WAITING TO SEE WHEN THAT CRACKS, IMPLI IF THERE ARE DELAYED IMPLICATIONS. TOM: I WANT TO HEAR THE PEOPLE , THE BULL READJUSTMENT. JONATHAN: THOSE WHO HAD A TOUGH YEAR LAST YEAR ARE HAVING A GOOD YEAR. TOM: I THINK THAT IS VERY FAIR. JONATHAN: I CAN THINK OF ONE THAT HAD A TOUGH YEAR LAST YEAR AND A TOUGH YEAR THIS YEAR. TOM: THAN WHAT? THAT IS WHERE WE ARE INTO THE END OF THE YEAR. JONATHAN: EQUITIES ARE FIRMER. THE EARNINGS ARE BETTER. EQUITY FUTURES UP 0.3%. THE U.S. DOLLAR IS WEAKER. THE EURO, THIS IS A SIX-DAY STREAK OF THE EURO STRONGER THAN THE DOLLAR. TOM: DEUTSCHE BANK CAPTURED IT PERFECTLY. FOREIGN-EXCHANGE IS THE LITMUS PAPER. IS DAMIEN WITH US? I CANNOT KEEP TRACK OF HIS CALENDARS. LISA A.: I THINK HE IS. TOM: DAMIAN SASSOWER OUR WILL BE A MUST LISTEN. LISA A.: NEIL HAS NOT BEEN QUIET. HE WROTE AN ARTICLE SAYING WALL STREET SCARE MONGERS WERE WRONG ABOUT RECESSION. TOM: YOU ARE RIGHT. [LAUGHTER] LISA A.: IS HE GOING TO THROW ME UNDER THE BUS? TOM: WHAT ARE WE GOING TO SEE IN 24 HOURS AFTER THE EARNINGS? WHAT ARE WE GOING TO SEE AT 3:00 P.M. ON FRIDAY? THE DOOM CLUE COMES OUT TO GET THE CLICKS ON THE WEEKEND AND IT IS NOT HEALTHY. LISA A.: BEFORE THAT THE PRICE INDEX COMES OUT AS WELL AS JOBLESS CLAIMS. VERY CURIOUS TO SEE THE INPUT PRICES FOR COMPANIES WHICH IS REFLECTED BY PPI. EXPECTED TO COME IN MORE THAN WHAT WE HAVE SEEN. THAT GAP IS FUELING PROFIT MARGINS. DOES IT START TO COMPRESS AS WE HAVE SEEN THE DECLINES IN PPI? TODAY WE HAVE GOTTEN DELTA AND PEPSICO EARNINGS. RAISING THE BEAT AT DELTA. WOULD GET THE CALLS AT 10:00 A.M. FOR DELTA. INTERESTED TO HEAR HOW LONG THEY CAN KEEP THE PRICES HIGH AT A TIME WHEN WE HEARD FROM THE CPI REPORT THAT THEY CAME IN 8.1%. FLYING IS THE NUMBER ONE PRIORITY FOR DISCRETIONARY SPENDING AND THAT CHECKS OUT IN CERTAIN SECTORS. 6:45 P.M. WE WILL HEAR FROM CHRIS WALLER. DOES HE SAY WE ARE THERE? THIS IS IT. THIS IS THE SOFT LANDING. DOES HE SAY WE NEED TO DO MORE? DOES HE SAY WE ARE CONCERNED ABOUT XYZ? OR DOES HE GIVE THE SENSE THIS WILL BE THE LAST HIKE. JONATHAN: GO ROGUE AND TELL US WHAT YOU THINK OF DELTA. EVERYONE WANTS IT. LISA A.: I THINK DELTA IS A FABULOUS AIRLINE. [LAUGHTER] JONATHAN: OK. TROY GAYESKI JOINS US NOW, FS INVESTMENTS. LET'S START WITH THE MARKET. A, IS THIS A MELT UP, AND B, IS THIS A MELT UP YOU WANT TO BE PART OF? TROY: WE TOOK MULTIPLES BACK AND WE ARE AT 19.3 THE NEXT 12 MONTHS. MELT UPS CAN LAST LONGER. THERE COULD BE 5% MORE UPSIDE. LISA BROUGHT THIS UP BEFORE IN TERMS OF THE LABOR MARKET AND THE LABOR MARKET CRACKING. THERE ARE STILL SIGNS OF THAT IN TERMS OF PAYROLL GROWTH. THAT ALREADY ROLLED NEGATIVE LAST QUARTER AND IS MORE NEGATIVE IN Q3. RECESSION IS NOT A GUARANTEED OUTCOME, BUT IT LOOKS HIGHLY PROBABLE TO US, A MILD ONE, AND THAT MEANS EARNINGS ESTIMATES WILL HAVE TO BE CUT. WHEN YOU HAVE THE LOWEST EQUITY PREMIUM SINCE THE DOT-COM BUBBLE DAYS AND LOWS ALMOST BACK TO 2021 THE RISK/REWARD IS NOT LIKELY. TOM: WITH YOUR WORK OVER THE YEARS WITH HEDGE FUNDS I WANT YOU TO TALK ABOUT WHAT I SEE EVERY FRIDAY AFTERNOON, WHICH IS THE ANALYSIS OF SHORT RECOVERY. AT SOME POINT SHORT COVERING PLAYS OUT. TROY: AND YOU GO BACK TO WHEN THIS RALLY STARTED A LOT OF IT WAS SHORT COVERING AND THAT HAS CONTINUED THROUGHOUT THE LAST THREE MONTHS. WE THINK WE ARE ABOUT TO BE INTO THAT CYCLE BUT THIS GOES BACK TO JON'S POINT. ANYTHING THAT YOU HAVE BEEN SHORT HAS BEEN HIGHLY PROBLEMATIC. BUT OVER THE NEXT SEVERAL WEEKS IT LOOKS LIKE THAT WILL PLAY OUT. AND THEN THE QUESTION TO SEE HOW MUCH FURTHER THIS RALLY CAN GO. SOME OF THAT IS THE $5.5 TRILLION IN THE MONEY MARKET FUNDS. THIS COULD BE A YEAR NOT LIKE 1999 BUT SOMETHING THAT HAS MATURE UPSIDE FROM HERE. UNFORTUNATELY, THE STARTING POINT OF VALUATIONS GOING INTO 2024 WILL BE HIGHLY PROBLEMATIC THE NEXT FIVE TO SEVEN YEARS. IT IS A TRICKY ENVIRONMENT TO TRADE FOR SURE. LISA A.: WHERE DOES THE MONEY COME FROM GOOD PILOT TO EQUITIES? I SAY THIS AT A TIME WHEN WE HAVE HEARD SO MANY PEOPLE SAY THERE IS MONEY ON THE SIDELINES BUT THAT IS AN INACCURACY. IT IS EITHER IN CASH OR MONEY MARKET. IT IS NOT SITTING UNDER SOMEONE'S BED. WHERE DOES IT COME OUT OF? TROY: YOU HAVE $5.5 TRILLION IN MONEY MARKETS AND EVEN AS THE TREASURY HAS BEEN REPLENISHING THEIR CHECKBOOK AGGRESSIVELY MOST OF THE CASH HAS COME OUT OF REVERSE REPO. IF YOU GET A RISK ON IMPETUS, MEANING WE END UP SOMEHOW NOT HAVING RECESSION AND THAT $5.5 TRILLION -- IT DOES NOT HAVE TO BE $1 TRILLION -- BUT IT WILL INFUSE PEOPLE EVEN MORE. ON EVERY METRIC OR EXTREME EVALUATION LEVEL IT LOOKS LIKE THE ECONOMY WILL GO INTO MILD RECESSION. LISA A.: WHICH REMIND ME OF WHAT FIDELITY HAD TO SAY. THE MARKET INFLICTS THE MAXIMUM PAIN ON THE MAXIMUM NUMBER OF PEOPLE. TROY: 100%. LISA A.: THIS COULD BE THE LAST GAS WHERE IT BRINGS EVERYBODY IN BEFORE YOU SEE SOFTENING. THERE HAS TO EVENTUALLY BE SOFTENING, THAT IS WHAT HAPPENS. IT COULD HAPPEN IN 2030 BUT IT HAPPENS. IS THAT THE SET UP YOU ARE SEEING? TROY: IT IS THAT CLASSIC SET UP. YOU AND I TALKED ABOUT THIS A COUPLE OF WEEKS AGO IN TERMS OF CAPITULATION ON BOTH SIDES. IF YOU HAVE BOTTOMS LIKE WE HAD IN OCTOBER AND WHEN YOU HAVE THESE SUSTAINED RALLIES THAT ARE SO PAINFUL TO ANYONE WHO HAS NOT BEEN AS POSITIVE OF MARKETS, YOU CAN HAVE CAPITULATION THE OTHER WAY. BUT WHEN YOU LOOK FORWARD FROM THERE IT IS A SIMILAR SET UP TO THE END OF 2021. THE DIFFERENCE NOW IS 2022 WAS ALL ABOUT FED TIGHTENING, AGGRESSIVE TIGHTENING. THE FED IS ABOUT DONE WITH THAT IN TERMS OF THE FRONT END. WE ONLY HOPE THEY HIKE ONE MORE TIME AND THEY PROBABLY SHOULD NOT DO THAT. THE NEXT 12 MONTHS IS ABOUT WHETHER THE PROBABILITY OF RECESSION IS 60% TO 80%, LIKE WE THINK, OR 20% TO 30% LIKE THE MARKETS ARE PRICING IN. JONATHAN: GREAT TO CATCH UP WITH THE. TROY GAYESKI OF FS INVESTMENTS. THINGS MIGHT BE BETTER THAN YOU THINK THEY ARE. CHECK OUT THE HOMEBUILDERS. NEW HIGHS ON THE HOMEBUILDERS. TOM: I THINK IT IS COMPANIES ADAPTING AND SOCIETY ADAPTING. LET'S MAKE CLEAR, AS SENATOR WARREN SAID YESTERDAY, THERE IS A HUGE PART OF SOCIETY NOT PARTICIPATING. LOOK AT THE COMMERCIAL REAL ESTATE AND THE RESIDENTIAL REAL ESTATE CHALLENGES ACROSS AMERICA. WITH THAT SAID, A, IT IS A NATION WITH 1%, 2% GDP. AND B, ON A RELATIVE BASIS TO OTHER ECONOMIES WE LEAD. JONATHAN: THE HOMEBUILDERS FROM LAST JUNE UP CLOSE TO 100%. TOM: WE ARE GOING TO DIE. JONATHAN: IT IS AMAZING TO SEE THAT DEVELOP. LISA A.: ESPECIALLY AT A TIME WHEN THE HOUSING MARKET IS SUPPOSED TO BE FALLING OUT OF BED. HOMEBUILDERS OF THE ONLY INVENTORY THAT IS ON THE MARKET BECAUSE NOBODY IS MOVING. WHO IS GOING TO CASH OUT THEIR MORTGAGE? THIS IS A DYNAMIC THAT HAS KEPT ON GIVING. TOM: THEY HAD EIGHT VACANCIES IN THE WALK UP I LIVE IN. THEY RENTED FIVE IN ONE DAY. JONATHAN: HOW IS THAT GOING? TOM: IT IS GOING OK. LISA A.: HOW MANY FLIGHTS? TOM: SIX? JONATHAN: 56. [LAUGHTER] I LIVED IN THAT BUILDING. YOU ALWAYS GAUGE HOW MANY BRAND BOXES THERE ARE. TOM: THE AMAZON THING -- JOE FELDMAN RAISES THE PRICE TARGET OFF OF PRIME. DID YOU DO PRIME? JONATHAN: I DID. PRIME WENT OFF OF TWO DAYS. LISA A.: LOTS OF -- TOM: HE IS RAISING THE PRICE TARGET. JONATHAN: THE S&P 500 IS POSITIVE. ED YARDENI OF YARDENI RESEARCH, COMING UP. HE HAD THIS TARGET OF LIKE 4500 AND THEN SAID, MAYBE I AM NOT BULLISH ENOUGH. THAT WAS A COUPLE OF MONTHS AGO. LISA A.: AND I REMEMBER TOM'S RESPONSE -- WOW! CAN WE GET 5000? IT SEEMS LIKE WE ARE HEADED TOWARD THAT AND PEOPLE ARE TALKING ABOUT RESISTANCE AT 4650 AND THEN IT KEEPS GOING. TOM: HE DOES WHAT ANYONE WOULD DO. THE GLOOM CREW WAS WORRIED ABOUT THE NEXT REPORT AND THE NEXT FED MEETING. A GUY LIKE YARDENI AND OTHER BULLS ARE LOOKING OUT TWO, THREE, FOUR YEARS. WHAT IF TECHNOLOGY DOES NOT -- IT IS ASSUMED TECHNOLOGY CANNOT GO FURTHER. OK, WHAT IF THEY DO? JONATHAN: I THINK WE SAID THAT. TOM: APPLE IS A $5 TRILLION COMPANY. JONATHAN: IT IS UP TO HUNDRED PERCENT YEAR TO DATE -- 200% YEAR TO DATE. YOU NEVER TOLD ME ABOUT PRIME. TOM: I GET HOME LAST NIGHT AND THERE IS A STACK OF HILLS DOG FOOD FROM CHEWY. I DID NOT KNOW ABOUT THAT. LISA A.: FACE CREAM. >> TODAY'S DATA AND THE STRING OF DATA WE HAVE BEEN SEEING DOES GIVE A POSITIVE OUTLOOK IN TERMS OF THE INFLATION COMING DOWN. MY GENERAL SENSE IS THAT OUR ECONOMY REMAINS RESILIENT AND WE ARE SEEING INFLATION COME DOWN WITH A ROBUST JOBS MARKET. JONATHAN: THE FORMER FED VICE CHAIR NOW DIRECTOR AT THE NATIONAL ECONOMIC COUNCIL, ADVISOR TO THE PRESIDENT. IF YOU ARE TUNING IN, WELCOME TO THE PROGRAM. EQUITIES POSITIVE 0.3%. DECENT GAINS ON THE S&P 500. COULD WELL BECOME FOUR-DAY WINNING STREAK. INTO THE BOND MARKET THE YIELD ARE LOWER AFTER YESTERDAY'S MOVE LOWER. DOWN ANOTHER FOUR BASIS POINTS. ON THE TWO-YEAR WE ARE DOWN EIGHT. OFF THE LOWS OF THE SESSION. THE TWO-YEAR DROPPED DOWN TO 3.50 SOMETHING. IT IS INTERESTING. LAST WEEK 3.51% AND THEN COMING OFF THE BACK OF THIS INFLATION DATA THE LAST 24 HOURS AND PPI LATER THIS MORNING. THIS IS ON THE FRONT END OF THE CURVE. HERE WE ARE AGAIN TALKING ABOUT THE FED IS DONE. YOU WONDER WHERE WE ARE GOING TO BE NEXT WEEK. LISA A.: THEIR INITIATIVE -- RECESSION WILL BE THE