Goldman Sachs CEO | Bloomberg Surveillance 12/06/2022

Goldman Sachs CEO | Bloomberg Surveillance 12/06/2022

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This excess savings conversation, from our perspective, is starting to run out. The rocket fuel for consumer spending is coming in a dramatically slower fashion going forward to say that we've already drawn it down, we're headed into a liquidity crisis. I think it's a little bit premature. We're going to have to see growth weaker for central banks to hit their targets. And that's not yet reflected in earnings. We've got shoes to drop that we're have to wait for in 2023.

It's too early. We haven't seen the capitulation. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. Ramos back work begins on a Tuesday. He knows that's okay. You bet. She had all four stores at the corner of 5th Avenue and 57 Street. You make the circle three day weekends fully.

So some IBEX already. Gary others started yesterday projecting time. Great to have you back from New York City this morning. Good morning.

Good morning. With Tom Keene and Lisa Abramowicz, some Jonathan Ferro features right now unchanged at S&P 500. T.K., we need to work out, is this economy speeding up or slowing down? Yeah, I think that's a conundrum here. It's in the literature this morning.

It's in the market this morning as well. And I'm sorry, the feds. Their head is spinning. And we've got you know, you had the global inflation will talk about in a moment where, though, you'd see these coming out moments ago. The domestic inflation story is a mystery of the path down to what John and a lot of it has to do with are we slowing the growth story is a mystery for me. Lisa Abramowicz, if you think about Friday upside surprise on payrolls, the ICM yesterday picking up in a way that I don't think many people anticipated.

Yeah. No. DAX of Renmark has been all over this for the last couple of weeks now and more to say yesterday. We're seeing even the likes of Paul Krugman come out and say when the facts change, I change.

This shows about acceleration that we were not expecting. You're hearing that in a lot of different economic corners. I was looking at this one data point that caught goods account for just more than one fifth of the consumer price index. So caught goods are distant, fleeting. The rest of the world, the services world, not so much Joel Weber. No data says this time.

The slow down story is becoming increasingly stale. What you make of that guarantee is rent. I. Well, I'm in the camp with Neal where I have the optimism of O'Neill. Dr Jim Glassman is on the same page over J.P. Morgan and many, many others as well. And I just think we stagger John from

every report and we're going up to an inflation report. Again, witness always today that is frankly more important than the jobs report. We just had CPI December 13th and the Fed Reserve December 14th need to keep an eye on layoffs as well. The latest coming from Dow Jones, The Wall Street Journal indicating that PepsiCo will lay off hundreds, Lisa, from the headquarters.

So is the headquarters where we're going to see the hit potentially from that company and not the first and likely won't be the last in the next couple of months. There is another Wall Street Journal story in the past couple of weeks talking about how the layoffs have come much more in the white collar space than in the blue color space that the people who actually do the work. The real economy is still necessary in a way that perhaps some of the office jobs are not.

Dani Burger researchers over the night. John, very quickly here, Tom, are solid RBC Capital Markets. And you know, my theme of the x axis show, the timing precisely is Healy's expert on wage dynamics. He's heated the word. He uses his grind, the labor deterioration grind is gonna take for ever to get where Chairman Powell wants the so-called rebalancing that his Fed desires out further out.

Let's get the price action for you with three things. Briefly, the equity market shaping up as follows only S&P 500 unchanged. Futures go nowhere yesterday. Biggest one day loss in the S&P in about a month. Mike Wilson, can we please have your crystal ball? Yeah.

Over at Morgan Stanley, what was required was was a calm. I assume some came out hot. He was blasted higher. We've got to move on to yields that we didn't get on Friday after pay rose and a curve inversion, deepest curve inversion. Going back to the early Hang Seng back together again, we came back negative 50 basis points. Is that about global growth? Was West Texas Intermediate well under eighty dollars? Seventy six dollars, 15 cents a barrel. Seventy six dollars right now.

And Lisa, just briefly, your tenure, 356 25. Do you love it that Mike Wilson comes out and says it's over and the market tanks? It's almost like he does kind of have this telepathic view into the markets today. What we're looking at, Georgia senator runoff election with a Democrat, Rafael Warnock, facing off with Republican Herschel Walker. Very curious to see the outcome of this, in part because of the fact that people view it as a referendum on the Trump back candidate also, because it merely marks a difference, not necessarily of the majority in the Senate, but a 51 49 mix, which could be more significant for policy. Today, there is the Goldman Sachs Financial Services Conference.

Sonali Basak is going to be speaking with the Goldman Sachs CEO, David Solomon. That is going to be in about two hours time. Also CEO Brian Moynihan later in the morning. And President Biden is visiting Taiwan Semiconductor Manufacturing Companies construction site in Phoenix.

This to me is actually going to be really interesting. And we'll be speaking with Brian Deese, the White House economic adviser, in about an hour and 15 minutes. But, John, to me, there's a question about how sustainable this move can be and what this ignites overseas with European allies. If so much of the jobs that we're

looking for that are critical to the supply chain are really being encouraged to move to the U.S., thinking more about China as well. Tim Cook's on that trip, right, of Apple. That's going to be interesting. How much can they actually move away

from China given their dependence, not only on the supply side, but also the demand side? Jeff Farley joins us now. I'm pleased to say to kick off our coverage this morning, the head of ethics strategy at Rabobank at a London. Jen, can I start with a question that I posed to Tom moments ago. Is this U.S. economy picking up or slowing down? You know, I think anything that we can be sure about is that this is going to be a really choppy ride. And I think there are different dynamics in this particularly slow down, shall we say, than another year. And that is it because, of course, the

