President john gray says the fed is having real success on inflation. The earning clouds roll in. Tesla dials back of expectations American Airlines cuts. From new york, i am alex deal with my cohost in london. I really expect 10year to be at 5 . We are not there yet. Guy you said to me, guy you are going to break the existing wholesale on you. Home so on you. Heres the reason why. It is a broken market. The headline rate is 8 . This is why this market is broken, i think this is the lowest number since 2010. The existing home sales coming in at 3. 96. It is not a good number. It does not tell us anything, and a lot of people, like alix steel are not going to move. Alix that was in keeping with ok. Markets not moving at all on this. You are seeing yields back up a little on the long end. Stocks go nowhere. Our big story of the day, fed chair jay powell will be speaking at the Economic Club in new york. He will be sitting down with david westin in a exclusive interview. I can attest, i sit right in front of you. You have been prepping this for a month. Yeah, i have. David we are going to talk a lot of things you and guy have in talking about, which is where we are with the 10 year, by the way the 30 year as well. Why is the economy so resilient . We start again today. We saw yesterday we saw it again today. Why have retail sales rose so much . Guy does powell matter at the moment . Im wondering what is moving the 30 year. Powell has already raise rates, he may raise rates a little more. By not by much more. Why is the market moving the 10year out to 5 . Is it other factors at the moment . What impact do you think powell is having at the moment . Powell still matters. They do set monetary policy. I intend to ask about this. Do they have less influence than they used to because of all of the other factors. They do have influence on one thing, which is where they are buying treasuries, which they are not doing anymore which may be exacerbating the long problem at the curb. Alix im sure that is going to come up. We are going to be structurally higher no matter what the fed winds up doing. Things like fiscal policy, the deficit, what is happening in d. C. David the speaker of the house. Clearly, people are getting a little nervous about how much money the government is a borrowing and if they are going to pay it back when we do not have a figure of the house, we will have to borrow more money due to the defense given what is going on in israel and ukraine. Markets are getting nervous about repaying all of that debt. Guy we better not keeping any longer. You have things to do. We are looking forward to this. It is going to be fantastic. Everybody is going to be turning into davids interview with chair powell. Yeah. Basically in two hours time. And theres no pressure. We all assume it is going to be fantastic. Honestly, it is going to be great. Thanks for updating us. David westin, wall street week. What a day. Lets talk more about what is happening with markets. One they are there only 10 year. John gray, president and coo speaking to our correspondent. The fed is going to stick at this. I do think they are going to hold rates higher for longer. The young the long end has now accepted that. I think that is going to have the effect of slowing the economy. It does take us to our question very nicely. Do you buy bonds at 5 or is there more still to come here . Do we know if powell is at this point . What do you think . It looks like we are going to get there. Say we get to a 5 10 year, is that a buyer . It depends on who you are. I think that might be something that a lot of investors would consider. Our view has been to answer what you had just been talking about before, we estimate 92 of the recent move in two year yield since july has come from the expectation that the fed is not going to cut very much even when it does cut. We think about what happened to the terminal floor, the market was pricing for the fed funds rate at 25 to be at two and a half percent. At 2025 to be at two and a half percent. I think we are getting close to that. It wouldnt surprise me to see the two year and the 10 year get back to zero at around five and a quarter, 5. 2 over the next couple of weeks. There probably is a time to buy, just might be slightly early. Alix that brings us to the pancake curve you have been talking about. Everything is kind of over 5 and we are not steeper or flatter. What is the impact of the pancake curve . Ira the impact is not as significant as you might think. What is going on with the economy is, everyone is reassessing what the economic environment is going to be in 2024. It seems like chances of a recession are significantly lower. In the fed is probably going to remain on hold for all of 2024, if not longer than that. Because of that, the home market has to get flatter. Overall, over a long time, that will affect things like the cost for businesses and the economy. When we talk about the is showing itself in the structural changes it is having in the economy