WORST THING EVER. TOM: THIS IS A REALLY IMPORTANT POINT. IF YOU AVOID THE NARRATIVE SHIFTS ONE YEAR TRAILING S&P UP 15%, THE MARKET IS MOVING RIGHT THROUGH NARRATIVE SHIFTS. LAEL BRAINARD CAN TAKE A VICTORY LAP. HER CONCEPT OF CUMULATIVE -- WE WERE AT THE WHITE HOUSE CORRESPONDENT'S DINNER. PEOPLE ARE LIKE CUMULATIVE, RIGHT? AND YOU REACHED OVER TO HAVE HER PASS THE WIND TO YOU. [LAUGHTER] YOU TALKED ABOUT CUMULATIVE. JONATHAN: I AM TRYING TO BITE MY TONGUE. WE CANNOT SIT HERE AND SAY THE FED DESERVES A VICTORY LAP. TOM: I DID NOT SAY THAT. JONATHAN: I KNOW BUT YOU CANNOT TALK ABOUT ANYONE ATTACHED TO THE FED DESERVING OF A VICTORY LAP. THESE ARE THE INDIVIDUALS THAT DID NOT WANT TO BEGIN THE HIKING CYCLE. JUST BECAUSE THINGS ARE ROLLING OVER NOW DOES NOT MEAN THEY WERE RIGHT TO YEARS AGO. THEY WERE WRONG. TOM: I AM TALKING THE LAST EIGHT MONTHS. JONATHAN: I KNOW, BUT I HAVE SEEN THAT LANGUAGE ILLUSTRATIVE FOR HOURS. THE FED DESERVES A VICTORY LAP. BASED ON WHAT? TOM: THEIR MODELING THROUGH WHERE WE ARE IN TERMS OF RES RESTRICTIVE. JEANETTE LOWE, MANAGING DIRECTOR AT STRATEGAS. TO ME THIS IS A TWO PART AMERICA. THERE IS AMERICA PROSPERING AND THEN THERE IS AMERICA NOT PARTICIPATING. IS THE DIVIDE THAT GREAT? JEANETTE: GOOD MORNING. THIS IS DEFINITELY SOMETHING THAT IS GOING TO BE WATCHED BY POLICYMAKERS. THEY HAVE BEEN FIGHTING ABOUT INFLATION FOR QUITE SOME TIME AND NOW ASKING THE FED TO STOP HIKING. THERE IS GOING TO BE CAREFUL WATCHES AS WE GO INTO THE NEXT HALF OF THE YEAR TO SEE HOW IS INFLATION IMPACTING THE ECONOMY AND WHAT DOES THAT MEAN? I THINK THE U.S. HAS BEEN SURPRISED BY HOW STRONG THE ECONOMY HAS HELD UP UNTIL NOW AND HOW MUCH THE LABOR MARKET HAS HELD UP. BUT THERE IS DEFINITELY GOING TO BE CONCERN AS WE MOVE INTO THE SECOND HALF TO SEE HOW MUCH DOES ANOTHER HIKE OR TWO FROM THE FED HAVE AN IMPACT ON THE U.S. ECONOMY? AND HOW DOES THAT HAVE AN IMPACT ON U.S. CONSUMERS AND HOW DEEP MAY THAT RECESSION BE IF WE GET THERE? TOM: THE PRESIDENT -- TO CARRY IT FORWARD FROM THE FED DEBATE -- A VICTORY LAP WITH NATO. HE COMES HOME TO AN AMERICAN DOMESTIC MESS. WHAT WILL HE FOCUS ON THE NEXT 10 DAYS WHEN HE COMES HOME? JEANETTE: FOR BIDEN, THIS IS ONE OF HIS BIG THINGS. HE HAS BEEN FOCUSED ON HIS FOREIGN POLICY AND THE FACT THAT HE IS THE COUNTERPOINT TO TRUMP IN TERMS OF INTERNATIONAL ENGAGEMENT. HE IS DEFINITELY GOING TO BE FOCUSING ON WHAT HE ACHIEVED OUT OF NATO. I THINK ONE OF THE THINGS THAT IS IMPORTANT IS AS HE IS LOOKING AHEAD TO HIS REELECTION, HE WANTS TO HAVE STRONGER SUPPORT FOR UKRAINE IN THE IMMEDIATE TERM. WE SAW THAT COMING OUT OF THE NATO SUMMIT. AND HE WANTS TO PUSH FOR SETTING UP COULD THERE BE AN ENDGAME IN UKRAINE? TRYING TO MAKE SURE THINGS ARE IN PLACE SO THIS COULD BE DONE BEFORE THE ELECTION COMES NEXT YEAR. BUT OVER THE NEXT COUPLE OF DAYS I THINK BIDEN IS GOING TO BE FOCUSED ON WHAT CAME OUT OF NATO, FOCUSED ON THE FACT WE HAVE MORE UNITY WITHIN THE WEST, MORE UNITY WITH PARTNERS IN THE INDO PACIFIC. THAT WAS EMBLEMATIC OF THE SUMMIT. BUT HE IS ALSO GOING TO BE FOCUSED ON OTHER KEY ISSUES IN TERMS OF HIS AGENDA. LAEL BRAINARD TALKING ABOUT BIDENOMICS AND INVESTMENTS IN GREEN ENERGY. JONATHAN: YOU TALKED ABOUT SOMETHING THAT CAUGHT MY EAR -- ENDGAME IN UKRAINE. WHAT DOES THAT LOOK LIKE? JEANETTE: I THINK PEOPLE ARE REALLY TRYING TO PUT SOME BOOKENDS AROUND WHAT THAT COULD BE. THERE IS DEFINITELY CONCERN IN WASHINGTON THIS COULD BE A PROTRACTED FIGHT. THAT WE DO NOT SEE ONE SIDE COME TO COMPLETE VICTORY. THERE IS TRYING TO BE A PUSH TO GIVE UKRAINE AS MANY TOOLS AS IT MAY HAVE TO WORK ON THIS COUNTEROFFENSIVE AND GAIN ADDITIONAL TERRITORY. AND MAYBE THERE COULD BE NEGOTIATION AFTER THAT. BUT PEOPLE ARE ALSO TRYING TO THINK ABOUT COULD THIS BE LASTING LONGER AND WHAT DOES THAT LOOK LIKE FOR U.S. A GAUGE ENGAGEMENT? WE DO HAVE A PRESIDENTIAL ELECTION COMING UP. THERE IS A LOT UNDECIDED. THE CONSENSUS IS WE MAY NOT SEE COMPLETE VICTORY AND WE ARE LOOKING FOR A NEGOTIATED SETTLEMENT. JONATHAN: JEANETTE, THANK YOU. JUST GOT A MESSAGE ON THE BLOOMBERG, BULL MARKET AND VICTORY LAPS. TOM: IT IS A HUGE DEBATE. I AM LOOKING AT THE SCREEN AND I GO BACK TO WHAT WAS SAID YESTERDAY. EVERYONE IS GOING TO RESET OVER THE WEEKEND. CAN YOU IMAGINE SOMEBODY SET LOWER WITH A MORE CAUTIOUS VIEW BEING TAKEN THE NEXT 48 HOURS TO RESET FOR THE END OF JULY? LISA A.: YOU SAY VICTORY LAP AND YOU ARE SETTING YOURSELF UP FOR SOME HUMBLE PIE LATER ON. WE ARE NOT THERE YET AND THE REALITY IS I KEEP GOING BACK TO WHAT TONY JULY OR HAD TO SAY -- TONY DWYER HAD TO SAY. ALL BETS ARE OFF. TOM: THAT IS THE HEART OF THE MATTER. LISA A.: IF YOU START TO SEE WEAKENING IN THE LABOR MARKET, IF PEOPLE CANNOT KEEP SPENDING ENDLESSLY ON AIRLINE TICKETS, AT THAT POINT YOU HAVE TO IMAGINE, ALL OF A SUDDEN, IT CHANGES THE GAME. TOM: BUT IF WE GET INFLATION DOWN TO 2.5%, 30% -- WHICH IS A MASSIVE VICTORY LAP -- THAT CLOCKS IN WITH NOMINAL GDP. [LAUGHTER] IF YOU GET INFLATION TO A STICKY POINT, THE BET IS THAT YOU SUSTAIN A SEMBLANCE OF THE REVENUE GROWTH WE SAW FROM PEPSI. JONATHAN: THERE HAS TO BE SOME ACCOUNTABILITY. YOU CANNOT JUST MAKE THE CALL AND WAIT LONG ENOUGH TO SAY THEY WERE RIGHT, CONGRATULATIONS. TOM: THAT IS THE WALL STREET GAME. JONATHAN: I DO NOT WANT TO PLAY THAT GAME. LISA A.: WHEN CAN WE PLAY HISTORY LESSON? JONATHAN: I DON'T KNOW. THIS IS FUN. ANOTHER 90 MINUTES OF IT. JONATHAN: EQUITIES UP AGAIN THIS MORNING ON THE S&P 500 0.3%. THE THREE-DAY WINNING STREAK COULD BECOME FOUR. THAT FOLLOWING EARNINGS FROM DELTA. BETTER-THAN-EXPECTED OUTCOME FROM PEPSICO. EQUITIES TO OK. ANOTHER LIFT ON THE NASDAQ 100 UP 0.6%. THE BOND MARKET, WHAT A ROLLER COASTER. THE ONE-WEEK RANGE ON THE TWO-YEAR WORTHY OF THE ONE-YEAR RANGE. HIGH LAST WEEK OF 5.11. IT IS DOWN ABOUT EIGHT BASIS POINTS. TOM: I USUALLY THINK WE UNDERESTIMATE SINGLE-POINT ANALYSIS, TWO-YEAR YIELD, 10- YEAR YIELD. MASSIVE DISINVERSION DOWN TO A LESS INVERTED YIELD CURVE. I DO NOT THINK ANYBODY IS AIMING TO GO FURTHER. IT IS NOT A VICTORY LAP BUT YOU HAVE TO SAY WE HAVE COME A LONG WAY. JONATHAN: IN JUST ONE WEEK. THE DOLLAR HAS BACKED AWAY. JUST BREATHING LIFE INTO THAT TRADE AGAIN. THE EURO STRONGER FOR A SIXTH CONSECUTIVE SESSION AGAINST THE DOLLAR. WE ARE FIRMER BY 0.4%. LISA A.: LET'S LOOK AT THOSE NAMES. THESE ARE STORIES THAT REALLY HIGHLIGHT THE STRENGTH UNDER THE HOOD OF THE EQUITY GAINS WE HAVE SEEN. PEPSI SHARES UP 2.4% AFTER SAYING REVENUE, ORGANIC REVENUE, WOULD GO 10% THIS YEAR AFTER A 13% GAIN LAST QUARTER. ACROSS THE BOARD MOUNTAIN DEW, GATORADE, FRITO-LAY, THEY HAVE ALL BEEN GAINING TREMENDOUSLY. THIS REALLY SPEAKS TO TOM KEENE'S LOVE OF CHEEZ-ITS. THE CHIEF EXECUTIVE OFFICER AT BASTIAN SAYING THERE IS SIGNIFICANT GROWTH AHEAD. FLYING IS THE NUMBER ONE PRIORITY FOR DISCRETIONARY SPENDING. BUT THAT ALSO IS PAIRED WITH THIS IDEA THAT OIL PRICES ARE COMING IN AND PEOPLE ARE ACCEPTING LESS SERVICE, LESS ACCOMMODATIONS, LESS LEGROOM, LESS BAGGAGE, LESS SNACKS. JONATHAN: CRISIS UP, SERVICE DOWN. LISA A.: THAT IS WHAT YOU ARE CONTINUING TO SEE. TOM: IT IS PERSONAL SACRIFICE. JONATHAN: FLIGHT ATTENDANTS ARE VERY NICE. LISA A.: ALWAYS. I FLEW ANOTHER AIRLINE AND IT WAS SAYING, REPORT ANY INAPPROPRIATE BEHAVIOR. JONATHAN: WHAT WAS THE INAPPROPRIATE BEHAVIOR? LISA A.: THEY HAVE REDUCED THE AMOUNT OF ALCOHOL THEY SERVE BEFORE FLIGHTS IN CERTAIN AREAS. JONATHAN: YOU KEEP GOING BACK TO THE LACK OF ALCOHOL. LISA A.: I THINK THERE WERE UNRULY PASSENGERS IN THE IMMEDIATE AFTERMATH. LET'S MOVE ON. JONATHAN: WHAT IS IT ABOUT THE AIRPORT THAT PEOPLE GO? IT DOES NOT MATTER BUT NORMAL RULES DO NOT APPLY. LISA A.: DO WANT MY PSYCHOLOGICAL ANALYSIS? JONATHAN: ABSOLUTELY. LISA A.: THERE IS AN UNDERLYING LEVEL OF ANXIETY AND DISCOMFORT ASSOCIATED WITH TRAVEL. PEOPLE TRY TO OFFSET THAT WITH PALLIATIVE MEASURES. TOM: I THINK THE DANGERS ARE SO SUBSTANTIAL IT SHOULD BE SOLVED THIS WEEKEND. JONATHAN: NO DRINKING IN THE AIR? WHEN ABOUT BEFORE? TOM: IF YOU SCREW UP AT WHATEVER FEET IT IS -- LISA A.: I AM NOT TALKING ABOUT THE PILOTS. [LAUGHTER] JONATHAN: I WENT THROUGH UNITED AIRLINES LOUNGE AND SAW THIS GUY AT THE BAR, PARIS 12:00. [LAUGHTER] HE STARTED LYING THEM A. LISA UP. LISA A.: IT IS ALWAYS 5:00 P.M. SOMEWHERE. JONATHAN: IT WAS JUST A FLIGHT TO DENVER. LISA A.: ONE OTHER NAME I WANT TO MENTION IS DISNEY. WHEN BOB IGER WAS BROUGHT TO DISNEY LAST YEAR HE WAS CHARGED WITH FINDING A REPLACEMENT. JONATHAN: HE IS THE REPLACEMENT. LISA A.: HE FOUND A REPLACEMENT. IT IS BOB IGER WHO WILL BE THERE THROUGH 2026. SHARES ARE HIGHER. TOM: WE HAVE THIS JEWEL IN LOS ANGELES, A REPORTER BY THE NAME OF LUCAS SHAW, WHO IS BRILLIANT ON THE EGOS OF HOLLYWOOD. HE SAID IGER HAS NO OTHER THING TO DO BUT FIND A SUCCESSOR. NOTHING. DUMBO DOES NOT MATTER, PINOCCHIO DOES NOT MATTER. JONATHAN: YOU ARE THE SUCCESSOR. TOM: YOU ARE RIGHT. [LAUGHTER] THIS IS RIDICULOUS. JONATHAN: CLEARLY, HE KNOWS -- AND I DON'T KNOW FOR SURE -- BUT I IMAGINE BASED ON THE DECISIONS OF THE INDIVIDUAL BEFORE HIM THAT SOME OF THAT IS COMING TO LIGHT. YOU DO NOT WANT TO BE SEEN AS RESPONSIBLE. YOU WANT TO MAKE