'Bloomberg The Open' Full Show (01/09//2022)
Live from New York City this morning. Good morning. Good morning. Trying to build on the gains of Friday, equity futures up four tenths of one percent.
The countdown to the open starts right now. Everything you need to get set for the start of us trading. This is Bloomberg, the open with Jonathan Ferro. Live from New York City. We begin with a big issue. What a wake. Goldman Sachs sets a cap. Thirty two hundred jobs ahead of earnings.
Champ House set to react to self to wage growth with the latest CPI rate just around the corner. We're watching the data payrolls for the CPI data. You're Powell. I was just going to reinforce this idea that they're slowing down now. Now we're debating are they going to go 25 is a difficult balance for power in the month ahead. In the months ahead is going to be to
try to continue on this path of moderation that they're very concerned of being the Fed, that that pause too early to stops. Market report does have the signs of being a soft landing. The point they really want to get to a level that squeezes the life out of the lagging indicators of inflation. That's exactly what they're after. You have to take this fed at its word that if they don't see improvement or persistent improvement, that can go a bit further. It comes down to the economic data. You can't write off another 50. You have a setup for the Fed to over tighten monetary policy.
Joining us now to discuss this BlackRock Mountain Watch and Chris Madani of Lafayette College. To the both of you, thanks for being with us. And before we look forward, let's look back just a little bit to Friday. Can you tell me what's more important, that labor market report that came out of a 30 or the ISE Sam, that came out 90 minutes later? Well, I think that both that both important and the both suggesting very different things about the economy of the labor market report overall was generally pretty positive, although obviously the markets also took well to the fact that we are hourly earnings down weakening. But overall, I think the labor market data still showed a pretty robust economy.
On the other hand, opposite the ESM was pretty negative in terms of the overall path of the economy and economic activity. I think really the key, though, is going to be this week in terms of the inflation data, in terms of CPI. I think the Fed, along with other central banks, is still very much focused on inflation. I think February is going to be a live meeting for the first. And I think really that the CPI data is something that above anything else, the Fed is really going to be concentrating on this week.
And when you say life, what does that mean, that they could get 25 or 50 or not at all? Yes, I think the debate is probably between 50 and 25. I think the bar would be incredibly high for the Fed to not move at all. I think they've they've continued to really indicate that they're going to continue to hike rates until they feel that they're at this restrictive level, that they've got inflation on a path, on a trajectory that's definitely going to come down to a sustainable lower level.
So I think it's really is between probably 25 and 50 unless we have a really, really outsized event in terms of the CPI data this week. Chris, the Chairman Powell speaks tomorrow morning. On the one hand, I've got to ask the question, which one is it? On the one hand, right now, the survey data sets things apart. On the other hand, you look at the labor market report and Haidi Lun payrolls say things are pretty decent. Christian, which one is it? Well, the Fed has been pretty clear about this for quite some time. That is what they are focused on singularly is really the labor market data. And if the rest of the economy slows and
labor market remains tight, they have already told us that they are going to continue to retain. So I think I don't expect your party to say anything new anytime soon. And he may actually take the opportunity to reinforce the point that he has been making over the last last few last few quarters. The odd quirk of the labor market report on Friday, Christina, was that wages softened and unemployment fell to three point five percent. And I guess I've got to watch it,
Christina. How sustainable you think that is. Can wages continue to decelerate without unemployment rising? Well, I think they can, and I think if you look at the kind of the under the hood, there are some really good data points to point out that that may actually come about without significant rise in the unemployment rate. You know, but temporary workers hours work. All of those are simply pointing out that while people are not letting their workers go, they're cutting down the amount of amount of output that they're getting out of those workers. So I think employment data, probably our
employment number perhaps is the lagging indicator in this labor report. Marilyn, do you agree with that assessment? Yes, I think I think it is a lagging indicator. I also think that there are some very structural issues still in the labor market as a result of Covid. So when you look at the trajectory that
you would have had in terms of people employed in areas such as health care and other services, there's a massive deficit that compared to the number of people employed in those sectors now. So I do think they have some support in areas that have been negatively, negatively impacted by Covid. And I do think that also overall it is a lagging indicator as well. So I think you can see that the unemployment rate maybe rise a little bit, but I think it's going to remain relatively supported for some time.
Twenty five minutes away from the opening bell. Equity futures right now positive, a half of 1 percent. The path for the rest of this week, pretty clear. We have Chairman Pound tomorrow morning. You have CPI on Thursday and J.P. Morgan earnings coming up on Friday. Might NIKKEI chairman pound tomorrow morning? What you're looking for, not a whole lot. It is not a event where he would be
talking about the economy. It's on central bank independence and a panel discussion with a bunch of other central bankers. But here's the story going into it when you look at what happened on Friday.
