'Bloomberg The Open' Full Show (12/22/2022)

'Bloomberg The Open' Full Show (12/22/2022)

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From New York City, for our viewers worldwide and Lisa Abramowicz in for Jonathan Ferro, it was supposed to be a sleepy day almost to Christmas, and yet we are seeing equity futures well off their earlier highs, down 1 percent after some data shows some strength in the economy. 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. It began with the big issue, the final data points of 2022. Let's just follow the data. We still see quite a bit of momentum in

consumer sector and certainly in the labor market. Generally speaking, it's been coming in better than expected. Of course, we're still waiting for more data. Even though those surprises have been building to the upside, what does the consensus be doing? That's quite consensus that we're going to see the U.S. economy and the global economy slow down

over the course of next year. Everyone expects a bear market bottom in a recession. We're seeing this weakness in housing. You look at the PMI data, you look at a confidence data, you look at some of the hard data. The word of the year will probably be recession. People who are thinking that the world

is coming to an end here. It's not that bad. It creates know sort of interesting opportunities for market participants. Joining us now to make sense of all the noise, RBA is Mike Anthopoulos and Cameron Dawson of New Edge Wealth. Mike, I want to start with you.

We we're just looking at this data showing resilience. We've seen continued data showing that the economy is still chugging along and yet markets are still not pricing in what the Fed is saying that it is going to do. Why the disconnect between Fed funds rates where the terminal rate is in markets and where the terminal rate is in the Fed's ISE? Well, listen, I think let's start with the data. First of all, I mean, the data is backward looking. And we know we're not in recession currently. I mean, there's slowdown in the economy,

that's for sure. You look at most of the data, whether it be housing, whether it be, you know, durable goods, retail sales, you you look across the data. The data is clearly slowing relative to what it was earlier in the year. It's just not terrible. Right. But markets are forward looking. Markets are thinking about how is the data going to evolve over the course of 2023. And when you have type policy, you have, you know, an earnings recession when you have the tightest lending standards since the global financial crisis.

These are things that aren't going to lend themselves to a very strong economy as the year goes on. And so I think everybody is focused about the here and now or even the past and not enough focused about the future. And I think that's what the market's telling you. The market's telling you the back half of 2023 is probably not going to represent a huge recovery, but rather the other way around. It's going to be quite weak as the consumer starts to weaken, as savings are sort of finally going to come down significantly. All of these things are going to conspire to a slower economy.

The latter part of 2023 into 2020. Now, whether or not that's a recession, I'm not sure I'm ready to make that that call. But it's certainly going to continue to slow. And that's what the rates market is telling.

Well, the markets have it all wrong. The Fed is committed to taming inflation. That's the view anyway, from Morgan Stanley's Jim CAC. And take a listen to what he had to say.

I don't believe that hiking cycles are sufficiently priced in. I think what's priced is quite the opposite. I think what's priced is that people expect reached to come down. And I think we need to listen to what these central bankers are saying, that they are worried about inflation. Cameron, we don't have a crystal ball, so we can't tell who's right, who's wrong. But do you think that the balance of risks is that the market is wrong? Do you agree with Jim KERIN or do you agree with what Mike is saying, which is it is going to be a weak year and the markets are headed ahead of that? Well, let's think of it in the terms of the fixed income and bond market versus the equity market. Because they are projecting two very

different things, which is that the bond market is very much getting ahead of the Fed in pricing and cuts into the back half of next year. And also pricing in a really rapid deceleration into inflation. If you look at market based inflation expectations.

They have inflation exiting 2023 much closer to 2 percent. So that's a lot of optimism priced into the bond market. On the inflation path. And yet there's a lot of pessimism priced into the bond market on the path for growth. Then when we look at equities, equities still really haven't seen estimates get cut materially going into 2023, which may be consistent with some of the growth data that we are seeing today, meaning that ISE data comes in better.

Maybe the downside for equities is not on the EPW line as much, but more on the valuation line, because if growth continues to be resilient, it means that interest rates should be pressured higher, which puts more downward pressure on this P E multiples. We've been talking a mike with a number of fixed income investors who are seeing something similar in terms of the push pull in risk versus rates. You were talking about how you do see a rally, particularly in a long and heading into next year, even though we already have seen a rally in the past couple of months. How much does that bleed into a favorable outlook for the risk aspect, for credit for some of the areas that are more leveraged at a moment of potential weakness? Well, I think there's two things to talk about here, too. So one is, you know, I don't think it's an either or with with the previous question that they're going to have great inflation fighting credibility and want to hike another 50, 75 basis points more. And you can still see cuts at the end of next year. So I don't think those two things are

mutually exclusive. With regards to risk and the potential for lower rates and what does that mean for risk? It doesn't mean good things. This is where I think people are going to get really tripped up. You know, the sort of the narrative is that lower rates should be good for risk because the market has gotten so conditioned on this idea that, you know, lower rates with decent growth is a is a perfect environment for risk. But lower rates with poor growth is not a great risk environment and spreads need to widen credit. We think defensives and equities are going to outperform.

