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Tesla, apple story. It harkens back so many times to derivative excesses. We have the right guess coming coming up guests on this. Jonathan futures down hard. Down 1. 9 . Never mind the next couple of hours. What is softbank . Tom this is the heart of the matter. This is real simple. They publicly traded Company Acting in an investment capacity. Beautifully done up by the zero hedge at abu dhabi. X going to big guys, etc. X Deutsche Bank gus. Guys. People are seeing the unwind of a successful derivative strategy. Jonathan lisa, a little bit of supply a little later. Lisa this is the tension. The safety bid in treasury. We dont how big it could get. 50 billion sale, three your notes today threeyour notes today. Curious to see how much there is in terms of organic demand for this offering. Negotiator is trying to forge a deal before a key october 15 meeting with eu leaders. Tom can ask john questions about brexit that john loves to answer. The senate will be returning with a goal of stimulus package. Exactly to that point, this is one of the most interesting aspects of the past few weeks. There has been a shift away from talking about the inevitable of the deal getting done to now saying, you know what . The likelihood of any deal is getting smaller and smaller as the data comes in betterthanexpected. Jonathan lets avoid the brexit conversation for an hour. Give me 60 minutes to catch my breath and talk about some thing else. Lets talk about the physical effort down in washington. Larry kudlow after those numbers came out on friday, the payroll figures. Is he comfortable if they dont have a fiscal deal before the election . He said we can live with it. That is the administrations stance at the moment going into september, october, and heading towards the election. Tom 55 days until the election. Kevin cirilli was good this morning about recalibrating after labor day. I will not answer the question. , suggesting areg late 10 to 13 of america is undecided. I have never seen that. Jonathan lets get to the price action. Equity futures are down. Here is the mover. Nasdaq down. 1. 85 . Ion by. 8 it is a tricky one for christine lagarde. Just south of 70 basis points on the u. S. 10year. The story of the moment, what is happening with big tech and the options market. The perfect guests is stuart kaiser. Lets keep it super simple. What is the message for the client given what is going on right now and the last few months . Stuart you can interpret this to ways. The first is that this is the last gasp of the tech rally and the last legasing to the rally and hedging. Need tothe thing you worry about in terms of largecap Tech Leadership and quality leadership. The flipside is this is a healthy correction. You have seen across the board in the options base activity that could be read into ways. People were chasing the rally by buying call options and stocker placement. People selling the stock and replacing it with calls to reduce risk. Depending on which side of that you are on, you will have a slightly different view of things. People are piling into the tech trade, for it is prudent for me to reduce risk with key upcoming events. From my perspective we still think largecap Tech Leadership is sort of the way to be positioned. This is probably a shorterterm disruption for the markets. You need to respect the fact we have seen in two weeks 1. 6 million contracts added in the big five tech stocks. 70 has been call options. When that flow goes to the system the way markets trade. Tom stuart kaiser, we do quantitative finance folks on wednesday. We will keep it simple on tuesday. When thea way to know excesses of the softbank trade are done . Can you observe in the market when it is over . Stuart the positions are in place. I will not speak to anyone client. We have seen these flows across other investors as well. There are two ways they can come out of the system. They can unwind the trades which is probably unlikely in the near term, or the other side is the bank trading desk can adjust risk so those positions are not as disruptive to the market. What we have seen is the second thing going through the system. To risk adjust positions. Thats an ongoing process. You see what we have seen the past few days, a lot of volatility. Unfortunately, circular way in a circular way the market is calming down. Other ways of looking at that are we look at the ratio of nasdaq to russell implied volatility. Nasdaq volatility is about 1. 2 times as high as russell. Given the growth risks, which are not normal, and where is nasdaq implied volatility relative to the market . Tom you nailed this. Softbank is the buccaneer. I dont know who regulates them. I want to go to fooled by randomness. We are all fooled by softbank right now. What will global wall street do on their desks to adjust to this derivative shock . Is at what we have seen lot of these options positions has forced the market to use nasdaq and the index level to hedge risk. That is what you are seeing in the market today. People ended up sort of short gamma and it makes the market much more volatile when you get large moves. With the street is doing is using the nasdaq, using cash positions to reduce risk as much as they can. That is a turbulent process. Or awe are seeing