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00:00> > THE FED IS SETTING THE TONE. > > THE FED ITSELF IS TRYING TO DO SOMETHING THEY'VE NEVER DONE BEFORE. > > INFLATION IS LIKELY TO STABILIZE AT HIGH LEVELS. > > WE HAVE TO GET PAST NOT ONLY THE TIGHTENING OF CENTRAL BANKS BUT THE IMPACT ON GROWTH ON THE OTHERS. > > THE ECONOMY CAN CONTINUE TO DO QUITE WELL EVEN AS INTEREST RATES RISE. > > THIS IS "BLOOMBERG SURVEILLANCE" WITH TOM KEENE JONATHAN FERRO, AND LISA ABRAMOWICZ. JONATHAN: IT IS CPI WEDNESDAY. THIS IS BLOOMBERG SURVEILLANCE. I AM JONATHAN FERRO. EQUITY FUTURES UP 1%. THE BIG ONE AT 8:30. TOM: THE LAST TIME WE WERE AT THIS INFLATION LEVEL OLIVIA NEWTON JOHN AND "LET'S GET PHYSICAL, PHYSICAL." WE WILL FIND IF WE ACTUALLY GET PHYSICAL ON LOWER INFLATION. JONATHAN: IF ONLY YOU COULD SEE BRAMO'S FACE RIGHT NOW. WHAT ARE WE HOPING FOR? HOPEFULLY PEAK INFLATION IS BEHIND US. CORE HOPEFULLY COMING IN, THAT IS NOT THE EXPECTATION. TOM: WE ARE DOWN TO THE MICRO ROLLOVER OF INFLATION. LOOKING MONTH OVER MONTH. MUST WATCH, MUST LISTEN FOR GLOBAL WALL STREET, CULMINATED BY WILLIAM DUDLEY LATER IN THE SHOW. JONATHAN: BILL DUDLEY COMING UP. HIS VIEW ON HOW HIGH DO RATES NEED TO GO ON THE FEDERAL RESERVE, PROBABLY HIGHER. LISA: IF THAT IS THE VIEW HOW DO WE EXPLAIN THE RALLY WE ARE SEEING IN TREASURIES, IN EQUITIES? THERE ARE NUMBER OF DIFFERENT EXPECTATIONS INFLATION WILL NOT COME IN AS HOT AND I DO NOT KNOW IF I BUY THAT. I DO NOT KNOW IF THIS IS ANY SORT OF STATEMENT RATHER THAN A PAUSE. JONATHAN: DO GET THE FEEL LIKE THE MARKET IS SHIFTING ATTENTION AWAY FROM INFLATION TOWARDS GROWTH. MIKE WILSON OF MORGAN STANLEY SAY WE ARE EXPECTING DECELERATING EARNINGS GROWTH AND WE CONTINUE TO BELIEVE THE U.S. MARKET IS NOT PRICED FOR THE SLOWDOWN IN GROWTH. LISA: THAT IS BEGINNING TO BE PRICED BUT YOU'RE NOT SEEING IT FULLY PRICED IN. MIKE WILSON WOULD AGREE. EVEN THOUGH SPREADS HAVE WIDENED THEY HAVE NOT WIDENED THAT MUCH. HOW MUCH ARE WE MOVING TO THAT KIND OF NARRATIVE AND HOW MUCH DOES THAT CHANGE IF WE SEE INFLATION PICKUP FURTHER THAN PEOPLE EXPECTED? JONATHAN: FREIGHT LINE UP ON BLOOMBERG SURVEILLANCE. EQUITIES ARE ELEVATED, UP MORE THAN 1%. ON THE NASDAQ UP 1.3%. BOUNCING BACK FOR A SECOND SESSION. THIS GETS MY INTEREST AND I KNOW IT GETS LISA'S. YIELDS LOWER FOR A THIRD STRAIGHT SESSION. DOWN TO 2.9363. 3.20 IS THE HIGH OF THE WEEK. EVER SINCE WE HAVE HIT THAT LEVEL WE HAVE BACKED AWAY. LISA: WHICH RAISES THE QUESTION HAVE WE SEEN THE PEAK IN YIELDS OR IS THIS A BREATHER? ARE PEOPLE TRYING TO TAKE OFF SHORT POSITIONS AHEAD OF THE CPI PRINT THAT COULD BE SOFTER THAN EXPECTED AND COULD LEAD TO A RALLY. WE GET THAT PRINT AT 8:30. THE EXPECTATION IS FOR IT TO COOL SLIGHTLY DOWN TO 8.1%. I AM NOT JUST INTERESTED IN THE HEADLINE NUMBER. I WANT TO SEE THE UNDERLYING COMPONENTS. REAL WAGES COULD DECLINE TO SOME OF THE LOWEST LEVELS IN DECADES. I WANT TO UNDERSTAND HOW THIS RELATIONSHIP WORKS GOING FORWARD IN TERMS OF HOW MUCH MOMENTUM THERE IS FOR THE CONSUMER. TALKING ABOUT THE 10 YEAR YIELD AND HOW IT HAS BEEN DECLINING. AT 1:00 WE WILL TEST OF THAT. THE U.S. TREASURY IS SELLING $36 BILLION IN 10-YEAR NOTE. I KNOW TOM IS WATCHING THAT AS HE SINGS "LET'S GET PHYSICAL." WHERE DOES THAT COME FROM? TOM: IT WAS A HIT. JONATHAN: THERE WERE OTHER SONGS. TOM: YOU SHOULD HAVE SEEN MY HAIR THEN. LISA: WE GET EARNINGS FROM DISNEY, RIVIAN, AND BEYOND MEET. THEY ARE AMONG THE STOCKS THAT DID AMAZING DURING THE PANDEMIC. NOW DOWN 70% FOR RIVIAN. BEYOND MEAT DOWN MORE THAN 50%. DISNEY MORE OF A QUESTION WITH STREAMING BUT THE MEME STOCKS BANK HAVE HAD A MASSIVE RETRACING. JONATHAN: LOOKING FORWARD TO YOUR COVERAGE ON THAT THROUGH THE DAY ON BLOOMBERG TV AND BLOOMBERG RADIO. I KNOW YOU ARE FOCUSED ON THE DIFFERENCE BETWEEN WHAT WALL STREET WILL TRADE ON TODAY AND WHAT MAINSTREET FEELS. A BIG DIFFERENCE. WHEN WE START TALKING ABOUT CORE, WHO AT THEIR DINNER TABLE IS TALKING ABOUT CORE INFLATION? TOM: LARRY KUDLOW WAS BIG ON THIS DECADES AND DECADES AGO AND HE WAS ABSOLUTELY CORRECT. IT IS A NOMINAL STATISTIC. PHD'S CAN GO TO CLEVELAND. BILL DUDLEY, I THINK IT IS SO IMPORTANT TO GET THROUGH THIS BEFORE WE GET TO OUR GOOD GUEST THIS MORNING. BILL DUDLEY FOCUSES ON WHAT DO YOU DO WHEN YOU GET BACK TO 4% INFLATION? EVEN FOR PERCENT COULD BE AN UNDERESTIMATE. THE FED IS STILL PROVIDING STIMULUS FOR THE SECURITY WHICH WILL TAKE THREE TO FOUR YEARS TO WIND DOWN. THIS COINDESK IS A MISTAKE -- THIS COYNESS IS A MISTAKE. IT REINFORCES THE CHART DISCONNECT BETWEEN FED OFFICIALS COMMITMENT TO CURB INFLATION AND OUR WILLINGNESS TO EXPLAIN WHAT THAT COMMITMENT WILL ENTAIL. JONATHAN: THAT IS THE ISSUE AT PLAY. SOME PEOPLE WILL THINK PEAK YEAR-OVER-YEAR INFLATION ESTABLISHES A TREND. FOR OTHERS, MAYBE WE STAY HERE. WE PLATEAU AT A HIGHER LEVEL. I THINK CITIGROUP IS ON THAT PAGE. I THINK THAT IS WHAT CITI IS LOOKING FOR IT WHICH IS WHY THEY SEE A MORE AGGRESSIVE FED THAN OTHERS DO. TOM: 3% INFLATION IS AN ACADEMIC DISCUSSION, THINK ADAM POSEN AND OLIVIER BLANCHE ARE. 4% INFLATION, NOBODY THE GAME THINK THAT IS ACCEPTABLE. JONATHAN: JOINING US IS STEVE SOSNICK. HOW IMPORTANT IS THIS NUMBER TO YOU AT 8:30 AND WHAT ARE YOU LOOKING FOR? STEVE: GOOD MORNING. I'M NOT GOING TO DEVIATE TOO MUCH FROM THE ECONOMIST ESTIMATES. I AM NOT AN ECONOMIST SO I WILL NOT PLAY ONE ON TV. I THINK IT IS RIGHT TO THINK WE ARE SEEING A PEAK IN INFLATION. REMEMBER INFLATION IS A RISE IN PRICES. IT DOES NOT MEAN WE ARE SEEING PEAK PRICES EVEN IF WE SEE INFLATION ABATE AND I THINK THAT GETS LOST SOMETIMES. WE FOCUS ON THE HEADLINE NUMBER BUT DO NOT NECESSARILY REALIZE IT IS A RATE OF CHANGE, NOT THE PRICE LEVEL. LISA: WHAT IS YOUR EXPECTATION FOR HOW THE MARKET IS POSITIONED IN TERMS OF WHERE THE PARAMETERS OF RISK ARE? HOW MUCH IS THE SETTING UP FOR A RALLY OR A SELLOFF ON A NUMBER THAT COMES IN LINE? STEVE: WE HAVE SEEN OUR CUSTOMERS BEING NET BUYERS OF THEIR FAVORITE STOCKS THROUGHOUT THIS THING. THERE IS A CERTAIN AMOUNT OF GOOD NEWS BAKED INTO THE CAKE. THE QUESTION BECOMES HOW MUCH IS A DISAPPOINTMENT AT THIS STAGE? IF WE ARE EXPECTING EIGHT AND IT COMES IN AT 8.2% IS THAT ENOUGH TO GET PEOPLE CRAZY? EITHER WAY WE HAVE ABATE NUMBER. I THINK THE MARKET IS TRYING TO FIND THE LEVEL BUT IT FEELS RIGHT AMONG A LOT OF TRADERS THAT IF THIS NUMBER IS A DECENT ONE THEY WILL TRY TO PUMP IN RIGHT AFTER THE NUMBER COMES OUT. YESTERDAY WE HAD A FALSE BREAKOUT ON THE OPEN. TODAY IF YOU GET A GOOD ECONOMIC NUMBER YOU SHOULD REALLY GET ENTHUSIASM FROM PEOPLE EAGER TO POUNCE. LISA: EVERYONE IS EXPECTING VOLATILITY. WE HAVE SEEN THE EXPECTATIONS RISE. HOW MUCH IS IT UNDERESTIMATING THE VOLATILITY VERSUS AN ACCURATE REPRESENTATION CONSIDERING THE FACT IS WELL BELOW RECENT HIGHS? STEVE: THERE ARE DIFFERENT WAYS TO BREAK IT OUT. I THINK IN TERMS OF HISTORICAL VOLATILITY, IMPLIED VOLATILITY, REALIZED VOLATILITY. THAT IS HOLLOW VOLATILITY TRADER MAKES HIS MONEY, BETWEEN THE THREE. THE VIX IS A FLUKY CALCULATION. IF YOU USE THE RULE OF 16, WHICH IS TAKE THESE VOLATILITY NUMBERS AND DIVIDE THEM BY 16 AND THAT IS WHAT THE MARKET IS EXPECTING ON A DAILY BASIS, THAT IS A 2% NUMBER. WE HAVE BEEN MOVING TO PERCENT EVERY DAY. IF YOU WANT TO THINK OF THE VIX AS BEING A FEAR GAUGE, IT IS NOT DISPLAYING THE FEAR. IF YOU WANT TO THINK OF THE VIX AS A VOLATILITY MEASURE, IT IS IN THE RIGHT PLACE. WE ARE THAT VOLATILE RIGHT NOW. GOING FORWARD THE VIX HAS BACKWARDATION. THE OUTER ON THE VIX IS LOWER BUT IT IS HARD TO SUSTAIN THE MOVEMENT ON A LONG-TERM BASIS. WE ARE NOT SEEING FULL PANIC. THIS IS WHAT IT IS. JONATHAN: HAVE TO LEAVE IT THERE. WONDERFUL TO CATCH UP. STEVE SOSNICK THERE. A BLOOMBERG SUBSCRIBER WROTE IN I WAS DISCUSSING HEADLINE AND CORE CPI AT THE DINNER TABLE LAST NIGHT WITH MY WIFE AND CHILDREN. THAT PROBABLY SAYS MORE ABOUT BLOOMBERG USERS THE REST OF THE COUNTRY BUT POINT TAKEN. FOR A LOT OF PEOPLE TODAY AT THE KITCHEN TABLE THEY WILL NOT BE DISCUSSING WHERE THE CORE CPI PRINT IS AND WHAT WALL STREET TRADED ON OFF THE BACK OF THAT. IT WILL BE ABOUT WHERE GAS PRICES ARE RIGHT NOW, APPROACHING $4.50. THAT IS THE FEAR A LOT OF PEOPLE IN THIS COUNTRY AND BEYOND HALF AT THE MOMENT. TOM: KRITI GUPTA HAS DONE GREAT RESEARCH. THE SUBSTITUTION FROM MEET TO CHECK IN IS NOT FUNNY -- FROM MEAT TO CHICKEN IS NOT FUNNY. THIS IS NOT LISA ABRAMOWICZ GOING TO THE GROCERY STORE AND SAYING LOOK AT THAT. PEOPLE ARE STRUGGLING AND MAKING THE SUBSTITUTION TO CHEAP CUTS OF CHICKEN TO GET AWAY FROM WHAT THEY ARE SEEING AT THE MEAT COUNTER. LISA: I LOVE HOW TOM PROJECTS IS EXPENSIVE FOR A TO THE GROCERY STORE. JONATHAN: THAT I ALWAYS ENJOY THE DIRECTOR TAKING YOUR SHOT AND PUTTING THE BRAMO CAM ONLINE. JONATHAN: I AM NOT THE ONE YOU WILL PINPOINT -- LISA: I AM NOT THE ONE YOU WILL PINPOINT. THE PRESIDENT WILL BE IN ILLINOIS TALKING ABOUT THE COST OF FOOD AND THE COST OF THE PUTIN PRICE HIKE. THEY ARE TRYING TO LABEL IT THAT WAY. JONATHAN: 1:15 EASTERN TIME THE PRESIDENT DELIVERING REMARKS ON PUTIN'S PRICE HIKE. TOM: THAT IS TODAY? I DID NOT KNOW THAT. HE WAS ON YESTERDAY. JONATHAN: WE GO AGAIN. FUTURES UP .9% ON THE S & P. THE NASDAQ UP 1.1%. TOM: I AM TRYING TO GIVE YOU THE INFLATION OF BULBAR, THE INFLATION OF ANOTHER TIME. JONATHAN: YOU ARE TAKING US BACK. NO ONE WANTS TO GO BACK THERE. THIS IS BLOOMBERG. RITIKA: KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE WORLD, I AM RITIKA GUPTA. IN BASTER'S ARE WAITING -- INVESTORS ARE WAITING ON TODAY'S REPORT. CPI IS EXPECTED TO SHOW INFLATION FELL TO 8.1%. THE CPI COMES OUT AT 8:30. THE U.S. HOUSE IS APPROVED OF $40 BILLION EMERGENCY SPENDING BILL FOR UKRAINE. THE MEASURE PAYS FOR NEW WEAPONS AND PROVIDES ECONOMIC AND HUMANITARIAN ASSISTANCE AND IS SIGNIFICANTLY LARGER THAN THE $33 BILLION PRESIDENT BIDEN ASKED FOR. THE BILL HEADS TO THE SENATE WHERE APPROVAL IS LIKELY NEXT WEEK. ECONOMIST LISA COOK WILL BE THE FIRST BLACK WOMAN ON THE FEDERAL RESERVE BOARD OF GOVERNORS. SHE ONE CONFIRMATION BY THE NARROWEST POSSIBLE MARGIN. THE 51 TO 50 VOTE REQUIRED A TIE-BREAKING APPEARANCE BY VICE PRESIDENT KAMALA HARRIS. REPUBLICANS QUESTIONED HER QUALIFICATIONS. RESEARCHERS IN SHANGHAI SAY THE COUNTRY FACES A TSUNAMI OF PROTO-VIRUS INFECTIONS IF THE GOVERNMENT REVERSES ITS COVID ZERO POLICY. THE VACCINATION CAMPAIGN WOULD BE INSUFFICIENT TO PREVENT AN OMICRON WAVE THAT WOULD SWAMP HOSPITALS. GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON QUICKTAKE BY BLOOMBERG, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I AM RITIKA GUPTA. THIS IS BLOOMBERG. > > THE FIRST RATE HIKE INFORMED BY THE ECB FORWARD GUIDANCE ON THE INTEREST RATES WILL TAKE PLACE SOMETIME AFTER THE END OF NET ASSET PURCHASES. I HAVE BEEN VERY CLEAR THAT THIS COULD ALSO INCLUDE A PERIOD OF ONLY A FEW WEEKS. JONATHAN: CHRISTINE LAGARDE LOOKING FORWARD TO JUNE 9, THE NEXT ECB MEETING. WE ARE, SHE IS NOT. TOM KEENE, LISA ABRAMOWICZ, JONATHAN FERRO. FUTURES POSITIVE. ON THE NASDAQ UP 1.13. YIELD SLOW A THIRD STRAIGHT SESSION. WE HAD A LITTLE LOOK AT 3.20 EARLIER IN THE WEEK. HSBC PUBLISHING SECONDS AGO. STEVE MAJOR AND THE TEAM MAKING A MOVE ON THE BOND YIELD FORECAST. WE JUST RAISED FORECASTS -- 10 YEAR YIELDS RAISED 50 BASIS POINTS. THEY RAISED THEIR BUND YIELD FORECAST TO 1%. JUST OUT FROM HSBC AND THE TEAM. TOM: THAT IS IMPORTANT BECAUSE IT SHOWS THE DIFFERENCE TRANSATLANTIC AND THE CHALLENGE CHRISTINE LAGARDE HAS. THE 1% STATISTIC GETS MADE. ON THE TENURE GERMAN WE ARE THERE. JONATHAN: I'M NOT SUGGESTING EVERYONE IS THINKING THIS, BUT SOME PEOPLE WILL BE LOOKING AT WHERE GILTS PRINTED EARLIER THIS WEEK, THE MOVE WE HAVE HAD SINCE , AND THE FACT ALONG TIME BOND BULL LIKE HSBC HAS PUSH THEIR FORECAST UP AND WONDERED WHETHER WE ARE CLOSE TO THAT KIND OF POINT WHERE THE PIECES START TO COME TOGETHER AND PEOPLE COME ON PROGRAMS LIKE THIS AND SAY MAY 3 .20 WAS IT. LISA: I THINK THE FACT THAT A MAJOR BOND BULL IS CAPITULATING AND SAYING WE WILL NOT GET BACK TO 1% WHICH WERE SOME OF THE IDEAS FLOATING AROUND AS RECENTLY AS SIX