Transcripts For BLOOMBERG Bloomberg 20240703

By 0. 1 . In the last 24 hours, the president of the United States is heading to israel. Tom per is no other story today. There is no other story today. He is basically traveling to a war zone. Jonathan he wants to present prevent the conflict from enveloping the whole region but how to develop a plan to get aid into gaza. Lisa thats one of the key components with the talks with tony blinken. I find it interesting that President Biden will be going to israel and going to jordan right after, entering the zone with Security Issues and Strategic Issues and have the u. S. Will influence this. Tom im reading on the turkish war in world war i and its amazing the parallels to right now. We are out front on diplomacy. Someone asked the secretary of state where hes been and he said he can remember. They have parallels to 1914 as they try to avoid war. The daily mail in london today talks about the tunnel structure of hamas, 40 feet underground and maybe as many as 300 tunnels. Thats the reality for the Israeli Military. Jonathan jordan, bahrain, sat a just saudi arabia, qatar. Hes lost count and the intensity of the diplomacy has been amazing. There is uncomfortable tension over the whole middle east as we all brace for what could be a full Ground Invasion. Lisa its been delayed and people say it wont happen if President Biden is in israel. They are not likely to make the Ground Invasion but what is next . What is the plan afterwards and how do you avoid this becoming a conflict with the words coming out of the iranian government. Tom i get the idea there is diplomacy and we will wait on joe biden but i dont hear enough about the Israeli Military nor should i because they are not doing this for the media. They have to prosecute a war. Jonathan more on this this morning. Plenty on the markets as well with equities a little softer in the s p 500. Negative by 0. 2 percent and yields a little bit higher. Bank earnings, Economic Data and a ton of fed speak coming up later today. Lisa will it have a predictable effect on the 10 year yields . We have no idea. 8 30 a. M. , u. S. Retail sales were september are key to understand just how much extra powder the American Household has to keep fueling this rally. We seen a deceleration in spending from elevated levels. Will we see a leveling off . Fed speakers come to the for today as they have all week. The new york fed president John Williams starts it off. What is going to be the message at a time when they could possibly create more stability in the long and if thats what they want or is this what they want . Also we get earnings today, bank of america and Goldman Sachs coming out before the opening bell. After the bell, United Airlines and netflix earnings. I think that will be one of the key messages. Will earnings take precedence over this cloud of uncertainty that seems to be swirling over the geopolitics . Tom the first thing i notice this morning is euroswiss, a lower number, a stronger swiss franc. Finally the swiss franc is moving. Jonathan im focused on Goldman Sachs in the next hour. According to people with knowledge of the decision, goldmans chief executive has decided to step djing highprofile events that has created a distraction from his work. Is it a coincidence the story is coming out the night before we get earnings from Goldman Sachs . Lisa did you see the pushback from Goldman Sachs . They say he hasnt done it for a full year. Jonathan hes not retired, just a semi retired. He wont be doing it in the hamptons. Tom they are breathing easier this morning. I have no idea whats going on. Jonathan if you are referring to error old producer. Tom also Calvin Harris who is a dj guy. Did you go see him . Jonathan i didnt. Did it go well . Tom i have no recollection. There is like for kids it might years telling him telling me to ask about this. We will do better with jonathan stubbs. Jonathan he joins us now, good morning morning to you. It feels like we are and everywhere everything all at once. We wrote about this in april. When we see markets long on uncertainty and risk and short on conviction for a long time and when that happens, we find the upside hard to make a case for mec markets generally heading sideways. There are some big Structural Forces which support that. There is historic debt burdens and historic rising rates and historic shift politically but thats a feature of todays world. Lisa going forward, what kind of structural aspects are you talking about and how you taking bandage of them . And how you take advantage of them . We drove parallels back to 2020 at the peak of the pandemic . Its not an outright bearish call. We explore the upside persistently. Weve done a lot of work looking at liquidity and earnings which are the two main supports for upside risk. On both counts, its hard to make a bullish case for liquidity which probably needs a macro shock to come through first or earnings which needs the macro conviction to shift toward recovery mode. I think the good news is liquidity earnings his heart is quite hard to find. We go into bearish active strategies. We run a lot of sector repair trades and a few of them, we are running long on luxuries. We have many contrarian valuations. Those are the sector trades we go into when we see stickier markets. Tom i looked at world war ii and when i do that, i look at the Dow Jones Industrial average from 115180. The dow was up 55 . Do you assume the stock market doesnt crater given geopolitical tensions . Its hard to draw parallels through different times. One of the starting points i have today regardless of what topic we are discussing is what i call nxm score. When you take the multiple and combine that is a single score, it depends what kind of equity market we are looking at. Its at the highs of the last 30 years excluding the post covid bubble we saw. We are at the highs we saw in 2000, two thousand seven and the start of 2020. From a corporate perspective, valuations are still very high. Doesnt mean equities cant go up over the next few years for whatever reason but the starting point is quite challenging in the first place. I bring that context into the discussion as well. Tom what should we look for in earnings . You take a more holistic look and we are focused on Bank Earnings today but what are you looking for in earnings . Is it at the top of the income statement or margins down below . Banks the world over had reasonable to strong support for earnings for the last 612 months. They are one of the leading sectors over the last two quarters. When i look at earnings, the first thing i think of and we talked about this before is what is the nominal Growth Opportunity the Global Economy is giving companies . Thats the main feature for revenue growth. In the u. S. This year and europe, nominal growth will exceed 6 . Next year, we think it will be below 4 . We go from this year to next year, weve got a 250 basis point drop in nominal growth in the u. S. And europe and that introduces some headwind. The second line is a lot of the leading indicators on both sides of the pond continued to suggest headwinds on earnings into next year. This is part of the debate that goes into building a strong support for earnings recovery into next year. I think its premature to do that at this stage. Lisa when do stocks become highly susceptible to bond yields and are a driving force . We did a couple of notes on that recently and weve seen that historic drawdown in bonds and we look at the 30 year bond, almost 60 down from peak levels. We see some very aggressive losses or institutions around the world coming through that are supposed to be riskfree Asset Classes. If you take the u. S. , the nasdaq or the s p, often investors are a 500 basis point pickup relative to riskfree and to year free covid and postgfci and thats down to flat. The starting point for capital or the dollar coming to the market now has a competitive spread of Asset Classes from credit to sovereigns to equities together that yield. Equity will have less of an exclusive capital coming from market. The free ride is over but it doesnt mean equities cannot go up but the free ride its enjoyed for the last 1015 years has come to an end. Jonathan easy money. I wish people had told us at the time. Easy money frustrates a lot of people. Lisa has it ever felt easy . And especially right now. Many people were calling for the end of the world when we were full of low rates and said it would create bubbles. Jonathan lets talk about what hasnt been easy this year, bank stocks. Bank of america is down was 20 year to date and goldman is down 8 year to date. Bank of america earnings this hour. I looked yesterday at a representative small bank around the corner from the milliondollar cowboy bar in jackson hole. I looked at a Regional Bank and they have a stadium out there in the midwest and i looked at j. P. Morgan omg, are we deluded but by what we see from fortress diamond and park avenue. Its been carnage. Lisa how much are the jamie dimons of the world getting more separate from the Regional Banks, the divergence simply growing with the haves and havenots. Jonathan the relative underperformance of everyone else, j. P. Morgan has been amazing to see. Coming up, the kbw ceo. From new york this morning, good morning. Fresh, warm hot dogs when im not selling hot dogs, i invest in a fund that advances innovations like robotics. Fresh, warm hot dogs, straight out of my torso one for you, one for you. Oh, youre a messy one. Cool, right . So cool. Anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq100 innovations. Hot dogs fresh, warm hot dogs before investing carefully read and consider Fund Investment objectives, risks, charges, expenses and more in prospectus at invesco. Com. On wednesday, President Biden goes to israel. Hes coming here at a critical moment for the region and for the world. First, the president will reaffirm the United States solidarity for israel and their ironclad commitment to its security. President biden will support our clear message to any actor, state or nonstate trying to take advantage of this crisis to attack israel. Dont. Jonathan the present of the United States is heading toward another war zone. Antony blinken speaking in tel aviv. Live from new york city this morning, welcome to the program. Your equity market on the s p 500 is negative by 0. 2 . The next day or so looks like this. Bank of america next hour, Goldman Sachs tomorrow and Morgan Stanley after the bell tomorrow. Things start to pick up with netflix after the close. Tom i think tech is going to have apple november 2. You cut apple, the mystery of the bloomberg article yesterday, sales are slower in china and the stock really didnt react. I dont know what to say. Jonathan manddep singh says its too early to tell whats happening with the iphone. If that weakness is pronounced, i would go straight to the idea of weaker consumer sales trends or competition in china. If its competition, even if you get a rebound in the country, the competition could be real and we will find out if it is in a few months time. Tom it will be interesting to see. Later today, i have the honor of speaking trevitas and his experience with nato and the u. S. Navy. My book of the summer 2 was034 2034 was by elliott ackerman. Its a wonderful must read about the south china sea. The reality here is many pontificate and many talk. For example, the First Battalion eighth marines, if they were in gaza, what would your regiment be doing . We fought in fallujah and before that battle, we were dug into trenches on the outside of the city and the rain waiting to get the order to go in and launch the assault. I assume there are many groups and regiments of Israeli Soldiers sitting in the exact same position now, waiting to get the order to go into gaza. Tom what would you think is the plan . My listen to the general of the marines. They have a fear of urban warfare so what will be different here from your experience and afghanistan and fallujah . Its tough to overemphasize how costly and gritty urban combat is and how much it takes away whatever technological advantage you might have. This is the type of combat that is fought room to room, house to house, block to block. The analogy is its the equivalent of being in a knife fight in a telephone booth. Close quarters and that is a type of fighting we will see in the weeks and months ahead in gaza if the israelis launch a significant ground assault. Lisa there has been discussion that the israeli army has held off on that ground incursion for a number of reasons. It could be conditions are prepping but ultimately, they may choose some other means. They were hinting at that overnight. Do you think that is a likelihood . Do you see another way other