>> THE MARKET IS WAITING TO SEE CLEAR SIGNS OF A RECESSION. >> WE COULD ARGUE ABOUT WHETHER OR NOT IT IS A RECESSION TECHNICALLY OR WHETHER OR NOT THE SLOWDOWN IS A LOSS OF MOMENTUM. >> WE ARE SO CONCERNED FOR THOSE CONFLUENCE OF RISKS. >> THE FED NEEDS TO HAVE A POLICY STANCE, A TRAJECTORY ON INFLATION AND DYNAMICS ON GROWTH. >> MARKETS ARE NOT GOING TO BE SURPRISED BY 75 BASIS POINTS.
>> THIS IS BLOOMBERG SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO AND LISA ABRAMOWICZ. JONATHAN: LIVE FROM NEW YORK CITY, GOOD MORNING. THIS IS BLOOMBERG SURVEILLANCE ON TV AND RADIO.
ALONGSIDE TOM KEENE AND LISA ABRAMOWICZ, I AM JONATHAN FERRO. WALMART REACHES FOR THE SCISSORS ONCE AGAIN. TOM: WALMART IS FRONT AND CENTER BUT IT IS AN AMAZINGLY CONVOLUTED MORNING WITH ALL SORTS OF STUFF GOING ON. YOU WILL GET TO LUFTHANSA IN EUROPE COMING UP BUT WHAT YOU SEE WITH WALMART IS NOT SO MUCH ECONO BABBLE BUT ACTUAL CONSUMER ACTION. CONSUMERS SAYING I HAVE TO BUY THIS, NOT THAT. JONATHAN: WE HAVE AN EXECUTION PROBLEM IN THE MIX AS WELL.
TOM: GM OUT AND WE WILL TALK TO THE CFO AND YOU WONDER WHAT THE EXECUTION MIX AT GM IS AS WELL. WHO CARES ABOUT THE RECESSION. CORPORATIONS ARE ADAPTING AND ADJUSTING. JONATHAN: STOCKMARKETS ADJUSTING AS WELL
AND BRAMO, WE TALK ABOUT THESE ISSUES AGAIN AND AGAIN AND PEOPLE COME OUT AND SAY THEY ARE WELL PRICED AND TARGET AND WALMART PROVE US. THOSE PEOPLE ARE WRONG BECAUSE IT IS NOT WELL PRICED AT ALL. LISA: THAT IS GOING TO BECOME A THEME, TRYING TO PARSE OUT THE DISTINCTION IN THIS NEBULOUS WORLD. HOW MUCH DO WE SEE WALMART REPRESENTING WHAT WE WILL SEE IN OTHER RETAILERS? CERTAINLY STOCKS SEEM TO BE REFLECTING A BROADER BASED FEAR OF PAIN BUT HOW MUCH SHOULD WE GET CONFIRMATION OF THAT WITH ALPHABET AND MICROSOFT? CONSUMERS HAVE A WEAKER BALANCE SHEET THAN MOST EXPECTED.
JONATHAN: DO WE START TO SEE THEM GET MORE CONSERVATIVE ON GUIDANCE IF THEY ARE CONSERVATIVE ON HIRING? LISA: YOU WOULD THINK THEY WOULD HAVE TO BE, OTHERWISE HOW DO THEY JUSTIFY IT? UNLESS YOU HAVE SOME SORT OF JUSTIFICATION FOR WHY YOU ARE PARING BACK YOUR EXPANSION PLAN, THEN WOULDN'T YOU BE PUNISHED AS A STOCK INVESTOR? WOULDN'T YOU PUNISH THAT COMPANY FOR NOT TAKING ADVANTAGE OF WEAKNESS IN COMPETITORS? UNLESS THEY SEE A SITUATION THAT IS WEAKER, WHY NOT TAKE ADVANTAGE OF HIRING AS OTHERS PARE BACK? JONATHAN: GM CAN SEE THE FUTURE. THEY ARE EXPECTED TO MEET YEAR-END EARNINGS GUIDANCE. TOM: THAT IS WHAT THEY SAY BUT RIGHT NOW, THEY ARE NOT OK. I DON'T KNOW WHAT THE STOCK IS DOING.
HELP ME WITH WHAT GM IS DOING WITH THE BANNER ON RADIO. THE ANSWER IS ADJUSTED, THEY ARE MISSING ESTIMATES. JONATHAN: THE OUTLOOK FOR THE SECOND HALF IS STRONG, ACCORDING TO THE CEO. I'LL TELL YOU WHAT THE STOCK IS DOING. DOWN ABOUT 1.5%. OVER IN THE EUROPEAN UNION, WE HAVE THIS BIG CONVERSATION ABOUT REDUCING GAS CONSUMPTION. EU COUNTRIES AGREE TO REDUCE
GAS USE FOR NEXT WINTER. WHAT DO YOU MAKE OF THESE HEADLINES LISA? LISA: BASICALLY YOU WILL LOOK FOR ALL THE CARVEOUTS AS GREECE AND ITALY AND OTHER NATIONS PUSH BACK AND SAY THIS WILL HURT THEIR ECONOMIES. THEY HAVE A PROBLEM. THEY ARE REALIZING THEY HAVE A PROBLEM AS GAZPROM REDUCED YET AGAIN TO 20%, THE FLOW OF GAS. AS SOON AS TOMORROW. HOW MUCH CAN THEY GET AHEAD OF
THIS VERSUS THE POLITICAL FRAYING OF NATIONS THAT CAN'T TOLERATE REDUCING THEIR GAS INPUT BY 15%. JONATHAN: GAS PRICES IN EUROPE, HIGHER AGAIN. TOM: LUFTHANSA HAS A STRIKE AND I WILL SAY IT DOVETAILS OFF OF THE WAR IN UKRAINE AND ECONOMIC SLOWDOWNS.
BASICALLY FRANKFURT SHUT DOWN. I'M GLAD WE GOT OUT AFTER THAT ECB MEETING. IT REALLY SAVED US. YOU'VE GOT MARKETS MOVING. I'M GOING TO LOOK AT MARKETS AS THE THING TO GIVE ME THE MOST INFORMATION. THE EURO IS WEAKER. WE ARE OFF THE RECENT RECORD
SWISS FRANC AS WELL. YOU SEE IT IN NATURAL GAS AS WELL. THIS IS DUTCH NATURAL GAS AND ALL YOU NEED TO KNOW IS THAT WE ARE BACK TO FEBRUARY 24. WE SPIKED UP. JONATHAN: A WEAKER EURO STORY. ARE YOU JUST HAVING AN ONGOING CONVERSATION WITH OUR PRODUCER? TOM: HE IS SAVING ME. JONATHAN: I WANT TO BRING UP THIS HEADLINE.
LIMITED HIRING, CRITICAL NEEDS. LOOKING FORWARD TO TECH EARNINGS LATER. FUTURES NEGATIVE 2/10 OF 1%. YIELDS COME IN A COUPLE BASIS POINTS. TOM TALKING ABOUT THAT SWISS FRANC STRENGTH. LISA: ENERGY MINISTERS FROM THE BLOC COMING TOGETHER TO TALK ABOUT REDUCING THEIR USE OF NATURAL GAS BY 15% HEADING INTO THE WINTER AS A RESULT OF FEAR OF A CUT OFF BY RUSSIA AND THE IDEA IS THEY ARE ALREADY LOOKING AT INVENTORIES THAT ARE LOW. NATURAL GAS PRICES ARE SURGING
TO THE HIGHEST LEVELS GOING BACK TO MARCH AND A BIT CONCERNED THAT THEY CAN'T GET AHEAD OF THIS BECAUSE SO MANY NATIONS DO NOT WANT TO REDUCE THEIR NATURAL GAS USE. TODAY WE GET A SLEW OF ECONOMIC DATA INCLUDING THE LATEST U.S. HOME PRICING INDEX FOR THE MONTH OF MAY AND ALSO JULY CONSUMER CONFIDENCE AS WELL AS NEW-HOME SALES.
THIS SURVEY HAS BEEN MORE BULLISH, THE UNIVERSITY OF MICHIGAN READING TO BE GET INTO DEAR YOUR RATION -- DO WE GET A DETERIORATION? TODAY WE DO GET EARNINGS, THE BEGINNING OF ONE OF THE BIGGEST EARNINGS MOMENTS OF THIS YEAR. MICROSOFT AND ALPHABET REPORTING AFTER THE BELL. MORE IMPORTANTLY, ADVERTISING. HOW MUCH ARE COMPANIES STARTING
TO PULL ON ADVERTISING CONSIDERING CONSUMERS ARE BEING MORE DISCRETIONARY? WE DO GET COCA-COLA, MCDONALD'S AND CHIPOTLE, HOW MUCH THEY CONFIRM WHAT WE SAW IN WALMART. JONATHAN: BRAMO, THANK YOU. EARNINGS DOWN BY 8.6 1% AS WALMART CUTS THEIR PROFIT OUTLOOK ONCE AGAIN. JOINING US NOW IS JOHN
STOLTZFUS . YOU'VE BEEN UNAPOLOGETICALLY BULLISH AT TIMES. WHAT DO YOU MAKE OF THOSE WALMART NUMBERS? DO WE HAVE A BROADER PROBLEM WITH THE CONSUMER? JOHN: IT IS A COMBINATION OF THE TWO IN THE CASE OF WALMART AND WE HAVE SEEN THIS BEFORE IN THE LAST REPORTING SEASON. IT JUST HAPPENS TO BE THE ORDERED TO MUCH OF THE WRONG THING AND I THINK THAT WAS PROBABLY ON EXPECTATIONS THAT THEY WEREN'T GOING TO GET ENOUGH OF WHAT THEY WERE IMPORTING. WE HAVE SEEN THAT ACROSS A COMPANY -- A NUMBER OF COMPANIES IN RETAIL. TOM:
I WANT TO TALK ABOUT SECTOR SELECTION. HOW CRITICAL IS SECTOR SELECTION IN 2023? JOHN: WITH TICKET IS IMPORTANT IN THE SENSE THAT WE HAVE TO BE FORWARD-LOOKING. IT IS LIKE JOHN MCLAUGHLIN'S SECOND OR FIRST ALBUM. WHEN DO YOU WANT TO BE BUYING STOCKS? IT IS USUALLY WHEN THEY ARE LOW AND NOBODY ELSE WANTS THEM. WE LIKE CONSUMER DISCRETIONARY, WE LIKE TECHNOLOGY, WE LIKE INDUSTRIALS AND FINANCIALS. IN THE MARKET PERFORM AREA, WE CONTINUE TO SEE TERRIO'S AND ENERGY LIKELY HAVE FURTHER MOVED TO THE UPSIDE. LISA:
WHAT IS GOING TO TRIGGER THE S&P TO GET TO 4800 AS YOUR PREDICTION SAYS BY THE END OF THIS YEAR, CONSIDERING THE CONCERNS ABOUT RECESSION AND THE FACT THAT THE FED IS NOT GOING TO RETRACE ANY TIME SOON? NOBODY IS PRICING THAT IN FOR THIS YEAR. JOHN: THE BIG THING IS WE HAVE TO REALIZE THAT WHETHER THERE IS TROUBLE ON THE HORIZON OR AT THE MOMENT, GENERALLY SPEAKING, THERE IS A PREPONDERANCE OF NEGATIVE PROJECTION MOVING FORWARD AND THAT IS USUALLY WHERE YOU HAVE THE OPPORTUNITIES. WE REMEMBER 2009, TALKING WITH THE PRESS AND I WAS WITH ANOTHER FIRM AT THAT TIME AND WE THOUGHT THERE WAS A LIKELY OPPORTUNITY FOR A RALLY IN MARCH. AT THE END OF THE FIRST QUARTER IN 2009, EVERYBODY WAS VERY BEARISH AND THEY STAYED BEARISH FOR MUCH OF THAT YEAR. IT IS ALSO COMPOUNDED BY THE FACT THAT WHATEVER THE FED IS IN A HIKE CYCLE OR ACCOMMODATING, THE GENERAL THOUGHT AS THE FED WILL FAIL. FOR SOME REASON THAT ALWAYS
COMES OUT. EVENTUALLY THE FED EVEN AS IT MAKES MISTAKES HAS PROVEN THAT IT DOES THE JOB. I DON'T RECALL BUT I THINK 39 YEARS AGO, THE S&P 500 WAS AROUND 150 OR SO WHEN I GOT INTO THIS BUSINESS. LAST I LOOKED, IT WAS AROUND 3900. JONATHAN: HOW WOULD YOU KNOW IF YOU WERE WRONG? WHAT WOULD TELL YOU? JOHN: IF THE FED WOULD PUSH US INTO A SIGNIFICANTLY DARK RECESSION, WHICH I DON'T THINK IT PLANS TO DO. WE HAVE A CHAIRMAN WHO IS KNOWN TO BE ABLE TO PIVOT BOTH IN TERMS OF STOPPING RAISING RATES AS WELL AS GETTING ON THE BALL WHEN THEY WERE BEHIND THE CURVE. IF THEY FAILED TO SHOW
SENSITIVITY TO THE AMOUNT OF REACTION TO THEIR ACTIONS, I THINK THAT WOULD BE A PROBLEM. THIS IS THE LEGACY FED THAT REMAINS HIGHLY SENSITIVE TO THE EFFECTS OF ITS ACTIONS. EVERYTHING IS THE UNCERTAINTY -- THE OTHER THING IS THE UNCERTAINTY. THE WAR IN UKRAINE, CHINA'S NO TOLERANCE COVID POLICY.
