Wilson is a Bear | Bloomberg Surveillance 05/26/23

if you look at Tech it continues to reinvent itself over and over people are jumping on the stories that look sustainable the big picture here I think in terms of the economy is it continues to expand there's no way in our opinion that the FED is going to be easing Financial conditions anytime soon I think they probably try to hold all year but then next year start to cut this is Bloomberg surveillance with Tom Keane Jonathan Farrow and Lisa abramowitz brammo is a way so this show is going to be totally unhinged for three hours live from New York City this morning good morning good morning from audience worldwide this is Bloomberg surveillance on TV and radio alongside Tom King I'm Jonathan Farrow your Equity Market just slightly softer than negative on the S P 500 down a touch after AI when absolutely nuts yesterday Tom in the stock market really historic day I think Lisa really grabbed it earlier than I did I mean the scale of the move is extraordinary let's pause for a moment on that a very important Friday here and some terrific guests coming up the pros look at standard deviation jumps it was a 4.4 standard deviation move jump up in Nvidia and what I was unprepared for John as you go to the memb uh panel on the Bloomberg and you look at the NASDAQ 100 and you know I started framing my hedge on 25 27 percent of the big guys gone that's ancient history like six months ago line them up Microsoft Apple now Nvidia brand new Amazon Google meta you ready 51 of the NASDAQ 100 never have I framed that let alone set it yeah today then that's that 100 up about 27 but some of these names listen to this Nvidia yet today up about 160 percent meta yet today up about 110 great note from Michael Hunter over at Bank of America this morning the title bonds and Bubbles he said four percent real yield to pop the internet bubble three percent pop subprime 250 crash crypto the market is saying 150 basis points Tom too low to pop AI yeah well it's a papay I I'm not sure where to go with that I really haven't framed out my head uh Alec Webb in London I thought was absolutely brilliant yesterday John on this Nvidia AI stuff what I will say is once we get beyond the debt ceiling are we this weekend then we go back to normal interest rate analysis into the June 14th fed meeting so publicly lawmakers are insulting each other still the Democrats blaming the Republicans the Republicans blaming the Democrats but behind the scenes according to our reporting The Contours of a deal come together going into the weekend the Nuance for you opening up to the Zeitgeist all the different newspapers and I think Greg valieri takes a high ground today people are talking about 10 Democrats and that velier says it's a hundred of one side and 125 of the other side that need to be convinced it's a bigger group of people that need to be sold whatever they're the toxic brew they're doing this uh this week we count the officials I'll count the cash at the treasury right now yeah please try to be cash balance latest data a break of 50 billion a break of 50 billion a break below that level so down from more than 76 billion just the previous day Tom so that number's come down I get that this lumpy it can jump pick and fall but ultimately you can see the trend two weeks ago from 140 in the middle of May down towards below 50 billion as we get started it's important Friday I'm gonna go into idiosyncratic on you John and I have different launch pads different screens that we use in the Bloomberg for equities bonds currencies Commodities out of left field but I'm sorry it's a number that sticks out like a sore thumb today you mentioned South Africa yesterday unwinding it's like Dow ten thousand turkishly or twenty two zero that's a new thing that's a weaker Lira given the Electoral drama that you're seeing in Turkey let's wait for the price action and move on from that your Equity Market more broadly on the S P 500 negative 0.14 on the S P yields come in just a little bit by about three basis points the tenure at the moment about 378.28 a lot of focus on the Euro trying to Stage a bounce and Recovery 107.35 fact of the matter is we got down to lows we haven't seen since March recently very very close to break in 107 in yesterday's session I look carefully we did not break 106 once twice three times maybe today maybe maybe it'll save that dollar strength comes through a bit of economic data coming up a little bit later look out for that we'll get personal income personal spending at about 8 30 Eastern Time get a whole load more at about 10 missed that you Mitch you Mitch sentiment survey coming out before you can enjoy the long weekend before we can enjoy the long weekend as well here Stateside Daniel Ricardo coming up a little bit later F1 driver Danny Rick more than that 40 minutes away to the American audience it may not be familiar with this truly International name this guy is a star and it's his character it's not just driving around he did the same thing they all started out at seven years old he was near Perth Australia he's Australian Italian yes this is Italian too does he speak Italian I often thought that he might end up in a in a seat over at Ferrari but maybe it's too late for that I think there's a lot of speculation about like what's next but we'll get to that later but this is going to be fun this is a guy that's taken the brand further imagine that I mean he's a little bit like Michael Jordan in basketball he's done more than just in you know bounce the ball drive the car he's a real personality it will be the second best guest this hour the first best joins us now Bob Dole CIO across smart Global Investments Bob buddy good to see you going into the long weekend let's start with that rip roaring rally in big Tech and AI is that something you're willing to fight right now no not really um look into strength uh you you do trim uh and trying to bind the weakness um but look uh the the Nvidia numbers were off the charts and that carried the the day for technology my problem is everything else the average stock here to date is down the Dow is down here today Russell 2000 down eight of the 11 sectors down here to date this is a very narrow and getting narrower market and that's generally not healthy Bob Dole within your history do you have an analog is there another time that looks like this well we're not there yet in terms of either valuation or narrowness but into the 2000 Tech Peak there are similarities beginning to build I hope it doesn't end the way that one did but we've got to watch it carefully yeah I I looked Bob at the choices have to be made and you're going to make them over a three-day weekend you're going to reallocate into June you're going to reallocate into a mid-year review June 30. how do you reallocate inequities so what I've been doing back to the the first question is into strength continue to trim Tech and my biggest ad in the last quarter has been financials those stocks have been decimated I'm not trying to figure out you know which Community bank's going to make it but the big banks that do not have asset liability um mismatches that have good credit they were taken down big time too so having added to those um thinking there's uh more juice to come there probably you're talking about some banks like JP Morgan with both the Investment Bank and a large presence in retail as well is it more specific Morgan Stanley Goldman Sachs what makes you thinking about here Bob JP Morgan uh top of the list citicorp Bank America uh they're the kind of names I'm adding already own some Goldman and some Morgan Stanley when you look at the Community Banks I mean one thing to do there is an ETF something like that the Keith Brett and wood index or so do you suggest instead of cherry picking Community Banks looking in a broad portfolio you could do that I I look I don't think we're out of the Wiz yet when the FED raises rates from zero to five percent 13 months there are consequences we've seen a few I suspect the financial bank the banks are not out of the woods yet so uh be careful how fast you go talk to me about preferreds it's a you know fossils like you and me Bob we remember when preferreds were come talk about all the time I think it's much less so now that extra dividend and prefers does it have value yeah I I think it will as we get into assuming we get into a more defensive environment uh we have obviously had a period when both preferreds and yield stocks year-to-date have not done all that well that's because we're an environment where interest rates have moved up if uh we can go sidewise for a while and the market the equity Market kind of gets a little sloppy probably prefers in dividend yielding stocks do better but what would you say to people who have missed out on this rally here today and it's starting to feel anxious about getting in deploying capital what's your advice to those people well first of all have they really missed the rally they may have missed the stuff that's up but the average doctor repeat is down uh I I wouldn't go chasing a whole lot here uh I I still think economic weakness uh mild recession is in front of us I know that's a minority of people now but uh you know earnings have not behaved themselves all that well after better than expected first quarter you would expect a lot of analysts to to move their estimates up and it's been spotty in that sense and I look at my screen and stock market's selling it 21 times earnings so it's not like you're getting a bargain to take on some of this uh GI really don't know risk are you still advocating for some form of cash position and if you want Bob how big yeah look most of my portfolios I'm to be fully invested I I have some long short portfolios where I do have some cash when you can get five percent on cash and you're uncertain about earnings and your PE is over 20. having a little cash in your portfolio whether that's the fixed income portfolio part of your portfolio or the equity part I don't think is the worst thing in the world hey Bob gotta catch up good to see you enjoy the weekend thank you of course Mark Global Investments talking about yield at the moment 449 on a two-year yesterday through 450 we had 10 consecutive days of yields rising at the front end of the yield curve this morning we come back down by about four basis points but let's call it 450 Tom again on a two-year I know your house hunting this weekend John 30-year bank rate I mean it's a moon shot I can't count it right now but it's up 15 days in a row let's guess round it up 7.15 percent and we have just ex no uh yes we've just exceeded the peak of March this happened in real time in real time 30-year mortgage have just exceeded their peak in March mortgage rates are now based on their bank rate 30-year mortgage higher than they were at the March Peak we've said it how many times if you got that mortgage 30 years at three percent this is original I don't think I can say in any other housing crisis we've seen this but I think the whole thing's original right now just look at the data that's coming out of manufacturing versus the data coming out of services the distinction there is just massive manufacturing worldwide Europe China us screaming recession the services take a look at Airlines have had a lot of people reach out to me in the last 24 hours about how busy the airports are going into this weekend that doesn't look like recession at all I I talked to my driver the Beltway was in the garage and he said the Hamptons will boom this weekend he's spending the entire weekend in the Hamptons he said it's back to 2019. I'm going to say something that's very foreign to people who live in New York what is it about the Hamptons what is it about I I just don't get it either I don't get it no you're the beach is I'm sure I'm going to offend so many people are spent they're not that spectacular well you know 100 million dollars for a house so guys this is a guy with 4 000 square feet in Capri anywhere in the Amalfi Coast and pick up a house Sevilla you can do up for let's say several million go and have a look at how much it costs to pick up a house in places like Southampton I was gonna say Shack we're talking 50 million seconds I can see you John I I can see you up the Hudson River after the refs no thank you my friend Emily's running a groceries just send me a message I'll do this for free I will construct a global property portfolio for you for the same money that you're about to spend a hundred million place in Montauk John what this could be instead of happy Friday we could say Happy Tuesday come back from Memorial go to the Jersey Shore happy Tuesday happy Tuesday yeah coming up shortly Jeanette low a strategist on the debt debate in Washington that's next with the first word I'm Madison Mills a deal May finally be shaping up to avoid a catastrophic U.S default sources say republican and White House negotiators are closing in on a deal to raise the debt limit in cap federal spending for two years the emerging agreement would include measures to upgrade the electric grids speed permits for pipelines and cut 10 billion dollars from a budget increase for the IRS and another Republican may be gearing up to enter the 2024 U.S presidential race The Wall Street Journal reports North Dakota governor Doug burgum is planning an event on June 7th to make a major announcement Brigham's a wealthy former software entrepreneur who was first elected in 2016. and Bank of Japan Governor kazuo ueda says the boj's balance sheet isn't necessarily in a normal State given the bank's large Holdings of government bonds and ETFs it also played down the importance of wages or any single economic data set as a trigger for change this suggests his desire to hold on to policy flexibility leaving speculators guessing about the timing of policy shift Global News powered by more than 2 700 journalists and analysts in over 120 countries in Madison Mills and this is Bloomberg [Music] thank you [Music] speaker McCarthy and I have had several productive conversations the American people deserve to know that the Social Security payments will be there the veterans hospital will remain open and the economic progress will be made and we're going to continue to make it fault puts all that at risk Congressional leaders understand that and they've all agreed there will be no default the president of the United States with a touch a happy talk going into the weekend there will be no default the latest news the reality check just follow the numbers this from the treasury cash balance going into the weekend the cash balance dropping below 50 billion dollars according to the latest data that's down from more than 76 billion the day before the Contours of a deal reportedly coming together based on the reporting of Justin sink and our colleagues down in Washington DC according to people familiar with the matter the two sides have narrowed some of their differences in recent days negotiators time said to be moving closer to an agreement to raise the debt limit and cap federal spending for two years we're not there yet but we're getting closer and where are we yet to and then what the conservatives are going to say is okay we're there but just as you said the key phrase is two years or maybe it's 18 months maybe it's three years whatever but it seems like it's almost a collegial Band-Aid to not Kick the Can down the road but they have a termination date out there that's what I'm going to be looking for is what are the termination dates ultimately the consensus viewers Tom will be doing this at some point further down the road I think we've done it 78 times or whatever since World War II I can't remember the exact statistics it's 1960 I believe yeah but you know we do this every three or four years to say uh the lease as you go into the weekend three day weekend long weekend for politics in Washington they will look at policy and the outcomes of it joining us now Jeanette law managing director policy research at strategist it is a Baird Company Jeanette what is a distinction for you what will you listen for this weekend so first thanks for having me um there's so we do have a deal coming together which is um good news there are still a lot of details that need to be worked out um as you continue to hear that they've made progress and they are you know limiting the number of issues that still need to be taken into account and and finalized among the negotiators so it does seem like we are getting closer we're definitely going to be looking at how this deal is structured this is definitely smaller than what the Republicans initially proposed they were looking at 10 years of discretionary spending perhaps we might be more at two years so that how that's going to be structured is going to be important I think for the markets because there is this anticipation that we're going to get some austerity out of this deal but even if we don't get austerity out of this deal we still think there's more fiscal austerity in the in the years ahead for the United States this is really really important right where I wanted to go and this is literally the history you learned at Richmond in bu what's the difference between our austerity in what say the United Kingdom is living they seem to be drowning in an austere psychology I don't see that in the last eight or ten years in Washington I see you know if it moves spend it spend every dollar what's changed so what we've seen is that you know obviously the pandemic you had extraordinary fiscal stimulus come into um and that the government provided and then obviously we've had inflation come on top of that what's really been the key change now because to your point we have been able to just spend and cut taxes quite freely for the past number of years but now that we've had interest rates rise so much that is now increasing the cost of the U.S debt and so net interest costs for the U.S are now increasing we have seen historically that once those rates hit 14 of tax revenues financial markets begin to impose austerity on policy makers we are currently at 12.7 percent and we anticipate that we will get to 14 by the end of the year and so that is where