than what you just laid out . There is certainly a logic behind it. Hamas knew they were doing with they launch these attacks. These attacks were designed to be a provocation. Obvious move would be for the israelis to go into gaza and hamas knows once the israelis go into gaza and the battle begins, quite quickly, Political Support internationally for the israelis will be as brutal as anything you can imagine. The question to the israelis is how do we accomplish our objective which is the degradation of hamas without being baited into this brutal urban fight inside of gaza . Im certain israels leaders are weighing that and looking for other alternatives of how to degrade hamas without having to fight this battle. If they can find that through limited strikes integrating the leadership of hamas or some of the raids weve seen on the outskirts of gaza, they will take advantage of that so we will have to wait to see what they do in the days ahead. Lisa people described this as another proxy war between iran and the u. S. And between iran and israel and see that as the big question mark. Weve seen the overnight tit for tat one day after another. How do you understand when that becomes a fullblown new front to this war . That goes to the purpose of the president s visit. The purpose of the deployment of two u. S. Carrier battle groups to the region is to provide a strong deterrent against iran launching a broader war from the north with hezbollah. Right now, you are seeing hezbollah and the arabians testing the response not only from the israelis but the west and thus far, we provided a pretty resolute response. That is obviously the big question is how much this war becomes a contagion in the region. Jonathan its hard to understand how meaningful the headlines are. This is from the wall street journal u. S. Military selected roughly 2000 troops to prepare for a potential deployment to support israel. In the story, they say the troops could advise and provide medical support. They are not intent to serve in a military role. From your perspective, how meaningful is a story like that . Israel is one of the United Statesclosest allies. We have crossed military partnerships with them so this is just an effort to both of those partnerships. I would be surprised if you set any type of meaningful deployment of u. S. Combat troops in israel. Among our allies, they are a country that does their own fighting. They are not reliant on the u. S. That being said, we provide them with equipment and resources and i would imagine many of the troops will be enablers as the Israeli Military gears up for a very largescale operation. Jonathan how risky would be to u. S. Personnel on the ground given the conflict you expect to materialize . If the u. S. Did this and i doubt we would at least in the nearterm, its a significant escalation because then you start getting into real wars by proxy and you can see a response from the iranians by putting in their own trainers inside the conflict as well. Whether they are has below fighters or members of the Iranian Revolutionary guard. Jonathan thank you, sarah, lets catch up soon. Thank you, sir. Its unclear if the u. S. Would deploy the troops and where. They say they are preparing to support israeli troops. Thats about all the detail weve got. Tom the answer is logistics and moving stuff around and maybe intelligence. I cant say enough about everybody pontificating. People like mr. Ackerman, this is a key phrase, certain multiple times. This dashed combat and out. Its 1, 2, 3, and four efforts of high combat battle with the kind of experience we need to listen to. Jonathan weve got to try to get clarity on the headlines coming through over the last week or so. We will turn to the Economic Data in a couple of hours with retail sales in a couple of hours. A little bit later this hour, you will get earnings from bank of america. Next hour, Goldman Sachs. The equity market is 0. 2 . From new york, this is bloomberg. To get lost in investment research. Get help with j. P morgan personal advisors. Hey, david ready to get started . Work with advisors who create a plan with you, and help you find the right investments. So great getting to know you, lets take a look at your new investment plan. Ok, great this should have you moving in the right direction. Thanks jen. Get ongoing advice; and manage your investments in the chase mobile app. Is it possible to fall in love with your home. Before you even step inside . Discover the Magnolia Home james hardie collection. Available now in siding colors, styles and textures. Curated by joanna gaines. Nice footwork. Sman, youre lucky,. Watching live sports never used to be this easy. Now you can stream all your games like its nothing. Yes [ cheers ] yeah woho running up and down that field looks tough. Its a pitch. Get way more into what youre into jonathan coming off a day of gains on the s p 500. Decent gains on the s p 500 and the nasdaq as well. Yesterdays gains even with the sizable move higher, the treasury market looks like this over the last week, smalls move on the 30 year yield in either direction has been almost 10 basis points higher from yesterday. Can you believe that . That was the smallest move weve had on the 30 year over the past week. Tom its not even a grind. Its more dramatic than that. Your yield observation which is dead on compares to swiss franc strength. The ratio of the percentage change of the bbdxy versus the bxy. Dxy. It shows the market nicely weaker here. Jonathan im trying to make it simpler, the dollar is a little bit stronger this morning. Tom i lost a damian sassower. Jonathan for most people, the fed put a lid on the front and. Lisa i wonder what the feds figures will tell us with all of that lined up. People of faith they will pin the front end. Its the long and and do they have control . We are seeing volatility unlike march of 2020. I want to finish on crude, this story came out yesterday and its not been talked about enough. The venezuelan government will resume talks with the u. S. Backed which could potentially clear a path for the administration in america to ease sanctions on venezuela including oil production. Lisa if someone were skeptical, this is coming at a time when there were a lot of questions about tensions that are up in the middle east. Where will the u. S. Get some potential peripherally on supplies . Jonathan they said theres been three levers this admission dish this administration has been able to paul. Option three is potentially the sanctions on venezuelan crude oil. Tom at imf and morocco, the climate was suppressed. Jonathan brent crude is south of 90. President biden is traveling to israel wednesday in a show of solidarity amid the countrys war with hamas. Antony blinken brokered the trip after days of shuttle diplomacy in the region. Its the president s second trip to a war zone after going to ukraine earlier this year. Lisa what kind of security will be required to have a sitting u. S. President go to a war zone and then go to jordan storage . Does this reflect a feeling of frantic this in the administration they are running out of daylight and time to prevent a wider altercation . The different nations that tony blinken visited come up for in one day, is he making headway . Is this the last show of resolve to stave off a broader altercation . Jonathan lets turn to washington, d. C. Congressman jim jordan is looking to become the next speaker of the house with a boat at noon today. He is emerging as the front runner after Steve Scalise withdrew his bid last week. There are holdouts in his own party. He can lose no more than four votes against united democrats. Are we going to get this done later . Tom i did the math and four divided by 200, hes got a 1. 8 margin. This is a razor thin, its not 4 . With mccarthy was 4 but with jordan, its 1. 8 . Its a much thinner margin. Lisa year pressure seems to be what we are hearing about. Tom the gentle man from ohio had a good day yesterday is the summary of this. Jonathan getting closer and we will see what happens down in washington later. Thank earnings continue on wall street. Goldman sachs numbers about 7 30 a. M. If you are looking for Morgan Stanley, earnings of the big banks happen tomorrow. Tom what a shock jp morgan did well. There are concerns about bank of america, Goldman Sachs. Jonathan bank of america has been bullied by the treasury market. What would it take to get bank of america out of the penalty box other than a big bond market rally . Lisa from a fundamental perspective, theyve been doing pretty well. We havent seen Amazing Things from stocks and even jp morgan after they outperform. Jonathan they are up by about 10 and Everything Else is down. They are closed they are down close to double digits. Tom you can look at the book value. You can do it with the book value of jp morgan of 1. 5 and bank of america of. 8. Its trading at near half the value. Before we get ready for bank of america and global wall street, wonderful thoughtful notes, i love your phrase for europe and major for the world nascent disinflation. That perfectly captures the uncertainty out there right now. What are you looking for in the coming days on nascent disinflation when it becomes a true vector of inflation . Weve seen a lot of ambivalent data. In particular, different focus in the u. S. Compared to europe. In the u. S. , weve had a mix of inflation data, goods prices are falling, import prices are falling, Earnings Growth has come in low for a couple of months now. This is all very positive. But we are seeing a pickup and shelter costs and a pickup and nonshelter services costs. Thats something policymakers will be keeping a close eye on. Across here and in europe, its a different concern. Weekly earnings in the u. K. , growth is still very high. It doesnt seem to be too stressed like that. They look for indicators for the labor market which i think they read as pointing to softness over the coming months. Seven or 8 wage Earnings Growth is still high. In europe, recession looks to be the theme. Wage Earnings Growth is still too high for the ecb. Tom the real economy of germany is very weak. Do you extrapolate that across the entire continent or is it discrete to germany . There are particular features that are affecting the German Economy at the moment. The week trade environment of course for germany, trade is an important driver of growth. The nature of the slow in trade as well which affects germany. But there are other features which are more common to europe as a whole, tighter financing conditions. Please the long and rise on yields and thats compounding the policy tightening thats been taking place over the last year or so. A generally softer sentiment, the good news has been on Energy Prices but we see gas prices going back up again and somewhat higher than they were before russias invasion of ukraine. There are some features in common. Some economies are much more reliant upon imported energy and others can relight more on domestically generated energy. Those of the differentials we are looking at for germany, energy driven industry is a big deal. Lisa on the u. S. Side, seems everyone is divorced from those trends saying we keep spending. We will get retail sales in less than two hours and bank of america earnings in five minutes which will give some light. Will there continue to be a resilience as people do what they do best in the u. S. Which is shopping therapy . The resilience has taken us by surprise. It seems to be a story of the pandemic and whats happened to savings, the drawdown, that question seems to be disappearing that cushion seems to be disappearing. We are seeing high costs. Its the very early signs of debt distress at the margins. All of this would suggest consumers are going to be raining back their spending. At the same time, inflation coming down, Earnings Growth is still a little bit higher than inflation so real terms earnings wages are rising and thats supportive so as long as the labor market is holding up well, all the signs point to a strong labor market. Its difficult to measure in the u. S. Consumer will stop spending. Lisa does that mean the u. S. Can outperform europe well into next year . It certainly feels that way. We expect there will be a slow down in the u. S. But it may take longer to come through. In europe and certainly in germany, we see clear signs of quite a dramatic slowdown at the moment. Jonathan sarah, thank you as we see evidence of that slow down. Americas getting back to the office. The latest headlines, fewer than 26 of u. S. Households will have someone working remotely at least one day per week. At the pandemic peak, it was 37 . Connecticut work from home rate has fallen to 28 and the peak in 2021 was 46 . That has come down dramatically. Lisa it makes sense because you have a lot of people saying get back to the office and other people say you are bankers and you have commercial real estate. Other people are saying that people are more effective in the office. Workers are definitely losing some of the upper hand when it comes to staying at home. Tom nicholas booth wrote at length on this yesterday and the day before. Im completely ambivalent. I have no wise things to say about where we are in five years. I did not sense this in london. I sense it more here. Jonathan you did steal some towels when youre in london. Tom it was at the cotswold. Jonathan average ridership along the metro train rides has risen to a peak of 50 versus prepandemic levels. It was 20 in 2021. Tom paul sweeney is a dean you is a genius on this. He said this is a sea change. Jonathan bank of America Numbers are just coming in and we we will bring you that. This is bloomberg. Explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. when the day that lies ahead of me seems impossible to face a lovely day lovely day lovely day lovely day a bank that knows your business grows your business. Bmo. Jonathan the numbers from bank of america just crossing the bloomberg terminal. There is an upside surprise after an upside surprise. If you look at thirdquarter trading revenue, it comes in betterthanexpected. Investment banking revenue at bank of america comes in better than expected. Looking at Net Interest Income for the Third Quarter, betterthanexpected. The stock is just a little bit higher by 0. 