OVERALL, BALANCE SHEETS, CORPORATIONS REMAIN GOOD. PEOPLE ARE EXPERIENCED WITH ADVERSITY, SINCE 2009. WE HAVE TO SAY THE CONSUMER HAS PUT ON THE BRAKES. YOU'VE GOT THE FACT THAT THEY ARE ACTUALLY SHOWING UP AT THE STORES, TELLING THE STORES WE WILL TOLERATE JUST SO MUCH INCREASE PRICES AND WITH TECHNOLOGY, THAT IS THE ABILITY FOR INPUT COSTS TO COME DOWN BECAUSE OF PEOPLE DOING COMPARISON-SHOPPING.
THERE COULD BE DO ANYTHING AS BAD AS SOME PEOPLE ARE PREDICTING. BASED ON THE MARKET PERFORMANCE, PEOPLE WERE SO DISMAL ABOUT WHAT WAS HAPPENING IN 1994 IN THE MARKET WAS ONLY DOWN 1.57% FOR THE YEAR. JONATHAN: I WASN'T EXPECTING AN ANSWER THAT LONG. MY PRODUCER IS SCREAMING IN MY EAR. I WISH I COULD GIVE YOU MORE TIME. JOHN STOLTZ FOODS OF
OPPENHEIMER -- JOHN STOLTZFUS OF OPPENHEIMER. THIS IS BLOOMBERG. ♪ RITIKA: KEEPING YOU UP-TO-DATE WITH THE NEWS FROM AROUND THE WORLD, WITH THE "FIRST WORD NEWS," I AM LEIGH-ANN GERRANS. THE EUROPEAN UNION HAS A PLAN
TO REDUCE NATURAL GAS USE 15% IN THE WINTER. ENERGY MINISTERS MEETING IN BRUSSELS GAVE THE GREEN LIGHT TO A PROPOSAL TO VOLUNTARILY CUT GAS USAGE OVER THE NEXT MONTH. THE BRITISH ECONOMY -- IN THE FIRST HEAD-TO-HEAD DEBATE.
THE TWO ARE BATTLING TO REPLACE BORIS JOHNSON AS PRIME MINISTER. -- CLAIMS THAT TAX CUTS WOULD INCREASE INFLATION AND INTEREST RATES. HOWEVER, -- SAYS THEIR PLAN WOULD DRIVE THE COUNTRY INTO RECESSION. LUFTHANSA SAYS IT WILL HAVE TO CANCEL ALMOST ALL OF ITS FLIGHTS IN FRANKFURT AND MUNICH BECAUSE OF A STRIKE BY WORKERS. IT WILL IMPACT MORE THAN 1000 FLIGHTS. RETAIL STOCKS FALLING, THE WORLD'S LARGEST RETAILER CUT PROFIT OUTLOOKS. WALMART SAYS PROFITS WILL FALL
AS MUCH IS 13% IN THE CURRENT FISCAL YEAR AS SHOPPERS TURNED AWAY FROM BIG-TICKET ITEMS -- TURN AWAY FROM BIG-TICKET ITEMS. GLOBAL NEWS, 24 HOURS A DAY, ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. >> WE ARE NOT GOING TO HIT A RECESSION IN MY VIEW. MY HOPE IS THAT WE GO FROM THIS RAPID GROWTH TO A STEADY GROWTH.
WE WILL SEE SOME RECOVERY DOWN BUT I DON'T THINK WE'RE GOING TO SEE A RECESSION. TOM: PRESIDENT -- JONATHAN: PRESIDENT BIDEN ON THE LATEST DEBATE, IS IT A RECESSION OR NOT? ON THE NASDAQ 100, WE ARE DOWN A THIRD OF 1%. WALMART DOWN NINE PERCENTAGE POINTS AS THEY HAVE TO CUT THEIR OUTLOOK. A BIT OF GOOD NEWS OUT OF EUROPE IF YOU CAN CALL IT THAT.
AN AGREEMENT FROM EU COUNTRIES. THEY HAVE TO CUT BACK ON GAS USED BY 15% THROUGH NEXT WINTER AS YOU SEE GAS PRICES GOING ONE DIRECTION. EURO-DOLLAR RIGHT NOW, -8/10 OF 1%. TOM: LOOK AT THIS, RIGHT NOW, A HUGE DEAL, THE SWISS FRANC REACHES THE EURO.
WEAK EURO, STRONG SWISS FRANC. THERE IS SOME REAL TENSION IN EUROPE RIGHT NOW. JONATHAN: THEY'RE GOING TO CUT BACK ON GAS USE POTENTIALLY THROUGH THE WEEKEND -- POTENTIALLY THROUGH THE WINTER. TOM: THERE IS THE WAR AND UKRAINE, THERE IS THE GAS USE AND THE ARGUMENT OF GERMANY AND RUSSIA THE OLDS OVER TO GDP AND RECESSION AS WELL. BRENT CRUDE AT 107. IT HAS NOT MOVED LIKE NAT GAS BUT THERE IS NO OTHER WAY TO PUT IT. SUCH A BUSY DAY AHEAD.
LOOKING AT GM AND WALMART, RIGHT NOW LET'S LOOK ACROSS AMERICA, AT THE SILLINESS OF THE RECESSION DEBATE. JOE MATHIEU IS OUR EXPERT AND MERRIAM-WEBSTER SAYS THERE ARE EIGHT DEFINITIONS. WE DON'T HAVE TIME FOR ALL EIGHT BUBBLE WE CAN SAY IS THAT THERE IS GREAT RESEARCH ON HOW THE MIDDLE CLASS IS ABSOLUTELY FLATTENED.
MICHIGAN OWNS THE HIGH GROUND ON THIS. THE PEOPLE IN THE MIDDLE. IS JOE BIDEN'S MIDDLE-CLASS DIFFERENT THAN A GIVEN REPUBLICAN CANDIDATE'S MIDDLE-CLASS? JOE: IT DEPENDS WHAT STATE AND WHAT CITY AND WHAT TOWN YOU ARE TALKING ABOUT. SO MANY AMERICANS ARE DEALING WITH DIFFERENT CIRCUMSTANCES BUT THE INFLATIONARY CIRCUMSTANCE IS ACROSS-THE-BOARD. TO GET INTO THIS, FOR DAYS BEFORE THE GDP REPORT COMES OUT, JUST ANOTHER TERM FOR THIS WHITE HOUSE TO TRYING GET AHEAD OF ECONOMIC DATA IT HAS NO CONTROL OVER.
IT DOES SOUND LIKE THEY ARE TRYING TO MOVE THE GOAL LINE A LITTLE BIT WHEN IT COMES TO THE DEFINITION OF A RECESSION. MOST PEOPLE TO YOUR POINT DON'T THINK ABOUT IT THIS WAY, WHETHER IT IS TWO CONSECUTIVE QUARTERS OF NEGATIVE GROWTH. THEY JUST KNOW THAT IT COSTS TOO MUCH TO FILL THEIR TANK. TOM: I'M OUT OF TOUCH ON THIS, AND YOU DO THIS EVERY SINGLE DAY WITH THE SOUND ON. WHO OWNS THE MIDDLE CLASS RIGHT NOW? REPUBLICANS OR DEMOCRATS? JOE: IT IS A GREAT QUESTION THAT MAY NOT BE ABLE TO BE ANSWERED BECAUSE WHAT IS THE MIDDLE CLASS? THE PROBLEM IS DEFINING WHAT THAT IS. JOE BIDEN HAS AN IDEA ABOUT IT.
HE THINKS ABOUT UNION WORKERS IN THE GOOD OLD DAYS, MADE IN AMERICA. REPUBLICANS MIGHT HAVE A DIFFERENT IDEA. MAYBE IT IS MAGA OR FOLKS WHO SHOW UP IN PICKUP TRUCKS TO HEAR FROM DONALD TRUMP TODAY.
THIS REINFORCES THE FACT THAT WE DON'T KNOW WHAT THE MIDDLE CLASS IS. LISA: JOE BIDEN IS FACING A DIFFICULT SITUATION ECONOMICALLY. LOOKING AT THE PANDEMIC AND THE WAR IN UKRAINE. HOW MUCH ARE WE LOOKING AT A MESSAGING PROBLEM? WHEN THEY ARE TRYING TO GET TO THE DEFINITION OF A TECH SUPPORT RECESSION AND A REAL RECESSION, LEADING TO LAUGHTER IN MANY PLACES, SAYING IT FEELS LIKE AND SMELLS LIKE AND SOUNDS LIKE A RECESSION. WHY ARE WE PARSING THESE DETAILS? JOE: IT IS A MESSAGING PROBLEM. WHEN YOU ARE SPENDING TIME EXPLAINING THE DEFINITION OF A RECESSION, WE ARE TRYING TO GET AHEAD OF THE CPI TO ASK LANE THE DIFFERENCE BETWEEN HEADLINE AND CORE NUMBERS, YOU ARE LOSING THE ROOM.
THESE ARE BIGGER ISSUES TO YOUR POINT THAT IMPACT PEOPLE'S LIVES. WHEN WE START DRILLING DOWN ON THESE THINGS, THE NEWS IS GOING TO BE BAD ON THURSDAY. THE WAY PEOPLE INTERPRET IT IS NOT GOING TO BE GUIDED BY THE MESSAGING OUT OF THE WHITE HOUSE BRIEFING ROOM. LISA:
THE NEWS WAS BAD LAST NIGHT WITH WALMART. THAT MIGHT BE MORE IMPORTANT THAN A TECHNICAL RECESSION, ESPECIALLY IF IT IS CONFIRMED AND OTHER RETAIL EARNINGS AND THROUGHOUT THE WEEK. HOW DO THEY TAKE THIS MESSAGE THAT CONSUMERS ARE SPENDING LESS ON OTHER GOODS BECAUSE THEY ARE SPENDING SO MUCH ON GAS AND FOOD? HOW DO THEY DO SOMETHING LIKE THAT AND PROPOSE SOMETHING INTO THE MIDTERMS OR IS THIS THEM ACKNOWLEDGING DEFEAT? JOE: ACKNOWLEDGING PEOPLE'S PAIN IS ANOTHER WAY OF LOOKING AT IT. ANOTHER COMP ASH A LOT OF CONFIDENCE FROM THE RESIDENT THAT WHILE THIS IS NOT A RECESSION, WE KNOW PEOPLE ARE FEELING THE IMPACT AND THIS IS OUR BIGGEST YOUR WITTY. THAT KIND OF DILUTES THE MESSAGE AND IT IS NOT LOST ON ME THAT RIGHT NOW, TOM WILL HAVE A SENSE OF THIS, THE FACT THAT LAWMAKERS IN MASSACHUSETTS ARE LOOKING AT REINSTATING HAPPY HOUR SHOULD TELL YOU A LOT, AS I ALSO SEE ON THE TERMINAL. TOM: ARE YOU GOING TO DO IT REMOTE FROM HOME -- FROM FOLEY'S? WE HAVE TO DO A REMOTE FROM TOM ENGLISH. JOE: THAT WOULD BE A BALL.
