Bloomberg Surveillance 01/30/2024

♪ >> I THINK THE MARKET IS ALREADY PRICING IN THE RATE CUTS TO A CERTAIN EXTENT. >> I THINK THE FED MAY SEND A SIGNAL TO HELP PEOPLE BEGIN TO GROUND THEIR EXPECTATIONS. >> THEY WANT TO SEND A CONSISTENT MESSAGE TO MARKETS. >> I DON'T THINK WE ARE IN A SITUATION WHERE WE ARE GOING TO BE SEEING A PIVOT, OR FAMILY, WHICH IS WHAT THE MARKET HAS BEEN BROADLY EXPECTING. >> MARKETS HAVEN'T FULLY ADJUSTED. ANNOUNCER: THIS IS "BLOOMBERG SERVEILLANCE: EARLY EDITION" WITH JONATHAN FERRO, LISA ABRAMOWICZ AND ANNMARIE HORDERN.

JONATHAN: IN MANY WAYS, THE WEEK BEGINS RIGHT NOW. GOOD MORNING, GOOD MORNING, THIS IS "BLOOMBERG SERVEILLANCE." EQUITY MARKET PULLING BACK JUST SLIGHTLY. LATER ON TODAY, TECH REPORTS. MICROSOFT AND GOOGLE AFTER THE

BELL. LISA: THIS IS REALLY THE KICK OFF OF THE REAL EARNINGS SEASON THAT ACCOUNT FOR THE VAST DIRTY OF THE GAINS THAT WE SEEN SO FAR THIS YEAR IN MARKET AND A LOT OF PEOPLE ARE SAYING BECAUSE THIS MARKET IS OF DISPROPORTIONATELY HINGED TO SEVEN COMPANIES, SO TOO WILL BE PERFORMING THE EARNINGS OF SAID FIRMS. JONATHAN: NOT JUST ON THE S&P 500, BUT ON SOME OF THESE SINGLE LANES. MICROSOFT UP 57%, GOOGLE UP 58%. JUST HOW HIGH THE BAR LATER ON

THIS AFTERNOON? LISA: SOME ARE SAYING THE BAR HAS ALREADY BEEN LOWERED PARTICULARLY FOR GOOGLE AND PARTICULARLY FOR APPLE. I THINK IT DEPENDS ON WHICH COMPANY WE ARE TALKING ABOUT. THERE IS NVIDIA WHICH EVERYONE EXPECTS TO COME OUT AND THEN SOME AND THEN BLOWOUT THE WATER, AND THEN YOU HAVE THE LIKES OF APPLE WHERE PEOPLE ARE HOPING THAT THEY HANG TIGHT. IT'S GOING TO BE UNCLEAR. I'M CURIOUS TO SEE HOW PEOPLE

TAKE SOME OF THE PROJECTIONS. JONATHAN: LIKEWISE WE WILL TALK ABOUT U.S. EXCEPTIONALISM LATER ON TODAY. STAGNATION ON GDP. TALKING ABOUT HOW HIGH THE BAR IS FOR U.S. EQUITIES, HOW LOW WITH THE BAR FOR EUROPE RIGHT NOW? LISA: DID YOU SEE THAT ITALY AND SPAIN WERE THE OUTPERFORMER'S? THIS IS A REVERSAL OF FATE OF THE EUROZONE OUTPERFORMING GERMANY WHICH IS THE SICK DOG OF EUROPE AND CONTINUES TO BE IN CONTRACTION AS EXPECTED, AND YET STILL MAY BE AVOIDING SOME SORT OF RECESSION.

THIS IS A CALL FOR SOME SORT OF VICTORY. JONATHAN: SURPRISE YESTERDAY, CRUDE LOWERED BY 1.6%. CLOSING AT 76.70 EIGHT ON WTI AFTER THE TENSION OF THE

WEEKEND. ANNMARIE: ONE THING AT THE OIL CONFERENCE TODAY WITH THE FACT THAT THE SUPPLY IS STILL THERE, DISHES HAVE IS GETTING TO THE DESTINATION HAS CHANGED BECAUSE ONE -- OF WHAT IS GOING ON IN THE RED SEA. THE BACKBONE OF SUPPLY RIGHT NOW IS THE UNITED STATES OF AMERICA. JONATHAN:

STILL CALIBRATING THAT DECISION. WHAT IS YOUR VIEW ON WHAT WE'VE BEEN TOLD OVER THE LAST 24 HOURS. ANNMARIE: RETALIATION IS GOING TO BE MUCH BIGGER GIVEN THE FACT THE IRANIAN PROXY TO U.S. BASES IN IRAQ AND SYRIA SOME 160 TIMES. THIS WILL BE MUCH TOUGHER. THE QUESTION IS WHEN THE U.S. RESPONSE, HOW THAT RESPONSE RUBY AND HOW FIERCE.

THE BIDEN ADMINISTRATION IS GOING TO BE WALKING A VERY TIGHT ROPE WHEN IT COMES TO THIS BECAUSE THEY'VE MADE IT VERY LOUD AND CLEAR THEY DO NOT WANT ESCALATION IN THE REGION AND THEY HAVE TO RESPOND FIERCELY TO THIS BECAUSE THREE AMERICANS ARE DEAD. LISA: I'M STRUCK WHAT TONY BLINKEN SAID YESTERDAY, I WOULD ARGUE THAT WE'VE NOT SEEN A SITUATION AS DANGEROUS AS THE ONE WE ARE FACING NOW ACROSS THE REGION SINCE AT LEAST 1973. HOW DO YOU CALIBRATE A TINDER BOX WITH A NECESSITY TO RESPOND? JONATHAN: DO THE COMPARE AND CONTRAST OF WHAT THEY WERE SAYING IN SEPTEMBER. WHAT THEY WERE THINKING ABOUT THE REGION FOUR OR FIVE MONTHS AGO COMPARED TO WHERE THEY SEE IT AT THE MOMENT. ANNMARIE: SEPTEMBER 29, 2023. JAKE SULLIVAN SAID THE MIDDLE EAST HAS NEVER BEEN QUIETER IN DECADES. TO BE FAIR, HE LIKELY DIDN'T

LIVE THROUGH THE 1970'S AS AND DEALT AND IN POLICYMAKER FORM, BUT BLINKEN YESTERDAY SAYING IT IS THE MOST DANGEROUS WE SEEN IN EXACTLY FOUR MONTHS TIME. THIS ADMINISTRATION HAS CHANGED HAVE VIEWS THE REGION. JONATHAN: $77 ON CRUDE RIGHT NOW. WTI, 76.95. EQUITY FUTURES ON THE S&P 500 PULLING BACK JUST A TOUCH, DOWN BY 0.1%. YIELDS LOWER BY A SINGLE BASIS POINT. 4.06% ON A 10 YEAR.

TREASURY REFUNDING, SHAKING UP THIS MARKET YESTERDAY. LISA: WE GET A FULL KAHUNA ON WEDNESDAY BUT TO ME, THE FACT THAT THEY ASKED FOR $760 BILLION OF NET BORROWING THIS YEAR, BELOW THE HUNDRED $60 BILLION IGNITED A RALLY. AGAIN, HOW MUCH IS THIS BECAUSE TAX RECEIPTS ARE GOING TO COME IN BIGGER, AND HOW MUCH ARE PEOPLE GOING TO SAY THIS IS A DEN OF POLITICAL MANEUVERING, GIVE A LITTLE BIT OF SUPPORT TO A BOND MARKET THAT MAY HAVE OTHER ISSUES LATER THIS YEAR.

JONATHAN: THAT IF THE STORY OF THE PAST 24 HOURS. THE NEXT 60 MINUTES, BRIAN LEAVITT IS TURNING ASSUREDLY AND THEN LATER, JON LIEBER ON HEIGHTENED TENSIONS IN THE MIDDLE EAST. CONSTANCE HUNTER AND WASHINGTON, D.C.. THE EQUITY MARKET AT ALL-TIME HIGHS.

BRIAN LEVITT OF INVESCO WRITING THIS. NAYSAYERS WARNED OF ECONOMIC HURRICANES, FIVE YEARS OF UNEMPLOYMENT ABOVE 5% AND THE WORST EARNINGS RECESSION SINCE 2008. FAST FORWARD 10 YEARS -- TWO YEARS AND WE ARE NOW SUBMITTING THE S&P 500 INDEX HITTING A NEW RECORD. BRIAN JOINED US AROUND THE TABLE. BRIAN, I REMEMBER THE CONVERSATION. HE LOOKED AT THE CAMERA AND YOU SAID TO US IMA FOMO GUY AND WE ALL LAUGHED. ARE YOU STILL?

>> I AM. I WANT TO BE EXPOSED AT THE END OF TIGHTENING, AFTER THE INTEREST RATES. THAT'S NOT TO SAY THAT EVERY DAY OR EVERY WEEK IS GOING TO BE GLORIOUS OR I'M GOING TO BE MISSING OUT EVERY DAY OR EVERY WEEK, BUT WE ARE AN ENVIRONMENT WHERE OVER THE NEXT FEW YEARS, MARKETS SHOULD PERFORM WELL. THAT IS TYPICALLY THE PATTERN. LISA: LET'S DEFINE FOMO IN 2024. LAST YEAR IT WAS AMC. NOW YOU BASICALLY LEAN INTO BIG TECH AND OUT OF SMALL-CAP? >> USE THE CHALLENGE. WHEN YOU DO WHAT I DO FOR A

LIVING WERE ASKED TO WRITE OUTLOOKS IN SEPTEMBER AND OCTOBER IN THE STORY OF 2024 WAS SUPPOSED TO BE INTEREST RATES ARE GOING TO COME DOWN AS A STARTING PRICE IN RATE CUT. THAT NORMALIZATION WILL LEAD TO THEM -- SOME SMALL-CAP AND MID-CAP OUTPERFORMANCE IS. I WISH HE HAD PLAYED OUT OVER A LONGER TIME. WHAT WE ARE IN NOW IS AN ENVIRONMENT WHERE THE ECONOMY IS HANGING IN, THAT IS STILL IN THE SHORT TERM FAVORS THE MORE, HIGHER QUALITY CAP STOCKS. WHAT WE LOOK FORWARD TO IS NORMALIZATION AND THE BROADER MARKET RALLY. LISA: PEOPLE WHO ARE PAID TO HAVE ANGST RECENTLY TALKING ABOUT THE TECH BUBBLE AND RAISING QUESTIONS THAT WE ARE SIMILARLY CONCENTRATED.

DO YOU ADHERE TO THAT, THIS IDEA THAT WE COULD BE HINGED TO SOME SORT OF MASSIVE DISAPPOINTMENT AND DOWNDRAFT THESE EARNINGS DISAPPOINTS? >> MAYBE IN THE SHORT TERM BUT WE ARE NOT PARTYING LIKE IT IS 1999. IF YOU LOOK AT A BOT NAMES, THOSE NAMES WERE TRADING AT EITHER VALUATIONS YOU COULDN'T CALCULATE BECAUSE THE EARNINGS WEREN'T THERE, OR EXTREME VALUATIONS. THIS IS NOT THE SAME PICTURE. MANY OF "THE MAGNIFICENT SEVEN" ARE ACTUALLY DELIVERING ON THE PROMISE. VALUATIONS MIGHT BE EXTENDED THAT THESE ARE ALSO THE COMPANIES GOING FAR BEYOND THE BROAD MARKET AND FAR BEYOND THE ECONOMY. WHAT I'M LOOKING FORWARD TO COME AND GIVE AN AVERAGE VALUATIONS IN THE OTHER 490 NAMES CAN WE SEE THIS BROADEN OUT BECAUSE THAT EXPECTATIONS OF A NORMALIZED YIELD CURVE? MAYBE WE DON'T GET SIX CUTS THIS YEAR BUT OVER THE NEXT COUPLE OF YEARS WE SHOULD EXPECT THAT NORMALIZATION AND THE YIELD CURVE AND FINALLY GETTING OUT OF THIS COVID CYCLE, THIS COVID ENVIRONMENT. IF I HAVE FOMO, I FEEL LIKE IT WOULD BE IN THE CYCLICAL, THE SMALL-CAP, THE VALUE INTERNATIONAL OVER THE NEXT COUPLE OF YEARS. JONATHAN: IT MAKES PEOPLE NERVOUS WHEN

THEY SEE ALL-TIME HIGHS. YOU'VE WRITTEN ABOUT WHY THEY SHOULDN'T BE NERVOUS. WHY SHOULDN'T THEY? >> I THINK WE HAD 1001 HUNDRED 86 NEW HIGHS IN THE S&P 500 SINCE 1957, SO THAT IS ONCE EVERY TWO WEEKS. SO YOU SHOULD EXPECT A NEW HIGH EVERY FORTNIGHT.

