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00:00> > HOW DO YOU ACTUALLY GET INFLATION UNDER CONTROL? > > THE ONLY THING YOU CAN DO IS TRY TO BRING THE ECONOMY BACK INTO EQUILIBRIUM. > > I WOULD NOT SAY WE ARE OUT OF THE WOODS WHEN IT COMES TO INFLATION. > > ABANDONING THE 2% RANGE TARGET. > > WE ARE PROBABLY IN A SLOPE PATCH. > > THIS IS "BLOOMBERG SURVEILLANCE" WITH TOM KEENE JONATHAN FERRO AND LISA ABRAMOWICZ. TOM: GOOD MORNING, EVERYONE. THANK YOU FOR BEING WITH US ON RADIO AND TELEVISION. NEXT THURSDAY, THE MIDMARKET OF 2022. THERE IS ONLY ONE WORD OUT THERE, RECESSION. LISA: RECESSION AS WE LOOK AT A CORRECTION AND A BEAR MARKET. WE SEE A RALLY CONTINUING TODAY. THE NATURE OF GAINS HIGHLIGHTS THE CONSERVATIVE NATURE OF INVESTORS, PEOPLE HIDING OUT WITH THE SAFER STOCKS. TOM: PRICE UP, YIELD DOWN. 3.01%. WHAT HAVE YOU SEEN AWAY FROM FULL FACING CREDIT? LISA: IT DEPENDS HOW DEEP THE RECESSION IS. THIS HAS BEEN THE THEME OF THE WEEKEND THAT YEAR, HOW DEEP OTHER CONTOURS OF THIS RECESSION? DO YOU GET INCOME FROM SOME OF THESE HIGHER-RATED ASSETS LIKE INVESTMENT GRADE CREDIT? YOU CONTINUE TO SEE OUTFLOWS WE HAVE NOT SEEN IN HISTORY FOR BOND FUNDS. THERE IS A FEELING WE HAVE FURTHER GLOOM TO GO IF WE GET SOME SORT OF RECESSION. TOM: IN ALL THAT CAN BE SAID HERE AS WE WILL READJUST OVER THE WEEKEND AND REALLY THINK ABOUT THE PATH FORWARD, KAILEY LEINZ IN FOR JON FERRO, WHAT IS THE ITEM YOU SEE IN THE WEEKEND READING RUSSIAN MARK -- WEEKEND READING? KAILEY: I WILL BE LOOKING AT 10:00 A.M. CHAIRMAN POWELL TOLD US HE IS KEEPING A VERY CLOSE EYE ON THE EXPECTATIONS. TOM: LET'S DIVE INTO THAT. WHEN WE LOOK OUT FIVE YEARS AND LOOK OUT ANOTHER FIVE YEARS, THE BASIC IDEA, AUTHORS QUESTIONING. KAILEY: THAT IS SOMETHING BILL ACKERMAN RAISED IN A SERIES OF TWEETS. HE SAID THIS BOND MARKET AS WE SOUGHT TO YOUR YIELDS COMING IN RATHER THAN GOING UP FURTHER IS MISREADING THE FEDERAL RESERVE. EVERY FED OFFICIAL IS MOVING TOWARD 75% IN JULY. INFLATION EXPECTATIONS ARE BECOMING ENTRENCHED FED. TOM: THE FRIDAY NEWS IS A SNOOZE FAST ACCORDING TO KAILEY LEINZ. LET ME GIVE YOU THIS NEWSFEST DATA CHECK. MAYBE THERE IS A AUCTION OR SOMETHING TODAY. FUTURES UP 33, DOW FUTURES UP 240. I HAVE TO MENTION BIT DOG, CRYPTO IS HERE. CRYPTO HAS HAD A QUIET WEEK. BRENT CRUDE, $111. YEN DOWN TO 135. I GO TO THE TO YOUR YIELD, 3.02%. 10 YEAR YIELD, 3.09%. LISA: IT IS A BORING TAPE AND THAT IS NEWS AND IN OF ITSELF. TOM: YES. LISA: SUDDENLY, WE GET CALM. PERHAPS THE BOND MARKET IS WRONG. THE BOND MARKET IS CONSISTENTLY SAYING THE FED WILL NOT HAVE TO MOVE AS QUICKLY. WE ARE SEEING A DETERIORATION IN THE ECONOMY. WE GET THE LATEST READ AT 10:00 A.M. WITH THE UNIVERSITY OF MICHIGAN SENTIMENT SURVEY. WE ARE EXPECTING IT TO FALL TO ANOTHER LOWEST LEVEL GOING BACK MORE THAN A DECADE. A LOT OF US WILL BE LOOKING AT THE EXPECTATIONS THAT CONSUMERS HAVE FOR INFLATION OVER THE NEXT FIVE TO 10 YEARS. THE PESSIMISM THAT BUSINESSES AND CONSUMERS ARE FEELING ARE PUTTING A NATURAL DAMPER ALREADY. YOU ARE SEEING THAT IN RETAIL SALES AND AS PEOPLE START TO RESTRAIN SOME SPENDING. AT 4:00 P.M., SPEAKING ON THE U.S. ECONOMIC OUTLOOK. EXPECTED TO DOWNGRADE SOME OF THE EXPECTATIONS AFTER SPEAKING FIRST WITH JEROME POWELL AND JANET YELLEN. HOW DOES SHE DOVETAIL A U.S. ECONOMIC OUTLOOK WITH REST OF THE WORLD THAT IS IN MUCH WORSE SHAPE? HOW DID SHE TALK ABOUT THE SYSTEMIC RISKS? G7 GOVERNMENT LEADERS GATHER IN GERMANY FOR A THREE DAY SUMMIT AHEAD OF THE ANNUAL MEET UP IN MADRID ON TUESDAY. WHAT CAN THEY DO, WITH SO MANY OF THESE ISSUES SPECIFIC IDIOSYNCRATIC PROBLEMS, WHETHER IT HAS TO DO WITH SUPPLY CHAIN OR THE WAR THAT RUSSIA IS WAGING? TOM: THIS IS REALLY IMPORTANT AND WILL NOT REALLY COVER IT TODAY BECAUSE THE NEWS FLOW IS EXTRAORDINARY. THERE IS ANOTHER IDIOSYNCRATIC ITEM, WHETHER IT IS EL SALVADOR AND CRYPTO, THE PHILIPPINE ELECTION, ON AND ON. IT IS LIKE IDIOSYNCRATIC JUNE. LISA: IDIOSYNCRATIC POCKETS OF DISTRESS. PRICES PEOPLE HAVE NOT SEEN. TOM: I WILL MAKE A BANNER, YOU WILL NOT SEE IT ON RADIO. PRE-PANDEMIC INFLATION EXPECTATIONS, 2.9%. FEBRUARY 1980, 9.7%. ERIC FREEDMAN HAS LIVED THIS, HE IS CHIEF INVESTMENT OFFICER. HOW DO YOU DEFEND OWNERSHIP OF EQUITIES FOR PEOPLE WHO SAY WE HAVE BEEN THROUGH HIGH INFLATION BEFORE, WE'LL GET THROUGH HIGH INFLATION AGAIN? ERIC: YOU HAVE TO REALLY FRAME WHAT WILL ADD VALUE IN THIS ENVIRONMENT. LONG-DURATION EQUITIES. THOSE WITH EARNINGS HOPES VERSUS ACTUAL EARNINGS DELIVERIES, THAT IS UP. WE THINK CASH FLOW AND OWNING CASH FLOWING EQUITIES STILL MAKE SENSE. THE IDEA THAT YOU HAVE TO OWN EQUITY IS NOT WHERE WE ARE RIGHT NOW. INFLATION EXPECTATIONS, I THINK LISA HAD A GREAT WEEK EARLIER IN THE WEEK, WHEN YOU SEE THE TWO-YEAR MOVING 50 BASIS POINT CLIPS, THAT SHOWS US THE MARKET IS NOT FLUID. WE ARE MORE ON THE BEAR SIDE. THE FED WILL BE MORE RESTRICTED. > > WHAT DO YOU THINK THE MARKET IS CURRENTLY UNDERESTIMATING WITH THE FED? HOW FAR THEY WILL GO OR THE RESOLVE TO TAKE A MORE AGGRESSIVE STANCE? ERIC: WE ARE NORMALLY GLASS HALF-FULL. IN THIS ENVIRONMENT, WE THINK WHAT IS DIFFERENT WITH RESPECT TO THE FED'S INTENTION BOILS DOWN TO LIQUIDITY. WE ARE ENTERING A SEASONAL PART OF THE CALENDAR, IF YOU WILL. IF YOU ADD ON TOP OF THAT THE RISK THAT IS PROBABLY NOT BEING TALKED ABOUT ENOUGH, JUNE 28, WHEN THE M2 DATA SOURCE. AS YOU HAVE TIMING MONETARY POLICY WHICH WE THINK CHAIR POWELL HAS BEEN MORE THE GOOD UNCLE, IF YOU WILL, TALKING DOWN EXPECTATIONS. IF YOU ADD ON TOP THE RISK OF M2 CONTRACTS AND THE FED GETS MORE AGGRESSIVE, WE THINK THAT IS A RECIPE FOR TOUGHER FINANCIAL CONDITIONS. WE THINK THE FED HAS A MANDATE THAT WILL BE CHALLENGED BY OIL PRICES. WE THINK SHELTER COSTS REMAIN A LAGGING INDICATOR. THERE WILL BE A LAG EFFECT THAT WILL PUSH THE FED TO BE MORE AGGRESSIVE. > > WE HEARD FROM THE CHAIRMAN SAYING THE RESOLVE WAS UNCONDITIONAL. IT RAISES THE QUESTION OF IF THE FED WILL FLINCH. GIVEN EVERYTHING YOU JUST SAID, IS THIS MARKET APPROPRIATELY PRICING THE RISK OR DO WE HAVE A FURTHER FALL? ERIC: WE THINK WE HAVE FURTHER TO FALL. IT IS LIKE THE UNIVERSITY OF VIRGINIA BASKETBALL TEAM. THEY MIGHT SHOW SOME FLASHES OF A HIGH PUT AN OFFENSE, BUT IT IS A FORMIDABLE DEFENSE OF TEAM. THIS IS AN ENVIRONMENT WHERE HAVING THAT MORE DEFENSIVE CASH FLOW NATURE MAKES SENSE FOR INVESTORS. WE TALKED LAST TIME WE WERE ON ABOUT THE NATURE OF TWO REPRICINGS. REPRICING 1 -- WE STILL THINK THAT FIRST REPRICING MEANING YIELD UP AND PRICES DOWN WILL CONTINUE ON THE FRONT OF THE CURVE. THE SECOND PART BOILS DOWN TO THE -- WE THINK THERE IS SOME VULNERABILITY TO S & P EARNINGS. S & P EARNINGS HAVE BEEN PRETTY STICKY BUT WE THINK THE RISK OF DEMAND FOR THE SECOND REPRICING IS GOING UP. THAT IS WHY THERE IS MORE DOWNSIDE. A LOT OF NOISE IN THE NEXT COUPLE WEEKS. WE THINK THE BIAS WILL BE THE BALANCE OF THE SUMMER. TOM: HAVE TO WAIT FOR VIRGINIA-COLGATE IN BASKETBALL. ERIC FREEDMAN. I DON'T THINK THERE IS ANYONE OVER 6'ON COLGATE BASKETBALL. ERIC FREEDMAN, THANK YOU SO MUCH. I HAVE NO IDEA WHAT HE WAS TALKING ABOUT WITH UNIVERSITY OF VIRGINIA. KAILEY, UNIVERSITY OF VIRGINIA HOCKEY IS JUST EXTRAORDINARY. TWO THE EVEN HAVE AN ICE RINK IN CHARLOTTESVILLE? KAILEY: I THINK IT GOT CONVERTED INTO A RESTAURANT. TOM: CONVERTED INTO A DENNY'S. [LAUGHTER] TOM: OF THE BLUR OF NEWS TODAY, WHAT HAS YOUR ATTENTION? LISA: UNIVERSITY OF MICHIGAN CONSUMER SENTIMENT SURVEY. HOW MUCH IS THE GLOOMY RHETORIC A SELF-FULFILLING PROPHECY? TOM: I WILL GO AWAY FROM ECONOMICS. LISA, AS YOU MENTIONED, ALL OF THESE IDIOSYNCRATIC MOMENTS, STARTING AT THE BEGINNING OF THE WEEK WITH TUNISIA ESSENTIALLY SHUT DOWN. THERE ARE A LOT OF INTERNATIONAL RELATIONS STORIES TO THINK ABOUT , INCLUDING BUT THE PRESIDENT'S TRIP COMING UP IN JULY. THE HISTORIC JUDICIAL DECISIONS FROM WASHINGTON AND LEGISLATIVE DECISIONS, AS WELL. ON THE EQUITY MARKETS AT 7:00 A.M. STAY WITH US, THIS IS BLOOMBERG. ♪ RITIKA: KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE WORLD. I AM RITIKA GUPTA. IT IS BEING CALLED THE BIGGEST BREAKTHROUGH IN U.S. GUN SAFETY IN THREE DECADES. THE SENATE VOTED 65-33 FOR BIPARTISAN LEGISLATION FOR BACKGROUND CHECKS, SECURE SCHOOLS AND FIGHT GUN VIOLENCE. THE SENATE PASSED THE BILL HOURS AFTER THE SUPREME COURT ISSUED A LANDMARK RULING THE COULD MEAN MORE GUNS ON THE STREET. FEDERAL RESERVE CHAIR JEROME POWELL -- COMMITMENT TO CURBING INFLATION. HE WRAPPED UP TWO DAYS OF TESTIMONY ON CAPITOL HILL BY WARNING THE FED IS FAR FROM ITS INFLATION TARGET. SHE SAID SHE SUPPORTS RAISING INTEREST RATES BY 75 BASIS POINTS NEXT MONTH. IN THE U.K., PRIME MINISTER BORIS JOHNSON -- THE CONSERVATIVE PARTY LOST A KEY PARLIAMENT SEAT IN SOUTHWEST ENGLAND. IT IS FIRST TIME I CONSTITUENCY HAS NOT VOTED CONSERVATIVE. THE LIBERAL DEMOCRATS WON THE SEAT. BLOOMBERG HAS LEARNED BEIJING HAS ASKED FOREIGN BUSINESS CHAMBERS TO ADVISE THE ECONOMY. THE CHAMBER RESPONDED WITH ONE OVERRIDING MESSAGE. HACKERS HAVE STOLEN $100 MILLION IN A CRYPTOCURRENCY ATTACK. HARMONY SAID IT IS WORKING WITH NATIONAL AUTHORITIES AND FORENSIC SPECIALIST TO IDENTIFY THE HACKERS AND RETRIEVE THE MONEY. GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON QUICKTAKE BY BLOOMBERG, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES.. I AM RITIKA GUPTA. THIS IS BLOOMBERG. > > IN HONOR OF PRIDE MONTH AND JUNETEENTH, BLOOMBERG BRINGS YOU A SPECIAL EQUALITY SERIES EVERY THURSDAY IN JUNE AT 1:00 EASTERN. BLOOMBERG EQUALITY, CELEBRATING INCLUSION. > > I AM FULL CONVINCED THAT UKRAINE IS THE EUROPEAN NATION. THEY FIGHT EVERY DAY AGAINST THE AGGRESSOR. THEY DEFEND EUROPEAN VALUES. THEY DEFEND DEMOCRATIC VALUES. THEY ARE FIGHTING NOT ONLY FOR THEIR FREEDOM, BUT FOR OUR FREEDOM. TOM: THE ECONOMIST FROM LITHU ANIA, CONVERSATION YESTERDAY. WE WILL LOOK AT THE DOMESTIC GUN ISSUES IN AMERICA IN OUR NEXT HOUR WITH EMILY WILKINS. WE GO INTERNATIONAL TODAY ON BRUSSELS. I CAN ONLY SAY YESTERDAY, THAT WAS A CONVERSATION OF THE MOMENT BEFORE WE GET TO THE ZEITGEIST OF THE WEEKEND IN BRUSSELS. WHAT I FIND SO IMPORTANT IS THIS WORD BLOCKADE. PUTIN SAID THERE IS A BLOCKADE. IS THERE? MARIA: IF YOU ASK THE RUSSIANS, THEY SAY THAT IS THE WAY IT IS HEADING. THE LITHUANIANS SAID THERE IS NOT. RUSSIA COULD TECHNICALLY USE THAT TO SAY THIS IS BELLIGERENT BEHAVIOR, AN ACT OF WAR AND POTENTIALLY TARGET THE BALTICS. WHEN YOU LOOK AT THE MAP, THIS IS A NATO COUNTRY. THIS IS COMING RIGHT BEFORE A NATO MEETING. EASTERN EUROPEAN COUNTRIES WILL ASK THE PRESIDENT OF THE UNITED STATES AND GERMANY THAT THEY WANT MORE MEN, MORE WEAPONS FULLY STATIONED ON THE EASTERN FLANK. LISA: WE HEARD STRONG WORDS OUT OF GERMANY, INCLUDING EVEN IF WE DO NOT FEEL IT YET, WE ARE IN A GAS CRISIS. GERMAN OFFICIALS CAME OUT AND SAID THERE COULD BE A LEHMAN MOMENT IN RUSSIA'S CURTAILING OF GAS SUPPLIES TO EUROPEAN NATIONS. HOW IS THAT BEING RECEIVED? MARIA: I HAVE NEVER HEARD THAT KIND OF LANGUAGE FROM A GERMAN OFFICIAL. WE ALL KNOW WHAT LEHMAN BROTHERS MEANS, WHAT THAT TRIGGERED. TO USE THAT KIND OF LANGUAGE TO TALK ABOUT THE ENERGY CRISIS POTENTIALLY FACING THE EUROPEAN UNION SHOWS YOU THE SEVERITY BEHIND THE SCENES. THERE ARE REAL CONCERNS TODAY THAT RUSSIA COULD AT ONE POINT UNILATERALLY CUT THE FLOW SO EUROPEANS ARE ESSENTIALLY RACING AGAINST THE CLOCK TO GET THE STORAGE READY BY NOVEMBER. IF NOT, THEY ARE ESSENTIALLY IN THE HANDS OF WHATEVER PRUDENT -- VLADIMIR PUTIN. THAT IS THE LAST THING THE EUROPEANS WANT, PANIC. IT DOES CATCH UP TO THE REALITY ON THE GROUND. THE EUROPEANS HAVE THREE MONTHS TO FILL UP THE STORAGE OTHERWISE THEY GET TO WINTER, THE MOST VULNERABLE TIME OF THE YEAR IN EUROPE AND YOU ARE IN THE HANDS OF PUTIN. KAILEY: THAT IS SOMETHING THAT HAS DOGGED THE BIDEN ABUNDANCE RATION. HE IS NOT IN GREAT DOMESTIC POLITICAL STANDING. AS HE HEADS TO THEG7, CAN YOU CHARACTERIZE THE POWER HE BRINGS TO THIS MEETING COMPARED TO THE ONE IN 2021? EMILY: IT IS NOT AS MUCH POWER AS HE HAD PREVIOUSLY. HIS RATINGS IN SOME POLLS HAVE SLIPPED UNDER 40%. THE REPUBLICANS ARE LIKELY TO TAKE THE U.S. HOUSE AND POTENTIALLY THE U.S. SENATE AND THAT WILL LIMIT BIDEN'S ABILITY TO GET THINGS DONE. THERE ARE PRIVATE CONCERNS THAT GERMAN OFFICIALS HAVE SAYING THE U.S. HAS BEEN SUCH A LEADER IN KEEPING THE E.U. AND ALLIES TOGETHER AND KEEPING PRESSURE ON MOSCOW, THEY ARE WORRIED THE U.S.'S ROLE WILL BE COMPROMISED IF THEY HAVE DIVIDED GOVERNMENT. IT IS A DIFFICULT POSITION FOR BIDEN TO BE IN. HE IS NOT COMING WITH THE SAME POWER HE HAD LAST TIME AND THERE ARE QUESTIONS ABOUT WHAT THE ADMINISTRATION WILL LOOK LIKE MOVING FORWARD. KAILEY: MARIA, WHAT ARE YOU HEARING FROM YOUR EUROPEAN SOURCES? MARIA: I THINK I WOULD TONE IT DOWN BIG TIME FROM THE INTERNATIONAL PERSPECTIVE. EVERY COUNTRY HAS POLITICS AND EVERYONE CAN SEE THE