You brought this up at the top of the show and you asked the question of what is it? What does it mean? We saw jobs and we saw the ESM report hitting the two year note yield. Which one is more important? Are jobs telling us inflation's going to go away faster or is, I assume telling us we're going to have recession? That's the question all over Wall Street. And as you mentioned, Jay Powell speaking tomorrow probably is not going to give us a real answer at this point. However, Thursday we get CPI. That'll be that sort of the marker for Wall Street on what we get a 25 or 50 on February 1st. Friday, Michigan inflation expectations. I call that a half of a half of a number half of a data point because that has mattered to the markets in the past. But other than that, not much going on
this week. Now, the real debate is about whether the Fed is going to go too far or not. And that'll play into the decision for February 1st. Remember this quote from the minutes last month, An unwarranted easing in financial conditions would complicate the committee's effort to restore price stability.
Well, you take a look at this. We are seeing an easing in financial conditions. And we saw that most definitely with the two year note. You know, this is the Bloomberg issue.
When you get up to zero, we get up to the red line there. That's starts to get into completely easy conditions. That's not what the Fed wants to see. So expect if he has a chance. Jay Powell does sound a bit hawkish, but expect other Fed officials talking this week and next to sound hawkish as well. I might. Thank you. Just a monster rally into the front end
of the bond market on Friday. The 2 year old dropping by more than 20 basis points off the back of that, softer than expected die, Sam. This is what cities got to say about it. Andrew Holland Hall says this We
continue to think Fed concern about loosening financial conditions and it's tightening. Labor markets imply unappreciated hawkish risk, including a 50 basis point hike at the start of February. This is even more the case after a dramatic decline in Treasury yields last Friday. Chris, don't you agree with that? Yes, Lou, hardly. I think if you think about it, if the
Fed wanted to reinforce its message to the market, this was really a perfect opportunity for them to do that. Whether it is 25 basis points or 50 basis points from the impact on the economy, it really doesn't matter that much. But from a signaling standpoint, it'll matter a great deal. Basically, what they would tell the market is they are on the case. They will remain on the case. And we are not there yet. And don't expect us to get that anytime soon. We're going to ask ourself not just what
Chairman Power is going to say mountain, but how much weight those words carry. Do you think they've lost a little bit of weight over the last few months? I don't know that the bonuses are lost in the way of things that they've been very consistent. How we've been consistent in reinforcing that they really want to get to a point where the above probably the neutral rate, whether it may be in the sector territory and where they do feel that inflation is on a sustainable low path. And so I don't think they have lost the
weight. I think that they're really signaling that they're willing to do as much as it takes and that now isn't yet the time to start suggesting that they're going to pause or even start cutting into. Maybe the market is a bit premature in actually predicting that the Fed might even start to cut this year. I think that's not necessarily IBEX. This equity market on Friday thirty eight ninety five at a close on the S&P 500 might worsen. Morgan Stanley says steady nine hundred
eighty s this is what he had to say to start the week with both Salim by side consensus so aligned that look for a dip for the first half and a rep and a second half. F1 is starting to wonder how this view could be wrong. We think it's in the magnitude of the move lower. Let find much weaker earnings and a fed
committed to fighting inflation. Mike Wilson says that 900 is an easy sale. Chris Money, I have to say, reading through your notes. You think the real pain trade here is an equity market? It could get back to 40 500. Can you weigh those two risk for me? Sure.
So I think, Mike, to some extent it may be right. That is we are still very much in the trading range with respect to what the Fed is articulating as to their path forward. Having said that, given their positioning is and if we get a few favorable data coming through over the next few quarters, the market is certainly not positioned for a 40 500 by mid-year. And I think that's why it would be the ultimate pain trend for the market at the moment. That's the equity side of the story. Let's talk about the bond market side of the story.
Marilyn lining up to buy fixed income in 2023. Almost every single investor I've spoken to. Martin, what's the risk that yields actually go against that view? Well, so I think we're certainly in a far better position than we have been at the beginning of last year, and I think given the massive repricing that we saw last year, fixed income I think is a relatively attractive asset class. Now, particularly, I think when you talk about risks, we like the carry and the income that you can get, particularly in. So the risk free area of the bell curve. So if you look at the front end in treasuries, when you look at little or no duration in terms of high quality investment grade and other asset classes, maybe in the Gambia market as well, then I think actually there are lots of attractive opportunities.
And the key to I think is to really understand the liquidity is to understand the risk reward dynamics, to understand the impact of the duration, and to really focus on those aspects where you can really get some very, very decent carry some decent returns. But you are looking at right to be low risk, even if you do see a change in the interest rate dynamics. And I think that's the key to really make sure that you're not overly interest rate sensitive in your portfolio. Mauldin Wasn't Christmas magic sticking with us? Looking forward to the conversation coming up in just a moment. Mike Open, a Bank of America publishing just moments ago. We did not see the pal fed as facing a new conundrum.