is a 7 percent drawdown of the nasdaq highs as the street tries to absorb and redistribute the risk across the street. It will take a little time. Relative to the rally we have seen, the pullback is not that large. People get used to coming in every and seeing as up five weeks in a row and this becomes much more emotionally painful than it is for p l. This is just a process the street will have to go through today just the large positions unfortunately. Lisa does that also change the psychology of individual investors . Buy the dip may not work every time. Amazon down nearly 3 ahead of market opening with no discernible news at a time when people are counting on amazon to rule the world. Stuart it does change the market mentality. Five weeks in a row nasdaq was up. The large ones have just been easy trades. You buy them. You add to the risk and you just kind of set it and forget it. I think it does change the mentality a little bit because it has become harder trade. Retail money is either fast money or really slow money. They are buying stocks they like and plan to hold for a decade, that is slow money that is healthy for the market. Money, thenes fast you get a very emotional market that has a lot of shortterm volatility and trading action. We have been in that second case for the last week or so. They thought they could buy the stocks and just go about their business. There is risk in them. You mentioned a treasury supply at ecb, the fomc. These are real risks you need to manage ahead of time. I think it changes the mentality of the Retail Investor in particular, as well as the long haul community as well. Jonathan stuart kaiser, always great to catch up with you. We approach the back end of the year, summer is truly over. It is constantly refining the narrative to fit the price. Fooled by softbank. How many people came up with eloquent, nice, finessed arguments about what we have a surgeon august . Surge in august . Softbank acting like a hedge fund. Tom the numbers are worth repeating and thank you for really great work on this. The printed value of the derivatives. The cash in is believed to be for billion dollars. They made roughly 4 billion. They made roughly 100 on the trade. Who pays that bill . Jonathan li said you said something that turned out to be profound. If you think we have seen one now . Lisa it is hard for a reality check. I dont see any discussion about fundamentals. I dont hear people saying with the correct valuations of amazon, apple are right now given where we are with rates. This is the biggest conundrum to me at a time of technical disruption with the likes of softbank. Jonathan trying to justify the unjustifiable. Equity futures down. Nasdaq futures down a little more than 2 . S p 500. 6 . Surveillance. Erg up next, subadra rajappa. It would be unprecedented for an incumbent president to spend his money to win a second term. The president scrutinized heavy spending by his team earlier in the year. Joe biden has been raising more money than the Trump Campaign in recent months. Drugmakers racing to produce vaccines have come up with an unusual public letter. They promised to avoid shortcuts on the science as they are under pressure to rush a shot to market. The ceo of nine drugmakers signed the pledge. President trump says the u. S. Could approve a vaccine in october just before the election. China is proposing global datable to counter u. S. Moves on tiktok. Ed a proposaln to stop foreign governments from acquiring data. Tesla are falling today. The carmaker was widely expect it to be named to the s p 500 on friday but it did not happen. The decision was over questions about profitability metrics and a murky forecast. Global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. The tech sector is undergoing a correction right now. As you will know, that is a fairly normal item. I dont think anybody should panic. The economy is definitely improving. Jonathan larry kudlow. No sign of urgency. No sign of concern over the market as far as the fiscal stimulus packages concerned. No sign of real talks at all over the last month. Price action this morning. Shaping up, stateside, equity futures are lower. Nasdaq futures much lower. Off by more than 2 . Eurodollar, 118. Crude market, 5 . It is decidedly risk off this tuesday. Tom brent crude maybe at 39, 40. Three big figures. 34, showingup to some of the tension. With mr. Ersation kudlow falls into the state of the economy and what it means for politics when nobody cares about the economy. Kevin cirilli is an expert at this. Kevin, is perceived by both campaigns that it is a recovering economy . Kevin no, it is not. Thats a brilliant question. The Biden Campaign is sank this economy is not heading in the right direction, not recovering at the pace they would like to see and not moving in the direction the republican conservative ideology has only benefited the elites. In contrast to that, republicans are sank the economy is moving in the right direction are saying the economy is moving in the right direction. It is a consequential crossroads American Voters are at right now. Should they choose to have a single party, whichever party, be in control of both chambers and the white house, the recovery route voters will choose to take is incredibly different depending upon the party. That is