'Bloomberg The Open' Full Show (12/19/2022)

'Bloomberg The Open' Full Show (12/19/2022)

Show Video

Can we just wrap up 20, 22 already? Live from New York City this morning. Good morning. Good morning. Three day losing streak on the S&P 500 trying to bounce back. The countdown to the open starts right now. Everything you need to get set for the start of us trading.

This is Bloomberg, the open with Jonathan Ferro. Live from New York City, we begin with a big issue looking out to 2023, Twitter might be looking for new leadership. Mike Wilson thinks we're facing a major profit drop as investors obsess over the timing of one think recession, recession, recession. Data are suggesting that a global recession is likely into 2023, which forecast recession. And the general consensus is for a mild recession. The Fed is still avoiding the R word. They lowered their GDP to zero point

five. This is closer recession as they ever get a four point six percent unemployment rate projected for next year. With no cuts, four point six would be a recession. We've got 75 basis points worth of hikes

left in the dot plots vapor like he engineer recessions that will be needed to bring inflation back to 2 percent. The labor market will be crucial. All comes down to inflation. It's all about whether the market can sort of look through the valley of weakening earnings. We're bracing ourselves. Yes, it's going to slow, but who knows when? Who knows? Went from ISAF. That discussion right now with Flow Hang Seng Matt Miller of John Hancock as the first to you.

Here's a refreshing take. Do you think growth can hold up next year? Well, not necessarily if the latest dud plot materializes and we get another 75 basis points of hikes next year that the market doesn't believe is going to materialize. But we are starting from a higher level than expected. The jobs market is softening, but still holding up a little bit. CAC corporate and consumer balance sheets are in better health.

So I think a deep and long recession is not the best case scenario now. Can it hold up enough to have no negative growth? That's the big question. But it maybe won't be as negative as what the consensus is looking for today. My most kids.

You agree? We actually see downside risk to the to 2023. The central banks are tightening, that is going to be the number one driver of macro next year, in our view, with a lagged impact. And now it's more synchronized. The ECB last week you were talking about this morning, John. That was a shocker to me, just how hawkish the guard has gotten. And it's like the shootout last night or yesterday.

Sorry. In terms of the you know, the game. Yes. That was just amazing. But in terms of Argentina taking those shots, it's just you don't have to put a lot on the ball right now. You just gotta get in the net. Couple even rate hikes of 25 basis points into 2023. We think it's going to bring down inflation for the Fed is going to actually disappoint. Well, it's going to be beneficial, but it's going to go on the downside, in our view, into 2023.

Martin encouraged me. We'll talk about the World Cup all day. Otherwise, let's focus on the Fed. The Federal Reserve is saying no cuts in twenty three. Matt, you're calling for cuts. Why are they wrong? Because if you look at inflation right now and the comps, we're going to go again. So this time last year, when inflation really went parabolic and then you had the Russia, Ukraine, where oil prices, gas prices really rose.

That's the cops we're gonna be going in in the first quarter. If inflation rises like it did over last month, point one percent month over month and you do the calculation and you bring that into next year, we are sub 2 percent on headline inflation in June of 2023. Bespoke Investment Group did a great chart on this on Twitter. I think it's just some of the best research that's out there. And it's not being priced in. It's not being talked about. And if that materializes, the Fed is way off sides.

That's on both sides. But we won't do that, John. That's right. That's another thing that could really bring markets to change tune into 2023 as the CPI outlook, rather, Mac. Can we talk about the growth outlook? Jobless claims four to eleven, Matt, two hundred eleven thousand Thursday morning. Matt, what are the signs that you think we're heading into recession here? When jobless claims go up, it's a great coincident indicator, but when that goes up, it's too late. The Fed is already going to be behind the curve on that pace. And right now we're starting to hear the

layoff announcements are coming in, the Challenger job, Christmas job. The jobs data coming out is showing no layoff announcements are picking up. But you're right, it hasn't shown up week over week. We don't think we're in a recession yet, but we do see that coming soon into 2023 and the first couple months. And when that happens, the Fed's going to have to put in real fast as they want to think that might be wrong.

Well, I agree that inflation is going to come down faster than what the Fed is pricing in. We are seeing job openings start to soften. I agree that the layoff announcements are going to keep coming and that is just going to deteriorate into next year. I think there are a lot of other factors, including the excess savings, including healthier balance sheets, pretty much across the board that are going to help hold up a little bit better than this big recession that Matt is talking about. But we still don't know how many lag effects we're going to have from all the rate hikes of 2022. So I think that's also why I don't

expect the Fed to hike as much as what they're trying to tell us today. We're getting to a very tough period for the Fed where they don't want to keep hiking so much because they know they're going to have lagged effects. They see these layoff announcements as well on inflation. They don't seem to want to admit they're going to start seeing it soon as well.

