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00:00The most crucial moments in the trading day. This is Bloomberg Markets the close with Caroline Hyde Romaine Bostick Taylor. It is 2:00 p.m. in New York 7:00 p.m. in London and we are live from Bloomberg Quicktake quarters. This is Bloomberg Markets Close and Caroline Hyde. I'm Taylor Riggs. I'm Sonali Basak. Romaine Bostick is out today and he misses another healthy dose of volatility continuing to grip the markets trade a sentiment fragile of the all important Fed policy stance. Taylor on the Treasury tumbled. Sonali on the credit carnage. We've got you covered. Seventy five new fifty money markets now pricing in a three quarters of a percentage point Fed hike this week which would be the largest since 1994. Now J.P. Morgan saying one hundred point hike is a non trivial risk. We debate the about 10 plus inflation in focus. U.S. producer prices still surging last month. We discussed the impact of supply chain pain labor shortages on the agricultural business in particular with the president of very giant preschools. First though we check those markets and I mean no big bounce up after yesterday's significant sell off. We are still down 42 percent on the S & P 500. Some of the health care names being under particular address today. We see the two year yield once again being pushed higher as we await a Federal Reserve. And just how high they could put the overall Fed funds rate in just one fell swoop. We're looking at U.S. dollar once again. The main haven of choice at the moment up just a third of a percent at the moment. And natural gas futures we will discuss this more. But in the U.S. they tumble in Europe. They spike ever higher as this time. It's the closure of that all important export terminal in Texas being off line now for three months. But once again we just think about the supply chain being up ended. Well before we get to Caroline some of the market set ups I want to bring in Shinola quickly if we can for a quick chat. I know that here I'm looking at the two year yield but you've also been looking at some of the credit markets. Right. And some of the private markets as we think about how we're discounting all of these valuation you're seeing spreads back come up again past 4 percent when you're looking at the higher yield. That's not that level guys that you saw a lot of worries among the biggest bankers here. But it is a level at which you are starting to pay more for the riskiest mergers in the United States. Back to levels you saw a couple of years ago. We're going to have a great credit chat I know coming up in about 20 25 minutes time. We correctly showed that to your yield. If we can also show that terminals chart that I had is while we're thinking not only about a 68 basis point move in the last six days on two year yields but Caroline as you said is seventy five the new 50 I read maybe four or five market notes this morning Wells Fargo Goldman they're all saying that I think we're a go for seventy five at least. The Federal Reserve may be communicating leaking some information to try to prepare the market for a big day tomorrow. And you said whisperer. Many of us read that particular note. Meanwhile Taylor with the perfect setup. Joining us in the House I'm pleased to say Mike Vogel is the chief investment officer of Capp Trust. It is wonderful to have you right here with us Mike. I mean what an extraordinary time to be trying to allocate money at the moment. How worried. Obviously the CPI print was pretty ugly on Friday. How right do you think it is to now be girding ourselves for 75 courses. There's no question. I mean I think I think the market is digesting of course obviously negatively. What happened in the sort of reset the market was clearly caught by surprise. The market thought we had peak inflation and we were sort of coming maybe on the downside of the slope. And we'll wait a second. We've got a big slope ahead of us yet. So that's what's that's what's really driving some of this challenge. You know again you see that the two year that's the most sensitive of that that that setup. So look I think the Fed's in the box. They don't really have many options in terms of what they're trying to accomplish today. Right. They have to fight the Fed. Rather it's a fight. They have to fight inflation at the Fed. So if you're looking for more volatility ahead what is the risk here of not getting back in at some level in the market. What is the risk of getting back at too high of a level if things start to recover. Look there's there's a great old phrase on Wall Street right. Be negative on the negative. People seem smart. The optimists make money. Right. And so it's really easy to be negative. There's plenty of negativity around. Everyone knows what's wrong. Everyone knows we have a recession. Everyone knows the Fed's in the box. And it could drive the economy into a recession. We know corporate earnings are probably going to slow from here. The question is how much of that has been discounted and at what point do you begin to nibble. We're beginning to nibble. We're beginning we've been underweight equities and our exposure for the last three or four months to good effect. And at some point it's time to add a little bit of a little bit of equity risk back in your back in your portfolio where you're doing that. What sectors. Right now we're really not thinking about sectors. We're just adding equity beater back. Right. So we took it off where it is the debate. Right. What do we do we think about being in conservative consumers you know sort of consistent grower quality kind of stuff. Or do we think about some of the tech wreck that's out there the stuff that's down so much and maybe that's the place of science and value. We're trying to avoid that at the moment in the sort of heat of the battle. Let's just get some equity exposure back on. What does that look like that for individual. MS or how do you get. It depends on the accounts right so if we have we run individual stock portfolios and in that case we're simply adding that back across our existing portfolio. Cash from cash. Yeah. From cash. And in other places we're adding simply you know our exposure in our allocation buckets the way we normally do. What we're what I think is interesting is that given the fact that we have we're creeping back into equity risk we're also extending our treasury duration. Now that rates are back up. So we've been really short we've been really cautious. We've been really liquid. We're keeping that liquidity but moving it out on the duration spectrum now that we're getting paid for. How far out do you go. You know it depends on our on our portfolio right. We've run some money for institutions where we can go out longer. We also run a lot of money for wealth clients. So we keep that a little shorter more intermediate term. So anywhere from sort of 8 to 15 years. So we're selling and moving out of the two three year freight area where we've done really well and extending that duration does a couple of things for us. One is it is it allows us to get back into the equity risk market. But if the Fed over titans slows the economy down we pick up the duration rally in the treasuries. Is that the bet you're making. Bond yields have peaked. Well it's not the bet right. Where the point is anyone who tells you they know is wrong. It's very clear this is uncharted territory. This is no question. We haven't seen this before with coming off a pandemic the stimulus. You know we get the war in Ukraine. I mean there's there's any number China is locking down all of those things or are adding to the sort of opacity of what we're seeing here. And so the question is you need to build a portfolio that's resilient that can take advantage of multiple circumstances. So we don't have the answers but we understand what's going on. We're trying to we're trying to understand and build portfolios that respond well in multiple circumstances. How quickly do you think the Federal Reserve will have to go cut again. Because as swiftly as we better 75 basis points tomorrow we're making it a 75 basis points cuts in a couple of. Yes. Yeah. We've actually been arguing in our investment committee. We've been arguing personally. I've been saying let's just get there. Right. The Fed knows what its terminal date terminal rate needs to be. We don't need it. It's it's probably another hundred seventy five or two hundred higher. So if that's the case let's do one hundred and a hundred. I'd be personally I'd be fine with that. The market would be surprised. Right. Then J. Paul is not going to do that. But my my point is that the market is as setup for this as they're gonna get. Right. We saw a little indigestion going from 50 to 75. All right. I don't think it's that far of a stretch to say hey we just need to get where we're going to be. So in case the economy slows down we have some dry powder. That would be our take. So we asked you about what you are buying now but what about hedging. Is the cost of hedging right now appropriate. Do you think it's too high actually to protect yourself. Yeah. What's interesting is that the sort of left tail risk that is supposed to hedge big large drawdowns hasn't been working particularly well. And that's because we haven't seen panic. Let's talk to the Bloomberg radio guys this morning. And the challenge there is we were talking about it. The fact is this has been a very orderly nice sort of perfect decline. We haven't seen this sort of deep panic like we saw in March of 20 20 when it wasn't just financial panic but it was oh my goodness am I going to live right. To me that was the course. Ruth existential crisis in March of 20 20. And as a result you saw massive amounts of panic. And in those hedges worked beautifully. They haven't been working so far. So it'll be really interesting to see how that hedging prices out. Mike really great to have you here. How did you manage to spread out across radio and TV. Michael Barr goes on his capture CIO. We hope he travels through New York. Meanwhile coming up we'll take a deep dive into the credit markets as we're just saying ahead of tomorrow's Fed decision. Cross former partner Everett Apollo is going to be joining us. Plus how inflation is affecting food companies. GUEST soaring billing president America's for Driscoll's the world's largest supplier of fresh berries. Plenty of them are not functioning well in these volatile markets. We'll get insight on the distressed investing from Mount Lasry cause billionaire new Capital Management co-founder and CEO. Well not so much more coming up. A Big Mac. This June in honor of Pride Month and Juneteenth Bloomberg brings U.S. special equality series every Thursday in June at 1 p.m. Eastern Bloomberg Quality. Celebrating inclusion this Pride month and all year long. It is another sign of the worsening crypto downturn. What are we calling it the crypto winter coin announced today. It's going to be laying off about 18 percent of its workforce following in the footsteps of other crypto businesses that have also recently cut some staff. Let's bring in our very own Bloomberg's Katie Greifeld for more on the e-mail was very interesting to employees talking about how they sort of misjudged all the big hiring spree that they went through and now having to reverse that as they prepare for what could be a significant downturn. Yeah I mean we know that Coinbase has been hiring aggressively and added 12 hundred people this year alone. It's cutting about that amount. So really they built up really aggressively now paying the price a little bit. But think about this. I mean we're seeing this in the broader economy too. If you think about the reports that we got from Wal-Mart from Amazon in particular saying that they had overstaffed some posts Redfin. Exactly. So it's not necessarily a Coinbase specific problem or even a crypto specific problem. But obviously this is playing out especially dramatically in the crypto market. A huge sell off Sunday into Monday. It has really started to taper off a little bit. We talk about capitulation in terms of the equity markets but what would it look like for crypto markets. It's a great question. I imagine it would look broadly the same. And if you think about the reporting that's been done by Bloomberg build on high risk for example she's been all over this. If you look at sort of the prices that people came in these sort of short term holders they're pretty much all underwater. So that's one peg that sort of has to break. But I mean we'll see what tomorrow brings because crypto obviously it's dealing with all these macro concerns. In addition to sort of the company specific and sort of maybe a little bit systemic concerns that we had yesterday with Celsius and talk about systemic concerns that sort of edge in to the world of stock market as well because we've of course been keeping a close eye on MicroStrategy that particular company that many trade for exposure in crypto and its talk of potential margin calls. We get to hear from Michael Sata and whether that's reality whether they've already been bringing some crypto across to meet that collateral. But what do you make of the performance of crypto exposed businesses right now. MicroStrategy I feel like so much attention has been paid on MicroStrategy because we have been watching that sort of 21000 level. We did hit it last night or early this morning. Haven't heard much in terms of whether that did trigger any sort of market calls at MicroStrategy. We have heard from the company that they could put post more bitcoin at collateral. And you heard from VIX in particular saying that MicroStrategy still has 96000 bitcoin available to it. So maybe some of those fears are overblown. Notable that MicroStrategy is higher today but if MicroStrategy did have to sell some of its bitcoin hoard I mean I. That looks like systemic for the crypto industry. I'm glad you brought that up. Beatty AIG that note saying there's a lot of factual inaccuracies floating around social media and the financial press. So at least they sort of have a better sort of view of maybe what's going on in the company. I think sort of big picture. I think the big