You know, this is the very classic. I don't think it's actually anything all that different this time around. Spreads need to go wider as rates go lower. Complicating the whole picture is what's going on with China. We were talking about potential tail risks heading into 2023. A lot of people said what happens if China reopens? Well, China is planning to cut quarantine requirements for incoming travelers, providing a boost to U.S.

listed Chinese equities ahead of the opening bell. I want to get a picture of what's going on on the ground. Joining us now are pleased to say Richard Frost of Bloomberg from Hong Kong. Richard, what is the scene like? What is the feeling like in terms of how optimistic people are that they can get over the hump of all of the infections and the just complete shutdown of major cities due to Covid? Yeah, it's kinda hard to get over if you think a fifth of the world's population doesn't yet have Covid and they're all gonna get a huge majority that will get Covid over the next few months.

Beijing was the first city to fall. We seen infections raced through. The hospitals be overwhelmed. Reports of cheese, long queues and into morgues. Shanghai now is starting to fall. In fact, one hospital on their social media postings saying credits go to Shanghai area will fall. And the the path to reopening is going

to be an extremely difficult one, because what you're going to see as a see in Beijing and Shanghai is all activity essentially drawing grinding grind to a halt as people get sick. Businesses can't open. Hospitals struggled to operate because their staff is sick. Public transport starts cutting services. So China's taking a huge gamble. Essentially letting it rip through. They can get over this home quickly. And that's what a lot of people are

thinking. Richard Frost. Thank you so much. Yvonne Man Vega earlier this morning of exactly data coming on our show talking about China's reopening and the expectation of exactly as Richard was talking about, getting over that hump and then the economic and market impacts.

He thinks there will be more concentrated and come sooner with crude oil. One fairly obvious vehicle, Cameron Dawson still with us as well as my caterpillars. Carl Cameron, how much are you reading on this to be overweight energy equities, which a lot of people are even with some of the rally that we've seen this year. I think it is a very important driver because it is the second largest importer of oil in the majority of their oil consumption comes into transportation fuels. And so if we see them reopen and get past this hump of infections, where a lot of people are not moving around. But as we get into the back half of next year, could this create greater demand for oil and exacerbate higher oil prices, which could have important impacts on U.S.

markets? It's one of the reasons why we stay overweight energy, because it's essentially a hedge in the event that we see higher oil prices cause higher inflation, as well as higher inflation expectations in that consumer confidence data. Yesterday, inflation expectations fell, but that's really because gasoline prices fell. If oil continues to climb again, well, we could have an increase in gasoline prices and then a falling or rising again in inflation expectations which could pinch the consumer.

Mike, how do you play this whole China reopening story, given that it seems to have happened and it's only going to accelerate as the nation gets over the hump? We really like Chinese equities. You know, we were very underweight China for the bulk of last year, went to equal weight just a few months ago on an overweight a little bit more recently. And we think this reopening is an important one. You think about the three main factors for what drives equity valuations and risk. You have profits, liquidity and then

sentiment in valuation and profit growth. Looks to have bottomed in China is starting to inflect upwards. Liquidity is plentiful. And then sentiment and valuation

couldn't be better. In other words, sentiments terrible and valuation is amazing. And so as I look out at China, it's sort of the trifecta of opportunity between those three key pillars of our analysis. So we really like Chinese equities and we think the reopening is only going to bolster that case in 2023. Is the reopening going to be inflationary micro disinflationary deflationary given the supply chain disruptions that will get ameliorated? Yeah, it's interesting.

I mean, I think it probably tilts towards inflationary. There are other balances in the world, though, that, you know, will fact ultimate inflation. And so if you have demand destruction in developed markets in the US and in Europe at the same time that China is reopening, those two things may, you know, offset each other. But I think probably on the margins, it tilts inflationary. And so this is another reason why the

Fed does have credibility and does have an inflation fight ahead of them and why they're going to get to 5 percent on the Fed funds rate, plus or minus 25 basis points. But at least I think what's really important is that that just bolsters the case for weaker growth next year. The longer the Fed stays restrictive, the higher that inflation actually is. It just increases the odds for a greater and greater downturn later in twenty three and into twenty four. Camera Cameron, final word on just the inflationary impact of that China re-opening aside from just energy stocks. Well, we think it is going to be inflationary because all through this time, when you saw China being locked down, you saw shipping rates fall and you also saw commodity prices be weaker.