POLLING FOR THE PRESIDENT OF THE UNITED STATES AND THE APPROVAL RATING, BUT WHEN YOU LOOK AT THE WEAPONS, THE U.S. HAS BEEN AN INCREDIBLE SUPPLIER FOR UKRAINE, MUCH MORE THAN SOME EUROPEAN COUNTRIES. WHEN YOU LOOK AT THE MONEY THE COUNTRY IS PAYING INTO UKRAINE, IT IS HUGE. THIS IS AN ADMINISTRATION THE EUROPEANS CAN COUNT ON. THIS IS NOT A PROBLEM THE U.S. HAS CREATED FOR EUROPE. THIS IS AN ISSUE IN THE MAKING FOR 10 YEARS FOR THE EUROPEAN UNION. NOW THE PENNY DROPS. THIS IS ENTIRELY SELF-MADE. TOM: THANK YOU SO MUCH. IN OUR NEXT HOUR FOR INTERNATIONAL AUDIENCE, WE WILL ADDRESS THE TWO ISSUES OF GUN LEGISLATION AND JUDICIAL ACTIVITY IN WASHINGTON WE HAVE SEEN IN THE LAST 24 HOURS. LISA, FUTURES UP 31. TO ME, THE HEART OF THE ECONOMIC ANALYSIS THIS WEEKEND, HEADLINE INFLATION, LET'S CALL IT 8%, CORE INFLATION, 6%, IT MIGHT BE DECLINING. LISA: WE HAVE HEARD FROM THE FED CHAIR HIMSELF THAT THEY ARE LOOKING AT BOTH BECAUSE HEADLINE INFLATION IS WHAT ALLOWS PEOPLE TO HAVE LONGER-TERM EXPECTATIONS. I AM TRYING TO WRAP MY HEAD AROUND WHAT THE TWO YEAR LOOKS LIKE. EITHER WAY, THEY ARE SEEING IT COME DOWN IN A WAY THAT IT IS NOT IN ACTUALITY AT LEAST THAT IS THE IMPLICATION HOW LOW SOME HAVE GONE. TOM: LET'S TURN TO THE ESTEEMED 21ST CENTURY PHILOSOPHER, KAILEY LEINZ. [LAUGHTER] CAN YOU EXPLAIN WHY STOCK GOES UP IF THERE IS SUCH RECESSION WORRIES? KAILEY: IT IS HARD TO ASSIGN ACTUAL NARRATIVE AROUND MARKET ACTION BUT WE HAVE SEEN YIELDS MOVE HIGHER AND PUT PRESSURE ON THE REAL GIANTS WITHIN THE EQUITY MARKET, TECH STOCKS. MULTIPLES HAVE COME DOWN BUT THEY ARE STILL RICHLY VALUED. STOCKS HAVE BEEN PRESSURED BY HIGHER YIELDS. IF WE ARE TALKING RECESSION, SOME OF THE CYCLICAL VALUE TRADES THAT HAVE DONE WELL BUT NOT HOLD UP AS WELL IN A SLOWER GROWTH ENVIRONMENT. TOM: LISA, THAT GOES TO WHAT ERIC FREEDMAN SAID ABOUT PRESSURE. EVERYONE HAS AN ANGLE ON THIS. HE SEES A SECOND TRANCHE OF MARGIN CHALLENGES. LISA: ALL I CAN SAY IS YOU HAVE META OR FACEBOOK DOWN 53%. HOW MUCH IS BEING PRICED IN, WHERE IS IT BEING PRICED IN AND WHAT IS BEING PURCHASED? IT IS A ROTATION WITH HEALTH CARE STOCKS AND CERTAIN TECH STOCKS. IT IS VERY NUANCED. TOM: LET'S TALK ABOUT THE REAL YIELD. THIS IS IMPORTANT. MY ENTOURAGE SHOWED UP LATE, THEY WERE ALL OUT PARTYING, I HAVE A 10 YEAR REAL YIELD, 0.57%. THAT IS A LOWER REAL YIELD OVER THE WEEK. LISA: THIS GOES TO THE FEELING THAT THE FED WILL NOT BE AS AGGRESSIVE. THEIR BALANCE SHEET HAS NOT COME DOWN AT ALL. WHATEVER QUANTITATIVE TIGHTENING SHOULD PROBABLY BE. TOM: TELL ME I AM NOT DOING THE REAL YIELD THIS AFTERNOON FOR FERRO. LISA: ♪ TOM: "BLOOMBERG SURVEILLANCE." GOOD MORNING, EVERYONE. JONATHAN FERRO IS OF THE SUITE, A WELL-DESERVED WEEK OF KAILEY LEINZ IS. IN FOR HIM, LISA ABRAMOWICZ AND TOM KEENE. I AM GOING TO MAKE IT QUICK, EQUITIES OUR APP. THE NASDAQ 100 -- EQUITIES ARE UP. THE NASDAQ 100 UP 0.9%. THE VIX, 28 .64. DOW FUTURES DOWN. AS LISA MENTIONED, A -- TO SAY THE LEAST. WE WILL DIVE IN A LITTLE EARLY ON BANKS. YES, IT IS AFTER THE STRESS TESTS, I WANT TO GIVE YOU A NATIONAL INDICATOR. TALK ABOUT MILK, LIVE CATTLE, WE HAVE THE OTHER PRICES, LISA AND I WHINING ABOUT HER 24/7. IN MAINE, THERE IS A PLACE EVERYONE GOES TO, NORTH OF PORTLAND, BEAL'S LOBSTER PIER. I HAVE A LEADING CITIZEN OF MAINE. A LOBSTER ROLL THERE IS $41 99 CENTS. TELL ME WHAT THAT DOES TO TOURISM IN MAINE. GUEST: THOSE ARE EXPENSIVE PRICES. FOR ALL OF THE LOBSTER LOVERS, THAT IS A STEEP PRICE TO PAY FOR A LOBSTER ROLL. THAT THE EARLY SIGNS IN THE STATE OF MAINE, THEY ARE ON TRACK TO BREAK RECORDS FOR TOURISM THIS YEAR. SO THE PRICES ARE NOT KEEPING PEOPLE AWAY. MAYBE INSTEAD OF EATING TWO OR THREE LOBSTER ROLLS, THEY WILL HAVE JUST ONE. [LAUGHTER] TOM: OK, LET'S TALK ABOUT THE STRESS TEST. KMART GLORIFIED. THE BANKS ARE MINTING MONEY. BUT HOW DO THE BANKS DEAL WITH INFLATION AND CUTTING COSTS WITH CASH FLOW UP TO THEIR EYEBALLS? GERARD: IT IS A REALLY GOOD QUESTION. WHAT IS INTERESTING WITH THE BANKS IS THAT WITH THESE RAISING INTEREST RATES AND THE ASSETS IN THEIR BALANCE SHEETS, URC MARGINS WIDENING OUT. IF THE FED RAISES RATES AGAIN IN JULY AS THEY ARE EXPECTED TO BY ANOTHER 75 BASIS POINTS, YOU ARE LIKELY TO SEE NET INTEREST REVENUE GROWTH THIS YEAR FOR THE LARGEST BANKS BETWEEN 15% AND 20%. WE HAVE NOT SEEN THAT KIND OF GROWTH IN DECADES. HOW HE WILL COMBAT HIGHER INFLATION IS THEY ARE GETTING HIGHER REVENUE GROWTH THROUGH SPREADS. REMEMBER, WHEN THE MARGIN EXPANDS, THERE IS NO INCREMENTAL COST, YOU ARE NOT HIRING MORE OFFICERS OR OPENING BRANCHES, THIS GOES RIGHT TO THE BOTTOM LINE. THAT IS HOW THEY WILL COMBAT INFLATION, AS WELL AS KEEPING IT TIGHT REIN ON EXPENSES. LISA: SO THE INCOME IS POTENTIALLY A BIG BUFFER AGAINST LOSSES, AND THE ABILITY TO BUY BACK BILLIONS OF DOLLARS OF THEIR SHARES AS THEY WILL PROBABLY ANNOUNCING THE NEXT COUPLE OF WEEKS. WHY IS THE KBW INDEX DOWN, AND WHY DO PEOPLE STILL SEE THIS AREA AS A POTENTIAL SOURCE OF LOSSES? GERARD: THAT CHALLENGE INVESTORS ARE HAVING TODAY IS THE TUG-OF-WAR BETWEEN BETTER REVENUE GROWTH, AS JUST MENTIONED, FROM NET INTEREST REVENUE, PARTIALLY OFFSET BY THE RISING COST OF CREDIT. REMEMBER, FOLLOWING THE 2020 PANDEMIC, THE BANKS BUILT-UP THEIR RESERVES FOR MASSIVE CREDIT LOSSES THAT NEVER MATERIALIZED, FOR THEIR BALANCE SHEETS TODAY ARE INCREDIBLY CLEAN, THEY ARE DE-RISKED. INVESTORS REMEMBER 2009, AND THEY THINK THAT IS WHAT WILL HAPPEN IN THIS RECESSION. WE ARE THINKING MORE 2001 AND 2008. THE DOWNSIDE FOR BANKS THIS YEAR IS THAT FEAR THAT CREDIT WILL DETERIORATE. LISA: A LOT OF THIS IS FEAR, AND IT MAY NOT BE REFLECTED IN THE FUNDAMENTALS. WHEN DO INVESTORS START TO LOOK AT BANKS TO TAKE ON MORE RISK, NOT WITH RESPECT TO LENDING TO CONSUMERS HEADED INTO A DOWNTURN, BUT WITH ACQUISITIONS, USING THEIR CASH TO BUY BACK SHARES, TO INVEST IN THE TECHNOLOGY THAT THIS IS THE FUTURE? GERARD: IT IS INTERESTING, ON THE MERGERS & ACQUISITIONS FRONT URC SMALL -- YOU ARE SEEING OTHER DEALS, SMALL DEALS RELATIVE TO THEIR BALANCE SHEET AND CAPITAL. BUT IN TERMS OF BIG BANK MERGERS AND ACQUISITIONS, THAT IS UNDER BACK-BURNERED RIGHT NOW. THE HEADS OF THE RED A AGENCIES IN WASHINGTON, NEW CHANGES -- THE HEADS OF THE REGULATORY AGENCIES IN WASHINGTON HAVE NEW RULES COMING ON MERGERS & ACQUISITIONS. MANY OF THE BANKS ARE CUTTING-EDGE ON TECHNOLOGY, LIKE JP MORGAN AND BANK OF AMERICA. KAILEY: GROWTH HAS BEEN REALLY HARD FOR BANKS TO GET BACK IN THE POST-PANDEMIC AREA, THERE WAS SO MUCH FISCAL STIMULUS SO PEOPLE DO NOT NEED TO TAKE OUT LOANS. I WONDER WHAT YOUR VIEW IS ON WHAT LOAN GROWTH IS GOING TO LOOK LIKE. EARLIER THIS WEEK, BLOOMBERG HAD A SCOOP THAT JP MORGAN IS LAYING OUT MANY PEOPLE IN ITS HOME LENDING BUSINESS BECAUSE OF HIGHER RATES? GERARD: THE RESIDENTIAL MORTGAGE BUSINESS IS VERY CYCLICAL, JUST LIKE THE INVESTMENT BANKING BUSINESS. BECAUSE OF THE RISE IN RATES, MANY HOMEOWNERS ARE NOT REFINANCING. THAT IS CUTTING INTO THE ORIGINATION VOLUMES ON RESIDENTIAL MORTGAGES. HOWEVER, WHAT WE'RE SEEING IS THAT AS WE MOVE FURTHER AWAY FROM THE PANDEMIC, AND MANY AMERICANS HAVE LESS SAVINGS NOW BECAUSE THEY HAVE USED THEIR STIMULUS, CREDIT CARD RECEIVABLES FINALLY ARE BACK TO 2019 LEVELS. COMMERCIAL LENDING IS GROWING INTO THE HIGH SINGLE DIGITS. YOU'RE SEEING LOAN GROWTH TIED TO NORMAL GDP GROWTH AND WITH NOMINAL GDP GROWTH MECHANIC THIS YEAR IN THE MID-TO-HIGH SINGLE DIGITS BECAUSE OF INFLATION, YOU WILL LIKELY SEE BANKS BUILD THEIR LOAN PORTFOLIOS IN THE MID-TO-HIGH SINGLE DIGITS. AND THAT IS LED BY COMMERCIALS IN THE CONSUMER. TOM: AS WE ARE BEATING THE DRUM TOWARDS THE UNIVERSITY OF MICHIGAN SENTIMENT NUMBERS LATER THIS MORNING, HOW DO YOU VIEW THE HEALTH OF THE AMERICAN CONSUMER NOW? GERARD: ACCORDING TO NUMBERS THAT WE SEE, AND EVIDENCED BY BANK OF AMERICA, WHAT THEY'RE CHAIRMAN, BRIAN MOYNIHAN POINTED OUT LAST WEEK IN BOSTON, URC OF THE CONSUMER IN VERY GOOD SHAPE. ACCORDING TO THE BANK OF AMERICA NUMBERS, YOU ARE SEEING THAT CONSUMERS THAT HAD ABOUT $1500 IN DEPOSITS PRIOR TO THE PANDEMIC, THAT BANK OF AMERICA CUSTOMER TODAY HAS SOMETHING CLOSE TO $5,000. SO THE CONSUMER, BASED UPON THEIR DEBT INCOME IS IN GOOD SHAPE, AND WE ANTICIPATE THAT AS LONG AS EMPLOYMENT STAYS RELATIVELY STRONG, THE CONSUMER IS IN GOOD SHAPE. TOM: IN THE PANDEMIC AND IN THE DIGITAL LIFT THAT WE ALL HAD, SPEEDING UP AND GOING FASTER AND FASTER, GIVEN THE PRESSURES BANKS FACE, HOW PERTINENT IS THE BRANCH SYSTEM? GERARD: IT IS REALLY INTERESTING. OUR FIRST REAL JOBS, YOU HAD REAL PAPER CHECKS THAT YOU HAD TO DEPOSIT, BRANCHES WERE IMPORTANT TO CAPTURE THOSE. THAT NO LONGER HAPPENS, AS WE ALL KNOW. SO THE BRANCH SYSTEM TODAY IS LESS IMPORTANT THAN IT WAS 30 YEARS AGO. AS YOU SEE IN THE NUMBERS, WE ARE DOWN PROBABLY 20% FROM PEAK BRANCHES BACK IN 2008 WHEN THE INTRODUCTION OF THE IPHONE CAME ON. BRANCHES WILL ALWAYS BE HERE, BUT THEY WILL BE FAR AND FEW OF THEM IN THE NEXT 20 YEARS. TOM: AL FROM NEW JERSEY, SAYING TELL CASSIDY THAT HE HASN'T HAD A REAL JOB IN 20 YEARS. [LAUGHTER] THANK YOU SO MUCH, GERARD CASSIDY FROM RBC CAPITAL MANAGEMENT. LISA, WE HAVE TO TALK ABOUT THIS BOOM ECONOMY, CASSIDY JUST ITEMIZED IN MAINE, A BEAL'S LOBSTER, THIS WEEK AT THE ABRAMOVITZ HOUSEHOLD CAN HAVE A SIXPACK OF LIVE LOBSTER FOR $550, 92 DOLLARS PER LOBSTER. SORRY, LISA, THAT IS A BOOM ECONOMY BY ANY DESCRIPTION. LISA: EXCEPT THAT KAREN COULD NOT HAVE A $550 SIXPACK OF LOBSTER ROLLS AS MUCH AS THAT DOES SOUND DELICIOUS. MAINE LOBSTER ROLLS ARE COLD AND THE CONNECTICUT ONES ARE HARD, AND WE CAN HAVE THAT DEBATE. SO FAR, COMPANIES HAVE BEEN ABLE TO PASS ALONG THE COSTS. PEOPLE ARE STILL BUYING THOSE LOBSTER ROLLS. TOM: EXACTLY. PAOLA SAID THAT IN HIS LEAD SENTENCE, HE SAID IT IS A STRONG ECONOMY -- H CHAIRMAN POWELL SAID THAT. YET RECESSION DOMINATES THIS WEEK'S DISCUSSION. LISA: HOW MUCH ARE PEOPLE SAYING THAT THIS IS WHAT THE FED HAS TO EVENTUALLY CAUSE TO BRING PRICES DOWN, AND HOW MUCH IS THE NARRATIVE RUNNING AHEAD OF REALITY? THAT IS WHAT WE ARE SEEING WITH YIELDS COMING IN, BOND PRICES UP. PEOPLE EXPECT ALREADY IN A RECESSION. IT IS MIND-SPINNING. HARD TO PUT TOGETHER ESPECIALLY AT A TIME WHEN YOU HAVE COMPANIES AND INDIVIDUAL ANALYSTS SAYING, EVERYTHING IS STILL REALLY GOOD, WE DON'T KNOW WHAT YOU'RE TALKING ABOUT . TOM: ONE VIEWER FROM VIRGINIA BEACH SAYS, YOU LOSE THE LOBSTER AND GIVE US SOME VIRGINIA CRAB CHEDDAR. FROM EVERYTHING YOU SEE, IT IS A BOOM. FOR OUR INTERNATIONAL AUDIENCE, WE NEED TO SAY THIS, IT IS A CRAZY BOOM ECONOMY. KAILEY: THAT'S THE THING WE TALK ABOUT, SENTIMENT HAS BEEN SOUR FOR SOME TIME AND IT IS ONLY STARTING TO REFLECT AT THE MARGIN ON ACTIVITY DATA. WE HAD RETAIL SALES DISAPPOINTING, BUT IT'S NOT LIKE THINGS ARE TURNING DRAMATICALLY AS SENTIMENT HAS. THE QUESTION NOW IS THAT NOW THAT SAVINGS ACCOUNTS ARE DRAWN DOWN, AND PEOPLE ARE TURNING TO LEVERAGE TO KEEP SPENDING, AT WHAT POINT DO THINGS TURN IN A SHARPER FASHION? LISA: NOT THAT I WANT PEOPLE TO BE UNHAPPY, BUT LET'S REFLECT THE REALITY. IF YOU LOOK AT WAGES, THEY ARE AS NEGATIVE AS THEY HAVE EVER BEEN. PEOPLE ARE BUYING LESS WITH THE MONEY THEY ARE EARNING, EVEN AS THEY GET RAISES. SO A BOOM ECONOMY GOES DIRECTLY TO THE POINT YOU ARE TALKING ABOUT, IT IS A BOOM ECONOMY IN NOMINAL TERMS ONLY, NOT IN INFLATION-ADJUSTED TERMS. IT IS A MASKED, TEPID ECONOMY. TOM: I WOULD PARTITION FOLKS ACROSS DESK AISLES. THE PEOPLE AT BEAL'S LOBSTER SHOCKER IN THE UPPER DESK AISLES. REALLY INTERESTING CONVERSATION ON BANKING. WE WILL HAVE THAT, AND JP MORGAN EARNINGS, I AM GUESSING, THIRD WEEK OF JULY. NASDAQ IS UP 1%. THE VIX IS A 28.69. THE DOLLAR HAVING FUNCTIONAL WEAKNESS. STAY WITH LOBSTER BRICK. -- STAY WITH US AFTER OUR LOBSTER BREAK. > > KEEPING IT UP-TO-DATE AROUND THE WORLD, I AM RITIKA GUPTA. THE SENATE AND THE SUPREME COURT HAVE UNDERSCORED THE DEEP DIVISIONS ON GUN POLICY. THE SENATE PASSED GUN SAFETY LEGISLATION THAT CALLS FOR IMPROVING BACKGROUND CHECKS, SECURING SCHOOLS AND GIVING THE STATES MONEY TO COMBAT GUN VIOLENCE. THE HOUSE IS ALSO EXPECTED TO APPROVE THE MEASURE. IT CAME HOURS AFTER THE SUPREME COURT ISSUED A LANDMARK RULING THAT WOULD MEAN ALL GUNS ON STREETS OF THE BIG CITIES. FIVE REPUBLICAN MEMBERS OF CONGRESS ARE SAID TO HAVE CONTACTED THE WHITE HOUSE AFTER THE 2020 ELECTION, SEEKING PARDONS FROM PRESIDENT, ACCORDING TO VIDEO TESTIMONY PLAYED BY THE COMMITTEE INVESTIGATING THE JANUARY 6 INSURRECTION. THEY INCLUDED MATT GAETZ, SCOTT PERRY, RUDY AND MO BROOKS. BLOOMBERG HAS LEARNED THE U.S. IS SET TO ESCALATE A CLAIM THAT MEXICO VIOLATED A FREE-TRADE AGREEMENT. A DIRECT OUTCOME IF IT COULD LEAD TO THE U.S. IMPOSING TARIFFS ON MEXICAN IMPORTS, AND COULD INCREASE TENSIONS BETWEEN THE TWO COUNTRIES. WALL STREET'S BIGGEST BANKS ARE SET TO RETURN TENS OF DOLLARS TO