why it has been fascinating to watch the recalibration in the senate down ballot races. A lot of swing states are now trending back towards a divided government, which indicates that republicans might control the senate. Tom 10 to 13 undecided. Down it really is coming to the lordstown vote in ohio or the inland vote in florida. We talked about kenosha county. This is the precise moment. I think what you are going to see from the left is, Harris Kamala harris will got to try to rally the base. She met with the family and legal team of jacob blake. To target theg same voters. See atrast, you will also similar strategy on behalf of republicans. The Vice President will try to rally the evangelical base. The president is going to try to go into the working class communities and get them back to reform that coalition. Jonathan what a weekend as far as china is concerned. Administration coming out swinging. What was your take . Kevin i talked to sources who said the president is considering banning cotton imports in retaliation for the oppression of the Minority Group in that particular region. China, 80 of chinas cotton exports come from that region. 30 of u. S. Apparel comes from china. The supply chain will really have an interesting effect, particularly for highend fashion brands in the united states. Beyond that, this is part of a broader strategy we talked about. As far as n, i saw tenent. Lisa i am looking at the august trade surplus with china. It rose to the highest since billion the trade deficit the u. S. Has with china. This comes after the measures the Trump Administration is put in place. Will they have tough talk with do more of the same . Kevin the president used the word decoupling. The trend of the rhetoric typically as we talk about coverage of this administration, typically the rhetoric is fiery and then the policy lags on behind. It is a much more measured policy implementation. There is no other way to look at this. Whether it is the pentagon report they cannot over the past week with regards to the military capability of china, for it is looking at how things like the imports. We have come a long way from the president promising foxconn facilities in wisconsin that are no longer following through. I was so emotionally taken by the end of mulan i am not speaking clearly. Kevin there is only one Jonathan Ferro. Tom does the president have 100 million to put into his campaign . Kevin i guess. Yeah. He is a billionaire. I guess he does. It is just a sign of the times of how expensive to put it into perspective, think of the cash the democrats and republicans are spending on this cycle in comparison to the fiscal stimulus that has eluded this town. Jonathan kevin cirilli, always great to catch up with you. Chief washington correspondent. Lets talk about the economic recovery. Of upside,pshot downside surprises. The u. S. Economy. Every single segment of the u. S. Economy still surprised to the upside. That is the data doing better than expected. Though recovery is doing better than expected coming into september. A lot of people work too bearish. Tom the way i frame it is people were delaying their cause for concern. What is critical is i dont know if they are delaying until october or till the first week of december. I just dont know. It has been much better than expected. Ande is a belief about q4 we are not there yet. Jonathan no one thinks we are out of the woods. When you consider the fiscal package and our conversation with the administration, a month ago there was real urgency for those talks. There is not anymore. I wonder if the 1 trillion effort for the republicans comes in a little bit and the democrats have become an even further. I think republicans have a little bit more leveraged relatively speaking to what they had 30 days ago. Tom but do we see it this week . Time is running out. I see no indication we do. Jonathan coming up, subadra rajappa. Looking forward to that chat and just a moment. We are counting down to the opening bell a couple of hours away right here on bloomberg surveillance. Equity futures are down. Nasdaq futures another leg lower in the last 10 minutes. We are down by 2. 4 . This is bloomberg. Jonathan from new york and london, this is bloomberg surveillance. I am Jonathan Ferro. Stateside, ahings shortened trading wreak week. The euro, 1. 18. Equity futures are down. Nasdaq is down 2. 14 . Lets get straight to tesla. Tesla down in the free market by 12 . Not included in the s p 500 and the announcement put on friday. What are we out this year . For thatbout 400 stock alone. From what we saw a week and a half ago. This goes to the demanded equation, the demand a stunning 5 move. 33. 