Fed Preview, Tech Earnings | Bloomberg Surveillance 07/25/2023
>> THE REAL GROWTH PICTURE IS PRETTY POOR EVERYWHERE. >> I THINK ALL OF US EXPECT A DECELERATION, A SLOWER ECONOMY. >> YOU HAVE TO BE MORE NIMBLE.
>> WE ARE CAUTIOUS AND THINK CONDITIONS ARE THERE FOR A FULL-BLOWN RECESSION. >> WE WILL GET A LOT OF CLARITY THIS WEEK. >> THIS IS BLOOMBERG SURVEILLANCE WITH TOM KEENE, JONATHAN FERRO AND LISA ABRAMOWITZ. JONATHAN:
LIVE FROM NEW YORK CITY THIS MORNING, GOOD MORNING, GOOD MORNING, FOR OUR AUDIENCE WORLDWIDE, THIS IS BLOOMBERG SURVEILLANCE ON TV AND RADIO. YOUR EQUITY MARKET AND THE S&P 500 IS POSITIVE BY 0.1%. AFTER THE CLOSE, EARNINGS FROM MICROSOFT AND GOOGLE. AND LATER THIS MORNING IN WASHINGTON, D.C., THE TWO DAY MEETING BEGIN WITH CHAIRMAN
POWELL. TOM: I'VE GOT TO PAY ATTENTION TO EARNINGS AND I WILL SAY THEY WILL BE OUT FRONT WITH THE ECB BUT THE QUALITY AND THE CHARACTER OF THIS GERMAN RECESSION WILL BE IN THE BACK OF THE MIND OF THIS FED MEETING WITH SOME OPTIMISM TO THE AMERICAN ECONOMY. JONATHAN: BUSINESS CONFIDENCE IS TERRIBLE AND THERE IS A SPLIT WORLDWIDE. CHINA IS TRYING TO DELIVER SOME STIMULUS AND EUROPE WITH GERMANY IN RECESSION. WE HAD THE BANK LENDING SURVEY THIS MORNING AND DEMAND FOR LOANS FROM CORPORATE DROP THE MOST ON RECORD. DOESN'T SOUND LIKE A NICELY FUNCTIONING EUROPEAN ECONOMY. TOM:
THE OVERLAY TO ME IS WE HAVE THE BIDEN STIMULUS OR A SET OF STIMULI. I LOOK AT THE AUSTERITY MESH ACROSS EUROPE AND IS CATCHING UP WITH THEM. WHERE IS THE STIMULUS? IF YOU ARE GOING TO HAVE A SLOGAN LIKE THAT, I DON'T SEE THE STIMULUS AND IT WILL BE A TOPIC IN THIS TWO FED MEETING. JONATHAN: THE EURO IS NEGATIVE FOR SIX CONSECUTIVE SESSIONS. WE'RE DOWN TO ABOUT 110 AT THE MOMENT BEST -- .10 OF THE MOMENT. TOM:
THERE IS REAL QUESTION ABOUT THE LIFT OVER THE NEXT TWO OR THREE YEARS. A NUMBER OF ANALYSTS HAVE COME OUT AND REALLY RECONFIRMED THERE HAS TO BE A DEMAND LIFT AT SOME POINT. JONATHAN: AFTER THE CLOSE, IT WILL BE ABOUT WHETHER WE CAN VALIDATE MASSIVE GAINS YEAR TO DATE. GOOGLE, ALPHABET, MICROSOFT. MICROSOFT IS UP THIS YEAR BY 44%. ALPHABET IS UP THIS YEAR BY 38%. CANDIDATE VALIDATE THOSE MASSIVE GAINS LATER?
TOM: MICROSOFT IS UNDERPLAYED AND IT'S NOT COOL. GOOGLE STILL HAS SOME OF THAT CASH A LEFT OVER. MICROSOFT HAS A 35 PE AND 10% TO BEEN GROWTH IN THE YIELD DOESN'T MATTER. THEY ARE ON THE CUSP OF TWO POINT $5 TRILLION BUT I WILL WATCH MICROSOFT CAREFULLY. THERE IS CONCERN ABOUT WHAT THEY ARE SPENDING ON A PRESUMED AI ATTACK.
THE FIRST QUOTE OF AI TODAY. WHEN WE MENTION AII HAVE A SIP OF TANG. JONATHAN: TALLY UP EACH TIME YOU SAY AI. TOM: TIM COOK PET OUT A MANDATE THAT NO ONE AT APPLE COULD SAY AI? JONATHAN: I IMAGINE HE WILL TALK ABOUT IT. LET'S DO THIS -- COMPARE AND CONTRAST TWO QUOTES. ONE COAT FROM J.P. MORGAN AND COMPARE IT TO
ANOTHER QUOTE FROM MORGAN STANLEY. BOTH OF THEM HAVE HAD THEIR CALLS CHALLENGED BY THE MARKET ACTION OF THE YEAR SO FAR. MIKE WILSON SAID WE'VE BEEN WRONG. COMPARE THAT TO THIS.
JONATHAN: I HAVE HUGE SYMPATHY BECAUSE I'VE BEEN WRONG WITH PEOPLE'S REAL MONEY. I THOUGHT IT WAS MISREPORTED. IT WAS NOT MISREPORTED, THEY JUST DIDN'T PUT UP A CALL THAT HE REALLY DIDN'T CHANGE HIS PARAMETERS WERE ESTIMATES FOR 2000 23. -- 2023. HE SAID WE ARE WRONG BUT HE DIDN'T CHANGE ANYTHING. YOU NAILED IT, MANY OTHER PEOPLE DIDN'T.
IT'S ONE THING TO SAY YOU ARE WRONG BUT IF YOU ARE WRONG AND CHANGE YOUR CALL, THAT'S A DIFFERENT STORY. BNP PERRY BOCK CAME OUT AND SAID I WAS WRONG AND THEY LIFT THEIR ESTIMATES, THAT'S NEWS. I DID NOT SEE THAT. IT DIDN'T CHANGE ANYTHING YESTERDAY. JONATHAN: WE CERTAINLY DIDN'T SEE THAT FROM J.P. MORGAN EITHER. TOM: THAT'S A DIFFERENT STORY.
I DON'T FOLLOW THAT IS CLOSELY BUT I WOULD SAY THE STRATEGIST INCLUDING ERIC FRIEDMAN, RUMOR IS THEY PUT THEIR PANTS ON ONE LEG AT A TIME. FRIEDMAN WALKS ON WATER BUT THIS IS A TOUGH BUSINESS. JONATHAN: LET'S TURN TO THE PRICE ACTION ON THE S&P 500. FUTURES ARE POSITIVE BY 0.4%. A MOMENT TO, SOME NUMBERS FROM GM. IT'S ON THEIR CHINESE WEBSITE. I WONDER IF THIS WAS AN ACCIDENT. THEY RELEASED ON CHINESE ON THE
WEBSITE, THE RANGE FOR THE FULL YEAR NET INCOME 9.3 ALIEN BILLION DOLLARS- 0.2 BILLION. TOM: WE'VE GOT PRECIOUS TIME -- MANY EARNINGS ARE EMBARGOED BECAUSE WE CAN SEE THEM BUT WE CANNOT REPORT THEM AND SOMEONE GETS OUT FRONT OF THAT AREA THAT CUTS TO THE CHASE AS THEY RELEASE IN CHINESE. I'M WATCHING EURO-SWISS WITH A STRONGER SWISS. JONATHAN: IS THAT WHICH YOU ARE FOCUSED ON? IT'S LIKE MARKET ROULETTE. TOM: THE GM NUMBERS ARE GREAT AND I LOOK AT THE LAUNCHPAD.
I'M LOOKING AT BUREAU-SWISS AND LIFE GOES ON. JONATHAN: LET'S GET TO ERIC FRIEDMAN. CATCH-UP TRADES IS THE FOCUS OF SO MANY PEOPLE COMING INTO EARNINGS SEASON, ARE YOU LOOKING FOR THE SAME THING? >> WE ARE, IT'S A MATTER OF SEEING IF THIS MARKET ENVIRONMENT FANS OUT AND PEOPLE DO IT SECTOR BY SECTOR BUT MARKET CAPITALIZATION IN THE CATCH OF TRADE IS NOT CATCHING AS IT SHOULD. DOMESTIC SMALL CAPS AS WELL AS DOMESTIC MID-BUT ALSO IN YOUR BACKYARD OF THE U.K.
AS WELL AS CONTINENTAL EUROPE SO GIVEN THE GERMAN DATA OUT THIS MORNING, GIVEN THE DISPARITY OF SERVICES AND MANUFACTURING, IT'S A TEST TO SEE IF THIS MARKET DOES BITE INTO THE IDEA OF A SOFT LANDING IN A GRADUAL RECOVERY. THAT WOULD SUGGEST YOU NEED TO GET THE CATCHUP TRADE AND WE WOULD INCLUDE REAL ESTATE, ENERGY AND UTILITIES IN THAT CATEGORY OF WHAT'S CALLED AREAS THAT HAVE NOT BEEN REWARDED YET BUT COULD BE SHOULD BE SEE THE SOFT LANDING MATERIALIZED. TOM: YOU AND I STUDIED THEORY YEARS AGO. THE DOUBT LIFT SPECS NUMBER OF DAYS SO WHAT IS THE SYMBOLISM OF THE BLUE-CHIP DOW JONES AVERAGE UP EVERY DAY? >> THE SYMBOLISM IS IN THE FACE OF DETERIORATING DATA WHICH IS WHAT WE ARE SEEING -- IF YOU LOOK AT GERMANY AND OTHER PMI'S AND CHINESE DATA THIS MORNING, THEY ARE CALLING THE RECOVERY TORTUOUS. THOSE ARE FAIRLY EMOTIVE WORDS
FOR WHAT IS A GRADUALLY WEAKENING ECONOMY AND YET MARKETS ARE SAYING GIVE ME A 5.20 5% FED FUNDS RATE AND WE WILL STILL BUY EQUITIES HERE. I THINK YOU ARE SEEING A LOW EXPECTATION SET ACROSS THE MARKETPLACE FOR EARNINGS AS WELL AS FOR INDUSTRIALS AND THAT'S BEING TORN UP ACROSS MARKETS WHICH IS COUNTERINTUITIVE BUT WE DON'T INVEST IN DATA, WE INVEST IN MARKETS. DO YOU SELL TECH OR DO YOU HOLD IT AND USE CASH IN OTHER SECTORS? >> IT'S HARD TO SELL IT HERE AND WE WILL SEE SOME DATA POINTS AFTER THE CLOSE TODAY.