question has been and I hate to come back to macro but how difficult it has been to forecast in a fast growing environment you feel like there was massive hiring and now there's sort of big layoffs in the tough ability to forecast growth and what actual jobs are needed coming out of the pandemic. And that now may be peaking and rolling over just a little bit. How were you hearing about the way some of these crypto currencies the companies are managing through that volatility and doing a better job of accurately forecasting what actually they need on their company. Well I mean it's a really interesting point that if you think about the crypto sort of ecosystem it hasn't really lived through a Fed tightening cycle too as a mainstream asset that it is now. And to your point that makes it really hard to forecast how the different coins will behave what it means in terms of market cap loss. I mean the total crypto market cap right now it's below 1 trillion. It was as high as three trillion dollars as recently as November. So sort of these amazing draw downs that we can see tailor to your point it makes it really hard to forecast. And again these aren't crypto specific problems in terms of layoffs and hiring freezes but it's definitely feels more dramatic in this industry. Katie Greifeld giving some levity and indeed some insights into what's really going on across asset for us as she always does so well. Coming up flashing red. We're going to go across that a little bit more for you. The credit markets in particular signaling some possible big market impact from the Fed's rate decision tomorrow. We discussed with the former opponent putting such in Nigeria. That's next. Discipline that. Caroline I was joking a little bit yesterday when we were taking a look at investment grade and high yield spreads and we hadn't gotten the update until yesterday when the market closes Nabih Vale sort of index adjusts. So alas we woke up this morning and really got a good view on sort of the turmoil yesterday with the seedy acts and of course those sort of the cost of hedging if you will against some of those credit sharply rising up to sort of key levels that we haven't really seen since the pandemic. So at least on this measure one way to measure sort of the fear and the volatility that we got yesterday. And the question is how does that spill over into private markets. And joining us to discuss this now is such in Virginia. He's a former Apollo partner and author of Two and 20 How Masters of Private Equity Always Win. He now runs his own firm Achilles Management after leaving Apollo. Thank you so much for joining us Sachin. You know the question here is do they always win. We are seeing so many new crossover investors get into private markets and see some declines. I'll be not as big as the declines we're seeing in the public markets right now. So I think you need to look at the major firms. If you look at the major firms. I think they are winning. And if you think they've done well through the pandemic and the last few years I think as valuations get cheaper they can do even better. And so I think they are always winning. And there's a reason for that which is I think they have a common mindset a winning mindset. If you look at the macro climate today you guys have been discussing they're not just looking at whether we have 75 basis points coming or 50 or 100. They're zooming out and they're looking on the other side and saying what and when we need to reduce rates. If there's a recession what do we do. And so I think they're not going to let this opportunity in front of them go to waste. I think for people coming into the industry knew it's tough because it's a people business it's nothing automated. There's nothing that A.I. or artificial intelligence can run for your machine learning or quant trading. And so you need to have the experts at play particularly in tough markets like this. There's been some disconnect though between how maybe the public markets have re evaluated a higher discount rate but the private markets seem a little bit hesitant to start to cut some of those valuations. Are we closing that gap. So I think they have the luxury of taking a slightly longer term view. And so because the investments are generally illiquid they're not marking to market every day although they do find particularly for the major firms that they have you know quarter to quarter valuation changes. I think what's important for them is the outcome. So they'll look at changes within the quarter but also look at whether those changes are transitory and they should be reflected in a spike in valuation one quarter and a crash and valuation the next. Unlike the public markets and that's why I think more people are turning to them to look to see if they can form part of their investment portfolios going forward. What's been interesting is particularly distressed debt investors but sort of the waiting of a zombie company to finally become one. They are waiting of like the punchbowl to truly be taken away and the prices to re-evaluate in some way. How do we know that private equity has one if you know I mean what's going to be the tell for you. Is it going to be a performance that we have to look at. Is it going to be what assets they start buying. ISE mainly the performance because that's why they're there. I think you know you can blame documentation for zombie companies never actually getting into trouble for quarters or even years. But that same documentation can prevent new deals happening. And so I think what we'll see as we get through the tough economic times ahead is the best players are taking full advantage of that by buying credit by restructuring companies by doing all the things they like you said probably been waiting the best part of the decade to do it. Scale couldn't really do in huge scale during the pandemic and are now wondering whether the cycle will help them do that. How much do the public markets matter. When you think about credit markets here you are seeing some signs of stress. And of course private equity borrowers are huge borrowers when it comes to credit markets. Is that going to start spilling over. So I think it depends how they've been conducting themselves over the last few years. If you've been borrowing high yield at 5 percent and now you're looking at treasuries above 3 and you're wondering whether your business model for that buyout relies on you continuing to borrow at 5 percent that's a tough place to be. Yeah I got a question here for you also. I mean the other ISE aspect of it is can you keep these companies afloat by simply just investing in them. Yeah. Look I think that generally because they're taking a longer term view the best private equity firms are going to do very very well. I've actually never been more optimistic than I am now on the major firms. I think like you said people are crossing over into this industry. They're going to find it tougher because it's a people business because it's very hard to get this characteristic success. It's not just something that you can quickly replicate by hiring a bunch of folks from one firm to the other. You have to form a culture. You have to have a common set of principles. And that can take decades. And that's what the major for himself and one I'm sure you're building at your new firm as well. We thank you so much. It's great to have some time to be such an CAC author of Two and Twenty How the Masses of Private Equity Always Win. Now an Achilles. Meanwhile S & P 500 a quick look at where we are doing in those public markets we're down again 5 10 percent and 42 percent nowhere near some of the churn we saw yesterday in terms of equity markets. TAYLOR But certainly in the bond market we are still seeing that fragility relentless. I mean I think I should correct myself. I said 60 basis point move in six days. That number could be 78 basis points. I think when we take a look at the price action today showing a huge moves within full faith and credit. NASDAQ One hundred though is still in the green at least for now guys. It's a long road ahead. Donna you're only having a choice. Really. The supreme back. This is Bloomberg Markets the close it is to twenty nine forty one it is almost the time that we check in on the commodities close because we are really tracking at the moment the way in which certain asset classes been affected. I mean the notable one is gas will tend to that in a moment. But we will also be looking of course what's been happening with the likes of gold prices and indeed what's happening wheat with oil. But Taylor we are going to take in first and foremost what's happening with the gas prices right. Yeah huge moves. Caroline when we think about sort of where we are not only with oil but then of course going to the nat gas market and really every day Bloomberg TV has been talking about sort of the best of Bloomberg intelligence. We also want to take a look at the best of Bloomberg new energy finance and some of the great research coming out of that team. Of course as Caroline mentioned really looking at the nat gas space today you had U.S. futures plummeting and European prices surging now. This is after an operator of a key Texas export terminal said that it may take now just about three months to partially restart that facility following the fire that we'd been talking a lot about on this program last week. Let's do all of this more with Enrique Gonzalez our Bloomberg. Any analyst really appreciate you being here. What has been sort of the state of the market that has been in such turmoil and really looking at that fire on that plant down there in Texas. Thank you sir. Yes. Before I'm sort of before we got to this event we were in an environment where the markets were very tight. There was a lot of him flexibility in both the supply and demand side. For example despite the very high prices we've had very muted production growth. And then on the demand side there's food. There's been a lot of resiliency. So in the power sector the hot weather during the summer has really been pushing gas consumption. Plus the low levels of coal stocks have also helped push this dynamic. And then of course we've had before Freeport LNG facilities consuming gas at full capacity to export it into Asia and Europe. So what is the impact here. Because obviously we saw that dramatic effect on the price point with the prices of natural gas tumbling here in the United States but rallying more than 20 percent up to 30 percent in UK and Europe. Or is there a way of filling that gap. If Freeport saw off line for three months it rather U.S. plants could be able to step in. Is it more that we tend to Nigeria to Algeria to help the European supply crunch. Yes. So at least from the U.S. perspective are the other plants like I was mentioning are already operating at full capacity. So it would be very difficult for them to really ramp up the amount of gas they're already exporting. And at the same same time in terms of impact the 90 days would be approximately 100 A.D. GCF of gas that won't be exported into Europe or Asia anymore. And at the same time would be available for the domestic U.S. markets. So we'll see international markets sort of tightening while the situation may improve for the U.S. gas market. Really appreciate it. Thank you so much. Enrique Gonzalez of course over there. Bloomberg any of keeping us up to date on well some of the nat gas prices. And Caroline you want to talk about volatility. This is gosh so many sad components to this is Bob when we think about food inflation and the pressure that this is putting on households. I think while the title sort of says it all I might as well go out and eat because the food at home prices versus food away from home prices which is why now both of them have risen significantly 17 to 12 percent or so. But it really has been the food at home up about 17 percent now. This is normalized going back since about March of 20 20. But the massive sort of input costs that the food producers are experiencing passing them on to sort of the big staples companies that then were still filling that grocery store. Food inflation certainly has been a huge topic of discussion and has been across the board. And we're so pleased to be able to have an expert who's at the frontlines of some of these pricing increases. So I'm Bjorn is with us president of the Americas for Driscoll's. It's the world's largest supplier of fresh berries. Of course we've seen some of the prices have to go up soaring to a certain degree. What exactly is perhaps driving the inflationary pressures that you find on your business level. Know I think it depends limit on which segment of the food business you're in. You know in our business we made plans a long time ago for how much food we have available this year. Back in the environment where there was no inflation and no outlook for inflation. So actually today we had really good availability of berries which means actually our prices have not really gone up that much this year. Obviously that's very different in segments of the food industry where you more immediately pass on the inflationary pressures. We can't do that in our business. What ever number bearish we have today. They gotta be gone by tomorrow. We've got to sell them all. Do you have any concerns that the prices could rise further in the future for any reason. And what would those factors be that could put prices at more for you. Yeah I mean clearly all the farming inputs would ultimately have to get passed on to consumers. Right. Well maybe in the short term we can't pass it on in the long run. We would have to account for all the cost increases. So packaging is up. You know a lot of the growing inputs for transportation is up. And now farmers are looking at higher infant interest rates to finance their production. So that would all have to get passed on. How are you thinking about the own labor shortage that you're feeling it at your company. Not even to mention some of the food inflation is well but the labor shortages. I mean agriculture our labor shortage is now almost chronic. It's been going on for I would say 10 years. And unfortunately you know we we we lack