Bloomberg Surveillance 6/22/2022 Powell on the Hill
>> NORTH CENTRAL BANK WANTS TO ENGINEER A RECESSION. >> A LOT OF COUNTRIES ARE PLAIN CATCH UP TO GET INFLATION UNDER CONTROL. >> THE FED IS GOING TO HAVE TO BE AGGRESSIVE. >> AT THIS POINT, I DO NOT THINK A RECESSION IS YET INEVITABLE.
>> THIS IS "BLOOMBERG SURVEILLANCE." TOM: GOOD MORNING. AN IMPORTANT WEDNESDAY FOR THE CHAIRMAN OF THE FEDERAL RESERVE. HE WILL -- THE INFLATION, THE
UNION -- INFLATION IN THE UNITED KINGDOM, 9.1%. THERE IS NO OTHER STORY. LISA: IT IS THE INPUT PRICES INDICATING YOU WILL SEE FURTHER INFLATION. WE HAVE NOT SEEN PEAK INFLATION
FOR THE GLOBAL ECONOMY, THAT IS CONCERNING CENTRAL BANKERS AROUND THE WORLD. TOM: JON FERRO IS OFF FOR A THREE WEEK SABBATICAL. KAILEY, THEY GO HEADLINE INFLATION, AND GO, JEROME POWELL, I LOOK AT CORE INFLATION. TODAY, IT IS GOING TO BE POWELL, CORE INFLATION, POLITICIANS, HEADLINE INFLATION. IT IS SIMPLE.
KAILEY: POWELL TALKED ABOUT, CONSUMER FEELS HEADLINE INFLATION, HIGHER PRICES AT THE PUMP, HIGHER PRICES AT THE GROCERY STORE. THAT IS WHAT THE FED IS GOING TO BE RESPONDING TO. YOU LOOK AT A DAY LIKE TODAY WHERE YOU SEE COMMODITY PRICES COMING DOWN BECAUSE OF DEMAND CONCERNS, GROWTH CONCERNS, DOES NOT MAKE THE FED'S JOB EASIER. IT BRINGS THE HEADLINE DOWN. TOM: ENDA CURRAN IN HONG KONG PUBLISHES THE WORLD'S BUBBLY IS HOUSING MARKET. KAILEY:
IT IS GLOBAL IN NATURE UNDER THIS GLOBAL UNDERPINNING, THIS IDEA OF HOW MANY YEARS CAN WE HAVE A FLOW RATE POLICIES FUELING HOUSING BUBBLES WHEN WE GET A REVERSAL OF THAT, HOW PAINFUL COULD IT BE. LISA: IF YOU GET FINANCIAL MARKETS --DOES THAT MEAN A DEEPER RECESSION? I DO NOT KNOW IF I BUY IT. YOU ARE NOT SEEING HOUSING PRICES RULE THAT MUCH. THERE ISN'T THAT MUCH LEVERAGE, BUT NEVERTHELESS, A CONCERN.
TOM: THE UNITED STATES UP THERE WITH NEW ZEALAND, TOPPING OUT. CZECH REPUBLIC AT 100. A LOT OF STUFF TO TALK ABOUT. THE BASIC IDEA, MATT MILLER WAS TALKING A RECESSION ANGST. I DO NOT KNOW IF I BUY IT.
IS IT ANGST, OR WE HAVE NO IDEA, UNCERTAINTY? LISA: THIS IS THE MOODY'S SUMMER EVER. THE MOST EXISTENTIAL, MOODY. WE BOTH HAVE TEENAGERS. WE ARE LOOKING AT SCENARIOS WHERE BONDS AND STOCKS ARE NOT SELLING OFF IN TANDEM. BONDS ARE RALLYING, STOCKS ARE SELLING OFF. THIS IS A MORE TRADITIONAL RELATIONSHIP HAVING TO DO WITH SOME SORT OF INFLATIONARY OR RECESSIONARY ENVIRONMENT, I FIND THAT INTERESTING. TOM:
COMMODITIES OFF THE NINE YEAR, LONELY, SAYING OIL MAY PULL BACK. 124 BRENT, REACHING 110. LISA: YOU ARE SEEING IT ACROSS THE COMMODITIES COMPLEX AND METAL. DR. COPPER, NOT WELL. TOM: RECESSION ANGST. LISA: YOU ARE SEEING THAT CONCERNING COMMODITY PRICES. KAILEY: GAINS OF YESTERDAY ARE NOT
HOLDING. OUR PRODUCER POINTED OUT, IN THE LAST 10 DAYS, WE HAVE SEEN A GAIN OF 4% OR MORE ON THE S&P 500. WE CANNOT HOLD ONTO A REBOUND IN THIS MARKET RIGHT NOW. TOM: DATA CHECK, -58 ON SPX. NASDAQ, I HAVE GOT TO GET THE OFFICIAL SURVEILLANCE, NEGATIVE.
THE VIX ON THE 30 LEVEL, ADVANCES OUT MORE ANGST. DOLLAR RESILIENCY, THAT IS WHERE I WANT TO GO. 104.47. YEN, 136. A HUGE TALKING POINT, THE INTERNATIONAL ECONOMICS, EURO IS 1.05.
>> TODAY, WE ARE HEARING FROM FED CHAIR JAY POWELL AT AROUND 10:00 A.M., HOW DOES HE ADDRESS THE FACT THAT CONSUMER SENTIMENT IS IN THE GUTTER? TOM: THAT IS A KILLER CHART. LISA: WE SEE THE LOWEST CONSUMER SENTIMENT GOING BACK IN HISTORY, SOME ARGUE THIS DOESN'T ACCURATELY REFLECT THE CORE INFLATION THAT THE FED WANTS TO LOOK AT BECAUSE IT COUNTERS SOME OF THE ISSUES WITH GASOLINE PRICES.
NONETHELESS, IT IS CLEARLY FACTORING INTO THE FED'S DECISION, ESPECIALLY GIVEN THE FACT PEOPLE ARE EXPECTING A STICKIER INFLATION OVER A LONGER PERIOD OF TIME. TODAY, WE HEAR FROM FED OFFICIALS, YOU SHOULD BE HAPPY WE HAVE ALL OF THE FED SPEAKERS BACK. GETTING BACK UP AND GIVING INSIGHT INTO WHAT TO EXPECT. I AM WATCHING THE DOLLAR. TOM, YOU MENTIONED THE DOLLAR STRENGTH. AT WHAT POINT DOES THIS BECOME A LIABILITY FOR A FEDERAL RESERVE THAT DOES HAVE AN EYE TOWARDS INTERNATIONAL STABILITY? THIS IS GOING TO BE DISRUPTED AS SOME OF THE WORLD GRAPPLES WITH THE SAME ISSUES OF THE UNITED STATES.
GIVEN THE FACT THEY WILL HAVE TO BE IMPORTING MORE INFLATION FROM THE UNITED STATES IF DOLLAR STRENGTHENS. PRESIDENT BIDEN IS EXPECTED TO SPEAK ON A PROPOSAL TO SUSPEND FEDERAL GAS TAXES, HOW MUCH DOES THE SPRING THE PRICE OF GAS DOWN? IT IS $.18, A LOT OF PEOPLE HAVE COME OUT AGAINST IT TO SAY IT WILL ONLY INCREASE DEMAND AND COUNTER THE DECLINE IN PRICING YOU SEE.
VERY CONTROVERSIAL. HOW MUCH SUPPORT WILL HE GET FROM THE DEMOCRATIC PARTY? TOM: THE TAX DIFFERENTIAL WE SEE BETWEEN EUROPE NATION TO NATION AND WHAT WE SEE IN THE UNITED STATES, STATE TO STATE. WILLIAM DUDLEY WILL JOIN US IN THE 7:00 HOUR, THE FORMER PRESIDENT OF THE NEW YORK FED. HIS ESSAYS HEARKEN BACK TO HIS MAGNIFICENT WORK AT GOLDMAN SACHS YEARS AGO, HE RELEASED ONE THIS MORNING.
WE BEGIN THIS MORNING WITH -- YES WE WILL TALK ABOUT THE YEN, BUT BILL DUDLEY SAYS ECONOMIC HISTORY AND A HARD LANDING. HE IS PREDICTING A HARD LANDING. WHAT DOES THE DOLLAR DO IF THERE IS A DEADLY HARD LANDING? >> YOU TALK OF HISTORY, HISTORY IS CLEAR. IF THE U.S. ECONOMY FINDS A HARD LANDING
RATHER THAN THE GOLDILOCKS OUTCOME, THE DOLLAR RALLIES. THAT IS HAPPENING WHILE THE REST OF THE WORLD IS SLOWING, THAT WILL LEAD TO THAT DOLLAR BID. I THINK THAT IS STRAIGHTFORWARD. LISA: ARE THERE ANY OTHER HAVENS, ANY CURRENCIES THAT WILL GET A BID? >> THERE IS HOPE FOR THE YEN. WHAT IS COMBATING AT THE MOMENT IS U.S. YIELDS. AND WE ARE IN A RISK OF MODE, LOWER U.S. YIELDS, TREASURIES. AGAIN, LOOKING AT HISTORY, IN
PERIOD'S WHERE YOU SEE THE RISING, THAT SUPERSEDES ANY YEN SAFE HAVEN. IF YOU'RE THINKING, WE HAVE PEAK -- WE DO NOT HAVE TO WORRY ABOUT EIGHT U.S. RECESSION, GLOBAL RECESSION, THE YEN IS PRICED. LISA: YOU ARE SAYING THE BOJ MAY NOT HAVE TO GIVEN IF IT DOESN'T REACH THAT POINT? DARAGH: WE MENTIONED BOJ RECENTLY, SOME MEMBERS WANTED IT TO BE MORE EXPLICIT. MONETARY POLICY IS NOT A BAD TARGET IN THE EXCHANGE RATE. IT IS THE GOVERNMENT, THE AND MINISTRY OF -- THE ADMINISTRATION OF FINANCE, THEY HOLD THE TRIGGER ON CURRENCY INTERVENTION.
FROM THE BOJ PERSPECTIVE, IN ISOLATION, IT IS INFLATION. THEY ARE STILL LOW, AND HARD FOR THEM TO OFFER RATIONALE FOR WHY THEY ARE GIVING STEPS OR TALKS OF A TIGHTENING PHRASE -- FACE. TOM: THIS IS IMPORTANT, ALL OF A SUDDEN, OR I SHOULD SAY, SUDDENLY, PHILIPPINE PESO, THERE IS A DISTRACTION ON THE ELECTION IN THE PHILIPPINES. GIVES WAY.
IS EM IN THE HEAT OF JUNE GIVING WAY TO A NEW VELOCITY, A NEW WEAKNESS? DARAGH: EH. I THINK VOLATILITY IS PART OF THE GLOBAL DEAL AT THE MOMENT, EMERGING CURRENCYS STRUGGLE WHEN YOU GOT THE STRONGER DOLLAR AND A FED THAT IS TIGHTENING. A LOT OF THE INGREDIENTS ARE THERE ON A MACRO SCALE, TO PRESSURE EM LOWER.
PHILIPPINE PESOS, THEY ARE CURRENCIES WE SEE THAT HAVE BEEN MUCH MORE CAUTIOUS. THERE ARE POTENTIAL OUTLIERS IN EMERGING MARKETS. I THINK YOU HAVE GOT TO PICK YOUR BATTLES IN EM, THERE IS NOT A ONE-SIZE-FITS-ALL THERE. THE MACRO BACKDROP IS
CHALLENGING. TOM: THANK YOU, A GREAT BRIEF TO GET US STARTED TODAY. I WANT A BRIEF ON THE WILLIAM DUDLEY COLUMN, YOU HAVE TAKEN A LOOK AT IT, LISA. HE HAS BEEN HEATED, HE WAS PHENOMENAL ON OUR FED SHOW WITH A STATEMENT ON WHERE THE TERMINAL RATE IS. THIS MORNING, NO EXCEPTION. LISA:
THE LINE SAYS EVERYTHING IN THE LEAD. A RECESSION IS INEVITABLE WITHIN THE NEXT 12 TO 18 MONTHS. THE FORMER NEW YORK FED PRESIDENT SAYING FALLING BACK TO EARTH WILL NOT BE PLEASANT.
