Live on Bloomberg TV

00:00From New York City for our viewers worldwide, I'm Matt Miller in for John Farrell. We see markets on an upswing right now with S & P futures up one tenth of one percent. The countdown to the open starts right now. Everything you need to get set for the start of us trading. This is Bloomberg, the open with Jonathan Ferro. All right, the gains are definitely looking tamer than they were earlier this morning, and that's the big issue, fading hopes for a Santa Claus rally. The Santa Claus rally. A Santa Claus rally. We were thinking we were to have this really nice rally into the end of the year. The idea that the Central Valley is here to deliver a nice end to the end of 2022. Market is setting a different signal. The legs are really being chipped away from that. From a variety of directions. It could be a more challenging few weeks for so much bears that out there right now. A lot of pessimism out there. Volumes have actually remained kind of steady. There's uncertainty. The bear market rally we had did its job, not a great December. But the problem in the US is that the equity market had a fantastic November. So by Christmas just came early. Joining us now to talk about this and the outlook for 2023 PJM is Robert Tip, as well as Samir Simona of Wells Fargo Investment, these two gentlemen. Thanks so much for your time on this holiday week. Samir, let me start with you. You point out it's not a time to be buying equities. It looks like the market broadly agrees with you. When will we see that turning point? History tells you it's going to be a lot closer to the recession. And history tells you that it's gonna be a lot closer to when the Fed is actually considering cutting interest rates, not pausing interest rates, not making smaller interest rate hikes when they're actually think about cutting interest rates. So again, for all those different reasons, we think the low probably happened sometime in the first half of next year. So, Robert, you are the chief investment strategist, head of Global Bonds, but you've got to look at these equity markets as well. So tepid. Right. We were looking for over 4000 by year end. But this target, if you look at our survey of strategists, is the same for year on 2023. What does this tell you about the investment environment? Investors have been beaten down, and I think one of the key linchpins, unexpected asset returns here is going to be volatility. Volatility, obviously, last year was there. Very high volatility is terrible for bonds. Now, I've been very positive on equities for a long time. They've benefited from the growth in the economy. They've benefited from the low interest rates. Right now we have high interest rates. That's hurting the equities. But it's a big positive for bonds and the expected volatility, the uncertainty out there is likely to decline next year relative to what it was in 2022. And as a result, that's likely to be a bit of a headwind for equities, but a tailwind for bonds, high yield bonds, corporate bonds are kinds of spread product, which do very well when when volatility falls. Samir, you're the global market strategist at Wells Fargo. And Robert points out. Volatility has been brutal. It's been worse for him, I think, for fixed income than it has been for the equity world. Does that continue into 2023, that kind of volatility? Yeah, I mean, look, the fixing of Marcus probably are running ahead of the equity markets and from that standpoint, you know, one of the things we did recently, which we did in duration. We had been neutral on kind of the longer and part of the curve. We just took it the most favorable. You know what? We were north of 4 on 10. So I think, you know, they're much of the adjustment probably has taken place. Unfortunately for equities, I just can't imagine in a volatility falling further in the first half of next year. I mean, I appreciate that, you know, the first part of this year was a little rocky. But I mean, you're back to a VIX that was sub 20 just the other day. So I can't imagine this ends with volatility already having peak again with the Fed rate hikes with kind of the recession ahead of us. What about, Robert, the possibility of volatility having peaked in global bonds? It was an annus horribilis for fixed income, as we just heard earlier from Invesco. Do you see that coming to an end with the end of this year? Absolutely. Yields are spectacularly high relative to where they'd been the last 10 years. This is a complete reset. Yields on the major bond market indices are back to where they were saying 2002. So this is a reset and the bond market is really set for an outstanding decade of returns ahead. Are we a little bit overbought on the back end? Oversold on the front end spread product is a little early. It's a little late. You know, all those tactical questions are going to loom out there. But big picture strategically, this is spectacular point for bonds here. Let's talk about global bonds with Abigail Doolittle right now. It was a brutal year of losses, as everyone who has been watching knows, rates maybe at generational highs, as Robert suggests, the end of year sell off, prompting the Bank of Japan to up their purchases. And probably the most interesting central bank action we've seen since the Fed decided to start raising Bloomberg's Abigail Doolittle has more to tell us on this issue, Abigail. Well, Matt, you know, it's interesting. Never a dull week because here we are in the final week of 2022 from a trading and a calendar standpoint. And it should be one of these quiet weeks. But we do have this big move from the BMJ, basically an unscheduled bond buying operation. Before