immigration reform in this area that is badly needed. Americans are not going to pick our crops. That's that's the reality. And that's been the reality for a long time. And so we need some help in this area from Washington D.C. in the short run. I mean we are actually in pretty good shape today. You know it looks like everything is going to get fixed. But in the long run we need reform to to continue to do that. I'm going to ask sort of a different question which is equally hard to navigate in many ways. And it's down to sort of our environment. Talk to us about bees about the pollination about how how that is something you're tackling. We've heard from Canadian growers in particular that that's become a bit of a dramatic impact on their business. Yeah I think they done the many nuances to climate change that are impacting our crops various in particular really depend on micro climates. I'm sitting in Watsonville California. It may be one of the coldest place in Badger States today because we get this marine layer under fog and every morning and then the sun comes out in the afternoon. And if that fog bank just shifts a couple of miles you always have branches that are no longer viable for strawberry production. So it can be very very minor changes in the climate. We'll have a huge impact on what we can grow berries and we see this all over the world. And that's not that easy to change obviously in the short run. And so we are looking at mountain tops throughout the world where the climate is looks more like the coast of California. See where we might be able to produce in the future. It's so interesting because with all of these uncertainties right now with the climate and with inflation I'm wondering how you plan for the future. How do you invest in farming technologies and other technologies to kind of protect yourself from some of these issues ahead. I mean technology is a huge enabler of obviousness. It always has been. We develop all our own varieties. That's a lot of new technology in that world. And why we are committed to conventional berry breeding. We are still using a lot of technology to become more efficient at that. And we also are using a lot of A.I. to try to compete on forecasting our business. You know in the end as I said we have to sell every berry that we grow. And the best way to sell them is you know how many are coming. And we get very impacted by short term changes in the weather. And so we are doing a lot of work on A.I. to really try to help our forecasting of course. Son I've seen your products all over the world and your money has led businesses all over the world. We've got about a minute left. But you had an Australian based joint venture and you start up in China. Are these still is geographically the expansion the focus for you still. Yeah absolutely. I mean we want to go everywhere but there is a legitimate consumer base for free spirits and that's really well for us. We now sell in 65 countries around the world. We throw in 23 or 24 countries around the world. I don't think you can expect more of that us. Really appreciate Soren. Bjorn Driscoll's president of course of the Americas talking berries again. Caroline Artichokes in Watsonville California and Central Coast. Don't forget those. Really appreciate it. Thank you. Still ahead of course shares of Oracle jumping the most in about six months. We're going to be breaking down what fuels the optimism. And that is all happening in our stock of our next. This is Bloomberg. Time now for our Stock of the Hour and let's look at one of the best performers in the S & P right now. Oracle of course seeing a yesterday the selloff as we all saw the fall apart of many a valuation question. But then of course now it's having its best day in six months after the fourth quarter while sales topped estimates. Abigail Doolittle joins us now to just remind us why the numbers were so strong coming from Oracle. Yeah was a really strong quarter. The licensing numbers both for the cloud and the database very very strong beating in a big way. 18 percent growth. And you know this is an old school tech company. And yesterday selling off that was how bad the sell off was. But today really reversing that in a big way on this strength now relative to the cloud. That's where they're trying to steer their customers. And obviously the biggest competitors Microsoft Google Alphabet Amazon the CEO CAC though he's saying that companies save money by going with Oracle. Now they derive 40. She excuse me. Excuse me. Do not take away all female CEO. Absolutely not. Let's not do that. But they derive 44 percent of their revenue from abroad. So it's so interesting that that is not something that they're talking about as a problem. But I think that the biggest takeaway from this is because a license upside was so strong that I.T. budgets are OK right now. Despite these macro headwinds and big relief from that. Yeah big budget. Big really. Yeah absolutely. Really appreciate it. Our very own Bloomberg's Abigail Doolittle. We want to pivot a little bit here and talk a little bit about some of that other rate volatility that we're experiencing this time. Of course in the money market you need that one point. Yesterday and today have been some of the worst days that we have been seen in more than two years. This is again all amid a huge rout in bonds that have been triggered by speculation that the Fed will move more aggressively to fight that inflation. Joining us now for a preview Rob Armadale head of municipals for Western Asset Management. And Rob what is some of the rate volatility that you've experienced in your world of munis that is surely been triggered by full faith and credit. Yeah sure. It's a pleasure to be here. Thank you for inviting me here. The market correction that we've seen throughout this year has been severe. It's actually hit every part of the marketplace. Real real yields are higher. Credit spreads a wider and the severe penalties attached to the poor liquidity type securities like lower coupons has been absolutely severe. So there really was no place to hide. I would say that you know for the most part in our portfolios we've been focused on those securities with credit ratings that are single a better. We've been feeding risk in a lower quality as lower quality has been underperforming higher quality and keeping our durations in check. I think it's been important in the marketplace to be mindful of how sensitive your portfolios are to changes in interest rates. And so with that we've been keeping our durations in check and very close to our benchmarks. And more importantly the structure of our securities. A large part of the bonds and the municipal bond market today were brought to the market last year. Low coupons 3 percent 4 percent coupons. And those structures are now subject to severe illiquidity in the marketplace. And the discounts have grown so wide that the outsized price discounts are now subject to de minimis penalty which is an ordinary income tax. How do you think then about places to hide in the future if you think about credit if that duration doesn't look attractive. Where is that tradeoff. So for us at the beginning of this year we're mindful of valuations relative to the strong fundamentals. You know I think we have to be mindful this is not a credit crisis but we're also being very cautious in the adding risk to our portfolio. So with that you'll stick with the single and better securities. You can find really good value. There you'll see the triple bes that are still full valuations and be mindful of the high yield the big liquid high yield names that get caught up in these bouts of rate volatility. I think you want to feed those types of risk in this marketplace. Obviously structure is key. You want to stick with the higher coupons as well. We're waiting to hear of course from the Federal Reserve tomorrow. A lot of economists think that we'll start to see a little bit of a downgrade on some of the GDP estimates. Many economists looking for maybe some sort of recession in 2023. How then do you think about state local government budgets hiring in the way that they operate. And maybe you could be a downturn even if it is a small downturn. Yeah there's a lot of cross cutting issues in the market as you're describing. I think the latest inflation data is clearly showing we're not making any progress toward lower inflation than inflation pressures will be felt in the upcoming fiscal year which is starting for most municipal governments in July. And I think that good point is though the sizable budget surpluses that we've seen over the last few years have really led to sizable cash reserves which can be used to offset elevated cost or potentially a softening in the tax revenues which would be coming in really strong. So I think the fiscal situation is in such great shape that financial flexibility is really strong that inflationary pressures are likely to pressure budgets and potentially valuations would not derail the solid credit fundamentals in the public finance market. Really appreciate it. Thank you for your time and perspective as always from Armidale and head of municipal for Western Asset Management. Coming up we're going to pivot and go global for you. Hong Kong chief executive Carol Lam leaves office at the end of the month after a tumultuous five year term. She discusses his international standing as a financial hub. That conversation is next. This is Bloomberg. HONG KONG Some more than 9000 deaths when the army con variance swept through its under vaccinated elderly population earlier this year. Hong Kong chief executive Carol Lam spoke with Bloomberg Stephen Engle to discuss the city's future. Despite some skepticism and cynicism about Hong Kong's future I remain very optimistic and confident of Hong Kong's future. And one of the reasons for my confidence and optimism is Hong Kong's unique strings on the one country two systems. As Hong Kong's a high degree of autonomy to conduct her external affairs particularly on the international arena. So we have the autonomy to set up our own overseas economic and trade offices. We could enter into bilateral agreements on free trade avoidance of double taxation investment protection. So I do want to conclude my term by reinstating the importance of Hong Kong's international connectivity and her status as an international city. But is the damage already done. Well yes and no. Because if you look at the past two years that is before the fifth wave hit us for a period. Hong Kong was ranked the world's number one in terms of normalcy. That is when other countries and places were imposing the stay home permits and lockdowns and closed the airport and so on. We were by and large operating normally. But since the fifth wave hit us and it hit us very hot. But really in terms of the number of deaths we were 300 dead. So we're extremely cautious. And at the same time because of the transmissibility all me crawling and the mildness of this virus then other places I'm opening up. So by comparison I'm the person who believes in relativity. So everything is relative when people are opening up and Hong Kong is still imposing that seven day designated hotel quarantine that to a certain extent weakens our position as an international city. Hong Kong chief executive Carol Lam speaking with our own Stephen Engle and here to continue some of the focus on that conversation and indeed broaden it out for our emerging markets coverage is emerging actually putting those Shery Ahn co-anchor of Bloomberg Daybreak Asia. Fascinating interview. Did she admit to any sort of mishaps mistakes particularly about the vaccination. Well yeah we're Stephen Engle actually pushed her on that if there was anything that she wanted to apologize for during her single five year term and she said no if she owed an apology would be to her sons and husband for the sacrifices they had to make so she could serve the Hong Kong people. That she did admit though that that vaccination drive was not as much as she could have done that she could have perhaps saved some of the elderly people that died during the only cold wave. If the vaccination drive had been implemented at full speed we know that more than 9000 people dying in the city about 20 percent of the over 80s were vaccinated. Other on that January timeframe when already vaccine vaccines were plentiful in the city. But a miscommunication distrust really led to a lot of people actually not getting vaccinated. She did talk about as we heard about how these quarantines in the city have also weakened the city status. Of course they have really hitched a ride with China's mainland Covid 0 campaign from vaccinations to lockdowns. What can you say in terms of any setbacks being seen when it comes to lockdowns and the progress being made here. Yeah I mean we have seen the economy slowly slowly start to reopen but these infections have crept back into say the cities like Shanghai and Beijing. And that's really led to some of those restrictions being lifted being actually delayed. So we are now expecting tonight a set of economic numbers. We are expecting the collapse to continue. Retail sales to decline more than 7 percent in May from a year earlier according to consensus. Industrial output also to drop around 1 percent. The last time that China actually recorded two consecutive months of these numbers contracting was back during the height of the pandemic in 20 20. Now our factories yes are resuming production. But given of course that these restrictions continue sentiment is really sour and they can't really get back up to full speed. Not to mention that this stop and start restrictions being lifted. The reopening has led to a lot of the consumption sentiment being worse and you wouldn't spend when you don't know when you're going to go back into lockdown. So perhaps some of the bright spot the export numbers. And also tonight we do have the one year loan prime rate being decided the PBS to make cuts to loosen policy a little bit. We're going to be talking a lot about that in our triple take of course in a couple hours then sort of highlighting some of those key economic data pieces. But it was interesting