Transcripts For BLOOMBERG Bloomberg Surveillance 20240712 :

Is really iffy. Jonathan for the Federal Reserve, it is the shift from the realization to accommodation. Everyone has spoken about this, that today is too early to announce forward that to announce Forward Guidance. Tom i totally agree. A giant of the richmond fed made very clear, steady as they go is what we will hear from chair powell. Jonathan what an agenda this wednesday down in washington. Lisa we are talking about the big four tech companies, all of the ceos testifying in front of an antitrust committee of the house. Republicans on one side questioning them about stifling republican voices. On the others, questions about stifling competition. The president is traveling to texas to talk about energy dominance, with just three days left until the federal Unemployment Benefits go out of effect. Jonathan look forward to full coverage on bloomberg tv and bloomberg radio. Lets get the price action this morning. Equity futures up five points on the s p 500. In the bond market, improving Risk Appetite sending yields up by a single basis point on the 10 year. The blinkers have been on for eurodollar. They are back on today. That euro strength back on the screen. Tom a stronger japanese as well. Marketse of rbc capital was stunning yesterday, looking for a 10 big figure strength in yen down to 95 in the distant future. Jonathan what i call from rbc. Lets get the coverage started right here with ian lyngen, bmo Capital Markets head of u. S. Rates strategy. Fantastic to catch up with you. Is it too early to announce Forward Guidance today . Ian i am in agreement that it is a bit early to make the transition to hard Forward Guidance in terms of actual numbers the fed is looking for before they even start thinking about normalizing Monetary Policy. This is years away, not quarters away, and terms of when they would even contemplate the process of normalization. Theres also a sequencing issue. The fed needs to transition into the new framework before they put hard numbers on their forward that, so if the fed has any ambition of trying to outdo theypectations, i think are going to be very challenged to do that simply because of the transition to an average yearoveryear core inflation target, which is anticipated by the end of 2020. Tom on the 10 year yield, where is support . Where is resistance . Where are the levels that matter for you . Ian the number one level i am looking at is 53. 8 basis points. That was the low that we achieved on april 21. That really has defined the lower bound of the range. Muche upside, i dont see compelling until we get to roughly 70 basis points. Range, but is important to keep in mind the background trade has been the flattening of the yield curve. 2020 was posted be the year of the grand resteepening because twoyear yields are locked into Monetary Policy expectations. The curve actually flattened as the Economic Outlook has dimmed, and that has gone against many people in the market and many traders. If we do have a breakout in the range in the near term, it is more likely to be on the downside than the upside. It, 53. 8 being yields areause so low. One thing people are looking at from the fomc today is possible god on barring is possible guidance on buying more treasuries on the long end. Do you think that is possible today . Ian it will eventually be on the table. It is something they are sure to discuss. But i dont think this is the meeting that they will make that transition. , a twist further out the curve to flatten the shape of the curve even further, the question becomes how much incremental pickup is that going to be for the real economy. How much lower do markets rates do Mortgage Rates need to be to spur activity in the housing market. The fed has done a very good job of pushing investors out the risk curve, and we can see that in equities, which continue to outperform. They do have incentive to prevent any material retracement in the equity market simply because of the correlation between equity volatility and tightening financial conditions, and they have made it very clear they are keeping financial conditions as easy as possible. Jonathan help me understand how to push this through the long end of the yield curve. The Federal Reserve is about to say they tolerate higher inflation, maybe even move to average inflation targeting. Weve got a fiscal debate that could end up with more supply. Curveouve got yield control. For anyone in this bond market now, this is really difficult, isnt it . Ian it is very difficult because all of the fundamentals that are occurring suggest we should have a steeper curve, not to percent. But the fed is attempting to control either directly through jawboning they notion that they might be in more longer dated treasuries later. Jonathan on the front end of the curve, the question is how far out they should push out that low for longer narrative. If the Federal Reserve does what they did back in december 2012, which was introduce a threshold of unemployment around 6. 5 , a be even lower than that this time around, and say rates stay here until we hit this, how far out do you think we should be pushing where the twoyear rate is at the moment . Ian i think up to the fiveyear sector follows intuitively, particularly in light of the prospects for yield curve control at some point in 2021, if the economy doesnt perform as well as the fed would like to see it. Even potentially the seven year sector is not unreasonable, especially given the experience of the last financial crisis. It is going to be years before the fed moves rates. 