MONTHS AGO IS TELLING. IT SHOWS PEOPLE ARE EXPECTING INFLATION TO BE LONGER AND HAVE A MORE PROLONGED FEEL IN THIS ECONOMY INCLUDING ANOTHER MASSIVE BOND BULL RAISING CONCERNS ABOUT THEM LONGER-TERM INFLATION OUTLOOK. JONATHAN: I REPEAT SOMETHING I'VE SAID A FEW TIMES. ANYTIME WE TRY TO ESTABLISH A NARRATIVE AROUND THE BOND MARKET YOU GET PUNCHED IN THE FACE BY AT. TOM: WE WILL REPORT TO YOU WHAT THE EXPERTS SAY. WE DO NOT HAVE A NARRATIVE ON WHAT YIELDS WILL DO. SHE WATCHES THE NARRATIVE IN WASHINGTON. ANNMARIE HORDERN JOINS US NOW. YOU ARE TOO YOUNG TO REMEMBER OLIVIA NEWTON JOHN "LET'S GET PHYSICAL." THE PRESIDENT DOES AND REMEMBERS THE POLITICS OF THE TIME AND PLACE WHICH IS THE REPEAT SHOW ON INFLATION WE WILL SEE. WHAT IS RON KLAIN DOING? WHAT IS THE WHITE HOUSE DOING? YOU HAVE THE PRESIDENT COME OUT CLUMSY TWO DAYS IN A ROW ON INFLATION. ANNMARIE: THE PRESIDENT SAID AT THE TOP OF HIS SPEECH YESTERDAY I WILL GIVE A SPEECH ON INFLATION AND WILL LIKELY NOT BE MY LAST ONE. HE WILL TALK ABOUT IT AGAIN TODAY IN ILLINOIS TALKING TO FARMERS. HIS CHIEF OF STAFF RON KLAIN AND THE STRATEGY YOU CAN SEE IN THE TONE AND THE SHIFT WHEN THE PRESIDENT IS TALKING ABOUT PRICE HIKES, IT IS NO LONGER ABOUT HIS POLICIES THAT HE THINKS COULD HELP, EVEN IF IT IS NOT IN THE SHORT TERM, TO REDUCE THE INFLATIONARY IMPACT ON AMERICAN FAMILIES. NOW THEY ARE TAKING AIM AT THE REPUBLICAN PARTY. THE PRESIDENT SAID YESTERDAY I WILL SHOW YOU TWO PATHS. ONE IS MY PLAN AND ONE IS THE ULTRA MAGA, AND TAKING AIM AT THE PLANTS SOME OF THESE REPUBLICANS SAY THE U.S. SHOULD BE GOING TOWARDS. TOM: LET'S ASSUME THERE IS NO PLAN EXECUTED BECAUSE OF AN ELECTION YEAR. WHAT IS THE DISTINCTIVE FEATURE OF THE BIDEN PLAN? ANNMARIE: IT IS THE BUILD BACK BETTER POLICY THEY ARE JUST CHANGING IN TERMS OF PR THAT ARE NO LONGER ABOUT BUILD BACK BETTER BUT ARE NOW ABOUT LOWERING THE COST FOR THE FUTURE. THE PRESIDENT DID HINT AND OPENED THE DOOR TO SOMETHING THAT COULD HAVE MORE OF AN IMMEDIATE IMPACT ON INFLATION IF YOU TALK TO ECONOMISTS. THIS WAS NOT NEWS. SECRETARY ELLEN HAS SAID THIS BEFORE. MOST RECENTLY IN AN INTERVIEW WITH BLOOMBERG. THIS WAS IF YOU ARE GOING TO REMOVE THE TARIFFS ON CHINA, THE PETERSON INSTITUTE SAID THAT WILL BRING DOWN INFLATION 1.4%. THERE ARE MORE IMMEDIATE EFFECTS THE ADMINISTRATION CAN DO AND THEY ARE DISCUSSING THEM BUT THEY HAVE NOT PULLED THE TRIGGER. LISA: MEANWHILE WE ARE LOOKING AT ESG GETTING A LOT OF BLOWBACK IN THE FACE OF HIGH GAS PRICES FROM THE LIKES OF IKE PARENTS TALKING ABOUT WANTING TO REIN IN -- OF MIKE PENCE TALKING ABOUT WANTING TO REIN IN ESG BECAUSE OF A LACK OF INVESTMENT IN FOSSIL FUELS. HOW MUCH IS THIS A TALKING POINT THAT IS GAINING STEAM ON THE RIGHT? ANNMARIE: I THINK THIS HAS BEEN A TALKING POINT ON THE RIGHT FOR MONTHS. COMING OUT OF THE PANDEMIC THEY TALK ABOUT THE FACT THAT EVEN DURING THE PANDEMIC IT WAS THE REPUBLICANS WHO WANTED TO FILL OUT THE SPR TO MAKE SURE THEY WERE KEEPING A ROBUST AMERICAN FOSSIL FUEL INDUSTRY. THIS HAS BEEN AN ISSUE FOR THE RIGHT AND IT CONTINUES TO BE. I ASKED THE PRESIDENT YESTERDAY WHY HE IS NOT TELLING CONSUMERS TO NOT GO TO THE GAS PUMP AND TAKE PUBLIC TRANSPORTATION. HE IS SOMEONE WHO IS A TRAINED GUY AND HE SAID HIS PLAN, ALTHOUGH THE LONG-TERM PLAN, IS THIS MOVE AWAY FROM FOSSIL FUELS AND A GREENER AND ELECTRIFICATION OF THIS GRID. THAT WILL NOT SOLVE THE INFLATIONARY PRESSURES OF ANOTHER RECORD DAY OF HIGHER GASOLINE PRICES AND NOT SOLVE THE PROBLEMS BEFORE NOVEMBER. JONATHAN: WE ALL KNOW THE PRUDENT PRICE HIKE TALK IS GARBAGE FOR A LOT OF -- THE PUTIN PRICE TALK -- PRICE HIKE TALK IS GARBAGE FOR A LOT OF PEOPLE. THE DEMOCRATS ARE TRYING TO TAKE THE WORDS OF SENATOR RICK SCOTT AND SAY THAT IS WHAT THAT PARTY STANDS FOR. WHEN REPUBLICAN LEADERSHIP TRY TO GET HOLD OF THAT NARRATIVE THEMSELVES? ANNMARIE: IT IS A GREAT QUESTION BECAUSE WE HAVE SEEN THE LIKES OF SENATOR MITCH MCCONNELL DISTANCE HIMSELF FROM THAT ECONOMIC PLAN FROM SENATOR RICK SCOTT. YOU'VE SEEN THE DEMOCRATS TAKE HOLD OF THAT AND PAINT THAT AS THIS IS THE REPUBLICAN PARTY NOW AND THE ULTRA MAGA HAS ABSOLUTE CONTROL. THAT IS A FIGHT THAT HAS BEEN GOING ON SINCE FORMER PRESIDENT TRUMP LEFT THE WHITE HOUSE. WE ARE SEEING IT PLAY EVERY DAY IN PRIMARIES ACROSS THE COUNTRY. ON THE PUTIN PRICE HIKE, I WILL SAY FOR A LOT OF PEOPLE THEY THINK IT IS JUST A PR STUNT. IT IS FAIR TO SAY THAT TAKING OUT RUSSIA, A MASSIVE PRODUCER OF FOSSIL FUELS, OF COMMODITIES, OF WHEAT IS MAKING THE INFLATIONARY IMPACT WE HAD BEFORE THIS WAR MUCH HARDER. RIGHT NOW, ESPECIALLY IN THE GASOLINE MARKET, IT IS A REFINERY CAPACITY ISSUE, IT IS NOT THE TOP PRICE OIL ISSUE. WHEN YOU TAKE OUT RUSSIA, THAT IS ALMOST 2 MILLION BARRELS OF REFINED PRODUCT YOU JUST SHOOT -- YOU JUST STRIPPED AWAY FROM MARKET IMMEDIATELY. JONATHAN: GREAT TO CATCH UP DOWN IN D.C. VLADIMIR PUTIN EXACERBATING THE EXISTING TREND. POLITICS DOES NOT DO NUANCE VERY WELL. TOM: WEED UP -- WHEAT UP 35%. A LOAF OF BREAD IN BRITAIN UP 9% FROM THE BEGINNING OF THE PANDEMIC. JONATHAN: FUTURES UP 9%. JONATHAN: ELEVATED AGAIN ON THE 1% ON THE NASDAQ 100. EVERYTHING COULD CHANGE. TAKE A LOOK AT THE BOND MARKET. YIELDS ARE LOWER. WE BACKED AWAY EVER SINCE. A LITTLE BIT EARLIER THIS MORNING, ABOUT 20 MINUTES AGO. THAT IS UP 50 DATA POINTS. IT IS STARTING TO BOOST THEIR OUTLOOK. YIELDS ARE STARTING TO MOVE THE OTHER WAY, JUST A LITTLE BIT FOR NOW. STAY VERY OPEN-MINDED. > > THERE ARE WORLD-CLASS CHARTS THIS MORNING. IT COMES RIGHT OVER TO THE YIELD MIGHT GET, WHICH IS HOPING. JONATHAN: I'M JUST TRYING TO MAKE NOTES ABOUT WHAT IS HAPPENING. LET'S TALK ABOUT THIS. YOU TAKE THE REAL YIELD. LET'S TAKE THE 10 YEAR BREAKEVEN. HERE IS THAT CHART ON THE FAR RIGHT. > > IT CONFIRMS THE FEAR OF A GROSS SLOWDOWN. WE WILL FIND OUT WHICH IS THE MORE PREDOMINANT PRESSURE. > > THIS IS SOMETHING THAT GIVE AMERICA WAS TALKING ABOUT. > > WORKING OUR WAY THROUGH THE YEAR WITH ALL OF THESE DYNAMICS MOVING. SOME GET THE DYNAMICS OF THE ECONOMIC SYSTEM. ELSA IS THAT HEAD, BUT WHAT A TERRIFIC CV OF WORK FOR THE EUROPEAN INSTITUTIONS. WHEN YOU LOOK AT TOM'S WORK ON INFLATION, HOW DOES THAT FOLD OVER INTO DOLLAR DYNAMICS AND THE FOREIGN EXCHANGE MARKET IN GENERAL? > > THAT IS A REALLY INTERESTING QUESTION. WHAT WE SAW IN APRIL WAS A USE -- A BIG U.S. DOLLAR MOVE. IT CAUGHT A LOT OF PEOPLE BY SURPRISE. THE COURT WAS MORE SURPRISED FOR THE DOLLAR BEARS OUT THERE. INFLATION IS CRITICAL, GOING FORWARD. WE COULD SEE A LITTLE BIT OF RELIEF. TOM: IT IS NOT STANLEY FISCHER. AS YOU KNOW, THE INFLATION AND BACK INTO THE FOREIGN-EXCHANGE SYSTEM. CAN YOU PLAY EURO AND DOLLAR, AND ESTIMATE THAT HUGE DIFFERENCE BETWEEN THE CENTRAL BANK OF AMERICA AND THE CENTRAL BANK OF EUROPE? > > IT HAS BEEN A DRIVER FROM THE START OF THE YEAR AND POTENTIALLY MORE TO COME. WE STARTED THE YEAR WITH A LONGER TERM OUTLOOK. WE HAVE REVISED IT LOWER. A BIG LEVEL THERE, BUT MINDFUL OF THE RISKS AROUND THAT. THE GROWTH OUTLOOK LOOKS A LOT WEAKER THAN IT DID AT THE START OF THE YEAR. WHEN MY LET'S OF TERMS, THERE IS STILL A U.S. OUTPERFORMING STORY. WE WILL SEE HOW LONG THAT LASTS. > > ONE IS THE TRIGGER WHEN WE HAVE CHRISTINE LAGARDE SAYING THAT THEY MIGHT START RAISING ME IN A COUPLE OF WEEKS? > > ABSOLUTELY. ECONOMISTS ARE COMPLETELY ON BOARD WITH THAT VIEW. I THINK THE KEY IS THAT THE FARTHER YOU GET ALONG THE RATE HIKE CYCLE, THE MORE THE STATIC RATE STARTS TO MATTER. THE YIELD DIFFERENTIAL EMERGES. FOR ME, THE BIGGEST RISK IS NOT THE ECB STARTING TO HIKE. IT IS SOMETHING THAT CAUSES THE MARKET OUT PRICE. > > HOW DISRUPTIVE IS IT TO THE EURO AND EMERGING-MARKET TO HAVE A DOLLAR THAT CONTINUES TO STRENGTHEN, THAT HAS THE SLOWDOWN THAT IS LESS PRODUCTIVE UP UNTIL NOW? > > THEY HAVE COME A LONG WAY. CLEARLY, THEY STILL HAVE THAT, BUT WHAT IS CONCERNING AT THE MOMENT IS THE SLOWDOWN THAT WE ARE WITNESSING. THERE IS A TEMPORARY PAUSE. THERE ARE PLENTY OF SIGNS THAT IT IS SOMETHING MUCH DEEPLY ROOTED THAN THAT. THAT IS WHAT WE ARE WATCHING AT THE MOMENT. > > A WONDERFUL DISTINCTION BETWEEN TWO GIANTS. LET'S GO BACK TO IRVING FISHER. WE THREW A FLOOD OF MONEY AT IT AND WE ARE LIVING THE CONSEQUENCES. > > TO BE A TALKING A LOT ABOUT THE FED AND WHAT GOING TO DO. THE LAST TIME, LISA MADE A GREAT POINT ABOUT THE BALANCE SHEET REDUCTION THAT WE ARE GOING TO SEE AND THE FACT THAT WE ARE SO USED TO SEEING EXPANSION THAT IT IS A MARKET ENVIRONMENT THAT MANY ARE NOT ACCUSTOMED TO. > > HOW HAS THAT NOT BEEN MANIFESTED YET? WHAT HAVE WE NOT SEEN IN TERMS OF CONSEQUENCES WHEN IT COMES TO THE UNWIND? > > I THINK WE ARE STARTING TO SEE SIGNS. YOU AND I WERE QUESTIONING WHY IT HAD NOT REALLY HAPPENED YET AND HERE WE ARE. IT SEEMS TO BE A PARALLEL MOVE. IT MIGHT BE A DIFFERENT STORY, BUT FOR NOW, WE ARE LEFT WITH THE FACT THAT THERE IS A SELLOFF. > > A FINAL QUESTION. THERE IS A DEBATE ABOUT WHERE JAPAN INTERVENES AND WHERE NATIONS INTERVENE. WE SAW INDIA TOUCH UPON THIS THE OTHER DAY. DOES THE BANK OF JAPAN INTERVENE AT 135 OR 140 AND SET OFF A GLOBAL INTERVENTION? > > MY COLLEAGUE HAD SOME REALLY GREAT WORK FROM THIS. PUTTING THAT AROUND 35% AT THE MOMENT. I DO NOT THINK THEY WOULD HAVE THE RESULT OF REVERSING THE YEN WEAKNESS, BUT RATHER SMOOTHING IT. IT IS MORE ABOUT THE PACE. JONATHAN: GREAT TO GET YOUR THOUGHTS. YOU ARE ON TOP OF IT EVERY STEP OF THE WAY. FOR MANY PEOPLE, IT WAS ABOUT THAT, BUT IT WAS ALSO ABOUT THE BALANCE SHEET. LISA: I HAVE SEEN A SITE PLAN, BUT THE EMPHASIS NEEDS TO BE ON SITE. IT HAS GONE DOWN MARGINALLY. THIS IS FROM LAST WEEK TO THE PREVIOUS READ. I'M TRYING TO UNDERSTAND WHEN WE SEE THE MATERIAL CHANGE THAT COULD TRIGGER A GREATER RESPONSE. THIS IS UNPRECEDENTED. JONATHAN: WHY WAIT UNTIL JUNE? FOR OTHERS IT WAS ABOUT THE SIGNAL. WHY WAIT UNTIL JUNE? LISA: WHY NOT SEND A SIGN TO WALL STREET AND SAY, WE THINK WE NEED TO STOP. WE DO NOT NEED TO WAIT UNTIL THIS RANDOM DATE THAT DOES NOT MATTER. JONATHAN: LOOKING FOR A PARODY. THEY ARE EXPOSED TO TO BE OATH THINGS MORE THAN THE U.S. THE RUSSIA AND UKRAINE CONFLICT AND CHINA'S LOCKDOWNS. TOM: WITH ALL OF THIS, THE LOCKDOWN IN CHINA IS THE HUGE ELEPHANT IN THE ROOM. CAN YOU IMAGINE THE DIFFERENCE IN THE DEBATE THAT WE ARE HAVING, IF WE HAVE IT EASE UP? IT WOULD BE A COMPLETELY DIFFERENT DISCUSSION. IN THE ZEITGEIST? ABSOLUTELY. WE WILL KNOW IT IN TIME. I THINK HE HAS BEEN BRILLIANT ON THIS. YOU KNOW WHAT? IT IS PRETTY GRIM, BUT THINGS CAN CHANGE. JONATHAN: FUTURES GOING INTO THE EQUITY MARKET WITH A LITTLE BIT OF A LIFT. YIELDS AGAIN BY SIX BASIS POINTS. A LIFT ON CRUDE UP MORE THAN 3%. FROM NEW YORK CITY FOR OUR AUDIENCE WORLDWIDE, A BEAUTIFUL NEW YORK ONCE AGAIN. CAN WE SAY THAT SUMMER IS SLOWLY COMING IN? LISA: SLOWLY. JONATHAN: THAT IS WHAT WE WANT TO SEE. THIS IS BLOOMBERG. ♪ > > KEEPING YOU UP-TO-DATE WITH NEWS AROUND THE WORLD. LESS THAN TWO HOURS FROM NOW, WE WILL GET THE LATEST INFLATION FIGURES. IT HAS SLOWED TO 8.1% YEAR-OVER-YEAR. SOME OF THAT DECREASED DUE TO ADJUSTING GASOLINE PRICES. INFLATION IN CHINA ROSE FASTER THAN EXPECTED LAST MONTH. A PERCENT IN APRIL, UP FROM A MONTH AGO. EUROPEAN CENTRAL BANK PRESIDENT JOINING A GROWING CROWD OF POLICYMAKERS SIGNALING A MOVE ON INTEREST RATES AS SOON AS JULY. THE FIRST RATE HIKE IN MORE THAN A DECADE MAY HAPPEN A WEEK AFTER BOND BUYING IN. -- ENDS. UKRAINE AND RUSSIA CLASH OVER NATURAL GAS. A DISPUTE THAT IS DISRUPTING SUPPLIES. UKRAINE BLAMES THE ACTIONS OF RUSSIAN TROOPS. GLOBAL MANAGEMENT IS IN TALKS ABOUT PREFERRED FINANCING FOR ELON MUSK'S PROPOSED TAKEOVER. IT IS BEING ARRANGED BY MORGAN STANLEY. THERE IS SKEPTICISM. GLOBAL NEWS, 24 HOURS A DAY, ON AIR AND ON QUICKTAKE BY BLOOMBERG, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES. > > BUT I'M GOING TO DO -- IT SEEMS ABOUT RIGHT'S ME IN THE SECOND HALF OF THE YEAR. IF WE DO NOT HAVE IT, WE MIGHT HAVE TO SPEED UP. IT WILL BE DONE MORE THAN WHAT WE MIGHT BE PREDICTING. JONATHAN: THEY JUST WANT TO GET THROUGH THE SUMMIT AND REASSESS THE WHOLE THING. FROM NEW YORK CITY THIS MORNING, GOOD MORNING. THAT