Transcripts For BLOOMBERG Bloomberg 20240703

Morning, bloomberg surveillance on bloomberg tv and radio. Your equity markets are highly unchanged. We start in the bond market, twoyear, fiveyear, 10 year, 30 year. Cycle highs. Tom global wall street is focused and quickly nonglobal wall street will get focused. There has been a shift. It could be because of israel or this, that, or the other thing. Statistically we reached a tipping point. Jonathan is this a substitute for further reaction from the Federal Reserve . Lisa you will be speaking today at noon. Yesterday tom barkan said that the problem with allowing the long and to do the work for you is that it moves. Although right now it seems to be moving in a more restrictive place. Im curious. The fact that we had risk off yesterday and at the same time we saw bond yields reach the highest levels going back 16 or 17 years across the curve, what does that tell you about the new haven status about the treasury market . That is going to be an underlying angst. Jonathan the communication from the Federal Reserve can wait. T. K. , we can wait. It looks like theyre willing to wait for more data. Not going into november but the december meeting later this year. Tom do they look at Economic Data or market data . I dont want to slow down the show with a bunch of drawdowns on bonds, but there are bond losses that are critical. Lisa it is going to be an issue Going Forward. At what point does it become market dysfunction . At what point does it really cause nervousness about the realized losses, which are substantial and havent been realized yet . Jonathan lets start with two names in the premarket. Tesla and netflix, different stories. Tesla right now is negative by 4. 7 . Netflix, subscribers look good. Lisa they are cracking down on password sharing and people were worried that there would be those who simply canceled their subscription to netflix. It turns out that they didnt and that seems to be heralded. Raising prices, yes there are headwinds, but the gain in chairs after the gains weve seen this year shows you how much more dynamism there is an these entertainment names. Jonathan elon musk is starting to sound a little like jamie dimon talking about storms. We are not going to sink, but even a great ship in a storm has challenges. Tom what are you going to do with your cyber truck on fifth avenue . Jonathan i knew this would happen. The numbers dropped yesterday. Miss, miss, squirrel. The cyber truck gets delivered in november. Can you imagine the damage done . Tom i dont get it. I am not a pro on this. By basic take is that its an auto company and not a tech company. Jonathan more on this later. Tesla down by 5 on the year, soaring by something by 100 . Their stock is doing better than ok. The yields are a little higher, up four basis points and we are on 5 watch on the 10 year. For 9577. Lisa this came with a 20year option yesterday that wasnt terrible so that should have been good news but it wasnt. At 8 30 am we get u. S. Initial jobless claims and im curious to see if we see more softness in the hard data. It has flatlined. There was the pandemic lip and then you saw jobless claims come in around 2000 week after week. What will it take to break the trend today . Fed speak includes before the main event to give you a sense of. The fed vice chair, the chicago fed president , the atlanta fed president , the Philadelphia Fed president , the dallas fed president , the main event is of course fed chair jay powell at noon at the new York Economic Club in conversation with our very own jay weston. Dave westin. What is he signal in terms of hawkish versus dovish . A lot of people expect a hawkish tone. I agree with you. Tom i dont think it matters in this bond market. I know that we have to get to all of her in tel aviv quickly. Oliver in tel aviv quickly. Chairman powell yesterday on the bloomberg terminal a 30 year mortgage is 8. 00 . What are you going to do . And then bite my lip lisa . 8 00 p. M. President biden will be talking about aid to ukraine and israel and his peers into the bond debate. He will probably ask for 100 billion in aid. How much does that feed into some of the reaction weve been seeing in the bond market . Jonathan it is getting more expensive for sure. Lets start in israel. Oliver in tel aviv. The president leaving behind a tightly coiled spring. What we have we achieved in the last 24 hours . Oliver i think we achieved all we had could have hoped to have achieved for a president only going to israel and not going to jordan as was the original plan. That is the message of support israel weve heard reiterated. Deterrence. The american policy assessing. It is one word backed by two naval fleets. If youre wondering how the israelis reacted to the visit, we have the front page here where you can see in german netanyahu and joe biden you can see Benjamin Netanyahu and joe biden embracing on the tarmac. The headline is that significant aid will come to israel and President Biden backs the position that they didnt bomb the hospital. Diplomacy did it happen. In the story where so much is happening, so much talking at military activity, the headline is the same. Ada stuck in egypt that cannot crossover. Tom when will the military act . It is an unfair question that is surrounded by secrecy, but this week, momentarily, in a few days, or after substantial bombing . Oliver all that we can do is read the tea leaves from the signals that weve gotten from the u. S. Officials and israeli officials. When is the question on everyones mind. People will speculate that while there are leaders in the west and israel that is not a time for them to move in. Reggie sunak is here today and tomorrow. Richie sunak is here today and tomorrow. Israelis have been saying do not expect a full land invasion where there is an occupation of gaza. This could be more technical and limited. It could take a lot more time. Lisa you have done a tremendous job over the last few days and i look forward to catching up with you later this morning. Joining us now is the former u. S. Intelligence official and Senior Advisor at the transnational threat project. Norman, i want to start with a quote from the president of the United States. I caution this. When you feel that rage dont be consumed by it. After 9 11 we were in reached in the United States and we sought justice and got justice. We also made mistakes. What you think he is alluding to . Norman the president and a number of his advisers firmly believe that the post 9 11 years drew the United States into a dark place of extra judicial handling of detainees. It hurt our relations with the number of countries. It drew us into a 20year war in a variety of locations. We forgot to think about how this ends and spent more time thinking about how this continues. He is advising the israelis, dont do this. That is fairly easy to say and the israelis get it, but the problem is coming forward with the campaign that achieves their strategic and tactical goals without drawing this into this conflict. We are off the map in many ways for both lisa parties. Lisa this comes at a time when we are not only dealing with hot wars but information wars. From a messaging standpoint is israel losing the room as some of these headlines come forward regardless of their veracity . Norman israel is in a difficult room in the arab world. The arab press has unsurprisingly stood with the palestinians are the narrative involving the hospital palming has been consistently antiisraeli. There was little hope that israel would receive gains in that direction. Light and stripped israel and his work tonight and the speech will be to shape the u. S. Domestic audience. We have seen a number of protests to include antiisraeli protests in the u. S. Capitol yesterday. Tom does the Israeli Intelligence have people on the ground in gaza . Do they have any working knowledge of the makeup, the demographic, the people within that 25 mile strip . Norman israel has traditionally had superb coverage of the dynamic within gaza. The fact that overnight they have eliminated the hamas security chief demonstrates rather clearly that they are able to look and identify and neutralize officials who have a pretty strong sense of their personal security. This is a labyrinth, a complicated area with hundreds of miles of tunnels. Very difficult to follow. Tom you assume any military given the geography and the urban nature of it is benefited by acting quickly or being patient . Norman being patient. The israelis are undertaking an air campaign at present which is not only eliminating hamass senior officials but is reducing their availability of weapons, command and control centers, and shaping the battle space so that when they go in they have a better chance of where they must operate and areas where they dont have to focus. Lisa can you give us a sense of how to read the rhetoric on if hezbollah is getting more involved and if israel is preparing for something more substantial in terms of attacking the northern border . Norman lebanese has hezbollah activities in the north that have been consistent and increasing modestly in the last few days. There are 10 to 12 attacks per day consisting of mortar fire and antitank missiles and small incursions across the entire israeli border. Israel has pulled back its population from two kilometers and will likely increase that to five kilometers. At present, the conditions with the israelihamas conflict are not what the lebanese has would need to ignite an entire conflict, which would significantly damage all of its political and material equities in lebanon. Jonathan there has been a sense that a full Ground Invasion was imminent. That has faded just a touch. Do get a sense that something has changed in the plans . You have heard all plans fail on first contact, but have you sensed that something has changed . Norman this was an Information Operation but the israelis are careful planners for military events. I dont think that there was a likelihood that there would be a kneejerk response unless they had a plan in the can for an invasion, which is unlikely. We should not discount that a type of incursion could happen at any time. They also have been pressured by the United States and a number of European Partners to be very careful of civilian casualties. That is causing them to develop a different type of approach to this target set. Jonathan does that mean more targeted operations until we get full clarity on hostages in gaza . Norman certainly more targeted operations, even within a ground assault. A ground assault , you will move people throughout gaza to include hamas leadership. As they move they become vulnerable to attack. The hostage issue is a serious complication because you dont want to attack places where hostages are located. You need intelligence to say where you do attack a place that are not hostages there. That does include careful thinking into attack planning. Jonathan we hope to catch up again soon. The latest on the ground in israel. The president leaving behind a tightly coiled spring in israel. Tom i really take issue with everyone doing walk by. Modern tv diplomacy. The governor of new york state is making a walkthrough, the Prime Minister of the United Kingdom. The president of the United States, with the heritage of the two countries, this is a war. I wonder what will happen in the next 48 hours . Lisa there is a question of how do you poll the room not just in the arab world but yawned as you try to continue support in israel but beyond as you try to continue support in israel . Jonathan your 10 year yield getting closer and closer to 5 . Chairman palace coming up later this afternoon from new york. Chairman powell is coming up later this afternoon. From new york. Good morning. Explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. I will be looking carefully at the dated to see if the real side of the economy starts to cool off or if prices, the nominal side of the economy, heat up. As of today it is too soon to tell. Consequently we can wait, watch, and see how the economy evolves before making definitive moves on the path of the policy. Jonathan i believe we can wait. The fed governor going into the november meeting. I believe we can wait, even as the data comes in a little hotter than expected. Another round of the data going into the december meeting. A big one a little later. Chairman powell with david westin. The big question we are asking all morning, the moves we have seen in this bond market, are they a substitute for further action from the central bank . Tom they are what we call quadratic. As they move they become bigger. I am looking at the first on the u. S. 10 year real yield. From my editorial judgment it is an unimaginable 2. 52 . It was three cups of coffee ago that i thought we would never get to 2. 2. We are at 2. 5. Jonathan the nominal gear really close to 5 . The high the session 4. 9791. The 10 year the moment, 4. 9556. Yesterday we have seen cycle highs on the twoyear, fiveyear, 10 year, 30 year yield. The twoyear at 5. 24, up a couple of basis points. The euro trying to recover at 5. 46. The euro strength posited by 0. 1 . Crude is pulling back. 87 on wti, down 1. 