labor market dynamics and what he's spoken about it. You know, if we look at the NYSE data, almost every single country in the ABC, we've got a labor market shortages and this is in part a demographic issue. You know, if we look, for instance, at the UK already, almost 20, 20 percent of us are over the age of 65. That dynamic will be there in the US in 2030. There's going to be a shortage of of of labor. And when we talk about the onshore in

that you'd be mentioning we talk about our critical industries and and perhaps pharmaceutical or in food, energy. These sorts of things is going to be very difficult to onshore without coming across these labor market shortages. And that means that it's very likely that inflation is going to be persistent on the core level for for some time. And therefore, you've got this issue of offended Fed interest rates, irrespective of whether or not that peak is 5 percent and five and a quarter, but probably stay at that level for some time. And then given that the equity market

has rallied for two months, it's going to be sensitive to that sort of information that leads it to assume that Fed rates could be higher for longer. Jamie, always you do the report. It's always an interesting report, but ever more interesting now 18 of 38 always. Who do countries are enjoying double digit inflation. How does your world change or adapt to that? Do you recall more dollar centric in your analysis? Are there certain currency pairs you look at when we have this amazingly persistent inflation? Well, you know, persistent inflation that we can talk about obesity and we could talk about labour market shortages across the board. But I think Europe is where inflation really is quite dangerous. And this is because at the moment, you

know, we've seen the euro rally. We've seen a lot of relief. Energy or gas storage units are pretty full, even though we've begun to go into this cold snap snap now and people are optimistic about we get through this winter and the eurozone economy is going to be okay. We don't have that view because, you know, particularly if you have a China re-opening, say, next spring, on next summer, there's gonna be a lot more competition for the LNG for that gas. So it's a Europe trying to to fill up its gas storage units for winter 2023 without using supplies from from Russia.

That's going to be really quite difficult and we think actually went to 2023. It's going to be pretty tough for you, for Europe. So actually, if we're looking at other currency pairs, you know, for instance, I would look at the Aussie, rather, they're outperforming the euro going into, say, a six month or 12 month view, because I think Europe is going to be really very sensitive to persistent inflation over the medium term. And certainly Australia is getting a bit

of a boost today after the 25 basis point rate hike overnight by the central bank there. Just want to build on what you're talking about with Europe. There is a story in the Financial Times today talking about the reliance of particularly Germany and German manufacturing on Russia for natural gas if some of the worst case scenarios come to pass with respect to a cold winter and not ISE having some sort of additional LNG supplier. Where do you see that taking the euro in and of itself with Germany's main industry flat on its back? Well, again, it very much depends on what happens going into winter. 2023 will hear a lot more about that. I think in the summer of next year.

But to be honest, I think there's a risk still that we could see below parity again and that sort of time horizon, because I think the markets have this respite for Europe. You know, we've we've had a warm up period. We know that the gas storage units are full. For now, the market is optimistic. Oh, yeah, we'll get through this winter and things will look fine. But actually, winter 2023 is looming out there. It's a concern. We have a lot of commentary already

about the deindustrialization of of of Germany, which is a very frightening thought. And perhaps you might not want to use that term because it is so frightening. But you can certainly look at Germany's business model and you can see a big chemical manufacturers at pulp manufacturers, paper manufacturers, glass manufacturers, all having moved or curtailed operations in Germany already. And that's not just by looking at this

window. That's because they're looking ahead to what might be for the next couple of winters, too. So I think Europe is still in a very dangerous position, even though the outlook for now appears to brighten. Jane, do you think we've underplayed when it comes to the dollar trade underplayed, how important the other side of the currency pair has been through 2022? I think about Europe and the energy crisis.

I look at sterling and the policy issues and look at China and Covid 0. You can really take your pick, Jane. I wonder if we're still underplaying that going into 23. I think quite likely because you know that there's two parts of the dollar trade. And the first is the interest rate differential.

And then the focus on the Fed and peak inflation, etc. But the other is, is a lot of that. Did you put a political facts that the safe haven demands for the US dollar? And if we do have real concerns at NIKKEI next summer, said in Chinese we mean big demand for LNG energy prices going up. Europe really facing another difficult winter in 2023. Yeah, there's gonna be the market thinking, well, you know what? Maybe the dollar is a better trade because of safe haven. And that is something which could mean,

again, certainly that we're going to have a very choppy picture off of this peak dollar, but it could be quite a lengthy period of peak dollar. You know, as this choppiness really plays out, perhaps some months, maybe A, this was great. James Farley Haidi Lun over at Rabobank on the US dollar and foreign exchange later. This is really important stuff when it comes to the dollar.

We focused a lot on this massive rate hike cycle. This fed a reserve through 2022, but it's the other side of the currency pair that's really dominated things, whether it's sterling or the policy issues the last couple of months, whether it's Europe or the energy crisis. China and Covid 0. The BMJ in burying its head in the sand

as everybody hikes interest rates. There's a lot going on outside of the US dollar. But everybody basically makes the narrative that the US is just doing so well. So therefore, it's because of potential Fed reserve hikes, which also as part of the story. You raise a great point, though, and if we do get that chart that Jean was just talking about, what does that do to some of the leverage that's put on with interest rate swaps and other issues? This is something that Bank of International Settlements has been 11 minutes into the show and we've not mentioned the World Cup.

Right now, we're only on Rabobank, a great Dutch pay car, Netherlands, Argentina versus. Translate that. No one's take on Argentina. What a head to head that's going to be telling. I mean, those are two teams.

They're not Brazilians or not. There's another. Did you watch Brazil yesterday? Enjoy lots of beautiful. It's like it's 45 minutes. Do they play that league with all the fancy ball? Did they do that? The individual players? Yeah.