and the way that we finance ourselves. Eventually, fed policy will work, we will slow the economy significantly, it is just going to take a long time. Another thing, money market funds is also throwing off a extra 22 billion of interest every single month compared to where they were doing 18 months ago. That is a big bump to potential spending the where that could add 1 to gdp we have all of the interest were spent by the consumer and business sector. The people who say higher rates might actually be feeling the economy a little bit, they might not be that wrong. Guy it depends what your outgoings look like, if you got more savings then debt is the question around that. Do we yet know if jay powell. Can you not hear me anymore. It is sort of selective deafness. Alix we appreciated. Coming up, more on the question of the day. Do you buy bonds at 5 . We are going to talk to mark connors. This is bloomberg. Explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. So, that is going to lead to some tightening here, further tightening, what investors want is a bit of stability. Ultimately, we will find at some point the stability marketplaces , particularly in treasuries. When that happens i think you will start to see transactions pick up again. We are at a muted level, but it does not stay like that forever. Alix earlier on treasury markets. That leads us to the question of the day, i really thought we would be 5 on the 10 year. Do you buy bonds at 5 . With us now is mark connors feared mark, it is good t see you. . Should he buy bonds . You buy bonds . Mark because japan is buying their bonds, the fed will find out more from david on his talk today. Two is buying bonds . On your who is the buying bonds . On your terminal you can look at bond volatility. It is up still around 130, which is 50 on the vix. Bonds are quiet, no one understands them. Do you buy at five, as long as you are ok with owning it as 7 you can buy it at five. Guy great to see you. Are we going to 7 . Do you think theres a better entry point . What is the tactic here . Mark you have five, 10, etc. For the new person looking to allocate some equity into five because they think it will fund their retirement or etc. , i think you have to stay away from the 30 year. You are getting 5 from the tbills. Alix move index would equate to 50 of the vix. If bonds are not a safe haven, where is . Just a little bit of a leaning question. Mark so, lets start with gold. Gold had a last week of 5. 4 move. 3. 4 alone on friday. It has only done that three or two other times in the last year since covid started. They didnt want we first launched the Interest Rate move of 2022. It did it again with the dollar had a block move of november of 2022. It did it again when we had the failures of the banks. Clear haven. Now, we are at it again. People are buying gold because that is a 30 year move to buy gold. Yes, bitcoins 10 move on friday on a false flag move on a fcc approval, pour larry fink, it is a indication of demand. People will be buying bitcoin when the etf comes. There it is. Guy we try. You have addressed two areas that people are seeking safety in and at the front end. Is the front end, how would you rate it what is the safety trade . Is it just put everything as cash . How should you think about how you diversify between the various areas of the market that you consider to be relatively safe . How much should he be putting into each of these . How much correlation is there going to be between them . Mark the correlation between equities and bonds hit a 30 year high in august. 85 appeared back to the 90s. As far as leveraging the system, hedge funds have not done that well this year. Equities are still a core holding. We talked about this before when we were setting up. This is a period where Companies May money in the prior 15 years in a lowinflation environment, Financial Leverage and a hiring leverage. You have to have a company that can operate and reshift all of their cost and goods. What does that mean . It means larger boats are going to float as we transition for higher from longer. Alix small caps based on that thesis have gotten wrecked. Then you get data that continue to come and solid like retail sales, if you short if you are sure you get smoked. How does that make sense . Mark i think that is positioning. I think there is a short squeeze on a lot of them, especially when youre talking about five to 15 billion market caps. It sounds like a lot. Absolutely. It is why hedge funds are up to percent appeared they had the right idea. They had the right idea. The stock train since indicative of the small caps i think. Guy fascinating what is happening in the push pull in the market. Lets say that 5 is the new normal. We can argue about the around that we are at how long does it take the economy to adjust . How long does it take the Financial Markets to adjust to a 5 . How far from that process are we . Mark great question. Did not think about how to answer that. The kneejerk reaction i think is, the