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00:00JONATHAN: CELL THE HUBRIS, BY THE HUMILIATION. THE COUNTDOWN TO THE OPEN STARTS RIGHT NOW. > > EVERYTHING YOU NEED TO GET SET FOR THE START OF U.S. TRADING. THIS IS "BLOOMBERG: THE OPEN" WITH JONATHAN FERRO. JONATHAN: WE BEGIN WITH THE BIG ISSUE. WRAPPING UP A VOLATILE WEEK. > > YOU HAVE TO BRACE FOR VOLATILITY. > > WE ARE SEEING HISTORIC INTRADAY VOLATILITIES. > > THE QUESTION WE HAVE TO ASK IS WHAT ARE THE UNDERLYING STORYLINES? > > WHERE ARE THE TURNING POINTS. > > INFLATION IS TOO HIGH FOR COMFORT. > > GLOBAL CENTRAL BANKS ACROSS TO LOVED MARKETS ARE TIGHTENING MORE AND MORE -- > > MORE AND MORE AGGRESSIVE MONETARY TIGHTENING. > > THE MARKET IS RECOGNIZING WE ARE WALKING A TIGHT ROPE. > > BETWEEN A ROCK AND A HARD PLACE. > > INTERTWINING BETWEEN THE FED AND THE MARKET IS AT ALL-TIME HIGH. > > THAT ALWAYS COMES WITH A HEALTHY DOSE OF VOLATILITY. JONATHAN: JOINING US IS EMILY HANCOCK. YOUR TAKEAWAYS FROM THIS WEEK. WHERE DO YOU WANT TO BEGIN? EMILY: MY FIRST TAKEAWAY IS I'M COMPLETELY EXHAUSTED. IT HAS BEEN QUITE A WEEK FOR THE MARKET AND IT HAS BEEN FRUSTRATING FOR INVESTORS AS WELL. THE FUNDAMENTALS APPEARED TO BE DISLOCATED FROM WHAT THE MARKET ACTION IS TELLING US. THE OTHER THING I THINK IS CONFUSING IS SOME OF THE WINNERS OF THE WEEK. WE ARE SEEING THIS ODD COMBINATION OF ENERGY AND FINANCIALS DOING WELL. AT THE SAME TIME CONSUMER STAPLES ARE COMING TO THE FOREFRONT. SOMEBODY HAS TO BE RIGHT AND SOMEBODY HAS TO BE WRONG. THOSE ARE THE KEY QUESTIONS WE ARE ASKING OURSELVES. JONATHAN: DAVID LEIBOWITZ, WE ARE TRYING TO GRAPPLE WITH WHAT SOME PEOPLE AT CULLING THE REGIME CHANGE. PETER CECCHINI WROTE THAT WE ARE FINALLY STARTING TO REACT TO THE NEW REALITY OF A NEW POLICY AND THE FED IS BETWEEN A ROCK AND A HARD PLACE. IS THAT WHAT IS HAPPENING RIGHT NOW? DAVID: I WOULD NOT GO AS FAR AS TO SAY IS A NEW REGIME, BUT I THINK THERE HAS BEEN A SEA CHANGE RELATIVE TO THE PAST TWO YEARS. IN 2020 AND 2021 WASHINGTON WAS THE MARKETS FED. YOU HAD THE FED EASING POLICY, YOU HAD FISCAL SUPPORT WHICH WAS LIKE NOTHING WE HAVE SEEN IN MORE THAN A DECADE. NOW WE ARE SEEING A WORLD WHERE THE FED IS BEGINNING TO MOVE TOWARDS THE EXIT. FISCAL POLICY IS NOT COMING THROUGH THE WAY A LOT OF PEOPLE EXPECTED. THIS IS CAUSING THE MARKET DISCOMFORT. FUNDAMENTALLY, A HIGHER VOLATILITY REPRESENTS A BROADER DISTRIBUTION OF OUTCOMES. THAT IS WHAT I THINK THE MARKET IS GRAPPLING WITH TODAY. THE POTENTIAL THAT A DISTRIBUTION OF OUTCOMES IS WIDER THAN PEOPLE WERE THINKING AT THE END OF 2021. JONATHAN: WHAT KEEPS BRIAN LEVITZ UP AT NIGHT? THE ANSWER USED TO BE NOT MUCH, NOW IT BE POLICY TIGHTENING. WALK ME THROUGH IT. BRIAN: WHEN I SAID THAT NOT MUCH , I SAID THAT IN 2009 THROUGH 2019. PEOPLE DO NOT UNDERSTAND WHY THERE WAS NOT MORE VOLATILITY IN THE MARKET. WE KNOW VOLATILITY TENDS TO ARISE WHEN THERE IS POLICY UNCERTAINTY, WHICH WE ARE DOING RIGHT NOW WITH THE 7% CONSUMER PRICE INDEX ON A YEAR-OVER-YEAR BASIS IN THE FEDERAL RESERVE SUGGESTING THEY WILL BE TIGHTENING POLICY TO MEANINGFULLY SLOW ECONOMIC ACTIVITY. THAT MEANS TIGHTER FINANCIAL CONDITIONS AT THE MARKETS ARE ADDRESSING THAT. I BELIEVE WE HAVE GOT A BIT OVERSOLD. INVESTORS ARE PESSIMISTIC. THAT SEEMS TO BE A GOOD SIGN. THE CHALLENGE IS FOR THE YEARS AS WE SLOW THE ECONOMIC ACTIVITY AND AS WE TIGHTEN FINANCIAL CONDITIONS, ARE WE GOING TO SEE FINANCIAL -- INFLATION EXPECTATIONS COME DOWN? I BELIEVE WE WILL. THE AMERICAN CONSUMER IS SAYING IT IS NOT AS GOOD OF A TIME TO BUY STUFF AS IT MUCH WAS. I DO NOT THINK WE GET TO THAT NIGHTMARE SCENARIO. AS THE OLD SAYING GOES, CYCLES DO NOT JUST DIVE THEIR OWN VOLITION. THERE KILLED BY THE FEDERAL RESERVE WITH INTEREST RATE HIKES. THAT IS THE CHALLENGE. THE RISKS ARE ELEVATED. JONATHAN: HOW MANY HIKES CAN THIS FED DELIVER? JUST GO YEAR YIELDS BACKING AWAY FROM SESSION HIGHS COME EQUITIES BACKING AWAY FROM SESSION LOWS. THE EMPLOYMENT COST INDEX WHICH CAME OUT MOMENTS AGO. MICHAEL MCKEE WILL BREAK THAT DOWN FOR YOU. GOOD MORNING. MICHAEL: THE ECI DID COME IN HIGHER AND IT DID SUGGEST WE ARE FALLING FARTHER BEHIND INFLATION. IF YOU TAKE A LOOK AT WHAT HAPPENED IN THE OVERALL PCI. PRIVATE SECTOR WAGES ROSE 1.2% DURING THE FOURTH QUARTER. THAT IS LESS THAN THE 1.6% WE SAW IN THE THIRD QUARTER BUT IT IS STILL A SIGNIFICANT INCREASE. IT PICKS UP .9% DURING THE QUARTER. YOU'RE PAYING UP IF YOU MADE THE MANAGER TO GET YOUR TALENT. AT THE SAME TIME, THE PCE INDEX WHICH IS THE FED'S FAVORITE MEMBER OF INFLATION, 5.8%. IF YOU SUBTRACT THE WAGES FROM THAT WE ARE NOT DOING AS WELL WITH INFLATION AND IT SUPPORTS THE FED GOING AHEAD. IT HAS BEEN A VOLATILE WEEK WITH ALL KINDS OF UPS