Bloomberg Surveillance 5/18/2022: Consumers Squeezed
>> THERE HAS BEEN A VERY MATERIAL TIGHTENING AND FINANCIAL CONDITIONS OVER LAST COUPLE OF MONTHS. >> THE RECESSION CHATTER IS PICKING UP. >> PEOPLE ARE LOOKING AT THE GLASS AND SEEING HALF-EMPTY. >> THE CONSUMER IS STILL OUTSPENDING. IT IS STUBBORNLY RESILIENT. >> THIS IS "BLOOMBERG SURVEILLANCE" WITH TOM KEENE, JONATHAN FERRO, AND LISA ABRAMOWICZ. JONATHAN:
GOOD MORNING. THIS IS BLOOMBERG SURVEILLANCE ON TV AND RADIO. I AM JONATHAN FERRO. FUTURES DOWN MORE THAN .1% ON THE S&P. IT IS ALL ABOUT THE SQUEEZE ON THIS CONSUMER. KAILEY: THE SQUEEZE ON CONSUMER. 9% IN THE UNITED KINGDOM. IT IS A SQUEEZE ACROSS ALL. YOU CANNOT PARSE OUT ENERGY.
IT IS ABOUT CORE CPI AND LET'S CALL IT A DOUBLE OF WHAT WE HAVE SEEN PRE-COVID. JONATHAN: ONE OF THE MOST IMPORTANT NOTES ON WALL STREET CAME FROM J.P. MORGAN. CRUEL SUMMER: WHITE U.S. GASOLINE PRICES COULD BREAK ABOVE SIX DOLLARS LATER THIS YEAR. THAT IS A BIT -- THAT IS A BIG DEAL. KAILEY: JUST GOT INVITED TO THE MORGAN
CALL IN LONDON ON OIL. THEY WALK THROUGH THE WHY WE ARE GOING TO $150 A BARREL. THE ANSWER IS JP MORGAN AND OTHERS SEE OIL PRICES HIGHER BECAUSE OF CONVENTIONAL ANALYSIS. JONATHAN: HOW MUCH DOES THIS FED NEED TO SQUEEZE? LISA: AND HOW MUCH THEY WILLING TO? JAY POWELL SAID FIGHT FOR FOR CREDIBILITY.
HE CAME OUT SAYING WE WILL NOT TAKE A NUANCED VIEW OF INFLATION. THAT IS THE BEDROCK OF THIS ECONOMY. IF WE DO NOT HAVE THAT WE HAVE NOT DONE OUR JOB. JONATHAN: LET ME THROW THIS AT YOU.
THE MARKET RALLIED YESTERDAY. IF IT CONTINUES TO RALLY, IS THAT CONSIDERED AN UNWARRANTED LOOSENING OF FINANCIAL CONDITIONS THE FED HAS TO PUSH BACK AGAINST AND IF THAT IS THE CASE HAS THE FED PUT A LID ON MARKETS, A LID ON RISK ASSETS? LISA: IT IS MORE NUANCED THAN THAT. ANY THERE'S BEEN A SIGH OF RELIEF FOR MARKETS THAT IS A BAD THING FOR THE FED. WHERE DID IT RALLY?
YOU SAW THE HAVENS RALLY. THE LEFT FOR DEAD STOCKS. HOW MUCH ARE PEOPLE REVERTING BACK TO HER BELIEF THE VET COULD GET INFLATION UNDER CONTROL AND THEN THE BEHEMOTHS THAT MAKE MONEY LOOK BETTER BECAUSE YIELDS WILL GET UNDER CONTROL OVER THE LONG-TERM. I KNOW THIS IS COUNTERINTUITIVE. JONATHAN: FRONT END OF THE YIELD CURVE, WHAT HAPPENED? DOES YOUR YIELDS ADJUSTED HIGHER? -- TWO YEAR YIELDS ADJUSTED HIGHER. LISA: NEEL KASHKARI, THE CLASSIC DOVE, SAID IT WAS EASY FOR HIM TO BE A DOVE WHEN INFLATION WAS LOW AND NOW IT IS EASY FOR HIM TO BE A HOP. HE DID NOT KNOW IF HE WILL HAVE TO BECAUSE RECESSION. JONATHAN: WHAT A TOUGH MOMENT FOR THIS
FEDERAL RESERVE. HERE IS YOUR PRICE ACTION IN THE EQUITY MARKET. THE S&P FUTURES -.27 -- -.2%. YIELDS ON THE 10 YEAR DOWN THREE BASIS POINT. EURO-DOLLAR 105.26.
LISA: AMONG ALL OF THE ECONOMIC DATA WE ARE GETTING I AM TRADE ON ALL HOUSING DATA BECAUSE THIS IS ONE AREA PEOPLE SAY HAVE A PERSISTENCY TO INFLATION. INFLATION TENDS TO TRAIL HOUSING DATA. WE GET U.S. HOUSING STATS AT 8:30. THIS COMES AT A TIME WHEN
HOUSING PRICES ARE STILL RISING AT A RECORD PACE. HOW MUCH TO SOME OF THE BUILDERS RESPOND TO THIS AT A TIME WHEN LABOR IS EXPENSIVE AND THE INPUT COSTS ARE EXPENSIVE. IF THEY DECELERATE HOW MUCH DOES THAT INDICATE A SLOW DOWN THAT IS PERHAPS WHAT THE FED WANTS TO SEE OR WILL CAUSE PEOPLE TO BRING BACK EXPECTATIONS FOR GROWTH. JANET YELLEN IS HOLDING A NEWS CONFERENCE IN GERMANY AT THE G7 MEETING. WE WILL HEAR ABOUT EUROPEAN GAS POTENTIAL EMBARGOES ON RUSSIA AND MORE IMPORTANTLY OIL. I WANT TO HEAR WHAT YOU HAS TO SAY ABOUT THE CONNECTION BETWEEN CRUDE PRODUCTS AND GOODS.
SHOULD WE TALK ABOUT OIL PRICES -- BUT GAS PRICES ARE IN A CONSISTENT TRAJECTORY UP, KIND OF LIKE THE JP MORGAN NOTE SAID. THAT IS IMPORTANT BECAUSE THIS LEADS INTO THE CONSUMER APPETITE TO CONTINUE TO SPEND. RETAIL EARNINGS CONTINUE. TARGET AND LOWE'S. T.J. MAXX AT 9:30.
BATH AND BODY WORKS AFTER THE BELL. THIS COMES AFTER WALMART PLUNGING THE MOST SINCE 1999. HOW MUCH OF THIS IS IDIOSYNCRASY AND HOW MUCH IS THIS A BELLWETHER? JONATHAN: DOWN 11% YESTERDAY. WHAT WAS THE STORY YESTERDAY?
THE RESILIENCY OF HOME DEPOT OR THE TROUBLE OF WALMART? KAILEY: I THINK IT IS A MACRO CALL ON RECESSION. THERE A LOT OF PEOPLE MODELING IN RECESSION. THERE IS ANOTHER GROUP SAYING THERE IS RESILIENCY WE WILL NOT GET BACK TO BACK NEGATIVE GDP. BUT I WOULD FOCUS ON, JAPAN IS ONE INDICATOR OF THE IMPORTANCE OF STUDYING TRADE. EXPORT DYNAMICS AND IMPORT DYNAMICS, AND MAYBE THAT WILL BE THE DECIDING POINT IN LATE SUMMER OF WHERE THE UNITED STATES IS. JONATHAN: KIT JUCKES THINKS WE NEED TO TALK MORE ABOUT EUROPE.
IN YOUR WORDS THE ECB RATES HAVE BEEN NEGATIVE FOR ALMOST EIGHT YEARS. IF THE ECONOMY CAN SUSTAIN POSITIVE RATES, THE ECONOMY WILL BE STRONGER WHEN IT HAPPENS. IF. HOW BIG IS THE IF? KIT: ENORMOUS. THE FIRST CASE IS THE SHORT-TERM. ELEPHANT IN THE ROOM DOWNSIDE RISK. WHAT IF THE GASKETS TURNED OFF AND NATURAL GAS GETS EXPENSIVE? THAT IS BAD FOR EVERYBODY BUT SPECTACULARLY BAD FOR EUROPE.
I DO NOT SEE HOW WE AVOID A RECESSION. THE EU COMMISSION ADMITS WE WILL GET A RECESSION IF THAT HAPPENS. THAT IS THE FIRST PIECE. THE SECOND PIECE, THEY HAVE BEEN GOING ONE WAY, LOWER AND LOWER RATES FOR LONG ENOUGH THE FIRST TURN UPWARDS WILL HAVE A SIGNIFICANT MARKET REACTION. ALREADY WE HAVE CLIENTS ASKING WHERE IS THE REAL SENSITIVE POINT ON THE SPREAD BETWEEN PERIPHERAL AND GERMAN BOND YIELDS IN EUROPE.
IT IS EVEN LESS LIKELY -- TOM: THE HALLMARK OF YOUR WORK IS IN A FEW PARAGRAPHS YOU SQUEEZE IN A LOT ON A LOT OF DIFFERENT COUNTRIES AND ECONOMIES. RIGHT NOW THERE IS A PISSING MATCH IN THE UNITED KINGDOM WITH THE GOVERNOR OF THE BANK OF ENGLAND, OTHERS IN THE TELEGRAPH COMING TO THE DEFENSE OF ECONOMIST WHO PUT THEIR PANTS ON ONE LEG AT A TIME. WHAT IS THE KIT JUCKES SCORECARD ON HOW CENTRAL BANKERS WORLDWIDE ARE DOING? KIT: THEY ARE DOING THEIR BEST. THE ONLY ANALOGY I HAVE AT THE MOMENT IS WE ARE SAYING CAN TOM HANKS LAND HIS PLANE ON THE HUDSON? IT DID NOT HAVE A BIRD STRIKE. IT WAS HIT WITH A BIRD STRIKE AND THEN ELECTRICAL STORM AND THEN LIGHTNING AND THEN VLADIMIR PUTIN FILED A MISSILE AT IT. WHICH TOM HANKS CAN DO THAT?
I GIVE THEM A BREAK. THEY DID THEIR BEST BY FLOODING THE SYSTEM WITH MONEY AT THE START OF THE PANDEMIC. SINCE THEN -- IN THE END WE WILL GET A RECESSION BECAUSE THIS IS TOO HARD. CRITICS CAN CRITICIZE FOR ALL
OF THAT. LISA: WHEN YOU SAY WE WILL GET A RECESSION TALKING ABOUT EUROPE, I KNOW YOU AND YOUR COLLEAGUES DO NOT BELIEVE THE U.S. IS HEADED FOR A RECESSION. YOU THINK THOSE DUALITIES ARE PRICED INTO THE U.S.
DOLLAR OR DO YOU THINK THIS HAS MORE TO GO AND YOU COULD GET TO PARITY AND BEYOND? KIT: THE TROUBLE WITH THE EURO IS THAT IT BRINGS THE RECESSION FORWARDS IN TERMS OF TIME AND BREAKS THROUGH. I CANNOT MEASURE THE DOWNSIDE OF THE EURO FROM THAT FOR THE PROBABILITY OF IT HAPPENING. HOW CAN I BUY THE EURO? THAT IS WHY I FIND IT UNVIABLE. THERE IS A DIFFERENCE BETWEEN
THE U.S. AND EUROPE. WE HAVE NOT SEEN THE PEAK OF TREASURY YIELDS YET. WHEN THAT HAPPENS I SUSPECT WE WILL SEE LOWER LEVELS IN EUROPE.
MODEL STRUGGLE WITH RECESSION BECAUSE IT IS DIFFICULT TO WORK OUT THE ACCUMULATED EFFECTS OF BEING BOMBARDED BY SO MANY ONCE EVERY FIVE YEAR STOCKS IN A TWO YEAR PERIOD. JONATHAN: YOU SOUND LIKE A HARD LANDING GUY. YOU SAID WE WOULD GET A RECESSION. IT IS ABOUT MAGNITUDE AND TIMING. WHERE ARE YOU ON THAT. KIT: I THINK NEXT YEAR. THERE ARE THINGS THAT COULD MAKE IT GO FORWARD.