So the opposite could happen as you see China reopen, which we think would be the key wildcard going into next year, because we've been counting on goods prices continuing to fall to be the source of lower inflation in the U.S.. But if we start to see more price increases within the good side of things that could cause and wreak celebration and inflation and keep the Fed in that very hawkish inflation fighting mode. Michael Barr Cameron Dawson, both of you are sticking with us, which we are so lucky about right now. Let's get a look at some of the stocks moving right now ahead of the opening bell. Abigail Doolittle Abby. Hey there, Lisa. Well, we do have one stock that's really plunging. That, of course, is CarMax.

They put up a big mess for their last quarter relative to sales, 9 percent light and then profits missing by 63 percent as on continued weakening for the used car market. The combined wholesale and retail sales fell by almost 28 percent, quote unquote. Vehicle portability seems to be the main concern of the company.

The real concern for investors, though, are solvency concerns. This, as you probably know, Lisa. They are exploring ways to rework their debt, turning to some other laggards. And then a couple of winners that you all were just talking about, starting off with Micron shares down about 4 percent. Their outlook is a little bit weak. They will be cutting their headcount by 10 percent.

Investors not taking kindly to this after a somewhat messy quarter. Under Armour off of its lows, down about eight tenths of one percent. They have named Stephanie Lynn Arts as the new CEO.

She will start February 27. She is currently the president of Marriott. And then on those China hopes and the fact that lockdowns for visitors will be quarantine, I should say, for visitors, not as dramatic. And the opening, the reopening hoped

Alibaba up one point two percent and then young China up nearly 2 percent. That, of course, is the franchise owner of Pizza Hut, KFC and Taco Bell in China reopening would probably help out those restaurants. Lisa. Abigail, thank you so much. Coming up, the U.S. doubling down on its support for

Ukraine. Our two nations are allies in this battle. And next year we'll be turning point. I know that conversation coming up next. This is Bloomberg. We stand. We fight and we will win because we are united, Ukraine. America and the entire free world.

Thank you for football's financial packages you have already provided us with and the ones you may be willing to decide on. Your money is not charity. It's an investment in the global security and democracy. That was President Lenski making his case for more aid in his war, the war, I should say, against Russia. President Biden vowing his support. The United States is committed to ensuring that the brave Ukrainian people can continue, continue to defend their country against Russian aggression. As long as it takes.

We look forward to signing the omnibus omnibus bill soon, which includes. Forty five billion dollars. Forty five billion dollars in additional funding for Ukraine. Washington seeing some pushback from Republicans, Congressman Thomas Massie reacting to President Alaska's remarks in a tweet. The American taxpayers have been conscripted into making welfare payments to this foreign government. This coming as Americans face higher living costs, with oil prices getting a boost from a weakening dollar as well as lower stockpiles in the country.

Team coverage starting right now. Emily Wilkins in Washington, Mike McGlone in my family. Emily, I want to just follow up on what we heard yesterday. We haven't gotten any kind of sense of when this omnibus package will be passed. The one point seven trillion dollar bill. What's the likelihood of it going through? That includes that. Forty four, five billion dollars of aid

to Ukraine. I mean, right now we were expecting to see that bill pass either last night or early this morning, but senators are wrapped up in a debate over those immigration title 42 provisions. MEMBER That's the restrictions at the border implemented during Covid. Republicans want to see them continue. And that's really what's wrapping up the spending debate right now. But there is hope that a bill could

potentially move later this morning through the Senate and then get through the House tomorrow before Friday's government shutdown. But obviously, time is of the essence here and a lot of questions are being raised about exactly what that's going to mean for the funding to Ukraine. And certainly even if that 45 billion does wind up being to the president's desk and signed into law, this war in Ukraine does not seem to be ending anytime soon. Biden has vowed to Zelinsky that the

U.S. will continue to support him. But Republicans in the House are saying that they don't want to give away a blank check and they're looking for transparency and accountability measures to go with any future spending. And one reason why is because of the elevated costs that a lot of American families have been facing, including with respect to energy, although gasoline prices have come down to an average of three dollars and 10 cents in the United States, which is the lowest level since summer of last year. Mike McGlone, I know that you have actually foreseen some of the declines in oil prices that we have seen going against consensus. How does that play into a winter spell

that is going to be severe over the next at least a week or so and this feeling that this war is dragging on as well as the disruptions that it has created? Well, hello, Lisa. I think the key thing to point out here is demand destruction. Now, yes, the winter is getting a cold spell in the Midwest right now. But what's the trend in global warming? Warmer than normal winter. So that should probably play out once we

get through this period. But the key thing is this spike in energy and energy prices is going away with the warm premium. But it's clearly has a low trajectory in demand heading lower. Prices heading lower. Global economy is heading lower. And the Fed and central banks still hiking.