WHAT WE EXPECT FROM TECH CAP X IS 3% GROWTH GLOBALLY THIS YEAR. WHAT'S DIFFERENT IS A MIGRATION AWAY FROM ON PREMISE TO OFF PREMISE, CLOUD COMPUTING, BIG DATA AND AI, THAT'S WITH CATCHING ATTENTION. WE DON'T SEE A MATERIAL LIFT HIGHER IN OVERALL CAP EXPERT THAT SHIFT IS CERTAINLY BENEFITING COMPANIES. WE THINK THAT MOMENTUM CONTINUES. TOM: WHAT IS YOUR BLENDED SHIFT OF REVENUES? YOU'VE GOT A MYSTERY IN THE PRICE DYNAMIC OF REVENUES SO WHAT'S YOUR SHIFT AT THE TOP LINE? >> THE SET UP FOR THIS QUARTER IS A 3-4% DECLINE IN REVENUE AND EIGHT-9% DECLINE IN EARNINGS. THAT'S PROBABLY TOO LOW. INVENTORY BUILD HAS REALLY BEEN
THE FACTOR. WE HAVE GOTTEN TRUE ON THE RETAIL SIDE SO I DON'T THINK IT'S SO MUCH THE RETAIL RESTOCKING. IT WILL BE A QUESTION ABOUT MANUFACTURING. THAT'S SPLIT BETWEEN SERVICES PMI AND MANUFACTURING PMI AND THAT'S WHERE THE ACTION IS ON THE REVENUE SIDE. TOM: YOU ARE DEALING WITH THIS EACH
AND EVERY DAY, HUNDREDS AND THOUSANDS OF RELATIONSHIPS WHERE PEOPLE COME IN SCARED STIFF BECAUSE THEY HAVE MISSED THE POST-PANDEMIC RALLY. MAYBE THEY MISSED THE RALLY SINCE 2008, WHATEVER. HOW DO YOU CATCH OF CONSTRUCTIVELY? >> WE THINK THE PIECING IN FOR THOSE WERE GRADUAL IN THEIR APPROACH IS THE RIGHT WAY TO DO IT AS A FUNCTION OF TIME BUT NOT A FUNCTION OF PRICE. WE GET FOCUSED ON PRICE AND MOST OF BEST THAT INVESTORS WERE SCARED ABOUT GETTING IN WORRY ABOUT PRICE. WE THINK ABOUT THINGS ON A TIME
BASIS. IT COULD BE VERY MUCH THE SAME WITHOUT A WEALTH CLIENT OR INSTITUTION THINKS ABOUT INVESTING WITH A TIME PIECE OF IT AS OPPOSED TO A PRICE PIECE OF IT. JONATHAN: THIS WAS GREAT, THANK YOU FOR RESPONDING TO SOME OF THE NEWS IN THE LAST 24 HOURS. LET'S TURN BACK TO THE NUMBERS FROM GM. I'VE GOT THEM IN ENGLISH AND
NOT IN CHINESE. THEY ARE RAISING THEIR FULL YEAR FINANCIAL FORECAST. I'M TERRIBLE AT MANDARIN. THEY WERE RACE OF THEIR FULL YEAR FINANCIAL FORECAST. GM SAID WE HAVE WORKED WITH DEALERS AND SUPPLY PARTNERS TO ADVANCE HER BUSINESS STRATEGY AND WE CONTINUE TO REDUCE COSTS AND INCREASE EFFICIENCY. WE WILL FOCUS ON THE MOST CRITICAL GROWTH AREAS LIKE ELECTRIC VEHICLES, AUTONOMOUS DRIVING AND SOFTWARE TO IMPACT FUTURE BUSINESS DEVELOPMENT.
SOUNDS LIKE HE IS SAYING ALL THE RIGHT THINGS. TOM: THEY SEEM LIKE THEY ARE GETTING IT DONE. IF I LOOK AT TOTAL RETURN OVER 10 YEARS, THE SECTOR IS A MYSTERY. SPEAKING OF X, I DON'T KNOW WHERE THE X AUTO COMPANY FITS INTO THIS AND I DON'T UNDERSTAND THREE OR FIVE YEARS OUT WHAT WOULD BE CALLED PRODUCT DISTINCTION MADE BY THE PUBLIC. IF YOU GOT 10 EV'S TO CHOOSE FROM, HOW DO YOU SELECT? IT'S A MYSTERY TO ME. JONATHAN: YOU SAW THE PUSHBACK FROM FORD AND THE GLOBAL NUMBERS FROM TESLA. TOM:
THE FANCY PEOPLE WANTEV'S . THE FIRST WHEN I DROVE WAS IN JACKSON HOLE YEARS AGO UP TO THE LODGE. IT EVOLVED FROM THAT TO PRETTY MUCH THE SAME CONVERSATIONS. WOULD YOU RATHER DRIVE A BUICK? WOULD YOU RATHER DRIVE AN EV AND THAT'S OPEN TO DEBATE IN AMERICA. JONATHAN: IN JUST A MOMENT, WE WILL CATCH UP WITH BLOOMBERG INTELLIGENCE ON THESE EARNINGS COMING OUT. AFTER THE CLOSE NUMBERS FROM ALPHABET AND MICROSOFT AS WELL. TOM:
I DIDN'T KNOW THERE WAS F1 THIS WEEKEND. JONATHAN: THAT'S RIGHT, AWESOME. TOM: IT'S GREAT, I THOUGHT THEY WOULD TAKE A BREAK. JONATHAN: AND THEY GET A BREAK AFTER THAT? TOM: I THINK THEY CALL IT A HOLIDAY. JONATHAN: FUTURES ON THE S&P 500 ARE JUST ABOUT POSITIVE, FROM NEW YORK, GOOD MORNING.
>> I WOULD ARGUE THAT VALUATIONS ARE QUITE HIGH AND WE UNDERSTAND THE TECH SECTOR AND THE AI STORY BUT WE HAVE A RECESSION AND PROFITS ARE DOWN AND IT LOOKS A BIT RICH RIGHT NOW FOR US SO WE WOULD BE CAUTIOUS. WE DON'T THINK IT IS IMMUNE TO A RECESSION. JONATHAN: THAT WAS THE CHIEF ECONOMIST AT NATIONWIDE MUTUAL. YOU GOT HER TO TALK ABOUT STOCKS YESTERDAY? TOM: I DID THAT ON PURPOSE. I THINK THERE IS A LOT OF ECONOMIC BATTLE GOING ON. PEOPLE THINK THEY ARE
INEXTRICABLY LINKED. A LOT OF THE SMART PEOPLE WE TALK TO MADE CLEAR THAT MAY BE LESS THAN WE THINK. I THINK IT'S IMPORTANT RIGHT NOW TO TALK TO EQUITY PEOPLE AND THE OTHERS ABOUT ECONOMICS AND VICE VERSA. JONATHAN: EQUITY FUTURES ARE JUST ABOUT POSITIVE ON THE S&P 500, ROLLING OVER IN THE LAST 50 MINUTES OR SO BUT JUST ABOUT EVEN. THE BOND MARKET IS A LITTLE BIT HIGHER. THERE IS THE WEAKNESS ON THE
STREET AGAIN ON THE EURO, SIX CONSECUTIVE DAYS OF EURO WEAKNESS AGAINST THE U.S. DOLLAR AND THAT WOULD GO BACK TO LATE SEPTEMBER OF LAST WEEK. THIS TIME AROUND, .10. PMI YESTERDAY AND BUSINESS CONFIDENCE TODAY AND DEMAND FOR LOANS IN EUROPE JUST DROPPING OFF A CLIFF. MAYBE YOU CAN MAKE THE ARGUMENT
THAT'S WITH THE ECB WANTS TO SEE BUT IT'S HAPPENING PRETTY QUICKLY. TOM: I THOUGHT IT WAS SPUN AROUND AMBIGUOUSLY. PEOPLE ARE SAYING THAT GDP IS DOWN SO LOANS ARE DOWN. I THINK LOANS ARE DOWN BECAUSE PEOPLE DON'T WANT LOANS. BANKING IS A HUGE DEAL AND
LOANS ARE DOWN BECAUSE THE APPETITE IS NOT THERE PARTLY BECAUSE OF INTEREST RATES BUT ALSO BUSINESS IS NOT THERE. IT'S A HUGE DEAL. JONATHAN: A DIFFERENT BACKDROP IN THE UNITED STATES WITH ENGINEERING A SOFT LANDING AND GERMANY IS IN A RECESSION NOW. LATER, WE WILL TALK ABOUT EARNINGS FROM BIG TECH WITH ALPHABET AND MICROSOFT AFTER THE BILL. TOM: THIS IS THE MOST IMPORTANT CONVERSATION OF THE DAY FOR ALL OF YOU ENAMORED BY AI. THE SENIOR TECH ANALYST FOR BLOOMBERG INTELLIGENCE IS WITH US. GREAT TO HAVE YOU HERE.
YOU ARE ABSOLUTELY QUALIFIED TO BRING SOME CLARITY HERE ON AI. MICROSOFT AND GOOGLE REPORT TODAY AND THEY WILL MENTION IT THREE OR FOUR TIMES. WHEN DOES IT BECOME A VALUE PROPOSITION? >> FROM A PRODUCT POINT, SOMETIME NEXT YEAR. LOOKING AT THE STOCK VALUATIONS, THEY ARE ALREADY ACCOUNTING FOR THE REVENUE COMING IN. FROM A USAGE POINT OF VIEW, THE ACTUAL PRODUCTS WILL TAKE 12-24 MONTHS. JONATHAN: CAN YOU TELL ME ABOUT
DECELERATING SALES TRENDS AND THINGS LIKE THE CLOUD? YOU EXPECT THEM TO PICK UP AT PLACES LIKE MICROSOFT? >> I THINK IT WILL BE THIS QUARTER OR NEXT QUARTER WHERE WE WILL SEE THE BOTTOM IN THAT GROWTH RATE IN A NUMBER OF HARD COMPARISONS FROM LAST YEAR WILL BE COMING TO A POINT WHEN THEY GET EASY AND SOME OF THE WORKLOADS FROM AI SHOULD HELP. JONATHAN: WE SAY THE AI WHOM SHOULD LEAD TO INCREMENTAL CLOUD SPEND AND I'M TRYING TO WORK THAT OUT. >> I THINK IT WILL BE SOMETIME NEXT YEAR WHICH MEANS THE BOTTOMING OUT PROCESS EITHER GOES BY THE END OF THE DAY TO DAY OR PERHAPS SOMETIME IN OCTOBER OR NOVEMBER. IT'S BECAUSE PREDOMINANTLY THE WORKLOADS ARE STILL THE ONES THAT COMPANIES ARE USING TO RUN THEIR OPERATIONS IN OVER THERE, THEY ARE CUTTING BACK ON TECH SPENDING WHICH IS WHY WE SHOULD SEE PRESSURE. TOM: I HAVE A COUNTABLE SET OF CHIPS AT NVIDIA THAT WILL BENEFIT FROM AI. IF I SAY I DON'T HAVE THAT WITH MICROSOFT, IF THEY ARE ON THE RECEIVING END OF THE CHIPS AND HAS TO INTELLECTUALLY CREATE WITH AI, WHAT DO YOU LOOK FOR IN THE EARNINGS TODAY? IS THERE ANYTHING TANGIBLE IN THIS CALL? >> WHEN YOU LOOK AT THE GREATER PUSH OF WORKLOADS BECAUSE OF AI, THAT'S A POSITIVE FACTOR. ON THE NEGATIVE SIDE, WE ARE
SEEING CORPORATE SPENDING SLOWING DOWN PRETTY DRAMATICALLY. COMPANIES ARE SHOWING LESS BOOKINGS, LESS GROWTH IN CONSULTING AND PEOPLE NOT SPENDING THAT MUCH MONEY AND THAT IS A NEGATIVE FACTOR FOR USAGE. TOM: ARE YOU LOOKING FOR A DISAPPOINTMENT FROM MICROSOFT TODAY? >> I THINK IT WILL BE MUTED BUT IT'S POSSIBLE THE CALL WILL TALK ABOUT WORKLOADS COMING IN THAT PEOPLE WILL OVERLOOK THAT. JONATHAN: WHAT DO WE EXPECT FROM AD SALES? PEOPLE ARE DISCUSSING WHETHER WE HAVE A GOOD OR BAD ECONOMY. WHAT HAS THE COMPANY SAID ABOUT THE TRAJECTORY OF SALES THE YEAR? >> I THINK THEY ARE LOOKING FOR A BOTTOMING OUT AGAIN IN QUARTER OR NEXT WHEN IT COMES TO THAT PROCESS. IT HAS BEEN A TOUGH YEAR FOR THEM.
IF YOU LOOK AT THE CYCLICAL TRENDS, SOONER OR LATER, IT HAS TO BOUNCE BACK. THAT'S THE NATURE OF THESE BUSINESSES BUT IT'S A QUESTION OF TIMING. TOM: I AM FASCINATED WITH YOUR ENCYCLOPEDIC KNOWLEDGE OF TWITTER BECOMINGX. TO ME IT'S A BIZARRE THING. I KNOW IT'S A MARKETING THING IN A SOCIAL THING AND ALL THAT BUT WHAT DO YOU THINK ABOUT X? >> WHEN IT COMES TO CONSUMER TECHNOLOGY, IT'S VERY FICKLE. PEOPLE MOVE THEIR HABITS QUICKLY AND WE SAW THE SUCCESS OF THREADS. I THINK THEY HAVE LOST A LOT OF THE AD REVENUE AND I DON'T THINK A LOT OF IT COMES BACK FOR THEM BECAUSE PEOPLE TRY NEW THINGS IN TECHNOLOGY.