we're really looking that's going to start to squeeze the federal budget so even if this deal is not particularly austere which given the current Contours it doesn't seem like it will be we are still looking at the fact that over the next couple of of years the policy makers still have a number of other times that they're going to have to come into play to think about how do they bring the U.S fiscal budget into a better alignment um to kind of handle some of these costs that they're dealing with Jeanette can we just finish on the X date the so-called X date the treasury doesn't have a precise idea of when that falls we're all guessing care they have some information about tax receipts it can be very lumpy sometimes how are you reading the Tea Leaves of that situation right so I mean the I think all the negotiators want to operate off the fact that we have June 1st as the X date now there always is a little bit of uh flexibility with that treasury wants to have a little bit of a buffer so that if we were to cross over the X date you would still have maybe some cash to still continue to make payments before the treasury Department would actually run out of cash maybe they might be able to make it to June 3rd maybe not they did put out an auction this morning um that just make it seem like they might have a little bit more cash um at The X date but I think the more important thing is is that the negotiators are focused on the X date and if we were to cross it we do think that that would be quite a market jolt um it would actually help get a deal if we still hadn't gotten one at the same time um but I think that the the actual you know loss of cash is less important than that X date right now just for policy makers to be able to control their focus Jenna just to finish on that point when they start to think about prioritizing spending I think they can be some confusion between going through the X day and defaulting on debt obligations there can be two different things how do you think the treasury will start to prioritize spending as we if we go through that day it's a great point because the big thing that we have been trying to focus on is the fact that this would naturally not be a default if we crossed over the XD treasury We Believe would prioritize making interest and principal payments on treasuries this would be more about prioritizing spending and payments to bills that need to go out at some point we still think the treasury would prioritize things like Social Security Medicare defense but then it's about whether or not you pay some other Federal contractors on time so it seems more like a you know what we would see when we have a government shutdown with trying to move payments around but it's not an actual default on on U.S treasuries hi Jeanette thanks for clearing that I appreciate it just brilliant Janette low there that's strategist that final point is a really important one there have been some conflation between going through the X date and defaulting some they're not the same thing they don't have to be the same thing I'm really proud of what our team's done this Maya McGinnis has been with us and now Jeanette law which she said in the middle of that interview folks tattoo it to your brain she said we're moving from 12 percent to 14 percent in the CBO this is like the adults the CBO forget about the politicians says in 2053 8 of our interest expense excuse me 38 of our taxes are going to go to interest payments that's how Auto whack this is we're trying to get out to June or get out 10 years as you just said CBO says we're going to go from 14 of tax revenues to pay the interest Bill to 38 in 2053. you and I are going to be on set in 2053 I'm going to be 20 years to that Austrian Bond and the interest math doesn't work I'll say this about that it's on the problem here is that we're becoming more like Europe but without the nice trains it's not pretty it's not good and once you get through this it doesn't mean that the debt conversation goes away there needs to be a real conversation about this I think there's been a total failure of those who care about this issue out of power forgetting about this issue when they come into power and this is something the time that quite clearly needs to change based on the trajectory that we're on certainly the recent careless was a medical event a pandemic everybody can you know look back on history books and books will be read but we have this natural disaster and now we've got to come out about that and get back to the austerity Ms Lowe was talking about and government spending some significant money worldwide off the back of this natural disaster which makes me wonder Tom why there isn't a bigger willingness from governments worldwide to really get to the source of that natural disaster to understand what was behind it what happened I'm still surprised by that today there's almost a lack of interest to get to the bottom of that when it's Global government so much money responding to it I agree and the question is how do you prepare for the next disaster and I don't hear much conversation about that right now very strange isn't it a lot of distractions at the moment here's one for you Equity features on the S P negative not even 0.1 percent on the S P 500 great lineup this morning Dom constum of mizuo on this Bond Market on the Federal Reserve and the global economy as yield retrace some of the move of the last 10 days after going through 450 on a two-year this morning we're down about five basis points your yield at a moment about 448 from New York City going into the long weekend this is Bloomberg [Music] thank you [Music] let's get you to the long weekend stage site your recording Market on the S P 500 trying to stay to recovery just about unchanged on the S P down on the week by about one percent so far this week through Thursday the nasdaq's slightly positive the NASDAQ 100 yesterday best day of gain so far this month in the month of May even with this in the bottom Market two-year 10-year 30-year shaping up as follows two-year around 450. we've had 10 consecutive days before today of yields climbing yields dropping today by five basis points but still over those 10 days with yields up something like 50 basis points call it 60 basis points higher the NASDAQ 100 is up four percent more than four percent over the same period that rate Story Time hasn't taken a bite out of the enthusiasm in the equity Market well the enthusiasm of pretty good GDP numbers including the second view we saw in first quarter yesterday John further inversion down I don't know if 70 basis points of inversions out by near 100 bases are points with the trends in place and the real yield uh John the 10-year rule you had 1.53 that is a change from seven days looking at the nominal yield week to date so far up something like 22 basis points on the front end in the US in the UK we've had a 58 basis point move this week yeah at the front I'm glad you mentioned this Germany you know too CPI hot pressure on them to hike again so some really interesting moves in the FX Market off the back of some of this too so let's finish on the Euro against the dollar the Euro against the dollar right now at about 107.33 yesterday coming really really close to a break of 107. after getting close to Breaking 111 not so long ago yesterday the lower the session Tom 107.07 not too far away from talking about 106 going into this weekend I mentioned a couple days ago technically a free fall from 107 to 105 we're not there yet as we haven't breached 107. I just it's gonna be it's gonna be an extraordinary day I'm nervous I'm reading the Ottawa you know uh Ricardo coming up here very cool so we got a big your Superstar than Ricardo coming up right now do you want the good news today yeah and it's a long weekend no fed speak no fed speak whatsoever from Federal Reserve speakers they take the day off going into the London custom parts it is fed speak he's so influential Don Constance got to say over mizuo on all of this the first beat we've heard so far this week we still expect the FED to pause officially in June and the next move will be a cut the credit crunch is slowly beginning and as long as the layoff rate continues to rise there is scope for a Sharp rise in unemployment on the back of lower vacancies that's certainly not what you saw in claims yesterday but this is the conversations people are still having some there's a conversation 90 days ago out front 100 days ago and this was Dominic Constable Missoula America's uh certainly Lean Forward Global Wall Street and let's get an update right now Dr constant it's real simple there's two Americas out there there's everybody else flat on their back and there's people that own Nvidia they're all out in the Hamptons celebrating this this weekend what is your super restrictive take on the FED mean for the Hamptons I'm fascinated by where we are your super restrictive fed and where we're going to be when the first leaves fall in the Hamptons in October uh well yeah I think this is kind of the Calm before the storm so to speak uh uh nothing really has changed over the last few months in terms of the underlying trends of a slowly slowing economy uh and uh basically uh you are having credit conditions uh uh obviously tightening and lending growth is slowly slowing and the number of things in the pipeline such as when the debt ceiling has passed and a lot of t-bill issuance takes place uh that will kind of challenge uh if you like the banks again in terms of potentially losing more deposits uh and so I think the idea is is just a question of patience the the immediate crisis whereby in some sense the FED needed to cut rates let's say uh you know at the uh June July sort of meeting honestly that's all backed off now uh but it doesn't mean that the underlying or problems have suddenly sort of gone away they're still there and uh as you say the the real risk is that the unemployment rate Rises much more sharply uh towards the end of the year and that will have a whole new meaning for the fed you know right now they can fight inflation because there's there's uh you know that's the main issue there's nothing else seems to be a problem but it will be a problem if unemployment starts to rise uh faster than most people expect what does a rate of change on that I mean do you expect this has been a debate on the show Dominic the basic idea of non-farm payrolls 220 230 250 000 everyone agrees it's coming down but what do you suggest will be the way it will come down to 40 000 or dare I say a negative non-farm payroll statistic well the issue really goes back to a debate that the FED itself had uh Governor Waller had with Larry Summers uh in terms of uh you can think about how unemployment Rises it rises either because you know demand for labor is going away it can rise also if the supply of labor is going up due to people getting fired or rejoining late Market uh the issue is what happens if both happen at the same time if people start getting fired and that demand is going away and the demand is is reflected in vacancies so I think the path uh you you could see quite a sharp rise in unemployment as those things are two things Collide and those are the very statistics that Governor Waller himself put out in the paper with Andrew figuera uh in July last year and they had an example where a 50 Cent jump in layoff rates could lead to unemployment essentially doubling from these levels so I I think the um path if you like for a a quick drop in payrolls uh around say you know end of Q3 Q4 you know it's certainly plausible uh and that as I said you know that would you know the FED historically uh starts to cut rates when unemployment only Rises on average 22 basis points that's for the last five Cycles they don't need much of a of a of a excuse to start cutting rates if unemployment really starts to rise as much as uh some of those indicators would suggest isn't it the objective now though Tom to see that happen well yeah I mean it's part of the problem uh I mean inflation is sticky we all we all know that uh I think we most of us sort of understand why it's sticky uh I think it's to do more with the supply side rather than demand side uh the FED uh you know can't you know it can't be patient really uh if unemployment's so low so it kind of needs to see the unemployment rate rise uh it's obviously now got the credit tightening uh on its side for that uh and then they can kind of switch gears but until until it does it doesn't have much incentive to really sort of you know preempt any kind of loosening up of the labor markets while inflation is still uh sticky and you and you mentioned the UK data I think a lot of people you know were a bit surprised by that not just because it was higher than expected but the good side was higher and you saw yesterday fed officials were talking about concern around Goods inflation not perhaps coming down as much as they might have expected in the last couple of months so those all kind of feed in so they're sort of nervousness around inflation being still a bit too high it's got to come down and you know if unemployment's still low then you just keep on fighting it and it doesn't mean you keep raising rates but you certainly have a pause and say you know I may have to come back and raise rates again uh if unemployment's still where it is and inflation is still where it is you clearly have a different view on where an unemployment is going to go from here looking for some pretty soft prints on payrolls you mentioned vacancies can we just talk about that conceptually Don we saw a lot of reports a lot of studies done over the last six to nine months some people leaning on this idea that you can have vacancies come down without unemployment going too much higher what's the reality check to that dumb well I mean you know the the answer is no one really knows um empirically it's definitely true uh that if you go back through Cycles as vacancies come come down unemployment does rise uh quite a lot covid was was so amazing in terms of how the labor market restructured you know companies were getting rid of people in one part of the country and and rehiring people in another part of the country the whole efficiency around uh the job a market uh basically you know was was you know temporarily destroyed and has been reshaped so the truth of it no one really knows um but there is obviously some good sort of theoretical arguments uh on the side of the FED that you could get vacancies coming down quite a lot without necessarily having unemployment go up a lot uh and then obviously some people more people like myself so you know you know we tend to rely perhaps more on historical models uh and and the idea that you know if if you are going to get a Slowdown in vacancies then the bias would be uh you know the risk the risk is a on the point it just Rises a lot more than you think especially when you have this restrictive policy in place by the fed you know they're not really leaving themselves much wiggle room Dominic you're so cut and chiseled people don't realize how many years you've been around out of Cambridge and Oxford in the 80s your first day at Credit Suisse I think it was in the 90s and it's real simple I'm looking at the chit chat we have to put up with every day from say Austin Goolsby of Chicago over to James Bullard of St Louis are these people talking too much yeah um um well I mean yeah there's something talking a lot uh um I mean I I mean the question is whether it's it's sort of helpful I guess for the markets I mean you know in my mind it's it's a lot of noise uh I think that I think in general the governors are are of are good people to listen to you know I I would sort of you know I like uh you know the governments I think the presidents can be you know a little bit sort of you know just a lot of sort of a white noise around the whole conversation uh and uh especially if they're not voting it's it's you know it's much less Irrelevant for markets obviously 12 months out 24 months out where's the 10-year yield if we move from a constant super restrictive to something new with a labor deterioration where's the 10-year end up so I think the key thing is really what happens to the supply side the supply-driven inflation that we're observing is still very high my guess is a lot of that is still kind of covert pandemic related uh and that will dissipate uh especially as you see the labor market normalize and on that basis uh tenure yields you know should come down to three percent or below because the FED needs to be getting back to the neutral rate which uh Williams now uh confirms isn't very different from what he thought it was before a couple days ago I can't let that go yeah what did you make yeah um but anyway but anyway the other the risk is obviously stagflation uh and that Supply inflation doesn't come down and we've done some you know detailed modeling on that which is just a 10-year kind of stays where it is it's like a three and a half four percent kind of yield it's no big deal uh which just means that the upside to tens is probably capped I mean you're not hopefully oh you're not going to see a sort of five six percent yield uh that uh you know talk about the federal you know your interest costs you know you certainly don't want to see that on a sustained basis Dom I'm not letting you go without answering what did you make of that Williams piece um well I mean uh I'm not I'm not surprised I mean I you know I think if you you you you uh you know you you massage your data enough you're going to get the result you kind of want my intuition is is that you know he's probably clearer please no I mean I mean the low era of interest rates you know that we saw before the pandemic you know it hasn't suddenly changed because of the pandemic I think and uh statistically you know obviously he's able to show that uh by doing some sort of more fancy kind of econometric kind of analysis um so um yeah I mean we we'll we'll see uh I I sort of uh my bias is that the low era of interest rates hasn't changed anyway I think there's a lot of reasons why people are worried about it changing but I think uh you know no one really knows um but uh