Transcripts For BLOOMBERG Bloomberg 20240704

Ferro, Lisa Abramowicz, and in reordering. Jonathan your equity market is lower. Kicking off the month with that stock is down. We are plunging 29 . These are the issues, discovery material weakness, writing down the value of companies required and replacing leadership over it and why bc. Lisa the kitchen sink was about loan mark reserves and everyone says this is because they crossed the threshold. This raises questions of if it goes deeper than that which to be is more concerning an speak something about the risks of rates remaining higher for longer. Jonathan all things you dont want to hear from, related to internal review and resulting from ineffective oversight and monitoring activities. Annmarie everyone has come out talking about this was it to this bank and not to other banks in the abc. You have to think jay powell is going to be on the hill talking to senators. He is going to get asked about what is going on under the Banking Industry and if there are larger concerns wider concerns. Jonathan the largest roasted exposure comes from 37 billion in apartment loans. Almost half backed by rent regulated complexes. That is the issue for this name. Lisa there is any issue in new york city about how much people can charge for rent and what that does for certain valuations at a time when apartments are held by that. Right now, the markets dont care. They care white about nycb and nothing else. This is being shrug up to the extent that a year ago people would have said this guy is falling, we better hunker down. You are not seeing that in the same way and that tells you a big message. Jonathan jp morgan closing yesterday at another alltime high. You take the month of february, this has been an issue since february. Regional banks down 3 last month. We have seen bigger moves than that. S p 500 banks of 4 up 4 . Lisa people are not looking for another shoe to fall and this is the question i have. Have we worried ourselves out and now we dont have any worries left so people are throwing in the towel and saying i will go with it . We will have that record high on the nasdaq for the First Time Since 2021, okay. Jonathan i have no doubt you will find something to worry about in the next 60 seconds. Equities on the s p 500 look like this, we are slightly negative, down by 0. 14 . N. Y. C. Be getting hammered 29 . Euros lower. There rose on cpi come upside surprise. 108 1. 08 on eurodollar. Marchex off with stocks at alltime highs march kicks off with stocks at alltime highs. Steven wieting, christopher marinac, and Greg Valliere as trump and biden offer very different perspectives. Steve wieting of citigroup expecting the markets to close the gap saying this the extreme divergence of large cap tech profits from other industries should diminish this year and next. We would not be surprised if max gains in 2024 were cut in half on strong investment spending and greater competition. Steve joins us now. Can we build on what you are expecting . Steven that is still substantial growth. Industries that are literally booming and there is probably a limited number doing that, booms you worry about on the other side, theyre not going from large gains to declines. Theyre going to bit of a slowdown. Magnificent seven, there are four Companies Buying up every microchip they can to offer ai services. An open question as to whether these services are defined demand in the economy from everywhere, not going to be as with each other and theyre going to be able to boom together or will they compete and narrow down profits . We are not willing to give up diversification in portfolios to that on that single trend. A lot of other good things are happening. We are raising our Economic Forecast and seeing industries that have been weak for the last year and a half bottom out and begin a recovery. They want to do as well as mag seven. Jonathan small, midcaps, talk to us about the industries you like. Steve you can get midcap Growth Companies in the u. S. For the same valuation as european shares. The u. S. Midcaps have grown 11 and europe has grown at 2 . We want to swerve towards health care, something that has been out of favor with copd drugs. Stores have had a historic a lot of people thinking we will never do anything in health care but to lose weight which i wish i could. Lisa i was going to say a lot of people are working on that. I am curious about the idea that everyone is shifting to this idea that earnings are better than expected, the economy is better than expected. Fiscal keeps supporting everybody. Why is it cash funds are on for another record year . People of their cash funds and they are palling probably more money into the. Steve the reason we are not more overweight wikis overweight equities is there is great competition from deals. Our bond portfolios are below average duration. We expect to earn that longer than the fed will stay at 4. 5 . This is good competition. We have been bullish for a while. We have seen increasing bullishness. New shorts in the equity markets. Everybody is bearish in the bond market. I think there are some areas that have been so strong that we want to ease back from them. When you have 80 returns on the software, it is time again to start to shift to other areas. There is room for stocks and bonds in portfolios. Lisa this doesnt sound like a market drained of liquidity. It sounds like a market flush with liquidity. White has the fed been ineffective at draining this market of liquidity . Steve do you have to . Must we have a new recession to stop rapid inflation . We have another troubling Inflation Report that is going to come for the month of february. It is another reason for everyone to say maybe we are not on this disinflation trend, maybe we are going to be stuck here. That is possible over the short term. The good news has been we have been able to lineup a lot more in a stable way without a massive surge on employment. If we get too excited, there are going to be problems. Jonathan growth, what do you see . Steve it is weaker pieces of the economy. We had a hidden recession under the surface. If you are looking at germany, japan, china, manufacturing in the u. S. , the reality is it contracted for the year behind us. Trade contracted in percent the year through the Third Quarter last year. These weaker components are moving into a more stable growing place. Probably not anything v shaped, but it is these things in the boom. Jonathan there has been a spread between manufacturing and services for a while. Manufacturing started to come up to services. Does that had you expect that story to complete . Steve it will come with a different labor market outcomes. Automated. The headcount differences are going to be substantial. The Services Industries cannot keep adding jobs per month in those industries. You have seen employment growth from two years ago when services turned back on like a light switch. Hospitality, airlines, travel, all of these things incredibly laborintensive and we had massive job losses to recover. Now we are at the point where it will slow down and it didnt in january. It was 53,000 jobs in january but we saw seasonal distortions. All these things added for directions. It is going to take a while for the market to sort it out. I think we will be worried before we come to grips. Annmarie Mohamed Elerian was talking about what happens in the United