INVESTORS. THEY ALL PASSED THE FEDERAL RESERVE'S ANNUAL TESTS OF THEIR ABILITY TO WITHSTAND MARKET TURMOIL. BANKS SUCH AS JP MORGAN, MORGAN STANLEY AND GOLDMAN SACHS, COULD HANDLE A SEVERE RECESSION. IN THE U.K., CONSUMER CONFIDENCE DROPPED TO A RECORD LOW THIS MONTH. RISING PRICES, A SQUEEZE ON INCOMES AND DISRUPTIONS FROM STRIKES TOOK A TOLL ON THE NATIONAL MOOD. ITS MEASURE OF SENTIMENT FELL TO 41 IN JUNE, THE LOWEST READING IN THE 48-YOUR SURVEY. GLOBAL NEWS, 24 HOURS A DAY, ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I AM RICH COWEN GROUP TOP. THIS IS BLOOMBERG. > > IT IS UNCONDITIONAL, OUR COMMITMENT. THE REASON IS THAT WE NEED TO, IN A PARTICULAR SITUATION, WE HAVE A LABOR MARKET THAT IS UNSUSTAINABLY HOT. WE ARE VERY FAR FROM OVER INFLATION TARGET. WE REALLY NEED TO RESTORE PRICE STABILITY AND GET INFORMATION BACK UNDER 2% BECAUSE WITHOUT THAT, WOUND NOT HAVE A SUSTAINED PERIOD OF MAXIMUM EMPLOYMENT. TOM: JEROME POWELL ON HIS UNCONDITIONAL FOCUS AT 10:00 A.M. THIS MORNING, THE UNIVERSITY OF MICHIGAN SURVEY ON INFLATION EXPECTATIONS. IT IS NOT A BORING FRIDAY. THAT IS A KEY STATISTIC FOR THE WEEKEND FOR THE MONTH. LISA: WHEN DO PEOPLE START TALKING ABOUT THINGS GETTING ON -- GETTING UNMOORED, LIKE BILL ACKMAN WITH SAYING, THAT THE FED HAS TO FIGHT AGGRESSIVELY NO MATTER WHAT THE ECONOMIC DATA IS? TOM: OUR GUEST IS A FOUNDER AND GEOPOLITICAL STRATEGIST. HE JOINS US RIGHT NOW. I WANT TO DIGRESS INTO THE BRITISH ELECTIONS, AND THE UPROAR OF THE CONSERVATIVE TORY PARTY LEADER RESIDING AT 5:30 A.M. LONDON TIME. AND I WANT TO GO OUT FAR WEST OF LONDON, TO CORNWALL. THIS IS THE TIME OF NOW, NOT FU POLDARK. IN LOVELY DEVON, BORIS JOHNSON WAS ABSOLUTELY CRUSHED. WHAT IS THE SYMBOLISM THAT HE WAS CRUSHED IN FRIENDLY DEVON, GOING BACK TO 1935? GUEST: IT IS ANOTHER BLOW TO THIS PRIME MINISTER, WHO NEVERTHELESS, AS YOU WOULD HAVE SEEN, TOM, HAS VOWED TO CARRY ON EXACTLY AS HE HAS BEEN. WE HAVE HAD SCANDAL AFTER SCANDAL. THE CHAIRMAN OF THE CONSERVATIVE PARTY, AS YOU SAID, RESIGNED IN A STERNLY WORDED LETTER THIS MORNING, YET BOTH JOHNSON DOESN'T SEEM TO HAVE PLANS TO GO ANYWHERE. IT TELLS YOU A LOT ABOUT THE TIME THAT WE ARE LIVING IN. THERE CERTAINLY IS NO SHAME IN POLITICS, NO SOURCE OF ACCOUNTABILITY, AND AS LONG AS THE LABOUR LEADER KEIR STARMER IS NOT A SERIOUS CHALLENGE, JOHNSON WILL PROBABLY STAY WHERE HE IS. IT IS FOR DEFYING THE LAWS OF POLITICAL REVENUE. BY ELECTIONS IN THE U.K. ARE NOT TYPICALLY VERY MUCH PARTICIPATED IN. POLLSTERS WILL TELL YOU THAT THEY ARE OF BENIGN IMPORTANCE, BUT IN THE FACE OF SO MANY CRISES THIS GOVERNMENT IS FACING, HOW MANY TIMES CAN BORIS JOHNSON GET ON THE PLANE TO GO AND SEE HIS FRIEND ZELENSKYY IN KYIV WHEN THINGS ARE LOOKING SO TOUGH AT HOME? LISA: YOU POINT TO THE LACK OF POLITICAL GRAVITY THAT BORIS JOHNSON HAS. THAT BRINGS US TO SOME OF THE STRIKES AND PROTESTS THAT WE ARE SEEING EUROPE THROUGHOUT EUROPE AND THROUGHOUT THE WORLD. WHAT IS THE HOTSPOT YOU ARE WATCHING, AND WHAT IS THE CONSEQUENCE WITH POLITICALLY AND ECONOMICALLY THAT WILL RESULT? TINA: STRIKES AND INFLATION GO HAND-IN-HAND. AND COMING OUT OF THE PANDEMIC AND PROBABLY HEADING INTO A RECESSION, AND WITH WORKERS WHO ARE ON FIXED CONTRACTS NOT HAVING SEEN APPEAR VARIES VERY LONG TIME, YOU KNOW, THE OLD SUMMER OF DISCONTENT TERM IS BEING BANDIED ABOUT A LOT. YOU GUYS WERE TALKING ABOUT THE PRICE OF LOBSTER ROLLS. SIMILARLY, I COULD SAY THAT BRITISH AIRWAYS IS THREATENING, MEANINGFULLY HERE IN THE U.K., TO START STRIKING AS SOON AS SCHOOL VACATIONS BEGIN. THAT IS GOING TO BE VERY UNPOPULAR. THE QUESTION IS WHETHER IT WILL FORCE A COMPROMISE IN ADVANCE IN THE U.K. FRANCE ALSO IS KNOWN TO HAVE STRIKES AND THAT WILL RECUR. I GUESS I FEEL AS THOUGH THERE IS A SENSE OF HELPLESSNESS ABOUT THIS. FOR SO MANY PUBLIC SECTOR AND OTHER WORKERS, WAGES HAVE BEEN STAGNANT THROUGHOUT THE PANDEMIC . LISA: WE TALKED ABOUT LOBSTER ROLLS TONGUE-IN-CHEEK BECAUSE THIS IS THE LEAST OF OUR CONCERNS. IT IS BASIC STAPLES -- WHEAT, MEAT, GROCERIES AND GAS PRICES THAT ARE IMPEDING, AS TOM SAID, THE LOWER DECILES. . HOW DO WE LOOK AT SPREADING TO OFFSET THE PRESSURES THAT ARE VERY TANGIBLE AND A BIG THREAT TO THE LOW INCOME INDIVIDUALS AROUND THE WORLD, IN EUROPE AND IN THE WORLD? TINA: THE PEOPLE MOST ACCURATELY AFFECTED ARE THE POOREST, THOSE WHO DEPEND ON GRAIN SUPPLIES THAT HAVE BEEN BLOCKADED BY RUSSIA OUT OF SEAPORTS. THAT IS HAPPENING IN THE MIDDLE EAST, WHERE THERE ARE OTHER CONCERNS SUCH AS ARAB SPRING 2.0, THAT'S OF THING. IN OTHER COUNTRIES, WE DON'T HAVE RIOTS AND CIVIL UNREST IN THE SAME KIND OF WAY, WE GET MORE ORGANIZED EXPRESSIONS OF CIVIL DISCONTENT. THAT MEANS STRIKES AND PROTESTS. GOVERNMENTS, HAVING RESPONDED WITH SO MUCH PHYSICAL LARGESS DURING THE PANDEMIC, WILL BE EXPECTED TO STEP UP. AND WHAT I THINK WE'RE ARE ALREADY SEEING IS FUEL PRICES AND SUBSIDIES FOR FUEL PRICES ARE GOING TO COME FIRST. WINTER HEATING AND FUEL ALLOWANCES, THOSE KINDS OF SUBSIDIES IN THE U.K. AND EUROPE I THINK I JUST A QUESTION OF WHEN AND NOT IF. KAILEY: AS WE TALK ABOUT THE ACADEMIC PAIN SO MANY COUNTRIES ARE FEELING, ARE COUNTRIES GOING TO START SEEING A DISSOLUTION OF THE RESOLVE OF THE ALLIES TO CONTINUE FIGHTING RUSSIA WHEN IT IS INFLICTING SO MUCH ECONOMIC PAIN ON THEIR POPULATIONS IN RETURN? ARE WE REACHING THE BREAKING POINT WE ARE NOT THERE YET. THAT AT THE G7 MEETINGS, THE MEASURES BEING CONTEMPLATED, SUCH AS GAS RATIONING IN GERMANY, THE QUESTION OF WHETHER RUSSIA FLAT-OUT CUTS GAS SUPPLIES TO EUROPE IN PUNISHMENT, A TACTIC CALLED COERCIVE DIPLOMACY, IT IS VERY REAL. IT WILL BE WINTER BEFORE WE SEE PUSH COME TO SHOVE ON THIS. THAT IS WHY GETTING THAT GAS STORAGE FACILITIES IN EUROPE FILLED IS CRUCIAL. THEY HAVE TO FIGHT THIS. THEY CANNOT GET INTO RUSSIA. THE LEADERS UNDERSTAND THIS. CAN THEY COMMUNICATE TO THEIR CITIZENS? THAT IS A BIGGER QUESTION. POLITICIANS DON'T LIKE TO TAKE, THEY LIKE TO GIVE. TOM: TINA FORDHAM, THANK YOU SO MUCH. HERE ON THE COLLECTIVE SIDE OF ISSUES, INCLUDING A STUNNING ELECTION RESULT IN BRITAIN, TRULY HISTORIC. THE HISTORICAL RICH OF THAT IS BACK TO PRE-WORLD WAR II. I HAVE TO MENTION TUNISIA. I GOT SOME FEMALES SAYING, WHAT ARE YOU MENTIONING TUNISIA, NO ONE CARES? LET'S REMEMBER THAT ARAB SPRING. THE ARAB SPRING IS HAPPENING IN ECUADOR. AND LISA, I AM SORRY, IT IS THE END OF JUNE, WHERE FOOD DYNAMICS AND FOOD BANKS FOR THE POOR REALLY CLICK IN. IN QUITO, IS REALLY CHALLENGING. WE ARE SHOWING THE PROTESTS IN ECUADOR. WE CANNOT USE CURRENCY AS A LITMUS PAPER FOR SOCIAL STRUGGLE. LISA: RIGHT. BILL DUDLEY POINTING TO THE INTERNATIONAL CONCERNS AS ONE OF THE FINANCIAL STRESSORS THAT WE SHOULD LOOK AT IT IN ADDITION TO THE SOCIAL ONES. TOM: WE WILL LOOK FORWARD INTO JULY AND MAYBE JULY AND AUGUST AT FOOD CHALLENGES. A LOOK AT > > HOW DO YOU ACTUALLY GET INFLATION UNDER CONTROL, ESPECIALLY WITH THE LOVE OF THE BEYOND CENTRAL BANKS AND POLICY CONTROL? > > THE ONLY THING YOU CAN DO IS TAMPA DEMAND TO BRING ECONOMY BACK TO EQUILIBRIUM. > > I WOULDN'T SUGGEST WE ARE OUT OF THE WOODS WHEN IT COMES TO INFLATION. > > THE FED HAS ABANDONED THE SPECIFIC 2% RANGE TARGET. > > INDICATORS ARE INDICATING THAT WE ARE ON A SLOW PACK. > > THIS IS "BLOOMBERG SURVEILLANCE" WITH TOM KEENE, JONATHAN FERRO AND LISA ABRAMOWICZ. TOM: GOOD MORNING. TOM -- AN IMPORTANT FRIDAY. SIX DAYS FROM THAT MEDIA POINT. KAILEY LEINZ IS IN FOR JONATHAN FERRO. IS HE BACK MONDAY, LISA? IT'S LIKE 50-50, RIGHT? [LAUGHTER] HE IS ON A RUNWAY WHEREVER HE IS AND HE CAN'T GET HOME BECAUSE OF REDDISH AIRWAYS OR WHATEVER. LISA: WE CAN LOOK FORWARD TO HIS RETURN. THERE IS AN ISSUE OF WHAT HAPPENED THIS WEEK, IT WAS A FASCINATING WEEK. MAYBE BIGGEST QUESTION, IS THE BOND MARKET RALLY WE HAVE SEEN A GOOD OR BAD THING FOR RISK ASSETS? WHAT DOES IT MEAN? TOM: THE SPREAD HAS NOT REMOVED ALL THAT MUCH, MAYBE IT IS A CHURN. WE WILL LOOK AT THAT WITH AMY WU SILVERMAN. WHAT I WANT TO GO TO THE TEA LEAVES OUT THERE, JAVIER BLAS ON HYDROCARBONS NAILS IT. ON THE EUROPEAN COAL, HE IS NOTING, $434 PER TON. A LITTLE MORE THAN $100 PER TURN FROM WHERE IT WAS DURING THE INVASION. THIS IS A SERIOUS STATISTIC. LISA: IT IS, BECAUSE OF THE PLAN GERMANY HAS IN PLACE. IF THEY PASS THE THRESHOLD IN TERMS OF DEPLETION OF THEIR NATURAL GAS, THEY ARE GOING TO TURN TO COAL. THIS IS A NATION THAT HAS BEEN TRYING TO MAKE ENERGY CLEANER. AND IF RESERVES START TO GO DOWN, THEY START WITH GAS RATIONING. THIS IS A POLITICAL HOT POTATO THAT WILL HAVE TO BE DISCUSSED. TOM: WHETHER IT IS IN FRANCE OR NOT, I I'M SORRY, WE CAN LINK TOGETHER JAVIER BLAS , AND COAL IN GERMANY, WITH THE RIOTS WE SEE IN ECUADOR. ALL OF THESE TENSIONS ARE WRAPPED AROUND PRICE CHANGE. KAILEY:. KAILEY: IT'S THE RISING COST OF LIVING ENTITIES CREATING POLITICAL UNREST. IT IS REFLECTED IN THE RESULTS OF ELECTIONS IN OTHERS LIKE IN THE U.K., WITH THOSE BY-ELECTION THAT RESULTS WE SAW. THE CONSERVATIVE PARTY IS TAKING THE HEAT FOR THE COST OF LIVING RAISE IN THE U.K. THE FEAR OF AN ECONOMIC SLOWDOWN. TOM: FRANCINE IN LONDON SAYS, TOM, NICE USE OF FRENCH. DID YOU GET THAT, KAILEY? [LAUGHTER] LET'S DO A CHECK. APT29 ON FUTURES. THE VIX IS NICELY IN, AN IMPORTANT ITEM OF GOOD FEELING IN EQUITIES, 28.70. DOLLAR CHURNING HERE, BUT RESILIENT, 104. THE EURO-U.S. DOLLAR, 1.05 37. LISA: IT IS FASCINATING TO ME. WE ARE GETTING MORE CONCERNED BEING SPOKEN BY FED CHAIR JAY POWELL AND GROWING NUMBERS OF ECONOMISTS AND YET THERE IS A RALLY IN BONDS AND IN STOCKS. 10:00 A.M., DO WE CONTINUE TO GET THE RALLY WITH THE UNIVERSITY OF MICHIGAN SENTIMENT SURVEY, CONSIDERING IT IS EXPECTED TO FALL TO A NEW POST-2010 LOW? HOW MUCH ARE WE LOOKING AT INFLATION EXPECTATIONS IN THE NEXT FIVE TO 10 YEARS CLIMBING? WHAT HAPPENS IF WE SEE THEM CLIMB FURTHER AND BOND YIELDS CONTINUE TO GO DOWN? WHAT DOES THAT MEAN IN TERMS OF CREDIBILITY? AND WHETHER THE MARKET IS UNDERESTIMATING HOW AGGRESSIVE THEY WILL BE? AT 4:00 P.M. WE HAVE, THE IMF'S KRISTALINA GEORGIEVA SPEAKING ABOUT THE ECONOMIC OUTLOOK. HOW MUCH DOES SHE SIGNAL IT WEAKENING OUTLOOK BASED ON THEIR PREVIOUS FORECAST AND HOW THAT DEAF TAILS INTO THE INTERNATIONAL STRESS AND STRIFE STEMMING FROM HIGHER PRICES AND WEAKER ECONOMIC BACKDROP? TOM: SO GLAD THAT YOU DID THIS WITH THE IMF DIRECTOR. CAN YOU IMAGINE THE HALLS OF THE IMF IN WASHINGTON RIGHT NOW, WITH TUNISIA, ECUADOR AND EM CURRENCIES GIVING WAY? WHICH MEETING THIS SHOULD GO TO NEXT? 0 LISA: AND WHAT IS HER POLICY RECOMMENDATION235 WHEN THE STRONGER DOLLAR ONLY PRESSURES THESE NATIONS FURTHER? WE HAVE LEADERS GATHERING IN GERMANY FOR A THREE-DAY SUMMIT AHEAD OF THE ANNUAL NATO SUMMIT IN MADRID. WHAT CAN THEY TALK ABOUT AND WHAT WILL THEY DO ABOUT IT OTHER THAN SIMPLY OFFSETTING IT WITH FISCAL SPENDING AND SUPPLEMENTARY INCOME, AS SOME PEOPLE THINK IS LIKELY IN EUROPE? TOM: WE WILL JUST HAVE TO SEE HOW IT. OUR INTERNATIONAL TEAM WILL GIVE SOME GOOD PERSPECTIVE ON THAT. I KNOW THAT ANNMARIE HORDERN AND MARIA TADEO ARE REALLY FOCUSED ON THE G7 MEETINGS WITH PRESIDENT BIDEN COMING UP. I DEMANDED THAT WE SPEAK WITH AMY WU SILVERMAN, WHO IS WRITING BRILLIANT NOTES FOR RBC CAPITAL MARKETS. A HUGELY CONTROVERSIAL NOTE THIS SUMMER. AMY, YOU SAY THAT THIS SUMMER IS DIFFERENT FOR VOLATILITY. DISCUSS. AMY: GOOD MORNING. NORMALLY YOU LOOK TO HISTORY, THE LAST 30 YEARS AND YOU SEE THAT THIS IS SUPPOSED TO BE A LITTLE TIME FOR THE VIX, IT IS SUPPOSED TO BE WHEN PEOPLE GO TO VACATIONS AND VOLUMES ARE LOWER. I DON'T THINK THAT WILL BE THE CASE. I THINK YOU ARE ALREADY STARTING TO SEE THAT THE ECONOMY. OUT IN SINGLE STOCKS. THE ONGOING THEME IN DERIVATIVES MARKETS HAS BEEN WHY HASN'T VOLATILITY BEEN HIGHER? BUT YOU ARE SEEING THAT IN THE SINGLE NAMES. AS EARNINGS COME AROUND, WE WILL SEE THE OVERALL LEVEL EVEN HIGHER THAN WE DO FOR THE LEVELS THAT ARE ALREADY HIGH RIGHT NOW. LISA: WEIGH IN ON THE MARKETS RIGHT NOW. OUR PEOPLE LOOKING -- IS IT ALREADY BIG SPAIN? AMY: IT IS A TOUGH QUESTION. ON THE BROADER ETF LEVEL, THE COMPLACENCY IS THERE AND HAS BEEN RIGHT NOW. ON THE SINGLE STOCK SITE, THEY ARE SEEING THE PICKUP IN DEMAND FOR DOWNSIDE PROTECTION, WHICH TELLS ME IDIOSYNCRATICALLY THAT IT IS NOT BAKED IN ON MANY STOCKS. AND THIS IS NOT UNIQUE TO ONE SECTOR, IT'S NOT JUST ENERGY OR LONG-DURATION TECH. THIS IS ACROSS-THE-BOARD. IT IS ALMOST AS IF PEOPLE ARE QUICKLY MONETIZING THE HEDGES ON THE INDEX SITE AS OVERALL MARKETS GO DOWN. BUT THEY'RE STILL SEEING THE WAR ECONOMY. I THINK AS EARNINGS START TO COME INTO PLAY IN MID-JULY, THAT WILL BECOME A KEY THEME AND WE WILL SEE THAT IS NOT QUITE BAKED IN YET. LISA: THIS ADDS TO MY CONFUSION ABOUT THE COMPLACENCY IN MARKETS THIS WEEK. THEY KEEP WAYNE BACK TO THE QUESTION, THE BOND MARKET RALLY THIS WEEK, IS THAT A GOOD THING , OR A BAD THING FOR STOCKS? AMY: HERE IS WHAT I WILL SAY. WHEN WE LOOK TO THE OPTIONS MARKET, THERE ARE A LOT OF BOND PROXIES THAT YOU CAN USE TO PLAY. I WILL TELL YOU THAT THERE ARE STILL A LOT OF HEDGES GOING ON. THE WAY I WOULD THINK ABOUT IT IS, THE DERIVATIVES MARKET IS CERTAINLY NOT SAYING THAT EVERYTHING IS WARM AND ROSY. YESTERDAY TO SEE THAT NOT IN THE S & P, BUT IN BOND BULL PROXY ETFS. IT HAS BEEN THE CASE CONSISTENTLY THROUGH THE YEARS AS PEOPLE MONETIZE. SO AS WE GET INTO THE SUMMER,, I THINK YOU ARE IN A DEAD ZONE RIGHT NOW BUT AS WE START TO GET MORE INFORMATION COMING IN AS WE GET EARNINGS AND CPI NUMBERS, THAT WILL START TO TRICKLE IN AGAIN ON THE BOND PROXIES. TOM: REALLY SINCE THE START OF THE PANDEMIC AND THE BOOM OF MEME STOCK TRADING, I HAVE BEEN TALKING TO YOU ABOUT RETAIL ACTIVITY. KAILEY: THEY WERE ALL IN ON-CALL OPTIONS AND THE ALWAYS BOUGHT THE DIP. BUT JP MORGAN YESTERDAY WAS TALKING ABOUT HOW THAT HAS CHANGED. THEIR DATA ISSUING THEY REACHED THE HEAVIEST FILLING SINCE SEPTEMBER OF 2020. WHAT ARE YOU SEEING IN TERMS OF RETAIL ACTIVITY? AMY: THERE IS A NUANCE I WANT TO MAKE. AND PEOPLE SPEAK ABOUT RETAIL, THERE ARE TWO KINDS OF RETAIL. THERE ARE PEOPLE WHO ARE YOLO-IN G GAMESTOP OPTIONS AND THINGS LIKE THAT. AND THEN THERE ARE PEOPLE LIKE TOM'S PORTFOLIO, FOR INSTANCE. TOM: TRIPLE AVERAGE ALL-CASH? [LAUGHTER] AMY: SO I THINK THAT RETAIL, THE PEOPLE WHO PLAY THE GAMESTOP AND AMC AND CRYPTO HAVE CAPITULATED AND YOU SEE THAT IN THE DERIVATIVES MARKET, BUT THAT IS NOT TRUE NECESSARILY OF THE PWF RETAIL CROWD. ARE YOU SITTING THROUGH THIS MARKET OR CAPITULATING? WHAT IS INTERESTING IS WE MAY NOT SEE THAT, BECAUSE THEY ARE TRAINED TO RIDE THROUGH THESE MARKETS. YOU MAY NOT GET A CAPITULATION FROM THAT COHORT. TOM: YOU MENTIONED 40 ON VIX AS BEING THE NEW 30. ARE YOU PREDICTING THAT WE WILL ENJOY A CATHARSIS TO 40 ON THE VIX? AMY: IT IS POSSIBLE. I LIKE TO BRING IT BACK TO HOW YOU FEEL ARE DAILY BASIS. IT IS A PLUS OR -2.5% MOVE ON THE DAY COMPARED TO OTHER 30 VIX. DO I THINK WE COULD GET THAT? VERY POSSIBLY. TOM: DO SOMETHING CONSTRUCTIVE OVER THE WEEKEND. I WANT YOU TO CHECK THE KURTOSIS OF MY TRIPLE LEVERAGED ALL-CASH FUND. IT IS REALLY PAINFUL. AMY WU SILVERMAN, BRILLIANT AS ALWAYS, WITH RBC CAPITAL MARKETS. [LAUGHTER] CASH IS SOMETHING WE ARE TALKING ABOUT, LISA. ONE OF THE MOST INTERESTING AS WE HEARD THIS WEEK, FEDERATED HERMES TALKING ABOUT CASH MOVING FROM 3% TO 6%, LONG-ONLY, BY SIDE HOLDING. THAT'S A BIG DEAL. LISA: MY FAVORITE PART OF THE MORNING IS WHEN THE GUESTS HUMOR YOU AND SIT THERE WONDERING, WHEN DO I GET TO LEAVE? [LAUGHTER] BUT THIS HAS BEEN AN ASSET CLASS. WE DO SEE FLOWS INTO CASH FOR THE FIRST TIME. TOM: LET ME DO A DATA CHECK, 28 ON SPX. THE VIX IS IMPRESSIVE. 28.67. BRENT CRUDE, $111.51. PLEASE STAY WITH US ON RADIO AND TELEVISION. THIS IS BLOOMBERG. ♪ RITIKA: KEEPING YOU UP-TO-DATE ON THE NEWS. FED CHAIR JEROME POWELL CALLS HIS COMMITMENT TO CURBING INFLATION UNCONDITIONAL. HE WRAPPED UP TWO DAYS ON TESTIMONY ON CAPITOL HILL BY WARNING THAT FED IS FAR FROM ITS INFLATION TARGET. MEANWHILE FED GOVERNOR MICHELLE BOMER AND SAYS SHE SUPPORTS RAISING INTEREST RATES BY 70. FIVE POINTS AGAIN NEXT MONTH. IT IS BEING CALLED THE BIGGEST BREAKTHROUGH IN U.S. GUN SAFETY IN DECADES. THE SENATE VOTED TO APPROVE BIPARTISAN LEGISLATION THAT WILL IMPROVE BACKGROUND CHECKS, SECURE SCHOOLS, AND GIVES STATES MONEY TO FIGHT GUN VIOLENCE. THE HOUSE IS EXPECTED TO PASS THE MEASURE. THE SENATE PASSED THE BILL HOURS AFTER THE SUPREME COURT ISSUED A RULING THAT COULD MEAN MORE GUNS ON THE STREETS AT BIG CITIES. IN THE U.K., PRIME MINISTER BORIS JOHNSON HAS SUFFERED A MAJOR ELECTION ABSENT. HIS PARTY LOST KEY SEATS IN ENGLAND. THE LIBERAL DEMOCRATS WON ONE NEW SEAT. SHARES OF TWITTER ARE HIGHER IN PREMARKET TRADE. TWITTER SENT FURTHER USER DATA THIS WEEK TO ELON MUSK, WHO WANTS TO BUY THE COMPANY. IT INCLUDES INFORMATION WHICH ALLOWS HIS TEAM TO DETERMINE HOW MANY USERS ARE ACTUALLY BOTS. LAST WEEK, HIS LAWYERS SENT A LETTER TO TWITTER CLAIMING THAT THE DATA THEY HAD BEEN SENT WAS NOT ENOUGH. GLOBAL NEWS, 24 HOURS A DAY, ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I AM RITIKA GUPTA. THIS IS BLOOMBERG. ♪ I WAS JUST TALKING TO THE GOVERNOR OF NEW YORK ABOUT THIS. I AM DISAPPOINTED IN THE SUPREME COURT GUN DECISION. GUN LAWS IN 48 STATES ARE STILL IN PLACE BASED ON THE DECISION. NOT GOOD ENOUGH. I THINK IT IS A BAD DECISION, I THINK IT IS NOT REASON ARGUABLY. AND I AM DISAPPOINTED. TOM: THE PRESIDENT OF THE UNITED STATES ON AN EVENTFUL DAY FOR AMERICA ON NOT ONE BUT TWO JUST NATIVE DECISIONS ON GUNS. FOR THOSE OF YOU IN NEW YORK, READ THE CRIME BLOTTER OF THE NEW YORK POST AND YOU GET A FLAVOR FOR WHAT WE ARE LIVING, AND THOSE OF YOU AROUND THE COUNTRY, FROM CHICAGO TO MIAMI. WHAT WE HAVE DONE AT BLOOMBERG, NOT JUST BLOOMBERG SURVEILLANCE, BUT ACROSS ALL OF BLOOMBERG, IS GET LEGAL AUTHORITIES WHO CAN ASSIST US HERE ON THINKING THROUGH THESE VERY CONTENTIOUS ISSUES. ONE OF THOSE IS NOAH FELDMAN OF HARVARD UNIVERSITY, A SCHOLAR WRITING ON THE MID-20TH CENTURY SUPREME COURT OF JAMES MADISON. HE WAS SKATING ON JUSTICE THOMAS YESTERDAY, NO OTHER WAY TO PUT IT. -- HE WAS SCATHING ON JUSTICE THOMAS YESTERDAY. "INCREASINGLY THIS COURT APPEARS TO BE THE THOMAS COURT, WITH THE MOST CONSERVATIVE JUSTICE CONVINCING THE OTHER CONSERVATIVES TO FOLLOW HIS LIFELONG PRACTICE OF IGNORING PRESIDENT IN REJECTING THE IDEA THAT THE REAL-WORLD CONSEQUENCES OF JUDICIAL DECISIONS SHOULD MATTER TO THE COURTS." EMILY WILKINS IN WASHINGTON THIS MORNING. LET ME STAY ON THIS JUDICIAL DECISION. WHAT HAPPENS NEXT FOR CONCEALED CARRY IN AMERICA? EMILY: YOU NOTED JUSTICE THOMAS' OPINION ON THE DECISION. IT IS IMPORTANT TO NOTE WHAT JUSTICE KAVANAUGH KAVANAUGH AND CHIEF JUSTICE JOHN THEIR OPINIONS, BECAUSE THEIR LANGUAGE WAS SOFTER. THEY SAID THAT THESE LAWS IN NEW YORK THAT SO YOU CAN ONLY HAVE A PERMIT IF YOU HAVE A CERTAIN JOB OR CERTAIN OTHER THINK, IS NO GOOD, BUT YOU CANNOT HAVE RESTRICTIONS ON CONCEALED CARRY, IT JUST SEEMS TO BE THE SAME RESTRICTIONS ACROSS THE BOARD. IT WILL BE INTERESTING TO SEE HOW IT MAY OR ERIC ADAMS OF NEW YORK -- MAYOR ADAMS OF NEW YORK AND WHERE THESE OTHER CITIES ARE GOING TO FIND WAYS TO CUT INTO THE RESTRICTION, TO FIGURE OUT WHAT CITIES CAN OR CAN'T DO. TOM: IT IS NOT BLOOMBERG'S IDEA TO GET INTO THE POLITICAL BALLET, BUT WHAT DOES THIS DECISION SIGNAL OF THE PENDING CASES COMING UP? GERARD: ALL OF WASHINGTON IS VERY AWARE THAT WE HAVE A MUCH MORE CONSERVATIVE COURT. THE BIG CASE COMING UP IS ROE V. WADE. WE COULD SEE SOMETHING ON THAT AS SOON AS TODAY. THE COURT ADDED TODAY AS A DECISION TODAY AS A DECISION DAY, IT WAS NOT INITIALLY. NOW, IT MIGHT NOT COME TODAY IT MAY COME NEXT WEEK, BUT WE HAVE HEARD REPORTS OF POLICE OFFICERS IN D.C. GETTING READY FOR FALLOUT FROM THAT DECISION TODAY. OBVIOUSLY, IT IS BEING EXPECTED THAT THIS WILL REALLY CUT INTO ROE V. WADE, THAT IT HAS THE POTENTIAL TO BRING THINGS BACK TO THE STATES. WE ASKED LAWMAKERS, WHAT WILL BE THE NEXT STEP CONGRESS CAN POTENTIALLY TAKE? THE ONE THING WE HAVE HEARD FROM THEM IS THAT IT DEPENDS ON WHAT EXACTLY THE RULING SAYS. BUT LET'S FACE IT, CONGRESS HAS STRUGGLED TO GET THROUGH GUN LEGISLATION. THE IDEA THAT THEY WOULD BE ABLE TO DO SOMETHING MORE ON ABORTION OR EVEN GUN LEGISLATION WOULD BE VERY DIFFICULT TO, GIVEN THE CURRENT LEVEL OF PARTISANSHIP IN CONGRESS. LISA: DOVETAIL THESE HOT BUTTON ISSUES INTO THE MIDTERM ELECTIONS AND THIS COMPLICATING DEBATE BETWEEN SOCIAL ISSUES VERSUS INFLATION. WHAT DOES THIS DO IN TERMS OF DEMOCRATS' LIKELY OUTCOME FROM THE MIDTERMS AND BEYOND? GERARD: I CAN ACTUALLY LET SENATE REPUBLICAN LEADER MITCH MCCONNELL ANSWER THAT FOR ME. YOU TOLD REPORTERS YESTERDAY THAT ONE OF THE REASONS HE WAS BACKING THIS PACKAGE OF GUN PROPOSALS WAS, NUMBER ONE, HE THOUGHT IT WAS COMMON SENSE, AND NUMBER TWO, HE THOUGHT IT WAS IMPORTANT FOR MIDTERMS. IT WILL HELP. SUBURBAN VOTERS SEE THAT REPUBLICANS CARE ABOUT THE ISSUE, AND IT WILL BE KEY IN A NUMBER OF RACES BOTH IN THE HOUSE AND THE SENATE THIS NOVEMBER. THERE IS DEFINITELY AN ELECTION ASPECTS TO THIS. IT WILL BE INTERESTING TO SEE HOW MUCH THINGS LIKE GUNS AND ABORTION DRIVE VOTERS TO THE POLLS. IT IS THE MIDTERMS, A LOT OF THE GAME IS ON TURNOUT, WHO YOU CAN ACTUALLY MOTIVATE TO COME OUT AND VOTE. WHEN YOU TALK TO AMERICANS AND POSTERS, LAWMAKERS, REALLY THE NUMBER ONE ISSUE IS STILL INFLATION. HIGH PRICES AT THE GAS PUMP, AT THE GROCERY STORE. I THINK THAT IS WHY USE ARBEITER AND CALL FOR THE GAS TAX HOLIDAY -- YOU SAW BIDEN COME OUT AND CALLED FOR THE GAS TAX HOLIDAY. IT LEADS TO THE QUESTION, WHAT WILL THEY DO TO SHOW THE AMERICAN PEOPLE THAT THEY ARE TAKING THIS ISSUE SERIOUSLY. KAILEY: AS WE TALK ABOUT ISSUES RELATED TO THE SUPREME COURT, THESE ARE HOT BUTTON TOPICS, SECOND AMENDMENT RIGHTS AND ABORTION RIGHTS. WE KNOW WHERE THE AMERICAN PUBLIC OPINION THIS IS NOT ALIGNED WITH THE DECISIONS THE COURT IS MAKING, OR AT LEAST THE DRAFT OPINION SHOWS THEY ARE READY TO MAKE. IS THERE ANY CONVERSATION IN WASHINGTON ABOUT THIS? WHEN PRESIDENT BIDEN CAME INTO OFFICE, THERE WAS A CONVERSATION ABOUT COURT PACKING? GERARD: THERE WAS, BUT THERE ARE THE VOTES TO BE ABLE TO DO SOMETHING LIKE THAT. EVEN FOR SOME DEMOCRATS, THAT WOULD BE FAR, TO TRY TO ADD ADDITIONAL JUSTICES TO THE SUPREME COURT. THERE ARE A COUPLE OF BILLS LOOKING AT THE ETHICS OF JUDGES BOTH IN THE SUPREME COURT AND ACROSS THE FEDERAL SYSTEM, BUT THAT IS TAKING A SIDELINE TO OTHER LEGISLATION THAT WE'RE SEEING GO THROUGH RIGHT NOW. THESE ARE DEFINITELY HOT BUTTON ISSUES, THAT WE ARE AT THE POINT WHERE WE JUST HAVE A CONGRESS THAT IS NOT MOVING FORWARD ON A NUMBER OF THESE THINGS BECAUSE OF THE PARTISAN GRIDLOCK. EVEN THOUGH YOU SEE THESE SURVEYS SHOWING THAT AMERICANS REALLY DO SUPPORT A NUMBER OF THESE ISSUES, IT DOESN'T ALWAYS TRANSLATE INTO HOW THEY VOTE. THAT IS WHY YOU ARE SEEING CONGRESS AS IT CURRENTLY IS RIGHT NOW. TOM: EMILY WILKINS, THANK YOU SO MUCH. LISA, TO BE KIND, IT WILL BE A CONTENTIOUS SUMMER IN WASHINGTON. LISA: YEAH ARE ESPECIALLY WITH THE COURT DECISIONS LIKELY TO COME DOWN, GOING BEYOND PEOPLE'S EXPECTATIONS OF WHERE THE COURT IS LIKELY TO GO. WITH EMILY SAID WAS FASCINATING, THAT IN THE REPUBLICAN PARTY THERE IS MORE WILLINGNESS TO GO FURTHER ON THE LEGISLATION FRONT TO STAVE OFF THE GALVANIZING EFFECTS SOCIALLY FOR DEMOCRATS TO GO TO THE POLLS. HOW MUCH DOES THAT GET SOMETHING DONE IN A BIPARTISAN WAY? TOM: I AM NOT MAKING A FORMAL STUDY OF THIS, BUT LOOSELY, I AM LOOKING AT ELECTIONS AROUND THE WORLD, AND THE POWER OF THE BALLOT BOX IS EXTRAORDINARY, WITNESSED IN ENGLAND TODAY. LISA, THE SIZE OF THE DEFEAT OF THREE SMALL ELECTIONS FOR THE PRIME MINISTER IS EXTRAORDINARY. LISA: AND THE PRESIDING ISSUE IN THE UNITED STATES, WILL IT BE INFLATION? WILL IT REMAIN THAT WAY OR WILL IT BE SOCIAL ISSUES PERCOLATING IN TO THE CONVERSATION IN A MASSIVE WAY? TOM: KAILEY LEINZ I THINK YOU NAILED IT, IT IS A CULTURE THING. KAILEY: THAT IS WHERE WE ARE IN AMERICA NOW. TOM: WE WILL HAVE MORE ON THIS. I URGE YOU TO SEE THEIR LEGAL COVERAGE OF BLOOMBERG OPINION. TRULY EXTRAORDINARY AND INFORMED. SOME OF THE GREAT ACADEMICS OF THIS NATION ON THE RIGHT AND ON THE LEFT, AS WELL. COMING UP, WE WILL TALK WITH JAN HATZIUS OF GOLDMAN SACHS. TOM: "BLOOMBERG SURVEILLANCE." JONATHAN FERRO HAS A WELL-DESERVED WEEK OFF. LISA ABRAMOVITZ, KAILEY LEINZ AND TOM KEENE. THE EURO-DOLLAR IS FLAT. FUTURES IN THE U.S. ARE UP 30 TWO, ADVANCING NICELY. NASDAQ 100 UP 1%. DR. JAN HATZIUS IS WITH US SO WE WILL GO QUICKLY. LISA. LISA: WAS LOOKING AT STOCKS THAT YESTERDAY WERE MUCH BETTER THAN EXPECTED. FEDEX SHARES ARE UP NEARLY 3% AHEAD OF THE OPEN. THEY ARE SEEING SOME LABOR SHORTAGES EASE, PROFIT MARGINS COME IN BETTER THAN EXPECTED, GOING AGAINST THE GLOOM NARRATIVE. SHOPIFY BOUNCING A BIT AFTER RULING OUT NEW FEATURES, BUT THOSE SHARES ARE DOWN MORE THAN 70% THIS YEAR. AND TWITTER IS UP AFTER REPORTING THAT THEY WILL GIVE YOU LEARN MUSK WHATEVER HE WANTS TO SEE IN TERMS OF DATA OVER THE WEEKEND, AND ELON MUSK WAS TRYING TO BACK OUT OF THE PRICE TAG HE HAD BY ASKING FOR MORE -- THAT IS MY INTERPRETATION. LOOKING AT BANKS, GIVEN THE FACT THAT THEY WILL BE ROLLING OUT BUYBACK PLANS, INTERESTING TO SEE THAT CITI IS NOT PARTICIPATING. HOW MUCH HAS BEEN ALREADY BAKED IN? BANK OF AMERICA IS UP 0.4%, JP MORGAN AS WELL. HOW MUCH CAN THESE BANKS REPRISE THE VALUE OF THEIR SHARES GIVEN THEIR STOCKS ARE DOWN SO FAR YEAR TO DATE, AND THEY STILL HAVE BILLIONS OF DOLLARS OF SUSPECTED SHARE BUYBACKS COMING? TOM: THANK YOU SO MUCH. JAN HATZIUS OF GOLDMAN SACHS RESEARCH HAS BEEN ABOUT ACUITY. WE WILL L LOOK AT HIS WORK. WE WILL GO TO ONE NUMBER, YOUR Q4 NUMBER. THEY MARCHED DOWN GROSS