52yeartainly the curve has widened substantially. When you talk about how you can see yields drift lower from here, do you see the 30 hitting a new record low by year end, based on the fact that the fed will probably at some point gear buying toward the long end . Ian a new, fresh record low for 30 years would imply that we are through 70 basis points. Thats the level that we saw on the ninth of march this year. I dont think we are going to get there based on fed buying. To get that low, we would need to see a material ratcheting lower of Global Growth and Inflation Expectations that is inconsistent with the macro narrative as it currently stands. Never say never, but that is a pretty significant. I think we are more likely to see fresh lows in the tenure sector than we are all the way out in the 30. Tom your claim for granularity in your research no, it is not just about fixed income and basis points. It is synthesizing everything out there. Do you have a clue on the American Labor economy and how it filters into the path of yield daca new the path of yield . Ian i think it is all about the labor market from the feds perspective. The fed has been very willing to ignore the potential bubble risks in the equity market or credit products. The fed has been willing to set aside a lot of criticism with the sole goal of getting the Unemployment Rate back into more reasonable territory. One of my biggest concerns for the translation of the employment market into the rates space is that the renewed set of lockdowns and paused reopenings are going to create a period where there is Downside Risk for nonfarm payrolls, and that is going to recast peoples expectations for how quickly consumption is going to be able to recover, and thereby really limit how far 10 year yields are able to back in this environment. Jonathan immense uncertainty going into the next payrolls report. Fantastic to catch up with you. Tom keene, next month is absolutely critical not just for the Federal Reserve, but for the data as well yet i wonder how much this Federal Reserve has been conditioned in this labor market. The last time they had state , thengent Forward Guidance threshold, i imagine it will be a whole lot lower if they do it again. Tom we saw the Lieutenant Governor of new york quoting 16 yesterday in buffalo. Jobs report, weve got to get out 24 hours. Right now, you and i would be spouting out about claim coming out. Jonathan maybe that will be the focus down in washington. Have you seen this quote from senator ben sasse . White house is trying to fight debt. Lls by agreeing to it is about democrats and competing to outspend. You got north dakota, south dakota, nebraska. Tom very good. What is below nebraska . Kansas. Thanks dorothy. There we are, geography with jon. [laughter] jonathan we can do this another time. Coming up on the program, Jill Carey Hall from bank of america securities. Tech is very much front and center, with the big tech ceos reporting to capitol hill later today. From new york city this morning, good morning. This is bloomberg. Ritika with the first word news, im ritika gupta. Senate republican leader Mitch Mcconnell insists that businesses, schools, and other organizations protect the bits organizations be protected against coronavirus lawsuits. He says changes to Liability Laws should be included wholesale in legislation. Speaker pelosi says that shows he is not serious about reaching a deal. Federal reserve policy makers will turn their attention on how to jumpstart a stronger rebound from the recession. They are all but certain to keep their benchmark rate unchanged when they wrap up their two day meeting today. The fed releases a statement at 2 00 p. M. New york time. Fed chair Jerome Powell hold a News Conference 30 minutes later. Amazon Ceo Jeff Bezos plans to Tell Congress today his company is an american sixstory an american success story. He will strike a patriotic tone in his appearance before the house antitrust committee. They will be joined by the ceos of facebook, apple, and off of that and alphabet. Sanofi anded with gsk to deliver vaccines to the u. K. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im ritika gupta. This is bloomberg. Theres an implicit view amongst investors that something will get done. It will probably happen at the retroactivelyet applied to the end of july, but i think at the end of the day, Neither Party wants to be liable for a fiscal cliff. Jonathan David Lebovitz there of jp morgan Investment Management on the next steps in washington on the fiscal front. Alongside tom keene and lisa abramowicz, im jonathan ferro. Heres your wednesday morning price action. Risk appetite builds just a little bit, up four on the s p, a little more than 0. 1 . The euro getting back to where it was a couple of days ago. 1. 1731. Ar, on the 10 year, up a basis point to 0. 59 . In washington and amongst people on wall street, just the idea that we have Something Like the election put come of the election is the incentive for everyone to come together and get it done. Tom now under 100 days, and of course, the Vice President ial announcement will be interesting in a few days. Kevin cirilli with us, or bloomberg chief washington correspondent. Kevin, what happens on wednesday . Kevin two things. First and foremost, the big tech hearings drive a lot of the conversation, but in terms of economic stimulus, i am told conversations continue today amongst republicans and democrats. Speaker pelosi yesterday saying it was a nonstarter that leader mcconnell was not being serious, continuing to push for these Liability Protections for businesses. Therer, i am told that are actually some democrats behind the scenes who would be able to get on board with some of that in the house. Either way, the breakthrough for mcconnell is going to have to come at some point should he get this to a vote by the end of the week in the senate. Hes got to rally his own caucus first. Tom these issues bag compromise. Ff orou see any whi discussion of compromise . Between Speaker Pelosi and treasury secretary mnuchin, who have developed a really frank and her a really candor. There are several republicans, especially in the house, saying they dont necessarily want Speaker Pelosi meeting with treasury secretary mnuchin solo. They would like to make sure that the treasury secretarys bring along some members of congress, so this triangulation between republicans on the hill, Speaker Pelosi, and now the administration is quite interesting to watch that dynamic unfold. Jonathan this is going to be dynamic Going Forward. It is not to please the fiscal hawks. They are not even going to bother trying. They are going to try to form some sort of coalition with the democrats to get this forward area i think when it comes to getting money and consumers pockets, the president wasnt credible he relaxed. I think he did call the bill semirelevant. I just wonder what that means for how much more they can offer in terms of helping consumers that money directly. Kevin it is incredibly relevant to the millions of americans needing that type of not just cash to come, but also their employers to get access to that capital to protect their longterm interests in terms of staying employed. The president speaking in remarkably clear terms, in which he noted that he felt his dip in the polls is a personality problem, his words. When he looks at the popularity of dr. Fauci and dr. Birx and contrasts it with