I I'm happy to to run with the flow uh and I take the invitation to Jackson Hole just went out the window for Dr Constance hey Dominic thank you Dominic constant there mizuo I do know Matty thinks it has changed Mohamed alerian thinks it may have changed let me catch up with him a little bit later this morning I can't this debate folks from Blanchard rogoff they started it everybody's on board constant in allerian in the camp with Ken rogoff I can't make up absolute rock star of the F1 grid coming up next red all racings Daniel Ricardo ahead of this weekend's Monaco Grand Prix that conversation up next [Music] keeping you up to date with news from around the world with the first word I'm Mattis Mills a deal May finally be shaping up to avoid a catastrophic U.S default sources say republican and White House negotiators are closing in on a deal to raise the debt limit and cap federal spending for up to two years the emerging agreement would include measures to upgrade the electric grid speed permits for pipelines and cut 10 billion dollars from a budget increase for the IRS and turkey Central Bank has kept its Benchmark rate on hold at eight and a half percent for a third month and a bid to stabilize the Lira the policy decision comes ahead of Sunday's runoff election President erdogan is looking to extend his two-decade rule after leading the first round of voting but failing to take 50 percent earlier this month and the Cyclone the devastated large parts of New Zealand's North Island in February has been less inflationary than first feared the rbnz initially estimated Cyclone Gabrielle would add 0.3 of a percentage point to inflation in the first and second quarters the central bank has since downgraded that impact to 0.1 saying while it drove up food costs it didn't affect other Goods Global Bloomberg has learned that UBS and the Swiss government haven't agreed to the precise terms of State guarantees for the Emergency takeover of Credit Suisse sources say the deal's completion could be pushed back to June instead of late May UBS and the government are also still haggling over the regulatory implications of the Takeover including Capital requirements and liquidity rules as well Global News powered by more than 2 700 journalists and analysts in over 120 countries I'm Madison Mills and this is Bloomberg [Music] while inflation is still too high there are some promising signs of moderation and I believe that we may be at or near the point where monetary policy can cause raising interest rates and this will provide an opportunity to more fully assess the impact of the actions we've taken to date it was some good news that was Susan Collins of the Boston fed president by the way here's the good news no fed speak today yes going into the long weekend we're kind of done Tom we don't have to talk about the Federal Reserve and interest rates anymore you know where I stand and we're finished up wrapped up finished dance wonderful done and now some Peter orzag at Lazard he will take over the Reigns from Ken Jacobs this is widely expected I've known Peter for years he is a world-class Economist out of London School of economics and brings uh John Major policy crit in health care toward the lizard Boutique is well we're going to get through this very quickly because every moment's important in Monaco and John Farrell's far more abrupt than I am all I can say is in every sport there's someone that transcends the day-to-day grind of the sport you have your Heroes maybe it's Michael Jordan in basketball maybe it's a guy named judge for the New York Yankees Daniel Ricardo is so large for Red Bull and for F1 racing Anne Hathaway killed over at the Met Gala when she met him the other day I bet she did see Anne Hathaway fell I've had good fell apart away was the Fanboy here not Daniel you know what the problem is he's wearing Tom Brown at the Met Gala thank you Vogue for the the images and he puts on a fake bow tie can you talk to him John when you're in Monaco this weekend we need Ricardo in a real bow tie not a pretend boat a Sci-Fi you we can talk to him right now Daniel I'm pleased to say join the sky and get to the race weekend in Monaco Daniel wanted for the catch up with you mate just talk to us about how special race weekend is in Monaco to talk about guys [Laughter] I I um well all right let's talk about Monaco it's put it this way I've been coming here now for ah 13 14 years and it doesn't get old like that that feeling I don't know Monaco is just it's so special it transforms into this honestly like this magical place um for the race that rhymes and uh you have to I feel like everyone has to experience and want to grow a Monaco Grand Prix at least once in their life it's pretty surreal Daniel just to build on that one thing for us as we've discussed Formula One is explosion in the United States with with your boss Mr Horner others as well is whether we risk losing the heritage of the sport as we expand in places like Vegas Miami and elsewhere how do you feel about that I think there's look there always I think it needs to like remain a place for the as you say like the the historic venues um you know yeah your Monaco is your uh I guess if it's Spa in Belgium or Silverstone uh Monza so the these places for me um should always have have a presence on the calendar but I also love going to new places and I think you know how we're able to open ourselves up to New Markets now and see the growth in the states for me I love because I I really enjoy spending time in the states so having like three races there is is pretty unreal um so I'm I'm somewhere in the middle where I'm definitely open to having new venues but I think you still have to keep um those core few um they shall always remain if we can I'd love to talk about your future as well you're a super charismatic guy your personality as I'm sure you're aware has transcended the sport with what's happened on Netflix and Beyond but Daniel I know deep down you're a racing driver and I want to understand from your perspective how frustrating it's been just been on the outside on the fringes of the sport being the reserve driver what it's like being in the simulator is if if it's anywhere near to what it's like actually sitting in the car I think this thing this like serves a purpose for me I I did need to kind of I guess remove myself a little bit from well yeah literally I guess from the driver's seat just to um in a way like in simple terms probably just fall back in love with it again and to to really like Miss the sport um I'd come off like a more difficult kind of 12 24 months um like competitive wise and I was starting just to just have too many bad days where I needed a bit of a reset and a refresh so I'm getting that this year sure it is frustrating to be on the sidelines and to watch but that's also building like this this fire and and that desire back So the plan is to to find myself a seat next year and um but I don't want to just be there you know I don't want to just get a seat you know to say I'm an F1 driver I still want to find my way back to a Podium hey Daniel you're in the in-between age I mean I don't know much about F1 driving but I've got Alonzo Making a Splash this year at 40 something years old you got a lot of Young Turks following behind you tell us the experience value whether it's Miami or Monaco what do you what do you sell to a new team or even the Red Bull when you're you've got a lot more experience how does that matter in a given race including this weekend yeah I think the little experience is um I think in this sport as well always a lot of sports but it's it's very valuable because you know it comes in terms of on driving on on-track situations of course the more you can um read a situation then that can obviously help but also then um building a car or helping the guys that build the car and design the car helping them with feedback and understanding um this helps the team ultimately progress and move forward so that's that's the value I guess in in experience um you know I'm 33 at the moment as you mentioned Alonso he's he's in his 40s now and he's having one of the best years of his career so that's encouraging for me because there is days you feel a bit old um but then seeing someone like him you're like I feel young again so yeah um it's it's not at the end of the day it's how bad you want it and look I'm still in shape and if I want it then I believe I'll get back to it I'm the Ugly American learning about Formula One and John Farrow has been great about explaining to me the Red Bull distinction I was comparing them to the West Coast Eagles of Australian football who are in last place right now you've been Red Bull since you were like 15 years old 16. what's the Red Bull pixie dust um well I don't know if that was a jab at me because I love the Eagles and yes they're having an absolutely um a terrible season um but yeah red Red Bull certainly uh yeah they're they're the opposite right now and they've they've been look for me growing up they were the program you know that was the that was the franchise if you will that everyone wanted to be a part of and sign for you know they had all the resources to progress you up the ladder if if you were having the results so that for me is like the family that gave me the opportunity and and now being back in the family it's like it feels like uh like it's the biggest family I've ever had in racing and the place where I feel I belong so right now like that's my that's my dream is to to be back here with this team racing and hopefully winning another Monaco one day you think it's potential to get a seat again at Red Bull Racing Daniel or you're looking elsewhere I think look I in this sport I know things can change so quickly and even even in at the end of 2018 you know when when I moved on to Renault people probably never ever thought they'd see me wearing a Red Bull polo shirt again so things things certainly changing can happen so Never Say Never um I'm also just like look if I focus on myself and apply myself and keep training keep working hard then Anything could happen so um yeah and it helps when you got you know good looks in this sport so of course that's what they say like Charles Leclair I was just wondering I know you speak a bit of Italian you've got here we go you've got that Italian blood running through your veins can you imagine being in the red outfit over a Ferrari I look I again Never Say Never I feel like it probably would have happened by now um if it would have so yeah that one's probably more slim but uh but honestly this is a month to be here that's that's that's where I'm at that's a nice place to leave it Daniel this was a pleasure a privilege if you make it to New York drop by we'd love to catch up with you Daniel Ricardo there yeah of course bring it on two and TK is going to teach you how to do it the bow tie TK what a legend what a great guy what I would say here in folks I I am a complete amateur at this John's teaching me this stuff as fast as he can last race when verstappen a colleague of Mr Ricardos went by those two cars unlike the straightaway you could just see their cars different he went outside so much faster like it was just and just flew by looking forward to the race this weekend the race itself can be a bit of a procession but qualifying could be pretty interesting the qualities today start I believe like 12 noon or 1 30 our time we got into tomorrow let me start like pretty soon excuse me to start at 1 30 Monaco time so you and I can be watching the qualities in the eight o'clock hour practice that's practice then quality oh practice practice from New York this is Bloomberg and look at Tech it continues to reinvent itself over and over people are jumping on the stories that look sustainable the big picture here I think in terms of the economy is it continues to expand there's no way in our opinion that the FED is going to be easing Financial conditions anytime soon I think they probably try to hold all year but then next year start to cut this is Bloomberg surveillance with Tom Keane Jonathan Farrow and Lisa abramowitz itching to get to the long weekend live from New York City this morning good morning good morning for our audience worldwide this is Bloomberg surveillance on TV and radio alongside Tom Keane I'm Jonathan Farrow your Equity Market just about positive on the S P 500 up by 0.2 after a day of really decent gains off the back of a monster gain on one stock specifically Tom the AI Revolution the frenzy it's here yeah we saw it yesterday we reviewed it in the last hour we can go through it lightly right now and the concentration with this Nvidia success that you see if you take I think it's the top six stocks NASDAQ 100 I'm framing out John oh 28 of the NASDAQ 100 that's outrageous 32 that's just out of control how about 51 that's not made up of those stocks in the Nvidia number three after Facebook you know go through the numbers are up 27 year today on the NASDAQ 100 right now and look at the last 10 days before today over those 10 sessions two-year yields have climbed about 60 basis points so 10 consecutive days of your higher over the same period the nasdaq's up something like more than four percent on the NASDAQ 100 that relationship between bonds and equities that people talk about all the time right that moving yield does not stop the enthusiasm around the power of some of those names the analysis by net enthusiasm is what is our comfort factor or how far out we want to go our terminal value of the profitability of those companies we were talking retail and this week they make three cents in the dollar they make six cents on the dollar whoa they make 12 cents at the dollar these people are clocking 30 cents in the dollar same equivalence even higher and with some Stellar growth as well essentially much sooner that's why you should pay it 30 multiples or 50 multiples as well let's get to the price action right now in the equity Market on the S P 500 Equity Futures shaping up as follows just about positive by 0.2 percent we take back some of the move we've seen in the yield curve on the 10-year we're down about three basis points I can tell you on the two year we're down about four your 10-year 378 will keep returning to what's been in developing in the Foreign Exchange Market that leg of the stall three-leg stall U.S Europe China the China leg of the growth stall term just challenged over the last couple of weeks based on the information that's been incoming I'd throw Europe into the mix as well and it's developed into the story where dollar has started to regain some strength and Euro dollars come back from that 111 type level that we were looking at at the end of April back down towards 107. Pro tip we're going to be out at Dan greenhouses partying on Saturday evening are we invited yes I think so if you're in China if you're in China and you're going the Hamptons they're all partying like crazy that's when you act are we going to see China are we going to see China act this Sunday because we're all asleep waiting for happy Tuesday Dan won't be asleep he joins us now Dan Greenhouse Chief strategist a Solas alternative Asset Management Dan can monitor good morning to you sir this move in Tech phenomenal even with this moving yields what did you make of that yeah well listen I think there's clearly a development here in in Ai and I don't have anything particularly thankful to say that hasn't been said already this is another Evolution or appears to be another evolution of um of the tech space you had obviously the Advent of the internet the uh the shifted desktop to shift to cloud and and obviously now this is the next iteration in in the development and I think there is a fair level of enthusiasm that's warranted obviously uh you're trading at 30 40 50 times sales is is always a question but the argument among growth investors always is that the e or the S the denominator is going to be wrong and ultimately you can be proven right over time to me the study this weekend seriously we're making jokes about China maybe they'll do something Sunday or not is the new thing to study is what does hold mean if I own these things I mean should I buy them should I sell them the character of a hold right now is really opaque I mean I don't know what hold means for Apple hold means for luxury goods hold means for NVIDIA yeah listen I think again if you're we're particularly deep value credit and Equity investors so so what we're talking about isn't is in particular our wheelhouse but in a general sense in the Thematic standpoint for a lot of these names that are developing generational Technologies whether it's Nvidia or Microsoft with chat gbt et cetera Etc the idea of holding is simply you're going to go up 30 you're going to go down 50 you're going to go up 100 there's going to be volatility which you're supposed to ride it out because presumably on the other end of it you're going to realize the gains a la Amazon in 2000 Apple in 2005 et cetera Etc these numbers are rough folks don't quote me on these Greenhouse had them in his note his note is just chiseled it's in English right now a big cap large cap up 30 percent large energy up three percent is energy deep value yeah I mean we think so you know you would you mentioned this before and I before we get off of tech I just want to point it out oh I'm sorry I went to energy I didn't know the script yeah please tell us you mentioned before about uh John was talking about how the stock market's up while while treasury yields are up and obviously there's plenty to talk about in the treasury market sure but to be clear these names the tech names that we're discussing are driving the gains and I looked yesterday uh the median stock among the the Fang or the magma whatever acronym we want to use they're up about 30 35 year to date the median stock and the remaining 4.95 is down two percent year-to-date there is a tremendous bifurcation inside eyes across cap whether it's large mid or small cap larger names are doing better but particularly in large cap you have just tremendous outperformance with Tesla and Nvidia and meta and the like and then everybody else is not quite doing as much