Transcripts For BLOOMBERG Bloomberg 20240703

An historic monday for the bond market. Joining us today is Jonathan Ferro working from the Early Morning hours. Manus cranny will be with us. Manus good morning. You see it on television and hear it on radio, 5. 01 of the 10 year yield. His street this morning. As history made this morning. The first lisa first time you seen it lisa the first time you have seen treasuries go above 5 . On we have a lot of good thoughts tom we have a lot of good thoughts on that. A sharp note in the Financial Times. Hobbit l arian looking Mohamed Elerian looking at it saying it is global. Manus there is the overall momentum. With our saying why are Asset Managers and insurers not stepping in your they simply dont have the complexity. They are not forced into it and so the appetite is not there. You have some of the hedges. Tom should we ask him banking questions so he feels comfortable . Lets take your experience with ubs. How scared would you suggest the big banks are with the price down, yield up unraveling . Manus this will push major banks to review. You are going to have major review of risk this morning. We are shifting into a different paradigm. Tom one more question and then some geopolitics. How does a 5 yield read down through credit . Lisa it is a good question. It hasnt been that traumatic so far. Jim reed at Deutsche Bank writing that he doesnt i. Many people ask how can it be that for 20 years weve talked about the existential risk of yields rising. At what point does that change . Tom the fancy discussion in the mediterranean. An horrific weekend of waiting for war and humanitarian aid. Lisa if you listen to the sunday talk shows, you heard Antony Blinken saying we are worried about our troops in the region. It didnt sound like we were getting closer to resolution but seems like they are holding off on a Ground Invasion, possibly for hostages. Tom total enterprise value, it is real simple. Chevron, buys new york jets petroleum is really what is going on. This is a heritage stock for those of us in the northeast. This is a huge transaction chevron to bypass to buy hess. Lisa i wasnt connecting it. Tom this is the new york jets petroleum conversation. Manus i thought he was going green jersey. Nothing to do with the billions of dollars of oil they got. Tom the beginning of my data check is what i dont know is the 10 year real yield is at. Lisa especially given the fact that we are looking at the highest real yields we have seen since 2009. Do we see that continue as nominal rises . A risk of feel in the market as we get earnings from 30 of the s p so far this week. Earnings from microsoft, amazon thursday. This has been the boondoggle behind the gains this year. Google, alphabet, 54 . Sun, 49 . How high is the bar for these behemoths . Manus and they continue to run . This will point out to five and a quarter and five and half. More importantly, it has to kick in. Tom manus is the phone to his broker. Continue with the brief. Lisa talking about higher rates, we get central bank decisions, bank of canada on wednesday, ecb thursday. The expectation is for nothing and no additional rate hikes but that will be interesting because they have a more difficult situation. Tom lagarde in mara cash in in marrakech. Lisa we get the Third Quarter gdp prints from the u. S. On thursday including core pce. Personal spending. If you look at the atlanta fed gdp, 5. 4 expansion rates in the United States. Tom friday and i were wasting away in margaritaville it was such a successful stressful week. Joining us now on the markets, larry adam, chief Investment Officer at raymond james. As you write this morning trying to figure out with the year end note will be in a bath of uncertainty, what is your level of conviction . Larry we have a lot of conviction on what is happening in the markets. It is important to recognize that it is old data. The gdp report will talk about the spending we were doing at the fourth of july. That is a long time ago. If you look at what is happening in real time, this economy is starting to slow. By the First Quarter of next year we do have a mild recession unfolding. Lisa you talked about this and it is shocking when it climbed above 5 . Do you have more conviction or less conviction as you see how much yields are rising . Larry i would have to say more. I think the higher Interest Rates are starting to bite on this economy. Small business 10 , credit cards 21 . It will take effect soon. Why has it happened, because we had cash in savings accounts. Companies were flush. A lot of that has evaporated and i think this will slow the economy down quickly. Manus what impact does this have on credit . Will you see credits moving higher . Larry dont think credit is pricing in the risk we see going forward. As Interest Rates go lower, i think you will start to see the spreads wide now. Particularly in highyield, i dont think they are pricing in any recession. Tom what are people doing . Raymond james has a reach of invested retirement money. I am assuming that people in bonds are looking at october statements with blood in the streets. What is retail doing . Larry i think one of the reasons why is when we talk to retail investors, known as anna to go out on the curb. The long yield at 4 . You start to see the yields start to be similar at 5 this morning, you will see that appetite increase. We have been talking about being more balanced recently. As we move toward the fed being done with the tightening cycle, that is when you want to extend out and we are in that window when you can transition and take more with your bond portfolios. Lisa you are talking about data showing strength that is a backward looking. If you look at earnings we are getting, it is a mixed picture and confirms some of the strength and ongoing basis and how much are you willing to change her view on increasing caution if the earnings we get is a significant chunk of the s p shows that strength in big force . Larry this is an important week from earnings perspective. 40 of the market cap. The economy is not necessarily the equity market. A lot of companies coming out have been immune. You go to the Technology Space and when you look at the underlying economy when it comes to retail and banking think that is where you will see more weakness going forward. This is a big week because starkly this is the third week of earnings season and if tends to be where you see the expectations move higher. If that does not happen, we will be challenged at the rally going forward. Manus apps estimates for profits were a little high. What scenario will be most important for you as you look at big tech earnings and others down the pike . Is it guidance for 2024 more specific . Larry it is about the guidance. Earnings are inflated for next year. We are looking for earnings to tread water. We will be summer between 220 four to 30 next year. There is a significant amount of digesting of the eventual weakness in this economy that will have to be factored in. Guidance will be the most important. Tom thank you so much. November 2 will be important with apple earnings. Jonathan ferro mills income i am in the pool with an umbrella and cocktail come help me with data. 210 spread going from 100 basis points, slamming up to 11 basis points. We could see twos and tense. Lisa we could see dissen version in a dramatic way. Everyone we could see dissen version disversion. Tom to both of you here, expect the unexpected but how does japan respond to a 5 10 year yield . Manus the biggest rest for japan is they have a slowing gdp. If they were to tweak the rates you have a trillion dollars worth of treasuries that they own. What happens to the flow of treasuries if they tweak . Tom rent crude not brent crude hasnt moved. In the 7 00 hour, we are joined with blackrock. 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. We expect that there is a likelihood of escalation by iranian proxies against our forces and our personnel. We are taking steps to make sure we can effectively defend our people and respond decisively if we need to. This is not what we want in our looking for. Dont want escalation. Tom secretary of state blinken. Thank you for joining us. Julie norman will join us she is absolutely definitive and all of her Academic Work considering terrorism and the iago fee of the eastern and middle east. What happened over the weekend . Oliver the release of two hostages record by the qataris. They said they release them on humanitarian grounds. No one knows what that means and why they chose these hostages. The second is about aid. First trucks we saw a roll into gaza, a fraction of what is needed according to every organization or the u. N. Said it needs to get closer to 100 trucks a day to make a meaningful difference. You have continued hammering of gaza. That is the main theater of war going on. More and more on the northern border in lebanon. This will be a concern when you think about the notions of escalation. There have been pinpoint incursions i the israelis into gaza. Incursions by the israelis into gaza. Lisa we know why the hasnt met a Ground Invasion yet . Oliver there is a concern of hostages. When you think about the equation for the israelis. They want to fully dismantle hamas that there are all of these inputs, whether the hostages but also the moral imperative of reducing civilian casualties to very practical consideration which is getting the Political Support of the rest of the world. We had the arab summit over the weekend. The king of jordan said the message to the airport is loud and clear from the west is that palestinian lives matter less than is really once and that is a very dangerous message to be putting out there. Tom thank you very much, oliver crook, in tel aviv. This is an immense pleasure. Dr. Julie norman, author of the palestinian prisoners movement, resistance and disobedience. But basically is the definitive expert on the shades of palestine over the last 20 and indeed the years back to 1948. I want to go back 13 years to your effort on the second palestine and the palestine of now seems to be divided between the terrorists of hamas and other shades of palestine. Can you delineate the other shades or is it a mystery . Dr. Norman it is very important to differentiate hamas and other armed actors from the majority of the Palestinian People and from other aspects of palestinian politics. It is the main body in the west bank and i would point out that the main partner for the west, israel, there are some that are open hoping for the Palestinian Authority can have future leadership in gaza after the war. It will be very difficult. Tom tom they tom are wrapped by their own corruption. A lot of questions about their viability. Tom if i link israeli threats north to hezbollah and i know you have written on twitter, is there a linkage of communication between the three geographies or even is there a link of communication with them back to iran . Julie definitely communication between gaza and the west bank. Hamas has number ship in both places and both are focused on the palestinian cause. Hezbollah is difference. They coordinate to some degree with hamas but are a separate entity based in iran and most operations have been in regards to Israeli Operations in lebanon or at the border. Of hamas and has full of receive backing from iran but over has full a is stronger and over hezbollah is stronger. Manus in cairo there was a peace conference, strong words from king abdullah, chastening the west. But israel, hamas, the u. S. And iran were not at this conference. Do you see this as a step one four progress for the aero arab respond response . Julie we often see the summit in regular times and especially during wartime with different rhetoric coming out. I would echo what oliver said a few minutes ago, and that is a real concern from the u. S. And increasingly in israel about the operation. Israel wants to deplete hamas and have this operation that does that but at the same time youre trying to thread the needle of having such widespread civilian casualties that you are increasing support for hamas and resistance to israel. There are both strategic and moral convictions there that they are aware of. Lisa i was reading reports that the o say we are beefing up security for our own troops in the area. It seemed like things were escalating and the price of oil is going down. People are saying it is deescalating. Which is it . Julie i can comment on the political. If deescalation happens in real terms you would see the influence on oil prices. One of the very strong concerns of the u. S. And one reason they are hoping israel will be more cautious is the concern of escalation, not only to put deterrence measures in place but to make sure u. S. Is ready and prepared for any impossible actions from irans proxies. Tom thank you so much for joining us on her work on palestine over the decades with the University College at london. Manus cranny, you mentioned one of my favorite people, mr. Goetsch. You had him on. What did he say this morning . Manus it is very interesting how all of the media, very little coverage of the meeting in cairo. His point was unless you have the u. S. And iran which is what we are worried about, the proxies and escalations, that in many ways you need more power behind that gathering for you see significant shift. King abdullah spoke and i would encourage if you want to understand other aspects of this , listen to his speech. Tom abdullah and jordan with his american links are extraordinary. You lived in dubai, what is the relationship of them in the country . Manus the uae wants this to deescalate. This is not something they want to escalate. Tom manus cranny with years of reporting on dubai. We will continue with our coverage of the war with iran and hamas. The 10 year yield prints of 5 . Good morning from new york. 