I WILL MEET YOU AT THE VFW. JONATHAN: I'M JUST FOLLOWING THE BOSTON TALK, TRYING TO KEEP UP. JOE MATHIEU, THANK YOU. THIS CONVERSATION ABOUT
RECESSION, NOT A RECESSION, IT IS ABSOLUTELY RIDICULOUS. IT ALWAYS COMES DOWN TO DEPTH, DURATION AND DIFFUSION. HOW MUCH IS THE WEAKNESS SPREADING? RIGHT NOW THEY ARE POINTING OUT THAT IT HAS NOT REACHED THE LABOR MARKET IN A PRONOUNCED WAY. THAT IS WHAT WE SHOULD BE DISCUSSING, WHETHER WE START TO SEE THE WEAKNESS SPREAD INTO THE LABOR MARKET AND SEEING SEVERAL SIGNS OF THAT OVER THE LAST FEW MONTHS. TOM: I WOULD SUGGEST THAT IN THE
POLARITY OF THE OVERLAY OF TECHNOLOGY IN THE LAST 10 AND 15 YEARS, IT WILL ACCENTUATE THE INEQUALITIES WITHIN RECESSION. THERE IS GOING TO BE A GROUP OF HAVE-NOTS, AND THE HAVES, THERE WILL BE A RECESSION FOR THEM BUT THEY WILL SOMEHOW SLIDE BY. JONATHAN: IT HAS BECOME VERY POLITICAL VERY QUICKLY. LISA:
AT A CERTAIN POINT, ARE WE PARSING DIFFERENCES THAT DON'T MATTER BECAUSE AT THE SAME TIME YOU ARE SEEKING TO -- YOU ARE SEEING CERTAIN POCKETS. FASCINATING TO ME THAT GENERAL MOTORS CAME OUT, REDUCING HIRING TO THE ESSENTIAL AREAS. HOW MUCH WILL WE START TO SEE SIGNALS LIKE THIS, THAT THE THEY WERE MARKET ASPECT IS GETTING AFFECTED AND VERY QUICKLY. JONATHAN: FLAMES STARTING TO CREEP UP. TOM: IT IS THE EARNINGS SILLINESS.
CAN WE DO THE BANNER PLEASE? FREE CASH FLOW PUSHED QUOTE INTO THE FUTURE. JONATHAN: I THOUGHT WE STOPPED COVERING GE? I WAS SO HAPPY AFTER THAT. I THINK THAT MEANS YOU'VE GOT TO WAIT A LITTLE LONGER.
FUTURES DOWN 4/10 ON THE S&P. GOOD MORNING. THIS IS BLOOMBERG. JONATHAN: A LOT TO TALK ABOUT. EQUITY FUTURES LOOK LIKE THIS, DOWN 4/10 OF 1% ON THE S&P.
THE NASDAQ DOWN ONE AND A HALF PERCENT. LET'S DO THE WALMART STORY, WE ARE NEGATIVE, DOWN BY MORE THAN 9%. TARGET DOWN BY FIVE PERCENTAGE POINTS. IS THIS AN EXECUTION PROBLEM OR A SIGN OF CONSUMER WEAKNESS? POSSIBLY A MIX OF BOTH. IT IS NOT A REVENUE STORY, IT IS A MARGIN STORY AND THAT IS WHY WE HAVE TO CUT THE OUTLOOK. FOR THOSE OF YOU WHO SAY WE HAVE BEEN TALKING ABOUT THIS FOR AGES, WE ARE DOWN 9% ON WALMART.
TALKING ABOUT THE BOND MARKET, I WAS HURTING TO SEE A SIGN OF WEAKNESS IN THE LABOR MARKET BASED ON CLAIMS IN THE LAST THREE WEEKS? WE WILL HAVE TO KEEP A LOOK ON THAT. THOSE THREE WEEKS OF CLAIMS ARE NOT ENOUGH. THAT TWO DAY MEETING BEGINS WITH YIELDS IN FOUR BASIS POINTS ON A 10 YEAR. THAT INVERSION PUSHING 25 BASIS POINTS. TOM:
IF YOU LOOK AT AND ALONG -- ANNA WONG'S PUBLICATION, AN UPPER RANGE OF 5%. THAT IS THE FIRST TIME I HAVE SEEN THAT. SHE SHIFTS 100 PER -- SHEESH -- TO 5%. WHAT DOES YOUR DATA SCREEN LOOK
LIKE WITH A 4.65%, 4.75% SETTING FOR THE FED A YEAR OUT? JONATHAN: ABSOLUTELY HAMMERED. TOM: ABSOLUTELY STUNNING. ARE YOU DONE? I THINK EURO SWISS SPEAKS VOLUMES. JONATHAN: GOOD NEWS THEY CAN AGREE ON SOMETHING. THEY HAVE AGREED TO LIMIT GAS CONSUMPTION.
THEY'VE BASICALLY REDUCE POTENTIAL GROWTH. I THINK RUSSIA WAS GOING TO DO THAT FOR THEM ANYWAY. RUSSIAN GAS IS COMING INTO EUROPE AT REDUCED CAPACITY THROUGH NORD STREAM ONE. FOR ME, THIS IS THE PROBLEM THE ECB HAS GOT. PRICES REMAINED ELEVATED
BECAUSE RUSSIA IS GOING TO REDUCE SUPPLY. WHAT ARE YOU GOING TO DO? YOU ARE GOING TO TEMPER GROWTH AND AT THE SAME TIME FAIL TO BRING DOWN GAS PRICES? IT COULD GET EVEN MESSIER IN EUROPE. I DON'T KNOW WHAT SEPTEMBER LOOKS LIKE. TOM: WE WELCOME ALL OF YOU ON BLOOMBERG RADIO AND TELEVISION. MINNESOTA MINING OUT RIGHT NOW AND THEY TAKE DOWN SALES FROM POSITIVE STATISTICS TO OUTRIGHT NEGATIVE STATISTICS. -4.5%. THAT IS A PRECURSOR FOR A CONVERSATION WITH WILLIAM LEE, CHIEF ECONOMIST AT MILKEN INSTITUTE AND SO CONSTANT -- SO CONFIDENT ON INTERNATIONAL ECONOMICS AND ALSO A STUDENT OF OUR DOMESTIC ECONOMY. ON THE BREAK INTO THIS, WE WERE
TALKING ABOUT THIS RECESSION AND YOU SAY FOR AMERICA, IT IS DIFFERENT. THIS IS A RECESSION WHERE WORKERS WILL BENEFIT AND THE FANCY PEOPLE MAY NOT. WILLIAM: GIVEN THE SHORTAGE THAT WE HAD IN WAREHOUSE WORKERS, SERVICE WORKERS, WAITERS AND NURSES, IT IS CLEAR THAT THE WAGE INCREASES ARE TELLING EVERYONE WE NEED MORE OF THEM. EVEN AS THE ECONOMY TURNS DOWN, THE AMAZON'S OF THE WORLD WILL CONTINUE TO HIRE BLUE-COLLAR WORKERS. THIS WILL BE THE FIRST WHITE COLLAR RECESSION AND THE HISTORY OF THE UNITED STATES. IF WE WERE TO HAVE A RECESSION
THAT SPREADS INTO THE LABOR MARKET, REGULAR WORKERS OUT THERE WILL BE SAFER THAN COMPUTER PROGRAMMERS AND MIDDLE MANAGERS. TOM: I DON'T UNDERSTAND THE DISTINCTION OF AN OUTRIGHT RECESSION AND SOMETHING YOU AND I USED TO CALL A GROWTH RECESSION. I USED TO FEEL PRETTY BAD IN A GROWTH RECESSION RIGHT? WILLIAM: WHEN THINGS SLOW DOWN, INCOME SLOWS DOWN AND SPENDING SLOWS DOWN BECAUSE YOU FEEL CRUMMY. YOU DON'T HAVE ENOUGH MONEY TO SPEND. GIVEN THE HIGH INFLATION WE HAVE NOW, STAGFLATION REALLY IS A CANDIDATE -- CONDITION FOR A GROWTH RECESSION. YOU DON'T FEEL GOOD IN THAT
ENVIRONMENT. LISA: HOW QUICKLY COULD WE SEE LABOR REALLY TURN? WILLIAM: THAT IS A GREAT QUESTION BECAUSE RIGHT NOW, WE HAVE A TIGHT LABOR MARKET AND WE HAVE SO MANY VACANCIES OUT THERE BUT IF YOU LOOK AT THE PACE OF HIRING, FIRMS ARE HIRING AT A FASTER PACE EVEN THOUGH THEY WERE RAISING WAGES. I THINK THERE IS A MICROECONOMIC DIS-EQUILIBRIUM GOING ON. THEY HAVE NOW RETRAINED
THEMSELVES AND HAVE QUALIFIED FOR BETTER JOBS AT HIGHER PAY. THE ONLY WAY TO SOLVE THIS PROBLEM IS WITH HIGHER PRODUCTIVITY AND THE ONLY WAY TO DO THAT IS TO HAVE ADEQUATE INVESTMENT AND WE WILL NOT SEE THAT WITH THE SHORTFALL IN EARNINGS THAT COMPANIES ARE EXPERIENCING. LISA: JUST TO PARSE THAT OUT A LITTLE MORE, ARE YOU BASICALLY SAYING THAT THIS IS GOING TO WRITE ITSELF IN THE NEAR TERM AND THAT YOU WILL START TO SEE A CREEPING UP IN THE UNEMPLOYMENT RATE? HOW DOES THIS TRAJECTORY CHANGE AND PEOPLE TALK ABOUT A TECHNICAL RECESSION BUT NOT A REAL ONE? WILLIAM: AS WE SEE THE NEGATIVE GDP GROWTH, WE WILL SEE THE WEAKNESS SPREAD INTO THE BROADER ECONOMY AND THE FIRMS WILL REACT BY HIRING MORE OF THE BLUE-COLLAR WORKERS BECAUSE THEY NEED THEM, BUT THEY WILL TRY TO EMPLOY TECHNOLOGY TO ROLLBACK THE ADVANCED WORKERS. YOU WILL SEE UNEMPLOYMENT START TO AFFECT THAT SEGMENT OF THE LABOR MARKET. SERVICE SECTOR IS A LARGE SECTOR OF THAT MARKET. TOM: JP MORGAN WAS ON YESTERDAY. THEY MADE IT CLEAR THAT IT IS
EXPORTS TO THE RESCUE AS POSSIBLY THE PACIFIC RIM OPENS UP. ARE YOU OPTIMISTIC THAT WE WILL GET EXPORT GROWTH OFF OF THE PACIFIC RIM OR IS THAT SOMETHING THAT AWAITS COVID AND THE REOPENING OF CHINA? WILLIAM: THAT IS A LOADED QUESTION BECAUSE HE WAS A CLASSMATE OF MINE COLUMBIA AND WE GO BACK A LONG WAY. AS MUCH AS I ADMIRE HIM, I THINK HE HAS MISSED IT THERE. EXPORTS TO THE PACIFIC RIM ARE GOING TO BE LIMITED BECAUSE GROWTH FROM THE PACIFIC RIM, MAINLY CHINA IS GOING TO BE LIMITED. CHINA IS SUFFERING FROM ENORMOUS DISLOCATION WITH COVID POLICIES AND SHUTS DOWN -- AND SHUTDOWNS AND A HUGE RISE IN YOUTH UNEMPLOYMENT. IT IS AFFECTING CONSUMER SPENDING. THE ONLY SOURCE OF DEMAND THAT
MAY COME FROM THE PACIFIC RIM IS THE OUTER RIM. TOM: THIS IS SO IMPORTANT. IT IS A TOTALITARIAN REGIME, ONE GOING INTO A PARTY FEST IN NOVEMBER. CAN THEY UNILATERALLY AFFECT A SLOWDOWN OR DEPRESSION? WILLIAM: THEY ARE TRYING TO GOOSE UP THE ECONOMY LIKE CRAZY, ISSUING DATE -- DEBT AND TRYING TO USE THE SAME OLD PLAYBOOK. THE PRIVATE SECTOR IS WHAT IS COLLAPSING AND GIVEN THE PROPERTY MARKETS ARE NO LONGER A REAL STORE OF WEALTH FOR PEOPLE, PEOPLE ARE NOT SPENDING.
