Who's Buying Bonds? | Bloomberg Surveillance 08/08/2023

>> THE ECONOMY HAS BEEN GETTING READY FOR HIGH INTEREST RATES. >> THE MARKET NEEDS TO HAVE A MOMENT OF DIGESTION AND CATCH ITS BREATH. >> WE ARE GETTING TO THE END OF THE FED TIGHTENING CYCLE. >> IF WE ARE GETTING INFLATION BACK TO 2%, AND HAS TO HAVE SOME CONTRACTION. >> CERTAIN PARTS OF THE ECONOMY ARE RE-ACCELERATING. >> THIS IS BURKE SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO AND LISA ABRAMOWICZ. JONATHAN: LIVE FROM NEW YORK CITY, GOOD MORNING. ALONGSIDE TOM KEENE AND LISA ABRAMOWICZ I'M JONATHAN FERRO. THE EQUITY MARKET, S&P 500 NEGATIVE BY 0.4%. MORE DOWNGRADES. THIS TIME NOT ON THE SOVEREIGN BUT U.S. BANKS, 10 DOWNGRADES OVERNIGHT. TOM: THERE IS A BANK STORY IN ITALY AS WELL. THAT IS THE ECONOMIC THING TO LOOK AT. OVERWHELMING EVERYTHING HERE THIS MORNING LED BY THE NEWS OUT OF CHINA IS IT IS DEFLATION TUESDAY. I'M LOOKING AT THE SCREEN AND I HAVE NOT SEEN THAT SCREEN IN 4, 5, SIX YEARS. JONATHAN: DREADFUL. TOM: WE WERE OUT IN FRONT OF THE STORY, THERE IS DEFLATION IN THE AIR. I CAN BORE YOU WITH EIGHT WAYS, ALL YOU HAVE TO DO IS SAY EVEN OIL BREAKS DOWN. JONATHAN: EVERY TIME I GET DATA OUT OF CHINA, IT IS DOWNSIDE SURPRISE. LISA: ONE INTERESTING AREA, THE DIVERGENCE BETWEEN THE U.S. AND CHINA HAS BEEN ACCELERATING. WHAT YOU HAVE SEEN WITH RESPECT TO THE U.S. DEPENDENCE ON CHINA IS IT IS DECREASING EVEN THOUGH IN EUROPE IT IS NOT. I WONDER HOW MUCH THOSE STORIES ARE LINKED. THE UNDERPERFORMANCE OF GERMANY AND THE OUTPERFORMANCE OF THE UNITED STATES. TOM: THE BANKS HAVE TO DEAL WITH THIS DISINFLATIONARY, DEFLATION TENDENCY. YOU GOT SOME QUOTES THIS MORNING FROM SOME OF THE BANKERS TRYING TO FIGURE OUT A SOFT LANDING. BUT WITH THE DEFLATION OVERHAUL, I WONDER WHAT IT MEANS FOR BIG BANKS AND THOSE WE HAVE FORGOT ABOUT. JONATHAN: PUSHING BACK, JP MORGAN AGAINST THE SOFT LANDING. MOODY'S WAS IN THE CONVERSATION, HIGH FUNDING COSTS FOR SMALLER BANKS IN AMERICA, POTENTIAL REGULATORY CAPITAL WEAKNESS. AND RISING RISK TIDES FOR COMMERCIAL REAL ESTATE. THEY'RE ALL UNKNOWNS. NOTHING NEW. BUT IT TENDS TURNED THE VOLUME UP. TOM: THIS IS A BIGGER DEAL THAN FITCH. SECRETARY YELLEN AND OTHERS GOT MENTAL ABOUT IT. THIS IS JUST, HERE IS WHERE WE ARE. WE HAVE HAD A 2023 OF SURPRISE AND SHOCK AND THERE IS THIS GLOBAL DEFLATIONARY TENDENCY. THIS MORNING LOOKED GOOD, THE LAUNCHPAD, THE IMF WITH THE CAUTIOUS FIVE-YEAR VIEW THEY GAVE US. JONATHAN: REVENUE FOR EPS -- A SLIGHT DOWNSIDE SURPRISE. EPS FOR THE SECOND QUARTER COMES IN IT TO 54. THE ESTIMATE TO 50. THEY NOW SEE THE FULL YEAR REVENUE OUTLOOK OF ABOUT 93 BILLION. THEY HAD SEEN ABOUT 97. THE ESTIMATE WAS 96.6 3 BILLION U.S.. THAT IS A DOWNSIDE SURPRISE. THE STOCK IS NEGATIVE, DOWN BY 2.61%. LISA: IT IS NOT SURPRISING GIVEN WHAT WE SAW WITH UBER, FREIGHT SERVICES. BUT THERE IS A QUESTION. IT GOES BACK TO WHETHER WE ARE DEALING WITH DISINFLATION OR DEFLATION, WHEN DO GOODS AND SERVICES MEET ECHO GOODS, THERE IS A SLOWDOWN IN A RECESSION THAT PERSISTS. PEOPLE ARE NOT SENDING AS MANY PACKAGES. SERVICES KEEP GOING GANGBUSTERS. AT WHAT POINT DO WE SEE CONVERGENCE AND RIGHT NOW IT SEEMS LIKE GOODS ARE STILL ON THE BACK FOOT. JONATHAN: UPS NEGATIVE IN THE FREE MARKET BY MORE THAN 2.5%. THE EQUITY FUTURES NEGATIVE BY ABOUT HALF A PERCENT. 3.9959 FOR THE U.S. 10 YEAR. LISA: WE WERE TALKING ABOUT TRADE, BUT I AM MORE INTERESTED IN FED SPEAK. THE PHILADELPHIA FED PRESIDENT SPEAKS ABOUT 8:15, RICHMOND PRESIDENT AROUND 8:30. THE KEY DATA POINT OF THE DAY ARE SOME METRICS UNDERPINNING THE OPTION DOES OPTION. THIS IS THE FIRST OF THREE AUCTIONS THAT CONSIST OF 103 BILLION DOLLARS THE U.S. TREASURY IS SELLING UP FROM THE EXPECTED $96 BILLION. IF THESE GO WELL, DOES THAT FUEL A RISK ON MOVE? COULD THIS DETERMINE THE RISK OFF FIELD FOR THE WEEK? EARNINGS CONTINUE, RIVIAN, DUAL LINGO, IROBOT. HOW MUCH DO WE SEE CONSOLIDATION AMONG THE BIG WINNERS? LYFT SHARES LOWER, THE ELECTRIC VEHICLE MAKER RIVIAN UP. TESLA UP MORE THAN THREE TIMES THAT. DO YOU SEE THE ONGOING CONSOLIDATION OR SOME OF THE SECOND RUNS THE SHOW RUNNERS UP MAKE A PUSH FOR IT? JONATHAN: THANK YOU. JOINING US NOW, FOUNDER AND CEO OF MACRO RISK ADVISORS. TO CATCH UP WITH YOU. LOOKING AHEAD. THE THREE YEAR, THURSDAY, THE 30 YEAR. IT WILL BE A BIG FOCUS FOR A LOT OF PEOPLE IN THIS FIXED INCOME MARKET. DO YOU SEE PROBLEMS TAKING DOWN THE SUPPLY FROM THE TREASURY? >> CERTAINLY DIFFICULT BUT IT HAS COME VERY QUICKLY WITHIN THE MARKET CROSSHAIRS. LET'S LOOK AT THE STEEPING DUCHESS DEEPENING WE HAVE SEEN. THE FIRST WAS MARCH, SVB. THAT WAS ABOUT THE FRONT END. WE HAD A MOVE HIGHER AND THE MOVE INDEX, THE VIX BERT RATES, SHORT DATED RATES CAME DOWN A LOT. THIS IS DIFFERENT, IT IS THE LONG END. THERE IS A CONFLUENCE OF FACTORS. IT IS FITCH, A CAPTAIN OBVIOUS MOMENT, WE KNOW THE U.S. IS ON AN UNSUSTAINABLE PATH. BUT DOES NOT HELP TO HEAR IT. AND PROTESTATIONS ASIDE, EVERY THING FITCH WROTE IS SPOT ON. IT IS GOING TO BE INTERESTING TO SEE THE ASK OF FOLKS THAT HAVE TO OWN THIS PAPER, TO BUY AT A TIME WHEN THE PRICE MOMENTUM AND THE TREND IS HIGHER IN YIELDS. YOU ALSO JUST REFERRED BACK TO THE BANKING SYSTEM. BANKS DON'T WORK WELL IN A IS INVERTED CURVE. ONE WAY TO ON INVERT THE CURVE -- TO NOT INVERT THE CURVE IS HAVE A RISE BUT THAT IS NOT HELP. YOU WILL HAVE SVB, MAYBE NOT INCLUSIONS, BUT FOLKS NURSING LOSSES. IN THE BACK AT -- BACKUP DOESN'T HELP. TOM: LET'S LOOK OUT FOR 1, 2, THREE QUARTERS. QUIET AND VOLATILITY AND A QUIET PRICE CHANGE OF DEFLATION. HOW DO YOU PLAY, WHAT DO YOU DO, GIVEN LESS VOLATILITY AND LESS PRICE CHANGE? DEAN: A GREAT POINT. THAT HAS PERSISTED FOR MOST OF THE YEAR, AFTER THE SVB TUMULT, MARKETS SETTLED IN. REALIZED VOLATILITY LEVELS IN THE S&P, CONSISTENTLY BELOW 10. THOSE ARE NOT THE DREAMS LONG OPTION HOLDERS ARE MADE OF. IT MAKES IT DIFFICULT TO PAY PREMIUM, EVEN AS THE VIX CAME DOWN TO 13. IN MAKES IT DIFFICULT TO EXPAND PREMIUM. A LOT GOING ON UNDER THE SURFACE IS THIS PROFOUND DECREASE IN CORRELATION AMONG STOCKS. YOU HAD THE CORRELATION OF STOCKS AND THE S&P, IT REACHED 8%. THE ANY ACTS IS DOWN 50 BASIS POINTS, APPLE DOWN 5%. YOU CAN SAY OK, AMAZON IS UP 8%. YOU SHOULD NOT REALLY COUNT ON THAT KIND OF OFFSET. ONE THING, I'M A LITTLE CONCERNED, IS THIS GIFT OF DIVERSIFICATION. IT HAS BEEN VERY POWERFUL. THE ZIGZAG OF STOCKS IS A TESTAMENT TO THE POWER OF DIVERSIFICATION. BUT I DON'T THINK YOU ARE SUPPOSED TO COUNT ON IT THAT MUCH. I ALSO WANT TO COMMENT. PRICES CAN BE SO DISPARATE VERSUS THE ULTIMATE REALITIES. APPLE, THIS $3 TRILLION STOCK, EVERYBODY HAS GOT TO OWN THIS. THE COST OF HEDGING APPLE STOCK OUT ONE YEAR, FULLY ONE YEARS WORTH OF INSURANCE GOT DOWN TO THE LOWEST OF ALL TIME JUST BEFORE THE EARNINGS. YOU HAVE THIS OPPORTUNITY TO ENSURE THE STOCK AT AN ALL-TIME HIGH WITH THE INSURANCE COST AT AN ALL-TIME LOW. NOBODY DID IT. NO ONE WANTS TO EXPAND PREMIUM WHEN THINGS ARE GOING SO WELL. OUR FOCUS IS TO UNDERSTAND THIS LOW CORRELATION, PAY ATTENTION TO THE BACK END OF THE YIELD CURVE, THAT IS A CONCERN. AND WATCHING THE DEVELOPMENT OF INFLATION METRICS IS GOING TO BE CRITICAL. LISA: YOU MENTIONED THE YIELD CURVE IN RELATION TO BANKS AND THE POST SVB REALITY OF THE VIX GOING DOWN, THOUGH DURING THE MELTDOWN WE DID SEE A PICKUP IN VOLATILITY. HOW MUCH DO YOU SEE THIS GRIND IN THE SMALL BANKS AND REGIONALS , THE IDEA THAT MOODY'S IS DOWNGRADING NAMES THAT ARE STAPLES, PNC PUT ON WATCH, BANK OF NEW YORK, U.S. BANCORP. STAPLES OF THE REGIONAL BANKING MARKET. ACROSS THE BOARD, WE ARE STILL SEEING RISK. DEAN: I AM NOT AN ANALYST FOR SMALL BANKS. I WILL SAY AND ARE OFTEN CRITICIZED AS BEING THE LAST TO KNOW. BUT SOMETIMES THEY CAN CATALYZE AN OBSERVATION THAT SOMETHING IS WRONG FROM A BUSINESS MODEL STANDPOINT. AS THE FED HAS GONE THROUGH WITH HIS TIGHTENING CYCLE, THE MOST BASIC VIEW HAS BEEN THERE INCREASING THE COST OF CREDIT BY RAISING INTEREST RATES. BUT THERE IS ALSO A SUPPLY SIDE AND THE SUPPLY CHANNEL GETS ROGAN WHEN YIELD CURVES ARE THIS IS INVERTED. THE COST OF ACQUIRING THE DEPOSITS THAT GET LENT OUT ARE THIS COSTLY. THE SUPPLY OF CREDIT I THINK IS WORTH FOCUSING ON. YOUR NURSING LOSSES FOR A PAPER YOU BOUGHT IN 2021, AT LOW YIELDS. YOU'RE TRYING TO RIDE IT OUT. BUT IT DOES NOT MAKE THE ABILITY TO SUPPLY CREDIT VERY EASY. THAT IS PART OF POTENTIALLY DOWNGRADE AS WELL. TOM: WHERE IS THE OPPORTUNITY RIGHT NOW? DEAN: AT THE END OF THE DAY, STOCKS DO WELL IN THE LONG RUN. YOU ARE TO KEEP YOURSELF EXPOSED TO RISK IN A BROAD, DIVERSIFIED WAY. THE S&P HAS BECOME MUCH LESS OF A DIVERSIFIED INDEX THAN IT HAS BEEN HISTORICALLY. 28% OF THE INDEX IS IN THE TOP SEVEN STOCKS. THAT IS SOMETHING YOU HAVE GOT TO LOOK AT AND FIND A WAY TO WEATHER THE STORM. CASH CAN BE KING IN 5% YIELDS. IT IS SOME MIX OF STOCKS AND BONDS TO KEEP YOU IN THERE. THE RISK IS LOW VOLATILITY FEEDS INTO HOW YOU SIZE YOUR POSITIONS. YOU GET TO MAKE AT THE WRONG TIME. OUR RECOMMENDATION IS NOTHING EARTH SHATTERING. JUST TRY TO STAY INVOLVED IN THE MARKET, DON'T GET OUT OF THE MARKET. BUT UTILIZE THE FACT THAT CASH HAS A LOT OF OPTIONALITY AT 5% TO STAY IN. JONATHAN: THANK YOU, DEAN FROM MACRO RISK ADVISORS. BACK TO UPS. STOP DOWN BY 7.5% IN THE MARKET, THEY ARE BLAMING ONE THING, CITING IT DIRECTLY. TOM: HERE THE HEADLINE. THE UNION AGREEMENT HAS TAKEN IT OUT OF REVENUE AND THEY'RE GOING TO ADJUST AS THEY GO. THAT IS A ONE-OFF ADJUSTMENT. BUT THE QUESTION IS FORWARD FROM HERE, HOW DO YOU CREATE REVENUE GROWTH? GIVEN DEFLATION AND THE GIFT WE HAVE HAD OF A GDP ECONOMY, PEOPLE HAVE BEEN GROWING AT 8% AND WILL START GROWING AT 5.5. PEOPLE AT 6% WILL GO BACK TO THE GROWTH OF BEFORE. YOU WILL SEE THAT ADJUSTMENT FORWARD. IT IS AFTER EARNINGS SEASON. WITH UPS, FEDEX, HOME DEPOT AND THE OTHERS, YOU WILL SEE THE REVENUE DAMPENING, WHETHER IT IS TEAMSTERS OR NOT. JONATHAN: IT IS DOWN BY LET'S CALL IT 6%. LISA: HE WANTS TO GO AFTER SOME OTHER COMPANIES. IT RAISES A QUESTION WHETHER THIS IS A TEMPLATE. THEIR EARNINGS NEED TO GO TO THE WORKERS TO MAKE THE UNIONS HAPPY. WE HAVE SEEN THAT CONSISTENTLY. HOW FAR CAN THEY PUSH AND HOW MUCH DOES UPS GET BEATEN UP IN TERMS OF WHAT IT CAN INVEST GOING FORWARD? TOM: THEY'RE SUPPOSED TO RAISE PRICES. THAT IS THE THEORY. THREE PERCENT, 5%. JONATHAN: I WAS EXPECTING YOU TO SAY SOMETHING YOU SAY SOMETIMES. TOM: I THINK IT IS A BIG DEAL. JONATHAN: DEUTSCHE BANK IN THE NEXT HOUR, FROM NEW YORK, THIS IS BLOOMBERG. >> I SUPPORTED RAISING THE FEDERAL FUNDS RATE AT THE JULY MEETING AND I SUSPECT ADDITIONAL INCREASES WILL BE NEEDED TO LOWER INFLATION TO THE FOMC GOAL. I WILL LOOK FOR EVIDENCE THAT INFLATION IS ON A CONSISTENT AND MEANINGFUL DOWNWARD PATH AS I CONSIDER WHETHER FURTHER INCREASES IN THE FEDERAL FUNDS RATE WILL BE NEEDED AND HOW LONG THE FUNDS RATE WILL NEED TO REMAIN AT A SUFFICIENTLY RESTRICTIVE LEVEL. JONATHAN: THERE ARE TWO PHASES, GET RATES UP QUICKLY, PHASE TWO, SAID THERE. MICHELLE BOWMAN DOESN'T THINK WE ARE DONE WITH PHASE ONE. THE FEDERAL RESERVE GOVERNOR, ONE OFFICIAL LOOKING FOR MORE HIKES. FROM NEW YORK CITY, GOOD MORNING. THE EQUITY MARKET AND PRICE ACTION, STOCKS DOWN BY 0.4% ON THE S&P. THE DOWNGRADES OF U.S. BANKS IN THE MIX, WHICH WE WILL DISCUSS AND SOME MRS.. UPS CUTTING THE OUTLOOK FOR REVENUE, DOWN BY 5.6 PERCENT. RECOVERING A TOUCH. THIS GOING TO EARNINGS FROM THE WALT DISNEY COMPANY AFTER THE BELL WEDNESDAY, DISNEY CREATING A TASK FORCE FOR AI AND COUNTING COSTS. I THINK THAT IS MORE INTERESTING. WHERE'S BOB IGER AND THE TEAM GOING? WHAT IS GOING ON AT THE COMPANY? TOM: IF YOU SEE THE PHRASE TASK FORCE, DUCK OR RUN. TAX -- IT IS TASK FORCE TUESDAY. THERE WILL BE A TASK FORCE HERE AND THERE. THEY'RE JUST BIG COMMITTEES. I AM CYNICAL ABOUT IT. ALL OF THE TRIUMPH OF DISNEY, MARY POPPINS A MILLION YEARS AGO, DO THINK THE SOUND OF MUSIC WAS PUT TOGETHER BY A TASK FORCE? JONATHAN: I DID NOT KNOW THAT WAS DISNEY. TOM: THE HILLS ARE ALIVE. TASK FORCE IS ONE OF MY LEAST FAVORITE PHRASES. LISA: SOME INTERESTING THINGS COULD,. IF YOU ARE LOOKING FROM--FOR A STRATEGIC PARTNER, WHAT DOES THAT MEAN? DOES IT MEAN A WHOLESALE SALE AND IT HIGHLIGHTS THAT CONTENT IS KING DIED. TOM: JOE FELDMAN AT ADVISORY GROUP LOOKING AT BIG-BOX, UPS, HOME DEPOT AND THE REST. HE MARKS DOWN THIS. MOMENTS AGO, TAKING A DIM VIEW ON NORTH FROM ANOTHER'S. WE MENTIONED AT THE TOP, THE 10 YEAR REAL YIELD WITH A VENGEANCE, 1.80 DOWN TO 1.58. I BELIEVE THAT IS DEFLATION IN THE WIND. JONATHAN: NORMALLY AT 4%, I CAN'T GIVE YOU A QUOTE, BUT 399 -- 3.9999. THE TREASURY MARKET. TOM: IN THE MIDDLE OF THIS ON SETTLEMENT WITHIN FINANCE, THERE IS ON SETTLEMENT IN OUR CAPITAL. TERRY HAYNES JOINS US WITH PANGAEA POLICY. THE GLOBAL WORLD, IT IS IN THAT CHINA HAS A SLOWDOWN. ALL OF THE EXPORT AND IMPORT DYNAMICS WITH CHINA FALLS OVER UPON US. WHAT SHOULD BE OUR TO DO LIST TO REPAIR OUR TRADE DYNAMIC GLOBALLY AND PARTICULARLY WITH CHINA? >> WE ARE GOING TO HAVE TO CONTINUE, THE U.S. WILL HAVE TO CONTINUE EFFORTS AT DIPLOMACY. SECONDLY, THE UNITED STATES WILL HAVE TO BE MORE AGGRESSIVE ABOUT TRYING TO FIGURE OUT WHAT KINDS OF TRADE ALLIANCES IT WANTS AND WITH WHOM. NOT ONLY IN THE PACIFIC, BUT ALSO ENHANCING TRADE DEALS WITH BOTH THE EUROPEAN UNION AND THE UNITED KINGDOM. THE UNITED STATES HAS BEEN A DISAPPOINTMENT ON ALL THOSE FRONTS, NOTHING HAS HAPPENED IN TRADE POLICY SUBSTANTIALLY FOR 2.5 YEARS. TOM: WHAT IS A CHARACTER OF OUR ISOLATIONISM NOW? MAYBE THAT IS LED BY THE REPUBLIK AND PARTY, BUT I'M SURE THERE ARE DEMOCRATS THAT AGREE AS WELL. IS OUR ISOLATIONISM ENTRENCHED AND SIMILAR TO WHAT WE GROW UP WITH AS KIDS? TERRY: IT'S I WILL ATTACK THE PREMISE A LITTLE, I WOULD NOT CALL IT ISOLATIONISM AS MUCH AS I WOULD THINK OF IT AS NOT SURE EXACTLY HOW TO ENGAGE. THE FREE-TRADE ERA WAS OVER EVEN BEFORE THE END OF THE OBAMA PRESIDENCY EVEN IF FOLKS IN MARKETS AND ELSEWHERE DID NOT SEE IT. POLITICALLY THAT HAPPENED. THE QUESTION IS HOW TO ENGAGE AND WHAT THE MOST CONSTRUCTIVE WAY FORWARD IS FOR THE UNITED STATES. WE HAVE NOT SEEN ANY EFFORTS POLITICALLY IN THE LAST SIX OR SEVEN YEARS, EVEN THE RENEGOTIATION OF THE CANADA, U.S., MEXICO AGREEMENTS TURNED OUT TO BE BASICALLY A RESHUFFLING OF THE DEBT. WELCOME BUT STILL A RESHUFFLING. LISA: THERE HAS BEEN A SHIFT IN TRADE GEOPOLITICALLY. WE HAVE SEEN THE U.S. PULL FROM CHINESE PURCHASES. THERE IS A QUESTION ABOUT HOW MUCH DEBT IS SUSTAINABLE AND THIS COMES IN A WEEK WHERE THE TREASURY DEPARTMENT WILL SELL $103 BILLION OF U.S. DEBT. PEOPLE ARE CONCERNED. IS THERE ANY REALISTIC CONVERSATION IN WASHINGTON, D.C. ABOUT HOW TO DEAL WITH THE GLUT OF SALES AND DEBT AT A TIME WHEN INTEREST RATES ARE GOING UP? 