2 . Some commentary from Brian Moynihan. He says the consumer is starting to slow and describes the Third Quarter as healthy but slowing. That stock is up by 0. 2 . Lisa traders like some drama. U. S. Consumer spending is still ahead of last year. Its not as though we are slowing from a low place. We are not heading toward recession but how do people deal with slowing but solid growth when their deposits are increasing and when they can still lend . Jonathan the stock is a little bit firmer in early trading. Ib revenue is 1. 9 billion dollars, series of small beats. Tom i look at the headlines and they are small beats. Its not the gloom but the angst thats been out there. Jonathan Consumer Spending still ahead of last year, things are healthy but slowing. What is the take away from the banks weve heard from so far . Tom my take is the banks are not homogenous so far. The industry has blown up. Lisa my take is they dont know when they are trying to massage investments. Small beats but beats nonetheless of slowing and things will not be perfect maybe confirming the soft landing. Jonathan in line with what we heard from a series of banks last week including j. P. Morgan and prevent for credit losses one point 4 billion. More provisions for credit losses and if youre worried about the future tom on worried about the next quarter. Jonathan i dont think they can offer much clarity for next year. This seems to be the trend. Tom we have the perfect guests to dive into this. In a bar in vermont, they looked up algorithms and its a relative change of where you are in history. He is the chief executive officer of a company with kbw. I just looked at bank of america and went back to 2009. Its down 1. 3 standard deviations on a chart which is where its been before. Is that thebuy of a lifetime . There is an incredible amount of bad news in the stocks. You mention one measure whether stocks look like they are off the charts. Relative pe ratio to the overall market is near an alltime decade low. One we publish this weekend that got our attention the most is when you look at valuation to pretax and preprovision revenue. Where you take out the credit provisions, look at the core business. During the Global Financial crisis, the bank stocks traded between four and five times that number. We are currently trading at 5. 5 times now. Weve got that type of proportion in it. Jp morgan this quarter earned 20 on tangible common equity and the results we are seeing in these big banks are low double digits. They are handling the current environment very well. There is a slowdown underway, no question about that, but my view is if you dont get the worst Case Scenario in terms of what plays out, these stocks have 40 upside at some point but we are not there yet. Thats my feeling. Jonathan significant underperformance of everyone else versus one name, jp morgan. What is that . Where does that come from . Theyve just done a great job of picking up market share. Jonathan over bank of america . They been performing the best. We are not recommending the stock relative to the others because we think the valuation gap is too large. Theyve done a good job. I think the whole industry has done a good job by and large. All banks are not created equal. I personally believe there are three types of banks in america universal banks which we talk about now, the Community Banks which are 10 billion and under which are 97 of the industry and then you got about 115 midcap banks in the nation that are between 10 billion the top 25 in each one has a slightly different flightpath to their fundamentals. After the next couple of days, we will start getting the Regional Banks which will probably have more pressure on them on income than the bigger banks. Lisa the spread income is a night is a nice way of saying they have to pay their depositors so they cant capture the delta for record Interest Income. How much will this render their Business Model obsolete and push the division between big and small wider . I think the division has a chance to grow. All the new regulation coming, scale is how you pay for it. They say we have to cut expenses to pay for additional regulation. Meanwhile, nonbanks dont have this regulation and are competing more efficiently. I like to look at the Mortgage Market for that one. One of the top five Mortgage Originators today is a bank and nonbanks make 60 of the mortgages in america. You would think a Home Mortgage would be the epicenter of banking and banks are fully capable of doing it but they are required to home to hold too much capital on it but that it pushes them out of the market. Tom we have never been here since 2009. We are solidly out almost three standard deviations. Youve got a pe off the bloomberg of 7. 82. I get that its cheap, i get that its a value, give me a catalyst and to me is the bank zombie rolled up. When do the mergers happen see you get a pay day . The Industry Needs to consolidate and thats a way to make it healthier. Typically, you dont see a lot of m a activity when the economy is on the cusp of a possible recession or when stocks are volatile. We have those conditions now and i think they will ease. In the last 2. 5 years, the amount of time it takes to get a healthy bank merger approved has doubled. There is a little bit of a project out of washington to slow this down even though if you dont to anything, the biggest banks will get bigger faster and it will make the problem were similar opinion. What we need is we need strong midsized banks that are able to compete with the big banks and that wont happen if you dont allow them to buy other banks. Jonathan not one of the top five Mortgage Originators are banks . Thats right. If you go back about six or seven years ago, three of them were. Over 60 of the mortgages made in america are made by nonbanks. Think about why a bank would start it. Its to help people by their homes and they would love to do it but the Mortgage Servicing asset which is where the value is in a mortgage creation cannot be kept on a Balance Sheet because the regulators changed the rules and thats where the industry is fighting back so hard in these recent proposals. They will have consequences and they will push banks out of certain businesses which will just go outside the regulatory world. Jonathan is it just residential . Commercial real estate are already big nonbank players. We think there is 30 downside in large city, large building valuations. Yet, a lot of that is not in the Banking Industry. The big talk of the past week is been wells fargo which put an 11 loan loss reserve on that portfolio and thats a number thats gotten our attention but thats not really where the regular Regional Bank is making a loan. They are not making big loans on downtown. It shows up in the Insurance Business and the nonbanks. The next couple of quarters will be soggy for the industry. More than that is priced into the stocks which are pricing in something worse. If that doesnt happen, thats how you make a lot of money. Jonathan good to see you. Equities on the s p are 0. 2 and bank of america is a little firmer. the biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently. It still does. What can you do with spy . After military service, you bring a lot backh spy . To civilian life. Leadership skills. Technical ability. And a drive to serve in new ways. Syracuse universitys Daniello Institute for veterans and military families has empowered more than 200,000 veterans to serve their communities and their careers. From professional certifications, to job training, to help navigating programs and services, we give veterans access to support from anywhere in the world. We are slowly moving away from do we need to raise rates another time or not to how long we need to hold here. Things are actually pretty good and Getting Better. Iron not surprised if that we can get a nice rally and maintain the status quo. Jon live from new york city this morning, good morning. Im jonathan ferro, your equity market negative by 0. 2 on the s p. Goldman sachs, 30 minutes away and the latest from bank of america, trading revenue a b eat. The stock is up by three quarters of 1 . Tom you will see in the price, sonali basak not with us today but she is traveling for the company and she is looking at the bond portfolio and there is held to maturity which means it is not priced market to market. It is an ugly number and that is a stress mr. Tom showed michaud said. Lisa you are seeing spending coming in above last year which raises the question, where are we going to. At a certain point, normalizing to what . How much is the slow down going to lead to some sort of recession versus simply a healthy cooling that will help inflation get back down and these are some of the questions that are less clear this morning. Tom the 10 year real yield, 2. 37 and that is the cost of doing business and terminating these Bank Earnings, is the new reality. They have to live it. It is living on the real yield and an elbow test an elevated real yield and an elevated real yield. Jon am i sending you to sleep . Tom no. These people are living that data and living the real adjusted yield. Jon you will hear from Morgan Stanley tomorrow and all the best that to come. We will catch up with all the with oli crook. President biden jumping to israel tomorrow. Tom in the zeitgeist, some john bolton wrote in the telegraph with his perspective, is the president playing to a domestic audience. He is saying i am have relationships and im doing this. The guy i beat doesnt have these relationships. It is also joe biden plating flame to be domestic audience youre watching to the domestic audience it is also joe biden playing to the domestic a udience. Lisa what concerns me based in all other things i have been reading is a feeling of frances city franticity, this is the Tipping Point and this is a show of force in support of israel to try to deter that type of action and that has been some of the analyses i have been reading. Tom you can take it domestically and the trite the triangulation we have been talking about past the six days and has blood and the lebanon borders and hezbollah and lebanon borders. You expanded from there and that is where this this poem see is almost a separate discussion from what we are seeing in the gaza strip. Jon i will try to make it simple even though theres something simple about this. There are two objectives for the president , 12 about the cough the conflict in two develop a plan to get aid into gaza. Lisa especially given all the potential concerns on the is really sad about checking the trust and on the egyptian side in terms of their liability and potentially people coming into their nation. In the mystery of how much hamas is being an obstacle of the eight coming in the aid coming in. Jon yield is higher on the 10 year, up five or six basis points, 4. 