AS FAR AS I CAN SEE, CHINA IS GOING TO TAKE A WHILE TO RECOVER . LISA: TO TIE A BOW ON ALL THIS, YESTERDAY WE HAD TWO GUESTS ON. THEY SAID WE HAD SEEN THE BOTTOM OF THE STOCK MARKET AND THINGS WERE LOOKING UP IN THE U.S. ECONOMY WAS RESILIENT AND THE
WORLD WASN'T SO BAD. THE OTHER CAME ON AND SAID IT COULD BE WORSE THAN THE 1970'S, FACING STAGFLATION AND ALL SORTS OF TERRIBLE THINGS. WHERE DO YOU STAND? WILLIAM: CONGRATULATIONS ON YOUR RANGE OF GUESTS.
I STAND IN THE MIDDLE. THE MARKETS SEEM TO BE STIFFING OUT A BOTTOM BECAUSE SEEING THE BOTTOM OF THE RECESSION THAT HAS YET TO COME, THEY ARE SEEING THE BOTTOM AND THEY ARE PLANNING FOR THE RECOVERY. AS FAR AS THE REST OF US ARE CONCERNED, HIGH PRICES. . ARE STILL KILLING US INFLATION WILL LIKELY TAKE LONGER. CONSUMER DEPRESSION IS LIKELY GOING TO HANG ON FOR A WHILE. JONATHAN:
GOOD TO CATCH UP, AS ALWAYS. WILLIAM LEE FROM THE MILKEN INSTITUTE. DEUTSCHE BANK ASKED AN IMPORTANT QUESTION. HOW LONG -- IT IS NOT JUST ABOUT WHERE WE WILL PEAK BUT HOW LONG WE WILL STAY. LOOKING AT THE LAST THREE FED TIGHTENING CYCLES.
THE TIME SPENT AT PEAK WAS SEVEN MONTHS IN 2012 AND SIX MONTHS IN 2018. HE SAID THIS PRESENT CYCLE RAISES THE PROSPECT OF STAYING AT PEAK FED FUNDS A WHOLE LOT LONGER. SOMETHING WE HAVE NOT TALKED ABOUT ENOUGH. TOM: IT IS A HUGE ISSUE AND THAT IS WHY THE 1947-1952 ANALOG DOESN'T FIT. THEY CLEARED THE MARKETS VERY RAPIDLY AND IT IS INTERESTING, THAT PERSISTENCY IS A SUM OF INFLATION, THE PERSISTENCY OF INFLATION. I GET A LOT OF HATE MAIL -- I
KNOW YOU GET ALL THE LOVE NOTES. THE HATE MAIL I'M GETTING IS INFLATION IS GOING TO COME DOWN. COME DOWN TO WHAT? 7%, 5%? IS 5% ACCEPTABLE? IS THAT HARMFUL TO THE MIDDLE CLASS OF AMERICA WITH NO WAGE GAINS? THESE ARE IMPORTANT QUESTIONS. YEAR-END IS LIKE TOMORROW. JONATHAN: I'M NOT SURE HOW WE CAN GET THIS DOWN TO 4% WITHOUT DOING REAL DAMAGE. LISA: ALAN RUSKIN'S POINT IS WELL TAKEN, ESPECIALLY BECAUSE THIS FEEDS INTO THE MARKET EXPECTATION CURRENTLY BEING BAKED IN THAT THE FED IS GOING TO START CUTTING RATES NEXT YEAR WHICH MEANS THE MOMENT THEY SPENT AT PEAK RATES IS BASICALLY A BLINK OF THE EYE, THAT THEY CAN DO IT QUICKLY AND THEN GO BACK DOWN.
ESPECIALLY IF WE DON'T SEE A WEAKENING IN THE LABOR MARKET, THAT MIGHT BE THE LINCHPIN OF BOTH THE FED ACTIONS AS WELL AS HOW DEEP AND DIFFICULT THIS RECESSION WILL BE. JONATHAN: HOW MANY TIMES HAVE YOU HEARD AN EQUITY BULL SAY THAT CHAIRMAN POWELL HAS PROVEN HE CAN PIVOT. CHAIRMAN POWELL HAS PROVEN HE CAN MAKE MISTAKES BUT ENOUGH THAT REQUIRES HIM TO PIVOT. LISA: I LOVE WE ARE AT THE PLACE WHERE ALL EQUITIES ARE TO JUST ARE RATE STRATEGISTS AND RIGHT NOW, MY HEAD IS SPINNING . JONATHAN: MY HEAD IS SPINNING. THE NASDAQ IS DOWN FIVE OR 6/10 OF 1%. TOM: CAN YOU MAKE THE TANG STRONGER? THERE IS NO SUGAR IN IT.
JONATHAN: FROM NEW YORK, THIS IS BLOOMBERG. ♪ LEIGH-ANN: KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE WORLD WITH THE "FIRST WORD NEWS," I AM LEIGH-ANN GERRANS. THE EUROPEAN UNION IS PREPARING FOR THE POSSIBILITY OF A FULL CUT OF RUSSIAN ENERGY SUPPLIES. THEY AGREED TO CUT NATURAL GAS USED BY 15% THROUGH NEXT WINTER.
THE RAPID PACE OF THE AGREEMENT REFLECTS DWINDLING GAS FLOW FROM RUSSIA. SUPPLIES ARE SET TO DROP TO AROUND 20% OF CAPACITY. FORMER PRESIDENT DONALD TRUMP RETURNS TO WASHINGTON TODAY FOR THE FIRST TIME SINCE LEAVING OFFICE.
HE WILL MAKE A SPEECH TO AIPAC WORKING AN AGENDA FOR A POSSIBLE SECOND TERM AND AN AIDE FOLKS -- SAYS HE WILL FOCUS ON PUBLIC SAFETY. THE VISIT COMES AS THE JANUARY 6 COMMITTEE HAS BEEN DETAILING HIS ATTEMPTS TO REMAIN IN POWER AND HIS REFUSAL TO CALL OFF OF A VIOLENT MOB -- CALL OFF A VIOLENT MOB OF HIS SUPPORTERS. BUSINESS ACTIVITIES RESUMED AND CONFIDENCE ALSO IMPROVED DESPITE DISRUPTIONS FROM COVID OUTBREAKS ACROSS THE COUNTRY. THAT IS THE OUTLOOK BASED ON BLOOMBERG SEGREGATED INDEX -- BLOOMBERG'S AGGREGATED INDEX.
GENERAL MOTORS POSTED PROFITS THAT WERE WEAKER THAN EXPECTED. GM MAINTAINS ITS GUIDANCE FOR THE FULL YEAR. THAT REFLECTS ROBUST DEMAND FOR SUVS AND TRUCKS AND IT SIGNALS OPTIMISM THAT GM CAN GET WHAT IT NEEDS. UBS HAS REPORTED WEAKER THEN -- INSTITUTIONAL INVESTORS WITHDREW FUNDS AND INVESTMENT BANKING ALSO TRAILED EXPECTATIONS. UBS PLANS TO BUY BACK 5 MILLION SHARES IN SHARES -- GLOBAL NEWS, 24 HOURS A DAY, ON AIR AND ON BLOOMBERG QUICKTAKE, POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. >> FIRST IT WILL INCREASE GAS PRICES.
SECOND IT WILL RENDER A COUPLE INDUSTRIES VERY INEFFICIENT AND WITH THAT GENERATING FURTHER INFLATION, MAKING INFLATION STUBBORN WHICH IS THE REAL DANGER. JONATHAN: THE UBS CEO THERE. FUTURES -4/10 ON THE S&P. PAIN IN EUROPE, THE EURO-DOLLAR -7/10 OF 1%. 10 YEARS SINCE PRESIDENT DRAGHI WAS IN LONDON AND MENTIONED THOSE FEW WORDS. WHATEVER IT TAKES. TOM:
A FEW WORDS AND THEN A DISTINCTIVE FEATURE OF THE ECB, THEY WOULD COME OUT WITH CONFIDENCE ABOUT 18 MONTHS VIEW. YOU WOULD SEE A HEADLINE WITH 2023 AND SAY REALLY? IT HAS BLOWN UP HASN'T IT? JONATHAN: JUST STAYING MAX DOVISH FOR A LONG TIME. TOM: I WANT TO EMPHASIZE THE DATA SCREEN IS EXTRAORDINARY, WATCHING A SPINOFF. SALES ADJUSTMENT -- AS WE GO TO WHAT WE ARE GOING TO SEE THIS AFTERNOON FROM MICROSOFT IN BIG TECH. RIGHT NOW, WE NOTICED RUBLE. STRONGEST CURRENCY IN THE WORLD
RIGHT? JONATHAN: YEAR TO DATE. TOM: NO QUESTION ABOUT IT. BUT IN THE COMMODITIES SPACE, IT WAS A LAYUP. CONA HACK WAS ON HERE SAYING BE CAREFUL.
SHE HAS BEEN DEAD ON ABOUT A ROUND-TRIP IN WHEAT. IS THE BULL MARKET IN COMMODITIES OVER? >> IF YOU LOOK AT THE PRICE ACTION, THEY ARE BACK TO WHERE THEY WERE BEFORE THE UKRAINE INVASION TOOK PLACE. IN THAT REGARD, WE HAVE WIPED OUT ALL THE GAINS WE SAW IN THE LAST SIX MONTHS. I PERSONALLY THINK IT MIGHT BE OVERSOLD FROM HERE.
PRICES ARE -- WE SAW THE GRAINS. IT IS NOT GOING TO BE HUGE. THERE IS STILL A LOT OF -- THAT NEEDS TO COME OUT OF UKRAINE. A LOT OF WEATHER IS STILL WITH US. TOM:
FOLD IT INTO HYDROCARBONS TAKE AN ED&F MAN CRUDE CALL AND FOLD THAT ACROSS COMMODITIES. KONA: I THINK WE ARE IN A TUG-OF-WAR RIGHT NOW. WE HAVE THE GLOBAL MACRO, RECESSIONARY FEARS, DEMAND DESTRUCTION. ON THE OTHER SIDE WE HAVE IMMENSE SUPPLY RISK WHETHER IT IS OPEC GETTING CLOSE TO CAPACITY OR OUTAGES IN LIBYA OR THE FACT THAT RUSSIA AT ANY TIME COULD CUT EVEN FURTHER AND OIL AND GAS SUPPLIES FOR ALL THE DEMAND DESTRUCTION WE ARE GETTING, WE ARE LOSING FROM ECONOMIC INSTABILITY AND RECESSION FEARS, WE POTENTIALLY HAVE THE OIL DISRUPTIONS AND GAS DISRUPTIONS THAT COULD LEAD TO SUBSTITUTIONS COMING INTO OIL PRODUCTS.
IT IS PRETTY WELL-BALANCED I WOULD SAY. BOTH ARGUMENTS ARE VERY STRONG. WHEN IT COMES TO BEING BELOW $100, I THINK IT MIGHT BE TOO CHEAP. RIGHT WE ARE AT -- WHERE WE ARE RIGHT NOW KIND OF BALANCES IT.