we go into that more. Let's set the stage. And of course, yesterday we're talking about how yields here, bonds here in the U.S. recently just doing a little bit better over the last couple of months. But over the last few weeks, we have had a renewed global bond sell off from the U.S., 10 year bonds to the J.G. B's to a German 10 year. This is all a price that we're taking a look at, down more than 6 percent now. The narrative is really interesting. Matter has to do with that. China reopening the world's second largest economy, that inflation may stick around. Or you could think about another way. These tend to be havens that if the economy is getting back on track, that it could, in fact, create less need for havens. Now, the most interesting effects from the B.O. Jays announcement, and that is to basically buy unlimited amounts of two year notes at a fixed. The three big five years at 24 MIPS, in addition to the standing 10 year note buy at 50 BET is on currency. Take a look at not so much the dollar against the yen. A little bit of a bid there, but the Aussie and the New Zealand dollar, the Kiwi both up more than 1 percent. Those economies tied closely to China and then relative matched that global bond sell off that you're talking about. Let's take a look at it from our yield perspective, because it is ferocious. The 10 year yield here in the US up two point three two percent. The UK gilt up two point seven percent, German up about a similar amount. And then the jeebies that the that the DOJ right now is trying to suppress to some degree. It's interesting, as it seems to you, though, and maybe a little bit of an opposite reaction to what they were talking about just a couple of weeks ago. It's up 40 basis points. I think the BMJ is one of the most interesting stories out there. If a little removed from where Americans are investing today. Let me get back to Robert Chip and Samir, Salman and Samir. Let me ask you. You say we need to get closer to the end of the rate hike cycle. We need to get closer to inflation getting kept in check before we can buy. So you do see much more pain coming up for, I should say, more pain coming up in 2023. And I want to ask you, how much yesterday Matt Miller, you said maybe thirty five hundred on the S & P, maybe even lower if we want to get down to valuations around 15. Sure. So, you know, I don't know how much lower will go. That being said, I think it's now clear to us anyways that between thirty five hundred and thirty seven hundred on the S & P that there's good value for intermediate and long term investors. We've done a lot of work with respect to the bear market, both in price and time. And so in that first half is when we'll be looking for kind of opportunities to go shopping. Right. We've got kind of our lists made. Will it be the bottom? Only time will tell. But again, now that we're almost a year into this bear market, it's low. I think we were almost off 30 percent. We've seen enough to kind of let us know that. OK, we want to kind of be, you know, kind of on guard for, you know, additional opportunities in that new year. So I think, again, thirty five hundred and thirty seven hundred is the area we'll be watching for. With respect to, you know, will there be additional pain? We think so. And I think, you know, if anything, this most recent news out of China with the reopening being as quickly as it's happening, probably complicates the Fed's job. With respect to putting a little bit of a bet under oil prices, putting a little bit of a bit under, you know, inflation globally, you know, through aggregate demand, I think that's going to be one of the biggest things that we'll be watching in the first half. It's a really good point, Samir. And you don't just have the reopening in China, which is essentially or in some respects an unknown. Right, because we were worried that maybe the Covid infections would outweigh the demand boost of reopening. It looks like the market has worried less about that over the last few hours. But you've also got this one point seven trillion dollar omnibus and you've got to some extent the D globalization impulse that has to have at least a little bit of an upward effect on prices if we do see more inflation and the Fed has to go further. Robert, what does that do to rates? I mean, are you sure that we've hit the highs in rates? Are we coming down or could we go back up? Yeah. No, she can't be sure about anything, but there's a lot more yielded in this market when you're looking at a basket break the Ultimates 5 percent area. Now you have wiggle room when the market yield was down at one and three quarters ago, when the tenure is yielding a 1/2 percent. When the bond is yielding negative to 1/2 percent, that's the worst of all worlds. If yields go up, prices go down. And you have absolutely no yield to Cushing, you know, at this point you have a lot of yield crushing you and you have some leeway on the chad. I mean, right now the market is ready for the Fed to go up to 5 percent and the Fed is telling you that they are hiking at a slower rate. In other words, they see they're ending this cycle. They're coming towards the end of it. And you can clearly see the impact of their actions on inflation, on growth. So everything is in line for them to be rattling off either at current levels or within the next couple of heights. Markets ready for that. So I think that the risks in fixed income are really on the upside in terms of return, in terms of equities, it's much more balanced. They're going to have a headwind until there's clear signs of acceleration of growth. You know, we talk about what's the terminal rate voltage. Kathryn