But at the same time, those financial conditions. Any time the market starts to think about a pause, they're loosening. And they need to keep those financial conditions tight and they need to make sure they find a way to convince the market that a pause is still restrictive policy and that they're not close to a pivot. And that's going to be a very difficult messaging balancing act.

And they haven't seemed to found that yet. So as the this is the call on the economy on the Fed, give me your call on the market. Well, for the market, I think the beginning of the year stays complicated every time we've rallied. We've had another central bank scare us. In this case, it was the ECB, not the one everyone thought would be the hawkish surprise of December. The markets are really struggling to get above this 40 100 level on the S&P 500.

And there are a lot of question marks about earnings expectations. Earnings expectations are pretty much all over the map for next year, anywhere from 230 to 200 again for the S&P 500. So a lot of question marks there. I think downside for earnings is already priced in. But we do have the risk that either inflation doesn't come down as fast as we think or that growth comes down faster than we think. And that brings earnings expectations towards that lower end of the consensus. And that can make for a very bumpy started the year.

But for 2023 the whole as a whole, I think we'll still have a positive year and positive returns. Let's just say on that earnings point just a little bit longer. Mike Wilson of Morgan Stanley has this to say. Race and inflation may have peaked, but

we see that as a warning sign for profitability, a reality we believe is still underappreciated but can no longer be ignored. We'll catch up with Mike in about 20 minutes from now. Matt Miller in which side you want here, I just need to ask who says a lot of this is priced in on Mike Wilson, who says there's some real pain to come on the earnings side that's going to take this equity market down in the first half? We see earnings growth likely to continue to moderate here and earnings estimates are still way too high. In our view. So where do you know the street's looking for about 5 percent to close out this year.

And then we go into next year and still look at 4 5 percent earnings growth. We think that's that's unrealistic, given even a shallow recession. On average, a recession brings earnings decline of 25 to 30 percent. We are down about 4 to 5 percent off the peak. So earnings in earnings really brought forward here over the last couple of years. And you just saw massive earnings growth environment because of so much fiscal stimulus.

Well, when you remove that fiscal stimulus and you add higher cost to capital, well, that's going to hurt the earnings picture. You know, the central banks are almost being the grinches here as it relates to the cost of capital going into 2023. And that's going to. That's going to crimp margins. So in our view, you've got to find higher quality companies that don't need money, that don't need to go to the capital markets to survive. You want to use that value exposure.

I think one of the things we're realizing more is there's too much remnants of 1999 type over valuation in the market. You've got to be more valuation sensitive going into next year as a defensive factor and then lower volatility as well. Three main factors quality value and lower volatility as our three and favorites into next year as they watch you say. Back to that. Well, you know, to some extent, the fact

that everyone is saying that earnings expectations have to come down is the same that were already pricing in. Even if that consensus number isn't as low as some would say, we know these earnings have to come down to some extent and I think that part could be manageable. But I agree, the first half is going to be volatile. It's going to be bumpy with still a lot of risks, especially around central banks. I agree with quality for sure. I think some of these defensive sectors continue, at least for now, and then we'll do better later. I think that once we have a peak in the

dollar, that will also be actually tailwind for earnings at some point next year. Then then we get a peak in yields, which I think we've seen. At some point we'll start to have a slightly better outlook for earnings for the tech sector and that can help pull markets higher as well. So do you think the leadership comes

from the tech sector? Is that where the outperformance is on the sector side? And for that matter, on the regional basis, just geographically as a U.S. outperformance, again, take outperformance against the. It's U.S. outperformance because the outlook elsewhere is really not great. And Europe has so many challenges, including a very hawkish ECB.

But the growth picture for Europe is much more complicated than what they mentioned at the press conference. And the energy crisis is not going to get better if we get through this winter with the storage levels is going to be tough to fill up next year. So a lot of difficulty for Europe and maybe not all of that. People thinking the worst is behind us there. And I don't think that it is. So, yes, for sure. I'm not sure the leadership comes from tech. Certainly not at the beginning of the

year. But I think at some point later in the year, we should see at least an improvement in our sustainability there. And that should help the U.S. for short and should least benefit from that U.S. high performance as well. My mistake. And one point that U.S. performance. Your reaction?

Well, so first, Europe's actually the best performing part of the global markets this year now, and so they just declare, you know, it's just been amazing to watch Europe this quarter and it's really taken on more of a leadership role. I do think next year technology goes back quality growth. You just gotta be careful, though, and know what you own, because consumer discretionary, for example, has two stocks of the top very highly valued communication services, not as high quality as it once was. So pure tech, we do like for bar selling that with health care and utilities more defensive, higher still high quality and health care, parts of the markets around that out.