63 . Lding at it all points to yields coming in. Subadra rajappa joins us and it is wonderful to hear about her skill in the derivative space here over the weekend, you had the derivative analysis of a softbank trade with what the fixed income market will do. Is there a linkage between your world and the equity derivative world we are seeing right now . There actually seems to be very little correlation between the two markets. Bonds have stayed rangebound and i think that supported the equity validity if anything. There seems to be a divergence between the signaling youre getting between these markets. Tom is the signaling diminishing . Can you link it up with Lower Oil Prices and a global slowdown expected . Subadra absolutely. I think lower yields are fueling the value in equities. August has july and been showing a sharp move higher in the data in may and june. The market is cautious. The fact that we have not gotten a stimulus has keeping has kept the market down. Jonathan people have talked about the potential for the market to turn into a zombie market. Not just the treasury market, the credit market as well. From your perspective, is the long end aligned with fundamentals and the trajectory of this recovery . Subadra no, because of the fact that the market is pricing for longer paradigms given the fact that the fed will keep the shape low and there is still uncertainty about the trajectory of future Monetary Policy initiatives. Will they be more weighted toward the long end . It is reflecting the time between this supply we are going to see in the second half versus the potential for the fed to start purchasing more in the long end. You can see a far market across the curve. Ultimately the supply picture is going to outweigh any sort of orand youre going to see marginal buying you will see from the fed. Tom your basic assumptions jonathan your basic assumptions going forward, if we do not get another deal in d. C. Subadra i think that in the august refunding the treasury already accounted for about 1 trillion in spending coming after the august meeting. The supply has gone up meaningfully in anticipation of another deal getting past through and that has not really happened. Supplyess, i think deficits are going to be higher for the future. I think that is going to be something that weighs on the long end over time. Especially as rights reflect a fundamental. When you talk about when you talk about marginal buying, so far it has been that and for the past two months the Balance Sheet has stayed consistent. At what point do you expect the fed to step in more meaningfully . Inadra i think as we move yields, it is somewhat erratic. You can see some sharp rises are run yields we saw after the temper tantrum or if there is a fundamental reason for a lack of liquidity, that is when the fed stepped in. A very gradual rise warranted from improving fundamentals i think the fed will be ok. Any sort of chart move higher in yields is when i think we will see the fed coming in and putting a lid on how high yields can go. One of the big raging debates right now is whether the 6040 portfolio is dead, whether treasuries at yields this low are an insufficient heads. You agree with that thesis . Do you agree with that thesis . Subadra i think so. Looking back over the decades, the portfolio has been bonds rallying and stocks rallying. The fixed Income Portfolio has never been a strong hedge for equity. Maybe over short periods of time, but not over the longer horizon. Even now you are seeing even less than that given the fact that the fed is going to do we have an environment where negative Interest Rates are not onlye cards so there is one way yields can go, either sideways or higher. I think that dynamic does not play into the 4060 portfolio paradigm. I looked at the nasdaq breaking down at 2. 7 , a new weakness to date. What we see in the equity markets, are we going to see that in the bond market . Subadra probably not. Treasury yields have been between 50 to 80 basis points. That is where they will spend the remainder of this year. Think the law of longer bond yields are going to keep low. What you are seeing now is Market Positioning for a potential rise in yields and some of those metrics that were used. I think bonds will remain low for the foreseeable future. Tom why is that . Is it just fed intrusion into the market where it is not a real market . I just dont buy the idea. Subadra exactly, the participation of the fed is not something that is near term. This is an openended Purchase Program where they are purchasing 80 billion per month and that size could increase, not increase. It is really hard to envision yields from two years to 10 years being volatile given the , andthat historical lows they are going to be low given the fact that the fed is committed to a longer strategy. It is a day after labor day in the u. S. Normally more people would be getting back to the office. People are just getting back to their computers at their kitchen tables. Can you talk about the change, whether we will see any change in positioning, shift in strategy at this point as people reassess in their postsummer meetings or do you think this year will be different and we will get that consistent feeling of in limbo . Anadra i think it will be consistent feeling of needing more data before you can have a clear direction on treasury yields. Broadly speaking, this week we get a lot of supplies and , butssion into the auction other than that, the dynamics will be led by the infection not having clarity on the data. There is a lot of volatility. You will see a lot of upward data and downward data. Jonathan a problem with the connection, just to wrap up the conversation. Lets get to the market right now. Equity futures grinding lower. Another breakdown on nasdaq futures. The bond market down five basis points. The 30 year yield just north of 1. 