I'VE ALWAYS USED THE LINE ONLY SMALL MINDS ARE IMPRESSED BY LARGE NUMBERS. LET'S NOT BE IMPRESSED BY THIS. THE AVERAGES -- LISA: I TAKE THAT PERSONALLY. >> I'M INSULTING EVERYONE, RIGHT? IF YOU THINK THE WORLD IS GOING TO BE BETTER FOR MOST OF US AND FOR THE 500 LARGEST BUSINESSES IN AMERICA, YOU SHOULD EXPECT MANY NEW HIGHS OF THE COURSE OF YOUR LIFE. JONATHAN: WHICH WILL ARE WE TALKING ABOUT, THE U.S. ECONOMY, EUROPE AS WELL? WE TALKED ABOUT EUROPE.

WHAT DOES THAT TELL YOU ABOUT HOW THINGS MIGHT BE FOR MULTINATIONALS? >> IF YOU THINK ABOUT IT FROM WHERE THOSE COUNTRIES ARE RELATIVE TO TREND AND WHERE THEY ARE LIKELY HEADING BASED ON THEIR LEADING INDICATORS, YOU LOOK AT EUROPE AND CHINA, THINGS MIGHT BE IMPROVING A LITTLE BIT, ALBEIT OFF OF ROUGH LEVELS. AS I'VE ALWAYS SAID, THESE MARKETS CARE ABOUT THAT ARE OR WORSE, NOT GOOD OR BAD. WHEN YOU ARE SEEING IN THE U.S. AND WHAT YOU SHOULD EXPECT TO SEE IS A LITTLE BIT OF A SLOWDOWN. SO THE SLOWDOWN FAVORS THESE TOP-HEAVY NAMES THAT WE'VE BEEN SEEING OUTSIDE. ANNMARIE: BUT WHAT WE SEE GOING ON IN CHINA, WHY ARE WE SEEING THAT IMPACT IN THE U.S.?

>> WHY AREN'T WE SEEING THE IMPACT OF SLOWER CHINESE GROWTH? YOU ARE SEEING AT A LITTLE BIT IN THE BROADER MARKET, YOU ARE SEEING LESS SO IN THE COMPANIES THAT ARE ABLE TO GROW IRRESPECTIVE OF THE MACROENVIRONMENT GLOBALLY. FOR SOME OF THE COMPANIES THAT ARE MORE CYCLICALLY EXPOSED TO CHINA, YOU ARE SEEING IT, BUT THESE MARKETS THIS MONTH ARE BEING DRIVEN BY A HANDFUL OF NAMES AGAIN. JONATHAN: LET'S TALK ABOUT THIS SINGLE NAME. UPS OUT WITH NUMBERS.

THE GUIDE FOR 2024, NOT GREAT. LISA: EXPECTING REVENUE TO BE $92.5 BILLION AGAINST THE ESTIMATE OF $95.7 BILLION ROUNDED UP. LOOKING AT WEAKNESS BOTH DOMESTICALLY AND ABROAD WITH RESPECT TO JUST IN GENERAL, SOME OF THE ACTIVITY ALSO TALKING ABOUT A FOURTH QUARTER IMPAIRMENT CHARGE OF $84 MILLION. LOOKING THROUGH THE NUMBERS, I'VE GOT TO SAY THIS IS USUALLY A BELLWETHER TYPE OF STOCK. IS THIS ABOUT PEOPLE SHIPPING AROUND GOODS THAT NECESSARILY IS INDEPENDENT OF THE ECONOMY, OR DOES THIS INDICATE A LACK OF WILLINGNESS TO SPEND TO THE SAME DEGREE? JONATHAN: WE WILL COME BACK TO THAT STORY. THE EARLY REACTION IS THE STOCK

IS DOWN BY ABOUT 4.9% IN THE EQUITY MARKET. LET'S GET YOU AN UPDATE ON STORIES ELSEWHERE THIS MORNING. HERE IS YOUR BLOOMBERG BRIEF. >> MORE SIGNS OF WANING DEMAND FOR EV AS VOLKSWAGEN PUSHES BACK PLANS TO SEEK OUTSIDE INVESTMENT FOR ITS BATTERY UNIT. ACCORDING TO BLOOMBERG SOURCES, THEY ALSO SCRAPPED PLANS TO PUBLICLY LIST THE EV BUSINESS THIS WEEK. WALMART'S OFFERING A NEW INCENTIVE FOR U.S.

STORE MANAGERS. STARTING IN APRIL THEY WILL RECEIVE AN ANNUAL GRANT OF AS MUCH AS $20,000 WITH THE POTENTIAL TO MAKE OVER $400,000 IF THEY ARE HIGH PERFORMERS. IT IS THE LATEST EFFORT BY THE RETAILER TO ATTRACT AND RETAIN STAFF. JUST LAST WEEK THE COMPANY ANNOUNCED IT WILL RAISE THE AVERAGE STORE MANAGER SALARY 9% FROM $170,000 TO $128,000. FANS HOPING TO ATTEND THIS

YEAR'S SUPER BOWL IN LAS VEGAS WILL HAVE TO FORK OUT A RECORD AMOUNT. THE AVERAGE TICKET PRICE COMING IN AT $9,800. THE MOST EXPENSIVE EVER. THAT IS JUST TO ATTEND THE MATCH BETWEEN KANSAS CITY AND SAN FRANCISCO. ROOMS AT SOME HOTELS ARE GOING FOR MORE THAN $1000 PER NIGHT. NO WORD YET ON WHETHER TAYLOR

SWIFT WILL BE IN ATTENDANCE. JONATHAN: I KNOW YOU ARE TRACKING THAT, THANK YOU. THE LATEST ON TAYLOR SWIFT. $12,000 BASICALLY FOR THE WEEKEND. IF YOU'RE A DRINKER, IF YOU LIKE GAMBLING. IT IS RIDICULOUS. LISA: AT WHAT POINT WE HEAR ABOUT THE TAYLOR SWIFT INFLATION PHENOMENON ONCE AGAIN? EVERYONE IS GOING TO SAY THAT. ANNMARIE:

SHE MIGHT NOT EVEN SHOW UP. LISA: IT DOESN'T MATTER, HOW MUCH IS SHE RESPONSIBLE FOR A 70% INCREASE? JONATHAN: SHE'S THE REASON WE GOT TO PAY THESE HIGH TICKET PRICES. UP NEXT, BIG TECH TAKING CENTER STAGE. >> I DO THINK THAT FUNDAMENTALLY THE STRENGTHS OF THESE COMPANIES ARE STILL GOING TO BE PRETTY ROBUST. OBVIOUSLY

CLOUD AI IS GOING TO BE THE THING THAT IS MOVING THE DIAL. >> THAT'S COMING UP NEXT ON THE PROGRAM. GOOD MORNING, YOU ARE WATCHING BLOOMBERG SURVEILLANCE.

♪ JONATHAN: LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING. EQUITIES PULLING BACK JUST A TOUCH, NEGATIVE BY 0.1%. LISA, UPS IN THE PREMARKET DOWN HARD. LISA: I'M LOOKING THROUGH AND IT IS BOTH A VOLUME STORE AND PROFITS PER PACKAGE WHICH IS NOT REALLY ENCOURAGING WHEN IT COMES TO MARGIN PRESSURES. U.S.

PACKAGE REVENUE WAS DOWN 7.3% YEAR-OVER-YEAR, CAME IN ALMOST $1 BILLION WERE HALF A BILLION DOLLARS BEFORE THE EXPECTATION. INTERNATIONAL PACKAGE REVENUE KIND OF THE SAME, DOWN 7% YEAR-OVER-YEAR. WHAT I THOUGHT WAS INTERESTING WAS THAT THE REVENUE PER PACKAGE CAME IN AT $13.11 VS.

AN ESTIMATE OF $13.30. ARE WE SEEING PEOPLE NOT WANTING TO SHIFT THINGS AROUND, NOT WANTING TO PAY THE EXTRA COST UNION, AND BASICALLY HAVING TO TAKE A HIT AS YOU PAY HIGHER COSTS TO SOME OF YOUR WORKERS AND TO ALL OF THE OTHER SUPPLY CHAIN ISSUES? HOW MUCH IS THIS A BELLWETHER TYPE OF NAME? JONATHAN: STOCK DOWN BY A LITTLE MORE THAN 4%. IS THAT MORE IMPORTANT TO THE ECONOMY THEN MAYBE THE TECH NUMBERS WE GET A LITTLE BIT LATER? WE SHOULD GET NUMBERS FROM GENERAL MOTORS, SO LOOK OUT FOR THAT AS WELL.

BIG TECH TAKING CENTER STAGE. >> FUNDAMENTALLY THE STRENGTHS OF THESE COMPANIES ARE STILL GOING TO BE PRETTY ROBUST. WE KNOW THAT OBVIOUSLY CLOUD AI IS GOING TO BE THE THING THAT IS MOVING THE DIAL. WHAT IS KIND OF AN UNKNOWN AT THE MOMENT IS THE RATES AT WHICH CORPORATIONS ARE GOING TO BE REOPENING THE STRINGS AND OBVIOUSLY HAS HUGE IMPLICATIONS FOR THE CLOUD PLAYERS. JONATHAN:

APPLE, META, AMAZON THROUGHOUT THURSDAY. COMBINED MARKET VALUE EXCEEDING $10 BILLION. BIG, BIG AFTERNOON COMING UP A LITTLE BIT LATER, THEN AGAIN ON THURSDAY. WHAT I DO AND THE TEAM FOCUSED

ON LATER ON TODAY? >> THE BIGGEST THING AT THE CONTRIBUTION OF AI TO MICROSOFT WORKLOAD. THAT IS THE SINGLE BIGGEST THING WE ARE GOING TO FOCUS ON IS HOW MUCH THEY ARE GETTING A PUSH BECAUSE OF THAT. FOR THE LAST TWO YEARS, WE'VE SEEN COST RATIONALIZATION, SPENDING ON RESOURCES. THIS IS THE YEAR WE ARE GOING TO SEE A REBOUND. LISA:

WHERE DO YOU THINK IS GOING TO BE THE WINNING RECIPE, MICROSOFT OR GOOGLE? >> I THINK MICROSOFT IS A LITTLE BIT AHEAD IN TERMS OF CLOUD PERFORMANCE ONLY BECAUSE OF THEIR RELATIONSHIP WITH OPENAI, BUT HAVING SAID THAT, GOOGLE HAS A LOT OF INTELLECTUAL CAPITAL BEHIND THEM. I THINK IN THE LONG RUN, THEY SHOULD SEE THE BENEFIT ALSO. LISA: WE WERE TALKING ABOUT THIS YESTERDAY AND I GOT SOME FEEDBACK. I'M CURIOUS HOW MUCH WE END UP SEEING MICROSOFT GAIN TRACTION WITH SOME OF THEIR ARTIFICIAL INTELLIGENCE AROUND BING VS. GOOGLE. >> GOOGLE WILL STILL DOMINATE. IS GOING TO BE A LOT OF