his own, theres a sense of reality sinking into the president s inner circle that as it relates to the economy, the final contrast is going to come in the next round of stimulus. Weve got to get there this one first, but the next one comes in september or october, right before the president ial election. Lisa but President Trump even in washington today. He is traveling to texas to raise money for his campaign, as well as talk about Energy Policy in the United States and the permian basin. How helpful is it to republicans for the Trump Campaign to say they disagree with many aspects of the republican bill, and then leave town . Kevin i think it shows the political reality of the moment, in a state that should be a shooin for the president to carry on november 3, the he is campaigning there and fundraising. I think the dynamics of the contrast of him trying to talk about Energy Policy during a week where the Biden Campaign has continued to roll out their economic agenda as it relates to energy is a contrast that republicans want to have area they want to draw a contrast with energy, especially in states like texas, pennsylvania, and other battleground states. Tom i want to rip up the script and just take a vignette of late july into august, which is not in my backyard. The fact is the good senator from South Carolina, mr. Graham, has the pandemic in his backyard. The statistics for South Carolina on a per capita basis are absolutely appalling. They are on the edge of arizona area does that change the behavior of politicians in washington . Kevin yes, and in fact, i think there is this interesting frustration amongst republicans, and increasingly amongst democrat, but with republicans and the president , when he originally started talking about the economic realities, the president described himself as a wartime president and invoke, too many, roosevelt and roosevelt andny, the stimulus of the 1940s. I think what you are going to see from biden over the next couple of months is invoking that roosevelt type of feel as it relates to building not just roads and bridges, but five g infrastructure as well. Here hashe messaging been muffled on both sides, but it is still only heading into august, and i think that both sides are going to have to sharpen their economic pitches to states like South Carolina, for example, in order to really provide some clarity not just to the markets, but to swing voters. Jonathan i asked you yesterday who we should be following. Who should we be ignoring down in washington today . Kevin i am going to get in trouble, jonathan. [laughter] say that i going to would not be paying attention to noah, i am go to dodge. Dont Pay Attention to twitter. But Pay Attention to the ceos on big tech. [laughter] jonathan senator cruz or senator sasse . Kevin Pay Attention to senator sasse in the shortterm, but i think the calculation for senator cruz is that he is laying a marker for 2024. He is saying he is going to inherit some of the fiscal conservativism ideology after this. But we are still in the thick of things, in the fog of economic calamity, and i think a lot of people understand that. [laughter] lisa come on. Jonathan scared to say what he really thinks. Kevin, you are better than that. When kevin turns around and says in the short term, listen to senator sasse, in the long term, do you ignore him . [laughter] kevin look, it doesnt matter what i think. I just want to report. Lisa kevin, your wonderful. Jonathan Kevin Cirilli there, bloombergs washington correspondent. That was, of course, very unfair of me. Is it is unfair, but kevin like everybody else. They are in their own prism inside the beltway. Jonathan fantastic. Ofing up, Federal Reserve<\/a>, it is the shift from the realization to accommodation. Everyone has spoken about this, that today is too early to announce forward that to announce Forward Guidance<\/a>. Tom i totally agree. A giant of the richmond fed made very clear, steady as they go is what we will hear from chair powell. Jonathan what an agenda this wednesday down in washington. Lisa we are talking about the big four tech companies, all of the ceos testifying in front of an antitrust committee of the house. Republicans on one side questioning them about stifling republican voices. On the others, questions about stifling competition. The president is traveling to texas to talk about energy dominance, with just three days left until the federal Unemployment Benefits<\/a> go out of effect. Jonathan look forward to full coverage on bloomberg tv and bloomberg radio. Lets get the price action this morning. Equity futures up five points on the s p 500. In the bond market, improving Risk Appetite<\/a> sending yields up by a single basis point on the 10 year. The blinkers have been on for eurodollar. They are back on today. That euro strength back on the screen. Tom a stronger japanese as well. Marketse of rbc capital was stunning yesterday, looking for a 10 big figure strength in yen down to 95 in the distant future. Jonathan what i call from rbc. Lets get the coverage started right here with ian lyngen, bmo Capital Markets<\/a> head of u. S. Rates strategy. Fantastic to catch up with you. Is it too early to announce Forward Guidance<\/a> today . Ian i am in agreement that it is a bit early to make the transition to hard Forward Guidance<\/a> in terms of actual numbers the fed is looking for before they even start thinking about normalizing Monetary Policy<\/a>. This is years away, not quarters away, and terms of when they would even contemplate the process of normalization. Theres also a sequencing issue. The fed needs to transition into the new framework before they put hard numbers on their forward that, so if the fed has any ambition of trying to outdo theypectations, i think are going to be very challenged to do that simply because of the transition to an average yearoveryear core inflation target, which is anticipated by the end of 2020. Tom on the 10 year yield, where is support . Where is resistance . Where are the levels that matter for you . Ian the number one level i am looking at is 53. 8 basis points. That was the low that we achieved on april 21. That really has defined the lower bound of the range. Muche upside, i dont see compelling until we get to roughly 70 basis points. Range, but is important to keep in mind the background trade has been the flattening of the yield curve. 