With us. We welcome all of you to a news flow that is simply a cacophony. In the last hour, we really focused on the stimulus. In this hour, we got to focus on the fed. I downloaded tiktok this morning. Jonathan what was the first video . Tom unspeakable english. Certainly on bloomberg radio, it would be inappropriate. But the second and third video were the same way. Jonathan it is popular. We need to do a segment on irony. We are talking about forced sales, technology theft. The Chinese Communist party has been doing this for decades. The u. S. Administration has been talking about reciprocity. Now they are talking about, you know what . If we cant get access to you, you cant get access to us. Underwriting it all will be national security. That is the direction we are challenging here. To be behind microsoft, it seems. Cash, theyillion in certainly have the money to take a dalliance here. That really speaks within technology to finally use some cash. Lisa the question is, will they be allowed to spend it come up with President Trump pushing back unless the u. S. Gets some sort of kickback from tiktok. Its like hes an m a banker. Hes the president. Lisa but the other issue is you have china pushing back. The phrase of the morning in my mind is techno nationalist. Jonathan i like that. Lisa this move towards 5g, this sets a precedent in order to try to nationalize some of these networks after globalizing the in the years leading up to this. Jonathan it is a long way from the tom it is a long way from the multilateral approach of years ago. Yields come in a little bit. It certainly has our attention as we go to claims on thursday, the jobs report friday. Right now, synthesis. We can do that with geoffrey yu of bny mellon. He does wonderful work in the foreignexchange space, but much wider than that. The conundrum of these low interest rates. Are you focused on the real yields. Tom absolutely real yields geoffrey absolutely real yields. Get inflation to escape. Hilology to escape velocity jonathan that is the objective right now in the United States. You think yield curve control is happening, whether they formalize it or not . Geoffrey in effect, i think that is what the market is pricing in. If the central bank doesnt announce it, but if you keep markets believing for long enough, such that it is effectively priced income of than the Central Banks in toeral, i think they will scott their hands and say job well done. It is always about expectations. If they can get longer dated Inflation Expectations up, that is a job done, but that is a missing piece of the puzzle right now. Jonathan do you think they can . Geoffrey this debate about whether they want to start to target average inflation, not the spot inflation, i dont think we there yet. If your starting point is one, than for the sake of argument, it doesnt matter that youre in point is four or five. You need Something Like that enshrined. The fed Monetary Policy review. S coming up lisa i want to talk about the reaction fraction the reaction function from the Federal Reserve. The u. S. Treasury announces a nearly 1 trillion barring plan the next few months. Is this plunge protection control . Is the fed going to prop up asset prices indefinitely until ome riproaring inflation that is not on the horizon right now . Geoffrey i dont think any central bank will actively admit that, but they know if you do get a market selloff, equities selling off, that is a tightening in financial condition. In reality, the economy might be able to withstand that hit, but no central banking once you take the chance right now, so they will keep going until we get to escape velocity. In yield curve control already. As are the japanese. They might start to say we are controlling a part of the curve we are comfortable with, but at the far end, that starts to steepen. They are ok with that. But they have a set target right now, and they are going tick with it with asset purchases. Lisa right now the real rate on 10 years is. 05 . What is the breaking point here . Ways to there are two thing about this. Is it a down point to the downside . No matter how low you to press real rates, it is not going to affect it. Or there is going to be a lot of control, a lot of credibility, upside inflation risk. I think right now, Central Banks are maury are worried more about deflation. We are doing yield curve control sort of like, and you just correctly stated they are worried about disinflation and downside moves. What do you see in the tenure tips . Ee convexity and sons convexity and some sort of centralization with a low uriel yield. Geoffrey that is something central bank will have to try to manage us tightly as possible. At the five breakevens right now. Do you want to contain that to make sure it doesnt soar as a sign that the Central Banks are restrictive . Weve gone from these areas and marched down to 1. 