AND DOWNS. THE MARKET COMPOSITE PMI MANUFACTURING AND SERVICES BOTH SHRINKING. THIS WAS A BIG DROP IN THAT. NEW-HOME HOME SALES ARE EXTREMELY STRONG. NO CHANGE IN CAPITAL GOODS ORDERS. THAT IS THE PROXY FOR BUSINESS SPENDING. THEN WE SAW STRONG GDP NUMBER. THE GDP NUMBER WAS POSTED BY INVENTORIES SO IT LOOKS LIKE THE FIRST QUARTER WILL NOT BE AS STRONG. THE THING WE ARE LOOKING AT AS YOU MENTIONED IS RATE MOVES, HOW MANY TIMES IS THE FED GOING TO MOVE? THIS DOES NOT CHANGE A LOT BETWEEN NOW AND THE END OF THE YEAR. NOW WE ARE LOOKING A CLOSE TO FIVE, BUT BREAKEVENS FALL. PEOPLE THINK INFLATION WILL GO DOWN SO MAYBE THE FED IS ALREADY GETTING SOMETHING DONE. JONATHAN: MICHAEL MCKEE, FIVE SEEMS TO BE THE CONSENSUS. WELLS FARGO CAME OUT WITH FIVE AS WELL. I THOUGHT THAT IS THE NEW CONSENSUS. THE NIKON UP WITH ETHAN HARRIS OF BANK OF AMERICA. -- DAN ICON UP WITH ETHAN HARRIS OF BANK OF AMERICA. "-- THEN I CAUGHT UP WITH ETHAN HARRIS OF BANK OF AMERICA. "WE ARE SAID TO GET SEVEN RATE HIKES THIS YEAR WITH THE FUNDS RATE -- THIS SHOULD A SPEC --" EMILY ROLAND, SEVEN HIKES IN 2022. YOUR THOUGHTS? EMILY: THAT DEFINITELY JUMPED OUT TO ME ON YOUR TWITTER FEED THIS MORNING AND WE WOULD DEFINITELY TAKE THE UNDER ON THAT. WE THINK THE FED COMES INTO THIS YEAR LIKE A HAWK AND ENDS THE YEAR MORE LIKE A DOVE. WE SEE INFLATIONARY PRESSURE RECEDING. THE BASE AFFECTS WILL GO FROM BEING YOUR BEST FRIEND YOUR WORST ENEMY. INFLATION WAS LOW IN JANUARY AND FEBRUARY OF LAST YEAR AND ONLY EXCEEDED 2% IN MARCH OF LAST YEAR. THAT IS WHERE YOU WILL SEE THE NUMBERS START TO MODERATE IN MARCH OF THIS YEAR. YOU ALSO HAVE TO PAY CLOSE ATTENTION TO THE YIELD CURVE. HOW WILL YOU GET SEVEN RATE HIKES WHEN THE 210 SPREAD IS SITTING AT 61 BASIS POINTS. MOST PEOPLE ARE PRICING IN A BIG BACKUP IT RATES FROM THE 10 YEAR TREASURY. IN OUR VIEW WITH GROWTH MODERATING TO MORE MODEST LEVELS , NOW WE HAVE A FISCAL DRAG. WE SEE GROWTH RETURNING TO MORE MODEST LEVELS IN THE 10 YEAR TREASURY SHOPPING AROUND. THE TWO YEAR TREASURY IS RESULTING IN A TIGHT HIGH YIELD CURVE. WE THINK THE FED WILL HAVE A TOUGH TIME TIGHTENING. JONATHAN: BRIAN LEVITT, DO YOU AGREE? BRIAN: I AGREE WITH EMILY COMPLETELY. IT SOUNDED LIKE I WAS LISTENING TO MYSELF. IT WILL BE CHALLENGING TO SEE THOSE TYPES OF MOVES ON SHORT-TERM RATES. THAT WOULD BE A FEDERAL RESERVE THAT WOULD HAVE TO THINK IF THEY RAISE RATES SEVEN TIMES THIS YEAR THAT WILL HELP SOLVE THE SUPPLY CHAIN CHALLENGES OR BRING PEOPLE BACK TO THE LABOR FORCE QUICKER. I DO NOT SEE HOW THAT ACCOMPLISHES THAT. I FEEL INFLATIONARY PRESSURES WILL START TO MODERATE, NOT ONLY FROM BASE AFFECTS, IT ALSO MY ALMA MATER THE UNIVERSITY OF MICHIGAN ASKS AMERICAN CONSUMERS IS A GOOD TIME TO BUY DURABLE GOODS FOR YOUR HOME, IS IT A GOOD TIME TO BUY VEHICLES, WE HAVE NEVER SEEN THOSE NUMBERS COME IN WORSE. THEY ARE AT RECESSIONARY LEVELS AT A TIME BUSINESSES ARE TRYING TO REBUILD INVENTORY SIGNIFICANTLY AS WE SAW IN THE GDP REPORT. I WOULD SUSPECT THE FED TRIES TO TIGHTNESS ECONOMY MEANINGFULLY, DEMAND STARTS TO SLOW. INVENTORY STARTS TO REBUILD. INFLATIONARY PRESSURES COME DOWN , WHICH WOULD CERTAINLY PREVENT THE FED FROM WANTING TO RAISE INTEREST RATES SIX OR SEVEN TIMES. WE HAVE CHALLENGES FOR THEM STIFFING THIS LANDING, BUT I AGREE WITH EMILY'S VIEW. WE ARE ALREADY AT A PRETTY FLAT YIELD CURVE. JONATHAN: AS SOON AS I PUT THAT OUT I GOT A TON OF PUSHBACK. THE MORE WE TALK ABOUT A TINY FEDERAL RESERVE THE LESS CHANCE THEY GET OF DELIVERING IT BECAUSE FINANCIAL CONDITIONS IN THE MARKET DO THEIR WORK FOR THEM AND THEY HAVE TO BACK AWAY. MANY PEOPLE THINK THIS TIME MIGHT BE DIFFERENT. IF YOU ARE IN THE EQUITY MARKET IN HEARING THIS CONVERSATION, YOU THINK GIVE ME THE BANKS. DAVID, THE BANKS ARE NEGATIVE ON THE YEAR BY .1%. GOLDMAN SACHS SAID FOCUS IS SHIFTING FROM THE UPSIDE BENEFITS OF RISING RATES TO A MORE BALANCED VIEW THAT INCORPORATES THE RISKS AND OFFSET THE FACTORS OF HIGHER EXPENSES AND TYPICAL -- DECELERATING ECONOMIC ACTIVITY ALSO CREATES A MORE CHALLENGING OPERATING ENVIRONMENT. DAVID, WHERE ARE YOU ON THE BANKS? DAVID: I THINK THERE IS SOME VALIDITY TO THAT. ONE OF THE THINGS THAT PERMEATED A NUMBER OF THE FINANCIAL REPORTS WAS THE FACT THAT EXPENSES AND WAGES WERE RISING. WAGES ARE VERY DIFFICULT INPUT COST TO PASS ON TO THE END CONSUMER OVER A SHORT TIME. WE RECOGNIZE MARGIN COMPRESSION MAY BE COMING. WE ARE LITTLE BIT MORE OPTIMISTIC ON THE RATE STORY AND THE LOAN GROWTH STORY. WHILE HAPPEN OVER THE NEXT COUPLE OF QUARTERS IS ASSUMING THE FED DOES NOT OVERDO IT, THE CONSUMER WILL FIND THEIR FOOTING. THE CONSUMER IS COMING UP THE SUGAR HIGH IT HAS BEEN ON. THEY WILL TOOK A LOOK AT THE BALANCE SHEET AND THEIR INCOME