4. Lisa abramowicz, lets get to that briefly. G. M. Coming out saying they will get a 2 billion equity stake in nikola which is interesting at a time when you see this move with Car Companies and tech companies. At what point are you just driving a computer. That really is a question moving forward. How can some of these automakers get enough scale, enough of a broadbased appeal so they can sustain whatever comes next. Jonathan speaking of Car Companies, tells a tesla done about 4. 7 . Equity futures lower. Points,own about 300 2. 6 . Im going to state looking at the bloomberg it has not happened. It is really simple. Once, twice, three times, a little bit of a leg up. The bid is not there as we go negative 3. 05 on those nasdaq futures. Critically, correlated back to a lot of other stocks as well. Thethan taking out some of froth, that is what we have been doing. We have touched on the subject a number of times. Looking for a for the unjustifiable. That was the mission for so many people. Some of the moves just were not justifiable and we started to see some of that come back. Isa the problem i has if we are not hearing anything about a fundamental valuation for amazon and apple because nobody knows. We are dealing with a situation where people are trying to justify technicals and we dont have a sense of where the actual evaluation should be at a time when Interest Rates tom john, does it say entry point . Mean, i have been waiting but i think i better stay on the sidelines. We got a gift,nk having way . Neednk for you, you would a much bigger gap lower. Futures down. A bid into the bond market, it is all set up for risk aversion this tuesday morning. Equity futures down 2. 7 on the nasdaq. When tom starts rotating from cash into the equity market, what kind of signal that is going to be. London, tomk and does not know who you are anymore, this is bloomberg. Bloomberg has learned that donald trump is considering an unprecedented step as president. He has discussed spending 100 million of his own money to win the election. The president has been scrutinizing heavy spending earlier this year that failed to push them ahead of biden. And othermpaign democrats have outraised the Trump Campaign in recent months. President trump is threatening to two curve the economic lets ship with china and threatening to punish Economic Companies that do business there. He is calling on other firms to be banned. Onis also imposing tariffs inpanies who use jobs foreign countries. In california, the electricity crisis has gotten worse. The biggest utility expect to cut power to 500,000 people this week to prevent live wires from sparking wildfires. Last week it started with a heat wave. This week california is expecting high winds. First harris made her Campaign Trip as the democratic Vice President ial candidate. Shewent to milwaukee where spoke to communities of color. She met with black business owners, she also talked with latino activists who advocate for frontline workers. Morgan stanley is bullish on u. S. Airline stocks with overweight ratings for deltek. Morgan stanley says the recovery will be bumpy but it predicts passengers will return once a vaccine is found. Global news 24 hours a day on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Generations are the ones who are most scarred. It happened in the financial crisis, i am concerned it will happen here as well. Jonathan citi global chief economist on the fallout from the covid crisis. Lets get to the market this tuesday morning. Equity futures down. Nasdaq futures up by 2. 48 . The fx market a bit to the dollar broadbased. 1. 17 going into the this coming thursday. The bid in the bond market down. 4 . Chief of staff for the white house, mark meadows is speaking. He is optimistic on a stimulus deal before the election. That is the way people feel. Because there is an election coming up and many people that believe that is the incentive. Tom we welcome all of you to our simulcast and we will stay on the markets. Some significant deterioration with the vix out almost five point. 35. 42. Right now we need to reset. The reset for jon ferro, Lisa Abramowicz and me was somewhere in february culminating in march where things deteriorated and were horrific in new york city. The United Kingdom improvement in deaths, the miracle of what new york has done in deaths and other states has been noted i all within the medical community. Robert murphy is an expert on this at northwestern, professor of infectious diseases. As this pandemic ages. What is to come . I lost half of a sentence, there. See coming going to off of september into the colder weather, into october, into december and next year, what do you presume we will observe . Robert there is going to be an uptick as people end up in buildings closer together. It seems like we are you we are losing your connection. We are speaking with Robert Murphy at northwestern university. Really this is the question. How bad is it going to get as we head to fall as people are closer together, as the air gets drier and people get sick of it, they want to see their friends and be together. Tom the fatigue is there. There is no question. Here what is so important is this debate about getting out there. Washington a in few moments ago, the photograph of the street after labor day and it looks like a sunday in the 1950s. It is empty. Vaccine, aret