FLUCTUATION IN THE MIDTERM. I HATE SAYING IT IS NOT GOING TO HAVE THAT BIG OF AN IMPACT BUT AT THE SAME TIME I THINK WILL NEEDS TO SHOW THAT THEY CAN HAVE A PRODUCT THAT IS VERY SIMILAR TO CHATGPT AND IT WORKS PRETTY MUCH THE SAME. JONATHAN: CAN WE TALK ABOUT A PRODUCT COMING OUT OF MICROSOFT? I KEEP HEARING ABOUT THIS COPILOT SOFTWARE. WHAT IS THAT AND HOW HOPEFUL SHOULD WE BE? >> PRETTY MUCH YOU TAKE ANY SOFTWARE THAT YOU HAVE, WHETHER IT IS YOUR OFFICE OR IF YOU ARE WRITING CODE, THIS PARTICULAR PRODUCT HELPS YOU INCREASE YOUR PRODUCTIVITY. IF YOU ARE STARTING TO WRITE CODE, IT WILL HELP YOU WRITE CODE. IT IS LIKE CHATGPT, BUT FOR THAT PARTICULAR PRODUCT. AND I THINK THAT IS HOW

MICROSOFT IS LOOKING AT MONETIZING A LOT OF PRODUCTS. IS THE FIRST ONE IN THE MARKET TO GO OUT WITH A LOT OF THESE ADD-ONS BECAUSE OF THEIR RELATIONSHIP WITH OPENAI, AND YOU ARE SEEING OTHER COMPANIES FOLLOW. ONE OF THE ONES THAT HAS DONE IT WITH A GOOD JOB OF USING THE COPILOT. ACROSS THE ENTIRE SOFTWARE

ECOSYSTEM YOU'RE GOING TO SEE COPILOT SHOW UP FOR THE NEXT SEVEN YEARS. JONATHAN: THE GEOPOLITICS SPECIFICALLY, CLICK CLEARLY SOME OF THESE COMPANIES THAT YOU'VE IDENTIFIED ARE SURFING THE AI WAVE, THE CLOUD BUSINESS IS ABSOLUTELY EXPLODING. DO YOU THINK THAT WE DO START TO SEE THIS POLARIZATION BETWEEN THE COMPANIES THAT CAN SERVE COMPANIES IN CHINA AND ONES THAT CAN'T? >> I THINK IT'S GOING TO BE MORE REFLECTIVE ON THE CLOUD PLAYERS TO WORK WITH COMPANIES IN CHINA.

THE FALLBACK IS NOT GOING TO BE ON THE LIKES OF AMAZON, THEY DON'T GENERATE THAT MUCH MONEY. BUT THE BIGGER PROBLEM COULD BE IF THEY GO AFTER APPLE, THAT IS BAD NEWS FOR APPLE IN THE LONG TERM BECAUSE THEY MAKE MOST OF THEIR PRODUCTS IN CHINA. JONATHAN: INTERESTING. THOSE EARNINGS COMING UP A LITTLE BIT LATER ON THIS AFTERNOON. APPLE, MICROSOFT ON DECK AND THEN THE REST OF THEM, AMAZON, META AND APPLE ON THURSDAY. LISA: I'M WONDERING HOW MUCH QUIET ATTENTION AND HE IS GOING TO GET BECAUSE A LOT OF PEOPLE ARE SAYING THEY SHOULD BE THE MAGNIFICENT EIGHT INCLUDING AMD OR BOOT OUT ONE OF THEM.

I THINK IT MIGHT BE INTERESTING IN LIGHT OF THE CHIP FOCUS AND HOW MUCH THEY ARE THE ACCELERATING THAT PRODUCTION. JONATHAN: IS THAT THE PITCH COMING FROM AMD, JUST TO BE CLEAR? LISA: IT'S A COUPLE INVESTORS INCLUDING ONE INVESTOR OF FACEBOOK. JONATHAN: BRIAN, LET'S BUILD ON SOME OF THIS. THE GEOPOLITICS, HOW DOES THAT SHAPE YOUR VIEW OF SOME OF THESE MULTINATIONALS RIGHT NOW? >> I TRY TO LOOK BEYOND THE GEOPOLITICS TO THE BEST OF MY ABILITY. I ASKED MYSELF TWO PRIMARY QUESTIONS. ONE, IS IT GOING TO AFFECT THE TRAJECTORY OF THE U.S. ECONOMY AND IS IT GOING TO

CHANGE WITH THE FEDERAL RESERVE IS GOING TO DO? AS LONG AS THESE EVENTS REMAIN RELATIVELY REGIONALIZED, THE ANSWERS TO THOSE QUESTIONS ARE GENERALLY NO, AND SO FAR THE MARKET HAS LOOKED PAST IT. IF THEY GET BROADER, IT MAY GET DIFFERENT ANSWER. I'D HEARD 1973 MENTIONED. 1973 IS A SCARY THING TO THINK ABOUT THE IF THE MARKETS WERE DOWN 50, 60%. HE DIDN'T RECOVER FOR A LONG TIME. THERE ARE SOME CRITICAL DIFFERENCES BETWEEN NOW AND 73,

ONE THAT THE U.S. IS A PRIMARY DRIVER OF SUPPLY IN THE OIL MARKET AND THE FEDERAL RESERVE HAVING SIGNIFICANTLY MORE RED ABILITY AT THIS POINT THAN IT DID BACK THEN. ANNMARIE: BUT OUTSIDE THE OIL MARKET, THE RED SEA IS REALLY USED FOR ALSO CONSUMER GOODS.

ISN'T THAT A CONCERN WHEN YOU LOOK AT INFLATION, THE PROSPECT FOR POTENTIALLY BOTTOM LINES HAVING TO HAVE AN IMPACT? BRIAN: 15% OF GOODS ESTIMATED GOING THROUGH THE RED SEA, 12% OF OIL. IT'S NOT IDEAL. IT'S HAPPENING AT A TIME THAT IS NOT IDEAL, BUT TO ME THE CRITICAL DIFFERENCE THAT INVESTORS SHOULD THINK ABOUT IS BETWEEN NOW AND 2021-2022 WHEN WE DID GET SIGNIFICANT INFLATION. BACK THEN, PEOPLE HAVE MONEY IN THEIR POCKETS, AND WORKERS HAD JUST SLASHED A BUNCH OF INVENTORY WORKERS.

THAT IS REALLY WHAT LED TO THE 9% INFLATION. SO TODAY WE ARE DEALING WITH WHAT IS GOING ON IN THE RED SEA, BUT BUSINESSES HAVE INVENTORY, BUSINESSES HAVE WORKERS, SO IT IS A VERY DIFFERENT STORY THAN A COUPLE YEARS AGO. LISA: HOW MUCH IS NOT PAYING ATTENTION TO THIS BASICALLY JUST CONDITIONING OF MARKETS? SCOTT SHELTON SAID IT HAS BEEN ONE OF THE MORE TOXIC TRADE FOR LAST TWO YEARS. EVERY TIME YOU BUY BECAUSE OF GEOPOLITICS, YOU LOSE MONEY AND THAT HAS BASICALLY BEEN THE STORY. HOW MUCH ARE YOU CONCERNED THAT THERE ISN'T THE SAME RISK PREMIUM, THAT MIGHT BE BAKED INTO MARKETS THAT SOME PEOPLE SAY ARE PRICED TO PERFECTION JUST ACED ON THE FACT YOU DO HAVE THE POTENTIAL FOR A FLAREUP THAT WE CANNOT FORESEE? >> WE ALWAYS SEEM TO HAVE THESE POTENTIALS FOR FLAREUPS. EVEN RECENT HISTORY, SYRIAN CIVIL WAR, WHEN THE RUSSIANS INITIALLY WENT INTO CRIMEA, EVEN THINKING BACK TO U.S.

TROOPS IN IRAQ AND AFGHANISTAN. IF YOU LOOK, TYPICALLY DRAW DOWN EARLY AND THEN OVER THE NEXT. COME OUT OF IT -- NEXT PERIOD COME OUT OF IT. WHAT I WOULD SAY TO INVESTORS IS DON'T MAKE IT YOUR BASE CASE IN YOUR PORTFOLIO THAT THE WORLD IS GOING TO IMPLODE BECAUSE HISTORY TELLS US THAT THAT IS A LOSING PROPOSITION. IF YOU WANT TO HEDGE, THINK ABOUT EXPOSURE TO GOLD OR COMMODITIES. YOU DON'T NEED SIGNIFICANT -- 5%, 10% EXPOSURE TO HELP PROVIDE SOME INSURANCE. JONATHAN:

THE EARNINGS FROM UPS, STOCK IS DOWN BY 4.625%. I THINK IT PRESENT AN OBVIOUS QUESTION, DO I WANT EXPOSURE TO THESE BIG SECULAR THEMES, AI, OR CYCLICAL NAMES? BRIAN: OVER THE INTERMEDIATE-TERM TIME PERIOD, YOU ARE GOING TO WANT MORE EXPOSURE TO THE CYCLICAL NAMES. WHAT WE ARE CHALLENGED WITH RIGHT NOW, EVERYBODY HAS TO REMEMBER THIS, THE FEDERAL RESERVE WANT TO SLOW DOWN THE ECONOMY WE NEED TO SLOW DOWN THIS ECONOMY. WE ARE SEEING THE EFFECTS OF ALL OF IT, AND SO FAR WE'VE BEEN GENERALLY STABLE BUT THIS ECONOMY WILL SLOW.

THE QUESTION IS SOFT LANDING, HARD LANDING, THERE DOESN'T SEEM TO BE ENOUGH EXCESS, ENOUGH LEVERAGE TO HAVE A HARD LANDING BUT IN THE NEAR TERM THIS MARKET IS GOING TO FOCUS ON A SLOWDOWN. AS WE COME THROUGH THAT SLOW DOWN AND NORMALIZE THE YIELD CURVE IS WHEN YOU ARE GOING TO WANT MORE EXPOSURE TO CYCLICAL NAMES. JONATHAN: THANK YOU, GOOD TO CATCH UP. UPS DOWN BY SOMETHING LIKE 4% IN THE PREMARKET. UP NEXT, THE U.S.

RESPONSE TO THE DEADLY DRONE ATTACK IN JORDAN PEELE THAT CONVERSATION COMING UP NEXT. ♪ JONATHAN: FOR MANY MARKET PARTICIPANTS, THE WEEK DOES INDEED BEGIN TODAY. THE TWO-DAY MEETING BEGINNING TO THE FED DOWN IN WASHINGTON, D.C. IN THE NATIVE THIS MORNING AND THEN THIS AFTERNOON, EARNINGS FROM MICROSOFT AND ALPHA THAT, OR GOOGLE AS YOU MIGHT SAY. WE ARE -0.1%. ON THE NASDAQ, DOWN BY 0.06.

A HEAVY WEIGHTING OF THESE BENCHMARKS GOES TO BIG TECH. WE FED NUMBERS FROM UPS, THE OUTLOOK DISAPPOINTED. NUMBERS FROM GM JUST DROPPING ACROSS THE BLOOMBERG. LISA:

AND BIDDING EXPECTATIONS, $9.50 AGAINST THE ESTIMATE OF $7.70. JUST GOING THROUGH THE NUMBERS HERE, THEY DO EXPECT TO CUT EXPENSES BY $1 BILLION. I'M CURIOUS ABOUT EXACTLY WHERE. THEY EXPECT INDUSTRY SALES OF ABOUT 16 MILLION UNITS BUT JUST GOING THROUGH THIS, IT LOOKS LIKE NORTH AMERICA DID OUTPERFORM. I JUST WANT TO POINT OUT THIS COMES AT A TIME WHEN IT IS NOT JUST NORTH AMERICAN MANY ACTORS EXPERIENCING. BYD, SOME DISAPPOINTING EARNINGS AS A RESULT OF PROFIT MARGIN CONTRACTION, BECAUSE OF THEIR COMPETITIVE ADVANTAGE. WE WILL KEEP GOING THROUGH THE

NUMBERS BUT TO ME, THE IDEA THAT THEY ACTUALLY BEAT HIGHLIGHTS THE FACT THAT THEY ARE MANEUVERING, ALBEIT WITH COST CUTS THAT WE HOPE TO HEAR MORE ABOUT. JONATHAN: UPS DROPPED ABOUT 4%, GINA -- GM IS UP ABOUT 4%. POSITIVE IF I MORE THAN 5%. THE GOOD NEWS IF THEY GOT A BETTER STORY TO TELL BECAUSE THE BROADER ENVIRONMENT, NOT GREAT RIGHT NOW. GM CHAIR AND CEO, PRODUCTION OF THE F-150, HASN'T BEEN GREAT. LISA: THERE'S BEEN A RETRENCHMENT AND EXPECTATIONS, WE'VE HEARD THAT FROM FORD AND GENERAL MOTORS AND THE EXPECTATION THAT THEY WILL BE THAT ADOPTION, BUT IT WILL BE SLOWER. THE NET PROFIT CR BETTER THAN

EXPECTED. HOW MUCH OF THIS IS HINGED TO THE BIG TRUCKS AND THE FACT THAT PEOPLE HAVEN'T MADE THAT TRANSITION YET? THE NET INCOME FOR 2024, 9.8 BILLION DOLLARS AGAINST THE ESTIMATE OF $7.1 BILLION. REALLY COMING IN PRETTY STRONG. JONATHAN: POSITIVE IN EARLY TRADING. LATER ON TODAY COME AROUND 10:00 EASTERN TIME.