SOME OF YOUR OWN CHANGES. TOM: DO THEY HAVE THE BARBIE FRANCHISE? LISA A.: THAT IS MATTEL. TOM: BUT ARE THEY MAKING IT WITH DISNEY? LUCAS SAYS IT IS GOING TO BE HUGE. IT IS THE SURPRISE OF THE SUMMER. JONATHAN: THE MOVIE? TOM: THE MOVIE. JONATHAN: I KEEP TELLING YOU -- TOM: DID YOU WATCH "MISSION IMPOSSIBLE"? JONATHAN: I THINK IT IS WARNER BROS., I HAVE BEEN TOLD. TOM: DELTA'S FLEET OF A220'S WILL GROW TO 130 AIRCRAFT. THEY DO NOT HAVE TIME TO MAKE THE AIRPLANES. JONATHAN: NOT QUICK ENOUGH. TOM: THAT IS THE BOOM ECONOMY WE ARE IN. THAT IS PUSHING AGAINST THE GLOOM. JOINING US IS SONAL DESAI. I RARELY DO THIS BUT I WANT TO FOCUS AND IT IS THE LEGACY OF JOHN TEMPLETON. YOU HAVE TO GET OUT ONE YEAR, THREE YEAR, FIVE YEAR. THE FRANKLIN INCOME FUND IS, TO ME, ALMOST AN ACT OF GOD. HIS INDUSTRY CATEGORY IS NEGATIVE AND YET YOU HAVE DELIVERED SOLID FIXED INCOME RETURNS AGAINST THE TOUGHEST BOND MARKET IN MY LIFETIME. HOW DID FRANKLIN TEMPLETON DO THAT? SONAL: IT IS ED PERKS AND HIS TEAM. THEY ARE LIVING UP TO THE FRANKLIN AND THE TEMPLETON CULTURAL BACKGROUND. ABSOLUTELY BEING VERY ACTIVE, BEING VERY CAREFUL TO ADJUST DURATION IN A CAREFUL WAY, MAKING INDIVIDUAL PIECES. TOM: WHAT IS SO IMPORTANT IS THE EQUITY MARKETS TO WIN BY 200 BASIS POINTS. YOU GUYS ARE BEATING THE BOND DISASTER BY 500, 600, 700 BASIS POINTS. NOW WHAT? WHAT IS THE NEXT STEP FOR SOMETHING BLENDED LIKE THE FRANKLIN INCOME FUND? SONAL: I THINK THERE IS A LOT UP AHEAD. I WANT TO BE CAREFUL AND VERY CLEAR HERE. ED RODS RUNS THE CREW VERY INDEPENDENTLY. LOOKING AT WHAT OUR CALL IS IN TERMS OF DURATION, ETC., WE ARE LOOKING, GOING FORWARD, AS THEY'RE BEING THE TIME WHEN DURATION WILL BE INTERESTING. WE CONTINUE TO BE NEUTRAL. I DO NOT WANT TO SPEAK FOR THE INCOME GROUP. LISA A.: YOU STILL BELIEVE WE ARE GOING TO SEE A SELLOFF IN BONDS. DO YOU HOLD THAT CONVICTION EVEN AFTER WHAT WE SAW YESTERDAY WITH CPI AND THE EXPECTATIONS WE WILL SEE SOME REITERATION OF THAT DISINFLATION TODAY WITH PPI? SONAL: I THINK WE ARE GOING TO SEE THE DISINFLATION. NOBODY EXPECTED DISINFLATION TO HAPPEN. I WOULD NOTE A COUPLE OF THINGS. I WAS LISTENING TO YOU TALK ABOUT THE VICTORY LAPS EARLIER TODAY. [LAUGHTER] THIS WAS AN UNAMBIGUOUS NUMBER. THAT IS GOOD NEWS. HAVING SAID THAT I WOULD POINT TO THREE DIFFERENT FACTORS. THE WAGE INDICATOR INCREASING AT 6%. LOOKING AT THE RALLY YOU HAVE BEEN TALKING ABOUT IN EQUITY MARKETS WE HAVE UNWOUND FINANCIAL CONDITIONS TO 400 BASIS POINTS. I GET IT. THERE IS GOING TO BE -- A LOT IS NOT CAPTURED IN FINANCIAL CONDITIONS BUT THAT CONTINUES TO COUNTERACT WHAT THE FED HAS BEEN DOING BY RAISING RATES. FRANKLY, NOBODY IS TALKING ABOUT IT FISCAL POLICY REMAINS FAIRLY LOOSE. NOT EXPECTING A MASSIVE PICKUP IN INFLATION BUT IT IS TOO EARLY TO BE CALLING VICTORY LAPS. I THINK IT IS GOING TO BE STICKY FOR LONGER. THE OTHER PIECE I WOULD SAY IS THAT IT IS INTERESTING LOOKING OUT FURTHER INTO THREE YEARS, FOUR YEARS, FIVE YEARS DOWN. I THINK THE FED NEUTRAL RATE, WHICH IS STUCK AT 2.5%, IS GOING TO INCH UP. IT NEEDS TO GO UP BECAUSE 2.5% DOES NOT MAKE SENSE. LISA A.: HOW MUCH CONVICTION DO YOU HAVE TO MOVE AGAINST, TRADE AGAINST, THE SEA CHANGE WHERE PEOPLE ARE PRICING OUT FOR THE RATE HIKES AFTER THIS MONTH? SONAL: RATE HIKES AFTER THIS MONTH ARE UP IN THE AIR. I THINK WHAT IS REALLY WRONG IS YOU ARE GOING TO GET RATE CUTS AS THE OTHER SIDE OF THAT. YOU ARE NOT GOING TO GET RATE CUTS WHILE THIS YEAR'S CUTS ARE BEING PRICED OUT. I THINK THERE IS THE ASSUMPTION YOU WILL GET TOO MANY RATE CUTS NEXT YEAR. WILL THE FED DO ANOTHER ONE? DO I THINK IT IS A STRAIGHT LINE FROM 3% DOWN? I THINK IT IS UNLIKELY. WE ARE GOING TO SEE THE PEAK IMPACT OF BASE AFFECTS OVER THE NEXT FEW MONTHS. ALSO, I THINK WE END THE YEAR WITH POOR INFLATION CONTINUING TO BE PRETTY MUCH TWICE WHAT THE FED'S TARGET WOULD BE AND TWICE AS MUCH AS 4% PLUS. THE HEADLINE WILL COME DOWN BUT I DO NOT THINK CORE IS COMING DOWN AS QUICKLY. JONATHAN: WONDERFUL COVERAGE IS ALWAYS. SONAL DESAI A FRANKLIN TEMPLETON. MIKE MCKEE WENT THROUGH THAT YESTERDAY. TORSTEN SLOK, COMING UP. PUSHING BACK AGAINST THE HOPES AND DREAMS OF A SOFT LANDING IN AMERICA. LISA A.: WHAT IS HE LOOKING AT IN TERMS OF LABOR MARKET SOFTENING? THAT IS WHAT PEOPLE TALK ABOUT AS THE KEY INDICATOR OF WHAT IS TO COME. WHAT IS THE TIMEFRAME AND HOW HE INTERPRETS THE EFFECTS VERSUS TRUE DISINFLATION. JONATHAN: AND WHEN THAT BEGINS TO HIT THE ECONOMY. TOM: IT HITS THE ECONOMY AND I'M GLAD YOU MENTIONED IT. THEY ARE TALKING ABOUT THE MARKETS TODAY BUT, OH YEAH, THE ECONOMY. THERE IS MAYBE NOT THE RECESSION CALL BUT A SLOW DOWN CALL. LET'S NOT FORGET THAT. YOU CAN TALK ABOUT THE FINANCIAL END OF THIS BUT THEN THERE IS THE GDP END. THAT SAID, YOU LOOK AT THE OPTIMISTS THAT DO NOT GET ENOUGH CREDIT. WHAT IF WE GET ANOTHER 2% GDP? LISA A.: VICTORY LAP. TOM: NO ONE IS MODELING THAT. JONATHAN: WILL GIVE THEM THAT. TOM: I'M SERIOUS. JONATHAN: WE KNOW YOU ARE SERIOUS. DON'T WORRY. WE ARE JUST WINDING YOU UP. TOM: WHERE IS EUROPE, FLAT? JONATHAN: YEAR TO DATE? TOM: FLAT. JONATHAN: BUT PARTS OF EUROPE -- TOM: GERMANY IS DIFFICULT. JONATHAN: FOR S RECESSION. TOM: BUT MOST IN THE MEDIA WILL SAY THERE IS NO AMERICAN EXCEPTIONALISM. WE ARE FLAT ON OUR BACK. BUT LOOK AT DELTA. JONATHAN: AND PEPSICO. THE S&P 500 POSITIVE 0.35%. TORSTEN SLOK OF APOLLO COMING UP AT 8:30 EASTERN. CITIGROUP BUILDING ON THE WORK FROM YESTERDAY AND PUBLISHING MOMENTS AGO 25 BASIS POINT HIKE REMAINS LIKELY. RECENT DATA RAISED THE PROBABILITY OF DELAYING UNTIL NOVEMBER. THEY MIGHT BE PUSHING THIS OUT A LITTLE BIT. UPCOMING DATA MAY NOT LOOK SO SANGUINE. THAT IS THEIR VIEW. WAGE GROWTH AND HOW IT BLEEDS INTO WAGE INFLATION. TOM: PAYROLL COMES DOWN UNDER 200,000. DAVID KELLY HAS BEEN LEADING ON THAT JP MORGAN. WE GOT THE JULY MEETING AND THEN THE SEPTEMBER MEETING. IS THAT THE NEW HAWKISH PAUSE? JONATHAN: JACKSON HOLE WILL BE A GREAT FORUM. TOM: IT IS A BIGGER MYSTERY THAN LAST YEAR. HOPEFULLY HE WILL SPEAK FOR ONE MINUTE MORE. JONATHAN: WE GET NINE MINUTES NOW? [LAUGHTER] YOU ARE GOING TO BE THERE? TOM: WE ARE GOING TO BE THERE. GREAT GROUP OF PEOPLE SCHEDULED TO BE THERE. JONATHAN: NICE. WHO IS THE KANSAS CITY FED PRESIDENT NOW? LISA A.: I DO NOT THINK THEY HAVE ONE YET. [LAUGHTER] JONATHAN: THEY HAVE GOT TO SORT THAT OUT. GEORGIA WAS ALWAYS SO WELCOMING. WHAT HAPPENED? ♪ >>>> THEY WILL NOT MOVE AT THE MEETING AFTER JULY BUT THEY WILL BREAK LIKE THEY DID LAST TIME. AND THEN WE GET TO NOVEMBER 1. I CAN IMAGINE IT IS POSSIBLE WE WILL SEE ENOUGH NEWS IT MAKES THEM CONFIDENT THEY HAVE DONE ENOUGH. IN NOVEMBER RATE HIKE IS REALLY UP FOR GRABS. JONATHAN: BILL DUDLEY TALKING ABOUT NOVEMBER. THAT IS THE ARGUMENT RIGHT NOW. A LOT OF PEOPLE STARTING TO SAY ONE AND DONE FOR THE FEDERAL RESERVE. ONE MORE HIKE THIS MONTH AND THEN THEY MIGHT BE DONE. OTHER PEOPLE PUSHING BACK THE LAST 24 HOURS SUGGEST EVEN IF THEY ARE DONE, THEY HAVE TO GO AGAIN IN NOVEMBER BECAUSE THE BASE AFFECTS START TO KICK IN. LISA A.: AND YOU COULD SEE RE-INFLATION. THERE IS ALSO A DISCUSSION I HAVE NOT HEARD ENOUGH OF WHICH IF THIS IS ONE AND DONE, A LONGER PERIOD OF RATES AT THIS LEVEL, COULD THAT BE MORE RESTRICTIVE TO THE ECONOMY? MAYBE NOT LATER THIS YEAR BUT EARLY NEXT YEAR. JONATHAN: YOU LISTEN TO STORIES AND HOW THEY ARE TOLD ABOUT WHY WE NEED HIGHER INTEREST RATES. THE INFLATION DATA YESTERDAY HAS CHANGED THOSE IN A MATERIAL WAY. THERE WAS A LOT TO LIKE ABOUT THAT INFLATION PRINT. TOM: IT IS A GAME CHANGER AND YOU SEE IT IN THE DEPTH OF THE MARKET. I WOULD SUGGEST WHAT IS SO IMPORTANT TO ME IS THE OPTIMISTS HAVING THEIR DAY AND THE RATIONALIZATION THAT IS GOING ON IN SPADES GETTING TO EARNINGS SEASON. THE INDUSTRY'S RATIONALIZATION MAJOR IS PEGGING HARD RIGHT. JONATHAN: THEY WILL BE FOCUSED ON MONTH TO MONTH INFLATION. WILL THERE BE A LOT TO LIKE NEXT MONTH, THE MONTH AFTER THAT? TOM: THE QUESTION IS HOW MUCH EXPOSED IS THE IMPORTANT QUESTION. IS THAT OUT TO SEPTEMBER? DOES IT GO OUT FURTHER? WHAT WE HAVE FROM STEVE ENGLANDER. JONATHAN: DO YOU WANT THE QUOTE? TOM: PLEASE. JONATHAN: LIKELY TO BE A GAME CHANGER. GOES ON TO SAY, WE DOUBT THE FED WILL HIKE AFTER THE JULY 26 MEETING. THIS IS THE ONE AND DONE CAMP. THIS REDUCES THE RISK OF BEING LONG CARRY AND HIGH BETA CURRENCIES. I CAN TRANSLATE THAT IN A MOMENT. BY REDUCING THE FEAR OF BEING BLINDSIDED BY AN UPWARD SHIFT IN THE TERMINAL FED POLICY RATE. IT HAS TAKEN AWAY THAT UNCERTAINTY A LITTLE BIT. TOM: JUST A LITTLE BIT. I WOULD NOTE THE NASDAQ UP 0.7%. JOINING US TO SORT THIS OUT, PARTICULARLY THE DEPTH, DAMIAN SASSOWER OUR, CHIEF EMERGING-MARKET CREDIT STRATEGIST. THIS IS A HISTORIC MOMENT. MEXICAN PESO CRISIS, NEVER DID I EVER THINK MEXICO COULD LAUNCH AND BREACH TO A $16 HANDLE. WHY IS THIS HAPPENING? WHY IS THE PESO AND OTHER EM ON FIRE? DAMIEN: WITH RESPECT TO MEXICO, IT IS THE THEME OF NEAR SHORING. IT IS POLITICS AND REMITTANCES FROM THE U.S. TO MEXICO. REMITTANCES ARE A BIG DEAL FOR MEXICO BUT MORE IMPORTANTLY THE POLITICAL SCENE. IN AN ENVIRONMENT WHERE THE LEADERS ARE RUNNING 40% APPROVAL RATINGS. THE ELECTION COMING UP NEXT