IT SEEMS LIKE IT IS THE INEVITABILITY THAT WE ARE FACING OVER THE NEXT YEAR OR SO. TOM: THIS IS THE BERKLEY PHD WHO DID MARKET ECONOMICS AND SOME WOULD SAY INVENTED MODERN GLOBAL -- GOLDMAN SACHS ECONOMIC. PARAGRAPH BY PARAGRAPH, HOW SCARY IS THIS BOARD. THIS NOTE READS LIKE A GOLDMAN SACHS NOTE 30 YEARS AGO, PARAGRAPH BY PARAGRAPH. LISA: IT IS IN RESPONSE TO EDWARD FROM YESTERDAY.
PERHAPS, THERE IS SOMETHING MORE VULGAR -ESQUE. TOM: THE TOXIC BREW OF THIS RECESSION. TEAM ECONOMISTS WRESTLING. [LAUGHTER] STAY WITH US.
THIS IS BLOOMBERG. GOOD MORNING. ♪ RITIKA: PRESIDENT BIDEN WANTS CONGRESS TO DO SOMETHING ABOUT SOARING GASOLINE PRICES. BLOOMBERG HAS LEARNED HE WILL CALL ON LAWMAKERS TODAY TO ENACT A GASOLINE TAX HOLIDAY. AVERAGE GAS PRICES IN THE U.S., AROUND FIVE DOLLARS A GALLON. FEDERAL TAXES MAKE UP A LITTLE
MORE THAN $.18 OF THAT. IT IS NOT CLEAR HOW LONG THE PRESIDENT WANTS TO CAUSE THE TAX. IN THE U.K., INFLATION RISEN TO A NEW HIGH. PRICES ROSE 9.1% IN MAY FROM A YEAR AGO, THERE WERE BROAD INCREASES IN THE COST OF EVERYTHING FROM FUEL TO FOOD AND BEVERAGES. THERE WERE MORE FINES IN
INFLATIONARY PRESSURES BUILDING AT THE WHOLESALE LEVEL. CHINA BOWING MORE POLICIES TO BOOST THE COMPANY'S COVID BATTERED ECONOMY. THE ECONOMY WILL SPEED UP THE SALE OF LOCAL GOVERNMENT BONDS. CABINET URGING BANKS TO INCREASE LEADING FOR -- LENDING FOR INFRASTRUCTURE PRODUCTS -- PROJECTS. THE SENATE HAS VOTED ON A MEASURE CALLED THE BIGGEST BREAKTHROUGH IN A DECADE, DESIGNED TO APPROVE BACKGROUND CHECKS SECURING FUNDS TO COMBAT NONVIOLENCE.
BITCOIN RESUMED ITS FALL, ABOVE THAT KEY $20,000 THRESHOLD EARED FOR MONTHS, CRYPTO'S HAD BEEN MOVING IN THE SAME DIRECTION AS STOCKS BIG MOVES WERE NO EXCEPTION. APPETITE FOR RISK ASSETS HAVE BEEN FALLING AMIDST THE FEARS OF GLOBAL RECESSION. GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON "BLOOMBERG QUICKTAKE." POWERED BY MORE THAN 2,700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. I AM RITIKA GUPTA.
THIS IS BLOOMBERG. >> WE NEED MORE MONEY. WE DO NOT JUST NEED MORE MONEY FOR VACCINES FOR CHILDREN, WE NEED OR MONEY TO PLAN FOR THE SECOND PANDEMIC. THERE IS GOING TO BE ANOTHER PANDEMIC. WE NEED TO THINK AHEAD. THAT IS SOMETHING WE HAVE BEEN DOING FAIRLY WELL.
THAT IS WHY WE NEED THE MONEY. TOM: THE PRESIDENT OF THE UNITED STATES ON ONE OF THE MYRIAD TASKS HE HAS IN JUNE, A LOT OF PEOPLE SAYING HE IS OVERWHELMED WITH ANY NUMBER OF TOPICS. ALL OF THEM PUSHED ASIDE BY POSSIBLY THIS AFTERNOON, 2:00 P.M.ISH, THERE WILL BE A REDUCTION IN THE GAS TAX IN NEW YORK, MONTANA, AND NEW MEXICO. ANNE-MARIE HORTON HAS VISITED THOSE STATES AND JOINS US, FUTURES -52. BRENT CRUDE OFF TO 109. I HAVE NEVER SEEN THIS.
I GUESS I CAN SUMMARIZE, THE REVIEWS ARE SCATHING. THIS ONCE AGAIN IS ABOUT THE OPERATIONAL PROCESS OF MR. BIDEN'S WHITE HOUSE. IT SEEMS TO BE CHAOS. WHAT DOES HE DO TODAY? ANNMARIE: TODAY, HE IS GOING TO ASK CONGRESS TO GET RID OF THE 18 SINCE YOU PAY FOR FEDERAL TAX ON A GALLON OF GASOLINE. OBVIOUSLY, THIS IS SOMETHING THE ADMINISTRATION IS FEELING THE PAIN FROM.
THIS IS SHOWING UP IN THE POLLS, HEAD OF THE MIDTERM ELECTION. THE ISSUE IS, CONGRESS IS NOT GOING TO ACT. YOU DO NOT NEED TO BE HUMAN TO THINK CONGRESS IS GOING TO MOVE ON THIS. FOR MONTHS, THEY HAVE BEEN TALKING ABOUT THIS.
IF DEMOCRATIC LEADERS, NOT JUST REPUBLICANS, HAPPEN THROWING COLD WATER ON IT. TOM: IT HAS BEEN A ROUGH WEDNESDAY. I WANT TO CUT TO THE CHASE. I AM LESS INTERESTED IN THE GAS TAX, MORE INTERESTED IN THE PROCESS IN THE WHITE HOUSE.
I CANNOT SEE THIS IN EIGHT OF THE LAST 10 ADMINISTRATIONS. HOW DOES THIS GET VETTED IF NOT ONLY GREG VALIEVA BUT MANY OTHERS TAKE DEAD ON ARRIVAL? ANNMARIE: WITH THE PRIOR ADMINISTRATION, THERE WERE CONCERNS ABOUT HOW THOSE PROCESSES MOVE THROUGH THE OVAL OFFICE. WHAT I THINK RECENT REPORTING BLOOMBERG HAD REALLY SHOWED WAS THAT THERE WAS A SMALL HUDDLE, ESPECIALLY WHEN IT COMES TO ECONOMIC ISSUES, THE FIRST NINE MONTHS OF THE PRESIDENT'S ADMINISTRATION. WE LEARNED SECRETARY YELLEN WAS NOT INVITED IN BY RON KLAIN TO SOME OF THESE CUDDLES.
IT DOES SEEM LIKE THERE IS A SMALL GROUP OF INDIVIDUALS, MOST NOTABLY RON KLAIN, AND THE PRESIDENT TALKING ABOUT THESE ISSUES. THE ISSUE WITH TODAY, THIS IS VERY MUCH SO PERFORMATIVE. THIS IS THE ADMINISTRATION TRYING TO SPIN INFLATION, TRYING TO DO SOMETHING BECAUSE WE KNOW THIS IS HURTING CONSUMERS AT THE PUMP. THERE IS NO SUBSTANCE. KAILEY: IT IS PERFORMATIVE AND FAILING AT THE PERFORMATIVE ASPECT.
IT IS JASON FURMAN OF THE CLINTON ADMINISTRATION, PEOPLE COMING OUT WITH SCATHING REVIEWS, WHOLESALE. LISA: WHAT IS THIS PERFORMATIVE EXERCISE FOR? WHO IS IT GOING TO BE SUCCESSFUL TOWARDS? TOM: HOW COME LISA ASKS CLEAR WERE QUESTIONS THAN I DO? LISA: AT WHAT POINT DOES THIS HIGHLIGHT THE DESPERATION IN THIS ADMINISTRATION? ANNMARIE: WE DO NOT KNOW YET EXACTLY HOW THE PUBLIC, THE EVERYDAY CONSUMER IS GOING TO THINK OF THIS. IF YOU SEE A HEADLINE, BIDEN ACTING ON CONGRESS TO GET RID OF A TAX, YOU ARE NOT LOOKING INTO THE DETAILS OF THAT, POTENTIALLY, THAT IS A DEMOCRATIC VOTER THAT SAYS, I LIKE WHAT THE PRESIDENT IS DOING. HE IS TRYING. AGAIN, THEY ARE TRYING TO BE SEEN AS DOING SOMETHING RIGHT NOW.
THERE IS NOT A LOT THEY CAN DO IN THIS MARKET TO BRING DOWN VASELINE PRICES. THAT IS FIRST. IT IS GOING TO BE ABOUT MAKING A SPEECH, CALLING ON CONGRESS, HOPING THE HEADLINES GET OUT.
IT IS NOT GOING TO HAPPEN. >> THE ADMINISTRATION IS RUNNING OUT OF CARDS TO PLAY, GET CONTINUING TO COAX ENERGY PLAYERS TO PUMP MORE OIL WITH CONSTRAINED SUPPLY. THEY ARE MEETING WITH OIL EXECUTIVES TOMORROW. BIDEN IS SPARRING WITH THE CEO OF CHEVRON. CAN YOU SWEAR THESE THINGS FOR US? ANNMARIE: THAT WAS A MOMENT YESTERDAY, JENNIFER JACOBS ASKING FOR THE PRESIDENT'S REACTION TO MIKE WERTH'S LETTER. MIKE WAS SAYING THERE NEEDS TO BE A DIFFERENT APPROACH FROM THIS ADMINISTRATION, WE HAVE DONE THE WORK, THE OIL INDUSTRY.
HE SAYS THIS ADMINISTRATION IS VILIFYING AND CRITICIZING THEM TOO MUCH. THE PRESENT SAID, -- PRESIDENT SAID, HE IS MILDLY SENSITIVE. I DIDN'T OIL EXECUTIVES COULDN'T HANDLE THIS. HE CALLED FOR MORE REFINING CAPACITY. WE HAVE NOT HAD A REFINING
CAPACITY OR MONEY CAPITAL INVESTMENT IN REFINING CAPACITY BEFORE THE PANDEMIC, THE SAME CEO TOLD ALIX STEEL A FEW MONTHS AGO HE DOESN'T THINK ANOTHER REFINERY WOULD BE BUILT IN THE UNITED STATES. THE PRESIDENT IS TRYING TO GET HOUSTON ON BOARD, HE IS TRYING TO GET THE PERMIAN TO PUMP MORE, AND CALLING THEM OUT. TOMORROW'S MEETING IS GOING TO BE INTERESTING. LISA: IS THERE ANYONE IN THE ADMINISTRATION WHO IS SAYING THE APPROACH TO RUSSIA AND TANNING OIL FROM THAT NATION HASN'T WORKED -- BANNING OIL FROM THAT NATION HASN'T WORKED? ANNMARIE: THIS CAP ON OIL PRICES, RUSSIAN OIL COULD MAKE IT INTO THE MARKET. BUT, RUSSIA IS NOT REAPING THE BENEFITS OF THE PRICES WE ARE SEEING. THIS IS SOMETHING THE PRESIDENT
ENERGY SECRETARY SAID TO US VERY EARLY ON WHEN RUSSIA INVADED UKRAINE. IT WAS THE FACT THAT, NOT JUST YOU ARE TAKING RUSSIA PRODUCT FROM THE WEST, BUT THAT PUTIN CAN STILL SELL THAT SAME OIL TO CHINA AND INDIA AND GET A PREMIUM. WHAT DID RUSSIA MAKE LAST MONTH ACCORDING TO THE IEA? $20 BILLION FILLING THEIR FOSSIL FUELS. TOM: THANK YOU VERY MUCH. WE HAVE GOT TO TAKE TIME ON THE VARIOUS STRIKES AND RUMBLINGS OF STRIKES IN THE UNITED KINGDOM. YOU WONDER, THE LARGEST TRAIN STRIKE IN 30 YEARS, COMPLETE CHAOS IN THERE. AIRLINES, AS WELL.
