Oil at $100 | Bloomberg Surveillance 08/12/2022

Oil at $100 | Bloomberg Surveillance 08/12/2022

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I don't know how long it'll take to come down but clearly the momentum is down on inflation. Yes they are coming down but I think are very far away from the Fed's objective. We look at other measures of inflation. There's still a lot of work for the Fed to do with the economy slowing and inflation is coming down after they want to be sure they are on the right track. I think the Fed looks at this has been as the beginning of of their battle and having been more credible but having more work to do.

This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Good morning everyone. Jonathan Ferro. Lisa Abramowicz. Tom Keene. Thank you for being with us on a Friday. On radio. On television Lisa. There it is again. One hundred dollars a barrel on Brent crude. And this comes after mixed reports yesterday. This to me I find that yes he had the IAEA coming out and saying they

actually expect increased demand for oil. And then you had OPEC coming out and saying that they expect a surplus. The market has voted with the IEA. They are not necessarily taking the OPEC view on its face. Commerzbank I thought did a great job out of Frankfurt on this on this mixed nature that Lisa talks about. Stephen Schork joining us here I believe it was yesterday. Lisa he says Henry Hub in New York surges was the word to use. Yeah. And he partly though he sees this weakening in demand. This is the big debate. Is this signal or is this noise. Is this signaling something that is negative in the economy that

goes beyond just the technicals of oil. And that is not only what what Stephen Schork said but also Mandy's. You have Credit Suisse coming out and saying she views this as a symptom of the slowing demand of the decline that you're seeing in our mental good economy. And while it might be spinning but this is the demand side of the equation that's weakening that so many people have been betting on. I was a raging debate today and clearly I love with Thomas Vargas says over Peavy Yemen are right up on nat gas. It's simple. Oil is attached to the surge that we see in equities reaffirmed this morning. And what a surge in has been Tom I mean the Nasdaq 100 an index full of big tech stocks that have performed really

badly in the first half and seen this remarkable renaissance. It's up four weeks in a row potentially if it closes out the week in positive territory. That's the longest winning streak going back to November of last year. Tom equity markets rallying at a time that the Fed would like to see financial conditions tightening not loosening. Where does that leave us. Lisa one final question. Before the data and it's simple is the bond market is confused as the oil

microeconomic market while the bond market is following the same logic that the oil market perhaps is following if you view it from the demand side. If you view it from this cooling inflation story. Right. Basically you saw the biggest inflow into investment grade credit going back to September of 2021. In this past week people are flooding back to bonds. They're flooding back to equities. This is a disinflationary story. This is a Fed that's moving away from the hawkish tilt story. And this is a feeling that we can achieve soft landing. It's an interesting Friday. We're going to give you a reprisal here for three hours or more with good guess. We're going to get to Ron Temple in our own here. But all I can say is really an extraordinary Friday to stagger on to Jackson Hole really beginning to prepare our coverage of Jackson Hole. Some wonderful guests scheduled to be with us. Their futures up 21 Dow futures up 150. We're not quite back on

a futures basis to where we were with the enthusiasms of yesterday but nevertheless a lift. The VIX shows it with a 20 level twenty point zero eight in the bond space. I don't know what to say. Yields are all over the place three point to 1 percent and the 2 year yield curve inversion less inverted than before the CPI report. We've moved from negative 49 basis points

to negative 33 basis points a dollar churning here and I guess with Euro 1 0 2 ninety six really showing the definition of churning I should note Sterling 121 42. Some huge challenges in Britain and France on wildfires and on drought. There's never a drought in the brief. The brief is always rich with information. On a Friday she's awake. Rameau I am awake. And I want to say yesterday we talked about that ten year auction and it was actually really dramatic and it was part of the pivot yesterday in markets with yields higher and stocks lower. We will get to that later in the show. 10 AM watching University of Michigan

sentiment survey. Yes we're watching the headline number which perhaps could rebound just a touch from what has been an incredible march downward. How much is this really being driven by oil prices and how much do you see that reflected in the five to 10 year forecast of inflation that they put out as part of this survey. I know if John Farrow were here Tom Keene would come out and say how many people do they survey. Why have I never been surveyed. And we'd question whether this is just a

signal or whether this is something to really hinge on. 12:00 p.m. USDA World Agricultural Supply and Demand Report. This will be fascinating at a time when we just saw food prices surge the most going back to 1979. That to me was one of the biggest. Aways from the CPI report. What are the supplies going to look like and this goes to the weather disruptions that we've seen over in Europe but also in the United States. It has been really dry. How much does that really crimp production of wheat

of soybeans of corn. And then on Sunday Saudi Aramco is going to be reporting earnings. The expectation could be that perhaps it will double its profits in the wake of what we're seeing in oil prices. Tom what do we get in terms of an issue with respect to the supply the oversupply that OPEC is talking about. They could see a potential surplus. Do we see that in the earnings. We see that in the guidance from Saudi Aramco with oil. But also it's going to move over to NASDAQ natural gas which avoid said

mislabeled as just simply should be called methane which is really what it is Lisa. And natural gas is front and center. Huge amount of noise out of the war in Ukraine when TGIF in Netherlands is doing. But the U.S. surge in energy one is just really a shock. And it comes also as we deal with the heat wave that we're seeing across America.