YEAR, CLAUDIA, FEMALE, JEWISH. THERE'S GOING TO BE CONTINUITY IN MEXICO. WE HAVE THE DOLLAR-MEX UP 15% SINCE 2021? WHEN STEVE ENGLANDER STARTS TALKING ABOUT THE EM TRADE, I WANT TO FADE THAT A LITTLE BIT. I GET WHAT HE IS SAYING. THE PATH FOR DOLLAR WEAKNESS IS THERE BUT IF YOU BET AGAINST THE DOLLAR, YOU ARE NOT GOING TO LAST LONG. TOM: IS THERE A BET ON THE STREET THAT DXY GOES WEAKER GOING FORWARD? DAMIEN: I THINK THE MARKET EXPECTED TO SEE SOME SPEED BUMPS DUE TO THE REPLENISHMENT OF THE -- IT WOULD BE BULLISH FOR THE DOLLAR IF YOU SAW POCKETS OF ILLIQUIDITY. THAT RISK IS GOING OUT THE DOOR. THIS IS THE SECOND LARGEST REBUILD OF THE FED'S RESERVES ON RECORD, AND YET THE MARKET IS NOT REACTING. THE RESERVE REPO FACILITY IS ACTING AS IT SHOULD. I GUESS THE DOLLAR BEARS ARE FLEXING THEIR MUSCLES OFF THE BACK OF THAT. I GET IT. LISA A.: DO YOU THINK IT HAS STAYING POWER BASED ON THE FACT YOU SAID YOU WOULD FADE THE GAINS WE SAW IN EM? DAMIEN: IT HAS STAYING POWER BUT THE AMOUNT OF STIMULUS INJECTED INTO THE ECONOMY -- WHEN YOU START TIGHTENING'S GET TIGHT. -- THINGS GET TIGHT. LET'S THINK ABOUT THE EM CURRENCIES. IT IS THE SOUTH KOREAS, THE MALAYSIAS THAT ARE FUNDING CURRENCIES. IF YOU ARE ALONG THE EM CARRY TRADE, YOU'RE PROBABLY LOSING MONEY. MAYBE NOT LOSING MONEY BUT IT IS A WASH. IT IS ABOUT YOUR CHOICE OF FUNDING CURRENCY AND THE JAPANESE YEN IS THE ONE EVERYONE IS POINTING TO AS REMAINING WEAK. YOU COULD SEE SOME CRACKS IN THAT AS WELL. I WILL NOT GO INTO WHY BUT YIELD CONTROL IN JAPAN COULD GO THE OTHER WAY. LISA A.: WE WERE TALKING WITH ALAN RUSKIN ABOUT THE WEAK DOLLAR CALL AND HE SEES THE EURO GETTING SUPREMACY. THERE IS QUESTIONS ABOUT THE GROWTH DIFFERENTIALS. AT ONE POINT THE IT ATTRACTS A CERTAIN DEGREE OF INVESTMENT. HOW DOES THAT PAIR WITH THE DEVELOPING WORLD WHICH IS ALREADY FACING THE LAG EFFECTS AND IS SEEING SLOWDOWNS? DAMIEN: GREAT QUESTION. WHEN I'M LOOKING FOR IS NEGATIVE FEEDBACK LOOPS. SWEDEN. THIS IS JP MORGAN SPEAKING BUT THEY BASICALLY RAISE RATES TO BRING DOWN GROWTH. THAT HAS TAKEN DOWN THE CURRENCY AND WHAT THAT HAS DONE IS KEPT INFLATION ARTIFICIALLY HIGH, FORCING THE CENTRAL BANK TO RAISE RATES MORE THAN IT CAN TO STOKE OFF INFLATION. WHAT OTHER COUNTRIES FALL INTO THAT CAMP? THAT NE NEGATIVE FEEDBACK LOOP IS HARD TO BREAK. THAT IS AN AREA OF THE MARKET I THINK A LOT OF PEOPLE ARE FOCUSED ON. TOM: I DO NOT NEED TO TAKE A LONG-TERM JP MORGAN VIEW ON WHAT IS GOING ON IN THE NORDIC STATES. BUT IF WE HAVE AN ENGLANDER RESET FOR THE END OF JULY? DAMIEN: ONLY IF THEY WANT TO SELL THE SCRIPT. FAKE NEWS AND ALL THAT KIND OF STUFF. I DO NOT SEE PEOPLE MIDYEAR 180ING THEIR CALLS. YOU MIGHT NOT SEE THE FED CUTS REALIZE AS YOU OTHERWISE WOULD. GOING BACK TO MEXICO, THEY WILL NOT HIT THEIR TARGET UNTIL THE END OF 2024. JONATHAN: WHEN DOES MESSI GET HERE? DAMIEN: I THINK HE HAS ARRIVED. I TRACK MESSI. JONATHAN: HAVE YOU MANAGED TO GET TICKETS? DAMIEN: DO YOU KNOW HOW MUCH TICKETS ARE GOING FOR? JONATHAN: I KNOW. DAMIEN: IT WAS $40 BEFORE HE JOINED. NOW IS $500, $600. JONATHAN: THAT IS RIDICULOUS. DAMIEN: $150 MILLION FOR TWO YEARS AND THAT DOES NOT INCLUDE ADIDAS OR APPLE. HE IS THE BEST. I CANNOT WAIT. JONATHAN: IT IS GOING TO BE AWESOME. TOM: WHAT IS HE LIKE ON THE FIELD WITH MLS TYPE PLAYERS VERSUS SPANISH PLAYERS OR PREMIER LEAGUE PLAYERS? JONATHAN: IF HE CAME FIVE YEARS AGO? [LAUGHTER] LISA A.: HE WOULD CRUSH THEM. JONATHAN: IT WOULD HAVE BEEN EMBARRASSING. HE HAS SLOWED DOWN. TOM: BUT HAS MLS GOTTEN BETTER? JONATHAN: IT IS IMPROVING? CAN WE SAY THAT? DAMIEN: ISN'T HE BRINGING OVER A COUPLE OF HIS MATES? JONATHAN: YEAH. LISA A.: WE HAVE SOME HOMEGROWN TALENT. JONATHAN: A REUNION. TOM: WHAT DO I WANT TO WATCH AT WIMBLEDON THIS WEEKEND? DAMIEN: ALCARAZ, SO GOOD. JONATHAN: 20-YEARS-OLD, IT IS NUTS. NUMBER ONE IN THE WORLD. DAMIEN: I HOPE YOU CAN DO IT. JONATHAN: IT WILL BE INTERESTING SEMIFINALS TOMORROW. TOM: DOES HE HAVE THREE OUT OF FIVE SET? IS THE WEATHER BAD? JONATHAN: IN ENGLAND? IT IS OFTEN BAD. DAMIEN: THE GRASS IS ACTUALLY LOOKING A LITTLE BROWN. JONATHAN: WE LIVE FOR THAT BAD WEATHER. [LAUGHTER] SINNER AND DJOKOVIC TOMORROW. LOOK OUT FOR THAT. FROM NEW YORK CITY, DAMIEN, THANK YOU. LET'S DO MORE ONM MESSI IN THE NEXT COUPLE OF WEEKS. >> WELCOME TO ANOTHER TENNIS CHANNEL UPDATE. THE LAST MAN STANDING IS OUT. CHRIS EUBANKS' DREAM CAME TO AN END TO DANIIL MEDVEDEV. 20 ACES AND 52 WINNERS FOR THE THIRD SEED WHILE 55 UNFORCED ERRORS TOLD THE STORY OF THE MATCH FOR EUBANKS. >> I DO THINK THE LACK OF CENTRAL POLICY IS FINALLY CATCHING UP AND WE ARE GOING TO GO TO A SUB 1% GROWTH RATE. >> THE ECONOMY IS IN GOOD SHAPE EVEN THOUGH GROWTH IS SLOW BUT INFLATION HAS BEEN COMING DOWN. >> THE INFLATION -- THE FRUSTRATION IS INFLATION -- >> THEY MAY BE RELUCTANT TO CUT UNTIL THEY SEE OR THE LABOR MARKET IS IN BALANCE. ANNOUNCER: THIS IS BLOOMBERG SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO, AND LISA ABRAMOWICZ. TOM: GOOD MORNING. JONATHAN FERRO, LISA ABRAMOWICZ, AND JOHN KANE. GAME CHANGER THURSDAY, STEPHEN ENGLANDER FROM STANDARD CHARTER, SOMETHING IN THE AIR CHANGED YESTERDAY AND FOR THE FED FOR FINANCIAL PARTICIPANTS, IT WAS DISINFLATION. JONATHAN: FORGET JOE FLY -- JULY, THEY WILL HIKE, MOST ASSUME THEY WILL. THAT IS THE VIEW FOR MOST. OTHERS THINK YOU WILL PERHAPS GET ANOTHER IN NOVEMBER BUT ULTIMATELY THERE WAS A LOT TO LIKE ABOUT THE DATA. DISINFLATION IN AMERICA. CAN I CONTINUE? A COUPLE QUESTIONS ABOUT THE INFO, DISCRETIONARY SPENDING A DOMINANT STORY, PRETTY DECENT, ON AND POINTED AT 3.5%, INFLATION IN THE RIGHT DIRECTION. IS THAT YESTERDAY'S STORY OR CAN THAT PERSIST THROUGH THE REST OF 2023? TOM: WE WILL FIND OUT IN A MOMENT. OUR CONVERSATION OF THE DAY, THEY WILL BE WITH US IN MOMENTS. AND THE WRAPAROUND FROM THE LOW AND OCTOBER, WHAT DO YOU HAVE YOU ARE IN THE TRIPLE LEVERAGE ALL-CASH FUND? WHAT DO YOU DO IF YOU ARE A BEAR? WHAT DO YOU DO IF YOU ARE SURE RIGHT NOW? JONATHAN: IF YOU MISSED 40% AND THE MOVE ON THE NASDAQ? TOM: OR BLENDED. LET'S SAY YOU MISSED 18%, WHATEVER. JONATHAN: THEN YOU MISSED OUT AND YOU WONDER IF YOU SHOULD GET IN OR SIT THIS OUT ANY LONGER. LISA: THAT WILL BE THE KEY ISSUE, ESPECIALLY FOR INSTITUTIONS THAT HAVE CASH ALLOCATIONS THEY COULD THEY COULD POTENTIALLY FUNNEL INTO EQUITIES. KEY ISSUE FOR ME AND CURIOUS TO HEAR WHAT ED HAS TO SAY ABOUT PROFIT MARGINS. WE ARE 30 MINUTES AWAY FROM PPI, THE DIFFERENTIAL BETWEEN PRICES, THAT SOME OF THE COMPANIES CAN CHARGE, AND THEIR COSTS, WHICH HAVE GONE DOWN. IT HAS ALLOWED THEM TO ENJOY EXPANDING PROFIT MARGINS. WHEN DOES THAT SHIFT? WHEN DOES THAT REVERSE? WHAT IS THE RESPONSE? TOM: LOOKING FORWARD TO FRIDAY IN THE BEGINNING OF THE LARGE BANK EARNINGS SEASONS. TO ME IT IS ALL ABOUT CORPORATIONS ADAPTING. IT IS A FINANCIAL MEDIA WITH A STATIC ANALYSIS OR CORPORATIONS WORKING IN A DYNAMIC ENVIRONMENT. TO ME, THE BIG BANKS WILL ADAPT AND THEY WILL BE EMBARRASSED AT THEIR PROFITS. THEY WILL EYE'D HOW MUCH MONEY THEY ARE MAKING. JONATHAN: IT'S A LOT ABOUT CREDIT QUALITY GOING THROUGH JP MORGAN, TO CITY, TO WELLS, CREDIT QUALITY, LOW LOSSES, LOAN-LOSS RESERVES. MOST PEOPLE HAVE BEEN GUIDING TO LOW EXPECTATIONS AROUND THAT. ACROSS A NUMBER OF THE BANKS, PARTICULARLY ON THE TRADING SIDE OF THE BUSINESS. THE BAR HAS BEEN SET LOW INTO FINANCIALS TOMORROW AND WE WILL SEE HOW THEY DELIVER. TOM: I WILL JUST GO TO THE REAL YIELD AND STUNNING 1.0% ON THE 10-YEAR. FIVE-YEAR REAL YIELD WAY OUT OVER THE LAST NUMBER OF DAYS. FEAR OF A RISING INFLATION, TENURE YIELD 1.0 BACK TO 1.55, DISINFLATION. JONATHAN: AND THAT IS THE BOND MARKET. EQUITIES GEARING UP FOR A FOURTH CONSECUTIVE DAY OF GAINS ON S&P 500, EQUITIES UP BY 0.4% AND THE FX MARKET, SIX DAYS OF THIS NOW, SIX DAYS OF EURO STRENGTH AND DOLLAR WEAKNESS. EURO-DOLLAR, 1.117 NINE. THE CURRENCY POSITIVE BY ALMOST 5%. TOM: THE HALLMARK OF THE SHOW HAS BEEN KEEPING SCORE, WEEK TAKE CAREFUL CARE WITH THOSE THAT GET IT WRONG. WE PAY ATTENTION TO THOSE THEY GET IT RIGHT. NO SURPRISE TO ANYONE OVER THE DECADES BUT THE LONGER TIMEFRAME, LONGER PERSPECTIVE, THE GENTLEMAN FROM YALE, ONCE AGAIN NAILED IT. THE PRESIDENT OF YOU DO ANY RESEARCH JOINS US. WHAT WERE YOU THINKING THE THIRD WEEK OF OCTOBER, THE LOW, BUT LET ME SAY THE FIRST WEEK OF OCTOBER. HOW ARE FRAMING OUT THE OPTIMISM ? >> I WATCH SENTIMENT IN THE EQUITY MARKET CLOSELY AND CALLED INVESTORS INTELLIGENCE BEAR RATIO. MID-OCTOBER, IT WAS DOWN TO 0.60, WHICH IS AS DEPRESSED AS IT WAS IN MARCH -- 2009 -- MARCH 2009. I WAS THINKING SURELY THINGS ARE NOT AS BAD AS THEY WERE BACK THEN AND I HAVE BEEN IN THE VIEW THAT WE WILL NOT HAVE AN ECONOMY-WIDE RECESSION. I'M UNDER THE VIEW WE HAVE BEEN IN A ROLLING RECESSION. IT ALL CAME TOGETHER FOR ME BY THE END OF OCTOBER AND I SAID OCTOBER 12 WAS THE LOW. JONATHAN: DO YOU THINK WE CAN CARRY BEATING UP LOW EXPECTATIONS? EDWARD: THE PROBLEM IS THERE ARE TWO NEW BOWLS, NOTHING TO FEAR BUT FEARLESS INVESTORS. WE DON'T REALLY HAVE ENOUGH -- THE TECHNICAL SENTIMENT PICTURE IS NOT THAT GOOD BECAUSE THEY ARE -- THERE ARE NOT ENOUGH PESSIMISTS. THE PROBLEM IS THE FUNDAMENTALS ARE REALLY GOOD. I