4 . We mentioned venezuela. Sanctions are easing on venezuelan crude. Lisa they say they will increase production. It is a convenient time to say that things have gotten better, because it is better to get on the margins more Oil Production at a time of potential disruption in the middle east. Tom our first brief this morning of this debt market, we are thrilled to bring the chief global strategist global Asset Management. The zeitgeist this morning is something changed yesterday, may be something changed over the last 48 hours. Is it nonlinear, quadratic, did something change in the last day . It certainly feels like there is a different level of momentum going on in the market at the moment. We have had a long view that we have discussed many times. We are expecting a slow down. It is not showing any signs of coming through at this stage. That is what bond yields are responding to. The further that yields rise the chance that slowdowns will be deeper. There are a number of other factors, as you discussed many times over again. Deficit, the bank of japan. We do think that you get clear evidence of a slowdown. As long as we get a very clear signal from the fed, powell today or later on, that should mark the peak for bond yields. Tom give you the perspective but not all at once. We will drip in the data points to show the losses that are being taken. Since early april, the 10 year yield is down in price 12 shocking percent. If you were doing the interview today and not david westin, do you say to chairman powell, are you even aware of the acceleration of higher yields . Seema well, i think that it is unfair. For the fed like the rest of us we are trying to decipher what is driving this 10 year . Is it the move up in neutral rates . That is going to be important for how the fed moves on in its decision. It is very difficult to figure out what proportion is driven by which. Equally, i think the Federal Reserve themselves are trying to figure it out. You have heard from a number speakers that is what they are trying to figure out. As long as they dont have an answer to that, it probably makes sense for the fed to hold. There are so many risks on either side that each moment that we dont know is somewhat damaging to Financial Markets and potentially the economy itself. Lisa do you still consider treasuries to be a haven asset . Seema the way that things are moving in the last 24 hours you do have to question that, certainly. Given what is going on on a geopolitical front and yields continue to rise, and that gold has rallied. At the moment the market is so specifically focused on the strength of the economy, what the fed is going to do, they are thinking about the same assets as other havens now. Yes, i do think treasuries will return as the safe havens choice, but at this point in time there are so many different forces of fitting the bond space that its difficult to say with great conviction that today treasuries are safe haven. Lisa there is an ironing baked into a lot of conversations we are having with Investment Managers saying that risk assets are the new havens, that Corporate America and the corporations that have immunized their Balance Sheets are in better financial shape than the u. S. Government. Governments that used to be the stalwarts. Do you think the traditional risk assets, including some of the stocks for the highest flyers are increasingly the haven assets of the moment . Seema it is true to some extent and you do hear that the way they are talking about it. It is very specific. They want something they know will provide stability. Something specifically that they know they have some understanding of our longerterm. At least over a longer term there are secular trends that we can put our trust in. Maybe there are a few corporates who have that strength. Most importantly will be able to withstand any pressure from treasuries. But it is a very difficult environment for investors today, and it makes more sense in that case to try to look beyond the next three months and have a sixmonth to one year outlook. Thats very important today. Tom you did a tour of duty in treasury and you were aware with principal global of the United Kingdom bond debacle, pension the buckle of a number of quarters ago. Do you feel that we are at a point of institutional risk to the degrees of freedom of bond managers with actuary assumptions cannot get it done and we become unstable within our conservative institutional money . Seema that is a question that ive been getting a lot of in the last 24 hours as you get close to the 5 point. We are not detecting any clear signs of financial stress. These numbers are certainly concerning. We think that the system can withstand rates getting to 5. 5 . Tom that is important. You are saying that the Financial System can withstand a move to a 10 year u. S. 5. 50 . Seema as long as it is backed up by strong economic growth. It comes back to what is driving yields higher . It is the strength of the u. S. Economy that is that resilient, then yes. I think that the system can withstand it. I also have to clarify that with financial risk it is typically not in the area you are looking at. It typically wont be from the pension or the banking system. Typically Financial Risks when they arise is in the place you are not looking. We have to be a little humble about this. Investors everywhere have to be saying that maybe we cannot see the risks today, but there has to be some defense within your portfolios potentially to withstand anything that could arise. We are close to that point when friction starts to come up. Jonathan we will leave it there. The year has been long, but did we forget that a bunch of banks failed this year . We are talking about 5. 5 . What happened to spring . Lisa it was on the margins, it was the quiddity issues. It was liquidity issues. Jonathan s p totally unchanged from new york. This is bloomberg. the first law of thermodynamics states that energy cannot be created or destroyed. but it can be passed on to the next generation. jonathan the s p 500 is down, unchanged on the session, going absolutely nowhere on the nasdaq positive, 0. 1 5 . We talk about the big move higher in netflix this morning. Lets talk about bond yields over the last few weeks. Twoyear, 10year, 30year, fiveyear. The 10year gets closer and closer, 5 , 4. 9577. Lisa the move has been dramatic and there has been risk aversion. This is the key point. We heard this from semma shah, amid risk aversion during the conflict in the middle east, you can see treasures are not haven. Jonathan the price loss that we have seen at the low end of the curve in some places i talked about the gilt market and the u. K. We are talking about losses of 50 to 60 depending on which security you look at. Have we fully realize the pain associated with those losses in this bond market . Tom this is something for me, i was in 3rd avenue having fine dining and a guy came up and said, thank you for mentioning what people really feel. There is a separateness right now of institution of bond dynamics from the real world of the pension people i mentioned and others of 10, 12, 18 . Lisa one of our guests that if she could find a 30year treasury selling 40cents on the dollar, she would buy it but you cannot because they are not for sale. They are not being realized. The for sales are going to be the question, when you see big flows out of treasuries in a way that forces the hand of investors . Tom but i would say as you can think as hard as you can about this but you can never see it coming. I cannot tell you where the fixed income is going to be. Jonathan always a shock. Lets turn to the commodity market, brent, wti, moving crude south of 90. We are down on the session by 1. 6 . We have had three lovers to pull, the spr. I ran may be turning a blind eye to production, cannot do that anymore. And then what about the sanctions on venezuelan crude . We have talked about this now for months and here we are. Lisa we will take that door for 500. They will relax on venezuelan, talking about how its poised to increase production by 25 in the near future. Maybe there will be a bigger marginal player since they are one of the major producers. Jonathan that works out about 200,000 barrels more of crude out of venezuelan a day. President biden delivered an address to the nation at 8 00 p. M. Eastern on the israelhamas war and ukraine following his brief trip to tel aviv, saying as many as 20 truckloads of humanitarian aid will be able to enter gaza through neighboring egypt and israel said it would only allow the aide to enter Southern Gaza if it is certain that none will be diverted to hamas. Tom i would like to see a good article on the 25 kilometers north to south from gaza up near the north of the gaza strip to see where israel is focused. And that allows humanitarian tricks to get in if they are not focused within six kilometers on the southern border. Lisa the more i read, the less clarity i have on the issues and how accessible the roads are to deliver aid. How do you parse out individuals in gaza from hamas . How do you deal with the checking each truck . What is egypts main hangups . The more i read, the more confused i get. Jonathan very little clarity. Secondstory, chinese investors have the most u. S. Securities, 21 million of sales coming to shore up 21 billion of sales coming to shore up, this is what they have to say, this could be to liquidate Bond Holdings to obtain u. S. Dollar cash in case it is needed later to defend the yuan by intervention operations. We have talked about this for weeks. We have lost the anchors to the treasury market. Before inviting, the oj the foreign buying, the European Central bank, take your pick, whatever it is, we have got problems. Lisa these are data from august and raises the question of how consistent some of the sales have been. The point being that there is not price insensitive buyer of fixed income that there used to be. Is this what is behind the increasing yields . If it is, it is not changing anytime soon and that is driving angst and a lot of conviction among bond investors. Jonathan i think that there are two names to talk about in the equity market, tesla and netflix. Elon musk says stormy outlook ahead with rising Interest Rates, weakening consumer strength, and he said we are not going to sink, but even a great ship in a storm has challenges. Thirdquarter profit and sales fell below estimates. The stock is down almost 5 . Tom i live for operating leverage. The revenue story is remarkable. What he is doing in terms of bringing in money is great but not showing up down the income statement. He does not have operating leverage at play. Jonathan can we check out netflix . Tom they do have operating leverage at play. Jonathan they are higher by more than 13 . The service is set to raise prices in the u. S. , u. K. And france. Subscribers are looking good. Lisa the fact that they can raise prices and crackdown on password sharing and still maintain their subscribers and still be able to deliver bigger earnings speed tells you where we are, and it raises questions at a macro level about the stickiness of inflation. If you think about the debundling, the idea of netflix, paramount and all the payments you are making, we were supposed to hear that people were going to crackdown in pullback but they did not. That is important. Jonathan and the consumers are willing to watch suits. The big blockbuster of netflix in the last quarter was reruns of suits. I am serious. It was true. Lisa it is a different demographic. Tom are you watching that . Jonathan yeah. It is nostalgic. I thought it was going to be about both but it is much more about him. Tom was he really the one who made the football curve . Jonathan the free kick taker . Sure. I think americans think David Beckham was better at football than he actually was. He actually was not that good. I think he was underrated in europe and overrated in america, if that makes sense. Lisa it does. It is the image in the u. S. Maybe than about substance. Tom thank you for watching the show today, amy. She says suits is a great show. Jonathan it is important. We still have an actor strike. We will see if that continues. So there blockbuster was suits. You want to watch reruns of suits with Meghan Markle . I will pass. Tom joining us now is geoffrey yu. I am dropping in the debacle of the moment slowly across three hours of surveillance, in an emerging market, the msci e. M. From the top is down 34 . To begin, how bad is it out there . Geoffrey that is just very, very limited interest moving into en assets. We are not big fans of en equities at this point, notwithstanding the china stimulus push. We cannot flow data, there is very little take up. You have real yields and you dont need to take that much fx risk. With frontend dollar up 5 plus, i dont think anybody is fighting on the mk right now. Jonathan we have been asking this question all morning, where do you hide . Do treasuries work anymore . Geoffrey looking at it over the last two weeks, we have seen marginal increase, a decent combination, look at the swiss. Thats moving. Look at sterling, we are finding gilt flows are moving forward. And we are finding interest in jd tease. Not necessarily jdbs. Not necessarily the yen. But it feels like people are very long dollars and they do not want to add to that, and people are looking for safety alternatives. Lisa there is a question about what we are seeing in realtime and if there is a structural shift in the u. S. Acid buyer base. Whether we are asset higher base. Whether we are seeing a withdrawal from chinese and japanese investors. Do you see the evidence of that or is the story overplayed . Geoffrey we are starting to see evidence. Initially, we thought it was overplayed. Looking at our flow monitors, but now that is starting to show more end data but one of the reasons behind it is due the Asian Central banks need to liquidate u. S. Holdings to prop up their own currencies or do they worry about the u. S. Deficit moving up ahead . Those are two different stories, but given that the market and the acidbase is overweight dollars, that does not load well for dollar interest or u. S. Asset interest at this point. On a structural view, i am not sure. Lisa there was a former member of the bank of japan who said it is possible for them to abandon negative rate policies as soon as later this year. Has that been banked into markets already . Or is that another shoe to drop when it comes to some of the Flow Dynamics pushing yields higher . Geoffrey it is steadily being baked into markets. People do not want to be short the yen anymore. There is a very small long yen position in place ready to capture that, but if more japanese money stays in japan, that has an allocation application globally, not just for treasuries but european and u. S. Corporate credit, as well. Tom when does the real yield impinge the system . If you look at the inflationadjusted yield, it is basically the cost of capital, the lodestone and foundation. We are sort of there, but what is your single point and number for the 10year u. S. Real yield effects, as well fx, as well . Geoffrey when you actually have real yield push two Percentage Points in a developed economy, that is where the pain comes through because then you start to struggle to make the case for real Income Growth. There is real Income Growth in the u. S. To reach 1 , 2 and that should be celebrated but if that is offset by servicing your debt and real terms, than everything the gates itself. We have seen that happen already, for percent, 5 real yields in bearish economies and that is starting to slow things. You want a lower number for developed economies, especially for the u. S. Euro zone, but then again, it is contingent on in the u. S. , peoples debt, especially mortgages, that is a fixed rate, whereas in other places, that has been floating, so the transmission is different in different areas. Jonathan david westin is sitting down with chairman powell this afternoon, what would you ask him . Geoffrey has the market done your job for you . More and more fomc members are heading in that direction. I would like to see a bit more conviction because of that is the case, then you can fully price out any discount in markets relating to further rate hikes or things like that, and then it is purely a higher for longer story. And then we can look forward to the next phase of the cycle but we need confirmation. And then where the fed leads, the rest will follow. Especially emerging markets and Central Banks will follow it closely. Look at the bank of indonesia, hike. Surprising. There worried about fed conditions weakening their currency and there may be a bit of a panic coming through across asia. That clarity is needed for the fed Jonathan Geoffrey yu that clarity is needed from the fed. Jonathan geoffrey yu, thank you. A west