EVERY OTHER VERSION OF OIL I USED IS UP MORE THAN CRUDE. UPMOST IS JET FUEL. DIESEL IS UP A LOT. THEY ARE ALL UP BY MORE THAN CRUDE.
IF WE GET IN THERE PUSH HIGHER IN CRUDE FULL HURT -- IT WILL HURT. BRUTAL FOOD PRICES WERE REALLY HURT. THE HOUSING MARKET IN THE U.K.'S JUST THREATENING TO ROLL OVER NOW. I WOULD STATE RECESSIONS ARE PRETTY LIKELY IN 2023 AND LOTS OF PLACES. I THINK IT IS PLAIN BLIND LUCK IF WE CAN AVOID WITH A NUMBER OF PRESSURES COMING FROM THE SYSTEM.
EUROPE IS RIGHT IN THE FIRING LINE. JONATHAN: AWESOME TO CATCH UP. YOU BROUGHT UP ARSENAL. TOM IGNORED IT. WE ARE STILL FRIENDS. I'M JUST HIGHLIGHTING THE FACT HE BROUGHT IT UP AND TOM IGNORED IT AND I WILL NOT BUILD ON IT. WILL NOT BUILD ON THAT.
TALK ABOUT THE SQUEEZE ON THE CONSUMER STUCK BETWEEN THE ROCK AND A HARD PLACE. I AM LOOKING TO THE U.K. WHAT A BRUTAL MOMENT FOR THE UNITED KINGDOM. BANK OF ENGLAND DECISION WHERE WE ALL ASKED THE SAME QUESTION. IS THIS IN THE FUTURE OF THE FEDERAL RESERVE AND IF IT IS WE HAVE SOME PROBLEMS AHEAD. TOM: WITH ALL OF THE PROBLEMS THIS MORNING AND THE UPROAR IN THE UNITED KINGDOM, IT DRAGS ME TO JULY 27. THE FED TALK NOW IS EASY. DOES IT GET HARD AFTER THE NEXT MEETING. JONATHAN:
IT GETS HARDER FOR THE U.K. AND THE ECB. THE QUESTION IS WHEN WE SEE A PEAK YEAR-OVER-YEAR INFLATION RATE IN THE U.K. AND EUROPE BECAUSE WE MIGHT HAVE SEEN IT STATESIDE. LISA: DOES THE ECB TAKE THE SAME TONE
CHAIR POWELL DID YESTERDAY? WE DO NOT CARE WHERE INFLATION IS COMING FROM, WE HAVE TO GET IT UNDER CONTROL. JONATHAN: THE MARKET IS OK. FROM NEW YORK, THIS IS BLOOMBERG. RITIKA GUPTA -- RITIKA: KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE WORLD, I AM RITIKA GUPTA.
JEROME POWELL SAYS THE FED WILL KEEP RAISING INTEREST RATES UNTIL THERE IS "CLEAR AND CONVINCING EVIDENCE INFLATION IS IN RETREAT." POWELL TOLD A WALL STREET JOURNAL EVENT THE ECONOMY IS STRONG ENOUGH TO WITHSTAND ANYTHING. INFLATION IN THE U.K. HAS RISEN TO ITS HIGHEST LEVEL IN 40 YEARS. CONSUMER PRICES ROSE 9%.
A BIG CHUNK OF THE INCREASE CAME FROM A RISE IN ENERGY PRICES. ALL OF THAT WILL ADD TO MORE PRESSURE FROM THE GOVERNMENT AND THE BANK OF ENGLAND. FINLAND AND SWEDEN HAVE MADE IT OFFICIAL AND APPLIED FOR MEMBERSHIP IN NATO, MOVE THAT RESHAPES EUROPE'S DEFENSES.
THE TWO MUST OVERCOME OPPOSITION FROM TURKEY'S PRESIDENT, WHO ALLEGES BOTH COUNTRIES SUPPORT KURDISH MILITANTS. MADISON CAWTHORN LOST HIS BID FOR A SECOND TERM DESPITE BACKING FROM FORMER PRESIDENT TRUMP. NORTH CAROLINA STATE SENATOR CHUCK EDWARDS BEAT HIM IN THE REPUBLICAN PRIMARY. NEARLY EVERY REPUBLICAN LEADER
IN THE STATE OPPOSED MADISON CAWTHORN. THE BOARD OF TWITTER SAYS IT WILL RECOMMEND SHAREHOLDERS APPROVE MUST BID OF $54.28 A SHARE, ALMOST $16 HIGHER THAN WHERE THE STOCK CLOSED TUESDAY. ELON MUSK SEEMS TO BE MANEUVERING TO DITCH OR RENEGOTIATE. GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON QUICKTAKE BY BLOOMBERG, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I AM RITIKA GUPTA. THIS IS BLOOMBERG.
>> INFLATION IS COMING DOWN. THAT IS WHAT WE NEED TO SEE. WE ARE WATCHING FOR THAT. IF THAT INVOLVES MOVING PAST BROADLY UNDERSTOOD LEVELS OF NEUTRAL, WE WILL NOT HESITATE AT ALL TO DO THAT. JONATHAN: CHAIRMAN POWELL FOCUSED ON GETTING INFLATION BACK DOWN. FUTURES -.2% ON THE S&P.
ON THE NASDAQ SOFTER AS WELL. YIELDS LOWER BY ONE BASIS POINT ON THE 10 YEAR. CRUDE CLOSE TO 114. THE AVERAGE GAS PRICE IN AMERICA RIGHT NOW PUSHING $4.60. TOM: LISA MENTIONED THIS EARLIER. WE ARE DONE QUOTING BRANDT AND HAVING A MEANINGFUL DISCUSSION BECAUSE THE STILL SET BRENT AT A FAR HIGHER PRICE. JONATHAN: THE REFINING ISSUE IS A BIG ONE. I MENTIONED THE JP MORGAN NOTE
EARLIER. THEY'RE LOOKING AT SIX DOLLAR CRUDE LATER THIS SUMMER -- SIX DOLLAR GASOLINE. TOM: IS HAZARDOUS TO TRY TO GAME THIS OUT.
MUCH OF THIS HAS LESS TO DO WITH THE WAR IN UKRAINE AND MUCH MORE TO DO WITH MICROECONOMICS. JONATHAN: PROVIDERS PRODUCE MORE GASOLINE AHEAD OF THE SUMMER ROAD TRIP SEASON, BUILDING UP INVENTORIES. THIS YEAR U.S. GASOLINE INVENTORIES HAVE FALLEN. TOM: HARSH HEADLINES. RUSSIA EXPELS 34 FRENCH DIPLOMATS IN RETALIATION. JONATHAN: ANYTHING ELSE? TOM: I DON'T KNOW WHAT TO MAKE OF THAT. THE WORK CONTINUES. SLOG FORWARD IS NOT THE RIGHT WORD.
ANNMARIE HORDERN JOINS US NOW. SHE HAS BEEN GETTING UP-TO-DATE ON OUR DOMESTIC POLITICS. AN IMPORTANT QUESTION WITH THIS PENNSYLVANIA RACE IS THE EFFECT OF THE RIGHT AND CONSERVATIVES ON THE MIDDLE. WHAT DID WE LEARN ABOUT THE
MIDDLE OF THE REPUBLICAN PARTY, THE MIDDLE OF THE DEMOCRATIC PARTY IN THE LAST 24 HOURS? ANNMARIE: IS A MIXED BAG. WE HAD IDAHO, OREGON, KENTUCKY, NORTH CAROLINA, PENNSYLVANIA. YOU SEE IN SOME PLACES PROGRESSIVES WON BIG, AND OTHER PLACES TRUMP CANDIDATES WON BIG, AND THEN YOU SEE THIS RACE IN PENNSYLVANIA. WE HAVE A HEDGE FUND MANAGER DAVID MCCORMICK. HE HAS A LOT OF TRUMP EMPLOYEES WITHIN HIS CAMPAIGN. THEN YOU HAVE THE INDIVIDUAL BACKED BY TRUMP, MEHMET OZ, I GREW UP KNOWING HIM HAS DR. OZ,
AND IT IS IN THERE IN THIS RACE. THIS IS SENATOR PAT TOOMEY SEAT. HE IS A REPUBLICAN. IF DEMOCRATS WERE ABLE TO WIN THIS SEAT THEY HAVE THE POTENTIAL TO MAINTAIN CONTROL OF THE SENATE WHEN MANY SAY THE HOUSE WILL SWING TO REPUBLICANS.
TOM: WHAT IS IMPORTANT IS WITHIN OUR DOMESTIC POLITICS THERE ARE ONLY DOMESTIC ISSUES. YOU JUST CAME FROM THE UNITED ARAB EMIRATES. INTERNATIONAL AFFAIRS IS NOT PART OF THIS DISCUSSION. IT IS ABOUT INFLATION AND THE CULTURE WARS OF AMERICA.
ANNMARIE: YES. DOMESTICALLY THOSE ARE IMPORTANT ISSUES. LET'S LOOK AT INFLATION AND ABORTION. THESE WILL BE TWO BIG ISSUES. I WOULD ARGUE THAT WHAT GOING ON INTERNATIONALLY IS AFFECTING THINGS LIKE INFLATION. I HAD SOME CHATS IN ABU DHABI AND I CAN TELL YOU THIS -- ALSO OTHER CHATS LAST WEEK WITH OPEC OFFICIALS -- THEY ARE QUITE CONCERNED WITH THINGS HAPPENING IN CONGRESS LIKE THIS PANEL VOTING FOR A NOPEC BILL. THE STORY OF GASOLINE PRICES WHICH TODAY ARE CLOSER TO FIVE DOLLARS THAN FOUR DOLLARS AND WE'RE JUST ABOUT TWO WEEKS OUT FROM PEAK DRIVING SEASON, NOT EVEN IN HIGH DRIVING SEASON, YOU START TO SEE CANDIDATES TALKING ABOUT INTERNATIONAL ISSUES THAT PLAY INTO THE DOMESTIC STORIES. LISA: THIS IS INCREDIBLY RELEVANT.
IN ABU DHABI, I WONDER HOW MUCH THIS IS ABOUT ANTONY BLINKEN GOING AND SAYING PLEASE GIVE US MORE, GIVE US MORE SO WE CAN SHORE UP SOME SORT OF PRICE STABILITY. WAS THAT PART OF THE UNDERTONE OF THE MEETINGS? ANNMARIE: WE DO NOT KNOW. SECRETARY BLINKEN DECIDED TO GO TO ABU DHABI BECAUSE HE WAS JOINING WITH THE VICE PRESIDENT AND HIGH-PROFILE U.S. OFFICIALS INCLUDING BILL BURNS, SECRETARY AUSTIN AND CLIMATE ENVOY JOHN KERRY. HE THEN DID MEET WITH HIS EMIRATE COUNTERPART. THIS WAS A CLOSED-DOOR SESSION. WE DO NOT KNOW WHAT THE ASK WAS.
WE KNOW THE UNITED STATES HAS BEEN ASKING OPEC PRODUCERS TO PUMP MORE. THE ISSUE IS LESS OIL AND MORE REFINING CAPACITY. YOU HAVE THE SAUDI OIL MINISTER TALKING ABOUT IT DOES NOT MATTER IF WE PUMP MORE OIL. THE ISSUE IS WE CANNOT TURN THE CRUDE QUICKEN UP INTO THE PRODUCTS CONSUMERS USE EVERY DAY. THAT IS A MAJOR ISSUE INTO THE SUMMER MONTHS. LISA: AS WE HAVE BEEN TALKING ABOUT FOR MONTHS, NUANCE DOES NOT SELL IN WASHINGTON, D.C., BUT WHAT KIND OF NUANCED POLICIES
COULD BE IMPLEMENTED TO BRIDGE THIS GAP? ANNMARIE: IT IS DIFFICULT. YOU CANNOT BUILD A REFINERY OVERNIGHT. WE HAVE HAD REFINERY SHUT DOWN BEFORE THE PANDEMIC. THERE IS NOT A LOT OF
INVESTMENT IN THIS INDUSTRY. THIS IS NOT JUSTIN INDUSTRY THAT FEELS -- THIS IS NOT JUST AN INDUSTRY THAT FEELS HOSTILE -- PRESIDENT BIDEN RAN TO BE A CLIMATE PRESIDENT IN THIS TURNED OUT A LOT OF THE BOAT WITH THE YOUTH. WHEN IT COMES TO REFINERIES THIS WILL BE INCREDIBLY DIFFICULT TO CHANGE OVERNIGHT. THIS IS MONTHS AND YEARS.