though about 24 hours ago we were talking to you about sort of the massive sell off that we're seeing in the U.S. and sort of what that was meaning for some of the Chinese equities as well. How did that turn out in sort of a decent rebound you would say. Exactly. Because as you said we came from this huge sell off when they S & P 500 their bear market and then we went to China were down more than 10 percent and CSI 300 rebounded about 1 percent already. So we are now seeing these key gauges in Hong Kong also above their 50 day moving averages. Caveat overseas investors have become net buyers domestic sentiment still sound. Margin financing still declining this year. Really appreciate it. Our very own Shery Ahn co-anchor of Bloomberg Daybreak Asia. We speak about the markets here in the U.S.. Normally we can't make up our mind that we were lower than as much as one person higher on technology. We roll over back again. Yeah absolutely. We are seeing the markets not making up their minds. But the Nasdaq now slipping lower. Nasdaq 100 that is tells you where it's at. We still have some buying out there. I mean the fact that we've now slipped into the red in that respect some companies holding that gains the likes of FedEx with a new dividend. Oracle with its numbers looking slightly better. But really the mood has soured. And it seems to be all about of course what yields to do the bond markets. Your mom another day. Forget that. This is Bloomberg. Go down to the Bloomberg's comprehensive. Platform coverage ahead of the US market starts right now. This is Canada the close to 60 minutes left in your trading session. Caroline Hyde Taylor Riggs Sonali Basak game for Raymond Romaine Bostick. We must meanwhile join Barclays Carol Massar instead of CAC. We come together with our audiences. TV radio YouTube to discuss once again souring sentiment into this close and volumes only higher in the S & P Carol. Yeah. No souring sentiment though with you know a sector. I like to talk about the Chinese names a trade here in the United States. They are among our top names in the Nasdaq 100 today. But again the NASDAQ Golden Dragon China Index up more than 6 percent. No real news except the CSI did show a rebound overnight where there's some stories about President Xi and President Biden may maybe talking. So there's just maybe optimism about the sector going forward. Not so much optimism when it comes to what's going on with real estate here in the United States. I'm watching homebuilders today. The S & P 500 Homebuilding Index is down half a percentage point but I'm watching them because we've gotten so much news about the real estate market here in the U.S. today. Homebuilders falling after Compass and Redfin both said that they're cutting jobs. Given a slowdown in the real estate market Compass is going to lay off about 10 percent of its workforce. Redfin is cutting about 6 percent. The company saying that in a regulatory filing today though Bloomberg did report the campus news earlier. I'm already starting to see the effects of companies foreseeing a slower economy a cooling economy. And indeed that's what the market braces for as they await the Federal Reserve as soon as tomorrow. With that one important rate hike S & P 500 off by eight tenths of a cent were down twenty nine points. The Dow off by nine tenths percent. So actually then almost the laggard on the day after yesterday being your relative out performer but or underwater. The Nasdaq had been in the green shirt I should only say writing points out. Now turning into the red off by two tenths of a percent as well. The Russell 2000 as you like it by almost a percent in your small caps down at 16 points generally. Yeah absolutely. Let's get into some of the sectors here. And S & P 500 we have the utilities down more than three point four percent. We only have one sector in the green guys and that's infotech up at a point twenty five percent. So not by much but you are seeing consumer staples and health care also leading the sector lower. Aside from utilities I'm also take a look at some of the big movers. I do pull cord just for remain of course desperate for a pool. And well Jefferies is coming out and saying waning demand pull core fall 6 percent on the day finally happening. And will this box of supply chain issue a couple years for a pool anymore. Now demand is coming down this way. Twenty twenty three rather than 24 remains on the wait list I think. Thrilled. Oh keep moving us along here alive is certainly no other company. And following I mentioned this yesterday during the huge market rout the third worst performer for the year off sixty 63 percent. And you fall an additional 3 percent today sort of a symbolic of some of these big High Flyers sort of tech stocks if you will that I wanted to point out. Caesars and American Airlines in the last five days these two companies are down 22 and 24 percent as you're really thinking about starting this rotation out of some of the big trouble stocks as well. Meanwhile we all have our eyes on what the bull market is doing Taylor's bull market and what it is pricing in in terms of the FOMC meeting tomorrow. Could they go as fast as 75 basis points. This is a beautiful chart for our radio audience really showing that the moment the July hike is also pricing we got 75 basis points. You ISE for June. Seventy three for July. And then would going down to about a 50 basis point for September but then again above 75 basis points for December. This market is expecting a Federal Reserve to go hard. Caroline Connan. Yeah absolutely right. They are expecting an aggressive Fed in the meeting tomorrow. I mean less than 24 hours from time we will be all over that Fed decision. And you know some are expecting Jay Powell to kind of have his Paul Volcker move moment in that he will be aggressive just like Volcker was back in the 1970s. See Machar has been talking to Bloomberg. She's the chief global strategist of a principal global investors. She's talking to Bloomberg addressing the market volatility we're seeing today. She says the most volatility today is a testament to the uncertainty going into the FOMC meeting as well as concerns about the impact such an aggressive ramp of tightening could have for the economy to 75 basis point possibility was a far flung risk this time last week. So market participants are having to quickly revisit Fed economy and market forecasts. I mean we're all scrambling. What's crazy is did you guys see this story on the Bloomberg. The traders are betting the Fed will cut rates in 2023 after steep hikes. So get ready for some continuation of wild swings. Well you know we're talking to Francis Donald economist instructors at Manulife Invest Management. She made the point that the average time between the last rate hike and the first rate cut is traditionally eight months. So it's not necessarily too soon for investors to be thinking about that. You know it's interesting that you mentioned this too because I've been reading all this data from the Journal of Financial Data Science thanks to Barry Ritholtz. And the problem for a lot of investors is that they don't know when to get back into the market. So will they survive. Until that point where they can get back in or will they not make it through this time around. We will learn the old at age right time in the market versus timing the market at least for some of those long term sort of institutional investors who have the time period of going long. Caroline but it is been sort of a quick move higher when you think about some of the flattening of the yield curves that we've talked about. Huge now highs of the day for yields a five year and a 10 year that's up an additional 12 basis points. Well I think I was certain out the statistic earlier one of the biggest one day and even weekly moves that we've had since 2008 on the front end. And I'm just astounded at the rate of change. When the facts change you have to change with it. Meanwhile I loved Katie Greifeld piece out today just showing that actually the wild ride the white knuckle ride that you're getting in treasuries is far surpassing some of the turmoil that you're seeing in terms of the standard deviation move in crypto. So your beloved Treasury market at the moment Taylor giving whipsaw bring to the market far more than crypto is for one. So that was a remarkable story. Yeah it was a great story. Meantime it's really tough for investors right because you've got stocks going down you have bonds going down. So this traditional portfolio of diversification of bonds and stocks is at once again not working making it really really tricky Tim for investors. OK well so here's what surprises the markets at this point. It really seems like investors are expecting 75 basis points tomorrow. But what if the Fed comes out and says 50 or perhaps even gets more aggressive. J.P. Morgan thinking that yeah I would argue most of the notes I read this morning Wells Fargo NatWest Piper Sandler all saying that why 75 isn't a slam dunk. The fact that it's on the table and maybe was communicated by the Fed's communications office yesterday to The Wall Street Journal shows that it is being seriously considered and that that actually could actually be more of a base case than we think. That's that parties. That's pretty pretty remarkable. And it's a point that Francis Donald made to us to the fact that during a dark period up it is largely green and classic. Bernanke's always the Wall Street. Right. It's incredible. You saw the VIX over 30 here. And you've got to wonder whether and no news would bring some volatility down. Once again we have of course seen a volatile VIX. And the question is is if it remains as high is the market still going to just be stifled for a while here. But interesting the VIX down today like it just feels like we have volatility. And yet you know the VIX is an indicator. I just kind of scratch my head a little bit over it. We're going to come back in less than an hour's time continue the market conversation are simulcast our cross platform coverage on radio TV. And you we will count you down to the close on this FOMC eve on this Tuesday. Meanwhile we bring you more market analysis. We welcoming Kathryn Rooney Vera part of the show head of global macro and chief investment strategist for Baltic Capital Markets. Weigh in here. Catherine 75 basis points. What if we get less than that. Well if we get less the market might actually react to the downside. I think the damage has been done. The markets are reflecting the 75 basis points. This is an inherently dove ish fed. I mean they've been burning for inflation for four years now and we get it. And I think the Fed has realized that they they went way past their expiration date with regard to the accommodative policy which ran up. And through March of this year remember the Fed was still buying bonds at that point. So 75 50 you know for me it's a it's a flip of a coin. Now the Fed has to basically choose between high inflation or kind of recession. Bringing it forward or giving it some time to play through a recession is an inherent and intrinsic part of the economic cycle. Historically however when the Fed hikes too aggressively and too quickly that can bring it forward. So it's either you know curb inflation. What about which really the Fed doesn't control all of it. It doesn't. It control of course. Of course. Prices at the pump. Food prices a lot of it is in the out of the Fed's control and bring upon you know economic contraction or or let inflation kind of really get out of control and lessen the probability of near-term recession. So the Fed is in a really complicated position. I think the question for me is not even 50 or 75. It's what do they do on quantitative tightening. Because remember this this meeting this month is when the Fed is supposed to launch the quantitative titan to the tune of about 46 billion dollars and roll ups per month accumulating to ninety five billion dollars in roll offs per month. That's huge. So this is a double barreled approach of both aggressive rate tightening of rate hikes with quantitative tightening which in my view the current economy cannot withstand. So something's got to give. I am curious though historically equities have been the place of keeping up with inflation still outperforming on slow and steady rate hikes. Has that narrative changed. The correlation is so strong now that I think you talked about this in your last segment the 60 40 portfolio is really really hurting people. If there is no hedge now so bonds are selling off equities are selling off and really inflation is what has taken this kind of house of cards apart. So I think that the you know there's too much monetary policy too long in the tooth on fiscal policy inflation rearing its ugly head in a sticky and structural way. I think it has us defensive and has should have people in those sectors that we have at Balzac I've been recommending for at least a year. You know the ones that outperformance that inflationary scenarios which are and have been and will continue to be energy utilities staples and health care. Those are our top picks. Well since the beginning of the year to that. And I was just going to ask you what's the role of commodities when you're thinking about 60 40 and shifting some of that mix. Commodities are an alternative you know within the alternative spectrum. So I would strongly recommend and have been for some time in fact incorporating alternatives into a diversified portfolio both for institutions and ultra high net worth individuals both of whom we service at the firm. So. So certainly I think we need to consider real estate infrastructure private credit even. Even think about cryptos or at these levels. Definitely commodities. But I think you do have to play the diversification card and incorporate in that alternative asset classes and dig into that Catherine because we know you've done a fair amount of work in crypto. Is it just bitcoin in this area. I mean look at you. Look at the rest of the D5 space I use waiting for other shoes to drop. No look I think one of the things that that I've been talking increasingly with with clients about is if well what