side chat at noon eastern between david westin and chairman powell. Is this chairman willing to push the policy to the end of the market . Tom we asked off microphone, and they said this is the day the fed loses the narrative transcript. These speeches all of a sudden, we make jokes about them. But they may be important. Lisa if he says that we are going to hike rates, do you see the long end die down . Tom he is not going to. Lisa but if he indicates a more hawkish stance, does that imbue more control over the long end because there is the feeling they will do more because of the economic length . Tom that is a dialogue from the buying market did not move. I dont think people understand their losses at this moment across portfolios. Hawkish and dovish, theyre like, what are you going to do about the yields . Jonathan i love how closely you do not follow this at all. Positive on the s p. Netflix up time in early trading. Gital 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. Monetizing that big and growing and reaching engagement, we believe that we have a long roadway for growth and more membership and higher arm overtime in a more valid story than what you saw this year. It is an unusual year. Jonathan Spencer Newman of netflix, netflix shares gaining in the premarket after reporting its best subscriber growth in years. The Company Announcing it is raising prices for customers in the u. S. , u. K. And friends. With 15 price increase as significant, i know it is many, many, if not most, of netflixs subscribers consumes in of content to justify this cost given the high volume of the time spent with the platform. Tom we just had the cfo from netflix, and am i loosing it, do i need to get out of a suit and bow tie and get into patagonia . Jonathan that is the midtown uniform and i am i guessed it. I saw two types walk across park avenue yesterday in the patagonia vest. No. No. Tom my favorite part lisa my favorite part of the show is when you start going through an issue and all of a sudden, tom is like ah just going ballistic. [laughter] just plowing through. Tom the guy for netflix is going full midtown. Jonathan full midtown uniform. If you are stuck savvy, you can get away with it if the stock is savvy, you can get away with it. If the stock is down, put on a suit. Tom Jonathan Ferro is trying to cut down his cable tv bill by 30 . Brian reeser has been brian wieser has had an arch theme for decade, which is do not give up on tv. Do you still hold that theme . Brian no. Tom tv is finally done . Brian yeah, we are over it. I wrote something yesterday that the total demand is going to fall by 24 . Tom what is ago . Brian it goes away. People dont get as many ads Going Forward because even if they subscribe, they will knock at the same but not that many will subscribe in the first place and they will take the increases in prices and cut their paid tv subscriptions defunded. Tom when you look at this on the broad sense, 17, 18 years ago on the concentration of digital product, are we going concentrate down to two to three survivors . Brian i think it is possible. There could be four or five, but heres the big thing people are looking about. Most can be global if they bothered to invest, netflix and disney will, but we are not sure how much comcast is willing to, but they can play the global level. It is still a good business. Jonathan do you remember that pc and every person who wrote the headline voted on a pc . Ironic we are talking about the death of tv on tv. What lives on . Brian to be clear, paid tv keeps growing. People will pay for it. It is advertising on television that will continue to decline, decline, decline. Consumers will pay for it. Jonathan this go to the disney company, what do they do . Brian that is such a mess. Heres the thing, separating the network and stations is ridiculous. Separating the stations make sense. You dont need that legacy infrastructure. Think about how you will position the company. Having a regulated business like broadband combining with Network Makes no sense. I dont know where they will go. Jonathan what to think bob iger was doing them . Same, come to me with ideas . Brian i have a theory he was getting good advice from 18 he built up over the sub years prior to 2018. You can tell he had clarity and what they were doing, and if they stuck to it, maybe it would have been worth less than what it was in 2018 but it would have been a great 50your business. Now it is strategic well over the place. What about a e . There are businesses they dont have clarity around. Tom nobody in my house is watching disney , theyre glued to netflix. Lisa how much of it is a demographic issue . Tom candidacy survive on the kids . Brian there is a direct relationship between share of viewing and sure of content. If you spend more on content, you get more viewing. If disney doubles the spending on actual programming, they will get more viewership. Lisa when you have consumers that say, i am not going to pay for that, have we seen anyone breached that . Or is this, skies the limit and we will pay 1000 a month for entertainment . Brian you are hitting on things like thought were obvious in 2018, but the point i was making his the cost for the services will be so much higher because youre going to turn. Netflix can raise prices by 15 but turn will go up and marketing will go up. Because of delivery were always going to be higher. Lisa when you talk about turn, this means people will leg in when they see content they like. Brian yeah, if you dont like the series, get out, you are done. Lisa like suits every night. What we learned from password sharing and crackdowns on that do not lead to a drop off in revenue but you captured more. Does this lead to a broad policing of all the people out there still using their parent subscriptions will they are 33 . Brian i think so, and the more aggressive a streaming service is in doing that, it will lead to harder prices paid by higher prices paid by consumers, but there is a hundred Million Dollars spent on legacy tv services annoy 30 billion on tv streaming. Thats a lot of money to shift. Jonathan talk about the return of the bond. Is it the return of the past . Brian i color john mccain stream. Jonathan explain that. Brian he was chairman of the House Energy Committee and they tried to create an all a cart world a la carte world and they were trying to make it possible to sign up or sign off of an industry. We said this is crazy and will cause a worse business and make consumers will pay more, less content, blah blah. Here we are 20 years later and we have it at a more aggravated level. Consumers will pay more for the privilege. Tom what does sports do . It seems to me that is all people watch. Sports on the weather. And bloombergs surveillance, what does sports do . Brian basically, the only people who will access ports are those who keep with paid tv bundles. You have to really like your sports physical pain 200 a month. Tom jon is up at 500 a month for english football. Brian disney broke out espn for the first time. Just to see how big it is, not a shocker, but they are positioned to do something with that asset. Which they probably should. Sports risk is going away of boxing. Not that bad, but in the way that boxing used to be this broad reaching thing that everybody accessed and then it became payperview. And then having casual fans. Tom some of us had prowrestling. You get to the weekend to watch 30 minutes of blackandwhite. [laughter] lisa you do not watch pro wrestling. Tom it was like religion. Jonathan this is a very interesting negotiation taking place in italy with italian football. Theres a push by some legs to go direct to the consumer and not sell the rights but go direct to the consumer. Is that the future for American Sports . Brian i think many will end up doing Something Like that. Jonathan so the nfl will have its own tv network and pushes the game straight out. Brian they will still prefer to so to multiple rights holders and those holders will price a very high, but if 50 to 60 of the population right now might consume half of the sports, half are passionate and have are in different and the indifferent group will not pay. Lisa thick different question is how much money goes to content creators and sports members and athletes versus the writers versus Artificial Intelligence . Is there a sense that a greater proportion of the money will go to the creators . Brian the amount of spending on content is going up. I think it is a show runner sue can benefit disproportionately, like the jerry buss timers, etc. , that is where the money is going in. Think about how many people are now acting in series running in the u. S. From england . As an example. Theyre all over the world. The talent has been distributed, so the spending content is like other industries where we see austrian agencies or other industries, it is the same for hollywood, the people of l. A. Are not necessarily the punishers the beneficiaries. Lisa this is the bloombergs suits. Jonathan dont worry. Lisa please stop. Jonathan interesting. Lisa lets look at the bonds. Jonathan look at the bonds. Coming up, we will go to tel aviv for the latest and then catch up with Cameron Dawson. Lets turn to the bond market. Shaping up as follows with the treasury market in america, cycle highs in the last 24 hours, a twoyear maturity, fiveyear, 10year, a four basis points, south of 5 at 4. 9535. Positive might not even 0. 1 . From new york city, this is bloomberg. 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. hi, im katie, ive lost 110 pounds on golo in just over a year. But it can be passed on to the next generation. Golo is different than other programs i had been on because i was specifically looking for something that helped with insulin resistance. I had had conversations with my physician indicating that that was probably an issue that i was facing and making it more difficult for me to sustain weight loss. Golo has been more sustainable. I can fit it into family life, i can make meals that the whole family will enjoy. It just works in everyday life as a mom. Anytime you would say there is geopolitical uncertainty, that is bad for the markets. Are going to see spillway effects and our other countries going to get pulled into this . This whole year has been a year of a market that has been on its toes and on edge. The s p 500, the market is controlling its emotions. I not surprised that we can get a nice rally if we maintain the status quo. This is bloomberg surveillance with tom keene, Jonathan Ferro, and lisa abramowicz. Jonathan we will hear from chairman powell and the u. S. President , live from new york city, good morning, good morning. This is bloomberg surveillance on tv and radio, alongside tom keene, lisa abramowicz, i john kennedy i am Jonathan Ferro. More headlines, your 10year at a cycle hi, just short of 5 . Tom really in the last two days, the shift has been asked ordinary. All you need to know, to use a known physics word, it is like a cyber truck going down the road. There is acceleration. Matt miller i think with a down payment. Jonathan that stock is slightly lower in the free market. Elon musk talking about a storm for the automakers, the stock down 4 to 5 . Need to talk about the chairman of the Federal Reserve. Is he willing to outsource Monetary Policy to this bond market . Lisa if he does, what does that do . If he says that, does he allow bond yields in the backhand to decline . This means the fed will not raise rates as much to curtail inflation. They will expect yields on the backend to curtail momentum. This raises the fundamental question which is, have they lost control and do they think yields are rising for a reason other than economic momentum that could be potentially inflationary . Jonathan exactly wherejonathan i wanted to go. Perplexing, the word used, do they have a decent understanding of what is underpinning the move in the long end . What is the dominant driver . I get different answers every day. Lisa we dont know. Bottom line. There is an issue of the deficit of the u. S. , there is an issue with the buyers over from japan and china. There was an issue with inflation and growth. And there is an issue with this idea that consumers are still spending like they are americans and are like cash registers. Tom 40 phds around the table helping chairman powell. It is a funnier fireside chat today with the chairman. I am going to the 10year real yield and the fancy phds advising chairman powell, we are looking at 1. 080. We are popping 250 right now to borrow from the economists at walt disney and burbank, a whole new world for chairman powell. Jonathan will the chairman ultimately say the same thing . Cpi . Tom if your data dependent, i get it. Jonathan they need another brand to say we are not sufficiently restricted. Tom there is the ecobible. All of a sudden, the financial bible is folding into it. It is not two conversations. They are becoming one. Lisa although, that said, nothing has broken except for the banks that went under in march. Tom not entirely. I do not agree. That is an institutional bloomberg view. There is a retiree right now in wisconsin who is going to open their october statement, and they are hammered. Jonathan i thought you had more to say. Tom no. They are hammered. Jonathan i am not sure we are disagreeing with lisa because by definition, something is tom this is a wonderful, important analytical debate, which chairman powell will look to address today. How about the retiree who is down 14 within 428,000 Retirement Plan . Jonathan tom the three years is the phrase, it is the time runs. Jonathan that is like 50 to 60 . Have we realized the pain associated with those losses at the long end . We have seen some come to the surface and maybe morris to come. Enjoyed the rent. Futures have changed, yields up i disagree. About what . Not sure. 4. 9577 on the 10year. Lisa over on wall street, we get u. S. Initial jobless claims and existing home sales. To be get a take up event number of jobless filings . Today we get a host of fed speak from a host of different banks to get chicago, atlanta, philadelphia, dallas, the main event is fed chair jay powell who will have a conversation with david westin at the new York Economic Club today at noon. At 8 00 p. M. , President Biden is addressing the nation and this is one of the biggest mysteries. He will talk about 100 billion in additional aid to help fuel some of the efforts by israel and ukraine. Is the fiscal part of this a significant proportion of the increase in yields . If so, this is going to be a longerterm problem that takes the conversation away from the fed and very much to the fiscal policy makers of washington, d. C. Jonathan the president addressing the nation this evening but lets address the headlines, new outlook for the American Airlines. Fully adjusted eps, 225 to 250, previous range, three dollars to 3. 