DOES THAT COME ACROSS THE ATLANTIC INTO A MORE FRACTIOUS LABOR ENVIRONMENT IN THE UNITED STATES? LISA: ESPECIALLY IF YOU HAVE POLICYMAKERS SAYING THE INEVITABILITY AT THE UNEMPLOYMENT RATE IS GOING TO GO UP, AND THE CONSUMERS DEALING WITH HIGHER INFLATION, NEEDING HIGHER WAGES TO KEEP PACE WITH WHERE PRICES ARE. THERE WAS AN ARTICLE HIGHLIGHTING HOW A LOT OF COMPANIES ADVERTISING JOB OPENINGS ARE REMOVING THOSE JOB OPENINGS. IT IS NOT NECESSARILY JOB CUTS, BUT AFTER NOT BEING ABLE TO FILL THOSE ROLES, THEY JUST LET THEM GO. TOM: YOU WONDER ON THE CPI, FERRO DOES THIS BETTER THAN ME.
THERE IS NO QUESTION ABOUT THAT. I AM LOOKING AT CPI, PCE DID -- DEFLATOR, JUNE 30. GDP NOISE, JULY 13 IS THE NEXT CPI REPORT BEFORE THE JULY 27 REPORT.
THAT IS GOING TO BE IMPORTANT. 8.6% IS THE SURVEY NUMBER. KAILEY: WHAT IF IT COMES IN HOT? IS THAT THE DECIDING FACTOR BETWEEN 50 AND 75 BASIS POINTS FOR THE FEDERAL RESERVE? THAT IS NOT THE ONLY DATA INFORMATION WE WILL BE GETTING UNTIL THEN. TOM: IT IS A LONG WAYS AWAY. 8.6% HEADLINE, SIX-POINT SENT
TOM: GOOD MORNING. "BLOOMBERG SURVEILLANCE." THANK YOU FOR BEING WITH US. WHAT TIME IS JEROME POWELL? LISA: AT 10:00 A.M. THE TESTIMONY BEGINS. TOM: I AM GLAD SOMEBODY IS UP TO SPEED.
THESE ARE IMPORTANT COMMENTS. I WOULD SUGGEST, WE TALKED ABOUT THIS YESTERDAY, FUTURES AT -51, BUT YESTERDAY WE TOUCHED ON THIS, THE EMOTION OVER A LONGER WEEKEND -- OVER INFLATION, IT IS TANGIBLE. LISA: YESTERDAY THERE WAS A SIGH OF RELIEF. TODAY IT IS NOT NUDGY. PEOPLE ARE PRICING IN THE INEVITABILITY OF INFLATION. TOM: THERE IS THE IMPORTANT CONVERSATION OF THE DAY WITH LOTS OF YEARS OF EXPERIENCE, MARGARET PATEL AT PIONEER FOR YEARS, NOW ALL SPRING INVESTMENTS, IS BRILLIANT WHEN IT COMES TO SHIFTING TO EQUITIES.
WE HAVE NEVER SEEN A BEAR MARKET IN BONDS LIKE THIS. THE BLOOMBERG TOTAL RETURN HIGH-YIELD SERIES IS DOWN BY 13%. I WILL CALL IT THREE YEARS, AND I WILL LET YOU CORRECT ME ON THAT. BUT FORGET ABOUT THE GENIUS OF MARGARET PATEL IN EQUITIES, WHAT DO YOU DO IN BONDS TO RECOVER FROM THE EMOTION OF TRYING TO CATCH UP BY CLIPPING COUPONS? MARGARET: WHAT YOU DO, BECAUSE OF THE HUGE CORRECTION HIGH-YIELD AND INVESTMENT-GRADE, IS WEIGHTED OUT.
AT LEAST YOU ARE GETTING THE COUPON INCOME. AND WE HAVE THE PROMISE DOWN THE ROAD BECAUSE EVENTUALLY THE WHOLE BOND UNIVERSE IS TRADING AT A DISCOUNT, WE COULD HAVE CAPITAL APPRECIATION BACK TO PART OF THE FED DECIDES TO REVERSE THEIR COURSE HERE. TOM: YOU ARE ON THE ADAGE, LOOKING RIGHT NOW -- IT'S CLIPPING COUPONS AND YOU WILL GET A GAIN AT SOME POINT? MARGARET: THAT IS RIGHT, ESPECIALLY IN HIGH-YIELD. YOU HAVE HAD A CORRECTION, NOT BECAUSE OF CREDIT SPREADS, BUT TREASURIES.
BOND PRICES HAVE GONE FROM 103 FOR THE AVERAGE HIGH-YIELD BOND ARE TO ABOUT $.87 ON THE DOLLAR. THAT MAKES MORE RETURN, ABOUT 7% TO 9% FOR THOSE DECENT COMPANIES WITH POSITIVE EARNINGS. LISA: ARE STOCKS THE HEAD YOU THOUGHT THEY WOULD BE? MARGARET: I EXPECTED THEY WOULD GO DOWN. THE MOST VULNERABLE HAVE GONE DOWN THE MOST. THE THING IS, EVEN IF YOU DO NOT OWN THE
SPACS, THE SMALL COMPANIES THAT WERE ABLE TO COME TO THE MARKET, THAT COULD STILL RULE OVER THE OTHER MARKET AND AFFECT EVERYBODY'S RISK BUDGET. AND THAT IS WHAT WE ARE SEEING, IT IS ROLLING THROUGH TWO OTHER SECTORS AND PEOPLE ARE FEARFUL WHAT WILL HAPPEN TO THE ECONOMY. LISA: WE JUST HAD SUMMER BEGIN. THIS IS A RESET MOMENT WHERE PEOPLE TAKE A LOOK AT THE 20 PLUS PLUNGE IN THE S&P AND THE MASSIVE DISRUPTION IN THE BOND MARKETS, AND PIMCO IS SAYING BONDS ARE HOLDING VALUE NOW, MORE SO THAN IN DECADES, AND LOOK AT THEM VERSUS STOCKS. ARE YOU LEANING TOWARD THAT ASSESSMENT? MARGARET: CAN HIGH-YIELD, WHEN YOU LOOK AT YIELD AT 7% TO 9% WITH 10% OR 12% DISCOUNT FROM FACE VALUE, IF YOU THINK IT WILL DO SINGLE DIGITS TO LOW DOUBLE DIGITS OVER THE NEXT 18 MONTHS, THAT MAKES HIGH-YIELD BONDS LOOK COMPETITIVE, ASSUMING WE DO NOT HAVE A BIG JUMP IN DEFAULTS. IT DOES NOT LOOK LIKE WE WILL BUT WE HAVE NOT SEEN THE FED COMPLETE THEIR TIGHTENING, SO IT IS NOT CLEAR HOW MUCH IT WILL MOVE OVER INTO THE REAL ECONOMY. LISA: BUT BECAUSE IT IS INDIRECT WEDNESDAY, JUST TO FOLLOW -- INTERRUPT WEDNESDAY, JUST TO FOLLOW THAT, IS THIS STILL A MOMENT WHERE THE STOCKS OFFER A BETTER HEDGE, EVEN AFTER THE LOSSES? I DO NOT WANT TO SAY CONTAGION, BUT THE OVERLEVERAGED AREAS OF EQUITIES. MARGARET:
I THINK SO BECAUSE THE YIELD IS A LOT HIGHER. AND ALSO BECAUSE THE YIELD IS AT ABOUT 400-6 HUNDRED BASIS POINTS MORE THAN TREASURIES, THE INVESTMENT-GRADE BONDS ARE VERY SENSITIVE TO TREASURIES AND TRADE AT A SMALL YIELD PREMIUM, SO IT IS A BET ON WHAT TREASURY YIELDS WILL DO. WITH HIGH-YIELD YOU ARE GETTING AN EQUITY LIKE RETURN. SO THAT LOOKS LIKE A PRETTY GOOD DEAL IF YOU ARE A LITTLE BIT NERVOUS AND YOU DO NOT WANT TO WAIT OUT WHAT WE WILL SEE WITH BONDS AND OF THE EQUITY MARKETS. LISA: THERE HAS BEEN A RELATIONSHIP FOR SOME TIME WHERE YOU SEE THEM GO UP, IT PUTS PRESSURE ON EQUITIES, ESPECIALLY THOSE THAT COMMAND HIGHER MULTIPLES. NOW YIELDS ARE COMING IN, BUT
IT IS BECAUSE OF GROWTH CONCERN. COULD THAT BE A SUPPORTED FACTOR FOR THE EQUITY MARKET? OR IS NOT MORE DOWNSIDE FOR EQUITIES? MARGARET: I THINK SO FAR IN THE EQUITY CORRECTION, BUT WE HAVE SEEN MOSTLY IS EROSION IN THE PRICE EARNINGS RATIO, UP TO 16 TIMES EARNINGS GOING FORWARD, RATHER THAN PEOPLE SAYING, OH, THEY ARE GOING LOW. WHAT WE ARE LOOKING FOR AS WE SEE THE QUARTER RESULTS, WHICH WILL BE IN A FEW WEEKS, IS COMPANIES TALKING ABOUT LOWER EARNINGS, WHICH COULD CAUSE PE COMPRESSION ENDING MACY'S STOCKS GO DOWN, CLEARLY YOU HAVE A BIGGER CUSHION WITH THE PE'S HAVING GONE DOWN SO MUCH IN THE BETTER PARTS OF THE MARKET. KAILEY: I AM LOOKING AT THE NASDAQ 100, TRADING AT A MULTIPLE OF 30 AT THE END OF LAST YEAR, NOW DOWN TO 20 TIMES. . WHERE DO YOU THINK IT IS SAFE TO FIND AN ENTRY POINT? MARGARET: I THINK THIS IS AN ATTRACTIVE LEVEL BECAUSE THE AVERAGE STOCK IS DOWN BY UP TO 30% ON THE NASDAQ, THE PRICE RATIOS ARE MORE REASONABLE OVER A LONGER TIME PERIOD. THE QUESTION IS WHICH COMPANIES WILL MAINTAIN EARNINGS? BUT STILL, WITH SO MUCH SPECULATIVE MONEY , THAT COULD ROLLOVER INTO THE BIG QUALITY NAMES, TOO. TOM: IS 60-40 DEAD?
60% EQUITIES, 40% BONDS -- IS IT FINALLY DEAD? MARGARET: I THINK SO BECAUSE SINCE THE FINANCIAL CRISIS A DECADE AGO, AND NOW, THE FED HAS DISCOVERED THEY CAN CONTROL INTEREST RATES AND THEY SEEM TO LIKE TO DO THAT. I DO NOT THINK THEY WILL EVER WANT THEM TO FOLLOW WHERE THE MARKET WANTS TO SEE. THEY'LL BE LOWER THAN ANYTHING WE HAVE SEEN IN THE PAST. TOM: MARGARET PATEL, THANK YOU. A LOT IS GOING ON.
WE ARE WATCHING YEN, 1.36619. ONE OF OUR INTERNS SENT IN A NOTE, YOU HAVE TO PAY ATTENTION TO DEUTSCHE BANK. IT'S FROM LISA. OH, LISA -- WHAT ARE THEY SAYING? LISA: I AM LOOKING AT HIS COMMENTS ABOUT THE LIKELIHOOD OF RECESSION, A 50% LIKELIHOOD FOR A GLOBAL RECESSION.
ALSO, HOW THE INFLATION WE ARE SEEING IS A THREAT TO DEMOCRACY, WHICH NEEDS TO BE COUNTERED MORE DRAMATICALLY. HE'S CONFIDENT THAT THERE WILL BE SOMETHING TO COMBAT THIS. HE ALSO TALKS ABOUT A BANKING UNION IN EUROPE, MERGERS, AND THE IDEA OF CONSOLIDATION TO WEATHER THE STORM.