Have you seen Anthony over at Manchester United? Oh I know. Is try and see. I think you see you see Vinnie do that in Rio and they might do that PSG. Kylie Morris today with us today. Are you on life support? No idea. Spending a little bit later this morning, Morocco, Iraq, 10 a.m. Eastern Time. That's after the the output on Bloomberg TV coming off a little bit later.

Amy Ruth Silverman of RBC coming up in the next hour. This is pulling back. Keeping you up to date with news from around the world with the first word. I'm Lisa Mateo in China. Covid outbreak that began last month appears to be tailing off.

The nation reported a little more than two hundred and seventy six thousand new cases on Monday. Infections have fallen. Each of the last eight days. At the same time, there's been a pullback in the sweeping testing regime in major cities. Officials are seeking a more targeted method.

Bloomberg's learned that the U.S. and the European Union are considering new tariffs on Chinese steel and aluminum. It will be part of a bid to fight carbon emissions and global overcapacity.

It's a novel approach. The U.S. and the EU would use tariffs usually employed in trade disputes to advance their climate agenda. President Biden is likely to announce that he's running for re-election after the Christmas and New Year's holiday. That's according to White House Chief of Staff Ron Klain. The president turned 80 last month and is already the oldest person ever to occupy the Oval Office. Global news 24 hours a day on air and on

Bloomberg Quicktake, powered by more than twenty seven hundred journalists and analysts and more than 120 countries. I'm Lisa Matteo. This is Bloomberg. I'm glad with dance in the name. But don't dance too much. Don't spike the football before we get it into the end zone. We are going to win a vote for me is a vote for Georgia Bay.

It also is also going to give you a voice in Washington because you haven't had yet another runoff in Georgia. Amazing how consequential this was, Tom, what, 18, 19, 20 months ago when and now less so. Now less so. Down in Georgia, over the next 24 hours,

we're here. It's a loan. It's a complete focus today for all of political Washington John. I would go back 40 or 50 years to the giant John McAfee who changed nonfiction writing in America. It wasn't his first book writing off for The New Yorker, but it had a lot to do when he wrote an essay on Georgia from south to north and particularly a foreigner like me up in the north or a foreigner like Joe Matthew, you say, do we really know Georgia? And I think Georgia's hugely misunderstood. We'll pick up on this story in just a moment.

Just wanna get you up to speed on the price action if you are just tuning in this Tuesday morning. Good morning to you all. Equity futures are just slightly lower, negative by just zero point zero five percent. No real drama here. The drama was yesterday. Great data in America. Again, an upside surprise and that drove equities lower and yields much higher, specifically at the front end to the yield curve. So a two year blasting gout and a 10 year still around 356.

So you got the curve inversion, some just deeper, deeper curve infection, negative 80 something basis points at a close yesterday and levels we haven't seen since the early 1980s. Ian Lincoln publishes a possibility of a negative 100 basis point ISE version one hundred Volcker Love. Wow, that's a well well statistic as well. He's truly a pro. And let's dive into the political moment in the state of Georgia. We can do that with someone steeped in

the warfare of Massachusetts politics. Joseph Matthew joins us this morning in Atlanta, trying to take Atlanta Braves players back over to the Boston Red Sox. Joe, I look at this and I'm going to go to Jason Kelly in The New York Times with some great graphics of how volatile Georgia has been in the heart and soul of it is the northern suburbs of Atlanta there. Vacillation this way and that before this election, one day before the election, those key eighty some precincts.

How are they vacillating? Well, we're we're just about to find out here. It does appear that they are vacillating towards the incumbent, Senator Raphael Warnock, who, I will remind you, won the election just a month ago. Thirty seven thousand vote victory. But they didn't get to 50 percent. So that's why we're doing this runoff. But as he says, he has now run for this job five times. He's won it four times and he's going up for another one here.

But your point is correct. This race will likely be decided in the Atlanta suburbs. This is really we're drilling down here to 200000 voters. That's it. Who split the ticket? One month ago, voted for Brian Kemp, but did not vote for Herschel Walker, a Republican. Those are the voters who are going to decide whether Rafael Warnock stays in Washington or Herschel Walker becomes the next senator from Georgia here. And he's feeling pretty good. I was with Warnock at that rally last

night. We just heard from Jeezy was the entertainment people were really feeling it. It was pouring rain. And that's what I'm going to point you guys do. You should normally be able to see Peach

Tree Street behind me here as I broadcast from the Bloomberg bureau in Atlanta. But, guys, it's pouring rain. There is so much fog, you can't see the tops of the buildings. And if this race does come down to turnout, as we do believe. Right, the weather could be the biggest story today.

What is the early voting? Is it a factor here like it is for the first mass of any given November? It's a massive factor. They set a record. About 2 million people voted early in this race. We know based on the areas they came from, that they're from democratically friendly strongholds. We know that a lot of black voters voted early this time. And so Herschel Walker has been taking his bus up around the northern reaches of Georgia into the rural areas to try to pick off white, independent and Republican voters he thinks might be able to make a difference in this race.

This has a lot less to do with the individuals in some cases, as it does the party message. You want somebody to vote Joe Biden or Mitch McConnell? There's your choice. And Joe, talking of that, what is the importance of 51 votes for the Democrats in the Senate versus just 50/50? How much more? What policies could they potentially go after that they couldn't with just an even split? Well, it gives them control of the committees. And that that's really what we're talking about here instead of having to force a power sharing agreement with Republicans. That gives them control of the committees. And remember, we're talking about the Senate. This is where judges are confirmed.

This is where nominations are sent by the administration. Right. When Joe Biden goes to fill out the rest of his cabinet next year, when I'm assuming we get some departures, it's the Senate that's going to deal with that. Incredibly important here as we see likely Kevin McCarthy take the gavel with a Republican majority in the House in a couple of weeks.