'S TERRY: VERY LITTLE. WHAT WE HAVE IS A GENERATION WHERE -- A GENERATION OF POLITICS WHERE THE RECEIVED WISDOM HAS BEEN KEEP THE STATUS QUO MORE OR LESS FROM YEAR TO YEAR ON THE TOP LINE FEDERAL SPENDING. CONTINUE TO SUPPORT THE MASSIVE INDIRECT FEDERAL GUARANTEE IS, WHETHER ON HOUSING, HEALTH CARE, ANYTHING. AND HOPE THE PROBLEMS GO AWAY. BUT THERE IS VERY LITTLE OF THAT GOING ON, EVEN WHAT YOU HEAR FROM CONSERVATIVE REPUBLICANS THIS FALL, WHICH WILL BE PART OF WHAT CAUSES A LIKELY SHUTDOWN OF THE GOVERNMENT IN THE FALL, SOME SORT OF WILLINGNESS TO DEAL WITH THAT. BUT EVEN THEN, WHAT YOU HAVE SEEN IS THE LIMITS FROM PEOPLE LIKE MCCARTHY AND BIDEN. THEY LIKE TO TALK ABOUT KEEPING DOMESTIC SPENDING AS THE STATUS QUO AND MAYBE DEALING WITH DEFENSIVE IN A LESS EXPENSIVE WAY. YOU'VE GOT ALL OF THESE GEOPOLITICAL CHALLENGES AND YOU HAVE GOT A CONSENSUS IN BOTH THE DEMOCRATIC AND THE CENTRIST REPUBLICAN PARTIES THAT DON'T WANT TO CHANGE ANYTHING. THAT IS A LONG WAY TO SAY THERE IS REALLY NOTHING THAT IS GOING TO CHANGE IN THE SHORT TERM. LISA: EVEN THOUGH YOU THINK THERE IS GOING TO BE A 60% CHANCE OF A GOVERNMENT SHUTDOWN LATER THIS YEAR, YOU DON'T NECESSARILY THINK THAT WILL YIELD A FISCAL RESTRAINT IN 2024? TERRY: NOT MEANINGFULLY. EVEN THE MOST CONSERVATIVE REPUBLICANS TALK ABOUT THE STARTING POINT OF FISCAL RESTRAINT BEING A CUT BACK TO FISCAL 2022 LEVELS. WHICH IS A WELCOME FIRST STEP. BUT THAT IS A TINY STEP. YOU ARE NOT GOING TO SEE ANYTHING SEISMIC. JONATHAN: WONDERFUL INPUT. EVERYONE IS A HAWK UNTIL THEY GET INTO POWER. WE APPRECIATE IT. UPS, DOWN BY 5.6%. AN UPDATE ON APPLE AS WELL. A FIVE DATE LOSING STREAK. TOUGH STRETCH. DOWN ABOUT 9% OVER THE PREVIOUS FIVE DAYS. WE'RE JUST ABOUT POSITIVE THIS MORNING, A CORNER --25%. TOM: A LOT OF THESE PULLBACKS ARE CONTAINED BUT APPLE IS CLEARLY THROUGH THE TWO STANDARD DEVIATION LEVEL. MARK GURMAN HAS A RIPROARING BEST IN CLASS WORLDWIDE NOTE THIS MORNING ON WHERE THEY ARE GOING WITH M1, M2 AND M3 FOR THE LAPTOP. THESE ARE THE CHIPS. BUILDING THEIR OWN CHIPS. THE OFFSPRING, BOTH OF THEM, M3 LAPTOPS. IT COULD BE OUTRAGEOUS. THE REVIEWS ARE MIXED. THE NEW MAC PRO, THE FANCY RECORDING STUDIO COMPUTER GOT REAMED IN THE PRESS. THERE ARE PRODUCTS CHALLENGES. NOT TO MAKE LIGHT OF IT OR BE THE FAN BOY. JONATHAN: STOPPED POSITIVE, GOING AGAINST THE GRAIN. POSITIVE BY 0.3%. HIGH-FREQUENCY ECONOMICS JOINING US, CPI THURSDAY, BPI FRIDAY, LATER TODAY, FROM NEW YORK CITY, THIS IS BLOOMBERG.. JONATHAN: SNAPPED A FOUR DATE LOSING STREAK ON THE S&P 500. THE EQUITY MARKET LOOKS A LITTLE SOMETHING LIKE THIS, BUT HE FUTURES NEGATIVE BY 0.5% ON THE S&P, DOWN ABOUT .5%. NEGATIVE BY FIVE TO 6% OF THE MORNING, AND OUTLOOK FOR REVENUE, BLAMING TEAMSTERS AND NEGOTIATIONS FOR SOME VOLUME ISSUES. WE TALK ABOUT THAT LATER. TWO-YEAR YEAR 10 YEAR, 30 YEAR IT LOOKS LIKE THIS. CHOOSE VERSUS TENDS, -73 BASIS POINTS AT THE MOMENT. ONLY TWO WEEKS AGO IT WAS -100. A LOT OF HEAVY LIFTING HAS BEEN FROM THE 10 YEAR YIELD DRIFTING HIGHER, THE LAST COUPLE OF SESSIONS, WE'VE GOT ABOUT NINE BASIS POINTS. BREAKING 4%, 3.9 959. TOM: THE 10 YEAR YIELD IS THE LINCHPIN. I HAVE A 1.5 IT. WE ARE DEFLATING. WE GOT TO TAKE THREE SECONDS. CAN YOU EXPLAIN TO THE AMERICAN AUDIENCE, THIS WOULD BE AS IF AARON JUDGE OF THE NEW YORK YANKEES OR SOMEONE WITH THE AND JEWELS BEING TRANSACTED. THIS IS THE DAY, THEIR MEETING ONCE MORE. THIS IS IT. THE TRANSACTION RIGHT NOW IS DEFLATING. THERE TALKING ABOUT 100 MILLION EUROS. DOES HE GET THAT? JONATHAN: NO. TOM: FOR AMERICANS, THAT IS FOREIGN. JONATHAN: IF YOU HAVE A CONTRACT FOR THE FOOTBALL CLUB, THERE IS A LIABILITY AND YOU CAN SELL THEM FOR MONEY. YOU GET THE MONEY FOR THAT PLAYER IN THE PLAYER NEGOTIATES FOR THE CONTRACT, 3, 5 YEARS AND YOU GET PAID WEEKLY. TOM: FOUR YEARS AGO, THE ST. LOUIS CARDINALS DID AWAY WITH US. YOU ARE IN A FREE CONTRACT. HOW DOES HE WALK IN THE TOP MAN LOCKING ROOM IF THEY DENY HIM HIS MOVED TO GERMANY? JONATHAN: IT WILL BE DIFFICULT. ANOTHER YOUR POTENTIALLY AND THEN ON HIS WAY FOR NOTHING. 12 MONTHS ON HIS CONTRACT I THINK. THERE IS THE POTENTIAL HE LEAVES FOR NOTHING, THE SAME KIND OF SITUATION. TOM: WHAT WOULD ADULT DO? JONATHAN: TAKE THE MONEY. BUT THIS IS NOT ABOUT THE MONEY. HE WANTS TO WIN. TOM: FOOTBALL UPDATES WITH JON FERRO. JONATHAN: MOODY'S--A DIMMER OUTLOOK. THE RATING AGENCIES SAYING RISING FUNDING COSTS, DECLINING INCOME METRICS WILL ERODE PROFIT ABILITY. THE FIRST BUFFET -- BUFFER AGAINST LOSSES. ASSET RISK IS RISING, WE HAVE TALKED ABOUT THIS FOR SMALL AND MIDSIZE BANKS WITH LARGE COMMERCIAL REAL ESTATE EXPOSURE. TOM: 10, 20 BANKS? HOW MANY, 2000? LISA: AND HOW MUCH DOES THIS CRYSTALLIZE THE FEELING THAT IS ALREADY PERCOLATING OR MAYBE IS NOT? IT IS ARTHUR RADAR. THIS HAS NOT BEEN SOMETHING PEOPLE HAVE BEEN PAYING ATTENTION TO. BANKING CRISIS IS OVER AND NOW YOU ARE SEEING THOSE SHARES OF COMPANIES THAT WERE NAMED BY MOODY'S, DROPPED BY MORE THAN 2%, PEOPLE SEE WHAT THIS MEANS FOR THEIR BORROWING COSTS AND THEIR REPUTATIONS. JONATHAN: I SAID THIS ABOUT FITCH, THEY TURNED THE VOLUME UP. YOU GET THE FEELING IT DOES IT AGAIN THIS MORNING. LISA: AT WHAT POINT DOES NOT CONSOLIDATE DATA WHERE CREDIT IS BEING WITHDRAWN? WE WERE TALKING ABOUT THE CREDIT REPORT COMING OUT AT 3:00 P.M. AND EVERYONE WAS TALKING ABOUT CREDIT CARD DEBT. PEOPLE ARE TAKING OUT MORE FIXED RATE LOANS AUTO LOANS AND MORTGAGES. THEY ARE SO GETTING THEM AND LOOKING FOR THEM. JONATHAN: IN CHINA, WEAKNESS ONCE AGAIN. THE RECOVERY NOT SHOWING GREAT SIGNS OF STRENGTH. TRADE PLUNGING, EXPORTS DROPPING, OVER 14% YEAR-OVER-YEAR. THE WORST DECLINE SINCE FEBRUARY 2020. AND YOU GO THROUGH THESE COUNTRIES, DOUBLE-DIGIT DOWN. TOM: ONE FAITH, 20%. A SINGLE SENTENCE BURIED IN MOST OF THE ARTICLES IS GLOBAL TRADE. CLEARLY CHINA IS A DOMINANT PART OF THAT. BUT THIS IS NOT JUST CHINA, I LEARNED THIS FROM GUYS LIKE IMF. THE IDEA IS EVERYBODY HAS THIS COUNTRY STORY AND THAT ONE. ALTOGETHER, IS GLOBAL TRADE OFF THE EBB WHICH IS SOMETHING SOMEONE PROTECTED. JONATHAN: ONE CAVEAT, THE VALUE OF CRUDE OIL IMPORTS FELL MORE THAN 12% IN THE FIRST SEVEN MONTHS OF 2023 FROM A YEAR AGO. VOLUME OF CRUDE OIL IMPORTS JUMPED BY AROUND 12%. THERE COULD BE A SLIGHT COMMODITY EFFECT IN ALL THIS. THE FEELING, DOES THE SPEAK TO A GLOBAL ECONOMY THAT IS NOT DOING WELL OR CHINESE CONSUMPTION? DO I FOCUS ON EXPORT OR IMPORT NUMBER? LISA:Y I DON'T KNOW THE ANSWER. CHINA SEEMS TO BE SUFFERING THROUGH LONG ECONOMIC COVID. THEY'RE NOT JUST COMING BACK TO STUNNING PATTERNS PRE-COVID. THE CENSUS BUREAU PUT OUT THIS DATA IN THE PAST COUPLE WEEKS, U.S. IMPORTS FROM CHINA WERE DOWN 24% IN 2023 FROM THE SAME PERIOD A YEAR AGO. GUESS WHERE THEY ARE NOT DOWN? IN EUROPE. YOU'RE SEEING A DECLINE IN THE U.S. BUT NOT IN EUROPE. HOW MUCH IS THIS SPECIFIC TRADING PARTNERS PULLING AWAY? JONATHAN: THE LAST STORY ON ITALIAN BANKS, THEY ARE DOWN. A BANK IN ITALY, CREDIT DOWN 6.7%. ELSEWHERE, STOCKS DOWN BY 7.5%. THE GOVERNMENT IS PROPOSING A 40% LEVY ON WINDFALL PROFITS AND BASICALLY A TAX. IT COULD BRING IN LIKE 2 BILLION EUROS. THE GOVERNMENT BLAMING ECB RATE HIKES FOR THE SURPRISE ANNOUNCEMENT, CONTROVERSIAL BECAUSE THE BANKS WOULD BE BLAMING THE LOW ECB AND NEGATIVE INTEREST RATES FOR THE LAST 10 YEARS AND THEY MIGHT WANT A REBATE. LISA: I COULD NOT MAKE SENSE OF THIS. THEY DID NOT RELEASE ANY OFFICIAL WORDING OR GUIDANCE. A TAX ON EXCESS PROFITS, LIMNING THE ECB BECAUSE WHY NOT? THIS IS THE POPULIST GOVERNMENT IN ITALY. WHAT DOES THIS LEAD TO? ACTUAL POLICY WITH A 40% WINDFALL TAX, OR IS IT A SHOT ACROSS THE BOW TO SHORE UP POPULACE ENERGY? TOM: IS THERE A BANK OF AMERICA IN BANKING IN ITALY? JONATHAN: THERE IS A UNIVERSAL BANK, YET. TOM: THEY ARE GOING TO GET THIS SURPRISE TAX? JONATHAN: THIS COULD CHANGE IN PARLIAMENT OR BE CHALLENGED IN THE COURT. THE OBJECTIVE HERE IS TO TRY AND RAISE TAX REVENUE TO HELP ADDRESS THE COST-OF-LIVING CRISIS. TO DO SOMETHING ABOUT FIRST-TIME BUYERS AND PEOPLE STRUGGLING. THAT IS WHEN IT GOES ON ABOUT. THE COST OF LIVING CRISIS IN ITALY AND THE ATTEMPTS TO ADDRESS IT. IF YOU BELIEVE THEY HAVE MADE MONEY NOT BECAUSE OF ANYTHING THE BANKS OF DONE WITH THEIR BUSINESS MODEL, THE ARGUMENT WOULD BE THAT YOU SHOULD LEVY A WINDFALL TAX ON THEM. THEY SHOULD NOT REAP THE REWARDS OF SOMETHING THAT HAS COME FROM THE ECB. OTHER PEOPLE MIGHT SAY THEY HAVE SUFFERED FOR 10 YEARS BECAUSE OF NEGATIVE INTEREST RATES AND FINALLY WE ARE GETTING POSITIVE. WHY WOULDN'T THEY MAKE MORE PROFIT? LISA: OTHERS MIGHT SAY, WOULDN'T IT BE NICE TO HAVE A RESILIENT ITALIAN BANKING -- THAT COULD SURVIVE THE CRISIS? JUST TO SAY WE NEED TAXES, YOU HAVE MONEY, LET'S TAKE IT. JONATHAN: THE GOVERNMENT DID THIS IN THE LATE 80'S. TOM: I DON'T WANT TO OR PEOPLE WITH THE MATH, BUT I CALCULATED OUT WHERE THE ITALIAN LIRA WOULD BE VERSUS THE EURO. WAY WEAKER IS THE FANCY MATH. UNBELIEVABLE, THE WEEK EURO THAT DELETE NEEDS TO PROSPER. JONATHAN: LIKE 5000. TOM: IT IS NOT LIKE A NUANCE. THREE INTERESTING THINGS AT THE TIME, WITH A COME DOWN TO IS THIS IDEA OF POST-STIMULUS, WHERE ARE WE? JOINING US NOW, THE U.S. ECONOMIST AT FREQUENCY ECONOMICS. YOU HAVE HEARD US TALK HERE AND IT ALL SOUNDS LIKE SOME BUT HE HAS TAKEN THE PUNCH BOWL AWAY, WE BEAT FISCAL PUNCH BOWL HERE. WHEN PRESIDENT TRUMP SAYS OF PRESIDENT BIDEN, THEIR ECONOMICS ARE NOT WORKING, SOME WOULD SAY THAT IS STIMULUS. DO WE NEED TO GET READY FOR 18 MONTHS, TWO YEARS OF A LESSER STIMULUS? >> MORNING, GOOD TO BE WITH YOU. WE HAVE SEEN EXTRAORDINARY SUPPORT ON THE MONETARY AND PHYSICAL -- FISCAL POLICY. WE'LL SEE THE ADJUSTMENT ON THE OTHER SIDE. MONETARY POLICY IS ALREADY ON ITS WAY. PROBABLY IN A SUBSTANTIAL WAY. AND FISCAL POLICY, WE ARE NOT SEEING THE DIRECT SUPPORT BUT WE ARE SEEING THE EFFECTS OF ALL THE INITIATIVES THE BIDEN ADMINISTRATION HAS UNDERTAKEN. THOSE ARE STILL FILTERING THROUGH AND THEY WILL PROBABLY CONTINUE TO FILTER THROUGH, TALKING ABOUT THE INFRASTRUCTURE PLAN, THE CHIPS ACT. THOSE CONTINUE THROUGH 2024 AND BEYOND. I THINK THIS IS AN ADJUSTMENT. I DON'T KNOW, THE U.S. ECONOMY HAS BEEN RESILIENT AND HAS PROVEN THE SURPRISE TO THE UPSIDE OVER AND OVER AGAIN. SO IT IS GOING TO BE AN ADJUSTMENT ON MONETARY AND FISCAL POLICY. I'M JUST NOT SURE WHAT THE EFFECTS WILL BE. THE U.S. ECONOMY HAS PROVEN TO BE STRONG AND HAS WEATHERED THE STORM WELL. LISA: WHICH IS WHY A LOT OF PEOPLE ARE BETTING MAYBE WE ARE SEEING THE INFLECTION POINT WHERE INFLATION COMES DOWN AND THAT IT READ SELLER RATES AND HEADS BACK UP TOWARD THE END OF THE YEAR AND 2024, YOU ARE SEEING INFLATION BREAKEVENS. THE EXPECTED RATE OF INFLATION OVER THE LONG TERM TO CUP. ARE INFLATION EXPECTATIONS BECOMING ONBOARD? -- ON MORE TO -- UNMOORED? RUBEELA: EVEN IF YOU ARE SEEING THESE BREAKEVENS, I DON'T SEE EVIDENCE THAT THIS IS AN UN-ANCHORING OF INFLATION EXCITATION. THERE IS ALWAYS THE RISK THAT A RESILIENT ECONOMY, A STRONG DEMAND FROM CONSUMERS IS GOING TO BE AT UPSIDE RISK FOR INFLATION. WE SAW THAT IN THE GDP NUMBERS AND THAT WAS A DISCUSSION WE HAVE BEEN HAVING. THE EVIDENCE WE ARE SEEING ON INFLATION, IT JUST DOES NOT TALLY UP WITH EXPECTATIONS. WE THINK IT WILL COME DOWN. IT WILL COME DOWN MEANINGFULLY. IT IS STILL STRONG SPENDING BUT IF YOU LOOK AT FOOD SERVICES, RECREATION SERVICES, THOSE ARE THE THINGS THE FED IS LOOKING AT. THE HOUSING COMPONENT IS GOING TO BE SUBSTANTIAL. IT WILL HAVE A SUBSTANTIAL EFFECT ON INFLATION GOING FORWARD. OUR BEST GUESS REMAINS THAT INFLATION WILL CONTINUE TO COME DOWN. THE NEXT FEW MONTHS, JULY AND AUGUST, IT IS GOING TO PROVE TO BE STICKY. THAT IS GOING TO LIMIT WHAT THE FED CAN DO. IF THEY WANT TO SIT IT OUT OR WHAT THEY NEED TO SEE LATER IN THE YEAR. LISA: WHAT IS MORE IMPORTANT FOR YOU, TO SEE THE OUTCOME OF THE TREASURY OPTIONS AND THE SUPPLY AND DEMAND DYNAMIC OR THE CPI REPORT THURSDAY? 