DON'T MISS THIS CONVERSATION LIVE ON BLOOMBERG TELEVISION. IRAN URGING DIPLOMACY AS TENSIONS RISE FOLLOWING THE DEADLY DRONE ATTACK ON A U.S. BASE IN GORDON OVER THE WEEKEND. THE COUNTRY'S FOREIGN MINISTER CONTINUING TO DENY INVOLVEMENT IN THE ATTACK WHICH KILLED THREE SERVICE MEMBERS AND INJURED DOZENS MORE. POLITICAL PRESSURE IS BUILDING A PRESIDENT BIDEN TO RESPOND. JOHN KIRBY TELLING REPORTERS YESTERDAY THE PRESIDENT IS WEIGHING THE OPTIONS BEFORE HIM. WHAT ARE THOSE OPTIONS? ANNMARIE: THOSE OF THE BIG QUESTIONS, WE KNOW FROM OUR REPORTING THAT IT IS LIKELY IT IS GOING TO BE MORE FORCEFUL RESPONSE AND WE HAVE SEEN THE U.S. TAKE GIVEN THE FACT THAT YOU

MESS TROOPS HAVE BEEN HIT ON THE BASIS. 100 60 TIMES WE SEEN THESE IRANIAN PROXIES TARGET U.S. TROOPS. BUT THEY CONTINUOUSLY SAY THEY DO NOT WANT TO INVOKE A WIDER REGIONAL CONFLICT, SO IT IS NOT GOING TO GO AS FAR AS MAY BE SOME REPUBLICANS WANT. JONATHAN: A QUESTION WE CAN ASK THIS MORNING, TO PREVENT A WAR TO YOU HAVE TO SHOW WILLINGNESS TO ENGAGE IN ONE? ANNMARIE: SHOW THAT YOU ARE WILLING TO GO ON A MASSIVE ATTACK. THIS IS WHAT THE TRUMP ADMINISTRATION ACTUALLY DID WHEN IT CAME TO GOING AFTER IRAN. THEY DIDN'T ATTACK BUT THE IRANIANS WERE FRANKLY FREAKED

OUT ABOUT IT. THEY DID SOME RETALIATORY MEASURES IN IRAQ AND THEN ON BACK CHANNELS THEY WENT THROUGH A NUMBER OF INTERLOCUTORS AND SAID WE ARE DONE, WE DO NOT WANT MORE BLOODSHED IN THE REGION AND THEN THAT WAS IT. THEN COVID HIT AND THE STORY QUICKLY WENT AWAY, AND THAT WAS WHY. JONATHAN: WE WILL SEND THAT QUESTION TO JON LIEBER IN JUST A MINUTE. THE QUARTERLY BORROWING ESTIMATE NOW SITTING AT 760 BILLION DOLLARS DOWN FROM A PREVIOUS PRODUCTION OF $816 BILLION. THE TREASURY SAYING THE ESTIMATE WAS REDUCED THANKS TO HIGHER NET INFLOWS AND MORE CASH ON HAND THAN PREVIOUSLY EXPECTED. LISA:

AND JUST REMEMBER THAT WHAT IGNITED THE RALLY OR AT LEAST TURBOCHARGED IT WAS THAT TREASURY REFUNDING ANNOUNCEMENT BACK THAN THAT REALLY CONCENTRATED MORE OF THE BORROWING. AND A LOT OF PEOPLE ARE GOING TO BE TALKING ABOUT THE POLITICAL ASPECTS OF THIS, AND PETER CAME OUT AND SAID THERE IS ALSO POLITICAL MANEUVERING ON THE PART OF JANET YELLEN AND NOT WANTING TO SPOOK THE TREASURY MARKET. WE WILL HEAR IN THE COMING DAYS THAT OF THE ISSUE IS TO COME OUT, BUT THE TRUTH OF THE MATTER IS LATER THIS YEAR THE U.S. IS EXPECTING YIELDS TO BE LOWER BIG THAT IS PROBABLY GOING TO BE CUTTING. WHY NOT WAIT UNTIL THEN TO ACTUALLY INCREASE SOME OF YOUR ISSUANCE IF THE YIELDS ARE BETTER? YOU GOT TO HANDED TO HER, SHE SHE UNDERSTANDS THE MARKETS. JONATHAN: SHE UNDERSTANDS OTHER THINGS AS WELL BASED ON WHAT I HEARD IN THE PODCAST SHE DID. DID YOU SEE THAT?

ANNMARIE: SHE DID A PODCAST WITH NPR AND WAS ASKED A NUMBER OF QUESTIONS. SHE PLAYS CANDY CRUSH AND SHE LOVES BRICK BREAKER, BUT SHE PREPARES FOR EVERYTHING. SHE SAID THE FIRST TIME SHE SMOKED WEED SHE PREPARED THAN THAT GAVE HER AN ADDICTION TO CIGARETTES. JONATHAN: TWO OR THREE PACKS A WEEK, WITH THAT RIGHT? IT WAS NICE TO SEE JANET YELLEN SHARE IN LIEU OF PERSONALITY ON THIS PODCAST. VERY DIFFERENT. SUPER CHILL, APPARENTLY.

LET'S SEE HOW CHILL ABOUT THE STORY, ELON MUSK ANNOUNCING THE FIRST HUMAN PATIENT HAS RECEIVED A BLAINE IMPACT -- IMPLANT FROM NEURAL LINK TO ONE DAY HOPE TO ALLOW PEOPLE TO CONTROL COMPUTERS WITH THEIR MINDS. THE FIRST HUMAN RECEIVED AN IMPLANT YESTERDAY AND IS RECOVERING WELL. INITIAL RESULTS SHOW PROMISING NEURONS FIGHT DETECTION. LAST YEAR THEY SAID THEY EXPECT TO PERFORM 11 SURGERIES IN 2024. THOUGHTS? LISA: I DON'T THINK IT SOUNDS SO GOOD. THIS ISN'T NECESSARILY GOING TO BE THE FUTURE FOR OUR COMPUTER USE ANYTIME SOON.

THIS IS SORT OF AN EXPERIMENT AND KUDOS TO HIM FOR THINKING BRIGHTLY. I PERSONALLY WOULD NOT HAVE A NEURALINK IN MY HEAD BUT PEOPLE WHO ARE DOING AND HAVE PROBLEMS WITH THEIR LIMBS. IT IS GEARED TOWARD PEOPLE WHO ACTUALLY MIGHT GET SOME REAL USE. ANNMARIE: FOR PEOPLE WHO ARE PARALYZED, THIS COULD BE INCREDIBLY OPTIMISTIC FOR THEIR LIVES, BUT THE FACT THAT ELON MUSK ALSO TALKS ABOUT ONE DAY HELPING MERGE HUMANS AT ARTIFICIAL INTELLIGENCE, THAT IS WHEN THAT IS A LITTLE BIT UNNERVING. I KNOW YOU MUST BE NERVOUS BECAUSE YOU DON'T LIKE AI. JONATHAN: STAGE II TWO CONCERNS ME. STAGE ONE IS SUPER PROMISING.

LISA: I THINK DOWN THE LINE AS SOMEBODY WHO DOES ENJOY SCIENCE FICTION OCCASIONALLY, IT IS NICE TO HAVE BIG DREAMS AND SEE HOW IT PLAYS OUT. WHETHER ANY OF US WANTS TO BECOME A ROBOT RIGHT, NOT CLEAR, BUT LATER ON, LET'S GO. JONATHAN: I'M NOT READY FOR THAT JUST NOW. LET'S TURN BACK TO THE LATEST IN THE MIDDLE EAST. IVANKA CONTINUING TO DENY INVOLVEMENT IN THE DEADLY ATTACK ON U.S. TROOPS IN JORDAN. ACTIVE DIPLOMACY IS UNDERWAY,

WRITING THE WHITE HOUSE KNOWS VERY WELL THE WAY TO END THE WAR IS POLITICAL. JON LIEBER, FORMER POLICY ADVISOR TO SENATOR MITCH MCCONNELL JOINS US NOW FOR MORE. WONDERFUL TO CATCH UP WITH YOU. LET'S START HERE. HAVE YOU DEVELOPED A BASE CASE AS TO HOW YOU THINK THE U.S. WILL RESPOND TO THE ATTACK OVER THE WEEKEND? >> THE U.S. HAS TO RESPOND HERE. THEY CAN'T ALLOW THE DEATH OF THREE TROOPS TO GO UNANSWERED AND THAT IS WHAT THE PROBLEM FOR THE BIDEN ADMINISTRATION AND FOREIGN POLICY IN THE MIDDLE EAST AND ALSO A PRETTY BIG POLITICAL PROBLEM FOR HIM IN THE UNITED STATES. THE KEY QUESTION WE ARE FOCUSED

ON IS WHETHER OR NOT THAT RETALIATION AND ESCALATION STARTS TO TOUCH THE OIL MARKETS. THE WAY IT WOULD DO THAT IS BY TAKING IRANIAN OIL OFF THE MARKET WHICH WE DON'T THINK IS LIKELY. SO WHAT IS MORE LIKELY IS TARGETED STRIKES AGAINST THESE MILITIA GROUPS THAT ARE OPERATING OUT OF SYRIA AND IRAQ TO DEGRADE THEIR CAPABILITIES, TO CONTINUE ATTACKS AGAINST U.S. FORCES WHICH ARE SPREAD ACROSS THE REGION. THIS WILL PROBABLY COME IN THE COMING DAYS AND EVEN WEEKS.

IT'S GOING TO HAVE TO BE A BECOME A PUBLIC SHOW BY THE BIDEN ADMINISTRATION TO MAKE A DIFFERENCE BUT THE BIDEN ADMINISTRATION CAN'T JUST SIT BACK. OBVIOUSLY THERE RISK THE THREAT OF STOKING A BROADER REGIONAL WAR WITH IRAN, BUT NOBODY WANTS THAT. IRAN DOESN'T WANT THAT, THE U.S. DOESN'T WANT THAT. SOMETIMES THEY ARE FUNDED, SOMETIMES THEY ARE NOT, SOMETIMES THEY HAD MILITARY SUPPORT. ATTACKING THE MILITIA GROUPS SHOULD BE ENOUGH TO SATISFY THE POLITICAL DESIRE IN THE U.S. TO GET BACK AND IT IS UP TO THE IRANIANS AT THAT POINT HOW THIS ESCALATES. ANNMARIE:

ARE THEY ALREADY DOING THAT, DEGRADING THE CAPABILITIES OF THESE IRANIAN PROXIES? WHAT WOULD BE DIFFERENT, IT WOULD COME IN STAGES AND WE WOULD SEE MORE OF THEM? >> YOU ARE GOING TO GET A MORE FORCEFUL RESPONSE. YOU LOOK AT THE ESCALATORY LADDER THAT THE U.S. HAS AND STRIKING THESE GROUPS IS THE FIRST STEP IN THAT LADDER, FIGURING OUT WAYS TO CUT OFF THEIR FUNDING AND THEIR SUPPORT IS WHERE THE U.S. IS GOING TO HIS RIGHT NOW.