Annmarie Horden joins us as well, our chief Washington Chris. And we're thrilled. She could be with us today in Washington, Emory, what is the best outcome here for the president? I mean, obviously, it's a Warnock effort.

There's no question about that. But there's got to be a body language to it. What is the best outcome? That is the best outcome, and I think Joe really outlined this, obviously, is it a need to have for the Democrats? But it's certainly a nice to have when it comes to having that advance ability on committees to be able to make sure that they're getting their individuals and candidates through. But also the fact that you have to look at 2024, which we heard from Ron Klain last night, that he expects the president to make an announcement. That announcement is to run following the holidays. He's obviously going to he's talking with his family, as he did in Nantucket over Thanksgiving. But 2024.

The Republicans have to defend 10 seats. The Democrats have to defend 23 seats. It'll be really crucial to have this Georgia seat for six years if they're able to grab at this term. Emory, you mentioned Ron Klain, the White House chief of staff, talking about Joe Biden, probably announcing his likely run after the holidays. Is there any pushback? Is it mounting for him to anoint a sort of successor within the Democratic Party, given where he is in the polls, given where he is in his career? Well, listen, coming off the midterm elections, Biden definitely has a boost within his own party with the fact that everyone said is going to be a red wave. It was not even picked up a seat potential here.

Going to end up picking up another seat in Georgia. And they lost the house. But it was very, very slim. So this really keeps Republicans in check in terms of what Biden wants to do. There's obviously they're going to work in a bipartisan way. But this was most certainly the better outcome that many were predicting for the president, which is why also he feels like he has this momentum to be able to run. Also, former President Donald Trump already made his announcement and Biden said he got into this race originally because he thought he was the only person who could beat Trump. And likely he will continue that mantra

going into 2024. But yes, obviously, people in the Democratic Party are thinking this. He was already the oldest U.S. president. He recently turned 80 just a few

weekends ago. So they are obviously thinking about where is the bench, who is going to be next to lead this party into the future? AMH down in Washington. Mary, thank you. Let's pick up on those comments from Ron Klain. Him speaking to today, Wall Street Journal CEO count. So I expect the decision will be to do it. This is basically a pronouncement at the announcement, isn't it? It's certainly not a shock to a lot of people.

And this is what they anticipate still when Annmarie Horden says the word 80. I don't care who it is. I'm in shock. Why are we. Why we're. How did we get here, I guess is my answer. And Frank, I thought we Speaker Pelosi stepped aside was with some grace and and the gentleman from Maryland, Steny Hoyer, did the same thing. And, you know, there was a constructive ballet in the House, but it's.

When did we become adjourned? Chrissy, you asked the question. Can you help us answer it? No. Taken it. I just don't know.

I honestly, you know, I'd I'd lean on experts here, Michael Beschloss and others, but I just don't have an answer for the shock of hearing Annmarie Horden use the 80 word. It's consistency right now. How much is this really just a moment where he's trying to keep consistency so he can get some agenda through before they figure out what to do? Because if he announced that they're two years out, I'm not going to run again. How much does that torpedo his agenda and his leadership? What's the equivalent of Britain? This is on the stoljar back to another jail. You don't have what we have a very young

foreign minister. Even Tony Blair and Gordon Brown are not on the edge. John? Major, is it like right now? They're right. Yes, sure they're not. But we're near that right now. They're nowhere near that right now. But John, Major maybe approaches that. Do we need John Major to come back and run? I don't know if anyone wants that. Even at the Conservative Party, that's

where we think we're underplaying this. This president seriously believes that if Donald Trump is the candidate for the Republican Party, he can beat it. Bottom line, he seriously believes that. Yes, I think based on the way he communicates, he truly seriously believes that. Yeah, I think so. I I can't disagree. Coming up, Tony out of Canaccord Genuity on this equity market.

It's the bear market right now. Oh, yes. Over. Tony's up next. Tuesday morning. Good morning to you.

Equities go in absolutely no way on a S&P 500 break after the chaos of yesterday. If you want to call it chaos, it's what Primo called it this morning when she walked in the studio, some chaos and play. She was shocked. That features unchanged on the S&P and the Nasdaq up about a tenth of 1 percent. Big day of losses yesterday, biggest one day loss in about a month off the back of stronger than expected data in America. Economic output picking up. If you look at the ISE services indicator that mentally to yields were picking up as well. Here's a snapshot. The bond market, too, stands and 30 year to year back to 436, 64 yields coming in a couple of basis points this morning on a two year on a 10 year rate, 356 98.

So we unwind some of that curve, inversion a curve just a little bit steep, but still negative, some almost 80 basis points this morning. Number one guy right on oil. Ed Morris will join us later. Just moments ago, oil dropping down again, right up. But to stop on 75 handle on oil, the low was November 28. Seventy three dollars. Sixty cents to break down from there.

You know, we don't do chart opinions here, but I will simply state charters. Inelegant, to say the least. I love that you say we don't need it. We've got to try. I'm not going to go. You follow it up. Anyone else?