THINK EVERYBODY SWUNG AROUND FROM WORRYING ABOUT AN ECONOMY-WIDE RECESSION TO EMBRACING A DISINFLATIONARY SOFT LANDING AND WE WILL SEE WHAT HAPPENS WITH THE PBI, BUT WE COULD HAVE A TRIFECTA OF GREAT NUMBERS EXPECTED INFLATION MONDAY LOWER THAN EXPECTED AND THE CPI WAS GREAT. I THINK THE PPI WILL BE GOOD AS WELL. SO DISINFLATION IS HERE. JONATHAN: WILL BANK EARNINGS VALIDATE OPTIMISM? EDWARD: I THINK SO. I THINK WE WILL SEE A CONTINUATION AS WE POINTED OUT -- AS YOU POINTED OUT IN LOAN-LOSS RESERVES. THE FED PUTS OUT A WEEKLY SERIES ON THAT FOR LARGE BANKS AND SMALL BANKS. FOR THE LARGE BANKS IT IS UP 16% ON THE YEAR-OVER-YEAR BASIS. THAT COULD BE SOME DISAPPOINTMENT ON EARNINGS FROM THAT PERSPECTIVE. MUCH DEPENDS ON THE ECONOMY. IF PEOPLE EMBRACE THE ECONOMY CONTINUING TO GROW, THE CREDIT QUALITY IS NOT GOING TO BE THAT BIG AN ISSUE. THEY MAY BE ABLE TO, WITHIN QUARTERS, TO GET THOSE RESERVES AND PROFITS ARE LOOKING AT AGAIN. LISA: MONTHS YOU WERE TALKING ABOUT 4500. HOW HIGH HAVE YOU GONE? EDWARD: I WILL RAISE YOU BY 100. I HAVE BEEN TALKING ABOUT 4600, BUT WHAT IS THE DIFFERENCE? IT HAS BEEN A BULL MARKET SINCE OCTOBER 12. THE PROBLEM WITH 4600 IS CLOSE TO THAT, THAT WAS MY YEAR END TARGET AND IT LOOKED DELUSIONAL THIS YEAR BUT IT HAS WORKED OUT AWFULLY WELL, WITH 150 POINTS AWAY FROM THAT, MAYBE LESS. SO LET'S GET TO 4600 AND ASK ME AGAIN BUT I WILL PROBABLY RAISE IT TO 4800 DEPENDING ON HOW THINGS ARE SHAPING UP. LISA: HOW DO PROFIT MARGINS FIT IN? YOU ARE SPEAKING ABOUT THE LIKELIHOOD OF WHERE WE COULD SEE A SHIFTING NARRATIVE, ESPECIALLY IF REVENUES COME IN THE WAY TONY DWYER WAS TALKING ABOUT. DO YOU SEE THINGS DIFFERENT? EDWARD: WE'VE HAD EARNINGS RECESSION, A MILD ONE. LOOKS LIKE EARNINGS WILL BE DOWN A PERCENT OVER A YEAR-OVER-YEAR BASIS IN THE SECOND QUARTER AND THAT SHOULD BE THE WORST AND THEN WE PROGRESSIVELY SEE BETTER COMPARISONS AND POSITIVE COMPARISON BY THE FOURTH QUARTER. INTERESTINGLY, THIS EARNINGS RECESSION HAS NOT BEEN ATTRIBUTABLE TO REVENUES. REVENUES FOR US -- FOR S&P 500 ARE AT RECORD HIGHS SO CLEARLY IT HAS BEEN THE PROPHET MODERN. THE PROFIT MARGIN HAS BEEN GETTING SQUEEZED THE PAST YEAR OR SO BUT I SEE SIGNS IN WEEKLY DATA THAT WE MONITOR, LOOKING AT FORWARD EARNINGS AND REVENUES THAT SUGGEST ANALYSTS ARE SEEING SIGNS REVENUES -- PROFIT MARGINS ARE BOTTOMING. TOM: I LOOK AT THE PAST AND IT IS SO EASY TO GO BACK AND DO SOME ANALOG 10 YEARS AGO OR 40 YEARS AGO. THE FACT IS WHEN WE FIRST NEW CAR DENNY AND CJ LORINCZ, YOU WERE TALKING ABOUT THE PUBLIC AN INDIVIDUAL STOCKS. NOW WE ARE OVERWHELMED WITH INDEX FUND INVESTMENT AND ETF INVESTMENT. HOW DOES THAT CHANGE THE DYNAMICS OF THE MARKET, OPTIMISTICALLY OR NEGATIVELY, GIVEN THE NEW INSTRUMENTS? EDWARD: IT IS FRUSTRATING FOR INDIVIDUAL INVESTORS AND CERTAINLY FOR INSTITUTIONAL INVESTORS THAT WE ARE TAUGHT DIVERSIFICATION IS AN IMPORTANT ASPECT OF MANAGING A PORTFOLIO. SUDDENLY WE HAVE THE MEGA CAP STOCKS THAT ACCOUNT FOR 27% OF THE S&P 500. SO IF YOU DO NOT HAVE 27% OF YOUR PORTFOLIO IN STOCKS, YOU HAVE BEEN UNDERPERFORMING. IT IS A LOT OF PRESSURE TO PLAY THAT GAME, TO CONTINUE TO BUY INTO THAT GROUP OF STOCKS. BUT IT IS WHAT IT IS. THESE ARE GREAT COMPANIES, AND I THINK IT ALL STARTED WHEN FACEBOOK REALIZED THEIR STOCK WAS GETTING THE HAMMER AND SAID WE CAN SHOW EVERYBODY HOW MUCH WE MAKE, WE JUST GOT TO CUT OUR EXPENSES AND THAT IS EASY ENOUGH AND THAT IS WHAT A LOT DID. THEN THE AI THING? -- THING -- JONATHAN: WHAT IS THE NEXT THING FOR CORPORATE AMERICA TO PERFORM? EDWARD: I FOCUS ON LONGER-TERM THEMES. MY THEME IS THE ROARING 20 20'S -- 2020'S. I THINK TECHNOLOGICAL INNOVATION WILL BE DIFFERENT. TOM: THE PANDEMIC OF 1918 AND 1919, RIGHT INTO THE ROARING 20'S. JONATHAN: YOU COINED THE TERM BOND VIGILANTES. CAN YOU OFFER YOUR ANALYSIS ON THE BOND MARKET? TREASURIES SPECIFICALLY. EDWARD: IT'S INTERESTING HOW WELL THE BOND MARKET HAS BEEN DOING IN AN ENVIRONMENT WHERE THE FED IS RAISING SHORT-TERM INTEREST RATES AGGRESSIVELY AND AN ENVIRONMENT WHERE WE HAVE QUANTITY -- QUANTITATIVE TIGHTENING. THERE HAS BEEN A TREMENDOUS DEMAND FOR BONDS. I THINK A LOT OF IT IS THERE IS A TREMENDOUS AMOUNT OF LIQUIDITY OUT STILL. I KNOW PEOPLE HAVE FOCUSED ON M2 AND HAD A DO MIST SCENARIO BECAUSE M2 HAS BEEN DECLINING BUT M2 IS ABOUT $1 TRILLION ABOVE ITS PRE-PANDEMIC TRENDLINE . THE MAIN DEPOSITS ARE ALSO SOMETHING -- MORE THAN THAT. M2 HAS NEVER BEEN MORE LIQUID. JONATHAN: IS THERE ANY OBVIOUS RELATIONSHIP OF THE MOMENT BETWEEN HOW TREASURIES PERFORMED AND WHEN -- AND WHAT EQUITIES HAVE BEEN DOING? EDWARD: YEP. JONATHAN: WHAT IS IT? EDWARD: LAST YEAR THEY WERE BOTH DOING HORRIBLY. IT WAS SOMETHING WE HAD NOT SEEN IN QUITE SOME TIME. NOW I THINK BOTH ASSET CLASSES HAVE DONE QUITE WELL. THE BONDS HAVE NOT REALLY HURT YOU. I'M LOOKING AT THE BONDS -- I THINK THE BONDS PEAKED AT 4.2% ON OCTOBER 24 I WOULD BELIEVE LAST YEAR. A LOT OF GOOD THINGS HAPPENED OCTOBER OF LAST YEAR SO I THINK THE BONDS ARE OK AND I THINK STOCKS STILL HAVE UPSIDE, ESPECIALLY IN THE LAGGARDS LIKE FINANCIALS AND INDUSTRIALS. JONATHAN: SO EVEN IF THE FED STICKS AT SAY 5.5%, THIS EQUITY MARKET IS OK? EDWARD: THE FED HAS BEEN TELLING A DIFFERENT STORY WHEN IT COMES TO INDIVIDUAL FED OFFICIALS TALKING. THEY HAVE BEEN AWFULLY HAWKISH. WHEN THEY GET TOGETHER AND PUT TOGETHER THE SUMMARY OF ECONOMIC REJECTIONS -- PROJECTIONS, THEY HAVE BEEN REASONABLE, SAYING WE WANT TO GET IT TO A RESTRICTIVE LEVEL. I THINK THEY ARE THERE. THE BANKING CRISIS DEMONSTRATED THEY ARE THERE. I THINK THEY WANT TO KEEP IT THERE. I WAS NEVER IN THE CAMP THAT THOUGHT THE FED WOULD LOWER INTEREST RATES. I TOOK THEM AT THEIR WORD. I THINK THEY COULD DECLARE MISSION ACCOMPLISHED SO IT IS BETTER THEY DON'T DO THAT AND THEY CONTINUE TO TALK HAWKISH. TOM: DO YOU THINK THEY COULD TAKE A VICTORY LAP? EDWARD: VICTORY LAPS ARE CHANGES -- JYNXES. TOM: THAT WAS OUR THEME. YOU WEREN'T HERE, THEY WERE BUSTING MY CHOPS ABOUT VICTORY LAPS. JONATHAN: I WOULD CALL THIS A VICTORY LAP FOR YOU. EDWARD: DON'T DO THAT. JONATHAN: THANK YOU, SIR. EDWARD YARDENI FROM YOUR DENNY RESEARCH. WELCOME TO THE PROGRAM. EQUITY FUTURES -- YARDENI RESEARCH. WELCOME TO THE PROGRAM. EQUITY FUTURES UP. APOLLO, WE TALK ABOUT THE PPI DATA AROUND THE CORNER. TOM: THOROUGHLY IMPORTANT CONVERSATION. HE HAS ADDED HUGE VALUE NOT ONLY WITH HIS TIME IN DORTCH A BANK BUT ALSO 8:00 EVERY DAY HE COMES OUT WITH AN INSIGHT SINGLE CHART, ONE IDEA FROM HUGE COMPENDIUM OF RESEARCH. JONATHAN: I LOVE TO RESEARCH. THE FOCUS AS WE HAVE BEEN TALKING ABOUT, LONG AND VARIABLE LAGS. THAT HAS BEEN THE FOCUS THE LAST COUPLE DAYS. LISA: HE HAS BEEN TALKING ABOUT SOFT LANDING AND MOVE TO RECESSION OF THE MOST LIKELY SCENARIO BECAUSE 12 AND 18 MONTH LAGS WHICH HE SAYS WILL HIT THE MARKET. AT SOME POINT THE NEAR FUTURE. JONATHAN: WOULD YOU LIKE ME TO TALK ABOUT AIRLINES? LISA: I WOULD LOVE TO. JONATHAN: I'M HAPPY TO. WE CAN TALK ABOUT DELTA, UNITED, AMERICAN, AND LISA WILL GIVE US A RUN AT DELTA AIRLINES AND HOW SHE FEELS. [LAUGHTER] HOW SHE FEELS ABOUT TRANSFERRING. LISA: THAT WAS A THING. TOM: I SAW ONE OF THE FLIGHT TRACK TWEET THINGS, ONE OF THE BUSIEST DAYS SINCE TIME BEGAN. THEY CAN COUNT IT. JONATHAN: EVERY SUMMER, SAME THING, AIRPORTS. TOM: BUT THIS IS WORSE. JONATHAN: PEOPLE LIVE BLOGGING THE WEATHER. HAVE YOU NOTICED THAT TOO? LISA: YES. JONATHAN: LIVE BLOGGING SUMMER. >> WE ARE SEEING DISINFLATION EVERYWHERE. WE ARE SEEING DECELERATION AND DISINFLATION IN THE U.S. ECONOMY. PLENTY OF SIGNS OF INFLATION FADING AWAY AND THE FRUSTRATION IS SEEING THE FEDERAL RESERVE TIGHTEN TO FIGHT A BATTLE IT HAS ALREADY ONE. JONATHAN: DAVID KELLY, GLOBAL STRATEGIST, CHIEF GLOBAL STRATEGIST AT JP MORGAN ON THE LATEST INFLATION DATA. THE FEDERAL RESERVE SET TO HAG -- HIKE INTEREST RATES AGAIN AT THE END OF THIS MONTH, TWO WEEKS FROM YESTERDAY. EQUITY IS UP ON THE S&P 500. EQUITY SO FAR SO GOOD. PEPSICO BETA DELTA AND OTHERS. LISA AND I MENTIONED THIS QUOTE FROM THE CEO AND WE CAN DO IT AGAIN, SPEAKING TO BLOOMBERG IN AN INTERVIEW, SIGNIFICANT GROWTH AHEAD, DISCRETIONARY SPENDING FLYING, THE NUMBER ONE PRIORITY FOR DISCRETIONARY SPENDING. TOM: ONE OF THIS IS LIKE A HAULING BACKER THING BUT THE IDEA THAT REGULAR TRAVELERS, MIA MORTALS LIKE LISA ABRAMOWICZ ARE TAKING THE BUSINESS CLASS SEATS -- MERE MORTALS LIKE LISA ABRAMOWICZ ARE TAKING THE BUSINESS CLASS SEATS. IT IS AN INTERESTING DYNAMIC RIGHT NOW. WE WILL DIVE INTO -- LISA: I'M NOT IN BUSINESS CLASS. CARRY ON. TOM: WE WILL DIVE IN WITH GEORGE FERGUSON AT BLOOMBERG INTELLIGENCE. I PUT HIM IN THE CATEGORY WITH DECADES AND DECADES OF EXPERIENCE ON THIS. GEORGE, I HAVE NEVER ASKED THIS QUESTION ON AIR BUT I THINK IT IS ON THE MIND OF EVERYONE, WE ARE JAMMED, AT CAPACITY. YOU SIT ON THE RUNWAY, THE WHOLE THING. FROM WHERE YOU SAID, IS THERE AN INTEGRITY WITHIN AMERICAN AVIATION WHERE GEORGE FERGUSON CAN SAY IT IS SAFE TO FLY? GEORGE: I THINK I CAN SAY IT IS SAFE TO FLY. I THINK IT IS WELL REGULATED INDUSTRY, THE PEOPLE CARE A LOT ABOUT SAFETY, THE ACCENT LEVELS HAVE DIMINISHED TO NOTHING IN THE U.S. FROM A COUPLE YEARS, BACK IN