So to me, that's a very bearish scenario for energy and commodities for next year because it's a normal cyclical thing that happened. So I like to look at is what stops this trajectory. Basically, you need lower commodities to help goad the Fed and central banks to start easing until Kim ISE drop. We're probably going to see more restrictive central banks. Emily Wilkins, Mike McGlone, thank you both very much. Cameron Dawson and Mike Topless are back

with ISE and camera. I know that you are leaning into this energy story. How much are you accounting for the Mike McGlone view of the world that people are gonna be shifting away from energy, that there's going to be reduced demand globally because of some sort of downturn? How does that factor into your overweight in the energy space? Well, it's certainly important because if we do see oil consumption fall, then it would put downward pressure on oil prices, but we would still note that a lot of the energy companies still make very high returns even when oil is with a six handle in the 60 zone. So a lot of these companies still are able to generate a lot of free cash flow even at lower prices and return that cash flow to shareholders. Now, we have to be very balanced in our view on energy as well. We don't think we have the same kind of EPW tailwind like we had in 2022 where EPA asked for a lot of these companies grew nearly one hundred and fifty percent or 200 percent. There is ability or the prospect for EPA

to actually fall in some of these areas. But valuations are still very balanced here and we still think it's a really cheap way to essentially hedge in the event that oil prices do climb and the rest of our portfolios face issues because of higher inflation. This is one area that can do better. Mike, I have to be honest. I'm really glad that this year is ending

for a whole host of reasons, but it's mind bending in terms of the ins and outs. When we talk about inflation, it is no different in terms of where the pressures are coming from, whether it's oil prices and the whipsaw that we've seen there or used cars. What is the product or the service that you look to as a compass to understand the trajectory here? Yeah, listen, I think you can't just look out one thing. But if I were to really try to boil it

down right now, the hot topic for inflation is clearly wage growth. The labor market is hot and it's been hot for for a long time. I mean, it's starting to slow. And that's a good thing as far as, you know, inflation coming down off its peak and we do believe that it's off its peak. But, you know, the move from 75, maybe

relatively easy to move from five to two is going to be very hard. And maybe that's four to two or four and a half to two. But yeah, wages are the number one thing that we're looking at. Energy matters. Housing, of course, matters.

All of these things, durable goods or goods pricing matter. But really it comes down to a wage growth. And in the jobs market and how that evolves over 20, 20, 30. Do you think that there's a wage there? Mike? Listen, I don't think there's quite the wage price spiral that you had in the 1970s that doesn't exist today, and so I'm optimistic that we won't get to that point and that, you know, wage growth should start to slow pretty meaningfully. And that will avoid the wage price spike

that we saw a few decades ago. So I'm optimistic there. But it's going to be a lot harder than I think is. Appreciate it. Mike Topless, Cameron Dawson, both of you. Happy holidays. Have a wonderful New Year. Thank you so much for all of your

contributions. Coming up the morning calls and later, academy Peter Schiff are warning of deflation. Contrary to a lot of what people are saying, that conversation coming up around the opening bell. From New York, this is Bloomberg. This is Countdown to the Open Lisa Abramowicz in Jonathan Ferro.

Time now for our morning calls, a look at some of the analysts recommendations on Wall Street this morning. First up, Piper Sandler naming Dollar General a topic for 2023, highlighting the stocks resiliency during economic slowdowns. Next, Needham cutting their EPA estimates an Apple for next year, pointing to weakening consumer demand trends and supply headwinds. And finally, Morgan Stanley cutting its Micron price target down to forty six dollars, saying the company's weak earnings show the large gap between supply and demand. Coming up, more on that Micron earnings. And just six trading days left in the

worst year for stocks since 2008. This is Bloomberg. This is Countdown to the Open Lisa Abramowicz end for Jonathan Ferro what giveth taketh away. That is the lesson of 2022. It is what we are seeing today after yesterday's rally. We're seeing S&P futures lower by nine tenths of a percent.

Nasdaq lower by more than a percent. You're seeing yields creep higher bonds down as well across the board after some better than expected economic data. Lower than expected jobless claims, as well as a revised upward GDP read for the third quarter in the United States. Crude is up about a percent. Seventy nine dollars. And you've got 10 year yield at three

point six, seven percent just nudging upward pretty clearly, particularly after the Bank of Japan's move. One stock that we're watching at the opening bell is Micron, delivering disappointing guidance and outlining a host of cost cutting measures to help weather a rapid decline in revenue. The company's CEO saying profitability will be challenged throughout next year due to oversupply still existing within the industry.