WHEN YOU HAVE AN ISSUE EXACERBATED BY THE WAR IN UKRAINE -- RUSSIA HAS TAKEN OFF THE MARKET MAY BE 1.5 BILLION BARRELS OF REFINED PRODUCT, NOT JUST OF CRUDE, BUT THOSE ACTUAL REFINED PRODUCTS. IT IS TRICKY BECAUSE NOW WE ARE IN THE SUMMER MONTHS AND THIS IS WHERE WE CP DRIVING DEMAND IN THE UNITED STATES. LOOK AT TICKET PRICES. THEY WILL GO HIGHER BECAUSE YOU HAVE JET FUEL AND DIESEL ACROSS THE BOARD. JONATHAN: JET FUEL AND THE AIRLINES UNREAL. AMH, THANK YOU.
LISA, WE TOUCHED ON THIS YESTERDAY. YOU'VE GONE FROM UNDERSTAFFED OVERSTEPPED, UNDERSUPPLIED TO OVERSUPPLIED. YOU THINK ABOUT WHERE THE LACK OF CAPACITY IS, ENERGY AND THE AIRLINES.
THAT IS ALL DELIBERATE. LISA: HOW MUCH IS THIS INTENTIONALLY REDUCED SUPPLIES IN ORDER TO INCREASE PRICING? YOU SEE PEOPLE CONTINUE TO PAY THOSE PRICES FOR AIRLINES. THIS WILL BE A POINT OF INCREASED FOCUS IN WASHINGTON, D.C. JONATHAN: THEY HAVE TOLD US IT IS. LISA: THE AIRLINES HAVE. HOW MUCH IS THE OIL AND GAS PRICES HAVING TO DO WITH SOMETHING INTENTIONAL? JONATHAN: I AM WITH YOU. LISA: I WAS KIND OF SHOCKED.
WHO IS THIS. TOM: I AM STILL HERE -- JONATHAN: I AM STILL HERE. FUTURES DOWN .2% ON THE S&P. FOR OUR AUDIENCE WORLDWIDE, JONATHAN: LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING. FOR OUR AUDIENCE ON WORLDWIDE TV AND RADIO, HERE THE PRICE ACTION. S&P 500 DOWN .2%. FUTURES NEGATIVE. HERE'S A HEADLINE FOR YOU, TARGET.
IT'S A DOWNSIDE SURPRISE. THE ESTIMATE $3.06. MARGINS LOWER THAN EXPECTED. THIS IS SOUNDING A WHOLE LOT LIKE WALMART. TARGET DOWN BY 7.6% IN EARLY TRADING AND THIS CEO NOTE
SOUNDS A WHOLE LOT LIKE WALMART, TOO. THROUGHOUT THE QUARTER WE FACED UNEXPECTEDLY HIGH COSTS DRIVEN BY A NUMBER OF FACTORS RESULTING IN PROFITABILITY THAT CAME IN WELL BELOW OUR EXPECTATIONS AND WELL BELOW WHERE WE EXPECT TO OPERATE OVER TIME. THAT STOCK YOU GETTING HERE IN THE PREMARKET. TOM:
I GO BACK TO THE LEGEND PHILIP CARAY WHO DIED AT AGE 102 AND HE WOULD TALK ABOUT THE BRIGHT LIGHTS OF INFLATION. WE HAD A NOMINAL GDP THAT WAS A RISK -- THAT WAS A GIFT TO PERFORMING WELL. THE COMP SALES OF TARGET DON'T LOOK LIKE THAT KIND OF NOMINAL GDP.
THEY LOOK LIKE A NORMAL ECONOMY AND YOU HAVE TO ADJUST GIVEN LABOR COSTS AND PETROLEUM COSTS. JONATHAN: IT'S HOW THINGS FALL FROM THE TOP LINE TO THE BOTTOM LINE ON THE MARGINS ARE GETTING SQUEEZED. LISA: THIS IS SOMETHING A LOT OF PEOPLE WERE EXPECTING. JUST HOW MUCH THEY ARE BEING SQUEEZED SURPRISED THE CEO. WHY ARE THEY BEING SURPRISED.
CEOS ARE COMING OUT, DOWNGRADING THEIR FORECASTS FOR THE YEAR. HOW MUCH IS THIS A PRECURSOR TO TRYING TO TEST CONSUMER DEMAND PUSHBACK. RAISING PRICES FOR THE POPULATION THAT CAN LEAST AFFORD TO ABSORB THEM. JONATHAN: I DON'T THINK THEY CAN RAISE PRICES ANYMORE. THAT'S WHY MARGINS HAVE COME IN. TOM: I DON'T SEE EVIDENCE OF THAT YET. WHAT I SEE IS A CHANGING ECONOMY.
WE HAVE THE GIFT OF HUGE EFFERVESCENT REAL GDP WITH HUGE GINORMOUS INFLATION, AND THAT IS SHIFTING. YOU SEE IT IN THE HEADLINES FROM WALMART AND TARGET. TOM: -- JONATHAN: WE HAVE MISSED ON PROFIT. THIS IS A MARGIN STORY RIGHT NOW. TOM: IT'S A MARGIN STORY RIGHT NOW, BUT THEY CAN FIX THAT.
THAT'S WHAT PEOPLE DO. I'M GOING TO SAY THIS AND OUR NEXT GUEST WILL BE MALLEABLE ABOUT THIS AS WELL. THEY ARE MALLEABLE. JONATHAN: WASN'T THAT THE STORY LAST YEAR?
TOM: I THINK IT'S MORE NOW. YOU'RE GOING TO SEE SOME BRUTAL DECISIONS MADE. YESTERDAY GOLDMAN SACHS ALLUDED TO THIS. YOU'RE GOING TO SEE SOME TOUGH -- OCTOBER PLANNING IN MAY. JONATHAN: WE ARE TOTALLY ON THE SAME PAGE. LAST YEAR WAS ABOUT PUTTING UP PRICES.
THIS YEAR IS THE COST SIDE. THE STOCKS DOWN 13.6%. PROBLEM IS, SOME OF THESE COMPANIES BELIEVE THAT OVER TIME THINGS MAY GET BACK TO WHERE IT WAS. TOM: I THINK THEY ARE GOING TO AMEND IT BASED ON A FED THAT IS NOT NEARLY AS HAWKISH AS THE ZEITGEIST RIGHT NOW. ALL OF A SUDDEN -14. JONATHAN: THE WORLD STARTS TO LOOK MORE LIKE TARGET, WALMART. LISA: THE OTHER QUESTION IS HOW MUCH DOES THIS HAVE TO DO WITH THE CHANGE IN WHAT PEOPLE ARE BUYING. THEY ARE NOT BUYING THE HIGHER MARGIN ITEMS. THEY ARE BUYING FOOD.
HOW MUCH IS THIS A SPECIFIC STORY VERSUS A BROADER ONE THAT'S GOING TO REALLY TEST THE RESILIENCE OF CONSUMERS TO HIGHER PRICES? JONATHAN: THAT'S WHAT WALMART WAS DISCUSSING YESTERDAY. TARGET DOWN BY MORE THAN 13%. IT'S ACTUALLY BEEN PRETTY RESILIENT THROUGH THE YEAR SO FAR TO DATE. TOM: WE'VE GOT THE FAMED SURVEILLANCE ROLODEX. JOINING US NOW, SENIOR PORTFOLIO MANAGER AT MORGAN STANLEY IN CHARGE OF THE BEEN THERE DONE THAT DIVISION.
FIRST YOU TRY TO RAISE PRICES AND THEN THERE IS A MEETING ON THE 14TH FLOOR WHERE YOU SAY THEY'RE GOING TO CUT COSTS AND WE ARE NOT WAITING FOR OCTOBER AND YEAR-END PLANNING. IS THAT WHAT WE ARE GOING TO SEE IN THIS QUARTER? >> I THINK WHAT WE ARE SEEING IN THIS QUARTER IS CONSUMERS PUSHING BACK. THEY ARE SAYING YOU CAN'T RAISE PRICES. CLASSIC MARGIN SQUEEZE. IT COULD BE A SITUATION WHERE THE CONSUMER IS SAYING NO MORE INFLATION, I'M NOT GOING TO PAY THE HIGHER PRICES.
THEY ARE GRADING DOWN. THIS IS CLASSIC PUSHBACK ON THE INFLATIONARY PRESSURES. UNFORTUNATELY COSTS ARE STILL GOING UP. YOU ARE SEEING THE EARNINGS MISSES ARE STARTING TO COME IN.
JONATHAN: WHAT DOES THIS SAY ABOUT EARNINGS POTENTIAL? >> SO FAR WE HAVEN'T SEEN IT. I THINK THERE WILL BE EARNINGS CUTS. THE ONLY QUESTION YOU HAVE TO ASK YOURSELF IS IF STOCKS ARE DOWN 20% TO 30%, DO THEY REFLECT SOME EARNINGS CUTS AND TO THE EXTENT THAT IF STOCKS ARE DOWN TODAY, THEY ARE NOT DONE ENOUGH.
HOW MUCH ARE THEY GOING TO MISS AND ARE THEY ALREADY REFLECTING THAT IS THE QUESTION. THAT GIVES ME SOME OPTIMISM. ON THE MARKET THAT MAYBE WE WANT TO SEE THE MAGNITUDE OF EARNINGS CUT THAT WILL BE CONSISTENT WITH THE AMOUNT OF DECLINES WE HAVE SEEN IN SOME OF THESE STOCKS. LISA: THERE IS SOME PERVERSE REASONING ON WALL STREET RIGHT NOW IF WE START TO SEE CONSUMERS PUSH BACK, IT'S ACTUALLY A GOOD THING. IT'S BAD FOR COMPANIES AND MARGINS, BUT IT MEANS PERHAPS THERE IS A NATURAL SLOWING AND INFLATION. A BREAKING POINT WHERE INFLATION SOLVES INFLATION. ARE WE GETTING TO THAT POINT?
>> WE ARE JUST GETTING TO THAT PART. BUT I THINK THAT'S EXACTLY RIGHT. IT'S MY VIEW THAT INFLATION WILL PEAK AT SOME POINT THIS SUMMER. I THINK IT'S TOO EARLY.
YOU COULD SEE A SCENARIO WHERE THE FED DOES BEGIN TO SLOWLY BACK OFF. I THINK THAT'S THE OPTIMISTIC OUTLOOK. AND TODAY IS A GREAT EXAMPLE OF CONSUMERS PUSHING BACK ON HIGHER PRICES. NO BETTER WAY TO SOLVE HIGHER
PRICES THAN HIGHER PRICES HURTING DEMAND. LISA: HOW DOES THIS CHANGE YOUR THESIS OR SHAPE OR YOUR CONVICTIONS LIVE FOR THE REMAINDER OF THE YEAR? >> I THINK THERE ARE A LOT OF COMPANIES OUT THERE THAT ARE NOT NECESSARILY GOING TO SEE THIS MARGIN SQUEEZE BUT THERE STOCKS ARE ABOUT -- ARE DOWN A LOT BECAUSE OF FINANCIALS. SOME OF THESE REGIONAL BANKS ARE SAYING THEIR NET INTEREST MARGINS ARE GOING UP. AND THERE STOCKS ARE DOWN 30% I THINK IT'S TOO LATE TO BUY UBER DEFENSIVE STOCKS.