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 . 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. aidyl hi, im aidyl, and i lost 90 pounds on golo. Styles and textures. I struggled with weight loss and weight gain my entire life. With all the yoyo dieting i did in the past, i would lose 20, 30, 50 pounds just to gain them over and over again. In one year, ive lost five sizes, and im on my way to lose another three. With golo, i can do it. announcer change your life at golo. Com. Thats golo. Com. Tom good morning. Jonathan ferro on assignment. Lisa his assignment is very nice. I would like to go on a similar one. Tom it is not a cruise ship. He would be up with the captain. Lisa he would be hiding in his room. Tom enjoy your week. Manus cranny joins us. It is a quiet monday but an historic monday, the 10 year yield within the last hour prints of 5 . The 10 year yield, five. 16 on the 30 year bond. The 30 year mortgage at 8. 01 . S p negative 26. The vix well out over 20. 22. 84. Maybe that is indicative of the tension. Dollar fractionally stronger. Oil, 92 on brent crude. Lisa just to follow on with the yield discussion, up one full percentage point on the 10 years since august. Up 40 basis points in the past week. On geopolitics, Israel Holding off on a Ground Invasion of gaza as diplomatic efforts continue to released hostages. President biden has been reaching with all the counterparts trying to prevent the conflict. He is asking for continued flow of aid into gaza. Tom they said you have to go to beirut and understand the oddities of beirut. Manus cranny on the northern border. It is surreal, isnt it . Vishwanath manus it is surreal. The risk to the world as a proxy of hezbollah comes up more aggressively in this turns into something israel doesnt want. Tom in cairo, are they in support . Are there shades of difference between hamas and hezbollah . Manus they are all of concern to israel, the u. S. And the west. To that end it is about escalation. Lisa one of the hardest parts is extricating governments that are not hamas or hezbollah from the governments that are. Hezbollah has a significant part of the leadership in lebanon. Manus none of these proxies would be raising the vexation with tacit approval from iran. That is the back story to any of these proxies. Lisa we will catch up with Annmarie Hordern to get on that. We dont have a House Speaker. We have nine potential candidates on the short the stte for the vacant position among republicans after jim jordans collapse for House Speaker ship last week. There will be a forum here and people are sick of this. Write now a survey comes out, people are like, just get on with it. Manus i thought british politics was tough going during brexit. You just take me to a whole new level. Tom it looks like Hollywood Squares and i will say that i remember stepping on the ice years ago with a bunch of thugs in minnesota. They really play hockey. One said we need an allamerican world class hockey player running the house. Lisa there you go. You can put your hat in the ring, tom. This i find interesting, chevron agreeing to bypass for 60 billion doubt buy hess for 60 billion. This is the second major deal in just two weeks. We had the exxon one a few weeks ago and what this highlights is the need for efficiency, of economies of scale and the feeling that maybe it will get done this time around and there wont be anyone to intercede. Tom publishing and going to the geography, south of america. There will be a definitive moment in the 10 00 hour, alix steel in conversation with the chief executive officer of chevron and mike worth. He is the son of leon hess. Lisa the messages have you gotten about trucks . People are talking about the hess trucks from childhood. Tom i didnt have them in my childhood appeared in the 1960s and 1970s, joe namath football and the idea was you were cool if you had that truck. My father wanted to save a penny and a half on gas. He would drive by and we would say, the truck is over here. Manus is that we you said to your son, you have to save a buck . Tom i lost my drivers license. Carl weinberg joins us now and he had an oil truck. I want to get a summation of everything on this political economy and level of uncertainty. What is the character of our higher Interest Rates, your highfrequency economics is Interest Rate analysis forward. What does this 5 yield mean . Carl to the economy i dont think it means much. Lisa, you are excited in the rise of bond yields in the past you weeks. I wonder where you were back in 1980 and 1981 when rates were rising by 1 or two Percentage Points and bond yields were raising at a percentage point a week at one period in time. That was real tightening and the kind that punishes an economy. At 5 , we are only three Percentage Points above the inflation target and only a percentage point above current inflation. This is not putatively restrictive. We dont have to be afraid of real Interest Rates. We have to adapt to them in Financial Markets and the real economy. At the end of the day, we will see less housing activity as people get over sticker shop on ash sticker shock on mortgages sticker shock on mortgages. Lisa we could end up seeing the u. S. Avoid recession and gdp come in strongly at more than 4 in the third order and is still maintain these Interest Rates and get down to 2 inflation. Carl im not saying there will be a recession. Inevitably, there will be a recession. The current rise we see in the streets and yields is probably not going to be what causes it. I dont know what is going to cause it but where we are now we have seen in the past prior to the financial crisis, real Interest Rates higher than they are now the economy worked beautifully. Interest rates are higher but not high. I would say we are getting back to normal levels of real Interest Rates. Look at the period from 1987 to 2007, 20 years prior to the Global Financial crisis. 10 year bond yields averaged be. 2 Percentage Points above current inflation during that period. Where we are right now is kids stuff compared to where we are in the 20 year period when we saw recessions. We also did see periods of strong Economic Growth. Lisa we do have an asset system that has built up over an era of zero rates which raising a question of the vulnerabilities embedded in Capital Structures that are hinged on zero rate policies suddenly having to face off with reality. How concerned are you about the anecdotal data people are pointing to, including fed officials, that show a rapid pace of weakening people expect in the Fourth Quarter . Carl we expect a slowdown of the economy in the Fourth Quarter. A vagary a vigorous thirdquarter will be much higher than normal and should have expected and an outlier compared to normal trends. We are forecasting continued trend Economic Growth around 1. 6 with the economy at full employment as we move forward into the end of this year and beginning of next year. And at full employment is both a blessing and a gift. When i was a kid in economist, the goal of the Economic System was get a job for everyone. Everyone who wants a job has one that is good and prices are returning to normal rates of increase after a onetime shock to the money supply here that is good. The problem we have is that we try to push past the levels of employment and that could happen in a war scenario where we are fighting a war on two fronts at the same time and a war where we want to produce more guns and less butter and how do you do that when you are at full employment . You have to have less butter to make more guns and that means a shortage of supply of consumer goods and perhaps the next wave will qamar the wartime scenario. Will come from the wartime scenario. Manus i can only go back as far as 15 in the u. K. In 1989. You said is the bond work not doing enough dirty work and is a much more pain to come . Carl the bond market is helping the fed slow the economy. If that is the right thing to do than the bond market is being helpful. Im not so sure we need to slow the economy to regain price stability. I think the economy will go back to stable prices as we erode away this money that was put into the economy during the pandemic, with good reason but with consequences. I dont think we necessarily have to have a recession to get price stability. We are headed clearly back toward price stability without a recession and that is great. Everybody that wants a job has a job and to me that is a plus for the economy. Tom thank you very much. Going to the ecb, they are waiting for labor to crack and it hasnt. Lisa the story is basically they will the rates and they will crack. You see companies talking about efficiencies. I think about the deal with chevron and has hess. Tom said i really ought to look at irish real estate, the most significant gas i have had over the last six months. It is a booming economy but to america and the United Kingdom, it is starkly in ireland the house and the havenots. There is a whole part of the economy not participating. Manus that has been a memorial. The fed released a report on friday which talk about wealth in this country and it has been the biggest accumulation of wealth in the last 30 years. I missed the boat in the body and northern ireland. I wont miss it now. Tom is bono of u2 over there . Such a value having manus cranny. Lisa i have to apologize. You listen to the accent and then you think of, real estate. Tom Dublin Real Estate is absolutely ridiculous. State with us. Stay with us. That first time you take a step back. 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 a partner that puts you first. Godaddy. 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. What is happening right now, russias invasion of ukraine drifting into the second year, u. S. China issues that continue. Youve now got the crisis in the middle east with the attack on israel on october 7 and the associated response. The common theme is the Energy Market in terms of looking at who is buying what from where and how to manage the domestic expectations. Tom who is buying what from where. We want to inform you with guest experts in their field, Daniel Tannenbaum and oliver wyman, an expert on sanctions that work and sanctions that do not. We welcome all of you. Jonathan ferro is out. Manus cranny joins us. This important conversation with oil, it is murder monday. Lisa the idea that you have chevron buying hess. And you had is it scale and is the u. S. Looking and saying we have to compete so we can cash in before fossil fuels are obsolete, maybe. Tom the definitive brief, 60 billion of total enterprise and value. Amrita sen, expert on the price of oil and the geography. I was up to speed on this and getting up to speed quickly yana exxon found more oil than god in the gulf of mexico of south america in 2015. This is an acquisition by mr. Birth and chevron. Explain to our audience the magnitude of the oil fields. Amrita it is a fantastic acquisition given the fact that diana guana will have supply growth in the coming years. Exxon has a foot print and so does pass hess. During by the day with new ones in the coming years planned. Talking about production breaching a Million Barrels a day and continuing to grow. The most prominent prospect. We had were zillow take that brazil take that position. That has now switched to guana. Tom what is the distinction between guana venezuela on the Southern Side of the caribbean . Amrita stability, for one. The quality of oil they reduce is sweeter and light by irfan refiners who usually struggle to refine the heavier. It is heavy oil. It is liked by refiners on the gulf coast that have the capacity to process that. Not every refiner has it so there oil is easier to process. Today, because we have a lot of refineries around the world that need the heavy oil, the lifting on sanctions on venezuela would be welcome. Tom guana to the east of venezuela. A correction. One of our interns just saved me on that. Lisa why are we seeing so many of these acquisitions in the oil patch . Amrita this is something our team has been pointing out since july. We identified 80 companies without were up for grabs. I would be happy to share that with you. If you think about the last decade, was fueled by zero Interest Rates and focusing on not shareholder growth or cash flow but about production growth. That has changed. Over the last few years we have seen shareholder say you actually need to return money to us which means a lot of acreage and Companies Just produced anyways. They have to get basically integrated with Bigger Companies that have economies of scale because that is the only way you can generate cash. That is the main reason you are seeing this. As Interest Rates go up, servicing a lot of these debts they have, it is it feasible and that is white you will continue to see consolidation with think this is just the start will see a lot more going forward. Lisa how much is this a result of maybe antitrust agents in the u. S. Can work favorably on tieups because there is a goal to offset some of the fluctuations in the middle east . Amrita i think that is at the margin. If you think about the kind of deals being done or look at the deals being done, it started with occidental previously. It is always about getting the acreage which is right next to yours so that you can have economies of scale. That is the underlying reason for that. Even with acquisitions it doesnt necessarily mean you will get more production. More often than not, giving us 1. 