I THINK SOME OF IT WILL STICK AROUND. JONATHAN: WHAT DID HE BUY TWITTER FOR IF IT WASN'T THE BRAND? COULD HE HAD BUILT IT HIMSELF FOR $44 BILLION? TOM: I AM LOST ON IT OTHER THAN TO TALK TO OTHER PEOPLE ABOUT IT. IT'S SUCH A JUMBLE AND THERE IS SO MUCH DISCOURSE OUT THERE FROM PEOPLE THAT I WANT TO LISTEN TO THE EXPERTS. JONATHAN: THANK YOU SO MUCH. WE WILL HEAR MORE THIS WEEK WHEN WE GET EARNINGS FROM ALPHABET AFTER THE CLOSE LATER.
I STILL DON'T GET X. TOM: HOW DO YOU PRONOUNCE XEET? JONATHAN: ZEET? TOM: IT'S A CURTIS TAN WORD, A SOUTHERN TURKEY WORD. -- CURTIS TAN - KURDISTAN WORD. JONATHAN: WE WANTED TO BE SUCCESSFUL AND WE WANT HIM TO SUCCEED BUT ANYONE IS PART OF THE PLATFORM WANTS TO SEE IT DO BETTER BUT YOU STILL HAVE THESE GOLDEN MOMENTS. THE BASKETBALL PLAYER WAS JOKING ABOUT HOW HE WOULD TAKE THE OFFER FROM SAUDI ARABIA. THOSE ARE THE KIND OF MOMENTS YOU ONLY GET ON TWITTER. TOM:
AND ALSO FOR BREAKING NEWS. WE USE IT TO CONFIRM SPECULATION IN REAL NEWS. IT'S BEEN A TOOL FOR US. WHAT'S THE UPDATE ON FUTBOL? JONATHAN: MASSIVE OFFERS ARE COMING FROM SAUDI ARABIA. I'M SURE THE CLUB IS ENGAGING IN THOSE TALKS FROM WHAT REPORT SAY BUT I HAVEN'T HEARD THE PLAYER IS ANYWHERE. TOM: DOES HE CONTROL THE DEBATE? DOES HE CONTROL HIS DESTINY? JONATHAN: HE'S GOT A YEAR LEFT ON HIS CONTRACT.
THEY DON'T WANT TO LOSE HIM FOR FREE NEXT YEAR BECAUSE HE WOULD BE ABLE TO LEAVE IN A FREE TRADE. THEY WANT TO GET SOME MONEY FOR HIM BUT DOES HE WANT TO GO TO SAUDI ARABIA? I DON'T THINK SO. I THINK HE WANTS TO GO TO REAL MADRID. TOM: IF HE WANTS TO GO TO TOTS HE GOES THERE. JONATHAN: HARRY IS GOING TO BUY HIM. TOM: SONALI: JONATHAN: TUESDAY MORNING, GOOD MORNING TO YOU. EQUITIES ARE IN POSITIVE TERRITORY A LITTLE BIT.
ZERO POINT 06% ON THE S&P 500. IT'S GOING TO BE A LOT OF ATTENTION ON THAT INDEX TODAY WITH SOME REPORTING INCLUDING ALPHABET AND MICROSOFT AFTER THE CLOSE TODAY AND METHOD TOMORROW. DOWN BY FOUR OR FIVE BASIS POINTS ON THE TWO YEAR AND THE TENURE IS HIGHER BY A COUPLE OF BASIS POINTS. LOTS OF DATA THROUGH THIS WEEK BUT THE MAIN FOCUS, THE EGG ATTENTION WILL BE CHAIRMAN POWELL TOMORROW IN HIS CONFERENCE WITH THE FED DECISION WITH PROBABLY ANOTHER FED HIKE. THAT CONVERSATION WILL BE IN WASHINGTON, D.C. A LITTLE BIT LATER. TOM: MY READER GOES UP WHEN NO NEWS IS EXPECTED. THEY DON'T WANT ALL THIS
ANTICIPATION GARBAGE. THEY WANT MICHAEL MCKEE TO STAND UP IN THE MIDDLE OF THE PRESS CONFERENCE. WILL WE SEE THAT TOMORROW? JONATHAN: LOOKING FORWARD TO MICHAEL MCKEE'S QUESTIONS AND THAT PRESS CONFERENCE. REMEMBER SUB PARITY IN LATE DECEMBER? WE HAVE COME LOWER AND WE WERE TALKING ABOUT A WINNING STREAK FOR THE EURO A WEEK OR SO AGO BUT THAT HAS TURNED AROUND AND THE EURO IS WEAKER AND THE DOLLAR IS A LITTLE BIT STRONGER THIS MORNING. TOM: I'M WATCHING THE MEXICAN PESO AND THAT CONTINUES TO SHOW PERSISTENT STRENGTH. THERE ARE OTHER STORIES BUT I AGREE THAT THE EURO IS FRONT AND CENTER.
DX WHY IS SHOWING RECENT STRENGTH. JONATHAN: TECH EARNINGS WILL RAMP UP WITH RESULTS FROM MICROSOFT AND ALPHABET AFTER THE CLOSING BELL INVESTORS LOOKING AT ARTIFICIAL INTELLIGENCE. MICROSOFT, 44% HIGHER YEAR TO DATE, ALPHABET UP 38%. TOM:
ARE THEY UP BECAUSE OF AI OR OR THEY -- OR ARE THEY UP FROM THE PREMIUM OF GROWTHINESS? IT'S ABOUT GROWTH. JONATHAN: THE DOMINANCE OF U.S. TECH CONTINUES. THE BACKDROP FOR THE EUROPEAN ECONOMY -- WE GET A BANK LENDING SURVEY FROM THE ECB AND IT WAS PUBLISHED TODAY AND IT SHOWED A DEMAND FOR CORPORATE LOANS IN THE EURO ZONE SINKING BY THE MOST ON RECORD IN THE SECOND QUARTER. THE RATE HIKES CYCLE OVER THE LAST 12 MONTHS CLEARLY IS AFFECTING MORTGAGES AND BORROWING BUT THIS IS HAPPENING QUICKLY IN EUROPE AREA GERMANY IS IN RECESSION AND DEMAND FOR LOANS OR DROPPING OFF A CLIFF. TOM: THERE IS THE SIMPLE FACT THAT IT IS NOT THE SAME AS AMERICA. WE ARE MORE EQUITIZED.
IT'S AN EQUITY WORLD IN AMERICA VERSUS EUROPE WHICH IS MUCH MORE LOAN BASED AND MUCH MORE BANK BASIN AND WHEN YOU SEE LOAN DEMAND DOWN, IT HAS A BIGGER WALLOP. JONATHAN: WE DIDN'T HAVE THE CREDIT MARKET THE SAME WAY IN THE UNITED STATES. THIS TIME YESTERDAY, WE GOT HEADLINES FROM THE POLITBURO IN CHINA LED BY XI JIN PING THAT CAME OUT WITH STIMULUS -- POTENTIAL STIMULUS MEASURES. THIS IS THE REACTION TO THAT
THIS MORNING AND THROUGH THE SESSION IN CHINA. THE HANG SENG ENTERPRISES INDEX WHICH TRACKS THE MAJOR CHINESE COMPANIES IS GAINING MORE THAN 5%. THE BIGGEST POP GOING BACK TO NOVEMBER. IN NOVEMBER, IT WAS THE TALK OF CHINA REOPENING. ANOTHER POP THIS MORNING. TOM: I'VE ALWAYS LOOKED AT THE DECKS AS THE ROULETTE WHEEL OF EUROPE.
THEY SAID CHINA WOULD SAVE THE DAY AND EVERYTHING WOULD PICK UP. WE LOOK AT GERMANY AND CHINA. JONATHAN: THAT'S THE WHOLE POINT. EUROPE NEEDS THE STIMULUS AS ANYONE AT THE MOMENT.
THE EUROPEAN CENTRAL BANK IS, MAYBE THIS IS WHAT THEY WANT. IF YOU ARE LONG EUROPE, YOU WANT SOME ENCOURAGEMENT. TOM: LET US SEGUE TO MICHAEL ZIZAS. HE IS IN MUNICIPAL FINANCE AND IT NOW AS GLOBAL HEAD OF FIXED INCOME RESEARCH AT MORGAN STANLEY. I CANNOT SAY ENOUGH, THE IDEA OF A GUY WITH MASSIVE POLICY CREDIBILITY AND THE GRANULARITY OF BONDS IN AMERICA DOING FIXED THEM -- FIXED INCOME RESEARCH. IT'S RADICALLY DIFFERENT THAN MOST GLOBAL HEADS OF FIXED INCOME? >> AT A HIGH LEVEL, TO OWN MARKETS IN GENERAL, YOU HAVE AN INTERACTION WITH PUBLIC POLICY THAT WE USED TO JUST BE THE AREA FOR EMERGING MARKETS.
YOU NEED THESE INTERACTING SKILL SETS. ON A DAY LIKE TODAY AND TOMORROW WHEN WE WAIT ON THE FED, IT'S IMPORTANT TO UNDERSTAND THE PUBLIC POLICY NUANCE BEHIND ALL THIS. ONE REASON WE ARE SO CONSTRUCTIVE ON THE BOND MARKETS NOW IS THAT THE FED FOR THE LAST 18 MONTHS HAS GONE ON THIS TRAJECTORY WHERE IT WAS GRATING SUBSTANTIAL UNCERTAINTY IN THE BOND MARKET IN ORDER TO DEAL WITH INFLATION THAT ARGUABLY WAS CREATED BY SOME OF THE FISCAL POLICY CHOICES BY THE U.S. GOVERNMENT AND BOTH PARTIES UNDERSTANDING THAT TRAJECTORY MEANS WHETHER OR NOT THE FED GOES THROUGH WITH THE SECOND HIKE IN SEPTEMBER THAT THEY ARE SIGNALING THAT THE JOB IS ALMOST DONE OR THEY'VE ALMOST GOT INFLATION UNDER CONTROL. YOU SWITCH FROM MASSIVE UNCERTAINTY IN THE BOND MARKET IN THE WAY MUNICIPAL BOND INVESTORS UNDERSTAND.
WHEN YOU HAVE ELEVATED VOLATILITY AND YIELDS GOING HIGHER, REGARDLESS OF THE FUNDAMENTALS, THAT'S A NEGATIVE BACKDROP. WE ARE REVIEW CONVERSING THAT RIGHT NOW. -- WE ARE REVERSING THAT RIGHT NOW. TOM: WE ALL HAVE A LEGACY OF SHADOWS
OUT THERE RIGHT NOW. ALL MY RADAR IS UP ON LOANS. DOES MORGAN STANLEY FIXED INCOME RESEARCH FIELD THERE ARE CHALLENGES IN THE FIXED INCOME SPACE, SHADOWS WE CANNOT -- WE CANNOT OBSERVE? >> FOR EXAMPLE, ONCE WE GET INTO 2024 AND IT ESCALATES THROUGH 2028 AND LEVERAGED FINANCE, THERE IS A SUBSTANTIAL WALL OF MATURITIES. UNLESS YOU GET A MEANINGFUL AMOUNT OF SUBSTANTIAL FREE CASH GROWTH, THINGS WILL GO DOWN. IF YOU DON'T GET ANY FREE CASH FLOW GROWTH, ONE THIRD OF SINGLE B'S HAVE ONE-TIME COVERAGE AND THAT'S A REAL CHALLENGE AND IT'S ONE OF THE STRUCTURAL CHALLENGES THAT HIS CAP SPREADS RELATIVELY ATTRACTIVE ANOTHER ONE IT IS THE BANK ISSUE AND HOW THIS CHANGES THE REGIONAL BANKING CRISIS. THESE ARE THINGS WE HAVE TO
WATCH ON THE HORIZON. THE SET UP FOR HIGH-GRADE BONDS RIGHT NOW IS PRETTY POSITIVE INTO YEAR END BECAUSE WE ARE TAKING AWAY THE UNCERTAINTY FOR THE FED AND FIGHTING INFLATION. JONATHAN: WHO IS ACTUALLY PAYING THESE MARKET RATES? WHAT'S THE DIFFERENCE BETWEEN WHAT A COMPANY'S COUPON IS FROM DEBT ISSUED IN THE LAST COUPLE OF YEARS TO WHAT THE MARKET RATES FOR THAT INTEREST IF THEY CAME TO THE MARKET TODAY? HOW WIDE IS THAT? >> OUR CHIEF STRATEGIST WROTE ABOUT THIS SUNDAY AND IT'S FASCINATING. IN A LOT OF WAYS ACROSS THE CAPITAL STRUCTURE OF THE MARKETS, THE BOND YIELD, IF THE BOND IS YIELDING MORE THAN THE ASSET ITS FINANCING IT'S UPSIDE DOWN.