75. The Airline Stock has been absolute dogs since july. It has been brutal. Some names down by 20 , 30 . Lisa this to me will be an issue of how they really deal with the potential of increase in oil prices. And then all of a sudden, disruptions. If we get real disruptions in travel, we saw united. 2 that with respect to flights to israel. Jonathan did you see delta . A change in their air miles rewards program. Lisa yes, they got word back from medallion holders jonathan did you write and . Lisa i did not. I am not going to use my position to influence anything. Tom i would never. Jonathan you would. American airlines down about 1 . Cameron dawson is with us, lets talk about the struggle. It is not one sector orders that talk about Consumer Discretionary spending . Cameron what we are seeing is the dynamic that we are still very much in the late cycle economy and that there are winners and losers. There are those with Pricing Power and those without. You see it this morning, netflix Pricing Power, has look, no Pricing Power has led, no Pricing Power. It also has to do with Interest Rates and the cost of capital makes the operating environment more difficult, so in late cycle, you have to be hyper selective when you pick equities because there will be those who stumble. Tom i love that you go right to the top line and look at the gdp inflation overlay. You have the magnificent seven sales growth up Something Like 35 year over year. Nobody is talking about the top line. Cameron it is extraordinary in part of the top line is because they have rate Pricing Power. Some of that is skewed by nvidia. Nvidia is going to grow earnings by 1000 this quarter. 1000 , but even if you remove video, the magnificent seven will still grow earnings by 7 . If you take them out from this quarters earnings, earnings would be down 4 versus down 1 to what is currently projected. Lisa is that priced an already . Cameron i think it is still extent because you have seen so much multiple expansion. It is not mean that these are not still Great Companies but if you look at the direction of growth, it slows materially going into next year. Nvidia, 1000 goes to 33 . You see similar decelerations for other magnificent seven names. The market cares about second derivatives, so it will be an interesting test for leadership year as we see the deceleration. Lisa jon asked about American Airlines and whether some of the disappointments we have seen from united are specific to the sector or if there is a broader withdrawal from Consumer Spending that you see on the ground . Is there a dissonance between official data and anecdotal data like what we got in the beige book that points to a more substantial slowing down . Cameron there is dissidence there and also within the credit card data. That was the big head scratcher. All the credit card data points to slowing consumer demand. We did not see that in retail sales. The best explanation i have heard is because the measurement period was after the credit brigade was starting to roll over, so i think what we are starting to see is at the margin , Consumer Spending is starting to soften but it is not broad enough yet have heart is because the labor market remains tight and wage growth remains robust. Tom what is your prescription on apple . Julian emanuel writes the piercing out today, and he says a defensive tilt is essential, do you agree or can you be more optimistic today . Cameron i think the defensives are washed out. You look at option buying within staples, utilities are washed out, but they are very much in downtrends. I preferred way is to say that we are willing to own cyclical names as long as they are high quality. Meaning companies with good Balance Sheets and strong free cash flow, but the overlay has to be valuation discipline because the higher you go in valuation, the more you have room to fall as valuations and growth expectations come in. Jonathan you have seen the performance of some of these offices, absolutely brutal, want police down percent mondolese down 30 . How much will it change the market . Cameron shoot first, ask questions later, which means you are pricing in the impact of something that probably will take many years to play out. The fact that walmart called it out as far as weaker sales, that seems to be a convenient excuse as to what they are seen. I would not want to price all of that in and that is one of the reasons why staples are oversold at this point. It is not necessarily mean they will lead the market in an uptrend but there is some of that inverse and what you are seen in the optimism. Jonathan so excuse, not a reason. Excuse, not a reason. Lisa i buy that completely for like walmarts and snack companies. There was another story when it comes to Health Care Companies when it comes to medical issues tied to morbid obesity. If you can treat that i not just that but owes a big is also geared was epic is also geared ozempic also treats other morbidities. Jonathan what doesnt it do . Lisa it cooks your dinner, tells your kids to do homework, fantastic. Jonathan something about the kidneys. Lisa and a whole host of other issues that can affect. Jonathan Cameron Dawson of new age wealth, thank you. If youre just joining us, welcome to the program. The s p 500 negative by 0. 01 . Yields higher by five basis points. That is what were focused on, the 10year, 4. 9641, getting closer to 5 . Bankrate, mortgage in america. We will discuss this later in the hour, but 8 . A percent. Lisa basically what you are seeing is stasis in sales, Mortgage Applications falling to the lowest in 28 years. We talked about how things are not really breaking and a lot of people would say the Housing Market has broken because he was going to buy a home and take out a mortgage for a percent . It increases for 8 . It increases the price when prices are not coming down. Jonathan it is certainly frozen. Tom it is a separate thing. It is part of the mix. Total me, i found cameron was brilliant on this, there is a real yield. This is something a huge part of the public is not confronted. 2. 35 . I dont know, 2. 6, i dont know when the world falls apart, but every textbook tells me that is what to follow. Jonathan this will be a big deal in the election of what is going on to the Housing Market. What is happening with the Federal Reserve, and we are trying to realize the consequence of this, to have record low Interest Rates and Interest Rates at multidecade highs, both in the space of a couple of years, is absolutely amazing. And the fallout and the ripples you see from it. We have got a poll we will talk about in a moment. A Bloomberg News consult poll. The president of the u. S. Lagging behind a former President Trump in he states, arizona, georgia, michigan, nevada, north carolina, pennsylvania, wisconsin. That conversation up next. J. P. Morgan Wealth Management knows its easy 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. If hamas profit skates it orders not profit gets it, then it is going end. We will not send to monetary need. Humanitarian aid. Jonathan the president of the United States speaking on air force one, and will address the nation tonight at 8 00 p. M. Eastern time from the oval office. Welcome to the program. Here is the s p 500. Equity futures look like this, 0. 05 in the bond market, five basis points on the 10 year, 4. 9663. Tom we made a lot of the 30year yesterday, going to 5. 06 . I would look at it holistically and globally, as well. Yeah, we focus on the 10year and theres a lot more going on. Jonathan lets focus on crude, brent broke below 90 earlier today, conversation of the past day or so, easing sanctions on venezuela. As lisa mentioned, intentionally kicking out output by roughly 25 higher. The production boost potentially in venezuela, connected to what is developing in the middle east. Tom i someone report of the migration sending people back to venezuela. To me, it is just the domestics, venezuela and over in the caribbean going back decades and decades. The timing heres a little bit to do with it. Jonathan 90 and about 30cents. Tom there it is. Right now, it is important that we get an update on israel after all the observed yesterday. We are joined by Annmarie Hordern in washington, and oliver crook in tel aviv. Let me go to you first, annmaire, the president looks annmarie, what will President Biden do today . Annmarie he will make his second oval address, a direct appeal to the nation this evening at 8 00 p. M. With the president is going to say is try to make sure that he is explaining his Foreign Policy goals and explaining the need to continue to support the National Security concerns of u. S. Partners directly to the American People. A direct appeal to the American People this evening, and it comes as we are expecting the white house to request more funding for israel and ukraine, as well as partners in the end pacific, like taiwan and Border Security from congress. We are reporting that that funding request could be up to 100 billion. This is the president taking that appeal after the trip to israel where he was able to sit down with Benjamin Netanyahu to understand what is going on in the region. This will be his direct appeal to voters this evening. Tom oliver crook, what will the Prime Minister do today and in briefing and addressing his military . Oliver we heard from the Prime Minister. It depends which when you speak of because we have the israeli Prime Minister at the center and the u. K. Prime minister who is here now and has just spoken alongside regimen netanyahu, giving some of the same remarks we heard from haydn yesterday. My read on it was it was more couch than full support but basically the same message. In terms of Benjamin Netanyahu and the orders you might give, in terms of what the ground occurs and looks like, the question is, what is the incursion looks like and is it going to be the full force occupation that the israelis have been steering us away from, thinking of more tactical like more discrete operations that may last a much longer time than that . Lisa i would like to get the take on the dissent in the u. S. In israel, how united are people around regimen netanyahu, a highly Benjamin Netanyahu, a highly polarizing leader, who has been leading by proxy . Oliver interesting question because when i was here seven months ago, the thing that defined israeli politics was total dysfunction in a separated society. On one side, you had hundreds of thousands of people on the streets, a sight to behold. Every saturday, they protested the government and the judicial reforms they try to push through. That has gone silent last week and half, but at some point, and you hear it under the surface, netanyahu and a lot of peoples minds is the person to blame for what has happened, particularly the Prime Minister who has run with reputation on security. A lot of people are waiting to have that conversation a little bit later once they are passed the initial wartime. That is certainly under the surface. Jonathan this president , the president of the u. S. , is facing difficulties abroad. Ukraine, israel, facing;, so with an election year. Together with water consult, bloomberg has put together a poll and it is not make a good reading for the president. Annmarie absolutely not. It shows that President Biden is losing in key districts and key swing states. What is notable about it is a number of the swing states, he actually won them in. 2020 five of the seven that trump is beating bidens arizona, georgia, north carolina, pennsylvania and wisconsin. They are all states he won in 2020, except north carolina. An underlying issue it shows is the economy. It really has voters on edge. And inflation is their concern. They think that trump potentially could do a better job. We are talking about what is going on in israel and the a that by then wants to request for ukraine. When it comes to Foreign Policy, even though President Biden loves to tout that he was the chair of senate or in relations and Vice President , he is now commanderinchief. This poll, trumps leading 11 points when it comes to china and seven points when it comes to issues regarding ukraine. Voters in the swing states think trump is stronger on Foreign Policy than the current president. Jonathan jonathan lets talk about energy. All roads seem to lead to that, what can the president do . We talked about moving levers like easing sanctions on venezuela. Will kennedy going into next year . What can we do going into next year . Annmarie the u. S. Right now is that record when it comes to energy production. This is something that i think its lost in the headlines when you look at higher gasoline prices oral market. There is concern in the energy market, especially in the shortterm on what could happen given the fact that we do have a conflict now in the middle east. Ifiran was to become part of it, that would mean a massive spike oil Energy Prices. What we have seen from the administration is that they are going to allow venezuelan crude to start moving again, but this comes with the fact that maduro has to have free elections. In the u. S. Can slap the sanctions back on if they do not think that he is operating in good faith. Jonathan 13 months before the u. S. Elections. Thank you. Stay safe. His headline here, the gop nomination frontrunner, the former president donald trump, leading biden 47 to 43 among voters in arizona, georgia, chicken, nevada, north carolina, wisconsin, pennsylvania. Tom the margin is actually an adult margin and not a wish. The long stay growing for President Biden is nevada, which has been leaning towards the gambling industry. Lisa i wonder how it will shape speech tonight by President Biden to convince americans to get on board with initiatives that have gotten less popular as time has gone on. I think this is the dividing feature right now. Both parties are looking for their northstar to sort of coalesced around, and they are both a little bit kind of moving away as they sort of further left to further right are moving further from the center. Tom it is still early but i do take the point that, you know what . It is always about the economy. We are all distracted about the war in the middle east and mediterranean, but the answer is the economy. This yields move is because the haves survived and the havenots get crushed on that folds into poll more than anything. Jonathan the democrats are struggling with the following, they are going to say things like, look at retail sales, jobless claims, labor market. Tom look at the fica score. Jonathan and then somebody says, ask them how they feel about it. Ask the consumers. I am sorry, and you cannot tell people they are wrong on how they feel by shoving data down their throats. Lisa and disinflation is a complicated concept to explain when year bill is going up, full stop. Jonathan this bond market and foreignexchange coming up next. From new york city, this is bloomberg. 