'S RUBEELA: CPI. IT IS ALL ABOUT INFLATION. THIS IS AN IMPORTANT COMPONENT, WE HAVE FEW AFFECT ON RATES. BUT INFLATION AND THE LABOR MARKET, THAT IS WHAT THE FED HAS SAID THEY ARE LOOKING AT AND WHAT THEY ARE FOCUSING ON. WE HAVE SAID THIS PREVIOUSLY, WE ARE SEEING AN ADJUSTMENT. IT IS GRADUAL IN THE SAME IS TRUE FOR INFLATION. IT IS GOING TO TAKE SOME TIME TO GET BACK SUSTAINABLY TOWARD THE 2% TARGET. JONATHAN: PATIENTS IS THE BUZZ WORD. RUBEELA FAROOQI, THANK YOU. LOOKING AHEAD, CPI THURSDAY, PPI FRIDAY. LOTS ACROSS DIFFERENT MATURITIES. $42 BILLION TODAY. TOMORROW, A 10-YEAR OFFERING OF THURSDAY, THE LONGER END OF THE CURVE. $23 BILLION WORTH ON THURSDAY. MOST PEOPLE CONCLUDING THAT IS A TEST FOR THIS MARKET. TOM: IN DEFENSE OF LISA, I THINK ALL OF THIS IS BALONEY. AT THE MOMENT IT DOESN'T WORK THERE IS NO OTHER STORY. IF THE AUCTIONS FAIL, NOT COLLAPSE, BUT IF THEY DON'T GO AS SCHEDULED, EVERY OTHER STORY INCLUDING INFLATION DRIFTS AWAY. IT IS WAY MORE IMPORTANT UNTIL IT CHANGES. I DON'T SEE THE JUMP CONDITION OR RATES YET TO SEE IT. JONATHAN: IT DEPENDS HOW YOU DIAGNOSE IT FROM LAST WEEK. IF YOU BELIEVE IT IS DOWN TO THE OF ADDITIONAL TREASURY SUPPLY, THESE ARE KEY MOMENTS. THEY HAD TO ANNOUNCE ADDITIONAL SUPPLY FOR THIS QUARTER. HIGHER THAN THEY PREVIOUSLY THOUGHT. AND THE FIRST TEST WILL COME THURSDAY, THE LONGER END OF THE CURVE. WE'LL SEE HOW IT GOES. IF IT DOESN'T GO WELL, WE GOT A PROBLEM AND IF IT DOES, WE WILL MOVE ON QUICKLY. LISA: $30 BILLION OF 10-YEAR NOTE'S TOMORROW, $23 MILLION THURSDAY. IF THEY GO POORLY, HOW MUCH DOES STOP SELLOFF? TOM: THREE STANDARD DEVIATIONS, 4.27% IS THE MARK. JONATHAN: >> WE ARE NOT TERRIBLY OPTIMISTIC THAT WE WILL GET THIS TRUE SOFT LANDING. WE ARE LESS OPTIMISTIC THIS WILL END WELL AND INFLATION WILL COME BACK SUSTAINABLY TO 2% WITHOUT SOME BIGGER DOWNTURN. IF WE ARE GETTING IT BACK TO 2%, IT HAS TO HAPPEN WITH SOME CONTRACTION, SOMETHING WE WOULD CALL A RECESSION. JONATHAN: VERONICA CLARK, SOME KIND OF CONSTRUCTION WE WOULD CALL A RECESSION. MARKET COVERAGE, JP MORGAN AGREEING WITH HER, TALKING ABOUT THE SOFT LEAD AND DELUSION. THE HOPES AND DREAMS AS THE EQUITY MARKET. THOSE PEOPLE HAVE MISSED OUT. UPS IS NEGATIVE, DOWN BY 6.7%. HAVE CUT THE OUTLOOK FOR REVENUE. MORNINGS OF THE WEEK INCLUDING THE WALT DISNEY COMPANY AFTER THE CLOSE TOMORROW. EQUITY FUTURES NEGATIVE BY 0.5%, ON THE S&P 500, RISK AVERSION THIS MORNING. IT IS CAPTURED BY THE BOND MARKET, YIELDS LOWER BY NINE BASIS POINTS. THE 10 YEAR, JUST SHORT OF 4%. TOM: ELI LILLY OUT WITH A LITTLE JOY, PUSHING AGAINST THE DEFLATIONARY TONE. THEY'RE LOOKING AT SOME REVENUE LIFTS. THE STOCK IS GETTING SOME KIND OF LIFT. WE ARE GETTING THIS MOMENTS AGO. BUT THERE IS SOMETHING PUSHING AGAINST IT. IT IS UP 8%, I DON'T KNOW WHERE THAT IS FROM. IT HAS GOT TO BE EIGHT MISPRINT. JONATHAN: WE ARE NOT ALL MINE READERS. WE MENTIONED THE STOCK, HERE'S REVENUE. THIS IS WHAT THEY SEE FOR THE OUTLOOK. 33.4 BILLION TO 33.9. IT THE RANGE. THEY HAD SEEN 31.2 TO 31.7. THAT IS A BETTER RANGE. 972 990, THEY HAD SEEN 865 TO 885. THEY HAD RAISED GUIDANCE. THE STOCK HIGHER BY 8.5%. TOM: THIS IS ABOUT AMERICAN PHARMACEUTICALS AND THE REST GETTING BEYOND THE PANDEMIC. NOT GETTING BEYOND THE BANKING CHALLENGES OF EUROPE, PATRICK IS IN FRANKFURT THIS MORNING. THERE WAS AN EFFECT, WIRE THE GERMAN BANKS GOING DOWN AS WELL? THERE ARE CHALLENGES AT THE ITALIAN BANKS. WIRE THE GERMAN BANKS AFFECTED? PATRICK: TWO REASONS. THEY HAVE A LOT OF CORPORATE AND RETAIL BUSINESS IN THERE. I'M SURPRISED THE ITALIANS HAVE BEEN THE FIRST TO INTRODUCE THIS IDEA. WE HAVE A MARKET UNFRIENDLY GOVERNMENT IN GERMANY, AND IT HAS HAD THIS CHANCE TO PUT A HIGHER TAX ON BANKS AND IT IS A VOTER FROM THE TOPIC IN GERMANY. THEY ARE VERY HAPPY ABOUT THIS. TOM: WILL WE SEE TAXES IN ZURICH FOR THE WEST BANK STANDING -- LAST BANK STANDING? JAN-PATRICK: THERE IS A DEBATE IN SWITZERLAND. THAT TECH GOING INTO THE MERGER, EVEN THOUGH IT IS NOT GUARANTEED AND THEY ARE NOT PAID YET. BUT THEY WOULD BE VERY SYNTHETIC TO SAY WE HELPED YOU GUYS FOR THE SCREWUP AND AFTER 15 YEARS OF THE FINANCIAL CRISIS, WE WANT OUR MONEY BACK. I'M NOT SAYING IT IS FAIR. BUT IF YOU ARE A POLITICIAN, THIS IS A DRUM YOU CAN PLAY VERY LONG AND YOU WILL GET A LOT OF APPLAUSE. LISA: WE'VE ALSO SEEN ALL THE U.S. EARNINGS AND U.S. BANKS. THEY HIGHLIGHT THE MARKET SHARE GAINS THEY HAVE GOTTEN THROUGH EUROPEAN BANKS THAT FINALLY WE ARE SEEING THE LIGHT AT THE END OF THE TUNNEL OF LOW RATE POLICIES. BUT YOU'RE SEEING SOME OTHER POLICIES COME INTO THE FOUR. HOW MUCH DO YOU HEAR ABOUT PEOPLE OPTING NOT TO WORK AT SOME OF THESE BANKS OR NOT TO BANK WITH SOME OF THEM BECAUSE THEY ARE CONCERNED ABOUT REGULATORY OVERHANG BEYOND WHAT IT IS IN THE U.S.? JAN-PATRICK: I CAN'T STOP SMILING WHEN YOU SAY THIS BECAUSE IT FALLS INTO THE CATEGORY, TEXAS ALSO BE -- TAXES BEING INTRODUCED, WHY PEOPLE ARE NOT BUYING BANKS AND DON'T LIKE TO WORK FOR BANKS. THERE IS NO SHRED OF PUBLIC SYMPATHY EVER AT ALL FOUR EUROPEAN BANKS. ON THE CONTRARY, THERE IS A CEILING FOR 15 YEARS -- FEELING FOR 15 YEARS THAT THEY HAVE ALL OF THE HELP FROM THE FINANCIAL CRISIS, BUT THEY SCREWED UP AND THEY HAVE TO REPAY THIS DEBT TO THE PUBLIC IF THEY EVER CAN, IF THE PUBLIC IS EVER SATISFIED. NOW WE HAVE PAID OFF ENOUGH OF YOUR GUILT THAT WE HELPED YOU OUT AND IT DID NOT GO BANKRUPT AND NOBODY WENT TO JAIL FOR THE MESS UP WE ARE SEEING IN 2008, 2009. I HAVE A FEELING THIS WILL NEVER CHANGE. IT IS FUNNY WHEN PEOPLE SAY THE SECTOR IS CHEAP AND HAS GOOD EARNINGS. IT IS NOT THAT SHE BOND PAPER. BUT THERE IS NO SIMPLE THE FOR THE SECTOR. IF YOU GO IN AS AN INVESTOR, AN EMPLOYEE, YOU HAVE TO BE AWARE THAT WHENEVER THERE IS A CHANCE FROM THE PUBLIC TO TAKE THAT MONEY OFF OF THE SECTOR THEY WILL DO IT. THEY WILL NOT CARE ABOUT SHAREHOLDER RETURN OR STOCK MARKET. LISA: I SEWED PROPOSAL THIS MORNING AND THOUGHT IS THIS GOING TO GO INTO EFFECT OR IS IT PLAYING -- PAYING LIP SERVICE TO GENERATE POPULAR SUPPORT? YOU'RE MAKING IT SOUND LIKE YOU BELIEVE IT MUCH MORE, THAT IT WILL GO INTO EFFECT AND IT MIGHT EVEN SERVE AS A TEMPLATE FOR OTHER COUNTRIES. JAN-PATRICK: I BELIEVE THEY WILL DO IT. THE QUESTION IS NOT IF THEY WANT TO DO IT, IT IS HOW BIG. THE BANKS CAN'T FIGHT IT IN THE PUBLIC BECAUSE THEY WILL LOSE THIS ARGUMENT. NOBODY WILL BE ON THEIR SIDE. THE ONLY THING THEY CAN DO IS THE USUAL LOBBY THING WHICH THEY ALSO TRIED WITH REGULATION STUFF. IT DID NOT PREVENT REGULATION, IT COUNTED IT DOWN TO A DEGREE WHERE THEY FELT THIS IS DOABLE FOR US AND WE STILL CAN'T KEEP BEST WE CAN STILL KEEP THE SHAREHOLDERS SORT OF HAPPY. THEY WILL WORK BEHIND CLOSED DOORS TO MAKE SURE THIS IS NOT GOING TO BE OUT OF THE BOX AND RUIN ANY EARNINGS REPORT FOR THE YEAR. BUT NOW THAT IT IS IN THE OPEN, AS AN ITALIAN POLITICIAN YOU CAN'T BACKPEDAL AND SAY WE'RE NOT DOING IT. IT IS NOT GOING TO HAPPEN. TOM: WE ARE MAKING FUN, IN LOS ANGELES, DISNEY IS SETTING UP A TASK FORCE. I DON'T KNOW IF THAT TRANSLATES IN FRANKFURT. BUT ARE THEY GOING TO SET UP TASKFORCES AT THIS BANK? IT SOUNDS LIKE A PERFECT TIME TO SET UP THE TASK FORCE. JONATHAN FERRO CAN FLY OVER AND CONSULT FOR $10,000 AN HOUR. JAN-PATRICK: DO YOU SAY, $10,000 AN HOUR. GOLDEN TIME FOR ALL OF THE LOBBYISTS. THEY ARE POPPING CHAMPAGNE ALREADY. THIS IS GOING TO BE A 12 MONTH BATTLE, 24 MONTHS OR WHATEVER UNTIL THIS IS READY AND THEY WILL EARN TONS OF MONEY. I DON'T KNOW WHAT THEY DO IN THE END BUT THE BANKING SECTOR IS SO SCREWED UP. -- I MEAN, THE BUSINESS MODEL IS VERY DIFFICULT. THERE IS NO SIMPLE THE AND PUBLIC, NO POSITIVE REGULATION. THE INTEREST RATE STORY IT WAS NICE BUT HAS PEAKED. IT ALWAYS DOES WHEN THE ECONOMY GOES DOWN. IT IS DIFFERENT IN THE U.S., BUT EUROPE IS HORRIBLE. JONATHAN: THAT WOULD BE A HOOT. JUST WONDERFUL. EXASPERATED WITH WHAT IS GOING ON. DAMMED IF RATES ARE LOW AND DENT IF THEY ARE HIGHER. LISA: I LOVE HOW HE SAID THE INTEREST RATE STORY IS NICE, BUT IT IS PROBABLY PIZZA YOUR WE ARE. EVEN WHEN THEY ARE ACTUALLY ABLE TO EARN INCOME, THE PUBLIC SENTIMENT COMES INTO THE FOUR. THEY HAVE NOT REALLY WASHED OUT THE SENTIMENT IN DETERIORATION THAT THEY FELT DURING THE PEAK OF THE FINANCIAL CRISIS. THEY ARE FACING OFF WITH A COST-OF-LIVING CRISIS. THIS IS A DIFFERENT STORY AND IT HIGHLIGHTS THE DIFFERENTIALS BETWEEN EUROPE AND THE U.S.. TOM: IF BILL GROSS WAS SITTING HERE, AS JOHN TAYLOR STANFORD POINTED OUT, HE INVENTED THE PHRASE THERE WAS A GREAT MODERATION. AN ENTRENCHED TREND OF LOWER YIELDS, SOMEONE SUGGEST LOWER VOLATILITY ALONG THE WAY. IT IS OVER. PANDEMIC, GREAT FINANCIAL CRISIS. WITH THE GREAT MODERATION IS NOT OVER. WHAT DOES IT MEAN FOR ALL OF BANKING, INCLUDING THE STASIS OF EUROPEAN BANKS? JONATHAN: ANYONE WHO WAS BULLISH ON THE EUROPEAN BANKS HAS A REALITY CHECK. GOVERNMENT OFFICIALS HAVE OTHER IDEAS. IT REMAINS TO BE SEEN WHAT SHAPE OR SIZE THIS GOES THROUGH IN EUROPE. IT COULD BE CHALLENGED IN THE COURTS OR CHANGE IN PARLIAMENT. BUT IF THIS CHANGES THE MOOD MUSIC AROUND THE EUROPEAN BANKS, WILL RATE HIKES MATTER? TOM: 6.8% YIELD -- DIVIDEND YIELD. IT IS AMAZING. IT IS A FOREIGN ENTERPRISE COMPARED TO WHAT WE HAVE SEEN IN THE U.S.. JONATHAN: YOU ARE NOT INTERESTED IN THAT STORY. TOM: I'M NOT INTERESTED AND THE ITALIAN STORY, I'VE BEEN LISTENING TO IT FOR 30 YEARS. JONATHAN: INTERESTED NOW. JOINING US SHORTLY, FROM DEUTSCHE BANK, EQUITY FUTURES -- NEGATIVE BY 0.55%. YIELDS LOWER, BREAKING 4%, FOR .9999. UPS STRUGGLING, CUTTING THE OUTLOOK FOR THE REVENUE. THE STOCK IS DOWN. FROM NEW YORK CITY, THIS IS BLOOMBERG. >> BROADLY SPEAKING, OF THE ECONOMY HAS BEEN EXTRAORDINARILY RESILIENT WITH HIGH >> INTEREST RATES. >>IT FEELS THIS MARKET NEEDS TO HAVE A MOMENT OF DIGESTION >> AND CATCH ITS BREATH. >>IT SEEMS WE ARE GETTING TO THE END OF THE FED TIGHTENING CYCLE. >> IF WE ARE GETTING INFLATION BACK TO 2%, THAT HAS TO >> HAPPEN WITH YIELD CONTRACTIONS. >>THERE ARE SIGNS CERTAIN PARTS OF THE ECONOMY ARE RE-ACCELERATING. >> LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING. FOR AUDIENCE WORLDWIDE, THIS IS BLOOMBERG SURVEILLANCE ON TV AND RADIO. YOUR EQUITY MARKET THIS TUESDAY MORNING NEGATIVE BY 0.55%. CPI DATA THE MAIN EVENT THURSDAY. LOOKING ABROAD, DATA OUT OF CHINA DISAPPOINTING ON EXPORTS AND IMPORTS. TOM: THIS EVENING, WE GET TO STATISTICS FOR CHINA THAT SIGNAL DISINFLATION, IF NOT PRICE DECLINE, ON A YEAR-OVER-YEAR BASIS. IT IS A DEFLATIONARY TENDENCY ACROSS ALL THE BLOOMBERG LAUNCHPAD. THE 10 YEAR REAL YIELD RAPIDLY OVER THREE DAYS, ONE POINT 80%, DOWN TO 1.59%. >> THE TWIN SURPRISE OF 2023 SO FAR. LISA: ARE THE STORIES RELATED? NOT JUST BECAUSE THERE IS AN ISSUE WITH THE FACT THAT TRADE IS DECLINING BUT THE FACT THAT EUROPE HAS BEEN WORSE THAN EXPECTED RECENTLY. EUROPE IS MORE TIED ECONOMICALLY TO CHINA THAN THE U.S. IS AT THIS POINT ON A RELATIVE BASIS BECAUSE THE U.S. HAS BEEN REDUCING DEPENDENCE ON CHINA, SO I WONDER HOW MUCH THAT MIGHT BE THE LINCHPIN TO UNDERSTANDING SURPRISES THIS YEAR. JONATHAN: BANK OF AMERICA WROTE ABOUT THE BREAKDOWN OF SINKER NICE GROWTH. CHINA IS SLOWING DOWN. THE U.S. HAS BEEN BETTER THAN PEOPLE THOUGHT IT WOULD BE. WE HAVE THE POTENTIAL OF MORE HIKES FROM THE FEDERAL RESERVE. PEOPLE WERE THINKING WE WOULD GET CUTS THIS YEAR. EMERGING MARKETS ARE CUTTING AND OTHERS MIGHT FOLLOW, SO REALLY INTERESTING SET UP COMING TO THE SURFACE. TOM: THERE IS NO GROWTH CONVERGENCE GOING ON. IT IS DIVERGENCE. ALL THESE DIFFERENT NARRATIVES -- THESE DIFFERENT NARRATIVES OUT THERE AT UP TO CENTRAL BANKS WILL HAVE TO REACT. HOW FAR BEHIND BRAZIL ARE WE? JONATHAN: SIX MONTHS, NINE MONTHS? LET ME GET TO PRICE ACTION. EQUITY FUTURES DOWN BY 0.6%. YIELDS ARE NEGATIVE BY ABOUT EIGHT BASIS POINTS. TREASURY IS DOING OK. LISA WILL WALK YOU THROUGH THAT. 30 YEAR ON THURSDAY. A BIT OF DOLLAR STRENGTH OUT THERE AS WELL. >> WE DO GET TWO FED SPEAKERS. WE GET THE RICHMOND FED PRESIDENT. I FEEL THEY ARE BEING DEEMPHASIZED. PEOPLE SHRUG THEM OFF. THERE IS NO FORWARD GUIDANCE. THEY ARE LOOKING AT DATA. WE ARE STILL PAYING ATTENTION. 