2 rates. A lot of it is poor quality so Bigger Companies say they are not going to produce from here and overall reduction goes down. Exxon is an exception. Everything we are seeing is leading to lowering the guidance of the companies. Manus does any of the dealmaking you are seeing reflect anticipation of a change or Material Change in u. S. Energy policy . Coming into an election year, policy may change, American Oil Independence is key. Do any of these aspects play into the potential for dealmaking . Amrita i dont think so, in the sense that these are Company Specific deals we are talking about. The bigger challenge is the u. S. Is producing 30 Million Barrels a day which is record high and that continues to grow. You do have sanctions being lifted on venezuela even though elections have not been held. That raises more questions in saying why are we not being given the opportunity to produce even more than you doing deals elsewhere. Manus i will see you in a months time. There is a picture of us dancing during covid toto. Amrita dancing . Manus the theory is the u. S. Goes to refill over the next few months and gives saudi and russia for cuts. Is that pie in the sky hopeful thinking . Amrita do not buy that. I do not buy that. Saudi arabia has been clear in saying they are keeping it because of maker economic concerns Macro Economic concerns. Theyve only managed to refill for. 8 billion barrels and said we buy the oil but there it is 79, i dont think they will get there. Tom thank you so much. Team surveillance looks forward to interviewing at the cranny soiree. What happens in vienna . Manus it is not a junker junkert. You chase people through the halls. Annmarie hordern wreaks havoc. There is a lot of back channeling that goes on. We will see what the russians come with in november. Tom the 10 year yield at five point 00 . What are we waiting for 5. 00 . What are we waiting for . I am waiting to get a first pricing of the real yield. There it is, 2. 53 on the inflation yield. You tell me how it gets done. Lisa you tell me how it sets the valuations, the highest going back to november 2008. Tom stay with us. Michael mckee on the economy. General Frank Mckenzie will join us and wei li from blackrock. Be ready for any market with a liquid etf. Get in and out with dia. announcer enough with the calorie counting, be ready for any market with a liquid etf. Carb cutting, diet fatigue, and stress. Just taking one golo release capsule with three balanced meals a day has been clinically proven to repair metabolism, optimize insulin levels, and balance the hormones that make weight loss easy. Release works with your body, not against it, so you can put dieting behind you and go live your life. Head to golo. Com now to join the over 2 Million People who have found the right way to lose weight and get healthier with golo. This is a time for humility and multiasset investing. Definitely having a reset to a higher actual return environment. This economy has a huge mosaic of factors to what is happening the overall market. Challenge in the bond market, success in the equity market. Tom good morning. Jonathan ferro, Lisa Abramowicz, tom keene. Many narratives on this monday. One of them is jon ferro on assignment, manus cranny sitting in. Adding huge value on chevron has with his years in dubai. In this hour Annmarie Hordern will join us on the Eastern Mediterranean. We have to go to the markets. Wei li coming on in moments. A 5 10 year yield. Lisa which people thought was unimaginable. Tom i was in that camp. Lisa now you have people gaming at 6 . That is the most interesting aspect given it is no longer the haven status. Tom two point 53 on the 2. 50 3 on the 10 year real yield. There is convexity there. Lisa a lot of people said six months ago that if we got to 2. 5 real yield that would torpedo all equity valuations. Yet that has not been the case and that has been one of the biggest surprises. Manus the question is do you turn into a duration hero, do you jump in and take bonds on and believe this is the top or does this market test 5. 25 percent or 5. 5 . What you do in england tom what you do in england . Jon ferro noticing the convexity of the 30 year gilt was more abrupt than the u. S. The speed in the United Kingdom gives pause. Manus you saw how the bond market imploded in the United Kingdom. I am not making that delusional call but the issue is you have supply in many issues on the bond market. Tom we will get to the data check so lisa can give you a cacophony of a brief. How about the vix, 22. 58 showing some real tension in the market. Futures 23 and the bond market we have been discussing 5. 12 on the twoyear. That gets you to a spread of 12 basis points. This week will we see true and complete this inversion . Brent crude 92 a barrel, west texas intermediate 87 a barrel. Dollar flat. Yen did print 154 a while. Europe back to 1. 06. I dont know what any of that means. The bramo brief. Lisa we talked this morning, the economy is not the stock market this morning we are getting 30 of the s p reporting earnings. Microsoft come alphabet tomorrow. The gains of the shares have driven the gain on the s p 500 led by meta up 156 this year. To me the question is how much did they have a high bar to cross with forwardlooking guidance and if they miss is that going to be a significant risk factor for a market that is hanging in there but kind of breaking down on the margins. Manus lets call at five or 5. 25 for a bandwidth on bonds. We are in a new zone. In theory Growth Stocks should come under pressure. The saving grace of the names you have mentioned, this is digging deep into two weeks ago, is the Balance Sheets. I think general growth will be tested but i think some of those maker caps will be resilient. Lisa we also have Central Banks presenting earnings. Ecb on thursday. Not expecting a big move there. We see rates staying where there are on the two year. This is something you been mentioning a lot, which is the gdp and how much it is really accelerating. Thirdquarter gdp will come out on thursday along with corporate consumption. Will it show the reacceleration. The atlanta fed shows 5. 4 currently. Tom this is a reframe out to what some people are saying is 5 real gdp, which i will round out to 8 nominal gdp. It may be lighter than that. These are stunning numbers for the pond ands looking back six months for the pundits looking back six month. Lisa and people are wondering is this growth compatible with getting down inflation . Tom we will begin without definitive call of the day on global fixed income. Wei lis global chief investment strategist at black rock and joins us on our fears of price down and yield up. Thank you so much for finding the time. Where is the bid on bonds . To me the bid is walked away. Is that true . Is there a dearth of bid across all fixed income . Wei there are lots of moving parts right now. Good morning, everyone. In terms of our view long bonds, longduration, weve been underweight u. S. Longduration for three years, since late 2020, 110 year yields was below 1 . Last week we have close the underweight to get to neutral. There are a couple of moving parts as to why race have repriced meaningfully why rates have repriced meaningfully. The firsts policy and the second piece is term premium. Where we are now is 10 year yields testing 5 . In our assessment, policy path is not different from where we think it should be. Term premium, depending on which measure is used, we are looking at somewhere between 20 basis points, 40 basis points could push even higher over the strategic horizon. We are talking about term premium over the strategic horizon at 100 basis points because of issuance dynamics, because of high rate environments, rate volatility, as well as because of higher inflationary environments. When you bring all of this together, strategically we are still underweight but tactically we are neutral because risks have become more balanced. When we think about the read across of rate repricing to risk assets, actually policy path repricing can be negative for equities because it impacts the discount rates directly. Term premium repricing does not have to be negative for equities because it is an assessment of the appeal of duration in portfolios. Lisa i know you have been leading into the ai discussion and that has been driving some of your equity bets. You think that area is completely immune to term premium and these discussions of yield given the cash cows they have become . Wei what has been interesting with regard to this is that on the one hand they benefit from the growth upgrades, earning upgrades we are seeing coming through. Next year 10 forecast for the s p 500, half of that is driven by mega tech names. 5 is coming from the tech names. There definitely benefits from earnings upgrades. At the same time there they are more longduration compared to the broader equity market. When the rate repricing it pressures down on longduration, little bit more Everything Else being equal. When you bring the factors together from the Growth Prospects and the ai theme gathering momentum in the earnings upgrade trump duration sensitivity as we have seen so far. As well as recent periods. Nasdaq holding up better than you wouldve expected stop manus to carry on that from that, this week you will see 16 trillion worth of equity reports and part of the magnificent seven intech will be on that. What we were talking about was the Balance Sheets, the cash on the Balance Sheet, the cash on apples Balance Sheet, is that another defensive and a reason to stay long big tech . Wei that is why we are still overweight big tech and ai. When we think about quality characteristics as growth slows down and reacts to the tightening environment we are all experiencing, having cash on your Balance Sheet and not being as geared up in this environment is a definite plus. More broadly, the impression of the earnings season, the feeling is it is holding up better, but not forget the broader backdrop, which is earnings have been stagnating. We are talking about incremental rebound from the stagnation. Tom lawrence from new york emails and says ask her if the rationalization is i can own it forever and i will get paid back eventually. How do you do the math at the midpoint where the stuff you hold on the Balance Sheet gets evaluation. If i have eight years of maturity, how close is it to where you get a Tipping Point where you have to confront what is on the Balance Sheet . Wei first say hello to lawrence, and second yes indeed we have to see more repricing of risk assets reflecting the higher rate environment. We look at duration work almost there which is why tactically we have turned neutral, but if you look at equities, it has yet to reflect the higher rate environment by our simple back of the envelope analysis. 