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 when you stream on the xfinity 10g network. Youre probably not easily persuaded to switch mobile providers for your business. But what if we told you its possible that comcast business mobile can save you up to 75 a year on your wireless bill versus the big three carriers . Have we piqued your interest . You can get two unlimited lines for just 30 each a month. There are no Term Contracts or line activation fees. And you can bring your own device. Oh, and all on the most reliable 5g mobile network nationwide. Wireless that works for you. Its not just possible. Jonathan equities pulling back a touch on the s p 500, down on the session, negative by 0. 1 , positive on the nasdaq, by 0. 1 . Netflix looking good, subscriber numbers nice with Pricing Power coming back. In the bond market, we look like this, twoyear, 10year, 30year, cycle highs, 5. 2420 on the twoyear, up six basis points on the 10year, 4. 9727, 5 on the 30year. Lisa the problem is we dont understand why in the whole curve is moving to 5 and beyond. This raises the question of is this a sign that we have more inflationary pressures than we would have imagined as datapoint after datapoints surprise to the upside . How does that crimp the u. S. Borrowing capacity Going Forward . Jonathan it is getting expensive, the ascus 100 billion to ask is a hundred billion, is the president going to address that . Lisa i am guessing he will not come out and say it may crimp our ability. Jonathan maybe they should be looking at it. How close are we to them waking up every morning in washington and following this take by take . I wonder how far the spread is. Tom this is the economic thing we are comfortable with, and i would suggest it started two days ago and the shock this morning, i cannot rounded up yet, 2. 53 , up six china or miss basis points on the 10 year real yield. Jonathan 4. 9727. I would like to finish on crude briefly. Had this discussion earlier, easing sanctions on venezuela potentially boosting production. Ultimately, crude pulling back a touch, 90. 33 onwards, on crude, 87. 35. President biden will deliver an address to the nation at 8 00 p. M. Eastern on the israel and hamas war, and ukraine. Rishi sunak now visiting israel in the latest effort to prevent the conflict from widening. He is meeting with Benjamin Netanyahu today before heading to other regional capitals are not specifying which countries exactly. That might be the best approach because based on the president s experience, the meetings can get canceled on short notice. Lisa and on the heels of something that is highly contested, what i think is interesting is a lot of the leaders of the u. S. And u. K. Are trying to go direct to the client, to the constituent because right now, there is an information war going on and you can feel it in this material way, and everyone is trying to win, there is disinformation, real information, who knows what it is . But there is a question of how the leaders coalesce a majority to their side amid the distance . Amid the dissonance . Tom there is not enough talk about what is the warden element going to be. Jonathan lisa is onto something, the information war. Tom yeah. Jonathan the president of the u. S. Has said that his Defense Department has told him that that last at the hospital was the responsibility, his words, of the other side, meaning his own party in his own country has got officials in the house going around and saying that israel was responsible for it. That information war is not a foreign concept. It is happening domestically. Lisa there are a lot of independent examiners who are coming to the same conclusion. Eurasia group put this out on the platform on twitter, saying the level of disinformation on the israel, swore is unlike anything i have ever been exposed to in my career as a political scientist. Not just twitter but across the board. This is one of the key questions as we head into the next phase. How do you get control of the message that has been disseminated in a different way . Jonathan it has been pushed out by different members of the house of representatives. Isnt this a problem for the president of the u. S. . A shock. I am not surprised it is not headline news. Tom i think it is. Jonathan it was still lingering. Tom it is on the news, and i believe today, it is news, but i think it is buried in the diplomacy. Jonathan the house is a mess, so lets go through it. The house of representatives expects to hold a vote for jim jordan, trying to get tony to vote failed to get 22 votes yesterday and can lose no more than four votes as long as democrats remain united. The post has been open for two weeks. When congressman Kevin Mccarthy was pushed out. Lisa i am looking at this, why would he want to go up again for a third time . He lost two republican yes votes and they changed it to know votes. It is getting worse, so i go up again i deal with the humiliation . So why go up again and deal with the humiliation . Tom i think it was two going for him and four against. He has a jacket like you. Jonathan what does that mean . Tom it is cut and chiseled. Jonathan that is the look. Cut and chiseled and blue. Tom it is the Jonathan Ferro look. Jonathan lets get to u. S. Housing. Im year three decade low in the u. S. And this is part of the reason, the average national fixed 30your mortgage has hit 8 according to bankrate. Com. You have to go back to the early 2000 for anything that looked like this. Tom we do this at home as you figure out how much house can you buy . Less. [laughter] jonathan so true. Tom tom the conversation right now is so important, including the conversation david westin will have with the chairman, a fireside chat. We are so advantage, his fancy title. What is important here is decades of work, considering the holistic view of Interest Rates moving, w dr. Izman joins us dr. Wizman joins us, we are going to see a floating series of fixed Currency Solutions which brings up the great triangle and is the only solution to all the angst we are talking about, is it organized or disorganized for currency devaluation . Dr. Wizman for the emerging markets, i dont think so. We have seen a lot of evaluation in 2022. We have seen the chinese are many devalue remenbi evaluator the data this is restoring some sort of stability or growth to the economies globally. If you are asking is the increase in u. S. Yield putting more pressure . I think it will, but the transmission mechanism is quite simple. It is difficult to want to hold any assets that are yield Assets Abroad when you can earn as much as you can in u. S. Fixed income. Including the chinese renminbi. Lisa there is a vicious circle people are getting concerned about that as some of the developing market currencies depreciate, the governments liquidate more of their holdings , which are u. S. Treasuries, to go then and support the currency. I am thinking of china and japan. Still, there is a question on whether that just pushes deals that much higher in the u. S. How much is this becoming a self fulfilling cyber . Selffulfilling cycle . Dr. Wizman countries doing this the most are the ones concerned about inflation in their countries but you have to keep in mind that china and japan are not really inflationary economies at this point. I think we are limited to those countries that are inflationary and would like to stabilize their currencies in the face of u. S. Yields. I dont necessarily see china waking up one day and saying that the renminbi is too cheap at these levels and we have not heard that from the japanese either, so those are not the countries who should be pointing to. Lisa from a broader perspective, you said higher yields are pressuring developing world substantially. When do things start breaking . At what point do things start getting a little unruly . Dr. Wizman i dont think we are close to that in the currency world. For example, look at south america. You have seen the mexican peso depreciate in the last few weeks, but the mexican peso had appreciated quite a lot in the 12 months previous to the depreciation, same for the brazilian real and colombian peso. So we are only at the point now where we are seeing the dollar against emerging currencies rise but also a low base for the dollar in view of how much we have seen the countries. I am not saying the appreciation came with no cost. The way the emerging markets managed to get their currencies to appreciate last year was with very high Interest Rates and high Interest Rates real Interest Rates. The situation is that that is the problem and what is slowing the economies. Not the volatility of currency. Countries are still grappling with inflation issues. Tom i lick at this game of thrones i look at it kind of as game of thrones. This gets solved, and they weaken and get pointy, like in game of thrones. I am going to assume things always get fixed by the u. S. , so, get pointy in em, and even in developing markets like the yen, i will pontificate to 154, what does america do to bring in those excesses . Dr. Wizman if some of these emerging market depreciate more, i dont think policymakers in the u. S. Would mind. That would be this inflationary for the u. S. Economy and provide or produce more flux ability on part of the fed to be able to, if it wanted, to move away from this tightening policy narrative we have seen the last few months. For the perspective of americans who are concerned about inflation, and maybe this is the reason why Consumer Sentiment is so poor in the country, you actually would like to see currency depreciation abroad. Jonathan chairman powell, what did you like to see later . Dr. Wizman i dont think he is going to step out of line. I think the narrative is going to be aboutlong. About high for long. I think you will see others on the other side of the spectrum vocal on the need to not raise rates but do not read this as a signal that there should be more flux ability about the medium and longterm outlook, which is defined as high for long. He will probably repeat that. Even if they are on hold on november 1 at the meeting, high for long will be an important part of the narrative. We are not anywhere close in terms of dynamic in the u. S. Economy to make it a reasonable expectation for them to take that away anytime soon. Jonathan it is november a live meeting . Dr. Wizman i think so. In view of how many of the regional president s and those ford governors who have been vocal about keeping things on hold, i think we will look at that situation. Jonathan terry wiseman, thank you thierry wizman, thank you. If you are just joining the program, welcome. Your s p 500, negative by 0. 1 . Coming up later, we reacted jobless claims data 45 minutes away. Tom there it is, we will see that in less than one hour with claims. Claims are artificially suppressed, but claudia sahm heated on the real gdp, and optimism that we talked about the other day on the economy, we had someone say 5 for q3, which is shocking. Lisa did you see yesterdays data with how much the Balance Sheet of the American Consumer increased over three years . A record amount, going back to the 1980s. People have been stockpiling so much more cash than anyone had imagined. That seems to be fueling something. Everyone is asking, when does it run out . It doesnt if jobless claims go up and people get paid more. That is the distinction that is causing people to change their view. Jonathan more than we realize. Tom ted tied into the bloomberg poll, there are two americas and there is a massive polarity and some is engendered by the Financial Market on the move. Jonathan American Airlines out earlier this morning, cutting the outlook. A tough time for airlines. Jet fuel prices moving in the wrong direction through the summer. On top of that, a softening of demand domestically. I am thinking jetblue and southwest. Tom totally agree, but every seat is taken. That is the difference this time. Every seat is full. Why are they struggling . Jonathan which claim were you sitting on . Which airplane tom tom were you sitting on . I looked back. My people were on there. Lisa your lord. Jonathan we have opinions on airlines, next. 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. Explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. Any time you see Rising Economic and geopolitical uncertainty, which is what we are seeing now, that is bad for market. It zaps investor confidence, company confidence, and we are bad at pricing it. These high levels of uncertainty have unfortunately become a new normal. Jonathan thank you, ben, the moves in the new bond market are abnormal. We are seeing those moves again this morning. 10year yield really close to 5 . 4. 9791, up by six basis points and the 30 year by seven basis points, a two year up by three basis points, 5. 25 on the front end of the curve. Amazing to follow the bond market last three months. Tom particularly with oliver crook and Annmarie Hordern, we forget that this is really a bond market on the move. Across every single indicator, that this inversion the disinversion. Can i dare say begin to model where the twoyear and the 10 year, are they the same yield, am i there yet . Jonathan it has come from the long end, and what you have seen from the investors, the best argument i have heard for it, and this is the best argument i have heard comes from steve major, when you are in an expansion on not downturn, asking investors to go finance the government for less yield on a longer maturity in an expansion, you are going to get pushback. I know it is only one piece of the story because there are many in the puzzle, but that piece is important. How do you convince someone to go out on the curve . When you are in an expansion, you see retail data like this week, payrolls like a few fridays ago, cpi and ppi coming into. It is hard. That is why you are seeing the curve resteepen. Lisa the bond market is essentially same with the polls are saying, which is recession is no longer the base case. If that is the case, things get more expensive from here and inflation may not come down the way people thought it would. People are losing the sense that the fed has the conviction to do the heavy lifting necessary to inflict pain required to get inflation under control. Jonathan if things get bad, do people start to buy the bonds . Typically they do. I will stress this one piece, you can throw in china and the deficit, you can throw in yield curve control and the boj backing away, all of that. American airlines has had to cut their outlook and the stock is still doing ok, better over the last few months. For many of the airlines, stocks back in july, new outlook, adjusted eps, 2. 25 to 2. 50, and estimate, 2. 