I say this about crude, Tom. It's interesting to see this pullback in crude at a time that we're seeing evidence every single day that slowly and incrementally China is making a shift away from Covid 0. Now, I say specifically slowly and incrementally, because we have to look at the policy that we're seeing, the policy changes that are adapting day to day, week by week, not anticipate this full reopening that may or may not materialize. The ultimate move that we've seen this

week, I think, is to back away, Tom, from testing requirements. We saw that in Shanghai in the last couple of days. We're seeing it from Beijing this morning, just back in a way, slowly from testing requirements across major cities. So that'll be the news. But there's others and one is a diesel prices clearing up in the Northeast. I mean, I saw a number of blurbs over the last 24 hours, which is where you get to a lower gallon of gas, a lower gallon of diesel. Satya Nadella has been super focused on

that over the last several weeks. If at least you were worried about it at one point, you still wear it now? Yeah, I am. I actually am very worried because the price action, you can come up with a narrative that makes sense. But we're seeing ships tanker is being

backed up over in Turkey trying to figure out this whole Russian gas cap, price cap and then what's going to happen with that? It's unclear to me. The narrative makes sense. The price action less so. Is there a narrative? It's all root, right? I think on the check back, Tony Dwyer's chief narrative strategist, is that what is tireless? That's what this whole time he has been serious. FOX Anthony Dwyer has been a confirmed bull for years, wrapped around his singular call, which is if you don't have a recession, it's tough to go down when the facts change. Mr. Dwyer changes. And he joins us with his short, taut outlook for next year. Tony, your your outlook for next year is

very on Dwyer discuss. Well, it was for this year to Tom. You know, listen, this is we come up with great formulas and ask awesome Kuan programs and big words. But ultimately, what it comes down to is you you need money to buy things, do things or invest in things. And the issue that we've had since last spring was when the Fed is tightening to the degree they are, it's restricting the amount of money that's out there. And yes, we were given a ridiculous amount of money during the panic. Right. Just after the pandemic. But I don't know about your household.

My household spends it. So I need new money to spend more money. And that availability has just been dropping. Well, I look at this, Tony, and you've got a turn in the year.

I've never seen so many outlooks gaming out turns to a week or a day or an hour. How do you prosecute owning equities if the time in the summer of 2000 twenty three is so opaque, how do you you don't find a moment to jump into the market? How do you get into the market? If you're more optimistic later on, what this. Despite being so cautious this year, there were two opportunities to have some pretty significant rallies. There was a summer rally which came out of an extreme oversold condition and a little bit too much pessimism. And then the same thing happened after what we called the fall fall where you got this year end rally and remember the year end rally. There's a lot of historical precedent out there. Any time that you've been up or down

through the first three quarters of the year, more than 20 percent other than the great financial crisis, which I don't think we're in. Each time you've been up a range between eight to 12 percent. So we met that. So really time what it comes down to is every rally starts with an extreme oversold condition, every real intermediate term rally. And that's what we're expecting. Once we go back to the lows next year, it'll start as an extreme oversold rally. And that will hopefully be kickstarted by a Fed that is not just taken a foot off the throat of the market, but is actually adding some air. Tony, I love this.

Basically, the market is so convinced that the market is going to be down for the first half and up for the second half that they're just remaining all invested now and are going to ride this ship, which isn't going to lead to that sort of downturn in the first half. I mean, what's going to be the trigger? So people talking about earnings coming out softer. Yet what we've seen from companies isn't yet that.

Right. And that's it. Yes. It was four months ago that things are great used car prices, everything is great. And now they're just Lisa hadn't been enough time for the Fed's actions to really enter into economic output, natch.

That's. So now we're starting to get the ESM is below 50. The household employment data is weak. You're starting to get the idea that bad news can become bad news up until now. We've been in the temporary sweet spot. It's what really caused the narrative for the for the year end rally. You've been at a point where the Fed hiked rates quick enough that it slowed goods inflation.

So we went from the pandemic where I don't know about you guys, but in my household said, you know, Santa comes every day. It's on the front stoop. You know, so we went from buying stuff to doing stuff. So the goods inflation has come down because of the transition of that, plus the Fed.

But when you look at the services, inflation dropped was very clear. And it was also evident in the payroll data last week. There's labor inflation that's likely not going to peak until at some point next year. So the sweet spot that had driven the rally was inflation's off peak. But the problem is it. You're not yet at the point where you have a recession in that point. Lisa, to make a long winded answer or even longer is when you get those earnings declines next year with an economic recession.

So basically, John and I just heard is that we're going to hear Tony go home to his children and say Santa Claus isn't coming today. It sounds like Tony's unhappy. I'm out of time. Then I'll show up. Tell you, I'm getting heat already on

Twitter for calling him a ball. The answer is Dwyer has been in this market and participate in this market only so for ever when everybody also scared stiff. Well, and he's not alone. And this is really sort of the key question, and that's what you both are getting at, which is when do you get out and then when do you get back in or do you just stay in? Does that actually prevent the market from going down? There was a study from Goldman Sachs showing that big investors have about five trillion dollars hinging on a soft landing, even as more and more analysts say a soft landing is not in the picture anymore. Do you think that those are going to get those are positions that are going to get slammed out, positions in, for example, cyclical companies positions, for example, if there's going to be some sort of softening in the rate cutting cycle much sooner, at least everybody's jumping on the industrials. The time to that was earlier this year when there were the industrials. It's funny, if you look at a chart, I know time doesn't use charts, but if you look at a chart on the industrials, they seem to peak just before a recession starts each cycle.

So this is what's happening is typically what happens. And then the idea that we're going to have a soft landing, everybody has their favorite yield curve that even fed governors use different yield curves. Let's use all the yield curves. Let's end if yield curve that exists between three months and 30 years and take the whole breadth of them.

Eighty four percent of them were inverted. You've had a recession every single time when it's more than 55 percent. It's at 84 percent. The Philly Fed State Coincident Index, anytime. It's just this level. You've had a recession. The leading economic indicators being a minus two point seven. Anytime you any been anywhere near this

level. You've been in a recession. You're coming to one. So the idea that we're going to have a soft landing means that so many so much of the data, as much as I would love that so much of the data would be historically right. And then just to finish it, it would be historically unique if we do go into a recession to have already made the low. What sectors do you hide in given the Dwyer gloom? I can't wait to not be gloomy.