IT YIELDS ABOUT FIVE .4% AND THE RUSSELL 1000 EARNINGS YIELD IS ONLY 4.8%. THAT'S NOT TOTALLY UNPRECEDENTED BUT IT'S ONLY HAPPENED 2% OF THE TIME IN THE LAST 20 YEARS. THAT DIFFERENCE KIND OF MAKES SENSE IF YOU THOUGHT WE WERE ABOUT TO ACCELERATE ECONOMIC GROWTH SUBSTANTIALLY BUT WE'VE GOT THE OPPOSITE. WE HAVEN'T SLOWED DOWN AS MUCH
AS WE THOUGHT WE WOULD BUT WITHOUT THAT GROWTH, THERE IS A PROBLEM IF YOU HAD TO FINANCE WITH A HIGHER YIELD THAN YOU'RE EARNING. JONATHAN: WHEN DOES THIS START TO BITE? IT'S GOING TO BITE CERTAIN PARTS OF THE ECONOMY MORE THAN OTHERS. >> I THINK IT'S ALREADY STARTING TO BITE. LAST CPI PRINCE SHOWED THAT AND IT'S PART OF THE REASON RE: THOMAS WILL TELL YOU THAT THE FED WILL HIKE THIS MONTH BUT ULTIMATELY, THEY WILL PROBABLY NOT HIKE IN SEPTEMBER BECAUSE THE ACCUMULATED EFFECT OF EVERYTHING THAT'S BEEN DONE SO FAR IS GOING TO BE TIGHTENING OVER THE COURSE OF THE REST OF THE YEAR. THAT IS ALSO A GOOD SET UP FOR BONDS AND BOND YIELDS. TOM: I'M LOOKING AT A MICROSOFT BECAUSE THE EARNINGS ARE OUT TODAY.
I GO OUT 10 YEARS WITH MICROSOFT 2 5/8 AND I'VE ENJOYED A PRICE DECLINE FROM 130-97. WHAT'S THE LIKELIHOOD OF SUSTAINED HIGH RATES THAT WE SEE A PRICE BREAK DOWN? >> I DON'T KNOW THAT YOU NECESSARILY GET A SUBSTANTIAL PRICE RATE DOWN. A LOT OF IT WILL COME OFF OF THE YIELD COMPONENT. IT'S MOSTLY BECAUSE THE FED COULD BE CLOSER TO THE END OF HIKING. THERE IS STILL THE SECULAR HEADWINDS, THE BANK DEMAND HEADWIND, LINGERING CREDIT ISSUES. IT'S NOT NECESSARILY AN ENVIRONMENT WHERE YOU GET YIELDS MOVING LOWER OR SPREADS MOVING TIGHTER. CLIPPING A COUPON IS QUITE
ATTRACTIVE RIGHT NOW RELATIVE TO EQUITIES WHICH WILL PROBABLY BE MORE CHALLENGED IN OUR ESTIMATE. TOM: HOW MUCH DO YOU AND THE EQUITY GUYS TALK TO EACH OTHER? >> A LOT. TOM: SOME HAVE NOT CHANGE THEIR VIEWS BUT HOW DOES FIXED INCOME WORK GOING BACK-AND-FORTH AND FORTH WITH EQUITY? >> THE COLLABORATION IS CONSTANT AND WE ARE ON THE SAME FLOOR AND WE ARE ON CALLS ALL THE TIME MAKING SURE WE ARE CHALLENGING EACH OTHER. THE ANSWER IN SHORT IS A LOT. JONATHAN: THIS WAS GREAT AND IT'S GOOD TO SEE YOU. AWESOME AS ALWAYS.
LET'S TURN BACK TO GM. IN THE LAST 41 MINUTES OR SO, GENERAL MOTORS , 41 MINUTES AGO, GENERAL MOTORS CAME UP AND RELEASED PARTIAL RESULTS IN CHINESE ON THEIR OWN WEBSITE AND THEN RELEASE THE ACTUAL RESULTS 30 MINUTES AFTER THAT. THEY RAISE THEIR OUTLOOK FOR THE YEAR IN THE STOCK IS SLIGHTLY POSITIVE IN THE PREMARKET. TOM: I WONDER WHAT IT WILL DO TWO EMBARGOES. I'M SURE THEY ARE SITTING THERE IN DETROIT AND EVERY COMPANY IS LOOKING AT THIS AND GOING WHAT IS THE VALUE OF MAKING THAT MISTAKE? JONATHAN: THEY PUBLISHED IT ON THEIR OWN WEBSITE IN A DIFFERENT LANGUAGE, THAT'S SLIGHTLY BIZARRE. TOM:
THERE IT IS IN IT'S GOOD NUMBERS. I GUESS THEY GO WITH IT. I DON'T UNDERSTAND HOW YOU MAKE MONEY OVER LONG TERM.
I GET THE IDEA YOU CAN GET A CYCLICAL POP IN THE AUTOMOBILE COMPANIES BUT I'M LOOKING AT GM. IT'S RALLYING 3.5% PER YEAR FOR THE LAST 10 YEARS. I DON'T GET IT. I DON'T GET TESLA EITHER. JONATHAN:
TESLA GOT HAMMERED LAST WEEK OFF THE BACK OF DISAPPOINTING EARNINGS AS WELL AS NETFLIX. IF WE GET THE SAME FATE FOR MICROSOFT AND ALPHABET LATER THIS AFTERNOON, THAT'S WHERE THE ATTENTION WILL SHIFT. IT'S ONTO META ON WEDNESDAY. I WAS LED TO BELIEVE THAT
AMAZON CAME UP THIS THURSDAY BUT IT COMES OUT NEXT THURSDAY. TOM: WE GOT THE CALENDAR WRONG AND IT HAPPENS. ONE OF THE GREAT THINGS TO DO IS THE DES SCREEN WILL GIVE YOU THE GUESSTIMATE OF WHEN EARNINGS WILL COME OUT. SOME COMPANIES ARE REPETITIVE ON THAT AND OTHERS ARE A SURPRISE BUT AMAZON I BELIEVE COMES OUT WITH APPLE ON THE SAME DAY. JONATHAN: IT'S NEXT THURSDAY AFTER THE BANK OF ENGLAND WITH CENTRAL-BANK DECISIONS THIS WEEK AND THE FEDERAL RESERVE MEETING BEGINS TODAY THEN ONTO THE ECB THURSDAY AND THE BE OJ FRIDAY. WE WILL TALK ABOUT THAT COMING UP.
EQUITY FUTURES RIGHT NOW ON THE S&P 500 ARE POSITIVE BY ALMOST 0.1%. FROM NEW YORK, THIS IS BLOOMBERG. >> I THINK IT'S VERY LIKELY AND IT WOULD BE REASONABLE TO PAUSE AT THE -- AT THE ECB. IT'S UNCLEAR WHETHER THE INFLATIONARY PRESSURE HAS BEEN OVERCOME ENTIRELY. WE KNOW CORE INFLATION IS STUBBORN.
IT'S AN OPEN QUESTION HOW THIS GOES ON BUT THE CURRENT SITUATION WITH THE WEAKENING ECONOMY IN EUROPE, IT WOULD BE ADVISABLE TO HALT. JONATHAN: THAT WAS GERMAN BUSINESS CONFIDENCE. MOST PEOPLE ANTICIPATE A HIKE IN EUROPE.
THE PMI LOOKS PRETTY TERRIBLE BUT INFLATION IS STILL A PROBLEM AND I THINK THIS IS THE LESSON FOR THE REST OF THE WORLD AS YOU CAN HAVE A WEAKER ECONOMY AND STILL HAVE AN INFLATION PROBLEM. THAT'S THE NIGHTMARE SCENARIO FOR CHAIRMAN POWELL A LITTLE BIT LATER THIS YEAR. AS FAR AS THINGS STAND, HE DOESN'T HAVE THAT PROBLEM. THE HOPES AND DREAMS OF A SOFT LANDING ARE STILL ON THE TABLE IN TERMS OF THE DATA. TOM: THE THEME OF THIS SUMMER'S AMERICAN EXCEPTIONALISM.
THE BANK OF JAPAN IS A THEORETICAL MYSTERY. ALSO THE COMPLEXITIES OF EUROPE. TOO MUCH OF THE FANCY ANALYSIS DOES NOT MENTION THE ISSUE OF A WAR IN UKRAINE.
THERE IS A LEGITIMATE WAR GOING ON IN THE CONTINENT OF EUROPE. JONATHAN: THE CRISIS OF EUROPE THAT WASN'T, THE ENERGY CRISIS THAT THEY MANAGED TO AVOID THROUGH THE WINTER, THAT WAS THE GOOD NEWS FOR THE EUROPEAN ECONOMY. WHAT WE ARE STARTING TO SEE IS SOME REAL ECONOMIC WEAKNESS START TO EMERGE AND SOME OF THAT IS BY DESIGN BECAUSE OF THE RATE HIKING CYCLE OF THE ECB AND YOU SEE SOME OF THAT IN LOANS BUT HAVE WE GOT TO A POINT WHERE THE ECB NEEDS TO BACK AWAY? IT WILL BE AN INTERESTING THURSDAY DECISION. TOM: WE NEED SOMEONE TO SYNTHESIZE THIS ON A GLOBAL BASIS. WE HAVE THE SENIOR FELLOW AT THE COUNCIL ON FOREIGN RELATIONS. SHE'S QUITE GOOD AT TYING IN THESE DIFFERENT THREADS IN A CONFUSING POST-PANDEMIC TIME. LET ME GO TO ONE OF YOUR
HEADLINES WHICH GETS OUT FRONT AND SAYS THIS COULD BE A SUCCESSFUL FED. IT COULD BE A SUCCESSFUL JEROME POWELL AND YOU STATE WE NEED TO BEGIN TO FRAME THE IDEA OF JAY POWELL IS A HERO. DISCUSS HOW THE CHAIRMAN OF THE FEDERAL RESERVE SYSTEM COULD BE THE 2024 HERO. >> I THINK YOU HAVE TO GIVE HIM A LOT OF CREDIT FOR COMING THROUGH COVID. WE BLOCKED OUT PART OF COVID BUT THE FACT THAT HE MANAGED THROUGH COVID, THAT HE IS DEFYING MANY EXPECTATIONS, PARTICULARLY ON THE MACRO ECONOMIC PRIESTHOOD HE IS NOT PART OF WHO VERY MUCH DOUBTED HE WOULD BE ABLE TO NAVIGATE THE WATERS COMING OUT OF COVID. WE DO HAVE THE HIGHER PROBABILITY OF A SOFT LANDING.
IF HE IS ABLE TO STICK THAT, I THINK IT WILL BE IN HEROIC FEET. HE IS AIMING FOR THAT BALANCE IN BOTH LABOR AND TAMING INFLATION. WE HAVE SEEN A LOT OF PROGRESS.