And we're also trying to export some to Europe. A real confluence of events toxic brew the toxic brew made in Kailey Leinz is not used to. When we talk about toxic brew the 5:00 a.m. hour is toxic brew free. Ron Temple makes us smarter this morning. Go ahead. A multifaceted head with Lazard Asset Management. And Ron I want to cut right to the equity paragraph

and you're always crystal clear note which is you are focused on the grand conundrum into next year which is measuring the persistency of cash flow the persistency of free cash flow. How do you actually do that. Well this is all about doing the bottom up fundamental analysis Tom I'm sure you're familiar with that mean looking out and trying to understand what makes a company generate high returns on capital and what are the drivers of whether that return on capital can stay high or whether it declines. And so we're really focused here in terms of you know what I'm looking at in the equity market is trying to avoid the speculative growth stocks that are all about earnings that might come down the pike say 5 7 10 years where all of the value of the companies in that terminal value. And it's much more vulnerable to higher discount rates and avoiding the deep value cyclical stocks that are most at risk if you have a recession and sticking right in the middle of that kind of continuum on the quality stocks the companies with high returns on capital that are pricing power brand advantages strong management strong balance sheets and that's where you really want to do the work to understand what makes a company so strong and how they can maintain that position over time. Robert we've heard this before from other people who are trying to gird for a recession but it feels like the mood shifted this week. Have you shifted anything about your thesis in the heels of the CPI report and PPA and even what we're seeing in terms of Fed funds teachers.

I think the market is reacting to the positive sign that we've probably seen the peak in inflation. We've finally seen inflation roll over and it's more of those cyclical items. The items that we all thought were transitory about a year ago that are rolling over. If you look at the decline and CPI that we saw this week from last month from June to July 25 basis points of the 40 basis point deceleration was cars and airfare. So those are factors that we knew would roll over at some point. What I'm

really watching is rent of shelter. What I'm watching is wage growth. And so I think investors should be careful because you know as I listen to you for the last few minutes I think there is a propensity in the market to say OK this story's over. We're gonna go back to the old playbook. The Fed won't have to raise rates as much. And I can buy these companies that are growth the

kind of call options. I don't think that's the right call. I think we're in the midst of a paradigm shift on inflation. And when inflation does settle I think it's going to settle with a three handle not a one and a half to two percent like we saw for the decade into 20 19. So I would be a little a lot more careful than I think I'm seeing in the markets of kind of overreacting to data in the short term. Okay. So Ron if you're more careful does that mean you still view what we've seen as more of a bear market rally than a bonafide sustainable rally. I do still believe it's a bear market rally. Man I could always be proven wrong. We always have that risk. But when I look at us I think we need to wait for data next month. I expect CPI to

come down again. I'm very interested to see the job numbers. There's there are mixed signals in the job market. We had a great payroll number last Friday. But if you look at the JOLTS state of the job opening labor turnover survey we've seen a million jobs decrease in the number of unfilled positions in the last two months. Now again that data is a month lagged relative to payroll data. But what I want to see is are those unfilled jobs going away. Which then means labor has less negotiating power which then means you're less likely to see wage growth which is less likely than to pass through to prices going up for goods and services. So so I think we need to watch more data. But right now I think this is a bear market rally as a base case

assumption. And again I would be careful of running back to the playbook that worked for the last 10 15 years because I think that playbook should probably be thrown out around the temple if we throw out quality large cap stocks which is the mantra right now wrong and read about it five times this weekend. What is the new mantra going to be. Well to be careful I think quality is the playbook you want. I think the playbook for the last 10 15 years that worked was by the call option by the company. That is a really cool business plan that's getting access to capital at zero interest rates

unlimited capital with our gear. I think that's going to be much tougher. So it's that end of the spectrum I think is more at risk. I think quality. It's interesting Don there's been a Venn diagram overlap right. Where a lot of the quality and the growth where the same company. I still like the quality growth companies. They know there's companies that can generate high cash flow and grow. Well that's great if they're at the right valuation. Ronald Temple thing. The good news is by the way the valuations have come down. So thank you. Well they have. Ronald Temple thank you so much for starting us off. Strong Lazard Asset manager at least I think it's a conundrum. And into the weekend I'm fascinated to see what the different shops do with

their equity calls and particularly how what I'm going to call the gloom crew Fortress Bramwell. I'm really pleased to see the team Lisa. Yes it's a lot like how they do a nuance here. Like do they take us VIX up 100 points. I mean I don't know. What they do given is Mr. Temple says a bear market rally. Well manage you of Credit Suisse yesterday was on Bloomberg

Television and she was saying she is not on my property. She's got she's she's a gloom she's a gloom crew member. And she does see stocks going down. But she says that this rally could continue because of oil prices weakening. Right. And because that's really been the fuel for so out of this. So to speak. I'm sorry. Ninety nine. Ninety five. I'm Brent crude is not weakening. Oil price went as a kid. You were pumping 44 cents a gallon. Gas Brent crude at one hundred dollars. Stay where this this is Bloomberg. Keeping you up to date with news from around the world with the first word answers can get better. FBI agents reportedly searched Donald Trump's Florida home for classified documents

related to nuclear weapons. That's according to The Washington Post. The newspaper says people familiar with the probe didn't say if the documents were recovered. Meanwhile the former president has called for the release of the search warrant. The Justice Department has already asked a court for the papers to be unsealed. No man's land that President Biden is preparing to launch his re-election campaign in the months after November's congressional elections. That sets up a potential we match with