I'm looking for with the crypto talk is some alternative asset class that can hedge us in the future. For example in your last in your last segment talked about the 8 month difference between hiking and cutting and the possibility that the Fed in 2020 through actually cuts rates. In my view things have to get really ugly for the Fed to cut rates. So we're in recession. What does the Fed do with quantitative easing. Do we get back to quantitative easing. Is it possible the Fed in 20 20 three months cutting rates is also buying bonds. If that's the case then we're just exacerbating and aggravating the current current situation that's hot has to unwind. So I think that the next risk in my view is a crisis in fiat money. And to that end I'm looking at precious metals and looking at alternatives to what is fiat money. And I think that's something that we need to increasingly bring into the conversation. Another thing that very few people are talking about is the fiscal aspect. We still have double digit fiscal deficits in GDP. So there's a lot of liquidity out there. The Fed has there's a big risk of policy mistakes not just now but in 2023. We could go up that Unity's globally. Globally I think you might be referring to emerging markets or other developed markets. I think you know we're facing serious headwinds. There are tactical opportunities I would say in the next few months with juicy yielding assets that have plummeted due to political risks for example in Colombia Mexico and Brazil. Those are there possibilities there but these are tactical opportunities within the emerging space. I also think that Chinese consumer discretionary has been overdone in terms of its collapse. So these are areas that I would tactically be allocating capital and tactical of course meaning short term in nature not a buy and hold. Catherine really. Cross asset for us. When we thank you. Kraft Kathryn Rooney. Vera of course had a global macro chief as best a strategist. The bulls at capital markets will get back to pricing our clients for tomorrow. What to expect. Coming up we'll get insight on the distressed investing market. China may be sprinkling more of crypto. Going to be hearing from the hedge fund tycoon Marc Lasry Avenue Capital Management co-founder and CEO. Plus we'll look at the state of global supply chains and what to expect the rest of the year. Michael follow us. Stay with us. The CEO of ISE to open and be sure to catch today's triple take. We push ahead to the eagerly awaited central bank announcements not just from the Fed. Remember the Bank of England. You've also got the PDC going to be looking at China the data that we're also going to be getting when the managing director of the China based book International. This is Bring Back. This is the countdown to the close here on Bloomberg Markets about forty two minutes ago at the lows of the session. Now the Dow and S & P significantly below a 1 percent drop in the Nasdaq still off about six tenths of one percent. What that means here for the markets tech is actually the relative outperform. But household products. If you think about some of those sort of inflationary low margin companies here by far some of the worst performers on the day those are off about three point six percent or so. A big it is interesting that actually declines by about a point points. You're at 33 but nowhere near sort of that panic elevated levels here that we've had. And you talked about a two year yield which is pretty unbelievable after a huge move. Yesterday I read Jersey said some of the biggest moves that he's seen in his 20 or 30 career another nine basis point climb higher here on the day. In the meantime time now for our options inside just about 40 minutes that closing bell when he gives you up to speed with the day's options trading. Well Bill we talked about the wild ride in bond markets but that doesn't quite compared to the wild ride in nat gas. Right. Hey Taylor it's hard to know which one is more wild because the moves in both areas are simply stunning. Natural gas on the day down more than 15 percent. This of course having to do something with the LNG Freeport terminal down in Houston and the capacity coming back partially in 90 days. And it's a really interesting situation for sure. Let's bring Carley Garner into the conversation of course founder of the Carly Trading DAX. And it's not intuitive to me. Carly in terms of natural gas plunging on that because you would think there's less supply it would bring the price up. But we bring it in with Europe and trying to take out Russian supply it makes more sense. But let's focus on Taylor's question. What's more volatile bonds or natural gas or is to say at this point. It's a it's a toss up. I wonder if we are going to look back at this period. Let's say if you survive in year two and wonder if ETF offs were like the kryptonite to futures markets just like mortgage backed securities were two mortgages you know back in the financial crisis. I mean there's a lot of weird things going on. My personal opinion is that ETF are contributing to all this wild volatility. I mean there's a lot of moving parts. I'm not saying that's all of it but it feels a lot to be in treasuries some sort of capitulation a lot like what we saw on March 20 20 near the oil lows which was USO blowing up. And then a lot of like just what we saw in March 20 22 when crude oil went to 130 and then dropped twenty dollars a few days later. There's a lot of ETF inflow and outflow that's really messing with the markets and it's exacerbating volatility. And it's not pleasant yet. Not pleasant at all especially if you're trading it. I have a lot of sympathy having done a little bit of trading back in the day. This has got to be a pretty tough time. But you know relative to that volatility in your notes you compared natural gas to 2007. And then you're saying I know when we spoke previously that bond volatility is greater than it was even back in 2008. So which feels worst to you right now. Right. So that's a couple of things to keep in mind. This feels. In regards to energies and commodities this feels a lot like 2007 2008 which if you pull up some charts you'll see that basically right around this time of year June July crude oil and natural gas topped out. And we went from like dramatic pop outs from thirteen dollars and that gas to three dollars. Crude oil from 150 to 30 at the time the markets were rolling over. The narrative was extremely bullish. No one could even imagine a pullback let alone a crash. I'm not saying we get that kind of crash but it's just important to keep in mind that we shouldn't be complacent because things can move quickly. If you also look back at a very long term chart let's say a monthly chart of treasuries. You'll notice volatility expanded wildly beyond the financial crisis. And I think it's probably because of one maybe ETF but also because of quantitative easing. All that extra liquidity in the market has really done a number on volatility. It used to be 10 or 15 handles and bonds was a big move. Now that's like literally child's play. So it's just a different game. Well we were just looking at that bearish divergence in natural gas which is pretty stunning. But the board that is up right now. It blew me away when I saw that 2 year yield over five days up 73 basis points. I would have thought that this was you know a five year board. So you think that this is capitulation in terms of the selling. Talk to us about how you trade both energy and bonds in a somewhat conservative way through options. Sure. So as someone that's been long and wrong treasuries it really feels like capitulation and really starting to question myself here. That said if you want to participate but not with all the wild risks you can simply buy call options and the 10 year note futures. You can buy a September 1 18 call for 5 600 bucks. It's a little cheaper than it was this morning. And you have unlimited potential limited risk. And if energy's top out treasuries will actually bottom and move the other way. I know it's hard to imagine but trust me things happen fast. It's not impossible. Well I I do have lots of trust in you. Carly you've been great through the years. Carley Garner founder of the Carly Trading. Tom thanks so much for joining us for Options Insight today. Great perspective as always. And from New York this is Bloomberg. The most crucial moments in the trading day. This is Bloomberg Markets the close with Caroline Hyde Romaine Bostick and Taylor Ray. Less than 30 minutes to go we count you down to the close a market really struggling here with the volatility can decide if it wants to go higher or lower. We're pretty close to session lows here Taylor and we take a look at the sectors from today because we have almost everything in the red. The information technology sector has been slipping in and out of the green only up for a flat four tenths of 1 percent. Utilities down 3 percent now leading the sector much lower. But you have healthcare and consumer staples also more than 1 percent lower almost one point five percent lower than you talked about technology in the green. I know that Bitcoin doesn't really count as technology when we think about some of the volatility that's been going on within maybe some of the fintech some of that. Certainly the alternative assets space. Take a look at this. Some of the classic sort of bitcoin trackers if you will riot block chain micro strategy actually still sort of in the green for today. So it certainly has been a volatile wild ride as we digest some of the big headlines coming out that crypto space in the last 24 or 48 hours trip dot com is interesting. Now Caroline this isn't TripAdvisor based in the U.S. This is Trip Group which is thinking more really based in China. But when you think about sort of the re-opening trade this certainly has been a stock that has been well sort of a measure of that. And Oracle that was our Stock of the hour. We were watching that up in a nine 10 percent in the aftermarket yesterday as well. When you think about sort of the big pivots to the cloud in this space that sort of is benefiting from that pie that is growing a glass half full kind of a shot that is managing to weed out the good stocks that are in the green today whereas maybe I go glass half empty. Dare I do it. I do it at Taylor Treasury story for you right now because look at the inversion in the yield because now I'm not going to get overblown about it. These are technical indicators and maybe they don't always say that a recession is imminently upon us. But it certainly signaling something isn't it. The fact that we are having an inversion when you look at your five thirties curve here in the yellow down in negative 17 18 basis points on that particular curve you're looking at the blue line and of teal whichever one you want to call it fives tens curve also negative to the tune of 12. The twos tens had hit zero. We then of course bounce back. All right. We're about four basis points of rule. But this is a market that braces itself for the Federal Reserve as soon as tomorrow. Taylor if it doesn't give us 75 basis points. Some say that inversion is going to get a little worse. That's a good question. When we think about sort of the all the volatility as well that the Federal Reserve has sort of given these markets I'm really pleased to say that we're going to get some more insight on investing in these volatile markets all ahead of that important meeting tomorrow. We want to welcome in now hedge fund titan Marc Lasry co-founder and CEO of Avenue Capital Management which has about 12 billion dollars in assets under management. You may also know him as the co-owner of the NBA Milwaukee Bucks and we could do sports with you later. But I think our audience is so front and center right now on these markets. And curious in the last couple days if you're you know Ben seen a lot of this for selling or has the volatility in the equity markets to you appeared to be a little bit more orderly. Know people are nervous. So one thank you for having me on your show. But at the other day people are just very nervous and everybody's trying to figure out what the feds are going to do. I think for us what we're trying to do is just find situations where we can get overpaid for the risk. And you know we're buying a number of fixed income instruments you know bonds. I would tell you six months ago we're trading at seventy five eighty. And today we're buying those same bonds somewhere around sort of 35 40 cents on the dollar. You know one situation explored technologies were buying those bonds at 35. You've got an 11 percent and a half percent coupon. So you're making or buying around 35. You're making around 33 percent current. So you know we're getting paid quite a bit and everybody's worried as to what's going to happen with the company. We think it's fine. So I could give you examples of these situations over and over again. But I think for us you know we're seeing a huge amount of opportunities out there distressed as well. The opportunity now Mark which has taken some time to get to. Are you seeing that the distress we've seen in selling maybe it be forced selling or not that's gone into the public markets. Has that come to an crescendo do you think yet. We hit some sort of bottom or is a father to shoot it off now. No I think there's more to drop. I mean I think part of it is you know people are trying to figure out what the Fed's going to do and how high inflation gets. So you know whereas I would have told you a week ago everybody assumed the Fed was going to raise rates at the MAX 50 because you know now the market's telling you that the Fed needs to raise it by seventy five bits. So I think you're going to have more selling. You're going to have more pain. It's going to continue. It'll continue between now and the end of the year. And I think part of it is you've got to sort of start getting involved in the market by things that you're comfortable with. Doesn't mean it's not going to get cheaper. But I don't think you can ever time a bottom. So you want to get invested if you can. If you're not thinking about just timing Mark what about the actual