DOMESTIC PRODUCT FROM A STERLING 1.3% TO SUB 1%. THAT GIVES YOU DIRECTION OF THE RECESSION CALL. BUT AT THE SAME TIME, JAN HATZIUS CALLS FOR A SHALLOW RECESSION. IF WE GET A SHALLOW RECESSION, QUANTIFY WHAT IT WILL MEAN FOR JOBS IN AMERICA. HOW DOES THE MAGNITUDE OF RECESSION WORK IN THE DYNAMICS OF UNEMPLOYMENT? JAN: LET'S BE CLEAR THAT WE DON'T HAVE A RECESSION IN OUR BASELINE FORECAST, WE HAVE SIGNIFICANTLY-BELOW TREND GROWTH . BUT OUR BEST GUESS IS THAT WE WILL BE BELOW-TREND. THAT REBALANCES THE IMBALANCE IN THE LABOR MARKET. AND IT ULTIMATELY HELPS BRING INFLATION BACK DOWN. THAT SAID, THERE IS A SIGNIFICANT RISK OF RECESSION THAT HAS GONE UP. IT IS VERY DIFFICULT TO REDUCE LABOR DEMAND WITHOUT THE DETERIORATION FEEDING ON ITSELF AND THEN ULTIMATELY CULMINATING IN RECESSION. SO WE ARE GIVING A 1 IN #3 CHANCE OF RECESSION, AND CLOSE TO 50-50 IN THE NEXT TWO YEARS. IN 2001 IT WAS A 2% INCREASE. . IF YOU LOOK AT ALL THE RECESSIONS IN POSTWAR HISTORY, THE TOP END OF THE RANGE IS 5.5%. I THINK IF WE DO HAVE THE RECESSION, IT IS LIKELY THAT IT WOULD BE ON THE SHALLOWER FOR TWO REASONS, ONE, PRIVATE-SECTOR BALANCE SHEETS ARE IN BETTER SHAPE THAN AT THE END OF PREVIOUS BUSINESS CYCLES. TWO WHERE, INFLATION IS VERY HIGH, IT IS NOT AS ENTRENCHED IN EXPECTATIONS AS IT WAS IN PREVIOUS HIGHER INFLATION EPISODES IN THE 1970'S AND EARLY 1980'S. LISA: PEOPLE WERE RATCHETING UP THEIR EXPECTATIONS FOR THE FUNDS RATE UP TO 4% AT SOME POINT NEXT YEAR. AND HERE WE ARE LOOKING AT A HUGE RALLY IN 2-YEAR YIELD'S. CAN YOU TRANSLATE THE RALLY THROUGH AN ECONOMIC LENS IN TERMS, OF WHAT PEOPLE ARE FORECASTING AND WHETHER IT SEEMS POSSIBLE IN YOUR MIND? JAN: OVER FORECAST IS A TERMINAL RATE OF 3.25% TO 3.5% BY THE END OF 2022. WE DON'T HAVE ANY ADDITIONAL RATE HIKES IN 2023, BASICALLY BECAUSE THE ECONOMY IS DECELERATING, INFLATION IS COMING DOWN, AND I THINK AT THAT LEVEL, THE FED WOULD PROBABLY HOLD. YOU ARE RIGHT, WE HAD PRICED SOMETHING AROUND 4% IMMEDIATELY AFTER THE FOMC MEETING. BUT I THINK PEOPLE HAVE LOOKED AT THE FACT THAT THE ECONOMY ACTUALLY IS DECELERATING, AND THAT HAS LED TO A REVERSAL. I THINK FUNDAMENTALLY, THAT IS APPROPRIATE. LISA: BUT GIVEN THE FACT THAT WE ARE SEEING DECELERATION, BUT NOT WHEN IT COMES TO THE INPUTS INTO INFLATION, WE ARE SEEING FRANCE CONTINUE TO CLIMB AT RECORD PACE, CONTINUING TO SEE DISRUPTIONS TO OIL SUPPLIES AND SUPPLIES CAUSING THE PRICE INCREASES, WHEN DO YOU START TO TALK STAGFLATION AND TO TALK ABOUT THE FED THAT IS FORCED TO ACT DESPITE THE UNEMPLOYMENT RATE THAT IS RISING, AND DESPITE WEAKENING ECONOMIC DATA POINTS? JAN: IT IS MIXED WHEN IT COMES TO INFLATION INDICATORS. NO QUESTION, THE LAST CPI NUMBER WAS BAD. THE RENTED NUMBER WAS BAD. THERE WAS AN INCREASE IN THE LONG-TERM INFLATION EXPECTATIONS MEASURE FROM THE UNIVERSITY OF MICHIGAN. BUT SUPPLY CHAIN MEASURES ARE GETTING BETTER. YOU LOOK AT THE BUSINESS SURVEYS, THOSE ARE COMING DOWN. THE WAGE NUMBERS IN 2022 HAVE BEEN SEQUENTIALLY SLOWER THAN THE SECOND HALF OF LAST YEAR. I THINK BROADLY SPEAKING, INFLATION EXPECTATIONS, LOOK AT THE BREAKEVENS IN THE BOND MARKET, STILL VERY WELL ANCHORED, SO IT IS A MORE MIXED PICTURE. AND IN AN ENVIRONMENT WHERE GROWTH COMES TO A BELOW-TREND PIECE, I DON'T THINK THAT THE FED CAN KEEP HIKING AGGRESSIVELY WHEN THE ECONOMY IS ALREADY SLOWING AND INFLATION IS COMING DOWN. KAILEY: SO WHAT YOU ARE SAYING IS THAT WHEN CHAIRMAN POWELL WAS SPEAKING YESTERDAY AND SAYING THAT OUR COMMITMENT TO FIGHTING INFLATION IS UNCONDITIONAL, THAT THERE ARE CONDITIONS IN WHICH THE FED BLINKS? JAN: THERE ARE CONDITIONS WHERE THE FED BLINKS. PARTLY BECAUSE THERE IS A FEEDBACK FROM ECONOMIC ACTIVITY INTO INFLATION. IF THE ECONOMY WEAKENS AND LABOR DEMAND DECLINES, MAYBE THE UNEMPLOYMENT RATE STARTS EDGING UP, THEN YOU WILL BECOME LESS CONCERNED ABOUT INFLATION. I THINK THE COMMITMENT TO ULTIMATELY GETTING BACK DOWN TO 2% IS UNCONDITIONAL, THAT THERE WILL BE OTHER FACTORS OTHER THAN THE CURRENT INFLATION. PRINT THAT WILL DRIVE WHAT THEY DO ON A MEETING BY MEETING BASIS. KAILEY: WHEN WE TALK ABOUT THE WORDS JEROME POWELL HAS USED -- -- I TALKED EARLIER ABOUT THE SHOW THAT BILL ACKMAN TALKED ABOUT LAST NIGHT THAT THE FED HAS A PROBLEM. HE SAID ULTIMATELY THAT COMES DOWN TO COMMUNICATION OF THE CHAIRMAN. DO YOU THINK THE OTHERS IN THE FOMC ARE COMMUNICATING TO THE MARKET WHERE IT IS THE INTENT TO DO? JAN: I THINK THEY ARE ACCURATELY COMMUNICATING IN WAYS THAT ARE NOT CLEAR, THAT THEY WANT TO GET BACK DOWN TO 2% EVENTUALLY. THEY ARE TIGHTENING POLICY MUCH MORE AGGRESSIVELY THAN THEY EXPECTED TO DO SIX MONTHS AGO OR 12 MONTHS AGO, IN PART BECAUSE INFLATION TURNED OUT TO BE MUCH HIGHER. SO I THINK AT THAT LEVEL, IT IS CLEAR. ON THE CREDIBILITY PROBLEM, I WOULD SAY LOOK AT INFLATION BREAKEVENS. THE CREDIBILITY FROM THE BOND MARKET PERSPECTIVE OR FROM THE PERSPECTIVE OF FORECASTERS OF THE 2% INFLATION TARGET STILL SEEMS INTACT. TOM: I WANT TO TALK ABOUT PETER ORZAG. LONDON SCHOOL OF ECONOMICS. ARE WE COMPLETELY MISJUDGING THE SECOND AND FIRST DERIVATIVE OF CORE INFLATION COMING IN WHERE IT MAY COME IN SHOCKINGLY, RAPIDLY, IF WE UNDERESTIMATE THAT GOOD NEWS? JAN: I THINK CORE INFLATION IS LIKELY TO COME DOWN. IN FACT, IF YOU LOOK AT STATISTICAL MEASURES OF CORE INFLATION LIKE THE PRINT MEAN INDEX, THAT HAS NOT BEEN MOVING THE LAST FEW MUCH. STILL TOO EARLY TO TELL HOW MUCH WEIGHT TO PUT ON IT, BUT THE LAST COUPLE OF READINGS HAVE BEEN MORE ENCOURAGING AND I THINK THAT SUGGESTS THAT OVER TIME, CORE INFLATION IS GOING TO COME DOWN. WE ARE AT ABOUT 4% FOR CORE PCE AND THEN 2.5% BY THE END OF NEXT YEAR. I DON'T THINK IT IS GOING TO HAPPEN OVERNIGHT, BUT I THINK WE ARE HEADED IN THAT DIRECTION. TOM: WHEN JEROME POWELL SAYS WE WILL GET BACK TO 2% INFLATION, THAT IS WHAT HE IS TALKING ABOUT. YOU SAY HE WILL GET HIS WISH IN 18 MONTHS? JAN: NOT QUITE. 2%, 2.5%. TOM: 2%, 2.5%, WHO IS COUNTING? JAN: ESPECIALLY WHEN YOU LOOK AT THIS AS THE AVERAGE INFLATION TARGET. WHETHER THERE IS RECESSION HERE OR NOT -- OUR BEST GUESS IS NOT -- BUT THERE WILL BE A RECESSION AT SOME POINT THAT WILL BRING INFLATION DOWN A BIT. TOM: I SHOULD SAY THAT I AM BUSTING HIS CHOPS. THERE IS A BIG DIFFERENCE BETWEEN 2% AND 2.5% INFLATION. JAN HATZIUS WITH GOLDMAN SACHS, THANK YOU FOR COMING IN. THE HEADLINE, LISA, NO QUESTION ABOUT IT, A SHALLOW RECESSION. THE MAGNITUDE OF RECESSION HAS BEEN UNDERPLAYED WITH THE DOOM AND GLOOM OUT THERE. LISA: AND THE FED IS NOT GOING TO BE AS AGGRESSIVE AS PEOPLE ARE CURRENTLY PRICING IN AND THAT IS WHY YOU ARE SEEING THAT REFLECTED IN THE BOND MARKET TODAY, CONSIDERING THAT 3.25% TERMINAL RATE HE IS FORECASTING IS WELL BELOW THE 4% YESTERDAY. TOM: I AM LOOKING AT 4 BPS UP UNDER 2-YEAR YIELD. LISA: OK, YOU PUT THE NARRATIVE TO THAT. I AM ACTUALLY LOOKING AT THE POINT OF CREDIBILITY ALSO. [LAUGHTER] IF YOU LOOK AT THE FUTURES, TAKE A LOOK AT BREAKEVEN RATES, THEY ARE CLOSE TO THE 2% LEVEL IN THE NEXT FIVE TO 10 YEARS FOR THE FEDERAL RESERVE. IT SEEMS TO SUPPORT THAT EVEN WITH A LESS AGGRESSIVE FED, WE WILL GET THERE. TOM: IT IS ABOUT HEADLINE INFLATION FOR SO MUCH OF AMERICA KAILEY . KAILEY: AND THE CHAIRMAN SPOKE TO THAT, AMERICANS FEEL THAT GAS AND ENERGY BILLS IS WHAT THEY ARE FACING. THE PROBABILITY OF GETTING INFLATION DOWN, IT ISN'T SO MUCH ABOUT THEIR CONFIDENCE OF GETTING THAT DOWN. NOMINAL YIELDS ARE COMING LOWER BECAUSE OF CONCERN AROUND A RECESSION, EVEN IF IT IS SHALLOW. TOM: FUTURES ARE UP 29, THE NASDAQ UP 0.9%. JAN HATZIUS IS STICKING TO IT. MAYBE HE WILL COME BACK AGAIN. STAY WITH US. RITIKA: KEEPING UP-TO-DATE THE FIRST WORD. ACTIONS BY THE U.S. SENATE AND THE SUPREME COURT HAVE UNDERSCORED DEEP DIVISIONS OVER GUN POLICY. THE SENATE VOTED 65-33 TO APPROVE GUN SAFETY LEGISLATION THAT CALLS FOR IMPROVING BACKGROUND CHECKS, SECURING SCHOOLS, AND GIVING STATES MONEY TO COMBAT GUN VIOLENCE. THE HOUSE IS EXPECTED TO APPROVE THE MEASURE. THE SENATE PASSAGE CAME HOURS AFTER THE SUPREME COURT ISSUED A LANDMARK RULING THAT WOULD MEAN ALL GUNS ON STREETS OF THE BIG CITIES. FIVE REPUBLICAN MEMBERS OF CONGRESS ARE SAID TO HAVE CONTACTED THE WHITE HOUSE AFTER THE 2020 ELECTION, SEEKING PARDONS FROM PRESIDENT TRUMP. THAT'S ACCORDING TO VIDEO TESTIMONY PLAYED BY THE COMMITTEE INVESTIGATING THE JANUARY 6 INSURRECTION. THE CONGRESS MEN INCLUDED MATT GAETZ, SCOTT PERRY, RUDY GOEHMERT AND MO BROOKS. WALL STREET'S BIGGEST BANKS ARE SET TO RETURN TENS OF DOLLARS TO INVESTORS. THEY ALL PASSED THE FEDERAL RESERVE'S ANNUAL TESTS OF THEIR ABILITY TO WITHSTAND MARKET TURMOIL. THE STRESS TEST SHOWS THAT BANKS SUCH AS JP MORGAN, MORGAN STANLEY AND GOLDMAN SACHS COULD HANDLE A SEVERE RECESSION. IN THE U.K., CONSUMERS ARE STARTING TO CRUMPLE IN THE FACE OF SOARING PRICES. THE GOVERNMENT SAYS THE VOLUME OF GOODS SOLD IN STORES AND ONLINE FILE IN MAY. THE HIKING PRICES COST CONSUMERS TO CUTBACK IN SPENDING. AND ANOTHER POLL SAYS CONSUMER CONFIDENCE DROPPED TO A RECORD LOW THIS MONTH. THE FORMER COO OF SOFTBANK HAS RECEIVED SEVERANCE AND INCENTIVES WORTH AN ESTIMATED $94 MILLION AS PART OF HIS COMPENSATION. HE LEFT SOFTBANK IN JANUARY, AFTER CLASHING OVERCOMPENSATION WITH THE COMPANY'S FOUNDER, MASAYOSHI SON. GLOBAL NEWS, 24 HOURS A DAY, ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN > > INFLATION IS A HUGE CHALLENGE. IT IS DRIVEN BY TWO PRIMARY TERRIBLE POLICY APPROACHES FROM WASHINGTON. WE GIVE UP OUR ADVANTAGE IN ENERGY AND WE TOOK AN ANTI-U.S. PRODUCTION APPROACH. JOB ONE IS TO HAVE A PRO ALL OF THE ABOVE ENERGY POLICY THAT INCLUDES PROMOTING DOMESTIC PRODUCTION TO RECAPTURE THIS DOMESTIC PRODUCTION ADVANTAGE. TOM: GOVERNOR OF VIRGINIA GLENN YOUNGKIN WITH DAVID WESTIN ON "BALANCE OF POWER." GREAT TO MEET HIM YESTERDAY. HE IS CONCERNED ABOUT INFLATION IN VIRGINIA. THERE IS A CONFERENCE IN ZURICH. SOMEONE ELSE CONCERNED ABOUT INFLATION IS JAMES BULLARD OF ST. LOUIS. WITH HIM IS PHILIP LOWE OF AUSTRIA, THE RBA GOVERNOR WHO STARTED IN M.I.T.. BULLARD MAKING HEADLINES. LISA, HELP ME HERE. HE IS MORE OPTIMISTIC THAN THE AVERAGE BEAR. LISA: YES, TALKING ABOUT HOW THE U.S. ECONOMY HAS SHOWN TREMENDOUS RESILIENCE AND TALKING ABOUT HOUSEHOLD BALANCE SHEET'S NOT SEEING SIGNS OF A PULLBACK. IS THIS A GOOD THING OR A BAD THING FOR THE FED THAT NEEDS TO GET INFLATION UNDER CONTROL AT A TIME WHEN PEOPLE ARE ACCEPTING HIGHER PRICES INSTILLED BY. TOM: JAN HATZIUS OF GOLDMAN SACHS IS NOT CALLING FOR INFLATION. IS BULLARD THE MOST OPTIMISTIC HORSE AROUND THE TABLE? LISA: [LAUGHS] I DON'T WANT TO GO AROUND THAT FAR. THE ISSUE IS IF WE HAVE STRENGTH NOW, HOW DOES THAT TRANSLATE SIX MONTH FROM NOW IN TERMS OF WHAT THE FEDERAL HAVE TO DO, AND WHERE THE ECONOMIC INDICATORS ARE POINTING AT THE TIME? TOM: IN AGREEMENT WITH JAMES BULLARD TO A GREAT EXTENT IS A GENTLEMAN WITH BOSTON ADVISORS, WE ARE THRILLED TO BRING YOU MICHAEL VOGELZANG. HE HAS DONE SO MUCH IN ECONOMICS . WE ARE THRILLED HE COULD JOIN US THIS MORNING. MICHAEL, IT DOVETAILS WITH YOUR VIEW WHICH IS, LOSE THE GLOOM ON THE FRIDAY, GET OUT FRONT BY ACQUIRING FIXED INCOME FOR HIGHER PRICE AND LOWER YIELD. WHAT FIXED INCOME DO YOU ACQUIRE? MICHAEL: LOOK, I THINK THEY FIXED INCOME MARKET IS REASONABLY WELL-BALANCED. GIVEN WHERE WE ARE WITH THE KNOWN IMPACTS OF INFLATION AND THE SOMEWHAT UNCERTAIN DOCTRINE OF THE ECONOMY, WHETHER WE HAVE RECESSION OR NOT, LIKELY TO BE 2023 IF WE DO, WE THINK LONGER TERM FIXED INCOME IS A REASONABLE HEDGE AGAINST INCREASED EQUITIES. WE HAVE BEEN ADDING TO OUR EQUITY POSITIONS GIVEN THAT WE THINK RISKS ARE REASONABLY BALANCED. WE ARE DOWN ON THE AVERAGE STOCK IN THE U.S., SO WE THINK NOW IS THE TIME TO BEGIN TIPTOEING BACK INTO EQUITY MARKETS FOR LONG-TERM INVESTORS. BUT WE WOULD LIKE TO HEDGE THAT IN CASE THE ECONOMY GETS REALLY WEAK, WITH LONG-DURATION ASSETS. WE HAVE BEEN SHORT ORAL -- SHORT ALL YEAR, BUT NOW WE ARE STARTING TO EXTEND. LISA: HOW LONG CAN THAT CONTINUE, PEOPLE GOING INTO BOTH? MICHAEL: THAT IS THE $64 QUESTION, OF COURSE. WE ARE INTERESTED IN TRYING TO UNDERSTAND WHAT RISKS ARE IN THE MARKET AND WHAT AREN'T. ONE OF OUR FAVORITE PHRASES AT THE FIRM IS, PRICE IS THE ONLY THING THAT WE KNOW. EVERYTHING ELSE IS SPECULATION AND CONJECTURE. WE KNOW THAT PRICES OF BONDS ARE UP. THE TWO YEAR UP TO 3%. SAME THING WITH THE EQUITY MARKETS, DOWN SUBSTANTIALLY. WE THINK THAT GIVES US GOOD INSIGHT ON WHAT RISKS ARE OUT THERE, THE RISKS ARE BEING RECOGNIZED IN THE EQUITY MARKETS PARTICULARLY AND WE MAY BE EARLY. YOU HAVE PROBABLY HEARD THIS PHRASE," PESSIMISTS SOUND SMART, BUT OPTIMISTS MAKE MONEY." WE ARE TRYING TO BE IN THE LATTER CAMP. LISA: HOW MUCH ARE YOU LOOKING AT THE CHANCES OF A SOFT LANDING AND THE OPTIMISTS MAKING MONEY, EVEN THOUGH THERE T -- EVEN THOUGH PESSIMISTS TALKING ABOUT RECESSION SOUND SMART? MICHAEL: IT IS OUT OF THE FED'S CONTROL. YOU HEARD POWELL TALK ABOUT THE THINGS HE CAN CONTROL, RIGHT? BUT HE CANNOT CONTROL WHAT HAPPENS IN RUSSIA AND UKRAINE, TO WHAT HAPPENS TO THE LONG-TERM PRICE OF OIL AROUND THE GLOBE. THE FOOD SHORTAGE AND THE HIGHER PRICES OF FOOD, HE CAN'T CONTROL THOSE THINGS, EXCEPT AT THE MARGIN. HE CAN CONTROL HOUSING. AND THAT IS CLEARLY SOMETHING WE ARE WATCHING. AS HOUSING GOES -- AND WE ARE STARTING TO SEE THE CRACKS IN THE FOUNDATION OF THIS INCREDIBLY HARD HOUSING MARKET -- WE THINK THAT WILL BE AN IMPORTANT HELL AS WE GO FORWARD -- IMPORTANT TELL AS WE GO FORWARD. WE THINK THE FED CAN FIND A PATH TO A REASONABLE SOFT LANDING LIKE BULLARD AND LIKE JAN ARE SAYING, IF WE GET LUCKY. IT COULD BE DIFFICULT. KAILEY: GIVEN THERE IS STILL A QUESTION AROUND THAT AND RIGHT NOW YOU ARE SEEING YIELDS GOING LOWER, WHERE WITHIN EQUITIES ARE YOU BUYING? VALUE, OR GROWTH? MICHAEL: AS WE HAVE DUG THROUGH THE THE TREATISE OF THE CRASH OVER THE LAST THREE MONTHS -- THE DETRITUS OF THE CRASH OVER THE LAST THREE MONTHS, IT IS HARD TO FIND ANYTHING THAT IS SCREAMING AT US. I SENT ALONG A CHART THAT SHOWS THE PERCENTAGE OF STOCKS IN THE RUSSELL 2000, OR THE NUMBER OF STOCKS IN THE RUSSELL 3000, SORRY, THE BROAD MARKET, TRADING AT LESS THAN 10X EARNINGS. THE NUMBER IS OVER 515. EVERY TIME WE HAVE REACHED THAT LEVEL, AND WE HAVE REACHED THAT LEVEL A HANDFUL OF TIMES IN THE LAST DECADE, YOU START TO SEE REALLY GOOD RETURNS GOING FORWARD. SO, WHEN YOU'RE OUT, GOOD NUMBERS, AND TWO YEARS OUT, REALLY GOOD. WE ARE STARTING TO GET INTO THAT TERRITORY. TO MEET THOSE ARE THINGS LIKE HOUSING, ENERGY, SOME OF THE RETAILERS -- TO ME, THOSE THINGS ARE HOUSING, ENERGY, SOME OF THE RETAILERS. MY PORTFOLIO IS A HEDGE AGAINST THE FED BEING RIGHT, THAT THE FED WINS THE GAME AND GAINS A SOFT LANDING. THE MARKETS ARE EXPECTING THE EARNINGS WILL FOLLOW. SO IF THE FED IS RIGHT AND EARNINGS COME THROUGH FOR SOME OF THESE INEXPENSIVE, MORE CYCLICAL COMPANIES, YOU WILL SEE REALLY GOOD RETURNS OUT OF THOSE. I THINK, BY THE WAY, IT IS TIME TO START LOOKING AT THE GROWTH SIDE, PARTICULARLY THE MEGACAP SIDE OF THE MARKET. THEY ARE ALMOST AS INEXPENSIVE AS THEY HAVE BEEN IN 5, 6, 70 BEERS, ON A PRICE TO SELL BASIS -- 70 YEARS ON A PRICE TO SELL BASIS. THERE IS NO CLEAR AND OBVIOUS, WHAT WE LIKE TO CALL THE BURNING BUILDING, WHERE YOU ARE GETTING PAID TO TAKE A BIG CHUNK OF RISK. THERE IS NOTHING LIKE THAT, THE MARKET IS REASONABLY WELL-BALANCED. TOM: MICHAEL, THANK YOU SO MUCH. LISA, THERE HAS BEEN WAY TOO MUCH OPTIMISM IN THE LAST 20 MINUTES. HELP ME OUT HERE. THE CAMERA LENS ALMOST BROKE THERE. LISA: LISA: HE VERY WELL COULD BE RIGHT. THE SOFT LANDING LOOKS POSSIBLE AND LIKELY AS LONG AS THERE IS SOME COOPERATION WITH THE INTERNATIONAL SPHERE. I JUST KEEP GOING BACK TO WHAT HE IS SAYING, THAT THE BOND MARKET IS RALLYING AND HAVE STOCKS PRICED IN THE SLOWDOWN NECESSARY TO JUSTIFY SOME OF THE LEVELS WE ARE SEEING IN THE YIELD MARKET? TOM: WE WILL HAVE TO SEE. IT WILL BE AN INTERESTING DAY IN FOREIGN EXCHANGE. FUTURES ARE UP 26. DOW FUTURES UP 2.01. GOOD MORNING TO JONATHAN FERRO. HE MAY BE BACK ON MONDAY. THIS IS BLOOMBERG. ♪ > > THE FED WILL BE ABLE TO SLOW DEMAND SUFFICIENTLY. > > THE FED IS CHANGING THEIR POLICY NARRATIVE SO QUICKLY. > > THAT IS FOCUSED ON INFLATION. > > THE MARKET IS BETWEEN INFLATION CONCERNS TO RECESSION CONCERNS. > > I THINK JAY POWELL IS TRYING TO FINESSE THAT YOU CANNOT GO WOBBLY ON THE RESOLUTION TO TACKLE INFLATION. ANNOUNCER: THIS IS "BLOOMBERG SURVEILLANCE" WITH TOM KEENE, JONATHAN FERRO AND LISA ABRAMOWICZ. LISA: LOOKING FORWARD TO A CONSUMER SENTIMENT READING. GOOD MORNING. THIS IS "BLOOMBERG SURVEILLANCE" WITH TOM KEENE. KAILEY LEINZ WITHOUT. HOW FRAGILE IS THE DATA WE ARE ABOUT TO GET? TOM: THE DATA IS CRITICAL. THIS IS LOOKING AT FIVE YEARS AND THE GUESSTIMATE IS ANOTHER FIVE YEARS AND THE QUESTION IS INFLATION FINALLY ANCHORED AS IT HAS BEEN PREDICTED OR IS IT UNANCHORED AND THAT SQUISHY CONCEPT. WHAT IT MEANS IS A LOT OF UNCERTAINTY WITHIN THE MARKET. WE CERTAINLY HEARD THAT THIS MORNING. LISA: UNCERTAINTY IS THE WORD OF THE YEAR AND THE WORD OF THE MOMENT IN LIGHT OF THE FACT THAT WE HEAR THIS OPTIMISM SOME JIM BULLARD ABOUT EARNINGS, CONSUMERS, THE STRENGTH OF THE U.S. ECONOMY IN LIGHT OF A RALLY INTO BONDS THAT INDICATE SLOWING GROWTH AND SOMETHING MORE RECESSIONARY. TRY PUTTING THOSE TWO IDEAS TOGETHER. TOM: THIS IS ABOUT RESILIENCY. GOLDMAN SACHS IS LOOKING FOR A TAD BIT AMERICAN ECONOMY IN Q4, WHAT HE IS SUGGESTING IS THE SYSTEM IS IN PLACE INCLUDING THE BALANCE SHEET OF INDIVIDUAL HOUSEHOLD OF BUSINESSES WHERE WE CAN MAYBE HAVE A SHALLOW RECESSION WHICH IS THAT RESILIENCY THAT BULLARD LEADS WITH. LISA: WE ARE LOOKING AT PERHAPS THE FIRST WEEK OF GAINS FOR U.S. EQUITY MARKET BUT THEY ARE NOT BROAD-BASED WHEN IT COMES TO LOOKING UNDER THE HOOD. IT INDICATES A BIT OF CAUTION. KAILEY: SHIFTING INTO DEFENSIVE AREAS OF THE MARKET LIKE HEALTHCARE AND TECHNOLOGY WHICH HAS BENEFITED FROM THE FACT THAT YIELDS ARE MOVING LOWER WHEREAS THE HIGHER MOVEMENT IN YIELDS HAS PUT PRESSURE ON SOME OF THE HIGH MULTIPLE STOCKS BUT IT IS SO NATION AND -- SO NACIENT. WE ARE TALKING ABOUT A SECTOR OF THE INDEX THAT IS DOWN ON THE YEAR. LISA: WHEN YOU TALK ABOUT 40 ON THE VIX, YOU HAVE BEEN TALKING ABOUT IT FOR A COUPLE OF WEEKS NOW. AMY CEEO ROMAN -- AMY SILVERMAN WAS BRILLIANT TALKING ABOUT AN INCREASING AMOUNT OF HEDGING ACTIVITY. AT WHAT POINT DOES IT GET BROKEN IN THE FACE OF THE VIX? TOM: THE VIX RIGHT NOW 28.77 WHICH IS COMFORTING. LET'S CALL IT FROM 32 TO 29. 40 IS DISTANT. WE HAVE HEARD THIS FROM MANY GUESTS, THE TONE THAT IS OUT THERE IS OPTIMISTIC. GERARD OF RBC CAPITAL MARKETS ON THE WEST COAST SAID THE TONE WAS PRETTY GOOD. KAILEY: THE MARKETS WERE OFF A LITTLE BIT OF EARLIER HIGHS. WE ARE LOOKING AT 0.7% GAINS FOR THE NASDAQ AND THE S & P. THE BID INTO BONDS FADING A BIT. WE ARE SEEING YIELDS HIGHER, DOWN 3.12% ON THE 10 YEAR. ON THE 10 YEAR, SIMILAR MOVE. VERY WELL PUT. CRUDE IS INTERESTING. WE SAW A SLIP YESTERDAY AFTER CRUDE HAD SOLD OFF IN LIGHT OF SOME OF THE RECESSION WORRIES. THIS PUSH-PULL BETWEEN SUPPLY AND DEMAND AND WHAT COULD BE COMING DOWN THE PIKE WHEN IT COMES TO A DOWNTURN. I REALLY DO THINK THAT THE QUESTION OF THE MOMENT IS OF THE -- IF THE BOND MARKET RALLY IS A GOOD THING OR A BAD THING. HAVE WE SEEN REVENGE OF THE 60/40 PORTFOLIO THAT PEOPLE HAVE NOT BEEN SEEING FOR THIS YEAR SO FAR. MICHAEL BELL, GLOBAL MARKET STRATEGIST AT J.P. MORGAN JOINING US. WHAT IS YOUR VIEW? WILL WE SEE A PERSISTENCY TO THE RALLY OR A RELATIONSHIP BETWEEN BONDS AND STOCKS FROM HERE ON OUT? MICHAEL: I THINK BONDS HAVE BECOME MORE A LOT -- A LOT MORE ATTRACTIVE. THE HOUSING MARKET CANNOT REALLY HANDLE MORTGAGE RATES GOING UP MUCH MORE THAN THEY HAVE ALREADY. TO ME THAT SUGGEST THAT WE ARE PROBABLY NEARING THE PEAKS. WE COULD PROBABLY GO A LITTLE BIT HIGHER. THEY WILL NOT MOVE MATERIALLY HIGHER THAN WHERE THEY ARE AT THE MOMENT. I THINK THAT WILL CAUSE PROBLEMS FOR THE HOUSING MARKET AND THAT CAPS OUT HOW HIGH THEY CAN GO. TOM: IN THE FRACTIOUS DEBATE OF J.P. MORGAN, COMPARE AND CONTRAST HOUSING IN ENGLAND FROM HOUSING IN AMERICA. DO YOU PEOPLE COMBINE THEM TOGETHER OR ARE THEY TRULY DISTINCT? MICHAEL: I THINK THEY ARE QUITE DIFFERENT BECAUSE IN THE U.S. YOU HAVE 95% OF PEOPLE ON RELATIVELY LONG-TERM FIXED RATE MORTGAGES WHEREAS IN THE U.K., ABOUT 17% OF PEOPLE ARE ON TRACK MORTGAGES AND ANOTHER ABOUT ONE THIRD ARE AT TWO YEARS A L ESS. THE U.K. WILL FEEL THE INTEREST RATES A LOT MUCH MORE QUICKLY THAN THE U.S. WOULD. HOWEVER, THE U.S. IS NOT COMPLETELY IMMUNE TO HIGHER INTEREST RATES BECAUSE 95% OF PEOPLE ARE FIXED. IT MEANS THE VAST MAJORITY WILL NOT NOTICE INTEREST RATES GOING UP BUT WHO DOES NOTICE, THE PEOPLE WHO ARE MOVING HOMES. FROM THEN, THE 30 YEAR MORTGAGE RATES GO TO 5.75 TODAY. AT THOSE KIND OF LEVELS, IF YOU LOOK AT THE COST OF BUYING A HOUSE AND BEAR IN MIND HOUSE PRICES HAVE GONE UP 40% SINCE THE END OF 2019 IN THE U.S., THE AMOUNT THAT IT WOULD COST THE AVERAGE HOUSEHOLD TO BUY THE AVERAGE HOUSE TODAY HAS APPROXIMATELY DOUBLED OVER THE LAST COUPLE OF YEARS. THAT IS WHY EVEN THOUGH THE U.S. IS MUCH MORE RESILIENT IN TERMS OF MOST PEOPLE NOT FEELING THOSE HIGHER RATES, HOUSING TRANSACTIONS WILL COME UNDER PRESSURE BECAUSE OF THESE HIGH RATES. THAT IS WHAT CAPS OUT. KAILEY: YOU WILL NOT FIND THE HOUSE HUNTING ANYTIME SOON. AS WE TALK ABOUT HOW HIGH BOND YIELDS GO, DOES THAT FORM A BOTTOM FOR THE EQUITY MARKET? HOW CLOSE ARE WE TO THAT? MICHAEL: I THINK IT DEPENDS ULTIMATELY ON WHETHER WE END UP GETTING A RECESSION OR NOT BECAUSE WE HAVE SEEN VALUATIONS COME DOWN AND VALUATIONS NOW WITH THE EXCEPTION OF SOME OF THE GROWTH STOCKS IN THE U.S. WHICH IS STILL ABOUT 21 WHICH IS REALLY REMARKABLY HIGH GIVEN HOW FAST STOCKS HAVE FALLEN ALREADY SO FAR THIS YEAR, THE VALUE SECTOR OF THE MARKET TRADING ON ABOUT 13 IN THE U.S. AND EQUITIES OUTSIDE OF THE U.S. TRADING ON 10 TO 12, VALUATIONS LOOK PRETTY REASONABLE. THE BIG QUESTION NOW IS GIVEN ANALYSTS FORECASTING THE EARNINGS WILL GROW THIS YEAR, IS THAT TOO OPTIMISTIC IN THE FACE OF POTENTIAL RECESSION? IF WE GET A RECESSION, THERE WILL BE A FURTHER DOWNSIDE AS EXPECTATIONS NEED TO COME DOWN. WITH THE MARKETS DOWN IS MUCH AS THEY ARE YEAR-TO-DATE, IT WILL BE HARD TO SELL AT THESE LEVELS AND BUY BACK IN CHEAPER. YOU HAVE TO HAVE A HIGH DEGREE OF CONFIDENCE THAT YOU CAN FIND THE BOTTOM IF YOU THINK YOU WILL BE ABLE TO DO THAT. I THINK IT MAKES SENSE TO BE NEUTRAL ON THIS AT THE MOMENT. LISA: IT IS NOW TIME IN THE WEEK WHERE WE TALK ABOUT FEELINGS AHEAD OF THE SENTIMENTS FROM THE UNIVERSITY OF MICHIGAN. CONSUMER SENTIMENT IN THE UNITED KINGDOM CAME IN AT THE WEAKEST, THE WORST GOING BACK HALF A CENTURY. IS THERE A LACK OF COHESION RIGHT NOW BETWEEN THE FEELINGS AND THE FUNDAMENTALS IN THE EQUITY MARKETS? MICHAEL: IF YOU LOOK AROUND, THE MICHIGAN SURVEY AND THE U.S. AND THE U.K. AND EUROPE, YOU'VE GOT NEAR RECORD LOWS OF CONSUMER CONFIDENCE. CONSUMERS ARE FEELING THE SQUEEZE FROM HIGHER PRICES AND THEY ARE FACING THE FACT THAT THEIR INTEREST RATES ARE GOING UP AS WELL. IF THAT IS OUT OF LINE WITH WHAT THE MARKETS ARE PRICING, NOT PARTICULARLY. LOOK AT THE SHARE PRICE OF RETAILERS RIGHT NOW. ABSOLUTELY HAMMERED ACROSS THE WORLD. I THINK THE MARKET IS NOT COMPLETE UNAWARE OF THIS RISK THAT YOU WILL GET A PULLBACK IN CONSUMER SPENDING. THE QUESTION IS HOW MUCH FURTHER HAS THAT GOT TO GO AND WHETHER WE END UP IN RECESSION OR NOT. TOM: THANK YOU SO MUCH. GREATLY APPRECIATE IT. JP MORGAN ASSET MANAGEMENT. MOMENTS AGO, THE FIRST READ OF THE WEEKEND. THERE IS NO OTHER WAY TO PUT THIS. OUR WONDERFUL DAVID PIN WAS LITERALLY AT THE TOP OF MY READING PILE THIS WEEKEND WHICH IS "MINING IN BITCOIN AND CRYPTO." MOST FOUR -- ALMOST $4 MILLION IN BITCOIN COMING TO THE BANK OF INTERNATIONAL SETTLEMENTS. KAILEY: IT SPEAKS TO THE LIQUIDITY ISSUE THAT THE ENTIRE CRYPTO COMPLEX IS FACING BUT FOR THESE MINORS, MANY OF THEM HAVE PILED ON THE DEBT. THEY ARE NOW IN SERIOUS CRISIS AS WE HAVE SEEN CRISIS FOR CRYPTOCURRENCIES COME DOWN TO THE POINT WHERE THEY HAVE TO OFFLOAD SOME OF THEIR STAKE IN THESE COINS, ACTUALLY SELLING BITCOIN IN ORDER TO BE ABLE TO PROVIDE ENOUGH LIQUIDITY TO CONTINUE OPERATIONS. A LOT OF IT ALSO COMES BACK TO THE INFLATION STORY AND THE HIGHER ENERGY PRICES STORY BECAUSE IT COSTS A LOT TO KEEP THESE MINES IN OPERATION. THEY CONSUME A LOT OF ENERGY. TOM: I HAVE TO GO TO KAILEY ON THIS. WE ARE TALKING THERMODYNAMICS AND YOU KILLED IT AT UVA YEARS AGO. WHAT IS A CRYPTO MINOR? KAILEY: A CRYPTO MINOR IS HOW YOU GET THE TRANSACTIONS IN CRYPTOCURRENCY. SOMEONE HAS TO DO A BUNCH OF COMPLICATED MATH ON A COMPUTER TO MAKE IT WORK. THERE IS MOVEMENT ESPECIALLY ON THE BLOCKCHAIN TOWARD PROOF OF STAKE IN WHICH THAT PROCESS IS A LOT LESS COMPLICATED. YOU HAVE TO PUT UP YOUR OWN STAKE IN ORDER TO PROCESS A TRANSACTION. IN THEORY, THAT MAKES THE WHOLE THING MORE ENERGY-EFFICIENT ALTHOUGH THAT UPGRADE KEEPS GETTING PUSHED FURTHER AND FURTHER OUT SO THERE IS A QUESTION OF WHETHER OR NOT WE GET IT. WAS THAT REALLY WONKY? TOM: IT WAS VERY WONKY. I WOULD SUGGEST A T-BONE OR NEW YORK STRIP. I DON'T KNOW WHICH. RIGHT THERE WAS A CLINIC ON MY SKEPTICISM. I WILL BE BLUNT, READ DAVID PIN AT BLOOMBERG. IT IS A BRILLIANT STORY. I DO NOT KNOW WHAT TO SAY ABOUT THAT. IT IS BRILLIANT. FUTURES UP 30. THIS IS BITCOIN. GOOD MORNING. ♪ RITIKA: IT IS BEING CALLED THE BIGGEST BREAKTHROUGH IN U.S. GUN SAFETY IN THREE DECADES. DESCENDANT VOTING 65-33 TO APPROVE BIPARTISAN LEGISLATION THAT WILL INCLUDE BACKGROUND CHECKS, SECURE SCHOOL, AND GIVE STATES MONEY TO FIGHT GUN VIOLENCE. IT IS EXPECTED TO PASS THE MEASURE. IT PASSED AFTER THE SUPREME COURT ISSUED A LANDMARK RULING THAT COULD MEAN MORE GUNS ON THE STREETS OF BIG CITIES. IN THE U.K. IN IT IS THE BORIS JOHNSON HAS SUFFERED A MAJOR ELECTION UPSET. HE LOST A KEY PROMINENT SEAT IN SOUTHWEST ENGLAND. IT IS THE FIRST TIME THAT THE CONSTITUENCY HAS VOTED CONSERVATIVE SINCE IT WAS FORMED 25 YEARS AGO. THE LIBERAL DEMOCRATS WON THE SEAT. STOCK PRICES HAVE CRASHED BACK TO WHERE THEY WERE AT THE START OF THE WAR IN UKRAINE. THAT COULD BRING SOME RELIEF TO FOOD INFLATION THAT IS SQUEEZING CONSUMERS. WHEAT, SOYBEANS, OIL, AND SUGAR HAVE RETREATED IN RECENT WEEKS. THE BLOOMBERG AGRICULTURE SPOTS CONTRACT FOR THE WORK WEEK SINCE 2011. SHARES OF TWITTER ARE HIGHER ON PREMARKET TRADE. USER DATA THIS WEEK TO ELON MUSK WHO WANTS TO BY THE COMPANY. THE DATA INCLUDES REAL-TIME INFORMATION THAT ALLOWS HIM TO TO DETERMINE HOW MANY USERS ARE ACTUALLY USERS. THE DATA WAS BEING SUPPLIED -- THE DATA BEING SUPPLIED JUST WAS NOT ENOUGH. GLOBAL NEWS 24 HOURS A DAY ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES. I AM RITIKA GUPTA. THIS IS BLOOMBERG. ♪ > > YES WE CAN. THE CHANGES WE ARE SEEING TAKING PLACE IN ECONOMIC PERFORMANCE ARE TO BE EXPECTED. ALL OF THESE CHANGES WERE ACKNOWLEDGED BY MINISTERS IN THE COMMISSION, BY THE ECB. IT IS A RISK, BUT WE CAN AVOID IT. TOM: THE EURO GROUP PRESIDENT SPEAKING ON MEETINGS THIS WEEKEND IN EUROPE. WE HAVE TO SQUEEZE THIS IN. IT IS TOO IMPORTANT. BULLARD OF ST. LOUIS IN EUROPE WITH UBS LOOKING FOR A 3.5% OFFENSE FUND RATE. PRICING AT 3.5%. THAT IS A BIG DEAL. THAT IS OPTIMISM. LISA: THIS IS COMING AWAY FROM THAT 4% FED FUNDS RATE PEOPLE WERE LOOKING FOR. ANDREW FROM CITIGROUP REITERATED YESTERDAY HOW MUCH TO SEE PEOPLE EASING OFF OF THEIR EXPECTATIONS FOR HOW FAR THE FEDERAL APPLICO. TOM: TWO YEAR YIELD YANKS BACK. UP SEVEN BASIS POINTS. 