30 four, this is about high fuel cost and about softer demand domestically. Tom the complexities here, the way i look at this, with all of the airlines, i compare the price now to the covid low. American airlines is under 10 per share, so they are a little bit off the covid gloom is how i would put it. Brooke sutherland joins us now from bloomberg opinion. And a girl from kansas, and Everybody Knows kansas is glued to the heritage of american aviation. Robert crandall of American Airlines a few years ago changed our world. His arched theme was put fannies in the seats, we went from capacity of 70 something percent to 100 and 2 . Why 102 percent, why are airlines struggling so that if every seat is taken . I dont know that it is. Theyre having to go to Great Lengths to fill the seats, particularly among the domestic carriers, jetblue, spirit, frontier, running fare sales to fill the seats. Part of the issue is they have been aggressively adding capacity. We had that period postpandemic where the demand came roaring back and the airlines did not have the seats or infrastructure to meet the demand. Their natural response was to add capacity but now we are on the other end of the travel boom. It is not as strong as it was in we have not seen Business Travel come back, and the airlines have too much capacity domestically right now. Tom there they are. I have seen economy flights and the one i looked at is new york to lax, maybe it is 700 and then 300, do they have the ability to cut costs . Brooke it is difficult because fuel costs have risen, and the airlines assigned a new labor deal with a number of unions. There are high price points and there is always a natural lag in the airlines ability to pass the cost on to customers, but that gets complicated when you are simultaneously running discounts to fill your seats. The ability to close the margin gap is tougher. Lisa how deep do discounts go . I am asking someone wondering how much of the price increases that have been dramatic over the past three years are going to stick longerterm. Brooke it is a bit difficult to get a good read on where Airline Pricing is. We have the cpi basket but that tends to be more heavily weighted toward lower discount fares. That would indicate prices are down, but that does not feel like they are down significantly if you are a person buying flights right now. There is a moderation here. This is a consumer facing product. I dont think the pricing will ever be as sticky as what you might see. Certainly on the aircraft manufacturing side or any kind of air manufacturing business. Those tend to be a lot stickier. Those are harder to trend down. There is a saying among industrial analysts that prices just do not come down on the manufacturing side which creates another Pressure Point for airlines who need to buy aircraft in order to renew their flights. Lisa which is a reason on why there has been a focus on reducing capacity by the big airlines and charging more. Basically, just catering to the people who have to fly and are going to have to pay the higher fees. How much does not become the model given how high the fixed cost has come across the board . Brooke we have not seen a lot of big capacity cuts yet. No one has blinked yet. I wonder at what point that might be coming, and i think has fall goes on, if we dont see Business Travel materially come back, which i dont expect it to, i think this is a very easy bucket of cost to cut prepandemic and postpandemic, as we proved we can do things. It is just a much more easier bucket to target when things get tough at companies. If you dont see that, some of the airlines will have to take a sharp look at scheduling and think about if it makes sense. Tom my amateur take is that airbus is winning in the war against boeing. How that is boeing losing . How bad is boeing losing . Brooke that is a good take on the market, airbus has a 60 share of the market, which is the workhorse for the airlines. Boeing has bounced back from the crisis and i dont think it is in anybodys interest to have a situation were removed from a duopoly to a monopoly, where everybody just buys from airbus. The waiting lists are long and i think boeing is holding its own. When you look out, does boeing need to invest in some sort of product that would target that middle spot between them . Airbus is developing the extra long range and that is not a market boeing can fill at this time and they need to figure out what they will do about that. Jonathan i doubt we have an monopoly on anything, the chemical back to the airlines . What does that look like now . Brooke we are waiting to see what will happen with jetblues good to acquire spirit. The doj sued to block the deal and that will be sorted out over the coming months. Personally, i think it is a little bit of a tough argument. If you remember in the railroads, that is also highly consolidated industry and we had a significant deal there with Canadian Pacific requiring Kansas City Southern and that shrunk the Railroad Market to the same degree that this one would shrink airline market. It is a tricky argument to say that allowing these two smaller carriers to combine will not create more competition. If you look at how dominant delta, united and america are, there are arguments made that allowed jetblue to get stronger and creates more options for customers. The doj does not see it that way, but we will see what happens as a get sorted out. Jonathan brooke sutherland, thank you. It depends on where you would like to go, if you would like to go to one place, how much competition is there . What we have got his basically down to one part of the world, united owns one, america owns the other. Lisa jetblue owns another. Jonathan competition is fair. Lisa great point. Tom it is a little bit better than it used to be, but i am amazed how quickly the market is moving. 700 down to three something, and then i look at paris, 16,000 and it is now 5,000, i did not realize how the prices have gone down. Jonathan thats quite a headline. Tom look at that. Jonathan nothing personal about that, not at all. Coming up marcus for the former defense secretary mark esper for the former defense secretary. What do you see on the horizon . Uncertainty . Or opportunity. Whatever you see, at pgim we can help you rise to the challenges of today, when active investing and disciplined Risk Management are needed most. Drawing on deep expertise across the worlds public and private markets in pursuit of longterm returns. Pgim. Our investments shape tomorrow today. Hi, im jason and ive lost 202 pounds on golo. So the first time i ever seen a golo advertisement, i said, yeah, whatever. Theres no way this works like this. And threw it to the side. A couple weeks later, i seen it again after getting not so pleasant news from my physician. I was 424 pounds, and my doctor was recommending weight loss surgery. To avoid the surgery, i had to make a change. So i decided to go with golo and its changed my life. When i first started golo and taking release, my cravings, they went away. And i was so surprised. You feel that your body is working and functioning the way it should be and you feel energized. Golo has improved my life in so many ways. Im able to stand and actually make dinner. Im able to clean my house. Im able to do just simple tasks that a lot of people call simple, but when youre extremely heavy theyre not so simple. Golo is real and when you take release and follow the plan, it works. The fed will try to be quite patient especially with real yields where they are. It is the speed that matters and we have had an aggressive move in treasuries. The rising bond yields is doing some of their work for them. Is the yield doing some of the feds work for them . Yes but it is not enough. We have entered a complicated phase. This is bloomberg surveillance with tom keene, Jonathan Ferro and lisa abramowicz. Tom good morning, john dust jonathan, lisa and tom on television. It is the fixed income report. 12 00 noon. Here are the numbers, this is like bingo or whatever. Five point 25, 4. 98 and those of the winning numbers today. Jonathan or losing. The two year, 10 year and 30 year cycle highs. Let us talk 3. 30, 3. 3 after the big intention and seemingly the cycle is over. Here we are at 170 basis points higher and still climbing. The question for the chairman later on is is that move a substitute for further action from the Federal Reserve if this Economic Data keep surprising to the upside. Cpi and retail sales are coming in hotter than expected. Tom the bowtie word is unanchored, but in the last 48 hours people are worried. There is an angst, yes because of what we have seen in the Eastern Mediterranean. Separate from that there is a new bond angst. Jonathan i do not hear that on the Federal Reserve yet but i hear that we can wait. The governor use that word yesterday and i think we are waiting for two things. I do not really understand what is going on the bond market. I still think they are surprised by the nature of the Economic Data coming in as hot as it has done. If you take Morgan Stanley they are looking at the slow down and still pushing the idea that we get the slowdown in the economy. If you are the Federal Reserve do you want to pull the trigger in november or get another dose of data and wait until december . It is why people have december highlighted in november pulling back. That can change with the chairman, it is up to him and he will get the last big word. That can change with the chairman. Tom lisa with the toughest job in the test on the desk, trying to keep track of the fed speakers, it is absurd. We have five or six. Lisa today we have seven. Do you want me to do the same thing. Philip jessica and philip jefferson, michael barr, rafael bostic, lori logan and then of course jay powell. Tom from another year before arthur burns i will go to the economist, william joel just how city silly this is. We didnt start the fire beginning with the economists and speaker, doris day, walter windchill. That is another time and place. This is too much communication. Jonathan yes is the simple answer. Tom englands does this better. Jonathan they speak last . Tom yes. Jonathan there are fewer of them. Lisa can i just say one thing . If they have something to say speak, if you do not have something to say, does it muddy the waters . Jonathan some of these are scheduled so far in advance that there are key figures that you need to listen to more than others. Powell will set the tone of today. Tom i want to sum up yesterday about the observation and the United Kingdom inflation and i said the duration is something. It is a chart that i have never seen. Ben bernanke said it was a hockey stick. If you look at u. K. Inflation back 20 years and something changed three years ago and it is these some it is the sum of the inflation move wrapping up perfectly to 10 per year over three years, over three years. Jonathan i saw you looking at rpi which was deemphasized and cpi is right now, but the same sort of tone. Tom i just took it. That is the emotion we have and look for chairman powell today with david westin. Let us look at the data. Im going to brent crude, 93, down. Jonathan 4. 9727, the highest in the session briefly a few minutes ago. We are so close to 5 on a 10 year. This is not where people thought we would be, they were looking for disappointing data and i heard calls for 3. 50 or maybe 3 look at where we are. Up near 5 and on the 30s and a five point one ecigs on a two year. Tom the bankrate the bankrate 30 year mortgage, 8 even. Now for the best conversation, we have a chief Investment Officer for Northwestern Mutual Wealth Management. He speaks to people who are scared. What is the motion of the emotion of bond investors, what is the emotion of the people with bond losses . I think people have not seen these for quite some time and they are worried and nervous. To me bonds yield something and they offer real value. I do not know where the ultimate end is that we do not go higher. Anyone buying treasuries with a real yield of 2. 5 plus will be happy in the next few years. To me, bonds for the first time offer value and investors should be buying them and not selling them. Jonathan where on the curve . Brent i think i heard the conversation about the wisconsin individual and that happens to be in my yard. I hope no retiree is funding nearterm liability is with nearterm with longterm assets. That is not something banks and individuals should do. It depends upon what is the income stream that you need. I do not want investors on the front end of the curve because who knows where Interest Rates will be. Think about the comments opening up about 3. 2 percent of people expecting it to go lower. People who invest only at the front of the curve forget about reinvestment risk. I think on the 10 year, it is an attractive area. Jonathan when a client comes to you and talks about balance and diversification and the old 6040, has that sifted that shifted given so often now in the bond market . Brent i think it has. Equity have done the heavy listing and bonds were not a help to the overall return but that does not mean that you should not have them. Recently they funded some longterm liabilities. The bloomberg aggregate, your own index yields 5. 7 . Typically when you buy a bond that is what you get. Over the next five to 10 years, 6040 looks better and the bond site is doing more than carrying. Lisa you talked about reinvestment risk even as the best returns globally have come from cash. At what point does cash is cash better than people wanted to be. Ultimately if you keep rates higher for longer this will be the most secure investment that this could make. Brent i think they keep it higher for longer until a recession. They do not want to repeat 6682 where they talked about letting inflation which was Wage Inflation which causes the fed to keep coming back and over and over and created an abysmal. Wage growth is still so tight and the fed will not stop until they get wage growth lower which means a recession. That is on the horizon and when that is on the horizon you want to own security is a little bit longer than cash which will be some pullback in some shorterterm yields. Lisa that is actually counter consensus and pushing against the grain where people are writing a procession a recession off of the table. How much confidence and how aggressively are you liking into the long end of the curve . Brent i am happy to be contrarian. Everyone else out the recession was coming and everyone else thought that it would come down. If you look in core cpi at 2 . I feel very comfortable that we are near the end of the Economic Cycle. I do not know nor does anyone when the recession will curve, that when you have an Economic Cycle you should behave better. That is when offering intermediate bonds is a better protection. Tom on a sharp ratio do you know when the riskfree rate is, we did not know 10 years and we can actually measure the puppy, do we know when the riskfree rate is . Brent i do not think 2014 2020 was anything normal. I think you are back to something more normal which is higher than what it was because it is now having consumers and companies who have done the same. The world is still a wash which is retracting. I think rates are likely to be higher and i have one more point. Real buyers remain require real yields. For a while they did not care about real deal real yield. All of this is perfectly rational, so in a longwinded way i think the real yield is higher and the neutral rate keeps penciling in and it has to go up. I think it is certainly higher but not where it is today. Jonathan we mentioned pgm and we just lost that price and predictable source of demand and other Central Banks backing away. This involves a much longer situation. The events of the last few years and the policy response to them have screwed up the Mortgage Market and Housing Market potentially for generations. For a lot of people the biggest asset that they have is their house and now i coal generation faces the prospect of not having that. How will the prospect change for them if the frozen Housing Market does not unfreeze or melt . Brent this is when you mention the 8 mortgage yield and contemplate that the effective Mortgage Rate is re. 6 which is why the Housing Market is frozen. I think it only on freezes when one of two things happen, prices come down or rates come down, which will eventually occur when you get the recession. You will eventually get the pullback and unfreeze the existing homes market and this in the Housing Market is probably not going to continue the strength that it has had. Jonathan thank you for the latest on this market and the Housing Market. Welcome to the program we are negative by 0. 