We're looking at the same market. Two very different views here. Matt, you know, when you go into uncertain times, you try and lean on history as some kind of guide. Jim Paulsen, a lethal group, said this. I'd love your thoughts on it. He said, Since 1950, the S&P 500 has posted a total return of 13 percent on average over the next 12 months following 13 major inflation peaks. Matt Miller skin. Is it different this time? Is history a good guide? Well, first, I want to congratulate Jim on his retirement, quite a career.

You know, look up to him as just a great strategist over the years. But I think what you have to do is you have to look at the Fed as a response to that. And with the Fed still raising rates, you don't want to fight the central banks in terms of going into 2023, the raising of the rates this year, the quantitative tightening that's going to be going on even in the first quarter of next year is gonna have a lagged impact. So I do think inflation coming down is great. I think that's going to be great for the bond market.

And that's why we are more bullish on bonds, high quality bonds, 5 to 6 percent yields. We really like that in the first half of this year to 2023, but we don't equities. Be patient. We think there's gonna be a great buying opportunity in 2023, but we want to get income and get paid to wait until that opportunity really arises. Take things number one, with regards to Jim Paulsen, but to echo that sentiment. Tremendous guy. Absolutely legend. And number two, I seem to.

I'd like you to have the final word on this. Well, you know, I have to agree on the second half outlook on the full year. Everyone seems to be in agreement that yields have probably peaked and that's supportive for the bond market. And it certainly feels like an easier

allocation to make today than going back full into equities. Now, whether you average in over the next few months or you wait hoping for another low in the first half of the year. It sounds like Mad agrees that we are going to have a more constructive Europe for equity markets over next year. And if inflation comes down, that means the market. I mean, the market is a forward discounting mechanism. They're going to start depressing that

fed pause, even potentially a Fed pivot, since the market refuses to price out those Q4 2023 rate cuts. And that ultimately will be supportive for equity markets. It's supposed to be the anticipatory asset class. We'll have that conversation with Mike

Wilson of Morgan Stanley. Stick to at Matt Miller and stick him with us. Yields breaking out this morning on a 10 year by eight or nine basis points on a 10 year right now, 357 at the front end, the two year up by 4 basis points going back to 422.

And equities in over now basically unchanged on the day on S&P 500. The open about 60 minutes away. Coming up, China pledging to boost its economy in the first quarter. While we may still see quite weak economic growth. But from second quarter, it's the macro

policy continue to be supportive. We may see a rebound of activity. That conversation up next. In the first quarter, while we may still see quite weak economic growth. But from second quarter, if the macro policy continued to be supportive, which is also kind of confirming in the central economic conference, we may see a rebound of activity and a policy debate both in terms of quality control and or solid the property sector. Those are very important. China shifting its focus towards boosting the economy next year.

The country's top leaders hinting at pro-business policies. This coming amid growing suspicion. China is hiding the true cost of reopening the country, of holding only two deaths since Covid Zero was abandoned earlier this month. Team coverage, great panel here joins us

right now. Olympics in Shanghai alongside them. It's NASA here in New York. First to you, can you just give us an idea of what's happening across the country right now? Well, here in Shanghai, we're experiencing just a wave of infections. Traffic in Beijing. But the most exciting thing is let me just say that right now there's only been two deaths reported over the weekend since the end of Covid Zero. And it's kind of hard to.

It's kind of hard to fathom, given what we're seeing on the ground ourselves. What what's the media has been reporting and the history of other countries, other Western countries, there are higher vaccination rates and the number of fatalities they had in similar, similar circumstances. But I go into that Beijing sanatorium, we actually went to visit today and double door tons of police. Sir, it's pretty quiet outside. I'm sort of blocking the media from from from coming in. And this comes after The Wall Street Journal reported on Friday that they do this all like we're doing, told our to from an employee that don't get 200, 200 bodies a day arriving every day, often my 30 before. And also a few reported last week that, you know, this was like 30 dirty, dirty bodies being quite cremated today. So you have all these reports from

what's the media? And interviewing some staff who work working inside for him sort of flies in the face of what we know. So so that begs the question, why? Why? Why, why? What was going on right now? I mean, basically, the government is trying to sort of play down probably played down the number of deaths because, you know, it's been trumpeting how it's been able to like, you know, keep fatalities, very low rate, showing the superiority of the communist system. And right now, since the end of zero, you know, basically they're trying to sort of move to move the definition around. So we're hearing that officials and

officials right now trying to narrow, narrow the definition for what is a death, attributing it to other symptoms. There's something a disconnect right now between the reports and the data that we see. To Alan's point, Damien. The reliability of the data is really important here. He's got a decent picture, an idea of how this reopening is going to go out over the next couple of quarters.