WE ARE SEEING THAT BALANCE FALLBACK INTO MUCH MORE MANAGEABLE SPACES. ALL OF THE DEBATE OVER THE PAST SEVERAL WEEKS OVER WHETHER HE SHOULD CHANGE THAT 2% TARGET MISSED THE FACT THAT THERE IS A GREAT DEAL OF CREDIBILITY TIED TO THAT TARGET. I DON'T THINK HE WILL CHANGE THAT OVER TIME. TOM: WITHIN YOUR WRITINGS, YOU ARE A GREAT STUDENT OF EUROPE. I'M INTERESTED HOW YOU FEEL THE INFLATION , NETHERLANDS, AUSTRIA AND THE CORE OF EUROPE AND THEIR ANCIENT CONCERN FOR INFLATION, WHAT POWER, WHAT SWAY THEY HOLD THAT THE ECB RIGHT NOW? >> IT'S HUGE. THE FOCUS ON THE ECB DECISION THIS WEEK IS KEY.
CHRISTINE LOOK ARDEN, -- CHRISTINE LUG GUARD, I DON'T THINK THERE IS A LOT OF DEBATE ABOUT WHAT WE ARE LIKELY TO SEE OUT OF THE FED AND THE ECB THIS WEEK. THERE IS A HISTORY OF FEAR OF INFLATION AND MUCH MORE CONCERNED ABOUT GROWTH IN EUROPE RIGHT NOW. WE HAVE TO REMEMBER THAT THERE IS A WAR. WAR IS INFLATIONARY AND WE ARE SEEING GRAIN PORTS BOMBED BY RUSSIA. THERE IS A CHANCE WE COULD SEE WEAPONIZATION OF ENERGY AGAIN AND PRICES SPIKING IN EUROPE THIS WINTER. EUROPE IS NOT READY FOR AN ALL-OUT SPIKE IN ENERGY AGAIN.
YOU CANNOT JUST PRAY FOR GOOD WEATHER IS A STRATEGY. I AM SLIGHTLY CONCERNED THIS WINTER MIGHT BE A TOUGHER ONE. JONATHAN: HOW MUCH OF THE SLOWDOWN WE'VE SEEN BEFORE WE GET TO WINTER IS BY DESIGN? DOES THE ECB WANT TO SEE THIS TAKE PLACE? >> IT'S A MATTER OF BALANCE. IT'S A MATTER OF BALANCING GROWTH, BRINGING DOWN INFLATION. I THINK WE ALSO HAVE TO LOOK AT WHAT'S HAPPENING IN CHINA GIVEN THE WAY THE CHINESE ECONOMY HAS BEHAVE. YOU HAVE A SLOW DOWN THAT COULD HAVE SHOCKS ON THE GLOBAL ECONOMY THAT WE MIGHT NOT BE PAYING ATTENTION TO. JONATHAN:
THE POLITBURO CAME OUT WITH A RANGE OF MEASURES SUPPORTING CONSUMPTION DOMESTICALLY AND DOING THINGS WITH EV'S. I WAS WONDERING HOW MUCH OF THIS I SHOULD TAKE SERIOUSLY. >> I THINK THE POLITICAL MESSAGING IS STARK. YOU HAD THE PARTY IN THE STATE COUNCIL COME OUT LAST WEEK WITH MEASURES, VERY DELIBERATE MESSAGING THAT THE PRIVATE SECTOR WILL BE SUPPORTED EQUALLY . YOU HAVE A LOT OF MESSAGING IN MEETING WITH INVESTORS WITH LARGE INSTITUTIONAL INVESTORS, THEY WANT INVESTMENT. THE RHETORIC HAS TO BE MET AND WHAT IT WILL TAKE TO GET THAT INVESTMENT BACK, IT REALLY HAS A LOT TO DO WITH THE TRANSPARENCY OR LACK OF TRANSPARENCY HEADING IN THE WRONG DIRECTION WITH THE FACT THAT YOU CAN SEE A REACTION THAT WE SAW OVER THE PAST TWO YEARS TOWARDS THE GROWTH OF TECH. TOM:
WHAT YOU TOUCHED ON IS THE ABSOLUTE KEY ISSUE. IS CHINA SO DESPERATE FOR OUR FOREIGN INVESTMENT INTO CHINA THAT IT COULD CHANGE THE POLICY CERTITUDE OF BEIJING AND THE DICTATORSHIP? >> YOU HAVE THE MESSAGING. YOU NEED THE DEEDS TO MAKE THE MESSAGE. THERE HAS BEEN A SIGNIFICANT INITIATIVE TO MESSAGE TO FOREIGN INVESTORS THAT CHINA WANTS THEM BACK. WHETHER THAT WILL HAPPEN, THERE IS A MYRIADS OF RISKS FOR THOSE INVESTORS TO COME BACK INTO THE MARKET AND THE REALITY IS, AS JANET YELLEN POINTED OUT, THE U.S. IS PRIORITIZING IN THAT AREA OF NATIONAL SECURITY OVER COMMERCE.
THE CHINESE DO THAT ON STEROIDS. THEY HAVE DONE FOR QUITE SOME TIME SO YOU HAVE TO BALANCE THOSE RISKS IF YOU GO BACK IN FULL THROTTLE TO THE CHINESE MARKET. IT REALLY HAS A LOT MORE TO DO WITH WAR MORE THAN WORDS. JONATHAN: THANK YOU AS ALWAYS FOR JOINING US. SOME OF THE CHALLENGES DOMESTICALLY, THE EFFORT TO BALANCE OPPOSING FORCES IN PLACES LIKE CHINA. TOM: THIS IS TEXTBOOK WHERE SHE TALKS ABOUT THE GREATER THEME OF CHINA AND ALL THE THINGS IN HER HEAD AND DISTILLS IT RIGHT DOWN TO WHAT THE CHINESE NEED FROM US. THEY NEED INVESTMENT.
HOW CAN WE GIVE THEM INVESTMENT GIVEN THE POLITICS AND GIVEN THE MICRO DECISIONS MADE OUT OF BEIJING. ALSO THE ONES MADE OUT OF WASHINGTON. JONATHAN: WE ARE ALSO WAITING ON AN OUTBOUND RESTRICTION PACKAGE FROM WASHINGTON. IT'S THE ACTION FROM CORPORATIONS AS WELL. WAS THE EASY ANSWER IF YOU ARE A CORPORATION? UNLESS YOU ARE X. JONATHAN:
I WOULD LOVE THE BACK STORY OF WHAT HAPPENED OVER THE WEEKEND. DAN GREENHOUSE WILL JOIN US SHORTLY, A BIG AFTERNOON FOR EARNINGS COMING UP LATER. >> THE REAL GROWTH PICTURE IS PRETTY PRONE EVERYWHERE. >> FROM AN ECONOMIC PERSPECTIVE WE ARE EXPECTING A DECENT ITERATION OF A SLOWING ECONOMY.
>> THIS ECONOMY, YOU HAVE TO BE MORE NIMBLE. >> WE ARE CAUTIOUS, THINGS ARE READY FOR A FULL-BLOWN RECESSION. >> THIS IS "BLOOMBERG SURVEILLANCE." JONATHAN: THE WEEK BEGINS TODAY. LIVE FROM NEW YORK CITY THIS
MORNING, GOOD MORNING, GOOD MORNING FOR OUR AUDIENCE WORLDWIDE. I'M ALONGSIDE TOM KEENE, JONATHAN FERRO. LISA IS STILL OUT. SHE WILL BE BACK TOMORROW. TOM: SO SHE SAYS. JONATHAN: TECH EARNINGS KICKING OFF IN A BIG WAY. MICROSOFT AND ALPHABET ARE
AROUND THE CORNER AFTER GAINS OF 30% YEAR TO DATE. TOM: IT WILL BE INTERESTING TO SEE. DIVING INTO EARNINGS SEASON. GUESTS COMING UP ARE ENTHUSIASTIC ON THE UPSIDE. ONE OF THE GREAT THINGS HERE IS THAT CORPORATIONS ADAPT. WE SAW THAT MOMENTS AGO.
THOSE NUMBERS, PLANNING TO CUT 1000 JOBS AND WHAT'S CRITICAL IS THEY ONLY HAVE 9000 EMPLOYEES. THAT'S LIKE A REAL CUT. HEADLINES MATTER. IT'S A PERCENTAGE CHANGE ON RIGHTSIZING.
WILL TECH CONTINUE TO RIGHT SIZE? THESE ARE THE QUESTIONS ON THE CONFERENCE CALL. JONATHAN: HOW MUCH CAN BE DO BY TALKING ABOUT AI REPEATEDLY? TOM: I WAS POLITE WITH ANNA, BUT I THINK YOU ARE DEAD ON. AI, YEAH?. JONATHAN: WE GET TO COUNT HOW MANY TIMES THAT PHRASE COMES UP. TOM: I'M GOING TO CUT THEM SLACK. I DON'T THINK IT'S NANOTECHNOLOGY, WHICH I THOUGHT WAS BS FROM THE GET-GO. REMEMBER NANO? JONATHAN: IT WAS GOOD. TOM: BUT WHAT I HEAR FROM THE ADULTS
IS THAT IF YOU GO OUT, MARK MAIN, YOU'VE GOT TO GO OUT AND PINE. JONATHAN: LOOKING FORWARD TO CATCHING UP WITH THEM. WE DID IT AT 9:40. GREAT GUEST WITH US NOW AND THE EQUITY MARKET. EQUITY FUTURES ON THE S&P 500
ARE POSITIVE. THERE'S A LIFT IN THE BOND MARKET YIELD, HIRED BY A COUPLE OF BASIS POINTS. HERE IS THE MOVE IN THE EURO. NOT BIG ON THE DAILY BASIS INTRADAY BUT IT IS RELENTLESS OVER THE PREVIOUS SIX DAYS.
EURO WEAKNESS AFTER STRENGTH. -0.2%. THE FACT OF THE MATTER IS THAT DATA IN EUROPE AT THE MOMENT DOES NOT LOOK GREAT AND THE ECB IS GOING TO HIKE IT ON THURSDAY. TOM: THE BIGGEST RISK, WE HAVE IDENTIFIED THAT RIGHT NOW. BUT THERE IS NO JACKSON HOLE AND WHAT'S THE DEBATE ON ECB INTO Q3 AND Q4? THERE'S A HUGE MYSTERY ABOUT Q3 Q4 IN ECONOMICS.
SOME OF THAT WILL BE CLARIFIED AT JACKSON HOLE. JONATHAN: PRESIDENT LAGARDE, THURSDAY. TOM: SHALL BE ON THE SHOW? JONATHAN: NO BUT SHE HAS A NEWS CONFERENCE YOU CAN ATTEND IN GERMANY IF YOU WOULD LIKELY TO FLY YOU OUT. TOM: INTERESTING. JONATHAN: DAN, GOOD TO SEE YOU. WE GOT THE SPOILER THERE.
YOU ARE OPTIMISTIC ON EARNINGS SEASON. CONSTRUCTIVE. TELL US WHY. AND: FIRST OF ALL LET'S LOOK AT WHO HAS REPORTED. AIRLINE DEMAND IS STRONG. HOMEBUILDERS REPORTING HAS SAID DEMAND IS STRONG.