levels here. What is the low when you think about the S & P and how wide do spreads get especially in the high yield market. Oh I think I think the market could go down a little bit more. You know whether it's an extra 5 or 10 percent but you're getting there a lot of it is getting priced in. So I think the summer is usually just very slow and then you'll have the next Fed meeting. I think after that that's when you'll get close to the low. Everybody knows we're either getting into a recession or it's going to be close to a recession. So I I don't think there's a lot more negative news that's going to come out. You know the question really is going to be how long is the recession. Is it three months. Is it six months. Is it a year. I think ultimately it's going to be pretty short because the economy's doing OK. Interest rates are making things more expensive like just think of your home. The average home is is three hundred thousand dollars. That's mortgage. I mean everybody's interest costs has gone up because of this anywhere between 50 to 100 percent that that's going to have a bigger impact on people than sort of inflation. So if the market is sort of hinting that they want to look at a 75 and a 75 if the Fed does 50 what does that mean in terms of being a dovish price for your markets. All right. I don't know. I mean I think it's end of the day the market wants it to be higher because they want the pain to come and go as quickly as possible. I think the fear that ends up being if it's 50 is the next one seventy five and the one after that 75. Right. It's I think the market wants certainty and that's not what it has right now. But you may get some of that tomorrow when the Fed announces where they are and what they're raising it and the reasons why they didn't do 75 or the reasons why they did these 70 times. I think we people love the guessing game. I like to just wait. I mean I know if I don't think a company is going to file for bankruptcy if I think a company is going to be fine I'm going to buy those bonds or I'm going to buy that stock because I know it's going to do well and it will turn once all the bad news is out on the macro side talking of well bad news and some for selling. We have seen a lot of pain suffered in the prep time. OK. And Mark I know someone who looked at clock tower for example analyzing crypto firms. How much further we got to go in that particular area. Oh that one. It feels like you've got more room and the simple reason is just I think people viewed it as being a really safe instrument and nobody thought Big Boy was gonna go as low as it has or Coinbase or a number of those. So because of that a number of people now are very nervous and they're trying to figure out should they get out. So I don't think you have natural buyers. I think you have natural sellers today. And nobody knows what the bottom is for that. But I think you'll still have a bit of pain in the crypto space. What about all the institutional money that was meant to come in. What about the 4 billion raised by venture capital funds such as Andreessen. I think that money's there and I think it'll start coming in slowly. But what's the harm in waiting a month or three months like there isn't any harm. So I think you do have a bunch of money on the sidelines but you've got a bunch of money on the sidelines and a number of sectors. So I think people right now are just saying I'm going to come in. I'll come in slowly because I have time because the news that's coming over next three to six months. Best case is it's flat. And worst case is it's negative. Right. So what's the rush. Speaking about Rush. To what extent are you ready to rush in to investing in stocks tied to China. Is this the time to buy or do you see more pain ahead as well. What Chinese stocks. I think for us we're looking at things in Asia more than in China. Because I do think you know when you look at what's happened in the U.S. where you had the reopening because of Covid and we've gone way past that right. Because that that all started taking place last year. You're gonna see the same thing happening in Asia. Same because China ends up dominating that as China keeps opening itself up because they've been closed for quite some time because of Covid and much much worse than I think the U.S. ever went through. Because in China because of the regime you're able to sort of keep people in their homes and closed businesses. I think as that opens up you're going to see quite a bit of demand that starts coming out of. So and out of Asia. So I think you'll see some positive momentum there. Big picture just two and 20 still work. I sure hope so. Both Thanks Mark. We could go on so much longer with you. We thank you so much for that time and indeed your investment hypotheses right now. Come back to us with some of the other bonds that you're buying in thirty five and now we're going to keep on talking about it. Marc Lasry Abdo Capital Management co-founder and CEO. Meanwhile we analyze the further public market moves that we see an actual bounce off these lows. We're seeing suddenly the Nasdaq back into the green just ahead of the closing bells. Could we see a little bit of debt buying as once again we see pressure in these bond markets. Stay tuned as you bring back. We have little over 15 minutes until these market close and we are actually trying to find some sort of bottom the S & P 500 now bouncing off and we have upped as well. So under pressure but certainly off of its lows were down by three tenths percent. But really the pressure has been so front and center in the bond markets day today. And I think you nailed it Caroline when you think that only the bond market but king dollar the move to cash the relentless climb higher. I heard someone this morning on the open talk about within a month euro dollar parody which says nothing about euro weakness but everything about the dollar's strength. And to what extent is that being used as a hedging strategy. Here I think is very interesting here. Also look at those natural gas futures still completely slammed guys. Yeah. I mean that was an extraordinary commodity story that almost gets brushed under the carpet because we're all focused on the Federal Reserve. But this is sort of a dialing back of gas prices in the US but in some spiraling higher over in Europe. And once again that fire in Texas that key terminal exporter is going to be a fly for three months. Well that means for supply chain pains what that means ultimately for central banks and traders. Let's talk about those central banks to 30s every inverts. Once again this is Bloomberg. If these Covid onto the close and Caroline Hyde I'm Taylor Riggs and I'm Sonali Basque Romaine Bostick is off today and while he's missed a pretty rough start to the week over the last couple of days. What an extraordinary move that just accelerates. And therefore it means over the last five trading days have basically been down some 10 percent. It's rough. It's rough out there in stocks. It's rougher out there. Tata involvements. It is. It's might well. Is it more rough in Bitcoin or bonds. It could actually be a key question. Let's get a quick update with our very own Bloomberg Markets Greifeld here. Relentless climb higher a 360 on the five years. Now I'm looking at further inversions on the 530 now negative 18 basis points. It is pretty remarkable at what point I mean I know we've had this dramatic repricing but if you look at the short end and some of the moves we're still seeing there nothing compared to yesterday but still the move higher in yields. At what point does this terminal rate get priced in. I know that we're talking about 4 percent. That is new information in the market. But you have to wonder how high yields can go at this point. Right now it doesn't feel like there's a ceiling no ceiling in terms of rates. What what about if we don't how many people you speaking to at the moment that are trying to hedge if we don't get a 75 basis points. Ed I think that's why you're seeing such movement because I mean this time last week 75 basis points was a can you get laughed out if you said seriously I think this is going to happen. That all changed about eight thirty on Friday at this point. I think you're still seeing some positioning shift. I mean usually have a Fed meeting what 350 1 p.m. the day before. You're not really Elba Hay's in the barn. That's not the case this time around. The real interesting question becomes what happens if they don't hike by 75 basis points tomorrow. Pricing in you know you're talking about stock market pain but what about bond markets. You're seeing that redo. You just wrote about it into the bond ETF. So is there a signal there that can show you that bond markets can get choppier as some uncertainty exists even after tomorrow. So if you look at the measures of credit risk we know that the corporate credit market is finally joining in on the sell off have been kind of quiet up until now. Now you see those measures of risk really starting to layer loudly I would say. And I always look at the ETF because when you see the BOND ETF closed at a discount to their underlying holdings that's when you know things are pretty stop stress. So if you look at the largest high yield ETF. They closed at the largest discounts yesterday to their underlying bonds since March 20 20 which just again tells you that this is a stressed market. There's a lot of volatility out there. When that happens it becomes more difficult to trade these ETF and to trade the underlying holdings. And that's what we saw yesterday. Greifeld ETF Queen we thank you so much. We'll continue the conversation with Brendan O'Connor who on us who is with us financial adviser at UBS. It's always wonderful to have some time with you Brenda and told. I'm reading as Taylor brings to our attention. Bill Ackman full but of a legendary investor got an on the spot game saying look you should now have 100 basis points tomorrow and in July. What are you expecting when he bracing itself for from the Fed tomorrow. Right. Well thank you for having me and I have to say after Friday's CPI print we are talking about only negative downside scenarios for our clients. Listen it was one data point but it really just crystallized how pervasive inflation is and just how difficult if not impossible it's going to be for the Fed to achieve that soft landing. We thought they were going to be for price increases in energy and food. We saw that but we saw increases in France and in services tomorrow. 75 basis points is on the table. Our views 50 50 there. But more importantly there's going to be higher rate hikes in the coming months. Must be bad for equity markets. So we're positioning for UBS as downside scenario which is 30 300 on the S & P for the end of the year. Really interesting as we just heard from Marc Lasry as well talking about a nest egg an additional 5 to 10 percent downside from here. But saying that a lot is priced in. So when you think of some of those downside risk targets what is or is not priced in at this moment. Yeah well I mean I think the biggest thing for us though obviously the Fed is what we're paying attention to most for feed. The two other risks that I think are related that we're monitoring obviously what's happening in Ukraine. Listen Ukraine. You have to remember that whole region was responsible for a third of the world. We 10 percent of the world's petroleum and twelve and a half percent of gross calories. Wars go sideways all the time. You know there are scenarios here that could keep inflation higher for longer. And then obviously earnings earnings are not pricing in what we're seeing here. I mean management conversations have changed in the last few weeks. The managers are now concerned with discounting inventories sales activity. So lots of these things haven't been priced into the estimate. So I don't think that those kinds of risks have been fully priced in yet. You know I'm curious also to the extent that there are places to nibble on the market a little bit you're seeing energy turn green infotech turn green on the S & P. But most everything else in the red. Do you think that there is time to pick up some sectors now. Right. So I can talk about both but let me start with energy. You know there have been very few places to hide this year. The US dollar and energy have been two of them WTI over one hundred and twenty up 60 percent. We still think that there is up to 10 percent upside from here. In addition to it being a great inflation trade here are there two other reasons we like it. Number one even if there is a resolution tomorrow in Ukraine it's going to take a year plus for that Russia supply to come back and be restored completely. Also there can be demand destruction at home here with the U.S. consumer. But we think that this would be partially offset at least by normalizing global travel and trying to come back online. So we do think that there is upside for energy. Interesting. Where else. I mean are you looking for. Also a reasonable inflation hedge is that the fact that gold hasn't been there in any way. We've actually seen that pullback as everyone anticipates a more hawkish Federal Reserve overall. Is energy the only place to be paying that or is it more about the US dollar. We haven't stayed close to gold. US dollar. We think that a lot of that is priced in again and I've talked to you guys about this before but alternatives is where we've seen outperformance this year in our portfolios with clients like give me the full mandate to do everything. I've been allocating up to 30 percent in alternatives. This is paid off this year. These portfolios are down 8 9 percent to the end of May versus the 60 40 portfolio looks down in the mid teens. And listen if you need any more justification of why alternatives buy real assets why commodities while private equity. Think about hedge funds. Hedge funds have outperformed equities in almost every year. The market has fallen in the last 20 years. So if there is a place to hide I would also look to alternatives. Is China still on investable. Though China was one of her big calls earlier in the year I know that it's fallen to the wayside a little