It's against my nature. But I would say the defensives time were up the better part of 12 percent member. The range of outcomes for the year end rally was 8 to 12 percent. So I would shift into what I note said yesterday to the more defensive exit the year on a more defensive posture, which means staples, health care, non energy use. What's your base case, Tony, with respect to the reopening of China and whether that means it's a good opportunity to invest their.

I really say, you know, I have such a hard time with that because it's been fits and starts, is it a great idea? That we've seen this incredible surge in some of the Chinese based DAX, but I'm willing to pretend I'm a great global strategist. All I know is that when you have a global monetary system acts China tightening interest rates and restricting the supply of money and real liquidity. It's very hard to grow because you need money to do that. It's only one of the best and one of the few that would admit to that. So I don't say, oh, I don't want to pretend to be a global strategist. Tony Shaffer, a kind of co-chairman. Thank you, Tony.

You missed this yesterday, Lisa. We had a guy come in with a 55 page outlook as beautiful or fancy artwork in that Dwyer's right off the back of a bar napkin. I mean, he's right like a three page note. It's right to the point, which is what people want. You can read the thing. You can digest a John in 45 seconds and that's it. And there is a place for that on Wall Street.

Brad Stone Paul and the unknown. Iran, China. I think he's right. When you speak to people on the ground in China, you've got questionable efficacy of the vaccine, questionable coverage of vaccinations in the country. And therefore, Tom, you gotta ask the

question, if you going to reopen in China, what kind of reopening we can have and we've got to remember the kind of reopening that we had in the western United States and Europe. It was very stop start, very stop start. And I wonder if our past is in their future with regards to just how clean this so-called reopening will be, how smooth that runway is going to be sacked. Well, I don't think Kamala Harris companies have to try because they have to decide whether or not to build out some of their capacity. We've heard about Tesla, for example, moving some of the production away from Shanghai because of some of these concerns. So this is actually a really important

question for companies on the ground. It's not just a theoretical one for investors, but I take your point that it's very hard to get a clear line from here to there with respect to a reopening. Can we set up the rest of this morning? Mr. Solomon at Goldman Sachs came up with a Sonali Basak in the next couple of hours. That's going to be an interesting

conversation. So what's happened to the battle for talent on Wall Street? Where are we with the bonus pool for the likes of Goldman Sachs, who's taking the entire hour with them? I mean, it's enough to talk. I think it could be a solid 15 minute interview. Okay. I mean, yes, enough there. There's enough to talk about.

And we can talk about the reporting by Bloomberg and others. Shery Ahn Rajan and others on a dearth of bonuses for mere mortals at some of these firms. And also, frankly, you've got to ask them about what is perceived, whether right or wrong, which is their failed consumer bank failure. Is that why you're calling it? I'm just saying that if Ms. Bassett can say that right in the heat

of the interview, she'll feel the sun should many more delicate than I will. Analysts wouldn't necessarily jump to that conclusion yet either. Goldman CEO coming up in one hour and 20 minutes.

Keeping you up to date with news from around the world with the first word. I'm Lisa Matteo. Voters in Georgia will decide today what the U.S. Senate will look like for the next two years in a runoff election. They'll choose between Senator Raphael Warnock, a Democrat or Republican. Herschel Walker, Democrats already hold

the majority. But a victory would give Warnock and give him a 50 first vote, which would make legislating slightly easier. Bloomberg's learn that the US has proposed selling Taiwan as many as 100 of its most advanced Patriot anti aircraft missiles.

That deal, along with radar and support equipment, is valued at eight hundred and eighty two million dollars. It's a move that would only add tensions between the U.S. and China. The Biden administration is concerned that Beijing is becoming more aggressive toward Taiwan. The U.S. Federal Trade Commission is investigating several crypto firms over allegations their advertisements were deceptive or misleading. The agency enforces laws that require truth in advertising. They include rules that individuals disclose when they have been paid for endorsements or reviews. The FTC isn't releasing any details.

PepsiCo reportedly laying off hundreds of workers at the headquarters of its North American Snacks and beverage division. According to The Wall Street Journal, the company has told employees the job cuts will let the company operate more efficiently. PepsiCo employs employees about three hundred nine thousand people worldwide.

And Intel says it's on track to regain leadership in making semiconductors. If the plan from CEO Pat Gettelfinger succeeds, Intel would reverse market share losses to rivals such as Advanced Micro Devices and new video. The company says it is relying more on equipment vendors for help rather than trying to do all the work itself. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts. I'm Lisa Mateo.

This is Bloomberg. We are likely to see that the euro area in a technical recession. I suspect that Q4 this year long that we're in now will see a very slightly negative GDP number and we're likely to see that for Q1 next year. On the other hand, my expectation is we're not going to see 2023 as a year old recession. Fantastic to catch up with the Irish Central Bank governor who's basically acknowledging they're going to be hiking interest rates on December 15th and doing so.

It's a what he anticipates will be a technical recession. That's the direction of travel at the ECB Tom Mackenzie sometime this year. And we're like, okay, well, you know, an important official like that.

And from his experience in New Zealand, great. But, you know, I started out with a big and broad and U.N. ECB narrowing. We covered a lot of ground in that

interview. We get fed narrow right now. The latest from Citi, Tim. Yeah, a slow down to a 50 basis point hike in December remains very likely. But we should expect Fed officials to

guide towards higher terminal rates. And we maintain our call for another 50 basis point hike in February and a terminal range of 525 to 550. And here's the final line with asymmetric upside risk. Yep, that's the bottom line. That same mistake.

And that is a key determinant. And let us be clear here at the end of the year in celebration that Andrew, can we all agree? Andrew Holland, Horst and his team is phenomenal, way out from a safe city and Bank of America. I think laughter in spring of this year, when they started talking about how fast that might push it, it's turned out to be that I killed my mate. My basic take is Deutsche Bank had the recession call way early and Holland Horst had the interest rate vector just absolutely great. Now we got an update now.