BANKS WERE TERRIFIC. UNDERREPORTED STORY, THE CEO OF PNC BANK. THEY ARE OBVIOUSLY NOT JP MORGAN BUT IT IS A TREMENDOUSLY LARGE BANK WITHIN A NORMA'S LONE BOOKING AND ASKED ABOUT THE CURRENT STATE OF THE ENVIRONMENT THE CEO OF PNC CUT HIMSELF OFF AND SAID WE ARE HAVING A SOFT LANDING RIGHT NOW, THE ECONOMY HAS BEEN QUITE STRONG. FROM MY STANDPOINT I THINK THAT WILL TRANSLATE INTO ACTUAL OPERATING RESULTS. THAT HASN'T FULLY MATERIALIZED OF YET BUT I HAVE BEEN OPTIMISTIC THIS WILL BE A BIGGER THAN EXPECTED EARNINGS SEASON. TOM:
FOR THE GOALIE CREW, WHERE IS THE GREATEST MISJUDGMENT? REVENUE? DOWN THE LINE? IN -- THE INPUT COSTS DEBATE? WHAT IS THE THING THE BLOOM CREW IS GETTING THE MOST WRONG? DAN: GLOOM CREW IS A SMALL GROUP AT THIS POINT. PRICE ACTION HAS ARRIVED. THERE IS CONCERN ON THE TOP LINE . I MEAN THERE IS A GOOD RELATIONSHIP BETWEEN NOMINAL GDP AND NOMINAL EARNINGS IN THE S&P 500 AND AS IT COMES DOWN, THE TOPLINE GROWTH HAS SLOWED AND IS CONTINUING TO SLOW. I DON'T MEAN TO SUGGEST THAT ALL IS WELL BUT WHAT I'M OPERATING ON IS IT'S MORE OF A RELATIVE ARGUMENT, MORE SO THAN THE NEGATIVE ARGUMENTS OF 2022 THAT FULLY CARRIED OVER INTO 23 AND DON'T APPEAR TO BE MATERIALIZING IN THE WAY SOME PEOPLE EXPECTED. TOM: YOU AND I SIT ON THE CONFERENCE CALLS.
YOU GET A CHARACTER THERE. WHAT'S THE CHARACTER OF TECH THIS WEEK? 0 THEY ARE GOING TO TRY TO RIDE THE AI TRAIN AS FAR AS POSSIBLE. WE HAVE ALL BEEN AROUND THE BLOCK A FEW TIMES. HOW MANY TIMES HAVE YOU SEEN
THE SAME HEADLINE HIT THE TAPE TO GOOSE ASSET PRICES REPEATEDLY AND HOW MANY TIMES CAN YOU THROW UP YOUR HANDS AND SAY WE ALREADY KNOW THIS. ON THE AI SIDE OF THINGS THAT WILL PROBABLY BE THE CASE AGAIN. ALTHOUGH ADMITTEDLY IT'S A REAL THING. PRESUMABLY ORDERS ARE MATERIALIZING, COMPANIES ARE ACTUALLY IMPLEMENTING THIS IN A MATERIAL AND COST-EFFECTIVE MANNER THAT WILL HAVE REAL-WORLD BENEFITS FOR COMPANIES IN THE IMMEDIATE. SO I THINK THAT CAN BE MEASURABLE AND ULTIMATELY IT MAY NOT SIMPLY BE THE SAME HEADLINE OVER AND OVER AGAIN IF THE DATA BACKS IT UP. JONATHAN: THE NEW ROTATION WAS AWAY FROM EGG TECH.
WHERE DO YOU STAND ON THAT NOW? DAN: LISTEN THE RALLY HAS BEEN BROADENING AND TO BE CLEAR TO THE SPRING IT WAS UNDOUBTEDLY THE SO CALLED SEVEN. THERE IS A BIT OF REVISIONIST HISTORY GOING ON THAT SOMEHOW THE BROAD RALLY IS ALWAYS THE CASE. BUT YOU HAVE TREMENDOUS CATCH UP NOW ON THE PART OF SMALL AND MID-CAPS AS WE KNOW AND THE REST OF THE INDEX IS PLAYING A BIT OF CATCH-UP AS WELL. A LOT OF THAT HAS TO DO WITH THE ECONOMY NOT BEING IN A RECESSION . WE TALKED ABOUT THAT THE LAST TIME I WAS HERE. AROUND THE MIDDLE OF THIS YEAR, MY GROUP EXPECTED SOMETHING RESEMBLING RECESSION OR A WORSE ECONOMIC ENVIRONMENT.
NOW IT SEEMS CLEAR WE ARE HERE. NOT ONLY IS IT NOT THE CASE BUT WE ARE VERY UNLIKELY AS IT STANDS NOW GOING TO HAVE RECESSION EVEN THIS YEAR AND IF THAT'S THE CASE YOU ARE GOING TO START TO SEE AND INDEED HAVE SEEN A ROTATION AWAY FROM BIG NAMES INTO OTHER NAMES BECAUSE THE SUPPOSE IT ECONOMIC WEAKNESS THAT I FORECAST AND BY EXTENSION THE EARNINGS WEAKNESS THAT WOULD MATERIALIZE AS A RESULT IS NOT HERE. JONATHAN: HOW STICKY IS THAT MONEY IN THE MONEY MARKET FUNDS? WHAT DOES THAT LOOK LIKE? DAN: YEAH I DON'T HAVE THE ANSWER. 5% OUTSIDE THE RISK COMMERCIAL PAPER. THEN YOU COULD GET 6%.
FROM A RETURN STANDPOINT IF YOU BUILD A PORTFOLIO OR ADJUST A PORTFOLIO TO HAVE A CORE OF 5% TO 6% LET'S SAY AND AROUND THAT YOU BUILD A DIVERSIFIED PORTFOLIO OF HIGH-YIELD CORPORATE BONDS AND EQUITIES, YOU CAN HAVE A PRETTY ATTRACTIVE RETURN STREAM WITH A LOWER BETA THAT FOR MOST PEOPLE INSTITUTIONAL AND OTHERWISE IS NOT UNATTRACTIVE. FOR US, WE DO A LOT OF HIGHER RISK HIGH-YIELD BOND DISTRESS TYPE INVESTING AND THAT RETURN STREAM WILL BE CONSIDERABLY MORE VOLATILE NO MATTER WHAT. ON BALANCE I THINK THAT WHEN YOU CAN HAVE THE CORE OF YOUR PORTFOLIO RETURNING FIVE, 6% ON 90 DAY PAPER, THAT'S REALLY HARD TO ARGUE WITH. TOM: DOES DIVERSIFICATION WORK HERE OR IS IT A TIMEFRAME OF CONCENTRATED BETS? DAN: IN GENERAL I SUBSCRIBED TO THE WARREN BUFFETT LINE OF THINKING, WHY SHOULD I PUT MY MONEY INTO MY SIX THE BEST IDEA WHEN I SHOULD PUT MORE MONEY INTO MY FIFTH THE BEST IDEA. TOM: THAT'S THE JON FERRO THEORY. JONATHAN: WHAT'S THE DIFFERENCE? [LAUGHTER] DAN: HARD TO TELL THEM APART.
DAN: WE ARE INSTITUTIONAL INVESTORS, PRESUMABLY LONG-LASTING AND STICKY. DEPENDS. BUT FOR A LOT OF RETAIL INVESTORS I THINK IT IS VERY HARD FOR THEM. THEY HAVE BEEN TAUGHT, FINANCIAL ADVISORS HAVE BEEN TAUGHT FOR YEARS THAT DIVERSIFICATION BENEFITS SECTORS AND GEOGRAPHICALLY AND I DON'T THINK THAT'S GOING TO BE A THOUGHT THAT'S GOING TO BREAK ANY TIME SOON AND FOR A LARGE DEGREE FOR THAT INVESTMENT CLASS I DON'T THINK IT SHOULD BE BROKEN ANYTIME SOON. JONATHAN: WRAPPING UP ON HIGH-YIELD, PHRASES THEY GET THROWN AT ME EVERY TIME I TALK ABOUT CREDIT, THEY SAY THEY ARE UP IN QUALITY. WHATEVER THAT MEANS. CAN YOU TELL ME WHAT YOU ARE DOING IN HIGH-YIELD SPECIFICALLY GIVEN HOW TIGHT WE SEE SPREADS? JONATHAN: COMING -- DAN: COMING INTO THE YEAR THAT WAS THE ARGUMENT, UP IN THE CAPITAL STRUCTURE AND SAFER BECAUSE THE EQUITY MARKET WAS SUPPOSED TO BE MOVING LOWER.
THAT HASN'T BEEN THE CASE. LOANS THAT WERE HIGHER UP IN THE CAPITAL STRUCTURE HAD THEIR FIRST CLAIM ON A NUMBER OF ASSETS AND HAVE DONE BETTER THAN HIGH-YIELD BONDS. MUCH LIKE WHAT HAPPENED IN THE EQUITY MARKET IT HAS BEEN A BIT OF A SURPRISE. FOR US WE ARE NOT LIKE A CAUSATIVE INDEX. WE ARE NOT TRYING TO DO CAPITAL
ARBITRAGE TRADES. WE ARE A CAPITAL RETURN VEHICLE AND THE LOWER STRUCTURE HAS BEEN REWARDING. WE'VE DONE A LOT ON THE ENERGY SPACE THOUGH ADMITTEDLY THERE'S VERY LITTLE TROUBLED DISTRESS ENERGY COMPANIES ANYMORE BUT WHAT WE FOUND WAS A LOT OF COMPANIES ON THE CONSUMER LEISURE SIDE OF THINGS THAT LOOK MISPRICED TO US AND BETTER PERFORMANCE CONTINUES TO BE GENERATED IN A LOT OF THOSE NAMES LIKE HOTELS, MOVIES, CRUISE LINES. ANYTHING THAT, PUBLIC EVENTS. ANYTHING THAT INVOLVES THE CONSUMER DOING THINGS WE THOUGHT WAS MISPRICED. JONATHAN:
I'VE SEEN THAT EQUITY IN A MASSIVE WAY FOR THE CRUISE LINES, ITS OWN STORY. DEFAULT CYCLE, ANY SIGNS ANYWHERE THAT IT'S STARTING TO PICK UP? DAN: YOU ARE BACK TO AVERAGE DEFAULT RATES, NOT SAYING MUCH BUT ON THE BACK OF LARGE STRUCTURES LIKE ENVISION HEALTH CARE THINGS HAVE TICKED UP INTO LET'S CALL IT THE 3% RANGE AND MY EXPECTATION IS THAT THAT WILL CONTINUE IF YOU INCLUDE WHAT WE CALL DISTRESSED EXCHANGES. THE DEFAULT RATE WILL CONTINUE TO TICK UP AND THIS IS AN IMPORTANT STORY THAT OUR CEO HAS BEEN TELLING INVESTORS FOR AS LONG AS I'VE BEEN AT THE FUND. YOU DON'T NEED DEFAULT DISTRESS CYCLES AND WE HAVE SEEN THAT REPEATEDLY THROUGH HISTORY, PICK UP IN DEFAULT DISTRESS ACTIVITY INDEPENDENT OF THE ECONOMIC CYCLE THAT APPEARS TO BE HOLDING IN QUITE WELL BUT THE INTERESTING STORY IS GOING TO BE SIX MONTHS, NINE MONTHS, 12 MONTHS DOWN THE ROAD, IF THE ECONOMY FALLS UNDER THE WEIGHT OF WHAT THE FEDERAL RESERVE HAS DONE, THERE'S NO GUARANTEE THAT THAT IS THE CASE AND WHAT WE HAVE SEEN IS THE TIP OF THE ICEBERG. JONATHAN: FASCINATING. DAN GREEN HOUSE, GREAT TO SEE YOU. DAN GREENHOUSE OF SOLACE
ALTERNATIVE ON THIS MARKET. MORE CONSTRUCTIVE VIEW ON EARNINGS AND PARTICULARLY ON THE OPPORTUNITIES YIELD THAT WE HAVEN'T HEARD MUCH OF AN THE LAST YOU MONTHS. TOM: WELL AS LISA MENTIONED AS WELL, THE SPREAD MARKET FEET -- SPEAKS VOLUMES, VOTING FOR EQUITIES TO SUSTAIN. I WOULD GO BACK TO MY THEME THAT COMPANIES ADAPT AND THAT'S WHAT WE ARE SEEING RIGHT NOW, WHETHER IT IS GENERAL MOTORS OR MICROSOFT THIS AFTERNOON. PAINT COMPANY SHERWIN-WILLIAMS,
AND ALL-AMERICAN NAME. WITH PAINT, JOHN, YOU GET A NEW PLACE, YOU MOVE INTO A NEW PLACE WITH FOUR BEDROOMS AND A VIEW. JONATHAN: YOU BOUGHT ONE? TOM: THINKING OF OTHER PEOPLE. YOU'VE GOT TO GO OUT AND SHERWIN-WILLIAMS PAINT IS UP 6.3%. JONATHAN: WELCOME TO THE PROGRAM IF YOU ARE JUST TUNING IN. THE S&P 500, CURRENTLY POSITIVE. COMING UP IN ABOUT 30 MINUTES WE ARE CATCHING UP WITH THE GENERAL MOTORS CFO AFTER THEY RAISED THEIR GUIDANCE ABOUT AN HOUR AGO. GENERAL MOTORS THIS MORNING, THE CFO LATER THIS HOUR. TOM: IT WILL BE INTERESTING TO SEE
WHAT HE SAYS. HE'S A SOUTHERN GUY. MANUFACTURING FROM THE MIDWEST TO THE SOUTH, IT WILL BE INTERESTING. THERE ARE SOME DISTRACTIONS HERE WITH THE EARNINGS ANNOUNCEMENT THIS MORNING, THE EMBARGO STUFF AND ALL THAT BUT THE BIG DISTRACTION FOR ME IS EV, WHAT ARE THEY AND THE OTHERS DOING WITH EV. JONATHAN: AND WHETHER THIS IS IT, THE REAL DEAL. TOM: BUT YOU HAVE NAILED THE THING I CAN'T GET AN ANSWER TO. ARE THE EV'S THERMODYNAMICALLY ON AN ENERGY BASIS PLUS PLUS VERSUS INTERNAL COMBUSTION? I DON'T HAVE AN ANSWER.