BUT WE ARE CERTAINLY IN THAT RANGE AND THEN FROM A STOCKPICKING STANDPOINT, YOU HAVE TO FIND COMPANIES THAT HAVE A GOOD CHANCE OF DELIVERING ON THEIR NUMBERS BUT THERE STOCKS ARE ALREADY DOWN A LOT. THAT'S A GREAT GAME PLAN AND HAS WORKED FOR ME IN PREVIOUS 20% DECLINE AND THAT'S OUR GAME PLAN I WILL CONTINUE TO PURSUE. JONATHAN: WE'VE GOT A $100 BILLION NAME DOWN ABOUT 20% IN THE PREMARKET ON A STORY WE'VE BEEN DISCUSSING MONTHS AFTER MONTHS AFTER MONTHS FOR 12 MONTHS. FOR MOST OF LAST YEAR, CORPORATIONS MANAGED TO ADJUST, RAISE PRICES, MARGINS STAYED HEALTHY. IN MANY PLACES MARGINS IMPROVED.
I FIND IT REALLY DIFFICULT TO BELIEVE THAT THIS MARGIN STORY BEGINS AND ENDS WITH TWO COMPANIES. WALMART AND TARGET. WE'VE BEEN TALKING ABOUT THIS HAPPENING FOR A LONG TIME. THIS FEELS LIKE THE START OF IT. WE MAY HAVE SEEN PEAK INFLATION.
FINE, WHATEVER. BUT IF WE PLATEAU AT 4% OR 5% AND THESE GUYS CAN'T PASS ON HIGHER COSTS, WE'VE GOT AN EARNING PROBLEM ON WALL STREET. >> AND A DECOMPRESSION PROBLEM. STOCKS DON'T GO UP WHEN INFLATION IS RUNNING NORTH OF 4%. IT'S A TOUGH SITUATION. I DON'T THINK THE MARKET THIS YEAR IS GOING TO PUT IN A GREAT YEAR. BUT AGAIN, LET'S MAKE SURE WE TAKE A STEP BACK AND SAY THAT'S DOWN A LOT FROM WHERE WE STARTED THE YEAR. I JUST WANT TO TEMPER THAT
BECAUSE AGAIN, I SEE A LOT OF DESTRUCTION IN STOCK PRICES ALREADY. YESTERDAY THE HOME-IMPROVEMENT STOCKS WERE DOWN A LOT. IT'S A REAL STOCKPICKING SITUATION WHEN COMPANIES CAN PASS ON THIS -- THE COSTS, CLEARLY NOT THE RETAILERS. JONATHAN: ANDREW SLIMMON, GREAT TO GET YOUR VIEW. ANDREW SLIMMON OF MORGAN STANLEY. TOM: WE'VE GOT TO REMIND OURSELVES
THIS WAS ROUGHLY $120 PER SHARE IN THE BEGINNING OF THE PANDEMIC. TARGET WAS A MOONSHOT UP TO 253. IT HAS GIVEN THAT BACK, 170 168 MOMENTS. WE NEED TO PUT IN PERSPECTIVE THE GLIDE PATH OF THESE COMPANIES BEFORE VALENTINE'S DAY OF 2020 AND AFTERWARD. I THINK THAT PERSPECTIVE IS REALLY GOING TO BE IMPORTANT COMPANY TO COMPANY. LISA: BASICALLY THE FACT THAT WE HAVE ALREADY PRICED IN SOME PAIN AND THEN A DOWNSIDE SURPRISE COULD YIELD THIS KIND OF MOVE IN SUCH A BIG NAME SHOWS YOU THE POTENTIAL RISK, THE POTHOLES AS PEOPLE REASSESS AND THE BINARY OUTCOMES.
EITHER THEY CAN WITHSTAND THIS INFLATIONARY PRESSURE OR THEY CAN'T AND THESE NAMES SEEM TO SUGGEST THEY ARE GOING TO STRUGGLE A LITTLE BIT. JONATHAN: IT'S DIFFICULT TO EXECUTE IN THIS ENVIRONMENT. I AM SURPRISED THAT THERE IS SOME SURPRISE HERE. I'M STRUGGLING WITH THIS ONE.
TO MISS LIKE THIS, TO SEE THE STOCK DOWN LIKE THIS IN THE WORLD THAT WE HAVE BEEN TALKING ABOUT FOR A YEAR NOW. IT'S KIND OF SURPRISING. LISA: IT IS SURPRISING THAT IT IS SURPRISING. HOW MUCH IS THIS TIED TO FOOD AND THINGS THAT CAME OUT THAT PEOPLE WEREN'T EXPECTING. JONATHAN: WE ARE DOWN 21% ON TARGET. FUTURES ARE LOWER BY .4% ON THE
S&P. FROM NEW YORK, THIS IS BLOOMBERG. >> KEEPING YOU UP-TO-DATE FROM NEWS AROUND THE WORLD. U.S. FUTURES ARE FLIPPING TODAY AFTER COMMENTS FROM JEROME POWELL. HE TOLD A WALL STREET JOURNAL LIVE EVENT THE FED WILL KEEP RAISING RATES UNTIL BILLS CLEAR AND CONVINCING EVIDENCE THAT INFLATION IS FALLING. HE SAID THE ECONOMY IS STRONG ENOUGH TO WITHSTAND TIGHTENING. THE BIDEN ADMINISTRATION IS SET TO BRING RUSSIA CLOSER TO THE BRINK OF DEFAULT. THE TREASURY DEPARTMENT WILL
MOVE TO FULLY BLOCK MOSCOW'S ABILITY TO PAY NEXT WEEK. A TEMPORARY WAIVER LET'S RUSSIA PAY ITS COUPONS. THE EU IS CONSIDERING WHETHER TO USE PROCEEDS SEIZED FROM RUSSIAN OLIGARCHS TO HELP REBUILD UKRAINE. IT ALSO WILL PROPOSE ISSUING JOINT DEBT. THE FOREIGN MINISTER TOLD HIS EUROPEAN COUNTERPART THAT THE RECONSTRUCTION BILL COULD REACH $1.1 TRILLION.
NEW COVID OUTBREAKS IN CHINA RAISE THE RISK OF MORE DISRUPTIVE RESTRICTIONS. BEIJING REPORTED AN INCREASE IN INFECTIONS ON TUESDAY. ALL THIS IS HAPPENING AS SHANGHAI SLOWLY EMERGES FROM THAT SIX-WEEK LOCKDOWN. THE JUSTICE DEPARTMENT HAS SUED BILLIONAIRE CASINO MOGUL STEVE WENT TO FORCE HIM TO REGISTER AS AN AGENT OF CHINA. HE USED HIS RELATIONSHIP WITH PRESIDENT TRUMP AND MEMBERS OF HIS ADMINISTRATION TO ADVANCE ASIANS INTEREST IN 2017.
HIS LAWYERS SAY HE HAS NEVER ACTED AS AN AGENT OF THE CHINESE GOVERNMENT. GLOBAL NEWS 24 HOURS A DAY ON AIR AND ON BLOOMBERG QUICKTAKE POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES. >> IF IT WERE UP TO ME I WOULD START WITH 75 BASIS POINTS.
I WOULD GIVE A VERY CLEAR SIGNAL THAT I'M SERIOUS ABOUT THIS AND I WILL TRY TO CONTAIN INFLATION EXPECTATIONS FROM NOW. JONATHAN: THAT WAS MOHAMED EL-ERIAN CATCHING UP WITH FRANCINE LACQUA EARLIER. GOOD MORNING. MARGINS, WE HAVE A PROBLEM. THAT'S THE STORY AT WALMART.
TARGET IS DOWN 22%. IN PREMARKET TRADING. THE EARNINGS OF MISS. THE REVENUE WAS OK BUT ULTIMATELY THAT'S THE PROBLEM. IT DOES NOT FALL TO THE BOTTOM LINE. LISA: BECAUSE THEY HAVE TO PAY A LOT OF UNEXPECTED HIGHER COSTS. I FIND IT INTERESTING THEY ARE
ALSO DOWNGRADING THEIR FORWARD LOOK. HOW MUCH ARE THESE THE TEA LEAVES OF A WAVE OF DOWNGRADES TO MARGINS TO COME AND HOW MUCH OUR TARGET AND WALMART THE PRECURSORS TO SOMETHING LARGER? JONATHAN: WHEN IT WAS JUST WALMART, HE WONDERED IF IT WAS JUST ABOUT EXECUTION. NOW WE HAVE A SECOND DATA POINT. WE SPENT SO MUCH TIME LAST MONTH SAYING WHEN IS IT GOING TO HAPPEN. WE ARE SEEING IT HAPPEN RIGHT NOW. TOM:
IN THE OLD DAYS, THIS STUFF WOULD BE MANAGED FORWARD. THERE WOULD BE NOT LEAKS, BUT ADJUSTMENTS. ALL THAT WITHIN THE DIALOGUE AND THE RESEARCH COMMUNITY AND THE EXECUTIVES. IT ENDED ON ONE SINGLE DAY WHEN THEY INSTITUTED A THING CALLED REG FD AND THAT'S WHY YOU HAVE THIS BLANKET SILENCE FROM EXECUTIVES SCARED STIFF THAT THEY ARE GOING TO BE SUED. YOU GET ANNOUNCEMENTS LIKE THIS.
JONATHAN: YOU HAVE BEEN CRITICAL OF THE TECH SECTOR FOR DOING SOMETHING SIMILAR. HOW ARE WE SURPRISED BY ANY OF THIS? I'M SURPRISED WE ARE SURPRISED. IF YOU SPEAK TO ANYBODY OUTSIDE OF WALL STREET AND SAY WE HAD A REPORT THAT EVERYONE IS SHOCKED, THEY WOULD LOOK AT YOU WITH A BLANK FACE AND SAY WHAT DO YOU GUYS DO ON WALL STREET? THAT'S RIDICULOUS. TOM: IT'S THE MAGNITUDE OF THE MARGIN DROP.
IT'S A 20% SHORTFALL ON MARGIN. I NOTICE SOMEONE LIKE JOE FELDMAN REAFFIRMED AN OUTPERFORM ON WALMART EVEN AFTER THE HAMMERING YESTERDAY. THESE ARE JUST OFF THESE ANNOUNCEMENTS, YOU RETELL A CRATE WILL KEEP A BUY ON TARGET. JONATHAN: IF YOU LOSE A QUARTER OF YOUR VALUE, IT'S A BETTER OFFER TODAY. TOM: SHARES ARE ON SALE THIS MORNING. WE'RE GOING TO DIVE FORWARD TO WHAT THE PANDEMIC LOOKS LIKE IN THE REST OF 20. WE GOT AN UPDATE FROM ASSOCIATE PROFESSOR OF EMERGENCY MEDICINE AT JOHNS HOPKINS UNIVERSITY.
I'M GOING TO CUT TO THE CHASE. CASES A LITTLE BIT UP. HOSPITALIZATIONS A LITTLE BIT UP. BUT DEATHS A PRETTY GOOD. ARE WE GOING TO SEE A LITTLE BIT UP ON THE TRAGEDY OF THE DEATHS FROM THIS PANDEMIC? >> I REALLY DON'T THINK SO. IF YOU LOOK AT THE ICU DATA, THE PERCENTAGE OF HOSPITALIZATIONS IN THE ICU IS AROUND 11% WHICH IS THE LOWEST NUMBER THAT WE HAVE SEEN THROUGHOUT THE PANDEMIC. I DO NOT ANTICIPATE DEATHS
RISING SIMILAR TO HOSPITALIZATIONS AND CASES. LISA: WE WERE SAYING THAT WE HAVE REACHED ENDEMIC POINT. THE CONVERSATION INCREASINGLY IS IF I HAVE GOTTEN VACCINATED AND BOOSTED, HOW PROTECTED MI SIX MONTHS LATER. HOW MUCH DOES THIS LEAVE TO LONGER-TERM BRAIN DAMAGE OR LONGER-TERM COVID TYPE SYMPTOMS? HOW MUCH IS THAT A CONCERN FOR YOU VERSUS LINGERING FEARS FOR PEOPLE WHO HAVE BEEN CONDITIONED BY TWO YEARS OF JUST FEAR? >> THE TRUTH IS THAT EVEN IF YOU HAVE BEEN VACCINATED, BOOSTED TIMES TWO AND HAD DELTA OR OMICRON, YOU CAN STILL BECOME COVID POSITIVE. BUT ARE YOU LIKELY TO THEN BECOME HOSPITALIZED AND DIE, ABSOLUTELY NOT. REGARDING ON COVID, IT'S NOT CLEAR.