WE ARE KIND OF WHERE WE SHOULD BE I GUESS. NOW THE MOMENTUM HAS TO TAKE ITS COURSE. IF THE MARKETS THINK THAT IS TOO MUCH, IF YOU LOOK AT HOW THE HEDGE FUNDS -- IT FEELS LIKE THAT BIG EXIT OR IS BEGINNING TO STABILIZE AND RECLAIM A LOT OF THEIR POSITIONING. LISA: KONA, THERE IS A FINANCIAL STORY OF COMMODITIES IN THE REAL STORY OF COMMODITIES WHICH IS BEING BORNE OUT RIGHT NOW IN EUROPE, AND I WANT TO FOCUS IN ON WHAT YOU HAD BEEN TOUCHING ON, GAS PRICES IN THE GAS SHORTAGE, ESPECIALLY IF RUSSIA CONTINUES LIMITING THE SUPPLY OF GAS GOING THROUGH NORD STREAM ONE. HOW MUCH ARE YOU LOOKING AT PRICES THAT EQUALIZE AROUND A CERTAIN LEVEL NEAR WHERE THEY ARE NOW? EVEN THOUGH WE ARE HEARING FROM EUROPEAN UNION THAT THEY WILL CUT BACK 15% OF DEMAND GOING INTO THE WINTER, YOU ARE ALREADY HEARING ABOUT CARVEOUTS AND COUNTRIES THAT ARE PREPARING TO USE A LITTLE BIT MORE THAN THAT, ESPECIALLY IF PRICES STABILIZE. KONA: ABSOLUTELY. GAS SHORTAGES IN THE EU ARE RAMPING UP TO THE DESIRABLE 90% LEVEL WHICH IS WHAT THEY WANT TO BE BY AROUND NOVEMBER.
WE ARE ON TRACK FOR THAT BUT LOOK WHAT HAPPENS. WE HAD AN EXTRAORDINARY HEAT WAVE IN THE EU. WHAT IF WE HAVE AN EXTRAORDINARILY HARSH WINTER IN THE EU? THAT MEANS EVEN AT 80% WE ARE NOT COMFORTABLE AND THERE IS ALWAYS THE RISK OF WHAT WILL RUSSIA DO TO ITS SUPPLIES? THAT COULD LEAD TO SUDDEN OUTAGES. IT IS HIGHLY VOLATILE AND RISKY
AND I KNOW THE EU GOVERNMENT IS DOING THE RIGHT THING BY TRYING TO RATIONALIZE EVERYTHING THAT CAN BUT IT IS NOT GOING TO BE EASY. WE CANNOT FORECAST WHAT IS GOING TO HAPPEN ON THE WEATHER. JONATHAN: I DON'T THINK ANYBODY CAN FORECAST THIS. KONA HAQUE OF ED&F MAN. YOU WAKE UP THIS MORNING, YOU COME TO SOME KIND OF AGREEMENT TO REDUCE GAS USE. HOW THAT PLAYS OUT IN PRACTICE OVER THE NEXT FEW MONTHS REMAINS TO BE SEEN.
AT THE SAME TIME, GAZPROM INDICATING CAPACITY USE OF THAT NORD STREAM ONE PIPELINE IS GOING TO GO DOWN FROM 40% TO 20% AND THERE ARE STILL MANY PEOPLE OUT THERE WHO BELIEVE IT COULD GO DOWN TO ZERO COMING INTO WINTER. LISA: AT A CERTAIN POINT IT. . DOESN'T MATTER THE FACT THAT THEY ARE PLAYING THIS GAME WITH EUROPE.
HOW MUCH IS THIS GOING TO CAUSE PRICES TO RISE ANYWAY AND HOW MUCH DOES A 50% CUT THAT THEY ARE TALKING ABOUT HIGHLIGHT THE CONCERN ABOUT THE DANGER, MORE THAN THE REMEDY WHICH MAY NOT BE THE WHOLE 15%? JONATHAN: YOU THROW INTO A POT AND YOU GET A WEAKER EURO. TOM: I AGREE ON EURO. I WATCHED IT VERY CAREFULLY. YEN AS WELL. YOU REALLY WONDER IN THE NEXT 48 HOURS, THE TENSION INTO THE FED MEETING, TOMORROW? JONATHAN: WE ARE DOING A SPECIAL PROGRAM THAT YOU WILL BE A PART OF TOMORROW AFTERNOON. TOM: REALLY?
JONATHAN: I WONDER IF THIS ACKNOWLEDGES SOME OF THE WEAKNESSES STARTING TO EMERGE. THAT WOULD BE THE PROBLEM FOR THIS FEDERAL RESERVE. THIS IS ALWAYS THE ISSUE WITH CENTRAL BANKS. TO SOME EXTENT THEY HAVE TO LIE. CENTRAL BANKERS TELL THE TRUTH
ALL THE TIME. TOM: THEY HAVE TO LIE TO MAINTAIN CONTROL. LISA: LYING IS ONE THING. TRYING TO GET ACCURATE FORWARD GUIDANCE -- GIVE ACCURATE FORWARD GUIDANCE AT A TIME WHEN FINANCIAL CONDITIONS ARE LOOSENING RATHER THAN TIGHTENING, THAT IS A DIFFERENT STORY. HOW DO THEY GET THOSE WHILE NOT
LYING? TOM: WHEN JEROME POWELL WAS IN GRADUATE SCHOOL, HE WAS LAUNCHING ANIMAL HOUSE. REMAIN CALM. THAT IS THE MANTRA. HAVE YOU SEEN ANIMAL HOUSE? JONATHAN: YIELDS AT FOUR BASIS POINTS.
>> THE MARKET IS WAITING TO SEE CLEAR SIGNS OF RECESSION. >> WE CAN ARGUE ABOUT WHETHER OR NOT IT IS A RECESSION BUT IT IS DEFINITELY A LOSS OF MOMENTUM. FLEX WE ARE CONCERNED FOR THE CONFLUENCE OF RISK.
>> THE FED NEEDS A TRAJECTORY ON INFLATION WITH DYNAMICS ON GROWTH. >> FINANCIAL MARKETS WILL NOT BE SURPRISED BY 75 BASIS POINTS. >> THIS IS "BLOOMBERG SURVEILLANCE." JONATHAN: LIVE FROM NEW YORK CITY, GOOD MORNING, GOOD MORNING, THIS IS "BLOOMBERG SURVEILLANCE," ALONGSIDE TOM KEENE AND LISA ABRAMOWICZ, I'M JONATHAN FERRO AT ITS ALL ABOUT EARNINGS TODAY.
TOM: COCA-COLA OUT WITH A HEADLINE I HAVE NEVER SEEN BEFORE, COCA-COLA WITH A 9% CURRENCY HEADWIND. THESE ARE EXTRAORDINARY TIME. JONATHAN: IF IN DOUBT, BLAME THE DOLLAR. TOM: I MEAN, 4% IS SORT OF THE THEME.
I WILL TELL YOU, IT IS SO ILLUMINATING TO SEE HOW EACH COMPANY IS STRUGGLING WITH THIS POST-PANDEMIC ECONOMY. JONATHAN: STRUGGLING TO EXECUTE, THE RIGHT SPOT, THE RIGHT TIME, WITH THE RIGHT INVENTORY. WALMART, STRUGGLING TO DO THAT. TOM: YOU NAILED IT, YOU CALLED IT A PRODUCT MIX. I GIVE THEM CREDIT, THEY HAVE BEEN OUT FRONT WITH WARNING PEOPLE. I CAN'T READ LIKE YOU CAN READ, BUT COMP SALES, 9.7%.
THAT'S A LOT OF CHEESEBURGERS. JONATHAN: YOU CAN'T READ LIKE I CAN READ? THAT IS A LOT OF CHEESEBURGERS. [LAUGHTER] TOM: NUMBER TWO VALUE MEAL? WE CAN DO THAT. JONATHAN: THANK YOU, TOM.
IT'S A REVENUE STORY BUT IT ISN'T. IT'S ABOUT WHAT THEY ARE SPENT ON, MAKING IT A MARGINS TORY. THEY CAN'T ANTICIPATE HOW QUICKLY THIS IS GOING TO CHANGE.
WE HAVE SEEN IT REPEATEDLY FROM TARGET TO WALMART. THEY ARE ALL FAILING TO FORECAST HOW QUICKLY THIS IS MOVING. LISA: BIG-BOX STORES OFTEN HAVE A GROCERY COMPONENT. THAT IS WHERE MORE OF THE DOLLARS ARE GOING AND THAT IS A LOWER MARGIN BUSINESS WHERE THESE PEOPLE WERE STAYING HOME AND DOING YOGA AND SUDDENLY PEOPLE ARE NOT BUYING AS MANY CLOTHES.
THEY ALREADY BOUGHT THE CLOTHES TO GO BACK TO WORK. THEY ARE DEALING WITH A GLUT THAT THEY HAVE TO DISCOUNT. IT'S A PROBLEM THAT IS A PERSISTENT ONE. JONATHAN:
EXECUTION COMPANY -- EXECUTION PROBLEM FROM THE COMPANY OR A PROBLEM FROM ALL OF US? LISA: NOT ALL COMPANIES ARE SUFFERING IN THE SAME WAY ABOUT THE DISCRETION THAT PEOPLE ARE SHOWING WHEN IT COMES TO GUT -- GAS AND FOOD IS NOT GOING TO OTHER AREAS, THAT'S THING WE ARE SEEING IN A LOT OF DIFFERENT TRICK. JONATHAN: LISA'S GOING TO GUIDE YOU THROUGH THAT IN A MOMENT BUT I WILL TAKE YOU TO THE MARKETS. DOWN ONE HALF OF 1%, LOOKING FORWARD TO MORE EARNINGS COVERS WITH TOM KEENE. I CANNOT WAIT. YIELDS DOWN, THREE TO FOUR BASIS POINTS. I CAN DO THE ALPHABET THING, BUT NOT THE META-THING. TOM: IT WAS ALWAYS AND FOREVER THE AMERICAN CAN COMPANY. JONATHAN:
I DON'T KNOW WHERE TO START IN EUROPE. LISA: I WILL SAY THAT WE DO META-EVERY MORNING BUT IT REALLY IS ABOUT EUROPE AND ENERGY MINISTERS HOLDING A MEETING IN BRUSSELS TO DISCUSS ENERGY SECURITY PLANNED TO CUT ENERGY USE, GAS USE BY 15% THROUGH THE WINTER. HOW THEY GET MEMBER STATES TO PARTICIPATE? GAS PRICES ARE SURGING BACK TO LEVELS, HIGHEST LEVELS SINCE 2020. PICO PANDEMIC. HOW DO WE GET THEM TO REDUCE THE USE SUBSTANTIALLY. ESPECIALLY BECAUSE YOU CANNOT PREDICT THE WEATHER. AND IF YOU REDUCE THE PRICE, IT'S HEAD SPINNING. IT'S AN AUDIBLY DIFFICULT
SITUATION THAT EUROPE IS IN. ECONOMIC DATA TODAY, THE HOUSE PRICE INDEX OF THE MONTH OF MAY WITH CONSUMER CONFIDENCE DATA FROM THE JULY CONSUMER CONFIDENCE BOARD. HOW MUCH DO WE SEE A DIFFERENTIAL HERE FROM THE UNIVERSITY OF MICHIGAN SURVEY THAT WE KNOW THE TRACK. DO WE SEE DETERIORATION HERE AS PEOPLE LOOK AT THE HIGHER INFLATION RATES? MICROSOFT AND ALPHABET REPORTING AFTER THE BELL. IT'S ABOUT ADVERTISING. IT'S ABOUT THE CONSUMER. IT'S ALSO ABOUT THE CLOUD, BUT JOHN, WHAT HAPPENS TO THE INDEX IF BIG TECH DISAPPOINT.
HAS IT BEEN PRICED IN? THAT'S THE BIG QUESTION HANGING OVER THIS WEEK. JONATHAN: WE'VE GOT A PERFECT GUEST FOR THAT, A QUANTITATIVE STRATEGIST AT EVERCORE. JULIAN, THE BIG TECH LAYERS HAVE FOUGHT BACK ON HIGHER INTENTIONS. DO YOU EXPECT THAT TO SHOW UP IN THEIR GUIDANCE? JULIAN: NO DOUBT.