5. If it is suddenly just expands exponentially, that is a loss of control, a loss of credibility. The risk is always you dont know you have lost credibility until you actually lose it. I think that is a risk Central Banks will have to take. Jonathan lets get to what that means in the fx market, with the u. S. Dollar on the one side. How would you push this through g10 right now . Geoffrey irrespective of what the rba said overnight, i am still very constructive owning aussie. It got some china tailwinds. Property is inflating. Nero, we are. Omfortable adding long i am of that more concerned about being worried about disinflation. Others are asking about the narrative. Are we seeing a shift . Is china going to push for a second wind of renminbi . Jonathan if someone says to me they like the aussie, they like the euro, i think they think we are going to get a pickup and cyclical growth and return to risk appetite. But when they say we are talking about dollar debasement, it is Something Else. Which one is it . Geoffrey one is the short term. They get their covered reaction functions right. With government investment, that is a cyclical upturn. , what isollar story the future for with their currencies in this new policy paradigm that we have . All of the dollars relationship to risk, to cash, that starts to change. Jonathan i cant let you go without getting you on this. Did you ever think we would talk about the loss of reserve currency status with the index in the 1990 in the 90s . U. S. Dollar will always be a reserve currency, 60 . Ill it always be. Hey plateaued but is this a oneyear story or a tenure story . Or a 10 year story . Jonathan fantastic to catch up with you. Some really good points there. For the short term cyclical argument and the longterm structural. For those of you in america, let me be lent. Jon has got this in his blood. It has a foundation of all they do in london. You have to look at it every day. This attention on dollar, you mentioned the reserve currency status come but there is tension. Ight now jonathan i missed the city. In a cab in london, they will ask you about foreign exchange. In new york, they will ask you about things like coin and the latest hot stock, whatever it might be. That if the trans atlantic difference. Tom i missed a city, too. Jonathan that little bar that you liked going to . I think i missed the city for different reasons. We know what you get up to in the city. With got time. We can talk about it. Lisa dear lord. [laughter] tom lisa, im sorry. The bonds speak. Where it iscamp about bonds speaking right now with a vengeance, and the economists have to follow along. Lisa growth is going to be very slow, and people are buying bonds even though they are losing money on an inflationadjusted level. Tom ritika i think thats very true ash tom i think thats very tom i think thats very true. Jonathan do you remember of the night of the brexit vote . Tom it is a blair. [laughter] jonathan coming up on this program, john ryding of Brean Capital. This is bloomberg. Ritika with the first word news, im ritika gupta. President trump may take executive action if congress cant agree on a new stimulus package. He imposed he might impose a moratorium on a uninsurance payments he might impose a moratorium on evictions. Tiktok in the scale of the money would come from china or from an american buyer such as michael soft. The buyer said tiktok would have to close unless an American Company buys it. Hurricane isaias was downgraded to a Tropical Storm as it made landfall and moved inland over north carolina. It has prompted Tropical Storm warnings all the way into maine,. Ncluding manhattan the storm doesnt pose a threat to Major Oil Refineries or platforms. Bp has cut its dividend for the first time in a decade. That removes the cornerstone of its Investment Case after global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im ritika gupta. This is bloomberg. Pres. Trump the United States should get a very large percentage of that price because we are making it possible. Without us you know, i use the expression, it is like the landlord and the tenant. Without the lease, the tenant doesnt have the value. We are in a certain way the lease. We make it possible to have this great success. Jonathan the president of the United States with truly an unprecedented statement as micro soft continues talks with tiktok to buy its u. S. Operations. Absolutely unbelievable. Alongside tom keene and lisa abramowicz, im Jonathan Ferro. Around one hour and 12 minutes away from the opening bell, your equity price action shaping up as follows. 500, 0. 4 . He s p up performing in the fx market,. He swissie, the euro at 1. 17. R the 10 year at 0. 54 . Tom we will see if we go down to a record 10 year low. We are close to it. Out was ar is wonderful book on instagram, no filter. We want her to dovetail the oddity of microsoft going after tiktok. Full disclosure, i am really ignorant on it. And to do it with someone who knows the strategic realities of microsoft. Chase. Just cut to the they are going to buy tiktok maybe. Is it a dalliance, or do you see a Strategic Initiative here . I dont think it is strategic at all. It gives them entry into the digital ad market a little bit stronger, but the revenue buffer is selling software to enterprises. I think they should stick to that. Jonathan i am trying to understand what a fire sale is and what the price for that would be, and what i fair price is. That is going to be tough. Goes from 500 million to 1 billion. Frankly, it could be anything. Stockday, microsoft went up by 5 , 6 . Billion in cash, they could pay whatever they want. Sign thathis a microsoft wants to compete on the content side in a way that apple tried to do with their offerings . More moving to an entertainment aspect and away way they havent in the past . No, i think this is just opportunistic. They are trying to do the president a favor. No one else can buy this thing. Perhaps only private equity out there. They will maybe get some more defense contract out of it. Economicst from any at all. It does give them a little more footprint in the digital ad market of north america, but , for microsoft, 150 billion dollars in revenue footprint is a drop in the bucket. Tom your world is part of agreements and contracts in this. Do you have any sense of an arm length distance of tiktok from the Chinese Government . Tom i think it is not going to be easy to get this done just because it has become extremely politically hot. Whether this phone takes it whether this takes a different shape after the elections, i itnk it is possible, but now seems to be the most popular thing. Jonathan i want to switch the news tom i want to switch the news off of tiktok into the distribution characteristics you are excellent at. What is the theme the media is missing for next year in your world . What is the thing we are not yapping about right now . The of these high tech stocks. They are currently trading even that reallyubble did well post covid. Frankly, i dont think many people are talking about that. I keeplisa lisa talking about this phrase for the morning, techno nationalism. This idea that what we are seeing with tiktok is part of a broader wave to bring and Keep Technology in the United States and not import from china. What does it mean in terms of and elopment of five t of 5g and what people should expect in the United States . I think the biggest piece that will come out of that is regulation. Not allowed to store things outside because it protects the citizens, and no one can harp on that data. As far as 5g and other technologies are concerned, they will be shared over time with different countries. I think it will be very difficult to stop the development of those emerging technologies. Jonathan state capitalism chooses winners. There has been a narrative in this. Europe, the United States will start picking National Champions. Where, itrly at space is 5g. We have a government that is picking a National Champion for financing the more, idly subsidizing them. It is ay, i think driver for them. Emerging market countries, if each stock behaves like that, we could get the same counter from them. Those are the markets we really need because those are the ones that are growing. I think it is going to hurt us more than help us. Jonathan we will see what happens. Lets continue this conversation, for sure. A conversation that is going absolutely nowhere, and you can see where this is going. Point, this is the direction of travel, and it is concerning. I totally agree that there is a regime shift here in terms of the dialogue. I happened to be in Hong Kong Bank collapsed. Youre right, it is an absolute regime change. Jonathan i have heard this so many times over the last several years, the world breaks down into two spheres of influence, and we have individual tech champions driven by china and the United States. I think this is a very small story in the sense that we are just talking about tiktok, but has much bigger implications. Coming up on this program, john ryding of Brean Capital as we count you down to an important week for payrolls data this friday, and jobless claims this thursday. The price action shaping up as follows. 0. 4 . Futures off by stronger euro by lower by 2. 7 basis points. This is bloomberg. Jonathan from new york city, this is that we go to bloomberg surveillance this is bloomberg surveillance. The opening bell 60 minutes away. The price action shaping up as follows. Down 13 on the s p. , took a sneaket peek at 1. 19 last friday, sailed in at 1. 17 eurodollar. To. 53. Es down it feels like a snooze. It feels like a summer tuesday. It is actually pretty big. The price action does not speak to it. The talks in washington, big tech, payrolls data friday. Tom it is not a snooze. I am looking at the bloomberg terminal and the bond market is screaming at me this is not a snooze. The two year has not budged. Lets have our conversation on the day on the foundational theories of this economy and the central bank. There is no one across the atlantic Better Qualified than john ryding. His original work for mr. Malpass at bear stearns. Now krieg capital as the chief economic advisor. At green capital. Eanis defendant now at br capital. He is definitive on the theories of the fed. What is the theory of this fed . John it is shifting to do whatever it can to support the labor market, to support minority and underprivileged groups within the labor market that have suffered higher unemployment rates over the years, and paying less attention to price stability. The good news is inflation is news is it puts too much onus on the fed, when as we know from what happened in the second quarter, timely is much more important to stabilizing the real side of the economy. Tom what is a statistic you have in your head for how much the stimulus should be . Everyone says republicans are undershooting at 1 trillion. Do you have a number in your head over the next year where the stimulus is going . Could it be 5 trillion . John i do not have a number because i do not