Well, I'll give you some numbers, Jonathan. Fifty two hundred deaths. That's the official tally of deaths in China since Covid started back in 2019. By comparison, by the way, China's got

one point four, one point five billion people, the upstream 330 million people, one point one million deaths. So it's the way it's being counted, obviously. And they just changed, as Alan was alluding to, the way they count Covid death right now. Right. They changed that on December 6.

So forget the numbers. The numbers are meaningless. You know, if you just look at Hong Kong, which has seven point four million people, they already have, you know, three times the amount that China does in terms of deaths. There are 40. I think we have to focus on what's going to happen tonight. Right. We've got to focus on what came out Friday out of Beijing, the economic war conference.

They want to stimulate the economy. They want to stabilize the property sector. And we'll probably see the five year IPR come in about 10 basis points tonight. That's basically designed to help the property sector, to help lending to the property sector, which, as we all know, is off considerably this year. And that's the canary in the coal mine.

My opinion, easier said than done seems to be the conclusion here. Chance they made sense and I wanted to both you. Thank you. Well, it's going to find a way to John Hancock's Matt Miller downplaying the economic impact of China's reopening as saying the following. The China reopening narrative is not a sturdy bull case for risk assets, in our view.

Given the challenges still to come, Matt Miller, can you build on that for us? Yeah, so the cost to capital is going up, and if they're going to need to use more leverage, more debt to stimulate the economy right now and we do, we think they are going to then that's going to be expensive, frankly. And right now, you know the challenges, it's heartbreaking. And, you know, it's a wash. But the markets have already run with this. So in material sectors, the best performing sector and in the fourth quarter, energy industrials, you look at some of the China plays, industrial companies, even the US, the the ones that are really in more the, you know, kind of backhoe that I can't use are exact stock name. But industrial companies that usually export to China are booming. They're up 40 percent this quarter.

And I think you have to look at that and see you've already come a long way in repricing this reopening. But if it doesn't come in smoothly in the rest of world's raising rates and slowing growth, that's going to probably dampen China growth as well. And so we would trim the strength of much of the non U.S. equity market that has just rallied on this news and redeploy into higher quality, more defensive assets as they try. How are you thinking about this story? We've clearly place it pressed in a lot of the good news and a lot of the re-opening expectations for China. So we've seen a massive rally in the last couple of months and that for now might be a little bit played out.

But I don't think China can afford to have weakness in terms of the health side. And we know the reopening is going to be complicated as previous as it was just mentioned on the show. So they're going to have to show commitment to growth to the real estate sector. They're moving away from the regulatory crackdown. And the more we get confidence that that crackdown is ending or that they're serious about these supports for the economy. I think we'll get more confidence in the market. The Chinese markets are still very cheap

on a historical basis. And that suggests there's probably more room higher, but it's maybe not quite as obvious a trade as it was a couple of months ago as he took my message to the BOVESPA. Thank you. Just safe and 20 seconds for time. It's nice now to jump back in on that beautiful commercial yesterday, Damien, for football. Oh, what a final. So, you know, Jonathan, this is where Fox really lost me yesterday.

I soon at the finals right away. They cut away Jonathan Covid right away to American football, which, you know, look, I'm a huge football fan. I'm out. What about that? But I mean, I wanted to see Matthew hung his mom.

I want to see him in a BOP embrace. Want to see him change shirts. We ought to see none of that. I was looking around to change the channel. Do the same thing. I couldn't find it ridiculous. Ridiculous. Damien, thank you. Vonnie Quinn. Always great. Coming up the morning court and later,

Morgan Stanley's Mike Wilson warning about a major drop in profits next year. Live from New York, let's get you some Monaco's first that Moffitt Nathanson upgrading for ISE to market reforms sting at attractive valuation after underperforming its peers. Jeffries upgrading Midtown into a buy, expecting shares to rebound after the company's pipeline opportunities. And finally, Oppenheimer tank running test.

That's a market perform, saying negative Twitter sentiment could become an ongoing overhang. Tester up by two point seven percent. Coming up, much more on Tesla and Twitter with Dan ISE of Wedbush. Plus, Morgan Stanley's Mike Wilson sounding the alarm on US profits. That conversation next. Plus, from New York this Monday morning. Good morning to all three day losing

streak on the S&P, trying to bounce back by not even a tenth of 1 percent on S&P 500. Futures right now up by zero point zero. Four percent on the Nasdaq at the moment, up by almost a tenth of 1 percent on the S&P. Two weekly losses can be snapped that streak. That's the opening bell. So to the board and get to the bond market yields look a little something like this on a 10 year basis. Points yield this morning, three fifty

five, eighty nine. And the effects market. Euro dollar holding on to one of six. Just like the 10 years, just about holding on to 350. One of six.