WE ARE LOOKING AT A NEW LANDSCAPER YOU HAVE A GROWING NUMBER O EXECUTIVES SAYING THATF THERE IS A GREATER THAN 50% CHANCE OF A GLOBAL RECESSION. THAT IS THE FEELING ON THE TAPE TODAY. TOM: FOR THE AMERICAN AUDIENCE, AND I MET HIM IN DAVOS, THE ONLY EQUIVALENT I COULD THINK OF IN AMERICAN BANKING IS BRIAN MOYNIHAN. HE'S STEEPED IN THE RETAIL EXPERIENCE.
AND THIS HEADLINE IS NOT TEMPORARY INFLATION. IT'S THE THEME OF THE NEXT 90 DAYS, ISN'T IT? LISA: CHRIS IN SAVINGS HAS A LEG UP AND THAT HE TOOK DEUTSCHE BANK, WHEN THEY EXPECTED IT TO BE TAKEN BY ANOTHER BANKING ENTITY, AND MADE IT VIABLE IN A WAY THAT PEOPLE HAD NOT IMAGINED. HE WAS HERALDED AS BRINGING THIS NEW DAWN TO THE BANK. THAT'S IN THE AIR, GIVEN THE EXISTENTIAL THREATS TO THE ENTIRE ECONOMY. HOWEVER, LOOKING AT HOW THE BANK EXECUTIVES ARE GAMING OUT RECESSION, IN THE U.S. AND EUROPE, BY THE SECOND HALF
OF 2023 -- THAT'S A GAME CHANGER. THE NEW DISCUSSION IS HOW DEEP WILL THE RECESSION BE AND HOW DO WE CLIMB OUT. TOM: IT IS SIMPLE, THERE IS A HEADLINE BURIED ON THE BLOOMBERG -- TAKING A LOOK AT ESG AFTER GREENWASHING ALLEGATIONS.
IF YOU MISSED THE DISCUSSION ON CRYPTO YESTERDAY, YOU CAN SEE IT ON OUR DIGITAL PLATFORMS. HOW DEAD IS ESG RIGHT NOW? KAILEY: THE PROBLEM WITH ESG HAS ALWAYS BEEN HOW UNCLEAR THE PARAMETERS ARE AND THE CONCEPT OF GREENWASHING, SAYING THINGS ARE GREEN AND THEY REALLY ARE NOT -- TOM: IS THAT WHAT IT MEANS? KAILEY: IT IS THE IDEA THAT YOU ARE NOT MAKING AS MUCH OF A DIFFERENCE AS YOU SAY YOU ARE. UNTIL YOU GET THE METRICS, IT IS VERY MONEY. THIS IS A PROBLEM AT DWS. WE SAW THIS SEVERAL WEEKS AGO. I WOULD KNOW IT IS NOT JUST ABOUT THE E. THERE IS ALSO SOCIAL AND
GOVERNANCE. REMEMBER WHEN WE SAW TESLA GET KICKED OUT OF THE ASCENDING -- OUT OF THE ESG INDEX? IT WAS HAVING TO DO WITH SOCIAL AND GOVERNANCE. TOM: FUTURES -55. THE VIX AT 31.26.
IT'S A TOXIC BREW OF ANGST THIS MORNING. THIS IS BLOOMBERG. ♪ >> NEWS FROM AROUND THE WORLD. PRESIDENT BIDEN WILL CALL ON HONG KONG -- WILL CALL ON HIS ADMINISTRATION TO DECLARE A GAS PRICE HOLIDAY.
PARAGON IS AROUND FIVE DOLLARS ON AVERAGE IN THE U.S. IS UNCLEAR HOW LONG THE PRESIDENT WANTS THE TAX TO BE NOT ENFORCED. SUPPLY CHAIN ISSUES LASTING UNTIL THE END OF LAST YEAR. AND IT IS NOT THE INDUSTRY'S ONLY PROBLEM. >> WE HAVE A VERY LARGE, SOPHISTICATED AND SOMEWHAT FRAGILE SUPPLY CHAIN BEHIND THE AIRPLANE MANUFACTURERS. JUST AS FRAGILE ARE THE OPERATORS THEMSELVES, THE AIRLINES, AND THE ABILITY TO STAFF WITH PILOTS.
>> HE WAS INTERVIEWED AT THE QATAR ECONOMIC FORUM. AND THE RICHMOND FED PRESIDENT IS GOING ON CENTRAL BANK IS RAISE RATES AS FAST AS IT CAN, AS OWNS IT DOES NOT CAUSE UNDUE HARM. GO AS FAST AS YOU CAN WITHOUT BREAKING ANYTHING. FED POLICYMAKERS RAISED BY 75
BASIS POINTS EARLIER THIS MONTH, THE BIGGEST INCREASE SINCE 1994. IN AFGHANISTAN, 920 PEOPLE HAVE BEEN KILLED AND HUNDREDS INJURED IN A POWERFUL EARTHQUAKE. 6.1 WAS THE MAGNITUDE OF THE QUAKE THAT HIT THE COUNTRY OVERNIGHT.
THE GOVERNMENT HASN'T SENT RESCUE TEAMS. -- HAS SENT RESCUE TEAMS. GLOBAL NEWS, 24 HOURS A DAY, ON AIR AND ON QUICKTAKE BY BLOOMBERG, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES. I'M RITIKA GUPTA. >> WE ARE SEEING SIGNS THAT FINANCIAL CONDITIONS ARE WEIGHING ON ECONOMIC ACTIVITY ALREADY AND WE THINK THAT THESE SIGNS ARE LIKELY TO INTENSIFY. WE ARE GETTING THE SENSE HOUSING IS FEELING THE PINCH OF TIGHTER FINANCIAL CONDITIONS.
TOM: AT BARCLAYS YESTERDAY, WE DO THIS WITH THE MEDIAN PRICE IN THE U.S. TAKING OVER $400,000. I CAN EQUATE IT TO DOW 10,000. IT IS JUST A HUGE NUMBER FOR THOSE TRACKING HOUSING. IN THE LAST 20 YEARS IN THE U.S., THE MEDIAN PRICE WAS UP IN THE LAST 10 YEARS, 1990-ISH,
UP 4% A YEAR. IN THE NEAREST 10 YEARS, UP 8%. SO THERE HAS BEEN A REAL ADJUSTMENT, FROM 4% TO AN 8% YEAR AGAIN. AND ENDA CURRAN IN HONG KONG HAS DONE A GLOBAL STUDY OF YOUR BIGGEST HEADACHE, RENT AND HOUSING PRICES, AND IT IS ABSOLUTELY DEFINITIVE. LET ME ASK ONE QUESTION, HOW BAD IS IT? ENDA: IT IS WORRYING, BECAUSE WHAT WE ARE SEEING IS POTENTIALLY A REVERSAL OF THE HUGE GAINS WE SAW IN THE PANDEMIC WHEN THERE WAS VERY LITTLE BORROWING COSTS. INTEREST RATES ARE STILL LOW.
CENTRAL BANKS ARE BRINGING OF THEIR INTEREST RATES. AND HOUSEHOLDS ARE TRYING TO PAY BACK THEIR MORTGAGES. IT CERTAINLY IS A SIGNIFICANT POTENTIAL HEADWIND FOR AN ALREADY SLOWING GLOBAL ECONOMY. LISA: THIS IS NOT NECESSARILY GOING TO BE THE BOTTOM FALLING OUT, BECAUSE THERE IS NOT THE SAME TYPE OF LEVERAGE, THERE IS NOT THE SAME SHADOW BANKING SYSTEM FUELING THE GROWTH OF HOUSES FOR THE FLIPPING OF THEM. AT THE SAME TIME, GIVE US A
SENSE ON WHY IT IS MORE PAINFUL WHEN THE HOUSING MARKET DOES NOT COOPERATE AND CANNOT BE FUELED BY THE SAME TYPE OF MONETARY POLICY THAT HAS ALREADY BEEN USED? ENDA: THERE ARE BUFFERS NOW, BEINGS ARE AND BETTER CONDITIONS, AND LABOR MARKETS ARE STRONG AROUND THE WORLD. NONETHELESS, WE ARE IN THE MIDDLE OF A SYNCHRONIZED MONETARY POLICY TIGHTENING CYCLE,, THE LIKES OF WHICH WE HAVE NOT SEEN FOR DECADES, AND THERE WILL BE IN INEVITABLE IMPACT ON MORTGAGE COSTS. THAT WILL FLOW THROUGH TO CONSUMERS BY DENTING HOUSEHOLD WEALTH, IT WILL HURT THEIR CONFIDENCE AND FLOW INTO ACTIVITY AROUND CONSTRUCTION. WE KNOW REAL ESTATE IS A BIG MULTIPLIER IN ANY ECONOMY, THEY ARE THE CORE OF ECONOMIC ACTIVITY.
AND YOU WILL SEE A SLOWDOWN, EVEN WITHOUT A CRASH. AND THAT WILL COME ON TOP OF EVERYTHING ELSE GOING ON, WHICH IS A SUBDUED CONSUMER BECAUSE OF INFLATION, THE ONGOING SUPPLY CHAIN PROBLEMS. AND SO I THINK IT IS THE LAST THING THAT MOBILE POLICYMAKERS -- GLOBAL POLICYMAKERS NEED RIGHT NOW. KAILEY: WOULDN'T IT BE HELPFUL THAT ONCE IT STARTS TO LEAD TO MORE DEMAND IT WILL HELP WITH THE INFLATION PROBLEM? ENDA: EXACTLY.
THE IDEA IS CENTRAL BANKS DO WANT ACTIVITY TO SLOW DOWN. WHEN YOU HAVE SELECTIVITY, THE THINKING IS IT WILL SLOW DOWN INFLATION AND YOU HAVE THE FED OFFICIALS GOING FAST, BUT NOT BREAKING THINGS. THAT IS THE CRUX OF THIS. FIRST-TIME HOMEBUYERS HAVE BEEN FUELING A CRISIS, BUT CAN THEY COOL INFLATION WITHOUT SENDING THE ECONOMY INTO A SLUMP. WE HAVE DONE THE HARD NUMBERS ON THIS. THERE'S 22 ECONOMIES THAT ARE VULNERABLE, INCLUDING CANADA AND THE U.S. SOME CENTRAL BANKS SEE
POTENTIAL FOR A MATERIAL CORRECTION IN THEIR HOUSING PRICES AS INTEREST RATES GO UP. IT WILL BE A TRICKY BALANCING ACT TO HAVE THE PRICE IS OFF OF AN UNSTABLE PLACE -- PACE. KAILEY: NEW ZEALAND, CANADA, THE U.K.,
CZECH REPUBLIC AND HUNGARY, WHICH IS THE MOST VULNERABLE OR LOOKS THE MOST VULNERABLE TO SOMETHING MORE SYSTEMIC EMANATING FROM HOUSING? ENDA: PROBABLY NEW ZEALAND IS A STANDOUT BUT EACH HAS THEIR OWN POCKETS OF VULNERABILITYS. AND A LOT WILL DEPEND ON HOW AGGRESSIVE THE INTEREST RATE HIKING CYCLE ULTIMATELY PROVES TO BE. IF WE REACH A POINT WHERE IT'S CLEAR INFLATION HAS PEAKED, THEN THAT'S THE POINT WHERE THE CENTRAL BANKS WILL EASE UP. BUT IF WE GO UNTIL THE END OF THE YEAR, THE EXPECTATION IS IT WILL HAVE A MATERIAL IMPACT, BECAUSE IT IS THE LAG EFFECTIVE MONETARY POLICY AND IT TAKES MONTHS. TOM: WHAT DO THEY GET RIGHT? ENDA: WE WILL FIND OUT IF THEY ARE GETTING THINGS RIGHT. WE HAVE ALREADY SEEN IN THE
CYCLE AT THE MOMENT. WE HAVE TO GIVE IT TIME. SIX MONTHS, ONE YEAR FROM NOW IT WILL BE CLEARED OUT. AND WE WILL SEE WHAT SECTORS ARE IN GOOD ORDER.