THIS IS WHERE THE RESEARCH REALLY NEEDS TO PIVOT AND FOCUS. THERE IS NUMEROUS THEORIES OF WHAT CAUSES LUNG COVID AND ITS MULTI-MECHANISM. A COMBINATION OF DAMNEST TO THE BRAIN, DAMAGE TO THE VAGUS NERVE.
WE DON'T KNOW HOW TO QUANTIFY HOW MUCH LUNG COVID IS OUT THERE. AND HOW DOES IT AFFECT ACTIVITIES OF DAILY LIVING. RIGHT NOW THE FOCUS IS ON SYMPTOM CONTROL. THERE IS NO OBVIOUS TREATMENT. WE ARE GETTING TO THE STAGE WHERE NUMEROUS RESEARCH PAPERS ARE SHOWING THE MODIFIABLE RISK FACTORS FOR LUNG COVID SUCH AS THE PRESENCE OF TYPE TWO DIABETES. LISA: WE ARE SPEAKING ABOUT THIS AT A TIME WHEN WE ARE SEEING THE REOPENING PLAY OUT IN MARKETS AND AT BUSINESSES.
I WONDER IF WE ARE REACHING A POINT WHERE WE HAVE HAD THE LIMITS. PEOPLE ARE FLYING AROUND, TAKING RISKS THEY FEEL COMFORTABLE WITH. IS THIS THE NEW NORMAL? >> ABSOLUTELY. EVERY SINGLE AMERICAN RIGHT NOW IS ASSESSING OR REFLECTING ON WHERE WE ARE AT RIGHT NOW. WHAT MAKES SENSE FOR THEIR OWN FAMILIES.
SOME FAMILIES STILL HAVE IMMUNOCOMPROMISED ADULTS AT HOME. SO WE ARE DEFINING WHAT IS OUR NEW NORMAL. WHAT DOES GRADUATION WEEKEND LOOK LIKE TO YOU? ARE YOU GOING TO GO TO THE GRADUATION OR HAVE A SMALL CELEBRATORY DINNER AND AN OPEN AIR RESTAURANT? THERE'S OPTIONS TO REINTEGRATE AS A COMMUNITY AND SOCIETY. JONATHAN: GOOD TO SEE YOU AGAIN. TARGET STOCK DOWN BY 21 POINT 56%. IF YOU'RE JUST TUNING IN, JUST
A LITTLE BIT EARLIER THIS MORNING THEY CAME OUT WITH EARNINGS AND EARNINGS MISSED. MARGINS NOT GREAT AND THE GUIDANCE LIKEWISE. THE STOCK A WHOLE LOT LOWER. LISA: IT FOLLOWS WALMART. IT BECOMES THE SAME STORY.
MARGIN COMPRESSION IS HERE. WE WERE WONDERING WHEN IS IT GOING TO HAPPEN. THIS IS IT WHEN IT COMES FASTER THAN THE CEOS SEEM TO HAVE EXPECTED. HOW MUCH IS THIS A PRODUCT MIX AND A CLIENTELE AND TERTIARY BUYING BASE THAT IS MORE PRICE-SENSITIVE AND HOW MUCH IS THIS SOMETHING THAT REALLY SPEAKS TO THE FED AND SPEAKS TO MOMENTUM IN THE U.S. ECONOMY. JONATHAN: THE C-SUITE THIS SURPRISED. TOM: THE IDEA THAT RETAIL IS ADJUSTING TO NOMINAL GDP COMING DOWN. THE ANIMAL SPIRIT OF THE
COUNTRY , THAT HUGE FISCAL BOOM THAT WE HAD OUT OF THE PANDEMIC AND YOU END UP WITH 12% HEADLINE GROWTH OR WHATEVER THE NUMBER WAS AND WE ARE BRINGING THAT DOWN. 7% HEADLINE GROWTH. I'M LOOKING AT THE TARGET COMP SALES AND THEY HAVE TO READJUST. THEY HAVE TO READJUST THEIR EXPENSES BACK DOWN TO THE NORMAL. JONATHAN: IT'S ABOUT HOW THEY ADJUST.
LAST YEAR THEY COULD ADJUST BY PULLING UP PRICES. THE CONSUMER PRICE TOLERANCE WAS THERE. THIS TIME THEY HAVE TO ADJUST IN A DIFFERENT WAY. THROUGH COSTS. THAT'S GOING TO HAVE
CONSEQUENCES FOR GROWTH. TOM: WE ARE JUST BEGINNING TO HEAR THIS, FOLKS. THERE'S EVEN SOME PEOPLE ALLUDING TO OVER HIRING, WHERE PEOPLE ARE COMING BACK FROM PANDEMIC. MAYBE THERE'S TOO MANY BODIES. I WOULD RESPECTFULLY SUGGEST THAT WILL GET BACK RAPIDLY TO WHERE THEY WANT TO GO. JONATHAN: THAT WAS WALMART YESTERDAY. HOW QUICKLY WE HAVE GONE FROM UNDERSTAFFED TO OVERSTAFFED, UNDERSUPPLIED TO OVERSUPPLIED. MARGINS ARE GOOD, PRICES ARE UP.
WE CAN'T PUT THEM UP ANYMORE AND MARGINS ARE SUFFERING. TARGET IS DOWN BY 22% IN EARLY TRADING. FROM NEW YORK CITY, THIS IS BLOOMBERG. ♪ >> THERE'S BEEN A VERY MATERIAL TIGHTENING IN FINANCIAL CONDITIONS.
>> IT FEELS LIKE WE ARE IN A BOND BEAR MARKET. >> PEOPLE ARE LOOKING AS THE GLASS -- AT THE GLASS AS BEING HALF-EMPTY. >> THE CONSUMER IS STILL OUTSPENDING AND HAS BEEN PRETTY STUBBORNLY RESILIENT. >> THIS IS BLOOMBERG SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO AND LISA ABRAMOWICZ. JONATHAN: HELLO MARGIN PRESSURE. FROM NEW YORK CITY, GOOD
MORNING. THIS IS BLOOMBERG SURVEILLANCE LIVE ON TV AND RADIO ALONGSIDE TOM KEENE AND LISA ABRAMOWICZ, I'M JONATHAN FERRO. TOM: TARGET OF A SYMBOL OF RETAIL AMERICA AND THE CONSUMPTION CHALLENGES FORWARD. I'M GOING TO BE HONEST, YOU WILL HAVE PHD'S IN ECONOMICS AT THE FED ALL OF A SUDDEN ANALYZING RETAIL DYNAMICS OF THESE TWO PEOPLE, WALMART AND TARGET. TOM: WE'VE GOT TO ADJUST -- JONATHAN: WE'VE GOT TO ADJUST. I'M JUST SURPRISED TO HEAR THE C-SUITE SAY THIS IS A SHOCKER. TOM:
MAINLY -- MAYBE IT'S THE MAGNITUDE. I'M GOING TO DO A QUICK 2.7 5 MILLION EMPLOYEES BETWEEN WALMART AND TARGET. THIS IS A HUGE MASS OF LABOR AND ALL OF A SUDDEN THAT COULD ADJUST THAT THING THAT WE ARE HEARING FROM ECONOMISTS AND FED OFFICIALS. THERE ARE WATCHING THE LABOR DYNAMICS OF THE COUNTRY. THIS IS THE PRECURSOR FOR THAT. JONATHAN: THIS IS A TOUGH MOMENT FOR WALL STREET. LISA:
IS THERE AN OBLIGATION FOR CEOS TO COME OUT IF THEY SEE AN INCREASE IN PRICES SEVERAL WEEKS BEFORE THEY RELEASE EARNINGS. WHEN IT COMES TO MAIN STREET, HOW MUCH IS THIS PUSHBACK FROM CONSUMERS. HOW MUCH IS THIS TARGET AND WALMART NOT WANTING TO RAISE PRICES AS MUCH. WHERE DOES THIS PUSHBACK COME
INTO PLAY. ANDREW SLIMMON SAYING WE ARE SEEING SIGNS OF CONSUMER PUSHBACK. PROBABLY A SILVER LINING FOR THE FED. JONATHAN: A BIG MOMENT FOR TOM AS WELL. A FALCON NINE ROCKET IS SCHEDULED TO LIFT OFF FROM KENNEDY SPACE CENTER IN FLORIDA.
TOM: CAN WE TALK ABOUT ELON MUSK THE VISIONARY? CAN WE GET AWAY FROM THE TWITTER IDIOCY? THIS GUY IN 2009 SAID WE ARE GOING TO PUT ANYTHING IN ERROR AND WE ARE GOING TO TAKE THE MAIN ROCKET WHICH IS LOADED WITH ROCKET FUEL KEROSENE AND WE ARE GOING TO BRING THAT PUPPY DOWN AND LANDED IT ON A BARGE. HE'S GOT A SENSE OF HUMOR. THE BARGES ARE CALLED OF COURSE I STILL LOVE YOU. JUST READ THE INSTRUCTIONS. AND THE ONE USED TODAY IS A SHORTFALL OF GRAVITAS. THEY ARE GOING TO BRING THAT PUPPY DOWN AND LAND IT ON A CONVENTIONAL BARGE IN THE ATLANTIC OCEAN. IT'S STUNNING. I STILL AM NOT USED TO THAT IDEA OF THE RETRIEVAL OF THE MAIN ROCKET.
THIS IS KEROSENE WITH LIQUID OXYGEN FEATHERING OFF. THAT HAS ONLY BEEN LOADED IN THE LAST 30 MINUTES. WE NEED TO REMIND PEOPLE THIS IS AN UNMANNED FLIGHT. JONATHAN: WALK US THROUGH THE DIFFERENCE OF THE VANITY PROJECT OF SPACE TOURISM AND WHAT'S PLAYING OUT BEFORE OUR EYES. TOM: JOHN HAS BEEN WITH ME WITH THE BEVERAGE OF MY CHOICE. USUALLY WHEN WE ARE DOING SPACE LAUNCH, I USE TANG.
SERIOUSLY, THIS IS UP TO ORBIT, ACTUALLY DOING THINGS IN SPACE, NOT A TOY STRIDE WITH ALL OF THOSE TENSIONS COME WITH THE SPEEDS TO GET UP TO ORBITAL VELOCITY. JONATHAN: COMING UP TO 10 SECONDS TO LAUNCH. LET'S TAKE A LITTLE LISTEN IN. >> T -10, 9, 8, 7, 6, 5, 4, 3, 2, 1. FULL POWER. AND LEFT OFF. -- LIFT OFF. >> FALCON 9 HAS SUCCESSFULLY LIFTED OFF FROM LAUNCH COMPLEX 30 98 CARRYING OUR 53 STARLING SATELLITES INTO SPACE.
MOMENTS AGO WE DID THROTTLE DOWN THE ENGINES ON THE FIRST STAGE AND THIS IS IN PREPARATION FOR MAX Q. MAX Q. IS THE MAXIMUM DYNAMIC PRESSURE THAT THE VEHICLE SEES. TOM: THAT'S A KEY POINT. THE MAXIMUM DYNAMIC PRESSURE IS THE DIFFERENTIAL OF THESE VERY HEAVY PAYLOADS. THE FUNDAMENTAL ISSUE OF THIS BACK TO THE SPACE SHUTTLE IS THE WEIGHT OF WHAT THEY ARE PUTTING IN SPACE.