Rooney Viera seeing a shrinking gap between the Fed's last rate hike and its first cut. Take a listen. The yield curve is pricing in recession. We know that. But there could be a normalization next year. And my thing is, you know, everyone's talking about how 2023 the Fed isn't going to cut. But if you look also at history, the past 14 monetary cycles, the last hike versus the first cut, that timing is much shorter than you think. And we could already be nearing the last hike, right, if the Fed goes 50 basis points in February. That brings us to five. And that's pretty close to what most people expect the terminal rate to be. Samir, is your window to get in then shorter if the Fed goes from, you know, last hike to first cut pretty quickly? Yeah. That's exactly why I kind of our pensions are sharpened and first half of next year is really the time that we're looking for with respect to trying to add risk. The first step was to add some duration. The next one will probably be to take on some credit and some equity risk. So, yeah, that's exactly our plan. And you know, again, you probably don't want to get too cute here because, you know, history tells you that, you know, maybe we need to trade it something in the low 3s. Well, you know, look, if you're buying it thirty five hundred, you're within 10 percent of that. The upside probably is 20 percent plus. Yeah. And if people are going to the market clearly is going to want to get ahead of the window. And maybe you don't even price in a recession anymore. Catherine was saying maybe people are already pricing in the recovery. We skipped past the 15, 15 times price earnings, forward earnings valuations that you typically would see. We're gonna continue to talk about this stuff with Robert Tip as well as Samir Simona. They are sticking with us. And we're going to talk more about what's going on in China. That's going to be the big news event, it seems, for markets at least of this week. The rapid dismantling of Covid curbs. We're still live in a perverse world where good news and bad news and I think China is a cyclical thing that we have to look at as the largest economy you've reopened. That conversation is still ahead on the Open. This is Bloomberg. The main factor of China is that the political events are now all over. They have to. They're getting good birdie green. Cheaper energy compared to advanced economies from the likes of Russia and Venezuela. They've got a huge level just because their interest rates are actually declining. Where's the rest of the world's interest rates are actually surging? Hong Kong ending some of its last major Covid curbs. This as infections continue to surge on the mainland. Nations across the world are now considering their own provisions for travelers from China. As bookings soar, for Chinese people looking to leave on, I guess, what we call revenge travel or vacation after being locked down for so long. Japan already implementing negative test requirements. The US is weighing similar steps. Bloomberg reporting that questions remain around the transparency of Chinese data. Team coverage starts right now right here. Bloomberg's Jordan Fabian down in Washington, D.C., alongside Justin Lee out of London. Justin. Let's start with you. The restrictions continue to fall away and it looks like Chinese people are itching to go on vacation. Right, exactly. I mean, now with China issuing passports again and reopening the border, we're seeing a surge of bookings for, you know, Chinese travelers. And that's one reason why tourism stocks have been surging today. And in addition to that, I mean, Hong Kong has also been talking about reopening its border with mainland China. We're seeing a lot of those travel restrictions, kind of like test requirements in and out of Hong Kong being eased as well. All right. There have always been questions about the transparency of Chinese data, at least as long as I've been covering these markets. But, Fabian, the concern now is that that could cause Covid spikes here. What is the U.S. considering? Well, they're considering measures like similar to what Japan put in place, so maybe requiring a negative test for travelers from China or doing some kind of enhanced surveillance. I haven't heard from any sources that there's any kind of consideration of more onerous travel restrictions or a travel ban. But the concern among U.S. officials isn't necessary. They're not necessarily reopening. But the fact that, as you mentioned, there's this lack of transparency around a specifically genomic testing. What they're really concerned about is a new variant creeping up in China because of the high rate of infections there. And then that in turn being transmitted by travelers coming from China to the U.S. and other countries and then public health officials not being able to kind of track the genetic sequencing and be able to figure out if a new variant is, in fact, creeping up and then spreading worldwide. So that's why they're considering these measures. So just, you know, what's the geopolitical fallout? I mean, Japan and the U.S. don't believe the Chinese data. At the very least, it seems kind of rude. Right. Yeah. And I think, you know, China kind of has has made it a lot harder for the rest of the world to judge what exactly is the situation there, because we've certainly heard a lot of anecdotal evidence on social media and in news reports about, you know, the kind of the overwhelming number of deaths and infections climbing in the country. But at the same time, China changed the definition of coma deaths. You know, a while ago and there have been reports of internal data which, you know, is shared