7626. Lisa we get the latest 8 30 a. M. , how much can you u. S. Consumers keep spreading . Today spent speak includes John Williams, Federal Reserve governor michelle bowden. Somehow this will be interpreted as some sort of guidance and forgot forward guidance. Today, we got the bank of earnings and in 25 minutes, Goldman Sachs. United airlines after the bell. Setting up a big week. Jon david will catch up with Brian Moynihan after the bell. Michael, lets start with the financials, bank of america behind this and jp morgan. We will hear from goldman later, what gets these banks from the penalty box . With mortgages, people need to look somewhat different. The interview you did with tom m ichaud was excellent. It is attractive from a valuation basis and a little bit of good news and that will get things going in the right direction. Tom what do you do with cash . Dont give me dollar cost averaging. Everyone is too nervous right now but if i am in cash how do i deploy or do i sit take tight . Michael when you look at the twoyear yields, they are attractive in the 5 range but even this 10 year treasury selloff continues and i expect it will go further, they are getting attractive and that is the problem for the equity market, if you have 10 year yielding 5 , that is off the s p 500 earnings yield which should have a risk premium tied to it so that is the dance going in the market and that will continue to year end and i start off towards the bonds at this point. Tom one of the great mysteries to me is the top line revenue. If you look at the nominal gdp linkage over to revenue, do we underestimate the glow of this earnings season . Michael the problem of this environment is inflation, prices are going up. Prior to this environment the past few decades, that was a good gauge of strength of the company and the economy and the problem today is, you have margins squeezed on the bottom line so while prices are rising, it is hard to interpret that as true economic strength because the companies are likely feeling the crop the cost pressures pushing up. Lisa earnings might not be the compass to prevent this from being a potential cake keg mar ket. It is not necessarily going to be the Economic Data unless we get something that is decisive so what do you see as providing a compass through a pretty unclear time . Doug what michael we had the fomc meeting last month where the fed set the mentors home that since that meeting, all the major indices have traded off and the russell 2000 is the lowest it has been at 3. 5 in the s p 400 down 2. 5 . When you take down the magnificent seven names, the s p 500, the other 493 names dropped 3. 5 . You are seeing the weakness emerge that i think the markets in a prices boxes of pricing in and i think the events of last week created Geopolitical Uncertainty that created noise in the trend that was developing but you are seeing that trend reasserting itself and Treasury Bonds are selling off. Lisa how much do you think that could persist even if we get better than expected earnings as long as treasury stays where they are . Michael there was a great story in the bloomberg terminal talking about how they are supposed have a earnings 34 lower this year and that makes sense and that group in names is over 50 this year so that is priced in but it shows those names drive so much earnings against the rest of the s p 500 will be down 5 so i think that is what people are clinging to. The secondbest Earnings Growth is expected to be from financials up 31 in that group is down here today and we need to see investors shifting their focus outside some names. If you want to invest in those companies, do that but there are opportunities in this market that people should look for but we are not there yet. Everyone is betting on the index and i think jon thanks for your input. I message sonali basak and this is important, whenever you bring what they are saying about the consumer, you need to think about which consumer. When you hear from Brian Moynihan, they say the consumer is healthy. This is the consumer they are talking about, thanks ali for passing along this slide thanks sonali basak for passing along this slide. Lisa all of the big banks have been upgrading who they serve and this is banking for the wealthy, banking for the well credit score yield and this increases the divergence with the big banks and the small banks that may not have that discretion. Tom what he showed was brilliant, where other new 5, 10 banks beneath the majors that are going to compete and the answer is that is the conundrum of the government spaces. With all the legacy back to the 19th century. Jon bank of america here up by 0. 6 in the premarket and the equity market negative by 0. 3 and if you look across a range of businesses, consumers vehicle living it has been climbing quarter to quarter. It is amazing to see. Tom did you see the delinquencies on auto loans on younger people . I had never seen that number they dont have Credit Scores like that. Jon Third Quarter 2022, 7 point 89 and the Second Quarter 2023, 7. 95 and thir quarter 2023, we are getting closer to 800. For anyone who tracks their credit support credit score, 800 is high. Tom the bond market is walking away, six basis points. We are walking away and it the last hour, what has the spread been . Lisa it has been calm. I dont say this to be pejorative, financial engineerings companies have done to push out maturities but to the question on how remove big banks are with their their guidance and Balance Sheet from the larger trends in the economy will be the question, if they are focusing only on pristine credit and individuals who have that. Jon that number he gave us, out of the five top Mortgage Originators in the country, none of them are the big makes. Lisa it is all nonbanking institutions can afford to do that and that is and they have to have much capital and thats what they are focused on people with high scores. Tom the bond market is walking away. I have a 2. 38 on the real 10 year field yield. Jon Goldman Sachs later this hour. At ameriprise financial, our advice is personalized, based on your als, whatever they may be. All that planning has paid off. Looks like you can make this work. We can make this work. And the feeling of confidence that comes from our advice . I can make this work. That seems to be universal. I can make this work. I can make this work. No wonder more than 9 out of 10 clients are likely to recommend us. Because advice worth listening to is advice worth talking about. Ameriprise financial. On wednesday, President Biden is coming here at a critical moment for israel, for the region and the world. The president will we are will reaffirm the united state solidarity with israel. President biden will underscore are Crystal Clear Crystal Clear message on any act, trying to take advantage of this crisis on israel. Dont. Jon that is the message the announcement in the last 24 hours from the present reading as follows, on wednesday, meet with leaders and make clear that hamas does not stand for palestinians right to selfdetermination. and how difficult it will be to develop a plan to give aid to gaza. Tom is the southern border of gaza open at this time and eight egypt . Lisa the board seems to eject desk to suggest it is not. Lets go to tel aviv were all over crook where oliver crook reports. It will be greeted very happily by the officials here and the people here in israel and it comes as all of the officials here that have arrived have arrived have this seems the same message which is unflinching support for israel. We have support from the New York Times that israel has asked for 10 billion dollars in emergency aid so that will be the focus but so to work will return 10 deployment see will deterrence and diplomacy. This will all be front and center and the focus will be aid, getting aid into gaza. Jon we talked about the uncomfortable uncomfortable tension hanging over the middle east seemly on the brink of a full invasion. East on your report, are we still on the brink on a foreGround Invasion . Full round invasion Ground Invasion . Oliver i think a lot of people are expecting a full on tanks rolling in, scorcher approach and we had conversations with the idf earlier this morning and saying you need to draw throughout everything you know how they operated in gaza. This could be more precise and smaller operations and as the defense minister warned, this could go for a very long time. What comes next . This is a here and the question of the second front is looming large over this conversation with more skirmishes on the north of oli crook in tel aviv. One, he is going to try to prevent this confit from being more broader than it could be in two, to help Developers Plan to get into gaza. The israelis are worried about not just aid coming across the border but munitions as well. Tom two jon ferros point, it is about eight aid. Does congressman to support President Biden if an airlift is required to support israel . I think they do and i think they are very eager to start taking votes on all kinds of aid. Anything the president needs on a military bases and there is also a strong desire to provide financial aid. We heard from your reported that they are looking for 10 billion on the is really front and i would not be surprised when they get over to capitol hill, they tried to increase that dollar figure and that is usually what happens. Tom you are the expert on the body language on capitol hill and the former governor of utah, his family has pulled money in the last 24 hours and stopped donations in the university of pennsylvania over some of the debate there. How do the congresspeople we have, how are they reading the mood of america on this work . War . The fallout is only beginning and right now, we are in be immediate aftermath where there is a resident medassets reticence to come out against anything on israel. There will be a loss of interest in this witches relic very real and borne out by historical realities and you get factions stop there are a number of bills targeted at penalizing in some way the Biden Administration for the 6 billion from iran. That will only get exacerbated so i think people are really reticent to voice their views on where the things are with gaza and palestinians or hamas or the israelis. Jon unlike ukraine, do you expect opposition to come from within its own party, within the president s own party . Henrietta i think it will come from different outlets and you have a pretty all right extreme all right extreme antisemitic component and you have a very far left propalestinian component and those will get louder in the days ahead and especially as the Ground Invasion starts, there is a lot of attention on that and the secretary of state is focused on containment and making sure this is not escalate the Biden Administrations moving of aircraft carriers and make sure that doesnt happen but that escalation something to be mindful of and extreme position exists on both perspectives. Jon there are talks of american troops. I will share the story from the wall street journal. According to u. S. Defense officials, the u. S. Military selected roughly 2000 troops to the ploy to israel potentially. What they are not therefore, they are intended to serve in a combat combat they are not intended to serve in a combat role. Talk to me about support for that any washington in washington. Jon i dont think support for henrietta i dont think support the Troop Deployment is there for Troop Deployment is there. I dont think Troop Deployment is something that this demonstration is prepare for. I think their effort is to contain and prevent escalation that might ultimately require Something Like Troop Deployment and we are happy to throw money at the problem and there are more than enough votes for that. The funding is so popular that it can carry other things like aid to ukraine and the Mexican Border and shut down avoiding. I dont think Troop Deployment is anything i member will talk to you now about now. Jon we have a speaker by the end of the week . Henrietta i have no reason to update my priors. [laughter] they dont have a bill requesting aid to israel. I failed to see the urgency. Jon Goldman Sachs dropping across the bloomberg and we will come back to it, Third Quarter net revenue 11. 8 2 billion dollars and the estimate 11. 13. Fixed sales and trading revenue report aa billion and the estimate, 2. 86 report 3. 8 billion and the estimate, 2. 8 6 billion 2. 86 billion. This is bloomberg. If youre trying to get a view of the whole organizational Financial Health and youre trying to do that through multiple systems, that makes it very, very cumbersome. Its not just tech, its not just people. Its how they Work Together to provide that experience to the customer. As a finance organization that is what you want to do. Jon coming off the back of a decent day of games gains on the s p 500. We are negative by 1. 3 on the s p and the nasdaq down. In the bond market, yields all over the place, the 10 year, or. 76 4. 