Ten on the euro dollar up by two tenths of one per cent and crude seventy five. Seventy one approach in 76, up by one point nine per cent on the session. Twenty seconds into the opening bell, we are completely unchanged on the S&P. And I have to say on the Nasdaq, almost completely unchanged as well. One stock to watch at the open this morning, Tesla. And that stock is not unchanged. Elon Musk asking users in Switzer poll

whether he should step down as CEO with more than 57 percent of the participants favoring his resignation at lunchtime on the West Coast. With more on that. Yeah, good morning, Jonathan. I mean, I've made a request for comment to Elon Musk.

I've written to him to ask if he's going to follow through with this. He has not responded. Some of the other key names involved as well we've written to and asked them if they're being serious in their offers to take over the role of leading Twitter. And of course, we haven't had any

response, up 2 percent on Tesla. I'd point out this is a stock that was down eight of the last 10 sessions as of Friday's close and was trading at a three week low, also a gain of one and a half percent. Now, John is nowhere near sort of some of the positivity exuberance we saw in the pre market. It was interesting, The New York Times reporting in the last 24 hours that Elizabeth Warren wrote to test his board over the weekend, raising concerns that Musk's actions and leadership at Twitter had been harmful to test investors. I've been saying for days and days I have a sort of sense of deja vu. Many retail and institutional investors

voting with their feet, of course. And clearly they wanted some resolutions there. So we'd also just finally point out, John, that Musk did say in the heat of the battle with Twitter when he was trying to walk away from the deal that were to go through. He had always planned to only temporarily lead Twitter as CEO and find someone in the long term. But he's now also tweeting that that

person does not exist. That person no one wants the job that is actually able to keep it alive, that his words are one to watch at. We can have a longer conversation about this in about 10 minutes.

Looking forward to it. Some Tesla bulls are happy about this, including Dan Ives of Wedbush. We're gonna catch up with Dan ISE in about 15 minutes time on this program. Looking forward to that as well. Another stock Mazza hit with anti-trust charges. The EU antitrust commissioner expressing concern over its marketplace service, writing, quote. Facebook users have no choice but to

have access to Facebook. Marketplace Abbey has more happy. Hey, John. Well, yes, the EU is continuing to go after metal platforms as, of course, if there's anti-trust watchdogs basically alleged this complaint saying that they allegedly squeezed out classified ad rivals by tying their Facebook marketplace to their own social networks are basically a monopoly type charge. This latest complaint, of course, paves the potential for a change to their business model. A quarter of their revenues do come from Europe. This is advertising revenue. Not surprisingly, Met is saying that

these claims are without foundation. Now, what makes this so interesting? And there you can see that revenue breakdown, that big portion coming out of Europe. What makes us so interesting is the bigger trend here, of course, is the EU's crackdown on us.

Big tech. Apple Alphabet, Amazon. Now, just a couple of weeks ago, if you recall that the EU told a matter, EU privacy regulators told matter that they could not use content data to provide personalized ads. The stock dropped about 8 percent on that. Right now, we have melted down about 2 percent. So not as much. But on the year, though, John, this and other big tech companies losing a ton of market cap matter, more than 600 billion.

That translates to a 65 percent drop. You have to wonder if some are potentially bottom fishing. It's also interesting because today we do have the EU poised to settle with Amazon on a similar charge. And one bright note, maybe the EU is wrapping up another probe on the advertising pact between matter and alphabet. So many moving pieces here. But again, you have to wonder at some

point, are folks going to be interested in it? Not today. When does time get a break? When does he get a break? Yeah, it's hard to know. I think one question, one piece of it could, of course, be yields popping up a little bit today. But with that to 10 year yield, closer to three and a half percent, it provides a little bit of a little bit of room. But this looming recession, the possibility that profits are going to get hit. It seems as though attack and that

monster rally out of the pandemic low continues to make them vulnerable. Abby, thank you. Want to head back over to Ludlow, who mentioned that letter from Senator Warren to the board of Tesla.

Can I come back to you on that? Because I think we need to build out that's all just a little bit more. What is Senator Warren trying to find out? Well, I think Senator Warren is trying to find out where he must priorities lie. You know, from the reporting we've seen, of course, her interest is probably in the everyday investor. But as you know. Discuss very regularly the retail investor is not just a key holder of test the shares, but a key part of the story. You know, the mega balls are those that own the vehicles. And in her letter to the board, you know, she basically points out.

Has there been harm done? If you look at the performance of tests, the shares since October 28, when the deal to buy Twitter closed. It is trailed the Nasdaq 100, which is basically flat test is down in excess of 30 percent. The S&P 500 down I think around 17 percent in that time. Again, John, all I can tell you is that I wrote to Tesla's investor relations team because there is no mechanism for me to write to a press team that doesn't exist. And Tesla's I our team has not responded. But I basically said what is testers and the board's reaction to this letter? Do you agree with what Elizabeth Warren is outlining, that harm has been done to test the shop shareholders because Musk has not been focused on that company? Those gains fading this morning on Tesla 150 fifty at.