within the Chinese government's showing a far higher number of infections than have been released recently. And it does kind of feel like, you know, there they're trying to their story to figure out that this situation cannot exactly continue. So they're trying to work on, you know, deciding what exactly to announce. But they did announce last week that they had 37 million new infections in one day. So you can't imagine that it gets much higher than that. Just, you know. Thanks so much. Just Dana Lee there out of London. Jordan Fabian out of Washington, D.C. Appreciate your reporting this morning as well. Let's get back to our market guests, Robert Tip and Samir Samantha. Back with us to talk about what this means for broader markets. Robert, let me kick it off with you in terms of the effect on the rates world. How do you see China's reopening? Because it's obviously a massive economy suffering a really difficult few years during lockdown. But Bloomberg Economics expects 5 percent growth in 2023 out of China. Right. Well, this is a major event and talk about being out of sample, we have, you know, very questionable information. A lot of cases being reported even by a Chinese official. So I think we're gonna have to be wide open in terms of looking for possibly declining input commodity prices. Economic activity is dropping off in China across all sectors. But we also have to watch out for the positive economic impact travel. People wanting to travel that surging. People being able to be more active in some aspects of the economy in China when they are healthy, as well as another aspect, which is our people forced to work. For example, in the health services, does that carry over into other areas and you get stronger growth despite the Covid? So I think it's wide open. A lot of the areas of the Chinese economy are fairly insulated. Those will have less external impact. But obviously there are a lot of touch points and a vast amount of trade that happens on a daily basis. Our huge numbers on a monthly an annual basis where we have to stay very sensitive to that. Samir, what do you think about the reopening of an economy with one and a half billion consumers? As Robert points out, we've had a lot of negative read through over the last few days. Just yesterday, Apple and Tesla on concerns about production. A lot of that focused in China, really bringing down markets. Could we go the other way? Can it be seen as a positive and start to boost things like the Bloomberg Commodities Edge index? You absolutely have to view it as positive. I mean, unless you're the Fed. I mean, it's a positive, right? I mean, it's gonna be good for global growth. It's going to be something that keeps a bid under global inflation. If anything, it keeps, you know, kind of the engine running. You know, with respect to all these consumers now, a little travel and they'll buy goods. Whereas, you know, before we were worried about maybe a tapped U.S. consumer. Well, you've got this pent up demand now from Chinese consumers. So, yeah, I mean, it's gonna make the Fed's job harder. It's going to make global central banks jobs harder. But, you know, from an economy standpoint, a good thing. Now, as far as what are the implications? You know, we're favorable on commodities. We think this will be one of those things that drives the neglect, you know, next like higher for oil and for copper and other commodities. We like the energy sector. We think that is a sector that continues to be very undervalued. And, you know, as energy stabilizes at current levels or goes higher, we think that sector will do well. I think the other implication is I think it moves the asymmetry for interest rates to the upside. Right. And with respect to if the Fed is increasing interest rates. But you've got consumers who are revenge traveling around the globe don't really care what the Fed is doing. That's going to make the Fed go further. Hey, great to get your take. Thanks so much for joining us. Samir, Simona and Robert Tip talking to us about the market. If DAX coming up the morning calls and then later, more pain to come, the darkening outlook for 2023. We'll have that conversation with Christopher Zook of CAC Investments still ahead. This is Bloomberg. This is the countdown to the open ISE Matt Miller in for Jonathan Ferro. Take a look at the markets right now turning red. We had these gains. So the S & P futures this morning and now we're unchanged, but down. The same is true with NASDAQ 100 futures as well as the small caps because the Russell 2000 is off the U.S. 10 year yield coming down as well as the two year yield and the 30 year yield. So investors are buying these bonds and pushing the yields lower. Let's get to the morning calls right now. First up, Cantor Fitzgerald naming Palo Alto one of its top picks for twenty twenty three, pointing to strengthening growth prospects there. Next up, Jannie initiating coverage on gender rack with a buy rating. If you live in Buffalo, hopefully you have a generator that highlights the company's consistent free cash flow generation as well as the current weather conditions. And finally, Baird cutting his Tesla price target to 252 after the stock was decimated yesterday. This is Bloomberg. That is the opening bell on the New York Stock Exchange on Matt Miller in for Jonathan Ferro. We are moments away from full trading on Wall Street and you can see that we're little changed on the S & P already after gains this morning. We are looking at not a lot going on at the open. Nasdaq 100 futures down about two tenths of one percent. Russell, two thousand futures unchanged as well this morning. Take a look at some cross