bit. But you know China has all the dynamics that I think can make the market attractive. They're one of the few economies that have loose monetary policy. They're coming back on line. You'll see a lot of demand there. So on a relative basis it hasn't done as badly as the rest of the market. I mean it's not Brazil but I do think that magically allocating to China which most clients by the way are already under allocated to is a good play this year. But for now we're we're not jumping in right now. Yeah short China have been one of the most crowded trades according to the latest bit of a survey. Fascinating as always. Great to get some of your takes. Brendan O'Connor all on us as always. Thank you. Financial adviser over at UBS. Meanwhile we look at what has been quite a significant move lower in bonds once again Taylor. And finally today more of some sort of stability in stocks but it's been volatile volatile. And you can see some of the pressure under the surface with what our guests are saying. We are moving closer towards that closing bell. Now guys football CAC coverage right here across outside is always on bloom. But as we take you to the bell and beyond. Beyond the Bell Bloomberg's comprehensive cross platform coverage of the U.S. market clues starts right now. And we are about two minutes away from the end of the trading day. Caroline Hyde Taylor Riggs Sonali Basak is in for Romaine Bostick. We counting down to the closing bell and head to take us beyond that very bell. It's our global simulcast Carol Massar 10 sentiment bringing together TV radio YouTube audiences broom bag to dissect what it's been pretty volatile day of trading and actually bouncing off all lows as we head towards it. Yeah. I've got a provocative thing to share with you and I know both Tim and I want to do it. Megan Hardiman of Verdant Capital Advisors was just on our air moments ago and she said you know what. I don't know that the Fed's going to do 75 basis points. I know the market expects it. But Jay Powell said he would not at the last meeting and maybe they use the balance sheet more aggressively to really affect the markets more. But she said it's all about credibility because Jay Powell said that seventy five basis points was pretty much off the table. I pushed back and I said but the data has changed. But she said that the Fed needs to remain credible. Yeah. Yeah. And do you think he thought it was a yes. I'm not kidding about the balance sheet. I'm not sure about the balance sheet. The point is also why not. It all comes down to a question of whether or not it was indeed a leak from the Fed or not. If it wasn't a leak from the Fed then they remain credible. If it was then why not leak it. If they could have just signaled it in their talk with journalists after the decision. After the decision. Well you're talking about 75 the news that came out yesterday. Why. Because they're not really supposed to be talking right now. Right. Which is why they leaked it through. If they if they did they leak. Like what is this or is this like this is such a journalist conversation. Right. And as an aside the basic right. I mean is there gonna be anybody to be caught off guard by what happens tomorrow is what I wanted. I heard Marc Lasry say he'd rather not get it. He'd rather just wait and see what happens. Some calmness perhaps they'll be arraigned today at least when we think about Caroline. Some of this third to major markets here after huge volatility yesterday a little bit lower here underperformance from the Dow and S & P that closes off about four tenths of one percent. Tech finally sort of a big outperform. Her and Nasdaq up about two tenths of 1 percent. And well some columnists as well. But some underperformance in the Russell 2000 off about four tenths of one percent Carol as we think about some of those more domestically focused stocks here and how the impact of the Federal Reserve indeed sort of impacts them. Yeah. And amid all this volatility some of the outperformance among the transports the Dow Jones transportation average up about two point two percent. Thank you FedEx for raising your dividend and lowering CapEx and then CHF. Roberson Reuters basically saying TSB interested in the company's global forwarding business. So we did see some movement to the upside when it comes to some of the transport names and we're talking about names. Let's talk about sectors for a second here because you did see most of the major sectors still red on the day you were led lowers by utilities more than anything else. Consumer staples still had a very rough day yet. A little bit of green on the screen. Auto transportation software services Sammy's tech. But you know again most mostly read on the day. But there were some buying opportunities. Yeah absolutely. We did see some buying going on. And I'm gonna go back to the transports and that FedEx name because it was at pretty much near its highs closing at a time of the session up more than 14 percent as we said topping the S & P 500 the company raising its dividend and also announcing some board changes. They have had an activist investor to Shaw kind of asking for some moves and they're complying and investors liking what they got from that company. Oracle Caroline was breaking down those earnings after the closing bell yesterday. This was top in the S & P 500 again closing just off its highs today up more than 10 percent. We did talk about the earnings reporting results suggesting the increasing move into cloud definitely paying off and they're seeing some momentum. And then check this out. Zoom top in. The Nasdaq 100 up about three and a half percent. Exactly. No real news here. There are some things about a fun boosting its holdings in the company and some different things going on. But nonetheless this name now is down a lot. As we know it's been a lot of pressure a lot of selling. All right. You got you've got the gainers Carol. I got the decliners. Let's start with the second worst performer in the S & P 500 today. On a pointed basis that would be Procter and Gamble. Credit Suisse cutting its fiscal year 2023 earnings earnings estimate giving it a street low of five dollars in 96 sense. This is about inflation. The company saying in a note quote Signs of slowing category growth. As consumers feel increasingly squeezed by inflation and retailers pushing back on manufacturers price increases will exacerbate an already difficult operating environment. Also keep an eye on shares of Redfin today falling by four point nine percent. This after the company said it would cut 8 percent of employees immediately. These companies are cutting their workforces compass as well as rising interest rates cooling U.S. housing market that reached a frenzy during the pandemic. Think back to just a year ago. Redfin shares traded as high as ninety seven dollars a share. And look at that down to eight dollars a share. In Digital World Acquisition Corp. this of. Force is this back bringing Donald Trump's media venture. Public It felt for a second day in a row more than 28 percent today fell. More than 13 percent yesterday tumbled today after saying yesterday that the U.S. FCC expanded a previously disclosed investigation and issued another subpoena related to that merger. Meanwhile I look at what's been a bit of a sea of red today for once and is actually the commodity space. Let's go cross our set for a moment for our audience. With radio I'm looking of course that was some of the massive volatility we saw in natural gas prices in Europe spiking up more 20 30 percent. If you're looking at UK in Europe and in the US falling some 15 percent. The reason is all based on the same bit of news. The fact that this key export terminal in Texas is likely to be off line for another three months after a key fire of course LNG from the U.S. about three quarters of it has been going across to Europe to alleviate the supply issues there. No wonder therefore prices up across the Atlantic and why prices pull back here because we have a bit of an excess supply as the expectation still falling one point six percent. This is interesting though. WTI crude down 2 percent. One hundred eighteen dollars. Why. Actually a great interview that our own David Westin did with one of the key White House economic adviser talking about the fact that maybe we could see a tax on excess profits of big oil companies. Now that is something you've seen the United Kingdom do already to put more money into the hands of the consumer base. And it's something potentially being felt about here. And we saw oil just down that little bit as we think more about some legislation that could put some pressure on oil overall. We also see what has been its story of dollar strength. Once again the British pound by weakening one and a quarter percent. Taylor the reason while you've got Brexit concerns you've got worries about overall risk sentiment and of course a strong U.S. dollar. That means basically the Canadian dollar lower loonie weakening unsurprising if oil is going to be on the downside and all those commodity related pairs in the red as the U.S. dollar is at the highest since 2020. OK remains gone. So I want to do his pop quiz Carol how many babies a queen have yields jumped in two weeks. Why DAX. I was good. OK. One hundred basis points in two weeks. Yeah for the two year yield. That is incredible. That's effectively priced in four rate hikes in the last ten trading sessions or so. I know usually here we do sort of an intraday chart. OK 86 basis points. I cheated a little bit. But you get the point right when we're thinking about rounding up rate of change and the huge moves that we've seen in the bond market coming off some of the biggest moves the biggest week that we've had since 2008. It continues again today intraday moves of six to eleven basis points across the curve. These in the last two weeks has just been unbelievable when we think about a Federal Reserve. As Bill Ackman would say that has totally lost its credibility in the markets need to see 75 maybe 100 to do it and be done. All right. Speaking of credibility let's go back to that discussion of Jay Powell says at the last meeting I'm not doing 75 basis points and maybe he regrets having said it. We're just speculating here. Does he have to stick to it so that you know investors really believe every word that he says at those press conferences. How important is that. I think he is saying that request conference so he would monitor the data. That's what I says. That's how I pushed back. And I said the data has shifted. I mean inflation obviously did not peak. It's obviously not transitory. And look at the hop hop print that we got on Friday morning that changes the game. You know it's amazing though. I mean to Taylor Riggs point 100 basis points in just a couple of weeks. It makes you wonder is there more upside there than even traders are expecting right now given how quickly things have changed. What is the market just doing the Fed's work for it. Look we've already got the financial conditions coming down. We've already got dramatic moves in the bond market in the stock market. You've got already companies signaling that they're going to pullback in terms of their labor. We've got an economy that is already slowing. And the key question though is at what point are prices going to be starting to pull back to that that one. I mean I haven't heard from a real estate investor last night that said it with the pace of increases in real estate you would think inflation should be higher right now. So the question is that. Does it keep on floating higher. Well that's a big one. Right. Watch that housing market which we've seen already impacted by higher rates. Right. Certainly in terms of mortgages. I mean how dramatically does that come down. And that is a sector that rate trickles throughout the economy because you're buying stuff for the house. There's just so much related for it. And that could certainly lead to some significant downside. All right. Senior commodities strategist Mike McGlone said something controversial on our air earlier today. He said that oil prices will start to come down soon and we can check in with him in a week. And I'll say that he's wrong. If they are indeed higher I thought the Fed might overdo it by doing so. He did. He thinks 50 tomorrow. See we'll know that tomorrow right. And we'll know the market reaction. All right. That's going to do what was right. Who's down. Tick tick tick tock. All right. That's going to do it for our CROSSFIRE phone coverage radio TV. You too. We call it Beyond the Bell are simulcast on radio and TV. We will see you again Fed Wednesday. Tomorrow same time same place. Oh well we'll be talking the Fed so much more with Carolyn Tim. Right now we're going to be discussing the market reaction ahead of that all important decision. Stick with us. Bring back. We've been talking a lot about the fear gauge in the credit markets. The ECB acts flashing red sort of in anticipation of a rate rise shock from the Federal Reserve. And while really thinking about investors how are they hedging some of these risky bets. Let's bring in Liz McCormick or Bloomberg chief correspondent for global macro markets and take a look at Al Q D. H y g. The C.D. X that I mentioned that what got up to about 100 basis points yesterday. How are some of the credit markets. Before we get to full faith and credit thinking about anticipation for that big meeting in twenty two hours. Well like you said people are kind of jumping into hedges against default risks like. So for now we haven't seen defaults be very high. But as this kind of torrid pace of pricing in a Fed hikes and inflation being sticky you're seeing that. Like you said the CDO expert going out to 100 or so member for a while we were talking that even as things were getting troublesome in the equity market and rates were going up and sovereigns weak credit was holding in pretty well or you know and now we're really seeing kind of more red flags building there. So you know higher rates and we're seeing higher real rates. You know you can only weather that for so long until companies are hurt by it. Like we're seeing hot high yield pickup