2020 was posted be the year of the grand resteepening because twoyear yields are locked into Monetary Policy<\/a> expectations. The curve actually flattened as the Economic Outlook<\/a> has dimmed, and that has gone against many people in the market and many traders. If we do have a breakout in the range in the near term, it is more likely to be on the downside than the upside. It, 53. 8 being yields areause so low. One thing people are looking at from the fomc today is possible god on barring is possible guidance on buying more treasuries on the long end. Do you think that is possible today . Ian it will eventually be on the table. It is something they are sure to discuss. But i dont think this is the meeting that they will make that transition. , a twist further out the curve to flatten the shape of the curve even further, the question becomes how much incremental pickup is that going to be for the real economy. How much lower do markets rates do Mortgage Rates<\/a> need to be to spur activity in the housing market. The fed has done a very good job of pushing investors out the risk curve, and we can see that in equities, which continue to outperform. They do have incentive to prevent any material retracement in the equity market simply because of the correlation between equity volatility and tightening financial conditions, and they have made it very clear they are keeping financial conditions as easy as possible. Jonathan help me understand how to push this through the long end of the yield curve. The Federal Reserve<\/a> is about to say they tolerate higher inflation, maybe even move to average inflation targeting. Weve got a fiscal debate that could end up with more supply. Curveouve got yield control. For anyone in this bond market now, this is really difficult, isnt it . Ian it is very difficult because all of the fundamentals that are occurring suggest we should have a steeper curve, not to percent. But the fed is attempting to control either directly through jawboning they notion that they might be in more longer dated treasuries later. Jonathan on the front end of the curve, the question is how far out they should push out that low for longer narrative. If the Federal Reserve<\/a> does what they did back in december 2012, which was introduce a threshold of unemployment around 6. 5 , a be even lower than that this time around, and say rates stay here until we hit this, how far out do you think we should be pushing where the twoyear rate is at the moment . Ian i think up to the fiveyear sector follows intuitively, particularly in light of the prospects for yield curve control at some point in 2021, if the economy doesnt perform as well as the fed would like to see it. Even potentially the seven year sector is not unreasonable, especially given the experience of the last financial crisis. It is going to be years before the fed moves rates. 52yeartainly the curve has widened substantially. When you talk about how you can see yields drift lower from here, do you see the 30 hitting a new record low by year end, based on the fact that the fed will probably at some point gear buying toward the long end . Ian a new, fresh record low for 30 years would imply that we are through 70 basis points. Thats the level that we saw on the ninth of march this year. I dont think we are going to get there based on fed buying. To get that low, we would need to see a material ratcheting lower of Global Growth<\/a> and Inflation Expectations<\/a> that is inconsistent with the macro narrative as it currently stands. Never say never, but that is a pretty significant. I think we are more likely to see fresh lows in the tenure sector than we are all the way out in the 30. Tom your claim for granularity in your research no, it is not just about fixed income and basis points. It is synthesizing everything out there. Do you have a clue on the American Labor<\/a> economy and how it filters into the path of yield daca new the path of yield . Ian i think it is all about the labor market from the feds perspective. The fed has been very willing to ignore the potential bubble risks in the equity market or credit products. The fed has been willing to set aside a lot of criticism with the sole goal of getting the Unemployment Rate<\/a> back into more reasonable territory. One of my biggest concerns for the translation of the employment market into the rates space is that the renewed set of lockdowns and paused reopenings are going to create a period where there is Downside Risk<\/a> for nonfarm payrolls, and that is going to recast peoples expectations for how quickly consumption is going to be able to recover, and thereby really limit how far 10 year yields are able to back in this environment. Jonathan immense uncertainty going into the next payrolls report. Fantastic to catch up with you. Tom keene, next month is absolutely critical not just for the Federal Reserve<\/a>, but for the data as well yet i wonder how much this Federal Reserve<\/a> has been conditioned in this labor market. The last time they had state , thengent Forward Guidance<\/a> threshold, i imagine it will be a whole lot lower if they do it again. Tom we saw the Lieutenant Governor<\/a> of new york quoting 16 yesterday in buffalo. Jobs report, weve got to get out 24 hours. Right now, you and i would be spouting out about claim coming out. Jonathan maybe that will be the focus down in washington. Have you seen this quote from senator ben sasse . White house is trying to fight debt. Lls by agreeing to it is about democrats and competing to outspend. You got north dakota, south dakota, nebraska. Tom very good. What is below nebraska . Kansas. Thanks dorothy. There we are, geography with jon. [laughter] jonathan we can do this another time. Coming up on the program, Jill Carey Hall<\/a> from bank of america securities. Tech is very much front and center, with the big tech ceos reporting to capitol hill later today. From new york city this morning, good morning. This is bloomberg. Ritika with the first word news, im ritika gupta. Senate republican leader Mitch Mcconnell<\/a> insists that businesses, schools, and other organizations protect the bits organizations be protected against coronavirus lawsuits. He says changes to Liability Law<\/a>s should be included wholesale in legislation. Speaker pelosi says that shows he is not serious about reaching a deal. Federal reserve policy makers will turn their attention on how to jumpstart a stronger rebound from the recession. They are all but certain to keep their benchmark rate unchanged when they wrap up their two day meeting today. The fed releases a statement at 2 00 p. M. New york time. Fed chair Jerome Powell<\/a> hold a News Conference<\/a> 30 minutes later. Amazon Ceo Jeff Bezos<\/a> plans to Tell Congress<\/a> today his company is an american sixstory an american success story. He will strike a patriotic tone in his appearance before the house antitrust committee. They will be joined by the ceos of facebook, apple, and off of that and alphabet. Sanofi anded with gsk to deliver vaccines to the u. K. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im ritika gupta. This is bloomberg. Theres an implicit view amongst investors that something will get done. It will probably happen at the retroactivelyet applied to the end of july, but i think at the end of the day, Neither Party<\/a> wants to be liable for a fiscal cliff. Jonathan David Lebovitz<\/a> there of jp morgan Investment Management<\/a> on the next steps in washington on the fiscal front. Alongside tom keene and lisa abramowicz, im jonathan ferro. Heres your wednesday morning price action. Risk appetite builds just a little bit, up four on the s p, a little more than 0. 1 . The euro getting back to where it was a couple of days ago. 1. 1731. Ar, on the 10 year, up a basis point to 0. 59 . In washington and amongst people on wall street, just the idea that we have Something Like<\/a> the election put come of the election is the incentive for everyone to come together and get it done. Tom now under 100 days, and of course, the Vice President<\/a> ial announcement will be interesting in a few days. Kevin cirilli with us, or bloomberg chief washington correspondent. Kevin, what happens on wednesday . Kevin two things. First and foremost, the big tech hearings drive a lot of the conversation, but in terms of economic stimulus, i am told conversations continue today amongst republicans and democrats. Speaker pelosi yesterday saying it was a nonstarter that leader mcconnell was not being serious, continuing to push for these Liability Protections<\/a> for businesses. Therer, i am told that are actually some democrats behind the scenes who would be able to get on board with some of that in the house. Either way, the breakthrough for mcconnell is going to have to come at some point should he get this to a vote by the end of the week in the senate. Hes got to rally his own caucus first. Tom these issues bag compromise. Ff orou see any whi discussion of compromise . Between Speaker Pelosi<\/a> and treasury secretary mnuchin, who have developed a really frank and her a really candor. There are several republicans, especially in the house, saying they dont necessarily want Speaker Pelosi<\/a> meeting with treasury secretary mnuchin solo. They would like to make sure that the treasury secretarys bring along some members of congress, so this triangulation between republicans on the hill, Speaker Pelosi<\/a>, and now the administration is quite interesting to watch that dynamic unfold. Jonathan this is going to be dynamic Going Forward<\/a>. It is not to please the fiscal hawks. They are not even going to bother trying. They are going to try to form some sort of coalition with the democrats to get this forward area i think when it comes to getting money and consumers pockets, the president wasnt credible he relaxed. I think he did call the bill semirelevant. I just wonder what that means for how much more they can offer in terms of helping consumers that money directly. Kevin it is incredibly relevant to the millions of americans needing that type of not just cash to come, but also their employers to get access to that capital to protect their longterm interests in terms of staying employed. The president speaking in remarkably clear terms, in which he noted that he felt his dip in the polls is a personality problem, his words. When he looks at the popularity of dr. Fauci and dr. Birx and contrasts it with his own, theres a sense of reality sinking into the president s inner circle that as it relates to the economy, the final contrast is going to come in the next round of stimulus. Weve got to get there this one first, but the next one comes in september or october, right before the president ial election. Lisa but President Trump<\/a> even in washington today. He is traveling to texas to raise money for his campaign, as well as talk about Energy Policy<\/a> in the United States<\/a> and the permian basin. How helpful is it to republicans for the Trump Campaign<\/a> to say they disagree with many aspects of the republican bill, and then leave town . Kevin i think it shows the political reality of the moment, in a state that should be a shooin for the president to carry on november 3, the he is campaigning there and fundraising. I think the dynamics of the contrast of him trying to talk about Energy Policy<\/a> during a week where the Biden Campaign<\/a> has continued to roll out their economic agenda as it relates to energy is a contrast that republicans want to have area they want to draw a contrast with energy, especially in states like texas, pennsylvania, and other battleground states. Tom i want to rip up the script and just take a vignette of late july into august, which is not in my backyard. The fact is the good senator from South Carolina<\/a>, mr. Graham, has the pandemic in his backyard. The statistics for South Carolina<\/a> on a per capita basis are absolutely appalling. They are on the edge of arizona area does that change the behavior of politicians in washington . Kevin yes, and in fact, i think there is this interesting frustration amongst republicans, and increasingly amongst democrat, but with republicans and the president , when he originally started talking about the economic realities, the president described himself as a wartime president and invoke, too many, roosevelt and roosevelt andny, the stimulus of the 1940s. I think what you are going to see from biden over the next couple of months is invoking that roosevelt type of feel as it relates to building not just roads and bridges, but five g infrastructure as well. Here hashe messaging been muffled on both sides, but it is still only heading into august, and i think that both sides are going to have to sharpen their economic pitches to states like South Carolina<\/a>, for example, in order to really provide some clarity not just to the markets, but to swing voters. Jonathan i asked you yesterday who we should be following. Who should we be ignoring down in washington today . Kevin i am going to get in trouble, jonathan. [laughter] say that i going to would not be paying attention to noah, i am go to dodge. Dont Pay Attention<\/a> to