a people going to believe it is safe enough and once that happens, how long does it take to get some sort of herd immunity. This is the difficulty. To your point was mark meadows saying he is very optimistic about a vaccine by the end of october, you have vaccine makers working together to basically say, we are not going to put anything out there unless we are sure the safety in order to dispel the fear of the vaccine. Jonathan there is so much fatigue out there right now. The anxiety that people had around the economy, the Mental Health issues, but we have not talked about enough on programs like this, but around the world. I have to say, look at what is happening in new york city right now. The statistics are good. What about Small Businesses . What about the restaurants . The de blasio said in the last week that we might not have in restaurant dining until we have a vaccine by 2021. Can you imagine the devastation that is still to take place in this economy if that is the case, if we cannot live with this until 2021 . Tom im going to be blunt to all of you on radio and tv, you and i and lisa try to keep our opinions out of this. But it is absolutely bizarre to look at the mass of cases and deaths and the emptiness of these restaurants, the emptiness of Small Businesses. Jonathan lets build on that. Now that australia has shut down, victoria is shut down and the lockdown is going to continue off of a very small amount of cases and deaths. A very ugly story, but it will come down to tolerance. I just dont think the tolerances there this time around, the willingness to have another shut down as we go into the winter and i want to understand what the metrics are as we are things back. In the u. K. Cases have picked up. From what i understand in domestic reporting, in london there is a conversation about reducing gatherings. As for locking things down again, nobody wants to go there. Tom one more observation on this and we have to get back to the markets. Lisa, the school issue is absolutely front and center. To me, the thing that is discussed in the media is people with childcare. Every state, every city, that is the number one metric. Lisa youre not going to be getting people back to work in the same capacity until you have child care. This is the big question. Im glad we are talking about the virus with the backdrop of the markets because we are seeing markets deteriorate with a lack of any sense of how quickly the economy is recovering, it is recovering better than expected, but you have this question of how long this will last. We dont know. People say the vaccine will come soon. We dont know how quickly it will be before life gets back to normal, if that happens. Tom on our simulcast radio and television, i will globally quickly to the nasdaq debate right now. Ago,d a 36 print moments 37. 16, that is a solid 6. 6 move. That is a plunge in oil. Jonathan things are breaking down in the equity market. We have talked a lot about it in the last week. Nasdaq futures down around about 3. 25 . A bit into the bond market. It is classic risk aversion. I had to ask larry kudlow the question directly. Will this market shape the physical side . Tom didnt the president agree with him . Jonathan we will find accurate i have not heard him comment on it. We will find out. Im up on, you can see it. The bank of england came out with a controversial comment this morning. There is a Furlough Program in the United Kingdom which allows people to continue to get paid a certain amount of their previous wage and the government is compensating for that effort. It is the reason unemployment is still low in the u. K. That effort expires in one month. The bank of england is basically saying let it rip because you are denying the inevitable. Delaying the inevitable. Until we reopen this economy properly, you cannot judge what jobs will be gone permanently and which ones will come back. Tom this is absolutely critical. Up in ang written telegraph earlier this morning, the comfort of politicians to affect austerity, i am fascinated by where this Global Economy is right now. Jonathan bond markets are still wide open. Treasury market is wide open. I am not saying it will always be wide open, but this is a political decision, not economic. The markets are still wide open for these governments to be funded. ,oming up, Christopher Marangi chief Investment Officer coming up next right here on bloomberg surveillance. You can go your own way go your own way your wireless. Your rules. Only Xfinity Mobile lets you choose shared data, unlimited or a mix of each. And switch anytime so you only pay for the data you need. Switch and save 400 a year on your wireless bill. Plus, get 400 off when you buy the new Samsung Galaxy note20 ultra 5g. The big events are back. Xfinity is your home for the return of live sports. A longer term is not looking good in terms of the support for consumption. This economy is dynamic but not dynamic enough. Doing too little is the problem. It is hard to see what the consequences are of doing too much. We are seeing an income crisis. We are seeing an action from washington dc and we cannot afford to do this again. Bloomberg surveillance with tom keene, Jonathan Ferro and Lisa Abramowicz. Tom good morning, everyone

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