Donald Trump. Those close to President Biden describe him as upbeat about recent legislative economic and foreign policy victories. Polls show most Democrats would rather have another candidate. San Francisco Fed President Mary Daley says the cooler inflation reading for July is welcome and she believes it may be appropriate for the Fed to lower its interest rate increases to 50 basis points next month. Still Daley told Bloomberg TV the fight against inflation is far from over. She says rate hikes need to be dependent on data. Three of China's biggest state owned companies plan to delist from U.S. exchanges. That's fallout from a dispute over whether American regulators should be allowed to inspect audits of Chinese

businesses that are listed in the U.S.. The three companies that will delist a channel eye patch China and Sinopec. The way has been cleared for Samsung vice chairman Jay Wiley to formally take the helm of the electronics conglomerate. South Korea's President Yoon Sook. You'll clear the air to the country's biggest company on bribery charges. Lee spent 18 months in

prison before his release on parole a year ago. 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 rich kid Gupta to. This is good. Justice Department has filed a motion in the southern district of Florida to unseal a search warrant and property receipt relating to a court approved search that the FBI conducted earlier this week. That search was a premises located in Florida belonging to the former president. Whatever your politics these are delicacies of classified

material. We're going to dive into that right now here with futures up 16 Dow futures up one away. I'm in a corner lift to the market on a Friday. We'll see where we go. Here's we just to the weekend we note Brent crude punching him a hundred dollars a barrel moments ago. But the focus on Washington this weekend it's sort of difficult to imagine how we get to the Sunday talk

shows. Thanks for their support on Bloomberg Radio. Emily Wilkins briefs with Bloomberg government in Washington. Emily there are three levels of classified material. It's sort of a modern world definition of confidential secret and top secret. But within that there are some hugely delicate topics particularly under top secret including from 1954 coming out of Korea. What we see with restricted data and formerly restricted data what is the what if if some of these classified materials

were restricted data. I mean the big concern here is really national security. The fact that according to The Washington Post reporting that some of these documents that the FBI was looking for related to nuclear data nuclear weapon information. Now of course we don't know a lot of details yet. We don't know if this had to do with U.S. nuclear weapons with other countries nuclear weapons. If that data was even found by the FBI when they did their search of Mar a Lago. So I think there's a lot left to be determined but we are hoping to find out more potentially as soon as today. Now that former President Trump has said that he is going to engage his lawyers to go ahead and to unseal that warrant that's pretty visible and laid out. I guess we're going to see something today maybe end of the weekend. But what you're

interested in Emily is the affidavit which is the documents and persuasion the parties used with a judge to invade to search the president's residence. I mean yes. I think the main question that we're all trying to answer right now is why did the FBI need to search Mar a Lago. How much was at risk for this particular search. How much was on the line as far as U.S. security and national security goes. I mean those are all sort of the big questions. I mean smarter legal minds than mine. Mine isn't even a legal mind. We'll be passing through the war when it is revealed. We'll be passing

through things. I will let them do the analysis. At this point. I think one interesting thing to say in Washington is that we saw a lot of Republicans come out with very strong statements after the FBI ISE search on Mar a Lago. We really have not heard a lot of Republicans weighing in since Attorney General Merrick Garland presser the other day. I think a lot of them are now waiting to see what exactly happens with this warrant and what happens when things are unsealed. We now turn on a Friday to our legal mind. Lisa Abramowicz it was going to ask us about the legal side more about the political side. And we saw shift gears and also plead ignorance. But I do wonder whether the Republicans are using

this as a talking point and calling it a raid and having it be a sort of thumping aspect whether it's working in the polls. I mean at this point it is a little too soon to tell. Usually you know polling takes a couple days to get done and make sure that it's all correct and well analyzed. But at this point we are seeing a bit of a boost for Democrats. If you look at the

generic ballot if you look at polls sort of asking folks whether they'd rather have Republicans or Democrats in control. This was a really great week for the Democratic Party. The fact that the House is on track to pass that health climate care climate climate change and tax bill today. But the fact that you saw President Biden have those two bill signings one for the chips and semiconductors one for a toxic firm pets and extending that care to veterans who have been impacted by it. Democrats are really going to be able to claim a lot of wins. And they're in the position that when they can go home to their constituents in their districts they can talk the lie about what they've been doing. Plus the CPI data was really good for Biden

this week. Obviously it's lots of questions about what those numbers are going to look like in coming months. We still have eight point five percent but at least Democrats are have the potential scenario that it's peaked. OK. So the Democrats notching some wins ahead of the midterms. But of course looking farther out there is a long way to go until 2024 Emily. Yet we have fresh Bloomberg reporting from overnight about President Biden's intention to run again if the matchup is Biden and Trump. Is there confidence in Washington specifically among the Democratic Party that Biden would be the winner in that scenario. There actually is. I mean when you talk to Democrats a lot of them will point out very quickly that even though Biden doesn't have a really great approval rating right now when he's paired up against Trump he winds up on top and narrow margins. But but still still out there. And that's why Biden ran in the first

place. Right. That's what he's talking about running again. The more likely it becomes that Trump is going to have another run in 2024. The more Biden things that he needs to be that candidate to run and then cut to the chase. You're going to have a mint julep this weekend with the senator from Kentucky Mr. McConnell. Is he giving up his House majority. I mean is the