twitter. But Pay Attention<\/a> to the ceos on big tech. [laughter] jonathan senator cruz or senator sasse . Kevin Pay Attention<\/a> to senator sasse in the shortterm, but i think the calculation for senator cruz is that he is laying a marker for 2024. He is saying he is going to inherit some of the fiscal conservativism ideology after this. But we are still in the thick of things, in the fog of economic calamity, and i think a lot of people understand that. [laughter] lisa come on. Jonathan scared to say what he really thinks. Kevin, you are better than that. When kevin turns around and says in the short term, listen to senator sasse, in the long term, do you ignore him . [laughter] kevin look, it doesnt matter what i think. I just want to report. Lisa kevin, your wonderful. Jonathan Kevin Cirilli<\/a> there, bloombergs washington correspondent. That was, of course, very unfair of me. Is it is unfair, but kevin like everybody else. They are in their own prism inside the beltway. Jonathan fantastic. Ofing up, Jill Carey Hall<\/a> bank of america. This is bloomberg. Jonathan from new york city, this is bloomberg surveillance. We are live on bloomberg tv and radio. Alongside tom keene and lisa abramowicz, im jonathan ferro. Heres your price action this wednesday morning. What a day weve got coming up down on capitol hill. You will hear from the big tech ceos. You will hear more on the fiscal talks. And we will get a fed decision in washington a little later this afternoon. In the fx market, the euro firmer, the dollar weaker. Yields bleeding higher on the 10 year to 0. 59 . Equity futures with a mild left, flat on the week into wednesday, up a little more than 1 . Tom we will see where we go as we go into this Big Technology<\/a> soiree. I know you want to go there with our next guest. Jill carey hall works within the competitive mill you the. Ompetitive milieu you have a sentence which is stunning, which is small caps will see a 90 yearoveryear collapse of earnings versus large caps with only a 40 collapse of earnings. How does smallcap get to the end of the bridge . The fundament of backdrops is one of the reasons we have been cautious obviously the Current Crisis<\/a> has been more detrimental to small businesses, but even going into this, small caps were worse positioned than they usually are ahead of recessions area you had about 1 3 of the russell 2000 that had no earnings, you have record debt levels, and you are seeing much bigger yearoveryear earnings collapses for smaller companies. They are still seeing weaker revision trends even though we are starting to see a bottoming out. We are still cautious for smaller companies, but as you move into a more sustainable recovery, while it may take a bit longer than usual given where they were, that tends to be a more favorable backdrop for small caps. But for now, we remain relatively cautious. Tom what way through the jonathan walk me through the story for small caps. Jill jill on evaluation basis, all size segments are traded on pretty extended levels versus history. Ray lahood earnings relative to earnings, the market doesnt look cheap, but from a relative basis, if you are a longterm investor, that is the case for small caps relatively large. They are trading at multidecade lows. Valuation doesnt tend to be very predictive if you have a short time horizon. It doesnt necessarily tell you much about what returns you are going to get over the next year. But if you have a 10 year longterm horizon, that does tend to be more predictive. For a longterm investor, it could be the entry point for small caps. But for the nearterm, we still remain cautious. Jonathan just how much is it distorted by the big four, these big tech names that will be reporting to capitol hill today . Jill for the s p 500 overall, we have recently seen a lot of the returns this year driven by mega caps and bank stocks amid all of the unprecedented liquidity that we have seen. We are equal weight the tech sector right now. We have seen pretty strong earnings trends. It has been one of the sectors that has continued to surprise to the upside, along with health care. Fundamentally, the sector still looks strong, but you have seen valuations get where and more extended. One of the reasons we are equal weight tech within the s p 500 is the potential for higher regulation, whether some of these Companies End<\/a> up selfregulating or whether it is forced upon them. I think that is something that, as we move into election, it is something both sides of the aisle have talked about. We saw it happen with Financial Regulation<\/a> and lower multiples. Lisa higher regulation is one issue, but that cant release the fact that cant erase the fact that we have seen a trend toward working from home, towards the cloud. I am wondering how much this and thathe small caps some of these companies are perhaps leveraged to the older economy that didnt depend on tech as much. How much is this a structural challenge for small cap stocks Going Forward<\/a> . I think that is one of the issues when we have look at the earnings exposure of small caps. They have about double the earnings exposure to what we would consider more secularly challenged Industries Like<\/a> some of those old Economy Industries<\/a> machinery,ed, like parts of old brickandmortar retail relative to largecap. Area of small caps that are more tech exposed arbor you have seen those valuation multiples more stratospheric, so overall within small caps, investing in Growth Stocks<\/a> does tend to be a more consistent longerterm strategy then large, but yes, more exposure. Tom who is keeping count . In the old days, when revenue was this damaged growth was this damaged, you did a roll up. Everybody merged, etc. Is the apparatus out there, the catalyst to get one big m a of the small caps space . Jill certainly, m a tends to be cyclical, so while you can still see some occur during downturns and it tends to pick up cyclically, when you look for companies that could be acquisition targets, that tends be one potential strategy in small caps. But i think overall, we are seeing a broader picture of uncertainty over cash deployment from corporates. Even though a lot of companies have stopped a lot of the buyback and dividend suspensions that may largely be behind us for the overall market tom i dont mean to interrupt, but i am baffled by this. In the small caps space, if i am , maybe times ebit seven or eight times, someone at bank of america or one of your competitors says you cant grow yourself out of