THE 1980'S. I THINK IT IS SAFE TO FLY. TOM: IF THERE IS AN ALGEBRAIC EQUATION, IT HAS FOUR TO SEVEN GEORGE FERGUSON FACTORS IN IT. WHICH IS THE FACTOR THAT ALLOWS FOR GROWTH, GIVEN POPULATION GROWTH, GIVEN PROSPERITY IN AMERICA? WE NEED MORE GATES, WE NEED MORE PLANES, WE NEED MORE FLIGHT ATTENDANTS. WHICH IS THE FACTOR THAT MATTERS? GEORGE: I THINK WE NEED MORE PILOTS. EMPLOYEES ARE DEFTLY A PROBLEM BUT I THINK LONGER TERM, TRAINING UP ISLANDS, BRINGING THEM TO THE INDUSTRY, I THINK IT IS A CHALLENGE THAT WILL OVERHANG FOR A NUMBER OF YEARS. WE HAVE A LOT OF RETIREMENTS COMING UP. I THINK THE AIRLINES HAVE TO BE THINKING ABOUT THAT. LISA: JOHN QUOTED AT BASTION OF DELTA AND SAID THE NUMBER ONE THING PEOPLE ARE USING, THE DIGIT -- USING DISCRETION A FUNDS ON HIS FLYING AROUND THE WORLD AND THIS COMES AFTER A TWO-YEAR HIATUS WHERE PEOPLE WERE HOMEBOUND. HOW LONG CAN THIS YOU ONLY LIVE ONCE THE YIELD LOW OF THE CONSUMER BOTH IN AMERICA AND ELSEWHERE CONTINUE? GEORGE: THAT IS THE BIG QUESTION WE HAVE. WHEN YOU LOOK AT DELTA EARNINGS, QUITE STRONG, BACK TO 2019 LEVELS OF PROFITABILITY. YOU LOOK AT WHAT THEY HAVE GOT IN Q2, SIMILAR CORRIDOR, LEISURE IS LEADING THE RECOVERY HERE. BUSINESS NOT BACK YET. I THINK THEY ARE SELLING BUSINESS CLASS SEATS AT A BIT LESS THAN WHAT THEY WERE SELLING THEM FOR IN 2019. EUROPE WAS REALLY STRONG AND THIS IS THE SUMMER WHERE EVERYBODY WENT, I HAVE NOT BEEN TO EUROPE IN THREE TO FOUR YEARS, I GOTTA GET BACK AND I WILL PAY WHATEVER IT TAKES TO GET THERE. I DO NOT KNOW THAT WE GET THIS NEXT YEAR. I DON'T KNOW WHAT THIS LEISURE BOUNCE PERSISTS, ESPECIALLY IF THIS PERSISTS INTO THE EFFECT OF HIGHER INTEREST RATES, IF THE ECONOMY SLOWS. THAT IS A CHALLENGE I THINK WE HAVE. LISA: HAVE THESE AIRLINE COMPANY SHORT OF THE BALANCE SHEETS EFFICIENTLY -- SUFFICIENTLY THAT AMERICAN TRAVELERS LOOK AT THE CROSSCURRENTS OF THE DOLLAR AND EURO AND WHERE THE EURO IS AN POTENTIALLY STRENGTHENING VERSUS THE DOLLAR AND SAY WE WILL NOT GO TO EUROPE AND THEY WILL NOT BUY THE TICKETS? GEORGE: SO I DON'T THINK THEY HAVE DONE IT YET. BUT WE DID SEE A DEBT PAYDOWN IN THE LAST QUARTER BY DELTA. THEY ARE USING THEIR CASH TO TRY TO GET THEIR BALANCE SHEETS BACK TO SQUARED AWAY BUT THEY ARE NOT THERE YET BUT WORKING ON IT. LISA: WE'VE ALSO SEEN COST COME IN QUITE A BIT, OIL PRICES DOWN 24% YEAR OVER YEAR AND THEY HAVE CREATED EFFICIENCIES IN PLACES LIKE SNACKS AND BAGS AND BASICALLY SPACE. I WILL NOT GO THERE. I'M NOT A PURVEYOR FREQUENTLY OF THE BOOZE OFFERINGS ON THE FLIGHT BUT I'M CURIOUS FROM YOUR VANTAGE POINT HOW MUCH FURTHER THEY CAN SQUEEZE THE CONSUMER BEFORE THEY PUSH BACK AND SAY I NEED MORE LEGROOM THAN AN. GEORGE: I THINK IT HAS ALREADY STARTED. WE SAW FED DATA THAT COMES OUT THE CHOSE FARES DOWN A PERCENT. I THINK CONSUMERS ARE STARTING TO LOOK FOR LOWER FARES. THE DID MASTIC YIELDS FROM DELTA FOR THIS EARNINGS SEASON GREW BY NOTHING. -- NOTHING BY LAST YEAR. ON THE DOMESTIC MARKET, I THINK THE CONSUMER IS STARTING TO PUSH BACK A LITTLE BIT AND IF THE ECONOMY TIGHTENS, THAT WILL CONTINUE. TOM: WE BOOKED YOU ONLY FOR THERAPY FOR LISA. [LAUGHTER] DR. GEORGE. FOR THOSE OF YOU JOINING US ON RADIO AND TV, DR. GEORGE IS WITH US FROM BLOOMBERG INTELLIGENCE HERE ON TERMINAL C. JONATHAN: FINAL WORD FOR ME ON INTERNATIONAL, DO YOU GET THE SENSE FIRST CLASS IS COMING TO AN END? GEORGE: YEAH. WE HAVE DONE ANALYSIS ON FARES AND FIRST HAS DONE OK, BUT I THINK NOT THE FARES ARE NOT AS GOOD AS THEY WERE WHEN BUSINESS WAS TRAVELING MORE. SO I THINK YOU GET A BIT OF UPSELL FOR LEISURE THAT IS NOT QUITE AS GOOD AS BUSINESS. IF THE ECONOMY GETS SOFTER, THAT CAN BE HARDER AND I THINK IT WILL. TOM: ONE FINAL QUESTION, IS BOEING, HAVE THEY LOST THEIR GAME? HAVE THEY LOST THEIR STEP? GEORGE: I THINK THAT'S A NICE -- I THINK THEY HAD NICE DELIVERY NUMBERS FOR THE QUARTER AND FOR THE MONTH OF JUNE. IT HAS TAKEN THEM A LITTLE LONGER TO GET THEIR MOJO BACK. THEY WENT INTO THE DOWNTURN WITH MAX GROUND IN THOSE DIFFICULTIES. I THINK THEY ARE STILL A GREAT COMPANY, JUST TAKE A LITTLE MORE TIME TO GET BACK. TOM: THIS IS FASCINATING. I THINK YOU KNOW IT IS AN AIRBUS MARKET. JONATHAN: ONE FINAL -- I'M JOKING. GEORGE, WE ARE OUT OF TIME. GREAT TO CATCH YOU ON BOEING AND THE AIRLINES. YOU KNOW WHAT BUGS ME? STATUS AT AIRLINES. I DON'T THINK YOU SHOULD BE ABLE TO ACQUIRE STATUS THROUGH SPENDING MONEY ON CREDIT CARDS. YOU CAN ACQUIRE POINTS BUT I DON'T THINK YOU SHOULD ACQUIRE STATUS. I THINK YOU SHOULD ACQUIRE STATUS -- TOM: WHAT DO MEAN? LISA: DIAMOND, PLATINUM, ETC.. JONATHAN: PRIORITY FOR BOARDING, THAT SHOULD BE ACQUIRED THROUGH FLIGHTS. V.A. DOES THIS. YOU GET AT VOC THROUGH SPENDING ON CREDIT CARDS IF YOU WANT TO, TEAR POINTS FLYING EXCLUSIVELY. LISA: WHICH IS THE REASON WHY THE THRESHOLD FOR PEOPLE WHEN THEY FLY GETS HIGHER AND HIGHER FORGETTING STATUS BECAUSE ALL THE PEOPLE COMING IN THROUGH SPENDING ON THE AMERICAN EXPRESS CARDS OR WHATEVER ELSE OR DELTA, WHATEVER CARDS GET IT IN FOR FREE AND THEN IT IS CROWDED AND YOU WAIT IN LINE. JONATHAN: SOME OF THE PEOPLE LISTENING TO THIS RIGHT NOW KNOW EXACTLY WHAT I'M TALKING ABOUT. THE LOUNGES ARE PACKED. PACKET IN -- PACK IT IN. TOM: A LEADING AVIATION CEO VOICE EXACTLY WHAT YOU SAID AND HE TOLD ME THIS IS HIS SINGLE BIGGEST HEADACHE. JONATHAN: WE TALKED ABOUT DELTA AT JFK, THERE IS A LINE AROUND THE CORNER. I DON'T EVEN USE THESE LOUNGES WHEN I TRAVEL FOR WORK. TOM: I DON'T EITHER. LISA: THEN THERE IS LIKE A TIERING OF THE TIERED. TALK ABOUT A HIERARCHAL SOCIETY. JONATHAN: JFK. LISA: THAT IS WHAT YOU SAY. YOU HAVE COMFORT PLUS AND THEN THE PEOPLE WHO GET PRIORITY ACCESS TO THE LOUNGES AND OTHERS HAVE TO WAIT IN LINE. TOM: HERE'S THE REALITY, WHY ARE YOU HAVING DINNER AT FORT NEWMAN MASON AND I SAID IT WAS EQUAL DISTANCE BETWEEN THE STORES SO I CAN KILL THREE BIRDS WITH ONE STONE. IT IS REALLY GOOD. IT IS A BRITISH THING, THEY HAVE TEA. TED LASSO DOESN'T EAT THERE. JONATHAN: I HAD SCRAMBLED EGGS. I'M WITH YOU TOO. TOM: "BLOOMBERG SURVEILLANCE," JONATHAN FERRO, LISA ABRAMOWICZ, AND TOM KEENE. MR. FERRO IS OFF WITH THE VICTORY LAB. FULL DISCLOSURE, I HAVE IGNORED PPI BECAUSE IT USED TO BE A BIG DEAL AND THEN IT WAS NOT A BIG DEAL. ALL OF A SUDDEN IT IS A BIG DEAL. LISA: I THINK THIS WILL BE REALLY IMPORTANT, ESPECIALLY GIVEN YESTERDAY, TO CONFIRM WHAT WE SAW YESTERDAY AND ON A MORE GRANULAR BASIS I HAD OF EARNINGS, DO WE SEE PPI COMING IN MORE THAN CPI? THAT REALLY IS WHAT REMAINS TO BE SEEN. TOM: LET'S GO TO MICHAEL MCKEE MCKEE IN IDAHO WITH AN UNNAMED ECONOMIST CATCHING TROUT. WHAT DO YOU SEE? MICHAEL: WE ARE WAITING FOR JOBLESS CLAIMS BUT WITH PPI WE SEE A BETTER-THAN-EXPECTED NUMBER LIKE WITH CPI YESTERDAY. FINAL DEMAND MONTH OVER MONTH ONLY UP WENT 1%. IT WAS FORECASTED TO BE UP .2%. THE FOOD AND ENERGY UP .1%. X FOOD AND ENERGY, WHICH IS WHAT WE LOOK AT AT THE CORE NUMBER FOR PPI, UP ONLY .1% AS WELL. YEAR-OVER-YEAR BASIS, HEADLINE PPI IS UP 2.4 PERCENT. GETTING CLOSE TO THE FED LEVEL. THE CORE 2.6%. MORE GOOD NEWS. THERE WAS SOME THOUGHT WE MIGHT SEE A NEGATIVE PRINT WITH PPI THIS TIME BUT NOT YET. JOBLESS CLAIMS COME IN LOWER THAN THEY HAVE BEEN, WHICH IS ANOTHER SURPRISE. 237,000 AFTER 249,000 THE WEEK BEFORE. SO ONLY RAISED BY 1000. JOBLESS CLAIMS CONTINUED TO SHOW THE LABOR MARKET STRENGTH. THE NUMBER OF PEOPLE CONTINUING CLAIMS, 1,729,000, THAT IS ONLY SLIGHTLY UP FROM 1,000,718 THE WEEK BEFORE. WE ARE NOT SEEING LAYOFFS TO ANY GREAT EXTENT OR PRICES ARISING THROUGH ANY GREAT EXTENT. THAT RAISES THE QUESTION OF SOFT LANDING AND HOW MANY MORE TIMES THE FED DOES FEEL IT NEEDS TO RAISE INTEREST RATES. TOM: TAKE A LOOK TO -- TAKE A SECOND TO LOOK AT THE DATA. THE NASDAQ 100, WATCHING MORE THAN ANYTHING, A .7% ON THE TECH ROULETTE WHEEL. 15,552. SPX 16 POINTS AND CRITICALLY THE VIX WILL BE -- VIX, WILL WE MAKE A -- FOR 12? 