IS AN HOUR AND 42 MINUTES AWAY. A LITTLE BIT MORE. THE NASDAQ 100 IS UP A LITTLE BIT MORE SO. WE ARE DOWN SIX OR SEVEN BASIS POINTS. THAT WAS THE CLEVELAND FED PRESIDENT. WE HAVE A LABOR MARKET THAT IS SO OVERSTIMULATED. A MARKET WHERE YOU CAN PULL BACK A LOT OF DEMAND AND IT WOULD ACTUALLY BE A GOOD THING. TOM: EXTRAORDINARY FROM AN OFFICIAL. MANY DISAGREE WITH THAT. I UNDERSTAND THE ECONOMICS OF IT. FOR MOST AMERICANS, JOB AND JOB DEMAND IS A VERY GOOD THING. JONATHAN: WE SEEM TO BE HAVING A VERY DIFFERENT DISCUSSION. WE WILL BE TALKING ABOUT PEAK INFLATION. JUST TWO DIFFERENT WORLDS. TOM: IT IS NO DIFFERENT THAN ANY OTHER NATION. JONATHAN: WE HAVE TO THINK ABOUT THE PRESENT. TOM: THE REALLY HARD STUFF IS LOOKING AT JUNE AND JULY. SENIOR AND U.S. ECONOMIST. A MIDYEAR OUTLOOK. WHAT IS THE DISTINCTIVE FEATURE OF YOUR CRYSTAL BALL ON JUNE 30? > > THERE IS CERTAINLY A LOT OF MOVING PIECES IN THE OUTLOOK. THANK YOU FOR HAVING ME ON. WHEN WE TALK ABOUT THE BROADER OUTLOOK, THERE WAS GROWTH FROM WHERE WE WERE IN THE YEAR. WE SAW A REAL GROWTH THIS YEAR. IN THE LATEST OUTLOOK, WE HAVE CUT IT TO 2%. THE CONSUMER IS GROWING A LITTLE BIT STRONGER. THAT IS POINT NUMBER ONE. POINT NUMBER TWO IS, ON A YEAR-OVER-YEAR BASIS, NUMBERS WE GET LATER THIS MORNING WILL SHOW INFLATION. HOW DO WE SEE THAT EVOLVE, GOING FORWARD? TOM: WE DO NOT HAVE TO BORE PEOPLE WITHIN, BUT IS THE INFLATION DYNAMIC -- IS IT WITHIN THE SYSTEM, OR IS IT SHOCKINGLY -- > > IT IS A LITTLE BIT OF BOTH. THE SUPPLY CHAIN DISRUPTIONS I AN IMPORTANT FACTOR DRIVING INFLATION HIGHER. IT IS CREATING WHAT IS POTENTIALLY ANOTHER HUMP IN GOODS PRICES. THAT IS THE AND DODGING HIS PART TO A STRONG -- THAT IS THE PART. TOM: THIS IDEA OF INFLATION EMBEDDED IN THE SYSTEM HAS BUILT UP THE GREATEST FEAR. LISA: I WANT TO FOCUS ON THE COMPONENT. IF YOU REDUCE THE OPPORTUNITIES, IT WOULD BE A GOOD THING. > > THE LABOR MARKET PLAYS INTO HOW CONFIDENT THEY ARE. IT COULD ENTER INTO CONSUMER CONFIDENCE IN AN IMPORTANT WAY. IT IS IMPACTING SOME MORE THAN OTHERS. THERE WAS A GREAT SPEECH ABOUT THIS A COUPLE WEEKS AGO. WE REALLY HAVE TO SLICE AND DICE . WHAT THEY ARE SAYING IS THAT WE HAVE TO CREATE SOME SLACK AND REDUCE DEMAND. LISA: THIS IS TO PREVENT SOME OF THE LOWEST INCOME, THE LEWIS SOCIETY GETTING SHAFTED IN TERMS OF WHAT THE INCOMES ARE. > > WE MAY HAVE TO SEE SOME FURTHER SLOWING OF THE ECONOMY. THERE MAY BE SOME ECONOMIC PAIN IN ORDER TO BRING DOWN INFLATION. IN OUR FORECAST, INFLATION COMES DOWN BY NEXT YEAR WITHOUT RECESSION. IF WE CAN AVOID THIS PAIN, WE ARE NOT ALL THE WAY BACK TO 2%, BUT YOU GET INTO A SWEET SPOT. IT ALLOWS MODERATE INFLATION WITH RESPECT TO 2%. JONATHAN: I KNOW HOW MUCH WORK GOES INTO THIS. ENJOY. JUST GOING THROUGH THAT, IT IS THAT STOOD OUT TO ME. TRYING TO SLOW GROWTH. SOMETHING TO THINK ABOUT TOM: FOLLOWING ON FROM THAT, THE REST GO TOWARDS TO PERCENT INFLATION OUT THERE, SOMEWHERE. THAT IS THE RAGING DEBATE. BILL IS TAKING A VERY CONVENTIONAL APPROACH. > > THE FED IS PRETTY MUCH SETTING THE TONE. > > THE FED IS TRYING TO DO SOMETHING THAT THEY HAVE NEVER DONE BEFORE. > > WE HAVE TO GET PAST, NOT ONLY THE TIGHTENING OF CENTRAL BANKS BUT THE IMPACT ON GROWTH ON THE OTHERS. > > THEY CAN CONTINUE TO DO REALLY WELL, I THINK. JONATHAN: GOOD MORNING. THIS IS SURVEILLANCE LIVE. FUTURES ARE UP BY 10%. TOM: THERE WILL BE SOME OTHER DATA BUT IT IS THE MACRO DATA THAT WE ARE LOOKING AT. USED CAR IS IS GETTING A LOT OF PRESS RIGHT NOW. THE DYNAMICS OF THIS ODD MARKET, BUT WHAT IS IMPORTANT IS NOT THREE DAYS TREND . I AM FOCUSED TO BE OF MEETINGS OUT. THIS DATA THIS MORNING MATTERS TO JAY POWELL. LISA: THE FED WILL PROBABLY BE MORE PATIENT. IF IT IS EVERY OTHER COMPONENT THAT WE ARE SEEING, THAT MIGHT BE A BIGGER PROBLEM. JONATHAN: IT IS ABOUT. LISA: THAT SEEMS TO BE WHERE THEY ARE TRYING TO TRANSITION. IT REALLY TRANSLATES MORE INTO A GROWTH SCARE. EARNINGS HAVE BEEN PAINTED AS BAD. JONATHAN: LOOKS LIKE THEY ARE STUCK BETWEEN A ROCK AND A HARD PLACE. TOM: IF WE GET BACK TO 5% INFLATION, DO YOU TAKE A VICTORY LAP? JONATHAN: I WOULD SAY NO. TEACHERS LOOK LIKE THIS ON THE S & P . WE ARE STAYING ON TOP OF THIS MOVE FOR YOU. SIX BASIS POINTS TO 293. THE HIGH HAVE THE WEEK IS 320. A LITTLE MORE THAN 20%. LISA: THE YIELD MOVE, I WONDER IF WE ARE LOOKING AT THE TRANSITION. WE EXPECT TO GET 8.1%. A DECLINE IN THE MUCH WEEDING. WHAT IS OK WHEN IT COMES TO THE PLATE RATE? HOW MUCH ARE PEOPLE ACTUALLY EARNING AND ABLE TO SPEND? THAT MIGHT GIVE YOU AN ANSWER. RIGHT NOW, THEY ARE ABLE TO SPEND MUCH LESS BECAUSE WAGES ARE NOT KEEPING PACE AND THIS MATTERS. LESS LONG THAN IF THIS WERE DRIVEN BY WAGES GOING UP. WE ARE ASKING THESE QUESTIONS ABOUT THE DYNAMIC. HOW MUCH THIS IS TELLING A STORY. I HAD OF THAT KEY NUMBER AND DELIBERATIONS, THAT WILL GIVE A SENSE OF WHERE THE DEMAND IS COMING FROM. WE ARE LOOKING AT A LOT OF THE PANDEMIC DARLINGS THAT HAVE GOTTEN HAMMERED. IT IS A DIFFERENT STORY. ONE OF THE IDEAS OF ELECTRIC VEHICLES, ALMOST 80% THIS YEAR. IS THIS THE BUBBLE BURSTING? JONATHAN: I'M GLAD YOU BROUGHT UP DISNEY. YOU KNOW THE CHATTER IS THAT MAYBE THEY COME BACK TO THE COMPANY, GIVEN THE DIFFICULTIES THEY HAVE BEEN HAVING. TOM: CORPORATIONS ARE ADAPTING TO THIS. MY THEME OF MY EXPERIENCE, AND GIVEN INFLATION. JONATHAN: DOWN 16%. JOINING US NOW, AMY, WHAT IS SOMETHING YOU HAVE DONE SOME WORK ON? THERE IS MUCH LESS TO HEDGE. > > THERE CERTAINLY IS. UNDERPERFORMANCE HAS BEEN DRAMATIC. PEOPLE YOU DO NOT SEE THAT. WHY IS THAT? YOU SEE THAT IN THE GROWTH AND DE-RISKING. WE USUALLY USE THAT AS AN INDICATOR. UNFORTUNATELY, THE INDICATOR HAS NOT BEEN THAT HELPFUL, AS OF LATE. TOM: BRILLIANT DYNAMICS THERE. HAVE WE TAKEN THE SPECULATION OUT OF THE SYSTEM SO MUCH THAT WE COULD SEE A JUMP CONDITION ONCE THINGS STRAIGHTENED OUT? > > THAT IS AN INTERESTING QUESTION. WE HAVE SEEN A LOT COME OUT OF THE MARKET. I THINK ABOUT THE RETAIL AND HIGH MOMENTUM NAMES. A LOT OF THAT HAS GONE AWAY. WE LOOK AT HOW MUCH. IT STILL NOT TO THE DEGREE THAT WE SAW DURING THE PANDEMIC. WE ARE AT SUCH HIGH LEVELS, SO IT HAS BEEN DIFFICULT FOR A LOT OF PEOPLE TO PLAY INTO THESE OPTIONS. LISA: HAVE A BASICALLY BEEN SCARED OUT OF THE WATER? THANKS A LITTLE BIT. FROM THE LAST 10 YEARS, THAT POSITIVE MOMENTUM ALWAYS BEGETS POSITIVE MOMENTUM. WE ARE IN A NEW REGIME OF MOMENTUM. ONCE YOU SEE YEAR OPTION PREMIUM GOING FROM $100 AND ZERO DOLLARS, YOU FEEL THAT QUITE VISCERALLY. INTERESTINGLY, IT IS NOT LIKE WE ARE SEEING RETAIL INVESTORS BUYING ANY OF THOSE OPTIONS. LISA: ARE YOU SURPRISED THAT THERE HAS NOT BEEN MORE FALLOUT FROM THESE BUBBLES BURSTING WITHIN CERTAIN SECTORS? > > ONE QUESTION THAT I GET IS, IS IT TIME TO SELL VOLATILITY? DOES IT MAKE SENSE YET? THERE IS A BIFURCATION. THESE ARE ALL NEGATIVE CASH FLOW . IT IS EXTREMELY HIGHLY LEVERAGED. EVEN DOWN 80%, THERE ARE A TAIL RISKS. THEY ARE ALSO THE COHORT OF POSITIVE INCOME AND LOW LEVERAGE. THOSE VALUATIONS START TO SPEAK TO YOU. JONATHAN: WE HAVE TO LEAVE IT THERE. TALKING AT THIS IDEA THAT WE HAVE BROKEN INTO A HIGHER VOLATILITY REGIME. OVERNIGHT INTO THIS MORNING, HE TALKED ABOUT THE FED TIGHTENING, EXPECTING DECELERATING EARNINGS GROWTH. THERE IS A PRICE TARGET OF 3900. FLAT MARKET FROM HERE OUT TODAY. IN BETWEEN, EXPECTING AN OVERSHOOT TO THE DOWNSIDE. I THINK WE ARE ALL SET UP FOR THIS IDEA THAT THE FED GOES 50 AGAIN AND REASSESSES. NOTHING ABOUT THIS WILL BE SIMPLE. I THINK THAT IS STILL THE CASE AS WE WORK OUR WAY THROUGH AND HAVE HAD THIS MECHANICAL PEAK. TOM: WE ARE ALL FOCUSED ON ECONOMIC DYNAMICS. FRANKLY, INCLUDING THE PANDEMIC, AS WELL. THE CHAIRMAN IS PROBABLY FOCUSED ON THE DERBY TOMORROW IN LONDON. WE COULD GET THERE JUST IN TIME FOR THE DERBY. JONATHAN: IS LISA COMING? TOM: I DO NOT KNOW. LISA: I HAVE BEEN TRYING TO. IS THIS REALLY WHERE WE ARE GOING? I REALLY WANT TO SEE TOM KEENE'S WIKIPEDIA SEARCHES IN THE BREAK. TOM: IF I CALL OLIVIA NEWTON JOHN, THAT MIGHT HAVE SOME SWAY. JONATHAN: FUTURES ARE UP. INFLATION DATA AND AMERICA. -- AIDEN AMERICA -- IN AMERICA. > > PRICE. THAT IS UNLIKELY TO BE ENOUGH TO KEEP THE FED FROM RAISING RATES. THE U.S. HAS APPROVED AN EMERGENCY SPENDING A BILL FOR UKRAINE. IT PAYS FOR NEW WEAPONS AND PROVIDES ECONOMIC AND HUMANITARIAN ASSISTANCE IS LARGER. THE BILL HEADS OVER TO THE SENATE WHERE APPROVAL IS LIKELY NEXT WEEK. LIKELY THE FIRST BLACK WOMAN ON THE FEDERAL BOARD OF GOVERNANCE. 51-50 VOTE FOR HER. ETC. RATING A PUSH BEYOND CIGARETTES. THE COMPANY AGREED TO BUY SMOKELESS TOBACCO IN A TRANSACTION THAT REPRESENTED ALMOST 40%. PHILIP MORRIS GENERATED -- THE JAPANESE FORECASTING A LOWER PROFIT OUTLOOK, CITING AN UNPRECEDENTED RISING COST. IT IS OFFSETTING THE BENEFITS OF A DEPRECIATING YEN. GLOBAL NEWS, 24 HOURS A DAY, ON AIR AND ON QUICKTAKE BY BLOOMBERG, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES. THIS IS BLOOMBERG. > > SOME BUT THERE ARE THINGS THAT WE CAN DO AND ADDRESS. THAT STARTS WITH THE FEDERAL RESERVE. JONATHAN: ADDRESSING HIGHER PRICES IN AMERICA. THE PRESIDENT WILL SPEAK AGAIN TODAY. FROM NEW YORK CITY THIS MORNING FUTURES ARE HIGHER BY MORE THAN 1%. YIELDS ARE LOWER AGAIN. UP BY 3.6%. GASOLINE, FOUR DOLLARS 40 CENTS. DIESEL IS $5.55. TOM: THINK ABOUT WHAT HE HAS BEEN DOING ON NIGERIAN FUEL. THEY SAID THEY WERE GOING TO STOP FLYING DOMESTICALLY, AND NOW THE STATE WILL SUPPORT THAT. JONATHAN: IT IS NOT ABOUT THE PRICES ON THE SCREEN BUT THE PRICES THAT PEOPLE ACTUALLY PAY TO USE ENERGY. TOM: YOU CAN GO BACK TO THE 1960'S WITH OUR WASHINGTON CORRESPONDENT. SHE REMEMBERS LBJ COMING OUT WITH -- THEY HAD TO DO IT TWO YEARS LATER WITH AN EXORBITANT 5% INFLATION. WHAT IS THE TRACK RECORD THE WHITE HOUSE HAS TO GO AFTER THIS INFLATION? > > YOU GUYS HAVE THE SAME MUSIC TASTE. WHAT THE WHITE HOUSE IS WORRIED ABOUT IS JIMMY CARTER. THEY ARE WORRIED ABOUT JOE BIDEN AND THE DEMOCRATS IN GENERAL, UNABLE TO KEEP CONTROL, JUST BECAUSE OF INFLATION. IT IS SUSPECTED TO COME DOWN. IF YOU LOOK AT GOLDMAN SACHS, IN NOVEMBER, THERE WILL BE 7% INFLATION. THAT IS SOMETHING THAT WILL HAUNT THIS ADMINISTRATION. TOM: THERE HAD TO BE A RADICAL CHANGE. HOW DO THEY RESPOND TODAY? > > THESE ARE NUMBERS THAT WALL STREET WILL TALK ABOUT, BUT IN WASHINGTON, THE MAIN ISSUES THEY ARE TALKING ABOUT IS WHAT WE HAVE TODAY? FRESH RECORD. YOU ARE GOING AND FILLING UP YOUR TRUCK. THEY WILL COME OUT WITH ANOTHER INFLATION SPEECH, BLAMING THE WAR IN RUSSIA, THE FACT THAT THEY ACCOUNT FOR OUTSIDE PERSPECTIVE. YOU LOOK AT WHEAT AND HOW THEY CAN DO MORE TO KEEP A ROBUST, DOMESTICALLY FOCUSED PRODUCE IN THIS COUNTRY. HOW DO YOU ALLEVIATE SOME OF THESE CONCERNS? THEY WILL CONTINUOUSLY HAMMER THEM ON NOT BRINGING PRICES DOWN. HE TOLD US THAT THIS WAS GOING TO BE TEMPORARY. LISA: YOU MENTIONED THE PRICE HIKE. WE WANT TO DELIVERY ON WHETHER OR NOT THEY WILL FORCE RUSSIA TO DEFAULT ON THEIR DEBT. WHAT ARE THE PROS AND CONS? HOW MUCH TO BE PLAYING INTO THE INFLATION STORY? > > THERE ARE TWO DIFFERENT VIEWS OF THOUGHT. IF YOU ALLOW RUSSIA TO PAY THESE DEBTS, THEY ARE BRINGING THEIR OWN INCOME. IT IS LESS INCOME THAT THEY CAN USE TOWARDS FUNDING THIS WAR. THERE IS THE THOUGHT THAT IF YOU FORCE RUSSIA INTO DEFAULT, THAT JUST MEANS RUSSIA ECONOMICALLY CRUMBLES EVEN FASTER AND COULD POTENTIALLY BRING THIS MORE TO A CLOSE SOONER. THAT IS THE ECONOMICS OF IT. IT MIGHT BE DIFFICULT FOR THE TREASURY ADMINISTRATION TO GO AHEAD AND SAY, WE WILL HAVE THIS EXEMPTION TO PAY OFF DEBT. YOU CAN SEE HOW THERE ARE TWO DIFFERENT SCHOOLS OF THOUGHT. JONATHAN: IT IS SO IMPORTANT. NOBODY WANTS TO DO THAT. THEY PUT OUT A PLAN AND YOU KNOW THIS PLAN. URGE CAR SHARING. AVOID BUSINESS TRAVEL. IT WOULD BE POLITICAL SUICIDE FOR THE PRESIDENT TO ENDORSE SOME OF THIS. YOU ASKED ABOUT IT IN A NEWS CONFERENCE THE OTHER DAY. > > THAT IS THE DIRECTION OF TRAVEL. GASOLINE IS TOO HIGH. WE ARE ALREADY SEEING IN THE MARKETPLACE, DEMAND DESTRUCTION. HE SAID THAT HE UNDERSTANDS ALREADY THAT AMERICANS ARE MAKING THIS DECISION EVERY DAY. WHEN THERE WERE HIGHER PRICES, THIS IS SOMETHING THAT THEY