BUT THERE'S A LOT MORE THEY COULD DO. THEY KNOW WHERE THEY ARE OPERATING OUT OF AN THEY COULD ATTACK THEM MORE DIRECTLY. PART OF THE STORY HERE IS THAT THE U.S., THE GROUP SLIPPED IN THIS DRONE BEHIND ANOTHER U.S. DRONE THAT IS LANDING ACCORDING TO SOME WALL STREET JOURNAL REPORTING, SO PART OF THIS IS GOING TO BE DEFENSIVE AS WELL TO MAKE SURE THAT FUTURE ATTACKS DON'T THREATEN THE LIVES OF U.S. SERVICE MEMBERS, BUT THERE HAS

TO BE SOME KIND OF VISIBLE RESPONSE, KINETIC FORCE RESPONSE AGAINST THESE GROUPS IN THE REGION. ANNMARIE: THE BIDEN ADMINISTRATION HAS GONE OUT OF ITS WAY TO MAKE IT CLEAR THAT THEY DO NOT WANT A SHOWDOWN WITH IRAN. IF THE MESSAGE TO IRANIAN PROXIES THAT IF THEY KEEP IT AT THIS LEVEL IN TERMS OF HITS ON U.S. TROOPS THAT THAT IS ACCEPTABLE? >> NO. THIS IS OBVIOUSLY -- NO, THIS IS WHY THEY HAVE TO ESCALATE. IN SOME WAYS THE GROUPS GOT A

LITTLE LUCKY HERE BECAUSE THEY WERE ABLE TO EXPLOIT THIS WEAKNESS IN THE U.S. DEFENSES. THERE'S BEEN HUNDREDS OF THESE ATTACKS OVER THE LAST SEVERAL WEEKS, AND THE U.S. CONTINUING TO TRY TO DEGRADE, BUT THERE IS MORE THAN THEY COULD DO IN THAT IS WHAT WE ARE LOOKING FOR. LISA: I WAS STRUCK BY A COLUMNIST WRITING THIS PIECE TODAY, AMERICA SUBSIDIZING IRAN'S FIGHT AGAINST AMERICA TALKING ABOUT HOW THE SANCTIONS HAVE NOT WORKED AND IF ANYTHING, IRAN HAS TURBOCHARGED ITS PRODUCTION IT IS MAKING BILLIONS OF DOLLARS EXTRA EACH YEAR AS THE AMP UP SOME PRODUCTION. DO YOU THINK THAT SANCTIONS HAVE COMPLETELY FAILED AND THAT RIGHT NOW, IN EFFECT, SOME OF THESE ARE ALLOWING YOUR BOND TO KEEP FINANCING SOME OF THESE FRENCH TROOPS? >> I WOULDN'T SAY SANCTIONS THAT FAILED, I'D SAY THE BIDEN ADMINISTRATION IS MADE A DELIBERATE CHOICE TO ALLOW THE IRANIAN WHEELBARROWS TO CONTINUE TO FLOW PRIMARILY TO CHINESE PURCHASERS BECAUSE OF THE FACT THAT THEY ARE CONCERNED ABOUT THE OVERALL EFFECT ON GLOBAL GAS PRICES AND THEY ARE ATTEMPTING RIGHT NOW A THAWING IN RELATIONS WITH CHINA OVERALL THAT HAS LIMITED THEIR OPTION SET FOR OUT TO GO AFTER THESE IRANIAN BARRELS FOR THAT GOING AFTER CHINESE ENTITIES.

THAT IS PROBABLY THE NEXT STEP ON THIS LATTER IF THE U.S. DECIDES TO CRACK DOWN ON THE SANCTIONS THAT ARE ALLOWING THE IRANIANS TO SELL BARRELS OF OIL. THE U.S. IS THE WORLD'S BIGGEST PRODUCER OF OIL RIGHT NOW.

THAT IS GOING TO HELP THE BIDEN ADMINISTRATION TAKE THESE STEPS AS THEY THINK APPROPRIATE TO SQUEEZE THE IRANIANS. LISA: IS THE EFFORT TO KEEP OIL PRICES LOW IN THE U.S. HARMING THE NATIONAL SICK AREA OF THE COUNTRY IF YOU ARE HAVING THIS ISSUE WHERE IT IS BASIC READING OFF ITS TWO IRAN AND POTENTIALLY SEVERING CERTAIN RELATIONSHIPS WITH EUROPE, WITH RESPECT TO THE LNG BANS FOR THE PAUSE THAT WE SEEM RECENTLY? >> THE LNG BANS IS A DIFFERENT STORY, MORE ABOUT THE MESS THE CLIMATE POLITICS. IRAN IS A GROWING THREAT IN THE MIDDLE EAST, A GROWING THREAT TO U.S. INTERESTS. FOR A WHILE THE U.S. COULD AFFORD TO LOOK THE OTHER WAY AT THE IRANIANS CONTINUE TO SELL BARRELS, BUT NOW IT SEEMS LIKE THAT CALCULUS IS SHIFTING AND THIS IS GOING TO BE A DELICATE BALANCE FOR THE BIDEN ADMINISTRATION TO GET RIGHT.

JONATHAN: NONE OF US WANT TO SEE A WAR DEVELOP BETWEEN THE U.S. AND IRAN. I JUST WANT TO GET YOUR FINAL THOUGHTS ON HOW YOU THINK THE ADMINISTRATION SHOULD APPROACH THIS. THEY ALWAYS CAVEAT EVERYTHING THEY'VE SAY AND THEY SAID REPEATEDLY WE DO NOT WANT A WAR WITH IRAN.

AFTER THE ATTACKS OF THE WEEKEND, DOES IRAN WANT TO CONFLICT WITH THE UNITED STATES? HOW WOULD A FUTURE PRESIDENT, IF IT IS DIFFERENT THAN JOE BIDEN, DEAL WITH THIS IN A DIFFERENT WAY? TO PREVENT A WAR, DO YOU HAVE TO SHOW SOME UNPREDICTABILITY HERE, AND WILLINGNESS TO ENGAGE IN ONE IF YOU HAVE TO? >> IT'S NOT CLEAR HOW MUCH CONTROL IRAN HAS OVER THESE PROXY GROUPS THAT ARE LAUNCHING THESE ATTACKS. THEY COULD PROBABLY GET VENTED STOP, TRUMP ATTITUDE WAS WE ARE GOING TO ESCALATE TO GET THEM TO STOP. THAT SEEMED PRETTY EFFECTIVE. COVID DID INTERVENE, BUT THE

IRANIANS DIDN'T RETALIATE IN ANY MEANINGFUL WAY AFTER THAT INCIDENT, SO I THINK IT IS AN IMPORTANT QUESTION FOR U.S. FOREIGN POLICY, HOW AGGRESSIVE AND PROVOCATIVE CAN THE USB WITHOUT FORCING AN ESCALATION BACKWARDS FROM IRAN? THE BIDEN ADMINISTRATION HAS BEEN MUCH MORE CAUTIOUS THAN THE TRUMP ADMINISTRATION HAS BEEN. THEY ARE WORRIED ABOUT THIS ESCALATORY CYCLE, BUT I THINK THE TRUMP ADMINISTRATION BASED ON THE ACTION OF KILLING SOLEIMANI GIVES US SOME REASON TO BELIEVE THAT AN AGGRESSIVE ATTACK OF THE WAY OF ACTUALLY DE-ESCALATING THE SITUATION.

JONATHAN: INTERESTING, APPRECIATE YOUR INPUT AS ALWAYS, YOU'RE ONE OF THE BEST. WTI ALMOST TOTALLY UNCHANGED. LET'S GET YOU AN UPDATE ON SOME OF THE STORIES ELSEWHERE THIS MORNING. HERE IS YOUR BLOOMBERG BRIEF.

>> UPS SHARES ARE FALLING IN PREMARKET TRADING AFTER LOWERING ITS REVENUE ESTIMATES FOR 2024. THE COMPANY ALSO REPORTED A BIGGER THAN EXPECTED REVENUE DECLINE IN THE FOURTH QUARTER WITH THE CEO CALLING 2023 A " UNIQUE AND DIFFICULT YEAR." FIVE OF THE SO-CALLED MAGNIFICENT SEVEN ARE SET TO REPORT THIS WEEK WITH MICROSOFT AND AFTER THAT DECK AFTER TODAY'S CLOSING BELL.

INVESTORS WILL BE LOOKING FOR EXPANSION OF AI AND EARNINGS TO JUSTIFY HIGHER VALUATIONS AND MICROSOFT'S OVER $3 TRILLION MARKET CAP. ANDY ALSO REPORTS THIS AFTERNOON AS IT LOOKS TO COMPETE IN THE CHIP SPACE, ESPECIALLY AGAINST NVIDIA IN THE RACE TO POWER ARTIFICIAL INTELLIGENCE. APPLE ,META, AMAZON REPORT ON THURSDAY. THE PGA TOUR IS REPORTEDLY CLOSE TO RECEIVING A HISTORIC INVESTMENT FROM BILLIONAIRE SPORTS TEAM OWNERS. STEVE: AND MARK LACERATE ARE AMONG THE GROUP OF INVESTORS SET TO INJECT ABOUT $3 BILLION INTO THE LEAD.

THE DEAL MAY NOT INITIALLY INCLUDE -- WITH TALKS STILL FLUID ON HOW TO INCLUDE THE RIVAL ORGANIZATION. THAT IS YOUR BLOOMBERG BRIEF. JONATHAN: THANK YOU. COMING UP NEXT, THE FED'S TWO DAY MEETING BEGINS. >> THE NEXT FEW MONTHS ARE GOING TO REALLY DETERMINE WHETHER THAT SOFT LANDING STORY BECOMES THE BASE CASE OR WHETHER WE MOVE BACK INTO THAT RECESSIONARY SCENARIO AND I THINK YOU'RE GOING TO SEE THE FED GRAPPLING WITH THAT AT THE NEXT MEETING. JONATHAN: A PREVIEW OF THE NEXT MEETING

INCLUDING TOMORROW. THAT PREVIEW COMING UP NEXT. THIS IS BLOOMBERG. JONATHAN: LIVE FROM NEW YORK CITY, HERE'S A SNAPSHOT OF THE MARKETS RIGHT NOW, SHAPING UP AS FOLLOWS. YIELDS LOWER BY A SINGLE BASIS POINT, 4.06%. THE FEDS TODAY MEETING BEGINS. -- THE FED'S TWO DAY MEETING

BEGINS. >> GOING TO REALLY DETERMINE WHETHER THAT SOFT LANDING STORY BECOMES THE BASE CASE OR WHETHER WE GO BACK INTO THAT RECESSIONARY SCENARIO MARKETS. I THINK YOU'RE GOING TO SEE THE FED GRAPPLED WITH THAT AT THE NEXT MEETING, OPEN THE DOOR FOR RATE CUTS BUT THE AWARE THAT THERE ARE STILL RISKS TO THE OUTLET. THEY WANT TO SEND A CONSISTENT MESSAGE TO MARKETS THAT POLICY IS GOING TO START MOVING IN AND EASING DIRECTION, IS CONSISTENTLY MOVING IN AND EASING DIRECTION. JONATHAN: INVESTORS LOOKING FOR CLUES ON THE NEXT MOVE AND WHETHER WE GET A RATE CUT IN MARCH. DEMOCRATIC SENATORS WOULD LIKE ONE RIGHT NOW.