Mr Holland Horst of UCLA joins us, chief U.S. economist at Citigroup. Andrew, I'm going to cut to the chase. The fancy math, the ratio math of the Bloomberg Financial Conditions Index is not good for Powell. Goes against your thesis as well.

We are accommodative. It's in research notes this morning. Ben Laidlaw over editorial notes that off the Chicago Financial Conditions series as well. How much are those measurements going against the chairman of the Fed? I think you're right, Tom. It's going in the wrong direction, the wrong direction from what Sharp Hollow would like to see. I watched this conditions every morning

just like you. It's like the viewers. And every morning I'm thinking, what is Chair Powell thinking when he sees this? I think that's true today. I think that was true after his comments at the Brookings Institution a week ago, where I think he was trying to send a hawkish message or a neutral message. And the market took it as dovish. So it's just all more hawkish risk down the line. If we extend the x axis out, let's say we do that and we do move to a higher nominal rate, even more advanced. Real rates as well.

Does that give our economy time to get used to a new higher rate regime? I think the idea was slowing down is it gives the Fed a chance to really evaluate in real time what has been the effect of raising interest rates, of tightening financial conditions. We see that in the housing sector. We see a housing sector that's going in reverse house prices that are coming down. That's where interest rate policy is very potent and very effective. The issue that this Fed is facing is

ever really tight labor market. And they're trying to loosen that labor market with a really blunt tool, which is interest rate policy. Not clear that that's moved far enough yet to see that loosening. Andrew, what are we missing? We keep thinking that there's going to be a much more sustained downturn and yet the data keeps surprising. John was asking earlier. Is this economy speeding up or slowing down? We can't tell based on some of the recent data. So what explains these surprises that we

keep getting? So you see in some areas of the economy slowdown, we were talking about housing, which is going in reverse. Good spending in general has been a lot weaker. But really strong services spending. And we keep seeing that spending data that's coming in strong. We think back to all of the savings that

built up over the last couple of years that's coming down now. The savings rate is historically low, but it looks like there may be even more of that excess savings to work through. You look at credit card balances, which are rising, that can't continue forever. But remember, consumers were very under

levered coming into this year and there's a lot of room to grow credit on consumer balance sheets. So that process is underway. All of that is stoking continued demand. And as long as the demand is out there, you're going to see firms that at the very least want to hold onto their existing workers. These are hard workers to hire. It's been a tight labor market. So it get very, very hard to loosen that

labor market. Andrew, we're hearing about white collar workers that are getting laid off first. Exactly to your point that the rank and file that actually make things go on a tangible level are needed and necessary. How much do you think that a soft landing is pretty much off the table, despite the fact that so many people are basically betting on that being the outcome? I think we just need to be really clear on this, Lisa. And it is an unfortunate reality to have

to acknowledge. But the likelihood of a soft landing is quite low. Yes, it's possible. Yes. There's a hopeful scenario where you can get a soft landing and everybody would like to see that. But we need to be realistic. The balance of the historical evidence,

as well as the fact that inflation is just running so high and it's so difficult to bring down inflation from these levels. I think if you acknowledge those facts and you acknowledge that we really do have a wage price spiral here, I know that it's very unpopular to say that. But there's no question wages are rising, prices are rising. There's an expectation that they continue to rise.

It's a self reinforcing dynamic that is likely going to take a recession to bring those inflationary forces back down. At what point is a financial accident going to be the trigger to some sort of more rapid decline rather than just sort of waiting for Godot, which is what a lot of people seem to be doing, and then confirming their experience or their expectation, rather, for some sort of downturn in specific data? I think that's what you kind of balance what's going on in financial markets and what's going on in the real economy. So like we're talking about financial conditions tightening very aggressively now, loosen from those tighter levels. And we've seen the economy slowed down in sectors, but we haven't seen this broad slowing that's cool demand and brought inflation down. So it could be the case that financial conditions just continue to tighten further, need to continue to tighten further from here.

Then the risk that there is a more significant breakdown in the financial sector becomes higher. I would say that looking at the world today, look at the U.S. in particular today. Pretty clean consumer balance sheets. Banks that are not over levered as well. All of that makes us feel more comfortable about the ability of the economy to withstand higher interest rates.

But certainly those rates rise as you continue to fight time and financial. But Andrew, what what drives me nuts here and maybe it's my fossil dumb is what do you support? Senator CASSIDY said to me yesterday. You wanna repeat that for people who missed it? I'm not saying this man. He's like my brother. I go home. That bills screaming at me on the CASSIDY CASSIDY diet. We'll talk about that in a minute.

Andrew, older people like me know that we somehow survived a 5 percent terminal rate. The youth of America, including you think we're all gonna die? Why can't we survive where we're going to with this Citigroup call? Well, there's a really important concept, which I know we talk about all the time, but it's important to emphasize, which is the real interest rate, the nominal interest rate minus inflation. And that's really what I think Fed officials are focusing on more here. And we just saw on the wage data wage growth, that's 5 percent plus we've known for some time.

And the price inflation data price inflation is 5 percent plus. So when you look at that 5 percent interest rate and you're noting at the top, we were saying 5 percent policy rates, five and a half percent policy rates with upside risk to that. That's because just getting to 5 percent would get that real rate just back to zero. So if you think that real interest rates need to move positive, then the Fed would need to move potentially beyond that level.

And to your point on in an economy that's running high inflation, 5 percent plus interest rates should not be surprising entry. Thanks for being with us, Greg. This year, no doubt, we're told before year end. Andrew Holland, host there city. I thought it was unprofessional that the doctor shared his evaluation so publicly with our audience yesterday. I think you should say that. For private. You know, just straight up telling T.K. to lose some pounds. I'm sorry.