and so I think looking at the headline index in general belies some beneath the headline developments even more so right now but to ramble further on to energy I think yeah no I think energy presents a lot of value you've had tremendous developments in the space over the last couple of years that have resulted in even more attractive investment opportunities for several funds willing to step into the space and what are those we know many of them ESG has scared a lot of investors out of the space the implosion and energy prices over the last couple of years has resulted in a lot of energy focused managers stepping away and that's created some value opportunities for the likes of us and then at the same time and you see it right now the names aren't just derivative plays on oil themselves oil itself is off call it 40 from the high broad energy stocks are only down about half of that some are down even less because they're much more now a capital return and an investment story than it is purely an exploration and production story and that that presents a terrific opportunity for funds such as ours and others to try to exploit some of these dislocations in the market let's unpack some of that then so the s p 495 I've heard a lot of people check your fact that over the last couple of weeks and I'm with you maybe we should build that some as an index Eric Bloomberg the s p 495 and strip out some of those Dow Jones Industrial Average yeah are we going to market cap weight that yeah yeah price way too let's let's give that a Miss Dan there are odd things happening though in this Equity Market we were mentioning offline and I think it's worth having this conversation online the home builders since last June are up 70 sure let's just walk through these odd Dynamics right now you've elsewhere you've kind of got like manufacturing and recession so service is booming in certain places we have these broad generalized conversations about the economy the economy is doing X but beneath the surface you've got like 20 different economies doing radically different things yeah I think that's right and admittedly that's largely true quite often the the best example that comes to mind when you mention that is the 2014-2015 period when the industrial part of the economy was largely in recession and we were worried about a broader economic recession that never materialized but it also speaks to the diversification in a 20 trillion dollar economy that it's really hard to drag the entire thing down into a recession but to your point about the builders uh I I think this is largely the result of the activity post GFC which is everybody underbuilt we knew that as it was happening and you were set up for a moment in time where if there should be a surge in demand for your product AKA houses you just wouldn't have the inventory there to meet it and covid came along and just absolutely blew the supply demand metrics as we understood them out of the water and what you have now is a situation where 90 95 of homeowners are locked in to call it sub 3 mortgages so they're not selling and taking on a new six and a half seven percent mortgage unless they have to and so you're forced to buy a new home which is more expensive but but also the result of the builders and so the builders are excited about this and and ultimately it's driving a lot of the the developments that we see in the space this gets to the heart of the bigger economic debate at the moment and that's the recession call do you think we face that kind of scenario back in 2014 it was very much China LED gun into 2016. it's basically service is going to come down to manufacturing do we face a different scenario this time or is it the same again no at least I think every recession is a new spin in the rule that we all and this actually is a good opportune moment for me to push back on something that people talk about all the time which I despise which is the idea that this we've been waiting for this recession for two two one which you want this is nonsense what happened was when the FED started raising rates people were saying we're going to have a recession probably next year meaning 2023 at least my view was we're probably gonna have a recession in the middle of 2023. that doesn't mean I expected a recession between now early 22 and 23. it just means when the FED raises rates they usually break something and you have a recession the truth is the recession was supposed to happen around now it appears that it's not going to be the case and so now you have your first real instance where you're pushing out your recession call from call it Q2 Q3 to Q4 q1 you're hugely identified with my good friend Carl keatonia and other Scott Wapner over at the Death Star which is talking about moving things moving out doing trades and that are people trading too much to create legit Alpha um probably but I mean listen we know the holding period for equities has been in Decline for decades now uh Cramer's fault but other than that I don't think we can blame purely Jim Cramer for it uh we all um bear some responsibility for that development but listen I think the research is crystal clear that that long-term Holdings of value stocks tend to outperform and obviously there are periods of time that that's not the case and if you look at Nvidia yes where are we right now where are we into the end of this year is it going to be a trading do you need to be Supple here do you load the boat on an energy Stockton listen I I think you know a lot of people don't have our holding period we have some names in the portfolio um that the pm has held for 10 years for 12 years A lot of people don't um don't have that I've owned Home Depot since 2009. I don't think a lot of people um do that anymore but but I think listen what you're dealing with now is a quote unquote expensive Market when viewed from the headline although another thing I'd like to push back is the second derivative of that argument is you have a huge expansion in tech stocks which is going to drag up the whole Market's PE and so it's not as simple as just saying the market is expensive but you have on its headline an expensive stock market up against the Federal Reserve that is not cutting rates anytime soon and is trying to engineer an economic slowdown and if the last 60 years of data shows anything it's that the FED generally speaking gets What It Wants we should do a segment next time with you just stand greenhouses pushbacks yeah three four five things with which I have a problem push back home deep it's not bad is it can we sponsor that segment by anger management we should do okay we should do hey Dan this is great it's good to see you thank you enjoy the weekend thank you thank Greenhouse there of Solace alternative Asset Management from New York City this is Bloomberg [Music] keeping you up to date with news from around the world with the first word I'm Madison Mills Republican and White House negotiators are said to be moving closer to an agreement to raise the U.S debt ceiling sources say the emerging agreement with cap federal spending for two years if a deal is reached soon a vote in the House of Representatives is likely to take place on Tuesday Peter orzag will become lazard's new CEO on October 1st succeeding longtime Chief Ken Jacobs or zag currently leads the firm's advisory business he'll have to contend with a slump in Deal making that's Weighing on profits Jacobs will become lazard's executive chairman and chairs of Marvel technology are surging in pre-market trading after the chipmaker said it expects sales of AI related products but at least double this year adjusted earnings for the first quarter also beat estimates it's the latest chip maker with a Rosy forecast on AI nvidia's market value jumped past 930 billion dollars on Thursday and wealth Bankers in Asia at UBS and credit Suites will get a rare incentive for bringing in new money they'll get a cut of the cash equal to 15 cents for each hundred dollars of new client money that's according to people familiar with the matter Asia was once a key Battleground for the Swiss Rivals but they're now trying to show clients stability after that emergency murder back in March Global News powered by more than 2 700 journalists and analysts and over 120 countries I'm Madison Mills and this is Bloomberg [Music] this [Music] the reason why we're here we've got more money at any given time coming into our government but when the Democratic majority they are now spending more than any time in our history and our debt is higher than any type of History so let's just get this right it's my understanding that the designees of both President Biden as well as Speaker McCarthy will continue to talk but it is unfortunate that House Republicans have chosen to get out of town before Sundown when we are facing a dangerous default house Speaker Kevin McCarthy has minority leader Hakeem Jeffries the back and forth the blind game continues in Washington D.C publicly privately behind the scenes the Contour of a deal might be coming together we'll talk about the details of that in just a moment welcome to the program in the equity Market S P 500 futures are positive by 0.2 percent big gains yesterday on the S P big big gains on the NASDAQ off the back of that monster move in Nvidia the nasda 100 had its best day of games so far for the month of May as we move towards the end of the month of may you also been on the climb over the last 10 days that's for sure today a break yield to lower by three basis points to 378 at the front end where the bulk of the move has been we're down three or four basis points on a two-year to about 450. worth reflecting on this though I feel like we haven't talked about it much the two-year versus the 10-year that curved Tom back to negative 70. some think negative 70 right now let's go up pre-emizer on you're going to do this right now with someone who made a great Courier this is a vanilla sprayer the difference between a two-year and a 10-year yield in John any kind of inversions are big the odd signals recession and all that and Priya came out and said hey we're going to 60 basis points point six zero percent between the two year and the ten year we said you're nuts Priya then she recalibrated to 80 or 100 basis points with Ira Jersey we got there we pulled back and this week we're coming back down again a greater inversion well forgive the bond market jargon But ultimately what happened what started to develop was that classic bull steepener which effectively means the front end of the yield curve starts to drop the two years started to Rally anticipating a rate cutting cycle and what we've done over the last couple of weeks is take some of that back take a lot of it back we've priced out rate cuts and started to price in rate hikes off the back of fed speed which is encouraged that stance there's been a persistent effort I think from Federal Reserve speakers regardless of whether they think hike or ports But ultimately no Cuts one and two it's been validated and supported by the incoming information whether you look at the economic data where you look at the economic data look to claims yesterday claims yesterday adjusted adjusted off the back of that Massachusetts story and the fraud and we've got to take some of that out and we're coming down we're not going up that's been a change I I agree in constant Dominic constant earlier that was sobering what he says here it's going to happen quickly it's going to be in the Autumn and into the winter as well what we know for certain is she's in Washington Henry Horton is our Long Island Hot Dog correspondent here in Memorial Day she knows famous Charlie's Hot Dogs is a place to be Memorial Day weekend on her along Island they're going to be barbecuing there's going to be hot dogs hamburgers for key players in the debt debate and just as importantly for those listening to their constituents Anne-Marie this long weekend what are the constituents saying to the politicians of our debt crisis well I think that's one potential issue that these negotiators will be dealing with if that you have some of these members either whether very Progressive or very right-wing that they need to make sure that they're going to get enough votes to pass this negotiation which we're starting to get more details of of this debt limit Bill uh Canadian boldened when they come back and does that change how they vote because remember speaker McCarthy has told the house that they will have 72 hours for any legislation to read it so if we were to get an agreement today and they have 72 hours they have their entire Memorial Day Weekend where they're having a hot dog or a lobster roll by the way we'll talk about John's rudeness about the Hamptons a little bit later but will they come back and Bolden and would they want to potentially ask for more whether it's pushing back on the White House if you're Progressive and not liking some of the the caves they had to make or if you're part of McCarthy's caucus and you already voted for a bill and you light some of those deep spending cuts is this going to be too easy and you're going to want to see more yeah I I look here Marie at the idea of coming back and I think there's been a media frenzy no fault of anyone's to look at five six eight people Greg villier this morning makes it really clear this isn't about a debate of five or six or ten people it's a hundred on one side and maybe a hundred Democrats on the other side there's a lot of people here to play with to get to an agreement am I right on that that's exactly right to actually get the deal through there needs to be votes on either side of the aisle which is why as you look at some of the Contours of the details coming through you can see where there are winds for the left and the right the issue though and Joe and I have been speaking to lawmakers every evening on balance of power and last night the latest was representative Seth Moulton I said what are you hearing what's in the agreement and he says you know I don't really know right now they have been keeping this very much so in a small circle in terms of hammering out the negotiations and really under cloak and daggers before they release this text and then they're going to have to start whipping the votes if they get it through the house a big issue could potentially be the Senate because one Senator has a ton of pro power to really gum up the works and make this very long difficult and cumbersome and that could be difficult if we're approaching obviously less than a week the June 1st Deb line where the treasury secretary says they can run out of cash as soon as that date and already what we saw from Senator Mike Lee of Utah yesterday is he says if there's not substantial spending cuts I'm going to make it difficult to get this passed in the Senate and that's where you're going to have like leader Mitch McConnell really have to come and make sure he get the Republicans in line to get this over over the Finish Line it's going to it's going to be difficult though you mentioned a couple of nights going into the weekend then if we manage to get some Contours of a deal and agreement a framework whatever it might be who are the names to watch Emery Beyond this weekend well I think some of the names to watch is the the group the freedom caucus um like chip Roy of Texas in the how on the house side that group has already sent McCarthy a letter saying please hold firm on the Deep spending cuts and then in the Senate side it's really the likes of Senator Mike Lee of Utah also Senator Ron Paul these individuals we have seen tried to use the filibuster try to not make it easy for Senator Schumer to get something through very quickly so even if they're able to come up with a deal that is really the first part of the hurdle of getting this over the Finish Line it's a positive step Goldman Sachs is Alec Phillips and Jan hasias are saying they could see this happening today which means we could see a vote as early as Tuesday in the house but it's not smooth sailing okay the floor is yours we have the time educate young Pharaoh here on young the lobster roll at lunch exactly I mean if you're gonna go to lunch and have the lobster roll first of all it's gonna cost you sixty dollars John right to have a lobster roll go Emery lobster roll it is quintessential also if you have celiac disease or any other dietary issues they do a lobster roll on a gluten-free bun uh it's it's a must-hop of the summer and John clearly has not been because if he has been he would not be sitting here and just ragging on the Hampton John is Payne he needs a weekend out there Tom believe me John is John has done a Memorial Day weekend in the Hamptons so the price at the end of it and decided we won't be doing that again amh thank you Emery Hotel down in Washington DC wishing she was somewhere else clearly based on how that conversation went it's gonna be a it's going to be a remote from the lobster roll it's a sign John it says the lobster rolling above it it says lunch and nobody calls it the lobster roll they're called the lunch I do love a lobster roll let's put it that way I do love that they were more consistent years ago now everybody's trying to do their own little things so you really never know what you're getting when you're walking usually I order an extra band because you get so much Lobster here in the wrong yeah I agree with that but the big thing is is it warm or cold is is the first order condition Toasted Bun old Lobster or do you do the hot butter thing and now I don't mind a cold Lobster in that now my answer is if someone hands me when I say thank you I would say thank you thank you that's very good this weekend though all about sport Monica it is oh seriously Juventus the Colonial Golf is on yeah very Michael block last week the playoff for the Premier League place for promotion in in Coventry City I mean nothing I mean we should have asked Ricardo about Coventry City we should have asked I'm sure he would have had a lot to say from New York this is Bloomberg foreign [Music] about two hours away your Equity markets shaping up as follows on the S P 500 positive 0.2 percent on the NASDAQ 100 positive another 0.4 