1:00 P.M., THIS IS WHAT I AM WATCHING. THE U.S. IS SELLING $42 BILLION OF THREE-YEAR NOTES BEFORE 10 YEAR NOTES ARE AUCTIONED OFF TOMORROW. THURSDAY, $23 BILLION OF 30 YEAR NOTES WILL BE SOLD. HOW MANY PEOPLE STEP UP TO BUY THEM AT A TIME WHERE THE TREASURY MARKET HAS BLOOMED OVER THE PAST 20 YEARS? IT HAS TRIPLED SINCE 2009 TO $25 TRILLION, SO IF YOU HAVE THIS INCREASED DEBT, WHO IS GOING TO BUY IT? IF PEOPLE DO NOT STEP UP, DOES THAT CAUSE A RISK OFF FUEL? EARNINGS TODAY, LOOKING FOR CONSOLIDATION OF POWER, SEEING IF THERE'S IS ANY MARKET SHARE CANNIBALIZATION FROM THE LIKES OF LYFT AND RIVIAN. JONATHAN: THE DOUBLING OF TESLA JUST REMARKABLE. I LOVE A TITLE, OUTSIDE RESEARCH, THE WOBBLE. WHAT IS IT IN THIS EQUITY MARKETS? >> THE WOBBLE IS WE ARE OVERDUE FOR A 3% TO 5% PULLBACK. IT WOULD BE NORMAL, BELIEVE IT OR NOT. WE ARE NOW IN THE 95TH PERCENTILE IN TERMS OF THE DURATION EVEN THOUGH IT SEEMS SHORT SINCE MARCH SINCE WE HAD A 3% TO 5% PULLBACK. THAT IS PRETTY NORMAL. IT HAPPENS EVERY TWO TO THREE MONTHS, SO IT IS GETTING EXTENDED. AS YOU KNOW, THE RISE IN POSITIONING HAS BEEN VERTICAL ESPECIALLY ON THE DISCRETIONARY INVESTOR SIDE, SO IT IS AN ADDITIONAL REASON FOR LOOKING FOR WHEN THE PROCESS IS OVER. I AM NOT BEING NORMATIVE ABOUT THAT AS TO WHAT SHOULD HAPPEN, BUT IF IT DOES HAPPEN WE WILL TELL YOU THAT PART IS PLAYED OUT. TOM: WHAT IS THE CHINA PROCESS TO BUY IN THE DIP? YOU HAVE BUY TICKETS OVER HERE, SELL TICKETS OVER HERE. >> TO BUY ON THE DIP, YOU HAVE TO HAVE A VIEW ON THE CATALYST. TOM: REFRAME YOUR VIEW THREE YEARS OUT. >> NOT THREE YEARS OUT, BUT WHAT IS DRIVING THE PULLBACK? I'M TALKING ABOUT THE CONSOLIDATION AND YOU WANT TO SEE POSITIONING RISE GRADUALLY RATHER THAN VERTICALLY, AS IT DID STARTING IN LATE MAY. LISA: DOES IT MAKE YOU NERVOUS THAT EVERYONE ON WALL STREET IS REVISING UPWARDS THEIR EXPECTATIONS FOR THE S&P? >> IT DOES NOT MAKE ME NERVOUS. IT IS PROBABLY OVERDUE. LISA: YOU ARE LIKE, WELCOME. >> WE ARE JUST REPORTING BASICALLY THE SECOND QUARTER OF PRETTY SOLID SEQUENTIAL GROWTH IN EARNINGS, SO IF THIS WAS GDP WE WERE TALKING ABOUT AND YOU ARE GETTING STRONGER GROWTH TWO QUARTERS IN A ROW, I THINK IT WOULD HAVE AN IMPACT. THE EQUITY MARKET TENDS TO LOOK AT THINGS ON A YEAR-BY-YEAR BASIS. THAT MAKES TURNING POINTS FUZZY. IF YOU LOOK AT HEADLINES EARNINGS GROWTH, YES, WE ARE STILL RUNNING NEGATIVE, BUT A LOT OF THAT HAS TO DO WITH OIL PRICES FROM LAST YEAR. YOU TAKE ENERGY EARNINGS OUT AND THE FIRST QUARTER OF POSITIVE GROWTH YEAR ON YEAR AFTER FOUR NEGATIVE QUARTERS, I THINK IT IS MORE IMPORTANT TO LOOK AT EARNINGS GROWTH ON A SEQUENTIAL BASIS AND ALSO ON AN UNDERLYING BASIS. IF YOU LOOK AT UNDERLYING EARNINGS, WHICH IS TAKING OUT ENERGY, YOU HAVE HAD TWO QUARTERS NOW OF 4% PLUS GROWTH AND WE ONLY FELL 6.5% LAST YEAR, SO UNDERLYING EARNINGS ARE AT A NEW HIGH AND THE NARRATIVE IS ABOUT A RECESSION. LISA: SOME PEOPLE ARE POINTING AT SMALL BUSINESS OPTIMISM. HOW MUCH DO YIELDS PUSH AGAINST THAT? WHAT IS MORE IMPORTANT FOR YOUR EQUITY CALL THIS WEEK? IS IT CPI THURSDAY OR THE TREASURY AUCTIONS AND HOW MAY PEOPLE STEP UP TO BUY THEM? >> I THINK YIELDS MATTER, BUT IT HAS BEEN MORE OVER THE LAST 18 MONTHS. IT HAS BEEN MORE ABOUT VOLATILITY OF THE MESSAGE COMING OUT OF THE RATES MARKET RATHER THAN RATES. AS LONG AS WE ARE TALKING ABOUT 25 BASIS POINTS HERE AND THERE, IT DOES NOT REALLY IMPACT MY VIEW. IF WE GET THE BIG ACCELERATION IN INFLATION AND RESPONSE FROM THE FED AND UNCERTAINTY INCREASES, THEN IT IS A BIGGER CONCERN AND PULLBACK. >> HOW MANY OF THESE GROWTH STOCKS ARE ACTUALLY GROWTH STOCKS? HOW MANY ARE ACTUALLY DELIVERING GROWTH? >> I WOULD SAY THE FOCUS SHIFTS OVER THE COURSE OF THE CYCLE. WHAT WE HAVE BASICALLY SEEN IS EARNINGS TURNAROUND STRONGLY IN THE FIRST QUARTER. IT WAS A PRETTY V-SHAPED MOVE QUARTER BY QUARTER AND THAT IS NOW WIDENING OUT, SO FIRST TECH CAUGHT UP WITH EVERYONE ELSE AND THE TWO HAVE MOVED IN TANDEM. IT DOES MEAN TECH EARNINGS SINCE THE END OF MAY IS A SHORT PERIOD BUT EARNINGS TO GROW FASTER. LISA: I THINK EVERYONE IS FASCINATED BY THE MOVE WITH APPLE AT THE MOMENT FOR FIVE STRAIGHT DAYS INTO TODAY. THEY TRIED TO SNAP BACK THIS MORNING BUT ULTIMATELY THEY ARE PRODUCING GROWTH. AND THE BIGGEST WEIGHING TRADING AT 30 TIMES FORWARD EARNINGS WHEN IT IS NOT DELIVERING GROWTH. >> I DO NOT COMMENT ON INDIVIDUAL STOCKS. JONATHAN: FROM A VALUATION PERSPECTIVE. >> THAT IS PART OF THE PROCESS OF THE RALLY WE HAVE SEEN SO FAR. IT IS THAT QUESTION THAT BROADENS THE RALLY OUT BECAUSE IF WE ARE -- THE MARKET IS RUNNING WITH THE SOFT LANDING NARRATIVE. IF THE SOFT LENDING IS GOING TO HAPPEN, YOU WILL HAVE CYCLICAL GROWTH AND THE MARKET IS SITTING IN THE MIDDLE NOW. WE ARE MOVING IN TANDEM AFTER GROWTH STOCKS LED THE CHARGE. AT SOME POINT, I WOULD EXPECT THE NEXT PHASE. TOM: THE CHINA WOBBLE IS IN PLACE. DOES THAT MEAN YOU RESET YOUR OUTLOOK? >> IT IS IMPORTANT TO KEEP IN MIND WE HAVE NOT FULFILLED EVEN THE 3% PULLBACK YET. I THINK THEY RETURN OF NORMALITY AFTER THIS REPRICING WE HAVE HAD WOULD BE HELPFUL. TOM: CAN WE GET TO 5000 TODAY WITH A WOBBLE? >> NOT TODAY, BUT IT IS OUR SOFT LENDING TARGET. JONATHAN: GOOD TO SEE YOU IN THE STUDIO. SOFT LANDING UPSIDE. TOM: A GUY WITH YEARS AND YEARS OF EXPERIENCE, THIS IS FABULOUS. JONATHAN: YOUR S&P 500 NEGATIVE BY 0.6%. COMING UP, THE JP MORGAN ASSET MANAGEMENT --M MEER PAA PANDIT WILL CONTINUE THIS CONVERSATION. A FANTASTIC RUN SO FAR FOR THIS WILL MAKE OR BREAK IT. JONATHAN: -- TOM: IT IS MAKE IT OR BREAK IT, BUT WE HAVE BEEN HERE MANY TIMES BEFORE. WHAT THE FAN BOYS WOULD SAY APPLE IS GET OUT THE CALENDAR. IT IS EARLY IN AUGUST. CHRISTMAS MYSTERY, HOLIDAY SEASON, AND EVERY TIME THIS COMES AROUND WITH NEW PRODUCTS AND SOMEONE IN A BLACK TURTLENECK HAS TO WALK OUT AND GIVE US THE SECOND COMING. JONATHAN: I AM NOT SURE THEY WEAR THE BLACK TURTLENECK. TOM: SEPTEMBER 22 OR SOMETHING, JON FERRO IS GOING TO GO BUY THE IPHONE 19 AND LIFE GOES ON. JONATHAN: WHEN THEY STOP MANIPULATING THE BATTERY, THAT IS ONE -- WHEN I WILL GET ANYONE. TOM: THE BATTERY IS MUCH BETTER. THAT IS THE BIGGEST SURPRISE ON THIS PHONE. >> I AGREE WITH YOU. THIS IS OFF, RIGHT? LISA: IT IS NOT. TOM: DEUTSCHE BANK HR IS RIGHT OVER THERE. SEE YOU. JONATHAN: TOTALLY OK. I WILL TRY TO REMIND HIM THE CAMERA STILL ROLLING. THAT WAS PERFECT. EQUITIES ON THE S&P NEGATIVE. >> YES OR NO, DID DONALD TRUMP LOSE THE 2020 ELECTION? >> WHOEVER PUTS THEIR HAND ON THE BIBLE EVERY FOUR YEARS IS THE WINNER. OF COURSE HE LOST. >> TRUMP LOST THE 2020 ELECTION? >> BIDEN'S PRESIDENT. I DO NOT THINK IT WAS A GOOD RUN ELECTION, BUT I ALSO THINK REPUBLICANS DID NOT FIGHT BACK. JONATHAN: THAT WAS THE GOVERNOR OF FLORIDA, RON DESANTIS, MAKING HIS POSITION CLEAR ON THE STATE OF THE 2020 ELECTION. TOM: THE CALENDAR IS OUT AND IT IS FOREIGN TO THE WONDERFUL PROCESS OF THE BRITISH ELECTIONS, BUT IT IS AUGUST. HOW CLEAR ARE THEY GOING TO BE IN NOVEMBER AND LATE JANUARY NEXT YEAR? >> THAT IS THE PLAYBOOK, A NOD AT THE SAME TIME BY SAYING IT WAS NOT A WILL RUN ELECTION. TOM: WHAT IS INTERESTING IS I WONDER WHAT THE LANGUAGE DIFFERENTIAL WOULD BE FROM DESANTIS, THE GOVERNOR OF FLORIDA, AND RUBIO, THE SENATOR OF FLORIDA. THAT IS A REAL NUANCE. >> AND HOW THIS PLAYS OUT AT THE DEBATE STAGE. WHAT ARE WE, TWO OR THREE WEEKS FROM THIS? TOM: YOU TALKED ABOUT THE HEADLINE FLOW AND MENTIONED UPS EARLIER. WE WILL GET TO THE NEW YORK TIMES LATER. THIS NETWORK WILL MERGED WITH ECO-STAR, MAYBE LIKE A MEETING UNDER STRESS. JONATHAN: WE WILL TRY TO GET DETAIL ON THAT IN A MOMENT. TOM: IT IS AN INTERESTING AUGUST HERE. LOOK AT THE WASHINGTON POST AND NEW YORK TIMES. THE NEWS FLOW IS NEXT TO NOTHING , A GOOD TIME TO TALK TO WENDY BENJAMIN'S AND -- BENJAMINSON. IT WILL NOT GO AWAY. THAT QUESTION ABOUT JANUARY 6 AND ALL. I GUESS GEORGE IS COMING UP WITH AN INDICTMENT. IT DOES NOT GO AWAY. HOW LONG AWAY IS THIS DEBATE, FOR PEOPLE WHO WILL DEBATE THE END OF THE MONTH? IS IT TOMORROW THEY DEBATE OR IS THERE A NEWS FLOW TO GET TO THE REPUBLICAN DEBATE? >> ONE OF THE NEWS FLOWS AHEAD OF THE DEBATE, AND AUGUST WHERE CONGRESS IS OUT OF TOWN AND PEOPLE TEND TO BE ON VACATION, THE BIG NEWS FLOW IS WHO WILL QUALIFY FOR THE DEBATE. WE LEARNED THE FORMER VICE PRESIDENT DID FINALLY EKE OUT TO THE NUMBER OF DONORS NEEDED AND THAT LAST RUSH DONATIONS CAME SINCE HIS FORMER BOSSES'S LAST INDICTMENT FOR TRYING TO CONVINCE HIM TO OVERTURN THE ELECTION, SO IT IS ALL WRAPPED IN ONE MESSY NOT. TOM: DOES AMERICA CARE? >> I DO NOT THINK VOTERS DO CARE. I THINK THERE IS A SUBSET OF REPUBLICAN PRIMARY VOTERS WHO ARE INTO THIS AND A SMALL SUBSET WHO ARE STILL MOVED BY THE CANTEENS -- ANTI-WOKE CAMPAIGNS. VOTERS CARE ABOUT PUTTING FOOD ON THE TABLE, ABOUT HAVING A JOB WITH A DECENT WAGE. THAT IS WHAT GETS PEOPLE TO THE POLLS IN THE MORNING. IT IS NOT WHAT IS HAPPENING TO SOME GROUP OF PEOPLE THEY DO NOT KNOW OR AN ELECTION THAT WAS FOUR YEARS AGO. THERE IS A NARRATIVE THAT DONALD TRUMP KEEPS CONSOLIDATING REPUBLICAN POWER BEHIND HIM AND HAS THE MOST LIKELY CHANCE OF BECOMING THE REPUBLICAN CANDIDATE. INCREASINGLY, YOU HEAR CANDIDATES PUSHING BACK AGAINST HIS CLAIMS, INCLUDING THE CLIP WE JUST PLAYED WHERE HE SAID JOE BIDEN IS THE PRESIDENT. HOW MUCH DOES THAT HURT THESE CANDIDATES VERSUS HELP THEM LATER ON? IS THERE SOME FEEL OF WHAT THIS DOES TO THE FIELD? >> YOU HAVE SET IT OUT NICELY. THERE IS THE FIRST HURDLE OF WINNING THE REPUBLICAN NOMINATION AND THEN A MUCH DIFFERENT HURDLE OF WINNING THE GENERAL ELECTION, WHERE YOU HAVE TO APPEAL NOT ONLY TO DIEHARD REPUBLICAN PRIMARY VOTERS BUT ALSO TO MODERATE REPUBLICANS, TO THE MYTHICAL SUBURBAN VOTE, AND HOPING TO GET SOME DEMOCRATS OVER TO YOUR SIDE. YOU ARE NOT WANT TO DO IT IN THE GENERAL BY SAYING BIDEN WAS ILLEGITIMATELY ELECTED. FIRST, YOU HAVE TO GET OVER THE FIRST HURDLE. I THINK YOU SAW DESANTIS TRYING TO FIND THAT HAIRSPLITTING THAT HE COULD DO. SURE, WHOEVER PUT THEIR HAND ON THE BIBLE IS THE PRESIDENT, OK. WHEN PRESSED, HE IS LIKE, TRUMP LOST. WE ALL KNOW IT, BUT IT HAS BECOME PART OF THE GOP POLITICAL RHETORIC THAT MAY BE HE DID NOT. THAT IS THE THREAD THEY ARE TRYING TO -- NEEDLE THEY ARE TRYING TO THREAD NOW. LISA: WE HAVE BEEN FOCUSING ON UPS, COMING OUT AND TALKING ABOUT HOW THEIR FULL YEAR FOR -- THEIR FORECAST IS LOWER THAN EXPECTED BECAUSE OF NEGOTIATIONS AND WHAT THE DEAL WAS THAT THEY STRUCK WITH THE UNION. IS THERE ANY SENSE OF HOW MUCH PRESIDENT BIDEN WILL LEAN INTO THE UNION PUSH IN THIS ELECTION CYCLE? HOW MUCH IS THE WHITE HOUSE TALKING ABOUT THIS? >> THEY ARE TALKING ABOUT IT. THEY THINK THEY ARE TALKING ABOUT IT ENOUGH. IT LOOKS LIKE MEMBERS OF THE UAW DO NOT THINK HE IS TALKING ABOUT IT ENOUGH. THE PRESIDENT OF THE UNION ONCE THE PRESIDENT OF THE COUNTRY TO WEIGH IN MORE FORCEFULLY ON LABOR ISSUES. BIDEN HAS ALWAYS MADE HIMSELF UNION JOE, THE MIDDLE CLASS UNION MEMBER GUY, AND HE IS NOT GETTING THAT VOTE BACK. THE DEMOCRATS NEED THE BLUE-COLLAR, WORKING PEOPLE TO WIN THE ELECTION. TOM: IT IS INTERESTING TO SEE. AS SIMPLE AS I CAN, IS UNION REPUBLICAN OR DEMOCRAT? WENDY: UNION RANK-AND-FILE TENDS TO BE REPUBLICAN RIGHT NOW. UNION LEADERSHIP IS DEMOCRATIC. THAT IS WHAT BOTH SIDES ARE TRYING TO RECONCILE. IT TURNS OUT UNION LEADERSHIP WERE ALL FOR BIDEN LAST YEAR WHILE THE GUYS ACTUALLY IN THE FACTORIES WERE VOTING FOR TRUMP. THEY HAVE ALSO GOT TO SORT OF GET THEIR OWN HOUSE IN ORDER BEFORE THEY CAN BE A REAL POLITICAL FORCE. JONATHAN: THANK YOU. WENDY BENJAMINSON THERE. TOM: IS IT THE SAME THING IN ENGLAND, WHERE THERE IS THIS NEW MANAGEMENT PARTITION? JONATHAN: CAN BE. TOM: THIS IS A HUGE DEAL. THE HEAD OF THE TEAMSTERS IN BOSTON REALLY ALLUDED TO THIS, AND THAT THERE IS THIS HUGE DIVIDE STILL INVOLVED IN WHAT -- AND WHAT THE TEAMSTERS DID WAS GET EVERYBODY ON BOARD. HIS REVOLUTION WAS TO AGREE WITH THE RANK-AND-FILE. JONATHAN: THE YEAR IS 2030 SIX AND IT WILL BE THE SAME QUESTION. LISA: YOU ARE GOING TO GET THAT IN EUROPE. WHEN YOU WERE PART OF THE TEAMSTERS, OR WERE THEY CALLED? JONATHAN: I WAS NOT PART OF THE TEAMSTERS. I WAS NOT A UNION GUY. TOM: OUR STEREOTYPE IS THE UNITED KINGDOM IS MORE UNION THAN AMERICA. IS THAT WRONG? JONATHAN: I THINK THE DIRECTION FROM -- HAS DECLINED A LOT. WE HAVE HARDLY ANYONE IN THE UNION COMPARED TO 20, 30 YEARS AGO. WOULD YOU BE A UNION GUY IF WE HAD WAGES LIKE THE 70'S? WITH THAT BE A DECENT POSITION TO TAKE ON THE ECONOMY? LISA: WOULD YOU BE A UNION GUY IF UPS HAD LED TO THAT DIRECT PASS-THROUGH? THIS IS A DIFFICULT MOMENT AND YOU ARE SEEING IT IN EUROPE MORE THAN THE U.S.. >> THE REAL TEST OF A UNION GUY IS WHETHER YOU ACTUALLY ALLOW LABOR TO STRIKE. LISA: AND YOU DO NOT. JONATHAN: I AM SAYING THAT HAS TO BE THE REAL TEST TO THE PRESIDENT. HAVE WE SEEN THAT HAPPEN? NO. IT IS EASY TO SAY "I AM A UNION GUY." LET'S SEE IF THEY CAN GO ON STRIKE. JONATHAN: EQUITIES NEGATIVE HERE ON THE S&P 500. WE ARE DOWN AFTER SNAPPING A FOUR DAY LOSING STREAK, THE NASDAQ DOWN BY 0.8 PERCENT. A LOT OF ATTENTION ON APPLE, LONGEST LOSING STREAK OF THE YEAR SO FAR. WE ARE DOWN IN THE PREMARKET BY 0.2%. UPS IS DOWN BY ABOUT 4.9%. UNDERPERFORMANCE ON THE SMALL CAPS, EQUITY FUTURES DOWN ACROSS THE BOARD. IN THE BOND MARKET, A BIT OF RISK AVERSION OUT THERE WITHOUT AN OBVIOUS CATALYST, WITHOUT THE EXCEPTION OF WHAT IS GOING ON WITH BANKS, BUT NOT A LOT STANDS OUT APART FROM CHINA THREE -- TRADE DATA. NEGATIVE FOUR BASIS POINTS -- WHAT IS IT THIS MORNING? LISA: I'M CURIOUS TO HEAR WHETHER REAL INSTITUTIONS HAVE STARTED TO COME IN GIVEN THAT YIELDS GOT TO THAT 4% LEVEL. THERE WAS TENTATIVENESS. IT SEEMS PEOPLE ARE SAYING THEY ARE JUST GETTING OVER THE INFLATION CALLS, LET'S LOCK AT 4% YIELDS. JONATHAN: TREASURY AUCTIONS SET TO TEST INVESTOR APPETITE, $103 BILLION THIS WEEK. THE BIGGEST FAN -- ROUND OF REFUNDING SINCE LAST YEAR. TOM: DOES JAPAN SHOW UP? IS THAT THE TENSION? ? LISA: SOME PEOPLE SPECULATE THERE WILL BE FEWER JAPANESE BUYERS, BUT THAT IS A LONG PROCESS. THAT WILL NOT BE NOW BECAUSE YIELD CONTROL -- YIELD CURVE CONTROL HAS BEEN ABANDONED. THERE IS A QUESTION ABOUT WHETHER BOND VIGILANTES WILL FEEL EMBOLDENED BASED ON THE DOWNGRADE OF THE U.S. AND BASED ON HOW MUCH THERE WAS A SURPRISE UPSIDE IN THE AMOUNT OF DEBT THE TREASURY WAS SELLING. TOM: IS THERE A DIFFERENCE BETWEEN 10 YEAR DEMAND AND SEVEN-YEAR? JONATHAN: THAT IS GOING TO BE THE REAL TEST. THE ADDITIONAL SUPPLY WE GOT FROM TREASURY THAT WAS ANNOUNCED LAST WEEK -- THE SELLOFF WE HAVE SEEN SO FAR HAS BEEN ON TENDS -- 10'S AND 30'S. ALL OF THAT RECEIPT AND IN -- RE-S TEEPENING HAS COME FROM THE FAR SIDE OF THE CURVE. THERE IS A LOT THAT HAS PUSHED THE TREASURY MARKET IN THE WRONG DIRECTION. LISA: REAL YIELDS ARE RISING. YOU'RE SEEING INFLATION EXPECTATIONS RISE. IS THIS TIME DIFFERENT? WE DO GET A NEW ERA OF MONETARY POLICY AND ACTUALLY HAVING RATES HIGHER THAN THEY HAD BEEN. JONATHAN: I MENTIONED A DOWNGRADE, MOODY'S DOWNGRADING 10 U.S. BANKS. THE RATING AGENCY WRITING, RISING FUNDING COSTS AND DECLINING INCOME METRICS WILL ERODE PROFITABILITY. ASSET RISK IS RISING, PARTICULARLY FOR SMALLER, MIDSIZE BANKS. TOM: PEOPLE SAY IT IS JUST OFFICE BUILDINGS. I AM LIKE, MAYBE. I ALSO LOOK AT THE TAPE. CURRENCIES COME OUT. IT ADVANCES IN THE LAST 60 MINUTES. 