DISCUSSED. TOM KLEIN CONTINUE. I AM SORRY. > > IT WILL NOT IMPACT BY NOVEMBER. THAT IS CREATING A GREENER IMPLICATION. TOM: IT CAPTURED PERFECTLY THE IDIOCY OF 1974. IT WAS SO PREPOSTEROUS. JUST CONSIDER . > > THIS WILL POTENTIALLY HAPPEN. THEY ARE ABOUT TO DO A MASSIVE BAND -- BAN ON OIL. GOING INTO EUROPE, THIS IS NOT AN ISSUE RIGHT NOW BECAUSE IT IS SUNNY OUTSIDE, BUT IT WILL BE AN ISSUE THIS WINTER. JONATHAN: THEY DO NOT WANT TO GO THERE, AND YOU KNOW WHY. THEY DO NOT WANT TO GO THERE. ♪ JONATHAN: LIVE FROM NEW YORK, THIS IS "BLOOMBERG SURVEILLANCE ." WE HAVE THE WORDS OF MORGAN STANLEY ON THE PROGRAM A LITTLE EARLIER. LET'S GO THERE AGAIN. HE HAS A TARGET OF 3900 FOR Q2. IT IS BASICALLY WHERE WE ARE NOW. BASICALLY, AN OVERSHOOT TO THE DOWNSIDE. THE PERSPECTIVE IS TIGHTENING TO SLOWING GROWTH. AS WE START TO THINK ABOUT SLOWING GROWTH AND LESS SO ABOUT INFLATION GIVEN WE MAY SEE A PEAK DEVELOP IN THE U.S., IT IS INTERESTING WHAT IS HAPPENING IN THE BOND MARKET. THE HIGHER THE WEEK, 320 -- THE HIGH OF THE WEEK, 320. JP MORGAN LOOKING FOR A FRONT AND MOVE. LASTLY, WE SAW 285. RIGHT NOW, 2.5858, DOWN A COUPLE OF BASIS POINTS. WHEN WE GO THROUGH THIS LATER, WE WILL GO THROUGH THE HEADLINE, YEAR-OVER-YEAR, MONTH OVER MONTH. IT WILL BE LESS SO ABOUT A PEAK AND MORE ABOUT WHETHER WE STABILIZE AND HOW THE FED NEEDS TO TAKE THIS ULTIMATELY. MEANTIME, FOR NOMURA, THEY THINK ABOUT IT LIKE THIS, TWO BIG ISSUES, UKRAINE-RUSSIA, AND CHINA. A MOVE TO PARITY IN THE NEXT TWO MONTHS. RIGHT NOW, 10556. TOM: AND I DO AGREE THAT IS THE KEY DATA POINT ACROSS THE BLOOMBERG SCREEN. RIGHT NOW, WE WILL LOOK AT THE STOCK MARKET. FUTURES UP 45 FORGET IS AT THE BOTTOM OF THE MARKET? -- FUTURES UP 45. IS IT THE BOTTOM OF THE MARKET? JONATHAN: A NEW HIGHER VOLATILITY REGIME TO TRY TO GET YOUR HANDS AROUND. LET'S GET YOU SOME SINGLE NAMES, SOME MOVERS THIS MORNING. ROMAINE: IF YOU ARE TALKING BUT I REBOUND, YOU HAVE TO TALK ABOUT HOW MUCH CONVICTION IS BEHIND THE REBOUND. THE PHILADELPHIA SEMICONDUCTOR INDEX YESTERDAY SEEMED TO BE A BAROMETER. THAT INCLUDES NVIDIA. THE RALLY APPEARS TO BE CONTINUING HERE. NVIDIA UP 2% BUT WE WERE TALKING ABOUT THIS A LOT YESTERDAY ON THE CLOSE ABOUT AGGREGATE VOLUME WAS A LITTLE HIGHER. SOME OF THE SINGLE CELL VOLUME WAS ANEMIC. MEANINGFULLY HIGHER 3% TO 5% ON THE DAY. KEEP YOUR EYES ON THAT DEEPER INTO THE DAY AND WEEK. A PEAK OF THE INFLATION DATA IN ONE HOURS TIME. REALLY STARTING TO WEIGH ON SENTIMENT WITH OIL-BASED SHARES DOWN. PLATFORM GROWTH NOT THERE. TRADING VOLUME IN TERMS OF ACTUAL DOLLAR VALUE IS NOT THERE. THIS IS A COMPANY THAT LIVES AND DIES OFF OF TRADING AND IF MORE PEOPLE ARE NOT ON THE PLATFORM, THAT IS A PROBLEM. THEY TALKED ABOUT TRYING TO DIVERSIFY BUT THAT LOOKS LIKE A LONGER-TERM PROJECT. THAT CRACKED YOU UP, DOESN'T IT? TOM: COME ON. I AM DOING THE PERCENT CHANGE HERE. I AM SURE YOU GOT IT MEMORIZED. DOWN TO 78% AS WELL FORGET WHAT IS NEXT WITH THIS DISASTER? ROMAINE: WHAT THE COMPANY SAYS IS NEXT IS EXPANSION INTO INDIA AND MORE IMPORTANTLY TRYING TO DIVERSIFY. TOM: BUT SERIOUSLY, THIS IS BLOWING UP THIS MORNING. HOW DO THESE CLOWNS GET TO FRIDAY? HOW DO THEY GET TO? FRIDAY ROMAINE: I DON'T KNOW THE ANSWER TO THAT BUT I WILL TELL YOU YOU HAVE A COMPANY HERE NOW THAT OF COURSE WAS BUILT OFF THE EUPHORIA WE SAW IN THIS MARKET. THERE WAS A LOT OF RETAIL TRADERS THAT TRIED TO DIVERSIFY MOVING MORE TO THE INSTITUTIONAL SIDE. THAT SHOWED UP IN THE NUMBERS BUT NOT ENOUGH TO COMPENSATE WHAT THEY HAD BEFORE AND THAT WILL BE THE BIG STORY GOING FORWARD, WHETHER THEY SURVIVE PAST FRIDAY OR NOT, I BELIEVE THAT UP TO EXPERTS. WHEN YOU GUYS ARE KEEPING YOUR EYES ON THE CPI REPORT COMING OUT AND ABOUT ONE HOUR TIME HERE. REALLY TALKING ABOUT KEEPING EYES ON DISCRETIONARY NAMES THAT YOU THINK ABOUT. WHEN BEES CAME OUT WITH EARNINGS AND THEY WERE BAD. THE MARGINS REALLY CONTRACTING HERE. THEY BLAME LABOR COSTS AND FOOD COSTS. TJX COULD BE A CANARY IN THE COAL MINE BECAUSE IT AFFECTS THE CONSUMERS THAT HAVE BEEN SQUEEZED BY THIS WAS A NO MATTER WHAT THE FED DOES AND WHAT THAT NUMBER SHOWS, A LOT OF THE DAMAGE HAS BEEN DONE. PROBABLY ONE OF THE BIGGEST DISCRETIONARY NAMES OUT THERE, DISNEY. LOOK AT THOSE EARNINGS. TOM: AFTER THE CLOSE, LOOK FOR THAT. RIGHT NOW, THIS IS REALLY IMPORTANT. WHEN IT IS 20 BELOW ZERO LIKE IT HAS BEEN AT COLUMBIA UNIVERSITY, WE ARE JOINED NOW BY A SENIOR INTEREST RATE STRATEGIST. I WILL CUT RIGHT TO THE CHASE FORGET I LOVE YOUR NOTE ABOUT THERE IS NO ALTERNATIVE AND EVERYBODY SLOW DOWN THE FOUNDATIONS ARE INTACT. DOLLARS INTACT. TREASURY MARKETS INTACT SO WE CAN CALM DOWN AND SAY THERE IS NO ALTERNATIVE STAY IN THE MARKETS, RIGHT? > > THAT IS RIGHT. WHEN IT COMES TO TREASURIES, THE NOTION THAT WE WILL MOVE INTO THE SECULAR BEAR MARKET REQUIRES US TO UNWIND A LOT OF SECULAR FACTORS IN PLACE OVER THE PAST 40 YEARS. I AM NOT CONFIDENT ENOUGH AT THIS STAGE TO SEE THAT LIKELY TO HAPPEN. LISA: WHAT DO YOU MAKE OF THE RECENT RALLY IN BONDS? EDWARD: I THINK BONDS ARE NOW RELATIVELY FAIR TO CHEAP WHEN YOU LOOK AT VALUATIONS. IF YOU LOOK AT THE 10-YEAR NOTE, INVESTMENT GRADE BONDS, CHEAP ENOUGH RELATIVE TO HIGH-YIELD. THESE ARE VERY ATTRACTIVE VALUATIONS WE HAVE NOT SEEN IN A NUMBER OF YEARS. SO TO CONTINUE SELLING BONDS INTO THIS ENVIRONMENT REALLY REQUIRES CONVICTION THAT THE FED WILL BE UNABLE TO BRING INFLATION DOWN OVER THE MEDIUM-TERM. WE DON'T HAVE THAT CONVICTION FORGET I THINK IT MAKES SENSE FOR BONDS TO START TO STABILIZE FORGET OF COURSE, WHERE THEY WILL BE AT THE END OF THE YEAR IS A HUGE RANGE. BUT FROM A VALUATION PERSPECTIVE, I THINK WE ARE IN A GOOD PLACE AT THE MOMENT. LISA: HOW HAS THE RANGE SHIFTED AS WE SEE MARKET SHIFT FROM A RATE CONCERN TO A GROWTH CONCERN? EDWARD: I THINK IF YOU LOOK AT THE LONGER END OF THE CURVE, THERE IS LIKELY TO BE DOWNWARD PRESSURE ON IT AS THE FED CONTINUES TO HIKE INTO WHAT THE MARKET HAS PRICED FOR IT INTO THE END OF THE YEAR. AGAIN, WE WILL SEE WHAT SURPRISES WE HAVE ON THE INFLATION AND GROWTH FRONT, BUT AT THE MOMENT, IT LOOKS LIKE WE ARE ON THE CUSP OF BOTH STARTING TO DECELERATE. HOW QUICKLY THAT HAPPENS IS OPEN TO DEBATE, BUT THE DIRECTION OF TRAVEL IN THE SECOND HALF OF THE YEAR WILL LIKELY BE LOWER FOR BOTH, AND I THINK THAT IS IMPORTANT FOR THE LONG END OF THE TREASURY CURVE. TOM: YOU HAVE A COMPLETELY DIFFERENT LOOK THEN AMY WHO WAS ON WITH US ONE HOUR OR SO AGO, BUT IT DOES DOVETAIL INTO THE MEASUREMENT OF SPECULATION. WE POUNDED THE SPECULATION OUT OF THE MARKET -- HAVE WE POUNDED THE SPECULATION OUT OF THE MARKET? EDWARD: MY GUT SENSE IS NOT YET. TOM: HOW DO YOU DETERMINE THAT? WHAT CRISTOBAL DO YOU USE TO DETERMINE THAT? EDWARD: IT IS A PSYCHOLOGICAL PHENOMENON. IT IS DIFFICULT TO LOOK AT THE MARKET METRICS AND BE CERTAIN, WHETHER IT IS BREXIT OR PRICE ACTION ON ANY GIVEN DAY OR WEEK. YOU REALLY NEED TO SEE A COMBINATION OF PRICE ACTION AND NARRATIVE CHANGE. WE HAVE NOT SEEN THAT NARRATIVE CHANGE YET. YOU NEED TO SEE MORE PANIC, PARTICULARLY IN THE RISKIER PARTS, MORE LEVERAGED PARTS OF THE RISK SPACE. WE HAVE NOT SEEN THAT WASHOUT YET. LISA: WHAT ABOUT WITHIN THE CREDIT SPHERE? WE HAVE NOT SEEN THE WASHOUT THERE. EDWARD: CREDIT HAS BEEN VERY INTERESTING. IF YOU LOOK AT THE BEHAVIOR OF CREDIT SPREADS SO FAR YEAR TO DATE, CREDIT HAS DEFINITELY WIDENED. I THINK A BULK OF IT REFLECTS THE FACT THAT INTEREST RATE VOLATILITY HAS GONE UP FORGET MUCH LESS OF THE WHITENING CONCERNS ABOUT GROWTH, CREDIT WORTHINESS, LIQUIDITY, LEVERAGE IN THE CREDIT SPACE. SO I THINK WE ARE STILL TO SEE THAT LEG OF THE UNWIND HAPPEN, PARTICULARLY IN SPACES LIKE LEVERAGED LOANS OR HIGH-YIELD. IN FACT, IF YOU LOOK AT THE PERFORMANCE YEAR TO DATE, INVESTMENT GRADE HAS UNDERPERFORMED HIGH-YIELD BECAUSE IT IS EXPOSED TO INTEREST-RATE DURATION AND INTEREST RATE SENSITIVITY. THAT STORY HAS TO SHIFT IN ORDER FOR THE MARKETS TO REFLECT A SLOWDOWN IN GROWTH. LISA: TO PUT ALL OF THIS TOGETHER, I GET THE SENSE YOU ARE HIDING OUT IN LONGER DATED TREASURIES, THAT THAT SEEMS TO BE YOUR FAVORITE BET RIGHT NOW. AM I CORRECT? EDWARD: DID I GIVE IT AWAY? YES. LISA: YOU ARE ADDING TO YOUR PORTFOLIO AND YOU HAVE BEEN THE PAST COUPLE WEEKS. EDWARD: THAT'S RIGHT. WE HAVE BEEN INCREMENTALLY ADDING TO DURATION AS THE LONG END OF THE TREASURY CURVE HAS STEEPENED, AND WE ARE OPPORTUNISTIC ABOUT WHAT IS HAPPENING IN THE CREDIT SPACE. IF YOU LOOK AT INVESTMENT GRADE CREDIT IN PARTICULAR, IT LOOKS CHEAP AT THE FRONT END OF THE CURVE . JONATHAN: WONDERFUL TO CATCH UP AND HAVE YOU IN THE STUDIO. WE GET INFLATION IN 41 OR 51 MINUTES TO BE PRECISE IN AMERICA AND THEN ANOTHER CRITICAL ONE ON JUNE 10, JULY 15, AUGUST 10. YOU HAVE A FED MEETING ON JUNE 15, JULY 27, AND THEN YOU WAIT UNTIL SEPTEMBER. THIS SETS US UP FOR THE END OF AUGUST. IF THEY GO 50 IN JUNE AND AGAIN IN JULY, EVERY FED SPEAKER SO FAR OR A LOT OF THEM AT LEAST HAVE BEEN TALKING ABOUT THE IDEA THAT WE DO THIS AND REASSESS. THE ASSESSMENT WOULD COME AT THE END OF SUMMER. THREE PRINTS TODAY, JUNE, JULY, AND ANOTHER ONE IN AUGUST. TOM: EACH OF THOSE CALENDAR DATES MEETS BEHAVIORAL FORGET WHERE WILL THE WAR IN UKRAINE BE ALONG THAT CONTINUUM? AND CRITICALLY MORE IMPORTANT TO ME, WHERE THE LOCKDOWN BE IN CHINA AT JACKSON HOLE? JONATHAN: AND WE HAVE TO WAIT? MAYBE YOU HAVE TO WAIT UNTIL FURTHER OUT TO THE END OF THE YEAR TO FIND OUT THE ANSWER TO THOSE QUESTIONS. TOM: THE ELEPHANT IN THE ROOM TO ME AND PARTICULARLY THE CHINA WATCHERS IS THE NATIONAL PARTY CONGRESS WHERE PRESIDENT XI HAS TO BE CODIFIED AGAIN FOR ANOTHER BOUT OF XI CHINA. I BELIEVE THAT IS IN NOVEMBER. JONATHAN: AT LEAST NOT UNTIL FALL LATER IN THE YEAR. LISA: IN THE MEANTIME, THERE ARE SOME CLUES AND WE GOT THAT FROM THE INFLATION DATA OVERNIGHT FROM CHINA THAT CAME OUT AND SHOWED HE CAME IN HIGHER AND HOTTER THAN EXPECTED BUT FOR THE WRONG REASONS. FOOD PRICES RISING. THINGS THAT PEOPLE CANNOT GET BECAUSE OF THE LOCKDOWN. PEOPLE GOING OUT AND SPENDING FALLING OFF OF THE CLIFFS SO YOU HAVE DEFLATION THERE. THIS SHOWS MORE OF A PICTURE AND WE MIGHT BE LOOKING AT THE GRANULARITY HERE. JONATHAN: JUST ONE REQUEST FROM AN AUDIENCE NUMBER. CAN YOU MAKE TK STOP SINGING PLEASE? CAN WE ACHIEVE THAT THIS MORNING? I THINK A RENDITION OF "LET'S GET PHYSICAL" IS DISTURBING PEOPLE. TOM: ME AS WELL. IT IS LIKE TYING A RIBBON. YOU HATED THE SONG FROM WHEN YOU FIRST HEARD IT. THAT WAS A FEW YEARS AGO. IRANIAN HOSTAGES. JIMMY CARTER BEFORE HE PUT THE SWEATER ON. JONATHAN: DOWN ON THE 10 YEAR. 2.93. TOM: LIKE DONNY OSMOND. JONATHAN: THIS IS BLOOMBERG. ♪ RITIKA: KEEPING YOU UP-TO-DATE WITH NEWS AROUND THE WORLD. THE CONSUMER PRICE INDEX IS EXPECTED TO SHOW INFLATION HAS SLOWED DOWN TO 8.1% YEAR-OVER-YEAR FORGET SOME OF THAT DECREASE MAY BE DUE TO A DROP IN GAS PRICES. THAT COMES OUT AT 8:30 A.M. NEW YORK TIME. MEANWHILE, INFLATION IN CHINA ROSE FASTER THAN EXPECTED LAST MONTH. IT WENT UP 8% IN APRIL FROM A YEAR EARLIER. MEANWHILE, CONSUMER GROWTH ACCELERATED 2.1%. EUROPEAN CENTRAL BANK PRESIDENT CHRISTINE LAGARDE IS JOINING A GROWING CROWD OF POLICYMAKERS. A RATE HIKE MAY HAPPEN WEEKS AFTER BOND BUYING HAPPENS. THE U.K. AND EU ARE AT IT AGAIN. LIZ TRUST SAYS THE EUROPEAN UNION'S LATEST TRADING ARRANGEMENTS WILL NOT WORK. SHE SIGNALED THE U.K. WOULD TAKE UNILATERAL STEPS IF A UNION AGREEMENT CANNOT BE NEGOTIATED. PRICES ARE SURGING IN SOME CORNERS OF THE DIAMOND MARKET. ABOUT 20%. THE U.S. IMPOSED SANCTIONS ON ONE OF THE WORLD’'S LARGEST DIAMOND MINERS. MEANWHILE, SOUTH AFRICA'S MINING GIANT IS NOT ABLE TO MAKE UP THAT DIFFERENCE. THE DIAMONDS ARE THE TYPE THAT WOULD END UP AROUND A RING. I RITIKA GUPTA. > > I DON'T LOOK OUT AT THE NEXT MONTH OR TWO IN TERMS OF THE EYE OF THE STORM. I LOOK AT FUNDAMENTALLY WHERE THE NAMES THE NEXT 12, 18 MONTHS, AND THAT IS THE KEY RIGHT NOW IN TERMS OF THIS HANDHOLDING TIME FOR INVESTORS. JONATHAN: IT HAS BEEN A TOUGH MOMENT. THAT IS FOR SURE. WE MANAGING DIRECTOR OF WEDBUSH SECURITIES. WE ARE 32 MINUTES AWAY FROM CPI IN AMERICA. THE NASDAQ 100 UP BY 1.42%. YIELDS HEADING SOUTH. THEY ARE NOT HEADING HIGHER. EURO-DOLLAR, TALKED A LOT ABOUT THE COST OF THINGS AT THE PUMP. DIESEL, CAST PRICES, RECORD HIGHS. 