JONATHAN: AND WHAT HAPPENS IF THEY ARE WRONG SITTING ON THESE MASSIVE INVESTMENTS? TOM: WHY'S IT SO HARD TO FIND AN ANSWER? JONATHAN: WELL THEY ARE COMMITTED TO IT, THAT'S FOR SURE. EQUITY FUTURES ON THE S&P 500 ARE POSITIVE. LATER THIS HOUR, FROM NEW YORK, GOOD MORNING.
♪ >> PART OF THE ARGUMENT AGAINST HIGH-YIELD HAS BEEN THE SPREADS. YOU CAN CREATE A BUNCH OF PARTS IN THE FIXED INCOME MARKET THE UR GETTING. LIKE EUROPEAN HIGH-YIELD IF YOU ARE A DOLLAR INVESTOR, SWAPPING BACK DOLLARS GETTING PAID WELL INTO THE NINES. THAT'S TRACING AS FAIR. JONATHAN: THAT WAS THE GLOBAL FIXED INCOME CIO OVER AT BLACKROCK. IT IS SUMMER.
HE'S ALLOWED TO HAVE A TAN AND WE RESTED. TOM: UNLIKE YOU AND ME. [LAUGHTER] JONATHAN: TAN AND NOT RESTED. BUSY SUMMER GETS BUSIER THIS WEEK, FOR SURE.
TONS OF EARNINGS, CENTRAL BANK DECISIONS IN A MOMENT. SLIGHTLY POSITIVE ON THE S&P 500. JUST A SMALL LIFT TO KICK OFF THIS TUESDAY. JONATHAN: WE HAVEN'T MENTIONED IT TODAY BUT THE FINANCIAL CONDITIONS INDEX MENTIONS WHAT CHAIRMAN POWELL DOESN'T WANT. PULLING BACK MORE OVER 24 HOURS, DECIDEDLY MORE ACCOMMODATIVE THAN ANYBODY IN CENTRAL BANKING WOULD LIKE TO SEE. MAYBE 25 ON TOP OF THAT.
JONATHAN: TO STATE THE OBVIOUS I WOULD SAY THAT HE IS LESS CONCERNED ABOUT THAT NOW THAN HE WAS MONTHS AGO. VERY DIFFERENT BACKDROP. TOM: MAYBE DAN IS ADVISING JEROME POWELL. JONATHAN: OPTIMISM THERE. IT'S WELCOME. TOM: IT IS. THE OPTIMISM AROUND THE MARKET
WITH S&P FUTURES UP SIX. DR. ECONOMY IS WORKING FOR THE SECRETARY OF COMMERCE AND IS NOT AVAILABLE FOR MEDIA. SHE HAS BEEN DEFINITIVE ON THE FRAGILITY OF BEIJING AND CHINESE LEADERSHIP. ANNMARIE HORDERN IS OUR BLOOMBERG WASHINGTON CORRESPONDENT WITH AN ANNOUNCEMENT THAT WAS MADE IN THE LAST 10 MINUTES THAT THE FORMER HEAD OF FOREIGN POLICY WILL TAKE OVER AGAIN IN THE FORMER AMBASSADOR TO THE UNITED STATES IS OUT THE DOOR. THIS HAS BEEN WIDELY SPECULATED, A NUMBER OF GOOD WRITE UPS ON THIS IN THE LAST 24 HOURS. I'M GOING TO SUGGEST THAT THIS
IS NOT A SURPRISE, BUT I WOULD SUGGEST THERE IS A MASSIVE MYSTERY TO THIS. WHAT DOES WASHINGTON BELIEVE HAPPENED? AND READ: -- ANNMARIE HORDERN: YESTERDAY THIS WAS COMING DOWN THE PIPELINE BUT WE STILL DON'T KNOW WHAT HAPPENED TO THE FORMER U.S. AMBASSADOR. HE WAS ELEVATED AT A YOUNG AGE, ONE OF THE YOUNGEST WE HAVE SEEN IN YEARS.
HE'S BEEN MISSING FOR A MONTH. WE HAVEN'T SEEN HIM SINCE HE TOOK DIPLOMATIC ENGAGEMENTS ON JUNE 25 AND THERE WAS A LOT OF SPECULATION WITHIN THE CHINESE PRESS THAT HAS NOT BEEN CENSORED BY THE CHINESE GOVERNMENT THAT HE HAD AN EXTRAMARITAL AFFAIR. WE KNOW HOW CHINA FEELS WHEN YOU START TO POKE AROUND ON OFFICIALS.
MAYBE A HEALTH CONCERN. BUT WHEN ASKED, HE SAID WE DON'T KNOW. SO THERE IS GOING TO REMAIN A LOT OF SPECULATION ABOUT THIS BUT CHINA WAS CLEARLY UNDER PRESSURE TO MAKE SURE THEY HAD AN INDIVIDUAL TO REPRESENT THEM BECAUSE SOME FOREIGN DIPLOMATS WERE STARTING TO CANCEL TRIPS. JONATHAN: -- TOM: THAT'S A BEAUTIFUL SUMMARY THAT WE ONLY GET FROM ANNMARIE HORDERN. MY FOCUS IS ON THE AMBASSADOR TO CHINA FROM THE UNITED STATES, A HUGE SUPPORTER OF WHAT BLOOMBERG SURVEILLANCE HAS DONE OVER THE YEARS. RECENT ACTIVITY THERE ABOUT
EMAILS LEAKING OUT, THIS AND THAT AND THE OTHER THING. WITH THIS CHINESE UPSET, HOW DOES IT AFFECT THE AMBASSADOR'S RELATIONSHIP WITH BEIJING? ANNMARIE: THIS IS AN INDIVIDUAL THAT THE AMERICAN FOREIGN POLICY APPARATUS, YOU KNOW WHO WANG YI IS. IT'S AN INDIVIDUAL EVERYONE IS WELL-VERSED IN. I'M NOT SURE IT CHANGES THAT MUCH BESIDES PALACE INTRIGUE AND CONCERNS OVER WHAT ELSE IS GOING ON BEHIND THE IRON CURTAIN WHEN IT COMES TO XI JINPING AND OTHER MEMBERS OF HIS GOVERNMENT. THIS IS SOMETHING THEY KEEP
VERY CLOSE. THERE SHOULD BE A LOT OF INTEREST INTO WHAT HAPPENED TO HIM. WHEN YOU LOOK AT NICK BURNS, OF COURSE, THIS HAS BEEN ANOTHER SALVO BETWEEN WASHINGTON AND BEIJING AND IT REALLY JUST HEATS UP ATTENTION. NOT JUST HIS EMAILS WERE HACKED AT A NUMBER OF OTHERS AS WELL. AND OBVIOUSLY THAT IS QUITE CONCERNING IF YOU ARE AN AMBASSADOR TO THAT COUNTRY BUT I DON'T THINK THAT ANYONE WAS ACTUALLY SURPRISED THE CHINESE GOVERNMENT WAS TRYING TO HACK INTO THEIR COUNTERPART'S EMAILS.
JONATHAN: IF YOU WANTED TO FIND OUT WHAT WAS GOING ON WOULD YOU CALL BLINKEN OR KISSINGER MARK -- KISSINGER? ANNMARIE: HENRY KISSINGER GOT A MEETING THAT NO ONE IN AMERICA HAS BEEN ABLE TO GET, A SIT DOWN WITH THE DEFENSE MINISTER IN CHINA. HE HAS YET TO MEET WITH HIS ACTUAL COUNTERPART, LLOYD AUSTIN, BECAUSE OF SANCTIONS THAT ARE ON HIM. THE CHINESE GOVERNMENT MAINTAINED THAT UNTIL THE SANCTIONS ARE LIFTED HE WILL NOT BE ABLE TO MEET.
WE SHOULD NOTE THAT HAVING THESE SANCTIONS DOESN'T MEAN HE CAN'T HAVE A SIT DOWN WITH HIS COUNTERPART BUT KISSINGER HAD ALL THE ACCESS RECENTLY IN CHINA AND WILL LIKELY BE BRIEFING THE BIDEN ADMINISTRATION. HE'S THE ONE I'D WANT TO HAVE A CONVERSATION WITH. TOM: YOU ARE GOING TO BE ON THE PLANE TO BEIJING, I BELIEVE BIDEN WILL BE MEETING WITH CHINESE LEADERSHIP HERE. NOVEMBER IS MY OPERATIVE GAS. DOES THAT CHANGE THINGS?
HOW IS THAT NUANCED IN THE COMING DAYS? ANNMARIE: I'M DEFINITELY NOT GOING ON A PLANE TO BEIJING. IF BIDEN IS SET TO MEET WITH XI JINPING IN NOVEMBER THAT WILL BE IN THE UNITED STATES. WE WILL BE GOING ALL OF US TO SAN FRANCISCO, WAKING UP EARLY TO MAKE SURE THAT WE HIT THE 6 A.M. EASTERN TIME FOR SURVEILLANCE. THAT WILL BE HAPPENING AT THE APEC SUMMIT. TOM:
SEE HOW SHE DOES THAT? JONATHAN: LOVE IT. ANNMARIE: THE TWO OTHERS COULD MEET AT THE G 20 INDIA SUMMIT. YOU MIGHT WANT SOME MORE TIME IN NOVEMBER BUT THIS IS OBVIOUSLY A GUESSING GAME AND WE EXPECT THE TWO TO MEET AND HAVE A PHONE CALL. WHEN IS THAT PHONE CALL THAT FIVE KEEP SAYING HE IS PLANNING TO HAVE WITH XI JINPING? I DON'T THINK THAT THE PATHWAY HAS CHANGED BUT THERE IS A LOT OF CURIOSITY GROWING WITHIN THE STATES AND WASHINGTON, D.C. ABOUT WHAT HAPPENED TO THE FORMER AMBASSADOR AS HE WAS REALLY A RISING STAR IN THE CHINESE GOVERNMENT APPARATUS. JONATHAN: AT THE MOMENT THE PRESIDENT IS GOING INTO AN ELECTION YEAR. THE STATUS QUO BETWEEN CHINA
AND THE UNITED STATES, BENEFICIAL TO THE PRESIDENT? ANNMARIE: STATUS QUO AT THE MOMENT IS THEY ARE TRYING TO SET A FLOOR, WHICH THEY HAVE BEEN TRYING TO DO SINCE NOVEMBER. BIDEN SAT DOWN WITH HIS USING PAYING IN BALI. I WAS THERE FOR THE MEETING AND THE WHOLE POINT OF THE MEETING WAS TO SET GUARDRAILS AND CONDUCT WASHINGTON TO BEIJING COUNTERPART TO COUNTERPART CONVERSATIONS. WHAT WE HAVE SEEN IN THE LAST MONTH AND A HALF OR SO IS A NUMBER OF THOSE MEETINGS TAKE PLACE. YELLEN, JOHN KERRY, BLINKEN WENT OVER. BUT OBVIOUSLY WHAT HAS REALLY
CHANGED? NOT MUCH BESIDES A DIALOGUE THEY WANTED TO DO ALMOST A YEAR AGO. AND WE ARE STILL GOING TO SEE THIS ADMINISTRATION COME OUT WITH MORE MEASURES AGAINST CHINA WHEN THEY LOOK AT NATIONAL SECURITY ACCORDING TO THE TREASURY SECRETARY AND WE CAN SEE AS EARLY AS THIS MONTH, AND OF NEXT MONTH, THE EXECUTIVE ORDER IN OUTBOUND INVESTMENT WILL BE GOING OUT THE DOOR. TOM: WHAT'S GREAT ABOUT THIS, WHAT ANNMARIE DOES, SHE'S NOT HOITY-TOITY POSH, SHE'S TOP OF THE MARK. SHE GOES TO THE TOP OF THE MARK, THE ICONIC WORLD WAR II BAR IN SAN FRANCISCO AND GOES DIRECTLY TO THE 312 HIT WITH US.