7647. At the front end of the curve, it is creeping higher. Worth pointing out, about one hour from now, u. S. Retail sales around the corner and looking at foreignexchange, the euro the dollar shaping up as follows, the euro 1. 0572. To round things out with financials, bank of america out early today with a series of little beads and that stock is up 1 . Your two dates, down almost 20 and for, posited by just 0. 1 . Goldman reporting better than estimated to report results today off the back of what we heard with bank of america, goldman, the big one of the big banks to report positive. The estimate, 11. 1 3 billion. Big number four Goldman Sachs. 3. 38 billion, the estimate 2. 86 billion. Lisa there is a real question about how much they are fortifying the core of their business after coming from a lot of fire from their consumer facing business. Does it seem my fairly back toward the core of Investment Banking and away from some of the interestbearing peripheral businesses . Jon the estimate, 2. 68 billion. Tom sees a continued recovery in Capital Markets. Tom i look at the book value differential with Morgan Stanley, it is a train work train wreck. They have threequarter single digit return on equity that goes back to covid and i went to the markets website and they said keep the growing going. Jon i am with you. Tom allison is here to call me down and she will medicate me. Jon houston will calm tom down, adelson williams allison will calm tom down, Allison Williams, that conversation ahead. More than 600,000 people have already left. Lisa and humanitarian organizations are saying there is really only hours left before there is a fullblown crisis and there needs to be water and food delivered. How much of the President Biden visit is really devoted to that, to ameliorating some of the burdens on the guys and on the gazan residents, who are displaced. It is a delicate needle to thread. It is a powder keg of emotion. Jon we talked a lot about the visit to israel, and we need to talk about the visit to jordan and there will be a meeting with the egyptian president. And the Palestinian Authority president. Tom i think you are correct i think you are totally correct to focus on that the dialogue with the arab nations. I want to emphasize, egypt, from reporting from morocco, beleaguered beyond beleaguered and they need money. Jon lets wrap things up with that this subject with the dysfunction in washington dc. Jim jordan emerging as a front run after majority leader Steve Scalise withdrew his bid. He is expected to move forward today with his vote, the margins are razor thin and he can lose no more than four votes against united democrats. We are talking about really small margins to make this happen. Tom it is 4 with mccarthy and a more narrow margin with the tech the gentleman from ohio. He had a good monday and if he had a good tuesday, that is 48 hours of joy. Lisa pretty good monday means egot never jordans means he got never jordans to come to his bandwagon. He is considered someone as part of the Freedom Caucus and he is getting some of the moderate republicans on board because he is trying to say, lets get it together and we need to coalesce around something because every have a moderate democrat to be the representative . Peer pressure, it is that is the reason why you see the Republican Caucus members going along. Jon is this a reason to be buy the long end of the bond market . Lisa how likely is it that jim jordan will come to come a consensus with Hakeem Jeffries considering how divergent some of his views have been from even the moderates within his own party . Jon you would imagine the ultimate deal between the two go down and the ultimate shutdown go up and maybe that puts the brakes on growth until the end of the year. Lisa this is probably the reason i focus on bond yields because that is a simple athletic mathematic equation. Jon i am not sure what bonds are tallying. We are about seven basis points on the 30 year, four point into and returning to goldman. The stock, if youre looking at goldman, a move, we are negative or. One. Tom Allison Williams joins us with decades of perspective on the parlor game. The screen tells me fortunes gold fortress solomon is trading 31 below book value or Morgan Stanley and theyre getting their clock cleaned on the market valuation, when do they jettison markets . I dont care who is to blame, what is the board say lose this loser because the market is keeping growing going they announce green sky and we were discussing some of the reserve impact and there was a relatively big reserve release and a was heavily charged up there and they announced the sale of United Capital and they decided they want to go after that mass market but they dont need to own it. Tom who do they sell markets to . The markets have largely been sold. Tom if i am on the board at Goldman Sachs and i say, thank you for the comments on banking, David Solomon, this is not good for the company in the chart, we we have the year to date charts and it is not pretty. The pressure from investors is really more on the cost side and how they can meet their overall cost goals and i think the consumer business, it is a lot of headlines because it is unlike goldman. It was a little bit of a head scratcher when they went into the business and it was almost like a negative foreshadowing for the rest of their business that they would do that but i would say investors never owned Goldman Sachs to own that and i think investors are probably happy that they are focusing on they are focusing on their core, the trading results very good. Investors, likely anticipated that and thats why you are seeing stocks lag. Lisa it was telling that they had a story about David Solomons djing. How much has been baked into the for supporting into the disappointing goldman shares . Alison i think the shares, it has been a tough year for them. I think the shares are reacting more towards that. Investors want to know, how are you going to get to your targets and it is not a clear path right now. One thing i would say about solomon that he has done versus prior management is that he put out targets. Goldman never did that. They didnt have investor days and did not put out targets and the increased transparency has been tough on them on that front. To that point, regarding the dj and the negative press, goldman most likely wants to get away from that and just focus back to more of the institutional audience, institutional customer and their institutional reputation. Lisa that is what we have been hearing, he has done a pretty good job and some of the animosity come from another place. There is a question about why shares are not responding better, particularly to the opera forms of equities considering the fact they outperformed even though j. P. Morgan and city did not. Alison they didnt and it goes to the overall profitability. We want market share gains and we also want profitability and when you talk about a price of tangible getting past a lot of this noise and cleaning that up. The other thing i would say, there is a lot of talk about employees and partners. If bankers dont want their pay to go down. Shareholders do want to pay to go down so there is a give and take in terms of who you are making happy as management and when it is a tough year and not due to the core business, beggars will be more unhappy. Tom lets say they have a run rate of 8 return on equity, if you take out the train wrecks, if you take off the one off of 2023, what is the plug in for return of equity for Goldman Sachs x the treasuries . Alison if you look at the quarter basis and some of quarter basis and some of the things theyre doing they should be able to tom like do a double . Alison we talk about their consumer business and that has not worked out but what has worked, the transaction making this is, that was a great deal and it seems a natural base fit and they have done very well and the alternative strategy where they are basically leveraging their estimate their expertise but not leveraging tom i dont understand who they sell markets to. I get silence from everyone. Alison a lot of the loans are sold. What is remaining is tiny and more of the deposit side of things. As more of the deposit side of things and the final point on returns, the alternative business, as they move that off Balance Sheet, that will be core to beverage improving their returns over time. They made the shift to asset wealth management. It is a client that has the assets and goldman is moving towards that model, as they do that, the returns should follow. Jon Allison Williams from bloomberg intelligence. Upbeat from bank of america a from bank of america, david westin interview with Brian Moynihan, that coming up at 2 15 eastern time. The s p 500 negative by zero point 26 and yields higher by five or six basis points. We will talk about David Solomons djing. We will share this comment. This is not news. David hasnt been publicly djing at an event for well over a year and we confirmed multiple times in the past, music is not a distraction from his work. The Media Attention became a distraction. Tom it is bramos fault. Jon caret less. There was upset on how much there was being paid. Lisa maybe it is a good thing and that was the application in the sense it that you have really high paid partners and they leave and there is people confident competent coming in, already getting expensing argue not getting expenses down . There are a lot of sour grapes. Jon we are all in agreement. That is nice. 8 30 eastern time, the chief economist at ry following u. S. Sales data and we wrapped up the big banks of wall street. Morgan stanley still to come. From new york, good morning. sfx stone wheel crafting the biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently. It still does. What can you do with spy . captivating music the first law of thermodynamics states that energy cannot be created or destroyed. but it can be passed on to the next generation. you might get ready for the fact that a lot of these firms may not make it with the higher rates. It goes back to my view is which is why we should hold rates steady and we should not think about decrease. Jon that was Patrick Harker speaking at a Virtual Event and this event talk started around jackson hole, wyoming, when he indicated that the companies in his region are indicating to him that we have seen enough and we are facing pain, pain that he was seeing in his constituents, that he was not seeing in the headline data and given reason potentially, support. Lisa he talked about how anecdotal evidence has been more of a leading indicator that some of the hard data that everyone looks at andys and it builds he was hearing from constituents for a better tell on what would happen. How much does that explain the reluctance of some members of the Federal Reserve to go further to talk about elevating rates about much higher even as they talk about holding them for a long time . Jon this is why the page point the beige book is so important. Is that the pitch . Lisa come on. You read it too. Jon dont help me. [laughter] i dont read. We maintain our call, the fomc will hide 25 basis points before year end. They are not necessarily make in november. We expect another round of resilient incoming data next week to shine a bright spotlight on jay powells preback preblackout speech. That preblackout speech coming on thursday, the conversation with bloombergs david westin, chairman of the Federal Reserve jay powell at the economic reserve economic in new york. Tom as i look at the meetings, at the surveillance calendar, it is available at the bloomberg professional service. Remember the december meeting was that . December 13 . I think it will be an interesting story report Economic Data. The global cohead of Debt Capital Markets at barclays joins us. The yield curve doing what a deal the yield curve should do and you suggest it extends the time i for the fed. How does disinversion change the fed timeline for 2024 . It is fair to say that we have entered a fair i think there has been a lot of misinterpreted signals this month and the real question is what powell and other members of the fed onto message this week ahead of blackout in the project of what continues to be a rapidly evolving backdrop and you have us wrong those of reality between employment data. All of that combined, it plays into our markets are responding particularly on the right side and i think we read far too much into recent fed speak, that applied the higher rates may have done some of the heavy lifting and what i think the market has failed to take into account is the nuance behind the wife if the why . If you dug into the commentary he suggested as much. Tom what is the level of the 10year yield where jay powell and company are overcome by events . Alison i am not sure if they are focused i am not sure if they are focused on the nominal yield being the determining factor. It is more about the timing of financial conditions and buying room to evaluate the data. Lisa how much do you see as and potentially the fed does more which you think is your base case . I dont think we can underestimate how hard it is for risk assets to rally meaningfully here where treasuries are this volatile. Three months fred spreads on the corporate index are hovering near 24 so it has been tame in the face of this elevated rates fall and even with the geopolitical overhang. When you talk to investors, you are seeing more polarization terms of how accounts are approaching the market so there is definitive report is being incorporated into in terms of investment decisions. The total return focus, youre waiting for the dust to settle on this intraday volatility. Lisa that is from the investor side and one reason why it is wonderful to speak with you is because you speak with Corporate Finance officers and you understand the angst of paying more than 10 yields at least a few look at the market rates for the third of the highyield index. How much angst do you feel among Corporate Executives as they look at their runway and wonder when they will have to face off with these higher Interest Rate payments . Meghan in investment grade, there is a decent amount of complacency talking to treasury teams and cfos say think about evaluating markets, in part there is very functional of activity. There is a degree of patients and we are seeing a backlog billed for the first the postearnings window but the october has been the quietest start to be month going back to april. There is a willingness with very manageable maturity towers for issuers to sit this space out. I think you are likely to see things smaller and shorter. Tom where is your real yield out six months . We have a 2. 