The Fed should worry less about markets pricing cuts in 2023. If the Fed commits itself too strongly to no cuts in 23 than it risks leaving policy too tight for too long. That was Mike Open, a BFA literally about 60 seconds ago. We'll pick up on that a little bit later. Coming up on this program, Deasy finally delivers a speaker in the House. I am now ready to take the oath of
office. I want to ask the dean of the House now, will speaker designate brings his rival? That took a while. Plus, President Biden touching down in Mexico said he will catch up with AMH over Mexico in just a moment. I'm now ready to take the oath of office. Speaker designate. Raise his right hand.
Do you solemnly swear that you will support and defend the Constitution of the United States against all enemies, foreign and domestic? Yes, I do. Congratulations and Godspeed. It took a while, Speaker McCarthy winning the gavel after a historic four day battle, the House of returning to business amid a potential hurdle over the rules package. This coming as President Biden travels to Mexico City to meet his Mexican and Canadian counterparts.
Our team coverage begins right now with AM H in Mexico City and Emily Wilkins in Washington. Emory, first to you, walk us through the president's agenda through the next couple of days. Well, Jonathan, this afternoon he's going to be joining along with First Lady Jill Biden, really just a welcoming ceremony by Onslow and then him. And we'll have the Mexican president, Andres Manuel Lopez Obrador, more closely known as Onslow. They will have their own bilateral meeting. And really the focus of this meeting, Jonathan, is going to be migration. They just struck this deal last week
that the president announced. Mexican officials are also onboard with this deal. On top of that, another big one is going to be shared. Security in the White House talks about
the fact that they are going to talk about the fentanyl crisis. Mexico, Jonathan, you can imagine, is going to point to the fact that they just got a huge arrest with El Chapo son, which the U.S. has put pressure on Mexican authorities because they consider him one of the main major traffickers when it comes to fentanyl is a huge issue in the United States with John Kirby, Admiral Kirby of the National Security Council, talking about the fact on Friday that since August they saw an increase and what the border patrols have been able to take in is twenty thousand pounds of fentanyl. On top of all that, when it comes to the drug trafficking migration, that they will talk about trade. One of the big disputes, Canada, Jonathan, and the United States have with Mexico some nationalist policies when it comes to energy. Emily, two points that the first one
missed the border. The second one was trade. The Republicans want to focus firmly on the first one on the border. Emily, how united do you think Republicans, some big in the year ahead? Well, certainly Republicans are united on some measures, we're likely to see that later today with a vote on the rules package. There have been some Republicans who have raised concerns, but at this point it is expected to pass. We're also going to see Republicans come together today. Remember that funding that Democrats
passed that gives more money to the IRS? Well, Republicans will be voting today to withdraw that money now. Of course, that's not likely to pass the Senate or get to Biden's desk. But it's going to start being things that show that Republicans are more united. I think the biggest questions looming over everyone right now. And Republicans have told me they're very aware of this are things about the debt limit. They might not be happening for a number
of months, but we've already heard lawmakers like Chip Boy come out and say we need to start working on it now. So we don't go down to the final minute. And I've had lawmakers like Patrick McHenry tell me this is really one of the most important things that Republicans need to do. So I think some things on their agenda. You're going to see a lot of unity on the question is really those big bills that are going to sort of make or break the US in the next year? I mean, is this president ready for a debt ceiling sign later this year? We've already heard from Green John Pietro, the president's press secretary, speaking to reporters on Air Force One during Biden's trip to El Paso yesterday, Jonathan, and she said that they will not allow this issue to be hostage taking. What the Republicans want is something we have to see the Democrats potentially negotiate on and something they do not want to do.
Republicans basically are saying if you want us to be able to lift the debt ceiling, then we need concessions from you when it comes to spending. And that is why this is going to be a huge fight, because the Democrats obviously have control of the Senate, but Republicans just have a very slim majority in the House. I made in Mexico City. We'll catch up with you over the next day or so. Emily Wilkins, good to have you back down in Washington, D.C.
as well. Goldman Sachs put out, I know, at the end of 2010, looking out to 23 on this very issue. And this is what they had to say. Raising the debt limit. Probably not soon. Probably not easy. Running down the roughly 500 billion dollar cash balance could finance the deficit until August, but funds could run dry as soon as July and as late as October. Back with us for a final thought is
Christine Amani and Marilyn Watson. Now, I want to come to you. I hear a lot of people say I don't care. They want to know should they care and they want to know when should they care, when it concerns the debt ceiling. So I think they should care, but whether it's in the immediate future, I think is less a thing to say, the market is still very much focused on other issues, such as inflation, the labor market. The other data that we've seen, but as
we do as the year has progressed, that as in previous years, it could become another issue that the market really focuses on. As you know, the market really focuses on one thing at a time. But I think it's certainly something that if it does look like it's going to become an issue, then it is something that market will eventually focus on. I think this year, though, overall is a very different year where the market has a lot of different things to focus on as well. When you look at China very, very rapidly opening, when you look at the energy crisis in Europe, seems to be rapidly abating as well.