STATEMENT, AND YOU WILL NOT ONLY SEE A PICKUP IN CONSUMER BORROWING WHICH DID MATERIALIZE, POTENTIALLY AN ACCELERATION IN BUSINESS BORROWING. ONE OF OUR THESES AROUND EARNINGS AND GLOBAL GROWTH THIS YEAR IS WITH INPUT COSTS RISING AND WAGES RISING, COMPANIES WILL FOCUS ON INVESTMENT SPENDING. THAT COULD BE A TAILWIND FOR BANK PROFITABILITY. FOURTH-QUARTER QUARTER NUMBERS WERE BAD. THERE WAS A HUGE LOAN LOSS RELEASE AT THE END OF 2020. WE ARE STILL GLASS HALF-FULL ON THE BANKS WHEN IT COMES TO 2022. JONATHAN: DAVID STIFFING WITH US ALONGSIDE BRIAN LEVITT AND EMILY ROLAND. ONE NAME TO DISCUSS IS APPLE. ABIGAIL: APPLE IS A BIG DEAL INDEED AFTER REPORTED GETS DECEMBER QUARTER. THEY SHATTERED EXPECTATIONS. PROFIT OF $34.6 BILLION. THEIR KEY HOLIDAY QUARTER CAME THROUGH. THIS DESPITE SUPPLY CHAIN PROBLEMS. THE RECORD SALES REPRESENTS 11% GROWTH IN THE COMPANIES SAYING THEY EXPECT DOUBLE-DIGIT REVENUE GROWTH IN THE MARCH QUARTER. THAT IS KEY BECAUSE THIS YEAR WAS SUPPOSED TO FIND A SINGLE DIGITS. GIVEN THE WAITING TO THE INDEXES, IT SEEMS AS THOUGH THIS COULD PROVIDE A BULLISH TAILWIND AT A SENTIMENT BAROMETER. JONATHAN: MANY PEOPLE HOPE THAT IS THE CASE. COMING UP, PRESIDENT BIDEN PREPARING TO ADDRESS SUPPLY CHAIN CONCERNS AND INFLATION. > > EVERYTHING THE ADMINISTRATION DOES TO TRY TO GET INFLATION UNDER CONTROL MAY AFFECT THE ABILITY OF THE ECONOMY TO EXPAND. JONATHAN: THAT IS NEXT. THIS IS BLOOMBERG. > > WHO KNEW GLOBAL LOGISTICS WAS THIS FRAGILE. > > WE HAVE TO BE CAREFUL BECAUSE WE LIVE IN A CHAOTIC WORLD AND UNCERTAINTY IS THE RULE OF THE DAY. > > SUPPLY CHAINS AROUND THE WORLD ARE VERY CONSTRAINED. THE ANSWER THAT THESE WILL BE HERE FOR AT LEAST THROUGH 2023. > > WE HAVE SEEN CONTAINER SHIPPING PRICES INCREASE BY A FACTOR OF THREE. > > WE WILL SEE PRICE HIKES FROM BUSINESSES TO CONSUMERS. > > IT IS INEVITABLE SOME OF THAT WILL HAVE TO BE PRICED THROUGH TOWARDS THE END MARKETS. > > IT COMING THROUGHOUT THE BUSINESS, IT IS COMING IN SUPPLY, IT IS COMING IN THE WAGE INFLATION. THE KEY IS TO MAINTAIN PRICING POWER AND BE ABLE TO SHARE THAT WITH CUSTOMERS. IT WILL ALWAYS BE PART OF THE DISCUSSION FROM NOW ON. JONATHAN: CORPORATE AMERICA GRAPPLING WITH PRICE PRESSURE. JAY POWELL WARNING HIGH INFLATION COULD BE HERE FOR A WHILE. > > WE HAVE A POSITION BUT WE HAVE TO BE IN A POSITION TO ADDRESS DIFFERENT OUTCOMES, INCLUDING ONE WHERE INFLATION REMAINS HIGHER. JONATHAN: THE PRESIDENT ADDRESSING SUPPLY AND INFLATION CONCERNS LATER TODAY WITH MIDTERMS LOOMING AND HIS ECONOMIC AGENDA STALLING. ANNMARIE: THE PRESIDENT IS HEADED TO PITTSBURGH AND WE SHOULD NOTE THIS COMES THIS MORNING AFTER A BRIDGE IN PITTSBURGH COLLAPSED. THERE WERE ABOUT 10 INJURIES BUT NO DEATHS. THE MAYOR SAYS HE WANTS THE PRESIDENT TO, AND THE PRESIDENT PLANS TO GO THERE TO TALK ABOUT THE ECONOMY. YOU HAVE TO THINK WITH THE BRIDGE COLLAPSING IN PITTSBURGH, THE PRESIDENT WILL USE THAT BACKDROP TO SPEAK TO THE MOMENT OF WHY HE WAS ABLE TO GET THE HEARTED INFRASTRUCTURE BILL PASSED LAST YEAR AND THE FACT THE U.S. HAS FAILING ROADS AND BRIDGES AND HE WAS ABLE TO GET SOME OF THE ECONOMIC AGENDA AHEAD. HE WILL ALSO WANT TO TALK ABOUT THE GAINS THEY'VE MADE IN THE ECONOMY, ABOUT WHAT HAPPENED YESTERDAY IN TERMS OF THE GDP. UNEMPLOYMENT F 3.9%. THIS IS WHAT HE IS GOING TO TOUT. WHAT IS REALLY DOGGING THE ADMINISTRATION IS THE HIGHER INFLATION NUMBERS. WHEN IT COMES TO THAT THE PRESIDENT WILL WANT TO LOOK AHEAD AT POSSIBLY GETTING THROUGH CHUNKS OF THE BUILD BACK BETTER AGENDA THAT BRING DOWN CONSUMER PRICES AND ALSO THE COMPETITIVE BILL CONGRESS DOES DISCUSSING RIGHT NOW THAT IS MORE THAN $50 BILLION GENERATED -- DEDICATED TO THE SEMICONDUCTOR INDUSTRY. JONATHAN: A,MH IN WASHINGTON. THE PRESIDENT ALL BUT ENDORSING THE PIVOT FROM THE FEDERAL RESERVE. "THE PAL PUT IS IN PLACE FOR TRULY CATASTROPHIC INSTANCES. RECENT ECONOMIC ACTIVITY BARELY REGISTERS ON THE FED RADAR. THERE IS A FEELING THE FROTHY ARE SEGMENTS HAVE SEEN THE GREATEST CORRECTIONS." EMILY, I AM SURE YOU HAVE THOUGHT ABOUT THIS. WHAT ARE YOUR THOUGHTS ON IT NOW? EMILY: I AM SURE THE FED IS NOT DISAPPOINTED TO SEE THESE POCKETS OF SPECULATION LETTING THE STEAM OUT TO START THE YEAR. WHAT WE HAVE LEARNED OVER LAST COUPLE OF YEARS IS THAT THE FED PUT IS STILL ALIVE AND WELL. WE PROBABLY DO HAVE MORE CORRECTIVE ACTION BEFORE WE SEE THAT COME THROUGH. THE FED HAS SHOWN US THEY ARE GOING TO BE THERE. THE PROBLEM NOW AS THEY DO NOT HAVE ANY CHOICE. THE FED IS STUCK IN BETWEEN A ROCK IN A HARD PLACE WITH INFLATION AS ELEVATED AS IT IS TODAY. THE FED HAS TO DO SOMETHING. WE WERE SURPRISED BY HOW HAWKISH JAY POWELL'S COMMENTS WERE DURING THE FED CONFERENCE AND IT IS CLEAR MARKETS ARE REACTING