5 to 10 adjustment is not unthinkable. Then you think about markets where there is a further repriced to go. We think about deploying risk in this environment because there is a different rate sensitivity across risks which is why we are very selective. We are also very selective in terms of the private market. We like private credit and infrastructure debt. Tom i dont hear full faith and credit. Wei li of black rock, thank you so much. Futures 23, down. 5 . Lisa as wei li was talking she was focusing outside the mega tech and the additional pricing that might be required in response to yields. I do not think we are talking enough about regional banks. Theyre almost down to where they were during the march selloff. I was highlighting this last week. The kb x index is down dramatically, less than 10 away from the low we saw in march. To that point, are we starting to see the signs of something deeper starting that is masked by some of the big tech . I keep thinking about this. Manus we are obsessed about bonds, about inflation data, and sometimes the flow of money is when we take our eye off the ball. The risk is we do see an additional move of cash out of those banks. Maybe that is where the next crack does come to bear on the market. The consumer is fine, the consumers brand. Where is the next Inflection Point . Tom i knew retail sales wear up statistic. When someone says the American Consumer is grand, i am looking at delinquencies on loans. Manus delinquencies on the subprime autos is ratcheting higher. Tom the bentley is paid for. Futures 21. John from an island with an umbrella in his bloody mary says quote the dow. 33,000 on the dow. [laughter] explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. The chase ink business premier card is made for people like sam, who make everyday products, designed smarter. Like a smart coffee grinder, that orders fresh beans for you. Oh, genius for more breakthroughs like that i need a breakthrough card. Like ours with 2. 5 cash back on purchases of 5,000 or more. Plus unlimited 2 cash back on all other purchases. And with greater spending potential, sam can keep making smart ideas a brilliant reality the ink business premier card from chase for business. Make more of whats yours. And your store was also the first time you realized. Well, we can do anything. Cheesecake cookies . The chookie manage all your sales from one place with a partner that always puts you first. we did it start today at godaddy. Com we are concerned about potential escalation. In fact, what we are seeing is the prospect of a significant escalation of attacks on our troops and our people throughout the region. We will do what is necessary to make sure our troops are in a good position. Tom he is the 12th commander of the Central Command with real war experience. Our secretary of defense lloyd austin on abc over the weekend with carefully phrased words about americans in harms way in the Eastern Mediterranean. We welcome all of you to new york on radio and television. Manus cranny in for jon ferro. Lisa abramowicz and tom keene, we are looking at different narratives up yields on the move, futures at 21. The vix has finally moved. We have real tension in the market. 22. 54 on the vicks. We now step into a discussion linking washington with tel aviv. Oliver crook is in tel aviv and joining us from washington, Annmarie Hordern. With all good cheer, did the president of the United States survived the weekend . How does he start the week . Annmarie he certainly did survive the weekend. I know there were concerns because he was in delaware at his home, but the president took a number of calls over the weekend. Benjamin netanyahu he was in contact with along with the likes of trudeau, macron, italy, the United Kingdom, the western alliance make their they are the same page that israel has the right to defend itself against hamas, but also they want to make sure this conflict is contained and there is not a wider regional conflict that spreads because of this. The president even caught up with the pope over the weekend. He survived the weekend and he goes into an incredibly challenging week given the fact there are still americans held by hamas hostage. Tom lisa wants to get in, but i do not buy for a minute israel is beholden to the western alliance. How unilateral is the Israeli Military on this monday afternoon . Annmarie i would say, and we had reporting including my own from friday that has developed and other outlets over the weekend that there has been a push from the likes of the United States and others to try to slow down israels Ground Invasion, to make sure it is per size, and also to make sure they can do all the work they can to get hostages out before israel goes in. One thing that has been pressed upon Benjamin Netanyahu and the Israeli Military is to make sure that palestinian, innocent palestinian lives are not put in harms way. Already you see that is not possible at all times. That is something the u. S. Is exerting a lot of pressure on. You can also see with this flurry of diplomacy in and out of tel aviv and jerusalem, today you have tomorrow you have emmanuel macron. There are a number of senators there. They are keeping up this constant diplomacy and hopefully that helps push a Ground Invasion further down the timeline. Tom there is a question of how to understand the bombing of aleppo airports in the strikes on his blood targets in terms of trying to prevent escalation at this point. Oliver completely. The idf will say there are continued rocket fires and skirmishes in the north so now the israelis have continued to bomb. We have alerts from the idf that say a lot of what they have done overnight, and more and more you are seeing more and more hezbollah targets in lebanon and that follows the evacuation of israeli civilians who live on the border. Having been living in the hotel come at first i met a number of people evacuated from the south. Now speaking to the management of the hotel, it is people being evacuated from the north. You are seeing the impacts here. Lisa how much support does iran have from regional players versus their isolation . Annmarie iran is incredibly isolated in the golf when you look at the regional players like uae or saudi arabia. For abu dhabi, proxy groups in the golf, iranian backed proxy groups that start trouble is not new. There is a tremendous amount of skirmishes and missiles over jetta from the who these as well as a fire in the airport in the uae because of these missiles. This is why there is so much concern in the region. It is not just concern about hamas. It is hezbollah in the north and last week we did see a u. S. Destroyers intercept missiles coming from yemen and the pentagon said likely that was headed towards israel. Manus the u. S. Has upped their defense. There is another war carrier going to the Eastern Mediterranean and some troops have been put on alert. Oliver, the ground assaulted not happen as many had thought over the weekend. What has structurally changed about the landscaper war of israel on gaza . Oliver two things have changed, which are two president s were set. Hostages were released and eight was allowed to flow in. This is from egyptian media. We understand according to egyptian media you have additional trucks that are flowing into gaza to get some of that age through. This is seen as the beginning of something important. The americans in a, is the same thing. 100 trucks a day is what the yuan is calling for. When we are thinking about the pressure points and escalation, the summit over the weekend, the king of jordan saying they are hearing from the west is that palestinian lives do not matter as much as israeli lives. These are all of the things that will go into this combustible situation. The idf is screening huge volumes of footage they pulled off of hamas body cams they are showing to journalists which will be released. This is part of the temperature conversation and the reaction conversation. Tom oliver crook in front of the story in tel aviv. Annmarie hordern in washington. Balance of power later will consider the issues of the Eastern Mediterranean. The history of the five year yield back to 2007 and may be back to 1992. Torsten slok of apollo on the reality. We mentioned the real yield, 2. 52 . Torsten slok seeing 10 shortterm loans. Lisa that is the key and what weve been talking about his baby the legacy of this moment will be the diversions between the big and small. That is why we are seeing all of the acquisitions and we will see what people might call omni roll up. Tom she steals from me. Ferro never steals like that. Manus he is a giver. He is munificent. You have equity that is up and a powerful Balance Sheet and that equips you to do deals much more aggressively. Tom you cannot equate Small Business america with big business like chevron and h ess. Manus take it down to the bottom level. I am arrived in a new country. Why take a mortgage 8 . Lisa that is the reason people say the Mortgage Market is broken. Tom it is new york. You have to have allcash like jon ferro. Manus it is a bit like dubai. Tom we will get a banner up for radio with manus cranny say new york city is a bit like dubai. Stay with us on monday. Many different narratives. Tom tzitzouris is next. This is bloomberg. Tom bloomberg surveillance. Jonathan ferro on assignment with an umbrella and a cocktail. Hopi is doing well. Manus cranny in for six of the next five days. Expanding large and the 5 00 show. Do not forget the manus cranny dani burger report, youll see that across the atlantic at 5 00 a. M. Getting you started. Futures 21. The vix is a headline item, 22 level, you can almost round that up to 23. It is not 30 or 40 but from 18 or 19 out of 22. Tom tzitzouris with strategas with us. We had 5 on the 10 year. The dollar weaker. Yen no one wants to talk to me about the yen so i will go to the 92 brent crude as you are under surveillance. Lisa we will get to the yen because i thought was interesting. We are very focused on the middle east. President biden and benjamin not who resident biden and Benjamin Netanyahu promising to continue aid. On friday an American Mother and daughter were released by hamas and an anticipated Ground Invasion has been delayed. I am struck over the weekend come israel saying 222 hostages are still staying with hamas. How much does that color the conversation about how this proceeds . Tom it not only colors the conversation but if qatar has had her lesson getting them released, winter the next releases . Lisa and what to the negotiations look like . Chinese authorities launching an investigation into foxconn technologies, major supplier of apples iphones. State media saying regulators are conducting tax audits and reviewing land use by foxconn. Authorities also resting in executive and two former employees. All of this making International Businesses highly uncertain about doing business in china and uneasy. I wonder how much you start to see and some of the earnings we get, a pullback on the margins from china. Manus it will be interesting to see what apple says. This is very much a slap, which is to remind you Wealth Management was deconstructed, the housing industry was ripped apart, tech was ripped apart. This is to remind you nothing has changed in china. When that moment changes at the top level to shift, it shifts with the click of a finger. Tom are you trying to do that as well as he did . He is gifted. Manus buyer beware. Do you want to onshore or stay where you are . Lisa did you see that jon stewart pulled out of this apple production over the weekend because he was saying he wanted to come out and talk about china in a certain way and he was told he should not do that so he stopped his production entirely, which gives you a sense of the controversy. Meanwhile, speculation around the bank of japan making some kind of policy move this month growing as the yen tests 150 against the dollar. Everyone saying intervention. A report by nikkei business daily fueling suspicion i take your point, this has significance not just for the yen but also for yields. Tom euroyen as well, i have that it 159. 