10404 ON WTI, UP BY 3.4%. MOHAMED EL-ERIAN WRITES IN THAT SOME OF US STILL LIKE THAI YELLOW RIBBON. WHAT IS THAT SONG? TOM: ARE YOU SERIOUS? JONATHAN: NEVER HEARD OF IT. GIVE US A FLAVOR OF IT, JUST A LITTLE BIT. TOM: HOSTAGES IN IRAN. VERY SERIOUSLY, ALL ACROSS AMERICA, PEOPLE THAI YELLOW RIBBONS ACROSS TREES FOR SUPPORT. JONATHAN: I'VE GOT THAT BIT. I DID NOT KNOW THIS ON. TOM: AROUND THE OLD OAK TREE. JONATHAN: NICE. WHAT IS NEXT? [LAUGHTER] TOM: I DON'T KNOW. MOHAMED EL-ERIAN WAS JUST LIKE THIS. CAN WE MOVE ON? JONATHAN: OF COURSE. TOM: HERE TO SAVE THE SHOW, SOMEONE ELSE WHO DOES NOT KNOW TONY ORLANDO. KRITI GUPTA WITH US. KRITI: AT LEAST I HAVE AN EXCUSE. I AM YOUNG AND INEXPERIENCED IN MUSIC. THE COST AT THE PUMP, HOW MUCH THE CONSUMER'S FACING RIGHT NOW. LET'S TALK ABOUT HOW MUCH CORPORATE AMERICA IS FACING RIGHT NOW. THE FORWARD OPERATING MARGIN LOOKED A LOT LIKE THE S & P 500 CHART BEFORE THE MASSIVE SELLOFF WE HAVE SEEN. ESSENTIALLY, THE STORY HERE IS A LOT OF THESE COMPANIES HAVE BEEN ABLE TO PASS ON COSTS TO THEIR CONSUMERS AND THEREFORE ARE ABLE TO EXPAND ON THEIR MARGINS. MARGINS HOVERING AT A HISTORICAL HIGH GOING BACK 20 YEARS TO 2005. IF YOU ZOOM IN VERY CLOSE, YOU WILL SEE YOUR TO DATE THE MARKETS HAVE STARTED TO SLUMP. IF YOU WERE TO OVERLAY THE S & P 500 TO THIS CHART, IT WOULD LOOK VERY SIMILAR UNTIL RECENTLY WHEN YOU HAVE THE MASSIVE SELLOFF TO GET THE QUESTION HERE IS, ARE STOCKS TRADING IN ON THE MARGINS RIGHT NOW OR ARE THEY TRADING ON VALUATIONS? I WOULD ARGUE BASED ON THIS CHART THEY ARE TRADING MORE CLOSELY ON VALUATIONS. TOM: THANK YOU GREATLY APPRECIATE IT. NOW FOR A DIFFERENT CONVERSATION ON DISNEY, ENTERTAINMENT, AND THE "BOB'S BURGERS" MOVIE, WHICH IS THE NEXT BIG THING TO BE LAUNCHED BY DISNEY. MICHAEL JOINS US. BE BLUNT, NOBODY IS TALKING ABOUT THE "BOB'S BURGERS" MOVIE. THEY ARE TALKING ABOUT THE FRACTURED MANAGEMENT OF DISNEY. WHAT HAPPENS HERE? WHAT DOES SHE AND THE BOARD DO WITH THE MANAGEMENT OF DISNEY? MICHAEL: GOOD MORNING, TOM. I THINK GIVEN MORE TIME, BOB CAPEK'S CONTRACT HAS ANOTHER 10 MONTHS ON IT. HE HAS A THREE YEAR DEAL. I THINK HE HAS DONE A GREAT JOB ON GETTING THROUGH THAT. BUT THEY ARE WONDERING ABOUT THEIR STREAMING STRATEGY AND I THINK THEY GIVE A LITTLE MORE TIME TO SEE IF THEY ARE EXECUTING AGAINST THAT STRATEGY. IT IS TBD AT THIS POINT FORGET IT REALLY IS. JONATHAN: WHAT QUESTIONS DO YOU HAVE ABOUT THE STREAMING STRATEGY AT THIS POINT? MICHAEL: HERE IS THE BIG QUESTION. THEY HAD INVESTOR DAY IN 2019, THE ORIGINAL INVESTOR DAY WHEN THEY ROLLED OUT THE STRATEGY OF A SUPER FAST DISNEY+ SERVICE TARGETED TO PIXAR, LUCASFILM, MARVEL. THAT WAS BOB IGER. 18 MONTHS LATER, THE HEART OF THE PANDEMIC IN 2020, THEY RAISED THEIR TARGETS MASSIVELY BECAUSE THEY OUTPERFORMED THOSE TARGETS AND ALSO BROADENED OUT DOES THE -- DISNEY+. I WONDER IF THE BROADER STRATEGY WAS THE RIGHT STRATEGY. PROBABLY A HIGHER PRICE POINT. I WONDER IF THEY HAVE THE RIGHT STRATEGY. WERE THEY MISLED BY THE PANDEMIC AND STRENGTH OF THE FIRST YEAR? I THOUGHT THEY HAD A BIGGER BUSINESS HERE. IT IS A BIG QUESTION. I WOULD LIKE TO HEAR THEM ANSWER QUESTIONS ABOUT WHETHER OR NOT THEY HAVE THE RIGHT STRATEGY. HAVE THEY GONE TO BROAD -- TOO BROAD? CAN THEY REIN IT IN AND BE THE BUSINESS BUT NOT THE BUSINESS THEY THOUGHT THEY WOULD BE? LISA: HOW LOW IS THE BAR RIGHT NOW CONSIDERING THEIR SHARES ARE SET FOR THE BIGGEST DECLINE SINCE 1995? MICHAEL: THE BAR IS LOW, BUT THE ISSUE IS THE CONCERN ON THE BACK ROW. THEY WILL STAGE A BETTER COME BACK. I WOULD SAY IT WOULD TAKE YEARS FOR PARKS TO RECOVER BUT THEY HAVE RECOVERED. WHAT PEOPLE ARE CONCERNED ABOUT IS, ARE WE AT A POINT WITH THE PARKS NOW ROLLING OVER AGAIN? NOT IN GOOD SHAPE BECAUSE OF CORN CUTTING. TO ME, THE MACRO AND THE NETFLIX SELLOFF -- I UNDERSTAND THE NETFLIX SELLOFF. THE MACRO COULD MOVE DISNEY HERE. JONATHAN: ON THE SOCIAL ISSUES, NEVER GETTING THEM AT THE MOMENT, AND WHETHER IT IS CRUCIAL TO THE BOTTOM LINE. THEY HAVE THIS MESS DOWN IN FLORIDA. THEY ARE VERY COZY WITH CHINA, THE CHINESE COMMUNIST PARTY. YOUR VIEWS ON WHEN THIS STUFF STARTS TO MATTER. MICHAEL: WHAT IS INTERESTING ON THE CHINA FRONT, THERE HAS BEEN THE PARK IN CHINA, SHANGHAI. THE PROMISE THAT CHINA WOULD OPEN UP ITS ARMS TO CHINA, THAT HAS NOT HAPPENED. THE QUESTION ON FLORIDA IS ONE THAT IS MORE IN OUR VIEW THAT THEY HAVE NOT REALLY ADDRESSED IT. THEY ARE LOSING THEIR SPECIAL PROTECTION. I SUSPECT IT IS WORSE FOR THE STATE OF FLORIDA THAN FOR DISNEY BECAUSE I THINK THE STATE WOULD HAVE TO PICK UP OR THE COUNTIES WOULD HAVE TO PICK UP THE PROTECTION. WILL THERE BE A COHORT OF VISITORS AT THE PARKS WHO WILL BE OFFENDED BY DISNEY'S STANCE OR DECIDE NOT TO GO? HISTORICALLY, THAT HAS NOT BEEN THE CASE. I TEND TO DISCOUNT ALL THE POLITICAL NEWS BUT I THINK IT DAMAGES THE BRAND IMAGE OF DISNEY AND INVESTING IN PUBLIC EYES. THEY HAVE MADE A NUMBER OF MISSTEPS THAT WERE SELF-INFLICTED. IT BRINGS DOUBT ABOUT HOW GOOD THE DIRECTION OF THE COMPANY IS WITH THE MISSTEPS. JONATHAN: AND HOW BAD IS THE LEADERSHIP, WHICH TAKES US TO THE BEGINNING. THANK YOU THERE. THE DRAMA CONTINUES. MICHAEL NATHANSON, GOOD TO CATCH UP, A FRIEND OF THIS PROGRAM. TOM: I LOOKED AT THE 20 YEAR TREND AND YOU ARE ALMOST ON THE COLLAPSE OF A DISNEY PRICE. A ONCE-IN-A-LIFETIME BUY? I DON'T KNOW. IT IS FLUID TO SAY THE LEAST. JONATHAN: THAT IS A DIPLOMATIC WAY OF PUTTING IT. > > I JUST HAVE A HARD TIME BEING TOO OPTIMISTIC ABOUT THE INFLATION OUTLOOK. > > THE REALITY IS THAT GROWTH MAY SLOW MUCH FASTER THAN FOLKS BELIEVE. > > IT HAS BEEN BRUTAL FOR BOTH EQUITY AND DEBT. > > I WOULD NOT BE IN HIGH YIELD AT THIS STAGE OF THE GAME. > > WE ARE SEEING SOME FORM OF CAPITULATION OUT THERE. > > THIS IS "BLOOMBERG SURVEILLANCE." TOM: GOOD MORNING EVERYONE. ON RADIO, ON TELEVISION, ON THIS HOUR OF INFLATION, A CRITICAL REPORT IN 30 MINUTES WITH MICHAEL MCKEE. JON FERRO, IT IS ALL HINGED ON THE USED CARS GOING FROM 37% INFLATION TO 14% INFLATION. THAT IS GOOD NEWS? JONATHAN: FOR MANY PEOPLE, PICK INFLATION MAY ALREADY BE THE VIEW THAT IS THE CONSENSUS. WE WILL FIND OUT. IT IS ABOUT THE DETAILS. HEADLINE INFLATION HAS PEAKED BUT CORE INFLATION WILL FALL WITH MORE OF A PLATEAU. ONE VIEW FROM THE SOUTH SIDE GOING INTO THIS ONE. TOM: MORGAN STANLEY JOINING US IN THE LAST HOUR. THEY ARE LOOKING FOR INFLATION TO COME BACK BUT IT IS NOT TRANSITORY. JONATHAN: THEY ARE LOOKING FOR AN EQUITY MARKET THAT STRUGGLES. THE PRICE TARGET AT MORGAN STANLEY, 3900 IS BASICALLY WHERE WE ARE. IN BETWEEN NOW AND THEN NEXT YEAR, THEY ARE LOOKING FOR AN OVERSHOOT TO THE DOWNSIDE. TOM: YOU WONDER WHERE PRESIDENT BIDEN IS NEXT YEAR. AGAIN, THE PRESIDENT SPEAKS. LISA: TRYING TO GET AHEAD OF THE MESSAGE ON INFLATION AS HE SAYS THIS IS THE MAIN ISSUE HEADING INTO THE MIDTERM ELECTION. HOW MUCH DOES THIS RECENT POLICY AS PEOPLE START TO WORRY ABOUT THE CONSEQUENCES OF PANDEMIC ERA SPENDING AS WELL AS HOW THE U.S. DEALS WITH INTERNATIONAL ISSUES AFFECTING SUPPLY CHAINS? TOM: IN THE LAST 24 HOURS IN THE LISA ABRAMOWICZ SPACE OF CREDIT AND OPTIONS, BUT A TURBULENCE. WHAT IS DIFFERENT NOW FROM THREE DAYS AGO IN CREDIT? LISA: THE SAME THING THAT HAS BEEN THE ISSUE IN MARKETS MORE BROADLY. YOU ARE STARTING TO SEE CREDIT RESPOND TO THE WAY IT HASN'T IN A RATES CARE. A GROWTH SCARE HAS TO DO WITH CONSEQUENCES OF TRYING TO TIGHTEN FINANCIAL CONDITIONS OF HAVING HIGHER INFLATION THAT NATURALLY COOLS THE MOMENTUM IN THE ECONOMY. TOM: I DIGRESS RIGHT NOW. GOT A GREAT LINEUP IN THIS HOUR. DUDLEY WILL JOIN US, THE FORMER PRESIDENT OF THE NEW YORK FED WITH A HUGELY IMPORTANT FOR PERCENT INFLATION ESSAY. JON FERRO, STEVE MAJOR, EUROPE, GERMAN PAPER BACK TO 1%. WHAT A DIFFERENCE FROM AMERICA. JONATHAN: THE TEAM AT HSBC LOOKING FOR THAT MOVED TO GO HIGHER AND STAY HIGHER. 250 ON THE 10 YEAR IN AMERICA. WE HAVE ALREADY SEEN 320 THIS WEEK. ALL OF THAT STUFF RIGHT NOW IS OLD NEWS. FOR US, WE SPENT A LOT OF TIME AT 8:30 A.M. EASTERN TIME POINTING OUT THE DETAILS LIKE THE PRICE OF USED CARS. ON MAIN STREET, ONE NUMBER MATTERS, $4.40 A GALLON. FOR THE PRESIDENT I WOULD REGULATOR, WHATEVER THE NUMBERS ARE IN 30 MINUTES, THE $4.40 IS A BIG PROBLEM FOR HIM. TOM: I WILL GO TO FOOD AS WELL. WHEAT IS UP AGAIN TODAY WITH CORN. ON THE DATA FRONT, I'VE GOT TO GO TO THE GERMAN 10-YEAR .997%. A MAJOR DEBATE ACROSS THE ATLANTIC. JONATHAN: I WILL TAKE FARM AND A BIT OF MUSIC ALONG THE WAY. LISTENING THROUGH THIS ONE. FUTURES UP BY 1.2% ON THE S & P. NASDAQ 100 FUTURES UP BY 1.4%. YOU HAVE READ IT. LISA: I HAVE. JONATHAN: I KNOW YOU HAVE. WE TALKED ABOUT IT TODAY, THE THIRD STRAIGHT DAY OF DECLINING YIELDS IN AMERICA. THE TREASURY MARKET, SIX BASIS POINTS. TOM: ABSOLUTELY. NO CLOSING TIME, NO COVER CHARGE . COUNTRY BOYS AND GIRLS DOWN ON THE FARM. ONE OF THE GREAT FANS, MINDY, SHE DOES HER TIM MCGRAW. SO DOES SAM STOVALL WITH DECADES OF WISDOM HERE ON THIS MOMENT WE ARE AT. SAM, WHAT DO WE DO? WHAT DO WE DO IN THE TIME OF GREAT TENSION? WHEN YOU HEAR THE PHRASE CFRA GOING CACHE, HOW DO YOU RESPOND? > > WELL, I THINK IF THERE ARE SOME OF THE PEOPLE OUT THERE THAT ARE WORRIED, YOU LOOK FOR OPPORTUNITIES. BASICALLY, WHEN FEAR ABOUND IS WHEN YOU LOOK TO TAKE ADVANTAGE OF THAT. YOU MENTIONED IN THE EARLIER SEGMENT ABOUT HOW FAR DOWN DISNEY IS FROM ITS 200 DAY MOVING AVERAGE, AND YOU GOT MANY INDUSTRIES, MOVIES AND ENTERTAINMENT COME INTERNET, DIRECT WE TELEMARKETING, FOOTWEAR, AUTO PARTS THAT ARE ANYWHERE FROM 25% TO 43% BELOW THEIR 200 DAY MOVING AVERAGES AND MORE THAN TWO STANDARD DEVIATIONS BELOW THEM. AS AN OPPORTUNIST, YOU BASICALLY SAY IF THE CPI REPORT COMES IN AS A SURPRISE, THESE COULD END UP POPPING. JONATHAN: A LOT OF THIS DEPENDS ON THE TIME HORIZON. WHERE DO YOU THINK THE OPPORTUNITIES ARE A, AND HOW LONG SHOULD PEOPLE HOLD THEM FOR? > > OUR FOCUS IS MORE OF A 12 MONTH TIME HORIZON WHEN WE LOOK TO THOSE STOCKS YOU THINK -- WE THINK YOU SHOULD BUY AND HOLD TO DISNEY IS ONE WE THINK YOU SHOULD BUY. SALESFORCE.COM ANOTHER AS WITH AMAZON. THESE ARE TRADING AT VERY LOW RELATIVE TO THEIR 200 DAY. BUT THE 12 MONTH PRICE TARGETS INDICATE OUR BELIEF THAT THEY SHOULD BE HELD NOT JUST FOR WEEKS BUT FOR MONTH AND QUARTERS AND YEARS. LISA: WHAT IS THE CONSEQUENCE IN MARKETS IF WE DO NOT GET A MECHANICAL PEAK IN INFLATION OR WE GET AN INCREASE IN THE CORE INFLATION EVEN IF THE HEADLINE NUMBER COMES DOWN? HOW MUCH PAIN COULD YOU SEE TRANSLATE INTO THE EQUITY MARKET? SAM: I THINK THE TARGET WOULD PROBABLY BE CLOSER TO 3850 OR SO BASED ON TWO TECHNICAL AND ONE FUNDAMENTAL FACTOR. FROM A TECHNICAL PERSPECTIVE, IT IS THE BROKEN HEAD AND SHOULDERS PATTERN WHICH POINTS TO ABOUT 3800. IT IS A FIBONACCI REPLACEMENT LEVEL THAT BRINGS IT TO 3819. IF YOU ARE LOOKING AT THE AVERAGE PE ON FORWARD 12 MONTH EARNINGS, YOU ARE LOOKING AT 3860 ON THE S & P 500, SO I WOULD TEND TO SAY THAT BEFORE ALL OF THIS HAS SHAKEN OUT, WE PROBABLY DO NEED TO GET TO A VERY DEEP CORRECTION OR A VERY MILD BEAR MARKET. TOM: YOU OWN THE HIGH GROUND ON AS YOU PUT IT IN YOUR NOTE THE LENGTH OF THE RUNWAY. FOR PEOPLE TO HAVE CONFIDENCE IN THIS MARKET, WHAT IS THE MINIMUM RUNWAY NOW? THREE YEAR VISION OR CAN I DARE SAY TO GO TO A TWO-YEAR VISION GOING FORWARD? SAM: I THINK YOU CAN GO. FIRST OFF, WHEN YOU REALIZE WE ARE IN CORRECTION MODE RIGHT NOW, 17% DECLINE ON THE S & P 500, ON AVERAGE, IT TAKES FOUR MONTHS TO GET BACK TO BREAKEVEN. EVERY TIME WE HAVE HAD A 20 PLUS PERCENT ADVANCED IN A PRIOR CALENDAR YEAR, THE MARKET FELL INTO A DECLINE OF MORE THAN 10% EARLY IN THE NEW YEAR, BUT IF THAT DECLINE STARTED IN THE FIRST QUARTER, WE GOT BACK TO BREAKEVEN BEFORE THE YEAR WAS OUT, SO I WOULD TEND TO SAY TWO TO THREE YEARS IS CERTAINLY A VERY COMFORTABLE TIMEFRAME THAT TAKES GARDEN-VARIETY BEAR MARKETS ONLY 14 MONTHS TO GET BACK TO BREAKEVEN. SO A LOT QUICKER THAN MOST PEOPLE WOULD ANTICIPATE. JONATHAN: GIVEN THE BUZZ WORD OF THE LAST TWO