WE ARE STILL EARLY IN ALL OF THIS. TOM: THAT IS RESEARCH FROM BLOOMBERG ECONOMICS REPORTER, ENDA CURRAN. TO ME, IT IS LIKE JONATHAN MILLER TAKING MANHATTAN AND DISTILLING OUT FIVE BOROUGHS -- OR TAKING NEW YORK AND DISTILLING OUT FIVE BOROUGHS. LISA: EVENTUALLY, IT WILL BRING DOWN INFLATION BECAUSE EVENTUALLY LOWER HOUSING PRICES WILL TRANSLATE INTO LOWER RENTS, AND THAT WILL BE A BIG DECOMPRESSION FOR SOME OF THE INFLATION. THE CONCERN IS THAT THERE IS SO LITTLE HOUSING VERSUS DEMAND THAT EVEN IF YOU GET HOUSING PRICE DECLINES, RENTS ARE STILL CLIMBING AT A RECORD PACE IN SOME AREAS. I'M THINKING OF 40% IN MIAMI, YEAR-OVER-YEAR.
GIVEN THE FACT THAT IS NOT THE SUPPLY, AND THAT PEOPLE WHO WOULD'VE OTHERWISE BEEN BUYERS CAN NO LONGER DO SO AT A MORTGAGE RATE OF 6%, RENTS WILL ONLY CLIMB FURTHER. THIS IS A HUGE CONCERN TO SO MANY ECONOMISTS SEEING PRESSURE ON THE CPI. TOM: WE CAN TALK ABOUT IDIOSYNCRATIC, LIKE THE TURKISH LIRA IS IDIOSYNCRATIC, BUT I WOULD SUGGEST REGION TO REGION, CITY TO CITY IN AMERICA, THIS IS HIGHLY IDIOSYNCRATIC. KAILEY:
THAT IS TRUE, YOU TALK ABOUT THE FIVE BOROUGHS IN NEW YORK. I LIVE IN BROOKLYN, BECAUSE IT HAS BECOME SO EXPENSIVE IN MANHATTAN. MATT MILLER RECENTLY PURCHASED A HOUSE IN WESTCHESTER AND HE WAS LIKE, MOVE UP HERE, GET A YARD FOR THE DOG. I CANNOT AFFORD THAT MORTGAGE.
IT SPEAKS TO THE CATCH 22 PEOPLE ARE FACING WHEN YOU HAVE HIGHER MORTGAGE RATES, AND RENTS ARE ALSO HIGH -- THAT'S THE PROBLEM. TOM: I THINK THE MORTGAGE RATE, LISA SAID 6% UP, WE ARE THERE IN A MATTER OF DAYS. LISA: IT IS EXCEEDING 6%, THIS IS WHY PEOPLE CANNOT GET THE SAME KIND OF MORTGAGES. THEY ARE NOT GETTING APPROVED. THEN THEY DECIDE NOT TO BUY AND THEY RENT. TOM: WE WILL FOLLOW THIS ON BLOOMBERG SURVEILLANCE. IT'S NOT THE MARKET, BOND DYNAMICS -- THE 10 YEAR YIELD AT 3.22%, THERE, THAT IS MY BOND COVERAGE. LISA: [LAUGHTER]
TOM: WHICH HOTEL IS FERRO IN? >> NO CENTRAL BANK WANTS TO ENGINEER A RECESSION. >> COUNTRIES ARE PLAYING CATCH-UP. >> I THINK THE FED WILL HAVE TO BE AGGRESSIVE. >> I THINK THAT THE CHANCES GOING UP EVERY TIME THE FED MOVES. >> I DO NOT THINK IT IS YET INEVITABLE.
>> THIS IS "BLOOMBERG SURVEILLANCE." TOM: GOOD MORNING. JONATHAN FERRO, LISA ABRAMOWICZ AND TOM KEENE, WE ARE BACK ON TRACK. LOTS OF DISTRACTIONS IN THE LAST HOUR.
IT IS ABOUT INFLATION, RECESSION. WILLIAM DUDLEY SAYS IT IS ABOUT A HARD LANDING. LISA: SPECIFICITY IS WHAT STRUCK ME ABOUT THE COLUMN PUBLISHED THIS MORNING, TALKING ABOUT HOW IT IS INEVITABLE THAT WE WILL GET A RECESSION IN SUCH A SHORT TIME FRAME, BUILDING ON WHAT OTHERS HAVE SAID, THAT THERE IS A GROWING CHANCE OF A DOWNTURN.
NOW THE QUESTION IS HOW STEEP IT WILL BE. TOM: THIS IS THE GAGING OF THE MANY DIFFERENT TYPES OF RECESSIONS. WE DO NOT NEED A HISTORY LESSON, BUT EACH ONE IS DIFFERENT AND LISA, YOU MENTIONED THE DISTINCTION BETWEEN TWO WORLD-CLASS PHD'S, THE GENTLE RECESSION, DUDLEY WITH A HARD LANDING. WHAT ABOUT THE HARD LANDING?
LISA: WHETHER HE WILL BE THE NEW VOLKER OF 2022 IS THE DISTINCTION, HOW MUCH HAS THE FED COMMITTED TO GETTING INFLATION BACK DOWN TO 2%, BUT EMINENTLY BY THE END OF NEXT YEAR VERSUS FIVE OR 10 YEARS OUT? HOW MUCH OF THE URGENCY IS ABOUT GETTING INFLATION NUMBERS AND CHECK SHOWS AND THEY ARE CREEPING HIGHER OVER THE NEXT DECADE OR SO? TOM: WE SEE DOLLAR RESILIENCY, BUT IN THE BOND MARKET -- I DO NOT HAVE TO DO A DATA CHECK BECAUSE IT HAS NOT MOVED. THERE IS A THREE-DAY STASIS HERE IN FIXED INCOME. KAILEY: THE 10 YEAR DOWN BY ABOUT SEVEN BASIS POINTS AS WE SPEAK, AND IT IS THAT FLEEING TO SAFE HAVENS BECAUSE OF THE GROWTH FEARS.
WHILE YOU SEE THE DOLLAR STAIN YING UP, YEN IS GETTING A LITTLE BIT OF THE HAVEN BID BACK IN. TOM: KAILEY LEINZ IS SO FAR OUT IN FRONT OF ME, I DO NOT EVEN NEED TO COME IN. YOU MENTIONED SAFE HAVEN AND THE FIRST THING YOU LOOK AT IS EUROS. I HAVE THE EURO-SWISS AT 1.02. LISA: AND THIS IS ALSO BECAUSE THE EURO HAS BEEN NOT SUPPORTED BY AN ECB THAT HAS LET INFLATION GET FAR AHEAD OF MONETARY POLICY. AT WHAT POINT DO THE CENTRAL
BANKS TRY FOR A STRONGER CURRENCY? WE HAVE TALKED ABOUT THIS FOR MONTHS, BUT I THINK THIS WILL BE THE THEME. THE RACE INTO A STRONGER CURRENCY. TOM: WE TALK ABOUT A LOT OF FED SPEAK. YOU HAD IT IN THE BRIEF THIS MORNING. WHAT DID JAY POWELL NOT WANT TO SAY TODAY? LISA: HE DOES NOT WANT TO USE THE WORD RECESSION, THAT WE WILL CAUSE RECESSION. HE DOES NOT WANT TO SAY THAT THEY ARE WILLING TO CAUSE RECESSION IN ORDER TO GET INFLATION UNDER CONTROL.
AND WHAT HE DOES NOT WANT TO SAY IS HE SEES A LARRY SUMMERS OUTLOOK FOR 5% UNEMPLOYMENT. TOM: I COULD SEE THAT. LISA: AND THAT IS WHAT IT WILL TAKE TO BRING INFLATION BACK TO THAT 2% LOW. TOM: CHAIRMAN POWELL WILL GO, LARRY SUMMERS WHO? FUTURES AT -39. VIX STICKING. 31 POINTS. BRIEFLY ON BONDS, TO YEAR YIELD WITH A PANIC OF 3.12. NOW, I AM ONLY GIVEN A BOND DATA CHECK BECAUSE JOHN FROM CAPRI, HE SAYS DO MORE FIXED INCOME. THE CURVE AT 10 BASIS POINTS.
BILL YELLED AT -4.5%. LISA: BONDS HAVE BEEN FASCINATING BECAUSE -- TOM: THE BOND MARKET WAS CLOSED FOR FIVE DAYS AND YOU WOULD SAY IT WOULD BE FASCINATING. LISA: THERE IS A 20 YEAR OPTION. YOU ARE LUCKY I DID NOT TALK
ABOUT THAT. TODAY, JEROME POWELL WILL BE TESTIFYING. THAT WILL CONTINUE THROUGHOUT THE DAY AHEAD OF THE THURSDAY TESTIMONY TO THE HOUSE. HOW MUCH WILL HE TALK ABOUT THE DOLLAR AS A GLOBAL DESTABILIZING LIABILITY, THE STRONGER IT GETS OF THE MORE OTHER NATIONS ARE IMPORTING -- REPORTING INFLATION.
HOW MUCH OF THAT IS PROBLEMATIC FOR A FEDERAL RESERVE, WHICH IS A CENTRAL BANKER TO THE WORLD. TODAY, AND OF FED SPEAK, INCLUDING THE CHICAGO FED PRESIDENT, AS WELL AS PHILADELPHIA'S FED PRESIDENT. WE HEARD FROM TOM BARGAIN YESTERDAY TALKING ABOUT WHAT TO EXPECT WHEN IT COMES TO THE RATE HIKES, PARTICULARLY IN JULY, AND A 75 BASIS POINT RATE HIKE AND HE GAVE STRONG WORDS ABOUT WHY THEY ARE EXPECTING TO RAISE MORE THAN THEY HAD BEEN A MONTH AGO. THEN WE HAVE PRESIDENT BIDEN SPEAKING ABOUT 2:00 P.M., ON THE PROPOSAL TO SUSPEND THE FEDERAL GAS TAX. IT IS A MAJOR ISSUE GOING INTO THE MIDTERM ELECTIONS, AS GAS IS STILL AROUND $5 A GALLON. TOM:
WE'LL TALK TO ANNMARIE ABOUT THE PRESIDENT'S EVENTFUL DAY. EMILY ROLAND IS THE CO-CHIEF INVESTMENT STRATEGIST AT JOHN HANCOCK INVESTMENTS, AND SHE KNOWS THE DIFFERENCE BETWEEN NEW JOHN HANCOCK AND OLD JOHN HANCOCK IN BOSTON. I LOVE IN YOUR NOTE WHERE YOU GO TO THE AXIS AND A SAFE SPEED OF CYCLE IS EVERYTHING. YOU NOTE THAT CYCLE RIGHT NOW IS FAST, LIKE THE RED SOX RECOVERY. TELL ME ABOUT SPEED OF CYCLE. EMILY: WE ARE SEEING THE LARGEST AMOUNT OF FINANCIAL TIGHTENING THAT WE HAVE SEEN IN DECADES, AND THAT IS CAUSING THE CYCLE TO MOVE INCREDIBLY RAPIDLY.
WE JUS T SAW THIS SWIFT PRICING IN OF A GLOBAL RECESSION IN THE EQUITY MARKET, DOWN NOW BY 20%, ABOUT TWO THIRDS OF THE WAY THERE IN TERMS OF THE AVERAGE BEAR MARKET. ON THE FIXED INCOME SIDE, BONDS HAVE NOT PRICED IN THIS ECONOMIC CYCLE, THEY ARE NOT EVEN CLOSE TO PRICING IN THE POTENTIAL FOR A GLOBAL RECESSION. WHICH THE ODDS HAVE MOVED UP. HIGH YIELD BOND SPREADS ARE AT 490 BASIS POINTS. THEY HAVE WIDENED, BUT THEY ARE NOT CLOSE TO HITTING THEIR 20 YEAR AVERAGE.
THEY ARE CLOSER, BUT NOT THERE. SO WE HAVE SEEN PARTS OF THE MARKET THAT HAVE NOT REFLECTED THE FACT WE ARE MOVING CLOSER TO A LATE CYCLE ENVIRONMENT, EVEN A RECESSION, AND WE THINK THE OFFERS OPPORTUNITY. KAILEY: LET'S GO THERE ON THE HEELS OF WHAT PAUL KRUGMAN WAS WRITING ABOUT THIS WEEK, THE PRIZE-WINNING ECONOMIST TALKING ABOUT HOW WE ARE NOT OUT OF THE FREE MONEY ERA AND WE WILL GO BACK TO IT WHEN WE HIT A RECESSION. BECAUSE YIELDS WILL GO BACK DOWN. IS THAT WHAT YOU ARE BETTING ON, INVESTING IN THE LONGER TERM BONDS? EMILY: IT IS.