Thank you. That stock is up by two tenths of one percent. Here are some dates for the diary. January 6th, payrolls on the 12th. You get CPI in January. Day after earnings season really kicks off the 13th. That's when you get J.P. Morgan.

Mike Wilson, a Malcolm Stanley, thinks it's all about earnings in early next year. This is what he had to say. Rates and inflation may have peaked, but we see that as a warning sign for profitability, a reality we believe is still underappreciated, but can no longer be ignored. Mike Wilson, I'm pleased to say, joins us right now. Now, Mike, I couldn't ignore this in the note and thanks for being with us. When you mentioned 2008, I think you get

everyone's attention. You said this. We offer further comparisons to Walker's 2008. Mike, can we start there? What are the comparisons between now and back then? Good morning, John. Yeah, I mean, the main one that we're trying to put forth is that our earnings model, which is, you know, we spent a lot of time focused on the spread between our forecast now and what the consensus is. Modeling for next year is as wide as we have seen since the summer of 0 8. OK. In other words, we're looking for an

earnings recession that could be as big of a surprise to the market as it was. No way. Now, what we're not looking for to make it perfectly clear this is a balance sheet. Recession is systemic. Risk fall off like we saw in the fall of

0 8. So it's very distinguished, but it doesn't mean that there's still not a lot of price risk. OK. This is where we think we're at a

consensus now where we have high conviction. So a year ago, it was really about the Fed and the normalization of rates. And now this is the second part of our thesis, as you know. Well, the ice part is now really kicking in.

And there's this sort of presumption out there from our conversation with clients that really knows that earnings are very bad next year and the market's already priced it. And we're just putting this warning out for folks, too, who soon the market is omnipotent and it knows that the market typically doesn't know these types of earnings declines before they happen. So that's the risk. Now, if we're right, OK, we have conviction in our view. We could be wrong about that. But that's now that's our work. And we think that this rally that we've had, which we identified and then got out of two weeks ago, we think that the technical price action last week was confirmation that that rally is not only over, but it's about to exert itself on the downside again in a meaningful way.

Mike, can you explain what's behind that convention? These are earnings for the quarter we're in right now. This is full key to be reported in the first quarter next year. What's behind that conviction, Mike? What do you see this developing that maybe other people are missing? I don't think I see anything that's that different, John. It's just the way we put it together. So remember our forecast. I'm talking about us for the next 12 months. You know, everybody focuses on this quarter, but the market doesn't care about this quarter's earnings.

It never does. It cares about what's going to happen in the next twelve months. That's what the market really focus is on and tries to figure out our model. You know, we've got 30 years in history in this thing. There's a really good job of using data that's already out there. Mostly top down data, some of that's survey data, soft data. We like to call it that leads to hard

data. And you know, the arts we're going on this thing is 80 percent. So it does mean it's infallible, but it's pretty darn close. And when the spread is this wide, you

really want to pay attention to it. You know, when this grades 5 percent, like that's kind of noise, it spreads 25 percent. So that tells us that, you know, this is probably not the price you expected to hear this in the guidance. Then pretty early on in any sales and my going to have the active earnings season works, the banks go first, then you hear from the tech players a little bit further down the line. What would you expect to hear this guidance in the OC of earnings season as it kicks off in mid-January? Yeah, I mean, that's the difference between the fourth quarter reporting season, the third quarter is one reason we backed off our first year in October was you said, look, we're not going to get capitulation on 20 23 forecasts because there's no incentive for companies to guide thousand 2023 in October.

However, now as you start a new year, right, they're compelled to say something because they don't say anything. Then, you know, people lose confidence that they know what's going to happen. So I think there is a much higher likelihood that companies acknowledge what we are now and what they know, OK? Companies do know that things are getting rough out there. Look at, you know, corporate confidence. This is one of the things we compared. You know, today, CEO confidence is as

low as it's been really in history. So that tells you their confidence level about next year is not particularly great. And that should come through in the guidance in January, February, more so than it did in the last couple of quarters when they're not compelled to talk about the 12 month outlook. Mike, I'm interested in what you think the earnings story may hold up. We caught up with banks. America surveyed a Superman team a little bit earlier this morning, said this to send a note she put out in the last week. She said, throw out the US recession playbook.

It's different this time. Oil companies capital have capital discipline. Then she went on to say this about banks credit risk might be more evident at venture capital, private equity and long duration growth place than it regulates it. Thanks, Mike. Can you speak to that?