05. I have not done the Technical Work of were strong euro, weak yen upsets the apple card. It shows me the tensions there and inflows from japan, not Interest Rate analysis. Lisa that is exactly it. How much are these flows what will drive the next leg higher in yields . What is behind it . We do not know at a time yields are highest in the u. S. Tom this is a conversation i had over the weekend. All of this bowtie babble. Is manus cranny going to wear a bowtie . Manus no. There is no chance. Tom we know for certain the impact on america. Tom tzitzouris is with strategas. He is the head of fixed income. You floored me with an analysis that 70 of america are voters that are Small Business and they are in the churn and they only make up 5 of the gdp. Has the fed left them behind in this yield environment . Tom i would very much say so. The fed by overly relying on the fed funds rate to tighten has put so much of that pain on main street usa and decided they are too big to fail. Earlier this year we decided medium was too big to fail, mediumsized businesses. Silicon valley bank, signature bank. Of Large Companies are too big to fail and bdm size companies, the one place you can tighten in the economy as Small Businesses and households in the fed has done that by overly relying on the fed funds rate. Balance sheet reduction is catching up with the bond market and we are seeing treasury yields rise. Lisa to stick on the point tom was talking about, if you have such a swath of the voter base that is feeling this kind of pain and if you have Small Businesses that account for a significant portion of the jobs losing momentum, windows that start to trickle into a higher unemployment rate, when does it start to reinforce and bring rates down because of Slower Growth . Tom we were already at that point in march of this year. We had financial stabilization via liquidity injections. When does it begin to bite again . Sometime between christmas and valentines day when the consumer gets those late 2023 credit card bills in january and you start to see a pullback. I do not see any slowdown in consumption. We do not see it last week. That suggests the labor market will remain strong but at some point those higher Interest Rates will bite all quarters of the economy, not just Small Businesses and households. Lisa are yields rising because of the perception of strength given by some of the bigger businesses . Tom t. i think yields are rising because we are seeing supply come in and scare the bond vigilantes. The bond vigilantes are back. Manus they have been unleashed in the u. S. And the u. K. When you trigger 5 and you see the curve moving so aggressively , do you think we had some kind of a point were risk parity trades begin to get smacked or where viral limits and various trading houses get triggered. To think we will go into that next evolution . Tom t. that is a tough question. This is the third substantial rise in 10 year treasuries. Each time youve probably seen those strategies take leverage off along the way. The sensitivity today to 5 is probably less than it was to a 3 two years ago because there has been some leverage that has come off. There is always another breakpoint. We mightve already hid. There is a breakpoint where you will see another round of leverage come off. It is probably a multistep process, but that is one of the reasons we are seeing the s p off again and credit spreads inching higher. We are getting that close. Manus who steps in . Duration heroes are not to be seen. Your trading above 5 . Insurance companies have a different accounting system. Who steps into this bond market to count yields . Tom t. there is a good and a bad to this. The good is an enormous amount of plain fixed Income Strategies that will love to keep buying and buying treasuries. The bad news is those are pricesensitive investors. They are not like the leveraged investors. They will come in after the concession. Treasury supply comes in, they come in and buying the cheap. Tom you are a grizzled veteran. I will give you two ideas. One that the bid walks away. The other on the price of bonds. The bid walks away and chris whalen calls this the silence. You buy tickets and you sell tickets. Youre on your phone and you say i have a lot of the trillion dollars and there is just silence. Nobody wants that piece of paper. Are we close to that . Tom t. some say we have hit that. There was a lot of fear on the 30 year option and options on the front of the curve. Tom norway calls up and says i have to sell a zillion years of manus cranny 2042. Is there someone there to buy the garbage . Tom t. there is but youll have to buy the price concession. The treasury is no longer immune to this. Tom price concession in the Lisa Abramowicz camp. Lisa to summit altogether, are you getting compensated for uncertainty . Are you buying duration . Tom t. we would be. Our own member our own measure of the term premium is above 100 basis points. That is a very important level, not just symbolically, but it will tell you you are getting a normalized cushion for that uncertainty. We do not this does not meet we cannot see yields tick higher. Tom jason emails in and says talk about me. Lets talk about jason. How is your fixed income analysis folder into jasons call on the equity market . Tom t. it makes us that much more bearish on the economy because we continue to see another source of stress for the consumer and now business is picking up. We have delayed recession and we have said will avoid rescission at all costs in 2023, but there is cost to that. The cost is that there is more risk of financial credit events. Tom are you predicting that . Tom t. nothing we can see right now but by the nature of those events you cannot see them. A 5 to 10 year treasury it is much more likely that it was at 3. 50 . We do not see that happening at this moment but it is on the horizon. Tom the effect across all of the American Economy as well. The 210 spread 13 basis point. I told tom he cannot leave the set until we get to distant version. 10 year real yield 2. 51 . Futures 17 futures a 17, that is. 4 . Lisa everyone is waiting for something to break. Arguably in march it did, the fed came in. Why havent feds why having things broken yet . Tom because of buybacks. Robert shipman is a jewel. He goes through the buyback process of big tech. Manus cranny state channeling alix steel. Chevron buyback to increase 20 billion a year after buying the new york jets petroleum company. Manus this is the incentive to the shareholders to get it across the line. Buybacks have been the reason why we justify theres no alternative. Lisa buybacks tom buybacks are there and we will see a lot of that into the earnings season. Lisa if that is the case, why are chevron shares lower 3 . Manus Free Cash Flow will double. They will do a monster buyback. Who knows . Tom he goes into fidelity and they say that. Manus i wish some analysts would say we are unsure of the region. Tom on it typically merger it pops down a little bit until they color out what synergies are. I do not know how you have synergies and Growth Petroleum killing item like kiana east of venezuela. Tom do you know the way to guiana . Tom bob hope movie from 1946. Coming up, alix steel on conversation on chevron and has. This is bloomberg. Good morning. 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. when the day that lies ahead of me seems impossible to face a lovely day lovely day lovely day lovely day a bank that knows your business grows your business. Bmo. That first time you take a step back. 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 a partner that puts you first. Godaddy. I think it is a fantastic acquisition given the fact that kiana is going to be the most prolific supply growth in the coming years. Exxon already has a footprint as does hess. Chevron gets exposure to that. Guiana production has been growing. Tom amrita sen, brilliant as we get up to speed on what chevron is doing. Chevron, one of our giant Oil Companies has acquired a Company Foundational to new york city in manhattan and all of the northeast. It is hess. In conversation this morning with worth of chevron, a known commodity, alix steel joins us on leon hesss son john hess. Why did he affect the 60 billion transaction . Alix i dont know and i will ask him later on. I say i dont know because you can usually see and acquiree wanting to do it for different reasons. Tom this is really important. Alix steel is the only one who is actually been to oklahoma. The rest of us talk about it likely know it. She knows the zip codes and the diners and the whole thing. Alix the street was quite surprised on this. Also because where you see and think we will see consolidation is the permian. No one was looking out for what the kiana m a will bring for what the guiana m a will bring. Lisa there is a question that people were thinking about this in the shale patch but am rita said said this was just the beginning. How much is this the tip of an iceberg you see percolating much more quickly . Alix it is actually about capital discipline, which i know its weird to say when you have a 60 billion deal, but it is capital discipline because that is cheaper than pouring decades into a brownfield or greenfield explanation exploration . Lisa how much are we looking at a situation where the be less drilling or efficiencies of scale . Alix that is it because of the Energy Transition. If you are chevron will you build another gourd gone in australia that could take decades to get up and running. You will not do that. Youll will pay for 60 billion for hash. Tom this goes back to years ago when they said you cannot dig anymore. You have to buy the existing thing which is guiana. Manus i think the point is important. What caught my eye is the transaction itself. Is that all Stock Transaction . Is that correct . That in itself is significant. Alix the funny thing is the street has been after him to do a transformative deal and he was not doing it. He was sticking clean tie will buy small deals, i will only do it when it makes sense. They have been waiting for this to happen because of their stock price. Manus tomas be a difficult question, why is the stock lower, i said who knows, he was not happy. He is using all of his tickets in terms of his usual stock and he is announcing a big buyback. What does this tell you about how he will frame the deal to the street . Alix also the stocks has done pretty well. Manus tom is upset it was down this morning. Alix the stock has outperformed exxon and chevron. In terms of the Energy Transition from investing in solar and wind. To that extent you can make the point that may be the stocks will not get dinged a little bit but the call is ongoing. Questions are underway. We have a clarity on what the street is looking at it for and how they are skeptical or not. Tom please jump in. Lisa there is a question, what is next . If it was not the permian basin, it was not just shale, what are you looking for in terms of the transactions we can expect . Alix after exxon and chevron i do not know who will be left. Maybe bp or tou thao. Or total. Shell is trying to pivot to oil and gas. I do not know who will be there to buy a transformative deal. Conoco is already doing their deal. I dont know if it will be another pressure. Tom how much pressure lisa how much pressure is on opecplus not to do some of this . Alix you could argue the u. S. Is already producing over 13 Million Barrels a day, so they produce more than saudi arabia. It is about monetizing the assets in the ground today because in 24 years that is what saudi arabia is trying to do, keep the prices at certain level. Spare capacity is worth more. Manus the cost of production is like down here. Lisa you cannot alix you cannot really compare. The fiscal breakeven is quite high, which obviously chevron does not care about. Manus they dont care, but it is about who in europe. This is the american m a landscape. What happens with equinor . What happens with european producers . Tom i want to cut to the chase. You have an earned reputation in speaking to oil executives. Mike worth of the fighting cholera buffaloes. Did he bring Deion Sanders to colorado . Alix is the sports . I know nothing about sports. Is this football . What is this . Tom this is surveillance. It is bloomberg surveillance. If you do not know the question make up the answer. Alix the answer is yes for rugby. Tom perfect. All of this is great. The bottom line is you have the most important interview of the day. You get Virgin Atlantic. Ed bastian on the massive screwup at delta on their lounges. I cannot even find a place to sit. What will you ask ed bastian as he salvages his relationship. Alix skymiles. They messed up. You have to backtrack. What are you doing now . Tom did they have the upper hand against united . Alix i would say yes. Manus what card should i get . Alix a delta amex. Manus i have no credit history. Alix how old are you . How does this happen . Manus it does not follow me around. Thank the lord. I am zero credit rated in this country at this juncture. Alix i am looking at him with my mouth open. Tom i have a solid 290 rating. Manus we got a credit card but we do not say which bank. Tom it will be timely. All of these airlines are taking. Lisa also ed bastian and shy weiss are good friends, too. I think they will talk about stuff. Apparently they have a competition about shoes. Guy johnson has been talked about shoes all morning. Manus guy johnson is very british. Tom virgin has to merge. Alix do they . Why . Tom because it makes for good theater on Early Morning tv. Alix may be Virgin Atlantic will give something to the rugby team in texas. Manus i am out of this hand of poker. Tom alix steel, thank you so much. We will try to get back on the rails. Two key interviews this morning. You will see that at 10 00. Guy johnson and a player to be named later will be speaking with chevron and has. And hess. Later on in the airline business, ed bastian with weiss of Virgin Atlantic. To get on track, im still stunned by the 10 year yield at 4. 