asset pictures here. We see the euro dollar at 1 0 6 50. So the same as it was yesterday. I do know that the pound is up through 121 as the dollar lost some strength this morning that was really giving a tailwind to risk assets. But the Bloomberg dollar index coming back a little bit and hurting equities. The 10 year yield at three eighty three, seventy three. So coming down a little bit from a relatively high level after a sell off yesterday. And now Max crude at seventy nine, twenty eight a barrel, holding steady just around that eighty dollar level. One stock to watch at the open again today is Southwest. The airline facing another three thousand flight cancellations. The CEO, Bob Jordan expecting schedules to get back on track by next week as the disruptions grab the attention of lawmakers on Capitol Hill. Bloomberg's Abigail Doolittle joining us now with more. Good morning again. Good morning, madam. Yes, this story continues to be really pretty brutal, especially for those stranded, unable to get home. Now, of course, the cancellations you were just mentioning today, more than 3000 cancellations or thereabouts on the day alone. This means that it puts the total cancellations since December 22nd because of the blizzard at more than 15000. It's hitting some airports, more than others, such as Chicago and Denver, along with the San Francisco Bay Area. Some of those smaller airlines you were mentioning, the government's very interesting map, because we do have U.S. Transportation Secretary Pete Goodridge vowing to hold the airline accountable. Apparently, he did speak to CEO Bob Jordan about what he's calling a meltdown and that somehow that they are again going to find some sort of accountability. Now, this isn't just about the blizzard. It could also have to do with the short staffed after Covid, lots of staff sickness relative to RSV and flu. But some are saying that the biggest issue is the outdated computer system, and that means that these cancellations are continuing. So today, of course, 66 percent of the shares of flight chair flights canceled out of the total share. ISE 66 percent just a couple of days ago, almost their entire schedule. But even tomorrow, 13 percent still will be scheduled again because of that outdated computer system. And some folks are talking about the idea that this is going to hurt profitability city. One piece of it could be they pay their staff more so they have all these stranded, not just passengers, but also staff that they're paying. So lots of issues piling up for Southwest Matt. Yeah. Eileen Becker saying that while she still likes the stock because they have a very strong balance sheet, but they really haven't invested enough in I.T. in the past and that's why they're in the situation they are now. Abigail Doolittle, thanks very much for that. Now, tech outside of, you know, airplane I.T. having the opposite problem. Demand concerns continue to weigh on not only Tesla, but Apple as well. Those two companies shedding a combined one and a half trillion dollars in market cap throughout 2022. Bloomberg's Ed Ludlow joins us now out of London. And Ed, I noticed Apple stock fell to the lowest level since June of 2021. Yeah, there is concern actually both on the production side for supply and demand, doubling our people down a tenth of one percent, Tesla now two and a half percent higher. I point out that we've traded really choppy since the open. At one point we were low and now almost three percent high. The reason that's important is that if Tesla remains in the green, it's snapping seven straight sessions of declines, which was its worst run since September of 2018. If we were to fall for an eighth consecutive day, that would be Tesla's worst run on record. As you also see Apple just sticking into the green on my screen. This story around Apple is really interesting. We got some data overnight from Trend Force, the consultancy saying that based on the disruption that we saw in China, this is on the supply side that actually they've downgraded that iPhone 14 production, full costs for the full year 20 to remember that currently in their fiscal first quarter to seventy eight point one million units. That's the supply side. I know you mentioned the demand side. Matt, remember, right now it's the higher end iPhone 14, pro and pro Max Moto is that the consumer wants not necessarily the lower end iPhone 14. So that's an issue test is an interesting one. You know, this story seems to be around shifting increasingly away from this key man risk narrative with Elon Musk towards concerned about demand. When you think not just about the price cuts in China. The Reuters report that they're pulling back was scaling back production in Shanghai in the first half of January and then halting production altogether in the second half of January for upgrades. And again, they introduced that seventy five hundred dollar credit or incentives through year end here in the United States for Model Y and Model 3. That's built up this concern around demand. But look, some debt buys Matt Miller out 3 percent. Yeah. Well. And it's no wonder right after the incredible drop that they've had, it doesn't matter. I guess if we're up 3 percent or down 3 percent today because the stock's lost about 70 percent of its value this year, it was a one point two trillion dollar company, Tesla last year. And now it's worth less than three hundred and fifty billion. Ed Ludlow, thanks very much. Check back in with you in a little bit. Right now, I want to get over to Christopher Zook of cars, expecting earnings to feel the pressure in 2023, writing, quote, There is still a lot of pain ahead. And we will continue