35 level, where do you see that out a here yrar . Year . Meghan and year out, maybe we are seeing some reduction from current levels but i think we have always to go before we see that play out . Lisa are we learning this is a corporate and consumer structure in the u. S. Economy that can handle 5 rates for a longer period of time or have the l ags gotten much longer . Meghan it is closer to 17 and where we got greater concerns is probably in the high yield side where the maturity towers are definitively looming so looking at bonds and loan so i think it will be have and havenots as we look at the path ahead. Jon Meghan Graper there are barclays. So much fed speak as a ton of fed officials with scheduled speeches right away to the quiet period. Interesting interpretation of the fed speak we have had. We had a massive bond market selloff and we had one question, with the fed tolerate this or imply that that selloff would do some of the work for them . Mary david with lisa of the San Francisco vet suggesting they could outsource one third policy to the bond market to they could outsource the policy and the bond market do some of the work for them. If it is not how tomorrow, lisa you are good at this. [laughter] jon that is the opportunities to correct course. They know what we think. They know what most people think and they get the chance to correct and if they dont, the message to receive, it was the right message to receive. Lisa it is unclear how much the move lower in yields and higher in price was due to this or due to other issues and to me, the issue that megan said is the why. Why are yields going hard higher on the long end . Maybe that means the fed has to do more on the front end which is what she believes later this were. Tom on imf, there was a debt and panic. I did a careful mass study of 30 year yield, in the u. S. And there is more convexity and better hate in the u. S. Towards higher yields and i say do what is really modeling. We mentioned with thousand and the banks, are people relief bottoming out higher Interest Rates or is it are people really modeling out higher Interest Rates or is it as megan said romaine coming in the market, jon coming in the market, bob doll. The last big data point before chair powell speaks to david westin on thursday. He had goldman and bank of america and tomorrow, Morgan Stanley, from new york city, this is bloomberg. Is it possible to fall in love with your home. Before you even step inside . Discover the Magnolia Home james hardie collection. Available now in siding colors, styles and textures. Curated by joanna gaines. Youre probably not easily persuaded to switch s mobile providerss. For your business. 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The have gotten a lot of good inflation news in the last few months, but we are not there yet. Tom good morning. Jon ferro, lisa abramowicz, and tom keene. Bank earnings perhaps secondary to what we see in israel, the resident of the net states traveling to israel. That supersedes all that we have talked about in economics. Jonathan uncomfortable tension. Still seemingly on the brink of some kind of Ground Invasion into gaza. I put the emphasis on some kind. We are talking about operations, a subtle shift. Tom what i noticed was that the idea of the military separate from the politicians. President biden, how the president will address the Israeli Military. Tom potentially involved, no confirmation. Certainly not combat troops. Stepping away from the geopolitics, one, Bank Earnings, two, Economic Data, three. And the response to it. And we have the Economic Data in about 28 minutes. Tom we underplayed it. We have been wrong. Lisa we have seen resilience. What is underpinning some of the rise on the long end despite some of the geopolitics weve seen . It is because of the unexpected strength that has continued. If we see that in retail sales, how vulnerable is this market . Ironically not to tensions and tragedies but to upside surprises in the consumer that cause yields to go higher and people to reset their expectations. Tom you get to dovetail the economics and the bond market. The news flow is extraordinary. Every time i look, i see a bond market. There is doubt we can get to a higher yield structure in bonds. Jonathan this is a six basis point move. We try to read what is happening in the economy. We asked sonali basak is bankamerica the bank of america . Who are they serving . You look at the average credit score some of their clients, incredibly high. Is that really insight into the broader u. S. Economy . Tom earlier, the basic idea was there is a mother Banking Industry focused on this rollup of banking that we have fought for decades and decades. Is this turmoil the catalyst . Lisa when he said was interesting, that if there is not rank consolidation signed off by regulators, who have a history of slowing it down, that will make it harder for Smaller Banks to compete. Tom swiss franc stronger today. Something to note given the tensions. Jonathan decent gains yesterday on the s p. In the bond market, yields look like this treasuries higher by five basis points on a 10 year. On a 30 year, up to 4. 91. Retail sales, that number dropping. Megan of barclays raising an interesting question. The message from the said speak over the last week was they do not have the bond market to do the heavy lifting for them. Megan is pushing back against that. If yields are climbing on the long end because data is better than expected, maybe they need to do more. Maybe you get more insight on that going into thursday. Tom a higher yield is where we are right now until proven otherwise. The question for this week, the interview for those of you on radio and Television Worldwide saying forget the fancy talk, talk common sense. Robert doll has decades of experiences joining equity markets. This is a needed conversation. I want you to address the retirees, the institutions who are very 40 within the 6040 split. We have never witnessed price declines in bonds like this. What is there to do for people who have been hammered in bonds . Robert if we do not get a nice rally in the bond market in the Fourth Quarter, it will be the third year of losses. These people are sticker shock, shellshocked, whatever. If you have a long time horizon, you are 65 and in good health, you should have more equity. Jonathan lets dig deeper. Do you realize these losses in the bond market . That is essentially toms question. Bob i do not think you one for the hills in the bond market. You have been debating why yields are up. It is because the economy is betterthanexpected, inflation is nowhere close to 2 and youve got the supply demand thing that rears its ugly head. Lisa we are wondering whether Bank Earnings are indicative of the broader economy or an outlier in a time when they are consolidating their business in a smaller number of high income individuals. How much of a talent has the early Earnings Report been . Bob great point. Bank earnings are probably less useful than usual for overall earnings. My big surprise is if we have not seen more consolidation in the Banking Industry poste debacle in april. My thought was we will see more bank combinations. There will be more to come. We need fewer banks. Lisa and this point, given the fact that you are seeing credit extended in the economy. Do you think you put these two ideas together in the bond market that bond yields could go higher on the long end and that megan draper is correct the bond market is saying you cannot let the long end do the work. Bob is the long end to doing some of the fence work for them . Absolutely but that is not enough. Either november or december, more likely december, the fed is done. But more importantly, if the fed raises rates again is what about the impact of the last 18 months . We have not seen the full impact of that. Jonathan lets talk about the banks. Many are sitting on securities, very long dated. No razor higher and they are underwater. This is what the bank of america cfo is saying, expect zero losses. I think we understand that. What gets them out of the penalty box . Who is being bob they are big numbers. It is legitimate. We know what happened in april. These things will mature and they will be at a zero loss at that point, but it is so big, so pervasive. I did not know how you can hide behind that anymore . Tom you are 100 correct. The idea of hell maturity is bs. You go to Lehigh University a million years ago and young doll was saying that is baloney. I want to talk about your cpa background and your accounting degree. The absolute shock has been emerging resiliency everybody is resilient. I was resilient over my moroccan coffee. Are we resilient here . Bob i do not think so. I think margins will come under some pressure. We are early in the reporting season. They have held up reasonably well but i do not see how companies can continue with these big price increases. Look at labor wage gains. Tom are you in cash . Bob we have more defensive securities. I want security stocks that have high earnings predictability, high earnings persistence, good cash flow, and reasonable valuations. That means you are away from the economy to some degree. Tom as apple, microsoft, and manchester united. Bob those would fit the bill. I would double up on manchester united. The hmos fit the bill, some Software Companies the bill. What are the companies that you are pretty short six months from now will deliver the earnings expected . I think a lot of companies will mess on earnings as the economy slows. Whether or not we get a recession, i do not think it is out of the picture for next year. Tom almost a 30 multiple. I do not get it. Jonathan how many times this year we talked about a week consumer, economists crying recession . Do you see it materializing this quarter . Bob the amount of cash on the Balance Sheets, excess cash from the pandemic has come down. We can debate whether it is almost over, but it is not where it was. Two, we are startthat is often o the job market. It is not a long list in that at this point. You have to look at lead indicators for the unemployment cycle. 18 to 24 months after the fed starts raising rates and the yield curve begins with vern, we have no patience. Somebody looked at these periods in the past. The dialogue is always that the recession is never coming and then all of a sudden, there it is. Jonathan jobless claims, an indicator that is not here yet. More jobless claims data later this week. 20 minutes from now, u. S. Retail sales. Yields higher today across the curve. 10year up by six basis points. Four point 4. 7668. S p 500 pulling back after a month of gains. We are negative by 0. 