98 . Lisa how much is that forcing the issue of some of these mergers . You need a economy of scale to service your debt. Does the u. S. Government need economies of scale . Tom one of the most important moments was jeff currie of Goldman Sachs saying new real Interest Rate dramatically changes oil manufacture. Lisa all of a sudden it costs something to parker capital in a physical asset. Manus eventful morning for Bloomberg Television and radio. Look for a conversation on a 60 million transaction. Katie nixon from chicago, next. An everchanging landscape comes with challenges. From our vantage point, we see opportunities. As a topten real estate manager, we harness the power of a 360 perspective, delivering local insights and global expertise across public and private equity and debt. Our experienced team and vast network uncover compelling opportunities giving our clients an exclusive advantage. Principal asset management. Actively invested. Is it possible to fall in love with your home. Before you even step inside . Discover the Magnolia Home james hardie collection. Available now in siding colors, styles and textures. Curated by joanna gaines. Youre probably not easily persuaded to switch s mobile providerss. For your business. 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The challenge is not where yields are because growth is still so strong. This is bloomberg surveillance. Lisa slowly and all of a sudden, a whole new world in yields. This is bloomberg surveillanc. Jon is off on vacation. Manus, in. Tom, it is a new world in yields, when you talk about 2. 5 on the real yield youre looking at. Tom it is still about what the fixed income market signals here. It signals not only the history of going through a 5 10 year that takes us back to 2007. Real yield up seven basis points , nicely against 2. 52 . I thought thomas was stunning on the impact of this field structure that most of america, not chevron, has america. Lisa you are basically seeing the pain bleeding out in smaller businesses, but it is not represented by Companies Seeking an economy of scale. Maybe that is why we are seeing an accelerating number of tieups in the energy patch at a time where you need to see those economies of scale. Manus it is not when, but defining when people lots of people have done that over the past couple of years. These Companies Need to deliver. The next shoe to drop is, what kind of deeds need to be done in europe as a result of the american consolidation . Lisa tom, you havent talking about zombie roller. You talked about how this would essentially be the story of the year. Are we starting to see it now as people are more desperate and get the sense maybe yields are not going down as quickly as they thought . Tom the keyword is desperate. I am seeing elements of desperation which force those transactions. The Financial Times article this week from cathie wood was scathing about how cathie wood is rationalizing losses within your fund is a benefit to her shareholders. That is one of the silliest things i have ever seen. Manus there are a lot of Fund Managers that are going to have to do that. Tom there are shades and elements of this rate of change of yield moves we have seen. Lisa you have been raising the price down aspect of bonds, yields going up. At what point do you realize those losses . Tom lets go up the road to dubai. Abu dhabi, the stub they havent technology. Are we going to see writedowns in the sealed move of private equity and shadow transactions that we do not follow on a daytoday basis . Manus those funds, some of the biggest bond buyers in the world have traditionally come from jamba. Those southern wealth funds are perhaps less exposed to treasuries now than they were 30 years ago when i was a young bond salesman going to abu dhabi. How they deploy their capital has changed. They are not as stuck in treasuries, they are structurally more diversified. The pmf has an office down the road. The structure of holdings is different. Tom do they own english rugby . Manus not yet. How did we get to rugby . Lisa that was a nod to the randomness of the joy of the mornings. Lets look at markets and what is going on now. Those yields have come off earlier highs and with it, you see a tempering in the selloff of bid. S p futures 4227, ahead of 15 trillion in market cap. U. S. Companies reporting earnings including meta, amazon and microsoft. Euro stasis. The 10 year is where the information is. 40 basis points in six trading days. Tom we get out front of the information you need on these transactions. We protect the copyright of our guests and protect the copyright this morning, scott grubers first look at chevron. He makes no bones about it. Guiana is the core of john hass shop. He says chevron might not have the zing of other transactions. He walks through fancy ratio analysis, but gruber, a little tepid on this. He says chevron needs highgrade assets. Lisa shares lower by 2. 3 in premarket trading. To understand the crosssection of higher yields and what that means for corporate complex, it has managed to adapt well so far this year. The chief Investment Officer at northwest trust management we were talking to haley of blackrock should she said they are moving to neutral. Are you feeling the same kind of feeling in your portfolio . We are feeling that feeling. Yields right now are above our target range of the elements you all have covered so nicely. Fundamentals, technical elements have driven yields the on where they probably should be. It does feel like a time to take on duration. It feels like a time to reassess portfolios in general and recognize out of 5 10 year, you could the risk your portfolio out of equities and into fixed income, believing that eventually yields will be coming down. What goes through my mind is, the position for this market at this moment. A lot people were long and wrong. Stephen major said, i was wrong all the way up. How under positioned is the market . Do you think this is the moment when duration hunters will be heroes . Katie i think it is under positioned. I love how you said slowly and all at once. That is how it will correct itself. Really investors will reposition. This has made strategists, economists, investors humble as we underestimated inflation, growth. We have been on the wrong side, catching up. Tom i look at this and i am going to go back to Boston College a few years ago where at gunpoint had to study with karl case. He was beyond kind to me. I did not attend wellesley college. What carol case would say about this is this linkage of economics and all the worries our listeners and viewers have, you need to keep it separate from investment. Northern trust has done this for a gazillion years. How do you do that exercise now . Keep karl cases world separate from, what why i do with my stocks . Katie you have to understand this is something professor case would have agreed with. The market is not the economy and the economy is not the market. If you do the empirical research, you see little language to things like gdp and forwardlooking equity returns. You have got to look at the investment merits of the Asset Classes you are investing in. Valuation comes down to valuation and what is reflected in the markets view of those Asset Classes relative to what you think it should be price like. Tom you are in chicago, the land of morningstar. Index, index, forget about it. White sox, cubs, active or passive . Katie youve got a lot of folks on the passive side. I think i talk about a humbling experience, this has been a humbling experience for active managers. The magnificent seven and the s p 500 have dominated. Tom what have you done with the magnificent seven . You should see their seats at comiskey park 40 years ago. That is a flesh wound. Tom what do you do with a magnificent seven at a stodgy Trust Company Like Northern trust . Katie we believe the markets are pretty efficient. Markets are efficiently valuing those assets. We believe in a passive core as part of a clients risk asset portfolio. It is hard to beat the market. This has been an extreme example of the overweight of the magnificent seven. Go back any year, whether high volatility, low volatility, concentrated, diverse, it is hard to be the market. This is something that people are realizing. Lisa you said that you have started to see an opportunity to rotate back into duration. I am wondering when you started to feel that . What the trigger point was at a time we have seen yields march significantly higher in a short period of time. Katie it is the fact it has happened so quickly against a forecast that we have had around a 4. 50 10 year to see a jump from 4. 50 to 5 was a catalyst to say, there is something happening in the market. I will also say that prior to this, we have been favoring credit. Looking at credit as being a good deal relative to even equities. I know you follow this closely. We just started to see credit readjust to this new, higher normal environment. Again, it is time to start a pivot back to duration. Tom this is what zach really was talking about. Lisa they are liking Investment Grade credit much less as you see spreads in flecked reflect the benchmark deals. Tom are you telling me trustmark has moved to 42 cash . Katie not at all. We are back at our strategic allocations and advice to claims to keep a year or two in cash. Now, they are getting paid to do that. They are getting 5 in the same weight. We are advising them to rethink their Investment Strategy in this new, higher Interest Rate environment where you do not have to take equity risk if you do not need to. You can pull back and invest on a 5 10 year. Tom we will see. Katie nixon, thank you so much. The northern Trust Company, Northern Trust Wealth Management of bowman, chicago. It is Something Like we would see with Liz Ann Sonders at schwab. What are people actually doing right now . What they are doing is fascinating. Lisa we have seen money market close starting to shift. I am wondering how much of that is going into duration if you are buying longerterm bonds. It does not mean it can drive yields lower if it is a pricesensitive buyer. Tom futures 21. Fix 22. 3. S p down. 5 . Lisa it feels like as this war drags out in the middle east, there is a feeling the existential risk has been hanging over markets quite as much. Manus, you have been covering this a bit. It feels right now people are saying, we are going to wait and see unless there is an escalation. We are going to focus on Everything Else. Manus im going to give you a pause for thought. I grew up in northern ireland. I have lived through violence, have seen many wars. The bottom line is, it is so presumptive and so preemptive of these markets to think it is time to say the sensation is coming. We are far from making that call and these markets are way too presumptive. Tom we could go all day on this. This is a new conflict with immediacy of video and social, even over this weekend again, i am like, i want to hear more but the prosecution of the military and i am not getting that. I am getting the cable tv narrative, if you will. Manus you see a lot of people stand in front of screens and talk about what they presume. The issue is this, something has happened between the coalition of the west in terms of communication with israel, in regards to the next steps into gaza. Tom i cant say enough about this. Manus in, jon ferro away for a welldeserved week. Next, terry haynes will join us of pangaea policy. Frank mckenzie will join us later, the former general 14th commander of the u. S. Central command. Stay with us on radio and television. This is bloomberg surveillanc. Well, we can do anything. Cheesecake cookies . The chookie manage all your sales from one place with a partner that always puts you first. we did it start today at godaddy. Com explore endless design possibilities. To find your personal style. Endless hardie® siding colors. Textures and styles. Its possible. With james hardie™. 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. 