WRITING IN A LETTER TO CHAIRMAN POWELL, WE URGE YOU TO CONSIDER THE EFFECTS OF YOUR INTEREST RATE DECISIONS ON THE HOUSING MARKET AND TO REVERSE THE TROUBLING RATE HIKES THAT HAVE PUT AFFORDABLE HOUSING OUT OF REACH FOR TOO MANY. CONSTANCE HUNTER, SENIOR ADVISOR AT MACRO POLICY PERSPECTIVE JOINS US NOW. WE WILL GET INTO THE ACTUAL PREVIEW OF THE FEDERAL RESERVE IN A MOMENT.

HOW UNHELPFUL IS IT TO GET THAT KIND OF LETTER TO CHAIRMAN POWELL AT A TIME WHEN HE'S PROBABLY GOING TO START TALKING ABOUT REDUCING INTEREST RATES ANYWAY? >> PRECISELY. POWELL HAS THREADED A VERY FINE NEEDLE, TO DO THE FED'S JOB OF JUST LOOKING AT THE ECONOMICS AND NOT HAVING IT BE A POLITICAL DECISION AND TO DEFEND THE INDEPENDENCE OF THE FEDERAL RESERVE. IT JUST UNDERMINES THAT WORK THAT HE HAS DONE, -- MAYBE UNDERMINES IS TOO STRONG, BUT IT GIVES FUEL TO THE FIRE FOR THOSE THAT WANT TO MAKE AN ARGUMENT THAT THE FED IS MAKING POLITICAL DECISIONS WHEN THEY'RE ABSOLUTELY NOT. LISA: A LOT OF PEOPLE SAYING IT IS GOING TO BE A SNOOZER WITH ADJUSTMENTS TO SOME OF THE LANGUAGE TO ALLOW FOR A HIKE MAYBE IN MARCH IF THEY SEE IT NECESSARY, BUT MORE LIKELY IN MAY. >> GIVEN THE BOND MARKET VOLATILITY WE HAD WITH EVERY LITTLE TINY MINUTIA OF DATA AND INFORMATION, WE DON'T THINK IT IS GOING TO BE A SNOOZER. WE EXPECT THEM TO LAY THE

GROUND. WE HAVE PCE ON A SIX MONTH ANNUAL, ALREADY AT THE TARGET ON A SIX-MONTH ANNUALIZED BASIS. THEY'VE ALREADY LAID THE GROUND AS WE KNOW, THE JOB MARKET IS SOFTENING.

WE ARE SEEING A NARROWING IN THE SECTORS THAT ARE HIRING AND OUR PROPRIETARY RESEARCH SUGGESTS THE FIRST TIME THAT LAYOFFS ARE COMING AT A HIGHER LEVEL THAN HIRING, SO EARNINGS REPORTS, BUT WE SEE A BIG SHIFT IN OUR DATA THAT WE ARE COLLECTING. LISA: THIS IS REALLY IMPORTANT ESPECIALLY GIVEN SOME OF THE COMMENTARY THAT REFERRED EVEN FROM THAT OFFICIALS RECENTLY, ECHOING SOME OF YOUR CONCERNS. THE LAST TIME CREDIT MARKETS RALLY THIS DRAMATICALLY, THE SUMMER OF 2007. SINCE THE CONSENSUS HAS COALESCED AROUND ANY OF THE ROSY SCENARIO, AND A DOUBLE-DIGIT BREAKOUT IN EARNINGS, IT MAKES SENSE TO CONSIDER ALTERNATIVE SCENARIOS. FROM YOUR PERSPECTIVE, WHAT IS THE ALTERNATIVE SCENARIO THAT IS MOST IDLY? -- MOST LIKELY. >> I WOULD SAY THERE IS NO LENDING WHICH WOULD BE THE IDEAL SITUATION WITH THE FED CUTS.

WE MANAGED TO AVOID SOME MONTHS OF NEGATIVE JOB GROWTH, AND THE ECONOMY KIND OF COMES ALONG. THEN THERE'S THE SOFT LANDING WHICH IS TO A LANDING, LET'S NOT FORGET. WE WOULD BE LOOKING AT SORT OF NEAR ZERO GDP GROWTH FOR A QUARTER WERE TWO AND THEN WE WOULD BE ABLE TO PROGRESS. OF COURSE, THERE'S THE HARD LANDING WHICH WOULD BE A RECESSION. AND I WOULD ACTUALLY SAY THEY ARE FAIRLY EVENLY -- THE RISKS ARE FAIRLY EVENLY BALANCED ACROSS THOSE THREE. THERE ARE SOME UNKNOWNS. WHAT IS HAPPENING IN THE MIDDLE EAST, HOW THAT IS GOING TO IMPACT OIL PRICES AND SHIPPING SUPPLIES.

THERE'S ONLY THAT POSSIBILITY THAT YOU ARE GOING TO HAVE A RECESSION. BUT I DO THINK THE SOFT LANDING SCENARIO IS THE MOST LIKELY, GIVEN THE FACT THAT THE FED IS SORT OF INDICATING THAT THEY ARE WILLING TO MOVE ON INTEREST RATES IN A TIMELY FASHION. JONATHAN: LET'S DO SOME OF THAT. EQUITIES AT ALL-TIME HIGHS, CRITIC SPREADS WERE THE TYPE. A TON OF ISSUANCE FOR JANUARY. TALKING ABOUT A MASSIVE MONTH FOR CREDIT ISSUANCE FOR THE MONTH OF JANUARY. THE FINANCIAL LANE WITNESS ECONOMY IS THAT EFFICIENT? >> THAT IS AN EXCELLENT QUESTION AND I THINK IT IS SOMEWHAT UNCLEAR. THERE ARE POCKETS OF THE

ECONOMY OR WE KNOW THERE IS SIGNIFICANT STRESS. WE SEE THIS SURGE THAT WE HAD OVER THE LAST SEVERAL YEARS THAT IS PUSHING DOWN RENT CRISIS, OVERALL A GOOD THING FOR PRICES AND OVERALL A GOOD THING FOR THE CONSUMER, BUT BECAUSE OF STRESS IN THE RESIDENTIAL HOUSING MARKET AND OF COURSE, THE LAYOFFS ARE COMING, WE THINK. ONCE YOU START HAVING NEGATIVE JOB TRENDS, IF WE GET TO THAT POINT, THAT CAN SPIRAL INTO SOME PRETTY NEGATIVE RESULTS FOR THE ECONOMY. I THINK IT IS A VERY, VERY TIGHT ROPE THAT THE FED IS WALKING IN THAT EQUITIES ARE WALKING, QUITE HONESTLY. WHILE I'M OVERALL BULLISH BECAUSE I THINK WE ARE HAVING A HUGE PRODUCTIVITY SURGE, PRODUCTIVITY SURGES ARE UNEVENLY DISTRIBUTED AND THERE COULD VERY WELL BE SIGNIFICANT PACKETS OF DISTURBANCE THAT RIPPLE OUT AND CAUSE A WIDER PROBLEM. JONATHAN: SO YOU ARE LOOKING FOR THAT FIRST MOVE IN MARCH.

THAT IN MIND, YOU HEAR PEOPLE SAY THE CHAIRMAN POWELL TOMORROW WILL BE NONCOMMITTAL, HOW NONCOMMITTAL CAN HE BE GIVEN THE FEDERAL RESERVE LIKES TO DO THIS IN A PREDICTIVE FASHION? >> HE WANTS TO KEEP ALL OPTIONS OPEN BECAUSE OF COURSE THIS ONLY SURPRISES, BUT I THINK HE ALSO WANTS TO LAY THE GROUND SO THE MARKET ISN'T COMPLETELY SHOCKED IF THE FED MOVES IN MARCH OF HE EXPECT. AND LET'S NOT FORGET, ONE OF THE THINGS THAT HE'S MENTIONED IS THAT POLICY IS VERY RESTRICTIVE. WE'VE SEEN THAT FROM WILLIAMS, WE'VE SEEN THAT FROM OTHER FED SPEAKERS, SO DO THEY NEED TO BE VERY RESTRICTIVE? CAN THEY MOVE TO ONLY MODERATELY RESTRICTIVE, STILL PUTTING MORE PRESSURE ON PRICES BUT ALSO USING FINANCIAL CONDITIONS A BIT MORE? I THINK THAT IS THE DIRECTION OF TRAVEL HE'S GOING TO TALK ABOUT. JONATHAN: THANKS FOR JUMPING IN FRONT OF THE CAMERA FOR OF THIS MORNING, APPRECIATE IT.

MACRO POLICY PERSPECTIVE, LOOKING FOR THAT MARCH RATE CUT AHEAD OF TAMARA'S MEETING. LISA: I LOVE THAT YOU WERE TALKING ABOUT WITH RESPECT TO THE CREDIT MARKETS BEING WIDE OPEN AND HOW THAT CHANGES THEM OF THE WEAKNESS PEOPLE ARE TALKING ABOUT. ALMOST $190 BILLION OF SALES JUST IN JANUARY, A NEW RECORD. THE LIKELIHOOD OF THAT CROSSING $200 BILLION SOME PEOPLE ARE SAYING IS PRETTY GREAT AND THIS COMES AT A TIME AND SPREADS HAVE HIT THE LOWEST FOR THAT PARTICULAR ASSET CLASS GOING BACK TO JANUARY OF 2022. SO YOU PUT ALL THIS TOGETHER AND YOU WONDER HOW MUCH THAT IS GOING TO HAVE AN EFFECT ON THE OVERALL ECONOMY AHEAD OF WHATEVER THE FED DOES OR DOESN'T DO. JONATHAN: WE TALKED ABOUT WHETHER THEY

WOULD NEED TO SURVIVE UNTIL 2025. LOOKS LIKE THEY ARE GETTING IN FRONT OF 2025 ALREADY. LISA: SEEMS LIKE THIS ISN'T REALLY AN ISSUE. I'M WONDERING HOW MUCH IS FOR THE LOWER RATED COMPANIES WERE SEEING SOME OF THEM COME TO MARKET. IF THIS JUST A WINDOW AND SEEING THIS OPPORTUNITY BEFORE VOLATILITY? JONATHAN: BUSY, BUSY JANUARY. LISA:

IT WAS 188 $.57 BILLION. JONATHAN: COMING UP NEXT IN THE NEXT HOUR, THE CEO OF CITIZENS BANK OF EDMUND, THE CEO OF NORWAY'S SOVEREIGN WEALTH FUND AND THE CO-CHIEF STRATEGIST AT JOHN HANCOCK. ALL OF THAT AND MORE. THIS IS BLOOMBERG. >> WE SEE INFLATION AND GROWTH PEEKING. >> THIS IS PROBABLY THE PEAK AND GOLDILOCKS SCENARIO AND THE NEXT FEW MONTHS ARE REALLY GOING TO DETERMINE IF THE SOFT LANDING STORY BECOMES THE BASE CASE.

>> THE PROBABILITY OF RECESSION HAS PRETTY MUCH VANISHED OVER THE LAST COUPLE OF QUARTERS. >> I THINK THERE ARE IMPROVING PROSPECTS FOR A SOFT LANDING THAT HAS BEEN IMPROVED MATERIALLY IN MY VIEW. >> IS GOING TO BE HARD, I'M SURE OF THAT. IT WILL HAPPEN AT THE END OF THE YEAR.

>> THIS IS BLOOMBERG SURVEILLANCE. JONATHAN: SO BEARISH YESTERDAY IT WAS UNREAL LOOKING FOR EMPLOYMENT OF 6% TO 7% YEAR END. 20% DOWNSIDE ON THE S&P 500. FROM NEW YORK CITY, GOOD MORNING. FOR OUR AUDIENCE WORLDWIDE THIS IS BLOOMBERG SURVEILLANCE ALONGSIDE LISA ABRAMOWICZ ALONGSIDE ANNMARIE HORDERN.