Just the nature of the dance and you expect an earnings in the parts of the equity market you think will get hit hardest. I mean, look, the good news is, I would say is, is that the areas where the over earning was the greatest, which is the importer or thesis about the earnings reset, that's already happened. So consumer durables, some of the technology areas we've seen. Twenty five percent revisions to next year numbers. Now we think it will continue to be bad because the over earning was so extraordinary. And that's really the main message in our in our work, John, is that the margin expectations are just way out of bounds because we want companies had a windfall profit. That's not necessarily emblematic of one

particular industry. Right. I mean, Covid. Oh, well, as a formal human event, it was actually a windfall for corporate profits. There was a windfall for investors. And that's all being wrung out.

Now, first with rates and now with the earnings that were over earnings, I think it's very broad. I don't think it's one or two sectors. I think we saw over earning across the economy. And that has to play through, you know, a push back a little bit on the energy space. And I I agree that energy is in a in a

better position than it's been, historically speaking, because of that capital discipline. But if we actually end up having a labor cycle, we think it's 50/50 on that. You know, that's when oil prices probably have their final move. Lower stocks will trade. Well, even if the fundamentals haven't changed that much on a forward curve basis of two or three years, the market isn't going to be willing to look through that. And that's Jihye Lee our take as well as we think people are being complacent about looking through an earnings recession that's going to be quite severe and we'll see how they feel when we're in the middle of summer. Can we talk about downside hit 38 50

right now on the screen on the S&P, thinking closer to three K as a bottom for next year. John, you know, we've been very consistent about that. I mean, we've been in this sort of three thousand and thirty three hundred range since really may we put our mid-year outlook. That's the past.

And we think that's still. And we and I would say that we now believe we can get to the lower end of that simply because you worked off this bearishness in the last two months. I mean, the bear market rally we had did his job, right. Its job is to. It's like a three card monte look over here.

And then all of a sudden you forget about looking over and this one and then that's when you get surprised. You know, the setup is good for a finishing move to this bear market. That's a bad thing. The good thing is we're closer to the end of the beginning.

Mike, as you get more bearish on earnings to get more bullish on bonds. Well, you know, we've been bullish on bonds since the summer of reprisal. Early on that call, it's worked out pretty well. I think that's one thing that's different to this time, John.

Whereas like in 0 8, we're not gonna have a systemic risk like we had no way. In our view, it is possible. That's our general take right now. That's good. However, the Fed cannot be as

accommodative right. As they have been historically because of this underlying inflationary issue, which is new in the investment community for the last 30 years. That's one other thing we watching closely in the spring. How fast is the cavalry come riding in? Even in the event of a labor cycle, I think it be slower. And they've told us that. And that could be the surprise and might we can get to those lower price levels on the S&P 500 Wilson just awesome this morning going through the whole of this year.

Congrats to you. And the team set that few times this year. Having a mike, we appreciate time this morning. Thank you. Mike Wilson of Morgan Stanley. Coming up, Twitter.

Twitter users voting against a mosque. The moves that he's making with Twitter are just destroying brand value. I think it should give anyone pause about the future of Twitter's trajectory. Dan ISE of Wedbush. I'm next.

This is Bloomberg's The Open. I'm Lisa Mateo, live in the principal room. Coming up, Ed Morse, global head of commodities research at Citigroup. That conversation at ten thirty a.m. Eastern. Three thirty p.m. in London. This is Bloomberg.

My prediction for Twitter has long been that it's not going to die overnight, but that it will become more broken and more stupid, and I think that's what we're seeing play out. And as a result, people will find other places that they want to hang out. There's simply not going to want to be on a service where the main character every day is Eli Musk.

And it's simply tracking, you know, what new shenanigans that he has gotten up to and what policies he's decided to invent out of pique and anger. Twitter users voting in favor of ala mass resignation after tweeting out a poll saying. Should I step down as the head of Twitter? I will abide by the results of this poll. Well, the results giving shares of Tesla a boost in anticipation of mass shifting his focus back to the firm at Ludlow out of London with more ahead here. Good morning, John. I mean, part of the downward pressure on Tesla shares since October 28 has certainly been the idea of key man risk by his own admission. Musk has been much more focused on Twitter at times than he has on tests there, of course. The other part of the downward pressure

is Musk selling billions of dollars of that stock in part to kind of shore up his finances in buying the company or remember as well. Bloomberg reported just in the last 10 days that some of the unsecured debt lined up to finance that package was swapped out in favor of margin loans secured against potentially test the shares or space X shares that we weren't sure if that actual part of the deal was completed. I think, John, for me and I I love your take on as well as well. If he does step down, what happens to the platform? He did say originally he'd only leave the firm temporarily and then install somebody when he found them. But since launching that poll and he said he'll honor the result. He's also said that there is no one out there that is willing to take the job and that can also do it in a way that keeps Twitter alive. I think he raises a good question and it