TO THAT RIGHT NOW. JONATHAN: THE QUESTION FOR INVESTMENT COMMITTEES AROUND THE WORLD IS TO SAY DOES IT CONTINUE , WHERE THE UPSIDE SURPRISES COME FROM ON RATES AND INFLATION? BARCLAYS ARE GOING THERE. THEY RAISE THE QUESTION ARE WE NEAR THE POINT OF MAXIMUM HAWKISH NEST? YOU THINK WE ARE AND HOW DO YOU GAUGE THAT BRIAN: BRIAN:? WE ARE GETTING PRETTY CLOSE IF WE ARE NOT. THE PESSIMISM IN THE MARKET HAS GOTTEN PRETTY EXTREME. YOU LOOK THE AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS, BACK DOWN TO COVID LEVEL. THAT IS A GOOD SIGN YOU HAVE SEEN A LOT OF THIS GET BOTCHED OUT IN THE MARKET. I AGREE WITH EMILY THAT THE FED IS NOT GOING TO CARE OF SOME OF THE MORE SPECULATIVE PARTS OF THE MARKET GET HIT. WHEN WE START TO HEAR TALK OF SEVEN INTEREST RATE HIKES THIS YEAR, AND YOU'VE SEEN A TWO YEAR THAT HAS GONE FROM BASICALLY NOTHING TO OVER 1.5%, YOU'RE GETTING A SIGNIFICANT AMOUNT OF -- A MARKET THAT IS EXPECTING A SIGNIFICANT AMOUNT OF TIGHTENING. THE QUESTION IS DOES THE FED HAVE TO TIGHTEN THE SCREWS MORE THAN THAT, OR ARE WE GOING TO START TO SEE INFLATION EXPECTATIONS COME DOWN AS THE FED WORKS TO DRIVE REAL YIELDS HIGHER? I SUSPECT WE WILL. IF YOU LOOK AT THE BOND MARKET EXPECTATION OF INFLATION, 3.5 PERCENT OVER THE ONE-YEAR IS VERY ELEVATED. THE GOOD NEWS IS FIVE AND 10 YEAR BELOW 3%, 10 YEAR BELOW 3.5%. THE LONG-TERM INFLATION EXPECTATIONS REMAIN RELATIVELY ANCHORED. DO THEY COME DOWN A BIT, SURE? RELATIVELY ANCHORED WHICH WOULD GIVE THE FED SOME COMFORT NOT TO DRIVE THE ECONOMY INTO A RECESSION. THE FED RAISING RATES. THEY CAN SLOW THE ECONOMY DOWN MEANINGFULLY BUT THEY CANNOT PRODUCE SEMICONDUCTOR'S. WE ARE GETTING CLOSE TO A POINT OF EXTREME HAWKISH NEST FROM THE FED WITH REGARDS TO EXPECTATIONS. JONATHAN: EQUITY FUTURES JUST ABOUT POSITIVE ON THE SESSION. ON THE YEAR WE ARE DOWN HARD ON THE NASDAQ. HELP US OUT WITH THIS ONE. THE TRILLION DOLLAR QUESTION. AM I LOOKING AT A CORRECTION I SHOULD BUY OR A MARKET TRANSITIONING TO A BEAR MARKET I WANT TO AVOID? BRIAN: WE ARE CONSTRUCTIVE ON THE MARKET OVER THE COURSE OF THE YEAR. I'M NOT SURE WE ARE THERE QUITE YET IN TERMS OF BUYING THE DIP. I THINK THE FED PUT IS MUCH LOWER TODAY THAN IT WAS DURING THE PRIOR CYCLE. I ALSO THINK IT IS VERY IMPORTANT TO DIFFERENTIATE BETWEEN TWO TYPES OF INFLATION. THERE IS ASSET GROWTH INFLATE -- ASSET PRICE INFLATION AND CONSUMER PRICE INFLATION. ASSET PRICE INFLATION HAS BEEN GOING THROUGH THE ROOF SINCE THE FINANCIAL CRISIS. CONSUMER PRICE INFLATION IS FINALLY STARTING TO SHOW UP. THAT IS WHAT THE FED WILL BE FOCUSED ON GOING FORWARD. IT IS IMPORTANT TO RECOGNIZE THE MARKET HAS DONE A DECENT AMOUNT OF TIGHTENING FOR THEM. I WOULD LATCH ON TO WHAT BRIAN JUST SAID. HISTORICALLY WHEN CENTRAL BANKS HAVE REACTED TO INFLATION DRIVEN BY ISSUES ON THE SUPPLY SIDE IT HAS LED TO A POLICY ERROR. THE FED NEEDS TO BE CAREFUL. I WOULD TAKE THE UNDER ON CONSENSUS FOR RATE HIKES THIS YEAR. I DO THINK THERE'S PROBABLY A BIT MORE PAIN TO BE FELT IN EQUITY MARKETS. WE GET MORE CLARITY AS WE APPROACH THE MARCH MEETING WHEN WE GET NEW FORECASTS FROM OUR FED -- OUR FRIENDS AT THE FEDERAL RESERVE. JONATHAN: I WOULD LIKE TO THINK ECONOMIST AT WALL STREET DO MORE THAN JUST SHAPE THE MAGIC EIGHT BALL. EMILY, 20 SECONDS, FAVORITE TRADE RIGHT NOW? EMILY: WE ARE LOOKING AT THE CORRECTIVE PRICE ACTION AS AN OPPORTUNITY TO LOOK FOR THOSE POCKETS OF VALUE WHERE DISCOUNTS HAVE OPENED UP. IN PARTICULAR WE LIKE THE QUALITY GROWTH SPACE. COMPANIES THAT GROW ORGANICALLY EVEN AS THE ECONOMIC BACKDROP SLOWS, GREAT RETURN ON EQUITY, REALLY FOCUSED ON THAT ABILITY TO GENERATE STABLE EARNINGS AS WE GET INTO MORE DIFFICULT ENVIRONMENT A. JONATHAN: EMILY ROLAND ALONGSIDE BRIAN LEVITT AND DAVID LEIBOWITZ, THANKS TO ALL OF YOU. LATER, APPLES BLOWOUT RESULTS UNABLE TO STOP THE MOVE IN BIG TECH'S WORST MONTH SINCE THE FINANCIAL CRISIS. JONATHAN: FIVE BUT IT'S OUT AND TRYING TO HOLD ONTO SOME GAINS. -- FIVE MINUTES OUT AND TRYING TO HOLD ON TO SOME GAINS. UP ONE THIRD ON THE NASDAQ. RBC UPGRADING WILLIAMS-SONOMA TO OUTPERFORM, SING AND UNDERAPPRECIATED GROWTH STORY AS CONSUMERS CONTINUE SPENDING. CITIGROUP DOWNGRADING KROGER TO SELL SEEING HEADWINDS FROM THE ECONOMIC REOPENING. MORGAN STANLEY RAISING ITS APPLE PRICE TARGET TO $210, HIGHLIGHTING THE COMPANY'S ROBUST RESULTS DESPITE THE CHALLENGING ENVIRONMENT. NEXT MORE ON THE UPPER RESULTS PLUS MOHAMED EL-ERIAN ALONGSIDE ROBERT KOENIGSBERGER. A CONVERSATION YOU DO NOT WANT JONATHAN: SHOULD NEVER START A SEGMENT WITH BAD NEWS BUT HERE IT IS. THIS MONTH IS NOT OVER. WE HAVE ANOTHER DAY ON MONDAY. IT HAS FELT LIKE A YEAR. EQUITY FUTURES UP ONE THIRD ON THE S & P. TRYING TO BOUNCE BACK ON THE RUSSELL. UP