we just add some more weight to this rally here today than that's that 100 up 27 and some you can thank a couple of names for that meta you can thank Nvidia Nvidia flying yesterday just remarkable stuff we're talking about 150 200 billion dollars a market cap in a single session on a single name in the bond market this has been happening despite this despite this move with a two-year back at 450 449 that is the story of the week oh the rest it's been a crazy week 60 basis single story 10 days 60 basis point move Equity Market not feeling good FX Market is feeling good so check out the Euro very close to Breaking 107 in yesterday's session 107 4 45 right now trying to bounce we're positive there by 0.2 percent that's a stronger Euro in the mix but it's been about a stronger dollar it's been about basically beating up consensus positions coming into the year one big consensus position was just I don't like Tech because Tech didn't work last year with Tex work this year so that was consensus position one taken out consensus position two was to get short the US dollar because Europe and the rest of the world China's real I think it's going to be great last month that has been challenged rate cut story that's been challenged what's left done what's left I I just I think what's left is this imbalance that Dan Greenhouse was talking about and every day after Nvidia yesterday it it is the I you know this word doesn't work but it does work historic it's absolutely historic where we are now this is not 2001 and on and on and on so here's my question that Tom and I wonder how you think about this at a moment give it some thought spent a long time talking about U.S Equity Market exceptionalism because in the United States you had Google you had Facebook you had Amazon you had Netflix you had others as well and those names were not in Europe and that's why we saw this big out performance at the index level on the S P 500 and now we're talking about names like Nvidia the AI Revolution and when we talk about this again we are talking about U.S companies listed on the US Equity Market where do you stand now on this idea of us exceptionalism just as people were starting to think about Europe and China all over again every this is really important we don't have time for it right now this will be a theme for us next week I promise this is really important the distinction is profit these companies are minting money and even companies less successful are making profit versus the silliness we saw in 2001 there's a massive massive distinction here of their their profitable now the growth may go away and the 30 multiple May crash down to 23 multiple Doom and Gloom but the fact is they're still minting money on a quarter of course you're right Tom because when we talk about Pas at least we're talking about p a because the semantics there and if you go back 23 years there wasn't really the story in many places frankly other years like the crisis in 1998 without a little bit to do with losing money as well someone with a historical perspective on that this is really special folks on Memorial Day it's a terrific show the team did not mail it in they're not saying happy Tuesday either is James Camp he is a student of the markets with Decades of experience at Eagle Asset Management down to the South side and we welcome him uh this morning James I'm looking at the Bloomberg Total return index you and I still call it the Lehman index Mike gets upset at me when I do that but the bottom line is you and I had a bear Market in bonds price down that we never imagined we've barely come back and just in the last number of days with this new high yield we're rolling over again when did bonds recover to the glory that we knew three years ago well good morning and thank you for for having me this morning I think it's close and the reason that I say that is if you go back historically I've been through five tightening cycles and every time we get a tightening cycle or or beginning of a peaking process from the fed the subsequent returns to the bond market one three and five are unambiguously good and I think what's happening now is these short-term yields are attracting a lot of capital we see it the flows are extraordinary into the money complex when folks wake up and realize that they can lock in north of five percent yields for the next decade plus I think we're going to start to see the flows come back into the bond market suspect that we get a peaking in 10-year early summer because of some inflationary base effects but we're pretty close to a strong Buy in the bond market right now are you predicting that we will see an inflation adjusted return on yield that we will see a constructive real yield environment like you and I remember in our ute yes I I think we will because I think inflation is trending down pretty significantly I think the fed's making a mistake being dogmatic about two percent I think they're going to have to relax that but still you know a high-grade uh corporate credit we could get six six and a quarter percent municipals on a taxable equivalent basis approaching those levels those are real returns and real yields and historically they're starting to compete with Equity like returns over the long term so it's a good time to own duration let's not bury the lead let's sit on it we get the notes from the team here when we get a guest like James on and I'm reading the notes right now recession likely starts in Q4 2024 James 2023 2024. yeah I apologize that's a Q4 2023 q1 2024. yeah that's it wrong James okay good because I was getting all excited about where's this extra 18 months coming from James walk us through the actual View well and so what I think happens is we inverted back in October November uh we we typically have a 300 day lag uh the other part of the equation is with the banking situation credit conditions are tightening very rapidly so you have the fifth you have the monetary side pushing rates up you have the credit conditions getting tighter Banks aren't going to lend when they're trying to Mark the books and they don't know what deposit flight really looks like they're getting a grip on it I think now so the the tenor of the recession sort of lines up on the calendar as a Q4 q1 type phenomena and some of the data we're seeing out of Labor is suggestive of that look we had a recession last year we're going to have an earnings recession these are not I think as Tom was alluding to and you're talking about Ai and the like recessions aren't bad things they reorder Capital they reorder the industry companies now with cost of capitals higher got to look to productivity which is the lifeblood of growth given a you know a struggling demographic this ultimately gets us to a better place it's just going to be choppy from here to the end of the year well James let's relax a bit and kick back and maybe talk a little bit more Loosely I I don't care about this word recession so much I don't care about a group of individuals getting together at NPR and saying that was it happened I want to understand from your perspective where you think that weakness is going to emerge because at the moment I can tell you manufacturing's in one Services is not I can tell you at the moment home buildings certainly not in one based on the stock price performance since the last last June with that particular part of the equity market up something like 70 percent ai's not M1 absolutely loving it massive Tailwind tons of enthusiasm where have you seen the actual concentrated economic weakness but you talk about the service sector if you look at things like OpenTable data it's starting to roll over you're seeing some pullback in consumption uh you know as mentioned earlier real wages even though nominal wages are higher real wages are are actually negative year over year credit borrowings uh you know credit leverage Etc is picking back up the key to all of this is going to be what cracks in the labor market and this is what the FED is dogmatic about going back to that two percent rate the only way you get two percent inflation is with a recession with the labor market rolling over and I think that's kind of where they're pushing um the the other thing that you mentioned uh in terms of you know where the where the market is sort of is sort of getting uh just getting buoyed a little bit is housing we always get a bump in housing we always get sort of a little bounce pre-recession let's see if housing follows through on that or if housing rolls over a little bit we we know that we have a lack of capacity we have a lack of supply all the way back to the great financial crisis and housing so that is a bright spot I just don't know how how big the legs are there well why have to watch that you know James I I I look at and I really want to dovetail this into all your work and I mean you're bringing Vanderbilt engineering here so you certainly get the Dynamics all people want to know is can they clip a coupon and someday get a total return how far are we from the world of Bill Groves of Dan Foss and other Bond Giants where you clip a coupon and you get some gain well let's remember the 10-year treasure was 40 basis points three years ago when he sits at 380 that's a matter yeah I agree it's unusual yeah and the s p now is has got a yield of about 170. so the script has been flipped stocks bonds and uh you know clipping a coupon now is is absolutely uh you know in the current offerings and I think what people have to understand is you know these yields if we do have a recession If the Fed does at some point have to relax these short-term interest rates uh you're going to have a much better return profile and income profile by locking up long duration assets it's counterintuitive when a yield curve is upside down and inverted but it is historically everywhere and every time the right trade for for individuals what about competition from equities I mean I don't you know I get the the tech place is on fire but it's just so simplistic to say the yield is now better than the dividend because I got dividend growth as well when do equities compete again yeah and and that's a great point in our programs we also use the equity side uh pretty aggressively that includes you know companies that are paying paying above Market but have that growth and that's the essence of it you've got to have quality you've got to have pricing power you want to compound that dividend over time you don't want to Simply take current yields so those those two asset classes for the first time you know 2022 was tough obviously for a lot of reasons but the correlations were positive so even if you had a balanced approach you had a negative Total return across the board uh you use both of those asset classes in concert uh to make sure that you're getting the optimal yield right now we're leaning to more into the bond side because we think that's first to recover that's first to produce better than market returns relative to Dividend Equity but that's good and remember you know Tom and you know this dividend Equity is lagging now right if if you separate the s p constituents and you could look at payers non-payers those handful of stocks that are leading that are not income producing for clients are are the are the market story so even though uh the dividend is there and the dividend is growing from a return standpoint it has lagged bonds year-to-date hi James this was great enjoy the long weekend it's good to catch up James camphor of Eagle Asset Management how many messages are you getting about Lobster Ralphs now oh guitar it's ridiculous you know do you think anywhere in New York I didn't ask Daniel Ricardo could we get one for breakfast because now I'm craving one I I have to admit I I have to Luke's Lobster opens up at 11AM eastern time I think so you've got a couple of hours to wait for this we're down to Chelsea Market there's one I go to there what's that spectacular I can't remember the name of it but it's like lobster house or whatever and they've got one side restaurant where you sit in your response and the other one is just sit on stools if you can find one because it's packed all the time and what I do they're seriously folks this is wonderful Chelsea Market in New York this is what it's about first of all their business is so huge that everything's fresh that's the first thing in America John it's not often the case and there'll always be one thing I've never seen before and I will try it usually I hate it what's that give us an example it was like some you know some something you step on in the Philippines you go to Palawan and you know you're out there and you you put your foot on something you need to be careful there's a wine at home yeah he's not going to be too happy with it I'll try it to keep the marriage together okay and it's usually I go down at Flames but at least I try it as well as your basic main lobster Mrs Kane watching right let me get your own Cassidy on we need an authority on this up in mind yeah proper Lobster coming up next 10 knives of wet Bush on AI and Tech you Reckoning Market positive 0.2 from New York this is Bloomberg [Music] keeping you up to date with news from around the world with the first word I'm Madison Mills a deal May finally be shaping up to avoid a catastrophic U.S default sources say republican and White House negotiators are closing in on a deal to raise the debt limit in cap federal spending for two years the emerging agreement would include measures to upgrade the electric grid speed permits for pipelines and cut 10 billion dollars from budget increase for the IRS and another Republican may be gearing up to enter the 2024 U.S presidential race The Wall Street Journal reports North Dakota governor Doug burgum is planning an event on June 7th to make a major announcement Brigham's a wealthy former software entrepreneur who was first elected in 2016. an economist now think China's Central Bank will cut the reserve requirement ratio for major banks by 25 basis points before the end of the third quarter that's earlier than the previously anticipated this comes from Bloomberg's latest survey they also paired expectations for GDP to 5.5 percent and Kathy Woods Flagship ETF closed out its Nvidia stake in January missing out on the Stock's recent powerful rally the chipmaker earned the world's most valuable has added more than half a trillion dollars in market cap since wood dumped the shares woodholds Nvidia across several of her smaller funds but investors in the flagship Arc Innovation ETF missed out on nvidia's blistering rally and Peter orzag will become lazard's new CEO on October 1st succeeding longtime Chief Ken Jacobs orzag currently leads the firm's advisory business he'll have to contend with a slump in Deal making that's Weighing on profits Jacobs will become lazard's executive chairman mobile news powered by more than 2 700 journalists and analysts and over 120 countries this is Bloomberg foreign if you look at Tech it continues to reinvent itself over and over the latest generation is going to be Ai and I think as you look at the visibility of earnings you continue to see a strong uh earnings coming and I think that that's important because a lot of people continue to say that Tech has gotten expensive but when you start to factor in how much Tech has been able to beat their earnings I don't think it's as expensive as what people think I think that trend is going to continue pretty nice to hear from Larry Adam to catch up with the chief investment officer of Raymond James his constructive has good reason to be yeah today absolutely flying on some of those names someone raised out on Twitter some just that restaurant you were talking about over in chassis Market yeah surveillance correction folks before David Weston email earning David Western site he said Thomas not called a lobster place Weston's there like three days a week oh he goes to Khan and pesto yeah he goes to Cullen pistol and thank you so much on Twitter I Had a Brain freezer I've never been it looks pretty nice it's spectacular I can't say enough about it fresh first it's like I've got a brunch spot that does lobster and scrambled eggs I'm not going to share it because at the moment it's quiet and I kind of like it that way did you get with the smashed piece no just have it as it is just like that it's perfect I'm enjoying it right now it's really really good Dan Ives with us in a studio of wed Bush weighing it on nvidia's search he wrote the recently the following in 22 years of covering tech stocks and large cap we have never capitalized seeing a guidance range of this magnitude on a large cap Tech name and that speaks to our thesis that the monetization of AI for stalwarts like Microsoft alphabet Amazon Oracle meta apple and Salesforce Thomas one underway in this Game of Thrones battle among Tech players this is the interview of the day there's no question about it you know he's competing with Daniel Ricardo or Formula One Fame and Bob Dole was on earlier and a bunch of other worthies this is what matters folks because you're living the tech dream like we are and Mr Ives is leading the way with optimism and their profitability their enduring profitability he is at wedbush Securities in Cupertino yesterday they saw what you saw what does the Nvidia 4.4 standard deviation leap mean for alphabet and particularly what's it mean for apple look I mean this in my opinion it's 800 billion of incremental spend now over the next decade four big tack when you look specifically at the read through for app people I mean there's no better read through what I believe and we'll see more of the developer conference in terms of overall demand and this AI Revolution it's opening up a total addressable market for these big Tech players that wasn't there six months ago is it profitable ad that's at the top of the income statement that's capex off cash flow but will it be profitable it is a gold mine in terms of profitability from a margin perspective because that's right now Nadella and Redmond I mean they're popping the champagne because for every dollar that you're going to see if AI spend that's margin incremental 15 incremental margin so I think what's starting to