for I hate it which is the weaker credit. But the Fed wants high real rates. Right. They want that trend transmission mechanism to work to a certain degree. What happens. The people you're speaking to at the moment what happens if we now don't get 75 basis points tomorrow. What if we go lower for the first idea. Oh boy. Well you know everyone keeps saying oh there's just no way the Fed can do that after they've kind of teed this up in a way. But I think I think we were talking about this with some of my colleagues that if somehow the Fed surprises us and goes 50 say you know some people said well won't bond yields fall as it's lower. But you know maybe that'll be a knee jerk. But most of us think and investors seem to think that if they go less than expected you're going to see long and rates especially kick up. Because how can you feel confident in the Fed's credibility to fight inflation if there was all this kind of teeing up of a big move and then they go less. So I think that's a bigger risk. I see it very unlikely but I don't think in the long run that would be good for the bond market. You know you're having Bill Ackman on line talking about 100 basis points tomorrow in July and thereafter being better. And then on the other hand you have this prospect of 50. So I'm wondering what's the risk here that traders get caught off guard and how levered are they. You and I the basis trade right. I mean how levered to her they add to their wagers here. Well I mean there's always you know for good or bad a decent amount of leverage in their right. And we had highlighted some people kind of buying two year notes a bit ago and doing it on leverage. And I'm thinking oh my goodness is that a painful trade now. Right. And you know Chanel you know that when things like this happen we had these big swings. That's when things start to fall out. Right. You know funds that were over levered getting hurt. So I think know if this keeps up and maybe already we've seen some you're going to continue to see these these investors that were hurt just went too far. And it just seemed like for a while everyone said oh the 10 year yield can't get above Shery Ahn a quarter. And here we are way above it. Right. Credit spreads were doing OK. Now things are widening. I just think there's kind of talk about a lot of pain to be had. Right. I mean some people are on the right side of this of course but some people are underwater at the moment. Liz yesterday we learned that 75 was the new 50. Bill Ackman today would argue that 100 is the new 75. What do you think. Right. Well remember yesterday early somebody floated. I won't get into it. But you know one strategist maybe it's one. And at first it seemed like oh that's crazy right. And then you know it kind of got leaked that the Fed may do seventy five. And then you see more and more strategists saying OK my call is 75 but maybe one hundred would be better. I don't know. I think the the odds are not that strong that they do 100 because it was already like remember Powell set up four months. We're gonna do 50. We're going to do 50 in June. We're gonna do 50 in July. They love forward guidance. They love to kind of tell you and tell you and tell you. And then like I think you were talking and you're simulcasting was saying the day to change they had to change. So they've kind of gotten you know that leaked out a bit. But if they go one hundred maybe that's a bit much. I don't know. They may. Maybe they got to put the gauntlet down and go for you know fast like Ackman says and kind of get to neutral very quickly which will not take too long if they start with 100 tomorrow. It's not a non-trivial risk. J.P. Morgan saying that 100 basis point move as a non trivial risk. Right. Is McCormick. It's always great to catch up with you. You're such a busy woman in the moment. So we appreciate you spending some time with us. Thank you. Meanwhile let's keep you up to speed. What's going on outside the world of business for a moment in the rest of the world. First word. Mark Crumpton. Caroline Hyde. Thank you. Very much. Ukraine's president says the war may stagnate and more people may die if the delivery of weapons to his country doesn't speed up below the mirror Zelinsky told reporters during an online news conference today. Ukraine needs adequate weapons to be able to hit targets from long distances within its territory. And Presidents Lenski reiterated the war will only end when all foreign troops leave the country and its territorial integrity is restored. In Washington the House committee investigating the January 6th 2021 assault on the U.S. Capitol says it needs more time to assemble videos and exhibits. The panel has postponed tomorrow's hearing and moved into Thursday. The hearing will focus on alleged pressure placed on Justice Department officials by former President Trump to convince state elections officials to reconsider and recalibrate results of the 2020 presidential election. The World Health Organization will convene an emergency committee of experts to determine if the expanding monkeypox outbreak that has mysteriously spread outside Africa should be considered a global health emergency. W.H. officials spoke to reporters today in Geneva. So we don't really know whether it's too late to contain what we are. WTO and all member states are certainly trying to do is to prevent onward spread. So it's really important that we collectively all work together to to to prevent onward spread through contact tracing outbreak investigation isolation for people who have a diagnosis of monkeypox and symptoms. Ms. Pike added of monkeypox quote Right now this is an outbreak. An outbreak can be stopped and quote The clearing monkeypox to be an international health emergency would give it the same designation as the Covid-19 pandemic and mean that w h o considers the normally rare disease a continuing threat to countries globally. Local news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in over 120 countries. I'm Mark Crumpton. This is Bloomberg. So we've been talking about the labor issues that also in some way muddy the supply chain concerns that have already been up ending inflation and and how we get our goods to live in union negotiations of course continuing between dock workers ports on the West Coast as a contract to have a twenty two thousand employees at 30 docks expires next month. Both sides say they are working hard to avoid any sort of strike and one is unlikely even if no deal is reached. Joining us to discuss well how we navigate all of these supply chain pains is Michael Barr because he is a true open CEO. Great to have some time with you Michael. You're sort of a data solution an online solution to many of these trade issues that we see. And just talk to us first and foremost about the bottlenecks whether they're easing whether they're getting worse. What are you anticipating. Yeah thanks for having me Caroline. You know the moment is obviously Covid and all the disruptions we've seen. I think they're starting to slow a little bit and we're getting past the major issues. So I think the next four to six months we'll see that kind of even get back to normal. Absent obviously any action out there West Coast ports. How do you think though about sort of the massive imports as China has been reopening and sort of then the additional pressure that that may put as we're starting to try to come out on the other side of this and maybe does it get worse. Yeah I think what's happening we see in our data is that actually we see a little bit of the man slowdown and you're seeing kind of the whipsaw of the effect of a lot of demand a lot of production being made. And now actually in some cases we're seeing a little bit of build up in the ports because the manufacturers aren't selling as much. So I think that could cause a little bit of congestion and force levels. But I think that again will be all normalized. I see if we continue as we are things will continue to kind of ease and get better. You also have to understand that the economy is shifting now to a much more services oriented economy. We've seen that clearly in the data rather than hard goods and that's what most of the imports are. So I think if if things don't change the port will continue. Things will get better over time for six months. The labor picture here in the US. What are the big concerns that continue on into the rest severe. What are the sticking points here that could be a bigger risk ahead. Yeah I think obviously people were concerned about the recession that's coming and obviously concern about inflation and we're going to get that stops. High prices is high prices. So I think that will again normalize from the labor perspective. Also I sense in our business that labor extreme labor shortages we didn't see that kind of with this sort of dissipate in the early part of this year. So I think that is will normalize itself over the next four to six months. So talk to us how in any way technology fixes this or not. Because an awful lot of the second point with the unions with with labor is the fact that the ports want to invest more heavily in automation and robots many feeling that that's some sort of mutually exclusive mathematics for the labor. But from your perspective is it how much can we see technology be an add on to the efficiency that we get from labor and help solve actually some of that short supply is the technology added to the system will increase increases effectively capacity. So if you can process more containers report you obviously can is an effective increase of capacity in terms of technology overall. Technology can help. Companies do is have the right product at the right place at the right time and that itself will eliminate backlog. So technology helps companies understand demand and figure out how to make product to meet that demand. And there's a massive change going on currently with most large manufacturers retailers where they're much more digital understanding demand signals much better to avoid some of the problems that we've seen over the past really 12 to 18 months. Well the technology we have solved this problem the short term but over the longer term the increase in technology will help things become less problematic in the future. Will that help then sort of alleviate some of that congestion. I think it's been interesting what our analysts have talked out. Not only congestion at the port but then in the truckers. And then recently in the rail. When you think from West Coast through East Coast how then can you help predict where some of those key congestion areas are to move the goods out of the ports and to the middle and the eastern part of the country. Yeah the system became completely something from LA and now I'm in the old one. Oh we seem to have a technical issue at play without zoom link. Michael Farkas. We'll see if we can get him in a moment. The C of E to open but oh the joy of using some of our technology to be able to bring some of our guests. But I think it is interesting in a time where central banks around the world are trying to navigate the pricing pressure that we see the tumble that we see in the market on the back of that Taylor Riggs finale. And of course Taylor a key issue here is to what pace the Federal Reserve moves up to. Of course to combat some of the inflationary pressures that inherently supply side. We want to thank our guests. We're going to let him go as we figure out some of those tech tools. Michael of course for guests as you mentioned of course from a great company Caroline Hyde we think about sort of ending on that note about China in the reopening. You talked a lot about the Federal Reserve and the issues time those together are. How do you think about supply chain that the Federal Reserve can't fix. They can fix demand. We thought China was reopening. Maybe they aren't as much. We just heard from Michael maybe demand slowing down. This arguably could be one of the more difficult environments in which to forecast and really highlights the maybe frustration from the Federal Reserve as well. And a lot of divergence among thinking among investors as well. We heard from a banker earlier saying supply chain constraints will continue but now hearing from our most recent gas maybe only four to five months. So let's see how this all plays out. It's really a wait and see. I think what also we're going to get yet further after this evening is more data coming from China. Central banks can only do what they can when they've got the data. We know that. Jerome Powell has been data dependent. We get the Chinese data a little bit later. And of course that's what we're going to be digging into with our triple take because we've got eagerly anticipated Federal Reserve. We also got a PBS C that could weigh in later this week as well and indeed inject a little bit more stimulus into the Chinese economy as we await of course industrial production retail sales some of the investment data coming out of China later tonight. Absolutely. Data coming out. And a lot of investors will be either on the right or wrong side of this. So potentially some more heartache tomorrow. Heartache heart. So what was your idea of mocking the drama bringing the emotion to what is a trading day. We're gonna bring you some clarity on day two. We're going to get you expertise of really what's happening inside China. All we re-opening. All we're going to see some of these supply side issues dial back a little. This is bring back.

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Bloomberg Markets: The Close (6/14/2022)

Caroline Hyde, Taylor Riggs & Sonali Basak bring you the latest news and analysis leading up to the final minutes and seconds before the closing bell on Wall Street and tackles supply chain challenges, what to expect from the Fed and credit Guests Today: Michael Vogelzang of Captrust, Fmr. Apollo Partner Sachin Khajuria, Soren Bjorn of Driscoll's, Rob Amodeo of Western Asset Management, Kathryn Rooney Vera of Bulltick Capital Markets, Marc Lasry of Avenue Capital Management, Brenda O'Connor Juanas of UBS, Michael Farlekas of E2open. (Source: Bloomberg)

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