feds job we know is i will start with fed and i will go to the consumer. The feds job is to control price stability and employment. Or they have a third market and it is market stability they have a third market and it is market stability. We are going to drop on a forced technical move if treasury options fail. That is the first time it doesnt. On the more organic systemwide basis, it is establishing do people change their behavior and say i like income now. If income, at five or 6 isnt finding your kids education, which grows at 8 appeare we. We have not answered that question. We do have the information on whether the economy will buy and accept bonds at 6 . Alix the buyers just arent coming in in the same way. Always good to see you. Still ahead, we will get some Earnings Report. Tesla tampering growth expectations. Netflix lawn out of the water with subscriber growth netflix blowing out of the water with subscriber growth. This is bloomberg. That first time you take a step back and see everything youve accomplished. I made that. With your very own online store. I sold that. And you can manage it all in one place. I built this. And it was easy with godaddy. I am doing this. With a partner that puts you first. Start for free at godaddy. Com sell sfx stone wheel crafting the biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently. It still does. What can you do with spy . Alix we want to get to the start of which overcoming the top stories. Lets get to tesla. Not a good morning if you are a shareholder. When did you make of the quarter and the commentary . What did you make of the quarter and the commentary . Ed glenn lusk talks a lot about Interest Rates elon musk talks a lot about Interest Rates. Price cuts clearly had the bottom line. The key metric the market watchers is automation. Which is the lowest level in four years appeared in down in the high 20s from 30s that we are used to in tesla. Is tesla a tech company or is it a car company . On the financial results, it is a car company. Guy so, i have a truck. If the f150 lightning is struggling, what effects what should we think about the cyber truck . The cyber truck is a supply constrained product. That is the story. This is a product that is two years delayed. I never forget being in los angeles are the unveiled. Reverb the ball in the window in the where you throw the ball in the window and the glass cracks. November 30 is to the launch. Kit will not be until 2025 until they are producing in volume it will not be until 20 survive until tenants and environmental they are producing in volume. He basically said we bit off more than we could chew. Alix i appreciate the honesty. , qamar does the multiple needs how much more does the multiple new to for that . Ed it is still the market incumbent. Did cut prices to try to protect growth. The strategy is in question on the growth front. Do not forget all of the ai related work that tesla tried to. Guy the question just to go back to the whole issue of the multiple. This is the direction of travel. What does the market do with that . If these are the markets, what does the market do with that . We never understood what tesla is your is in a ai company, Bitcoin Company car company, whatever you wanted to be it can be. If that is the case, when do multiples really reflect that . Ed undergrowth margin, yes. If you take into account, you strip everything out, they are in line with ford and gm. The future where have a new generation model, which we do not know much about. That is the far distant future. The Business Model entirely changes and predicated on a world where we do not necessarily own our own cars. When youre an investor in the stock, that is really hard to envision. Especially when the ceo is talking about how hard the rate environment is and how they cannot four rates to come down. Guy great stuff. Alix we do not even get to netflix. Netflix did some stuff. Guy existing home sales are down for their lowest levels in 13 years. That is the story on the retail front, one about what is happening in the retail space . We are going to talk about. This is bloomberg. X rates change . Ahhhhhh filing sales tax returns . Ahhhhhh business license guidance . Ahhhhhh crossborder sales . Ahhhhhh item classification . Ahhhhhh does it connect with acc. . Ahhhhhh ahhhhhh ahhhhhh 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. Nice footwork. Man, 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. To finally lose 80 pounds and keep it off with golo is amazing. Ive been maintaining. The weight is gone and its never coming back. With golo, ive not only kept off the weight but im happier, im healthier, and i have a new lease on life. Golo is the only thing that will let you lose weight and keep it off. Who loses 138 pounds in nine months . I did golos a lifestyle change and you make the change and it stays off. soft music alix on a index level we are very calm. Abigail very small moves indeed. S p flipping lower. It had been higher similar to the nasdaq. One index that is undeniably higher is the new york bank index up 1. 