ALMOST .1%. WE LOOK LIKE THIS ON TENS. YIELDS HIGHER THROUGH MUCH OF THIS MORNING. WE BACK AWAY FROM THOSE LEVELS AFTER A SOFTER THAN EXPECTED ECI. THE MARKET BECOMING VERY SENSITIVE TO THAT. WE BACK AWAY ON THE 10-YEAR GILTS. EURO-DOLLAR BACKS AWAY FROM LOSSES. FOUR DAYS OF LOSSES INTO FRIDAY. THE EURO HAS BEEN REALLY BEATEN UP. IN THE COMMODITY MARKET, CRUDE IS STILL POSITIVE. OPENING HIGHER, THEN 27 SECONDS IN COME UP .4% ON THE S & P. INFORMATION TECHNOLOGY UP 1.5%, REPORTING -- APPLE REPORTING BLOWOUT RESULTS. DAN IVES OF WEDBUSH HIGHLIGHTED THE COMPANY'S RESILIENCE. DAN: AS HARD AS THE SUPPLY CHAIN IS TO NAVIGATE APPLE IS DOING IT AT THE FRONT OF THE LINE. I SAY THE DAMAGE HAS BEEN CONTAINED. SUPPLY CHAIN IMPROVING IN MARCH, THAT WILL BE A BIG FOCUS FOR EVERY TECH INVESTOR AND ANYONE IN THE FOOD CHAIN THAT CONTRACTS SOME OF THE FEARS WE ARE SEEING FROM TESLA AND OTHERS ABOUT SUPPLY CHAIN ISSUES LASTING THROUGH 2022. JONATHAN: LET'S TURN TO TOM FOR TAKE, A BUY RATING ON APPLE. I KNOW YOU ARE SUPER BUSY. YOU RAISED YOUR PRICE TARGET. WHY? TOM: IF YOU LOOK AT THE NUMBERS THEIR BETTER-THAN-EXPECTED AND THERE IS REASON TO BELIEVE THEY HAVE SUSTAINED BETTER THAN EXPECTED RESULTS IN IPHONES AND THE NEW APPLE SHIPS ARE HELPING SELL MORE MACS THAN ORIGINALLY EXPECTED. BETTER SALES, HIGHER PROFITS. JONATHAN: HOW MUCH CLARITY DO YOU HAVE ON THE SUPPLY CHAIN ISSUE. INTO THE LAST QUARTER WE HAVE REPORTS ABOUT SOFTENING DEMAND, THEN THEY BLEW IT OUT OF THE WATER. GIVE ANY CLARITY ON THE SUPPLY CHAIN STUFF? TOM: FOR ME MY CANARY IN THE COAL MINE HAS BEEN FOX INTERNATIONAL. IT IS ANOTHER COMPANY I COVER. THEY REPORTED THEIR NOVEMBER QUARTER BEFORE APPLE REPORTED ITS DECEMBER QUARTER. THEY SAID THEY WERE SEEING SIGNS OF IMPROVEMENT. THE CEO OF VOX INTERNATIONAL HAS BEEN DOING CONSUMER ELECTRONICS SINCE THE BEGINNING OF THE CONSUMER ELECTRONIC SHOW. THAT WAS THE TWO THINGS ARE IMPROVING FOR APPLE. JONATHAN: YOU'RE A SINGLE NAME ANALYST BY THE MOMENT YOU KNOW WHAT WE ARE TALKING ABOUT, THE POSSIBILITY OF 547 INTEREST RATE HIKES FROM THE FEDERAL RESERVE. THE PROSPECT PEOPLE HAVE STRUGGLED WITH OVER THE LAST DECADE IS HOW TO VALUE THIS COMPANY. HOW YOU VALUE THIS COMPANY AS IT SHIFTS FURTHER TOWARD SERVICES AT A TIME WHEN INTEREST RATES ARE ABOUT TO KICK HIGHER BY QUITE A BIT? TOM: IT IS A GREAT QUESTION. WE DID PUBLISH REPORTS TALKING ABOUT RAISING RATES. APPLE HAS BEEN ABLE TO GROW THROUGH THE RATE HIKES. COMPANIES CONTINUE TO GROW THROUGH THE RATE HIKES. I THINK AS FAR AS MANAGING IT, THIS IS WHY TECHNOLOGY HAS BEEN UNDER SEVERE PRESSURE ON THE PROSPECT OF MORE RATE HIKES. 100 BASIS POINTS CUMULATIVE. I THINK HISTORY SHOWS APPLE CAN GROW THROUGH THE RATE HIKES. JONATHAN: TOM FORTE OF DA DAVIDSON, THANK YOU FOR BRINGING US SOME TIME. WE CAN TALK MORE ABOUT THE FED. WE CAN CATCH UP WITH MOHAMED EL-ERIAN, THE CHAIR OF GRAMERCY FUNDS, AND ROBERT KOENIGSBERGER, CIO. LET'S START WITH THE FED. THAT WAS A LOT MORE DIPLOMATIC THAN MOHAMED EL-ERIAN'S PERSONAL VIEWS. I WANT TO START WITH YOUR PERSONAL VIEWS ON THE FED. YOU SAID THE FED DELIVERED WHAT I EXPECTED BUT NOT WHAT I THINK IS NEEDED FOR SUSTAINABLE ECONOMIC WELL-BEING. THEY SHOULD HAVE STOPPED PURCHASING ASSETS IMMEDIATELY AND GIVEN A CLEARER SIGNAL OF RATE HIKES. DO NOT GET THAT SIGNAL THIS WEEK? MOHAMED: WE DID NOT GET A CLEAR SIGNAL. I REFER YOU BACK TO WHAT YOU WERE SAYING TODAY. WE HAVE SEEN A MASSIVE MIGRATION UP AND EXPECTATIONS FOR RATE HIKES. THE CENTER OF GRAVITY IS NOW FIVE. WE HAVE BANK OF AMERICA AT SEVEN. PEOPLE ARE ALL OVER THE PLACE. IT HAS BECOME A VOLATILE OUTLOOK FOR A KEY INTEREST RATE. THE FED IS NOT IN CONTROL OF THE RATE NARRATIVE. IT IS NOT IN CONTROL OF THE INFLATION NARRATIVE. NOW PEOPLE ARE STARTING TO PRICE IN A BUNCHING TOGETHER OF THREE CONTRACTIONARY INFLUENCES FROM THE FED AT THE SAME TIME. THAT IS WORRISOME. THAT IS WHAT HAPPENS WHEN YOU FALL BEHIND. RATHER THAN TRY TO CATCH UP THE FED FELL FURTHER BEHIND THIS WEEK. JONATHAN: IN YOUR QUARTERLY OUTLOOK, ROBERT, YOU ARE MORE DIPLOMATIC. "THE FED HAS BEEN LEFT WITH A SMALLER WINDOW TO DELIVER A PIVOT AWAY FROM ITS DECADE-LONG POLICY OF MASSIVE AND PREDICTABLE LIQUIDITY INJECTION. FAILURE TO DO SO RISKS OF POLICY MISTAKE THAT WOULD UNDERMINE GLOBAL GROWTH AND FINANCIAL STABILITY. NO WONDER SOME EMERGING MARKETS HAVE ALREADY STARTED HIKING INTEREST RATES." CAN WE START WITH THE FIRST PIECE? AS A FIRM WHEN YOU SIT AROUND THE TABLE, WHAT ARE YOU DISCOUNTING FROM THIS FEDERAL RESERVE? WHERE DOES BALANCE SHEET REDUCTION FIT IN? WHAT ARE YOU LOOKING FOR? ROBERT: A LOT OF THE DEBATE IS AROUND THE PERIMETER. WHAT IS IMPORTANT IS WHETHER IT IS FIVE OR SIX OR SEVEN. WE ARE MOVING FROM A TAILWIND