WE SEE IT LIKE A TEETER TOTTER WHERE THIS YEAR THE FED IS RESOLUTE IN THEIR EFFORT TO FIGHT ELEVATED INFLATION. THE GLOVES ARE OFF, BUT THEY TEETER TOTTER WE THINK WILL SWITCH TO THE OTHER SIDE AS WE GO INTO 2023 AND WE EXPECT, THE FED WILL BE CUTTING RATES. AND THEY WILL BE LASER FOCUSED ON THE OTHERS OF THEIR DUAL MANDATE, DEALING WITH HIGHER UNEMPLOYMENT. WE THINK THE FED WILL PROBABLY NEED TO BRING THE ECONOMY TO THE BRINK OF RECESSION, WHICH CLEARLY MEANS RISING UNEMPLOYMENT, AND THAT WILL BE CRITICAL NEXT YEAR. NORMALLY, WHEN YOU THINK ABOUT HIGHER UNEMPLOYMENT, A GLOBAL SLOWDOWN OR RECESSION, BOND YIELDS FALL. YOU HAVE TALKED ABOUT THE
TRADITIONAL CROSS ASSET RELATIONSHIPS THIS MORNING, AND I THINK THAT THAT ONE IS BROKEN RIGHT NOW. SO WE SEE YIELDS TOPPING OUT.YOU ARE GETTING 4% ON THE AGGREGATE BOND INDEX. WE HAVE NOT GOTTEN THAT SINCE
2010. SO WE SEE IT AS AN ATTRACTIVE ENTRY POINT. I TRIED TO GET A T-SHIRT MADE THAT SAID I LOVE BONDS. I LOVE BONDS. KAILEY: THERE ARE PEOPLE WHO ARE GOOD WITH PHOTOSHOP, SO I THINK THEY CAN PUT THAT ON YOUR OUTFIT THIS MORNING. IF YOU ARE BUYING BONDS, HOW DOES THAT FIT INTO YOUR BROADER ALLOCATION OF A PORTFOLIO? ARE YOU SHIFTING AWAY FROM EQUITIES, WHAT ELSE IS IN THERE? EMILY: WE ARE. WE ARE GOING TO BE REDUCING ARE OVERWEIGHT EQUITIES, BRINGING IT DOWN TO NEUTRAL, INTO LOOKING AT HIGHER PARTS OF THE MARKET, ADDING TO THE DEFENSIVE AREAS.
THOSE THAT ARE STILL ON SALE. DEFENSIVE AREAS ARE TRADING AT RIDGE MARKET BULLS -- MULTIPLES. AND WE ARE LOOKING FOR A RETURN ON EQUITY, THOSE COMPANIES WITH LAY A LOT OF CASH ON THEIR BALANCE SHEETS. IT'S INDISCRIMINATE SELLING. SO OWNING EQUITIES, BEING THOUGHTFUL ABOUT THE ONES THAT WE OWN, AND NOTCHING UP ON FIXED INCOMED, WHILE NOTCHING DOWN HER ALLOCATIONS TO CREDIT AND BANK LOANS. WE ARE LOOKING AT CORE AS THE CLEAR OPPORTUNITY.
WE EXPECT TO SEE A BID AS INFLATIONARY PRESSURES COME DOWN AND AS INVESTORS LOOKED TOWARDS SAFER PARTS OF THE MARKET HEADING INTO A RECESSION. TOM: ARE YOU CALLING DOUBLE-DIGIT EQUITIES UP ONE YEAR? EMILY: I THINK THAT THAT IS A TOUGH ONE TO CALL. I THINK THERE COULD BE SOME FURTHER WEAKNESS.
THE KEY TO ME IS EARNINGS ESTIMATES STILL HAVE NOT BEEN REVISEDD OWN, SO I THINK YOU COULD SEE MORE WEAKNESS. WE ARE WAITING FOR THAT TO HAPPEN.IT IS ABOUT LOOKING AT THOSE OPPORTUNITIES IN EQUITIES FOR SOME RELIEF. TOM:
EMILY ROLAND FROM JOHN HANCOCK THIS MORNING. IT REALLY UNDERSCORES THE UNCERTAINTY OUT THERE. IT'S A MYSTERY WITH THE UNCERTAINTY. LISA: JOSH AT OPPENHEIMER HAS AROUND THE HIGHEST TARGETS FOR THE S&P.
YESTERDAY, BLOOMBERG SPOKE WITH HIM AND HE SAYS THAT IS STILL THE CASE, I SEE A 40% RALLY HEADING INTO THE YEAR END. HE STILL HAS CONVICTION ON THIS. WE HAVE NOT SEEN CAPITULATION ON THE INDIVIDUAL PRICE TARGETS. WHEN THE YEAR END AVERAGES NORTH OF 4600 COME WAY DOWN IN THE FACE OF ALL THESE DISCRETIONARY CALLS. TOM: DID KELLOGG'S CAPITULATE
YESTERDAY? THE ANSWER IS YES. KAILEY: YOU COULD SAY THAT, THEY ARE TRYING TO BREAK UP INTO THREE COMPANIES, OBVIOUSLY FOR A TAX BENEFIT, BUT CORPORATIONS HAVE TO MAKE THESE DECISIONS IN THIS TYPE OF ENVIRONMENT. YOU STILL HAVE THE LIKES OF CREDIT SUISSE, JP MORGAN, CALLING FOR SOMETHING LIKE A 30% RALLY.
IT'S A LONG WAY AWAY FROM WHERE WE ARE THIS MORNING. TOM: TE HE THREE DIVISIONS OF KELLOGG'S -- SNAP, CRACKLE, POP. LISA: HE WILL NEVER LET YOU LIVE THAT DOWN. TOM: IT WAS BRILLIANT. I SHOULD NOT EVEN COME IN. LET KAILEY LEINZ RUN THE SHOW. ♪ >> UP-TO-DATE WITH NEWS FROM AROUND THE WORLD. PRESIDENT BIDEN WANTS TO DO SOMETHING ABOUT GASOLINE PRICES.
HE IS CALLING ON LAWMAKERS TO ENACT A GASOLINE PRICE TAX HOLIDAY WITH AVERAGE GAS PRICES AROUND FIVE DOLLARS A GALLON IN THE U.S. FEDERAL TAXES MAKE UP ABOUT $.18 OF THAT. IT IS NOT CLEAR HOW LONG THE PRESIDENT WANTS TO SUSPEND THE TAX. IN THE U.K., PRICES ROSE BY
9.1% IN MADE FROM A YEAR AGO. THERE'S BIT INCREASES IN THE COST OF EVERYTHING. THRE WILL BE MORE INFLATIONARY PRESSURE BUILDING AT THE WHOLESALE LEVEL. INTEGRAL MATERIALS HAVE INCREASED THE MOST ON RECORD. THE UKRAINIAN PRESIDENT HAS RESUMED LOBBYING EUROPEAN UNION OFFICIALS FOR SUPPORT FOR THE UKRAINE TO JOIN THE EU.
THAT WILL COME UP IN A SUMMIT ON THURSDAY. AND THE SENATE HAS VOTED TO ADVANCE A GUN SAFETY BUILT INTO FINAL PASSAGE IS EXPECTED LATER THIS WEEK. IT'S THE LATEST BREAKTHROUGH ON THE ISSUE, DESIGNED TO IMPROVE BACKGROUND CHECKS, SICKER SCHOOLS AND GIVE STATES FEDERAL FUNDS TO COMBAT GUN VIOLENCE. BITCOIN HAS RESUMED ITS FORM.
IT'S JUST ABOVE THE KEY $20,000 THRESHOLD. FOR MONTHS, IT WAS MOVING IN THE SAME DIRECTION AS STOCKS. INVESTOR APPETITE FOR RISK ASSETS HAS BEEN FALLING IN LIMITS OF A NEAR RECESSION. IN THE MIDST OF A NEAR RECESSION. GLOBAL NEWS, 24 HOURS A DAY, ON AIR AND ON QUICKTAKE BY BLOOMBERG, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN OVER 120 COUNTRIES. I'M RITIKA GUPTA. THIS IS BLOOMBERG.
>> AFTER 12 YEARS IN GOVERNMENT, THE TORIES HAVE LEFT THE ECONOMY AND -- TOM: EMOTION IN THE HOUSE OF COMMONS. YOU WONDER IF WE WILL SEE IT IN AMERICA AS WELL. THE GENTLEMAN FROM SCOTLAND SPEAKING. THEY HAVE REALLY BEEN GOING AT IT IN A MUCH GREATER LEVEL THAN I HAVE SEEN IN RECENT TIMES. HERE IS THE PRIME MINISTER.
>> THE GOVERNMENT HAS THE FISCAL FIREPOWER TO DEAL WITH IT, MR. SPEAKER, AND THAT IS A BENEFIT TO THE WHOLE OF THE UNITED KINGDOM, INCLUDING SCOTLAND, AS WE HAVE SEEN THROUGHOUT THE PANDEMIC. IT IS A MATTER OF FACT THAT TAXES ARE HIGHER IN SCOTLAND, AS WELL. TOM: LET'S LISTEN. WE WILL LEAVE IT THERE.
LISA, VERY QUICKLY, THE BACKDROP IS A SIMPLE COMMIT $8.66 U.S. A GALLON IN LONDON. LISA: IT IS A LOT MORE THERE AND IT IS CREATING TENSION AROUND THE WORLD AS PEOPLE BUBBLE OVER AND SEE THEIR INCOMES GOING DOWN ON A VERY REAL BASIS. TOM: WE WILL MOVE IT FROM THE EMOTION FROM THE HOUSE OF COMMONS TO THE REALITY OF CAREFUL ACADEMICS AND TO STUDY AT THE INTERNATIONAL ENERGY AGENCY. TIM GOULD LEADS ECONOMICS COVERAGE AT IEA.
AN EXTRAORDINARY TIME, TIM -- TO CUT TO THE CHASE, IN YOUR REPORT, WHAT IS THE DISTINCTION THAT THE PRIME MINISTER AND LEADER OF LABOUR NEED TO KNOW RIGHT NOW? WHAT DO THEY NEED TO KNOW FROM IEA? TIM: WE HAVE NOT BEEN PUTTING ENOUGH CAPITAL INTO THE ENERGY SECTOR IN RECENT YEARS, AND THAT IS TRUE WHETHER YOU LOOK AT IT FROM THE PERSPECTIVE OF ENERGY TRANSITIONS, WE HAVE NOT BEEN INVESTING ENOUGH IN CLEAN. BECAUSE WE HAVE NOT DONE THAT, THAT MEANS THE AMOUNT OF MONEY GOING INTO THE TRADITIONAL SECTORS, OIL AND GAS, HAS ALSO BEEN NOT ENOUGH TO AVOID THE VOLATILITY WE HAVE TODAY. LISA: HAS RUSSIAN OIL ACTUALLY BEEN TAKEN OFF THE MARKET OR READ DIVERTED THROUGH CHINA AND INDIA, THEN SOLD BACK TO THE WEST? TIM: THERE IS CLEARLY SOME IMPACT ON RUSSIA ALREADY OF THE MEASURES IN PLACE, BUT IF YOU LOOK AT THE DATA FOR EXPORTS THERE HAS NOT BEEN A HUGE AMOUNT OF CHANGE SINCE THE INVASION IN FEBRUARY, SO THERE IS EVIDENCE OF A REORIENTATION RATHER THAN A REDUCTION WHEN IT COMES TO RUSSIAN FLOWS. LISA:
WHO WAS POCKETING THE DIFFERENCE? IF YOU ARE DEALING WITH GAS AND CRUDE BEING SOLD AT A DISCOUNT, THEN BEING SOLD AT ANYTHING BUT A DISCOUNT EVERYWHERE ELSE WITHIN THE DEVELOPED WORLD, WHO IS GETTING THAT DELTA? TIM: IT IS A UNUSUALLYN PROFITABLE MOMENT TO BE IN THE REFINING BUSINESS, MARGINS ARE HIGH. AND PARTICULARLY HIGH IF YOUR INPUT CRUDE IS HEAVILY DISCOUNTED RUSSIAN CRUDE. LISA: THERE IS AN ALLEGATION THAT SOME PEOPLE HAVE THAT ACTUALLY INDIA, IN REFINERIES, ARE BENEFITING ON ALL SIDES COMPARED TO OTHER NATIONS. WHAT THESE NATIONS ARE
IMPORTING IS RUSSIAN CRUDE, IS THAT ACCURATE? TIM: IT IS DIFFICULT TO TELL. THE PROVIDENCE OF THE MOLECULES THAT COME OUT OF A REFINERY, THERE'S NO WAY TO DISTINGUISH AT THE OUTPUT OF A REFINERY BASED ON THE ORIGINS OF THE CRUDE. IT'S A DIFFICULT QUESTION TO ANSWER DIRECTLY. KAILEY: YOU ARE AN ECONOMIST. THE BIDEN ADMINISTRATION IS PUSHING CONGRESS TO PUT A PAUSE ON OUR GASOLINE TAX TO PROVIDE RELIEF AT THE PUMP IN THE U.S., WILL IT WORK AS INTENDED? TIM: I THINK THAT WE ARE VERY FOCUSED ON OTHER DYNAMICS.