happen with these stocks is that street starting to look through the trajectory you're looking at higher margin business growth that's really going to be you could really count in two hands the amount of players that are going to benefit on the first second derivative and when you saw it from Nvidia it shows this is a gold rush that's real not hype theme maybe like metaverse you know in crypto and some of the others so we got into the long weekend and there's going to be a bunch of family members of people who follow this stuff maybe even buy it who are going to hear of this company for the first time it's been performing really well for a long time but for a lot of other people they might not be familiar with this name it's not exactly a household name outside of Wall Street can you run people through what they actually do and what they're leveraging here so so when you think Nvidia in my opinion I view it as the hearts and lungs the epicenter of really from a chip perspective of AI and what I'll call Big Data technology nothing works without Nvidia chips Microsoft Google Amazon it's all feeding off Nvidia and that's why I kind of view as the foundation the best derivative in terms of what you see as a forecast what's coming down the pike three six nine months from now is what you saw from Jensen with the four billion dollar guidance rates because that now is going to feed into Microsoft it's going to feed into big Tech and I think you know in my opinion it's not just about the guidance this is a historic day that shows the AI Revolution I believe it's probably the biggest transformational attack Trend I've seen since covering Tech in the late 90s that's a lot of hyperbolic language so let's strip some of that down and talk about valuations when it comes to momentum in names like this how relevant are valuation metrics given the story that you're describing in this big future that you're respecting I think when you become laser focused on value evaluation over the next year you would have missed basically every transformational Tech stock the last 15 years so in my opinion to look at that it's looking at the leaves instead of forest through the trees I but I look at it like you could look in incremental five ten dollars per share of earnings power when you start to trajectory it out you know as Tom and I have talked you know on Apple I mean I view apple right now in some of the parts I could argue that AI adds another 30 to 40 dollars per share to the Apple story what's Apple doing with AI what's that about well I think we're going to see the developer conference because ultimately they're gonna really right now the billions even spend on AI it's going to be another use case that you're going to be able to deploy within their install base within those two billion iPhones but when we're talking about Siri on steroids what are you describing here so so from an AI perspective they're really going to be from a user perspective be giving users the ability to on the services aside from cloud from music from TV to more and more the devices cross pounding between different devices that you're going to be able to get different information within the actual Apple user and I think what Cook's going to talk about is AI could be really another Foundation another modernization of the Cupertino Growth Store you're the uberball you've got a lot of people taking shots at you and any research report halfway through there's three paragraphs on total risks what's the lead total risk paragraph to AI biggest risk is basically what I view is the U.S China decoupling because you could argue that that's a risk from an AI perspective and two there's Taiwan a risk because this stuff is actually made off tsmc I mean look I was just in Taiwan a week and a half ago I think right now it's bark worse and by in my opinion in terms of as an overall risk biggest risk is just companies don't spend they had to hide the economy ultimately but as of right now what we're seeing thing is you know I I think this is right now a green light to own Tech um you know in terms of what we View and I think this is just I think the starter I think text being up another 10 15 a margin 32 cents on the dollar what does AI do to that out five years that basically increased it by about 500 bips so what are some of the parts did you say some of the part you can say apple it could add 30 to 40 dollars per share as it all gets monetized into the base it's amazing isn't it I've never heard this it's easy to say never just be smug you know I reflected on this a couple of times in the last few years and once more recently there's this Great Exchange down and I'm sure you've seen it between an analyst on Wall Street bullish on the internet and a journalist from 60 minutes and the journalist from 60 Minutes is sitting with this amethyst on Wall Street and saying Amazon's worth more than Sears does that make sense you know he's so he's so convinced he's right about Amazon just being this bubble and Sears being you know what Sears was and I'm just trying as hard as I can to be open-minded about this moment at the moment Dan any Reflections on this period and and that one I mean this period reminds me of what I've viewed coming out of the the Apple launch with jobs in O7 and it reminds me of my visits with e-commerce companies in late 90s in in terms of so I would say there's only two other times that I would compare to this and I believe that's why Nadella that's why I cook that's why Jensen are going after AI your buy recommendations build half the houses in the Hamptons I mean anything over 5 000 square feet they got a breast plaque on it thank you Dan as well would you like to weigh in on a lobster roll debate in the Hamptons here I mean you've got a little bit of experience with that I I do I'm well super bullish in the lobster rolling him Hamptons but I continue to believe the best lobster rolls are a 617 area code so to help in Boston you like it with the hot butter or the cold I do look and even though I'm a Long Island guy I'm more of a 617 when it comes to lobster rolls John has no idea what we're talking I mean I mean you don't have to go to Maine to get the properly Lobster in Boston I'm very well traveled thank you but I will set Fairway Durgan Parks years ago could you imagine what the waitress would do to John Farrell your accent who are you but the guys the guy's a legend it doesn't matter you tell him you clear that up I just got this message from Art Van delay on on Twitter and thank you for writing again because a lot of you've given us recommendations oh are we getting recommendations Lobster Landing in Clinton Connecticut oh yes yes looks like this little Shack by the water it looks fantastic Jonathan emails in Surf Avenue Coney Island I'm actually down there a couple times a year after thought forces me to go down Nathan's there it is one one two two got three and there's some under there's in some under the radar lobster roll places and Hampton Bays not in the core Hamptons you know some places are a little off the grid out there I read a research report on this I could and maybe expensive thing and maybe a Chad gbt angle as well very cool let's make that happen upstairs of wet Bush going into the weekend with some of these names ripin Mike Wilson Morgan Stanley with a different perspective on the secretary Market that conversation coming up shortly looking forward to that from New York City this morning good morning equity's higher [Music] you're always Flying Blind um in in this economy if you look at the performance in U.S equities I think there's a huge amount of dispersion within that I still like the equity markets longer term for people that have a long-term Horizon you cannot be underweight stocks here this is pretty classic late cycle Behavior this is Bloomberg surveillance with Tom Keane Jonathan Farrell and Lisa abramowitz good morning everyone Jonathan Farrell Lisa bremenson Tom Keane bramo off today it's like a three Island Tour for the Memorial Day having lobster rolls at all three islands as well we're having fun today but as we said on Wednesday you know what there's some real news flow going on on a cautious view on the market Micah Wilson will join us some Morgan Stanley here in a moment and John pushing against Wilson is NVIDIA yesterday and just moments ago Futures up 11 as well it depends how you slice and dice the equity Market Dan Greenhouse to Solace was sitting just over there next to you in the last hour and he talked about the s p 495. the S P 500 doing its thing the NASDAQ 100 doing its thing but when you take away the big players Tom underneath the surface there's a bit of a struggle I think we got into this long weekend Stateside and there's going to be some conversations around the table with the family about perhaps the fear of missing out as the AI Revolution starts to take hold Michael Hartnett BFA did a great night weekly on a Friday and he talks about the Zeitgeist of the moment he said if you're going to lose your job and be replaced by AI in the next few years might as well own some AI as a hedge snow and that's kind of the Zeitgeist at a moment according to Michael in my take there's a little bit of silliness going on here and I can't identify what's the silly Part and what's the genuine part great but my part is Ives was just sitting here and he's like a pinata the hate mail and Dan eyes is tangible the fact is he's enjoyed Apple from 100 to 170 and the point here is profitability I don't hear anybody saying this will be non-profitable I want to make it even more simple the point for me is use case I want to understand some when people talk about Apple and AI I'm trying to understand it is best to explaining here I wasn't quite there no I'm doing my best to stay open-minded about it if it is this big revolution then I think we need to be but when we start to make stock selection calls off the back of this story I want to understand use case I would suggest does it embed Revenue growth and does it come down the income statement but the real question is does it roll over to the rest of the American economy increase productivity and that's the separation in equity markets we're going to talk to Mike Wilson about in a moment Mike Wilson is riveted on zevis and the policy policy people at Morgan Stanley and Washington a Sleepless weekend for Morgan Stanley policy do you think there's actually going to be a Sleepless weekend anyway down into DC and this net set in tobacco no coming together it's it's a ballet the president knows well the thing here and this is not about the politics Democrat and Republican it's about we got a president who's been through this what 20 times yeah plus it's been around a long time hasn't it yeah I've seen it a few times data Futures up 11. they've turned here moments ago I got a vix 18.73 I've got the s p up 0.25 on the S P 500 futures with a lift you always dropping back down three basis points around 380 though 378.67 just amazing to see the two-year back up at 450 right now Tom to your yield down by three basis points on the day but we've done the work the last 10 sessions back through 4.5 percent at the front end of the curve right now and this is important you need to reset for the weekend you need to reset for the second half of 2023 and particularly if you've not participated in the seven tech stocks Mike Wilson will brief on the caution that is out there he is at Morgan Stanley their U.S Equity strategist and has been I'm going to suggest cautious through thick and thin of this pandemic and forward Mike what are you writing this weekend to recalibrate a cautious call yeah good good to see you guys I mean our call really hasn't changed uh you know uh we're very disciplined on price uh and as you know we we got tactically bullish last fall at 3 500 because that was a good price and now we're of course back to the high end of the range and that's not a good price uh and that's at the s p level that's not really what's been interesting over the last six or seven months as you know what's been interesting is what's going on under the surface um I would say in the fourth quarter that was a very hated rally uh because it was led by kind of the old economy financials Industrials energy materials it was all based on you know the China reopening story which was legitimate and technology stocks obviously disappointed and they did not trade well in the fourth quarter so it was a hated rally because that's what people own now of course the s p is trading at the same price it was in early December when we got cautious again and Tech is obviously going to the moon and now this rally is love because these you know this is what people want to buy it's what people want to own is a lot more in interesting and you know kind of exciting to own Ai and technological Revolution and it is to hold some those old economy stock that's you know well what do I want to owe this long term so it's just an interesting development we would characterize this as the bear Market is continuing okay this is what bear markets do they they're designed to fool you confuse you make you do things you don't want to do Chase things at the wrong time probably sell them at the wrong time and the overriding we think the overriding driver okay of this year's rally has been increased liquidity liquidity has improved dramatically both on a global scale and the weaker dollar is help that's going the wrong way now again and then of course ironically the banking failures that happened in March led to an injection of liquidity from the FDIC and the fed and we think those things have really conspired to drive the market I mean nobody talks about the crypto is up 60 this year okay and then the next one of course is the is a tech world so this is what's going on we think that the fun fundamental case does not support you know where stocks are trading today whether it's at the index level or at the single stock level and the second half is going to be a bit choppier and probably downward in the index let's just talk about the index a little bit more and great to have you with us as always particularly going into the long weekend Mike you really started the debate this week on this program and we reflected on your note from over the weekend into Monday when you said the following that there are many technical signals to conflict with the idea that this is the beginning of a new cyclical bull market there was a short list after that of those signals and one was extreme narrowness poor breath we presented that Sevilla subramaniam appear of yours over at Bank of America and she said narrow breadth is not a precursor for Doom and Gloom Mike I just wanted to give you the opportunity to respond to that what is it about narrow breadth that you think signals something at the index level well um I mean I think there's you could debate this one way or the other meaning when you make a market low you typically do have you know severely negative breath that is a good sign however the index is usually down with it so we think where we are is the index is telling you things are Rosy things are fine and the breath is telling you otherwise and then when we put our fundamental overlay on top of that which is you know we're way out of consensus now on the earnings front then we can make the conclusion that the internals right the breath as being one of those but the internals and the leadership is telling you that growth is going to be a problem in the second half of this year whether that's an economic recession or not doesn't it we think it's going to be an earnings recession that's way worse than what people are currently modeling and look I want to go back to the beginning of the year you know you guys are good readers of our reports you remember in the beginning of the year I was somewhat nervous that everyone was in the same camp at that point we were our view is very consensus on the Fire and Ice you know the tightening and then the Slowdown and so we're trying to figure out well how could how could everybody be right that doesn't work and so what we've done now is we've worked off that oversold condition and more importantly now I would say the consensus is actually optimistic on earnings again and that's just where we completely disagree so Mike can we just build on the challenge to the index level retest in the lows of of last year given the muscle of five or so names doing just ridiculous things up 100 plus metzer and video Etc is that a big enough challenge to the view that we can retest the lows of last year well not necessarily not at all in fact it kind of sets us up where it's probably inevitable now because what's happening is you're you're basically forcing people into these stocks at bad prices now um I mean you know the valuations last fall on these stocks in particular was extremely attractive and if you look at the performance of all of these names with the exception perhaps of the one this week which you know earnings are going up the earnings are not driving these stocks it was 100 multiple expansion which goes back to our liquidity questions so look the price is wrong in our view because the earnings are probably going to be wrong for most of these stocks not all of them but most of them and so from here we think it is still a stock picking game and of those six seven eight stocks my guess is two of them will probably be okay and the other ones will not because they are the economy okay they can't avoid the economic slowdown and the Top Line slowdown that we see in the second half of this year Mike maybe a bit off your remit but I gotta go here just percolating in the Zeitgeist into June is the once again debate of active versus index usage in the equity Market give us your update on the value of active versus the value of index investing really interesting Confluence right now because you know you could argue both are working at the moment right I mean you know having the right stocks in your portfolio has been really the only way to make money this year the problem is is that those stocks are such a big part of the index the passive person can say look my passive strategy is working as well you know and and so like we