YEARS IS UNPRECEDENTED, IS HISTORY USEFUL AT THIS MOMENT? SAM: OF COURSE IT IS. SO MANY PEOPLE LIKE TO POOH-POOH HISTORY AND SAY TODAY IS SO DIFFERENT FROM AT THE DESK FROM EVERY OTHER TIME BUT THE ONE CONSTANT HAS BEEN HUMAN REACTION. HUMAN INVOLVEMENT, KNOWING THAT FEAR IS A GREATER MOTIVATOR THAN GREED BUT GREED STEPS IN AND TAKES ADVANTAGE OF OPPORTUNITIES. JONATHAN: WONDERFUL TO GET YOUR PERSPECTIVE. A CONSTRUCTIVE VIEW. DEUTSCHE BANK PUBLISHED A WANT TO BELIEVE. THE MARKET WANTS TO BELIEVE THAT AT A MINIMUM THE WORST HAS BEEN SEEN ON U.S. INFLATION. NOWHERE IS THIS MORE EVIDENT THAN THE EXTORTING OF A COLLAPSE IN INFLATION BREAKEVEN RATES THAT HAVE DOMINATED THE BOND RALLY. LISA, WE HAVE BEEN TALKING ABOUT THIS REPEATEDLY THE LAST FEW DAYS PER GET IT IS MORE THAN NOTABLE WHAT HAS BEEN HAPPENING WITH BREAKEVENS. LISA: HAVE THEY GOTTEN AHEAD OF THEMSELVES? CITIGROUP ASKING THE QUESTION AND SEEING WE COULD POINT TO CORE INFLATION. HOW MUCH OF A SURPRISE WILL THIS BE TO MARKETS IF WE GET SOMETHING THAT IS NOT A DECELERATION? HOW MUCH OF A SHOCK GIVEN THE FACT THAT PEOPLE WANT TO BELIEVE WE ARE THERE? JONATHAN: THEY WANT TO BELIEVE IN A BIG WAY. LARGELY EXPECTED TO SEE PEAK INFLATION IN A .5%. YEAR-OVER-YEAR, MECHANICALLY THE STUFF SHOULD COME DOWN. YOU REPEATED IT IS NOT ABOUT WHERE WE PEAK BUT WHERE WE PLATEAU. WHERE WE COME DOWN TO AND STABILIZE AT AND WHAT THIS MEANS FOR THE FEDERAL RESERVE AND WHAT THEY DO. TOM: I WILL TAKE A THREE MONTH MOVING AVERAGE. GREAT ON THINGS LIKE DURABLE GOODS AND OTHER STUFF. WHY IS INFLATION ANY DIFFERENT? YOU HAVE TO LOOK AT THE THREE MONTH MOVING AVERAGE. SMOOTH IT OUT TO SEE WHAT THE TREND IS FORGET WE WILL DO IT WITH ONE DATA POINT? JONATHAN: I DON'T THINK SO. I AM LOOKING TO CATCH UP WITH SOMEONE LATER OUT WITH A PIECE ON BLOOMBERG OPINION TODAY THAT THE FED NEEDS TO GET REAL ABOUT RATES. HOW HIGH WILL THE FED NEED TO GO? HIS VIEW, PROBABLY A LOT HIGHER THAN YOU THINK. TOM: THE BACKEND OF THE ESSAY IS BRUTAL. TO SEE THIS FROM A FORMER OFFICIAL IS REALLY SOMETHING. HE SAID THEY GOT TO GET THE LANGUAGE TOUGHER ON THE BALANCE SHEET. JONATHAN: HE USED THE B WORD HIMSELF. BRUTAL HONESTY COULD SPARE EVERYONE A LOT OF TROUBLE IN THE END. LISA: ANDREW BAILEY THE RING LEADER IN TERMS OF HONESTY. HOW MUCH THEY HAVE TO SAY THE ONLY WAY TO COUNTER INFLATION IS GOING TO BE A DOSE OF PAIN FOR THE ECONOMY THAT WE DON'T WANT TO DO BUT IT IS BETTER TO HAVE THAT IN THE SHORT TERM TO AVOID LONGER-TERM MUCH MORE SEVERE PAIN. HOW MUCH DO THEY HAVE TO COME OUT AND SAY THAT? WE DON'T KNOW THE ANSWER TO THAT BECAUSE WE ARE WAITING FOR GEOPOLITICAL ISSUES, BUT IF CHINA'S SHUTDOWNS END, HOW MUCH DOES NOT RESELL THE RIGHT? IF WE DO NOT GET THAT RE-ACCELERATION, WHAT HAPPENS? JONATHAN: THE LATTER IS THE HOPE. LISA: BASICALLY, NO DEMAND IS LESS OF THE ISSUE. IT IS MORE OF THE SUPPLY. JONATHAN: LOOKING FORWARD TO CATCHING UP WITH BILL DUDLEY LATER THIS MORNING. DOES ANYONE THE FED WANT TO BE GOVERNOR BAILEY? I STRONGLY SUGGEST NOBODY RIGHT NOW AT THE FEDERAL RESERVE WANTS TO LOOK ANYTHING LIKE THE BANK OF ENGLAND. TOM: LIKE ARSENAL AND TOTTENHAM? JONATHAN: I WILL FIND OUT. LISA: CALL HIM ON HIS CELL PHONE. JONATHAN: FUTURES UP MORE THAN 1%. THIS IS BLOOMBERG. RITIKA: KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE WORLD I'M RITIKA GUPTA. ,THE U.S. HOUSE HAS APPROVED A $40 BILLION AID BILL FOR UKRAINE THAT PROVIDES ECONOMIC AND HUMANITARIAN ASSISTANCE. IT IS SIGNIFICANTLY LARGER THAN THE $33 BILLION THE PRESIDENT ASKED FOR. AN ECONOMIST WILL BE THE FIRST BLACK WOMAN ON THE FEDERAL RESERVE BOARD OF GOVERNORS. SHE WHEN THE CONFIRMATION BY THE NARROWEST POSSIBLE MARGIN REQUIRING A TIE-BREAKING APPEARANCE BY VICE PRESIDENT KAMALA HARRIS. THE U.K. AND EU ARE AT IT AGAIN OVER THE POST-BREXIT DEAL FOR NORTHERN IRELAND. THIS TRUST SAYS THE EUROPEAN UNION'S PROPOSALS ON TRADE ARRANGEMENTS WILL NOT WORK. SHE SAID THE U.K. WILL TAKE UNILATERAL STEPS IF A NEW AGREEMENT CANNOT BE NEGOTIATED. THE EU IS READY TO SUSPEND THEIR TRADE DEAL IF THE U.K. FOREGOES THE NORTHERN IRELAND PROTOCOL FORGET CHINA FACING A TSUNAMI OF CORONAVIRUS INFECTIONS. THEY HAVE WARNED THAT COULD LEAD TO 1.6 MILLION DEATHS. CHINA'S VACCINATION CAMPAIGN WILL BE IN POSITION TO PREVENT AN OMICRON WAVE. PHILIP MORRIS INTERNATIONAL IS ACCELERATING ITS PUSH BEYOND CIGARETTES. THE COMPANY AGREED TO BUY A COMPANY IN A $60 BILLION TRANSACTION. FOR THE POOREST GENERATED 30% OF ITS NET REVENUES FROM SMOKE-FREE PRODUCTS. GLOBAL NEWS 24 HOURS A DAY -- GLOBAL NEWS 24 HOURS A DAY ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2,700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES. I'M RITIKA GUPTA. > > IF THE FED IS AGGRESSIVE ENOUGH, IT CAN MOVE THE DEMAND SUFFICIENTLY TO PAIN INFLATION, BUT THAT IS A VERY PAINFUL PROCESS. I THINK ULTIMATELY TO GET OUT OF THIS WITHOUT A RECESSION, THE FED IS GOING TO NEED SOME HELP FROM THE OUTSIDE WORLD. WE ARE GOING TO NEED SOME SUPPLY CHAIN IMPROVEMENT AND COMMODITY PRICES TO COME DOWN. JONATHAN: THE GLOBAL CHIEF ECONOMIST AT CITI. INFLATION DATA 12 MINUTES AWAY. NEW YORK CITY THIS MORNING, GOOD MORNING. THE BOUNCE, SQUEEZE, RALLY, WHATEVER YOU WANT TO CALL IT, CONTINUES. YIELDS DOWN AGAIN OFF OF THE LOWS OF THE SESSION BUT DOWN 4 BASIS POINTS. CRUDE HIGHER BY 3.9%. EURO-DOLLAR 10546. THE CURRENCY PAIR FIRMER. YOU WILL HEAR FROM THE PRESIDENT LATER AT 1:15 EASTERN DELIVERING REMARKS ON WHAT THEY CALL PRUDENCE PRICE HIKE. SCATHING FROM THE WALL STREET JOURNAL. MR. BARNETT BLAMED INFLATION ON THE PANDEMIC AND VLADIMIR PUTIN, ADMITTING THE DEMOCRATS POURED KEROSENE IN THE ACCELERATION LAST MARCH WITH THE SPENDING BILL. INFLATION WAS AT 7.9% WHEN MR. PUTIN INVADED UKRAINE. ONE LITTLE SNIPPET FROM THAT PIECE THIS MORNING. TOM: I AM SO HAPPY YOU SAW THAT. I FRANKLY MISSED IT BECAUSE THIS IS NOT A NORMAL EDITORIAL. THIS IS WIDELY RESEARCHED AND HAS A DENSITY. A SINGLE SENTENCE SHOWS THE COMPLEXITIES. POULTRY PRODUCERS SAY THE ETHANOL MANDATE OBVIOUSLY MOVING UP CORN IS DRIVING UP THE COST OF THEIR FEEDSTOCK AND THAT SOME OF THE COMPLEXITIES THE PRESIDENT WILL MEET IN THE MIDWEST. JONATHAN: ONE OF MANY. JUST COMPARE AND CONTRAST SOME OF THE FONTS IN THAT PIECE TO THE THOUGHTS OF THE PRESIDENT YESTERDAY AND LIKELY MORE OF THE SAME THIS AFTERNOON. TOM: 11 MINUTES AWAY FROM THIS IMPORTANT INFLATION REPORT FORGET WE GO TO THE GENTLEMAN WHO IS TRULY AN EXPERT. WHAT DOES SHORT TERM PAPERS SAY ABOUT THIS REPORT? WHAT IS THE ANTICIPATION? > > THE ANTICIPATION THE LAST COUPLE OF DAYS IS IT WILL BE REASONABLY BENIGN FORGET BE REACHED -- BENIGN. MAYBE WE REACHED PEAK INFLATION. WE HAVE NOW PRICED OUT JUST IN THE LAST COUPLE OF WEEKS ALMOST THREE INTEREST RATE HIKES FOR THE TOTAL, SO WE WERE AT ONE POINT PRICING FOR 3.5% AND THAT WE ARE MUCH CLOSER TO 3%. IT HAS BEEN A PRETTY DRAMATIC PULLBACK FROM THE AMOUNT OF HAWKISH AND IS EXPECTED BY THE MARKET. LISA: HOW MUCH OF THIS IS NOISE AND SHORT COVERINGS SO PEOPLE DO NOT SQUEEZED OUT AHEAD OF THIS? IRA: I THINK THAT IS CERTAINLY PART OF IT, BUT THERE IS A BIT OF A CHANGE IN THE IDEA THAT THERE IS STILL SOMEWHAT OF A FED PUT. THE MARKETS BEING IS BECAUSE THEY HAVE BEEN THE PAST COUPLE WEEKS REALLY CREATED THE SENSE THAT THE FED IS NOT GOING TO BE ABLE TO GO AS AGGRESSIVELY AS THEY THINK BECAUSE EVENTUALLY THE WEALTH EFFECT AND FINANCIAL MARKETS WILL BE SO VOLATILE THAT THE FED WILL NOT BE ABLE TO HIKE AS MUCH AS PART OF THE THINKING IN SOME TRADERS'S MINDS. AS THE YIELD CURVE GETS HIGHER AND HIGHER, IT BECOMES MORE COSTLY TO BE SHORT AS WELL. IT WAS REALLY EASY TO CONTORT WHEN YOU WERE NOT PAYING ANYONE A COUPON. NOW THAT YOU HAVE TO PAY SOMEONE A COUPON, IT IS HARDER TO STAY SHORT FOR A LONG TIME. LISA: WHAT DOES THIS MEAN IN TERMS OF HOW VIOLENT THE REACTION IN MARKETS COULD BE ONE WAY OR ANOTHER TO TODAY'S CPI PRINT? IRA: I THINK THE BIGGER RISK AT THIS POINT IS IF INFLATION IS A LITTLE HIGHER THAN THE MARKET EXPECTS. ONCE THAT HAPPENS, I THINK YOU WIND UP GETTING AT LEAST ONE MORE HYPE PRICED BACK IN SO YOU COULD END UP SEEING THE THREE YEAR AND FIVE YOUR PART OF THE YIELD CURVE SELLOFF PRETTY AGGRESSIVELY, ESPECIALLY GIVEN THAT IT OUTPERFORMED SO MUCH OVER THE PAST COUPLE DAYS. TOM: WE HAVE TO LEAVE IT THERE WITH MIKE MCKEE ENTERING THE BUILDING. JOINING US NOW, MICHAEL MCKEE, WHO MORE THAN ANYONE I KNOW IS ATTUNED TO THE ZEITGEIST RIGHT NOW. HIS TRIP TO PALO ALTO, THE HOOVER. WHAT DID YOU LEARN? WHY IS THIS INFLATION REPORT DIFFERENT FROM LBJ'S 5% OR CARTER'S 12%? WHAT IS DIFFERENT THIS TIME? MICHAEL: IN A WAY IT IS NOT DIFFERENT BECAUSE THE FED HAS TO ATTACK A PROBLEM THAT IS DIFFICULT TO ATTACK BECAUSE HALF OF THE PROBLEM IS THE SUPPLY-SIDE AT THE FED CAN ONLY WORK ON THE DEMAND SIDE. THEY ADMIT IT WILL BE MORE DIFFICULT THAN JUST BRINGING DOWN INFLATION, BUT THEY ALSO DO NOT WANT TO HAVE THE KIND OF RECESSIONS THAT CAME AFTER THE CARTER YEARS. TOM: HOW DO THEY DO THAT? WHAT IS THE MECHANISM FOR LORETTA MESTER, WHO YOU TALKED TO IN THE LAST FOUR HOURS? HOW DOES SHE MANAGE DOWN ECONOMIC GROWTH? I DON'T UNDERSTAND HOW YOU DO THAT. MICHAEL: THEY HAVE TWO THOUGHTS. ONE IS THEY NEED TO GET TO NEUTRAL, DEFINE THAT HOW YOU WANT, BY THE END OF THE YEAR VERY QUICKLY SO THEY ARE PUTTING DOWNWARD PRESSURE ON THE ECONOMY. THE OTHER IS THAT THE ECONOMY IS SO STRONG WITH JOBS AND NONE WOMEN WHERE THEY ARE THAT THEY HAVE ROOM TO MOVE. THEY CAN MOVE UP WITHOUT AS MUCH DANGER IN THE PAST. JONATHAN: YOU ARE ONE OF THE BEST AT THIS AND WILL BREAK THE NUMBERS DOWN FOR US IN SEVEN MINUTES. WE WILL GET FOUR DIFFERENT CPI FIGURES. WHAT MATTERS TO YOU? WHAT SHOULD WE BE FOCUSED ON? MICHAEL: I WILL TELL YOU ABOUT IS TO THE FED AND JAY POWELL. THEY HAVE REINFORCED THAT THEY ARE LOOKING AT MONTH OVER MONTH CPI COURT BECAUSE THEY WANT TO SEE IMPROVEMENT THERE. IF YOU ARE LOOKING AT MONTH OVER MONTH AND IT COMES DOWN AT A SLOWER PACE, IT SUGGESTS INFLATION IS SLOWING DOWN, AND THAT WILL TAKE OUT THE BASE EFFECT OF A YEAR AGO. SO IT WILL BE A MUCH MORE CLEAN READ ON INFLATION. WHILE WALL STREET MAY FOCUS ON THE YEAR-OVER-YEAR NUMBER, THE FED WILL BE LOOKING AT THE MONTH OVER MONTH NUMBERS TO HOPEFULLY SEE SOME MOVEMENT LOWER. JONATHAN: AWESOME. LOOKING FORWARD TO COVERAGE SIX MINUTES AWAY. A .5% THE PREVIOUS READ YEAR-OVER-YEAR ON HEADLINE. ONLY ONE BANK AS A FORECAST OF 8.5%. AT THE LOW END, YOU GOT ETHAN HARRIS AT BANK OF AMERICA LOOKING FOR 7.9% FORGET CORE CPI MONTH ON MONTH, IF THAT IS WHAT THE FED IS FOLLOWING, THE MARKET WILL CUE OFF OF THAT TOO. TOM: WE TALK ABOUT THE CONSUMER AND MAIN STREET BUT TO BE FAIR, THAT IS WHAT YOU DO IN ACADEMICS. YOU LOOK AT THE SHORT-TERM, THE RATE OF CHANGE IF YOU WILL OF INFLATION, WHICH IS ITS OWN GROWTH RATE. JONATHAN: LISA, WE ARE LOOKING FOR DECELERATION. LISA: DECELERATION BUT IN WHAT? DOES IT MATTER IF IT IS DECELERATION IN SOME OF THE NON-CORE ITEMS? THE IDEA OF ENERGY DRIVING THIS WITH FLUCTUATIONS IN GAS. ARE PEOPLE LOOKING AT LODGING, AIRPLANE TICKETS, WAGES? HOW MUCH DOES THAT END UP BEING THE MUCH BIGGER DRIVER OF THE FED RESPONSE? JONATHAN: THE NUMBER IN FIVE MINUTES AND THEN THE BREAKDOWN WITH MIKE MCKEE. GREAT GUESTS COMING UP. TOM: IT IS ABOUT THIS BALANCE BETWEEN THE NOMINAL ECONOMIC AND THE NOMINAL RATE AND THE INFLATION-ADJUSTED RATE SO IT IS NOT JUST ONE MOVING PART HERE. IT IS REALLY THREE ITEMS MOVING AROUND. THE WORD I USE, VERY SOPHISTICATED, THIS IS A SQUISHY REPORT COMING UP. JONATHAN: CHIEF ECONOMIST AND MICROSTAR JUST JOINING US VERY SHORTLY. FUTURES UP BY LITTLE MORE THAN 1% ON THE S & P AND THE NASDAQ UP BY 1.4%. YIELDS ARE LOWER FOR A THIRD STRAIGHT SESSION. WE ARE DOWN BY FOUR OR FIVE BASIS POINTS. 29461. JONATHAN: SECONDS AWAY, MOMENTS AWAY FROM INFLATION DATA IN AMERICA. FROM NEW YORK CITY THIS MORNING, GOOD MORNING TO YOU ALL FORGET FUTURES UP BY 1% ON THE S & P 500. ON THE NASDAQ 100, UP BY 0.8% FORGET WITH THE DATA IS MICHAEL MCKEE. MICHAEL: CPI ON A MONTH OVER MONTH BASIS, IT IS UP BUT DOWN FROM WHAT IT WAS LAST MONTH BUT AHEAD OF THE FORECAST. LESS FOOD AND ENERGY. THE CORE UP 0.6%. THAT IS AN UPSIDE MISSED THAT WILL NOT MAKE MARKETS OR THE FED HAPPY. 