10 YEAR YIELDS TO FOUR DIGITS. JONATHAN: SO IF YOU PICKED THE STORY THIS MORNING, YOU WOULD PICK OUT THIS STORY. TOM: IT IS AUGUST. BARBIE IS OVER. WE HAVE TO HAVE THINGS TO WORRY ABOUT. I HAVE BEEN FIVE TIMES. JONATHAN: WHAT IS THE REVIEW? LISA: THE KIDS LOVED IT. IT HAD A GOOD MESSAGE. I DO NOT KNOW. THE TRUTH IS IT IS A REALLY THIN STORY THAT IS REALLY IRRITATING ON CERTAIN LEVELS BUT HAS THIS SORT OF OVERLAY. TAMIKO IT WAS A TWO HOUR BUILDS UP WITH THE LAST LINE CUT WHICH WAS A PUNCHLINE -- TO ME, IT WAS A TWO HOUR BUILD UP WITH THE LAST LINE, WHICH WAS A PUNCHLINE. THAT BARBIE WAS GOING TO SEE A GYNECOLOGIST. JONATHAN: WHAT DOES THAT MEAN? TOM: IT IS A LITTLE DRY BRITISH HUMOR. LISA: SHE HAS ACTUALLY BECOME A WOMAN AND THE PLASTIC DOLL IS ANATOMY-LESS. THE CONCEPT OF HER BECOMING WHAT IT IS TO BE AN ACTUAL WOMAN RATHER THAN THE IMAGE FOISTED UPON THE GIRLS THAT WERE PLAYING WITH THE DOLLS. TOM: TOMORROW, THE REVIEW OF "OPPENHEIMER." JONATHAN: DEFINING WHAT A WOMAN IS A SHAKY GROUND THESE DAYS. UPS SHARES SLUMPING, THE COMPANY LOSING -- CHANGING HIS PROFIT FORECAST AFTER A TENTATIVE AGREEMENT THE STOCK IS DOWN BY 5%. THE COMPANY EXPECTING REVENUE TO BE $93 BILLION DOWN FROM ITS PRIOR FORECAST OF 97. THAT IS A CUT TO THE OUTLOOK THIS MORNING. TOM: IT IS. IT IS LOGISTICS. I WILL GO TO THE LABOR COST HEADLINE THAT WE SAW AS A REAL ADJUSTMENT OF SELECTED COMPANIES TO COME, INCLUDING THE TENSION THAT WE SEE. WHAT DOES THIS DO TO FORD AND GM? JONATHAN: AND THEN WE HAVE THE STORY TOMORROW, THE WALT DISNEY COMPANY. JONATHAN: AI AND THE MEDIA IS A BIG DEAL. HAVE YOU SEEN THIS VIDEOS WHERE THEY CAN DO A MAFIA VERSION OF HARRY POTTER? LISA: THAT DID NOT COME ON MY TIMELINE. JONATHAN: YOU SHOULD CHECK THAT OUT. IT IS FANTASTIC. THEY CAN DO COOL THINGS WITH THIS STUFF NOW. DO YOU NEED ACTORS AND ACTRESSES? THAT IS WHERE THE TENSION IS BETWEEN STRIKING HOLLYWOOD STUFF AND THE BOB IGER'S OF THIS WORLD. I IMAGINE YOU WOULD LIKE TO CLEAR THE DECKS OF COSTS AND THEIR STRATEGY THERE TO BE HAD. TOM: S&P FUTURES AT -35. THIS IS AN IMPORTANT INTERVIEW, OUR INTERVIEW OF THE DAY IN FIXED INCOME AND ALL IT MEANS ACROSS EQUITIES, COMMODITIES, AND FOREIGN EXCHANGE. HE IS PRINCETON'S CIVIL ENGINEERING AND THAT IS A RIGOR ABOUT STATICS AND DYNAMICS THAT HE BRINGS TO FIXED INCOME NOW. THIS IS NOT STATICS IN THE FIXED INCOME MARKET. WHAT IS THE DYNAMIC OF ALL THE ALGEBRA AND MATH NOW? WHAT IS THE DYNAMIC YOU ARE FOCUSED ON? >> YOU WERE TALKING ABOUT IT EARLIER IN THE SHOW, WHICH IS NEWS AROUND DISINFLATION AND ALMOST DEFLATIONARY VIBES OUT THERE. WE ARE GETTING U.S. CPI DATA THURSDAY. WE GET CHINESE DATA TONIGHT. U.S., I THINK THE BLOOMBERG CONSENSUS IS WE WILL GET .2 MONTH ON MONTH. THE DATA IS STARTING TO COME IN VERY DISINFLATIONARY AND IT LOOKS LIKE AREAS LIKE CHINA AND THE TRADE DATA WE GOT OVERNIGHT, IT FEELS MORE DEFLATIONARY. THAT IS WHAT IS GOING ON IN THE BOND MARKET. PEOPLE ARE LOOKING AT THAT AND THINKING, IF I COULD GET A 5.5% FOR INVESTMENT-GRADE BOND PORTFOLIO AND WE ARE IN A DISINFLATIONARY ENVIRONMENT WHERE GROWTH IS GOING TO BE MEDIOCRE, THAT SOUNDS GOOD. THAT IS WHERE THE BUYERS COME FROM. JONATHAN: THERE IS A TUG-OF-WAR BETWEEN DISINFLATIONARY FORCES AND ADDITIONAL TREASURY SUPPLY. YOU KNOW TREASURY SUPPLY WINS OUT. YOU DO NOT THINK IT IS AS IMPORTANT WHEN IT COMES TO WITH THE BOND MARKET IS GOING TO DO. ROB: THAT IS PROBABLY PART OF WHAT REVALUE TO THINGS LAST WEEK, LOOKING FOR THAT SUPPLY. IN ANY MEDIUM-TERM HORIZON, SUPPLY IS NOT THE DRIVER. IT IS MACRO FORCES. LISA: HAVE YOU BEEN BUYING THIS BOND TO SELL OFF? ROB: WE ARE POSITIVE ON DURATION. WE HAVE BEEN LOOKING AT THIS TREASURY. WE THINK 10-YEAR HAS BEEN IN THE 3.5 TO 4% RANGE. I AM GETTING MORE POSITIVE ON THAT. HERE'S A GREAT BUY OPPORTUNITY BECAUSE YOU HAVE A DISINFLATIONARY ENVIRONMENT WITH RELATIVELY MODERATE REAL GROWTH, SO IN THE MEDIUM-TERM THAT IS GOOD. YOU START TO THINK ABOUT THE RISK SCENARIOS. THE RISK SCENARIOS ARE THAT THE FED OVERSTAYED HIS WELCOME. WE HAVE FED MEMBERS SAYING THEY NEED TO HIKE AGAIN EVEN THOUGH WE ARE IN A DISINFLATIONARY ENVIRONMENT. THAT COULD BE NEGATIVE FOR THE GROWTH OUTLOOK AND CREATE A DISLOCATION. THAT WILL BE POSITIVE FOR THE TREASURY MARKET. LISA: ARE YOU BASICALLY SAYING I CANNOT WAIT TO LOAD UP ON 10 YEAR AND 30 YEAR TREASURIES? >> THIS IS A GREAT TIME TO BUY FIXED INCOME. LISA: WHO IS JOINING YOU? ARE YOU SEEING INSTITUTIONS DOING THE SAME THING YOU ARE OR IS IT STILL THE SAME BUYER BASE AND WE ARE MAKING NOISE OVER NOTHING? >> ROB: THE SAME INTERNATIONAL BUYER BASE IS THERE. FIXED INCOME FLOWS HAVE NOT TURNED INCREDIBLY POSITIVE YET, BUT WE THINK THAT IS LIKELY TO COME. JONATHAN: CAN WE TALK ABOUT THE NEW FLOOR IN GLOBAL FIXED INCOME? PEOPLE THINK MAYBE THEY ONLY COME BACK TO SOMETHING IN BETWEEN. WHAT IS THE NEW FLOOR FOR GLOBAL FIXED INCOME? IF YOU GET INTO TROUBLE, WHAT DO YOU RALLY DOWN TO? WHAT ARE THE LIMITS OF THE RALLY? >> IT DEPENDS ON WHAT A RECESSION LOOKS LIKE. WE THINK IT IS IN THE RANGE OF A MORE NORMALIZED YIELD CURVE THAT WAS SEE A MORE STEEP YIELD CURVE. SHORT RATES GET DOWN, YOU'RE TALKING ABOUT 10 YEARS AT TWO. IN A RECESSIONARY TYPE OF ENVIRONMENT. JONATHAN: THE PUSHBACK I HAVE HEARD IS PERHAPS HE COME DOWN TO 3.5, FOUR, SOMETHING LIKE THAT. LISA: ESSENTIALLY, INFLATION WOULD BE STICKIER FOR LONGER AND KEEP THE FED AT A HIGHER LEVEL. THEY WERE NOT GOING TO GO BACK TO THE LOW RATE ENVIRONMENT. I WONDER HOW MUCH THIS IS REALLY THE POLLS -- POLES OF THE DEBATE. ROB: WE LIVE IN A NOMINAL WORLD. SOMETIMES WE GET CONFUSED BY THIS BREAKEVEN STUFF. WE LIVE IN A NOMINAL WORLD. NOMINAL GROWTH IS COMING UP QUICKLY. INFLATION IS COMING DOWN AND GROWTH IS COMING DOWN. IF YOU THINK GOING FORWARD WE ARE AT NOMINAL GROWTH, THAT IS A TREMENDOUS ENVIRONMENT FOR FIXED INCOME. IF NOMINAL GROWTH SETTLES BELOW THAT, YOU COULD SEE RATES COME DOWN. JONATHAN: THANK YOU. GOOD TO SEE YOU IN PERSON. IT IS UNUSUAL. I THINK IT HAS BEEN A FEW YEARS. ROB: SINCE I HAVE BEEN ON THE SET, THIS NEW SET. LISA: IT IS NOT NEW ANYMORE. JONATHAN: WE HAVE HAD THIS A FEW TIMES OVER THE LAST SIX MONTHS, WHERE WE HAVE NOT SEEN PEOPLE IN PERSON FOR THAT LONG. NEGATIVE ON THE S&P 500. COMING UP, STEPHEN STANLEY CHIEF U.S. ECONOMIST FOR U.S. CAPITAL MARKETS AND ONE OF THE MOST ACCURATE FORECASTERS OF THE LABOR MARKET, ON THE STREET, THAT CONVERSATION AROUND THE CORNER. TOM: I CANNOT TELL YOU HOW TIMELY THIS CALL IS. AS YOU GET REAL GDP TO FLATTEN OR COME IN A LITTLE, NO BIG DEAL, BUT IF THE INFLATION COMPONENT COMES IN YOU HAVE NOMINAL GDP UNDER 5%. I CANNOT FATHOM IT WOULD GET UNDER 4% AND THAT IS WHERE YOU GET BACK TO WHAT OTHERS HAVE BEEN TALKING ABOUT, WHICH IS A DISINFLATIONARY TENDENCY. AND THE FED REACTS. LISA: BECAUSE THE ECONOMY HAS BEEN SO RESILIENT, BECAUSE OF THE DEBT OVERHANG, YOU END UP WITH HIGHER INFLATION REALITY. WE DO NOT KNOW WHERE WE ARE GOING AND THIS IS WHY I CARE LESS ABOUT WHAT THE FED IS SAYING IN THE IMMEDIATE TERM AND MORE ABOUT LONGER-TERM BENCHMARKS TO UNDERSTAND WHERE WE ARE HEADING. JONATHAN: CHAIRMAN POWELL LATER THIS MONTH. LISA: I AM INTERESTED IN THAT. YOU WERE SAYING YOU WONDER IF HE SHOWS UP. JONATHAN: I WONDER THIS IS THE RIGHT TIME TO MAKE A DEFINITIVE COMMENT ON THE DISINFLATIONARY FORCES WE HAVE SEEN SO FAR OR IF WE JUST HAVE THE LUXURY OF WAITING FOR ONE MORE PRINT AFTER THIS ONE BEFORE SEPTEMBER 20. THAT IS MY QUESTION. LISA: HE COULD JUST SAY, I DO NOT KNOW. HERE WE ARE. >> >>IS ACTUALLY A WEAKER DOLLAR FORWARD. THE FX MARKET IS IN A TOUGH SPOT IN THE SENSE THAT IT IS DIFFICULT TO NAVIGATE THESE CROSSCURRENTS. THE FED HAS THE ABILITY -- THAT IS THE DOMINANT DRIVER FOR THE FX MARKET. JONATHAN: AND WE ARE TALKING ABOUT BARBIE. I HAVE NOT SEEN IT. TOM: I HAVE NOT SEEN IT. JONATHAN: GIVE ME A CHANCE. LET ME GET MY REVIEW. LISA: ARE YOU GOING TO SEE IT? JONATHAN: EVENTUALLY. IT IS NOT THE KIND OF MOVIE I FEEL I NEED TO GO TO THE MOVIE THEATER TO WATCH. I WILL WATCH AT HOME. LISA: IN THE PRIVACY OF YOUR OWN HOME, YOU WATCHING BARBIE. JONATHAN: I MIGHT HAVE THINGS TO SAY. I'M AM OPEN MINDED. LISA: I AM LOOKING FORWARD TO YOUR REVIEW. JONATHAN: EQUITIES RIGHT NOW DOWN .75%. DATA OUT OF CHINA NOT GREAT. DOWNGRADE OF U.S. BANKS BY MOODY'S. TALK OF A BANKING LEVY OVER IN ITALY, SO THEY MOVED -- THE MOOD IS SOUR. YIELDS ARE DOWN NINE BASIS POINTS AND THE DOLLAR STRONGER. TOM: MOMENTS AGO, TALKING ABOUT THE OVERLAY OF DISINFLATION AND DEFLATION. THESE ARE TANGIBLE THINGS. INFLATION FOR REAL, DISINFLATION IS JUST LESS INFLATION. INFLATION IS ACTUAL PRICE DECLINE. REFLATION IS A CALM -- A COSMIC THING. NO ONE IS TALKING ABOUT IT. JONATHAN: TALKING ABOUT WEAK GROWTH OUT OF CHINA AT THE MOMENT. TOM: IN A MOMENT, DAMON SACHSEN OUR -- AMY AND SACHSEN OUR -- DAMIEN SASNOWER JOINS US IF WE DO NOT BRING UP THE NEW YORK YANKEES. CHINA, THINGS ARE GOING TO BE GREAT IN THE NOT. FROM 60,000 FEET, WHAT IS THE "WHY" OF THE IMMEDIATE SLOWDOWN IN CHINA? >> THANK YOU FOR TELLING ME WHAT DISINFLATION IS AT INFLATION. I GET CONFUSED. THE DATE OVERNIGHT OUT OF CHINA, TALKING FOREIGN INVESTMENT, DOWN 87%, TO ITS LOWEST LEVEL SINCE 1998. REMEMBER WHAT CHINA EXPORTS ARE. 30% OF COMPANIES THAT EXPORT BROAD ARE OPERATING OUT OF CHINA. WHEN YOU SEE EXPORTS ARE DOWN, WE KNEW IT WAS GOING TO BE BAD. IT IS THE SUPPLY CHAIN DIVERSIFICATION RESONATING WITH ME. SO FOR ME IT IS JUST MORE OF THE SAME. OBVIOUSLY, IMPORTS ARE DOWN. WE KNOW THE WEAKNESS DOMESTICALLY. DID YOU HEAR THAT COUNTRY GARDEN IS DEFAULTING ON COUPON PAYMENTS? A LOT OF THAT HAS NOT CHANGED, BUT HOW IS IT SPILLING OVER? THIS IS WHERE IT IS INTERESTING. NOT ONE OF THEM IS UP. THIS HAS A LOT TO DO WITH THE YOU WANT -- YUAN. JONATHAN: IT IS THE ECONOMY THAT HAS CRIED WOLF. WE HAVE SEEN AN ECONOMY GOING INTO SOMETHING BAD AND IT LOOKS LIKE THE INGREDIENTS FOR A RECESSION BUT NO ONE WANTS TO ENGAGE IN THE CONVERSATION BECAUSE THEY FEEL THEY HAVE HAD IT OVER THE LAST DECADE AND BEEN WRONG. DOES IT LOOK LIKE THIS WILL BE IN A PLACE LIKE CHINA GIVEN WHAT YOU HAVE SEEN PLAY OUT? >> LET'S THINK ABOUT WHERE WE WERE THE BEGINNING OF THE YEAR. IT WAS GOING TO BE 4% GROWTH IN CHINA AND THAN EVERYBODY SKILLS UP TO 6% AND WE ARE BACK DOWN TO PEOPLE TALKING ABOUT A 4% GDP GROWTH HANDLE FOR 2023. IT DOES NOT MATTER WHAT THE NUMBER IS BECAUSE THEY ARE NOT STIMULATING THE ECONOMY. THIS IS CYCLICAL. IF PEOPLE DO NOT WANT TO BUY -- WE ALL TALK ABOUT INVENTORY STOCK THAT THESE INDUSTRIAL COMPANIES IN CHINA DID AND NOW THEY ARE WORKING THROUGH THAT AND THAT IS LEANING ON INFLATION AND DEFLATION, BUT IT IS TOUGH AND OUR FRIENDS TO A GREAT JOB ON THIS AND HAVE ALTERNATIVE INDICATORS WE LOOK AT. JONATHAN: WHAT I WANT TO GET AT IS WHETHER WE ARE SEEING THE ESSENCE OF A RECESSION WHERE YOU CANNOT STIMULATE YOUR WAY OUT OF IT. IS THAT WHAT THE CONSUMERS BEGIN TO GO THROUGH? DOES IT MATTER HOW ATTRACTIVE YOU MAKE THAT PROPERTY TO ME? I DO NOT WANT TO BUY IT. >> IS HARD. THAT LIST OF SO MANY STRUCTURAL AND MECHANICAL FACTORS IN JAPAN MAKES THAT CASE SO DIFFERENT FROM WHAT WE ARE SEEING IN CHINA. CHINA CAN GROW ITS WAY OUT OF THIS. CHINA'S FISCAL DEFICIT IS COMING DOWN JUST BY THE RHETORIC AND TALK ABOUT HOW THEY WILL STIMULATE THE ECONOMY. LISA: THEN THERE IS THE QUESTION OF THE REGION THROUGH TO THE REST OF THE WORLD, BOTH THE DEVELOPING WORLD AS WELL AS THE DEVELOPED WORLD. U.S. IMPORTS FROM CHINA WERE DOWN 24% DURING THE FIRST MONTHS OF 2023 VERSUS THE SAME PERIOD LAST YEAR. CHINESE PRODUCTS ACCOUNTED FOR ONE IN EVERY SIX DOLLARS AMERICANS SPENT ON IMPORTS, DOWN FROM ONE EVERY FOUR PRE-PANDEMIC. HOW MUCH IS THIS A GLOBAL WE ARE NOT GOING TO RELY ON YOU THE SAME KIND OF WAY? >> 23.1% TO CLIENT IN THE U.S. -- IT IS DOUBLE DIGITS ACROSS THE BOARD. ALL DOUBLE-DIGIT DECLINES OUT OF CHINA THIS MONTH. IT IS MORE GLOBAL. IT IS NOT JUST THE U.S.. THE SUPPLY CHAIN DIVERSIFICATION THEME IS REAL. YOU THINK BEIJING CARES ABOUT PROFITABILITY OF ITS LOCAL CHINESE COMPANIES? THEY HAVE NOT SHOWN ANY WILLINGNESS TO BAIL ANYONE OUT YET. I THINK IT IS