THE FACT IS OIL AND GAS UPSTREAM INVESTMENTS HAVE COME DOWN BY HALF SINCE 2014, AND THAT HAS ADDED TO THE PRESSURES WE SEE ON THE MARKETS. SO, HOW DO WE GET OUT OF TODAY'S CRISIS? ESSENTIALLY THERE ARE TWO BASKETS OF OPTIONS. ONE IS AROUND DOUBLING DOWN ON FOSSIL FUELS. THE OTHER IS INVESTING IN NEW
AREAS OF THE ENERGY ECONOMY. CERTAINLY FROM OUR PERSPECTIVE, WE ARE KEEN THE UPSWING WE HAVE SEEN IN CLEAN ENERGY INVESTMENTS IN 2022, WE ARE WANTING TO SEE THAT GAIN FURTHER MOMENTUM BECAUSE WE THINK IT IS THE LASTING WAY OUT OF THE CRISIS TODAY. KAILEY: OF COURSE, BY NATURE IT IS A TRANSITION -- WE CANNOT JUST ARRIVE AT A MOMENT WHERE WE ARE TOTALLY RELIANT ON CLEAN ENERGY.MANY CLEAN ENERGY
SOURCES ARE INTERMITTENT BY NATURE, THE WIND IS NOT ALWAYS BLOWING, THE SUN DOES NOT ALWAYS SHINE. HYOU CANNOT GET THE GREEN ENERGY AT THE SAME TIME YOU'RE WEANING OFF OF FOSSIL FUELS, DOES THAT MAKE SENSE? TIM: WE TRY TO AVOID SAYING THAT THERE IS A BINARY ELEMENT, YOU JUST NEED TO SCALE DOWN ONE, PUSH OF THE OTHER. IT WILL BE SOMETHING FOR YEARS TO COME. YOU NEED TO MAKE SURE ALL PARTS OF THE SYSTEM ARE FUNCTIONING IN A WAY THAT EVERYONE HAS AFFORDABLE ENERGY.
WE NEED TO FOCUS ALSO ON ALL OF THE ENERGY SERVICES, THE RELIABILITY THAT YOU CAN STILL GET FROM TRADITIONAL FORMS OF SUPPLY. TOM: THE EFFORT HERE FROM IEA, WHEN I LOOK AT J.P. MORGAN, WHERE IN 100 PAGES THEY SAY THE FOUNDATION OF ALL OF THIS IS POPULATION GROWTH IN EMERGING MARKETS.
YOU OWN THIS, YOU HAVE HAD THE COURAGE TO GO BEYOND THE DEVELOPED COUNTRIES AND A LOOK AT EMERGING MARKETS AS WELL. IS THE CASE FOR HIGHER OIL PRICES SIMPLY A BURGEONING POPULATION IN EMERGING MARKETS? TIM: I THINK IT IS MORE THAN THAT. IT'S ABOUT THE ECONOMIC GROWTH, RISING INCOMES, ASPIRATIONS OF PEOPLE IN DEVELOPING ECONOMIES, WHAT THEY HAVE FOR THE LIFESTYLES WE HAVE IN OUR ADVANCED ECONOMIES. THAT WILL DRIVE DEVELOPMENT IN THE ENERGY SECTOR FOR MANY YEARS TO COME, BUT WHAT SORT OF MODEL ARE THESE COUNTRIES GOING TO BE PURSUING? IS IN THE SAME PATH WE HAVE BEEN ON THESE YEARS OR IS THERE A NEW LOWER EMISSIONS PATH NOW AVAILABLE BECAUSE OF SOME OF THE INCREASINGLY ACCESSIBLE AND AFFORDABLE CLEAN TECHNOLOGIES ON THE MARKET? TOM: THANK YOU FOR THE REPORT FROM THE INTERNATIONAL ENERGY ASSOCIATION. LISA, THIS IS IN THE JP MORGAN REPORT AS WELL, STARVING PEOPLE ARE BURGEONING MIDDLE CLASS IN EM, THEY HAVE ASPIRATIONS. AND THE CENTER AROUND THE USE OF ENERGY.
THAT IS THE HEART AND SOUL OF THE JP MORGAN CALL. LISA: WHICH ENDS WHERE WE BEGAN, THAT TENSION BUBBLING UP AS WE GO TOWARDS A JP MORGAN CALL OF $150 A BARREL. TOM: ARE WE GOING TO GET A TWO YEAR YIELD UNDER 2%? IT'S STARTING TO GET MY ATTENTION. KAILEY: BONDS ARE STARTING TO GET YOUR ATTENTION, SERIOUSLY? I ACTUALLY FIND IT INTERESTING, EVEN AFTER HAVE THE HAWKS AND FED TALKING UP HAWKISH NESTS, YOU HAVE A RALLY IN BONDS, ESPECIALLY AS PEOPLE LOOK OUT TO THE RECESSIONARY CALL IN THE NEAR TERM, MORE SO THAN PEOPLE PREVIOUSLY THOUGHT. TOM:
STAY WITH US. KAILEY LEINZ IS HERE FOR JONATHAN FERRO. WE ON RADIO AND TELEVISION -- TOM: OIL DOWN 124. COMMODITIES GENERALLY GIVING IT BACK.
DOLLAR RESILIENT, 104.51 ON THE COUNTRY DX. PERSISTENTLY WEAK YEN. STERLING, 122.47. POUND STERLING CANNOT GET OUT OF ITS WAY. LISA HAS AN INDIVIDUAL STOCK STORY. LISA: THEY ARE ALL DOWN.
TODAY IS A GLOOMY WEDNESDAY. TODAY IS A NEW DAY WHEN IT COMES TO THE RELATIONSHIP OF OIL TO THE DEFLATIONARY BACKDROP. THERE HAS BEEN A SHIFT, THE INFLATION THAT IS GOING TO POTENTIALLY CAUSE A RECESSION, THIS WILL IMPEDE THE DEMAND FOR OIL. YOU ARE SEEING THAT WITH OIL PRICES DOWN, SEEING DECLINES ACROSS THE BOARD IN SOME OF THE MAJORS IN THE OIL SPHERE.
CHEVRON , THE TIT-FOR-TAT BETWEEN PRESIDENT BIDEN AND -- PRESIDENT BIDEN CAME BACK WITH, I DIDN'T KNOW YOU GUYS WERE SENSITIVE. CHEVRON SHARES DOWN 3%, EXXON MOBIL SHARES DOWN ABOUT THE SAME. GIVEN THE CRUDE SPACE AND OCCIDENTAL DOWN 3%. I WANT TO TAKE A LOOK AT THE WINNERS AND LOSERS AFTER YESTERDAY'S RALLY. TESLA UP MORE THAN 9% AFTER ELON MUSK TALKED ABOUT JOB CUTS AND GAVE MORE CLARITY ON TWITTER. THOSE SHARES FALLING 1.5% AS
PEOPLE REASSESS BECAUSE OF THIS BROAD-BASED, RISK OFF FIELD. YESTERDAY, THEY DID NOT PARTICIPATE IN THE RALLY. NETFLIX IS SUSPECTED TO ANNOUNCE ANOTHER ROUND OF JOB CUTS AFTER BEEFING UP DURING THE PANDEMIC, THOSE SHARES DOWN 1%. META -- META HAS BEEN LEFT OUT. ONE OF THE BIG BETS IN WHAT COULD POTENTIALLY DRIVE A RALLY, THIS IS IT. AT WHAT POINT IS VALUE IN NAMES AFTER BID UP ON ULTRA LOW RATES FOR SO MANY YEARS? TOM: WE ONLY SHOW RED ON THE SCREEN.
THANKS YOU, LISA. ROMAINE WOULD HAVE DONE IT DIFFERENTLY. KAILEY IN FOR JON FERRO. WE GO INSIDE, TALK ABOUT THE DYNAMIC, THE FLOWS IN WHAT I CALL THE TRUST MARKET, WHICH, YEARS AGO, WAS INDICATIVE OF THE TED TO SPREAD, THE DYNAMICS AGAINST TREASURY BILLS, THE MEASUREMENT OF THE SHORT TERM PAPER. SUDDENLY, THE TED SPREAD JUMPS UP. SHOULD I CARE? >> ONE OF THE THINGS I HAVE BEEN IMPRESSED WITH IS -- WITH SYSTEMIC RISK, -- IF YOU LOOK AT WHERE BANKS PRINT CP, IT IS SUBDUED.
IT IS UP, BUT WE ARE NOT ANYWHERE NEAR AT PANIC LEVELS, BANKS ARE HOLDING UP QUITE WELL. TOM: ARE WE NOT AT PANIC LEVELS BECAUSE WE HAVE SO MUCH FISCAL STIMULUS, THERE IS SO MUCH MONEY SLOSHING AROUND IN THE SYSTEM? JUST THAT SIMPLE? PADHRAIC: IT HAS BEEN THERE SINCE THE PANDEMIC, IT REMAINS -- MISSED COMMENTARY ON THIS. YOU MENTIONED THE TED SPREAD, THE DYNAMIC ON THE FRONT END IS OUR RISK-FREE RATE IN THE U.S., WHICH IS 10 BASIS POINTS BELOW THE FEDS REVERSE FACILITY RATE, FIVE BASIS POINTS BELOW THE FED FUND FLOOR.
IT DOES REFLECT THIS ACT OF STABILITY, PUSHING DOWN ON REPO RATES. LISA: WE SPOKE WITH THE HEAD OF GLOBAL DEBT AT ING, I AM CURIOUS FOR PEOPLE TRYING TO GAME OUT WHAT A RECESSION WOULD LOOK LIKE. WHEN YOU LOOK AT CREDIT SPACE, WHAT ARE WE PRICING IN IN TERMS OF THE TYPE OF RECESSION? PADHRAIC: CREDIT SPENDS ARE WIDE, IF YOU LOOK AT THE SPECTRUM OF WH IDENESS, ONE OF THE REAL POSITIVES OF THE HERE AND NOW IS THE FALLS ARE HISTORICALLY LOW. WHAT I SEE WITH THIS ELEVATION OF CREDIT SPREADS IS A PICKUP AND FALSE AS WE GO INTO 2023 AND HAVE A SLOW DOWN. WE ARE NOT THERE YET. I HEAR A LOT OF TALK ABOUT IMMINENT SESSION. WE HAVE A STRONG LABOR MARKET IN THE U.S., THAT IS THE
ULTIMATE TEST OF WHETHER WE ARE IN A RECESSION OR NOT. LISA: THIS IS INTERESTING, BILL DUDLEY COMES ON NEXT SAYING A RECESSION IS IMMINENT IN THE NEXT 12 TO 18 MONTHS. YOU ARE SAYING, NOT SO MUCH. HOW MUCH DOES THAT VIEW HINGE
AROUND THE VULGAR-ESQUE POLICIES ? PADHRAIC: I THINK WE WOULD HAVE TO DO MINE -- DEFINE IMMINENT. IF WE ARE TALKING TO THOUSAND 23, I AM SURELY ON BOARD -- 2023 , I AM SURELY ON BOARD. FROM A BOND MARKET PERSPECTIVE, THERE IS A LOT OF TALK OF, SHOULD RATES BEFALLING? I DO NOT SEE IT YET. I SEE REASONS FOR MARKET RATES TO RISE FURTHER FROM HERE, WHICH I COULD GO INTO, BUT WE ARE NOT THERE YET. LISA: SPEAKING OF, WE ARE NOT THERE YET, WE HAVE BARELY TALKED ABOUT QUANTITATIVE TIGHTENING.