THAT WAS AN IMMENSE CHEMICAL CHALLENGE FOR PRIVATE AND PUBLIC FOR NASA TO DO, TO GET THE CHEMISTRY RIGHT, TO PUT BIGGER STUFF IN SPACE. JUST GOING FOR MERCURY THROUGH TO APOLLO WAS A FEAT WITH A SATURN ROCKET. BUT YOU CAN SEE AND ON RADIO YOU KNOW THAT THESE ROCKETS TODAY ARE MUCH SMALLER THAN THE SATURN FIVE ROCKETRY OF THE WORLD AGO. JONATHAN: THIS FALCON 9 ROCKET TOPPED WITH 53 STARLING SPACECRAFT. A SUCCESSFUL LAUNCH THIS
MORNING. WE ARE GOING TO LEAVE THE PICTURES UP FOR YOU. WE WILL CONTINUE THE MARKET COVERAGE. FUTURES NEGATIVE. WE ARE DOWN BY .4%. FROM WALMART TO TARGET, MARGINS UNDER PRESSURE. LISA: THIS IS REALLY THE FIRST SALVO IN TERMS OF SEEING REAL MARGIN COMPRESSION THAT IS UNLIKE WHAT PEOPLE WERE EXPECTING AND IT IS COMING AT THE BASIC ASPECTS OF THE U.S. CONSUMER ECONOMY.
WALMART AND TARGET. WHAT PERCENTAGE OF RETAIL SALES DOES NOT ACCOUNT FOR. AND FRANKLY THEY ARE STILL SELLING. IT'S JUST THAT THEY CANNOT PASS ON THE COSTS. JONATHAN: LET'S GET TO EQUITY STRATEGIST AT WELLS FARGO SECURITIES. THE MARGIN PRESSURE FROM WALMART TO TARGET. YOUR THOUGHTS PLEASE.
>> IT IS CERTAINLY A BIG INDICATOR. THEY EMPLOY A LOT OF PEOPLE. AS PEOPLE HAVE A TIGHTER LABOR MARKET AND YET IF PEOPLE ARE SPENDING LESS, THE QUESTION IS CAN COMPANIES PASS ALONG PRICE. THIS IS SORT OF WHAT WE ARE LOOKING FOR. THEY WANTED TO SEE DEMAND COOL OFF A BIT TO BALANCE THINGS, TO BRING INFLATION MORE UNDER CONTROL. SO IT'S SORT OF WHAT WE WERE HOPING FOR BUT ALSO A LITTLE CONCERNING ON HOW MUCH THIS RAISES THE POSSIBILITY OF RECESSION. TOM: WE ARE LOOKING AT THE PHYSICS
OF A ROCKET LAUNCH RIGHT NOW AND THEY MENTION THE MAXIMUM DYNAMIC PRESSURE. YOU DID THIS VIOLATE IN YOUR PHYSICS OF UNDERGRADUATE -- BALLET IN YOUR PHYSICS OF UNDERGRADUATE. ARE WE AT THE MAXIMUM DYNAMIC PRESSURE OF INFLATION RIGHT NOW? >> I THINK IT'S GOING TO BE HARDER TO GET THAT SOFT IS SPLENDID -- SOFTISH LANDING. WE ARE SEEING THAT'S GOING TO TAKE SEVERAL MORE QUARTERS. TOM: LET'S GO ASTRONAUTICAL -- AERONAUTICAL AGAIN IF WE CAN. THE ACCELERATION FUNCTION IS A SQUARED FUNCTION. GUESSING TIME ON THE X-AXIS IS
THE HARDEST THING TO DO IN THIS RACKET. WHAT ARE THE DETERMINANTS YOU ARE GOING TO USE TO GUESS WHEN INFLATION ROLLS OVER? >> ONE IS THE DYNAMIC BETWEEN HOW DOES THAT GOOD SPENDING GO VERSUS THE SERVICE SPENDING. WHEN YOU HAVE A TIGHT LABOR MARKET AND COMPANIES HAVE TO BE COMPETITIVE AND RAISE WAGES SO THAT CONSUMERS ACTUALLY HAVE MORE TO SPEND, BUT HOW WILL THAT OFFSET WITH COMPANIES BEING ABLE TO PASS ALONG PRICE BECAUSE CONSUMERS HAVE MORE MONEY TO SPEND. A THIRD COMPONENT I THINK WE ARE UNDER APPRECIATING IS RIGHT NOW HOUSEHOLD WEALTH IS HEAVILY TIED TO THE EQUITY MARKET. WE SAW A HISTORICAL AMOUNT OF
NEARLY A QUARTER OF HOUSEHOLD WEALTH TIED TO IT THESE. -- TIED TO EQUITIES. YOU COULD SEE THAT SOURING SENTIMENT BLEED INTO CONSUMER SPENDING. WE ARE NOT QUITE CONVINCED THE
CONSUMER IS REALLY DECELERATING. LISA: CAN YOU ELABORATE WHAT YOU SAID WHICH IS THIS PARTICULAR SERIES OF REPORTS IS A LITTLE CONCERNING WITH HOW MUCH IT RAISES THE RISK OF RECESSION. HOW SO? >> WHEN YOU TALK ABOUT WHAT IS THE POSSIBILITY OF RECESSION, FOR US IT IS NOT OUR BASE CASE. WE STILL PUT THE POSSIBILITY BY
THE END OF A RECESSION BY 2023 AT AROUND 30%. THE MAIN DRIVER AND SOMETHING WE HAVE ALL FOCUSED ON AND RELIED ON TO PULL US OUT OF THE RECESSION POST-PANDEMIC AND CONTINUE TO DRIVE OUR ECONOMY HAS BEEN THE U.S. CONSUMER. THE STRENGTH OF SPENDING AND THE WILLINGNESS TO SPEND NOT JUST ON GOODS BUT AS COVID AND LOCKDOWNS RELAXED, ON EXPERIENCES AND GET OUT THERE AND TRAVEL AND PUT THAT MONEY TO WORK. AS THAT DRIVER STARTS TO COOL DOWN, OUR MARGINS REALLY COME UNDER PRESSURE AND NOT THE EARNINGS GROWTH WILL TURN NEGATIVE. THAT GDP GROWTH COULD TURN
NEGATIVE. NOT AIR BASE CASE, BUT THE TAIL RISKS ARE GETTING BIGGER. LISA: A NUMBER OF STRATEGISTS HAVE COME ON AND SAID THEY STILL LIKE CONSUMER DISCRETIONARY. WOULD YOU BACK AWAY FROM THAT IDEA BASED ON WHAT WE ARE SEEING RIGHT NOW IN THESE NUMBERS? >> I WOULDN'T PARTICULARLY BACK AWAY, BUT PERHAPS IT WOULDN'T BE OUR NUMBER ONE CALL HERE. WE ARE STILL POSITIVE WHERE YOU CAN HAVE LEISURE SPENDING.
REOPENING SPACE. THE TRAVEL INDUSTRIES. WHAT WE HAVE BEEN LOOKING AT VERY CAREFULLY ESPECIALLY WITH THE TIGHTENING OF MONETARY POLICY HAS BEEN THE GROWTH STYLE. WE THINK WE ARE STARTING TO SEE THE BOTTOM. WE ARE STARTING TO WARM UP TO IT AGAIN. TOM:
WHEN WE LOOK AT THE MARKET ADJUSTMENT YEAR, IT IS OF CENTRAL BANKS. IT IS OFF THE FED. I'M FOCUSED ON THE NONLINEARITY OF THE FED DECISIONS THEY HAVE TO MAKE. IT'S FRANKLY TRUE FOR ECB AS WELL. LINK EQUITY MARKET PERFORMANCE
INTO THE MASSIVE CHALLENGES THE FED HAS AFTER THE JULY 27 MEETING. >> YOU BRING UP A GREAT POINT. HOW ARE EQUITIES GOING TO HANDLE IT IF THE FED CONTINUES TO TIGHTEN AND WE START TO REALLY SEE THAT GDP GROWTH SLOW. WE DO EXPECT GDP TO COME DOWN
BUT WE STILL THINK UNEMPLOYMENT RATES COULD COME EVEN LOWER. IN THAT KIND OF ENVIRONMENT WHERE JOBS AND WAGE GROWTH IS AGGRESSIVE AND WAGES ARE GOING HIGHER, WE STILL THINK EQUITIES CAN GO HIGHER FROM HERE. WE THINK THERE COULD BE A CHANGE IN LEADERSHIP HERE. IF GROWTH HAS BOTTOMED AND WE START GET A BETTER HANDLE ON INFLATION, THAT'S GOING TO VOTE MUCH BETTER FOR THESE GROWTH SECTORS. JONATHAN: IT WILL BE HARDER TO GET A SOFT LANDING. IS SHE TALKING ABOUT A FALCON 9
ROCKET OR THE ECONOMY? TOM: THE DRONE SHIP LANDING WILL BE JUST EXTRAORDINARY TO SEE. JONATHAN: I HAD TO TEA YOU UP -- T YOU UP, TOM. TOM: WHAT'S TWITTER DOING THIS MORNING? IT WAS A 38 HANDLE LAST TIME I LOOKED.
THIS IS NOT THE ELON MUSK OF TWITTER ACQUISITION. THIS IS A VISIONARY WHO SAID YOU COULD TAKE A HUGE HUNK OF ROCKET AND PUT IT ON A BARGE IN THE ATLANTIC OCEAN AND TO WITNESS THAT IS TRULY THE SINGULAR FEATURE OF MODERN SPACE TECHNOLOGY. JONATHAN: ALWAYS IMPRESSIVE. LET'S GET BACK TO THIS MARKET BECAUSE WE ARE SEEING A MONSTER MOVE. TARGET IS DOWN BY 21.6 PERCENT IN EARLY TRADING. IT IS WALMART VOLUME TWO ON STEROIDS. LISA:
WHAT DOES THIS MEAN GOING FORWARD. THIS ISN'T NECESSARILY A BIG PART OF THE INDEX. WE ARE SEEING THIS BASICALLY SPEAKS TO CONSUMER APPETITE TO ABSORB PRICES. WE TALK ABOUT HIGH GAS PRICES ARE HIGHER.
WE TALK ABOUT FOOD PRICES CLIMBING IN THE U.S. AND BEYOND. HOW MUCH IS THIS STARTING TO ACCELERATE. JONATHAN: AVERAGE GAS PRICES IN THIS COUNTRY.
JP MORGAN U.S. GASOLINE PRICES. CAN YOU IMAGINE AN AVERAGE OF SIX DOLLARS. TOM: A BARREL OF OIL ADJUSTED FOR INFLATION. YOU BRING UP A REALLY IMPORTANT POINT. THIS IS NONLINEAR. YOU GO FROM THREE DOLLARS. EVERY TIME UP IS A HUGELY NONLINEAR FEELING.
I WILL BE HONEST. I CAN'T DO IT BECAUSE I DON'T DRIVE. EVERYBODY HAS A VISCERAL STORY OF WHAT IT'S GOING TO MEAN AT 480 OR 520. JONATHAN: SOMETHING TELLS ME GOVERNMENTS AROUND THE WORLD WANT TO GET OUT IN FRONT OF THE PUBLIC AND SITE TO THIS NOTE FROM JP MORGAN. TYPICALLY REFINERS PRODUCE MORE GASOLINE AHEAD OF THE SUMMER SEASON. THIS YEAR U.S. GASOLINE INVENTORIES HAVE
FALLEN COUNTER SEASONALLY. THAT'S NOT GOING TO WORK POLITICALLY. PRICE GOUGING. LISA: REFINERIES. JONATHAN: NUANCE DOES NOT WORK IN POLITICS. WE WILL TALK ABOUT THE POLITICS NEXT. WE WILL HEAD DOWN TO D.C. FROM A BEAUTIFUL NEW YORK, THIS IS BLOOMBERG.
>> KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE WORLD. SHARES OF TARGET PLUNGING. THE DISCOUNT RETAILER CUT ITS PROFIT OUTLOOK AND MISSED FIRST QUARTER EARNINGS ESTIMATE. TARGET SAYS A SURGEON COST SHOWS LITTLE SIGN OF EASING ANYTIME SOON. IF AND FREIGHT CHARGES OR A BILLION DOLLARS MORE THAN EXPECTED. -- IF YOU WILL AND FREIGHT CHARGES WERE A BILLION DOLLARS -- FUEL AND FREIGHT CHARGES WERE A BILLION DOLLARS MORE THAN EXPECTED. -- THE ECONOMY IS STRONG LEFT
TO WITHSTAND TIGHTENING. INFLATION IN THE UK2 HAS RISEN TO ITS HIGHEST LEVEL IN 40 YEARS. CONSUMER PRICES SURGED 9%. ALL THAT WILL ADD TO PRESSURE FOR ACTION FROM THE GOVERNMENT AND THE BANK OF ENGLAND. FINLAND AND SWEDEN HAVE NOW APPLIED FOR MEMBERSHIP IN NATO. A MOVE THAT RESHAPES EUROPE'S DEFENSES.
OPPOSITION FROM TURKEY'S PRESIDENT ERDOGAN. HE ALLEGES BOTH COUNTRIES SUPPORT TURKISH MILITANTS THAT HE SEES AS TERRORISTS. -- DIRECTORS VOTED UNANIMOUSLY TO RECOMMEND THAT SHAREHOLDERS APPROVE ELON MUSK'S BID OF $64 AND $.20 A SHARE. THE BOARD STATEMENT CAME AS MUSKA APPEARED TO BE MANEUVERING TO DITCH OR RENEGOTIATE HIS OFFER. GLOBAL NEWS 24 HOURS A DAY ON AIR AND ON BLOOMBERG QUICKTAKE POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES. I'M RITIKA GUPTA. THIS IS BLOOMBERG.
>> WHAT A LOT OF ECONOMISTS ARE SCRATCHING THEIR HEADS AND WONDERING ABOUT IS IF WE REALLY HAVE TO BRING DEMAND DOWN TO GET INFLATION IN CHECK, IS NOT GOING TO PUT THE ECONOMY INTO RECESSION. AND WE DON'T KNOW. JONATHAN: NEEL KASHKARI, THEY DO NOT KNOW. FUTURES DOWN .7% ON THE S&P. THE NASDAQ DOWN BY ONE FULL PERCENTAGE POINT RIGHT NOW. YESTERDAY IT WAS WALMART, TODAY ITS TARGET. TARGET IS DOWN HARD. END OF 21 POINT 5%. WE HAVE SEEN IT REPEATEDLY OVER THE LAST HOUR.
MARGINS, WE HAVE A PROBLEM. TOM: DREW MEDICINE COMING ON WITH A NICE QUICK NOTE. HE SAYS THE DISTINCTION IS THESE ARE LARGEST EMPLOYERS. AS I MENTIONED -- THIS IS A GUY WHO IS CONGENITALLY OPTIMISTIC.
DREW MEDICINE MAKES REAL CLEAR LARGE EMPLOYERS WITH THESE KIND OF PRESSURES IS A UNIQUE UNIQUE MOMENT. JONATHAN: WE ARE IN AT AROUND 3.5% UNEMPLOYMENT IN AMERICA. 50 IS THE ESTIMATE FROM THE FED AND 350 IS THE ESTIMATE FOR NEXT YEAR FROM THE FED AS WELL. CAN THEY MAINTAIN THAT?
DO YOU REMEMBER WHEN THOSE FORECASTS CAME OUT AND DIANE SWONK CAME ON THE SHOW AND SAID THIS IS FANTASY LAND AND SCOTT MINERD SAID THE SAME THING. HOW ARE THEY GOING TO DO THIS. REBALANCE THE LABOR MARKET, KEEP UNEMPLOYMENT AT 350. TOM: WE HAVE A TEST TUBE KNOWN AS THE UNITED KINGDOM WHERE THEY HAVE BEEN WORKING ON THIS SINCE THE 1920'S. THE ANSWER IS THE FANTASY IN THE TEXTBOOKS IS JUST THAT.
MY CORE THEME HERE, CORPORATIONS WILL ADAPT TO PRESERVE THEIR FINANCIAL CONDITIONS AND TO PRESERVE THEIR FREE CASH FLOW. THAT'S WHAT HAPPENS. JONATHAN: YOU HAVE SAID THAT SO MANY TIMES OVER THE LAST COUPLE OF YEARS. IT'S THE CHALLENGE AND HOW THEY ARE GOING TO ADAPT. IN COST. TOM: AT THE END OF SUMMER, YOU'VE
GOT YOUR SUMMER HOME. WE HAVE TO DO OCTOBER PLANNING INTO NEXT YEAR. ALL OF THAT AS OF YESTERDAY HAS BEEN YANKED FORWARD. JONATHAN: WE ARE ALL SURPRISED THEY ARE SURPRISED BY THE INFLATIONARY BACKDROP. TOM: ONE OF THE FIRST PEOPLE IN
WASHINGTON TO TAKE AN INTEREST IN ME AT BLOOMBERG WAS ONE DAVID GERGEN. YOU KNOW HIM FROM CNN, BUT FAR MORE IS HIS PUBLIC SERVICE TO REPUBLICANS AND DEMOCRATS IN ANNMARIE HORDERN'S WHITE HOUSE. GERGEN OUT. WITH AN IMPORTANT BOOK ON LEADERSHIP. YOU ARE THE YOUNGEST PERSON IN WASHINGTON. THE PROBLEM IS THE NEXT YOUNGEST PERSON IS 78 YEARS OLD. HOW DID WE GET TO A WASHINGTON THAT YOU COVER WHERE 80 IS A NORMAL AGE FOR LEADERSHIP? >> I CAN ASSURE YOU I'M CERTAINLY NOT THE YOUNGEST PERSON IN WASHINGTON, BUT YOU ARE RIGHT.
I AM ON THE YOUNGER SCALE ESPECIALLY WHEN YOU LOOK AT OUR ELECTED LEADERS. THIS WASHINGTON POST ARTICLE IS THE FACT THAT ALL OF OUR ELECTED LEADERS WHEN YOU LOOK AT THE LEADERSHIP, SENATOR MCCONNELL, SPEAKER PELOSI, THE PRESIDENT OF THE UNITED STATES. THE FORMER PRESIDENT WHO WANTS TO TAKE ON THE CURRENT PRESIDENT IN 2024 ARE ALL IN THEIR 70'S AND 80'S AND THIS IS THE WORLD WE LIVE IN WHERE THE LEADERSHIP IS AT THE UPPER END, I'M NOT TRYING TO BE IN A JUST, BUT THEY ARE AGING. -- AN AGEIST, BUT THEY ARE AGING. LISA:
ARE WE GETTING A SENSE OF HOW THAT LEADERSHIP IS CHANGING BASED ON THE PRIMARY RESULTS WE HAVE GOTTEN OUT OF PLACES LIKE NORTH CAROLINA AND THE ONES THAT WE HAVE HEARD FROM PENNSYLVANIA? LISA: THE REALLY BIG DRAMATIC HEADLINE IS THE REPRESENTATIVE WHO HAS BEEN OUSTED. HE HAD A LAST-MINUTE INFLUENCE OF SUPPORT FROM DONALD TRUMP. IT DOES SEEM LIKE THE OLD REPUBLICAN GUARD REALLY HAD ENOUGH WITH SOME OF THESE HEADLINES COMING OUT OF HIM THAT HAD TO DO WITH CLAIMING ABOUT REPUBLICANS AND OR GENES ON THE CAPITAL, COCAINE ETC. THIS WHITE HOUSE WOULD MAYBE CALL HIM PART OF THE ULTRA MAGA.
PENNSYLVANIA IS AN IMPORTANT SENATE RACE. YOU HAVE AMENDMENT'S -- MEHMET OZ AGAINST A FORMER HEDGE FUND MANAGER. THIS RACE IS NECK AND NECK. LISA: WE ARE GOING TO BE TALKING ABOUT HOW MUCH CONSUMERS ARE STARTING TO PUSH BACK ON HOW MUCH CONSUMER PRICES ARE JUST GOING UP. HOW DOES THAT PLAY HEADING INTO THE MIDTERMS. WHAT DOES THAT DO IN TERMS OF THE MIX OF WHO WINS BASED ON POLES AND HISTORY? >> BASED ON HISTORY IT MEANS THE DEMOCRATS ARE REALLY GOING TO SUFFER IN THE MIDTERM ELECTIONS. YOU HAVE ANOTHER RECORD TODAY FOR GASOLINE PRICES.
JAVIER BLAS POINTED OUT TO ME THAT IN CALIFORNIA, IT'S MORE THAN SEVEN DOLLARS ON AVERAGE FOR GASOLINE AND WE ARE NOT EVEN IN THE PEAK SUMMER DRIVING MONTHS. AT THE SAME TIME YOU ALSO HAVE DIESEL GOING HIGHER. I DON'T KNOW HOW MANY TIMES WE SAY THIS ON THIS PROGRAM, BUT WE ARE A FARM TO TRUCK TO KITCHEN ECONOMY SO WHEN DIESEL GOES UP, GROCERY BILLS ARE GOING UP AND ALL OF THAT IS EXACERBATED BY THE FACT THAT RUSSIA AND UKRAINE ARE REALLY BIG EXPORTERS OF WHEAT, CORN OIL, BARLEY. THIS IS ALSO GOING TO PLAY INTO INFLATION AND FOOD SECURITY.
ALL OF THIS IS A GLOBAL MARKET. A LOT OF THESE PRESSURES ARE GOING TO HIT AMERICANS AT THEIR KITCHEN TABLE AND AT THE PUMP AND THIS IS NOT GOING TO BODE WELL FOR THE PARTY IN CHARGE. JONATHAN: WHAT HAPPENED TO THE GAS TAX HOLIDAY CONVERSATION? >> THERE IS NO LEGISLATION AS OF YET. THERE IS TALK OF THIS NOPEC BILL. IT NEVER REALLY WORKS WHEN IT REACHES THE WHITE HOUSE BECAUSE IT WOULD BE ANTAGONIZING INDIVIDUALS WITH SPARE CAPACITY TO LET OIL INTO THE MARKET. POTENTIALLY THEY WILL MAKE
GASOLINE CHEAPER WHICH MAY HAVE AN INDIRECT EFFECT OF NOT HELPING THEM. WHAT YOU REALLY NEED IN THIS KIND OF MARKET IS DEMAND DESTRUCTION. JONATHAN: THAT'S THE BOTTOM LINE. DEMAND DESTRUCTION. THAT'S WHAT MANY PEOPLE ARE FOCUSED ON. TOM: HOW MANY PEOPLE CAN SUBSTITUTE OUT A GALLON OF GAS? I REMEMBER IN THE SECOND OPEC CRISIS. IT WAS 1986. SHOULD I DRIVE TO THE OTHER SIDE OF THE CITY? DO I REALLY WANT TO SPEND THE MONEY TO GO A FAIR AMOUNT OF DISTANCE? ARE WE BACK TO THAT. IT WILL BE INTERESTING.
JONATHAN: IT'S ABOUT WHAT YOU CALL HERE THE FLYOVER STATES, TOM. IT'S A VERY DIFFERENT WAY OF LIVING. AND THESE POLICIES ARE ALWAYS SET BY PEOPLE IN CITIES. I KNOW THEY CALL THEM THE COASTAL ELITE BUT ULTIMATELY THEY ARE PULLING THE POLICY LEVERS. GETTING DRIVEN BY UBER. JONATHAN: BRAMO HAS A TREAT FOR YOU IN A MOMENT. I'M LOOKING FORWARD TO IT.