Republicans screwed this up so bad they could actually come down to a few seats of majority or even lose it. Is Greg Jihye Lee value you alluded to this morning. You know it's a really great question Tom. And the community he touched on the point that it's not it's both the House and the Senate. Right. It's like Mitch McConnell. He's got to be a little bit worried right now. You've seen a number of Senate Republican candidates falter a little bit in their campaigns haves you know a number of negative stories written about them. A lot of questions about the ability for Republicans to win in

states like Georgia in states like Pennsylvania at this point. And then again as you mentioned Greg Valliere had a great piece this morning about the house that it was initially looking like Republicans would have this wave election like they would have a large majority next year. Now there are questions about whether or not that'll be the case. Now Greg as well as a number of other really smart analysts do think that Republicans are still going to win the House in this November. There's that historical

precedent there now that's in their favor. You know inflation is still high. So dark suspecting at this point for Republicans to win. But if Republicans only have really narrow margins that might limit what they're able to get done especially if Democrats are able to hold the Senate. Emily will could sink so much. Greatly appreciate it this morning. I'll tell you a legal big Lisa Abramowicz. I mean it's incredible how I'm reading background on this trying to keep up with you or Garrett Graff or others really on the high ground on this. Well and the subpoena that we that was presented to president former President Trump was not revealed and will not be revealed. And that actually is more

details what he actually had to present to the. Judge to make the argument for why they could do that. The affidavit the affidavit. Excuse me. Yes incredible legal mind. Legal veto makes it all. Yeah exactly. If you try to fill me into the rolls Caylee's gone period. Yeah. Had to Google it yesterday time. I think you

should Google. Friday futures up 15. Dow futures up 1 to 1. The VIX twenty point one seven. Stay with us. This is Bloomberg. Bloomberg Surveillance on a Friday. We're getting you into the weekend the refrain here on equities bonds currencies commodities and of course the various and sundry news flows hydrocarbons front center today with Brent crude print of hundred on the way back up over the last number of days you're watching natural gas in Europe all of the massive challenges there. The chart of the week without question having a blast on electricity in France. Truly a moonshot and a moonshot of worry there I should say. Katie Lyons in for Jonathan Ferro. I just I just want to say gentlemen had this out on Twitter. And I mean Lisa and I were talking about it over breakfast at the at

the St. Regis yesterday. And and Lisa the truth is the pharaoh is gone full European. I mean you know this was not one one day halls that I would take. This was like a substantial gap. Basically someone on Twitter saying that's so European. What do we again. Do we expect him Monday. I mean perchance. I believe so. We believe so. How things go. Kailey Leinz or the short straw joins us today. And that's a good thing as well right now. Q Julie Anticipated for November is a book but when Stephen

Roach writes a book on China it has a focus and intent on their economics and politics like no other. The book is Accidental Conflict America China and The Clash of False Narratives. This is hugely anticipated by the Chinese watching community. The gentleman from Yale and the size China's center at Yale Law School joins us this morning. Dr. Rose thank you so much for joining. You've written three or four books on China. Why is this one different. What is the tension at this moment. Is Mr Xi goes to the party Congress. Well time in the past five years we've gone from trade war to tech war to now a Cold War conflict is escalating. There is no

real framework to manage this conflict effectively let alone conceive of even the slightest semblance of resolution and enough period of escalating conflict. The smallest spark can lead to a major clash and we certainly have seen one in the last week over Taiwan. And I'm very worried about the possibility of a military accident in the Taiwan Straits occurring in the context of this escalating economic and technology conflict that could really lead to a serious outbreak between the United States and China. The thesis of the book is the conflict would not have happened were it not for the false narratives that both nations harbor with respect to other. And I develop these narratives in detail in the new book. Well what is important here is what matter of diplomacy is needed.

What is the roach approach to a new diplomacy that can perhaps calm down these pressure points. Well my idea and I develop it in detail on the final part of the book is that the current structure of engagement whether it's the leader to leader phone call between Biden and Xi Jinping or earlier strategic and economic dialogues is grand. Science has failed miserably. And so I am proposing a permanent institution that I call for lack of a better term a U.S. China secretariat that meets full time 24/7 staffed by an equal number of professionals on both sides of the relationship whose full time job is to deal with all aspects of the relationship from economics and trade to cyber and human rights. And we need a new approach. And this is one idea may not be perfect but it certainly beats the current failed approach. Steve know there might be a lot of uncertainty on the policy side but businesses have to make moves. They have

to either expand and double down on their expansion plans in China or they have to withdraw which we've seen a number of companies do on the margins. And we hear more and more about reassuring or on shoring of U.S. companies away from China. How materially will that shift the dynamic of trade at a time when a lot of people say this will be inflationary. Well I think I think it will be inflationary. I think that the trend toward reassure reassuring is an unmistakable outgrowth of

geostrategic tensions between the United States and China. They can better be addressed through a structure such as the one I just outlined. Lisa. But you know make no mistake this is very destabilizing not just for the U.S. and inflation but also for China. China benefited the most of any nation in the world from the upswing of globalization and it has the most to lose. I think as we now move from globalization to deal globalization there's a larger issue though for the economy. And this is something that we were just hearing about from Ron Temple how he thinks that perhaps he'll get back down to a 3 percent inflation rate but not much below that because we are in a new paradigm. And I wonder how much is China the main part of that. If you have reassuring which incurs more expense and you have slower growth in China because of exactly what you said because this is going to affect the world's second biggest economy significantly. How much does this portend a slower growth higher

inflation environment for a longer term. Well you know we debate how much China has held down U.S. inflation over the past 20 years but it's been significant as has the rapid expansion of global value chains or global supply chains. And as supply chains are disrupted by China and other developments around the world. As we move from offshore to onshore. Good luck in getting inflation down to 3. It's going to be a very difficult goal to achieve. Steve I've been dying to ask you this ship built Morgan Stanley economics. You were the first American economists I know that tried to make a three legged Fed policy of unemployment inflation. And you said watch the balance sheet the expansion of the balance sheet. All that