0.4% WAS THE FORECAST. 0.3% IN PRIOR MONTHS. 8.3% MONTH-TO-MONTH AND CORE IS AT 6.2%. THAT COMES DOWN FROM 6.5% KEEP IN MIND THAT THE YEAR-OVER-YEAR FIGURES ARE BASED -- THE DROP IS BASED ON A BASE EFFECT THAT INFLATION WAS SO HIGH IN THESE MONTHS LAST YEAR THAT IT WAS MECHANICALLY GOING TO FALL BUT THE MONTH OVER MONTH NUMBERS COME IN A LITTLE HOTTER THAN THE FED EXPECTED. RIGHT NOW, IT LOOKS LIKE FOOD WAS UP 0.9%. THE 17TH CONSECUTIVE MONTHLY INCREASE. FOOD AT HOME UP 1% DOWN FROM LAST MONTH BUT STILL A SIGNIFICANT JUMP. ENERGY DOWN 2.7%. PEOPLE PREDICTED THAT. GASOLINE DOWN 6.1%. THAT IS IN PART A SEASONAL ADJUSTMENT. IT IS SOMETHING THAT COULD TURNAROUND AS WE SEE GASOLINE PRICES RISE AGAIN INTO THE SUMMER. SHELTER INCREASED 0.5%. RENT UP 0.6%. OWNERS EQUIVALENT RENT 0.5%. THAT IS NOT GOOD NEWS AND SUGGESTS HOUSING PRICES ARE STILL WAITING ON THE OVERALL INDEX -- WEIGHING ON THE OVERALL INDEX. I AM LOOKING FOR THE AUTOS. OH. JONATHAN: KEEP DIGGING. ONE NUMBER MATTERS RIGHT HERE. MONTH ON MONTH CORE CPI, 0.6. THE PREVIOUS WEEK, 0.3. THE MEDIAN ESTIMATE, 0.4. THE RANGE ON WALL STREET ANYWHERE FROM 0.3 TO 0.5. NO ONE WAS ANYWHERE NEAR THIS. NOBODY CALLED 0.6, AND THAT IS WHY THE MARKET MOVES THE WAY IT HAS DONE. DOWN ON THE S & P. THE NASDAQ LOWER BY HALF OF 1% AND OFF TO THE RACES AT THE FRONT END OF THE YIELD CURVE FORGET YOUR 10 YEAR IS UP THREE BASIS AFTER BEING LOWER. WE ARE UP EIGHT BASIS POINTS ON THE FRONT END. YOUR THREE YEAR IS UP NINE AND FIVE EUROPE SIX. TOM: YOU MENTIONED JOHN AND MICKEY. THESE ARE WOW STATISTICS. REAL AVERAGE WEEKLY EARNINGS, NEGATIVE THREE POINT 4%. STUNNING. AND I WONDER, NOT THAT THE PRESIDENT KNEW THE DETAILS, BUT YOU HAVE TO WONDER IF THE HEADS UP -- IF THE WHITE HOUSE GOT A HEADS UP ON THIS TO GIVE HIM TWO DAYS OF FACE TIME. JONATHAN: I WOULD SUGGEST NOT A LOT CHANGES FOR THE PRESIDENT LATER BECAUSE GAS PRICES ARE WHERE THEY ARE FORGET THAT WAS ALREADY A PROBLEM FOR HIM. WALL STREET WILL BE TALKING ABOUT A 0.6 PERCENT CORE CPI MONTH ON MONTH FIGURE. MAIN STREET WILL TALK ABOUT 8.3%. DOWN FROM A .5% IN PREVIOUS MONTHS. THE PROBLEM IS WE DON'T HAVE THE SCALE OF DECELERATION THAT THIS MARKET AND WALL STREET ECONOMISTS WERE LOOKING FOR. WE GO BACK TO THE START OF THIS MORNING AND IT IS NOT ABOUT WHERE IT PEAKS BUT WHERE IT PLATEAUS AND HOW MUCH DECELERATION WE GET THROUGH THE SUMMER AS THE FED LOOKS TO BE ASSESSED AT THE END OF AUGUST. 0.6% MONTH ON MONTH ENCORE IS A PROBLEM. LISA: IF THIS IS DECELERATION, IT IS NOT WORKING. THEY WILL HAVE TO BE MORE AGGRESSIVE FORGET THE FACT THAT IT IS COMING FROM RENTS, WAGES, THE FACT THAT COMPANIES CAN KEEP RAISING PRICES AND NOT MEET RESISTANCE IS SOMETHING THE FED WILL NEED TO ADDRESS. THEY CANNOT BLAME ON SUPPLY CHAINS AND OIL SHORTAGES. JONATHAN: THE YEAR-OVER-YEAR STUFF IS MECHANICAL. THE MONTH ON MONTH, YOU SEE THAT 0.6%. HOW SURPRISED ARE YOU? MICHAEL: I AM NOT SURPRISED BECAUSE SOME ANALYSTS FORECASTED WE MIGHT SEE THAT BECAUSE THERE IS SOME DATA THAT APPEARED TO SHOW UP. IT CHANGED ITS METHODOLOGY FOR ESTIMATING NEW-CAR PRICES. JUST STARTING THIS MONTH, NEW-CAR PRICES WENT UP 1.1%. IT HAD BEEN 0.2 PERCENT, 0.3% BEFOREHAND. WE HAVE A BIG JUMP IN CAR PRICES THAT IS A METHODOLOGICAL CHANGE AND WILL EVENTUALLY WORK ITS WAY OUT OF THE NUMBERS. USED CARS FALL AGAIN, SECOND MONTH IN A ROW, DOWN 0.4% FORGET NOT SO BAD. AIRLINE FARES UP 18.6%. IF YOU HAVE BEEN IN AN AIRPORT LATELY LIKE I HAVE, EVERYONE IS FLYING SO THE AIRLINES ARE MAKING UP SOME GROUND. WE ALSO SAW NATURAL GAS UP 3.1%. SEASONALLY ADJUSTED GOING THE OTHER WAY FROM GASOLINE. TOM: MICHAEL, I AM LOOKING AT ONE OF THE INTO REAL DATA POINTS YOU ARE AN EXPERT AT. IT LOOKS LIKE THERE ARE 40 LINES OF INFLATION. I CAN MAKE A JOKE ABOUT BEVERAGES BUT LET'S MOVE ON FROM THE JOKE. APPARENTLY UP 5.4%. PHYSICIAN SERVICES GO NOWHERE. IT IS A JUMBLE. IT IS A MIX. WHAT DO THEY DO WITH A JUMBLE THAT WE SEE HERE? MICHAEL: WHAT THEY WILL BE LOOKING AT BESIDES THE MONTH OVER MONTH HEADLINE CHANGE IS THE MONTH OVER MONTH CHANGES IN CORE GOODS THAT PEOPLE BUY ON A REGULAR BASIS AND TRY TO FIGURE OUT. APPAREL PRICES DOWN 0.8% ON THE MONTH MONTH OVER MONTH, SO MAYBE THAT IS SOME DECELERATION. THAT IS WHAT YOU WILL BE LOOKING AT TO SEE IF PRICES ARE STARTING TO COME DOWN IN SOME KEY AREAS. OF COURSE, NOBODY EXPECTS IT TO FALL OFF A CLIFF. BY THE END OF THE YEAR, THEY ARE HOPING TO GET SOMEWHERE BETWEEN 4% AND 5%. WE WILL SEE HOW THIS CONTINUES TO PLAY OUT. PART OF THIS WILL BE THE SUPPLY CHAIN PROBLEMS. MAYBE NOW WE HAVE CLOTHING IN THE STORES BECAUSE WE DID NOT HAVE IT IN THE FALL. LISA: YOU JUST GOT FINISHED HOBNOBBING WITH FED OFFICIALS AND ACADEMICS. WE ARE LOOKING AT A SURPRISE TO THE UPSIDE. THIS IS NOT WHAT THEY SAY THEY WANT TO SEE. THEY ARE DATA-DEPENDENT. IS THIS ENOUGH DATA TO CHANGE VIEWS AND GET PEOPLE TO BE MORE PERSISTENT IN TERMS OF THE PACE AND DURATION OF THE RATE HIKES? MICHAEL: NO, THIS WILL NOT CHANGE ANYTHING. THIS IS SORT OF ON POINT WHAT THEY EXPECTED. IT IS NOT WHAT THEY WANT, BUT IT IS CERTAINLY SOMETHING THEY ARE NOT GOING TO BE SURPRISED ABOUT. SOME OF THE THINGS THAT PUSHED UP PRICES ARE THINGS OBVIOUSLY THE FED CANNOT DO ANYTHING ABOUT. THEY ARE NOT LOOKING AT THE YEAR-OVER-YEAR NUMBERS ON THE HAPPEN. THAT IS WHAT AMERICANS ARE DOING. THAT IS WHAT WILL BE IN THE HEADLINES OF THE NEWSPAPER. THE FED WILL BE LOOKING AT WHERE THE INFLATIONARY PRESSURES ARE COMING FROM AND WILL DISREGARD GASOLINE AND FOOD. JONATHAN: WONDERFUL WORK AS ALWAYS. THANK YOU. FUTURES DOWN BY A QUARTER OF 1%. NASDAQ 100 FUTURES, -0.7%. WE ARE SEEING THIS BLEED INTO THE BOND MARKET A LITTLE BUT. WE ARE BACK TO 271, HIGHER BY 10 BASIS POINTS. OFF THE HIGHS OF THE YEAR SO FAR. IT CERTAINLY KEEPS THE HEAT ON THE FEDERAL RESERVE GOING INTO THE NEXT MEETING AND BEYOND. TOM: MICHAEL JOINS US NOW, CHIEF ECONOMIST AND MICRO CENTER JUST AT M KM PARTNERS. YOU AND I HAD A SCINTILLATING CONVERSATION FIVE OR SIX DAYS AGO ABOUT THE NOMINAL NATURE OF THE AMERICAN ECONOMY. THIS KIND OF INFLATION, IF WE SEE IT OVER ONE MONTH, TWO MONTHS, THREE MONTHS, WHAT DOES IT SAY ABOUT THE COMBINATION OF REAL GDP AND INFLATION? MICHAEL: I THINK THESE NUMBERS OBVIOUSLY ARE TWO HOT -- TOO HOT SO THIS IS A BIT OF A SHOT TO THE UPSIDE, BUT I WOULD GO TO THE POINT THAT JONATHAN JUST MADE WHERE THE PEAK WHICH LOOKS LIKE A DIP IS IN NOW ON A YEAR-OVER-YEAR BASIS IS POTENTIALLY A LOT LESS IMPORTANT THAN WHERE THE NUMBERS SETTLE AND WHERE THE PLATEAU IS. IF WE HAVE REALLY RAPID NOMINAL GDP, AGGREGATE DEMAND, EVEN IF THE YEAR-OVER-YEAR NUMBERS COME DOWN BY HALF, WE SETTLE ABOUT 4% OR JUST ABOVE THAT BY THE END OF THE YEAR, THAT LOOKS LIKE THE PLATEAU AND THAT IS STILL A MAJOR PROBLEM FOR THIS BOND MARKET, A MAJOR PROBLEM FOR THIS FEDERAL RESERVE, AND AS WE ARE SEEING, A MAJOR PROBLEM WITH VALUATIONS THAT SUPPORT THE S & P 500. THEY ARE GOING DOWN AND GOING DOWN BECAUSE LONG-TERM INTEREST RATES HAVE BEEN GOING UP. JONATHAN: THAT LANDING STRIP FOR THE SOFT LANDING GETS A LITTLE BIT LOWER WITH THIS NUMBER? MICHAEL: I THINK IT DOES. THE FED HAS ITS WORK CUT OUT FOR IT, BUT IT NEEDS TO SLOW AGGREGATE DEMAND. TYPICALLY STARTING FROM BEHIND THE CURVE, THE SUCCESS RATE IS NOT VERY HIGH, SO USUALLY WHAT HAPPENS IS CENTRAL BANKS START OFF TOO SLOW WHEN THEY ARE BEHIND THE CURVE. THAT IS THE DEFINITION OF BEING BEHIND THE CURVE. EVENTUALLY, THEY APPLY TOO MUCH BRAKING FORCE LATER ON AND THAT IS TYPICALLY WHEN YOU ARE IN A BUST PART OF THE CYCLE. I DON'T THINK THAT PART PLAYS OUT THIS YEAR. BUT THEY HAVE MISSED THE BOAT OF THIS YEAR. I THINK IT IS PRETTY OBVIOUS NOW. THEY REALLY SHOULD HAVE GOTTEN THE TIGHTENING PROCESS GOING LAST YEAR. EVEN WITH THAT PRESS CONFERENCE LAST WEEK, POWELL SEEMINGLY EXPLICITLY RULING OUT GREATER THAN 50 BASIS POINTS MOVES. WHY WILL ANYTHING OUT IN THE EARLY INNINGS? STEP AWAY FROM THE FORWARD GUIDANCE AND TAKE IT MEETING BY MEETING. I THINK THE MESSAGE WAS A BIT BUNGLED AND CONFUSED AS WELL AND THAT IS NOT HELPFUL IN THIS ENVIRONMENT. LISA: THERE IS A BIG DEBATE ABOUT WHERE THE DRIVERS OF INFLATION ARE COMING FROM AND HOW MUCH IS REALLY WITHIN THE FED'S CONTROL AND THAT IS UNDER FITTING THE HESITANCE FOR A MORE AGGRESSIVE APPROACH BY JAY POWELL. HOW MUCH DO YOU AGREE WITH THAT, THAT THE BULK OF THE INFLATIONARY PURCHASE ARE COMING FROM OVERSEAS, GEOPOLITICAL ISSUES, AND NOT FROM THE DYNAMISM IN THE LABOR MARKET, THE WILLINGNESS TO SPEND, FROM CONSUMERS THAT STILL HAVE A LOT OF CASH? MICHAEL: IT IS CONFUSING BECAUSE WE DO HAVE THESE SUPPLY-SIDE SHARKS PLAYING OUT AND THEY ARE RAISING INFLATION AND THE FED CANNOT DO ANYTHING SPECIFICALLY ABOUT THOSE SHOCKS, BUT WE HAVE ALSO HAD A SUPER ROBUST NOMINAL GDP BACKDROP. NOMINAL GDP IS ROBUST TO SUPPLY-SIDE SHOCKS MEANING THAT A SUPPLY-SIDE SHOCK WILL CHANGE THE COMPETITION BUT NOT THE LEVEL OR GROWTH RATE OF NOMINAL GDP, SO WE CAN ACTUALLY GET TO A ROUGH AND READY ANSWER TO THAT QUESTION BY LOOKING AT HOW MUCH NOMINAL GDP HAS OVERSHOT ITS PREVIOUS TREND AND HOW MUCH INFLATION HAS OVERSHOT THE PREVIOUS TREND. IF YOU DO THAT, IT LOOKS LIKE 60% TO 70% OF THE INFLATION OVERSHOOT IS ACTUALLY DEMAND-SIDE, AGGREGATE DEMAND, NOMINAL GDP. IF THAT IS NOT THE PROVINCE OF THE FED, WHY DO WE EVEN HAVE A FED? THAT IS THE FED'S RESPONSIBILITY, NOT THE SUPPLY SHOCKS. THEY ARE REAL BUT THIS INFLATIONARY OVERSHOOT IN LARGE MEASURE IS DUE TO AGGREGATE DEMAND. TOM: IF THEY POLITICALLY EMBEDDED 50 BASIS POINT RATE HIKES AND THEY SORT OF SAY AND I AM BEING VERY SOPHISTICATED HERE, LET'S SEE WHAT HAPPENS, HOW FAR OUT A TRAJECTORY DO YOU SEE? IF THEY GO 50-50, ETC., DO THEY REALLY ANALYZE TWO MEETINGS OUT IN JULY OR DO THEY GO OUT FURTHER BEFORE THERE IS A LOT OF NAVELGAZING OVER WHAT TO DO NEXT? MICHAEL: I THINK THEY JUST NEED TO TRY TO EXTRICATE THEMSELVES FROM THE LAST BUSINESS CYCLE. WE STILL HAVE FED OFFICIALS OUT THERE SAYING WE WANT TO GET TO NEUTRAL AND NEUTRAL IS AROUND 2.5. THAT MIGHT HAVE APPLIED TO THE LAST BUSINESS CYCLE BUT THE CYCLE LOOKS DIFFERENT, WHETHER IT IS NOMINAL GDP INFLATION, THE RAPIDITY OF THE FALL IN THE UNDER PUTMAN RATE, AND SO THE FED HAS BASICALLY MADE TWO MISTAKES HERE. ONE IS ASSUMING A FLAT CURVE UNTIL 3.5% ON APPOINTMENT BECAUSE THAT IS WHERE WE WERE AT THE END OF THE LAST CYCLE, AND THEN ASSUMING THE NEUTRAL INTEREST RATE IS RIGHT AROUND THE SAME POSITION IT WAS IN THE LAST CYCLE. THAT IS A PROBLEM. REALLY, WHAT THEY SHOULD BE DOING IS SAYING WE GOT EXPLICITLY AIMING FOR NOMINAL GDP TO A MORE SUSTAINABLE GROWTH RATE CONSISTENT WITH 2% AVERAGE INFLATION OVER TIME. THAT WOULD PROBABLY BE ABOUT 4%. THAT LOOKS AS OF APRIL THE PROXIES FOR MONEY INCOME OR NOMINAL GDP ARE CLOSER TO 9%, SO STILL WAY TOO FAST. I THINK THAT IS THE BEST SHOT THE FED HAS ENGINEERING A SOFT LANDING. IT WILL BE DIFFICULT, BUT EMBRACING THE PHILLIPS CURVE IN THE NEUTRAL INTEREST RATE OF THE LAST CYCLE IS JUST SIMPLY NOT GOING TO CUT IT. THAT WILL LEAD TO A POLICY MISTAKE AND A SEVERE FACE PLANT AND PUTTING THE ECONOMY ON THE LINE. JONATHAN: THANK YOU SIR. WITH EQUITIES DOWN ON THE S & P AND THE NASDAQ DOWN BY 1.1%. FUTURES WERE POSITIVE THIS MORNING BY 1.65%. STRAIGHT OFF THE BACK OF THAT NUMBER, THE WRONG KIND OF UPSIDE SURPRISE. YIELDS MOVING HIGHER. THEY WERE DOWN. MUCH MORE SO AT THE FRONT END. GREAT LINEUP IN THE NEXT HOUR TO GO THROUGH THIS. JOINING US IN THE NEXT HOUR ON BLOOMBERG TV TO WORK OUR WAY THROUGH THIS. TOM: THIS MORNING WILL BE QUITE EXTRAORDINARY TO SEE, ESPECIALLY COMING OFF OF THE PRESIDENTS POLITICS LINKING OUR ECONOMICS, FINANCE, AND INVESTMENT. JOINING US RIGHT NOW, WE WELCOME YOU ON RADIO AND TELEVISION OVER THE SHOCK OF THE INFLATION REPORT THAT HARKENS BACK TO THE MIDDLE 1960'S. WE MENTIONED CARTER OF 12% INFLATION. MAYBE HE WAS OUT AT BERKELEY READING HIS ECONOMIC BOOKS AT THE TIME. DUDLEY JOINS US, AND HE HAS BEEN OUT FRONT ON WHAT HAS HAPPENED. I AM NOT GOING TO MINCE WORDS, BILL DUDLEY, THIS