10 YEAR YIELD, 3.11. THIS IS AN IMMENSE JOY RIGHT NOW. SHAHAB JALINOOS IS GLOBAL HEAD OF AFFECT STRATEGY AT CREDIT SUISSE AND JOINS US THIS MORNING. I WANT TO GO TO THE MAGNITUDE OF YOUR CALLS. I WANT TO GO WEAK IN WELL OUT PAST 140 -- I WANT TO GO WEAK YEN WILL LET PAST 140. STRONG EURO SWISSIE. WHY DO WE GET THESE MAGNITUDE OF MOVES IN FOREIGN EXCHANGE? SHAHAB: WE ARE SEEING THE END OF CENTRAL BANKS USING BALANCE SHEETS TO MANIPULATE WHERE FX RATES TRADE. YOU ARE SEEING FX RATES REACT TO THAT. JAPAN IS TRYING TO STAY THE COURSE AS LONG AS POSSIBLE. THAT IS WHAT WE ARE SEEING REFLECTED. TOM: IS IT A BIG ENOUGH SHIFT COMING OFF OF BALANCE SHEETS DYNAMICS AFTER WORLD WAR II? SHAHAB: IT DOES NOT NEED TO BE AS BIG AS THAT TO HAVE SIGNIFICANT EFFECTS. LET'S PUT IT THAT WAY. IN THE EURO SWISS CROSS, IT IS. EASY TO IMAGINE THAT GOING DOWN TO 97, EVEN LOWER IN THE WEEKS TO COME. TOM: WHAT DOES IT DO TO A MCDONALD'S HAMBURGER? ASKING FOR A FRIEND. SHAHAB: IT IS A GOOD IDEA TO THINK ABOUT THOSE THINGS. THEY WILL GET MORE EXPENSIVE. BUT THAT IS NOT SOMETHING THAT IS WORRYING THE S & P AT THIS POINT. TOM: THAT TOP TAKES OUT AT $20 FOR A NUMBER TWO VALUE MEAL. LISA: I SURE THAT THERE IS SOME PERSONAL EXPERIENCE IN THEIR. I WONDER HOW MUCH YOU ARE LOOKING AT TO YIELD AS WE WERE JUST HEARING FROM J.P. MORGAN AND HOW MUCH DOES THAT MEAN PEAK DOLLAR. HOW MUCH ARE THESE TWO MEASURES TRADING IN TANDEM? SHAHAB: IT HAS DEFINITELY BEEN THE CASE THAT RATE DIFFERENTIALS AND THE U.S.'S MUCH HIGHER YIELDS HAVE BEEN HELPFUL FOR THE DOLLAR BUT THERE IS MORE TO THE DOLLAR STORY THAN YIELDS. ON THE TRADE SIDE, THERE HAS BEEN VERY BIG SHIFTS IN TRADE DYNAMICS THAT NEED TO BE RECOGNIZED. RIGHT NOW WE HAVE THE EURO AREA WITH A TRADE DEFICIT. WE HAVE JAPAN MOVING RAPIDLY IN THE SAME DIRECTION AS WELL. THE CURRENCIES LIKELY THE EURO AND THE YEN WERE BACKED. THE ENERGY PRICE SHIFT HAS CHANGED THAT DYNAMIC MATERIALLY. ON THE U.S. SIDE, YOU HAVE RECORD EXPORTS. YOU WILL BE NEEDING 200 BILLION DOLLARS OF AGRICULTURAL EXPORTS IN THE FISCAL YEAR FOR THE PROTECTIONS FROM THAT SIDE OF THE STORY. WHEN YOU PUT ALL THAT TOGETHER, TO ME THERE IS MORE TO THE DOLLAR STRENGTH STORY THAN RATE DIFFERENTIALS. KAILEY: HOW DOES THIS TRANSLATE INTO THE BIG CROSSES WHETHER IT IS TO READING OR IN GENERAL HOW STRONG THE DOLLAR CAN GET? SHAHAB: THE DOLLAR LOOKS STRONG COMPARED TO LAST FIVE YEARS. IF YOU GO BACK MUCH FURTHER, THE DOLLAR HAS BEEN A LOT STRONGER FOR A VARIETY OF REASONS. THE KEY POINT I WOULD MAKE IS IT IS NOT THE SAME DOLLAR AS THE LAST TIME EURO-DOLLAR WAS AT 1.05. WHEN YOU HAVE TRADE DEFICITS AS A PROBLEM, YOU NEED CAPITAL INFLOWS INTO YOUR AREA ALREADY NET BASIS IF YOU WILL HAVE A CURRENCY DEFICIT. THAT IS SOMETHING THAT HAS BEEN MISSING. THE U.S. HAS BEEN A CAPITAL EXPORTER FOR MANY YEARS. THE NEW VALUE PROPOSITION THAT THE EURO NEEDS TO OFFER AT THIS POINT IN TIME SEEMS TO AVOID GOING DOWN AND I THINK THAT IS ABSENT RIGHT NOW. KAILEY: LET'S MOVE FROM EUROPE TO THE ISLAND NEXT TO IT. WE HAVE U.K. CONSUMER CONFIDENCE DATA EARLIER TODAY SHOWING THE LOWEST IN 48 YEARS OF DATA. CLEAR CONCERN AROUND INFLATION, THE COST-OF-LIVING, THE POSSIBILITY OF REFRESHING -- POSSIBILITY OF RECESSION. HOW DOES THAT READTHROUGH THROUGH TO YOUR VIEW ON STARLINK? SHAHAB: WE THINK STERLING WILL GO LOWER. EVENTUALLY A MOVE THROUGH THE LEVEL. THE PROBLEM FOR STERLING, YOU HAVE THE SAME TRADE STORY DEVELOPMENT THAT INVENTED FOR THE EURO. IT IS NOT LIGHTYEARS OF A WEAK POUND HAVE CREATED BIG TRADE SERVICES ARE VERY COMPETITIVE EXPORTS. THAT HAS NOT HAPPENED FOR A VARIETY OF REASONS. YOU HAVE A CURRENCY THAT IS NOT REALLY HAVE ANY REASON TO GO UP RIGHT NOW. EVEN WHEN YOU THINK ABOUT THE BANK OF ENGLAND, THE MARKET IS PRICING IN THE 50 BASIS POINT HIKES CONSECUTIVELY. THEY ARE A FEW AHEAD OF US AND GET THE BANK OF ENGLAND -- YET THE BANK OF ENGLAND IS PUSHING AGAINST THAT NEGATIVE AND MAKES IT DIFFICULT TO FIGURE OUT WHAT HIS PRICE TAG. WHEN YOU PUT THE FACTORS ON THE TABLE, IT IS GOING TO GO SLOWER. TOM: I HAVE MORE QUESTIONS. YOU HAVE TO GO. BUT PLEASE COME BACK SOON, IF YOU CAN. THESE ARE SOME ABRUPT CALLS FROM SHAHAB JALINOOS. A DIFFERENT LANDSCAPE FOR ALL OF US. INVESTORS, INCLUDING JEROME POWELL WITH THE KIND OF MOVES THAT CREDIT SUISSE IS TALKING ABOUT. MR. BULLARD WITH HEADLINES COMING UP FAST AND FURIOUS. EMAILS, TOM, FORGET ABOUT THE MCDONALD'S BURGER IN SWITZERLAND. HE TALKS ABOUT THE BANK OF JAPAN AND THE IMPACT OF THE NEW CARRY-ON KEY BURGER -- TERIYAKI BURGER AND WHAT IT MEANS TO THE WHOLE DOMESTIC SYSTEM OF JAPAN. KAILEY: IT IS NOT JUST THE BURGER. WAS I 20, MAYBE 19? JAPAN. I JUST WANT MCDONALD'S AND I AM GREETED WITH A HUGE COASTER OF CHOCOLATE COVERED FRENCH FRIES. IT IS A SANG. WOULD YOU -- IT IS A THING. WOULD YOU EVER PUT THOSE TWO THINGS TOGETHER? TOM: NO. LISA, WE HAVE BOMBS ON THE MOVE. I AM SORRY. WE HAVE A HIGHER YIELD REGIME. WHAT IS THE WHY? LISA: WHY HAVE WE SEEN SUCH A RALLY THIS YEAR? THIS MONTH. IT HAS BEEN A COMPLETE SELLOFF THIS YEAR. THIS MONTH, IT HAS BEEN A BREEZE. WHEN DO WE GIVE IT ALL BACK? DO WE GO TO A MICHAEL BELL TO YIELD POSITION OR DO WE LOOK AT A REPLACEMENT OF HIGHER INFLATION COME OF AN AGGRESSIVE FED AND THE SAME NARRATIVE WE HAVE ABANDONED. TOM: DO WE SEE CURVE INVERSION ON THE SPREAD? LISA: PEOPLE ARE LOOKING LATER THIS YEAR WHETHER IT HAPPENS AGAIN TODAY, I WILL LEAVE THAT TO YOU TO DECIDE. TOM: I WILL WAKE UP AFTER A NAP AND MAYBE WE WILL SEE IT. THREE BASIS POINTS BETWEEN THE TWO YIELD AND THE 10 YEAR YIELD. STAY WITH US. THIS IS BLOOMBERG. TOM: "BLOOMBERG SURVEILLANCE" GOOD MORNING. BLUE ON THE SCREEN. OPTIMISM. HELP ME WITH YIELDS HERE. I NEED HELP ON THE DATA CHECK. WE WERE UNDER 3%. WE ARE NOW AT 3.07%. WHERE WILL BE BE AT THREE -- 3:00 THIS AFTERNOON? LISA: YIELDS ON THE FRONT END ROSE BY ONE PERCENTAGE POINT WHICH IS AN ASTRONOMICAL AMOUNT IN PROPORTION TO WHERE IT HAS BEEN. IT HAS COME IN 50 BASIS POINTS WITHIN THE WEEK. HOW MUCH MORE CAN WE SEE GOING FORWARD? I AM ALSO LOOKING AT 10 YEAR YIELDS ALSO INDICATED UPWARD. THE WHY? I DON'T KNOW. MAYBE IT IS THE ST. LOUIS FED CHAIR PRESIDENT JIM BULLARD COMING OUT AND SAYING HE WANTS IT FRONTLOADED. OTHERS HAD MANY JUMPY MARKETS. TOM: JUMPY MARKETS AND LOTS OF REALLY GOOD CONVERSATION TODAY. THIS IS NOT ONLY THE CONVERSATION OF THE DAY ON FIXED INCOME FROM BLOOMBERG SURVEILLANCE BUT INDEED FOR THE WEEK AND CAN I DARE SAY FOR Q2. IAN LYNGEN IS OUT OF MINNESOTA AND THE CROSS IN SCHOOL OF FINANCE -- THE KARLSSON SCHOOL OF FINANCE IS DEFINITIVE. THE THEME OF CAPITAL MARKETS AND RIGHTS ABSOLUTELY THE MOST DENSE NOTES OF FIXED INCOME DYNAMICS ON THE STREET. WE ARE THRILLED HE CAN JOIN US IN THE STUDIO TODAY. WELCOME TO BLOOMBERG. I WILL CUT TO THE CHASE. FORGET ABOUT THE Y-AXIS. MOVING YIELDS. THE MYSTERY OF THE X-AXIS AS BULLARD TALKS ABOUT FRONTLOADING. GIVE US THE NUANCE TO THE PRO AUDIENCE OF THE X-AXIS DYNAMIC, THE FIRST AND SECOND DERIVATIVES OF THE TIME CHANGE WE WILL SEE. IAN: I THINK THIS IS THE MOST IMPORTANT CONVERSATION INVITED -- CONVERSATION IN FINANCIAL MARKETS. HOW CAN BULLARD BE TALKING ABOUT A 350 TERMINAL RATE WHEN THE REALITY IS THAT TWO-YEAR YIELDS ARE TRADING AT OR BELOW 40%? IT REALLY -- TRADING AT OR BELOW 3%? IT COMES DOWN TO THE MOVING WINDOW. WHAT THE MARKET IS SAYING IS YOU MIGHT HIKE NOW, BUT YOU WILL HAVE TO START CUTTING MUCH SOONER THAN PRIOR CYCLES. TOM: GLOBAL SACS ECONOMICS TALK ABOUT CORE CPI AND THE IDEA THAT WE DID NOT HAVE A REAL UNDERSTANDING OF THE RATE OF CHANGE OF HOW CORE CPI IS GOING TO COME DOWN. DO YOU SHARE THAT UNCERTAINTY? IAN: I CERTAINLY DO. I WOULD ADD ONE NUANCE AND THAT IS ALL INFLATION IS THE SAME AT THIS MOMENT FOR THE FED. HEADLINE INFLATION, CORE INFLATION, THEY HAVE MADE NO DISTINCTION. IT IS INTERESTING BECAUSE IN THE PAST THEY WOULD ALWAYS FOCUS ON CORE INFLATION OVER HEADLINE BECAUSE IT WAS LESS VOLATILE BUT THE REALITIES OF HIGHER ENERGY PRICES, HIGHER FOOD PRICES, AND THE FACT THAT INFLATION HAS BECOME THE POLITICAL TOUCHSTONE AT THIS POINT, MAKES ALL INFLATION EQUAL AND I THINK THAT WILL CHANGE BUT NOT UNTIL THE MIDTERMS. KAILEY: IT IS TO GRADES AND TO YIELDS. HAVE WE ALREADY GOTTEN PAST THAT? ARE WE AT A PLACE WHERE YOU CAN DECIDE THAT IT IS AN ACTIVE -- ACCURATE CHARACTERIZATION OF WHAT WE HAVE SEEN? IAN: I SAID THE SAME THING ONCE WE GOT TO 320. AT 350, THE LOGIC HOLDS A LOT BETTER BUT THE REALITY IS THERE IS GOING TO EVENTUALLY BE DEMAND FOR 10 AND 30 YEAR PAPER AND WE HAVE NOT SEEN THE KEY INVESTOR CLASSES OF JAPAN. THERE ARE CERTAIN PARTS OF EUROPE, REALLY COME IN AND START BUYING TREASURIES AND WHEN WE DO, THAT WILL BE WORTH 35 TO 45 BASIS POINTS. THAT GETS YOU BACK BELOW 3%. THE CURVE MORE INVERTED AND THE MARKET EVEN MORE WORRIED ABOUT A RECESSION. KAILEY: IS THIS SUPPORTIVE FOR RISK ASSETS? IS THE MARKET GOING TO GET MORE WORRIED ABOUT RECESSION AND COULD POTENTIALLY HAVE TO REDUCE THEIR ESTIMATES FOR MARGINS AND PROFITS? IAN: THAT IS AGAIN, ONE OF THE KEY UNCERTAINTIES. I WOULD NORMALLY SAY YES, YOU HAVE A LESS AGGRESSIVE FED, LOWER RATES, YOU SHOULD HAVE A GOOD SET UP FOR RISK ASSETS. BUT THIS FED IS BEHAVING MUCH DIFFERENTLY THAN WE MIGHT HAVE OTHERWISE ANTICIPATED. SO WE COULD SEE THE POSSIBILITY OF A RECESSION INCREASE BUT THE FED INSTEAD OF HAVING THE TRADITIONAL RESPONSE JUST PUSH FORWARD AND SAY 3.5, WE WILL GET THERE. WE MIGHT PUSH IT INTO A RECESSION BUT IT IS WORTH KEEPING THE DECADES OF HARD WON CREDIBILITY AS AN INFLATION FIGHTER FOR THE FED FOR THIS ONE CYCLE. KAILEY: THE FED ALREADY HAS A CREDIBILITY PROBLEM AND THAT THE BOND MARKET IS MISLEADING THE FED -- MISREADING THE FED. WHO IS ASLEEP? IAN: IF YOU LOOK AT BREAKEVENS, WHAT YOU CAN SEE IS THAT INFLATION EXPECTATIONS CONTINUE TO MOVE LOWER AND LOWER AND THAT IS A VOTE OF CONFIDENCE IN THE FED'S ABILITY TO CONTROL INFLATION AND FORWARD INFLATION EXPECTATIONS. ONE THING CAN BE SAID, THE TIPS MARKET IS NOT ASLEEP AT THE MOMENT. KAILEY: JIM BULLARD HAS SAID THAT THE TIPS PRICING IS PRETTY MUCH RIGHT ON AT THE MOMENT. AS WE PUT THIS TOGETHER, THE MARKET HAS CONFIDENCE IN THE FED'S ABILITY TO FIGHT INFLATION. WHAT IT HAS LESS CONFIDENCE IN IS WHAT THE ULTIMATE RESULT OF THAT INFLATION FIGHTING IS, HOW DEEP A RECESSION WILL BE WHEN AND IF ONE ARRIVES. WHAT IS YOUR ASSESSMENT AND WHAT THAT MEANS FOR HOW LOW WE COULD SEE YIELDS GOING? IAN: I THINK AT THIS POINT THE CONVERSATION IS WHERE WE ARE JUST COMING OFF OF A NEGATIVE REAL GDP PRINT FOR Q1 WHICH WAS -1.5 AFTER REVISIONS RIGHT NOW. GDP FOR THE SECOND QUARTER IS TRACKING AT ZERO. IF WE HAVE A REPEAT OF THE HIGHER-THAN-EXPECTED INFLATION PROFILE IN THE U.S., WE COULD DIP BELOW ZERO FOR REAL GROWTH IN THE SECOND QUARTER AND THAT WOULD MAKE A RECESSION A VERY NEAR-TERM EVENT. CAVEAT, THAT IS NOT THE SAME TYPE OF RECESSION THAT THE MARKET IS TALKING ABOUT. THE MARKET IS WORRY ABOUT A REAL RECESSION WITH HIGHER UNEMPLOYMENT, THAT WE ACTUALLY SEE AN AGGREGATE HIT TO NOMINAL