this, merge. Is mechanism broken . Lisa is that mechanism broken . Jill i dont think it is broken. This has been a very good market not only for stockpicking, but just for very differentiated valuations within the market. Is of the things to look at for small caps, a lot of companies that have attracted free cash flow, the ability to grow. We have seen companies that are ed withinlever small caps overall, so separating out some of these metrics, even if it is a point where we expect value could continue to start to work, either differentiating within small caps to more quality levered risk within small caps and companies that do have the potential to grow. Lisa since you are having a pretty cautious tone, and a lot of people on this program say they are going more into small caps to capture some of the upside on this recovery, what do you say against the argument that these companies will benefit more from a weaker dollar, more from a bigger resurgence internationally as a result of that . Overall haveaps grown more internationally exposed overtime, so the gap between small caps and large has narrowed. They are still more domestically exposed. When we look at the dollar versus relative performance over time, it hasnt been very pretty in that you have seen some periods of secular dollar strength. What we have found is that the Overall Economic<\/a> backdrop tends to be more predictive than just the level of the dollar itself. Lisa what do you say to people who slough off the idea of bankruptcies . Do you think that this optimistic view is perhaps overplayed at this point . Jill certainly we expect to remain in a lower for longer rates backdrop. We expect the fed to remain accommodative. But in terms of the unprecedented fiscal and monetary stimulus we have seen, one of the reasons we are cautious on the market and the s p 500 overall in terms of not really expecting more upside through year end is that we expect there could be payback risk from stimulus we have seen. Certainly theres potential for wee to help the economy, but have seen diminishing returns for stimulus, and terms of the boost we have seen to lower quality stocks. We have seen each of those get less and less of a boost. I think it will remain an accommodative backdrop, but a lot of the biggest boosts we have seen has been in the past. Jonathan great to catch up with you. Jill carey hall of bank of america. The diminishing marginal return of every dollar you put in the system to stimulate the economy, we have seen the big package. The problem now is how much bank do your how much bang for your buck do you get from here, and what is the willingness in washington, d. C. To even do more . Ferrohe marginal within bevel means the next. Underestimateday within the zeitgeist out there. Jonathan i am usually careful with my words. A lot of people might have thought, what is he talking about . The amount of fiscal stimulus that was put into the system, and i didnt like the word stimulus to begin with, that is really helped this economy out. It wouldve been a lot worse if we didnt have that monster package. Tom theres no question. But what is really interesting across the conversation we are is it stimulus for the shortterm, or could there be a longerterm view on it . The jury is out on that. Jonathan just for a flavor of what jeff bezos and Mark Zuckerberg<\/a> are going to say today, it is interesting that they are just starting to think about patriotism in the United States<\/a> versus china. You need us for america. Tom oh, come on. They are going to first do no harm. Jonathan objective number one. Tom i just want to hear if there is an entry point to these stocks. I am still tripper leveraged allcash. Jonathan i know you are. You know who is happy today . Tom well said. Jonathan very, very happy, im sure. Coming up on this program, squares cofounder on those hearings on capitol hill. Futures up six. This is bloomberg. Ritika with the first word news, im ritika gupta. Senate majority leader Mitch Mcconnell<\/a> has made a stand on a new stimulus package, insisting that his proposed changes to Liability Law<\/a> be included wholesale. That has broken down talks between President Trump<\/a>s representatives and democrats. Speaker pelosi says it shows he is not serious about reaching a deal. On the coronavirus pandemic front in the u. S. , florida reported a Record Number<\/a> of deaths, but new infections slow down in two states traveling with outbreaks, california and arizona. The positive test rate in texas fell to the lowest in a month. The Trump Administration<\/a> and the oregon Governors Office<\/a> are reportedly in talks about pulling federal agents out of portland. According to the associated press, the state would have to beef felt Law Enforcement<\/a> in return. Earlier this week, there were talks of sending more federal agents to port because of protests and vandalism. Joe biden says he will pick his Vice President<\/a> ial nominee next week. He told reporters he will let them know as soon as he does. The democratic president ial nominee has pledged to pick a woman running mate after he said the group of candidates includes a group of four black women, among others. Predict whating to the next few months will bring. Rosesays spending almost 10 in recent weeks. Still, it did not offer guidance for fullyear performance. In hong kong, the economy shrank for the fourth order in a row. The pandemic and political unrest expanded the citys first recession in a decade. Gdp fell a worse than expected 9 in the quarter from a year ago. Unemployment has risen to a 15 year high. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im ritika gupta. This is bloomberg. You are starting to see the momentum continue on antitrust. I think that is going to slow down m a, and if you get a Democratcontrolled Senate<\/a> with a bite and white house, that is something that investors really start to factor in is more of a risk. Jonathan regulatory risk. That is something you will hear a lot about today. From new york city this morning, good morning. Alongside tom keene and lisa abramowicz, im jonathan ferro. Up asrice action shaping follows this wednesday morning. Equity futures on the s p 500 drifting a little but higher, up 0. 2 . Back,ro strengthens rodollar one dollar 17s 1. 