SUSPECT. TOM: I HAVE QUESTIONS ON CHINA, BUT SOMETHING IS MORE IMPORTANT. JON FERRO WAS FLABBERGASTED THAT A SPORTS ANNOUNCER FOR AN AMERICAN SPORTS TEAM COULD BE FIRED BY THEIR TEAM. I TRIED TO EXPLAIN TO HIM THE HERITAGE. THE BALTIMORE ORIOLES HAD AN ANNOUNCER WHO SAID NOT NEGATIVE THINGS BUT STATED SOME FACTS ABOUT THEIR WONDERFUL SEASON AND IT HAS ALL BLOWN UP TO THE GREATEST STORY IN BASEBALL THIS YEAR. FREE SPEECH AND ANNOUNCERS IN SPORTS. >> MAJOR LEAGUE BASEBALL IS DOING A LOT OF THINGS RIGHT. I DO NOT WANT TO TALK ABOUT WHAT THEY ARE DOING WRONG. THEY HAVE CHANGED RULES. EVERYBODY IS PRETTY HAPPY. HAVE YOU BEEN TO A BASEBALL GAME THIS YEAR? IT IS A WONDERFUL EXPERIENCE. WHY WOULD THE ORIOLES GET RID OF THEIR ANNOUNCER? I DO NOT KNOW. THEY -- I LOVE THE NEW STADIUM. HE DOES NOT NEED TO GET TOLD WHAT TO DO FOR THE NEW YORK YANKEES. HE IS LIKE YOU ALL. HE KNOWS HOW TO ANSWER THESE QUESTIONS. JONATHAN: KEVIN BROWN BASICALLY HIGHLIGHTED HOW POOR THE ORIOLES WERE AGAINST TAMPA, THE RECORD, AND THEN GETS SUSPENDED FOR THAT. IT DOES NOT MAKE SENSE TO ME. ARE THE PROPAGANDISTS OR COMMENTATORS? >> I HAVE TO READ UP ON IT. THE CHIEF REVENUE OFFICER WAS ON BLOOMBERG BUSINESS SPORTS LAST WEEK. JONATHAN: THEY HAVE SPENT A LOT OF MONEY THIS SUMMER. >> HE HAS A LOT OF PROPERTIES HE IS STRUGGLING FOR BLOOMBERG. WE HAD JERRY RICE ON YESTERDAY AND HIS DAUGHTER. THEY ARE MARKETING GO TO FUEL, A NEW ENERGY DRINK. -- GOAT FUEL, A NEW ENERGY DRINK. TOM: IF JOKE IS TAKE LYONS -- JOE CASTIGLIONE -- IT IS A COMPLETE OUTRAGE. THAT THEY WANT AFTER THAT GUY FOR SOMETHING. IF YOU SHOWED UP DRUNK, THAT IS DIFFERENT. >> THE ORIOLES HAVE A HISTORY OF MAKING A MESS OF THINGS. JONATHAN: I AM INTRODUCING YOU AS THE FOREIGNER WHEN WE GO TO LONDON IN A FEW WEEKS. TOM: EVERY CIGAR BAR I GO IN, EVERYONE IS FOR ARSENAL. JONATHAN: WHICH CIGAR BARS ARE YOU GOING TO? TOM: THE ONE ON THE WEST SIDE. JONATHAN: IN MAYFAIR. LISA: IS A CIGAR BAR. WHAT YOU EXPECT? TOM: WE HAVE A CELEBRATORY CIGAR. LISA: -- JONATHAN: ONCE A WEEK? TOM: ONCE A MONTH. JONATHAN: I GET THE CALL IN THE AFTERNOON AND YOU CAN TELL. THE BREATHING PATTERN. OK. MEERA PANDIT JOINING US SHORTLY. >> WE ARE IN RECOVERY MODE AND THE SHAPE OF IT DOESN'T LOOK SO FANTASTIC. >> THE EQUITY MARKET NEVER PRICED IN A RECESSION INTO EARNINGS. >> WE ARE NOT TERRIBLY OPTIMISTIC WE WILL GET THIS TRUE SOFT LANDING. >> WE BEEN IN THE SOFT LANDING CAMP AND I HOLD TO THAT VIEW BUT THERE WILL BE BUMPS. >> THIS IS BLOOMBERG SURVEILLANCE. TOM: GOOD MORNING, EVERYONE. IT IS A BUSY TUESDAY ON RADIO AND TELEVISION WORLDWIDE, DEFLATION IS IN THE AIR. IT'S A SUMMARY OF WHAT WE HEARD FROM EVERYONE. I THOUGHT INVESCO WAS BRILLIANT. IT IS THE OVERLAY IN THE FIXED INCOME CALCULUS. JONATHAN: OUT OF CHINA THIS MORNING, IMPORTS AND EXPORTS ARE TERRIBLE THANK YOU. 10 U.S. BANKS WITH MORE TO COME, SOME DEBT SUPPLY. EQUITIES ARE DOWN THIS MORNING BY 0.7%. TOM: THE TOXIC BREW IS THE TENSION THAT'S OUT THERE AND DEUTSCHE BANK SAID PULLBACK. WE HAVE ELI LILY EARNINGS TODAY. THEY COME OUT WITH A BETTER THAN GOOD EARNINGS REPORT. JONATHAN: HE CALLED IT A WOBBLE. UPS IS HAVING A WOBBLE, THE STOCK IS DOWN BY 5% AT THE MOMENT HOW LONG DO I HAVE TO BE HERE BEFORE YOU TREAT ME LIKE A LOCAL? TOM: I DON'T FEAR LIKE A LOCAL HERE. LISA: HE'S ASKING YOU SPECIFICALLY. TOM: YOU ARE THE NEW YORKER. LISA: THE NEW YORK SPIRIT IS THAT PEOPLE WHO COME HERE AND CONSIDER THEMSELVES NEW YORKERS ARE NEW YORKERS. JONATHAN: THANK YOU. LISA: THAT IS THE SPIRIT OF NEW YORK CITY. TOM: WE WELCOME ALL OF YOU ACROSS THE NATION, PLEASE VISIT NEW YORK TO TALK TO JONATHAN FERRO. WE HAVE AUCTIONS AND I DON'T CARE SO EXPLAIN WHY I SHOULD CARE FOR ACTION -- FOR AUCTIONS IN THE COMING DAYS. LISA: YOU SAID DISINFLATION AND THAT'S THE VIBE. THAT'S THE KEY QUESTION. A LOT OF PEOPLE ARE BUYING AND THAT'S WHY THESE AUCTIONS ARE SO IMPORTANT. IF YOU HAVE THE WORLD'S BIGGEST ECONOMY WITH A DEBT OVERHANG LIKE THE ONE WE HAVE WERE UNEMPLOYMENT RATES ARE 3.5%, DOESN'T THAT LEAD TO INFLATION OR AT LEAST HIGHER RATES? THE DEBT HAS TO BE SOLD IN GREATER QUANTITY. IF YOU HAVE A BUYER STRAIGHT, HOW DOES THAT GIVE A RISK OFF FIELDS OF THE MARKET? TOM: ONE IDEA AND THIS IS THE FOREIGN EXCHANGE MARKET. WE CREATED A STRONGER DOLLAR AND I'M WATCHING EURO-SWISS TO SEE IF IT GETS STRONGER. THERE IS A LITTLE BIT OF ANGST BUT I'M NOT THERE YET. JONATHAN: STOCKS ARE DOWN BY 0.8%. THE BOND MARKET WITH THE YIELD LOWER YOU WENT TO THE FX MARKET WITH THE DOLLAR STRONGER BY A HALF OF 1% AGAINST THE EURO. PULLING BACK TO ABOUT $80 ON CRUDE. TOM: GOOD MORNING, EVERYONE WITH FUTURES DETERIORATING DOWN TO -36, I LOVE WHAT SHE SAYS ABOUT AUGUST, THE GLOBAL MARKET STRATEGIST AT JP MORGAN. YOU SAID YOU ARE JOGGING IN PLACE. THAT'S WHAT I DO, I JOG IN PLACE. WHAT DOES THAT MEAN FOR A MARKET THAT'S BEEN A MOONSHOT SINCE OCTOBER? >> WHEN WE THINK ABOUT THE RISKS GOING FORWARD, THERE IS NOT A WHOLE LOT OF UPSIDE RISK BUT THE DOWNSIDE RISK IS SOMEWHAT LIMITED. IF WE THINK ABOUT WHERE WE ARE, WE ARE IN BETWEEN THE INFLATION SPIKES AND THE FED HIKES BUT ALSO WAITING FOR THE ECONOMY AND PROFITS TO SOUR. I DON'T KNOW THAT THERE IS A WHOLE LOT OF UPSIDE IN A WORLD WHERE PROFITS ARE JUST BETTER THAN FEARED. WE NEED TO SEE MORE ON THE PROFITS LANDSCAPE TO GET MORE UPSET FROM STOCKS THAT HAVE ALREADY RALLIED HARD AND HAVE ALREADY EXPERIENCE A HIGH VALUATION. UNTIL WE SEE MORE SALARY AND PROFITS IN THE ECONOMY, I THINK WE ARE IN AN ENVIRONMENT WHERE STOCKS ARE ESSENTIALLY JOGGING IN PLACE. THAT'S NOT JUST FOR STOCKS. I THINK IT'S SIMILAR FOR YIELDS. THE POP AND YIELDS RECENTLY, I WOULD ATTRIBUTE THAT MOSTLY TO THE POP IN GROWTH. THERE WAS A FITCH DOWNGRADED AND WE ARE SEEING INFLATION MOVING A BIT HIGHER BUT IT'S ALL ABOUT GROWTH WITH THINK ABOUT THE HIGHER YIELD ENVIRONMENT SINCE THE MAY FOMC MEETING. IF WE CONSIDER THAT ENVIRONMENT, YIELDS FOR THE REST OF THE YEAR COULD JOG IN PLACE UNTIL NEXT YEAR. TOM: YOU WRITE THE DOCUMENTS AT JP MORGAN AND CRAFT THE DOCUMENTS YOU PUT OUT. WHAT ARE YOU WRITING RIGHT NOW ABOUT 60/40? >> IT'S HAD A HUGE REBOUND OVER THE COURSE OF THIS YEAR. LAST YEAR, IT WAS DEAD BUT I THINK WHAT'S IMPORTANT WITH DIVERSIFICATION IS THAT MARKETS AND THE ECONOMY LOOK AT OPPOSITE DIRECTIONS. MARKETS ARE FORWARD-LOOKING AND THE ECONOMY IS AT BEST LOOKING AT WHERE WE ARE TODAY BUT ALSO LOOKING BACKWARDS AT THE DATA WE HAVE SEEN. IF WE LOOK AT HISTORY WHERE THE 60/40 HAS STRUGGLED LIKE 2008 41974, IF YOU LOOK AT THE NEXT YEAR, 1975 OR 2009, THOSE WERE BOTH -- BY NO MEANS GOOD ECONOMIC YEARS THAT YOU SAW THE MARKETS REBOUND. 2009 IS A GREAT EXAMPLE WHERE YOU SEE THE BULL MARKET BOTTOM IN MARCH AND WE GET OUT OF RECESSION IN THE SUMMER AND THE ON EMPLOYMENT RATE CONTINUES TO RISE UNTIL OCTOBER. I THINK THAT'S A HELPFUL GUIDEPOST WHERE WE ARE TODAY IN THE MARKET IS PRICED IN A WHOLE LOT OF BAD NEWS AND A LOT OF RISKS AND THREATS AND WE HAVE YET TO SEE ALL OF THEM CRYSTALLIZE BUT THE MARKET IS LOOKING A LITTLE BEYOND THEIR AND THAT'S A GOOD ENVIRONMENT FOR DIVERSIFICATION. LISA: WHAT DO YOU SAY TO A CLIENT WHO SAYS HOLD ON, THIS TIME IS DIFFERENT AND INFLATION WILL ACCELERATE IN THESE BONDS WILL BE WORTHLESS AND IT WILL WERECK THE VALUATION OF THE STOCKS. WE FOCUSED ON SOMETHING PROBLEMATIC IN A WE WANT TO HEIGHTEN CASH SO HOW CAN YOU CALL FOR YIELDS TO GO BACK DOWN TO SOMETHING NORMAL? >> IF WE LOOK AT CASH, CLIENTS LOVE A GUARANTEE. IF YOU GET A GUARANTEED 5% IN A CD THAT'S GREAT BUT IF YOU THINK ABOUT A SIX MONTH CD, YOU HAVE REINVESTMENT RISKS. WITH YIELDS WHERE THEY ARE NOW ABOVE TREND GROWTH REALLY FOR FOUR QUARTERS IN A ROW, IF WE START TO SEE SLIGHTLY SUB TREND GROWTH, YOU WILL START TO SEE TRENDS COME DOWN. IF INFLATION SOFTENS MORE, YIELDS WILL COME DOWN. IT DOESN'T MEAN THEY NEED TO CRATER THIS YEAR BUT AS WE GO INTO NEXT YEAR AND LOOK AT THE 12 MONTH OUTLOOK, YIELDS COULD COME DOWN. WHEN YOU SIT IN CASH, YOU HAVE THE OPPORTUNITY WHERE YOUR INCOME CAN POTENTIALLY COME DOWN BUT YOU DON'T GET THE BENEFIT OF THE UPSIDE. STEPPING OUT A LITTLE BIT IN THE RISKS VETERAN, YOU CAN POTENTIALLY LOCK IN INCOME FOR LONGER AND HAVE THE POTENTIAL FOR CAPITAL APPRECIATION. LISA: WE TALKED ABOUT HOW THE U.S. TREASURY DEPARTMENT IS SELLING A GREATER AMOUNT OF DEBT. ARE YOU SAYING THIS IS A GOOD TIME TO BUY TO LOCK THAT IN? IT SEEMS LIKE A NICE OPPORTUNITY. >> THE WINDOW FOR THE BOND MARKET HAS BEEN EXTENDED OVER THE SUMMER. IT IS A SETBACK IN TERMS OF THE RECOVERY WE WERE HOPING TO SEE THIS YEAR BUT IT DOES EXTEND THE WINDOW OF OPPORTUNITY FROM AN ENTRY POINT STANDPOINT. ONE OF THE BIGGEST CHALLENGES INVESTORS ARE GELLING WITH THIS PRICE. WHERE DO YOU FIND SOMETHING AT A REASONABLE VALUATION? IF YOU LOOK AT DEBT AND DEFICITS OVER THE NEXT DECADE OR SO WITH DEFICITS COMING IN AT 5.5-7%, THAT IS HISTORICALLY HIGH AND WE WILL DEAL WITH A YIELD PROBLEM OVER TIME BUT GIVEN THE ECONOMIC BACKDROP IN THE NEAR-TERM, THIS IS A PRETTY GOOD ENTRY POINT. TOM: WHAT ABOUT CASH AT A 5% YIELDS? ARE THEY COMFORTABLE WITH THAT? >> CLIENTS ARE COMFORTABLE WITH IT BECAUSE YOU HAD THAT TYPE OF YIELD BUT NOT FOR A LONG TIME. WE ARE SEEING THE PEOPLE REALIZE THIS IS NOT A MARKET FOR EASY MONEY. IT'S NOT THAT YOU WILL EXPERIENCE BETA THAT WILL GO UP SO PEOPLE HAVE TO BE MORE DISCERNING AND HOW THEY ARE INVESTING NOT ONLY AROUND THE WORLD BUT IN TERMS OF TYPES OF VEHICLES. THINKING ABOUT ALTERNATIVES FOR DIFFERENT OUTCOMES FOR INCOME AND DIVERSIFICATION AND APPRECIATION SO PEOPLE ARE SHARPENING THEIR WITS. TOM: INTO 2024, ACTIVE MANAGEMENT WILL BE THE INDEX? >> TAKE A LOOK AT COMPANIES WITHIN THE SAME SECTORS OR INDUSTRIES AND YOU'RE SEEING A LOT OF DIFFERENTIATION IN TERMS OF HOW MANAGEMENT IS HANDLING HIGHER PRICES AND HIGHER WAGES WITH MORE HEADWINDS THROWN AT THEM. IT'S A TIME TO PICK AND CHOOSE WHICH MANAGERS AND WHICH MANAGEMENT OF COMPANIES ARE DOING THE RIGHT THINGS IN THIS ENVIRONMENT. JONATHAN: IT'S GOOD TO SEE YOU, THANK YOU. BREAKING NEWS -- THE SEC CHARGING 11 WALL ST FIRMS WITH FAILURES AROUND RECORD-KEEPING. WELLS FARGO AGREED TO PAY $125 MILLION, BNP PARIBAS $29 MILLION. IT GOES ON AND ON. THIS IS THE LINE THAT STANDS OUT -- AS DESCRIBED TO THE SEC ORDER DIRECT FROM THE PRESS RELEASE, THE FIRMS ADMITTED FOR AT LEAST 2019, THEIR EMPLOYEES COMMUNICATED THROUGH VARIOUS MESSAGING PLATFORMS ON THEIR PERSONAL DEVICES. THEY TALKED ABOUT THE BUSINESS OF THEIR EMPLOYERS AND THE FIRMS DID NOT MAINTAIN THOSE OFF CHANNEL COMMUNICATIONS IN VIOLATION OF THE FEDERAL SECURITIES LAWS. 11 WALL ST FIRMS CHARGED BY THE SEC ON A FAILURE OF ADEQUATE RECORD-KEEPING. IT'S NOT THAT MUCH FOR BANKS, 10-30,000,000 DOLLARS. TOM: $289 MILLION IS THE TOTAL AMOUNT AND I DON'T KNOW THAT'S BIG OR SMALL BUT THAT'S AN INTRACTABLE PROBLEM AND BLOOMBERG WILL DEAL WITH THIS. IB IS WITHIN THE SYSTEM AND WHATSAPP OR A REPOST, IF YOU DO THEN OFF THE 42 THOUSAND SHARES YOU JUST SOLD, HOW DO YOU KEEP THAT RECORD? LISA: THIS DIRECTLY GOES TO WORKING FROM HOME. IF YOU THINK ABOUT THE PANDEMIC AND EVERYONE USING THEIR OWN MODE OF TRANSPORTATION, WHAT DOES THE BANK THEY WORK FOR HAVE TO REGULATE OVERSEAS? JONATHAN: WHEN THE MARKET CLOSES, YOU LEAVE YOUR PHONE AT WORK. TOM: THERE IS PEOPLE THAT WANT TO DO THAT BUT THAT'S NOT THE NEW WORLD. LISA: ZOOM IS SAYING THEY NEED MORE PEOPLE IN THERE. JONATHAN: I NEVER DID ZOOM. I DON'T HAVE AN ACCOUNT WITH THEM. YOU CAN DOWNLOAD THE APP BUT I NEVER HAD TO. LISA: YOU ARE ONE OF THOSE PEOPLE. JONATHAN: I'M ONE OF THOSE PEOPLE. LISA: IT'S LIKE THE PEOPLE WHO WANT TO HIDE THEIR EMOTIONS. THE ZOOM CALL IS LIKE A GROUP CHAT. I'M WONDERING WHETHER THERE WILL BE A SHIFT AWAY FROM ZOOM. I FIND IT ANNOYING BECAUSE OF THE DELAY. JONATHAN: EQUITY FUTURES ARE -0.8%. STEPHEN STANLEY IS COMING UP AT 8:30 A.M. EASTERN TIME. WE WILL TALK ABOUT LABOR MARKET AND THE INFLATION DATA HAD THIS WEEK. THE TOM: IDEA OF NOMINAL GDP COMING IN IS A GOOD TIME TO ADDRESS THIS. JONATHAN:JONATHAN: THE BOND MARKET IS RUNNING HARD AND THAT YIELDS ARE LOWER BY LIKE 10 BASIS POINTS. I CAN'T IDENTIFY ONE SINGLE PIECE OF INFORMATION IS DRIVING THE MARKET. TOM MENTIONED THE TRADE DATA OUT OF CHINA, THE DOW, MOODY'S, BANKS, TAKE YOUR PICK. LISA: HOW MUCH DO WE HAVE TO FOCUS ON REGIONAL BANKS AGAIN? DO WE HAVE TO CARE ABOUT THE SENIOR LOAN OFFICER SURVEY AGAIN? JONATHAN: WE ARE TALKING ABOUT IT. THAT'S ALL WE TALKED ABOUT FOR THREE MONTHS AFTER MARCH. EQUITIES DOWN, FROM NEW YORK, GOOD MORNING. >> WE ARE BASICALLY OVERDUE FOR A 3-5% PULLBACK. BELIEVE IT OR NOT, WE ARE NOW RUNNING IN THE 95TH PERCENTILE IN TERMS OF THE DURATION EVEN THOUGH IT SEEMS RATHER SHORT SINCE MARCH SINCE WE HAD EIGHT 3-5% PULLBACK. THAT IS PRETTY NORMAL. JONATHAN: DEUTSCHE BANK ON THE MARKET. EQUITIES AT SESSION LOWS, NEGATIVE BY 0.85%. YIELDS ARE LOWER BY NINE BASIS POINTS AND COMMODITIES ARE SOFTER. DOWN 2% ON WTI WITH WEAKER THAN EXPECTED TRADE NUMBERS OUT OF CHINA. 