TWO STOCKS, TWO STORIES WITH EARNINGS DIFFERENT THAN UPS VERSUS GM UPS IS DOWN BY MORE THAN 6%. GM IS HIGHER BY 7.5. LISA: UPS UNDERWHELMING BY A PRETTY SIGNIFICANT MARGIN. HOW MUCH OF THIS IS BECAUSE THEIR PACKAGES ARE GOING DOWN AND PROFIT MARGINS ARE GOING DOWN? HOW MUCH IS COMPETITION WITH AMAZON? GENERAL MOTORS SEEING ADDITIONAL PROFITS IN 2024. SPEAKING OF COST CUTS BUT DEFYING EXPECTATIONS OF A MUCH POORER OUTLOOK EVEN WITH ALL OF THE CONCERNS ABOUT HIGHER LABOR COSTS, A TRANSITION TO EV'S THAT IS BEING STYMIED. POTENTIALLY A MORE DIFFICULT SCENARIO FOR CONSUMERS. JONATHAN: WE WILL SPEAK TO MARY BARRA.

WE STILL NEED TO SPEAK ABOUT A FUTURE FOR EV'S GIVEN THE SETBACKS. FORD PULLING BACK FROM PRODUCTION OF THE F-150 LIGHTNING. WE HAVE HAD NEWS IN EUROPE ON THE LIKES OF VW AS WELL. THE NEWS IS NOT GOOD AT ALL. LISA: THIS COMES AS PEOPLE ARE SAYING THAT IT'S NOT NECESSARILY COMPLETELY THROWN OUT OF THE WATER BUT JUST DELAYED IN TERMS OF THE TRANSITION. I WANT TO HEAR FROM JM HOW ARE THEY ADJUSTING THE MIX? ALL TRUCKS ALL THE TIME INCLUDING GAS GUZZLERS? IF YOU HAVE MONEY, THEY ARE THE ONES BUYING TOO BECAUSE NO ONE WANTS TO TAKE OUT A LOAN FOR 7%. ANNMARIE: DEALERS NOT ONLY WROTE A LETTER TO PRESIDENT BIDEN SAYING THAT THE EV'S ARE SITTING ON OUR LOT, BUT THE ADVISORY BOARD FOR THE WALL STREET JOURNAL SAYS THAT PEOPLE WANT HYBRIDS.

THEY ARE TRANSITIONING SLOWER. THEY WANT TO MIX TO MAKE SURE THAT THEY HAVE THE RANGE CAPABILITY. MAYBE THEY ARE MOVING INTO HYBRIDS? JONATHAN: THIS IS THE INTRO MOMENT FOR THE AUTO INDUSTRY AND MARI BARRETTE HAS PUSHED FACT THAT YOU NEED THIS BECAUSE IT PUSHES BACK ON THE ULTIMATE DESTINATION OF EV'S. FORD SEEMS TO HAVE TAKEN A DIFFERENT POSITION BASED ON WHAT WE HEARD A FEW MONTHS AGO. LISA: HE HAD A LONGER-TERM RATCHETING DOWN OF EXPECTATIONS IN TERMS OF TOTAL DELIVERY FOR ELECTRIC VEHICLES AND MANUFACTURING. I'M CURIOUS HOW MUCH OF THIS IS COMING AT A TIME WHEN CHINESE MANUFACTURERS HAVE AN UPPER HAND AND EVEN THOUGH THEY HAVE THE UPPER HAND THEY ARE NOT MAKING PROFITS BECAUSE THEY ARE DRIVING OUT COMPETITION BY LOWERING PRICES? IT IS A COMPLICATED STORY AND IT'S NOT CLEAR.

JONATHAN: MARY BARRA IS COMING UP LATER AROUND 10:15 EASTERN TIME. EQUITY FUTURES ON THE S&P 500 ARE NEGATIVE BY 0.1 PERCENT. FIVE NAMES, $10 BILLION IN MARKET CAP, UNBELIEVABLE. WE HEAR FROM ALPHABET,

MICROSOFT THIS AFTERNOON. ON THURSDAY IT IS APPLE, META, AND AMAZON. LISA: THIS IS THE MAKE IT OR BREAK IT MOMENT. A LOT OF PEOPLE ARE TALKING ABOUT HOW TOP-HEAVY THE MARKET IS. IF WE HAVE RIDDEN ALL OF THE GAINS ON THESE PARTICULAR NAMES, HOW VULNERABLE ARE WE TO A DISAPPOINTMENT THAT MOVES US IN THE OPPOSITE DIRECTION? EVERYONE THAT WE PUT THAT QUESTION TWO SAYS THAT THEY WON'T DISAPPOINT SO STOP THINKING THAT WAY. JONATHAN: IN CASE WE RUN OUT OF TIME DO YOU WANT TO LOOK AT THE BOND MARKET BRIEFLY? A MOVE LOWER YESTERDAY? DO YOU WANT TO GIVE US THE WHY? LISA: THERE WAS A PREVIEW AS TO WHAT KIND OF TREASURY FINANCING WOULD BE NECESSARY THIS YEAR AND IT CAME IN LOWER THAN EXPECTATIONS BECAUSE OF TAX RECEIPTS AND OTHER FACTORS THAT JANET YELLEN WAS LOOKING AT.

THIS IS BASICALLY SAYING THAT THE SUPPLY IS A GOING TO BE THERE TO THE SAME DEGREE THAT PEOPLE THOUGHT. IT MEANS THAT THERE IS A RALLY IN THE BOND MARKET. JONATHAN: OR .06% ON THE 10-YEAR. COMING UP THIS HOUR, THE CEO OF CITIZENS BANK OF EDMOND ON THE OUTLOOK FOR REGIONAL BANKS. THE AI DRIVEN SURGE IN TECH AND SOME WEAKNESS IN COMMERCIAL REAL ESTATE. ANNMARIE: THE DIVERSIFICATION WHEN IT IS THE CONSOLIDATION AMONG A FEW NAMES THAT ARE WINNING. JONATHAN:

WE WILL GET BACK TO THE EV STORY. GM'S BETTER THAN ESTIMATED FOURTH-QUARTER EARNINGS. REGIONAL BANKS LOOKING TO BOUNCE BACK FROM A TUMULTUOUS 2023 BUT RISKS REMAIN.

>> I AM CONCERNED ABOUT SMALL AND MIDSIZED BANKS. THEY HAVE SEVERAL RISKS HAPPENING AT THIS TIME. THEY HAVE COMMERCIAL REAL ESTATE AND THE REFINANCING IN THAT SPACE AND A REFINANCING WALL IN THEIR COMMERCIAL AND INDUSTRIAL LOANS. I THINK THIS WILL CAUSE THEM TO REALLY HAVE TO TAKE RISK CONSIDERATIONS VERY CAREFULLY.

I THINK THAT THE LENDING CAPABILITIES AND THE CAPACITY THEY WILL HAVE TWO LAND WILL BE VERY LIMITED. JONATHAN: WE CAN GET YOU A STRONGER STORY WITH THE CEO OF CITIZENS BANK OF EDMUND. GOOD MORNING, JILL. YOU HAVE A POWERFUL STORY TO TELL. IT IS NOT THAT GLOOMY.

TALK US THROUGH IT. JILL: I THINK RELATIONSHIP BANKERS THAT HAVE INTIMATE KNOWLEDGE OF THEIR BORROWERS AND HAVE BEEN DISCIPLINED THE LAST FIVE TO 10 YEARS ARE NOT GOING TO SEE THE TYPE OF WEAKNESS IN THE COMMERCIAL REAL ESTATE MARKET THAT OTHERS ARE ANTICIPATING. I THINK THAT THOSE WHO HAVE MORE DISTANCE FROM BORROWERS OR ARE OUTSIDE THE BANKING SYSTEM HAVE VULNERABILITY. LOTS OF REGIONAL IMPACTS AS WELL. LARGER CENTERS WITH LARGE MULTITENANT BUILDINGS HAVE MORE SUSCEPTIBILITY TO SOME OF THESE WEAKNESSES AND HIGHER INTEREST RATES AND POTENTIAL VACANCY ISSUES THAN MAY BE SMALLER-TYPE OF COMMERCIAL REAL ESTATE. THE LENDER KNEW THIS BORROWER AND WAS ABLE TO STRUCTURE APPROPRIATELY.

FOCUSING ON DEBT SERVICE COVERAGE FOR THE LAST FEW YEARS. THOSE TYPES OF LENDERS WILL COME OUT OK. JONATHAN: IN THE SPRING OF LAST YEAR FOR SMALLER BANKS, A LOT OF PEOPLE CONCLUDED THAT THE BIGGER BANKS WILL GET BIGGER AND SMALLER BANKS NEED TO CONSOLIDATE.

DO YOU HAVE A DIFFERENT VIEW? THE REASON WE NEED MORE THAN 4000 BANKS IN AMERICA? JILL: WE TALK ABOUT SMALLER BANKS, SMALL BANKS, ONES LIKE MINE, WERE FINE. WE DIDN'T SEE THE DEPOSIT RUNOFF BECAUSE THERE IS A DIVERSITY OF DEPOSITS. AVERAGE DEPOSIT AMOUNTS ARE LOW. YOU WEREN'T COUNTING ON HUNDREDS OF MILLIONS OF DOLLARS TO CONCENTRATE ON VERY FEW DEPOSITORS. ALSO, YOU HAD MORE, LIKE WE HAD, TWO THIRDS OF OUR DEPOSITS ARE NON-MATURING DEPOSITS. YOU HAD SOME LOSS AND NOW COMPETITIVE PRESSURES, YOU DIDN'T HAVE THOSE SAME PRESSURES AS SOME OF THE LARGE REGIONAL INSTITUTIONS. BROKERED DEPOSITS ALSO

INCREASED QUITE A BIT DUE TO THE DEMAND EARLY LAST YEAR. WE HAVE SEEN THAT SOFT AND QUITE A BIT. AGAIN, IT GOES BACK TO RELATIONSHIPS. LOOKING AT HAVING 4000 PLUS BANKS IN THE UNITED STATES IS GREAT FOR US. OATH AND HAVING A BANK IN YOUR LOCATION IF YOU ARE IN RURAL AREAS WHO MAY NOT HAVE ACCESS TO A BANK AND IN A SUBURBAN AREA WITH OVER 50 OR 60 BANKS AND 100,000 IN TOWN THAT THERE IS RELEVANCY FOR A SMALL BANK BECAUSE WE ARE THE ONES WHO ARE SPONSORING THE FOOTBALL STADIUM AND THE LITTLE LEAGUE GAMES. WE ARE PUTTING ON A BIG STREET FESTIVAL TO REVITALIZE DOWNTOWN. THERE IS SOCIAL CAPITAL THERE

THAT YOU DID NOT FIND IN LARGER INSTITUTIONS. OR THAT YOU SEE REPRESENTED IN TV AND MOVIES HOW IMPORTANT THAT A BANK CAN BE. CONSOLIDATION YIELDS DISTANCE WHICH YIELDS RISK. WE ARE SEEING THAT AS WE TALKED

ABOUT COMMERCIAL REAL ESTATE AND DEPOSIT POTENTIAL LOSS WHEN YOU HAVE A TIE TO YOUR BANK AND YOUR BANKER IT LESSENS THE RISK OVERALL, EVEN THOUGH MAY BE SMALL INSTITUTION SYSTEMICALLY MAKES THE DIFFERENCE. LET'S TALK ABOUT SOME OF THE RELATIONSHIPS WHEN FED OFFICIALS ARE TALKING ABOUT ANECDOTES AND HOW IMPORTANT THEY ARE TO UNDERSTANDING THE ECONOMY. HOW MUCH IS THE ECONOMY SLOWING? DO YOU GET A SENSE THAT THE RELATIONSHIPS THAT YOU HAVE ARE EXPRESSING A GREATER DEGREE OF CONCERN THAN SOME OF THE MACRO DATA MAY SUGGEST? JILL: I DON'T SEE THAT IN MY LOCALITY BUT REGIONALLY YOU HEAR THAT. IT HAS AN IMPACT ON SMALL BUSINESS AS WE HAVE RATES INCREASING FOR THEM, ESPECIALLY THOSE WITH VARIABLE RATES WHERE THEY ARE NOT HAVING TO REFINANCING BECAUSE THIS IS HIT WITH EACH RATE INCREASE. THEY'RE STARTING TO HAVE THAT

PRESSURE. AS COMMERCIAL REAL ESTATE HAS THE HIGHER NEEDS, WE ARE SEEING THE RENTS GO UP QUITE A BIT. SOME OF THE SMALL BUSINESSES HAS BEEN MORE OF A STRUGGLE. FOR CONSUMERS, THE HIGHER COST

OF PUTTING FOOD ON THE TABLE AND TO OPERATE A HOUSEHOLD HAVE BEEN REALLY CHALLENGING. ANNMARIE: WE TALKED ABOUT THE ABILITY TO DIVERSIFY IN THE WAY THAT YOU WANT. HOW VENERABLE DO YOU FEEL TO SOME OF THE NEW CAPITAL RULES THAT COULD COME DOWN THE PIKE THAT WE HEAR ABOUT IN CONGRESS? JILL: THE NEW CAPITAL RULES DO NOT NECESSARILY IMPACT ME BECAUSE THEY ARE TARGETED AT LARGER INSTITUTIONS BUT THERE WILL BE SOME TRICKLE DOWN. WHERE WE ARE THE MOST CONCERN IS WHERE WE HAVE GREATER SPECIFICITY THAT THIS WILL COST YOU MORE CAPITAL VERSUS IT BEING THAT YOU NEED TO HAVE MORE CAPITAL. YOU HAVE UNINTENDED CONSEQUENCES.