How different a year can make. Joining us right now, Bloomberg's Abigail Doolittle Abby. Well, Lisa, this is not necessarily surprise me because, of course, the beginning of the pandemic there was the supply issues that really put the chip makers and memory makers in a position of a boom. Well, with every boom comes the bus. And this has been it. The stock down sharply on the year,

heading to its worst year since 2015. And the memory part of the chip industry is very cyclical. So this last quarter where they reported a lack of profitability or a loss, not necessarily surprising.

And then that idea that they're going to stay unprofitable going into 2023, the guidance really kind of disappointing. They are looking at three point six billion to 4 billion dollars for the upcoming quarter of the current quarter. The previous estimate had been at three point eight. Now the low end, much lower than that. They're also looking at a pretty significant loss, 52 cents to the possibility of 72 cents, gross margins, just 6 to 11 percent. So it's this guidance that's really concerning that they're not going to come out quickly.

This again, though, is not surprising relative to memory maker cycles. This chart is really super interesting. What we're looking at here are the losses in the net income. What's not on there actually is DRAM pricing, though, DRAM. That's the memory for servers. There are other big part NAND for cell phones.

But the if we had the DRAM on there it goes with the profit. So when DRAM pricing goes higher, their profits go sky high. Well, not surprisingly, over the last two years, Lisa DRAM has coming down and now we're looking at this move toward a loss.

But there's gonna be another boom on the other side of it. So let's wait to see when those signs emerge at some point in 2023, most likely. Abigail, thank you so much. What comes up must come down, including in the auto industry, parts of the auto industry taking a beating. Tesla doubling discounts on its two cheapest models amid a weakening demand in CarMax. If you're talking about all morning, plunging after the earnings that are reported were far short of already gloomy estimates.

Joining us now, Bloomberg's at Ludlow in London. Ed, I want to start with Tesla and the discounts. So unusual was that what was the indication and what is your takeaway? It is unusual. It's not positive Tesla or any law

Musk's playbook to do such an obvious and strong discount. Seventy five hundred dollar discount on model Y and model three through the year. And in the United States, that's double what they were offering. You have to take into account the delay from the Treasury Department in line with the Inflation Act's new rules on battery composition and origins, which would have capped the tax credit available to U.S. consumers at around 30 750 anyway here in the United States. Sit down for a fifth day on this stock

lease. A bit longer streak of declines since October, holding that November 2020 low. The question we were asking ourselves, of course, is one of demand. Is this indicative of some slippage in

demand? It's not entirely new in so far as that Tesla has cut prices and as Bloomberg reported, cut production in China. And we asked the same question. Then, of course, we'll have to wait until earnings in the coming weeks and months to get a clear communication on whether that demand story is changing. But it is something, of course, that, you know, must kind of conceded in the most recent earnings call that demand is a little harder to come by than perhaps historically it has been for Tesla.

How much is this a Tesla issue and how much is this an auto issue? And I asked this with Kamala Harris in the back seat here, no pun intended, but really having to do with these cars, not new cars. Yeah. I've had a busy morning. I know. Let me tell you, CarMax, CarMax, tough the stock down the most since September. Trading in April, 20, 20 low. Huge mess on the bottom line. You know, what we've seen is this real

reversal used. Car prices climbed and then they just fell away. That wholesale business really suffered. If there was a bright spot for CarMax, it was that on the retail side, consumers were trying to seek out bargains and low price cause, but that meant there were over. Unit sales took a hit because they had

to shift their inventories from the wholesale side to the retail side. A very clear picture. Couldn't be any clearer. There is an affordability issue. They said that lost last quarter. They've said it this quarter. Rising interest rates, interest rates, high inflation and low consumer confidence.

And for me, like it's been a strange 24 hours because I've completely forgotten about that. You ask. Yeah. Consumer confidence data 24 hours ago. It seems like it never happened. When you read the earnings statement from CarMax at Ludlow. Thank you so much. It also, though, is contradictory to what we saw in terms of the revised GDP. Yes, it's a backward look, but for the third quarter, seeing personal spending, personal consumption come in higher than expected at two point three percent versus the initial two reads of one point seven percent.

Is it inflation? Is it disinflation? Is it deflation? Academies Peter Schiff are expecting inflation concerns to fade and deflation fears, outright deflation fears to take over next year. Writing, quote, The odds that we get at least one month of negative inflation data in Q1 is increasing. I do not believe that we will be worried about inflation in a meaningful way by the end of the first quarter. Peter, I'm pleased to say, joins us now.