10 OF THE BANKS SMALL TO MEDIUM-SIZE, TALKS ABOUT RISK AROUND COMMERCIAL REAL ESTATE. THE DOLLAR STRONGER IN HIS CAPTURING THAT RISK RELATION ACROSS ASSETS IN THIS MARKET AND THE EURO DOWN TO ABOUT $1.09. EVEN WITH THE DOVISH TONES AS A VOTING MEMBER OF THE FOMC, THE PHILADELPHIA PRESIDENT SAYS -- THE U.S. ECONOMY IS ON THE FLIGHT PATH TO A SOFT LANDING AND HE SAID ALL THE RIGHT THINGS THERE WITH DOVISH TONES COMING IN FOR THE DOUBT. TOM: THE INFLATION REPORT IS INTO DAYS AND WE WILL GET ANOTHER ONE BEFORE THE FED MEETING AND THEY ARE SLAVES TO THE DATA. PART OF IT WAS THE DATA OUT OF CHINA TODAY WHICH WAS SHOCKING. JEROME POWELL IS CENTRAL BANKER TO THE WORLD. JONATHAN: WHETHER HE WANTS TO BE OR NOT. TOM: LET'S DIVE IN WITH EXPERTISE, YOU DID WHAT YOU GOOD TO STEAL THE RESEARCH OF PRUDENTIAL. HE WAS WRITTEN WORLDWIDE AND ACROSS THIS NATION ON BORING STUFF LIKE TRUCKING AND RAILROADS AND LOGISTICS. HE IS THE SENIOR LOGISTICS ANALYST FOR BLOOMBERG INTELLIGENCE. I WANT TO CONFLATE THE BANKRUPTCY IN YELLOW WITH WHAT WE SEE AT YOU YES. GIVEN THESE -- AT UPS. CAN THEY RAISE AND SUSTAIN REVENUES BY RAISING RATES? >> THAT'S WHAT THEY WILL HAVE TO DO. THEY DO HAVE PRICING POWER. THERE ARE TWO MAIN COMPETITORS, FED X AND THE U.S. POSTAL SERVICE AND SOME SMALLER PLAYERS. THEY HAVE THE ABILITY TO RAISE RATES AND NOT ONLY THAT BUT THEY'RE ALSO GOING INTO MARKETS THAT ARE MORE PROFITABLE FOR THEM SO THEY ARE GOING TO THE SMALL AND MIDSIZE SHIPPERS. THEY ARE PIVOTING AWAY FROM THE AMAZONS OF THE WORLD AND GO IN A DOWN MARKET. THOSE CUSTOMERS TEND TO BE MORE PROFITABLE. THEN THEY ARE GOING INTO HEALTH CARE WHICH WILL MAKE THEM MORE MONEY. TO ME, BACK UP THE TRUCK AND LOAD THE BOAT. JONATHAN: I'M NOT NAÏVE EITHER. CAN WE BRING IN THE VOLUME STORY TO THE CONVERSATION DOMESTICALLY IN AMERICA? WE ARE HEARING FROM SOME DOMESTIC FOCUSED AIRLINES LIKE SOUTHWEST MENTIONING THE MAYBE THINGS AREN'T AS GREAT AS PEOPLE ARE SAYING. WHAT ARE WE LEARNING ABOUT THE U.S. DOMESTIC ECONOMY FROM THIS COMPANY? >> WE'VE BEEN -- EVERYTHING IS BEING NORMALIZED. WE ARE CALIBRATING TO WHERE WE USED TO DO -- USED TO BE BEFORE THE PANDEMIC SO FREIGHT IS DECLINING. WHAT WE ARE SEEING IS WHAT WE VIEW AS THE BOTTOM OF THAT. THERE HAS BEEN A LOT OF DE- STOCKING BY RETAILERS AND WE ARE OPTIMISTIC YOU WILL SEE SOME SORT OF SEASONAL UPTICK INTO THE FOURTH QUARTER. WE ARE NOT CALLING IT A HUGE PEAK SEASON BUT THERE WAS NO PEAK LAST YEAR, MAYBE A SLIGHT SPEEDBUMP OF A PEAK THIS YEAR. THAT TELLS US THAT THE CONSUMER IS STILL RESILIENT AND THINGS SHOULD LOOK BETTER FOR UPS OR FEDEX INTO 2024 BY A VOLUME STANDPOINT. YOU HAD THAT PLUS PRICING AND PRODUCTIVITY IMPROVEMENTS FROM TECH AND IT WILL HOPEFULLY OFFSET SOME OF THE INCREASED THEY GOT IN COST FROM THE NEW LABOR AGREEMENT WITH THE TEAMSTERS. LISA: THAT WAS MY QUESTION, IS THAT A SMOKESCREEN, THE -- WAS THAT TO COVER FUNDAMENTAL WEAKNESS OR WITH THIS CREATE A CHALLENGE TO PROFITS GOING FORWARD IN A MORE MATERIAL WAY? >> IT'S BEEN A CHALLENGE BUT IN THE SECOND QUARTER, THEY DID A FANTASTIC JOB. THEY BEAT BY FOUR CENTS IN EPS AND IT WAS ON MARGINS. WASN'T ON PRICING OR VOLUMES. THEY DISAPPOINTED ON THE TOP LINE. THEY SURPRISE ON THE UPSIDE ON EPS. THERE DOMESTIC BUSINESS, IT WAS ABOUT 130 BASIS POINTS BETTER THAN EXPECTATIONS AND IT WAS ONLY 30 BASIS POINTS LESS THAN WHAT PEOPLE WERE THINKING. LISA: IF THEY CAN ABSORB IT, WHAT'S THE MESSAGE TO OTHER LOGISTICS COMPANIES AND OTHER TRUCKING, SHIPPING, FLYING COMPANIES THAT ARE ALSO FACING ORGANIZED COMPLAINTS ABOUT THE LACK OF WAGE GROWTH, THE LACK OF PASS-THROUGH OF SOME OF THEIR PROFITS TO THE EMPLOYEES? >> LABOR IS INCREASING. WE ARE NOT GOING BACK TO 2017 LEVELS. IF YOU ARE A TRUCKLOAD CARRIER, YOU HAD TO INCREASE WHAT YOU PAID YOUR DRIVERS. RATES HAVE GONE DOWN CONSIDERABLY SO WHAT THAT'S DOING IS FORCING A LOT OF SMALLER COMPANIES OUT OF THE MARKET AND THAT WILL FIRM UP RATES AND BRING RATES BACK UP SO THEY WILL HAVE BETTER MARGINS IN THE COMING QUARTERS. LISA: WITH HIGHER PRICES. >> WITH HIGHER PRICES3+ THE TRUCKLOAD MARKET IS TERRIBLE RIGHT NOW. THE SPOT MARKET IS BOTTOMING AND WE SHOULD START SEEING AN INCREASE IN SPOT RATES INTO THE FOURTH QUARTER AND CONTRACT RATES ARE DOWN BY LOW DOUBLE DIGITS. WE EXPECT THAT TO INVERT POSITIVELY IN 2024 TO MAYBE MID-SINGLE DIGIT TRUCKLOAD RATE INCREASES ON THE CONTRACT WILL SIDE. TOM: IF THERE WAS DOUBLE DIGIT REVENUE GROWTH AND THAT REVERTS BACK TO MID-SINGLE DIGIT, LOW SINGLE-DIGIT REVENUE GROWTH, CAN THEY SUSTAIN A GIVEN MARGIN? >> IT DEPENDS ON WHAT SUBSEGMENT OF THE MARKET YOU ARE TALKING ABOUT. TRUCKING IS CONSOLIDATED. THEY HAVE PRICING POWER AND RAILROADS HAVE PRICING POWER AND TRUCKLOAD CARRIERS NOT SO MUCH BECAUSE IT'S EXTREMELY FRAGMENTED. IT DEPENDS WHAT MARKET YOU ARE IN AND WHETHER YOU HAVE PRICING POWER AND WHETHER YOU CAN PUSH THE HIGHER COSTS ONTO YOUR CONSUMERS. JONATHAN: THIS WAS GREAT AND IT'S GOOD TO SEE YOU, COME BACK SOON. THANK YOU VERY MUCH. LET'S GO BACK OVER THE FED SPEAK FROM FIVE MINUTES AGO. THIS WAS FROM THE PHILADELPHIA FED PRESIDENT -- THE U.S. ECONOMY IS ON A FLIGHT PATH TO A SOFT LANDING AND WE KNOW JP MORGAN DISAGREES WITH THAT VIEW BUT THIS IS A COUPLE OF VOCAL MEMBERS OF THE FOMC AND REGIONAL FED PRESIDENT OVER THE PAST WEEK. THEY ARE MAKING THE POINT WHERE THEY CAN WAIT. LISA: THEY ARE BEING CAUTIOUS ABOUT IT AND THEY ARE REALIZING SAYING THIS WILL BE A SOFT LANDING COULD SET THEM UP FOR RIDICULE. I SEE IS ON THE FLIGHT PATH TO A SOFT LANDING THAT WE ALL HOPED FOR AND THAT HAS PROVED ELUSIVE IN THE PAST, BASICALLY RECOGNIZING THIS IS A HIGH HOPE IT DOESN'T IT SEEM THE THRESHOLD FOR THEM TO HIKE FURTHER SEEMS HIGHER AND HIGHER AND HIGHER? JONATHAN: THE DIFFICULTY THEY HAVE IS HOW YOU SIGNAL YOU MIGHT BE DONE WITHOUT RISKING THE PREMATURE RAISING OF FINANCIAL CONDITIONS WHICH LEADS TO A RE-ACCELERATION OF INFLATION? THAT WILL BE THE NERVOUSNESS AROUND COMMUNICATING THIS. TOM: THAT NERVOUSNESS IS EMBEDDED IN ECONOMICS. AUSTIN GOOLSBY SAYS PICK A BANK IN MY CASE IT'S BANK OF JAPAN 18 YEARS AGO OR WHATEVER IT WAS, THEY RAISE RATES AND THEY WERE WRONG AND THEY HAD TO CUT RATES AGAIN. THAT IS THE EMBEDDED FEAR OF EVERY CENTRAL BANK OUT THERE WHICH IS ONE REASON FOR CHAIRMAN POWELL AT JACKSON HOLE TO CUT IT DOWN TO A SEVEN MINUTE SPEECH. JONATHAN: OR NOTHING. WE ARE ON THE SAME PAGE ON THAT. MICHAEL MCKEE WILL DROP BY AND PHYLLIS IN ON THE DATA. COMING UP, JP MORGAN ON THE BOND MARKET D ANDWS ON THE EQUITY MARKET AND EQUITY FUTURES ARE DOWN 0.8% IN THE BOND MARKET RALLYING IN THE YEARS -- AND YIELDS LOWER BY 10 BASIS POINTS AND THE DOLLAR IS STRONGER. FROM NEW YORK, THIS IS BLOOMBERG. TOM: BLOOMBERG SURVEILLANCE WITH MARKETS ON THE MOVE, EQUITIES, BONDS, CURRENCIES, COMING OFF OF INFLATION. TO BE VERY CLEAR, IT DETERIORATES INTO THIS TUESDAY MORNING. LISA: THERE IS JITTERS AS PEOPLE PARSE THROUGH THE IDEA OF A REAL RETRACEMENT FROM CHINA OF AN ECONOMY SUFFERING FROM LONG COVID AND WE GET THE TRADE DATA FROM THE U.S. TOM: AMERICAN OIL IS UNDER $80 PER BARREL. WITH THE TRADE IMBALANCE REVIEW, MICHAEL MCKEE IS WITH US. MIKE: THIS JUST INTO THE EYEWITNESS NEWS ROOM TRADE BALANCE FOR THE MONTH OF JUNE THEM OF THE FINAL NUMBER COMES IN AT NEGATIVE 65.5 TRADE DEFICIT, SIX-POINT -- $65.5 BILLION. THAT COMES DOWN FROM THE MONTH OF MAY. IT'S ACTUALLY GOOD NEWS IS THE TRADE DEFICIT SHRINKS IN TERMS OF GDP GROWTH. THE EXPORT NUMBER COMES IN DOWN JUST 1/10. STEVE STANLEY CAN TELL YOU WHAT THIS MEANS FOR A REVISION. WE HAVE SEEN IN RECENT WEEKS, VARIOUS PEOPLE INCLUDING THE FOLKS AT ISM MANUFACTURING COMPANIES THEY SURVEYED LOOKING AT IMPORT AND EXPORT ORDERS WHICH HAVE BEEN DOWN FOR A NUMBER OF MONTHS AS THEY WORK OFF INVENTORIES. THAT'S HAVING AN EFFECT ON THE OVERALL ECONOMY. TOM: IS GLOBAL TRADE DOWN ON AN AGGREGATE BASIS? MIKE: IT IS SOMEWHAT AND WE ARE SEEING THAT PLAY OUT IN CHINA WITH THE STATE OF MORNING AND GERMANY IS SEEING ITS TRADE NUMBERS DETERIORATE. OVERALL, THE REASSURING EFFORT SEEMS TO BE HAVING -- YOU HAVE TO SEPARATE THAT -- YOU DON'T KNOW WHETHER IT'S ECONOMIC WEAKNESS OR WHETHER IT'S THE REASSURING. LISA: HOW DIFFERENT IS THE STORY IN THE U.S. FROM CHINA? YOU SAW AN INCREASE IN EXPORTS. NOT NECESSARILY THAT KIND OF RETRACEMENT YOU WOULD EXPECT. MIKE: IT'S INTERESTING BECAUSE THE CHINESE ARE GOING IN THE DIRECTION WE HAVE GONE FOR MANY YEARS AND NOW GONE THE OTHER WAY. RE: ECONOMY AND CONSUMER DEMAND IS STRONGER THAN CHINA. THEY ARE LOOKING FOR WAYS TO STIMULATE AND HAS NOT REALLY HELPED. TOM: STAY WITH US. THIS IS A JOY FOR ALL OF BLOOMBERG SURVEILLANCE. SOMEONE WE KNOW HAS JUST GOTTEN A JOB PROMOTION. HE WILL BECOME CHIEF CAMP COUNSELOR HERE IN THE SUMMER. IT'S JOHN ROGERS AT GOLDMAN SACHS. HE IS THE CHIEF OF STAFF AT GOLDMAN SACHS. RUSSELL HOROWITZ WILL TAKE OVER AND HE WORKED WITH ARTHUR LEVITT AT THE SIR PURITIES -- AT THE SECURITIES AND EXCHANGE COMMISSION AND WORK WITHIN A DEMOCRATIC ADMINISTRATION AT THE WHITE HOUSE AND HE WILL TAKE OVER. WE KNOW HIM FROM HIS WORK AT BLOOMBERG. MIKE: HE WORKED WITH A LOT OF FAMOUS AND IMPORTANT PEOPLE INCLUDING YOU AND I. TOM: HE WAS INSTRUMENTAL IN ME COMING TO THE COMPANY. IT'S GOOD TO SEE RUSSELL HOROWITZ WILL ADVANCE TO THAT IMPORTANT CHIEF OF STAFF POSITION AT ONE OF OUR VENERABLE FIRMS. I DON'T SEE MUCH ACTION IN THE MARKET OFF DATA. IT WILL BE DIFFERENT THURSDAY WITH THE INFLATION REPORT. LISA: IT WILL BE DIFFERENT AT 1 P.M. AFTER WE GET THE AUCTIONS OF U.S. TREASURIES, THE FIRST OF THREE SETS OF AUCTIONS TODAY WITH 40 $2 BILLION OF THREE-YEAR NOTES BEING SOLD. TOM: STEPHEN STANLEY JOINS US NOW, THE CHIEF U.S. ECONOMIST AT SANTANDER. DOES THE TRADE BALANCE DATED CHANGE THINGS ABOUT WHAT THE TREND WILL BE? >> NHO, BECAUSE THE DATA SO VOLATILE FROM ONE MONTH TO THE NEXT IT REALLY GIVES A CLEAR VIEW OF THE TREND. IN GENERAL, IS WORTH REMEMBERING THAT THIS IS A GLOBAL PHENOMENON STEMMING FROM COVID THAT ALL THE ECONOMIES AROUND THE WORLD WILL SHIFT BACK TOWARD SERVICES AND AWAY FROM GOODS. THAT PROBABLY WEIGHS IN THE TRADE FLOWS AS WELL. TOM: A BOND EXPERT SAID NOMINAL GDP IS COMING IN AND REAL GDP IS CHALLENGED. WHERE IS NOMINAL GDP? >> IT PROBABLY WILL BE DOWN QUITE A BIT BUT STILL SIGNIFICANTLY POSITIVE. WE'VE BEEN WAITING FOR THIS RECESSION THAT PEOPLE HAVE BEEN CALLING FOR AND IT HASN'T HAPPENED. THERE IS A BETTER CHANCE AND SEE BUT THE ECONOMY PROBABLY IS ABLE TO MUDDLE THROUGH. NOMINAL GDP NEXT YEAR PROBABLY BETWEEN THREE AND 4%. LISA: DOES THAT LEAVE INFLATION HIGHER ON THE OTHER END? >> I THINK THE FED HAS THE POWER TO GET INFLATION BACK TO 2% BUT IT'S A MATTER OF WHETHER DISH OF WHETHER THEY WILL DO WHAT THEY NEED TO DO AND ARE THEY PREPARED TO TAKE WHATEVER PAIN THAT BRINGS WITH IT? SO FAR, WE'VE GOTTEN A GOOD BIT OF DISINFLATION WITHOUT A LOT OF PAIN ON THE REAL ECONOMY SIDE. THE FED HOPES THAT CONTINUES. WE WILL HAVE TO SEE ABOUT THAT. LISA: WE JUST HEARD FROM PATRICK PARKER OF PHILADELPHIA SAYING WHAT WE HEARD FROM SOME OF HIS COMPATRIOTS THAT SOFT LANDING IS ELUSIVE BUT IT LOOKS LIKE WE ARE GETTING CLOSE. ALL OF A SUDDEN, THE TREASURY SUPPLY COMES INTO FOCUS. HOW CLOSELY ARE YOU WATCHING THE TREASURY AUCTIONS NOT JUST TODAY BUT TOMORROW AND THE DAY AFTER? HOW DOES THAT HELP YOU UNDERSTAND WITH THE YIELD DYNAMIC IS GOING OUT? >> THE SUPPLY THING IS ONE OF THE MOST OVERRATED FORCES ON INTEREST RATES HISTORICALLY. PEOPLE TALK ABOUT WE HAVE THESE BIG BUDGET DEFICITS AND ALMOST NEVER SEEMS TO HAVE A REAL IMPACT ON YIELDS. THIS IS AN EXAMPLE WHERE IT HAS. THE REASON IS THE FISCAL SITUATION IS IN REALLY BAD SHAPE. TYPICALLY, WHEN THE DEFICITS ARE RISING IT'S BECAUSE THE ECONOMIES ARE WEAK. IF YOU LOOK AT THE CORRELATION, HIGH DEFICITS ARE CORRELATED WITH LOW INTEREST RATES BECAUSE ECONOMISTS LOOK AT WHAT WE HAD OVER THE PAST FIVE OR 10 YEARS AND IF YOU FILTER OUT FOR COVID, THE DEFICIT IS RISING ON TREND BASIS AT A TIME WHEN THE ECONOMY IS DOING OK. TOM: IN YOUR STUDY OF THE AMERICAN ECONOMY, CAN YOU COMFORTABLY AGGREGATE STATISTICS NOW OR DO YOU HAVE TO A -- HAD TO TAKE A DIFFERENT APPROACH? PART OF AMERICA'S DOING GREAT BUT THERE IS ANOTHER PART BEING LEFT BEHIND. DO YOU AGGREGATE OR DO YOU SEPARATE THEM? >> I THINK IT'S EASIER TO DIS AGGREGATE BECAUSE OF THE DATA ON A DETAILED BASIS AND IT HELPS. THE CURRENT SITUATION IS A GREAT EXAMPLE WHERE THE QUESTION IS ALWAYS ARE WE IN A RECESSION WERE WILL WE HAVE ONE? YOU LOOK AT DIFFERENT PARTS OF THE ECONOMY. HOUSING HAS BEEN IN A RECESSION OR WAS IN A RECESSION IN THE SECOND HALF OF LAST YEAR AND ARGUABLY HAS ALREADY BOTTOMED OUT. MANUFACTURING I WOULD ARGUE IS IN A RECESSION NOW. THE CONSUMER DEFINITELY IS NOT. WHEN WE ASK IF THE ECONOMY IS IN RECESSION, IT'S BETTER TO LOOK UNDER THE SURFACE AT VARIOUS SECTORS. TOM: WAS YOUR RELATIVE GDP, NOMINAL GDP CALL? >> I'VE GOT REAL GDP RUNNING AROUND 1% IN THE MIDDLE OF NEXT YEAR. TOM: YOU'VE GOT A 1% U.S. ECONOMY SO WHAT PORTION OF PEOPLE WITH A 1% ECONOMY WHICH IS NOT A RECESSION, WHAT PERCENTAGE OF AMERICA FEELS LIKE A 1% REAL GDP IS A RECESSION? I WOULD SAY IS SUBSTANTIAL. >> IT DEPENDS HOW THE LABOR MARKET RESPONSE AND WE'VE HAD SLOW GROWTH FOR A WHILE AND LABOR MARKET HAS STAYED STRONG. I THINK COMPANIES ARE MAYBE HOARDING LABOR GIVEN HOW HARD IT WAS TO FIND PEOPLE DURING THE PANDEMIC. THIS IS THE DREAM OF CHAIRMAN POWELL AND THOSE AT THE FED THAT THEY CAN GET GROWTH DOWN ENOUGH TO BRING INFLATION DOWN