to see a steady unwind of company earnings over the next 12 to 18 months. The consensus S & P 500 earnings forecast is down 5 percent over the past three months and we expect that trend to continue. Christopher joins us now to talk about how much pain and how the path is going to look Christopher, because the consensus seems to be, at least for for stocks, that the first half is going to be tough, but then we'll have a recovery in the second half. Strategists that we survey are looking at about two hundred and ten dollars and S & P 500 earnings. What do you how do you see it? Well, it's something that's really kind of funny to think about. They don't give a lot of reasons as to why. And with all respect to them saying the first half is going to be bad in the second half is going to be better. There needs to be some real reasons for that. And in this particular case, it's hard to point to that uplift, if you will, in the second half. There could be improvement in demand from consumers. There could be improvement in margins because of the fact that inflation pressures abate. There could be a lot of different reasons, but there's not anything that you can point to that is tangible. So, yes, things don't go down straight and they don't go down forever. But right now, it's hard to see what would cause that uplift in the second half. So we remain very concerned about margins. We remain very concerned about where exactly the economy is going to be in the second half of 2023. And we know the first half is going to be tough. Well, Christopher, this is what I find really interesting. If you talk to a strategists, they'll tell you the market is going to continue to get clobbered as the Fed continues to raise rates and they expect the Fed to do that or at least hold steady at 5 percent or five and a quarter percent through the first half of 2023. But then strategies will tell you the economy is going to get so bad, unemployment's going to go up so high, earnings are going to be hit so hard that the Fed is going to have to turn around and cut in the second half of 2023. However, you still see two hundred and ten dollars forecasts for that by the street at the end of 2023. And I wonder, you know, if the economy does indeed get that bad, don't we need to see earnings cut even further? I'm chuckling because the fact it's hard not to when you think about this. These are the same people. Again, with all due respect to my peers out there and Wall Street. These are the same people that were forecasting 20 to earnings were going to be continuing to grow to the moon. So listening to them for two thousand twenty three earnings, it's just hard for me to accept that they're going to be right this time. When the mantra that you just described about the economy getting worse, the earnings getting worse, et cetera, but they're not cutting earnings. It feels like they're behind. Curve again, and that means that the markets are likely not going to anticipate, you know, that trough of earnings just yet. Now, to be very clear, at some point the focus will leave earnings and we'll focus on valuations and interest rates. Nobody knows when that is going to be. The market is a forward looking animal. But what we can say is that as the economy begins to slow, as the consumer slows and as less Teslas are being bought and everything else that we've been talking about this morning, as that happens, you're going to see, you know, analysts have to take literally a meat cleaver to earnings estimates as we get into the middle part of next year. And that's a very dangerous psychology for the markets. Then maybe by the end of the year, people start to anticipate the Fed cutting. And when that happens, people will be willing to look past earnings to the other side of the cycle. Yeah, but what happens if the Fed doesn't cut? Christopher and I mean, Jerome Powell has been pretty consistent in his message this year. He's going to continue to tighten financial conditions until inflation is back towards 2 percent. And I think he wants to see it pretty close, not four, but better than three. Right. So what happens if the economy takes a hit because of the Fed tightening rates? Earnings take a hit because of that as well. But the Fed doesn't cut. Then where do we see the stock market? Well, that's stagflation. And we haven't seen that in a very, very long time. But history shows us that is the worst possible environment for stock prices, period. There is no exception to that statement. So it is something that where the markets really are, I think, hoping right now that you're going to see the Fed raise rates and then start dropping them again. It rarely works that way. It could this time, but it's really rare that they would do that. Normally, they're going to get to peak rates and then they're going to wait awhile to see how long it takes to trickle through the economy. What we're seeing today is the result of the Fed hikes that happened five, six, seven months ago, not what happened in December. So today is the next step towards the Fed basically stopping the rates going higher. And then at that point they will wait and we'll see data. And then, you know, at some point in likely early 24, maybe late twenty three, they will start cutting rates because the economy will be so bad. But you're right, they have to get the inflation rate down, not just a 4. And really, they may not wait for 3. They may wait all the way until two before they start to lower rates aggressively. But valuations in a stagflation era environment with margin compression and a weak consumer. That's a really tough environment for stock prices. Christopher, great to get your