1732. Ar for wall street, what they are worried about is whether we hear a coherent strategy down and wash. If we see a split down in washington. If we see a split, different approaches from different republicans, different democrats, we can walk away with the knowledge that they are not anywhere near implementing anything that changes these Business Models<\/a> anytime soon. Tom jon and i went mental on this. For the next nine hours, theres going to be complete mythology of these Technology Giants<\/a> and these politicians as they spar in washington. What we wanted to do was have a sane conversation with someone like cook, someone like bezos and the rest of them. Is at theey Washington University<\/a> of st. Louis. He stumbled on the thing with a guy named dorsey called square and made a pile of money, but that came out of his curiosity and his innovation, with everything from glassblowing to simple engineering and pascal language from another time and place. We are thrilled he can talk today about these are people who are going to stand in front of our congress. Thrilled to have you with us. You are like bezos. You are like cook. You are like the rest of the. You guys arent normal. T is your message [laughter] what is your message to these congressmen about the innovation you guys had when you were 15 or 20 or 25 . Jim it is exactly the opposite of what you just said. The reason i wrote the book is because i want to skewer this hero myth, that somehow the people who end up in these positions a fantastic power are somehow different than the rest of us. It is literally the opposite. I am a they were normal guy. I live in st. Louis. I am not a genius. I am not that hardworking. Im no good at running companies. What i wanted to do was figure out what can take a normal person and put them in a position where someday, they do run a company so powerful they get hauled in front of congress. Tom will washington block that innovation . Is that a risk that is out there . Risk froms always a regulation, and when regulation comes, it usually doesnt come imprecise, surgical and womens doesnt come in precise, surgical instruments. I am not really qualified to speak on that. At best, i am somebody who has spent a lot of time studying the dynamics of these companies. I would say this, as somebody who is very regulated, i believe in regulations. But you want regulation to be consistent so that the companies and the people who work for them can adjust and not have to lurch back and forth. Lisa i want to take toms question and turn it on its head , the idea that perhaps washington can squelch innovation. Our Big Tech Companies<\/a> squelching innovation . This is one of the Big Questions<\/a> , the idea of amazon and eliminating some of the platforms for competitors or pushing them down on the search function in order to push forward their own products first. Is that cycling innovation is that stifling innovation . Jim i dont know exactly what amazon is doing, but the reason i wrote the book was because amazon in its early days attacked square. They copied our product. They undercut our price. Everyone expected square to die, and we didnt. Up year later, amazon gave a year later, amazon gave up processing credit cards. Competing with them, they were really gracious. When they left the credit card business, they mailed jonathan i think we might have lost the connection with jim mckelvey. I like how he played down how normal he might not be and how normal you think he has. T. s insanely intelligenc hes insanely intelligent. Tom you and i hear this all the time in davos. All of these guys are begging to tell us they are normal. Are you kidding me . This kid donated 15 million to Washington University<\/a> to build an engineering school. These guys put their money where their mouth is, and it is jobs in capitalism. Jonathan i will say it for you, you are fiercely intelligent. The conversation you got from amazon, do you think that made square better . Jim actually, it was almost irrelevant. The funny thing about what happened with amazon was that because we had an innovation stack, which is this weird thing i have been studying for three years, the competition really didnt happen in a way that was traditional. If youve got normal businesses, which are very close copies of each other, the competition can be deadly. When amazon does this do normal companies, it wipes them out. But in the case of square and some other companies that have these things called innovations tax, you are almost innovation stacks, you are almost competition proof. Everyone expected it to be this giant battle, but we really didnt do anything different. That pattern repeats in dozens of companies i have studied, including bank of america. It was done by a kid who dropped out of school at 15 years old, no formal education. Tom i dont mean to interrupt, but this is critical. Is washington going to get in the way of that innovation stack . Jim no, because it cant. Companies with innovation stacks adapt very quickly. What washington needs to do is just lay out the rules. They need to talk about what is important. If there needs to be some protection, they put in some protection. What we need as innovators is just to know the rules that we are playing in. Jonathan great to catch up with you. Five minutes does not do this justice. Weve got to get you back. Ahead of the testimonies a little later today, i mentioned Mark Zuckerberg<\/a> of facebook. Heres a quick for him. This will be in his testimony today. We believe in values the American Economy<\/a> was built on. Theres no guarantee our values will win out. For example, china is building its own version of the internet focused on very different ideas. This will be the story later, the United States<\/a>. Doing it for america. Patriotism versus china. You will hear it from zuckerberg, you will hear it from bezos, and i wonder how it will resonate. Tom are these guys going to speak or get lectured to . I guess it would be more of getting lectured to. Jonathan for a number of hours, im sure. Coming up on the program, the Federal Reserve<\/a> decides. Ofya ms. Ray priya misra Td Securities<\/a> coming up. Equity futures up 0. 25 . This is bloomberg surveillance. Weve achieved liftoff. The real problem is traction. You will see some investors begin to take chips off the table. You are already seeing it integers data seeing it in futures data. I hope the policymakers will recognize that fiscal has to do more of the heavy lifting in terms of supporting the recovery. This is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. Tom good morning, everyone. Jonathan ferro, lisa abramowicz, and tom keene. We are in new york, but the story is in washington. 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