1 . Lets take a look at one stock that is helping all three of the index. That is netflix. On the day, the last time 15 of the highs of 18 , the best day since 2016. A good quarter with subscriber ads that beat the outlook. They are raising prices appeared tesla on the other hand is down. Tesla down 14 . The implied volatility on both of these stocks into the Earnings Report not disappointing. We have that kind of volatility. Tesla, theres an issue in terms of missing profits by 10 and markets weak. Rising rates really incredibly high. The two year yield at a 522. You have the two year yield and the 20 year yield above the two year yield. You have the flattening yield curve that folks are trying to make sense of. It doesnt mean a recession is on the way . While does it mean a recession is on the way . The s p 500 well off of its july high. In blue, this is the volatility on the longer bond etf. Years the volatility on the etf sp y. Guy i find it absolutely amazing. It was interesting to hear what they move index would be signaling if the vix was as elevated as the move. That would be an amazing number. Lets talk about what is happening in the Housing Market and the real estate market. Basically, what you have got here is a lot of people are they locked in a few years ago. The market is effectively broken. What impact are missing from these Interest Rates, particularly the retail rate of the spectrum . The National Director of u. S. Retail joins us now. 90 billion under management. It is great to see you. There are so many competing forces that i am fascinated by what is happening in the retail story at the moment. We have a consumer who have a job in a consumer that is still willing to spend. The retail Sales Numbers reflect that. At the same time, retailers are having to deal with significantly higher rates, managing costs that are going up as well. How does that all come together when it comes to cre retail . It is a great story to dig into and understand. When retailers are looking at, they are focused on on how to keep this portfolio and rightsided right size it. We have seen changes in the retail cre markets. When we look at their bankruptcy, what they are trying to do is right size that portfolio. They are trying to get to a point where it becomes efficient to operate stores. Stores that are in a footprint that makes sense for that market or community and where they can staff it appropriately. These retailers are trying to figure out, what is that ideal . We are seeing that from ikea, macys, target and others. Alix where are we in the process of pricing, say commercial real estate. When we get to the trough we can build back up. Where are we on that . Anjee if you look at the investor side of capital markets, you are definitely seeing a slowdown. It is not conscious as it relates to the actual Retail Industry itself cautious as it relates to the actual Retail Industry itself. If you look at those specific retail properties, you are looking at those groceries, drugs appeared those are the essential. Retail product into the suburban market faring quite well. Sales growth, occupancy all pretty stable. When youre looking at the urban locations and markets, they are definitely going to have a slower recovery but there still interest. Theyre still a softer or discounted evaluation. Guy subprime retail, can it be repurposed . I am hearing a lot about subprime. Does that apply to retail as well . Anjee if you look at projects at merchandising, maybe it has a anchor tenant that is no longer viable in the market, we are starting to see investors are developers coming in. They are looking at these projects in they are saying, this is an art to convert this this is an opportunity to convert this. We are seeing conversions occur in life science as well as multifamilies. They are still demanding growth. There is unfortunately a ramp up from a entitlement perspective. They are investing and they are willing to wait. Alix when you take a look at the bond market, we were talking about, it is 5 10year. Do you buy it . Well, no, maybe 7 . If rates keep getting higher and higher, what is next to break in your world . Anjee at some point there is capital out there. We are definitely seeing movement. That coupled and a area we are focused on to see if that starts to shift, the area is that, at some point when these investors are looking at their fiveyear, 10 year hold, they need to make some decisions. We are going to be monitoring this to see what occurs in the next three to six months. Alix i really appreciated. A National Director for u. S. Retail. Were going to get back to the markets, back to earnings. American airlines up despite having to lower their forecast. We will be joined by Aerospace Defense and airlines analyst. This is bloomberg. Its easy to get lost in investment research. Introducing j. P. Morgan personal advisors. Hey david. Connect with an advisor to create your personalized plan. Lets find the