DEMAND AND THAT IS NOT WHERE WE ARE YET. TOM: AS PART OF YOUR WORK, IAN LYNGEN JOINS US. YOU AND I HAVE NEVER SEEN THESE BOND LOSSES. I AM FASCINATED AND HONORED TO ASK YOU THIS QUESTION WHICH IS GET AWAY FROM THE NUANCES. THE BOTTOM LINE IS THE TOTAL RETURN INDEX. IT IS -12%. HOW DOES BOND PSYCHOLOGY CHANGE IF PEOPLE ARE LOOKING OUT TO 2024, 2025, 2026 TO CATCH UP? IAN: AN IMPORTANT ASPECT OF BOND LOSSES IN THE TREASURY MARKET IS TO KEEP IN MIND WHO THE MAJOR PLAYERS TEND TO BE. TOM: PEOPLE TAKING A LOSS. IAN: A LOT OF THE PEOPLE TAKING A LOSS ARE ATTEMPTING TO MATCH THEIR INDEX BUT EVERYBODY HAS BEEN SHORT. ON PAPER, IT IS A SIGNIFICANT LOSS BUT A GOOD PORTION OF THE INVESTMENT COMMUNITY HAS FARED REASONABLY WELL. TOM: WHAT ABOUT MERE MORTALS? THEY OPENED UP THEIR STATEMENT FROM CAPITAL MARKETS AND SAY PROFANITY ABOUT LINCOLN. THE REAL WORLD OUT THERE. THIS IS A MARKET WE HAVE NEVER SEEN. IT IS WORSE THAN VOCUS BOND MARKET. IAN: A PERSON AT HOME OPENING THEIR STATEMENT, WHAT THEY ARE REALLY GOING TO BE THINKING IS MORTGAGE RATES ARE ALMOST 6%. THAT MIGHT BE THE PROBLEM. A LITTLE BIT OF PAIN IN TERMS OF THE OPPORTUNITY TO INVEST IN HIGHER TREASURY YIELDS IS ONE THING BUT AS THE RAMIFICATIONS OF THE FENCE TIGHTER MONETARY POLICY CONTINUE -- THE FEDS TIGHTER MONETARY POLICY CONTINUE TO PUSH INTO THE HOUSING MARKET, THAT IS WHERE WE GET WORRIED. KAILEY: HOW MUCH IS YOUR TO YIELDS THESIS HEDGING ON THIS IDEA THAT THE INFLATIONARY NUMBERS ARE TRANSITORY, THAT WE HAD THIS TRANSITORY NARRATIVE GUIDING INVESTORS AND THE FEDERAL RESERVE? IAN: I THINK THE PEAK NARRATIVE IS BASED MORE ON THE HAWKISHNESS AND THE AGGRESSIVENESS OF THE FED. REGARDLESS OF HOW INFLATION PLAYS OUT, WHAT WE KNOW IS THAT A LOT OF WHAT HAS OCCURRED AT LEAST OVER THE COURSE OF THE LAST SIX OR EIGHT MONTHS HAS BEEN A FUNCTION OF DISTORTIONS CREATED BY THE PANDEMIC, THE SUPPLY SIDE ON THE ENERGY SECTOR, AND NOW FOOD INFLATION IS VERY MATERIAL. FAST FORWARD TO THIS TIME NEXT YEAR, THE YEAR OVER YEAR INFLATION PRINCIPAL WILL NOT BE AS HIGH. THAT DOES NOT MEAN IT WAS TRANSITORY, BUT THE FED WAS THAT MUCH MORE HAWKISH OR IN FACT, PRICES MODERATED JUST BASED ON DEMAND. KAILEY: WHILE WE ARE FAST FORWARDING TO FAST FORWARD TO TONIGHT 5 A.M. WE GET THE CONSUMER NUMBERS. IS THE BOND MARKET GOING TO LATCH ONTO THIS INTIMATE READ HOW BAD IT IS AND WHAT THAT MEANS FOR GROWTH PROSPECTS OR THE INFLATION EXPECTATIONS AND WHAT THAT MEANS AS TO WHETHER OR NOT THE FED WILL HAVE TO BE MORE HAWKISH FOR LONGER IF THAT IS BECOMING INTEREST IN THE ECONOMY? --, ENTRENCHED IN THE ECONOMY -- BECOMING INTEREST IN THE ECONOMY? -- BECOMING ENTRENCHED IN THE ECONOMY? IAN: MOST OF THOSE HAVE BEEN GOING THE WRONG DIRECTION FOR THERE TO BE ANY ADDITIONAL CONFIDENCE. I THINK WE WILL FOCUS ON CONFIDENCE OVER INFLATION EXPECTATIONS BECAUSE THE FED HAS COMMUNICATED THAT THEY WILL DO EVERYTHING IT TAKES TO KEEP INFLATION ANCHORED. TOM: VERY QUICKLY, DO BONDS HAVE CATHARSIS? WE THINK ABOUT STOCKS GOING DOWN. DOES THAT HAPPEN WITH BONDS? DOES EVERYBODY SELL AT THE SAME TIME? IAN: THERE DOES TEND TO BE KEY MOMENTS OF CAPITULATION IN ONE DIRECTION OR THE OTHER AND RIGHT NOW AS I MENTIONED, THE VAST MAJORITY OF THE MARKET IS SHORT TREASURIES. THERE WILL BE A POINT WHERE PEOPLE WAKE UP AND THEY SAY I DO NOT WANT TO MISS OUT ON THESE HIGHER YIELDS. TOM: WONDERFUL TO SEE YOU. WE PROTECT THE COPYRIGHT OF ALL OF OUR GUESTS. IAN LYNGEN WITH US TODAY. LISA, YOU CONTINUE THE DISCUSSION IN THE NEXT HOUR. LISA: WE WILL BE SPEAKING ON THE OPEN WITH INVESCO, CHIEF FIXED INCOME STRATEGIST. I AM EXCITED TO HAVE THIS CONVERSATION OF HAVE WE SEEN PEAK YIELDS. IS THIS BECAUSE OF AGGRESSION FROM THE FEDERAL RESERVE AND IF THAT IS THE CASE, HOW MUCH HAS STOCK MARKETS PRICE THIS IN? IF THAT IS THE CASE, REAL HAWKISHNESS SPARING A PARTICULAR DOWNTURN OR STOCKS BEING REALLY TRUE TO THE DOWNTURN IN MARGIN. TOM: A TOXIC BREW OF HAWKISHNESS. WILL WE SEE INVERSION TODAY OR MONDAY? WHO KNOWS. 3.71%. 2.71 BASIS POINTS. THE CURVES ARE FLATTENING THIS MORNING. TWO YEAR YIELD ALL OVER THE PLACE. HIGHER YIELD BY SIX BASIS POINTS, 3.07%. THE EQUITY MARKET CONTINUES A GENEROUS LEFT. DAY AFTER DAY, THE NASDAQ, I CANNOT GIVE YOU THE 12,000 ITEM. 11,800 ON THE NASDAQ. OF 0.8%. STAY WITH US ON RADIO AND TELEVISION. THIS IS BLOOMBERG. ♪ RITIKA: KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE WORLD, I AM RITIKA GUIDA. ACTION BY THE SENATE AND THE SUPREME COURT HAVE UNDERSCORED THE DIVISIONS OVERCOME POLICIES. THIS INADVERTENT 65 TO 63 -- THE SENATE VOTED 65-33 TO COMBAT GUN VIOLENCE. IT CAME HOURS AFTER THE SUPREME COURT ISSUED A LANDMARK RULING THAT COULD MEANS MORE GUNS -- COULD MEAN MORE GUNS ON THE STREETS OF BIG CITIES. CONGRESS CONTACTED THE WHITE HOUSE AFTER THE 2020 ELECTION SEEKING PARDONS FROM PRESIDENT TRUMP. THAT IS ACCORDING TO VIDEO TESTIMONY PLAYED BY THE COMMITTEE INVESTIGATING THE JANUARY 6 INSURRECTION. THE CONGRESSMAN INCLUDED MATT GAETZ, SCOTT PERRY, AND MEL BROOKS. WALL STREET BIGGEST BANKS ANNOUNCED BILLIONS OF DOLLARS TO INVESTORS THAT PASSED THE FEDERAL RESERVE TEST TO THEIR ABILITY TO REACH DOWN MARKET TURMOIL. BANKS SUCH AS JP MORGAN, MORGAN STANLEY, AND GOLDMAN SACHS COULD HANDLE A RECESSION. IN THE U.K. CONSUMERS ARE STARTING TO CRUMBLE IN THE FACE OF SOARING PRICES. THE GOVERNMENT SAYS THE VOLUME OF GOODS SOLD IN STORES SO 0.5% -- FELL 0.5%,. ANOTHER REPORT SAYS CONSUMER CONFIDENCE IN THE U.K. HAS LED TO A RECORD LOW THIS MONTH. EUROPE'S TRAVEL CHAOS IS ABOUT TO GET WORSE JUST AS THE SUMMER VACATION PERIOD GETS UNDERWAY. CANCELING 3100 FLIGHTS AFTER A WAVE OF CORONAVIRUS INFECTIONS LED TO STAFFING SHORTAGES. CHAPPELL HAS REBOUNDED DRAMATICALLY IN EUROPE. THAT HAS PROJECTED THE CANCELLATIONS AND LINES LASTING HOURS. GLOBAL NEWS 24 HOURS A DAY ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES. I AM RITIKA GUPTA. THIS IS BLOOMBERG. > > I THINK POWELL IS TRYING TO FINESSE IT. IT IS NOT CLEAR FOR HIM WHAT THE TERMINAL RATE IS RIGHT NOW. HE HAS TO CONTINUE TO GUIDE THE MARKET TOWARD HAWKISHNESS. HE CANNOT GO WOBBLY ON THE RESOLUTION TO TACKLE INFLATION. TOM: GREG STAPLES, HEAD OF NORTH AMERICAN FIXED-INCOME. REALLY IMPORTANT COMMENTS ON FIXED INCOME AND WE THANK IAN LYNGEN OF CAPITAL MARKETS AS WELL. TO GET YOUR WEEKEND STARTED TO THINK ABOUT THE NEXT SIX MONTHS, KRITI GUPTA WITH PERSPECTIVE, WHAT ARE YOU TALKING ABOUT? KRITI: WE ARE TALKING ABOUT EURO-DOLLAR. IF YOU LOOK AT THE 12 MONTHS FORWARD, EURO-DOLLAR SPREAD, THE BOND MARKET IS PRICING IN GOING 12 MONTHS DOWN THE ROAD ESSENTIALLY IN MID 2023. FOR THE RADIO AUDIENCE THEY ARE PRICING IN 43 BASIS POINTS OF NEGATIVE RATES. IN 2023, AT LEAST FOR WHAT THE CURRENT BOND MARKET IS PRICING IN, THEY WILL EXPECT SOME RECESSIONARY PRESSURES TO WHICH THEY EXPECT THAT THE FEDERAL RESERVE WILL HAVE TO ACT USING SOME OF THOSE RATE CUTS AND THAT IS WHAT THIS CHART HOLDS. WHETHER THAT ACTUALLY HAPPENS IS ANOTHER STORY. SIGNIFICANT DEVELOPMENTS THAT HAVE BEEN INCREASING. TOM: THIS IS A ABRAMOWICZ TERRITORY. WE HAVE NO COMMENTS ON THIS. THANK YOU. MY HEAD IS SPINNING OVER ALL OF THIS BABY -- BABBLE. KAILEY: IT HAS BEEN HARD TO FOLLOW FOR WEEKS AND MONTHS. I DO NOT KNOW OF ANY OF US CAN FIND A NARRATIVE AROUND THIS BOND MARKET OR THIS EQUITY MARKET. TOM: WE WILL SEE. WE HAVE HAD A LOT OF IMPORTANT CONVERSATIONS BUT WE HAVE SAVED THE BEST FOR LAST. THIS IS SERIES. THE AIRLINES ARE A MESS. WE ARE HONORED TO BRING YOU A SENIOR RESEARCH ANALYST AT COWEN HELANE BECKER. I'M GOING TO ASK THE QUESTION THAT EVERY SINGLE LISTENER WANTS TO KNOW INCLUDING MS. KEENE. IS THIS TURMOIL AT AIRLINES RISKING THE WONDERFUL SAFETY RECORD OF COMMERCIAL AIRLINES? HELANE: NOT AT ALL. THE U.S. AND WORLDWIDE AIRLINES PRIDE THEMSELVES ON BEING SAFE. SAFETY FIRST. THAT IS THE MOST IMPORTANT THING AND I THINK THAT WILL BE THE CASE GOING FORWARD. THE ISSUE WITH DELAYS AND CANCELLATIONS IS ANOTHER. TOM: ITEM NOT WANT TO MAKE JOKES ABOUT THIS. WE ALL HAVE OUR OWN STORIES ON THIS. LET'S START WITH THE PILOT SHORTAGE. THEY ARE NOT GOING TO FIX THIS BY LABOR DAY, ARE THEY? HELANE: NOT AT ALL. THINK ABOUT IT THIS WAY. OVER THE PAST TWO YEARS, APPROXIMATELY 10,000 PILOTS RETIRED AND LEFT THE PROFESSION. THE INDUSTRY NEEDS TO HIRE TO REPLACE THAT JUST TO GET BACK TO WHERE WE WERE IN 2019. THAT IS 10,000 PILOTS RIGHT THERE. THEY ARE ABOUT 2000 PILOTS RETIRING ANNUALLY. WHEN YOU THINK ABOUT REPLACING THOSE 10,000 PLUS THE ADDITIONAL 2000 THAT WE NEED JUST TO REPLACE RETIRING PILOTS AND PILOTS ON TOP OF GROWTH, WE ESTIMATE NEEDING 15,000 PILOTS THIS YEAR, ANOTHER 5000 NEXT YEAR, AGAIN IN 2024. SO YOU ARE LOOKING AT 20,000 PILOTS OVER THE NEXT THREE YEARS. WE JUST DO NOT TURN THAT MANY OUT. KAILEY: YOU HAVE A LABOR SHORTAGE THAT IS LEADING TO THESE PROBLEMS, LEADING CONSUMERS LIKE ME TO LOOK AT ALL OF THESE HEADLINES OF FLIGHTS, THOUSANDS OF THEM CANCELED EVERY WEEKEND AND I SEE HOW MUCH TICKET PRICES ARE STILL GOING UP. I AM LOOKING AT THAT SAYING I'M GOING TO TAKE THE TRAIN. WHEN WILL THIS EXACERBATE THE ISSUE? TOM: EXCUSE ME. IS HELANE BECKER YOUR TRAVEL AGENT? IS THAT WHAT YOU ARE DOING? ARE YOU BOOKING A FLIGHT? KAILEY: AS AN AIRLINE ANALYST, SHE ANALYZES CONSUMER SENTIMENT AROUND AIRLINES. TO THIS POINT, AIRLINES HAVE HAD SUCCESS IN PASSING ON HIGHER FUEL COSTS THROUGH THE MECHANISM OF RAISING TICKET PRICES BUT AS AMERICANS PAY MORE FOR THEIR OWN GASOLINE, HOW LONG CAN THEY REALLY DO THAT? HELANE: EXACTLY. YOU MAKE VERY GOOD POINTS. NOT ONLY IS IT HIGHER GASOLINE PRICES TO GET TO WORK, IT COSTS MANY PEOPLE TWICE AS MUCH AS SIX MONTHS AGO. THEN YOU HAVE HIGHER FOOD COSTS AND SO ON. THIS IS A MAJOR PROBLEM. PRICES ARE GOING UP AND WE DO NOT SEE THEM GOING DOWN BECAUSE YOU DO NOT HAVE ENOUGH STAFF AND IT IS NOT JUST PILOTS. PEOPLE DO NOT REALIZE THAT THE U.S. HAS NOT TRAINED ANY AIR TRAFFIC CONTROLLERS FOR TWO YEARS. THEY ARE ON THE HUNT TO FIND MORE. I THINK I LOOKED AT THE NUMBERS YESTERDAY AND WE SAW SOMETHING LIKE 4000 AIR TRAFFIC CONTROLLERS ARE NEEDED. IT TAKES FOUR YEARS TO TRAIN AN AIR TRAFFIC CONTROLLER AND THEN ANOTHER TWO YEARS FOR EXPERIENCE. WE ARE SHORT THEM, SHORT PILOTS, SHORTSTAFFED AT EVERY AIRPORT AND TICKET PRICES ARE GOING UP. YOU ARE RIGHT. THERE IS A POINT AT WHICH CONSUMERS ARE GOING TO SAY ENOUGH. WE CANNOT TAKE THIS ANYMORE AND WE WILL STOP TRAVELING. AND THE AIRLINES ARE PUSHING THE CONSUMER INTO THAT DIRECTION, OUR STATE -- AREN'T THEY? THERE AREN'T AS MANY FLIGHTS AVAILABLE AND WHEN THERE ARE NOT AS MANY SEATS AND DEMAND, THEY HAVE TO RAISE TICKET PRICES AND PEOPLE OPT OUT. . TO YOUR POINT, THEY EITHER TRAIN OR DRIVE. NOT THAT DRIVING IS CHEAP, BUT EXACTLY SO, THEY MAKE OTHER CHOICES. TOM: I KNOW YOU LOVE UNITED AIRLINES. ARE YOU GOING TO MOVE YOUR SELF BASED ON THIS DRAMA? HELANE: WE ARE ALWAYS REVIEWING YOUR RATING BASED ON VALUATION. TOM: NO ONE IS LISTENING. GIVE ME SOME MOVES I CAN WORK WITH. HELANE: WE REVIEW OUR RATINGS ON A DAILY BASIS BASED ON VALUATION AND WHAT WE THINK THE AIRLINES CAN EARN. WE STILL HAVE THE AIRLINES PROFITABLE THIS YEAR AND NEXT FOR THAT MATTER. WE ARE HOPING THAT COSTS ARE CUT OR AT LEAST FLATTEN OUT. TOM: HELANE BECKER, THANK YOU. GREAT OF YOU TO COME TO US ON A FRIDAY. HELANE BECKER OF COWEN AND ALL THE CHALLENGES OUT THERE. AS I WAS WATCHING BITCOIN MOVE DOWN, WHY DOES IT GO DOWN ON A WEEKEND? DOES EVERYBODY STEP AWAY? KAILEY: IT IS SUCH AN UNUSUAL PHENOMENON. SO MUCH OF THE PRICE ACTION COMES WHEN U.S. EQUITY MARKETS ARE CLOSED. I WISH I HAD A CLEAR REASON WHY. I DON'T HAVE ONE BUT IT IS INTERESTING PHENOMENON. THIS WEEKEND IN BITCOIN HAS BEEN MUCH MORE BORING. TOM: LET ME DO A DATA CHECK. 10 OF 5 A.M., ONE HOUR AND -- 10:00 A.M., ONE HOUR AND 10 MINUTES. I KNOW IT IS COMING LATE. STAY WITH US FOR THE MICHIGAN INFLATION EXPECTATIONS. WE WILL BE LOOKING AT THAT YEAR FUTURES UP 25. YIELDS REVERSED, HIGHER YIELDS. WHAT IS GREAT IN TELEVISION IS WHEN SOMEONE IN THE CONTROL ROOM HAS A TALK IN MY EAR FOR THE FIRST TIME AND UNDERSTAND THE WEIGHT AND PRESSURE. WE ARE THRILLED AT BLOOMBERG TO SAY THAT RACHEL FROM WELLESLEY HAS SURVIVED THE LAST 10 MINUTES. WE WELCOME HER INTO THE TRENCHES OF "BLOOMBERG SURVEILLANCE." STAY WITH US. INFLATION EXPECTATIONS, MICHIGAN, IN 64 MINUTES. THIS IS BLOOMBERG.

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'Bloomberg Surveillance Simulcast' Full Show 6/24/2022

Tom Keene, Jonathan Ferro and Lisa Abramowicz have the economy and the markets "under surveillance" as they cover the latest in finance, economics and investment, and talk with the leading voices shaping the conversation around world markets. This show is simulcast worldwide on Bloomberg Television and Radio. (Source: Bloomberg)

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