WHEN YOU THINK ABOUT THE EVOLUTION OF MARKETS OVER THE LAST COUPLE OF WEEKS WE HAVE GONE FROM THE PULLING BACK OF HIRING TO WHERE CORPORATE AMERICA IS ANNOUNCING LAYOFFS. WE WILL SEE A LOT MORE OF THAT AND THAT IS REALLY WHY BOND YIELDS ARE BACK NEAR MULTI-MONTH LOWS. JONATHAN: YOUR MORNING GOAT IS THE MOST VALUABLE ONE THAT I READ. YOU GO THROUGH THE MATH.
WE DON'T NEED TO DEAL WITH THAT RIGHT NOW. BUT IT MEANS THAT CORPORATIONS ARE ADJUSTING. GIVEN THE FEEL OF THE MICROANALYSIS THAT YOU ARE ACCLAIMED FOR, HOW WILL CORPORATIONS ADJUST? JULIAN: THEY WILL HAVE NO CHOICE. YOU HAVE GOT EVERY SINGLE THING
COMING AT YOU. THE NEED TO STOCK, THE NEED TO RE-SHORT BECAUSE YOUR SUPPLY CHAINS ARE BROKEN IN THE LONGER DEPENDABLE BUT AT THE SAME TIME YOU HAVE GOT THE FACT THAT THE WORLD IS CHANGING. ECONOMIC VOLATILITY IS SO MUCH HIGHER NOW THAN IT WAS THE LAST 30 YEARS. ALL OF THESE FACTORS ARE REALLY VERY DIFFERENT. WHAT IT ENDS UP MEANING IS THAT AT THE STOCK LEVEL, VALUATIONS CONTINUE TO RATCHET LOWER, BUT AGAIN, CORPORATE AMERICA HAS ALWAYS FOUND WAYS OF SQUEEZING PROFIT AND FIGURING OUT HOW TO TRANSFORM IT WELL. WE DON'T THINK IT'S DIFFERENT
THIS TIME. LISA: JULIAN, THAT'S NICE FOR COMPANIES THAT CAN ACTUALLY DO THAT. I CAN SEE JOHN LAUGHING AT ME. EVERY STOCK ANALYST IS BECOMING A RATE ANALYST SAYING IT IS ALL ABOUT THE FED. WHETHER THEY TORPEDO THE ECONOMY OR NOT. AS MUCH AS THEY CAN ADJUST, THEY CAN'T DO THAT IN THE FACE OF VOLKER. HOW MUCH DOES THE FATE OF THE
S&P DEPEND ENTIRELY ON HOW FAR THE FED HAS TO GO VERSUS THESE ADJUSTMENTS? JULIAN: WELL AT THIS POINT IT REALLY MEANS A LOT. WE ARE AT A CROSSROAD. THE AVERAGE RECESSION BEAR MARKET LOSES 41%. THE AVERAGE NON-RECESSION BEAR MARKET, YOU COULD ARGUE THAT WE HAVE ALREADY DONE THAT BUT THE FACT IS, WE HAVE NOT SEEN ANY INDICATION OTHER THAN THE FED IS REALLY ON SIN TRADING ON THE SINGLE MANDATE OF THE DUAL MANDATE, INFLATION.
FROM OUR POINT OF VIEW YOU HAVE ALREADY SEEN SIGNS OF IT TURNING DOWN ALONG WITH THE ECONOMY WEAKENING AND WE WONDER IF IN THE REVERSE LOGIC OF THE LAST YEARS THE FED MIGHT STEP BACK AND SAY WE HAVE MORE AMMUNITION TO HIKE IF WE NEED TO LATER KNOWING THAT ADDING RATE NEXT YEAR IS THE SINGLE THING THAT CAUSES POTENTIAL INFLATION EXPECTATIONS TO BECOME THE ANCHOR. JONATHAN: WHEN YOU SIT AROUND THE TABLE WITH ED HYMAN AND HE EXPECTS BAD NEWS, DO YOU THINK THAT BAD NEWS IS BAD NEWS BUT YOU WILL MARKET? JULIAN: AGAIN, THAT'S WHAT'S REALLY TRICKY ABOUT THIS CURRENT JUNCTURE. YOU DON'T SEE THE FED TO BAD NEWS. BECAUSE INFLATION DOES NOT ALLOW THEM RIGHT NOW TO REACT TO BAD NEWS. WE DO THINK THAT IN THE NEXT
COUPLE OF MONTHS THAT DYNAMIC CHANGE. LISA: A LOT OF PEOPLE THINK THAT IF THE FED DOESN'T GO FAR NOW IT WILL LEAD TO INFLATION EXPECTATIONS BECOMING DA ANCHORED. YOU JUST SET THE OFFICE IT. THAT IF THE FED GOES TOO FAR NOW AND CUTS RATES, THAT CAUSES INFLATION TO BECOME ON ANCHORED. HOW MUCH PUSHBACK YOU GET TO
THAT? WHERE YOU GET THAT IDEA? JULIAN: IT GOES BACK TO THE 1970'S AND THE BURNS BLUNDER. YOU HAD INFLATION REALLY RAGING. YOU KNOW, STRUCTURAL INFLATION, ARGUABLY SOMEWHAT DIFFERENT THIS TIME AND SHARE BURDENS CUT RATES IN THE MIDDLE OF THAT SURGE TO FIGHT A RECESSION AND THAT BECAUSE LITERALLY ANOTHER DECADE OF INFLATION TO BE WELL ANCHORED. PART OF THE DYNAMIC AND MARKETS IS THAT WE HAVE ALL BEEN PAVLOVIAN TRAINED TO EXPECT STOCKS TO RALLY WHEN THE FED CUTS RATE. TO THE EXTENT THAT WE TAKE THAT AWAY, YOU ARE ACTUALLY DOING A SERVICE AND ALLOWING THE FUNDAMENTALS. TOM: WHAT HAPPENED TO PAVLOV? HE WAS CHIEF MARKET STRATEGIST AT JP MORGAN? [LAUGHTER] JUST OUTSTANDING.
JONATHAN: JULIAN EMANUEL, THANK YOU, OF EVERCORE. OUR CONVERSATION GOT DERAILED OF THE END, TOM. TOM: I CAN'T SAY ENOUGH ABOUT THE VALUE OF A MANUAL, -- EMMANUEL. IT'S A CRAZY SEASON, AS MCDONALD'S JUST STATED, WITH HUGE CHALLENGES AHEAD. BUT WE HAVE TO BE CLEAR AMID THE GLOOM.
VERY CONSTRUCTIVE STORIES AROUND PEOPLE THAT AREN'T INVOLVED WITH REVENUE FROM THE MIDDLE CLASS. JONATHAN: THEY SPEAK TO A BIGGER PICTURE, THOUGH. IT'S ABOUT HOW MUCH MORE PEOPLE HAVE TO SPEND ON GAS AND. TOM: ABSOLUTELY. THE UNIT COUNT IS UP. JONATHAN:
YES, BUT THE MARGIN MIND ISN'T BECAUSE OF THE PRODUCT MIX ULTIMATELY SHIFTING. I JUST DON'T KNOW WHY WE ARE SURPRISED BY THIS. SEEMINGLY WE ARE BECAUSE THE STOCK IS DOWN AND I HAVE ASKED THAT QUESTION ABOUT RETAILERS WERE ONLY. WE ARE TOLD A LOT OF TIMES THAT
THIS IS CHRIST AND THEN THE BAD NEWS COMES DOWN AND IT'S NOT. IT'S JUST NOT. TOM: ALWAYS THE WAY IT IS. FAILING AT OUR JOB. JONATHAN: LATER WITHOUT A BET, MICROSOFT ON DECK. LISA: ESPECIALLY WITH THE HEADWINDS
THAT MICROSOFT TALKING ABOUT OUR LASTING. TO ME THE FACT THAT THEY BROUGHT DOWN THEIR FORECAST REVENUE FOR 2023 TELLS YOU SO MUCH. IT'S NOT JUST FOR THE REST OF THE YEAR, THEY SEE IT PERSISTING. HOW MUCH OF THIS IS A HANGOVER OF SUPPLY INVENTORY VERSUS PERSISTENT HEADWINDS IN WHERE THEY ARE GETTING THEIR MARGINS. JONATHAN: WHEN JULIAN THREW SOME GOOD NEWS THAT YOU? WHAT WAS THAT LINE? [LAUGHTER] LISA: I'M SURE HE'S CRYING. HE WAS BRILLIANT. HAD SUCH GOOD COMMENTS. LOVED IT. TOM:
LET ME TELL YOU SOMETHING. JONATHAN: FUTURES ARE DOWN 4/10 OF 1%. FROM NEW YORK. ♪ LEIGH-ANN: KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE WORLD WITH FIRST WORD NEWS. THE EUROPEAN UNION AGREED TO REDUCE NATURAL GAS USED BY 15% THROUGH NEXT WINTER COMING AT THE PROSPECT OF A FULL CUT OFF FROM RUSSIAN SUPPLY GROWING INCREASINGLY LIKELY AT THE EU MEETING IN BRUSSELS GIVING THE GREEN LIGHT TO A PROPOSAL TO VOLUNTARILY CUT ASK USAGE OVER THE NEXT FEW MONTHS AND THE BRITISH ECONOMY WASN'T FOCUSED ON THAT FIRST HEAD-TO-HEAD DEBATE BETWEEN THE CANDIDATES BATTLING TO REPLACE BORIS JOHNSON. THAT'S THE TAX CUTS MIGHT
INCREASE INFLATION AND INTEREST RATES BUT THE OTHER SAID THAT PLANS WOULD DRIVE THE ECONOMY INTO RECESSION. URGING THE U.S. SUPREME COURT TO CONFIRM AFFIRMATIVE ACTION AND COLLEGE ADMISSIONS, UNIVERSITY FILING A BRIEF AND ONE OF THE MOST HIGHLY ANTICIPATED UPCOMING CASES, ARGUING THAT AFFIRMATIVE ACTION IS NECESSARY TO ENSURE A STUDENT BODY WITH RACIAL PREFERENCES AROUND HARVARD AND THE UNIVERSITY OF NORTH CAROLINA. THE UNITED PARCEL SERVICE HAS REPORTED SECOND-QUARTER PROFITS AND REVENUES BEATING EXPECTATIONS, REAFFIRMING THEIR OUTLOOK FOR THE FULL YEAR. UPS INCREASING PRICES AND A FOCUS ON THEIR MOST LUCRATIVE CUSTOMERS, SQUEEZING OUT INEFFICIENCIES, EVEN THOUGH PACKAGE VOLUMES FELL. SHARES OF 3M OUR HIGHEST TODAY, ANNOUNCING PLANS TO SPINOFF OFF THE HEALTH CARE BUSINESS AND RETAIN A 20% STAKE WHILE THEY WILL REMAIN FOCUSED ON MATERIAL SIGNS THAT THEY HAVE A PROFIT OUTLOOK FOR THE YEAR. >> WE ARE GOING TO SEE PARTS OF THE CORPORATE SECTOR WITH PARTS OF THE SHADOW BANK SYSTEM GOING BACK.
YOU WILL SEE THIS SYSTEM THAT'S PARTLY FRAGILE. THE TRIGGER FOR FINANCIAL DISTRESS IS GOING TO BE RECESSION AND RECESSION THAT IS NOT MILD OR SHALLOW BUT SEVERE AND RETRACTED. JONATHAN: I WILL HAVE A TOM IS HAVING. TOM: IT WAS SOMETHING, YESTERDAY.