right investments for your goals okay, great. J. P. Morgan wealth management. Alix you are looking at a pictures of the principal. For change jay powell will sit down with wall street anchor, david westin for an exc interview. This is bloomberg. Guy we are going to talk about what is happening with the Airline Space in just a moment. Looks like the London Stock Exchange group is investigating an incident. Basically, what we are looking at is the fact that ftse 100 is trading. All of that is still trading. That is a big part of the market. They are clearly having issues elsewhere. We will keep you up to speed as to what is happening. There was a wild wind this happened fairly regularly. We will see what impact it could have into the close. Alix lets get to the markets. American airlines, that stock is up 4 . The company top wall street expectations for the third quarter. It did have some issues with the outlook. My is the stock up . Feel, worried about demand fuel, worried about demand,. Sheila they missed and little bit more on the cost side then american dead. We think the guidance is pretty clear across the board. We think the outlooks are coming down across the board. Guy what is the full going to look like what is the fall going to look like . Travel period kicked into high gear. Demand is not to soften on key roots. Demand is going to soften on key roots. Business travel is not going back in a big way. What are you hearing . Sheila heres how the demand is turning out. We were at about 5 in q3 for american and headed down lower into q4. Those are not good exit rates. What is driving that . Pricing is deceleration. We have flat to shout looks across the board for pricing in 2024. A yearoveryear number. Think about that as 10 aps. One is happening on the cost side, cost is up mid single digits. Let us because of fuel at 25 of the cost bucket, but also salaries. Maintenance costs are increasing. Let us not a positive equation when your cost is up mid single digits, each point of cost is 10 up eps. Although the valuations of the sector look cheap, i think that is a part of the problem. Alix is the damage going to be felt with these guys or the smaller regionals . Sheila i think the lowcost carriers. They have 50 of their offerings to premium customers. Same with american, same extent but less international. We had to the lowcost carriers, youre going to be in a tough place. You do not have the premium offering or Business Class offering that is going to garner the best price. Guy do you think at some point we will start to see capacity come out . Sheila you know, slight increases, nothing significant. Could we see capacity come out as we see supply . We have a vix space. Alix when you said the big guys like united and delta are going to enter when the regionals come out, does that mean you will be buying them on dips . Sheila it generates 20 margins plus. That is a big differentiator for delta. Think those two businesses for delta are equivalent of the current market cap so you get the airline for free. The reason why we have a buy rating on delta is it we see major upside to those two verticals. Alix great to catch up. Thank you very much, indeed. Always great to get analysis as we work our way through the season. Getting interested as a start to see some of the local carriers coming through. On monday, we are going to give insight into this whole issue. Virgin atlantic ceo, Delta Airline ceo will be joining i and alex for an exclusive interview. We are all going to be in new york. We are to have some fun. Maybe we will even talk about footwear. Alix are you going to bring your birkenstocks . Guy these guys do not wear birkenstocks, they are big on their sneakers appeared we will discuss all of that. We talk about what is on wall street. We will have an interview with jonathan gray. This is bloomberg. Is it possible to fall in love with your home. Before you even step inside . Discover the Magnolia Home james hardie collection. Available now in siding colors, styles and textures. Curated by joanna gaines. Guy investors and executives across wall street grappling with the war in the middle east. How do they handle it . There are concerns about the existing investments that they have but also how the situation complicates how they handled their personal investments, in particular elite universities . Bloomberg spoke with jonathan gray, was a large donor to university of pennsylvania on his approach. Jonathan our thoughts are with the people with israel. What happened a couple of weeks ago was horrific in terms of life and kidnapping. We have some employees on the ground. Our thoughts are with them as well and everyone has family. As this conflict escalates, we are all concerned about civilians in the region. As you think about it from an investment standpoint, i think there are a couple of implications in the near term, obviously a some upward pressure on oil prices. Using that in the marketplace. Hopefully these are contained. It just craves greater uncertainty. We