TO A HEADWIND AND THEREFORE THE STRATEGIES THAT HAVE WORKED IN TERMS OF STOCK PRICES OVER THE LAST FIVE TO 10 YEARS WILL NOT NECESSARILY WORK GOING FORWARD. THUS FAR, WE HAVE DISCOUNTED QUARTERLY SITUATIONS. THAT IS BECAUSE WE'VE NOT SEEN OUTLOOK. THE DIFFERENCE MIGHT BE OUTFLOWS. JONATHAN: LIKE YOU MAKE OF THE FACT THAT EM HAS GOT AHEAD OF THIS IN A BIG WAY WHEN YOU LOOK AT PLACES LIKE BRAZIL WITH A MONSTER INTEREST RATE HIKE 2021. DOES THAT HELP THEIR CAUSE LOOKING AHEAD THIS YEAR? MOHAMED: IF YOU GO BACK -- ROBERT: IF YOU GO BACK TO 25 YEARS AT TIMES WHEN THE EMERGING MARKETS HAVE BEEN BEHIND THE FED, THERE IS A FEW EXCEPTIONS, TURKEY BEING THE MOST RENOWNED LATELY. EMERGING MARKETS HAVE MATURED AND HAVE LESS POLICY FLEX ABILITY THAN THE UNITED STATES. JONATHAN: I WE USE THE PHRASE YOU HAVE USED. ABSORPTION CAPACITY. YOU THINK EM HAS MORE OF THAT THIS TIME AROUND? MOHAMED: I DO FOR THE REASON JOHN CITED, THE MOVE EARLIER ON POLICY AND BIGGER FINANCIAL CUSHIONS. THAT IS THE GENERAL STATEMENT. INTERESTING THING IS THE DISPERSION WITHIN THAT GENERAL STATEMENT IS SIGNIFICANT. EM HAS LURCHED AND ADJUSTED ACCORDINGLY. JONATHAN: THE D WORD HAS COME UP. DISPERSION. YOU ARE LOOKING FULLY FULLY SUPER NICE GLOBAL RECOVERY AT SOME POINT BUT NOT THIS YEAR. YOU'RE PUSHING THAT OUT TO 2023. WHAT IS YOUR APPROACH THAT AT THE MOMENT? ROBERT: MOST IMPORTANTLY -- YOU HAVE TO LOOK AT THAT DISPERSION, TRIAGE THAT DISPERSION AND DO BOTTOM-UP AND TOP-DOWN. JUST BECAUSE YOU FIND A BOTTOM UP SITUATION, A LOT OF TIMES WITH THE OUTLOOK TALKING ABOUT THE TOP DOWN AND MAKING SURE WE DO NOT BY THAT HOMES IN GOOD NEIGHBORHOODS. ULTIMATELY IT IS ABOUT CREDIT TAKING INTO PORTFOLIO CONSTRUCT WE HAVE TALKED ABOUT IN THE PAST LESS THAN BEING IN BETA AND MORE ABOUT HAVING MULTI-ASSET DYNAMIC APPROACH THAT ALLOWS YOU TO TAKE ADVANTAGE OF THE DISPERSION IN EMERGING MARKETS AND TO MOVE ASSET DISPERSION THE IMPACT OF THAT MOVE. JONATHAN: WE USED TO TALK ABOUT THE TAURUS IN EMERGING MARKETS. ROBERT SAID IT IS NOT A HOMOGENEOUS SITUATION. THE OUTSIDERS THAT COME INTO THE MARKET AND LEAVE QUICKLY HAVE OTHER IDEAS. YOU THINK WE HAVE MATURED? MOHAMED: SO FAR, AS ROBERT SAID EARLIER, WE HAVE NOT SEEN MAJOR OUTFLOWS. THAT IS GOOD NEWS. IN THE PAST WE WOULD HAVE VOLATILITY. NEXT THAT YOU KNOW THE TOURIST HEAD FOR THE AIRPORT WE HAVE MAJOR OUTFLOWS. WE HAVE NOT SEEN THAT YET. WHAT WE HAVE SEEN IS THE PRICE ACTION MOVE WAY AHEAD OF FLOWS. THAT IS GOOD NEWS. IT GIVES RELIEF TO PEOPLE WHO WORRY ABOUT THE LACK OF EFFICIENT RESIDENTS RELEVANT TO TOURIST CAPITAL. LET'S WAIT. THERE ARE L UP -- THERE ARE OTHER ELEMENTS PLAYING SUCH AS THE ABILITY TO GET LIQUIDITY. WE HAVE NOW STARTED A GLOBAL LIQUIDITY JOURNEY. WE KNOW WHAT WE ARE LEAVING. MASSIVE, PRINTABLE LIQUIDITY -- MASSIVE PREDICTABLE LIQUIDITY. WE ARE STILL EARLY ON IN THIS PROCESS IT IS SOMETHING THAT HAS TO BE MANAGED CAREFULLY WITH WHAT ROBERT HAS BEEN TALKING ABOUT. JONATHAN: I WANT TO TURNS YOU ON THAT BECAUSE THIS IS AN AREA OF EMERGING MARKETS YOU HAVE STARTED OUT. A LOT OF PEOPLE CONFLATE CREDIT RISKS WITH LIQUIDITY RISKS. IF I GET PAID VERSUS THE WHEN I GET PAID. ROBERT, YOU THINK THAT IS IMPORTANT AS YOU LOOK ACROSS FROM DM TO DM AND START TO THINK MORE ABOUT LIQUIDITY, WHERE PEOPLE THINK IT IS AND WHERE IT IS NOT? ROBERT: ABSOLUTELY. FOLLOWING UP ON THE COMMENTS ON LIQUIDITY. IT HAS GONE FROM A TAILWIND TO A HEADWIND. WHAT COMES TO MIND FOR ME IS THE TECHNICALS IN THE MARKETPLACE CHANGED SO MUCH IN THE LAST FIVE TO 10 YEARS AND WHAT I MEAN BY THAT IS THE ASSET CLASS IS SO MUCH LARGER. THE SIZE OF THE STREET, CONSUMER BANKS HAVE A LOT LESS BALANCE SHEET. THAT MEANS WHEN THERE OUTFLOWS THERE IS NO GUARANTEE. WE DO NOT SEE THAT ON THE WAY UP BUT THERE WAS ALWAYS AN OCEAN OF SUPPLIERS. WHERE THERE IS OUTFLOWS, THAT IS WHEN LIQUIDITY BECOMES AN ISSUE. DO YOUR QUESTION, THAT IS WHEN CREDIT BECOMES IMPORTANT. THERE IS NO LIQUIDITY IN THIS LOCATION. ONE NEEDS TO BE CAREFUL. THERE'S A LOT OF LATE CYCLE CREDIT PICKING DONE THAT TURNS INTO CREDIT ISSUES. WE ARE FOCUSED ON STRUCTURED CREDIT, COLLATERAL, THINGS THAT WILL SURVIVE DESPITE LIQUIDITY. NO USE OF LEVERAGE. JONATHAN: ROBERT, BUILD ON THAT. HE WOULD SAY THE RISK IS WHERE PEOPLE FEEL THE SAFETY IS. CAN YOU GIVE ME AN EXAMPLE OF THAT IN DM AND EMERGING MARKETS? ROBERT: ABSOLUTELY. WHEN WE SPEAK WITH LTE THEY SAY THAT STEPPINGSTONE OF HOW YOU LEAN INTO EMERGING MARKETS CREDIT. THE SAME PLAY SEEMS TO BE LIQUID EMERGING-MARKET DEBT. JUST BECAUSE YOUR EGF IS LIQUID DOES NOT MEAN THE UNDERLYING PORTFOLIO IS NECESSARILY LIQUID. THE DATA PROVES IT OUT. OVER THE LAST 25 YEARS WE HAVE HAD 10 MEANINGFUL DISLOCATIONS IN EMERGING MARKETS. WE HAVE