perspective. Really appreciate you joining us on the Open today. Christopher Zook there from cars now. Fifty six million shares in Robinhood, the trading platform, are part of a new ownership fight, according to court documents. FTSE ex founder Sandbank, when freed, used a five hundred forty six million dollar loan, nearly a half billion dollar or more than a half billion dollar loan from Alameda Research to buy that stake. And of course, he got that money. It looks like by taking it directly from FTSE Ask.com clients. Bloomberg's Ed Ludlow back with us for more. And this is interesting because it's not just a fight among creditors and clients of FTSE, but it's a fight among jurisdictions as to who gets to roll this stake. Yeah. There are a number of entities that are claiming ownership of that stake. What we understand from the promissory notes that were outlined in these court filings is that it was actually Caroline Ellison, who is the CEO of Alameda Research. She authorized the loan for five hundred and forty six million dollars from Alameda Research to SPF and also Gary Wang. That money was put into an entity called Emergent Fidelity Technologies, and they used the funds to buy the shares in Robinhood, which, as you said, amounted to an 8 percent stake of that company. Now we have a situation where FTSE ex, an individual creditor of FTSE ex and also blocked by the now bankrupt crypto lender, all claim ownership of their stake in Robinhood block fire claim ownership because they say that Caroline Ellison pledged the shares to block PHI at just before FTSE is collapse in lieu of for as collateral for a loan which block fired made to them. You can see how tangled this web of money is. It's just case in point of what's happening as we wait through the RTX fallout. Meanwhile, full FDA. Customers have brought a cool action to basically put themselves ahead of preferential creditors, saying that actually because we were customers, you should easily be able to trace the funds we put into RTX. They were never owned by RTX and so should not go to creditors. When we come to sorting out the allocation of those funds as we resolve this. Financial mess, and it's not just the customers, the creditors block fi, but it's also an issue of jurisdiction, right? We. Yeah. Bloomberg reporting at least that Antigua wants to hold this asset and and divvy it out. New Jersey and Delaware also, they filed for bankruptcy here in New York. I mean, everybody wants a piece of this. Everybody wants a piece of it. What's interesting is, wow, is that the origin of the five hundred sixty four million dollars, for example, is slightly up for dispute. Because as I said, according to these court filing documents, Caroline Ellison had pledged the money or the shares, sorry to stake him, Robin Hood, in return for the deposit or loan that BLOCK Phi had made to the entity. But she'd also passed the loan on from Alameda to SPF as an individual. And Gary Tannin, a 90 10 split. So it's incredibly complicated. Yeah, absolutely. And fascinating as well. Ed Ludlow, I guess we should be grateful that there's at least not more contagion out into the broader financial industry. Ed reporting to us from London. Coming up, the travel chaos continues for the airline industry. Southwest accountant firm, more than 80 percent of all canceled yesterday. They're just behind the curve here and they probably won't get caught up until the weekend at the earliest. Plus, the bull case for energy stocks in 2023. We'll speak with LPL financials Quincy Crosby on why she's overweight energy next year. This is Bloomberg. Southwest accountant firm, more than 80 percent of all canceled yesterday. They're just behind the curve here and they probably won't get cut off until the weekend at the earliest. They had a confluence of a lot of events. Everywhere they were. They had weather. And the worst of it is. Their systems are just not equipped to handle it. That was Carlin's Alain Becker. Southwest canceling more than five thousand two hundred flights in 48 hours. CEO Bob Jordan delivering an apology to frustrated travelers. I want everyone who is dealing with the problems we've been facing, whether you haven't been able to get to where you need to go or you're one of our heroic employees caught up in a massive effort to stabilize the airline. That's a no is that we're doing everything we can to return to a normal operation. And please also hear that I'm truly sorry. Just show me the money is probably what consumers are saying, and that's what Capitol Hill is demanding as well. President Biden and the administration tweeting, quote, Our administration is working to ensure airlines are held accountable. Pay me Bloomberg's Ryan Bean. Joining us now for more. Ryan? Yeah. Thank you. So last night we saw that both Bob Dornan apologize and he during that time, is it his fourth or fifth apology? I think he said that they're optimistic that they might be able to get back on track before the end of this week, before next week. But looking at the flight cancellation numbers today, we saw the cancellations for Thursday are now back above 50 percent. Right. Fifty eight percent of their scheduled flights. That was about 22 percent yesterday. So there's still very much dealing with this. You know, we saw Peabody Jets, DST secretary meet with or speak to Bob Jordan and union leadership yesterday. Then he goes on CNN and and NBC Nightly News and uses words like meltdown to describe Southwest situation and that, you know, he's emphasizing that the department's going to hold him accountable. So this story is very, very much still unfolding and we're going to keep watching it. Yes. Ryan being