came true is you wrote about years ago. What's the Fed theory now if you were to if you were to parachute into Jackson Hole here at the end of Marcus. What is the theory you're going to find about central banking. Well you know hard for me to know how they're going to phrase it Tom but I think the Fed theory has got to go back to basics. You know forget this QE balance sheet asset dependent economy it's blown up repeatedly since Greenspan and Bernanke tried it in the 90s and the early 2000s. The Fed's got to go back to inflation targeting not average inflation targeting but plain old inflation targeting. And

we need a you know a dose of the very simplistic but tough and disciplined approach by Paul Volcker. Jay Powell is it says he's very much committed to doing this. The Fed's taking some big steps but. Right. Child's play compared to what they have to do. The real federal funds rate is still sharply negative. You're not going to control inflation with a sharply negative. That's that's on the Elam side. OK. Help me here with the real economy and the unemployment rate. If we go out Lawrence Summers this

morning and pop it up as Anna Wang at Bloomberg says to a 4 percent or 5 percent regime what does that do to America's unemployment rate. It's going to go up Tom. I mean you know we'll give you a man to sit here. No one's watching. Give me give me a man somewhere in the 4 to 5 percent zone which is you know a small price to pay. No not for those who are affected by it of course but a small price to pay to get inflation back under a more stable path consistent with sustainable growth in the US. The path we're on right now doesn't cut it. OK so Stephen obviously there is a tradeoff potentially between keeping inflation in check and supporting growth and to tie it back to China. The PBS see earlier this week was saying we aren't going to go with massive stimulus to support the economy despite the turmoil in the property sector with the Covid zero policy causing issues because we are worried about the specter of inflation. Do you expect that eventually if China isn't going to take steps to breach a five and a half percent growth target

that the Federal Reserve is going to back to. Well I think you know that. Are you asking about the Fed's concerns over U.S. economic growth. Yeah. I think the you know the mandate is going from dual to single inflation is the focus and they can't afford to flinch on bringing inflation back because of political pressures that will be evident as the unemployment rate starts to rise. And the Fed has just got to be fierce and focused on its independence and on his desire to bring inflation down as soon as possible. Stephen Roach wonderful to catch up with you today of course at Yale Law School and formerly with the Wall Street firm named Morgan Stanley as well. Lisa I really can't say how alone Steve Roach was 20 years ago in saying this is a Fed

policy that is just not simplistic. NBER and congressional mandated policy that there was a sophisticated mix to the weights they would have to confront. You asked earlier this morning what those notes were going to be like over the weekend. What concessions there would be for some of the big bears. What do you see and how much is it going to be this this sort of structural inflation that people are not counting for if the Fed wants to get back down to their 2 percent limit. If they don't take it. Adam Posen 3 percent view of things. Well then are we a lot further from that place than people think. Is it a lot less

attainable with the kind of growth that we have enjoyed in the recent past because of this reassuring on shoring the separation of the two powers. We'll just have to see. Jeff the graph here over run macro. Neil Dutta notes what many others have noted today. We've had a 50 percent move what's called a retracement up off the bottom of this grim bear market. And it's now what. For the market it's any number of themes there in guesses of where we'll go. Futures up 17. Dow futures up one way. McKinley I guess we're all doing that. We're all in anticipation of what equity strategists are going to write this weekend. Yeah I can't wait to see if we see any actual revisions to year end targets especially for the bears out there that we're warning a margin pressures. Talking about producer price inflation putting pressure on companies and yet that came in cool too. Does that

start to change the fundamental calculus as well and make this not just a meltdown maybe August and that we're looking for a not year end. I mean things are so original right now. Covid version we've gone from negative 49 basis points to negative 30 for less inverted. This is Bloomberg. Keeping you up today with news from around the world with the first word answers you could get to. There's a report that among the items FBI agents searched for at Donald Trump's Florida home

were classified documents related to nuclear weapons. According to The Washington Post people familiar with the investigation didn't say if those documents were found. Meanwhile the former president has called for the release of the search warrant. The Justice Department has already asked a court for the papers to be unsealed. President Biden wants four more years. Bloomberg Surveillance. The president is set to launch his re-election campaign in the months after November's congressional elections.

Those close to Bloomberg says he's encouraged by recent legislative economic and foreign policy successes. But polls show most Democrats would rather have another candidate. Ukraine's ambassador to Washington is cautioning the U.S. and its allies against fatigue over a war that's costing billions in security assistance. Oksana Michael Barr told Bloomberg that it would be far costlier in the end to let Russia's president Vladimir Putin go unchallenged. She says that if Putin isn't

stopped in Ukraine he'll attack other countries in Europe. Today the Rhine River is likely to shrink to a level that could disrupt the transport of fuel throughout Europe. The effects could ripple through the continent for months. The water level at a key waypoint west of Frankfort is set to go below about 16 inches and continue dwindling. That makes it uneconomical for barges carrying coal and oil to transit the river. And in the UK the economy shrank in the second quarter for the first time

since the pandemic. The gross domestic product fell one tenth of one percent. Though retail sales and the first drop in household consumption in more than a year were factors. So it was declining Covid testing and vaccinations. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in more than 120 countries which could get to. This is Bloomberg. They're significant in that they're saying we're seeing some improvement but they're not victory. We haven't read inflation report and unemployment report coming out before the next meeting really behooves us to stay data independent and not call it Mary Daly of the San Francisco Fed widely anticipated there. And of course the heated battle into the weekend of different components as we just heard from Steve Roach of Yale Law School.