1 , the yields are higher by six basis points, 4. 9727. You can track the Effective Service rate. If you would like to do that u. S. Mri te. The current rate is 3. 6 and you know at the low was . Spring 2022, re. 3 , amazing how low that was. It will take a long time to climb because a lot of this is 30 years. Tom particularly where you are putting 2 down. Jonathan it is just about the two handle. Lisa the two handle on my down payment but on my mortgage. Jonathan i was not fading your ability to work two save. Tom this is lisa abramowicz, let us get this mortgage done. Jonathan the two or three handle of your mortgage. Tom we have notes in here like crazy including an options note like citigroup. A week from now the tech frenzy starts with netflix, but microsoft on the 24th, apple. In the modeling out it is call options. This is not investment. This has a note, a call option speculation. Jonathan that is intact, november 2. The day after the federal register the Federal Reserve decision. I prefer the tech names and they deliver them after. Jonathan and you can bump in and just read the documents. This is bloomberg. J. P. Morgan Wealth Management knows its easy 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. The president and a number of his advisers believe that the post 9 11 years threw the United States into a dark place. Part of his trip to israel and the speech tonight will be to shake the u. S. Domestic audience where we have seen another a protest including antiisraeli protests. Jonathan that was norman roue the former u. S. Intelligence official. From new york city, good morning and welcome to the program. Just a look at what is happening on the s p. Slightly negative at 0. 1 . The yields are a little bit higher and on a 10yearold, on the 10 year, 4. 86. A 4. 98 96 13. Tom we will go off the Economic Data but nevertheless the claims are important. Our reporter is in tel aviv reporting on military efforts. We made a decision at surveillance that we would focus on people with tangible, active skills. Yet Elliot Ackerman on, a former marine, First Battalion with any number of tours of duty. Now, mark esper joins us who has a big fancy title, he is a screaming eagle of the 101st airborne with on the ground experience and the former u. S. Secretary of defense. John. Jonathan the secretary secretary esper, fantastic to catch up with you. I want to lean on you. We have seen some landmark accords come out of the Trump Administration establishing diplomatic relations between israel and places that we would. We would hope we will helpful we were hopeful that this would take place. Are we learning that there are some forces that just do not want peace . Sec. Esper of course we do and that is iran, principally, and there are proxy groups around the region that they support, hezbollah, the shiia militia groups. A big part of what motivated hamas to attack and the way that they did was the fact that the normalization record between the saudis and israelis were was moving forward, albeit slowly. If it was concluded on the terms that were leaking out that would have meant a shift of power back to Palestinian Authority which hamas is opposed to. There is friction between the Palestinian Authority and hamas. And then iran would also be hurt by normalization because you finally see an emerging alignment between the arab states and israel against persia, iran. Those were the principal reasons why the attack happened. Tom the political battle will be engaged and look back to 2020 hindsight, secretary. What i am fastest what i am fascinated by is how we prosecute a military affair with israeli forces, fine against terrorists groups. We have never really done this, have we . Sec. Esper you could argue that our response when we went into afghanistan to displace the taliban and of course the pursuit of al qaeda and eventually isis was part of that. Yes, we went after isis in syria as well. It is very tough, you have an army built for conventional flights and an extraordinarily soft capability going into a heavily pot of populated area trying to root out militants and having to fight multiple dice dimensions above, on, and below the ground. It will be bloody and messy. Tom what would the screaming eagles do . You have tangible experience. Do they do a massive bombardment all of world war ii and go in, or do you expect them to prosecute Something Different . Sec. Esper we have seen the bombardments and at some point they will have to go street by street. I think part of the reason you see so many airstrikes is that they are rumbling buildings. You referred back to the 101st airborne, when we were in southern iraq we wanted to avoid cities because city fighting is tough and consumes a lot of soldiers, not just those you lose but you have to leave people behind. When you are fighting in multiple dimensions it is tough. Going block by block to avoid civilian casualties, but the really big question that we do not know is what is the end state and what happens when they are done . At some point they want to pull out and what vacuum do you create, do you want the Palestinian Authority . Is there some sort of interarab peacekeeping group . Those are the big Unanswered Questions of what does the end state look like. Lisa you were a defense under the former President Trump. How would his response be different . Sec. Esper i am not sure it would be different in this moment but regard to ukraine and other countries, but with israel even the close connections to our country and people, and so much shared, i am not sure that it would be that much different. Although, i would say that trump would take a harder line and a more public line against iran. I have already said that in the past and i know secretary of state pompeo has. I would like to see more about connecting the dots back to iran. Because at the end of the date while israel can decapitate hamas and tried to suppress them, unless you deal with the country, then i think hamas just crops back up over time. Lisa how do you deal with iran . This has been a quagmire for many nations given that people want to avoid world war iii. Sec. Esper i am not arguing for strikes on iran, we should see a consensus emerging between the western democracies, United States europe and elsewhere, about tightening down economic station sanctions on iran. You can go after the Energy Exports and i know what that does to the Energy Markets and then you can talk about further isolation. We have not seen a concerted effort over the past six or seven years and not certainly over the past couple. Some would argue that the administration has been so eagle to find aim eager to find a nuclear deal that we have given them too much. Need to recognize that iran is at the root of the problems. Jonathan drawing on your experience, what do you suppose is happening. What we are seeing is a period of intense diplomacy and a true buildup seemingly on the grounds of a big invasion, what is happening on the ground and what will you see in the weeks and months . Sec. Esper for the israeli side they are gathering intelligence and talking about battle plans and doing final training and making sure that they know the game plan to go in and deal with it. I think that is happening at that level and they are reinforcing their Northern Front with regard to hezbollah in southern lebanon and they need a present a presence on the left bank. The marines will soon be following. The one thing that has not been talked about, if hezbollah opens up a front in the north we will get involved, we have to have and what we have set about deterring hezbollah, iran and others. So if they open up a real front icy american involvement happening with tomahawk and may be airstrikes. And as you know there is the grander chest but chessboard with regard to diplomacy. I think it is important that we try to keep the saudiis rarely normalization deal on hold and not dead. At some point we will resurrect that. If hamas and iran hates the deal there is art those are two regions to pursue it. Jonathan we can export the following and i think it is beneficial. His turkiye missing link . Sec. Esper turkey span turkiye span stands in many plays. They are criticizing israel and they have a large Muslim Population that they are also active in southern turkiye and Northern Rock going after our friends and partners. They play this game in multiple angles. On one hand they are with us and nato and he is supporting putin. What we are not talking about is there is a conflict between armenia and azerbaijan. You see the world fracturing and different spots and it all traces its roots back decades in many cases. Jonathan some of these issues are totally off the radar right now. Let us catch up soon. Mark esper, former defense secretary. Tom it was really controversial and his shortterm was President Trump was controversial. This guy is hugely experience. Jonathan we will continue that in the next hour. Jp morgan and lacqua blackrock, Barry Bannister and the new Stream Research on tesla still to come. This is bloomberg. Tom bloomberg surveillance, mr. Ferro nd preparation for the 9 00 hour. We are here with claims and a historic bond market. We have a really important seven minutes for you. Claudia will be more than opinionated on what chairman powell needs to do and also opinionated with two seconds to go until the anticipated claims report. His it is a terrible number and the job market is falling apart, michael . Michael maybe economists are falling apart because the number of claims goes way down, 198,000 down from a prior release of 209,000 and we will get the revision for you. Continuing claims rise just a little bit, 1,730,000 from one million 705,000. So, a few more People Holding onto their claims and not getting jobs right away but very few people losing jobs, 211,000 is a prior number so we go from 211 to 190 eight, fairly hard to believe. The affiliate the Philadelphia Fed is out with a negative nine up from in the way they look at this from a 13. 5. So a little bit better news. The Employment Index for the Philadelphia Fed comes in at four from 5. 7. The Employment Outlook improves in that district and we will see how that carries over as we get closer to the payrolls report for the month of october. Again, a big surprise in jobless claims. We have been waiting for the auto workers strike to show up and it does not. Tom you see that with the importance of the guests, up four basis points. 4. 9 in a little bit of green on the screen. What is your first questions chairman powell today . Michael i think it is a combination of questions. Either, is it a real rates or your rates Going Forward. If your rates keep going up then stop raising the fed fund rate. And also if you are going to be higher for longer how long is longer . Jonathan do you think that jay powell lisa do you think that jay powell is comfortable with the movements and will he push back in any way . Michael i do not think so, the markets go up and down and tend to overreact all the time. Maybe he might think we are a few basis points to high on some of these, but he knows that all it would take is one bad economic headline and it would go down. I think we are comfortable with the overall level of restraint at market rates are putting on the economy. Lisa there is a question if the fed is no longer the narrative and if they are driving the ship. It is the Economic Data that surprises with the latest being jobless claims yet again, much below the expectation. Why do people keep underestimating how strong the economy is . Michael that is a good question for any of the economics guests that they have and i think it is because the models are broken and people do not understand why the economy is behaving the way it is. As to the fed, if they decide in the face of the high job gains that we have seen and the low jobless claims and the strong retail sales and Industrial Production that they will not raise rates, then they are still the drivers seat because data suggests that the atlanta fed says 5. 4 growth in the third quarter. The data suggest that it should be raising rates if you are afraid of inflation. Tom that is exactly where it was. 5. 411. Thank you so much. They have to be kept in separate offices in offing in washington. Claudia joins us now with a blistering note from yesterday on americas economic growth. You were channeling justin yesterday going off a five handle on gdp. Why is america so miserable if we are popping 4. 