13.44 FROM A 15 LEVEL, 48 HOURS AGO. TWO YEAR YIELD COMES IN NINE BASIS POINTS, 4.66 PERCENT. I WANT TO MAKE NOTE OF THE REAL YIELD, 1.56 PERCENT. BRENT CRUDE ABOVE 80 AND THE NUMBER ONE THING I WOULD LOOK AT IS THE DXY INDEX TO SEE DXY BREAKTHROUGH 100 I THINK WOULD BE EXTRAORDINARY. ONE MORE OBSERVATION QUICKLY, WHAT ELSE DO YOU SEE? MICHAEL: THE ONLY REAL NEWS OF THE PPI IS DEBTS RISE FOR SERVICES THERE WAS NO CHANGE IN GOODS PRICES. WE HAD SEEN GOODS VERSUS SERVICES TURNAROUND A COUPLE MONTHS AGO AND GOODS PRICES STARTED RISING FASTER BUT THEY HAVE FLATTENED AGAIN. LOOKS LIKE THE TRAJECTORY IS GOOD AND I KNOW YOU WILL TALK ABOUT THIS WITH TORSTEN BUT PPI DOES NOT HAVE A DIRECT RELATIONSHIP WITH CPI BUT OVERALL THE INFLATION NEWS IS GOOD RIGHT NOW. TOM: THANK YOU SO MUCH. REPORTING FROM VICTOR, IDAHO. WE BUST HIS CHOPS BUT THIS IS A WONDERFUL ECONOMIC CONFERENCE PRECURSOR TO JACKSON HOLE THAT HAS HUGE VALUE, GREAT ATTENDANCE AS WELL, JUST BEGINNING TO THINK ABOUT THEORIES OF THE MOMENT AND THEORIES FORWARD. THAT HAS BEEN THE EXPERTISE OF DEUTSCHE BANK FEARS. HE IS CHIEF ECONOMIST AT RISING APOLLO. THANK YOU FOR JOINING THIS MORNING. WHAT IS THE OPERATIVE THEORY FOR FED. LET'S SAY THEY ARE RESTRICTIVE AND SOME WAS A SUPER RESTRICTIVE. UNDERLYING THAT IS A NEED TO TURN AT SOME POINT. WHAT IS THE THEORY THEY HAVE NOW TO GET READY TO TURN OUT QUARTERS MEETINGS? >> I THINK THAT'S A GOOD QUESTION. IT IS ALL ABOUT THE DOORMAN STATE -- MANDATE. FOR A LONG TIME THEY HAVE BEEN FOCUSING ABOUT THE INFLATION PART OF THE DUAL MANDATE BECAUSE IT WAS CLEAR INFLATION WAS AND STILL IS AT LEVELS TO HYPER COMFORT. I THINK THE NARRATIVE -- NARRATIVE FOR THE FED AND MARKETS WILL CHANGE TOWARD GROWTH OR EMPLOYMENT. IN OTHER WORDS, WHAT ARE THE REASONS WHY WE ARE STILL HAVING THE STRONG ECONOMY AND IF THE LEG EFFECT OF MONETARY POLICY WHERE THEY TAKE 12 TO 18 MONTHS TO SLOW THE ECONOMY DOWN, WILL THE LAGGED EFFECTS AFFECT HIKES? WILL EVENTUALLY SLOW THINGS DOWN? WE SEE THAT ACROSS ALL INDICATORS AND SHOULD EXPECT THAT TO HAPPEN WITHIN THE COMING QUARTER. LISA: HOW DO YOU EXPLAIN JOBLESS CLAIMS LOWER THAN EXPECTED? HOW DO YOU EXPLAIN OTHER METRICS OF WAGE GROWTH CONTINUING TO REMAIN ROBUST? TORSTEN: THERE IS STILL A STRONG LABOR MARKET. AVERAGE OUR EARNINGS WENT UP AND JOBLESS CLAIMS LOOKING RELATIVELY TIGHT. WE CERTAINLY GET THE FED TO SAY WE STILL NEED TO HIGH GRADES MORE AND STILL TIGHTER MONETARY POLICY IS NEEDED. LISA: IF YOU SEE COMPANIES, WHETHER DELTA PEPSI -- DELTA, PEPSI, THE OTHER SEEING PROFIT MARGINS EXPAND WITHIN PUT PRICES COMING DOWN MORE THAN WHAT THEY CAN CHARGE CONSUMERS, YOU HAVE PEOPLE EMPLOYED, AT ONE POINT DOES IT BECOME A VIRTUOUS CYCLE THAT OFFSETS PAIN OF THOSE RATE HIKES? TORSTEN: ALSO AT THIS POINT, THE HOUSING MARKET IS BEGINNING TO RECOVER. PERSPECTIVE BUYS ARE GOING UP. EXISTING HOME SALES ARE GOING UP, HOMEBUYER CONFIDENCE, EVEN PROPERTIES GOING UP. BIDDING WARS IS COMING BACK IN HOUSING MAKES UP 40% OF THE CPI. IF YOU START WITH CORE CPI WHICH WAS 4.8, THAT IS WAY TOO HIGH. THAT IS WHY FOR THEM IT IS STILL THE HAWKISH COMMUNICATION SAYING BOTH ON THE INFLATION SIDE AND GROWTH SIDE, ON EMPLOYMENT SIDE OF THE DUAL MANDATE, WE'VE GOT TO KEEP MAKING SURE WE DO NOT HAVE AN ECONOMY THAT CONTINUES TO LOOK OVERHEATED. TOM: I WANT TO LOOK AT THE LARGER OPTIMIST STANDPOINT. THE AMERICAS FULLY EMPLOYED. THIS IS OFF THE JOB SUPPORT FIVE TO SIX DAYS AGO. THE EMPLOYMENT COMPARED TO POPULATION RATIO OF PRIME AGE PEOPLE IN AMERICA. A FULL RECOVERY MODE LITERALLY BACK ON REGRESSION, BACK ON TREND. THAT HAS TO BE THE MOST OPTIMISTIC CHART FROM POLITICIANS IN AMERICA. TORSTEN: THAT IS WHY THE DEBATE FOR THE FED IS PROBABLY, DO WE NEED TO SOFTEN THE LABOR MARKET? DIFFERENT FOMC MEMBERS ARE PUTTING DIFFERENT WEIGHT ON THIS. WE NEED TO SOFTEN THE LABOR MARKET TO GET INFLATION TO COME DOWN? INFLATION TODAY, CORE CPI WAS 4.8%. WE ARE NOWHERE NEAR THE 2% TARGET, WHERE THEY WANT IT TO BE. OF COURSE THEY WILL CONTINUE TO SAY WE JUST GOTTA KEEP GOING. BECAUSE WE HAVE WAY TOO HIGH INFLATION. LISA: ONE LESS UNDERSTOOD ASPECT OF FED POLICY IS NOT JUST WHAT HAPPENS WHEN YOU RAISE RATES AT THE PACE THEY HAVE BUT WHAT HAPPENS WHEN YOU HOLD THEM FOR A PROLONGED -- A PROLONGED PERIOD OF TIME, EVEN AS COMPANIES HAVE REFINANCED AND ARE NOT CAPTURING THE HIGHER YIELDS CHARGED OUT THERE BY INVESTORS. WIND THAT BITE? WHEN DOES THAT BITE? WHEN DID THAT SCENARIO CHANGE? TORSTEN: THIS IS EXACTLY THE CRYSTALLIZATION OF THE TRANSMISSION MECHANISM FOR MONETARY POLICY. WHERE IS IT SHOWING UP? THE ANSWER IS IT IS SHOWING IN A NUMBER OF PLACES. YOU ARE SEEING THE LINK WAS HE RATES FALL, AUTO LOANS GOING UP, THE LINK WOULD SEE RATES FOR CREDIT CARDS GOING UP, DEFAULT RATES FALL, CORPORATE ON HIGH-YIELD GOING UP. LOANS ALSO SEE DEFAULT RATES GOING UP. ACROSS THE BOARD, FOR CONSUMERS AND CORPORATE, THE CONCLUSION IS DEFAULT CYCLE HAS STARTED. IT IS BITING, JUST NOT SHOWING UP AT THE MACRO LEVEL YET. IT IS CLEAR MONETARY POLICY IS SHOWING IN THE BACKGROUND AND IT WILL TO SLOW THINGS DOWN -- WILL BEGIN TO SLOW THINGS DOWN. TOM: THE CORE OF AMERICA, THE SUCCESS OF A DECADE, 2010 OFF THE TERRIBLE FINANCIAL CRISIS, MOVING 75% EMPLOYED UP TO 80% EMPLOYED, GRANTED THERE ARE A LOT OF PEOPLE NOT IN THE NUMBER. A PANDEMIC THAT WAS WORSE THAN THE FINANCIAL CRISIS, WE HAVE REBOUNDED BACK AND BURST THROUGH WHERE WE WERE IN THE AUTUMN OF 2019. IT IS A FULLY EMPLOYED AMERICA, OF THE PEOPLE EMPLOYABLE. LISA: THIS BECOME SORT OF THE QUESTION, WHAT COULD CHANGE THAT SCENARIO? WHICH IS WHY I'M WONDERING ABOUT TRANSMISSION MECHANISM. IF YOU DO NOT SEE THAT, YOU SAY WE SEE A DEFAULT CYCLE THAT IS STARTING, HOWEVER AT THE SAME TIME, SOME OF THE COMPANIES WERE SORT OF DESTINED TO DEFAULT A WHILE BACK AND ARE BEING WASHED OUT. WHAT DO YOU SEE THIS CYCLE LOOKING LIKE EVENTUALLY? WHEN YOU SEE SOME LIGHT EFFECTS TAKING EFFECT? TORSTEN: ONE WAY TO DO THAT IS ON THE BLOOMBERG SCREEN TO TYPE SHOK. WHAT IS THE PROFILE FOR JP OVER THE NEXT SEVERAL YEARS IF YOU RAISE THE FED FUNDS RATE BY FIVE PERCENTAGE POINTS IN A SHORT PERIOD OF TIME? THE ANSWER IS IT TAKES THREE TO FIVE QUARTERS BEFORE YOU GET THE MAXIMUM IMPACT. LET'S TALK ABOUT THIS AS WHAT HAPPENED TO THE LAGGED EFFECTS OF MONETARY POLICY. INFLATION IS COMING DOWN BUT WHAT ABOUT GROWTH? I THINK THE NARRATIVE WILL SHIFT AWAY FROM INFLATION LOOKS BETTER AND THE TREND IS BETTER, WE ARE AT A HIGH LEVEL. WHAT ABOUT THIS IDEA WHEN WE STEP ON THE BRAKES YOU WILL SEE MONETARY POLICY HAVING A NEGATIVE IMPACT ON CONSUMPTION AND CAPEX SPENDING? THAT IS WHAT WE ARE SEEING, SMALL RETAIL SALES COMING DOWN, CAPEX SPENDING GOING DOWN, DYLAN QUITS RATES GOING UP. IT IS BEGINNING TO BITE IN THE BACKGROUND SO WE STILL EXPECT TO SEE OVER THE NEXT SEVERAL QUARTERS A CONTINUED SLOWDOWN. THIS IS WHAT THE FED WANTS, THE REASON THEY RAISE INTEREST RATES TO GET THE ECONOMY TO CONTINUE TO SLOW TOM: I HAVE 14 WAYS TO GO IN OUR TO OUR CONVERSATION. I'VE GOT TO DRIVE TOWARDS THE ARCH OVERLAY, WHICH YOU THINK ABOUT IT AT APOLLO AND I GO TO PAUL ROMER, THE GREAT ECONOMIST, INKING ABOUT TECHNOLOGY. ARE WE FOOLING OURSELVES AND THERE IS A TECHNOLOGICAL OVERLAY? WHERE THE HAVES OF ALL INCOMES ARE BENEFITING FROM TECHNOLOGY? THAT THERE'S ANOTHER PART OF SOCIETY NOT PARTICIPATING? TORSTEN: ON THE AI FRONT, IT IS SOMETHING MORE HAPPENING IN FINANCIAL MARKETS THEN IN THE REAL ECONOMY. TOM: WHAT ABOUT THE REAL ECONOMY? I THINK ABOUT GERMANY FLAT ON ITS BACK. TORSTEN: BOTTOM LINE IS THE EUROPEANS ARE DEFINITELY EXPERIENCING HEADWINDS AS A RESULT OF THE AI BOOM WE ARE SEEING IN THE U.S.. UNFORTUNATELY, WE ARE NOT QUITE SEEING THAT IN THE PRODUCTIVITY DATA AS WE SPEAK. OVER TIME THIS WILL BE SOMETHING THAT HELPS. I DO NOT THINK THIS MATTERS FOR THE BUSINESS SIDE OF THE NEAR TERM AND FED BUT I THINK IT DOES MATTER FOR DISCUSSIONS ABOUT POTENTIAL GROWTH RATE OF THE U.S. ECONOMY. LISA: YOU WERE TALKING ABOUT HOW, AS INFLATION COMES DOWN, THAT IS WHEN YOU SEE REVENUES COME DOWN. IS THIS THE UNSPOKEN REALITY THAT INFLATION WAS POSITIVE FOR COMPANIES INCREASING THE REVENUES AND ALLOWED THE GROWTH? TORSTEN: ABSOLUTELY. IT IS NOT ONLY ABOUT OUTPUT PRICES, ALSO IN PUT PRICES. THINGS THAT ARE SOLD WHEN HIGHER INFLATION COULD HAVE PROFIT MARGINS. BUT THE COST OF PRODUCTION WAS ALSO ELEVATED. IF THAT COMES DOWN, IT IS NOT ONLY HELPING AND LOWER COST OF PRODUCTION, IT WILL SQUEEZE MARGINS. TOM: WHAT WE WILL DO IS A DATA CHECK. WE HAVE MARKETS ON THE MOVE AFTER WHAT WE SAW WITH LISA ABRAMOWICZ PPI. WE WILL KEEP TORSTEN SLOK WITH US, THIS CONVERSATION. FUTURES LIKING IT OUT, NICELY UP 15, NASDAQ FUTURES UP .7% HAVE A LIFE OF THEIR OWN. EXPLAIN THAT. YIELDS COME IN CONSTRUCTIVELY AND STEPHEN ENGLANDER SAID FROM STANDARD CHARTERED BANK THERE SEEMS TO BE A GAME CHANGING TONE TO THE MARKET. BRENT CRUDE $80 AND I'M WATCHING DXY. FOR DXY TO BREAK UNDER 100 WOULD BE A HUGE DEAL TODAY OF A WEAKER DOLLAR. THE PERCENT MOVE ON THE STANDARD & POOR'S UP .3%. LISA: I KEEP THINKING ABOUT WHAT TORSTEN SLOK SAID AND WE HEARD A SIMILAR DISCUSSION FROM TONY DWYER THAT WHEN REVENUES COME IN, THAT IS WHEN IT IS A GAME CHANGER. AND PERHAPS ONE OF THE MOST UNSTATED -- UNDERSTATED AND MISUNDERSTOOD ASPECTS OF INFLATION WAS HOW MUCH BOOSTED COMPANIES REVENUES. JONATHAN: YES -- TOM: YES. LISA: WHEN YOU SEE INFLATION COME IN AND REVENUES DON'T INCREASE AT THE SAME LEVELS, HOW MUCH DO SEE A RESETTING BACK TO A NORMAL TYPE? TOM: THIS IS WHERE YOU SEE THE PIONEER IN NEW YORK LIVE TO BE 104, WHATEVER. NOMINAL GDP IS THE GREAT GUESS RIGHT NOW, ISN'T IT? TORSTEN: ABSOLUTELY. EQUITIES TRADE ON NOMINAL DATA, BONDS, AND RATES TRADES ON REAL DATA. TOM: STOP THE SHOW. FRAME THAT'S, GIVE THAT TO EVERY SHOW THIS WEEK AREA DO IT AGAIN. NOMINAL GDP MATTERS. TORSTEN: BECAUSE WHAT MATTERS FOR A NOMINAL -- NUMBER ONE EARNINGS AND S&P 500, WHICH GREW 6% ANNUALLY THE LAST 40 YEARS, IS ABOUT NOMINAL VARIABLES AND NOMINAL REVENUE AND EVERYTHING IS MEASURED IN NOMINAL TERMS. YOU SHOULD EXPECT THE BOND MARKET TO LOOK AT THAT AND SAY THAT IS NOT FOR US, THAT IS EQUITIES. BOND MARKETS WILL SAY IT IS ABOUT WHAT IS HAPPENING ON THE REAL SIDE, THE VOLUME AND UNITS I. TOM: REALLY APPRECIATE THIS WITH APOLLO. PEOPLE GO TO ME, WHY ARE YOU TALKING LIKE THAT? WHY DOES MICHAEL DARTED TALK LIKE THAT? IT IS A NOMINAL WORLD OUT THERE IN THE CEO CORPORATE WORLD. LISA: WE USED TO THINK INFLATION