There are a lot of different dynamics that also I think the market wasn't necessarily focusing on last year, that this year I think at a different tone as well. So, yes, the debt ceiling is one of many issues, but I think for the time being, it's not going to be the same. I think you now, dear, your colleague Rick Rita told me a long, long time ago.
Markets can only focus on the shock closest to the buck and the short close. Is that about right now? It's not the debt ceiling debate, but Christian, we've got division between parties within parties. And I think people are asking the question, do we face the risk of a 2011 repeat, Christina? Well, I mean, we certainly face the risk whether that is a measurable risk or not. I came to tell you from the standpoint that by by August, September, the economic outlook could be very different than what we have today. And therefore, I think the gravity of a potential to 2011 repeat would be far more acute in August than it seems today. And I think that will probably help get it through again.
There's no certainty it's politics as difficult to predict. But that's not something that I'm too worried about at the moment. So with that in mind, is that a worse outlook for the economy, but a better outlook for the market? Yes, absolutely, I think the worse, worse outlook for the economy for sure in terms of slowing from very high levels of both nominal and real growth rates. But the real question at that point would be how close are we to a potential recession? And if we go down this path of playing the playing with the largest Covid market in the world, you know, how do we want to risk tipping that into a recession that was avoidable? So let's finish on this mountain. If we get into this situation where this
risk is measurable, it's prominent and it's something we have to grapple with. Tell me how the market response to it to expect treasuries to respond, how they always respond, which is where the BET rally lower yields. Yes, so it is possible, but I think also the dynamic will really be very much I think, you know, Christopher was right when you when you think about the impact on the overall economy and depends what state the economy is in then and at the moment, the huge amount debate is whether it's going to be a soft landing.
This would be a hard landing or somewhere in between. And I think that really will make a very big difference in terms of the Fed's response. And in terms of the Treasury funds as well. So, you know, if you look at historical performance and it is likely. But I think it really is very important to look at it in the overall context of of the market and the overall economic performance. Mountain Christina, to the turf. Thank you. Marilyn Watson.
Chris, romantic to the best of fixed income and on the equity market as well. Your equity market right now, S&P 500 is up five or six tenths of one percent on the S&P. Adding to the gains of Friday, payrolls got all the credit that moves up in the bond market was all off the back of the ISE in contraction. Big move, lower drop by about seven points from the previous month. Was that just a weather or is something
worse going on here in the US economy? We moved about 20 basis points at the front end on Friday. We're down another 1 basis point on a two year today. The two year yield 423. Call it 424, if you like, on a 10 year right now, 357 63 yields high there by just a couple of basis points. So a little bit of statement coming back into a very, very inverted yield curve. Coming up the morning calls in later, I'll be advisers, dancer Su Keenan, a change in stock leadership. More on that with Dan around the open about Europe in about seven minutes away.
Starting to work our way through the trading week. Chairman Power tomorrow morning on Thursday, we get CPI data in America and on Friday is J.P. Morgan numbers going into that. Equity futures up six tenths of one percent, about four or five minutes away from the opening bell on the Nasdaq, up by seven tenths of 1 percent into the bond market. Much of this move like we saw on Friday, two year yields drop like a stone by 21 basis points off the back of an ICM services survey in negative contraction territory.