AVERAGED ABOUT 20% OVER FIVE MONTHS. THAT IS THE BAD NEWS. THE GOOD NEWS IS EXTREMELY POSITIVE RETURNS FROM OUT OF DISLOCATION COME ANYWHERE FROM 25% AM A 30%, 50% OVER TIME. THE CHALLENGES PRESERVATION OF THE CAPITAL AND BEING OF A MINDSET TO ATTACK THAT DISLOCATION. JONATHAN: WE WILL TALK MORE ABOUT THAT IN THE EXCITEMENT, BUT I WANT A FINAL WORD ON THAT. WE HAVE LEARNED THE PAINFUL LESSON IN EMERGING MARKETS, WE HAVE LEARNED IT AND PERSONALLY AS WELL. YOU THINK WE HAVE LEARNED THE LESSON IN DEVELOPED MARKETS AND IS AT THE LESSON YOU THINK WILL BE TAUGHT IN THE COMING YEARS AS THE FED PULLS BACK? MOHAMED: I THINK WE WILL LEARN IT IN DEVELOPED MARKETS FOR TWO REASONS. ONE IS THE SIGNIFICANT CHANGE IN THE QUIDDITY PARADIGM YOU JUST MENTIONED. TWO, THE ROLE OF ETF. ON MONDAY ETF'S ACCOUNTED FOR 40% OF THE RECORD VOLUME. ETF'S ARE A SOURCE OF CONTAGION BECAUSE THEY BRING ALL NAMES TOGETHER. I THINK INCREASINGLY WE WILL GET THAT SENSE IN THE ADVANCED MARKETS. FOR PEOPLE WHO UNDERSTAND THAT DYNAMIC, IT IS AN INCREDIBLE OPPORTUNITY. JONATHAN: WE WILL TALK ABOUT THAT OPPORTUNITY IN JUST A MOMENT. MILITARY FORCES ASSEMBLING AROUND RUSSIA AND UKRAINE. > > WE ARE NOT PREDICTING WHAT VLADIMIR PUTIN MAY DO BUT WE ARE WATCHING CLOSELY THE BUILDUP OF TROOPS ON THE BORDER. JONATHAN: MORE ON RUSSIAN AND UKRAINIAN TENSIONS AND A WHOLE LOT MORE COMING UP NEXT. WORTH AT 10:00 EASTERN, 3:00 IN LONDON. THIS IS BLOOMBERG. > > WE HAVE SAID SINCE LAST WEEK THAT WE HAVE SEEN PREPARATIONS AND BUILD UP AT THE BORDER AND IN INVASION COULD COME AT ANY TIME. OUR ASSESSMENT HAS NOT CHANGED SINCE THAT POINT. JONATHAN: UNITED STATES MORNING UKRAINE ABOUT A POSSIBLE RUSSIAN INVASION. PRESIDENT ZELENSKY WRITING "DISCUSSED RECENT DOUBLE MEDIC EFFORTS ON DE-ESCALATION AND DISCUSSED FOR THE FUTURE. THANK PRESIDENT JOE BIDEN FOR THE ONGOING MILITARY ASSISTANCE." JOINING US NOW IS ANNMARIE HORDERN FROM D.C. ANNMARIE: THERE SEEMS TO BE A LOT OF DIPLOMACY HAPPENING. LAST NIGHT IT WAS PRESIDENT BIDEN AND PRESIDENT ZELENSKY. LAST NIGHT IT WAS M YOU -- EMMANUEL MACRON WITH PRESIDENT PUTIN. IT DOES NOT SEEM TO BE CHANGING ANYTHING. A LOT OF THE RHETORIC COMING FROM THE KREMLIN. PRESIDENT PUTIN ONCE AGAIN THE WRIT RESPONSE FROM THE UNITED STATES AND NATO WAS NOT ENOUGH, EVEN THOUGH HE WILL CONTINUE TO ANALYZE IT. GOING INTO THIS, WE KNOW THAT WAS NEVER GOING TO HAPPEN. IT IS A NON-NEGOTIATOR IN RUSSIA AND NATO STATES FOR WHAT RUSSIA WANTS. THE CONCERN IN KYIV, THEY ARE SINGULAR BIT MORE BUILDUP ON THE UKRAINIAN BORDER. JONATHAN: AN IMPORTANT STORY. THE PRICE ACTION, DOWN .7% ON THE S & P, ON THE NASDAQ DOWN .25%. COUPLE -- APPLE CANNOT BUY YOU AN INDEX RALLY. BACK WITH US, MOHAMED EL-ERIAN AND ROBERT KOENIGSBERGER. ROBERT, GEOPOLITICS, TWO BRODD MENTIONS IN THE OUTLOOK, UKRAINE AND RUSSIA, CHINA AND THE U.S.. HOW ARE YOU THINKING ABOUT THOSE ISSUES? ROBERT: START WITH UKRAINE AND RUSSIA. IT IS A BIG SITUATION GEOPOLITICALLY, BUT FROM A PORTFOLIO PERSPECTIVE WE ARE UNDERWEIGHT AS TO BOTH OF THOSE ASSETS. FOR US WE SPENT A LOT OF TIME THINKING ABOUT THIS. IT SEEMS LIKE -- WHETHER THERE WILL BE ESCALATION AND WHAT DE-ESCALATION WILL LOOK LIKE. WITH UKRAINIAN BONDS TRADING AT $.80 A DOLLAR IT DOES NOT MAKE SENSE. OUR FOCUS ON CHINA HAS BEEN ON THE HOUSING SECTOR, THE PROPERTY SECTOR AND THE INTERVENTION FROM THE GOVERNMENT TOP DOWN BUT ALSO THE CHALLENGES. UNLIKE 2021 WHEN WE THOUGHT THAT SECTOR DID NOT MAKE A LOT OF SENSE BECAUSE THEY MADE ASYMMETRY AGAINST YOU, BUT NOW WE HAVE THE SAME BONDS TRADING AT 20%. YOU CAN SEE HOW THE DIFFERENT PLAYERS ARE ACTING, THINKING IT MIGHT BE MORE OF A TYPICAL RESTRUCTURING PROCESS AS OPPOSED TO LIQUIDATION. JONATHAN: WHEN YOU SAY UP A BARBELL APPROACH, YOU APPLY CONVICTION DEBT AND HIGH CONVICTION -- WHERE DOES CHINA FIT INTO ALL OF THAT? ROBERT: IT FITS ON THE OPPORTUNISTIC SIDE. IT HAS BEEN A TACTICAL UNDERWEIGHT FOR QUITE SOME TIME GOING INTO THIS YEAR. THE CREDIT CHALLENGES WE TALKED ABOUT ON THE STRUCTURAL CHALLENGES. QUITE FRANKLY -- TODAY THAT IS DIFFERENT. THE BARBELL IS ANCHORED IN CONVENTIONAL SOURCES OF YIELD THAT ARE ALWAYS THERE AND PROCESS PRIVATE CREDIT AND HIGH CONVICTION MARKET DEBT. SOURCES OF YIELDS WHEN THEY PRESENT THEMSELVES, OPPORTUNISTIC, CHINA AND ARGENTINA. WE PUT THAT THERE. TURKEY AND 2018, TURKEY THIS YEAR. THE IDEA IS ALWAYS HAVE ENERGY TO DRAW FROM. WHERE THE CHINA AND THE TURKEYS OF THE ARGENTINE IS -- AND THE ARGENTINA'S PRESENT THEMSELVES, YOU ARE IN A CONDITION DYNAMICALLY TO MOVE THERE. JONATHAN: SOME PEOPLE WOULD HEAR LET'S GO TO THE CHINESE SECTOR AND THE OTHER PERSON WOULD RUN AWAY. WHY IS THAT OF INTEREST TO THE FIRM? MOHAMED: WHAT IS OF INTEREST TO THE FIRM IS THE EXTENT