WOULD BE BAD FOR STOCKS BECAUSE BOND YIELDS WENT UP AND IT TURNS OUT IT'S NOT. TOM: I HAD A NIGHTMARE. DO YOU THINK TORSTEN SLOK EVER HAD A CHEESE IT? [LAUGHTER] >> WE HAVE GREAT NEWS TODAY, THAT INFLATION HAS BEEN CUT BY TWO THIRDS, SO MY MESSAGE IS TAKE YES FOR AN ANSWER, CHAIR POWELL, AND LET'S STOP WITH RATE INCREASES, DONE. TOM: THE ECONOMIST ELIZABETH WARREN. AS I SAID EARLIER, HUGELY CAPABLE. WHATEVER YOUR POLITICS, WHICH MAY BE MONETARY THEORY BUT YOU THINK SHE IS LOOKING AT IT, THE TENSION BETWEEN ME AND JOHN ON THE VICTORY LAP AND WARREN IS GOING WOULD YOU LOOK AT THE FACTS PLEASE? LISA: LOVE IT. IT DONE, GUYS, THE ANSWER IS YES. TOM: MOVE ON. LISA: THAT SEEMS TO BE HER THEME. IF THIS DOES CONTINUE OR JOBLESS CLAIMS SHOW STRENGTH AND WE SEE DISINFLATION FOR NOW, WHEN DOES THAT CREATE CONCERN ABOUT STICKY INFLATION? TOM: I SAY TO THE FED I WILL GIVE THE MAJOR SLACK. THEY ARE BY DEFINITION EXPOSED, THEY ARE ALWAYS LATE ON TRANSITORY. WE HAVE A VENTURE'S -- A VERY INTERESTING FED SCHEDULE AND WE ARE IN LIKE FOUR PLACES FOR THIS. I THINK WE ARE COMING TO YOU ON THE SCHEDULE FROM LONDON AT SOME POINT. I THINK WE ARE COMING -- JOHN HAS NOVEMBER 1 FROM SOME ISLAND. WE HAVE THE FED DECIDES FROM SOME ISLAND NEAR CAPRI. I KNOW IT WILL BE EVENTFUL BUT FED MEETINGS WILL BE EXTRAORDINARY. WATCHING THAT WILL BE THE CHIEF U.S. INTEREST RATES STRATEGIST FOR BLOOMBERG INTELLIGENCE. WHAT BOND DATA DID YOU WATCH YESTERDAY WHEN WE SAW A GAME CHANGING REPORT? WHAT WAS THE THING THAT MOVED OR ELASTICITY OF MOVEMENT WHERE YOU SAID THAT SIGNALS IT? >> GIVEN WE HAD THE CPI DATA AND THAT AFFECTS THE TIPS MARKET, WE WERE LOOKING CLOSELY AT WHAT HAPPENED TO THE TREASURY INFLATION PROTECTED MARKET. THE TWO COMPONENTS OF IT. FIRSTLY, WHAT DID THE INFLATION EXPECTATIONS DO, WHICH DID NOT DO MUCH AT ALL, WHICH SURPRISED US A LITTLE BIT, BUT IMPORTANTLY, REAL YIELDS, THE YIELD ON THE ACTUAL TIPS IS DOWN A LOT AND THEY ARE CONTINUING THE RALLY THIS MORNING. IN PART, I THINK THAT IS AN ACKNOWLEDGMENT THE FEDERAL RESERVE IS NOT GOING TO GO THE 50 BASIS POINTS THAT THE. SAID AND CERTAINLY NOT AS FAR AS THE MARKET FEARED EARLIER IN THE WEEK. JONATHAN: FIVE YEAR REAL YIELD, SOMETHING FOLKS COMING BACK TO, MIDDLE JUNE LEVELS, IS HOW I PUT IT. I WILL STEER FROM LISA AND GO WHAT DOES THIS DO TO THE CORPORATE SPREAD MARKET? THE BIG THEME HAS BEEN FRANKLY CORPORATE SPREADS OUTFRONT INDICATED MORE OPTIMISM, THEY HAVE BEEN NARROW. WHAT DOES OTHER DEBT DUE OFF OF YOUR FULL FAITH IN CREDIT WORLD? IRA: I THINK INVESTMENT GRADE CORPORATE SPREADS I THINK IT WILL BECOME MUCH MORE IDIOSYNCRATIC THAN A LOT OF THE SPREAD MARKETS -- IN A LOT OF THE SPREAD MARKETS. IN PARTICULAR BECAUSE WHEN YOU HAVE THIS CONTRACTION OF CPI COMING DOWN BUT ALSO PRODUCER PRICES THAT CAME IN THIS MORNING NOT QUITE AS HIGH AS THE MARKET WAS EXPECTING, YOU COULD HAVE A BIT OF A CONTRACTION IN MARGINS FOR SOME FIRMS. THAT BEING SAID, CORPORATE BALANCE SHEETS ARE CLEANER THAN THEY HAVE BEEN OVER TIME. YOU'RE NOT GOING INTO THIS CRISIS AND THE SLOW DOWN THAT WE SEE IN THE ECONOMY THE SAME WAY SAY 2007 OR 2001 WHEN YOU HAD SIGNIFICANTLY MORE LEVERAGE IN BALANCE SHEETS, PARTICULARLY FOR BETTER RATED COMPANIES. LISA: WE WERE TALKING WITH TORSTEN SLOK OF APOLLO ABOUT THE LAG EFFECTS OF MONETARY POLICY AND HE WAS SAYING WE DO EXPECT TO SEE WEAKNESS DOWN THE LINE EVENTUALLY FROM THE FED RAISING RATES AS MUCH AS THEY DID. A VIEWER WROTE IN AND SAID WHY DO WE THINK MONETARY POLICY WORKS AT ALL IF THE FED IS HOLDING RATES AT ZERO FOR MORE THAN A DECADE, THINKING IT WOULD USE INFLATION AND IT DID NOT? IS THERE A POSSIBILITY TRANSMISSION MECHANISM -- THE TRANSMISSION MECHANISM IS BROKEN? IRA: I DON'T THINK IT IS BROKEN, I THINK IT IS CHANGED THAT THE LAG IS LONGER. WHEN YOU GO BACK TO THE 1980'S, 1990'S, AND TO THOUSANDS, YOU HAD SHORT-TERM DEBT HELD BY THE COMMERCIAL SECTOR AND BUSINESSES. YOU HAD THE BANKING SECTOR, A LOT OF PASTOR FROM MONETARY POLICY BECAUSE THEY FUNDED WITH PURCHASE AGREEMENT AND COMMERCIAL PAPER. TODAY THAT HAS BEEN TERMED OUT SIGNIFICANTLY I THINK THERE'S AN IMPACT MONETARY POLICY WILL HAVE. IT WAS JUST TAKE MUCH LONGER BECAUSE NOW YOU HAVE TO WAIT FOR THE HOUSING MARKET TO SLOW, WAIT FOR THE INTEREST RATES BEING HIGHER TO FEED THROUGH THE ECONOMY MORE, BECAUSE IN ORDER FOR CORPORATE-WEIGHTED AVERAGE CAPITAL TO GO UP, YOU HAVE TO WAIT FOR MORE DEBT TO MATURE AND THOSE MATURITIES ARE NOT AS -- THERE IS NO WALL OF MATURITIES THAT WILL SUDDENLY BE REFINANCED AND INCREASE THOSE COST OF CAPITAL. I THING MONETARY POLICY HAS SIMILAR FACT. IT IS THE LEGS ARE LONGER MAYBE THAN WHAT WE ARE USED TO IN THE POSTWAR. . -- POSTWAR PERIOD. LISA: THE MARKET IS A FORWARD-LOOKING INSTRUMENT NEC BOND YIELDS COMING DOWN ON THE LONG AND MUCH MORE THAN THE FRONT END BECAUSE PEOPLE EXPECT WE WILL NORMALIZE AND MONETARY POLICY WILL WORK. YET THAT OFFSETS THE TIGHTENING YOU COULD POTENTIALLY SEE IN LONGER-TERM DEBT. IT IS MIND IS SPINNING HOW THIS IS WORKING. IF ANYTHING, WE SEE AN EASING OF FINANCIAL CONDITIONS THAT WILL ALLOW COMPANIES TO MORE EASILY REFINANCE. AGAIN I ASKED -- IRA: BUT THAT IS NOT NEW. THE SAME THING HAPPENED IN 1981 AND THE EARLY 1990'S. SAME THING HAPPENED WHEN ALAN GREENSPAN TALKED ABOUT THE CONUNDRUM. THIS IS A NATURAL REACTION TO HIGHER FRONT AND YIELDS MEANING THE MARKET IS GOING TO COME AS YOU SAID, BE FORWARD-LOOKING AND SAY WHAT IS THE FED GOING TO DO? WHERE ARE INTEREST RATES GOING TO BE THREE TO FIVE YEARS FROM NOW? ONE OF THE SCENARIOS THE MARKET COULD REALISTICALLY BE PRICING IS FOR THE FED TO DO NOTHING FOR THE NEXT THREE YEARS AND THEN CUT INTEREST RATES TO 2% AND KEEP THEM THERE. IF THAT IS A POSSIBLE OUTCOME, THAN THE 10 YEAR YIELD NOW IS THAT FAIR VALUE BASED ON THE SERIES OF OUTCOMES. IF I PERCENT INTEREST RATE ON THE FRONT-END UNTIL 2027 AND THEN SUDDENLY THEY GO DOWN TO 2% AND STAY. TOM: MANY TALK IN ALPINE LIKE PEOPLE IN BOWTIES I DON'T KNOW WHAT THEY'RE TALKING ABOUT AND OTHERS DO. WE WILL STOP THE SHOW RIGHT NOW AND GO TO THE SINGLE PERSON I KNOW WHO KNOWS MORE ABOUT AMERICAN SOCCER THAN ANYONE ON THE PLANET. IRA JERSEY HAS DONE THIS AND HAS BEEN COMMITTED TO IT WITH YOUTH SOCCER IN NEW JERSEY AND ON. LET ME BEGIN WITH MR. MESSI IN THE MLS. CAN THE REST OF THE PLAYERS AT THE MLS KEEP UP WITH THE GREATEST PLAYER IN THE WORLD? IRA: MAYBE NOT AT HOME. ONE OF THE THINGS THAT WHEN PLAYERS COME OVER FROM EUROPE TO THE UNITED STATES IS THEY DO NOT APPRECIATE HOW MUCH TRAVEL THERE IS IN THE U.S. AND HOW FAST OUR COUNTRY IS. SO IT IS NOT THE SAME AS TAKING A TRAIN OR BUS ON A COUPLE HOUR TRIP IN ENGLAND OR SPAIN AND A LOT OF THE EUROPEAN COUNTRIES WHERE THEY COME FROM. THAT IS A GREAT EQUALIZER. LIONEL MESSI IS A GOAT, THE GREATEST OF ALL TIME, ALMOST UNDISPUTED. SO HIM COMING TO MAJORLY SOCCER I THINK IS GOOD FOR THE GAME HERE AND THE SPORT BECAUSE IT BRINGS A LOT OF ATTENTION TO THE GAME AND WILL HELP GROW THE SPORT. TOM: LISA HAS WORLD CUP TICKETS THIS WEEKEND, ONE PLUS ONE PLUS -- 104 MATCHES. IS THIS GOING TO BE LIKE 70,000 TO 80,000 PEOPLE IN A STADIUM AROUND THE COUNTRY? WILL THIS BE A BIGGER DEAL? AS EUROPEAN SOCCER PEOPLE WOULD SUGGEST? IRA: I WOULD THINK ON MOST EVERY GAME WILL BE NEAR SOLD OUT IF NOT SOLD OUT. MAYBE NOT A FEW GAMES. IT IS A LARGER WORLD CUP SO THE FIRST TIME THEY WILL GO TO A 48 TEAM WORLD CUP. THERE ARE SMALLER TEAMS THAT MAYBE WILL HAVE -- NOT HAVE THE INTERNATIONAL APPEAL AS OTHERS BUT IT IS HARD TO IMAGINE THE BIG GAMES AND KNOCKOUT ROUNDS NOT HAVING SOLD OUT CROWDS. A LOT OF THE STADIUMS THEY ARE PLAYING IN, THINGS LIKE LINCOLN FINANCIAL IN PHILADELPHIA OR METLIFE STADIUM, THEY WILL BE SOLD OUT. I REMEMBER WITH MY SON WATCHING LIONEL MESSI PLAY WITH ARGENTINE EDGE AGAINST -- ARGENTINE AGAINST CHILE. AND THAT WAS NOT A WORLD CUP. THIS IS A BIGGER STAGE. IT IS HARD TO IMAGINE YOU DON'T HAVE GREAT ATTENDANCE AT THIS. TOM: JERSEY, YOU ARE THE BEST. HE IS THE COACH EVERYONE TALKS ABOUT IN THE MADNESS OF AMERICAN KIDS SPORTS. INTEREST RATE STRATEGY. I COACH LITTLE LEAGUE ONCE LONG AGO AND FAR AWAY WITH PARENTS TELLING YOU WHAT TO DO. WHY ISN'T MY KID PLAYING SHORTSTOP? [LAUGHTER] THERE IS SO MUCH TRAUMA NOW IN AMERICAN KIDS SPORTS THAT PEOPLE LIKE IRA JERSEY ARE GOING, DO I NEED TO DO THIS? I RISE TOTALLY COMMITTED TO THIS. LISA: WERE YOU ONE OF THE DADS -- IRA IS TOTALLY COMMITTED TO THIS. LISA: WERE YOU ONE OF THE DADS THAT SAY IF YOU DON'T HAVE THREE RUN HOMES DON'T COME HOME? TOM: NO. I WAS THE ONE THAT WAS LIKE PLEASE BE THE HEAD COACH BECAUSE THE HEAD COACH THINKS THEY SHOULD BE IN NFL. THEY WOULD BEG ME BECAUSE I WOULD BE MAKING JOKES WITH THEM. THE GUYS A TREASURE. THIS IS SOMETHING SPECIAL. THE GUYS OUT THERE EVERY WEEK. LISA: [INDISCERNIBLE] TOM: I DON'T KNOW. IF YOU GO TO CHICAGO, IT IS STADIA. WHAT DO I KNOW? STAY WITH THE MARKETS HERE FOR THE NEXT 35 MINUTES. IT WILL BE QUITE AN OPENING. FROM NEW YORK, THIS IS BLOOMBERG. GOOD MORNING.

Channel: Bloomberg Television

Views: 29,743

Keywords: Jon Ferro, Lisa Abramowicz, Tom Keene

Id: SGHv-mnT9ek

Length: 146min 36sec (8796 seconds)

Published: Thu Jul 13 2023