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. We expect that there is a likelihood of exhalation by iranian proxies directed against our forces, directed against our personnel. We are taking steps to make sure that we can effectively defend our people and respond decisively if we need to. This is not what we want, not what we are looking for. We do not want escalation. Tom secretary of state Antony Blinken with nbc this weekend and a movable story, already changed from what we heard on sunday. Good morning on radio and television. Mr. Pharaoh ferro, south somewhere warm. He is smarter than we are. Mr. Cranny manus cranny, to have you in here with the dubai experience, what does the media frenzy look like for the united air wrap emirates arab emeria tes . A couple of weeks ago, we had king up dual in new york at the new york meetings and the foreign minister for the united air avenue emirates arab emerates. This is a delicate moment for nations that have close relations with israel. Tom you fly in and all of a sudden you are looking down at this deserty light thing. You realize it is a flight path into dubai and you are flying over iran. You are like, ok, i am over iran. Is that good or bad . You go right and go past a billion dollars of office development. Manus that is the crux of escalation risk. The proxies of a romp how they may launch new sorts on israel. Those are many skirmishes. This is about escalation risk. These markets are very presumptive. I am sure we are going to get that. Lisa it goes to your point about how we do not really know what is going on. We have no clue what their negotiations, the uae and saudi arabia and the proxies for iran look like. Tom we heard from the secretary of state there. We need a more important view, the founder of pangaea policy. Terry, so honored to have manus with us with realworld experience. Do we have in irani and policy . An iranian policy . We do, tom. We had won several weeks ago considered by its enemies to be an appeasement policy. I think secretary blinken and others would have called it a either one i think has been blown up by and large and replaced with one that we are groping towards now, which is a three quarters confrontation, one quarter wrap row policy. We are moving in real time towards a very different policy we were talking about a couple of weeks ago. Tom the 12th commander, mr. Austin was on early. Is syncom advising or telling or listening to the Israeli Defense forces . What is the relationship of our military on a monday afternoon with the military of israel . Terry they consult very closely. They always have. They do it in real time whether there is a crisis like this or not. The same time, i think what you are seeing him secretary austin and others, a desire to have the israelis among other things, advised rather forcefully. They are talking in to sorts of ways. One, a strategic, tactical supportive on whatever military operation the israelis do. At the same time, there is a more advisory role about the second, third, fourth steps, what may happen down the road and what we are prepared to do and i not be. Lisa are we seeing the u. S. Lose its leadership role when it comes to geopolitical negotiations . Terry i think we are seeing a challenge, certainly. It is up to the United States to recover that. There has been a metal in muddle in United States geopolitical leadership ever since its withdraw from afghanistan a few years ago. It seems clear in retrospect what ended up happening was a very bad signal was sent to those who wish this country ill and we are now scrambling to recover that. Lisa can the u. S. Do what it says it wants to do if we do not have a speaker in the house . Terry yeah, i think so. Firstly, i think we will probably have one this week or next. What you have got is, biden says he is going to send an aid package down. The senate under current schedule will try and take something up next week to start that process. By the time the house resolves its speakership issue, i would expect the house to catch up. The senate is hugely more consequential in this than the house. I would note much more bipartisan, as well, both schumer and mcconnell are broadly, generally as mcconnell said yesterday, on board with the idea these are part of one conflict. It is going to be up to all of them to convince the senate and much of the house. Manus good morning. I want to carry on from lisas point, about the u. S. Foreign policy, exceptionally the dominant force in the world. Two sustain that narrative, how important is it that they get the 100 billion biden has asked for . Is the size of the aid for ukraine and israel inextricably going to send a global message about what u. S. Foreign policy is at the moment . Terry the substantial aid since i would not peg into the number itself. The substantial aid for both conflicts is going to send a big message if what the Congress Comes out with his one or the other, that is going to send a bad message. The real fulcrum and problem here is that biden has very little to no Political Capital to affect the result. What you will end up with is a situation where congress and the senate is going to make a decision on the amount of both aid. I think in the end, you will see something close to what biden is asking for. But, also, it is going to take months to get there and for both geopolitics and the markets, that is going to seem way too long. Manus given the u. S. Is now defending vicariously in ukraine, in the israelhamas war, we have not spoken about taiwan. It is a very real risk. Is it a neglected conversation . Terry i do not think it is a neglected conversation. I think we are now in a lull was the wrong word, but we are in a less overt phrase of the peoples republic poking and prodding taiwan and its defenses and the United States willingness to defend. I would not be a bit surprised if you start seeing that poking and prodding coming back up again. Right now, they are able by and large to spread out appropriately. The risk here, which is implicit to your question, is that one or more of those turns into a hot war, do we have the capability and the materiality and ability to replenish . That is very much an open question. Tom terry haynes, thank you so much. This afternoon, joe mathieu, and recorder and Annmarie Hordern on balance of power will drive forward this conversation. We barely mentioned the upset you had earlier, there is a 6 30 at bens chili bowl. Lisa have you ever been there . Tom there is photographic evidence. The chili bowl on you street is real. Lisa there is going to be nine candidates for the House Speakership. Tom there is a front bar there at bens. Lisa do any of them have any Critical Mass . Terry said he thinks we are going to have a speaker sooner than later. Maybe because people are sick of this. We are going to keep this conversation going, not just the sick up discussion, but bond based. You want to be able to provide your child with the tools or resources they need. With reliable internet at home, through the internet essentials program, the world opened up. Fellas, fellas. Thats how my son was able to find the hidden genius project. We wanted to give yall the necessary skills to compete with the future. Kevins now part of this next generation of young people who feel they can thrive. Tom bloomberg surveillance on a monday morning. All i am left with his manus cranny who has been giving his great perspective. Decades of experience and not only showbiz experience but street experience. What is your number one observation on everybody . All of the radar must be up. Manus i want to take you back to 1994. The second biggest margin i ever had was with an institution which i wont name but it was one of those moments in the bond market where the margin close were not met where the soap or filling prophecy of liquidation took over and the narrative shifted. We have not of my humble opinion seen it yet. That is just my personal observation. Stephen major is greater minds anyone i and he talked about capitulation. I think that is Something Like i experienced 30 years ago. Tom bring this up like chris like manus cranny and there is a point where you are because not taken the bond market. Right now, we are enjoying 4. 98 . Right now, and this is really an honor to have in the studio. Brooke sutherland, she is a bloomberg opinion. The day starts at 10 00 a. M. Dear thrilled she could join us. I dont talk enough about Industrial America. You are writing manufacturing as cracking. I thought it was our renaissance. That was the narrative that was out there and i think what we are seeing is that it is much more nebulous than nuanced then maybe the perception was heading into this year. We have had some early reports from industrials, particularly in europe and there are signs that demand is maybe not quite as booming to the extent that it was. A lot of these companies are talking about inventory d stocking, that their customers went out and over ordered to try to get ahead of some of these supply chain disruptions. I think you have to wonder at what point does an inventory d stocking stretch start to look like something more troubling. Manus who is going to tell you whether that is a billowing yellow flag or a full up red flag . Brooke i think you have to watch the shorter cycle industrial companies. We get pretty much every manufacturing giant under the sun reporting. Tom who is most important for you . Brooke all of them. Tom stop. [laughter] brooke all of my companies tom before 10 00 a. M. , you have to pick a company. Brooke i think ge is going to be interesting to watch from the optimistic side of things. They have really good exposure to the Aerospace Aftermarket which i think we should see strong growth in that given everything happening with boeings challenges, raytheon, the gtf. All of that is very good news for the Aerospace Aftermarket which has started to look a little longer than the tooth. If you want to pivot to a company like 3m that is a company where i think you might start to see some of those trends around inventory d stocking. Manus we talk about it in the ether about on shoring, friend shoring. We have heard it from various politicians when they go abroad. When i have met them in singapore, in china a couple of years ago. Where are we on that narrative, bringing business, jobs, infrastructure back here into the u. S. Or to japan . Away from china . Brooke i think there is an issue where there is not really a consensus on what reassuring means. Manus there is a political narrative and then the industrial narrative around. And. Brooke . Things like hospitals, pipelines. We are not relocating those. We are seeing a number of factory announcements but a lot of those are concentrated in the factory vehicle space. All pushing out delaying investments in some of these factories. That is what im talking about where there are cracks in the narrative that these might lift all boats. But they might not lift them all at the same time. Tom the full sutherland nerddom is that she gets the financials as well. Are we misjudging the revenue pop that manufacturing in america can do . Brooke sure. Not all of the companies have put numbers around what this reassuring boom might look like. Theyre looking at maybe 350 million extra of revenue. That works out to maybe a 2. 5 annual boost. You tell me, is that a boom . Tom but within the new gdp we have all missed is a 4 Revenue Growth still the 6 because of the pop in the economy . Brooke i think for some of the industrial companies, you are not going to see a lot of volume growth. It is a lot of price still but we are seeing some deflation. Tom the gulf stream, the surveillance gulfstream has gotten a little longer the tooth. Manus did john go on his holiday . Tom of course he did. If youre looking at private jets out of kansas, this is the fabric and soul of the kansas spirit. Which private jet has the upper hand right now . Brooke it is surprising because you look at private jets as being a boom to bust a type of market and this is one where i think we might see stability. I hate to use this word, but heading toward a soft landing where we are seeing a lot of discipline on the part of the manufacturers. That is really keeping a lid on some of the buoyancy and demand we saw. Tom asking for a friend, which one is your favorite . Brooke i dont think i have enough personal experience to give you a recommendation here. Tom brooke, is absolutely definitive on Industrial America in arkansas and all that came out of cessna eight years ago. We are going to migrate from the industrial landscape over to the american gdp with a two hour conversation. Kathleen joins us now. Chief economist nationwide mutual insurance. Once again, you have failed and everybody else with a bag of thirdquarter gdp modeled out at 5 . You are going to tell me we cannot sustain that. All of my radar is up. Why cant we sustain above average real gdp . Kathleen good morning. It is unsustainable because we dont have enough workers. If you break down gdp growth rate and look at the number of workers and how productive, unless we are getting a real boom in productivity growth, really hard to sustain 5 growth. What it also does is overheats the economy and makes it more difficult for the Federal Reserve to lower inflation. That is the primary goal. One way or the other, the fed said we will lower inflation or continue to lower it. That means that 5 is not very sustainable. Manus good morning and good to see you. Where are you on the outlook for wages . Is the heat and fury of wage negotiation, is that in the Rearview Mirror as you look at 2024 . Kathy good question. We are keeping an eye on wage growth but what we have seen despite the numerous strikes that have popped up and concerns there and we have seen wage growth deceleration, it has come down from 6 , 7 . It is still running too high for the feds comfort. They really would like to see that between 3 and 3. 