Bloomberg News reporter, thanks very much for that. We'll continue to keep covering it for sure. Let's get back, though, to the broader market story and especially the need for energy. A lot of investors are still long, even after the great year they had in 2022. One of them is LPL financials Quincy Crosby staying overweight energy and laying out her outlook for next year, writing, quote, Twenty twenty three begins with the same focus as twenty twenty two finishes. When does the Fed finish raising rates? Until then, we will have to endure the bear market and it will remain a trader's market. Quincy Crosby, I am pleased to say, joins us right now. Quincy, good morning. Thanks so much for your time. Yeah. You know, we do have the change in the calendar, but other than that, it seems like we're on the same path in terms of the Fed, in terms of the markets and in terms of investors being long energy. How much longer will it last? Well, I mean, in terms of next year's market, 2023, the story's the same, but the chapters are different and the process and the Fed rate hike campaign is changing and they're already you're seeing the Fed funds futures market looking at perhaps 25 basis points for a February 1st rather than 50 and another 25 basis points, but still a rate cut in 2023. But getting back to the energy market. Yes, we need reliable energy. And this is natural gas. This is also oil. Needless to say, and the underpinning for our overweight is based on just that, the need to get to a period where if you want a country are going green, they're transitioning. But you cannot deny the importance, especially now as oil and natural gas have been weaponized because of the Ukraine Russia war, that we need to make sure that it is available. Also, you know, we see that the Biden administration is beginning planning to fill the Strategic Petroleum Reserve that takes oil out of the reserves of some of the big integrated names that will go and provide the oil for the Strategic Petroleum Reserve. In addition, China, China, that is the big one. China could also be inflationary, right. If the open up really if the reopening really proves a lift to commodities. So do you continue with a defensive strategy, not just oil, but also, you know, utilities and telecoms as the Fed continues to raise rates and staples, as people have to shift down in terms of what consumers have shipped down, in terms of what they're purchasing? Well, yeah, I mean, we were yes, we're overweight in Staples as well and health care. However, with that said, we've been adding small cap and mid-cap to the portfolios. We see that we will be inching ever higher as we get to 2023, as the Fed finishes up and also as, again, China comes back on line. No one is expecting it to be an easy transition for China, by the way. It will probably take the second half that they get rid of the Covid lockdowns, even a voluntary lockdown right now as folks are getting separate and that the manufacturing picks up. Yeah. There is a worry. There's no doubt about it that the demand for commodities, look at iron ore, look at copper and again, look at oil demand will pick up. But we don't think it is going to push inflation to the point that the central banks have to continue the aggressive rate hike campaign that they began this year. Well, if they turn, Christina, if they if we see inflation coming down and the Fed not only plateauing but start to cut in 2023. When do you know it's time to sell your energy staples and health care and to buy in to the stocks? They're going to profit from that new era. Well, one of the things that you're going to see is that the transition, you know, we do our technicals 50 day moving average joint Tidjane Thiam the average. But one of the things we haven't seen is an escape velocity in the market that moves us from staples to consumer discretionary. That would be one of the very first signs that we are leaving the bear market after hopefully a sell off that provides compelling, compelling valuations well below the seventeen point three percent forward earnings that we have today. And then we move out. I'm just a quick escape. That philosophy has been missing in the previous calls that the bear market is dead. Once we see consumer discretionary getting a major bid and technology, by the way, because rates will start coming down. Needless to say, we know that we will be moving into the new era and that's going to be important. But it's not a science, as you know. Right. It's much, I think, in art form. But you've got to make sure that the technicals are matched by the fundamentals. Well, and you're an artist with whom we love talking. So I really appreciate your time. Quincy Crosby, I wish you a happy new year. Let's get to the trading diary now. What you may be watching this week into the end of twenty twenty two pending U.S. home sales coming at the top of the hour. Another round of jobless claims will be revealed on Thursday as well. Plus, the ECB publishing its economic bulletin for the end of the year. More inflation data than on Friday with CPI numbers out of Spain and Russia. And finally, the bond market closing early for the New Year's holiday. I will be heading to Madison Square Garden to watch fish into the new year. And then hopefully Ohio State beats Georgia to play either Michigan or RTS you for the national championship. This was the countdown to the open. This is Bloomberg.

No schedule data available.

'Bloomberg The Open' Full Show 12/28/2022

Matt Miller highlights the market-moving news you need to know heading into the opening bell on Wall Street. (Source: Bloomberg)

More From Bloomberg The Open
All episodes and clips