3 . We have heard about it time and time again, the consumer slowdown is coming. Apparently it is this quarter. Lisa this is the reset. One thing to remove the engine of growth from the u. S. Economy, another thing to slow from high rates that we saw last year and we are normalizing back to something that is still elevated. That is the subtle shift in the rhetoric for some of the bank ceos so far. Tom if yields bright higher, based on what i just jonathan bob was calling for them to drop to three. That economy does not look good. Brownell is asking the right question. Lvmh says it is the end of the postpandemic luxury boom. What are we got back to . Bob great question. The pandemic took so many numbers and made them hard to interpret, but when you take rates from zero to five in a quarter, there are consequences. Tom lvmh was misreported. They are actually doing well. I think it was a lumpy quarter. The answer is it was about cognac. Jonathan you were away when we had this conversation. We were not wellpositioned to answer this question. Tom over to hennessey at lamoni hotel. I went to the lisa tasting room. Jonathan i was too young. Lisa could be worse. Horrible. Gosh. Be ready for any market with a liquid etf. Get in and out with dia. Get help reaching your goals with j. P. Morgan wealth plan, a digital money coach in the chase mobile® app. Use it to set and track your goals, big and small. And see how changes you make today. Could help put them within reach. From your first big move to retiring poolside and the other goals along the way. Wealth plan can help get you there. J. P. Morgan wealth management. These banks are making in lot of money, a lot more in Interest Income than last year. Trading has been resilient. Investment banking is cyclically depressed but could bounce back. A of banks understand you cannot necessarily cut your weight to glory. Best way to glory. Jonathan that was about the numbers from Goldman Sachs this morning. To check in on price action on the s p 500, negative by 0. 3 , yields at 4. 76. Cognac is a distillery, not a factory. Lisa come on. Jonathan just heard my moms voice in my head. Some people appreciate it. Lets get to those two names Goldman Sachs and bank of america. Goldman out with numbers in the last couple of hours. Trading revenue 3. 3 billion, estimate 2. 86 billion. A series of surprises from these banks. Bank of america up by 0. 9 percent, dreadful year for that stock. Goldman sachs up by 0. 1 this morning. Tom on the major banks. Let me go to a general and open question. Your thoughts . You are saying it is a multiquarter. For your thoughts . Not necessarily because of the pullback from consumer lending. It was a moldy quarter. This is a transition quarter. We talked about this being a kitchen sink quarter for Goldman Sachs. They are doing a strategy pivot, owned up to their mistake, logged a lot of losses and hits from backing out the Second Quarter. Some is reflected in the Third Quarter. A lot of losses are tied up in the Real Estate Market and the fact that investment ranking remains sluggish. That is what is driving profits down 33 . That is significant from a strategy perspective, not necessarily heard quarter earnings perspective. Jonathan what is english solomon . Igloo solomon . Tom that is what jane fraser wants to do. If these guys are saying can we used to in a smaller format . Sridhar any fortress is also sturdier then an igloo. Jonathan you are saying here exist or to your right now it jp morgan them Goldman Sachs . Of the four since of how things bounce back, are things Getting Better or worse . Sridhar it is headed in a new direction, not necessarily better or worse. They have a story to down now. You could argue that there was some flipflopping over the last couple of years, but at least now it is there two important links to the store. Now the key is to prove they can deliver on both fronts to the expectations of investors and drive the stock higher. Lisa what can you learn from the fact that Goldman Sachs he on equity training revenue but citigroup did not . Sridhar over the last few years has been moving around. It was prepandemic at least for a few years unquestionably Morgan Stanley. That comes down to some credit you have to give to goldman traders who have gained serious market share across equities. Bank of america had a big jump in equity trading but that was lower. Goldmans jump to 2. 9 billion dollars and a quarter is significant. Lisa what is the difference between market share gains and riding a good market . Many have raised questions about how robust Capital Markets are given the fact that companies are acing transaction. How much is this just a market share gain rather than reflective of a Good Environment . Sridhar an individual bank does not control that but what they can control is the market share of the wallet that is available. If you are gaining there, you are making profit. If your within that, you will stand out in the eyes of investors. Jonathan some people are hearing phrases about maturity securities and all this stuff. Stocks in the penalty box down close to 20 year to date. Can you ask wayne . We cannot get that far. What is stopping this bank that is punishing the Stock Selection . Sridhar because they cloud excess deposits into longer data securities, that with the in Interest Rates has meant that there securities portfolios is down 131 billion. That does not affect earnings but it does affect earnings potential. If they had not had this money locked up, earning 2. 5 , it could well have been earning 5 . Tom this is brilliant. I have got like 8 questions. What is the average maturity under 1 10 of a trillion dollars . Sridhar this is what i set about trying to decipher. It can be tricky. Tom what is the average maturity . Sridhar you got me there. Tom does michael barr know . Sridhar i am sure he does. Tom i do not know why they did not know the average maturity of any given bank. Jonathan the distinction he is making is important. This is not about selling securities at a loss. It is about earnings potential. When they come out and say things like we will have no losses relies on these securities, that is eating less. Is that that was lower . Sridhar you have 500 billion securities portfolio and you are earning 2. 5 instead of 4 , that is the 10 million earnings difference. That adds up. It matters. That is the reason the stock is down 20 this year, was down even more last year. Lisa when it comes to earnings potential, we are not talking about extending loans for mortgages. Theyve gotten out of the game pretty much. How much is this somebody being able to capture the differential to current market yields unsafe loans to high income people persist the beta of what you have to pay depositors, which is basically nothing . Sridhar if they were down 8 and we are talking about how they get to being flat, the latter is what we are talking about. The reason they are down 20 is largely down to earnings potential. They are missing out. Tom does David Solomon have the support of the board . I give him very high marks for managing this kitchen sink over to another quarter, but has he have the support of the board in this process . Sridhar last month, he was able to extract a Public Notice support from the goldmans backs leader goldman sacs leader. Montag is digging into numbers, clearly backing David Solomon. Jonathan this has been personal for the whole year so far, personal from within the bank i do not hear investors like sources within the institution. Sridhar there was dissatisfaction in the ranks. Goldman screwed up on one front, prides itself on excellence and risktaking. They have very little tolerance for it, but now the story is do you then move on . Or does the rank and file still demand consequence . Jonathan they are trying to move out. Coming up, this is the lineup martin of schwab, francis of manual life. Stephen figure of argus research. Tom really interested to see how he has adapted. Jonathan that conversation 9 30 eastern time. Coming up shortly, u. S. Retail sales data point. Lets see if consumption in america holds up. Tilt higher five basis points. Your 10 year 4. 75. From new york, good morning. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. Tom it is 70 of the american economy, retail sales. It has reported nominally of inflation. Michael mckee understands that there is retail sales and then xthis, xthat. All the exits are in there. There is a Retail Sales Group providing wisdom. Mike all my answers live in texas. Retail sales more than double what we have seen. X autos up. 6 . Gas also. The Retail Sales Group is up. 6 . The forecast was for just a. 1 gain. Services reporting a lousy month. But it is the retail sales number that will catch everybodys attention today. Interesting thing how strong it is. Tom mike mckee will dive into pages of data. No other way to put it. Maybe a bigger moves in jobs day. Equities self of the yield south of the euro market. Lisa megan graber nailed it. The front end is what is moving, the idea that the fed maybe needs to do more. Tom we will get back to the markets in a moment. But you have got 60 days of lift. Mike really strong lift. August number revised up. A lot of strength in retail sales over the last two months. In september, what we are seeing is a gain in Motor Vehicle sales of 1 , which is interesting. They calculate this differently than the seasonally adjusted sales number for auto sales where they count units. This is dollar value. Electronics down. 8 , big loser, along with clothing and accessories. The big gain on the month gasoline is up. 9, but that is the big gain on the month. Not store retailers and miscellaneous store real tailors. We are getting some amazon, Walmart Business down there. Food service and drinking places, tom keene keeps the economy going, up. 9 . Lisa we are seeing yields going higher earlier. On the 10 year yield, we were up six basis points, now 8, a normal move over the past couple of weeks, but what the invocation of the front end is maybe the fed has not that enough. Mike, a couple of misnomers, whether we are not seeing price pushback on gasoline and that Services Spending still considering to accelerate . Mike you do not get 11 Services Numbers in the retail sales report, really only in food service and drinking license. Drinking places. But that makes this more surprising. You do not expect such a big increase for buying goods. Goods sales have been dropping compared to services. The fed, have they done enough . That will be interesting. It is this a continuation of pandemic savings and we do not mind spending . Is this a sign of real strength in the economy that will be inflationary . Tom mentioned you have to deflate these. Durable goods inflation was down. 4 in the last month in cpi. This is perhaps stronger than it looks. It is an interesting question for the fed. Tom what will this do to market economists gdp guesses for the Fourth Quarter . Mike we will definitely raise guesses for the atlanta fed. Much stronger Consumer Spending than anticipated. It is the last month of the quarter. It has not been incorporated yet. Tom thank you. Americas markets still pricing this in. We are at 8. 3431 and the screen is still adjusting. Lisa i am focused on the bond market in particular. That has been driving so much of the action. Person after person says the front end is pinned. Is it . Or does this economy have that much more momentum than people thought . Tom four points of this inversion any 35 basis at 35 basis points. Will yield, 2. 40 . It bears watching. Shes economist cys he considered this. The market was surprised. Were you . The surprise was both in terms of the strength of the data in september but also the upper revision of the month of august red consumers spent more than initially thought over the summer. The key question is twofold one, do we see that momentum persisted to the Fourth Quarter, or do we see a bit of a pullback . Two, is it inflationary growth . To your question of whether the will have to go further in terms of raising rates, we have not seen the inflationary dynamics that will align with strong growth. That would allow the fed to not sincerely have to tighten further. Tom are we in the throes still of pandemic and certainty . Can you model q1 and q2 of 2024 . Or poor are you just making it up . Gregory it is difficult to forecast in the current environment. We have unique features when it comes to the feet of the labor market, housing market. And when it comes to the resilience of consumers. You have been surprised as to how resilient consumers are. At first we are seeing the drag from higher prices weighing on consumers ability to spend as we move forward. We are seeing the weight of higher Interest Rates weighing on the ability and desire to spend on credit. We are seeing tightening Credit Conditions and the effect of tighter financial conditions, even today. Lisa this is what people have been saying. Fed officials are hearing about this. Why does data estate the that keep coming in stronger than expected . Gregory we had a strong Third Quarter. Spending terms of consumer activity was strong in the Third Quarter. We are not seeing a retrenchment, one of the key elements of this economy. We are not seeing the business sector retrench. That has allowed consumers to spend. The key question is whether this strong momentum in the Third Quarter can persist into the fourth and first of next year. Lisa you said it is unclear whether this paper spending is inflationary. What will be the tell on that . If people are going to pay higher prices, why wouldnt this be inflationary . Gregory we have continued to see slower momentum when it comes to cpi prices. And it comes to ppi prices, even the margins are pointing to less inflation. Even the jobs report last friday, very strong, was not inflationary. We were seeing help from the supply side down wage growth. That is less inflationary than would be concerning 20 fed. We see inflation run ahead of the bed feds expectations. Tom 5. 