know how the virus is going to play out and i do not know how the medical response, particularly the timing of the vaccine will play out. We need a physical bridge and a monetary we need a fiscal bridge and a monetary bridge. The economy has rebounded nicely in may and june. We will find out about how china how july began. It looks like the pace of improvement has flattened out. You pointed out earlier in the show about my former Center Fielder at the new york fed, ethan harris. I agree with him. The number could be one million, but we would not be surprised by a negative print in terms of some of the things we see. There is uncertainty about what happened last month given the data we have. It is impossible to know how the next six to nine months are going to play out. My guess is by the end of this year, we will still have a substantial amount of unemployment, perhaps 8 , 9 , maybe higher. That is a lot of people unemployed through no fault of their own. The good news is in the short support was such that it more than replaced the lost wages. There is the savings pushing. Cushion. Is the savings it is not a shock. It is a problem for many households, but in total it will not be quite the shock some peoples calculations suggest. I think we need to extend some form of extended unemployment benefits. Jonathan forgive me. Did you really used to call ethan harris his man harris . John i absently did. He was a Center Fielder, cleanup hitter. Jonathan did anyone else . The i coached and managed new York Fed ResearchSoftball Team and ethan was my Center Fielder and cleanup hitter and got a lot of hits. I gave nicknames to everyone. Ethan was hit man harris. Name i would a ever give to ethan harris. You touched on the price stability mandate. It came out of the 1980s with mr. Volcker, the war against inflation, then the independent in the 90s. I wonder what this new era is and what it looks like and whether it is the light move to leave behind the work of last several decades . John i do not think it is. Obviously the pandemic is unlike something we have faced in the last 100 years. Last time the u. S. Faced a pandemic of this magnitude, the Federal Reserve system was four years old. We had a very different view of the role of Central Banks in those times. Now understand the here and is focusing on the economy, focusing on employment, and that is appropriate. Tos obsession that we have raise the inflation rate to 2 when i can find no serious work that says unless you have a collapse in price like we had in the great depression, running an inflation rate. 5 lower on average than 2 is a bad thing and we have to elevate the inflation rate. I find that curious and somewhat misplaced. Tom that goes to the heart of your work over all of these decades. Is there any proof of central bank can catch up with elevated inflation . I was talking to charles , on the show the other day, and i chatted to him after your show. There was a point i agree with. If you have not been able to hit an inflation target and you keep saying that is what you want to accomplish, then you are in danger of undermining your credibility when it comes to other important things. That is tremendously important. If there is no economic damage being done by an inflation rate of 1. 5 , there may be economic benefits, i do not know if you tap a person on the street and ask them, is the inflation rate too low, i do not know many people who would say it is too low. I would like to have my purchasing power eroded more quickly. I do not know anyone who would do that. There is this academic view at the fed that somehow the economy would perform better at it too Percent Inflation rate over time that a 1 or 1. 5 inflation rate. Lisa the idea, especially as the United States adds more and more debt, the theory is we could inflate away the debt roads. The rate of inflation will make money cheaper so it be easier to pay back the debt. What are the consequences if that does not happen . How much do taxes go up if we do not see growth picked up at a faster speed that it is now . John you will not find that theory espoused at the fed. You will not find people at the fed who say the reason we wanted a higher and nation rate is to inflate away the deck. Over time, we get the fishery equation we get the fisher equation, higher Inflation Expectations, and that is something the fed would resist, so the fed would have to buy more and more debt through qe, and that has the potential to be a dangerous spiral. The economy would work better if people believe the inflation rate will be 2 . There are studies that show a 40 ofensive study people thought the inflation rate was 10 or higher. The public do not understand the nuances of inflation, and certainly not the measurement nuances between 1 and 1. 5 and 2 . Tom time for one more question. We are seeing and unraveling of the real yield. The 30 hit a new lows year bond, 1. 