Not good news for this Federal Reserve if they're trying to avoid a hard landing. The good news was in the labor market report. Now, your outlook might depend on the data you're looking at. And at the moment, I think you can cherry pick the data and explain whatever you want about your outlook and justify it. Perhaps it's low at the front end by
basis point. That's the price DAX the bond market. Let's get some money cause Piper Sandler upgrading Oracle to overweight one to full price target, citing growth in cloud revenue and operating profits. Jeffries upgrading cure vector by 21 price targets. Seeing potential in early trials of new Covid and flu vaccines. And finally, Bank of America double upgrading Zillow to a buying from underperform, expecting new initiatives to lead to higher revenues. Up next. Looking for a change in leadership
dances. Okay, Barbie advises. Coming off the back of the biggest weekly gain on the S&P 500 since November. That was last week, the biggest weekly gain since November. Trying to build on that this morning. Good morning to you. About seconds away from the opening bell
on equity futures up by six tenths of one percent on the S&P and the Nasdaq 100, up three quarters of one percent on a rustle up by eight tenths of 1 percent. That's your opening bell, which are the four to get to the bond market monster move on Friday. Off the back of that ISE, some yields lower, much lower at the front end, trying to pass this morning on a 10 year yield by a couple of basis points to seven eighty two. The ECB signals more hikes to come. Euro Dollar reclaims 1 7 1 0 7 17 on euro told a positive that by seven tenths of 1 per cent and crew trying to run again. We'll talk about China and reopening with them, assess Sarah Palin back and sentiments in about 15 minutes. Looking for that conversation crewed up by 2.5 per cent to seventy five dollars and a round about 60 cents in about
twenty five seconds into the open here. Equities up by a half of 1 percent on the S&P, on the Nasdaq, up by nine tenths of 1 percent. One thing to watch at the open, Lulu. Lululemon plunging after the company cut its margin forecast on surging costs. Abby has more on this one. Happy? Hey, John.
Well, yes. Lululemon appears to be the first. Maybe the only, but certainly the first of the retailers to admit that holiday 2022. Well, it wasn't so good. And this is not a new story. If you recall, in early December, they reported a brutal quarter, all about margins not coming in where they were supposed to. Profitability not as high as expected.
So this is weighing on other retailers. Well, not as much anymore. Under Armour and v.f. Corp. coming off the lows. But relative to those gross margins, it's a pretty significant shift that they have made in a press statement and initially this morning. And that is that gross margins, instead
of being up 10 to 20 basis points in their fiscal first fourth quarter, the quarter we're in now now down 100 basis points. Now there are 1 percent. And this now means four straight quarters of contracting gross margins. My thought as similar to early December, get over to that Lululemon on December. And she got great deals. They have. But this, of course, translates into
weakness for the stock. The worst day for the stock of the year. Now, another down year knowing that the year is young. But the reason this matters? Well, actually, it's actually up just slightly on the year there. But last year, a down year, John, the
first time since 2013. Will this company be able to get it together in time? We don't know, but perhaps not the best way to start the year after having been higher last week. That's for sure. Happy. Thank you. Stocks hammered down by about 10 percent in early trading. Different story for Alibaba. The stock leading Chinese tech gains with the IOC announcing an end to its two year crackdown on the sector at Ludlow has more ahead.
Good morning, Jonathan. Beyond sort of being caught up as part of the China re-opening trade, there are two key catalysts with Alibaba stock this morning to first a comment from a top central bank official in China. Well, she is saying who basically says that the two year crackdown on China tech focused on those 14 Internet companies and their financial business is basically are essentially coming to an end.
At the heart of this story has been Jack Ma and him stepping back from group, the financial affiliate of Ali Baba. The other key Catholics was on Saturday, the company appointing 10 individuals, giving them voting rights, which essentially strips malls control from the company. It's been a really interesting story. Look, Alibaba stock over the course of 2022. Very difficult year. And while that chart doesn't fully demonstrate it from the trough in October to present, we've actually rebounded some 70 percent.
A part of that is the reopening trade. This I did. Growth estimates for China and 23 are improving. Then there's the specific equity story. Look at analyst's calls on this stock.
The percentage of bi ratings improving in recent weeks. Goldman Sachs, for example, has added Ali Baba to its conviction list both on this kind of reopening and recovering conviction. Cool, but also that improving regulatory environment. And then Ali Baba Amr. Ali Baba is Morgan Stanley's new top paint pick for this year. There was some interest in other
Internet stocks in China, like my twin. I think there's kind of some growing optimism about the growth story in China for 23, particularly for tech, particularly for e-commerce. That said, we're still concerned about the spread of Covid-19 big sign. That stock is up by 4 percent at. Thank you as always. It's not just China tech, E.M. equities and equities, about more than 20 percent since the lows of October. As I say, we'll catch up with a sense now in just a moment on that.
But what a run. They say there's always a bull market somewhere. That's where that bull market is right now. The big banks here in the United States kick off earnings on Friday. J.P. Morgan goes first, Goldman next week. They're set to kick things off. On a gloomy note this week, though, preparing to announce more than 3000 job cuts as soon as this week. Gnarly run us through it.
Certainly, John, you have a tense week over at Goldman Sachs with a headcount reduction of that size. But listen, we knew it was coming and it's actually a number that was less than it could have been at the end of the day. Goldman has grown dramatically and this number is bigger by the amount in terms of the cuts you're seeing. But let me put this into perspective for you a little bit, because as we head into bank earnings season, it's a focus here on profit. What levers do the banks have to keep costs under control? And if you look at how. Net income has dropped off between 2021 and 2022. If they're estimated to bring in that
eleven point eight billion dollars of net income that analysts are expecting for the full year. That works out to two hundred thirty nine thousand dollars, two hundred thirty nine hundred thousand dollars per worker. That is way less than you saw per worker just a year before that at four hundred ninety thousand dollars.