answers yours. Who is that person? Where do they come from? At Ludlow. Thank you. This conversation is going to go on and on and on into next year, no doubt. Dan ISE of Wedbush has this to say. It appears must reign as CEO of Twitter, will come to an end and thus be a major positive for test. The stock starting to slowly remove this albatross from the story. We remain open, outperform rating and

ultimately view this as a major step towards going forward with must finally read in the room. Dan ISE joins us now. Dan, let's talk about that call from yours, from you. Do we have a leadership problem at Tesla or a macro problem? I think right now it's really been more of a leadership problem. I think that's been a big overhang on TASO, not just because the essentially must using taxes personally A.T.M. machine, but it's about the attention,

attention focused on Twitter ISE. This Twilight Zone continues to go on and on and that's really been, I think, 70, 80 percent sell off in Castle. Is Twitter driven down? Why do you believe, though, just replacing him as leader at Twitter changes anything about this story? Well, I think it's a step in the right direction. It clearly doesn't change the overall story because Musto owns Twitter. It's going to go down as probably the biggest star to overpaid emanate deal in the history of attack. Well, you got to make sure that we get a pilot on the plane to navigate some of these challenges.

That's going to be the key. It's been in this black cloud over the Tassler story. But I just view it as a small step in the right direction. But the overall train wreck situation at Twitter remains unchanged. So, Dan, let's talk about that just a little bit more. You saw the letter from Senator Warren.

I see him off the back of The New York Times reporting a little bit earlier this morning. Read as follows. In a letter to Tesla's board, the Democratic senator asked whether investors have been harmed by the opinion outside Moscow's time running the social network. Don, what do you make of that? I think the biggest overhang on tests, as we've talked about many times, is Twitter. I mean, it's a 44 billion dollar epic mistake by Moscow. And I think right now it's really been a quicksand situation. It's hurt the brand of Moscow, which has hurt the brand of past because Musk is as Tesla is Musk.

And I think right now, you know, ultimately the clock struck midnight for investors, for users, especially a lot of the fiasco that we've seen over the last week. And I think, you know, patience is really wearing thin here. It's been challenging macro environment leadership issues that you've talked about repeatedly. Yet you still maintain the outperform rating on a stock. Dan, why? Our view of where electric vehicles are going over the next one two years and beyond that, I mean, Tesla continues to be the massive leadership position there.

I think it's been one of the most transformational companies along with Apple. So I believe it's oversold here fundamentally in terms are you there, but no doubt in the near term. This is a Category 5 storm that's Musk inflicted that needs to end. Dan ISE of Wedbush. Dan, we'll be in touch soon, no doubt.

On the latest with regards to Tesla, that stock is up by only one point six percent off the back of this. The broader market down about four tenths of one percent on the S&P and the Nasdaq down eight tenths of one percent. Talked a lot about that. Bond market yields up today, this

morning by 10 basis points on a 10 year to 358 on a two year, up 5 basis points to fall 22 at a sector price action. He's happy. Well, John, that yield action that you're outlining, it is one piece of the sector action, because, not surprisingly, some of those high growth, high valuation tech stocks, well, they're on bottom tech itself is down almost 1 percent. Communication services, some of the other mega cap technology names down about 1 percent. And I believe that the board we're looking at here, actually, I'm not sure with that one not classified as but in any case, because I saw that minus 13 percent were down 1 percent for the worst sector.

The best sector, though, energy up half a percent. That has to do, of course, with oil and then with yields higher. It's interesting that consumer staples, a high dividend yielding sector, it's up. Banks also being helped by yields higher. Now, one subsector that's not doing so well today, casinos down about 2 percent overall. This, of course, after J.P. Morgan is saying that the license

renewals for Macao could prompt a sell off. And this has to do, John, with the fact that over the last couple of weeks, up 65 percent sell the good news. Abbi, thank you. That's the price action on a sector basis. You trading, Terry. Up next.

Day four, four days of losses on the S&P were down four tenths of one percent on the S&P 500 on the NASDAQ were down by three quarters of 1 percent. The backdrop in the bond market yields up right the way through the curve 2s out to 30s or tied by five basis points on a two year for 22 on a 10 year up by 10 basis points 358. As the price action is the trading diary, the White House holding a steady news conference to thirty Eastern earnings from Nike FedEx on Tuesday. Plus the OJ rate decision and U.S.

housing starts. Existing home sales and consumer confidence coming on Wednesday, followed by US GDP Corp. and another round of jobless claims on Thursday.

And finally, if you're still around personal income and spending numbers, you measure consumer sentiment survey. Durable goods to round out the week on Friday. From New York, thank you for choosing Bloomberg TV. This was the countdown to the open ness is pulling back.

2022-12-21 05:54

Show Video

Other news