19 right now. Do you have in your mind what the fed does if we get a convexity, if we get an acceleration in the decline of the real yield . Note i explained that in a we put out on friday, which goes back to the fisher equation. Thefed is trying to repress nominal yield, it is doing that quite successfully. They are trying to get people to believe in a higher inflation rate, and people are believing in a higher inflation rate and so Inflation Expectations are moving up, inflation breakevens are moving up. The fed cannot repress that. They are left with the real yield, which is the residual, which has to be negative. I do not believe a real yield of 1 is a growth reading for the outlook for the u. S. Over the next 10 years. It is a residual from a combination of interestrate repression on the nominal yield and rising Inflation Expectations, which is also an active fed policy. Tom what you just heard from mr. Riding is the real yield a function or does it initiate the function . That is the arch debate of modern economics. Jonathan john ryding, fantastic to catch up with you. This extends to irving fishers work. I remember his work would always talk about nominal wage growth is more important than real wages. For people that is really a. What your wage goes up in nominal terms that is a real experience. What your wage goes up in nominal terms is much better tom this was the collapse of the wage in the United Kingdom in tough times. That is not envisioned for the United States in 2020, but it is a legacy of fear drives policy. Jonathan it is not, but Something Else is important. The monopoly that certain ideas have and academia and in central banking. One of them is higher inflation is good and disinflation is bad. If there is any criticism of the Central Banks, it is that we do not have alternative opinions. Theres a lot of groupthink and i thought it was refreshing to have Charlie Plosser on the program. You remember the new york fed 10 years ago when we had Richard Fisher and Charlie Plosser giving me the alternative view constantly. I think that is healthy and absent at the moment. Tom it is important, but with the first major with the force Majeure Conditions we have, it is hard to get a groupthink. Jonathan from new york city, alongside tom keene and lisa abramowicz, im Jonathan Ferro. Equity futures down 15. This is bloomberg. Ritika with the first word news, i am ritika gupta. President trump is turning up the heat on congressional negotiators. He says he may take executive action to stop evictions and an active payroll tax holiday. Republicans and democrats say they have made some progress in negotiations but they are still far apart on key issues. Chinas next target in the growing tensions with the u. S. Could be american journalists in hong kong. That is according to the editorinchief of chinas global times. It has become known for accurately predicting beijings action. He says if chinese journalists are forced to leave the u. S. , the chinese will retaliate against american reporters in hong kong. Argentina moves closer to ending a monthlong standoff with investors. It says the deal passed by the large editor group to restructure 65 billion of debt. That may open the way for one of the worlds most notorious borrowers to climb out from its third default in two decades. Here in new york, facebook has signed a lease for all of the open space at the farley building. That is the former post office on manhattans west side that is being redeveloped. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. I am ritika gupta. This is bloomberg. We had all of this oversupply that had been built up because of the drop in demand earlier this year and i think it will take until the middle of 2021 for that excess inventory to be worked off. You will have a challenging Energy Industry and oil market, probably for the next six to 12 months. President dallas fed Robert Kaplan on bloomberg tv and radio. This is bloomberg surveillance alongside tom keene and lisa abramowicz. ,oming up in about 12 minutes catching up with lisa shalett of morgan stanley, Wealth Management cio. Looking forward to that conversation. Tom hugely timely given where yields are moving. Acute story. Futures 14 a huge story. Futures 14. The 10 year yield directionally towards making history with the new low. 524 intraday guilt. 524 . Intraday yield. 524 . Jason gammel joins with jeffries. Hugely prescient on the larger dynamics of oil, folding them into the future of oil. Jason, i have to start with upstream and that is always identified with the romance of the British Petroleum company. Bp cutting their dividend. We saw the exxon disaster of a few days ago. Where is big oil in 36 months . 36 months from now we are most likely in a much tighter Structural Oil market. I think inventories yet worked down over the next year so, and theres not a lot of investment being made on the supply side. Demand is tenuous. There would be big risks for that. I think that if conditions return to something approaching 50 at, oil could be under that point. Jonathan what is the most asked tom what is the most efficient price. We will start with saudi arabia. What price do they need and does it dovetail with bp . Jason in terms of production cost, it is very low. Their variable operating costs are only three dollars a barrel. It does not tell the story. The kingdom need Something Like 65 to 70 to balance their budget. A different towards price of 35 a barrel. Relative to the governmental, they are quite competitive. Lisa bp cut its dividend for the First Time Since 2010. A lot of people own these oil stocks in order to get the dividend, and yet bp shares are up 6 . Are we entering a new regime where there is another logic behind the purchase