So if one to nine hundred thousand dollars. So you really have a steep, steep, steep drop off here. Not in that in just kind of a pure employee count.
If you look at it there, it's really not even bringing you back down to where you were even in 2020. It's barely bringing you back down to where you were a year ago. But what it means here to make a cut of this size, it makes a big difference to Goldman's bottom line, which is why you're seeing the stock really react positively to a lot of these plans that Goldman is putting out. And only they report next Tuesday, the
same day we hear from Morgan Stanley as well. But if a change at the top this morning run us through the latest change at the top. Jonathan Cruzan was this chief operating officer, was the former CFO. Remember, John Cruzan has been there decades. He's a top deputy to James Gorman. By the way, when you look at the top ranks of Morgan Stanley now, you have John Cruzan gone about a year or so. Shelly O'Connor, a different deputy, had
left you at the top of Morgan Stanley changing. And therefore, the line of succession honing in puts the ISE very firmly on two particular folks. That is Andy Saperstein, who runs well. That is Ted Pick, who is the king of institutional securities business. And by the way, the reason this is so fun to watch, John, it is in a competitive, competitive year, especially from Mr.
Pick over there. Watch those trading figures come in. Remember, Goldman has been neck and neck with that business at Morgan Stanley Equities that they loved to win out for so long. And looking forward to your coverage that really kicks off on Friday. Sonali, thank you. J.P. Morgan RTX just around the corner on Friday. Those two banks you mentioned, Goldman and Morgan Stanley coming up next week, from financials to tech. You know the story that job cuts rolling
in. Here's what Richard Bernstein of ISE Advisors had to say. This was a sector that was in full fledged bubble mode for a couple of years. They hired indiscriminately. And now they're feeling the downward pressure on that. There's still too way too much talk
about will the old leadership regain form. Right. In other words, should you look at this as a buying opportunity in this old speculative leadership? I think that's a very bad sign because it shows that there still hasn't been full capitulation yet in these sectors, the economy. I want to continue this conversation with Dennis O'Keeffe. RTS joins us right now. Dan, I think you guys have really
leading the effort on this front, and I'm not sure many people have capitulated to you view just yet. Sit down. Let's stop that. How long do you think it's going to take to unwind the excess that's been built up just over the last couple of years, but maybe over the last decade? Yeah, John, good morning.
Clearly, it's going to take a lot longer. I mean, this is just par for the course for how bubbles deflate. When was the last time you saw a bubble deflate? Overnight. It takes years to really change the psychology and change the positioning around how people view these things. I mean, for years we've been taught that, you know, the hopes and the stories, we're really all that you have to care about. And now they're when it comes down to these points where liquidity is tightening, the economy slowing, you have to come back to fundamentals and profits. And these are areas where people's
expectations are way too high. It's going to take time for those things to change. Clearly, they are shifting. But I think it's going to take a lot longer. A lot cheaper valuations and people just stop it.
It's not people changing the way they think of these huge opportunities for these stocks. I mean, one way to think about it, you know, a rule of thumb for bubbles is, you know, typically takes a decade to re regain those highs, you know, from the bubble peaks. You know, it took that long over. It took 14 years in the case of the tech
bubble. It took, you know, that long in the case of most bubbles. So I think that that's kind of a starting point for expectations in town. This is not a new conversation for you and I. We talked about this that lost decades
aren't unusual. They're not unheard of. Do you think we could really be in full on at the index level in the United States for large caps? You know, I think a lost decade, John, is kind of extreme, at least for us for a base case scenario, but certainly as you look at the US relative to pretty much everything out there, you know, it does face a lot of headwinds. I mean, the US is still probably the only major market in the world that still has actually quite expensive relative to history. And that's very much because of that bubble concentration and those bubble assets we mentioned. I mean, you know, the concentration, the tech heavy sectors has come down from 50 percent to the low 40s. But that's you know, there's probably a lot further for that to come down. And having such a high concentration in
those bubble assets, which again, are going to take a long time, you know, to regain those highs. It does make for a tough decade outlook, you know, for for the U.S. market and the index, which is why, you know, I think that, you know, the real opportunities people look to take advantage of these down markets and cheaper valuations overall is actually go look for the stuff that's actually cheap right now. And that's the you know, the further away you get from the bubble, you know, that's where probably the opportunities are.