5 to be consistent. The labor market is key right now in terms of wage growth but also how long this strong growth continues. It is not ultimately sustainable. But do we see meaningful slowdown in the Fourth Quarter is really what is important. Manus there is a great phrase that i use. Grand can mean many different things. I said the u. S. Consumer is grand and tom chastens me and said did you look at the delinquencies on the Auto Industry and perhaps the underbelly of what is going on. We are going to get retail sales as they grand. Suddenly, we are dealing with a shift in rates to above 5 . Would you describe the consumer as grand or how challenged does the consumer become in a world where rates are tightening . Kathy the way i would say it is the consumer looks to be grand but there are a lot of headwinds hitting the consumer. The tailwind has been the labor market. Very strong. As long as the labor market is turning out the jobs, 200,000, 300,000, the consumer is going to keep spending. You have the still elevated inflation, Consumer Loan payments clicking in uncertain demographics are really challenged right now and the link once hes picking up a bit. I would say you have to follow the labor market. That is the key. Manus if i am the fed tom if im the fed, i am datadependent but i would say november 1 is upon us and we are sort of going to have a posthalloween party. I guess it is a nonmeeting. How key is the december meeting . Kathy it is important. I think each meeting is important in the sense of not what they do but what chairman powell guides us. December will get there his eyes forecast and the dot plot estimate. Even though those are not golden rule. But it is guidance. It will be interesting to see. Our view is that growth slows by more than half. I have to say, that handoff of Consumer Spending to the Fourth Quarter was a bit firmer than we thought. We really need to see growth below 2 . Chairman powell told us he thinks potential growth is 2 . He wanted on a sustained basis. Tom do you have tickets to michigan right around thanksgiving . It is at michigan. Can you get us into 100,000 people at ann arbor . Kathy only if you are voting for ohio state. Tom very good. We are from columbus. You should see the seats they got her. This is foreign. This is college. Manus this whole american football thing is alien to me. Tom i went to columbus and had the honor of giving a speech. You go down the streets and it is lined with bars. You get to this day beat football stadium and it is free kathy, religion. Manus if she gets you a ticket, can i come . Tom we can get two tickets. If you look over the edge of the stadium, you can see east lansing. I thought this was really interesting and i want to talk about this in a moment. I think this underestimation of Economic Growth, we will talk about the u. K. As well. Futures improve. The vix at 22. 05 as well. On those standard features, 43. 26, down. 3 . We say good morning to all of you on bloomberg surveillance. Manus cranny in fridge Jonathan Ferro, Lisa Abramowicz in the preparation for the 9 00 meeting. I have to pick on you and i saw governor bailey at marrakech, shook his hand when he ran from the as fast as he could. You know they underestimated gdp in the United Kingdom a number of weeks ago. We underestimated gdp in america now. That is a trend here off pandemic. Manus i think they have been offkilter and a lot of their assets. When you talk to people in the u. K. That run businesses there and they talk about you are still spending inside the u. K. , you have less labor coming in from outside. Peoples wages have risen inside the u. K. And people continue to spend inside the u. K. And that is giving bigger sustenance to the economy perhaps than they had assumed. When was last time the governor signals u. K. Inflation fight has further to run . You could be very shocked with the bank of england does in terms of rates relative to the fed. Tom the gilt market shows they have a bigger challenge. It is 1 7 the size of the economy. It is a very different story over there and seems to be a little bit more stress in the system that over here. Manus the retail sales, inflation numbers, they are showing points of stress. Heres a thought for you. Last year, the gilt market convulsed. The risk is this, not that the u. S. Treasury market will convulse in the same way, but there are so many prawns of attack on the u. S. Treasury market at the moment that something is going to pop. Tom including the bid from china. Coming up, without question, our conversation of the day on the military affairs of the Eastern Mediterranean. General mckenzie joins. 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. What do you see on the horizon . Styles and textures. 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. There has been a model in the u. S. That geopolitical leadership ever since the withdraw from afghanistan a couple of years ago. It seems clear in retrospect that what ended up happening was a very bad signal was sent to those who wish this country will. And we are now scrambling to recover that. Tom terry ahines on the politics of this moment. Manus cranny and tom keene this morning. Jon ferro on assignment, Lisa Abramowicz getting ready for an important 9 00 hour. In the 10 00 hour, two tco sets of interviews. We will look at mike worth of chevron along with john has of hess and then also delta. Alix steel driving those conversations this morning. This is a great honor. Just to give you a window into the five lives of tom keene. Long ago and far away, army rotc reserve officer training, i was a winner of the daughters of the American Revolution award. This is ancient history. It is just after the civil war. It is the kind of thing you do in college if you dont go to the military academy. Someone who had a sterling career serving the nation was Frank Mckenzie. Executive director of Global National Security Institute and a former Central Command commander. He joins us this morning at the citadel. I speak here of natalie stewart, the marine corps winner this year at the citadel of the august award. What was it like coming out of an rotc your first day serving the nation . I was excited. I had the good fortune to actually go to okinawa. It was an exciting time, we deployed to korea. We did a number of things that were all challenging for Somebody Just out of college. It was a exciting experience and apparently i like it because i hung around for 42 years. Tom you are the 14th commander of Central Command, the 12 commander of Central Command is a bit distracted now. What does lloyd austin and our people in harms way doing this morning in the Eastern Mediterranean . Gen. Mckenzie i think our primary task in the Eastern Mediterranean and antireach to the east is to ensure that iran is deterred and does not enter the current problems that israel is having with gaza. I think that is the overarching objective for both our diplomacy and recent military deployments you are seeing. At the same come, we seek to ensure that lebanese has followed is not choose to enter the fray. That would be very bad for both of those entities and the move there is designed to make them think twice before making that bad decision. Tom Israeli Military or allied military, is a impinged by the volume of modern media . This is different from your tours of duty. This video, this cable tv, social media. Does that affect the military . Gen. Mckenzie i think as a commander and certainly i saw this at u. S. Central command from 1999 from 2019 to 2022, you have to recognize that volume and media presences there. It is not going to go away. You cannot ignore it. People are actually getting news from it. We are going to have a central relationship with the truth. We want to tell the truth and when we put something out there, we want to be honest. We want to be able to stand up to Fact Checking and if we make mistakes, we acknowledge them. Many of our opponents have no essential relationship with the truth. That is not important to them when they operate in the media and information space. Manus very good morning to you. You talk about how collaterals are being deployed. There is a statement yesterday from secretary of defense lloyd austin deploying an additional carrier of the uss Dwight Eisenhower to Central Command and also readying some troops just on the risk of needing them. How important is this step change in preparedness for an escalation . That does not sound like a nation, the usa, in preparedness for deescalation. Gen. Mckenzie it is all designed for deescalation. The capabilities we bring into the theater are largely circle around air and Missile Defense and the ability to fly. That is the threat. The threat to israel is not largescale inflation invasion from iran or lebanese has bala hezbollah. The systems we are bringing into the theater are all to help assist in israels defense against those weapons. If necessary, we reserve the right to strike from where those missiles came. Manus do you think that buildup is enough and messaging of itself to iran, to perhaps reduce the risk of multiple fronts escalating . You talked about hezbollah in lebanon, etc. , but do you think this military show is a massive communication to iran about the folly of escalation on multiple fronts . Gen. Mckenzie we know analytically iran looks carefully at the correlation of forces in a region. When we reinforce, they take notice of that. Going back over many years, we can trace very clearly iran provocations to unwise, untimely drawdowns in our posture in the region. I think this will have an effect. It is always hard to predict ultimate decisions. I think we are doing all of the right things. I think the messaging from the secretary has been strong and clear. Tom in theater, there will be the question of should we show the flag and should we have a different deployment of our forces over a long period. Do you see ac change where we will deploy differently in the mediterranean up to turkey, that we will deploy differently in the red sea and on down to the indian ocean . Is it a seachange moment for the pentagon . Gen. Mckenzie i think we are relearning an old lesson that while you may want to turn your back on the middle east and walk away, you cannot actually do that because we have a Vital National interest here, longstanding friend we are going to have to keep a presence here. I think we trace many of these problems to times when we have what our posture dropped too low in the theater, in the region. Our friends are not reassured by that and our potential adversaries draw confidence when we do that. Is it a seachange . Dont know. Too soon to tell. I think what we are seeing right now are appropriate, timely, measured and i believe they are going to have an effect. Tom thank you so much. I am absolutely fascinated of what you say of this, of a larger deployment of america across this sphere you know so well out of dubai. I cannot frame it right now. Manus there is already a hugely significant american strategic relationships with a number of these countries. The uae, the one i lived in for the past five or six years, we were on the verge of something much more significant about American Foreign policy as a proper agreement with saudi arabia to have a proper security guarantee. There is a huge base in bahrain, huge u. S. Military presence across the gulf. Tom not get to this because of time but let me help you have you help us. The general mentioned the russians fear. From where you were in dubai, can the russians easily expand off of this set of events in the Eastern Mediterranean . Manus i think anybody who is at loggerheads with the United States vicariously through ukraine are going to seek to take any opportunity that they can to capitalize on that. Im not a war strategist but one can only assume the United States is now battling ukraine, israel, taiwan, in disarray in washington. This is a moment where those who want to do harm will seek to take opportunity. If russia can capitalize on that, they will. I would assume they would. Tom the general alluded to that. I must mention as well, manus cranny, look for him in the 5 00 a. M. Hour. Manus i get up earlier than you. Tom 20 minutes earlier. With dani burger, a transatlantic wakeup for the United States, a brief, if you will, early in the morning. Futures improve. 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