Good to hear from him as well. Right now on the markets there's a lift to the markets. Got a Friday feel to it. And Lisa even mentioned this in anticipation of retail sales next week. Yeah. And actually those are no good days. But today's Friday retail sales are next week. I just want to point this out that Citi put out a report saying that their credit card transaction chat

transaction data excuse me it is Friday clearly shows a decline in spending in certain retail areas and it's pretty much across the board. This is in nominal terms. So in real terms even more. How does that factor into this disinflationary environment is just feet at Tom at a time when a lot of people are counting on soft landing now that reported in next week as well. Right now we're going to digress here. I thought what Lisa was talking was Dr. Shiller about on the break was really really important. Wendy Shiller's with Brown University director of the Taubman Center for American Politics and a writer of core textbooks on our civics as well. We've alluded to this before Wendy but I want to talk about two candidates who I believe will be 78 and 82. In 2024. And that means if my math is right there'll be 82 and 86 on the way out the door in two thousand twenty eight. How did we get the fossils running for president.

Well I think general trends in aging are are good and people are aging better across the country. So that's a good thing. I think in time that came out of a very long where people thought was a very long recession and the world has become less stable. Obviously the Cold War ended and we all celebrated freedom around the world but freedom brought with it a lot of unpredictability. And then of course we had the wars in Iraq and Afghanistan. And when you have that much tumbled and uncertainty

and certainly even the 9/11 attacks people want comfort. They want people who've been around a long time could tell them to shoot. This too shall pass. People look to the familiar. They look to people with quote unquote experience. Donald Trump had business experience that he touted and Joe Biden had more than 30 years in government. Wendy. I'm struggling with that idea because we've seen poll after poll saying that they would like to see new blood put leading the Democratic Party. They would like to see a younger slew of Congress members across the board as we enter into a very new phase. Is it a good thing or a bad thing for the Democrats that President Biden announced his intention to run again. I think it's a good thing you can't have a president not even ending his second year full year in office. He says well I'm not

in anymore. I mean even if there's the slightest chance Biden can still be president and a couple of years from now that makes a difference in terms of influence. That makes a difference in terms of public opinion. You just can't be written off. We saw this with Clinton after the Republicans won the midterms in 94. You know he's irrelevant. He doesn't. He won two years later

relatively easily. You have to maintain the exercise of power and the illusion that you want to keep that power. So I think that's a strategically important thing for Biden to do and there isn't a reason for him not to do it. So you think that this is more about the visual is more about the illusion and less about a true intention to run. Well I think he can stay. He can stay

in this race until somebody in the primary starts to beat him. And you know the myth that primaries are bad for parties at the presidential level Azman has been debunked. Now we know that it generates more turnout and generates people registering to vote knowing the polling places they get out the door. There's you know we know that it increases turnout amongst the party members. So that means that it's a good thing to have some fighting some challenging some anticipation. So if he's in it and other people want to challenge him that just means more Democrats get in the game to to vote. And we know that Republicans will be very very energized in 24 to about whom they will be loyal. We don't know who they're going to pick. Right.

You know I think they'll be more than one person in that race. Yeah it's a good point Wendy. Obviously there's multiple variables at play. Let's just assume for the moment that the 2024 candidate on the Republican side hypothetically would be President Trump. Is there anyone on the Democratic side of likely potential candidate who would be able to beat him other than President Biden. Well if the election were held today of unclear to me that anybody could except for Biden. And again people like what they're used to. There's been a lot of victories lately for the Democrats. You know if economic conditions you know ease up I think that you know the president former President Trump is

facing a lot of different inquiries. Some of them are more scary than others I think to voters. And again that core of independent suburban voters is key. They rejected Trump in 2020. And I think there isn't any reason to think they're going to welcome them back with open arms and 24. So I think that's what the Democrats are counting on. But you know Pritzker an Illinois big state that Gavin Newsom in California big state. Kathy Hochul if she wins again big in New York becomes a player. And

then of course there are a couple people in his cabinet that might want to run which makes for awkward cabinet meetings theoretically later on. But we we are seeing energy. Energy on the Republican side. And now we're starting to see a little bit more energy on the Democratic side. You have to maintain the energy so you have to give them choice. But you are the most powerful person in the world. And why you would walk away from that two years early. You know that's just that's political malpractice. And Wendy finally if we could just look to the more immediate future and the midterms in November there was a sense

prior to this week that Democratic momentum was building. You have the inflation reduction at gas prices are coming down and it's looking a little bit more optimistic for the Biden administration. And yet as you allude to you now have this galvanizing force when it comes to President Trump's base because of the FBI search of Mar a Lago. Do those two forces cancel each other out. And we're now left with kind of the same outlook on the midterms as we had before. That's an outstanding question. I think for Democrats though and again this independent group if Trump looks like this base of Trump's is going to get out the door and there and they are behaving in ways that are frightening to some people like trying to bust into an FBI office with you know being armor being armed I think that scares suburban voters. It scares independent voters. And

it looks like this will give Trump momentum. I think the same forces that got the door 20 18 on the Democratic side will get out the door again. You load up abortion on that in key states. It's going to be a referendum statewide. I think that is going to help the Democrats. I don't know if it saves them for the House but it could very well save them for the Senate. What it shows. Thank you so much for joining us with an August update. She is at Brown University here in the politics of the moment. Lisa as you said there are the best in the year. And you wonder just getting to August end. Yes. Two more. Right now it's just that large. Her comments though were fascinating that when you get a contested primary which is unusual when you have a sitting