Always a fantastic contrarian view and one that I find a well reasoned and interesting. Peter, how much pushback do you get to your call? I've been getting a fair bit, but just the previous segment that you're on. Couple of things. MRSA P on new cars is actually the average price was below that.

So you're seeing what was first a used car issue. Start filtering into the new car. I think that's what the Tesla and then on the semiconductors. I keep harping on this issue that the disruptive economy was a powerful driver of semiconductor demand. Right. They wanted chips.

They needed servers. They needed all these things. And as funding has dried up, those types of companies, it's going to feed into that part of this sector. So I'm very bearish on Q1. I think we're going to have a much worse recession than consensus.

We speak with Mike Topless earlier of RBA and he was saying, yeah, but and that's what a lot of people are saying. We hear you on the good side, on the service aside, on the wage side, you're seeing that inflation stay put and actually accelerate. How do you push back against that, particularly when you see that this latest revised data on the GDP shows that the core P.C., that key metric was revised upward, not downward. So I'm not so worried about current P.C..

Two things I look at as one. A lot of people miss the goods equation, right? They mistook excess demand and pent up demand for ongoing growth and consumption. That's already over on the good side. I think we're gonna see a very similar

thing on the services side. It's not going to be as dramatic, but there is a lot of catch up. People haven't seen family and friends in years because of Covid and certainly not at the frequency they once did. So there's a catch up. I think some of that goes in when I look at the jobs data. I think, yes, there's wage pressure at the low end. But I think where you're starting to see

the firings and the layoffs are going to be these middle management type jobs, these 80 to 100 thousand dollar jobs. And those aren't going to be replaced easily. Those people are going to be out of work and looking for work in a struggling market. So this is going to be much more not just about number of jobs, but the types of jobs lost times, the average wage. And that's going to be, I think, the disconnect people miss. They're going to keep looking at average

wage of the overall market, which is rising, but that's driven by the low end wages right now. I gather that you think the market is right in this differential between where the market sees the terminal rate, where the Fed sees a terminal. Right. Am I correct? Yes.

I think the Fed it's wishful thinking that they can get to five point one percent. They're going to keep trying to harp on that. We've got six more weeks of data. I expect more and more earnings warnings. Things like we're hearing this morning are going to impact both actual inflation and the market perception of where it's headed. So do you believe in this consensus call that we're going to have a bad first half with a really recessionary kind of conditions that lead to a positive environment for bonds, a negative environment for stocks, and then you get a reversal as we head into the end of the year.

So I hate to be consensus, so I think the only thing I can say is I think it's actually made worse in Q1 than people are talking. We're going to break through the lows of October, November on stocks. We're going to see new low yields. We're gonna have a first really good risk off type trade. So I think you see 10 year treasuries, maybe down at 320, along with much weaker stocks as this is going to be a real recession. Fears not going to be a minor recession.

There's going to be a lot of discussion. And I don't think it turns around quite as quickly as people do. Here's my pushback. The Bank of Japan. Everyone was talking about how they could see yields on the 10 year going back down to maybe three, three point one percent, which is far off where it had been. Unless the Bank of Japan abandons, its seals can't control, and it seems like that's looking more likely than ever. The market hasn't responded as much as I would have expected. Have you been surprised by that?

No, to me, it makes some sense, I think the 10 year in Japan maybe should be one one and a half percent. So yes, the ochre controls are coming off, but they're the one place in the world that really isn't experiencing much inflation. So I think it's telling that this is occurring. I do think there's some risk that Japanese buyers have been big buyers of dollar denominated bonds, both investment grade and treasuries, that they then do f ax hedges.

So they might give some of that up. So that'll put some pressure. I just think the overwhelming economic data is going to be so bad and scary here that that's going to be what drives rates next year. Okay. Fair enough. What about China reopening? Isn't that going to give a boost if the world's second biggest economy reopens as it will, and it will eventually get back up to gear? Once this initial surge in virus cases ends? Isn't that enough to create some more mentum to keep it going and not necessarily cause the dire situation that you're painting? I'm not sure how we flood the world with more goods that we don't already need is going to be that helpful. So yeah, if China really had strong domestic demand, that would be great. I don't see that being a huge driver. And I think all this continues to do is

put pressure on the supply chains that we've already overbought. We've seen inventories go up. Everything I see in terms of retail sales right now is sale prices, discounts. I think there's still Cyber Monday discounts being extended for the third or fourth week. Right.