YOU POTENTIALLY HAVE SOME TRANSACTIONS THAT WOULD OCCUR WITHIN THE BANKING SYSTEM GET MOVED OUT OF THE BANKING SYSTEM. THAT COULD HAVE MORE HARMFUL IMPACTS TO THE ECONOMY AND LESS ABILITY FOR REGULATORS TO HAVE AN IMPACT. JONATHAN: YOU THINK THE PROPOSAL MEETS THE MOMENT? LAST YEAR, WAS THAT A FAILURE OF REGULATION OR OVERSIGHT? JILL: AS WE NEED TO HOLD BANKS ACCOUNTABLE REGULATORS ARE ACCOUNTABLE TOO. WE HAVE GREAT REGULATIONS AND DECENTRALIZED REGULATORY STRUCTURE IN THE UNITED STATES. IT'S A GREAT STRENGTH. WHERE WE HAVE SEEN FAILURES OR VULNERABILITIES IS ONE THAT HASN'T BEEN EXECUTED WELL.

THAT IS WHAT I WOULD SAY. THAT WE HAVE GREAT REGIONAL EXAMINERS THAT ARE ON THE GROUND WHO UNDERSTAND THE LOCAL ECONOMY AND WHAT KIND OF RISKS BANKS ARE TAKING. IT IS IMPORTANT THEY CONTINUE TO DO THAT.

I THINK THAT CHANGING THE STRUCTURE CAN PENALIZE AND TAKE THAT AT THE ME OUT AND THEN YOU'RE NOT ABLE TO TAKE RISKS -- TAKE AUTONOMY OUT AND THEN YOU'RE NOT ABLE TO TAKE RISKS IN THE SAME MANNER AS BEFORE. JONATHAN: DEPOSIT INSURANCE REFORM? WHAT WOULD YOU LIKE TO SEE? JILL: THERE ARE SO MANY DIFFERENT TOOLS WITH MARKETPLACES TO EXCHANGE DEPOSIT INSURANCE, TO PLEDGE COLLATERAL TO DEPOSITS. TO ME, THERE IS NO NEED TO REALLY CHANGE ANYTHING. WE HAVE 5% UNINSURED DEPOSITS IN OUR ORGANIZATION. WHEN WE SAW ORGANIZATIONS BE OVER 90% UNINSURED DEPOSITS, THERE WAS NO REASON. THERE WERE PLENTY OF TOOLS TO USE.

NOW YOU SEE BANKS SHIFTING AND MAKING SURE THEY DON'T HAVE THAT EXPOSURE ON UNINSURED OR UN-COLLATERALIZED DEPOSITS. JONATHAN: MEETS THE MOMENT OF NINE OR 10 OR 11 MONTHS AGO. THE MESSAGE THAT I KEEP RECEIVING IS PROBABLY NOT. ANNMARIE: A LOT OF PEOPLE ARE SAYING IN WASHINGTON THEY WILL START TO AGREE. MORGAN STANLEY STARTED TO TURN BULLISH ON U.S. BANKS BECAUSE SHE DIDN'T THINK THAT THE CAPITAL RULES WOULD BE AS HARSH AS SOME PEOPLE WERE EXPECTING. THAT PUSHBACK IS PRETTY

WIDESPREAD. MAYBE SOME PEOPLE ARE PRICING IN THAT IT WON'T BE AS APPLIED AS INITIALLY PROPOSED. JONATHAN: LET'S GET AN UPDATE ON STORIES ELSEWHERE.

HERE IS YOUR BLOOMBERG BRIEF. >> IRAN IS URGING DIPLOMACY AS TENSIONS IN THE MIDDLE EAST RISE. FOLLOWING THE DEATH OF THREE AMERICAN SOLDIERS IN A DRONE ATTACK OVER THE WEEKEND. IRAN HAS CONTINUED TO DENY INVOLVEMENT IN THE ATTACK WHICH THE U.S. SAID CAME FROM IRANIAN-BACKED MILITIA. UPS SHARES ARE FALLING IN PREMARKET TRADING AFTER LOWERING ITS REVENUE ESTIMATES FOR 2024. THE COMPANY'S FOURTH-QUARTER

REVENUE FELL SHORT OF ESTIMATES WITH THE CEO CALLING 2023 AND A "UNIQUE AND DIFFICULT YEAR." IT COMES AS UPS TRIES TO WIN BACK DELIVERY BUSINESS LOST DURING TENSE UNION TALKS LAST SUMMER. GENERAL MOTORS IS REPORTING BETTER THAN EXPECTED FOURTH-QUARTER EARNINGS AND EXPECTED 2024 PROFITS TO GROW UNIMPROVED U.S. SALES. GM IS EXPECTING DEMAND FOR VEHICLES TO STAY ROBUST IN PART DUE TO OPTIMISM ABOUT A SOFT LANDING FOR THE U.S. ECONOMY.

GM IS STRUGGLING TO BUILD OUT ITS EV LINE. IT'S LEGACY BUSINESS OF GAS-POWERED VEHICLES CONTINUES TO BE A CASH COW. THE CEO MARY BARRO SAYING "CONSENSUS IS GROWING THAT THE U.S. ECONOMY, THE JOB MARKET, AND AUTO SALES WILL CONTINUE TO BE RESILIENT." THAT IS YOUR BLOOMBERG BRIEF. JONATHAN: IMPRESSIVE NUMBERS FROM GM FOR SURE. NEXT, THE AI-DRIVEN TECH RALLY

EXTENDED INTO 2024. >> WE HAVE THE AI BOOM PUSHING THROUGH LAST YEAR MAY BE RETAINING A LITTLE BIT OF THAT ENTHUSIASM AT THE START OF THIS YEAR. JONATHAN: THAT CONVERSATION IS NEXT. WE WILL CATCH UP WITH THE NORWAY SOVEREIGN WEALTH FIRM CEO AROUND THE CORNER.

JONATHAN: LIVE FROM NEW YORK CITY, GOOD MORNING. STOCKS ARE PULLING BACK ON THE S&P 500 BY 0.1%. THE BOND MARKET IS DOWN A SINGLE BASIS POINT. THE AI-DRIVEN TECH RALLY IS EXTENDED INTO 2024. >> EARNINGS OPTIMISM CAN TEMPORARILY OUTWEIGH WHAT THE IMPACT IS ON THE HIGHER DISCOUNT RATES. WE HAVE THE BIG AI BOOM THAT IS PUSHING THROUGH FOR TECH STOCKS LAST YEAR. MAYBE WE ARE SEEING A LITTLE

BIT OF THAT ENTHUSIASM AT THE START OF THIS YEAR. JONATHAN: EARNINGS FOR ALPHABET AND MICROSOFT DO FOR THIS YEAR. SAYING DESPITE HIGH INFLATION AND GEOPOLITICAL TURMOIL THE EQUITY MARKET IN 2023 WAS STRONG. TECHNOLOGY STOCKS IN PARTICULAR PERFORMED WELL.

NICOLAI JOINS US FOR MORE. WE HAVE TO DO A RANGE OF THINGS, BUT THE FIRST TWO IS TO TALK ABOUT TECH AND THEN COMMERCIAL REAL ESTATE. FOR TECH, YOU SAID THAT THE RETURN ASSUMPTIONS ARE LOWER GOING FORWARD FROM HERE. DOES IT APPLY TO THE COHORT FROM THE U.S.? NICOLAI:

WE HAD A HUGE RALLY LAST YEAR AND A LARGE PROPORTION WERE FROM THE TOP SEVEN COMPANIES. RIGHT? IF YOU ADJUST THE S&P FOUR THAT THE RETURN WAS SOMETHING LIKE 12% INSTEAD OF 26%. YOU WILL HAVE TO ASK HOW LONG THAT WILL GO ON FOR. I AM A DIEHARD BELIEVER IN AI AND THE EFFECT THAT IT WILL HAVE ON OUR OPERATIONS AND THE WORLD, BUT IN TERMS OF VALUATIONS ON OTHER COMPANIES, THAT'S A QUESTION. LISA: THERE IS A QUESTION OF HOW FRAGILE IT MAKES THE MARKET TO HAVE SUCH A GROUP OF STOCKS DRIVING US. JP MORGAN WARNED THAT THERE WAS A GREATER RISK TO THE EQUITY MARKETS.

THE KEY TAKEAWAY IS THE EXTREMEL CONCENTRATED MARKETS POSE A RISK TO 2024, A VERY LIMITED NUMBER OF STOCKS RESPONSIBLE FOR THE MAJORITY OF GAINS. DRAWDOWNS ON THE OTHER HAND COULD PULL EQUITY MARKETS DOWN WITH THEM. DO YOU AGREE? DO YOU THINK THAT ULTIMATELY AI IS THE ONLY GAME IN TOWN AND IT DOESN'T MATTER HOW CONSOLIDATED THE ENTIRE EQUITY VALUATION OF THE GLOBAL MARKET IS TO IT? NICOLAI: THE FIRST THING IS THAT THIS HAS BEEN GOING ON FOR A LONG TIME.

IT HASN'T HAPPENED OVERNIGHT. THESE LARGE COMPANIES HAVE BECOME STRONGER AND STRONGER. IT IS NATURAL WHEN YOU TALK TO PLATFORM COMPANIES THAT IT REALLY IS A WINNER TAKES ALL ECONOMY. IT IS AMPLIFIED BY AI, BECAUSE

IT IS SO INCREDIBLY EXPENSIVE TO TRAIN THE MODELS. YOU REALLY HAVE THE WINNERS BECOMING EVEN BIGGER. IT IS NOT A NEW PHENOMENON AND I THINK THAT IT WILL LAST FOR SOME TIME. LISA:

WINNER TAKES ALL RAISES DIVERSIFICATION. I WONDER IF DIVERSIFICATION WAS RESPONSIBLE FOR THE UNDERPERFORMANCE THIS YEAR? I WONDER IF IT IS CONSOLIDATE YOUR BETS AND WHAT YOU BELIEVE IN? NICOLAI: WE ARE, GIVEN THAT WE ARE VERY LARGE, WE HAVE TO BE DIVERSIFIED. WE OWN A BIT OF ALL OF THE LISTED COMPANIES IN THE WORLD. WE ARE PARTICIPATING IN 9000 COMPANIES. WE HAVE BIG BOND HOLDINGS.

WE HAVE BIG REAL ESTATE HOLDINGS. I THINK THAT IT IS THE ONLY WAY TO BE AS A BIG AND LONG-TERM THINKING SHAREHOLDER. JONATHAN: I SAW A REAL ESTATE HOLDINGS DROP MORE THAN 12%. LET'S TALK ABOUT THAT A LITTLE

2024-02-02 18:06

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