still think active will have a comeback here um as we go through the next couple of years it already is to some degree but boy it's been you know it's in the market once again the market is doing a very good job of kind of fooling us into whatever we want to believe um we think active will be uh the place to be for the next two or three years it's going to be a comeback there Mike uh dovetail this with Ellen zettner take the recession call of Morgan Stanley and dovetail into your caution inequities yeah so Ellen and team I mean they're not looking for a hard Landing but they are looking for though is a very sluggish uh economy so sort of zero percent uh P growth right now that you know that's fine if you still got a price our view is at zero percent GDP growth will lead to bad price and we're already seeing that in a good sector and then we've done some consumer work recently which is we're starting to see signs that even the high end is starting to pull back on spending intentions on services so you know Services is a 70 economy it's you know goods are 70 the S P 500 earnings so in other words the economy can stay kind of at zero but that's not going to be a good outcome for s p earnings and rpu Mike de bazzi Lobster well we can't afford it because we're bearish Lobster's expensive I'm cheap anyway so you know might we'll try and hook you up with one thanks for appearing this morning we appreciate it Mike Wilson There have Morgan Stan okay dance investment or that for the price we forget about this Cullen pistol in New York 35 for a lobster rolls Gerard Cassidy Beals is in Portland there is a plaque the Gerard Cassidy Memorial stool it feels its MKT is the price so what we needed Michael O'Leary to come over here and start Ryanair so we can fly from New York to like main fit 15 bucks lunch with Gerard it'll be cheaper to fly up to Gerard and get a lobster roll then and get a lobster roller okay 8 30 Eastern time don't miss this Tom Keane's sitting down with Megan green of the crawl Institute and future member of the monetary policy committee at the bank of England their conversation coming up foreign [Music] with the first word I'm Madison Mills a deal May finally be shaping up to avoid a catastrophic U.S default sources say republican and White House negotiators are closing in on a deal to raise the debt limit and cap federal spending for two years the emerging agreement would include measures to upgrade the electric grid speed permits for pipelines and cut 10 billion dollars from a budget increase for the IRS default worries are intensifying though in the U.S as the treasury's cash balance drops to its lowest since 2021. data show it fell below 50 billion dollars on Wednesday as the debt ceiling standoff does continue the treasury's bank account has been under downward pressure recently as the government implements measures to avoid breaching that 31 trillion dollar debt cap and wealth Bankers in Asia at UBS and credit Suites will get a rare incentive for bringing in new money they're going to get a cut of the cash equal to 15 cents for each hundred dollars of new client money that's according to people familiar with the matter Asia was once a key Battleground for the Swiss Rivals but they're now trying to show clients stability after that emergency merger back in March and shares of Marvel technology are surging in pre-market trading after the chipmaker said it expects sales of AI related products will at least double this year adjusted earnings for the first quarter also beat estimates it's the latest chip maker with a Rosy forecast on AI remember nvidia's market value jumped past 930 billion dollars on Thursday Global News powered by more than 2 700 journalists and analysts and over 120 countries I'm Madison Mills and this is Bloomberg [Music] I don't think we're in that world where equities is the no-brainer play anymore especially not when you have such interesting yields in fixed income and I think for investors that's probably the consideration there is money definitely on the sidelines but I think the days of just buying equities blindly because you had easy monetary conditions are behind us that was Diana Amara the CIO of Long Bar strategies the kirkus world Capital Partners great conversation yesterday that's just in from Muhammad Al Aryan reminding us TK that we have Frontier and Spirit Airlines to take us places I can honestly say it was full disclosure I've never been on spiritual EasyJet 2. I've never been a spirit or Frontier why isn't Joe Biden talking to O'Leary oh come on you know we've got Muhammad on in about 40 minutes oh we do do we yeah we do we do we as an as a network as the company we have won't get out of bed for a minute know that for certain on London time it's um over in Cambridge it is an important day there's a lot going on here data we're going to Lobster chat in a minute we brought in a live service she's our chief lobster roll Authority chaneli basic with us but on a serious story today which Harkens back to leverage and hedge funds and we're going to talk to her right now about risks and shadows and opaqueness that's out there from two years ago or might I suggest July of 1998 is well I'm going to go right to the top of your story how leveraged is the leveraged discussion of a bond transaction listen a lot of these trades are very significantly levered sometimes 50 to one or more and the reason this is always okay is because it's in the treasury market this is the most safe liquid Market in the world until it moves until it moves and now it's moving quite violently as we know and so we know that ever since the ldi blow-ups that we saw earlier in the UK banks have been asking hedge funds to cool it essentially they've been asking for more margin they've been reduced risk but listen a lot of this leverage comes from repo Market sometimes sponsored meet repo which is Money Market funds so there are a lot of worries here under the surface and treasury markets Gensler wants Opa he wants Clarity here we got opacity in that we understand we had a banking crisis because we really didn't know what was going on at svb do we want know what's what's his name Griffin you know he's going to buy like the Miami Marlins and the rest as well yeah Ken Griffin do we know what he's doing do we know his 50-1 leverage on these transactions listen these are called basis trades they're fairly simple trades that Arbitrage the difference between treasury features and spot Citadel Millennium Exodus Point capula alphadine these are some of the biggest players in this space our sources say that Citadel is not as lever to the trade as they have traditionally been in the past or as Peak leverages kind of gone before but we know guys not only has this caused major losses among hedge funds in the past the reason it's a problem is it's caused the FED to step in people forget that in 2020 the FED has had to step in on this trade are they stepping in in 2023 do we know that I think that's a lot of the problem here and why there's a worry here there's a kind of implicit understanding in the market that the FED does step in they have to step in the hiccups in the treasury market are not of the making of the hedge funds this time it's of Washington however uh it's not clear that the FED wants to bail out hedge funds just to be clear why would the FED have to step in and what would you why would that be called a bailout of hedge funds well it's interesting because in 2020 when the FED stepped in there was a pandemic going on so it was more about the pandemic and less about the hedge funds what's less explained is 2019 when they had to step into repo markets because of more drastic movements and again a lot of these hedge funds were levered towards the trade this time around if there were any major issues you could say well we didn't cause the treasury market volatility and we didn't cause a downgrade I want to make this clear are there major issues now or are we reporting that there seemed to be shadows from two the reason there are issues is not that these trades are blowing up right now or anything like that it's the issue that what underpins these trades is uh is repo leverage and this idea that if there were any potential downgrade in the treasury then all of the collateral underpinning these trades are not worth what they were yesterday so there there are real issues in the market that the debt ceiling does exacerbate to some degree but again these are highly leveraged trades that and a lot of the Leverage is bilateral so it's very very opaque guys changes have been planned or talked about since the Obama Administration it's not really changed much at all and when you see such violent moves in treasury markets that's when Banks and Regulators start to ask is there a danger though that we're blaming hedge funds for something that is the responsibility of politicians in Washington and poor policy makers at the Federal Reserve it's lame per se this is kind of a market structure question there have been a lot of calls in recent years to make this Market more transparent and it and it hasn't really gone that way and so when we're thinking about what happens now in the potential risks I think you know even if you're all clear we have to remember that this is a market with a history of blow-ups this is a market that there have been asks for change and you know by the way it could be forgotten about if they have a debt ceiling uh compromise here and some of these issues I get the rating decrease idea even on a 50 to 1 leverage and I I have the clearest memories of learning how you get from three to one to twelve to one to twenty two to one whatever it was with ltcm but the John's Key question here is well what's the so what here if they're just hedge funds and if they lose money why do I care for the I mean the Bobby Axelrod goes under who cares listen you're you're making the hedge fund point which is hey what blow up I'm just trying to get on billions here play with me we'll get on yeah yeah no and help me here what what hap what's this so what here if the hedge funds get down forget that the FED has had to step in before I that is the problem if there are moves that are already violent that are then exacerbated because you have a ton of Leverage in a market as well and that creates moves that are more violent uh in repo markets which by the way matter to markets that are not just hedge funds that's the worry here right a toying with the market that is supposed to be the underpinning of the entire Capital Market I mean chaneli as our chief Hampton's correspondent I mean seriously she's the one with the most distance here what's the distinction between a lobster roll in Southampton versus way out way out way out on Montauk wow there were a lot of restaurants recently purchased weren't there you're probably paying a lot more season seriously big season in the Hamptons for the hedge fund crew uh yeah I would say so I mean obviously they're trying to get out there but remember people expect deal activity to come back after kind of we have this debt really issue resolved and after the treasury general account build and all these things but listen they're stacking up like if into the summer Staffing levels are going to stay high people are worried about things like guys like there are so many risks under this Market that's what this story is telling you and regulators and bankers are asking about it so the idea of taking a whole lot of time to chill out this summer is not um not a popular idea I just don't get the Hamptons think I don't think I ever will I just don't get it I'd rather watch paint dry I'd have to be honest I just don't get it it's not my not your scene you're out there three out of four weekends I just don't get it I don't get it at all fly to Europe you know um if you've got that kind of money yes if you've got that kind of money I just that's how or even if you don't fly to Europe yes what about Premier Mortals that can't fly to Europe you know once every four weeks once every five weeks Spirit Airlines well they've probably not got a hundred million dollar houses in the Hamptons either New Jersey right what's wrong with Jersey it's got the Jersey Shore it's a different thing different vibe yeah you know it's the way I'm supposed to be back together what's the Jersey shorehampton's distinction that's the question you should ask she's a New Jersey Girl history what I like to say it's pure grit that's the difference personality grit music okay keep digging music through music big difference Springsteen yes big difference very cool no this was great appreciate it thank you a very important reporter offended a couple of people along the way why not you know okay important coming up 35 minutes away looking forward to it Mohammed Aaron of Queen's College Cambridge looking forward to that and we'll catch up with Simi sharp principal Asset Management as well krishnamani of Lafayette College got into the opening bell to close out I've got to say Tom you know what things got interesting again this week globally well I would like to suggest guilty surveillance predicted inflation in the UK the moves in the treasury market AI yeah what am I down in the Euro it's interesting we're not talking Japan Euro Yen 150.23 I mean at resistance interesting to see what they do uh with the economics of Japan over to ycc I'm going to run if I don't see a TK have a nice weekend well you know lobster roll breakfast we can do that I'll see you soon in about right okay love it you know they're going to pay for this what about this 200 yeah research [Music] Bloomberg Savannah's good morning everyone Lisa of Grandma it's Jonathan Farrow and Tom Keane thank you so much for the response today we're having fun on a Friday before the celebration of uh Memorial Day the remembrances of Memorial Day as well we hope you have a great weekend the celebration the market is simple Future's update doing better through the early trading you got to believe smaller trading today Dow futures up 50 points I did that for John Farrell the vix 18.52 there is two Bloomberg screens of economic data through the morning with Michigan coming up later a Kansas City statistic Michael McKee has the unenviable task of literally looking through 20 items in the four pages of data behind each of those 20 items what do you see Michael McKee this morning well I see the durable goods orders out right now but we don't have the personal income numbers yet because I think everybody is hitting the internet at the same time time there we go personal income four percent four tenths of eight percent that's uh better than the three tenths last month and it matches the estimate spending though stronger than anticipated up eight tenths of eight percent compared with a flat reading in March uh pce deflator this is the news the FED is watching is stronger four tenths of eight percent that's up from uh a tenth last month and it's stronger than the uh the consensus forecast puts us at 4.4 percent for the headline number over uh the March number of 4.2 percent a core is up four tenths which is stronger than anticipated and that puts us at 4.7 percent from 4.6 percent and so if we're just looking at these uh pce numbers out of this release you're seeing a lot of pressure being generated on the FED to maybe raise rates one more time we'll check in on what the bets are on wirp the Bloomberg function in just a moment uh durable goods orders up 1.1 percent that is compared with a 3.3 percent increase in the month of March right uh durable's ex-transportation down two tenths so we probably got some Boeing in there capital goods orders non-defense X aircraft 1.4 percent uh that compares with a six tenths drop so one of the things in the first quarter time that was a concern was that business spending had dropped off and when we got the revision to GDP yesterday we saw business spending raised a little bit and this looks like it's contributing to maybe a return of uh business to the world take a breath look at the data this is really tough this is what and key does better than anyone in the world folks it's like three days it feels like three days of economic data on steroids and what it is is the markets we're going to react moments ago the two-year yield to 4.56 percent critically this is not about the intraday chart on radio we're showing the intraday chart uh and yes up it goes to a 4.55 far more importantly we're getting up to where we're breaching the high yield that we saw in the two-year of a number of days ago the curve inversion is further we go to negative 75 basis points a difference in yield between the twos and the tens critically the 10-year real yield adjusts higher 1.56 percent there these are all Global Wall Street key data points indicating a little angst out there about the stickiness Michael McKee from where you sit with with 15 major data points in Michigan coming up is this a sticky inflation sum of data oh sure and it is not particularly good news for the FED uh one number to give you beyond uh where we were 4.1 percent is the personal savings rate uh drops down from four and a half so Americans did dip into their savings to spend what they spent and of course as we mentioned spending was up on the month by eight tenths compared with just a tenth in March this is going to be a problem for the fed this is their indicator this is the one that they watch and the the base policy on and it is going the wrong direction now it's not that they didn't think that would happen they expected some volatility and lumpiness in the numbers but uh about half of them or more said in the minutes and have said in speeches since then that they're going to probably need to raise rates more so then the question becomes do they do it in June or they do it in July and this kind of moves up the timetable one would think perhaps June and what's important here is the vector I'm not going to do this because we'll waste time getting into making green and we don't want to do that but Mike McKee really simple here we peaked on pce to play their year over year five point four six percent I'll say in early 2002 and I'm sorry a vector is in place to disinflation there but is it tested