1 5 on the twoyear. 10 year yield at 4. 80 . Further observations . Gregory auto sales are interesting. Given the fact that we had a strike and maybe that drug people to buy cars when they thought they could, but at 9 15 this morning, we get Industrial Production numbers. We will see about auto manufacturing, see if it is a counterweight to sales. If you are just selling, you will not have anymore. That is less of a problem for the fed. Tom for 4 years, we have miscast the resiliency of we have misguessed the resiliency of the consumer. What are we doing wrong . Mike we used to say never stand between an american and the cash register. That seems to be back in force. Everybody bought goods during the pandemic, then Revenge Travel and services. People are continuing to spend, but we thought money would run out. It has not. Maybe the additional wage gains people tend to spend what they make now we have spent down pandemic bonuses. It may either people got raises and feel like they can spend more. Lisa does that mean this world can live with 5 and we are looking at a new structure . Mike we have to adapt gregory we have to adapt to a cost of capital. We have to have both the business and Consumer Sectors adapt. One thing that is important in this environment is how strong income is. If we see softening in income, that will weigh on peoples ability to spend, but there is no doubt that we are not going back to the free money era. People still want to invest, but there will be more screwed as to how much investment was into the economy and how much hiring. Tom which matters most the november meeting or december . Gregory both will be interesting. Even if we do not get a rate hike in november, we will get a discussion and more information out of powell as to the intentions of the fed going into the last meeting of the year. They will want to maintain that option but are increasingly taking comfort in the fact that the july rate hank have been the last. July rate hike have been the last. Mike november meeting but we are up to 31 for december. Tom greg daco, thank you so much. Futures at 18. Equities, bonds, currencies commodities, negative. Vix 17. 95. 30 year bond at 4. 94. Brent, 89. 77 as the president travels to israel. Lisa we got this retail sales number above expectations, 0. 7 months over month, versus the expectation for 0. 3 . For me, it is upward revisions of the prior month. It is a trend. If you say one and number cannot make it, it is not just one. It is stronger than expected rates. Tom charge card delinquencies, auto loan delinquencies for the younger cohort ours egg conditions, shocking younger cohort are spike conditions, shocking. Who is the bank of America Client . To me, it is a struggling america. We feel it every day. Then there is another america that seems impervious to this. It is rising incomes. Lisa Patrick Harker peart sent the at this point, those anecdotal comments about that we, about the pain and a lot of people are feeling, is that the indicator . Have we not felt it yet . That is where the biggest tensions right now underpinning commentary from the csuite. Tom lets say the least until november 1. Lisa we have a lot of fed speak. We did not start the fire. We got a lot of response to that. Tom futures at 18. Coming up, David Malpass, emeritus at the world bank. We will grill him. Stay with us. From new york, this is bloomberg surveillance. Get help with j. P morgan personal advisors. Hey, david ready to get started . Work with advisors who create a plan with you, and help you find the right investments. So great getting to know you, lets take a look at your new investment plan. Ok, great this should have you moving in the right direction. Thanks jen. Get ongoing advice; and manage your investments in the chase mobile app. We calculated the cost of fragmentation just on the issue of trade. If we strengthen security supplies, but do it wisely, the cost will be minimal, 0. 2 of gdp. If we are reckless, it can go only way up to 7 of global gdp. Lisa that was in marrakech last week. Tom is back with us. Terrific to hear some of the angst underpinning those discussions about debt interest costs and fragmentation were broadly and a lack of consensus around how to spend. Tom there was a financial side to this. The bartenders were resilient. Everybody is resilient right now. Here is the bottom line two worlds out there. The world bank did not get enough love. Irena jackson hole so there is a there. Lisa we have an incredible guest to talk about that coming up that talking about the havenots, the haves are banking at bank of america and Goldman Sachs. That is what we are seeing right now. Bank of america 1. 4 gains sonali basak was pointing to the highfiber scores of all of their creditors. This points to are they really reflection of america in terms of the pain being felt the lower income quadrants . Goldman shares basically flat. Maybe not giving complete clarity going forward. Tom real yield measuring 2. 94 . Up nicely on the 10 year. Also is a buoyant retail sales revision. Off of a buoyant retail sales revision. Good news for america. Lisa good in terms of Consumer Spending coming on the heels of bad is for fiscal responsibility. This is one of the angst underpinning longterm yields and how much they have risen. Joining us to parse this question is David Malpass, former president of the world bank. To that question, how much is the resilience of the economy being financed by increasingly fiscally irresponsible governments, not just in the u. S. But globally. David as they pump out money, all of the spending has to be added up. It is within the Global Economy. They are an engine of demand that is sitting in the u. S. We are talking to trillion dollars per year. It used to be after a crisis like covid you would bring down the fiscal deficit but this time it has gone up and rhymes to guard even more in this time it has gone up and plans to go out even more in the future. The wall street journal a couple of weeks ago, the idea that as you try to raise Interest Rates, it does not get at this part of demand. Lisa there is also a question of how much united effort there can be by global developed markets that are not on the same page anymore in the same way. How much is there a go wood alone feeling that was not there 10 years ago . David during have a, there was an official policy of the imf cb, of the u. S. To spend as much as possible. In light of developing companies did that a law of developing companies did that. Now there is need for adjustment. There was talk on your previous sector of whether 5 Interest Rates are sustainable. I am skeptical. Finance is based on the return on investment. Your riskless rate is 5 , what projects could you be doing that will return more than 5 over a period of time . It does not add up. You have to get to a spot where there can be lower Interest Rates. That requires more downward pressure on prices from production. A whole question mark variable is how much Energy Production will be done to make up for these deficit . You cannot run the World Economy on a five dollars a barrel of oil with a hostage crisis going on. Tom there is a David Malpass World Bank President who had a certain aura about him. We are talking media see, changes as you come out of the world bank, into the private sector, there had been David Malpass fears for years. I do not see politicians in washington, brussels, london agreeing with you. It is spend, spend, spend. How did we get here . David with the capitals are resistant to making any changes in the but the capitals are resistant making any changes in the oath of government the cities are booming while countries are not doing as well. That goes into the Federal Reserve policy which i have also complained about. We have gone from 0 Interest Rates, now 5. 5 . People are saying we might keep them at 5 . It is a policy for elites. When you go to zero, wall street and Financial Markets get rich on 0 rates. They locked in their rates everybody else is paying floating rates. It does not make any more sense to talk about high for long then low for long. Why did we go year after year was economy is saying low for long is great for the world . It was not. It allocated capital to tom you are discussing and have for a generation the idea that this is a policy for elites. When we clear that, do we clear it with stability or usage on conditions . Jump condition . David if Oil Prices Stay at 85, that ends up forcing the said to keep rates. The wealthy adjust and preserve their capital. If you could get oil prices down, it would be an Effective Response to russia, iran, to the power growing outside the u. S. That becomes a critical issue, just like it was. The Reagan Administration in 1980 to 1982, the critical turning point was oil was plunging as markets resolved. Then you got a favorable recovery. Lisa we seem to be further and further away from some sort of easy resolution. Seems like oil prices are on the brink of breaking higher as a result of the conflict in the middle east. How vulnerable is the World Economy if it goes to 100 or 120 a barrel . David the u. S. Will not feel the brunt of it. The fiscal deficit can keep going on. They are planning to do it for another 10 years. The u. S. Keeps draining capital rest of the world. Then you see these wars breaking out in one country after another. China and russia both know how to put a wedge into that. Tom joe of jp morgan was lights out at the panel on bond worries. How fragile is em debt and currency stability right now . David really fragile. Currencies and nigeria, egypt, other countries under pressure. Argentina having its currency dive. Do Central Banks realize that currency stability has to be there guidepost for recovery . That was a learning experience from the asia crisis in 1998. The currencies were crashing, countries doing table terribly. Then countries stabilize. Tom our reported wants to know are you going to show up at spring meetings . David i am focused on global benefits. I will do what i can to help. Tom David Malpass, thank you so much, former president of the world bank. Lisa, boy, was that a spirited conversation about the free lunch we are getting from this fiscal stimulus . Lisa the free lunch and uneven ground in terms of developed markets and the ability to keep borrowing and spending and the inability of the rest of the world. Tom balance of power this evening as the president prepares to travel to israel and the eastern mediterranean. This afternoon at 2 15 p. M. , david westin in conversation with Brian Moynihan of bank of america. Is it possible to fall in love with your home. Before you even step inside . Discover the Magnolia Home james hardie collection. Available now in siding colors, styles and textures. Curated by joanna gaines. The power goes out and we still have wifi styles and textures. To do our homework. And thats a good thing . Great in my book who are you . No power . No problem. Introducing stormready wifi. 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I have people come up to me all the time and ask me, does it really work . And all i have to say is, here i am. It works. My advice for everyone is to go with golo. It will release your fat and it will release you. Jonathan the Economic Data looks good. Yields are up, stocks are down. The countdown to the open starts now. Everything you need to get set for the start of u. S. Trading. This is bloomberg the open with jonathan ferro. Jonathan live from new york. Retail sales in america coming in hot. Wall street banks deliver an upside surprise as Federal Reserve officials lineup for the last word. We begin with the big issue, the economist who cried recession. There is a lot of concern about the consumer