WITHOUT SEEING A BIG JUMP IN THE UNEMPLOYMENT RATE. SO FAR, SO GOOD BUT WE ARE CERTAINLY NOT OUT OF THE WOODS YET. WHEN YOU TALK ABOUT PEOPLE FEELING THE RECESSION, THEY FEEL IT BY LOSING THEIR JOBS. LISA: ONE ECONOMIST AFTER ANOTHER CAME OUT AND SAID MAYBE WE WILL NOT GET A RECESSION THIS YEAR AND MAYBE NOT EVEN NEXT YEAR AND WE WILL PUSH THAT OUT OR TAKEN OFF THE TABLE. IS THERE ANYTHING YOU ARE REASSESSING AFTER THE SLEW OF STRONGER THAN EXPECTED DATA WE'VE GOTTEN SO FAR? >> I WAS ALWAYS MORE OPTIMISTIC FOR THIS YEAR AND A BIG PART OF MY THOUGHT PROCESS WAS THAT CONSUMERS WERE SITTING ON A TREMENDOUS AMOUNT OF LIQUIDITY LEFT OVER FROM THE PANDEMIC. THE LABOR MARKET IS GOING TO BE HEALTHY ENOUGH TO SUPPORT GOOD INCOME GROWTH. I THINK THAT HAS BORNE OUT. THE QUESTION IS WHAT HAPPENS ONCE CONSUMERS HAVE SPENT DOWN MOST OF THAT CUSHION AND THE FULL EFFECT OF FED HIKES HAS PASSED THROUGH INTO THE ECONOMY WHICH IS WHY AM A LITTLE MORE WORRIED ABOUT NEXT YEAR. MY BASE CASE IS THAT WE MUDDLE THROUGH BUT IF WE ARE GOING TO GET A RECESSION, I FELT IT WAS MORE LIKELY IN 2024 THAN THIS YEAR. LISA: YOU SAID IT'S IMPORTANT TO WATCH WITH THE FED DOES TO MAKE SURE THEY HAVE THE CONFLICTION -- THEY HAVE THE CONVICTION TO BRING THE INFLATION DOWN. BASED ON THE RHETORIC NOW, DO YOU HAVE THAT CONFIDENCE? >> I DO, THEY DEFINITELY WERE LATE IN THE BEGINNING OF THE TIGHTENING BUT YOU HAVE TO BE IMPRESSED WITH HOW FORCEFUL THEY'VE BEEN SINCE MARCH OF LAST YEAR. WHETHER THEY STOP HERE OR GO ANOTHER 25 OR ANOTHER 50 IS LESS IMPORTANT THAN HAVING THE CONVICTION TO STAY AT A RESTRICTIVE LEVEL UNTIL THEY GET THE JOB DONE. IT SEEMS LIKE WHETHER YOU TALK ABOUT HAWKS OR DOVES ON THE COMMITTEE, IT SEEMS EVERYBODY IS ON THAT PAGE. TOM: THANK YOU SO MUCH FOR THE UPDATE AND WE LOOK FORWARD TO STEALING YOUR LITERATURE. HE WILL MAKE ADJUSTMENTS AS WELL. FUTURES ARE -32 AND IT'S A BOUNCE OFF THE AGONY OF LAST HOUR WITH DOW FUTURES NEGATIVE 255. THE VIX IS 16.9. THE 30 YEAR BOND IS 11 BASIS POINTS --+ I AM GASPING. LISA: THAT'S A POSITIVE IF YOU SEE THE YIELDS GO DOWN. YIELDS ARE COMING IN SO SIGNIFICANTLY AND THERE IS A CONCERN ABOUT HOW MANY PEOPLE WILL COME IN. ROB WALKER SAYS IT'S A GREAT TIME TO LOCK IN OPPORTUNITY. WE ALSO HEARD FROM J.P. MORGAN ASSET MANAGEMENT SIMILARLY. PEOPLE ARE SAYING LOCK IN 4% YIELDS OVER 10 YEARS AND THAT LOOKS GOOD BECAUSE WE ARE NOT GOING BACK TO NORMAL WEAR YIELDS AND INFLATION WILL BE MATERIALLY HIGHER. TOM: THE POLARITY HAS BEEN EXTRAORDINARY. IF YOU GET A STEPHEN STANLEY NOMINAL REAL GDP OR IN ED HYMAN REAL GDP, THAT'S WHERE YOU GET A 4% 10 YEAR AND YOU BRING IT IN LOWER FROM THERE. THAT'S PRICE UP, YIELDS DOWN. LISA: THANK YOU FOR THAT. TOM: LET ME DO A DATA CHECK. THE DOLLAR IS STRONGER AND NICELY STRONGER WITH THE EURO WELL UNDER $1.10. EQUITY MARKETS, STANDARD & POOR'S DOWN 0.7%. LISA: YOU MENTIONED THE STORY OUT OF GOLDMAN SACHS THAT JOHN ROGERS WHO HAS BEEN CHIEF OF STAFF IS HANDING HIS ROLE TO RUSSELL HOROWITZ, A COMPATRIOT OF YOURS. WHAT'S INTERESTING IS THIS COMES AMID THE SLEW OF DEPARTURES WE KEEP REPORTING AS AN OVERHAUL IN THIS COLUMN, IT TALKS ABOUT HOW DAVID SOLOMON IS CONDUCTING AN OVERHAUL OF THE BANK. I DON'T KNOW WHAT THE CONNECTION IS TO SOME OF THE DEPARTURES BUT IT IS INTERESTING TO SEE THE KEY STRATEGIST IS ALSO HAVING A CHANGE OF HANDS. TOM: I DON'T KNOW THE STORY ON JOHN ROGERS. WITHIN A LARGE FIRM LIKE THIS, YOU HAVE STAFF, OPERATIONS, PEOPLE DOING SPEECHWRITING AND SCHEDULING. I'VE GOT FIVE EVENTS TO GO TO SO WHICH ONE OF THE BEST VALUE TO THE FIRM AND THAT'S WITH JOHN ROGERS BROUGHT TO THE TABLE AS WELL AS ALL THE PHILANTHROPIC WORK GOLDMAN SACHS DOES. JOHN ROGERS PROVIDED HUGE LEADERSHIP THEIRS. LISA: HE IS 67 YEARS OLD AND IS NOT LEAVING THE COMPANY. IS GOING TO RETAIN OTHER POSITIONS AT GOLDMAN WHETHER IT'S VICE PRESIDENT OR SECRETARY TO THE BOARD. HE WILL STILL PLAY SOME ROLES. TOM: HE COULD SPEARHEAD THEIR OWNERSHIP OF THE NEW YORK YANKEES WHICH IS NEEDED NOW. LISA: IS THAT WHAT YOU ARE SUGGESTING? YOU THINK HE WOULD BE A GOOD MANAGER? TOM: I THINK HE COULD SPEARHEAD THE EFFORT FOR A BUSY GOLDMAN SACHS? LISA: ARE YOU TRYING TO FOSTER THE YANKEES PRAGUE -- PROWESS? WHERE IS YOUR ALLEGIANCE? TOM: MY ALLEGIANCES THEY ARE BOTH IN LAST PLACE. STAY WITH US, WE HAVE SOME REAL TURN IN THE MARKET THIS MORNING. RUSSELL HOROWITZ WILL BE THE NEW CHIEF OF STAFF AT GOLDMAN SACHS AFTER HIS TENURE YEARS AGO AT BLOOMBERG NEWS. >> THE MOST IMPORTANT THING THAT HAPPENED THIS YEAR IS LARRY FINK GOT ORANGE MALE WHERE YOU TAKE A NONBELIEVER AND YOU MAKE HIM A BELIEVER IN BITCOIN AND LARRY WAS A NONBELIEVER AND HE SAYS THIS IS A NEW GLOBAL CURRENCY. PEOPLE AROUND THE WORLD TRUST IS. TOM: NOVA GRATZ, MIKE NOVA GRATZ, GALAXY DIGITAL FOUNDER HAD AN INTERESTING CAREER. HE IS SOMEONE WHO HAS BEEN OUT FRONT ON BITCOIN AND CONTINUES TO ADVOCATE FOR BITCOIN. THAT IS PART OF AN IMPORTANT CONVERSATION WITH DAVID RUBENSTEIN, BLOOMBERG WELL TONIGHT AT 9:00 P.M. THIS IS PERFECTLY TIMED BECAUSE NOVA GRATZ HAS BEEN THE OPINION OF BITCOIN WHEN IT GOES DOWN AND THE GENIUS WHEN IT GOES UP. ALL OF A SUDDEN, LARRY SHOWED UP AT THE DOOR TO SAY BIG, RESPECTABLE FIRMS CAN PROSECUTE AND DO BITCOIN. LINKED LAURENCE FINK OF BLACK ROCK TO MIKE NOVA GRATZ. DANI: AS YOU SUGGEST, PEOPLE MAKE FUN OF BITCOIN AND OTHER CRYPTOCURRENCIES BUT THE ESTABLISHMENT, LARRY FINK AT BLACKROCK IS SAYING THEY WILL HAVE AN ATF APPROVED BY THE GOVERNMENT IN BITCOIN. THE MIGHTY BLACKROCK IS WILLING TO HAVE AN ETF AND MAYBE BITCOIN WILL BE AROUND FOR A WHILE? TOM: IS THERE A BITCOIN ADVOCACY BEING ANNOUNCED THIS MORNING? >> THERE IS NO DOUBT THAT BITCOIN, I WISH I HAD BOUGHT IT AT $100 AND NOW IT'S AT $29,000. HE'S MADE A LOT OF MONEY. A LOT OF PEOPLE BOUGHT IT AT THE $100 OR LESS AND ARE FEELING GOOD. IT WENT UP AS I $61,000. EVEN DOWN TO $30,000 NOW, IT'S STILL PRETTY GOOD PROFIT IF YOU BOUGHT IT AT 100. LISA: WE ALSO WISH WE HAD BOUGHT IT AT 100. IT'S ONE THING FOR BLACKROCK TO HAVE AN ATF BUT IT'S ANOTHER BECAUSE THEY SEE PROFITABILITY PROPOSITION WHERE THEY CAN BASICALLY TAKE THE INTEREST OTHER PEOPLE HAVE. ISN'T THAT MORE OF WHAT THIS IS? WAS IT IS SAYING IF THERE IS A MARKET FOR IT AND WE CAN VIABLY MAKE ONE FOR THEM AND MAKE MONEY, WHY NOT? >> WALL STREET IS IN BUSINESS TO MAKE MONEY IN THE SOMETHING THAT COULD PROBABLY MAKE MONEY. THE UNITED STATES GOVERNMENT HAS BEEN SKEPTICAL OF IT. DEMOCRATS AND THE CONGRESS AND THE PEOPLE REGULATING THE SEC ARE SKEPTICAL OF BITCOIN AND OTHER CRYPTOCURRENCIES. OUTSIDE THE UNITED STATES, THERE IS A LOT OF INTEREST. FTX HURT THE CRYPTO INDUSTRY WHEN IT WENT BANKRUPT BUT A LOT OF PEOPLE AROUND THE WORLD WANT TO TRADE IN A CURRENCY THEIR GOVERNMENT CAN'T KNOW WHAT THEY HAVE ANYONE TO PROFIT. I DON'T THINK BITCOIN IS GOING AWAY. THE REPUBLICANS HAVE BEEN SUPPORTIVE OF IT. LISA: THERE IS A DIFFERENCE BETWEEN HAVING A SEAMLESS CROSS CURRENCY PAYMENT, SAY THAT INSTEAD OF GOING TO WESTERN UNION, I CAN TRANSFER SOMETHING IN BITCOIN IF IT HAS A STABLE PRICE. THAT'S ONE PROPOSITION BUT THE PROPOSITION OF BITCOIN IS THE STORE OF VALUE THAT COULD BEFIT UP THE WEIGHT GOLD OR SILVER COULD. IT SEEMS TO HAVE BEEN PART WITH THE ADVENT OF YIELDS THAT YOU CAN GET FOR ACTUAL MONEY. ISN'T THAT THE FEELING YOU ARE GETTING? >> WHEN INTEREST RATES ARE AS HIGH AS THEY ARE, YOU DON'T NEED TO HAVE GOLD OR OTHER KINDS OF THINGS TO GET YOU SOLID RETURNS. WHEN YOU GET 5% ON TREASURIES, EVENTUALLY 5% WILL COME DOWN AT SOME POINT. I DON'T THINK CRYPTOCURRENCIES, THE BETTER-KNOWN ONES ARE GOING TO GO AWAY. THERE IS A NORMS INTEREST AROUND THE WORLD AND YOU CAN HAVE SOMETHING CAN TRANSFER WITHOUT THE GOVERNMENT KNOWING ABOUT IT AND KEEP IT PRIVATE. YOU CAN SAY MAYBE PEOPLE SHOULDN'T DO THAT BUT THAT WILL NOT STOP PEOPLE FROM DOING IT. TOM: WHAT DID HE SAY ABOUT THE EFFORTS OF ERROR CHAIRMAN OF THE SECURITIES AND EXCHANGE COMMITTEE. >> GARY GENSLER IS NOT A BIG FAN OF CRYPTOCURRENCY. THAT'S FAIR TO SAY BUT HE LOST A MAJOR CASE RECENTLY IN COURT WHERE HE WAS TRYING TO ARGUE THAT WHILE THE CRYPTOCURRENCIES WAS A SECURITY AND HE LOST THE CASE. I THINK THE SEC HAS NOT BEEN ABLE TO CONVINCE THE GOVERNMENT YET OR THESE COURTS THAT CRYPTOCURRENCY IS SUCH A DANGEROUS THING. A LOT OF PEOPLE IN THE GOVERNMENT NEVER THINKING GARY GENSLER WILL NOT BE THE CHAIRMAN OF THE SEC FOREVER. TOM: OTHER GUYS WILL JUST WAIT HIM OUT? >> I THINK THAT'S THE STRATEGY IS TO WAIT OUT REGULATORS. LISA: THAT SEEMS TO BE SOMETHING THAT HAS WORKED GIVEN THE TURNOVER WE HAVE SEEN. WE'VE BEEN TALKING ALL WEEK ABOUT BANKS LOSING TALENT TO PRIVATE EQUITY AND TO THE SEVERE OF DEBT AND EQUITY THAT HAS CONTINUED TO TAKE MORE AND MORE MARKET SHARE. HAVE YOU SEEN THAT ACCELERATE RECENTLY AS PEOPLE REALLY TAKE A LOOK AT WHAT THEY CAN EARN AND THE POTENTIAL OPPORTUNITIES IN YOUR WORLD? >> SOME OF THE LARGE INVESTMENT BANKS LIKE GOLDMAN SACHS AND OTHERS HAVE PEOPLE LEAVING BUT THAT'S RELATIVELY NORMAL. IF PEOPLE LEAVE THESE FIRMS ALL THE TIME, PEOPLE TYPICALLY RETIRE FROM GOLDMAN IN THEIR EARLY 50'S WHERE IS A REGULAR JOB, YOU MIGHT RETIRE IN YOUR 60'S. IT'S NOT THAT UNUSUAL RIGHT NOW AND I THINK GOLDMAN IS IN PRETTY GOOD SHAPE. THERE IS NO DOUBT THAT PEOPLE THINK IF YOU DO WELL IN PRIVATE EQUITY, YOU CAN DO THAT OR THAN INVESTMENT BANKING. THAT'S BEEN ACCEPTED FOR THE LAST 30 YEARS OR SO. LISA: WILL THAT GET PRESSURED AS THERE IS MORE COMPETITION IN THE HIGHER YIELD ENVIRONMENT AND IF THERE IS SOME SORT OF DOUBLE -- DEFAULT CYCLE AND SOME STRESS? >> IT'S HARDER TO DO PRIVATE EQUITY DEALS WITH THAT GIVES PEOPLE MORE OPPORTUNITIES TO BUY THINGS AND THE DISTRESSED DEBT AREA. PEOPLE WANT TO BUY THINGS AT SOME KIND OF VALUE. THERE IS A LOT OF VIEW THAT YOU CAN BUY THINGS RELATIVELY CHEAPLY IN DISTRESSED REAL ESTATE OR OTHER KINDS OF AREAS. I DON'T THINK ALL OF A SUDDEN, PEOPLE WILL SAY DOES NO OPPORTUNITY. TOM: WHAT YOU'RE DOING AT CARLISLE WITH YOUR TEAM, IS THEIR INVESTMENT IN AI NOW? IS THERE A FRENZY GOING ON WERE DUMB DECISIONS ARE BEING MADE? >> I DON'T WANT TO SPEAK FOR CARLISLE BUT GENERALLY, AI HAS CAUGHT ATTENTION AND PEOPLE ARE PUTTING MONEY INTO IT. WHETHER YOU MAKE A GOOD RETURN ON THAT MONEY, I DON'T KNOW. THERE IS A VIEW THAT THE BEST WAY TO INVEST IN AI IS INVEST IN GOOGLE AND MICROSOFT. OTHER PEOPLE SAY YOU SHOULD FIND THE NEXT STARTUP. I DON'T KNOW WHICH WILL PREVAIL. THERE IS NO DOUBT THE PEOPLE ARE PUTTING MONEY INTO AI AND THEY WILL FOR SOME TIME. LISA: YOU SAID IN THE NEAR FUTURE THERE WILL BE A GOOD AMOUNT OF STRESS PARTICULARLY IN SOME REAL ESTATE AREAS. WHERE ARE YOU TALKING ABOUT A PARTICULAR? >> I DON'T THINK IT'S A SECRET THAT IN THE COMMERCIAL REAL ESTATE OFFICE MARKET IN MAJOR CITIES, PEOPLE ARE NOT COMING INTO OFFICES AND THEREFORE EMPLOYERS ARE THINKING I DON'T NEED AS MUCH OFFICE SPACE AS I ONCE DID. ALSO, INTEREST RATES ARE HIGHER IN THE VALUE OF BUILDINGS GOES DOWN. IF INTEREST RATES ARE HIGH IN THE RALLY OF REAL ESTATE GOES DOWN, PEOPLE DON'T NEED AS MUCH REAL ESTATE AS BEFORE AND THEY MAY RENEW THEIR LEASES WITH LESS SPACE AND IT WILL MEAN THE VALUE OF LISA: THESE WILL COME DOWN. HOW CONCERNED ARE YOU ABOUT NEW YORK CITY? >> PEOPLE OF BEEN CONCERNED ABOUT NEW YORK CITY FOR THE LAST TWO YEARS OR SO. THEY ALWAYS SAY IT WILL FALL APART BUT IT HAS SURVIVED. . NEW YORK CITY IS NOT MIGHT NUMBER ONE WORRY. TOM: THANK YOU SO MUCH. REALLY INTERESTING CONVERSATION AND TIMELY. LOOK FOR THAT ON BLOOMBERG WELL TONIGHT AT 9 P.M. I GUESS WE HAVE SOME STABILITY WITH FUTURES -30 AND DOWN 0.7%. THE CHINA NEWS REALLY SHOOK UP THE MARKET TODAY. LISA: WE ARE GETTING SOME FED SPEAK AND WE TALKED ABOUT PATRICK HARKER SAYING IT WAS LIKELY WE COULD POTENTIALLY SEE THE FED HOLD RATES FOR LONGER AND THAT MAYBE WE ARE GETTING THAT SOFT LANDING. NO ONE WANTS TO SAY THAT WITH ANY CONVICTION. IT'S CONSENSUS THAT GDP REMAINS REMARKABLY RESILIENT. PEOPLE ARE TRYING TO READ THE TEA LEAVES OF HOW MUCH CONVICTION THEY HAVE TO GET INFLATION BACK DOWN TO 2%. TOM: IS THERE ANOTHER FED SPEAKER TODAY? LISA: NOT TODAY. TOM: WE ARE DONE WITH THE PAIN OF CRYSTAL BALL GAZING? LISA: THERE IS A QUESTION WHETHER THEY WILL ACCEPT 2.5% OR 3% INFLATION THAT COULD HAVE A MATERIAL EFFECT WHERE PEOPLE WILL SET RATES. TOM: WE HAVE REALLY DIS INVERTED HERE. LISA: I'M GOING TO WATCH AT 1 P.M. AND IT WILL BE INTERESTING. TOM: WE WILL TALK ABOUT IT. LISA: THERE IS A 10 YEAR AUCTION TOMORROW. TOM: WHAT'S THE ONE THING AT 1:10 P.M. I SHOULD READ OF THE NUANCES IN THE AUCTION PROCESS? LISA: HOW MUCH THE DEALERS TOOK DOWN, HOW MUCH THERE WAS INDIRECT BUYING AND WHERE THE YIELD IS BEFORE AND WHERE THE YIELD IS AFTER, IT'S AS SIMPLE AS THAT. TOM: YOU ARE THE AUCTION EXPERT. LISA: IT'S A THRILLING MORNING. TOM: IT'S LIKE WATCHING VARNISH DRIVE. YOU KNOW WHERE I AM ON THIS. SOMEHOW THE UNITED STATES OF AMERICA WILL GET IT DONE. IN OIL, NICE PULLBACK WITH TEXAS INTERMEDIATE AT A $79 PRINT. BRENT CRUDE IS UNDER $84 PER BARREL. WE ARE WATCHING STRONGER DOLLAR THIS MORNING.

Channel: Bloomberg Television

Views: 21,430

Keywords: Jon Ferro, Lisa Abramowicz, Tom Keene

Id: VbS1f0TSkpo

Length: 146min 8sec (8768 seconds)

Published: Tue Aug 08 2023