this morning is the vector really under threat of disinflation uh disinflation it's not under threat at the moment I mean we're looking for that kind of progress but so far we're not getting enough uh restraint from the fed's interest rate increases to get us there every time I told you I'd look this up we're now up to an 86 percent chance of a move by July a 46 percent chance of a move in June those are both significantly higher than they were before these numbers came out Michael McKee thank you so much Futures up three down Futures up 21 as well as you know over the years I've made clear the bank of England simply does it better maybe it's because it's a surprisingly new public institution versus the fed and all the codified history of the FED but what they do more than anything is they take in people with different views I think of Adam Posen now at the Peterson Institute excuse me internet II app I'll get it right International economics Peterson International economics in Washington I think of David Blanche flower at Dartmouth and now they go brilliant in a number of months by bringing in somebody really original in economic analysis and policy discussion Megan green of the crawl Institute and of course at Brown University she will join the bank of England and obviously with those constraints she cannot speak about the bank of England she cannot speak about the United Kingdom we checked with her Entourage she could not speak about the future of tottenham's Spurs and she could definitely not speak about the politics between Cambridge and Oxford it's just too deep and too dangerous to go to this morning Megan congratulations on this hugely important uh appointment I wanted just to talk today about the American economy and the certitude we have of guessing vectors of inflation you're expert at the history of the study of that can we actually game a vector of inflation yeah look if the inflation data was always going gonna be bumpy coming down and that's what we're seeing but I think what we can gauge is sort of underlying Trends and look for signs of Persistence of inflation in the U.S the core capital goods data that just came out surprised on the upside that's about 70 percent of fixed investment so that suggests the demand's pretty strong in the UK economy and core pce was stronger than many had hoped so you know I wouldn't read too much into one data point but it does suggest that the FED isn't done so even if the FED does end up pausing I don't think it's finished here we've seen that corporate earnings have been pretty strong that means that there's a lot of Labor hoarding that may well continue keeping the labor market strong that again keeps demand strong and keeps upward pressure on inflation so I think that the fed's got more work ahead of it one of the Megan green realities is plain language you actually speak in English thank you for that'll help you with the bank of England you speak of this as a weird time in history Define that phrase so it's a weird time in history just given the success of shocks that we've had on the economy between a pandemic a war um a lot of the indicators aren't really responding particularly to tightening of monetary policy as one might expect and the labor market here is a great example the labor market is holding up freakishly well given how much aggressive tightening there's been in the U.S and as I just said you know that keeps demand really strong and so the fed's trying to sort of kill off demand to bring it back in line with supplies so we can see price stability but it's just not transmitting monetary policies just not transmitting into the real economy as we expected it might Dominic constant was on earlier with Mizzou also out of Oxford and he made very clear this is a partition between demand driven inflation and supply-side inflation obviously that's a pandemic inflation are we still living the pandemic in the wall of data scene in America this morning are we still living the pandemic in our funny savings ratios and what that means for income and spending I think we are it's a bit too early to say how long that will actually last but we're seeing it in consumption patterns uh we're seeing it in people's decisions to leave jobs to move we're seeing in the real estate market so the pandemic is very much still with us and I think some things will structurally change going forward as a result of the pandemic we're just not sure exactly what it is if you look at the labor force participation for different demographics overall it's recovered in the U.S it took a really long time but there are differences particularly among older workers and I think that will be with us for a while that said we really struggled with Supply constraints not just in the labor market but also of course with Global Supply chains during the pandemic and in the immediate aftermath of the pandemic and if you look at a bunch of gauges for a global supply chain tightness it's actually eased quite a lot so I think that piece has eased and yet inflation remains stronger than what we'd hoped okay inflation is stronger than we hope but there's a belief there of getting back now I I don't want to get in trouble with Bank of England here but the former Vice chair of the of the FED Richard Clarita and others are debating a two percent idea would you suggest the greater theory of our macro policy forward is going to be an adjustment of Any Given central banks banned or Target that they're getting back to so we may we're certainly beginning a debate about that I think among the Intelligentsia but uh but I don't think we've made much progress on that some are calling for a higher inflation Target in the U.S in particular you know somewhere around three percent um the fed and most other major central banks have defined price stability as is the metric Target around two percent what the academic literature shows is that actually until inflation gets above four percent most people don't really notice it yeah so I'm not sure and they don't notice inflation at least in terms of you know the hit to their actual standards of living so whether it's two percent or three percent right that may be more of an academic debate you absolutely nailed us I got one minute left Megan I'm sorry but this is research out of VCU that Olivia Blanchard is calling sentient inflation are we anywhere near sentient inflation where we're just comfortable with our inflation rate so no I don't think we are near an inflation rate that we as the public or that the fed's willing to tolerate in the U.S I think I think it will need to come down closer to the two percent Target before the fed's really ready to um hang up its boots and be done with it so as I said we might get a pause in June but I wouldn't take a pause to mean that the FED is done I think there's more work to be done Megan very quickly here and I'm really trying to stay away from the bank of England police here and I think I'm safe going here as well one of the great things about Fenway Park Megan green and it's not Narragansett Lager beer it's the Yankee Lobster Company can you give us a rating on the lobster roll from the Yankee Lobster Company at Fenway Park uh I can't Tom because why would anyone ever get anything but a Fenway Frank at Fenway Parks though I've never had it I stick with Fenway Franks bottle that and you will see that as she enters the August doors of the bank of England Megan green congratulations from the Kroll Institute and she's 100 correct about hot dogs and beer at Fenway stay with us keeping you up to date with news from around the world with the first word I'm Madison Mills Republican and White House negotiators are said to be moving closer to an agreement to raise the U.S debt limit sources say the emerging agreement would cap federal spending for two years permit defense spending to rise three percent next year and offer concessions to both parties on energy if a deal is reached soon a vote in the House of Representatives could take place as early as Tuesday and economists now think China's Central Bank will cut the reserve requirement ratio for major banks by 25 basis points before the end of the third quarter that's earlier than they'd previously anticipated this comes from Bloomberg's latest survey they also paired expectations for GDP to 5.5 percent and Bloomberg has learned that UBS and the Swiss government haven't agreed on the precise terms of State guarantees for the Emergency takeover of Credit Suisse sources say the deal's completion could be pushed back to June instead of late May UBS and the government are also still haggling over the regulatory implications of that takeover including Capital requirements and liquidity rules and Peter orzag will become lazard's new CEO on October 1st succeeding longtime Chief Ken Jacobs orzag currently leads the firm's advisory business we'll have to contend with a slump in Deal making that's been weighing on profits Jacobs will become lazard's executive chairman Global News powered by more than 2 700 journalists and analysts in over 120 countries I'm Madison Mills and Mrs Bloomberg you're always Flying Blind in this economy there's a lot of choppiness there's a lot of noise out there I mean I kind of the big picture here I think in terms of the economy is it continues to expand it seems that a they call it modest Pace at this point Bloomberg surveillance and Jay Bryson there from Wells Fargo really giving a wonderful perspective yesterday this has been in all the years I've been doing this folks to my team I can just simply say this has been the strongest Friday before Memorial Day that we've seen as John Farrell mentioned it's been an extraordinary week we saw this Monday Tuesday and it doesn't end today the two-year yield 4.58 percent is a wow a wow statistic the inverted yield curve goes from negative 54 cups of coffee go to negative 76 basis points the real yield maybe not getting the press it should but the 10-year real yield 1.55 percent I want to take 30 seconds here on Peter orzag he was definitive at the London School of Economics this is one of the rarest times where you see within Wall Street a true academic and policy wonk Vault to being the Chief Executive Officer of one of our storied names this is of course Lazard Freire Peter orzag owns a high ground on research on our terrible medical system I know it's not as bad as England than that but is a Young Turk he was absolutely definitive in changing the debate on Health Care in America and particularly on the processes of our complete garbage retirement system I can't say enough about that when you hear me say the phrase Glide path which is basically mathematics and Newtonian calculus maybe it's from his father iconic El but when you hear the phrase Glide path that's a direct steal from Peter orzag this is an inspired Announcement by Lazard today okay Futures up four and we're gonna get to the only interview that matters and we're not going to talk about lobster rolls with Elaine Becker she is senior what in God's name is going on with the airline industry Analyst at Cowan and joins us today Helene I'm going to talk with a safety issue the Wall Street Journal had that bars chart yesterday on collisions and near collisions of aircraft why are we seeing that yeah I just I think there's there's a lot going on in the airline industry right now in aviation airports are really packed as you know and the runways are equally as crowded kind of you know think of cars um on the highway at rush hour sort of same for the planes I want to say though Tom that the U.S Aviation system is safe um probably one of the safest in the world and these Runway issues I think are just temporary as um we get we work through some some of the issues um that that are out there how far are we to back to the summer of 2019 we're there we're past there um what I find amazing is we're forecasting beginning yesterday through Monday Labor Day so that kind of a little more than three months um 275 million people will travel via air um this summer and that is an increase over where we were uh four years ago where we were last year double digit increase over last year mid single digits over um over 2019 so really strong summer what is the constraint moving forward to a better experience is it the planes is it the pilots I saw an article that some Pilots don't want to be promoted because it's not worth the money Etc what's the helaine Becker constraint limiting us to a better experience I mean look I look I for years yes probably since 2013 actually um in terms of Pilots they're the most senior Pilots are retiring or have retired and they're being replaced with younger pilots who just have to get up to speed not unsafe I just want to reiterate the fact that pilots who work in the U.S air system are as safe as can be and are well trained and that's really important um but we do have a lack of air traffic controllers Secretary of Transportation said a couple of weeks ago we were short three thousand and when you think about how long it takes to become an air traffic controller and you realize we're going to be short thousands for years this is not a problem that's going to be resolved this year next year it takes at least two years to five years to become proficient and Tom you mentioned Pilots don't want to move from the right to the left seat Well controllers don't want to live in New York Chicago San Francisco L.A Miami where it's really busy and really expensive to live they don't make enough money let's switch to the Securities analysis of the moment as well I'm in Thunderstruck how to pick on United Airlines Fortress Kirby that you know they collapsed in the pandemic they bounced off a little bit and they've really gone nowhere our airline's a mother of all opportunities Helene Becker to rebound pre-pandemic pricing prices yeah I you know I think they are I think we're going to have a record Summer as we've talked about um I think as you point out the stocks are back to 2020 lows for the most part um and I the pushback I get from investors is this is as good as it gets pricing's very strong demand is very strong and why will this continue especially if we head into our session um and the way I think about it is we're back to 2019 levels in terms of passengers but capacity is down between 10 and 15 and so you you got more seats per departure they're up about 15 percent 14 percent but you have um fewer departures per day and so you've got 90 plus percent load factors which makes recovery from irregular operations difficult um but in terms of evaluations the airlines are going to make a lot of money and nobody believes it nobody believes this is um or investors for sure don't believe this is sustainable one final question is our Fleet aged a guy named O'Leary was in here this week he runs a small Airline and I think it's out of Ireland uh called Ryanair I'm trying to get Ryanair to come over here Elaine I've failed so far and he's talking about the purchase of 300 Airlines from Seattle Chicago wherever Boeing's going to land here in the next 12 months and the answer Hawaiian is I'm worried about like the age of the fleet it seems to be okay am I right absolutely so um American has one of the youngest fleets they re-fleeted between 2014 in 2020 this is a lower year for them for capex United's in the middle of re-fleeting um they were the ones that didn't actually retire any wide body aircraft during the pandemic or the other two big airlines American and Delta did Delta's been re-fleeting so yes we have a relatively having gone yeah maybe a decade ago from the oldest Fleet in the world to to right in there and write in the mix and on its way to the youngest hello one final question the youngest afterthought emails in and says can you ask Miss Becker the wonderful cookies that Delta serves when they come down the aisle with a tray without cookies and the potato chips and all the stuff she tosses into her bag do they pay for that stuff or is that like given to them free because people want the advertising no they they pay that's included in their food budget okay I learned something every day Helen Becker thank you so much uh with Cowan as well really really really interesting time and I'm sorry folks this is something we're going to do and I really can't say enough about Bloomberg News Aviation uh coverage it is truly world class and you know you see like the article the graph rather in the Wall Street Journal and you got to lead with this stuff about okay we've come through this terrible pandemic we're back and what I'm hearing from Helene Becker there is maybe a lack of experience out there in the different parts of our transportation system stay with us through the day on radio and television we'll give you uh really Nationwide any of the slowdowns that we see should point out for those of you thinking lhr serious British Airways problems over the last I believe uh two days once again ba has technological difficulties that have led to some real uh disasters at terminal five not disasters that's not the right word slowdowns at Terminal 5 at LH our futures of five down Futures up 32 what I can say for Lisa and John it's real simple we have a changed yield landscape 4.59 percent of five basis points further from the ginormous move yesterday and two-year yield is the headline statistic we didn't talk anything today about The Oddities of the three-month t-bill Market given the debt coverage look the balance of power today and our government coverage through the weekend on the debt crisis it'll be interesting to see I think I would assume there'll be no let up on that through the weekend and that's expressed in our world in the three-month treasury bill 5.31 percent less stated here is crude with a little bit of a bid here over the week 72 63 on West Texas intermediate Will Kennedy saying that's still pretty darn cheap is things go do XY 104 we're watching Euro not a 106 print yet but Euro work week or through the week coming up on lobster rolls El Aryan of Queens College this is Bloomberg

Channel: Bloomberg Television

Views: 29,160

Keywords: Jon Ferro, Lisa Abramowicz, Tom Keene

Id: FcdQbLTBDKc

Length: 146min 25sec (8785 seconds)

Published: Fri May 26 2023