So for the last decade was about disinflation and U.S. large cap growth. I think the opposite of that is probably going to be the real opportunity. So pro inflation, you know,
international small cap value, those are things that people should be looking at, you know, to take advantage of for the next 10 years. So, Don, if you also believe then we're in for a period of structural inflation, not structural disinflation. What does that mean for the 60 40 story that people are still married? Yeah, I think it presents a tough, tougher scenario for the 60 40. I mean, the thing about the 60 40 is that you was a very good way, an easy way to just have a buy and hold strategy and sort of mitigate risk. So I think that that story of just the buy and hold strategy on the 40 percent that represent bonds, that's not going to be the case anymore. I think you can still take advantage of bonds and duration in portfolios as good as Bill.
It's going to be a lot more CAC nature. I mean, I think, you know, as a starting point, I just think back to these periods of of higher inflation. You know, there were huge opportunities to be had in bonds and duration. You had to be very taxed. I think one of those opportunities is price right now. I think the next year, you know, bonds actually present a really attractive opportunity, as I think that longer, long into the curve is probably going to come down as growth slows, you know.
But when we start to recover, you're going to want to be out of that trade. So it's going to be a lot more capital of a 60 40 go. And I told you about the time to go story on the equity side as well. So you've given me the more long term, sustainable, fundamental story on equity, Stan. What about the near-term?
So thanks so much. We've had this to say on Europe. We think the next big story, some markets will be a sharp loss of growth momentum in response to aggressive monetary tightening. This is not yet priced with markets buoyed or bullied, as you might say, in the United States by strong activity on easing supply issues, fighting gas prices in China, reopening. So down I get it in the near-term, aims ripped China's ripped China, reopening all of that. Good stuff. The energy stories fight in a bit in Europe as well. Given the tactical story for stocks in
an attempt down. Yeah, I think the tax cut story and theme for the near term, John, is very simple and it's very consistent with what we've been saying for a while. You know, in an environment where we're just going into a profit recession globally, the equities continue to tighten. I think that's an environment where you want the number one theme in portfolios right now should be defense. Now, there's going to be offered. There's going to be periods where where
markets rally. But I think this is probably the worst combination of fundamental factors. You know, it's to be, you know, pedal to the metal or risk in portfolios. So I think, you know, for the time
being, you want to focus on defense. There will be opportunities. There are opportunities today to play offense. But there are going to be huge opportunities over the next five to 10 years, you know, to have huge gains and take advantage of that upcoming bull market. But for the time being, when we're just now entering into a profits recession, I think defense is probably more important factor. Let's talk about those opportunities in just a moment to see if he's going to stick with us.
Coming up on this program, China. I think it's following us and giving them a major boost to China reopening, which we may debate whether it be a global event or not. But he certainly and EMI relevant then that conversation up next. This is Bloomberg's the Open, I'm least Mateo live in the principle room. Coming up, Thorsten Mueller, outpost Rolls Royce CEO. That's ten thirty a.m. in New York.
Three thirty p.m. in London. This is Bloomberg. The China re-opening, which we may debate, whether it is a global event or not, but it's certainly wide relevant today. You have a very good track evaluation and a dollar cycle that is finally coupled with interest rate. So we all know it's the best time to be overweight emerging markets, both equity and fixed income. China taking the final step in dismantling Covid zero and opening its borders. This as officials consider wider budget
deficits to ramp up economic support, driving emerging market equities towards a bull market. From all the time, incessant Olympic intelligence joins us right now. E.M. equities market. Rip it. Yeah, no, exactly. Markets are looking straight through
China's let it rip approach and basically pricing in the good news after the bad, right? I mean, so I think where we are here is it's tactical. I think you know, I think people have said it on your show earlier, be our best. I mean, so I think it's going to be a tactical upside here. We see broad dollar weakness taking hold. We see in currencies largely led by the Asia PAC region, all rallying. And I'm talking tie, Bob. We've talked about that just a few days
back. It's Korea as well. And so, look, that's spilling into the broader equity universe. But, Jonathan, we must remember that the home equity universe is China and it's largely for stocks. I'm talking Alibaba, my wife, Jamie, dot com. You know the rest. So, I mean, it's a tech play. And so how long? What are the legs there in this environment with us coming into recession? The verdict is still out.