TO WHICH OPPORTUNITIES ARISE WHEN REGIMES CHANGE. IT WOULD HAVE BEEN UNTHINKABLE FOR YOU AND I TO HAVE A DISCUSSION A YEAR AGO ON WHETHER IT IS -- IS CHINA INVESTABLE. I CANNOT TELL YOU HAVE ANY TIMES I'VE BEEN ASKED THAT QUESTION IN THE LAST FIVE OR SIX MONTHS. WHEN THINGS LIKE THAT HAPPENED, INDEED THE THREE THINGS YOU HEARD ROBERT REFER TO. ONE IS GREAT SELECTIVITY. TWO IS ANALYSIS AND CONSTRUCT. THREE IS DYNAMIC ALLOCATION. THIS IS WHAT HAPPENS WHEN YOU GO THROUGH THESE ASSET REGIME CHANGES. THAT IS WITHIN CHINA, WE HAVE NOT TALKED ABOUT CHINA AND THE U.S. OR RUSSIA AND UKRAINE. THERE ARE A LOT OF THINGS GOING ON THAT MAKE THESE THINGS IMPORTANT AS YOUR DRIVER OF PORTFOLIO CONSTRUCT. JONATHAN: ONE THING YOU'VE TALKED ABOUT ARE THE COUNTRIES AND NATIONS THAT HAVE TRIED TO HAVE ONE FOOT IN THE SECURITY SPHERE OF THE UNITED STATES AND ANOTHER FOOT TO GET THE ECONOMIC EXPOSURE FROM CHINA. MOST PEOPLE ARE ASKING IF CHINA IS ON INVESTABLE HOW SUSTAINABLE IT WILL BE WITH COUNTRIES ON THE OUTSIDE WILL BEGIN. ARE YOU QUESTIONING THAT? MOHAMED: YEAH, BECAUSE LOOK AT WHAT HAS HAPPENED TO AUSTRALIA. FOR A LONG TIME AUSTRALIA HAD A MODEL, RELYING ON THE U.S. FOR NATURAL SECURITY -- NATIONAL SECURITY AND RELYING ON CHINA FOR ECONOMIC PROSPERITY. A MAJOR EXPORTER TO CHINA. THAT OPTION HAD A LOW PREMIUM. NOW IS BECOMING MORE DIFFICULT THING IN AUSTRALIA HAS SUFFERED ECONOMICALLY FOR MAKING THE CHOICE OF GOING WITH THE U.S. ON VARIOUS ELEMENTS. THAT MODEL IS BECOMING HARDER TO RUN AND COUNTRIES DO NOT WANT TO CHOOSE BECAUSE CHOICE MEANS FRAGMENTATION AND THAT IS ANOTHER HEADWIND TO THE SOURCE OF GLOBALIZATION WE HAVE BEEN USED TO. JONATHAN: IS THIS DISPERSION WITHIN SOVEREIGNS I'VE PICKED UP BOUGHT THAT I THINK IS IMPORTANT. YOU LIKE E.M. CORPORATE SERVER SOVEREIGNS AND YOU THINK IS GREAT, THE DISPERSION BETWEEN SOVEREIGNS. IS CHINA A BIG PIECE OF THAT? ROBERT: I THINK THE CORPORATE VERSUS THE SOVEREIGNS COME IN BRUSSELS WE LOOK AT CHINA AS A SOVEREIGN AND IT IS INTERESTING BECAUSE OF THE LACK OF YIELD BEFORE YOU GET TO THE RISK. CORPORATE'S VERSUS SOVEREIGNS AND -- WE LIKE CORPORATE BECAUSE THEY BEEN THE BENEFACTOR OF THAT. WE ALSO LIKE CORPORATE'S BECAUSE THEY TEND TO HAVE RESTORATION AND MORE SPREAD QUESTION. BACK TO THE MATURITY OF THE ASSET CLASS. AROUND 10 YEARS AGO, ONE WOULD HAVE FOUGHT WITH THE MARKETS DRAWING DOWN COME INTEREST RATES ON THE RISE. EMERGING -- EMERGING MARKETS OUTPERFORM INVESTMENT GREAT. THAT SHOWS YOU THE ASSET CLASSES START TO BEHAVE MORE LIKE A FIXED INCOME. JONATHAN: GUY FINISH ON THE CONVICTION CALLS FROM BOTH OF YOU? AS YOU LOOK AHEAD TO THE YEAR AHEAD NOW AND AS THINGS OF STARTED TO STACK UP. WE HAVE EQUITY MARKET STRUGGLING ON THE STREET AGAIN. DOWN .6% ON THE NASDAQ, DOWN .6% ON THE S & P. THE FEDERAL RESERVE IS TALKING ABOUT 1.5 CHILI DOLLARS OF BALANCE SHEET REDUCTION. IN THE E.M. IT SEEMS TO BE VERY NUANCED AND COMPLICATED. IF THERE IS A STRATEGIC CALL FOR YOU AT THE MOMENT, WHAT IS IT? WHAT IS THE NUMBER ONE HOUSE VIEW? ROBERT: THE NUMBER ONE HOUSE VIEW IS WE HAVE PRIVATE CREDIT. PRIVATE CREDIT GIVES THE ABILITY TO GET PAID EXPLICITLY FOR ILLIQUIDITY AND APOLOGIZED -- STRUCTURE BETTER CREDIT WITH COLLATERAL, AND TAKE LESS RISK. LESS RISK AND HIGHER YIELDS. THE DIFFERENCE IS YOU ARE EXPLICITLY GIVING UP UNITS OF LIQUIDITY. JONATHAN: MOHAMMED THAT WE CAN DIP A TOE INTO WHAT IS HAPPENING WITH THE MARKET AND FINISHING WITH YOU. GOING INTO THE PANDEMIC USAGE NOT BY THE DEPTH. THIS EQUITY MARKET IS GETTING HURT. WOULD YOU BUY THIS ONE. MOHAMED: I WOULD WAIT. I THINK IT WOULD GET REALLY ATTRACTIVE OPPORTUNITY -- IF YOU'RE INTERNATIONAL INVESTOR WITH THE CURRENCY RISK AND THAT IT IS CREDIT AND EQUITY RISK. I WOULD FOCUS ON THE LIQUIDITY ELEMENTS OF THIS SELLOFF AND LOOK TO BUY GOOD NAMES AT OVERLY DEPRESSED PRICES. JONATHAN: CAN I THANK YOU BOTH. I ENJOYED THIS. I WANT TO DO IT AGAIN. DO YOU BOTH, THANK YOU VERY MUCH. MOHAMED EL-ERIAN AND ROBERT KOENIGSBERGER. NEW YORK CITY COME THIS EQUITY STORY FADES. THIS WAS THE COUNTDOWN TO THE OPEN.

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'The Open' Full Show (01/28/2022)

Jonathan Ferro highlights the market-moving news you need to know heading into the opening bell on Wall Street. Stocks paring gains in a week marked by intense volatility and fears that the Fed will have to act aggressively to thwart the fastest inflation since the 1980s. Gramercy Funds Chair Mohamed El-Erian and founder and Chief Investment Officer Robert Koenigsberger discuss the Fed’s monetary policy, emerging markets, and the influence of geopolitical risk on investment strategy. (Source: Bloomberg)

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