TOP OF THE MARKET SAN FRANCISCO, ANNMARIE IS GOING TO DO TOP OF THE MARKET AND GO STRAIGHT TO OUR TIME WITH US IN THE 6:00 A.M. NEW YORK HOUR. JONATHAN: EAST COAST WEST COAST, IT'S BRUTAL. IF YOU ARE LISTENING, THE TEAM OVER AT PIMCO, I FEEL FOR YOU. TOM: AND YOU NEVER GET USED TO IT. MOHAMMED TOLD ME THAT YEARS AGO. JONATHAN: I DON'T KNOW HOW THEY GET IT, I DON'T KNOW HOW THEY ARE DOING IT RIGHT NOW, IT'S TOUGH. ANNMARIE, THANK YOU.
PROSPECT AT THE END THERE FOR A MEETING BETWEEN TWO LEADERS. TOM: WITHIN THE CHINESE TURMOIL, WITH -- DIPLOMACY CIRCLES SAY THAT TODAY IS TOMORROW. JONATHAN: TOSSING THE SLOTH TO APOLLO MOMENTS AGO ON THE DEFAULT CYCLE. WE WILL GET INTO SOME OF THAT, TOO. EQUITY FUTURES ARE POSITIVE. THIS IS BLOOMBERG.
JONATHAN: FOUR DAYS OF SPX OUTPERFORMANCE. BASICALLY THE NASDAQ UNDERPERFORMING OVER THE LAST FEW DAYS. GREATER ON THE S&P, LOOKING SOMETHING LIKE THAT. FUTURES POSITIVE BY 0.1%. OUTPERFORMANCE AND THE NASDAQ, ATTENTION VERY MUCH ON BIG TECH, COMING UP LATER, WE WILL TALK ABOUT THOSE EARNINGS IN JUST A MOMENT. IN THE BOND MARKET 10 YEAR, TWO-YEAR YEAR, 30 YEAR YIELDS IN , FOUR BASIS POINTS.
COVERING IT ON THE 10 YEAR, TOM. THE CURVE STEEPENING A LITTLE BIT TODAY WITH THE TWO YEAR LOWER AND 10 YEAR HIGHER. JONATHAN: -- TOM: EARNINGS SEASON IN PARIS IS IN. I KNOW IT'S NOT THE SIZE AND CAPITALIZATION OF BIG TECH BUT THERE ARE SOME REAL NICETIES THERE ABOUT THE DELINEATION OF LUXURY THAT YOU HAVE MENTIONED WITH LVMH IN THE OTHERS. JONATHAN: WEAKNESS IN AMERICA, WHICH WE'VE HEARD IN THE LAST COUPLE OF WEEKS. THEY ARE THE BRACELET WITH A NAIL. YOU GET A NAIL FOR MORE MONEY
THAN GOD AT HOME DEPOT. I DON'T KNOW HOW YOU GET IT ONTO YOUR WRIST. JONATHAN:. FASHIONABLE. IT WORKED SEVERAL YEARS AGO AND YOU SEE PEOPLE WITH THE MOLE IN THEIR ARM. IT'S A NAIL, YOU'VE DESCRIBED IT. TOM:
YEAH THAT IT'S SOMETHING YOU USE WITH A TWO BY FOUR. JONATHAN: I'M SURE CODEY -- CARTIER LOVES THIS CONVERSATION. SIX DAYS OF EURO WEAKNESS CONTINUES. -0.2% ON EURO-DOLLAR. TECH EARNINGS RAMPING UP WITH
RESULTS FROM MICROSOFT AND ALPHABET AFTER THE BELL AND INVESTORS LOOKING TO SEE IF THE OUTLOOK FOR ARTIFICIAL INTELLIGENCE CAN CONTINUE TO JUSTIFY A MONSTER RUN UP. YOU ARE FAMILIAR WITH GAINS BUT IT'S WORTH GOING OVER AGAIN. MICROSOFT, YEAR-TO-DATE, ALPHABET AND GOOGLE, 30 8%. WHAT A MOVER SO FAR. TOM: BIG MOVES AND THEN YOU SAY THAT'S THE ZEITGEIST. I LOVE HOW DAN GREEN PUSHED AGAINST THAT, I CHARACTER OF EARNINGS THAT'S IN EVERY SECTOR OF THE CONFERENCE CALL, AWAY FROM THE AI IDIOCY AND IT WILL BE INTERESTING TO SEE WHAT MICROSOFT SAYS JUST ABOUT A THREE YEAR STRATEGY.
CLOUD, ENTERPRISE, THE REST OF IT MOVING FORWARD. JONATHAN: YOUTUBE AS WELL, GIVEN THE COMPETITIVENESS. TOM: I'M NOT UP ON GOOGLE OTHER THAN IT'S A SEARCH ENGINE. WE SPENT 10 YEARS BEING WRONG. JONATHAN: I THOUGHT BEING IS GOING TO TAKE OVER. TOM: LIKE THREADS.
I WENT THERE AND SAID GOODBYE. WHAT ELSE IS UNDER SURVEILLANCE? JONATHAN: LOOK AT THE DATA, PMI YESTERDAY WITH BUSINESS CONFIDENCE OUT OF GERMANY. LOOK AT THIS, THE LENDING SURVEY COMING FROM THE ECB SHOWING DEMAND FOR CROAK -- DEMAND FOR CORPORATE LOANS DROPPING OFF A CLIFF. THE RATE HIKE HITTING DEMAND FOR MORTGAGES AND CONSUMER BORROWING AND A SLOWDOWN THERE. YOU CAN SEE IT IN DEMAND GROWTH AND IN THE ECONOMY. TOM: EVERYONE TALKS ABOUT THE DRAMA BUT THE BOTTOM LINE IS THE NITTY-GRITTY. THE BRIAN MOYNIHAN OF IT.
WHAT ARE WE DOING WITH DEPOSITS AND LOANS? THIS IS ON THE LOAN SIDE. AS I MENTIONED IN THE LAST HOUR. IT'S HUGELY IMPORTANT, OVERWEIGHT IN EUROPE BECAUSE OF THE BANK LOAN FIXED INCOME NATURE OF EUROPE VERSUS THE FINANCIAL IS ASIAN OF AMERICA. TOM: -- JONATHAN: PRESIDENT LAGARDE ANTICIPATED TO HIKE INTEREST RATES BUT THIS STORY IS NOT THE SAME AS THE ONE FOR THE FEDERAL RESERVE AND THE UNITED DATES. IT'S JUST NOT. IT'S BECOME REALLY DIFFERENT AND AS SOMEONE POINTED OUT TO ME EARLY THIS MORNING, OBVIOUS, DIFFERENT SINGULAR MANDATE ON THE ECB. INFLATION, GOT TO HIT IT.
UNITED STATES, WHAT'S THAT GOOD STUFF? TOM: I TAKE THAT POINT, IT'S VERY IMPORTANT, BUT THAT SAID IS IT ARE THEY BEYOND EUROSCLEROSIS? WE TALKED TO THE FORMER PRIME MINISTER OF ITALY ABOUT THIS. I DON'T HEAR ANYONE TALKING ABOUT IT. WE HAVE MOVED BEYOND IT MAYBE TO A BETTER PLACE. BUT IS THERE A BUOYANCY TO THE GAME? I'M NOT SURE. JONATHAN: SUSTAINED EURO STRENGTH MEANS SOMETHING BIG COMING OUT OF CHINA. MY WORDS, NOT HIS.
STOCKS RALLYING AFTER PLEDGES YESTERDAY FROM USING PAYING AND THE POLITBURO, THE LEADING POLICY BODY IN CHINA TO BOOST ECONOMIC GROWTH. YOU HAVE GOT THE CHINESE ENTERPRISE INDEX UP BY MORE THAN 5% IN HONG KONG, TRACKING THE BIG CHINESE COMPANIES LISTED. THAT MOVE, THE BIGGEST SINCE NOVEMBER AND REMEMBER NOVEMBER THAT WAS AROUND THE CHINA REOPENING STORY. THERE'S A BOUNCE, THERE. LET'S SEE IF IT IS SUSTAINABLE. TOM: I WOULD EMPHASIZE BOUNCE. IN A STANDARD DEVIATION IT'S
NOT MUCH OF A MOVE. I'M GOING TO SUGGEST THAT WE WOULD HEAR FROM STEVE ENGLE AND OTHERS REPORTING FROM CHINA THAT YOU CANNOT CONFLATE THE DIPLOMACY AND FOREIGN AFFAIRS HEADLINES OF 20 MINUTES AGO INTO AN ECONOMIC FINANCE ANALYSIS. I DON'T THINK YOU CAN BUNDLE THEM TOGETHER. JONATHAN: IT'S ALL HANGING ON THAT RIGHT NOW ISN'T IT? TOM: IT'S CRAZY.
FUTURES ARE UP FOR MARILYN WATSON BRIEFS. HEAD OF GLOBAL FIXED INCOME STRATEGY AT BLACKROCK. INCREDIBLY IMPORTANT CONVERSATION, FOLKS, ON THE FORWARD PRESCRIPTION, WHICH IS TO BE FLEXIBLE AND NIMBLE, EDITORIALIZING INTO 2020 FIVE. HOW AM I FLEXIBLE AND NIMBLE CLIPPING COUPONS IN FIXED INCOME? >> WELL FIXED INCOME AT THE MOMENT I THINK YOU NEED TO BE FLEXIBLE AND NIMBLE BECAUSE IT'S A VERY UNCERTAIN ENVIRONMENT. STILL. AT THE MOMENT YOU CAN GET VERY ATTRACTIVE CARRY AT THE FRONT-END OF THE CURVE AND IN COMMERCIAL PAPER IN SOME SHORT DATED INVESTMENT GROUP BONDS.
AT THE MOMENT, IT PAYS TO NOT TAKE TOO MUCH RISK BUT CLIPPED THOSE COUPONS AND GET THE INCOME . AS THE ECONOMY EVOLVES IN THE U.S., EUROPE, AND ELSEWHERE, AS WE GET MORE INFORMATION FROM THE FED TOMORROW AND THE ECB ON THURSDAY, OVER THE NEXT FEW WEEKS AND COUPLE OF MONTHS AS WE CONTINUE TO SEE MORE ECONOMIC DATA FROM THE U.S. AND EUROZONE, WHICH AS YOU MENTIONED EARLIER HAS SEEN SOME PRETTY WEAK DATA, WE WILL CONTINUE TO SEE A SHIFT IN THE YIELD CURVE AND OPPORTUNITIES THAT ARE AVAILABLE . AT THE MOMENT I THINK I
2023-07-29 06:53