president still running you get greater turnout you generate more interest. There is a greater debate that brings eyeballs into the fold. And that that actually could be helpful not only for the midterm elections but also for what we're going to see in 2024. It's an interesting point lost under the headlines of really is he really going to run again. He's going to be 81 blah blah blah. It's an interesting point. I would go back to the markets with this stunning move we've had since I think it's June 16th. There's sort of two discussions going on into. Sort of a reaffirmation by the financial system that things can

recover versus all the myriad Kelly the myriad of uncertainties that are out there. Removed from what we look at every day on Bloomberg Surveillance uncertainty on many policy fronts. Tom when it comes to just policymaking in Washington D.C. who ultimately is going to have the role of Congress and the legislative agenda and then policymaking on the side of the Federal Reserve. How much really changed for them. This week they say not much. The market says otherwise. Two avenues to good discourse on this balance of powers. Look for that balance of power 12 noon David Westin. And I'd really also mentioned Joe Mathews hard hitting sound on 5 p.m. on Bloomberg Radio. We say good morning. This is Bloomberg.

I don't know how long it will take to come down but clearly the momentum is down on inflation. Yes they are coming down but I think they're very far away from the Fed's objective. We look at other measures of inflation. There's still a lot of work for the Fed to do with the economy slowing and inflation is coming off. They want to be sure they're are on the right track. I think the Fed looks at this had been as the beginning of of their battle and having been more credible but having more work to do. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz.

Good morning everyone. Jonathan Ferro. Lisa Abramowicz. Tom Keene on radio. On television Lisa. Finally a point. This reallocation Friday everybody out there is gonna rewrite for the weekend CPI while the jobs report was wow retail sales next week. That's going to be while everybody has to adjust. So time are going to pull the trigger out of a triple leverage all cash into reallocating into bitcoin or say all big tech. I'm going to take the worst fractional shares of Apple maybe. My point is when do you get in. When do you see the bottom. How far out. Yes. Look do you look out a month. Do you say that this rally could continue because of technical reasons over the next three weeks. Or do you start preparing for that yield curve inversion signal. Yes it's gotten less inverted but still signaling a slowdown that some people say hasn't been priced in.

We did this with Ron Temple in the last hour Lazard Asset Management David Liebowitz. We were zero moments with the JP Morgan really looking forward to this raging debate about what to do here and what to do here. Lisa is always the fixed income market leads the way is the fixed income market leading equities know right now if the fixed income were leading it would send the same signal at least if you look at credit that equities are signaling which is if we get any kind of downturn it's going to be shallow and the resilient companies are going to remain resilient and are going to be able to pay their bills. And that is why you're getting the biggest inflows into investment grade credit going back to September 21. I do wonder though why are we still seeing yield curves inverted. Why are we seeing such low longer term yields.

If people believe that we do have you know some sort of soft landing ahead that we can then revive from. And so these are some of the conundrums baked into the bond market that's not telling a consistent story. Let me let me let me steal from John Lumiere over at MSNBC way too early. Caley Lines is the queen of way too early in for John Farrow today. Kelly you're doing a

more European show than we are. Is there a believes that the hydrocarbon disaster of Europe can move over to the United States. I think there is a sense Tom that the United States is going to be relatively more interested or insulated. But obviously Europe is dealing with a substantial energy crisis one that is poised to potentially get Reuters beginning today when part of the Rhine River becomes impassible for cargoes of things like going through this. I mean I don't need a tour guide here.

You know I'm I'm scheduled to take the tour in 2025 to go Castle watching. But the bottom line clearly is we can't get coal. So nat gas goes up. Right. Exactly. And that is the problem that Europe is facing. It is an energy driven inflationary shock in Europe one that central banks the ECB are poised to do very

little about on the supply side. And yet they are still trying to hike rates until a European economy that is weakening due to the very same energy crisis and the high cost of living. Lisa from the Upper East Side e-mails and says get to the day to check. I got to do the brief futures up 13. Dow futures up 99. The VIX under under 20 was a big deal for me. Still twenty point one nine shows a resiliency of equities this week. Fixed income it's gyrating. We have less curve and version now but

nevertheless a negative 34 basis points is important. Fair or not here I don't know who's doing the real yield. I'm not doing the real yield. The real yield points 3 8 percent here on a Friday. Right now we need to be briefed. It's auction free. Here's Lisa Abramowicz and I will be doing real yield that we actually have real yield. Just what to say across the board.

Even two year yields are real in inflation adjusted terms for the first time going back to before the pandemic which is a fascinating turn of events especially given the rally that we've been seeing today. And this is what we're looking for. And if we had to perhaps frame the day differently it would have been University of Michigan sentiment Friday. How much do we get an ongoing increase in terms of how people are feeling especially as you get a reprieve from gas prices.

This particular survey more closely tracks gas prices when they go up. People feel worse when they go down. People feel better. How much do we start to see that really trickle into longer term inflation expectations. And how much does the Fed respond to that at 12:00 p.m..