HOW FAR AWAY ARE WE FROM SEEING THE REAL IMPACT OF THAT, RATE HIKES ASIDE? PADHRAIC: I THINK WE ARE 12 MONTHS AWAY. THIS IS ONE OF THE ANOMALOUS SITUATIONS THAT THE FED IS DOING 50 BILLION PER MONTH. BEFORE WE GET THE TRACTION THERE, YOU LOOK AT THE CASH GOING BACK TO THE FED. IT IS AT TWO AND A QUARTER TRILLION DOLLARS, THAT TELLS ME THE FED NEEDS TO GET THAT BALANCE SHEET DOWN BY 2 TRILLION FOUR WE HAVE A REAL IMPACT. WE ARE TALKING ABOUT 12 MONTHS BEFORE THERE IS AN IMPACT. KAILEY: EVERYTHING OPERATES WITH A LAG.
AS FOR HOW THIS TRANSLATES INTO THE TREASURY MARKET, WHAT ARE YOUR EXPECTATIONS ON THE NOMINAL YIELD, BUT WHERE THAT IS GOING TO BE DRIVEN -- DRIVEN FROM? IS THAT REAL YIELDS OR BREAKEVEN? PADHRAIC: REAL YIELDS. BACK IN MARCH, WE HAD A REAL YIELDS IN THE U.S., -20 BASIS POINTS. IT IS NOW 60. 60 IS STILL LOW. THIS IS WHY WE THINK RATES CAN RISE. BEFORE THE PANDEMIC, THE REAL YEAR YIELD WAS UP AROUND 1% ON THE 10 YEAR. THAT SEEMS TO BE A SENSIBLE
TARGET, GIVEN THE ECONOMY IS HOT ON THE LABOR MARKET. SECONDLY, I AM LOOKING AT THE FIVE-YEAR ON THE CURVE, IT IS NOT SIGNALING THE RISE, A CLASSIC SIGN THE FED HAS A BIG JOB TO DO AND THE MARKET RATES HAS RISING TO DO. HAVING SAID THAT, I AM EXPECTING RATES THIS QUARTER, WE ARE JUST NOT THERE YET. TOM: YOU SAID PEAK THIS QUARTER, WHAT ARE YOUR TERMINAL YEARS? WHAT IS YOUR TERMINAL RATE FOR THE FED THAT ESTHER POWELL NEEDS TO DESCRIBE LATER THIS MORNING -- MR. POWELL NEEDS TO DESCRIBE LATER THIS MORNING? PADHRAIC: THE MARKET SHOULD DISCOUNT, LEADS TO FOR NEXT YEAR . THIS HAS BEEN THE BIGGEST BEAR MARKET IN MODERN TIMES, PLENTY OF ROOM FOR POSITIVE TIMES ONCE WE GET YONDER THIS -- GET YONDER THIS -- GET BEYOND THIS. TOM:
THE HIGH-YIELD TOTAL RETURN INDEX, I AM STILL NOT THERE. IT IS SOMETHING I HAVE NEVER SEEN. THE IDEA OF DOUBLE-DIGIT DECLINES, HIGH-YIELD PRICES, I BELIEVE WAS AT -12%. LISA: DOESN'T THE DEFAULT GET TO A LEVEL THAT IS GETTING PRICED IN BY SPREADS? THE REASON WHY SOME PEOPLE ARE SAYING, INCLUDING EMILY ROWLAND, WE LOVE BONDS. I WANT TO HIGHLIGHT THIS, ANDREW AT CITY PUBLISHING WHAT TO EXPECT FROM CHAIR POWELL TODAY, THIS REITERATION OF A MESSAGE THAT INFLATION IS TOO HIGH AND THE FED IS DETERMINED TO BRING IT DOWN. I THINK THIS UNDERLINES THE MOMENT AND FEELING RIGHT NOW.
WHILE NOT NEW, THE REPETITION OF THIS MESSAGE AS MARKETS INCREASINGLY PRICE IN THE RISK INCREASES THE HOCKESSIN US -- HAWKISH AND US OF THE MESSAGE. HOW MUCH DOES THIS EMPHASIZE THE BEARISHNESS OF THE MARKET TODAY? TOM: KAILEY, DO YOU DISCERN A DIFFERENCE OR NUANCE RECESSION TO A RECESSION? MOST OF US OLDER DO. KAILEY: THAT IS THE CONVERSATION YOU ARE HAVING NOW, IT IS NOT WHETHER OR NOT WE GET A RECESSION OR WHAT TIME IT ARRIVES, IT IS HOW DEEP IT WILL BE. IS IT SHORT-LIVED OR ONE THAT IS DIFFICULT TO COME OUT FROM? THE NUANCES MATTER, BECAUSE THE FACT OF THE MATTER IS, THIS RECESSION WILL BE DIFFERENT THAN ANYONE WE HAVE HAD IN THE PAST. THE QUESTION IS GOING BE, HOW SHORT-LIVED WILL IT BE WHEN IT EVENTUALLY ARRIVES? TOM: ALL OF YOU ON RADIO AND TELEVISION, STAY WITH US. WE LOOK AT THE NEWS AND GET TO
DR. DUDLEY, FUTURES -47. VIX, -47 -- 31.07. BITCOIN WITH A PRINT UNDER 20,000 -- OVER 20,000. IT COIN IN THE 10 YEAR YIELD, 3.2% ON THE LOWER YIELD BY EIGHT BASIS POINTS. BILL DUDLEY IS NEXT. THIS IS BLOOMBERG. ♪ RITIKA: BOEING CEO SEES SUPPLY CHAIN ISSUES LASTING UNTIL THE END OF NEXT YEAR. DAVID CALHOUN SAYS THAT IS NOT
THE INDUSTRY'S ONLY PROBLEM. >> WE HAVE A VERY LARGE, SOPHISTICATED AND SOMEWHAT FRAGILE SUPPLY CHAIN BEHIND THE AIRPLANE MANUFACTURERS. JUST AS FRAGILE ARE THE OPERATORS, THE AIRLINES. THE ABILITY TO STAFF UP WITH PILOTS, GROUND CREWS, MAINTENANCE CREWS, ETC. RITIKA: BLOOMBERG HAS LEARNED PRESIDENT BIDEN CALL ON CONGRESS TO ENACT A CASTLING TAX HOLIDAY.
HE IS EXPECTED TO MAKE A STATEMENT TODAY AS AVERAGE GAS PRICES ARE AROUND FIVE DOLLARS A GALLON IN THE U.S. FEDERAL TAXES ARE $.18 A GALLON. THE CEO OF DEUTSCHE BANK SEES A GROWING RISK OF A GLOBAL RECESSION AS THE GLOBAL ECONOMY BATTLES MULTIPLE STRAINS OF SUPPLY CHAIN ISSUES TO RISING FOOD PRICES.
>> PUT A PERCENTAGE, BUT AT LEAST I WOULD SAY WE ARE 15% LIKELIHOOD OF A RECESSION GLOBALLY, BUT IN EUROPE. RITIKA: HE SAID VOLATILITY WILL BE THE THEME FOR THE NEXT 12 TO 24 MONTHS. AMERICAN AUTOMAKER WILL -- PARTS IN GERMANY. FORD SAYS IT WILL TALK WITH UNIONS ABOUT SIGNIFICANT JOB CUTS BECAUSE OF ELECTRIC VEHICLES REQUEST IN WORKERS. GLOBAL NEWS 24 HOURS A DAY, ON AIR AND ON "BLOOMBERG QUICKTAKE." POWERED BY MORE THAN 2,700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES.
I AM RITIKA GUPTA. THIS IS BLOOMBERG. ♪ >> WE ARE IN A SITUATION WHERE INFLATION IS HIGH, PERSISTENT. RATES ARE WELL BELOW NORMAL. I THINK THE SPIRIT IS, YOU WANT TO GET BACK TO WHERE YOU WANT TO GO, AS FAST AS YOU CAN, WITHOUT WRITING ANYTHING. TOM:
AN IMPORTANT CONVERSATION, MR. BARKER WITH IMPORTANT COMMENTS ON THE ITEM OF THE MOMENT, RECESSIONS IN AMERICA. THE CHAIRMAN WILL SPEAK TODAY, IT WILL BE A SOBER CONVERSATION, A SOBER SET OF Q AND A. PART OF IT WILL BE READING WILLIAM DUDLEY'S ESSAY FOR BLOOMBERG OPINION THIS MORNING, WHERE BILL DUDLEY SIMPLY SAYS, LEARN HOW TO SPELL IT. IT IS A HARD LANDING.
BILL, HOW DO YOU KNOW OR DISCERN A RECESSION COMING, THE DISTINCTION BETWEEN A 1994 SOFT LANDING LOOKING AT A GOLDILOCKS RECESSION, OR A MORE DIFFERENT RECESSION? HOW DO YOU GET OUT FRONT OF THAT INTELLECTUALLY? BILL: IT DOESN'T HAVE TO BE A DEEP RECESSION. THE PROCESSIONS OCCUR WHEN SOMETHING BREAKS, LIKE A GLOBAL FINANCIAL CRISIS. THE FED RESERVE HAS TO GENERATE ENOUGH SLACK AND THE ECONOMY, BRING DOWN INFLATION. THE PROBLEM THE FED HAS, IT IS HARD TO PUSH THE UNEMPLOYMENT RATE UP A LITTLE BIT. EVERY TIME THE UNEMPLOYMENT RATE HAS GONE UP MORE THAN HALF A PERCENT, YOU GET A LONG RECESSION. THERE IS NO REASON TO THINK IT
COULD BE ANY DIFFERENT THIS TIME. TOM: WILL THE CHAIRMAN SAY TODAY WHAT YOU SAY IN YOUR ESSAY, SUDDENLY, EMPLOYMENT AS A MANDATE IS SUBSERVIENT. IS THAT WHERE WE ARE HEADING? WILLIAM: THEY TOOK OUT THE -- THE LABOR MARKET REMAINS STRONG. THEY ARE FOCUSED ON INFLATION, AS OPPOSED TO EMPLOYMENT. THE LABOR MARKET IS TOO TIGHT, AS OPPOSED TO NOT TIGHT ENOUGH. I THINK HE WILL REITERATE THE MESSAGE WE HAVE HEARD IN HIS PRESS CONFERENCE LAST WEEK. I THINK HE WILL NOT TALK ABOUT
A HARD LANDING. THE FED IS GOING FOR A SOFT LANDING, THEY SHOULD. THE PROBLEM IS, IT IS GOING TO BE DIFFICULT FOR THEM TO PULL THIS OFF. LISA:
A LOT OF PEOPLE ARE TRYING TO DRAW A DISTINCTION BETWEEN A SOFT RECESSION AND ONE MORE DAMAGING. WHAT IS THE CHARACTERISTIC OF THE HARD LANDING YOU ENVISION? WILLIAM: IT IS GOING TO BE A MILD RECESSION AT THIS POINT, BECAUSE THE FED LOOKS LIKE IT IS SOLID. HOUSEHOLD AND BUSINESS BALANCE LOOK SOLID. YOU GET A DEEP DOWNTURN WHEN FINANCIALS BREA
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