have two live conflicts including the situation in russia and ukraine. We have the issues around Interest Rates as well. When he think about investing, generally people want more certainty. They want this adds to that environment. The Biggest Issue is the human tragedy. We are all concerned about that. Multiyear investments in the relationship with both your investments and the relationship with large investments with saudi arabia . Jon we have longterm relationships in the region and around the world. People who have been partners of hours for a long time. When you think about stepping back what was happening here, there actually was an attempt to normalize relations. It happened between israel and the emergence a few years ago emirates a few years ago. They felt like things were getting closer with saudi arabia, which could have been a positive and catalyst for these terror attacks. More dialogue, more normalization of realizations relations. Certainly would be Going Forward much more positive for the region. All of that that happens. Certainly now it is going to be difficult given the current environment. Over at u pen, many other donors have been pausing their own donations given concerns aroundn antisemitic sentiments on campus. Are you considering doing the same . Jon for my wife and me, our focus is into areas at penn, lifesaving Cancer Research at the center for bcr a. It is also helping low income kids get access to a worldclass education. Those arent longterm missions for as. We are going to those arent longterm missions for us. Those are longterm missions for us. I think individuals, when they say things that dehumanize and talk about the destruction of one set of people, i think it is important that University Leaders really stand up. My hope here, there will be some important lessons for what has happened over the last few week. The most prominent of those concerns being raised by one of your colleagues in the industry, mark rowen, he went so far as to call for the removal of the universitys president and a board of trustees chair. Do you agree with that . Jon i think mark has raised some really important questions and issues. The University President , liz mcgill, i think she is a good person, i do not think she is antisemitic, i do think she made some mistakes, some of which she has acknowledged. The future lies at the board of trustees at penn. Alix that was john gray, blackrock coo. When it comes to the college campuses, this is a issue that has consumed a lot of leaders on wall street. You think about leaders on wall street already struggling with israel hamas war and how to speak to their own employees. John gray is a massive donor to the university of pennsylvania. A couple of days, mark rowen has sent a open letter that is calling for the resignation of the university resident as well as the board of trustees chair, scott bock because of the festival. This is a really been an heated issue. In response, you have mark rowen telling cnbc there was even a poll for him to step off the board because he publicly disagreed and went around the process. This has been enormously contentious and there are separate disputes and other college campuses, particularly at harvard as well. John gray is agreeing to the idea there are concerns around the universities in the context of semitism. Many donors are only sending a dollar to the university in protest. The reason he is not pulling his donation is because of low income new yorkers going to you penn and the donations would impact the students themselves. Guy what did he say about his investments in the middle east . How is he thinking about that . Somali he was big on region and location. There are a lot of volatility concerns more particularly with oil prices assess investments related to the middle east. Blackstone has taken in a lot of money from funds in the middle east. Fii is around the corner. Guy great stuff. Fantastic interview. Thank you very much for bringing it to us. Lets talk about where the markets are right now. We are down 1. 22 . A lot of sectors in negative territory today. The u. K. 10 year yield, you can see we are up a little bit. Maybe it is approaching 5 as well. The eurodollar catching a little today. The close is coming up next. When you automate sales tax with avalara, you dont have to worry about things like changing tax rates or filing returns. Avalarahhh ahhh its easy to get lost in investment research. Introducing j. P. Morgan personal advisors. Hey david. Connect with an advisor to create your personalized plan. Lets find the right investments for your goals okay, great. J. P. Morgan wealth management. Guy european equities are at session lows. This is on the good volume. The average volume is higher than it has been the last few days. In terms of what is doing the damage, it is the health care sector. Getting hit fairly hard. You have other big names taking the hit. Nestle down pretty well. The countdown to the close starts right now. Announcer this is bloomberg marketo