Have you got a final word on Brazil? So, of course. So I mean, basically. Yeah. Yeah. I mean, look, you know, I actually had a debt that came out. It was good timing this morning about
how, you know, basically and practitioners have got used to living with geopolitical risk. And we've seen this now improve Chile, Colombia. We're going to see it in Argentina at the end of the year. Jonathan, this is really nothing new from Brazil. We saw riots in 2013 and 2017 now. The one takeaway here is this definitely undermines the credibility of the fiscal of the right, basically in Brazil. What that means is that Lula's spending
caps, he might have a lot more durability to act, a lot more spending throughout the course of his tenure. And so that's bad for the Brazilian real. And I think the real sort of reacting to that at five thirty this morning, getting hammered. Damien, thank you. It's good to catch up, sir. So waste time and sense. On this massive rally, you sink in the
equity market and emerging markets tend to Su Keenan as obvious sizes. It's back with us for a final thought. Time. If I said rate cuts to people, they'd be frothing at the mouth, maybe thinking about buying big tech. And I imagine you're thinking about emerging markets in a bigger way, is that right? Yeah. I mean, when we talk about merging markets, I think, you know, I think dominant made the point emerging markets are so heavily dominated by China, you know, that that really drives the story.
If that's the case. You know, I think there is a reason to be more optimistic on emerging markets at large. But for me, I really see a tale of two different two different stories, really. You have China and everything else in the world.
I mean, pretty much everything else out there is seeing, you know, slowing profits and tightening liquidity. The reason that China specifically is so interesting to us right now is that it's doing the exact opposite of everything else. The world, just as the world is about to tip into a global profits recession. China's actually looked poised to exit
their profits, recession at the same time, they're trying to pump liquidity into supporting their markets. And so that's a very, very different story than what global central bankers are doing. So I think a lot of that story is very specific to China. And so I think that's probably the best way to play it. It's not my new diversification, my uncorrelated asset. It's definitely one of them. General, I think, you know, for the
last, you know, people haven't really come to terms with this, but over the last four, three or four years, China has been consistently countercyclical as the world was entering into the pandemic freeze. You know, China was actually held up holding up the best as the world was coming out and surging, you know, on the bit on the back of policy stimulus. You know, China was a huge laggard. And now, as the world again is tipping
into a proxy recession, China is doing the opposite. So I think from that sense, China does make a great area for diversification. Dan Diamond still with me. I wanted to give him the final word on that diamond. I think this is such an important point coming into twenty three years. Now, I have to agree with one thing that
Dan mentioned here. China, government bonds, they were down five point two percent last year. That's the best performance of any fixed income asset class writ large. Chinese government bonds have been a good diversified for your sort of core fixed income portfolio. But talking about China bonds and talking about Chinese equities are two entirely different things, right? So Chinese equities, while I take everything that dancing about, you know, margin improvement, about revenues, I mean, it's going to snap back. Certainly with the Covid reopening.
But yeah, you know, there's still a lot of risk in that market. And so, look, I agree with you. You need to have some exposure. Zero is not the right number. But two and a half, five.
I mean, it starts with, you know what I mean? It's how much you get. Get that? This is the third year of pandemic economics and it gets extended by China reopening. Get down. If we can finish that, I think it would be beneficial for all of us on the demand side. It's pretty obvious to me how this works is obvious to all of us. You get most demand, right? We reopen on the supply side. Dennis, the less obvious to me, whether
we get supply chain relief or the supply side dislocations because of that burst and demand. From your perspective, which one is it? Yeah, I think it's more I think it's more the former. I mean, really. You know, the one big question mark for global markets is, you know, how fast is the real feeling going to be? And if it is really fast, you know, that is going to do do a great service to the rest of the world, because the reality is demand everywhere else is slowing. So there is excess capacity. We're not going to have those supply
chain issues. If it's really just China that's holding off the world. So I think from that perspective, you know, that excess demand that's going to shield the global, you know, the global economy a little bit. I think that's generally going to be a positive. And I think the supply chain issues, you know. Sure.
Sure. There'll be some targeted areas. But I don't think it's going to be it's going to be much more of a positive story, I think. I think we all know one thing with confidence that a consensus is going to be wrong on something, something very, very thick and it just can't work out what it is.
Dance is a cake. Thank you, sir. It's good to catch up, buddy. Entertainment, then assassin and then film big intelligence. Thank you. My colleagues are up here about 20, 30 minutes into the session, up eight tenths of one percent on the S&P. We subsector price action is I.
Yeah. And that gain is important, John, because we're looking at the first five days, at least right now. January being higher. Some say that that is a positive omen for the year relative to sectors. Not surprisingly, most of them are higher tech is the best. Up one point eight percent,
discretionary up one point seventy seven percent. Despite the drag of Lululemon, Lululemon is actually down for a second year in a row, down about 7 percent this year. In contrast to what we were talking about earlier, consumer staples and health care, defense investors not wanting it. And take a look at the China trade. You were just talking about it. We had the NASDAQ Golden Dragon index up
one point eight percent higher with energy. And we also have lots of hope that that reopening trade is fully in play there. Abbi, thank you. Stocks building on the gains from
Friday. The S&P by eight tenths of one percent. Training diary. Up next.
2023-01-12 13:11