This is the real world. And what we saw in CPI ISE Wednesday was that food rose at the fastest pace going back for prices going back to 1979 in the United States. How much can supply come back online. How elastic Tom Keene is your words. Is this market as we deal with drought across the country in the United States. The USDA world agricultural supply. Demand report

comes out. We get a sense of corn soybeans as well as what's going to be forward for cotton and a whole host of other commodities. And on Sunday Saudi Aramco reporting earnings. We're expecting to see a similar kind of boom in terms of earnings. Do they give a sense of this to stories that we're getting from the IEA and OPEC Tom. Because right now we're

hearing from the IEA that the demand for oil is going to increase as people pivot from natural gas to oil to plug the supplies. And then we hear from OPEC that there's going to be a surplus. So which is it. And can Saudi Aramco give some sort of its name. Very good. Let's get started here with two short a visit with David Liebowitz who's global market strategist at JP Morgan Asset Management. And buried in your note on the struggles of this summer and getting to the fall in just trying

to say OK. I don't want to run around my head. Cut off is the idea that three years is the new short term. How do you invest for three years as the new short term. If the present is such a jumble. So I think when it comes to three years let's call that the medium term. To me the key is to really focus on two things. It's the focus on valuation and it's the focus on earnings power. Stock markets have rerated so far this year. July was a very good month. And so prices aren't necessarily looking as attractive as they did. But when we look at the equity market today we still see fairly tremendous dispersion between the

expensive names and the cheap names. Now you know sometimes the expensive names have been over bid because people are too positive on their prospects for earnings. Sometimes the cheap names are cheap for a reason. And so it's really blending that combination of value and earnings growth. Almost a Gabi approach if you will. That I think will be the best one to take over the course of the next couple of years. David Leibovitz your colleague David Kelley over at J.P. Morgan Asset Management

yesterday said that stocks will revisit their all time highs and then surpass them in the next three years. That actually is consensus. If you look across the different Wall Street houses it's the path to get there. That really is the question. What is the trajectory. How low do we go before we go back up short. So he is he he's more than a colleague. He's actually my boss. So I

better. No but I think it's a reasonable point to make. I think that over the next three years we will see new all time highs in the equity market. Again you know to your point the question is much more so around how we get there. And you know people are still talking about the Fed and the potential for a soft landing. The reality is that the historical data does not suggest that the Fed is is terribly adept when it comes to landing the plane gently. And so I do think that we're going to be experiencing some turbulence here into the end of this year and the beginning of next year could easily go back down below four thousand thirty seven hundred. That would connect the dots with the trend

line that we were on prior to the pandemic. But what I think the market wants to see here is it wants to see two things. It wants to see the inflation genie going back into the bottle. And then that's somewhat obvious. I also think that the market wants to see some deterioration in the labor market. It's it's somewhat contrary. But if we see the unemployment rate begin to rise after a very hot number in July that's going to give the market confidence that what the Fed is doing is correct. And if we do

have a downturn it'll be relatively short lived. And so I think the market would be comfortable if it can't get the soft landing with with a bumpy landing maybe a shallow recession. But we need to see signals that labor is beginning to cool off. That's going to be instrumental to getting markets on a more positive trajectory. David other than the conversation with your boss another conversation we had yesterday was with Jim Paulson of Lew's Hold Group who essentially said he sees the case for additional Fed tightening rapidly dissipating and that ultimately it's not the Fed that's driving the boat right now.

It is the market which is consistently seeing pushing financial conditions into looser territory not paying attention to the commentary we're getting out of Federal Reserve officials. Who do you think's ultimately going to end up on the right side of that. So it is a bit concerning to see financial conditions loosened after back to back 75 basis point hikes. I frankly think that the Fed is going to continue to move fairly aggressively here. We'll see what the futures pricing looks like when it gets closer to September. But I do think that if the market is opening the door for the Fed to do another 75 basis points they'll do it. Because what the Fed is trying to do here is get policy into territory that is going to actively slow the economy. I don't think it'll fight the futures market. But again I think if that door opens up the Fed's going to step right

through it. So by our lights the Fed is going to remain on on a relatively pre-set course into the end of the year. What I think will get them moving in the opposite direction is a meaningful deterioration in the labor market. But they are going to tolerate a higher unemployment rate than they have historically. David we are drowning in history of the moment. I mean the idea

of a search of a former president's residence just as one example you arguably went to the most prestigious history program in America Williams College the font of James MacGregor Burns. How do we invest and adapt to the history in the making. The James MacGregor Burns and others wrote about. So I think what's so. Interesting about the current environment and you know we meet with clients across the United States and they always want to know what's the big risk you know and usually it's something that we're able to tell is a big risk a threat to democracy. We know it's really rare that that is one what one angle to take. But what I was going to say is you know there there are risks that we can see and there are risks that we can see but we have more difficulty getting our arms around if we see some sort of imbalance in the economy housing running to hot investment spending running to higher vehicle sales running too hot. We can quantify that and we can begin to build expectations

about what a reversal in that would mean for the outlook for economic growth. The problem is the real risks in the current environment. They're coming from the social side of things. They're coming from the political side of things. And those are very difficult to quantify. And so you've been telling clients that when you can see a clear risk you can hedge against it. Right. Higher rates and a more hawkish fed when you can't necessarily see the risk coming or you can't quantify the risk that exists. That's when we diversify. That's when diversification is your friend. David thank you so much. And

thank you for visiting today. David live at center headquarters here with JP Morgan Asset Management. Lisa I think this is a huge huge deal and it's phrased differently now than anytime over 30 40 even 50 years. And that is how do you invest with a cacophony of history and news flow we're all dealing with now. And what David just said there was brilliant that when you

cannot see the risks you need to diversify what you can see the risks you can more accurately hedge. And that is the moment that we're seeing is channeling Peter Bernstein I would say. Well there we are. Thank you. David Liebowitz again. Futures up 12. Dow futures up 85

2022-08-17 06:51

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