IS ONE INFLATION REPORT, BUT IMPORTANT THAT YOU HIGHLIGHT OUR JARRING DISCONNECT. HOW DISCONNECTED ARE WE RIGHT NOW FROM WHERE WE NEED TO GO? > > I THINK THE FEDERAL RESERVE IS THE FED HAS NOT BEEN STATING JUST WHAT THEIR GOAL IS INTO .5%, BUT THE MEANS TO ACHIEVE THAT GOAL. AT THE PRESS CONFERENCE, WANTED TO TALK ABOUT WHY MONETARY POLICY MIGHT JUST HAVE TO BE NEUTRAL BUT GO TYPE. I THINK TIGHT MONETARY POLICY IS WHAT WILL BE REQUIRED TO GET INFLATION UNDER CONTROL. TOM: WHY ARE THEY TIMID? WILLIAM: IT IS NOT CLEAR TO ME. THEY ARE CERTAINLY NOT TIMID ABOUT TALKING ABOUT WHAT THE END GOAL IS BUT IF YOU ARE TALKING ABOUT THE END GOAL OF TWO POINT PERCENT -- 2% INFLATION, IF YOU START TO SUGARCOAT IT, FINANCIAL CONDITIONS DO NOT TIGHTEN AS MUCH AND YOU RUN THE RISK THAT PEOPLE WILL LOSE CONFIDENCE IN THE FEDERAL RESERVE. PEOPLE ARE STILL CONFIDENT THE FEDERAL RESERVE WILL DO ITS JOB. BUT IF YOU KEEP UNDER PROMISING WHAT IS REQUIRED, I THINK THERE IS A LOSS OF CREDIBILITY DOWN THE ROAD. LISA: DO YOU THINK THIS IS SUGARCOATING OR THAT JAY POWELL DOES NOT BELIEVE WE WILL GET A MORE PERSISTENT LEVEL OF INFLATION THAT MANY PEOPLE INCLUDING YOURSELF ARE TALKING ABOUT? WILLIAM: I THINK YOU CAN SEE IT IN THE FED'S OWN ECONOMIC PROJECTION. WHAT THEY SHOWED WAS INFLATION WAS MAGICALLY MELTING AWAY DESPITE A MONETARY POLICY THAT DID NOT GET TO TIGHTEN AND RATES DID NOT RISE, WHICH HAPPENED TO BE ABOUT 3.5%. THAT SORT OF MAGICAL IMMACULATE DISINFLATION, THE FEDERAL RESERVE TIGHTEN MONETARY POLICY. THAT IS WHAT IS REQUIRED. I THINK THE FEDERAL RESERVE SHOULD BE MORE FORTHRIGHT ABOUT EXPLAINING THAT TO THE AMERICAN PUBLIC. LISA: DO YOU THINK ANDREW BAILEY CHARTED THE PATH FOR FED OFFICIALS SAYING, LOOK WHAT WE WILL BE HIKING RATES INTO A SLOWING ECONOMY AND WE MIGHT JUST EXACERBATE A RECESSION, BUT A NEAR-TERM RECESSION WILL BE WHAT IS NECESSARY TO BRING SUPPLY AND DEMAND MORE INTO BALANCE TO ACTUALLY CREATE MORE GROWTH LATER ON? WILLIAM: I DON'T THINK THE FED NECESSARILY HAS TO SAY THERE WILL BE A RECESSION. BUT I THINK THEY SHOULD EXPLAIN THAT A SOFT LANDING IS DIFFICULT TO ACHIEVE WHEN YOU HAVE TO PUSH UP THE UN-UP LIMIT RIGHT TO HOLD DOWN INFLATION. TOM: FROM WHERE YOU SIT WITH DECADES AT GOLDMAN SACHS AND ALL OF YOUR ACADEMICS AS WELL, I THINK OUR AUDIENCE IS FASCINATED BY WHAT POLITICIANS CAN DO. IF WE STRETCH IN OUR RECENT MEMORY FROM LBJ TO JIMMY CARTER TO RICHARD NIXON, WHO WAS HANDED THAT FROM CARTER, AND ONTO THE PRESENT PRESIDENT, WHAT DO PRESIDENTS DO ABOUT INFLATION? ARE THEY EVEN PART OF THE DISCUSSION? WILLIAM: I THINK THE PUBLIC HAS AN EXAGGERATED VIEW ABOUT WHAT ANY ADMINISTRATION CAN DO ABOUT INFLATION. THE BIDEN ADMINISTRATION, PROBABLY THE MOST IMPORT THINK THEY HAVE DONE IS THE STRATEGIC PETROLEUM RESERVE AND THAT IS PUTTING SOME DOWNWARD PRESSURE ON OIL PRICES. BUT I THINK THE REALITY IS THE PRESIDENT'S ABILITY TO DO SOMETHING ABOUT INFLATION IS EXTREMELY LIMITED. THE ONLY THING THE PRESIDENT CAN DO IS GET CONGRESS TO TIGHTEN FISCAL POLICY TO MAKE THE FED JOB A LITTLE EASY. TOM: TRULY A HISTORIC MOMENT PARTICULARLY WITH THE INFLATION-ADJUSTED. WILLIAM W IS WITH US. THE FORMER NEW YORK FED PRESIDENT. HE HAS BEEN SHOCKING IN HIS PRESCIENT NATURE AND GUESSING ON WHERE THE PRICING IS GOING. IF YOU ARE JUST JOINING US, WE ARE GETTING USED TO 8% INFLATION. WAITING TO GET MR. JERSEY LINED UP ON A BOND MARKET WITH A TWO YEAR YIELD HIGHER BY NINE BASIS POINTS. UNCLE MICKEY DOING WHAT HE DOES BEST, WHICH IS SPEAK TO PEOPLE LIKE PRESIDENT DUDLEY AND ALSO GO THROUGH THE MY NEW SHIRT AND THE DATA. WHAT DOES THIS REPORT SAY ABOUT WAGE GROWTH AND THE FEAR OF A WAGE SPIRAL? MICHAEL: IT DOES NOT GIVE US A WHOLE LOT OF NEW INFORMATION BECAUSE THE REAL AVERAGE HOURLY EARNINGS WHICH THEY CALCULATE BY SUBTRACTING INFLATION FROM WHERE PEOPLE WORK, ARE DOWN 2.6% SAME AS LAST MONTH. NO CHANGE THERE SO WE ARE STILL BEHIND INFLATION. I TALKED TO A NUMBER OFFEND OFFICIALS IN THE LAST FEW DAYS ABOUT WHAT COMPANIES ARE TELLING THEM THAT THEY ARE SEEING A WAGE PRICE SPIRAL, AND THEY ARE SEEING PRICES CONTINUE TO GO UP BUT DO NOT FEEL LIKE THEY HAVE ENORMOUS PRESSURE ON THEM YET TO RAISE PRICES. TOM: BILL DUDLEY, WE GO TO YOU ON THIS QUESTION. I SEE WAGE GROWTH BUT ALSO THE LACK OF WAGE GROWTH OVER THE LAST 15 YEARS OR SO. IS THERE FEAR OF A WAGE SPIRAL DIFFERENT NOW THAN IT WAS DECADES AGO? WILLIAM: I THINK THERE HAS TO BE SOME FEAR OF IT. WE HAVE 1.9 UNFILLED JOBS, AN ALL-TIME RECORD. THE CONSEQUENCE OF THAT SHOULD BE HIGHER WAGES. HIGHER WAGES SHOULD BE THE CONSEQUENCE OF HEADLINE INFLATION AND WHAT WAGES ARE DOING TODAY. WAGES SHOULD GO HIGHER. LISA: DO YOU AGREE WITH CHRIS WHO CAME OUT YESTERDAY SAYING THERE IS SO MUCH FROTH IN THE LABOR MARKET THAT WE CAN WITHSTAND A SOFTENING THAT WOULD BE MORE BENEFICIAL RATHER THAN DETRIMENTAL, EVEN IF IT LED TO FEWER OPPORTUNITIES? WILLIAM: I THINK THAT IS WHAT THEY HAVE TO DO. I THINK THEY ARE TRYING TO SUGARCOAT THIS A LITTLE BIT. WE CAN REDUCE THE DEMAND FOR LABOR WITHOUT INCREASING UNEMPLOYMENT. SO IF YOU WERE, BUT DON'T WORRY, YOU WILL GET A JOB. THAT IS AGAIN SUGARCOATING IT. THAT WILL BE PAINFUL. LISA: WHEN WE TALK ABOUT THE DRIVERS OF INFLATION, IT IS ONE THING FOR THE FED TO RESPOND TO A LABOR MARKET THAT IS HOT, RENTS GOING UP. IT IS ANOTHER THING TO REPLY TO THE SUPPLY CHAIN THAT IS DISRUPTED AND A SHORTAGE OF GOODS THAT ENSUES THERE INTERVIEWED DO YOU THINK THAT IT MATTERS -- THEREIN. DO YOU THINK THAT IT MATTERS FOR IT BECOMES ENTRENCHED IN THE PSYCHES OF AMERICANS? WILLIAM: AT THE END OF THE DAY, THE FED'S JOB IS TO MAKE SURE SUPPLY AND DEMAND RIGHT OUT. IF IT LAST FOR A LONG TIME WHICH IS THE CASE CURRENTLY, THE FACT THAT IT IS DUE TO SUPPLY CHAIN DISRUPTIONS WOULD NOT MATTER BECAUSE SUPPLY CHAIN DISRUPTIONS ARE PERSISTENT AND YOU WILL HAVE AN INFLATION CONSEQUENCE. LISA: REAL QUICK HERE, YOU WERE TALKING EARLIER ABOUT A 45% FED FUNDS RATE. HAVE YOU CHANGED YOUR VIEW ON HOW HIGH THE FED WILL HAVE TO GO? WILLIAM: I THINK FOUR OR FIVE HIGHER. WOULD NOT SHOCK ME IF I AM 526 MONTHS FROM NOW. TOM: WHAT DOES NOT DO ON THE EMPLOYMENT TREND TO THE ECONOMY AND AUTO LIMIT RIGHT? I WANT YOU TO GO FOR THE CURVE HERE AND LINK IT IN. WHAT DOES IT DO TO THE UNAPPOINTED RATE? WILLIAM: I THINK AN APPOINTMENT IS ABOUT WHAT IS HAPPENING AND DEMAND. DEMAND WILL BE FINE BECAUSE RIGHT NOW IT IS ABOVE SUPPLY IN A NUMBER OF KEY AREAS LIKE HOUSING AND AUTOS. I THINK THE ECONOMY WILL BE FINE IN 2022 BUT THIS MAKES THE JOB MORE DIFFICULT. TOM: THANK YOU SO MUCH. VERY IMPORTANT SAP GET HE IS THE FORMER PRESIDENT OF THE NEW YORK FED. IRA WITH US NOW FORGET YOU JUST -- NOW. YOU JUST HEARD BILL DUDLEY FRANK OUT WHICH IS ABOVE 3%, MAYBE 5% OR 4%, FORMS OF INTEREST RATES, MAYBE TERMINAL VALUE, WAY ABOVE 3%. WHAT DOES THAT DO TO THE FIXED INCOME SPACE? IRA: I THINK THE FIRST THING IS PEOPLE WILL BE PRICING AND THE MARKET IS ALREADY THERE PRICING A RECESSION BY 2024. SO YOU WIND UP HAVING A PRETTY SIGNIFICANT INVERSION OF THE YIELD CURVE, PARTICULARLY IF YOU GET INTEREST RATES AND THE FED FUNDS RATE ABOVE 3.5%, BUT FIRST, WE HAVE TO GET THERE. WE WERE AT 3.5% TERMINAL INTEREST-RATE FROM THE FED AND PRICED OUT A LOT OF THAT DOWN TO 3%. FIRST, WE HAVE TO PRICE THAT BACK IN. I THINK THE MARKET YOU HAVE SEEN OVER THE LAST 20 MINUTES OR AGO SUGGESTS WE PRICED OUT TOO MUCH DOVISHNESS FROM THE FED AND THAT WILL HAVE TO PRICED SOME OF THAT BACK IN. I THINK YOU HAVE SEEN THE STEEPEST YOU WILL SEE THE YIELD CURVE THIS YEAR. LISA: WHEN WE TOOK A LOOK AT THIS NUMBER, WE SAID THIS IS A SIGNIFICANT SHIFT IN TERMS OF THE EXPECTED DECELERATION. IT SEEMS LIKE YOU DON'T THINK IT IS A WOW MOMENT FOR THE BOND MARKET. DO YOU AGREE? IRA: IT WAS A LITTLE BIT OF A WOW MOMENT. THERE WERE PEOPLE THINKING WE WERE GOING TO GET 0.5% SO 0.6% BECAUSE OF AIRFARES, PEOPLE LOOK THROUGH THAT A LITTLE BIT, BUT I THINK WE HAD BEEN SO DOVISH FOR THE LAST WEEK OR SO AND AT THIS POINT THAT HAS TO SHIFT. WE TOOK OUT A CHANCE OF A 75 BASIS POINT HIKE IN JUNE BUT THAT DOES NOT MEAN THE FED WILL NOT HIKE 50 BASIS POINTS SINGLE MEETING THIS YEAR, WHICH MEANS WE CAN PRICE IN ANOTHER 7500 BASIS POINTS WORTH OF HIKES BY THE END OF THIS YEAR. IT IS PRETTY HAWKISH IN GENERAL AND SOMETHING LIKE YOU JUST HEARD BILL DUDLEY TALK ABOUT THAT THE FED NEEDS TO BE MORE HAWKISH. I THINK THAT IS THE FIRST THING THE FED WILL DO. THEY WILL HIT THAT WE WILL GO 50'S AND DO NOT GO ANYMORE. TOM: WELCOME WORLDWIDE. A STUNNING INFLATION REPORT. NASDAQ 100 NOW APPROACHING -27% ON DRAWDOWN. -1.7 PERCENT ON THE NASDAQ 100. SPX -40 POINTS. THE VIX GOES THE OTHER WAY. 34.30. THE VIX TOUCHED A 35 LEVEL DAYS AGO FORGET LISA: THERE IS MORE VOLATILITY BUT HOW TO PLAY THAT IS A HARD CALL GIVEN THE PEOPLE ARE LOOKING AT PRICINGS THAT MIGHT BE REFLECTED IN THE VIX. I STRUGGLE WITH THE IDEA OF LONGER-TERM INTEREST RATES BEING PINNED IN A YIELD CURVE THAT IS INVERTING AS WE HEAR BILL DUDLEY AND OTHERS TALK ABOUT THE FED LOSING THE PLOT, LOSING THE NARRATIVE, POSSIBLY LOSING FAITH BECAUSE THEY CONTINUE TO BE BEHIND THE CURVE. WHAT IS YOUR VIEW ON WHEN THAT KICKS BACK IN? BECAUSE RIGHT NOW IT SEEMS LIKE THERE IS A HAVEN BID FOR THE 10 YEAR. IRA: I THINK THERE IS A LITTLE BIT, BUT KEEP IN MIND EVERYONE WAS IN THE YIELD CURVE FLATTENED ALMOST ALL YEAR AND THAT WAS THE CONSENSUS. CERTAINLY IT WAS OUR VIEW AS WELL. WE HAD KIND OF A FLESH OF SOME OF THOSE SO PEOPLE HAVE TO REENGAGE INTO THOSE FLATTERS. IT IS HARD TO DO IF YOU HAVE BEEN STOMPED OUT OF A TRADE WITHIN THE LAST WEEK TO GET BACK INTO THOSE KINDS OF TRADES. BUT I THINK OVER TIME AS WE GET MORE DATA AND THAT SUGGESTS THE ECONOMY WILL BE STRONG AND WE ARE GOING TO HAVE INFLATION THAT WILL STAY BY YEAR-END, THEN YOU WILL HAVE PROBABLY MORE OF THAT YIELD CURVE FLATTENING BIAS. TOM: LOOK AT THE BLOOMBERG TOTAL RETURN INDEX. PICK YOUR FLAVOR. LOOK AT ALL THE HISTORY. THE ANSWER IS PRICED DOWN LIKE WE HAVE NOT SEEN. THERE ARE ALL SORTS OF ARTICLES OF THAT BACK CENTURIES AND BACK DECADES. IF YOU HAVE A CAPITULATION IN BONDS, IS THERE A POINT WHERE PEOPLE JUST SELL BONDS LIKE THEY SELL EQUITIES? IRA: I THINK THERE IS AND YOU HAVE TO REMEMBER WE ALWAYS TALK ABOUT THE TREASURY MARKET BEING A RISK-FREE ASSET BUT WHEN YOU THINK ABOUT 30 YEAR TREASURIES, IF YOU LOOK AT THE PRICE OF 30 YEAR TREASURY PRICES AND TWO YEARS, THE 30 YEAR IS DOWN WORK BECAUSE OF RISK AND INTEREST RATES WITH THE SHORTER DURATION SECTOR. THIS IS UNPRECEDENTED IN TERMS OF NEGATIVE RETURNS. IF WE WERE TO END THE EURO RIGHT NOW, THIS WOULD BE THE WORST YEAR FOR TREASURIES EVER IN HISTORY. THE REASON FOR THAT IS WHEN YOU HAD BIG MOVES IN THE 1970'S, YIELDS WERE MUCH HIGHER SO YOU WERE ABLE TO ABSORB -- INTEREST PAYMENTS WERE ABLE TO ABSORB SOME OF THE PRICE DOWN MOVES. TODAY, WE CANNOT DO THAT. HUMANS ARE STILL SO LOW THAT YOU GET SMALL MOVES IN INTEREST RATES AND WIND UP HAVING NEGATIVE RETURNS. TOM: THANK YOU SO MUCH FORGET ABSOLUTELY FASCINATING WITHIN THE BOND SPACE. LISA, FLAT-OUT EXTRAORDINARY, FLAT-OUT NEAR UNEXPECTED. LISA: IT SHOWS WHERE THE BALANCE OF RISKS WHERE AND HOW MUCH PEOPLE WERE JUMPING ON THIS AS A POTENTIALLY LONGER TIME THAT WE WILL SEE SUCH PERSISTENT INFLATION. THE EQUITY MARKET MOVE IS AS NOTABLE AS THE BOND YIELD MOVE BECAUSE IT IS A KNEE-JERK REACTION LOWER. NASDAQ LEADING THE WAY. THE FACT THAT YOU ARE IN SESSION LOWS DOWN NEAR 2% EVEN AFTER ALL THE CARNAGE AND WITH THE MASSIVE CORRECTION SHOWS YOU HOW CONCERNED PEOPLE ARE ABOUT WHAT THE REPRICING IS FOR TRULY PERSISTENT INFLATION THAT DOES NOT RETURN TO LEVELS HISTORICALLY. TOM: I WILL USE A CLICHE VERY QUICKLY. WE ARE IN ORIGINAL TERRITORY IN BONDS. WE HAVE NEVER SEEN ON A PERCENTAGE BASIS THESE PRICE DECLINES. IT IS ORIGINAL. LISA: WE SAW A SECOND PEOPLE COME IN AND BUY FOR THE LONG END. NOW ARE THEY GOING TO GET THEIR GUTS CHECKED AND HOW BEHIND THE CURVE IS THE FEDERAL RESERVE? TOM: EURO STILL 10519. A WEAKER YEN. 13074. ABSOLUTELY EXTRAORDINARY. PLEASE STAY WITH BLOOMBERG.

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