THE S&P DOWN ABOUT 0.8%. GOOD MORNING. ON THE NASDAQ 100, DOWN BY MORE THAN 1%, AND WE TOOK A LITTLE BIT OF A DIVE ABOUT AN HOUR AGO FOLLOWING EARNINGS FROM TARGET. IT IS ABOUT THE MARGINS, A DOWNSIDE SURPRISE, AND I AM SURPRISED THEY ARE SURPRISED. I WILL CARRY ON A LITTLE BIT LATER. FUTURES A LITTLE BIT NEGATIVE. THERE'S A SQUEEZE ON THE CONSUMER.
THEY CAN'T PASS ON THE HIGHER COSTS SO THEY'VE GOT TO ABSORB IT THROUGH MARGIN PRESSURE. WE TALKED ABOUT THAT FOR SO LONG OVER THE LAST YEAR, AND NOW YOU ARE SEEING REAL EVIDENCE OF IT FROM TWO OF THE BIGGEST RETAILERS IN THIS COUNTRY. OMAR YESTERDAY, AND THEN TARGET TODAY -- WALMART YESTERDAY, AND THEN TARGET TODAY. TOM: I WOULD BE OPTIMISTIC AND SAY THESE COMPANIES WILL ADAPT. THEY ARE GOING TO DO IT BECAUSE THEY ARE GINORMOUS. THINK HOW THE LITTLE GUYS FEEL
AFTER SEEING THESE CHALLENGES. JONATHAN: LET'S LOOK AT A LITTLE BIT MORE CLEAR. TOM: THE FED IS GOING TO CAPITULATE. JONATHAN: ARE YOU AFTER MYSTIC FROM THE ECONOMIC SIDE -- ARE YOU OPTIMISTIC FROM THE ECONOMIC SIDE? GUEST: -- TOM: I WOULD RESPECTFULLY SUGGEST THE FED IS GOING TO WALK IT BACK. JONATHAN: ON WHAT? TOM: NOT SURE.
IT IS A TOUGH TASK. BILL DUDLEY WOULD SAY I'M WRONG. JONATHAN: HOW SOON? TOM: DON'T KNOW. YOU NEVER MAKE A TIME FUNCTION CALL. JONATHAN: I COULD SAY WE ARE GOING TO HAVE A RECESSION, BUT IF I DON'T GIVE YOU THE SCALE, MAGNITUDE, AND THE TIME -- TOM: THE HOUSTON ASTROS HIT FIVE HOME RUNS OFF THE RED SOX IN THE SECOND INNING LAST NIGHT. THAT'S MAGNITUDE. JONATHAN: TWOS, TENS AND 30'S LOOK LIKE THIS.
HIGHER BY ABOUT A BASIS POINT TO 2.9952%. STERLING, CABLE NEGATIVE BY 0.7%. INFLATION IN THE U.K. AT 9%. THE BANK OF ENGLAND STUCK BETWEEN A ROCK AND A HARD PLACE. AS FOR THE EURO, WE'VE HAD A VISUAL AFTER OFFICIAL TALKING UP INTEREST RATES GETTING BACK TO ZERO. I HAVE TO SAY, ONE OF THE MORE NEUTRAL MEMBERS OF THE ECB, NOT WANT TO BE MOST HAWKISH MEMBERS, TALKING ABOUT A BE QUICKLY GETTING BACK TO ZERO. THAT IS THE STORY AND FOREIGN-EXCHANGE. LET'S GET YOU SOME SINGLE NAMES. LET'S GET TO BRAMO FOR MORE.
GOOD MORNING, LISA. LISA: I WILL GET TO THE ASTROS REVIEW AT SOME POINT. I WILL NOT GIVE YOU A TIMEFRAME. WE WILL GET TO RETAIL AND A SECOND, BUT BEFORE WE GET TO THAT, THE ELON MUSK SHOW, TWITTER. WE ARE SEEING THAT $38 PRICE STICK EVEN THOUGH HE PROPOSED A $54.20 TARGET. THE BOARD SAYING THEY ARE GOING TO HOLD HIM TO IT. HE IS SAYING I DON'T KNOW IF I WANT TO PAY THAT. TESLA YOUR SEEING SINK AS A
RESULT OF SOME OF THE SUPPLY AND MANUFACTURING ISSUES IN CHINA, SO SHARES ARE DOWN ABOUT 1.7%. NETFLIX, WHEN YOU START TO GET SUPPLY AND DEMAND SHIFT AROUND SO DRAMATICALLY, WHAT YOU GET IS OVERSUPPLY OF STAFF. USE ON NETFLIX COME OUT AND SAY THEY ARE LAYING OFF 150 PEOPLE AS A RESULT OF SOME OF THE PRESSURES AND THE LACK OF SUBSCRIBERS. THOSE SHARES DOWN ABOUT 1%. THE ACTION ALL IN RETAIL. TARGET THE BIG STORY OF THE DAY AFTER REPORTING WORSE THAN EXPECTED EARNINGS AS A RESULT OF THOSE MARGIN PRESSURES, DOWN 22% AND LEADING A WHOLE HOST OF OTHER RETAILERS LOWER WHO ARE GOING TO REPORT TODAY.
TJX SPEC COULD TO REPORT BEFORE THE OPEN, AND THAT HAS SHARES DOWN IN SYMPATHY. BATH AND BODY WORKS SO A LITTLE MORE THAN 3%. I DO WONDER, THE CONSUMER DISCRETIONARY SCUM ARE THEY JUST GOING TO REMAIN PERMANENTLY ON SALE? BECAUSE THOSE ARE GOING TO HAVE A HARDER TIME PASSING ALONG THOSE COSTS TO EVERYONE, ESPECIALLY AS THEY ARE SURPRISED BY THE INCREDIBLE COST PRESSURES. TOM: SHE CAN DO IT ALL. SHE CAN DO BONDS, SHE CAN DO EQUITIES. LISA: AND ASTROS AT SOME POINT, BUT I AM NOT GOING TO TELL YOU WHEN. JONATHAN: SHE'S GREAT AT THAT. A LITTLE BIT OF A BEARISH TILT
TO IT. LISA: LET'S MOVE ON BEFORE THIS GOES SOUTH. [LAUGHTER] TOM: LISA ABRAMOWICZ, THANK YOU SO MUCH. THIS IS THE CONVERSATION OF THE
WEEK, TO SAY THE LEAST, OR MAYBE THE MONTH. LOSSES IN THE BOND MARKET. BROOKE MASTERS OVER AT "THE FT" HAS DONE A TOUR DE FORCE ON THE NEW PIMCO, AND A BIG PART OF THAT, IS JEROME SHOULD -- AND A BIG PART OF THAT IS JEROME SCHNEIDER, THEIR HEAD OF PORTFOLIO SHORT-TERM.
JEROME SCHNEIDER SAYS THE BOND MATH DOES NOT WORK, AND JOINS US TODAY. LET'S CUT RIGHT TO THE MATH, WHETHER IT IS OFF BILL GROSS'S MUNRO TRADER WERE OFF OF YOUR FOUR BLOOMBERG SCREENS. WHY DOES THE MATH NOT WORK? JEROME: WHEN YOU LOOK AT WHERE WE ARE TODAY, THE MARKET NEEDS TO LOOK AT THE CALIBRATION WE HAVE SEEN PREDOMINANTLY IN THE FRONT END OF THE MARKET. WE HAVE SEEN A TREMENDOUS PART OF THAT COME FROM THE MARKET PLACE WITH REGARDS TO TIGHTENING FINANCIAL CONDITIONS, WHICH MARKETS HAVE REALLY ADAPTED TO.
MORE IMPORTANTLY, I THINK YOU HAVE TO RATIONALIZE WHERE FRONT END RATES HAVE COME. THE TIGHTENING POLICY PROCESS HAS COME FROM THE EXPECTATION OF HIGHER RATES, BUT THAT HAS ALSO PUT US ON PRETTY FIRM FOOTING WHERE WE CAN DERIVE A LOT OF INCOME FROM WHERE BONDS ARE. I THINK THAT IS THE BOND MATH, THE MOST PEOPLE -- POND MATH THAT MOST PEOPLE ARE -- BOND MATH THAT MOST PEOPLE ARE OVERLOOKING IN THIS ENVIRONMENT. YOU HAVE A 2-YEAR NOTE IT IS 2.7% THIS MORNING. YOU DECOMPRESS THAT, IT REALLY IMPLIES THAT THE ONE-YEAR RATE IS ABOUT 3.3%, 3.4%.
NOT TO GET TOO BOND GEEKY, THAT IS WELL ABOVE THE TERMINAL RADIX PETITIONS OF THE FED. SO WHEN YOU THINK ABOUT THE MARKETPLACE AND WHERE WE ARE, INVESTORS SORT OF NEED TO RATIONALIZE. TOM: I'M GOING TO CUT TO THE CHASE. TURNING AROUND, ASSETS LARGER THAN WHEN GROSS WAS THERE. THE HEART OF YOUR CALL WAS RETICENCE ON OWNING BONDS THROUGHOUT THE BULL MARKET. IT HAS ENDED. WHEN YOU GO LONG BONDS? WHEN CAN YOU EXTEND THE RATION? JEROME: YOU'VE GOT TO THINK ABOUT THE PURPOSE OF BONDS AS A DUET. YOU GOT CAPITAL DEPRECIATION, PLUS CARRY AND INCOME. THAT COMPONENT HAS BEEN
UNDERSTATED FOR THE PAST 10 YEARS. IT IS BACK. SO ONE PART OF THE DUET IS HAVING THE SECOND PART OF THE SYMPHONY COME INTO PLAY AND HELP A COMPANY. THE THEME AT THIS POINT IN TIME IS FUNDAMENTALLY WHAT WE NEED TO BE THINKING ABOUT AND PORTFOLIO CONSTRUCTION. THERE'S A FUNDAMENTAL CHANGE, WHICH IS SIMPLY THAT NOT ONLY ARE WE DEALING WITH FINANCIAL CONDITIONS WHICH ARE CLEARLY INFLUX, BUT LIQUIDITY CONDITIONS IN FLUX. THAT SIMPLY MEANS THAT FOR AN INVESTOR, THERE'S A FEW THINGS THEY NEED TO KEEP IN MIND. ONE, TRANSACTION COSTS ARE HIGHER IN THEIR PORTFOLIOS. YOU THINK ABOUT RISK
ALLOCATIONS, THOSE NEED TO BE A LITTLE BIT LONGER IN TERMS OF TENOR AND ALSO STICKIER, MEANING THE COST OF THOSE FUNDS IS MORE PUNITIVE, SO WE NEED TO BE THINKING ABOUT WAYS TO MITIGATE THE VOLATILITY IN THE PORTFOLIOS AND THE COST OF THESE TRANSACTIONS, WHICH MEANS ULTIMATELY YOU NEED MORE CASH. NEED MORE FIXED INCOME ANY PORTFOLIO. WHILE IT SOUNDS LIKE WE ARE TALKING OUR BOOK, WHEN YOU SEE WHERE WE HAVE COME FROM SINCE 2021 WITH SLIGHT YIELD CURVES, FLAT CREDIT CURVES, WE FIND OURSELVES IN A PRETTY DEFINING MOMENT NOW WHERE THE RECALIBRATION OF FRONT-END RATES AND RATES IN GENERAL SORT OF PUTS THAT DUET BACK INTO SOMETHING A LITTLE MORE HARMONIC NOW. LISA: THIS DUET SOUNDS LOVELY, AND I'M SURE THAT IT ACTUALLY IS A GREAT NARRATIVE TO PAINT FOR CLIENTS.
I WONDER HOW MUCH SOOTHING THEY REQUIRE AFTER SEEING THEIR EARNINGS STATEMENTS, THE RESULTS AFTER A QUARTER THAT WAS ABSOLUTELY HORRIBLE, A BLOODBATH FOR MANY PEOPLE IN TERMS OF TOTAL LOSSES. HOW MUCH DO WE GET WITHDRAWALS FROM SOME OF
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