AS LISA SAID, GOING FROM ONE TO THE OTHER, THAT'S HOW WE INVENTED THE SHOW, THAT'S WHAT IT IS ABOUT. JONATHAN: A PICTURE OF THE BOND MARKET FOR YOU, 10 YEAR, THE EURO, WITH SO MUCH WEAKNESS. 8/10 OF 1%. BACK TO A ONE HAND AND I WILL JUST TALK ABOUT IT MORE LATER. TOM: BUT I THINK THAT THIS IS IMPORTANT, THERE IS A WEIGHT TO THE EURO BUT WHAT WE HAVE NOT TALKED ABOUT ENOUGH IS ONCE AGAIN THE GERMAN YIELD UPFRONT OF THE U.S. MOVE, SORRY. THERE IS A COMPRESSION HERE OF DEVELOPED COUNTRY YIELD CURVE.
JONATHAN: PROLIFIC AT GAS PRICES THROUGH THE 24TH. WE DON'T KNOW WHAT THE SUPPLY FROM RUSSIA WILL LOOK LIKE BUT WE KNOW THAT EUROPEANS WILL BE TRYING TO CUT BACK ON CONSUMPTION WITH GROWTH ADJUSTING, COMING LOWER. THAT'S A WEAKER EURO. TOM: ONE THING THAT IS PARTICULARLY CERTAIN, THEY ARE YOUNGER, NOT IN AMERICA. THERE'S A PRESIDENT WHO IF HE RAN IN THE SECOND TIME WOULD BE IN THE VICINITY OF 82 AND TRUMP WOULD BE IN THE VICINITY OF 80, SOMEWHERE OUT THERE IN A SECOND TERM. JOE MATHIEU UNDERSTANDS. THEY ARE OLDER, HE IS YOUNGER, LOOKING AT YOUNGER REPUBLICAN CANDIDATES RIGHT NOW. JOE, SOMETHING THAT WE DON'T
TALK ABOUT ENOUGH, HEAT OF AUGUST, A BACK STORY TO THE MIDTERMS AS WELL. HOW JOCKEY AROUND THE FORMER PRESIDENT? THERE WE -- JOE: THEY ARE WAITING FOR STARTERS HERE WITH A CHALLENGE ON THE POLLING DATA. YOU MIGHT SEE MORE POTENTIAL CANDIDATES FEELING BOLD, LIKE RON DESANTIS. IS HE REALLY GOING TO WAIT
FOREVER TO HEAR FROM DONALD TRUMP WITH AN APPROVAL RATING IN THE LOW 40'S? THAT'S WHERE THE FORMER PRESIDENT STANDS AS HE ARRIVES IN WASHINGTON TODAY. SPEECH AND 3:00 -- AT 3:00, BIG RETURN. ANOTHER GUY AM WATCHING, MIKE PENCE.
SUPPOSED TO TALK LAST NIGHT, DIDN'T GET IN LAST NIGHT BECAUSE OF THE SEVERE WEATHER. HE WILL BE SPEAKING IN WASHINGTON AT A SEPARATE. YOU KNOW THE TRUMP ACT. WE HEAR HIS ONCE A WEEK AND SPENT. WHAT IS ACT GOING TO DO? -- WHAT IS THE PENCE ACT GOING TO BE? TOM: YOU TURNED TO ME AND SAID TOM, YOU DON'T UNDERSTAND, THE CITY IS ALL ABOUT MONEY. CAN THE REPUBLICAN CANDIDATES RAISE MONEY BUT A WAY FOR THE FORMER PRESIDENT? JOE: YEAH, THAT'S A LOT OF CHEESEBURGERS BUT YES, I GUESS YOU CAN. YOU CAN START TO RAISE MONEY, RON DESANTIS CERTAINLY IS. YOU SEE THE FOLKS KICKING OUT
THE EMAILS YOU ANNOUNCED YOUR CANDIDACY, THAT CHANGES THE RULES. A LOT OF FOLKS ARE PUSHING HOPES TO MAKE IT DECISION. HE WOULD ONLY BENEFITS I WAITING. -- MY WAITING.
$103 MILLION IN THE POLITICAL ACTION COMMITTEE. HE ANNOUNCED IT WOULD BE THE SAME FOR THE OTHERS. LISA: WHEN WE TAKE A LOOK AT THE ECONOMIC ISSUES FACING THE UNITED STATES RIGHT NOW, PEOPLE ARE LOOKING AT A BROAD-BASED MESSAGING, AND HOW THE FED IS GOING TO PLAY A ROLE IN SOME OF THE PARTISAN DISCUSSION GIVEN THAT RIGHT NOW THE FED HAS A CHANCE AT TORPEDOING GROWTH AND CAUSING UNEMPLOYMENT TO RISE.
WILL IT BECOME THE WHIPPING POST OR SOMETHING THAT IS A NEUTRAL PLAYER DOING WHAT NEEDS TO HAPPEN TO CURTAIL INFLATION? JOE: IN THE CENTER OF THE CONVERSATION ALREADY. THEY SUPPORT WHAT'S GOING ON. THE WHITE HOUSE SIMPLY HERS TO THE FED AND PUTS THEM IN AN AWKWARD SITUATION. DOING EVERYTHING THEY CAN TO FIGHT INFLATION. THEY WANT TO KNOW MORE ABOUT ALL -- THAT CALL AROUND THE INDEPENDENT FED AND IT DEPENDS ON WHAT PARTY YOU ARE TALKING ABOUT AND WHERE WE END UP IN THE FALL.
THE FED COULD LOOK HEROIC IF THEY PULL OFF A SOFT LANDING AND THE TIGHTENING PULLS BACK A LITTLE BIT. ASIDE WITH THE MIDTERMS. -- IT COULD COINCIDE WITH THE MIDTERMS. JONATHAN: GAS PRICES, STILL FALLING.
EVERY SINGLE DAY SINCE THE MIDDLE OF JUNE IN THE RIGHT DIRECTION FOR THIS ADMINISTRATION. DOWN ENOUGH. -- IT MAY NOT BE KNOCKED DOWN ENOUGH. LISA: THIS ADMINISTRATION HAS PINNED THE MESSAGE OF BRINGING DOWN GAS PRICES AS ANALYSTS HAVE POINTED OUT. THERE ARE EXTENUATING CIRCUMSTANCES THAT COULD CAUSE GAS PRICES TO RISE AND ARE OUT OF CONTROL. HOW MUCH COULD THIS BE A MESSAGE THAT STICKS WITH GAS PRICES GOING LOWER? JONATHAN: THE FED MEETING STARTS TOMORROW AND WE WILL HAVE SPECIAL COVERAGE FOR YOU. GREAT LINEUP, LOOKING FORWARD TO CATCHING UP WITH MOHAMED EL-ERIAN. TOM: THAT'S A STELLAR GROUP WE ARE
GOING TO HAVE ON THE MEETING AND OF COURSE THE PRESS CONFERENCE, MICHAEL MCKEE WILL BE THERE. IN THE HEAT OF THIS EARNINGS SEASON CAN WE NOTE THAT MCDONALD'S HAS ABSOLUTELY CRATERED OFF THE HIGHS FROM THE BEGINNING OF THE YEAR? THEY DUMPED 7%. THE RESILIENCY OF THE MODEL, I WAS LOOKING AT WALMART EARLIER WITH 3%, THREE CENTS ON THE DOLLAR AT WALMART, EVEN WITH THE LINEUP ON THE INCOME STATEMENT THEY ONLY MAKE SIX CENTS ON THE DOLLAR. MCDONALD'S MAKES $.31 ON THE
DOLLAR IN FRANCHISES. YOU THINK THESE COMPANIES AREN'T COMPARABLE? JONATHAN: I'M NOT TRYING TO COMPARE THEM. TOM: NO BUT A LOT OF PEOPLE ARE. PEOPLE BUNDLE THEM IN AS
CONSUMER COMPANIES AND SELLING CHEESEBURGERS. A VALUE MEAL. IT'S A PROFIT MACHINE COMPARED TO MORE WALMART. -- WALMART. JONATHAN: THEY HAVE A PROFIT MIX AROUND CONSUMERS AND THE PANDEMIC WHERE THE CYCLE IS MOVING FAST. I WOULD THROW IN THERE. IT'S IN THE SAME. FACING THE SAME CHALLENGE. IN THE MIDDLE OF AUGUST, I WONDER IF WALMART HAS COME OUT IN THE MIDDLE OF AUGUST LISA:.
HOW MANY TIMES -- AUGUST. LISA: HOW DO WE GET A SENSE OF THIS IS AN IDIOSYNCRATIC EXECUTION ISSUE VERSUS A BROADER BASED DIFFICULTY ENGAGING CONSUMER IS BEING SQUEEZED IN A SIGNIFICANT WAY? JONATHAN: I THINK IT IS VERY DIFFICULT AND IF THE C-SUITE CANNOT FORECAST IT, HOW DO WE EXPECT THE FEDERAL RESERVE TO FORECAST WHERE THE ECONOMY IS GOING. DIFFICULT. THE FUTURE IS DOWN 4%.
FIVE TENDS TO SIX TENSE OF 1%. THE EURO IS WEAKER. -- FIVE TENTS TO 6 -- 5/10 TO 6/10 OF 1%. THE EURO IS WEAKER. THIS IS BLOOMBERG.
JONATHAN: THE LATEST RALLY IS FULL OF WISHFUL THINKING. WE STILL NEED A FORECAST RESET. LISA IS GOING TO GO THROUGH THOSE NUMBERS FOR YOU IN JUST A MOMENT. THE NASDAQ 100 DOWN A HALF OF 1% AFTER THE CLOSE A LITTLE BIT LATER. THOSE BIG TECH EARNINGS KEEP COMING THROUGH. IN THE BOND MARKET, A LITTLE BIT MORE CURVE INVERSION FOR YOU. YIELD DOWN THREE BASIS POINTS. SOMEONE BETWEEN 20 AND 25 BASIS POINTS, MAYBE THAT GETS A WHOLE LOT WORSE IF WE TRY TO STOP WHAT IS HAPPENING IN GERMANY.
LET'S TAKE A LOOK AT THE EURO. EURO-DOLLAR ROLLING OVER. NEGATIVE EIGHT TENS OF 1%. TOM, WHERE DO YOU WANT TO BEGIN? THE E.U. NATION HAS TO COME TO SOME KIND OF AGREEMENT. ON THE RUSSIAN SIDE OF THINGS, WE DON'T KNOW HOW MUCH RUSSIAN GAS WE ARE ACTUALLY GOING TO GET. TOM: OVERCOME BY EVENTS, THAT IS
WHAT THE TAPE LOOKS LIKE TO ME. COMMODITIES PARTICULARLY IN CURRENCY WITH THE DEPTH OF MARKET. THESE ARE JUST BARELY GETTING GOING. WE ARE TRYING TO GET OUT FRONT, AND THE BELLWETHER TO ME IS AGAINST EUROPE. JONATHAN: LET'S HOPE. ONE DAY STRIKE. WE ARE GOING TO SEE A LOT OF THIS IN EUROPE THIS SUMMER, AREN'T WE? TOM: STRIKING IS A HUGE DEAL.
I BELIEVE UPS HELD OVER HERE. JONATHAN: STUCK IN THE AIRPORT FOR THE BETTER PART OF EIGHT HOURS BEFORE AND THEY SENT ME A MESSAGE AND SAID WE HOPE YOU'VE ENJOYED YOUR TIME IN THE AIRPORT. TOM: THE ONLY ONE I KNOW WHO HAS SPENT MORE TIME THAN YOU AND ME IN AN AIRPORT, COMBO. BRAMO. LISA: WE CAN TALKING ALL MORNING
ABOUT WALMART. DOWN ALMOST 10% AHEAD OF THE OPEN HERE AFTER DOWNGRADING THE FORECAST FOR EARNINGS. THE REMAINDER OF THIS YEAR AND NEXT YEAR, THESE MARGIN PRESSURES ARE SET TO CONTINUE.