of an oil major that has to do with trading revenues or perhaps their green pledges or Something Else . Itself,n the dividend the cut was widely expected by the market. The stock is 12 on the previous dividend. Cut was at the better end of what the market was expecting. That could be part of the reason the stock is doing so well and still yielding 6 . You make the important point about energy transition. Taken the actions bp has is the strategic rethinking of the company, being more compliant with a low carbon world. I think attracting generous and back tears generous investors to the sector will require strategy around energy transition. Lisa which oil major is taking the best advantage of the carnage ongoing in the shale patch right now . Jason i would probably start with chevron. They entered the downturn with the best Balance Sheet in the sector and they have moved forward with the acquisition of mobile energy. That is not just about shale, chevronsevron but mining quite a bit of production because they have the capacity to do so. A you think we are bankruptcies are heading towards the peaks we saw years ago. Wehave morehead and dashed have morehead in terms of bankruptcies do we have more ahead in terms of bankruptcies . Jason the lardner the longer wt prices stay below 45, that is more likely to happen. We are getting closer to a trough and activity levels. We are down to 125 rigs in the permian versus 400 when we started the year. It is pretty tough. Not a lot of people making money. Tom i will go with that. Youve been brilliant on the rollup of the industry. Do you expect a massive rollup because of a dearth of and theility flexibility profitability gives you . It has evaporated. Are we going to see one big rollup . Jason i am unsure it will happen at the corporate level. It could happen on the asset level instead. Wellcapitalized companies could be buying Good Properties from groups looking to settle the inity they have had to take companies they do not want ownership of. I think you are correct this is a business that was in too many hands and needs to be run more efficiently. Tom what is your single best buy right now . Jason i like chevron best. They are in the strongest financial position within the sector with the Balance Sheet they have and they have had a pretty poor quarter in the second quarter, but i think the fun starts to decelerate. Probably thanking themselves for stepping aside on anadarko. As we go to the 9 00 hour on radio and television, there is no question the deterioration of yield. 100 30 day intraday chart on the 10 year yield and we are right down on a record low. Lisa we are heading there. What is interesting is we are seeing a better economic backdrop. How much is full faith and credit to buy longer data longer dated debt . It was interesting to me when Robert Kaplan was on bloomberg surveillance and he said they have not had to buy that much. All they had to do was signal they would. What happens if you are tested on that . What happens if yields go up . How much bigger with the Balance Sheet cap. How much are they willing to commit . Faith the has full fed will have their backs. Tom i get the fed, the Party Politics in all of that. I look at this as a vote on the economy and jobs and does it dovetail into friday and it dovetail into gdp estimates changing q3, q4 . Lisa i still do not know if it justifies buying 10 year treasury yields at. 5 . Even if you expect the economy to gain even if you expect the economy to be poor, do you think that is a good bet given where real yields are . Jonathan i am looking at tom i am looking oil with a 40 handle and a 39 handle would change the discussion. The two year yield has broken down fractionally. Futures 15. It is a tuesday. Lisa abramowicz and i will be on speaking terms with friday with Jonathan Ferro on friday. That day really matters. Please stay with us through the morning. I believe there is a tv show following, and on radio paul sweeney and myself will drive the conversation forward. This is bloomberg. Good morning. You doing okay . Yeah. This moving thing never gets any easier. Well, xfinity makes moving super easy. I can transfer my internet and tv service in about a minute. Wow, that is easy. Almost as easy as having those guys help you move. We are those guys. Thats you . The truck adds 10 pounds. In the arms. Okay. Transfer your Service Online in a few easy steps. Now thats simple, easy, awesome. Transfer your service in minutes, making moving with xfinity a breeze. Visit xfinity. Com moving today. Jonathan from new york city for our viewers worldwide, good morning, good morning. The countdown to the open starts right now. We begin with the big issue. The pressure is building and it shows. Leadership from both parties talking up progress. We are getting an understanding of each sides position and we are making some progress on certain issues. There a lot of issues still outstanding. I think there is a desire to get something done as soon as we can. We continue to work. Jonathan secretary mnuchin echoing that sentiment, saying we made a little bit of progress. Investors keeping the faith something gets done. Cornyncan senator john acknowledging the pressure, saying i do not see how we can go home and tell people we failed. Joining us from washington is kevin cirilli. They