So I think things are very weak there. I don't see this China coming back online as any huge boon for demand. And I'll keep watching oil very, very closely. Right. It's kind of the one thing that rules them all. All these things should be driving oil prices higher and we're not seeing that right now. So I think real demand is dropping quickly. How do you make then if Nike and FedEx

earnings? Again, you FedEx had a really bad quarter, the last one they bounced around. I think, listen, it's not going to be universal and there are catch up. There are things there is where people are built. So I think this is going to be much more a CAC lag problem. So it's going to be the flood of the problems with this rupture.

I'm talking to some people and if you go back to 2015 16, the economic problems could be really, really tied to energy that spread out to the rest of the world. I think we're going to see a very similar thing right now. And it's tied to big CAC. It's tied to the semiconductors. It's tied to all those disruptive industries. So they're going to be by far the

laggards and other industries can do well. And there's gonna be companies that do well in periods. Peter Shear, you'll be sticking with us. Coming up, we'll have a discussion about the crypto universe sandbank when freed arriving in New York.

If he's around, it may be easier for John Wray and the bankruptcy professionals to get more information from him. Having said that, if he if he takes the Fifth Amendment, then there might not be any easier. That conversation coming up next, as well as the fallout in the crypto industry. This is.

This is Bloomberg's The Open. I'm Lisa Mateo, live in the principal room. Coming up, Helen Dickinson, British Retail Consortium CEO. That's at eleven thirty a.m. in New York for thirty p.m. in London.

This is Bloomberg. I don't think any body has any idea what the FTSE tokens are worth. Well, what the interest the intrinsic value of the FDA really is.

I don't think anyone has a handle on the liabilities. We've heard a billion over 9 billion and we've also heard a million different creditors. If he's around, it may be easier for John Wray and the bankruptcy professionals to get more information from him. Having said that, if he if he takes the Fifth Amendment, then it might not be any easier.

RTX co-founder Sam Beckman freed touching down in the United States and facing a host of criminal charges. The former CEO preparing to make an appearance in a Manhattan federal court today. Two of his associates pled guilty to fraud. For more, let's bring in Bloomberg Sonali Basak.

We just talk generally about the significance of his return to the United States and the widening web of people getting embroiled in these prosecutions. You know, there are a few things to make of this. He arrived late last night. We were expecting him to appear at the

court this morning and we expect him to want to seek bail. That was part of the rationale at the end of the day for accepting the extradition that he initially planned to fight. Now, at the same time as he landed in the US last night, you also have the U.S. attorney's office accepting guilty pleas

from both Gary Wang, who was really the top engineer, former Google over at FTSE X and he is accepting counts one, two, three, four of charges that included conspiracy to commit securities fraud, conspiracy to commit commodities fraud, wire fraud. And the the the really the document here says the maximum sentence for that is 50 years of imprisonment. If you look at the charges that are accepted by Caroline Ellison as well, remember, this is the head of Alameda. The trading division that is in question here. There is another seven counts with a maximum one hundred and ten years in prison.

Remember, these are two people who are cooperating witnesses at this point, and they have pled guilty to these criminal charges. How Sam Megan Freed pleads and how he looks to fight these charges when two of his top deputies are cooperating with the U.S. government will be a very interesting thing to watch how it plays out.

Remember, there's already conflicting information between what Sam Bateman, Frida said and what the S.E.C. see FTSE charges against him. And as part of significance to this story, we're going to be speaking about that with Peter Scheer momentarily. How much are you getting a sense of an acceleration in probes that go beyond just FTSE and Alameda? Very significant. If you look at what Damien Williams, the U.S. attorney's office for the southern district, said this morning, we are moving quickly and our patience is not eternal. All of this has come together in a

number of weeks here. And it seems like it's been a slow moving saga. But if you take a look at this, you already have three people who are brought under question here. And there's actually another person who in the Bahamas, we know one of his top deputies at the Bahamian subsidiary was the one who tipped off Bahamian authorities, according to court filings. So you have the inner circle of sandbank been freed really coming to the surface here. And it only really took a number of weeks.

So as far as RTX goes, this has been moving quite quickly, but a lot of questions unanswered certainly behind how this happened from the beginning, how investors were misled, and perhaps that an essential initial question we had is why was everyone accepting payment and FTT tokens in the first place? Yeah. Sonali Basak, thank you so much. We're going to stick with the cryptocurrency theme. I do want to bring you this. Senator Schumer of New York says the Senate does have a deal on amendments and a spending bill that's been in flux all morning. And that's the latest on that. Peter, I'd love to get your sense, Peter, share of Academy Securities on the whole crypto fallout.