5 or 5 real gdp, throw on the claudia inflation. Why are we so miserable with 7 nominal gdp . Claudia there is a tough one and there can and have been disconnects between the kind of numbers that we see about the total economy and what families are telling us about where how and where things are going. Sometimes families are correct. We do not want to discount this and at this point we have gotten just all kinds of readings on what is going on right now and they look good. So, it has been a slog since the pandemic began and inflation has been hi, but things are good on the labor market. Tom this sums up the consensus of the fed, returning to 2 and lagarde said that in marrakech, we have to get back to 2 to paraphrase and the richmond fed has a model with a higher start. Is this a fed that is going to have the facts change when they change or they change when the facts change . Claudia inflation is coming down. If we had seen it still sticking and going up, r star is higher and we have to do something. All of these models are based on past historical relationships and we are writing the playbook. The fed has shown themselves capable of rewriting the playbook, they did that after the great recession. They will go over the data but it is tough when the typical guideposts are just not working the way they have. Lisa what do you make of the fact that other anecdotal data has pointed to a softening and slow down and the pain felt among the consumers. The hard data is surprisingly strong again and again. Claudia i do not look at the latest numbers, other than the 5 gdp growth and say that things are accelerating and we are going back up to where we are. That is a sign that we are bumping around a good place in terms of a sustainable recovery. Obviously that will not be felt by everyone and you can find people to give heartbreaking stories about what has happened to them. And we have to look at the totality of data and acrosstheboard it is looking really good. We could keep up a sustainable pace that looks like a little bit better than we were before the pandemic. Lisa do you think this is becoming problematic for the inflation story . Is this incompatible with inflation going down or are you arguing that it does not matter if we get back down and that really needs to be what jay powell talks about today . Claudia we are going back to 2 , the fed is capable of getting us there. They might get antsy and we get there with a lot of disruption and a recession. I do not question that target it is as madeup as 3 would be. There is nothing magical there. We do not see signs of this being difficult. Inflation is chipping down. It is a different story if we get stuck and then you have to think harder about what is next. Tom a very good analysis of the recession. To the two of you i have one question. Michael, let me start with you. Our audience on radio intelligent and television is looking at a Mortgage Rate of 8 which is outright shock or how do we adjust to that as citizens . How do we adjust to that within our daily life . From where you said, is the fed aware that a 30 year mortgage is 8 . Michael of course they are and i have talked to them about it and they recognize that it is a bit of a problem because they have raised rates and killed the Housing Market because they are in a different situation than we have been since i can remember where the rate increases are so much higher than what people were able to take out mortgages at that nobody wants to sell their houses. The thought seems to be that if they start coming back down they will get to a level maybe in the threes where Mortgage Rates will come down to four or 5 and people will start buying again because that will not seem too bad. Tom claudia, bring us around to academics and you are writing the next paper on the american Housing Market. Our we at a point where for elites like you the heart the Housing Market does not matter . Claudia not just for me. There were a lot of people that refinanced or purchased housing when we had a low interest rate. The Housing Market has been very disrupted both in a really good place and in a bad place. This has been a tough cycle and those who timed it properly and millions of americans refinance their homes. They are in a good place. It does make it difficult because they do not want to sell. Tom we are completely colored by this which is a wacko original Housing Market. We have to live in our houses. I believe that every month it is a mortgage payment or a rent payment, and these numbers to me have a greater effect than anything else we talk about. 8 mortgage filters into everybodys pocketbook. Lisa it affects mobility and willingness to move given that it will be unaffordable for the vast majority of people to do so. I want to bring that together with the idea of the conundrum that a lot of investors have, are we seeing a world that can manage with 5 rates and keep the Growth Profile that you are talking about with claims coming in the lowest since january . Is that what we are witnessing . Claudia it is too soon to tell but we could be setting up the really important piece of this, productivity picking up. We are talking about growth that is not just quarter to quarter but we can sustain it at a higher rate and we can go with higher Interest Rates. There are glimmers of hope and that is all what productivity looks like, but that is the path. And then we would need chair powell to have a greenspan moments and be like growth has picked up. We are not there yet and he should not do that when he does the q a. Tom thank you so much. That encapsulates it perfectly. We are in the shock of a bond market. We have an 8 Mortgage Rate and we are numbed by what is going on in the Eastern Mediterranean and claudia nails it in that we need to have a greenspan moment from china will from chairman powell today. Lisa i am not sure how much control the fed chair has over the narrative. They do not know what is happening in the underlying economy as none of us do. The bottom line is that the bond market is responding to Economic Data to potential at deficits than fed speakers who have not made a major impact. Tom what is important as i talked earlier the linkage of the economic discussion with the financial discussion with which affects americans more. In the last 48 hours finance reigned supreme. Do we really care what jobless claims are what the 10year yield does to the auto loan . Lisa they are connected if jobless claims are going down and you are seeing a robust labor market people can afford to pay for a car. Tom we will dive into this. Futures are up and dow up four. The vix is under 20 which is critical. 19. 430. Brent down to 91 a barrel. The 10year yield is 4. 94 . The litmus paper is where you are accident excellent excellent is the credit market. Did those widen out . Lisa a little bit. S p futures just up by. 10 . To answer your question there is a question about why we are not seeing more stress. The irony is that we have a bond market that has the full faith and credit selling off but companies are doing better and that is the consistency. Heres the issue and i said something i want to modify it. I said that even rates are going up you can pay for it if you have such low jobless claims, not everybody and you have been pointing to this and it is important. There is an entire swath of people who are getting cut out of financing and the economy and frankly being able to have the basic necessities at the same level. Tom i am looking at 2000 2500 square feet at 10 million on amsterdam avenue. That was something you couldve slid into with 3 , what are you going to do it 8 . Lisa one of two things need to happen, prices need to come down and rate needs to go down. You get a recession and you can see the prices, off and the yields go down. Until that how do we get there . Tom thank you you to Michael Mckee and claudia. Coming up, we look again at the markets trying to get to the open. Joanne feeney joins us from advisors capital. Bloomberg surveillance. sfx stone wheel ng 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 . Explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. The are not detecting any clear signs of financial stress. These anomalies are concerning and we actually think that the system can withstand rates to 5. 5 and it is how quickly they will get there. Lisa that was the chief global strategist at principal Asset Management and we are seeing stasis in equities as we see anything but in the bond world. That is one of the big takeaways. The s p futures are risk off but to me it has been relatively immune to what we are seeing with 10year yields nearing the highest levels back to 2007. Tom talking about the noncorrelations and they are there in spades. Netflix is a component that i cannot remember. There is some green on the screen after some red two hours ago. Currently im watching the vix that is what i do, and researchers are saying at 20 is a key level when we are at 19. 25. Like at the bond market we ought to be 23 or 25 and we are not. Lisa this is because it is the bond market and the question is why. The strength has been in the equity market. I want to go through a number of names. American airlines cut their fullyear forecast and you would think that the sky is falling and they are not able to make up for higher costs with higher fees. No, because they downgraded their expectations that their shares are popping more than 3 on a weaker than expected forecast. Tom American Airlines 4011. With all the airlines it is challenging. Lisa netflix are able to increase prices and crackdown on password sharing and still see revenues grow 15 . Some of the high flyers seem pretty big upside and las vegas sands. People are still going on vacation and goes to the question of when do people run out of discretionary income, but not soon enough to go to stop going to some of the casinos. Tesla came out and they really disappointed. What i find most interesting is that tesla has been a margin story, a story of bigger margins and some of the other auto manufacturing and those are compressing as they cut prices to compete. To me, that is a story to watch as those shares go down more than 6 . Tom are they a tech company or an auto company and it was very autoish. Lisa production hell and the nuts and bolts manufacturing. Tom manufacturing a car and my study of big three autos is that it is a single digit business. As elon musk really ready to go to a single digit business. Lisa maybe he can go to detroit because they are full of time and have no problems whatsoever. Here to talk on earnings which we have neglected more than we should have given all of what has been transpiring in the middle east is joanne feeney. What do you make of the fact that even disappointments are not being punished all that much, but the bar has been so lowered and early signs show that the company is stepping over it during this earnings period. Joanne there might be a pause giving companies in the some leeway through the end of this year but i think it will come next year. The expectation starting the year were so dismal that we will end up in a recession and margins will compress. What we see our companies being able to work through some of the inventory problems they started the year with. In the back half of the year, turning them into decent numbers into the holiday season. We are seeing amazon higher more than we expect hire more than we expect and look at the labor market, more people are getting jobs and fewer people are getting fired. Tom indexed versus active . I have an active manage per for leo portfolio of seven stocks. How do you spread it out versus concentration in sectors . Joanne owning the index is so concentrated and it really puts folks in a vulnerable position if that is where they are because you are owning seven stocks and we do not like to do that. So we select 40 to 50 stocks depending on the style and what the objectives are. That is where you do not have to be exposed. Tesla is a good example. View that as a margin risk story and we worry that they are in auto not a tech company and their margins will have to compress and that is something to avoid. You want to pick the places and be diversified. And while you might look back and say i wish i owned those seven stocks you might not feel that way for the next year or two and all i have to do is remind people what happened in 1999 and 2000. Tom if you have 50 stocks and you have seven chosen, my quick math that lisa helped me with his 43 stocks that i have to find. Where in the income or click or cash flow statement is the determinant of those 43 other stocks . Lisa those are a nice snapshot of what the company has done. But what you actually want to do is look at what the Company Might do for the next few years. So you have to go beyond the Financial Statements and look at what the end markets are doing. So if it is a tech company you look at the shape not just and markets but politics to factor that. But the starting point is the Balance Sheet. How secured are they in the cash position . Can they ride out a recession. More importantly it is to look to the future and see what they can generate. Are they covering the dividends . So you want to look at the quality by looking at those snapshots. But you also want to look to the indicators of the future to see what is the best thing to hold Going Forward. Lisa can you translate these bigger term concepts into the nearterm drama. How in the past two weeks have you shifted any of your views if at all . Joanne so, the past two weeks the rise of geopolitical risks we have seen is something we have been talking about for a long time. It has been on our list whether it is a europe and ukraine, china and taiwan and we mentioned the middle east. What has changed is probably most directly, a rise in the military budget. That is one of the reasons we are seeing an increase in Interest Rates is in wrecking mission that the u. S. Will be spending more and that the deficit will sustain or grow and then also we have a dysfunctional government which could put at risk the normal operations of raising the money to fund the military and other activities. I think the biggest and most concrete information is the budgetary implications, and obviously the risk of the spreading more broadly creates risk to the normal economic order. We always own Defense Industry companies to provide some buffer against that kind of a risk and they tend to do well when flashpoints kick in. Lisa it seems like the world is moving very fast for us who have to give narrative to the movements. But most of the investors we speak to stan to be speaking to broader and longer term themes and not making quick allocation shifts on a dime. What would make you make a material allocation shift given the l of the evolution of Current Events . Joanne i think if things really spread beyond the current conflict and there was an active war with iran, obviously that would change the oil outlook and we might ask we might end up with more exposure to oil. How would Higher Energy prices expect of impact tire holdings, and right now Energy Prices are fairly moderate. And now a war could spread as into a longer. A longer of adjustment. Tom thank you. Here with us in this bond market move. I have been looking at some of the tried and true bond portfolios and i am getting a huge response, thank you for the emails. The basic idea that everybody is looking to the future, but when equity markets creator and we look at the creator and say here is where we are, what are we going to do . And i see this huge ignorance of price down and yield up. I am looking at a major famous fund and it does not matter what it is, 20 27 and it is spread out and it is a carefully balanced portfolio. Ready . 15 in cash, because they are just waiting. Usually it is 4 to 5 . They are rating waiting to go in. Lisa or cash is simply a better investments and they are yielding more than any other major fixed income as a class so far this year. Tom we will follow this as much as we can. This will be a huge team for us and all of her is in israel as we watch the Eastern Mediterranean. We will watch david westin in conversation with the chairman of the Federal Reserve board. This is bloomberg. Jonathan live from new york city, good morning. Your equity market positive. 2 . The Economic Data looking good. 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, coming up the labor market data looking rocksolid. Bond yields climbing to multidecade highs