PERHAPS THIS IS AN EXECUTION ISSUE AND THAT PEOPLE ARE BUYING FOOD WITH THE MARGINS ARE SMALLER, BUT THERE ALSO IS A BROADER STORY YOU ARE SEEING THROUGHOUT THE ENTIRE RETAIL COMPLEX AMAZON REPORTING EARNINGS ON THURSDAY, SHARES DOWN 3.5%. HOW MUCH ARE THE SAME STORIES REALLY EXEMPLIFIED IN AMAZON'S EARNINGS THAT WE SEE IN WALMART? DO WE SEE THEM DOUBLE DOWN ON TRYING TO DREDGE THE EXPANSIONS? FEWER PACKAGES THAN EXPECTED. SHOPIFY ALSO DOWN ALMOST 5% AFTER CITIGROUP CUT THEIR PRICE TARGET FOR THE SHARES. THERE IS A BIG DISTINCTION BETWEEN THOSE THAT CAN RAISE PRICES AND THOSE THAT CAN'T. THOSE THAT CAN INCLUDE COCA-COLA AND MCDONALD'S. COCA-COLA SHARES UP NEARLY 1% AFTER REPORTING EARNINGS HERE THAN EXPECTED.
THEY HAVE A PRETTY BLEAK OUTLOOK BECAUSE OF THE HEALTH CARE UNIT, AT LEAST FOR NOW. I DO WONDER, SOME OF THE MARGIN PRESSURES, I WONDER WHEN THAT IS GOING TO COME BACK INTO PLAY. TOM: THERE'S NO OTHER WAY TO PUT IT. I WANT TO DO ONE TOTAL RETURN HERE. THIS IS A GOOD LEAD-IN. IN THE LAST 10 YEARS, MCDONALD'S IS UP 14% PER YEAR, WHERE WALMART UNDERPERFORMS BY 600 BASIS POINTS, UP 8% PER YEAR. EVERY STOCK IS ABOUT THE SAME AND EVERY SECTOR IS NOT THE SAME.
I'M GOING TO GO OUT ON A LIMB AND SAY SECTOR ANALYSIS AND SECTOR CHOICE IN THE NEXT 12 MONTHS IS ABSOLUTELY CRITICAL. WHICH SECTORS WILL WIN? >> IT IS A BIG CHANGE TO THE LAST CYCLE. I THINK MOST PSYCHOS WENT UP TOGETHER. I THINK YOU HAD A GOOD RETURN. I THINK WE ALL KNOW THE MARKET IS INCREDIBLY BEARISH, ESPECIALLY INDUSTRIALS.
YOU SHOULD CONSIDER NEW ORDERS. IF YOU ARE ASKING ABOUT THE NEXT 12 MONTHS, ONE PROBABLY NEEDS TO START THINKING ABOUT EXPOSURE, BUT CLEARLY RIGHT NOW, THAT SEEMS TOO EARLY BECAUSE WE ARE IN THIS VERY WEIRD BEARISHNESS. WE ARE STILL SEEING A LOT OF NEGATIVE SURPRISES, SO IT IS A BIT TOO EARLY. TOM: I'M NOT GOING TO MINCE WORDS BECAUSE THERE IS NOBODY ON GLOBAL WALL STREET WATCHING THE SHOW. I LOOK AT THE TENURE TRACK RECORD AND IT IS AN OUTRAGE OF SHAREHOLDER REPRESENTATION. DO AND GOLDMAN SACHS IN LONDON,
DO YOU SKEW TO A U.S. COMPANY SELECTION, OR CAN YOU BUY EUROPE? >> LISTEN, I THINK YOU SAID IT ALREADY. EUROPE HAD A TOUGH LAST CYCLE, THERE WERE A LOT OF HEADWINDS THERE. GENERALLY IN A WORLD OF LOWER INFLATION, EUROPE HAS SUFFERED.
THE PROBLEM NOW, YOU HAVE SHIFTED TO A WORLD OF HIRED RATION. SADLY, A LOT ABOUT HIGHER INFLATION IS BECAUSE ENERGY IN EUROPE IS IT REALLY HARD AND YOU MENTIONED EARLIER, THE GAS ISSUE IS NOT GONE IN INVESTORS' MINDS AND ALSO FOR US. TO ME, IT FEELS LIKE FOR INVESTORS, THEY HAVE TO BE VERY SELECTIVE IN EUROPE. THEY HAVE TO LOOK AT BUSINESS MODEL THAT ARE NOT NECESSARILY -- EVERYTHING IS INTERLINKED.
THE FOCUS ON INFRASTRUCTURE AS AN AREA IN EUROPE. LISA: IT SOUNDS LIKE YOU THINK THE DOLLAR IS GOING TO REMAIN STRONG BASED ON THAT OUTLOOK FOR YOUR REGION. HOW DOES THAT FACTOR INTO WHERE WE SEE EARNINGS ESTIMATES, ESPECIALLY AS WE SEE THE HEADWINDS THAT THE LIKES OF COCA-COLA ARE PUTTING OUT THERE IN TERMS OF THE BILLIONS OF DOLLARS? CHRISTIAN: DON'T FORGET, EUROPE IS NOT IN A MUCH BETTER SPOT. IT IS THE FIRST BIG MIST IN THE EUROPEAN EARNINGS SEASON SINCE THE COVID CRISIS. ONE THIRD OF THE COMPANY MISSED
BY A SIGNIFICANT AMOUNT WHICH IS THE LAST TIME IT HAPPENED DURING THE EURO AREA CRISIS. THAT IS WHY MAYBE IT DOESN'T GET AS MUCH PRESS COVERAGE. BUT THE EUROPEAN EARNINGS SEASON IS STARTING AS WELL. LISA: GIVEN ALL OF THE CONCERN OUT THERE, WHAT DO YOU DO AS A PORTFOLIO MANAGER? DO YOU HOLD A LOT MORE CASH AND HOPE FOR SOME SORT OF AVERSION, OR DO YOU GO WHOLE HOG INTO U.S. EQUITIES AND SAY THAT THEY ARE THE BEST INFLATION HEDGE OUT THERE? CHRISTIAN: IT IS VERY VULNERABLE TO RISING INFLATION AND THE MARKET PRICING VALUATIONS, NOW YOU ARE GOING BACK TO A BIT MORE OF THE TREND THAT WE KNOW WELL, WHICH IS RECESSION RISK AND WEAKER GROWTH. THE MARKET HAS SHIFTED COMPLETELY AWAY FROM INFLATION CONCERNS.
I THINK THEN THE BOND MARKET CAN HELP YOU, AND IT HAS ALREADY HELP YOU LOTS. WE'VE UPGRADED TO NEUTRAL KIND OF A MONTH OR SO AGO, BUT IT WAS REMARKABLE HOW QUICK THAT RALLY WAS. I THINK THE MARKET HAS SHIFTED A LOT TO BAD NEWS AGAIN. CENTRAL BANKS WILL PIVOT TO GET THE DATA IS SO BAD. NOW, WE ARE GETTING QUITE
VULNERABLE FROM TWO PERSPECTIVES. FIRST OF ALL, THE BONDS ARE NOT SUFFICIENT ANYMORE BECAUSE THE YIELDS HAVE DECLINED SO MUCH NOW. THE SECOND ISSUE IS MAYBE THE CENTRAL BANK WON'T RESPOND AS QUICKLY BECAUSE INFLATION IS QUITE HIGH. TO LOOK AT OPTION OVERLAYS, TO LOOK AT DEFENSIVE POSITIONING WITHIN ASSETS NOW. JONATHAN: THANK YOU. THE FINAL POINT THAT CHRISTIAN IS MAKING, WE THOUGHT THIS SUMMER WE HAD SHIFTED AND ULTIMATELY WHAT THAT MEANT, WE THOUGHT WE HAD CAPPED BECAUSE ANY EASING OF FINANCIAL CONDITIONS WOULD BE CONSIDERED AN UNDESIRABLE ONE.
ULTIMATELY, BRING DOWN INFLATION. THEY HAVE EASED A LOT, PARTICULARLY HIGH-YIELD CREDIT SPREADS. 90 BASIS POINTS OR SO TIGHTER OVER THE LAST FEW WEEKS. LISA: ONE OF THE BIGGEST RALLIES AND HIGH-YIELD BONDS FOR THE MONTH GOING BACK TO THE PEAK OF 2020 WHEN THE FED WAS JUMPING IN WITH THE RESCUE PROGRAM DURING THE PANDEMIC. HOW MUCH DOES THE FED'S DISCUSSION AFTER THE MEETING TOMORROW REALLY HINGE ON TRYING TO READ TIGHTEN OF THOSE CONDITIONS, PUSHING BACK ON HOW QUICKLY THEY WILL REVERSE POSITIONING GOING BACK TO CUTTING? AND IF THEY DON'T, HOW BIG OF A DISRUPTION COULD YOU SEE NATALIE BONDS, BUT ALSO IN STOCKS AS PEOPLE RETRACE THE FED'S REACTION FUNCTION? JONATHAN: WOULD YOU LIKE THE MARKET'S THINGS? LISA: I THINK I KNOW IT. JONATHAN: HE SAID WITH THE PIQUANT AND THEN PRESSING LIGHTLY BEHIND US, MARKET VOLATILITY SHOULD ALSO BE BEHIND US.
HE IS STILL BULLISH. WHAT DO YOU MAKE OF THAT TERM? TOM: I WOULD SAY 44% OF OUR AUDIENCE'S HEADS ARE SPINNING ON RADIO AND TELEVISION. THE GAP HERE IS SO WIDE. AN UPPER RANGE OF A TERMINAL OF 5%. THAT IS UNIMAGINABLE. THERE IS NO OTHER WAY TO PUT IT. JONATHAN: TRYING TO GET VISIBILITY ON THIS ECONOMY, WE WILL DO THAT SHORTLY. LOOKING FORWARD TO THE
CONVERSATION. THE FUTURES DOWN A THIRD OF 1%. HEARD ON RADIO, SEEN ON TV, THIS IS BLOOMBERG SURVEILLANCE. >> KEEPING YOU UP-TO-DATE WITH NEWS FROM AROUND THE WORLD WITH THE FIRST WORD NEWS, THE EUROPEAN UNION IS PREPARING FOR THE POSSIBILITY OF A FULL CUTOFF OF RUSSIAN ENERGY SURPRISE. -- SUPPLIES. DWINDLING GAS FLOWS BY RUSSIA. SUPPLIES TO THE NORD STREAM PIPELINE ARE SET TO DROP TO AROUND 20% OF CAPACITY.
NOW, FORMER PRESIDENT DONALD TRUMP RETURNS TO WASHINGTON TODAY FOR THE FIRST TIME SINCE LEAVING OFFICE. HE WILL MAKE A SPEECH TO A THINK TANK ON AN AGENDA FOR A POSSIBLE SECOND TERM AND FOCUS ON PUBLIC SAFETY. THE JANUARY 6 COMMITTEE HAS BEEN DETAILING HIS ATTEMPT TO REMAIN IN POWER AND HIS REFUSAL TO CALL OFF A VIOLENT MOB OF HIS OWN SUPPORTERS. LAWMAKERS ARE TO VOTE ON THE AMERICAN INNOVATION AND CHOICE ACT BEFORE MIDTERM ELECTIONS.
THE MEASURE WOULD SLOW DOWN OUT FOR THAT, GOOGLE, APPLE, AND FACEBOOK. SEMICONDUCTOR SHORTAGES -- MAINTAIN THE FULL YEAR WHICH REFLECTS THE ROBUST DEMAND AND SIGNALS OPTIMISM THAT CAN GET THE CHIPS IT NEEDS. GLOBAL NEWS 24 HOURS A DAY ON AIR AND ON BLOOMBERG QUICKTAKE. POWERED BY MORE THAN 2700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES. THIS IS BLOOMBERG. ♪ >> I THINK THAT JUNE 16 WHEN WE SLOW DOWN TO 3666 ON A CLOSING BASIS, WE HAVE SEEN COMMODITY PRICES COMING DOWN AND WE HAVE SEEN THE SLOWING IN THE ECONOMY WHICH I THINK WILL HELP TO MODERATE INFLATION. JONATHAN:
THAT WAS THE GREAT ED YARDENI, FUTURES ON THE S&P NEGATIVE ONE THIRD OF 1%. A LOT OF TALK ABOUT WALMART COMING DOWN, A PICK UP ON THAT STORY IN JUST A MOMENT. A L
2022-08-01