We talked about how we all were surprised it wasn't a broader fallout in terms of price action for Bitcoin and some of the major crypto equities. Are you still surprised at the resilience? I'm looking right now at a very resilient Bitcoin price. A little bit, but I still think we hit 10000 before twenty five thousand two things that are supporting Bitcoin right now. I think the maximalist were saying, okay, skip these other coins, put your money in crypto or Bitcoin in particular and everything, everyone, you know, we're all greedy a little bit. You see something that used to trade at

60000 thousand is trading at sixteen thousand seven hundred. Maybe we take a shot. So I think there's that element that's been a bit of a support for. We also talked about how these things take long and do things that are really caught my attention, the past. We are the one accounting firm basically backing away from supporting their accounting work that they've done with crypto firms.

Right. That to me is a big step, right? That means there's potentially more holes that are again filled. And then the weirdest part of this whole thing is finance announced that they were buying Voyager's assets for about a billion dollars. In theory, these are just crypto assets. Why can't Voyager just sell them? Right. That tells me this market has not got anywhere close to the liquidity people think.

And that's problematic. This is interesting because we were all wondering what the significance of that finance purchase really was. Are you suggesting that it was simply to cover a pitfall, a mis matching in the valuations of certain assets and where they actually would trade in a free market? I think that's been the most difficult thing with a lot of these smaller cryptocurrency is where maybe only 5 percent of the float trades. But you've got this valuation based on the entire amount and it feels like there's a huge effort to protect those.

And that makes me nervous. And I think we saw a little bit of go on with what went on with FTSE, etc. and those tokens. So that concerns me, right? Why can't you just go and sell a billion? That's not a huge number. If it spread across a bunch of crypto assets, feels to me that there's a real concerted effort to hide how little liquidity there is this market, which might also explain why bitcoin saying it pretty well.

It doesn't take a lot of buying power to support this. We've been talking about how it's not just the crypto market, but it has a broader economic significance because a part of the strength in certain tech space is in particular the semiconductors came from the boom in crypto. Where do you expect to see another shoe drop on the broader sphere away from just the crypto centric stocks that people talk about? So I think it's going to be anyone who's really involved in supplying the services that these companies needed, whether it's Web services. I think you're going to see a slew of hardware come on the market as these places go bankrupt, as mining activities slowly drops down. I think it's going to spread to the economy. I think you're also gonna see pockets where they bought into real estate, where they were spending everywhere.

And I think if you track some of those locations, whether it's the San Francisco area or even New York area, I think that's going to weigh on the economy. They were a disproportionate new wealth and kind of time from our last segment where we looked at the energy sector right in 2015 16. Wherever energy was concentrated, those places really suffered relative to the rest of America. And I think that's what you're going to see here, is the pockets that crypto really benefited go down. I think Miami is going to face some problems. For example, better share of academy

securities. We can continue on that point. Unfortunately, we're out of time. Have a wonderful New Year. Thank you so much for all of your contributions. Right now, we are seeing the Nasdaq down about one point eight percent. The S&P down one point three percent. Let's get specific, specific sector price action with Abigail Doolittle Abby.

Well, Lisa. Yeah. Pretty significant decline here at this point for the S&P 500 as well, down more than 1 percent. Not surprisingly, all eleven S&P 500 sectors are lower. Up top, we have some of the defense

sectors. They're down, but outperforming such as consumer staples, health care. You also have utilities there on bottom. It's all about the mega cap tech sectors down one and a half percent to 2 percent, technology down 2 percent there.

Chips Wang and some of those other mega caps. This is a similar story to the week, but there is one bright spot on the week and that is energy. Of course, the week is not done yet, but energy so far is one of the only sectors higher up one point one percent and then the worst sectors on the weak all about. Again, that was mega cap, tech sectors, communications, tech and discretionary down the most, down four point six percent. This as yields back up in a big way.

That 10 year yield up close to 20 bets on a week. That is pressuring those high higher valuation or used to be higher valuation stocks. Lisa. Abigail, thank you so much. Coming up, the market moving events that need to be watching. That's next in our trading diary.

Abby was just talking about the moves in markets, basically taking back a lot of the gains that we saw yesterday. This is Glenn Beck. Twenty six minutes into the trading session. Time now for the trading diary, what you need to be watching through next week. Durable goods and personal income and spending numbers. We get them tomorrow. Plus, you miss consumer sentiment

survey. And new home sales round out the week. Markets closed on Monday for Christmas holiday. Wholesale inventories coming on Tuesday. And finally, another round of jobless

claims on Thursday. Right now, we are continuing to see red across the board with the Nasdaq down one point eight percent. The S&P down one point three percent and stronger than expected economic data. This was Countdown to the Open. This is Bloomberg.

2022-12-27 01:29

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