So I'm trying to agree. I mean, I the next I'm asking about vitamins for seniors. And he goes, well, I don't know anything about vitamins, but you need to lose some weight if you've got something to add. Dani Burger. No, I have nothing to add. No, I just. Oh, you did. Oh, I missed it. We've done a full time thing. We saw all the tango.

We're back to tango 0 full time. Is that right? Yeah. Hey, you cutting back? I'm cutting back to zero ahead of the holidays. Can we get to this? Another one? This is from Ernie Credit. This is gonna sound quite familiar to many of you, I'm sure. Ongoing shop, monetary tightening and upcoming recession pose significant downside risks.

However, evidence of slowing core inflation, peaking official rates and signs of economic recovery should pave the way for more risk taking in the second half of 2003. Now, that's not take it any credit that's on Europe, by the way, and not just the United States. We're hearing that from pretty much every single bank on the street that the second half at twenty three is going to be a better place to be for equity markets. And Richard Hang Seng is a joke. It's like a double pivot. Triple pivot. I've never sense that gymnastics, T.K.. Yeah, well said. That's just that was well said. Thank you.

Rick, it seems sometimes sometimes, you know, sometimes. Can I note something I learned yesterday? Did you learn to Morocco and Spain or 9 miles apart? No. You swam the English Channel What'd You Miss?. Yeah. And it was like 18 miles or something. ISE.

When a company reaches out this game today, they're like wicked close. There's a wrong watch. NIKKEI. You know, you watching that game? Oh, yeah. That Gibraltar Rock is ours, by the way. Oh, it is. You know that from New York. This is, in fact. This excess savings conversation, from our perspective, is starting to run out.

Rocket fuel for consumer spending is coming in dramatically slower fashion going forward to say that we've already drawn it down, we're headed into a liquidity crisis. I think is a little bit premature. We're going to have to see growth weaker for central banks to hit their targets. And that's not yet reflected in earnings. We've got shoes to drop that we're have to wait for in 2023.

It's too early. We haven't seen the capitulation. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. Live from New York City for our audience worldwide. Good morning. Good morning. This is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro equity futures basically unchanged on the S&P 500.

Take out. I've been saying it's a snooze this week into next week. Alix Steel to lose anyway. Next week it's all about CPI and the Federal Reserve.

This week, more decent data out of America. Friday payrolls. Yesterday, the ISE Sam that drove equities lower. A New York Times story started Monday. John feeling it was not going to be a snooze fest this week. I think we see that a lot of crosscurrents going on and one of them is has continued resilience. And you mentioned it earlier. Let's give credit to Neal Dota, among others at Renaissance who have just said, wait a minute, these are the facts.

And the facts is even Andrew Holland has said. The reality is there's a resiliency there. Well, let's play that with Andrew Holland, host City Hall, and what we heard from him just moments ago on this program.

And if you're just tuning again, this is basically what he had to say, Lisa, upside risk that a terminal rate for this Federal Reserve in 2013. He's not alone. There are a lot of economists that still say that, especially with the recent data. The market's not buying it. The market seems to be downplaying a lot of the expectations for some of the peaks interest rates that we might have seen perhaps just a couple of weeks ago. So what's going to be the trigger to really be the gut check where they start to rethink that second Alpha 2023? Things are just going to be great. MCCARTHY Awesome.

That's the outlook for the next twelve months. If nobody has got the same outlook, at least that's the consensus view right now. Looking ahead to next year, let's do a proper we're going to the wonderful Emmy.

Was Silverman here in a moment? There are in the Greek letters what are called four cross moments, which are the fancy math genius of how you measure out there and the probabilities that they're are not going to go in number. One of them's ketosis. I've got it on my right foot. And the answer is, John, you look at the Greek math thickness now. And that brings you humility in gaming June of next year. And no one heard the second bit of what you just said. Now, everyone just thought that is gross.

Senator Gadson is recommending you get the real thing, but just get me a prescription. The doctor from Louisiana's time here told us this. Let me fix. I think people are Googling it right now. Please don't. This is only S&P 500 Sophie Kamaruddin.

Oh, my gosh. Here's the price for your equity is going nowhere. Up almost a tenth of 1 percent. It would go into somewhere down a couple of basis points on a 10 year 355 70. Any affects market came really close to one of six yesterday and right dollar back down to 1 0 5 when a 515 some positive two tenths of a dash to Lisa.

But Jan, a negative 81 basis points to stage 10. What do we do with 85 basis points? How do we analyze that? How far is this Fed willing to push it? And Lisa, how much hike in that two year yield go from here? It has been higher this year. Let's be clear about that. But a month or so ago, intraday after

pay rose, it got close to 480. So it's been higher. And we're wondering why it isn't higher now, given that some of the upside surprises that we've seen to some of the recent labor market data raises a question of just how much this economy is decelerating, if at all. Today, what we're looking at is the Georgia Senate runoff election that will determine just how much of a majority or if the Senate Willy Willy will give Democrats a 51 to 49 majority. It also really as a precursor to the

presidential election in 2024. Give some sort of tone there in terms of what voters proclivities are. Today, we also the Goldman Sachs Financial Services Conference Sonali Basak. I'll be speaking with Goldman Sachs CEO David Solomon. That's coming up in about an hour and 12 minutes. Very curious to hear what he has to say. Also, Bank of America CEO Brian Moynihan

speaking today. President Biden is going to be visiting the Taiwan Semiconductor Manufacturing Companies construction site in Phoenix. We're going to be speaking with Brian Deese, his chief economic adviser, coming up here in just about 10 minutes. How much do we get a sense of the emphasis on creating tech jobs and key jobs in the U.S.?


2022-12-09 08:55

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