States matters in the world. Do you foresee u. S. Growth picking up helping the rest of the world . Steve it is but it is challenging because the amount of time we spent with restrictive Monetary Policy is still going to be longer. We have not changed our midyear estimate. Confidence that we are going to have easing, the communication of easing through markets. The dollar has been stronger. That helps and that hurts. Yields have risen at the long end of the curve. Those are modest challenges while some of the things are helping. Consumer demand has not collapsed and producers have been underwhelming. They have been short in terms of meeting demand. Jonathan it is always good to catch up. Steven wieting there of citigroup. Looking for one more ugly efficient report ugly Inflation Report. Lisa that everyone can look pastbecause it will be ongoing disinflation. It will not be an even ride with a high adoption. This french call center, their shares plunged because clarna said they could respond to their calls with ai and that was wiping out the industry. These are the pockets of distress i find interesting. Jonathan is this on the list of things to worry about, french call centers . Lisa if you think about is, how many businesses will be rendered obsolete that have not been priced yet . Jonathan the bear on wall street is holding up to french call centers. Lisa it is going to be my clarion call. Jonathan your bloomberg brief with dani burger. Dani doj is keeping questioning the timing. Reporters at the bankers meeting in brazil that the price target is not yet in sight. Is comment did appear to pour cold water on the earlier move this month. Economists are still expecting a nearterm hike in march or april. The last time the boj raised rates was 2007. Thomas horton is dipping down with a surprise announcement. It is going to happen at the end of september. He has been the central bank he removed the cap on the frank in 2015 and a doctor the worlds most Interest Rate and dealt with at banking crisis. Dont miss our interview with thomas horton. Meta is winding down its news feature in u. S. And australia. It will draw support from its news tab. Publishers with existing agreements will still be able to post content until their deals expire. Lawmakers have been pushing for meta to compensate publishers for content but the man for the service has declined. Jonathan i cant believe it has been a decade on the job for thomas horton. Amazing how quickly time flies. Lisa i saw that and thought didnt he just get there . Jonathan i want to talk about apple, removed from the conviction list at Goldman Sachs. The stock is down. New York Community bank shares plunging. 500 basis points of rate increase has a stress to be sector. If we look at the loans coming through, we see less loan demand and less that can hurt the environment. Jonathan that conversation is coming up next. Live from new york city this morning, good morning. Jonathan four months of gains on this and be 500. Live from new york city. We are down on the s p. Nycb shares plunging once again. For investors, growth in banks has been tainted with the Silicon Valley bank failure. Talking to investors, doing conferences, their nervous about growth. 500 basis points of rate increase has stressed the sector. If with the get the loans coming through, we see less demand. Jonathan new York Community bank shares plummeting, the company and that sick material weaknesses and that sick material weaknesses in its loan review process. There bank could be swapping ceos and expects to visit a deadline for filing an annual report. Chris marinac saying this, director change are part of the early repairs at n. Y. C. Be. Investors should be pleased. Two directors have resigned, we see this as a healthy change that should build confidence. Chris joins us right now. I assume you believe the stock should be up and not down 30 . Chris that is right or at least creating flat. Book value will only change by three pennies given the fourthquarter changes. Jonathan why are you so confident that are not anymore monsters under the bed at nycb . Chris the companys issues have to do with stress testing. They have to stress test for higher Interest Rates. There is more of that to go but the company has the earnings to work through this. This is not an earnings issue. The credit issue is stress testing and not having done it sooner. The Prior Management Team had to go. We had to have the change in order to have a confidence change. The largest shareholder is taking charge and making swift changes. You have unhappy Board Members that have left and that is fine. This is healthy to get the company where it needs to go. They are now 115 billion. They have to be part of the new world order. The regulatory world is changing but you have to adapt and you cannot sit still. Lisa you say there are a couple of unhappy Board Members. That raised a red flag in my view. The director of the board resigned. In the Resignation Letter he said he did not support another demellos appointment to the board. Why . Chris he did not want to see the ceo change. That is his prerogative. I think you are going to see the Company Move Forward with another director and continue to make changes very quickly. You have one quarterback at the company, you cannot have two. You have to take quarterback number one and run with him and move forward. The story is going to transition to recognizing credit risk and fast tracking a lot of the changes to diversify the portfolio. They have had too many multifamily loans and real estate. There will be more balanced company and they will make more money with will create book value and get the stock price moving again. That is a shortterm reaction that will change. Lisa the majority of people waking up in markets dont care about new York Community bank or that company but they care if this is a harbinger of more weakness to come, if this means yields remaining hard for longer or creating cracks on the Balance Sheets of banks that have been punished but cant climb out of it. How would you argue that this truly is idiosyncratic and not a regulatory capital issue . Chris every bank has credit risk and if you look at the filings we saw this week and last week we are seeing increases in the criticized assets. Really criticize. Back to the stress test issue, banks recognizing the risk. What investors dont see is that leverage is 60 today instead of 95 in 2008. You are not going to lose money at new York Community like you would have because leverage was higher. You will have some losses, some need to build reserves. They have done a big piece of that. The whole industry is going to continue to march forward and be more profitable than folks understand. Most banks are asset sensitive which means higher asset rates for longer benefits most margin. Most companies see an increase to earnings if Interest Rates are high. In a lot of respects, the fed cutting rates too quickly is not a great thing for the industry. It is a perception issue. Lisa i wonder when this thesis comes true. We are looking at an inverted yield curve which makes it challenging. We are also seeing real concerns about loans not getting liquidated because it isnt a market for them. When does the page change despite profitability right now . Chris i think the banks are in better shape than people realize. There is enormous liquidity whether it is private credit. It is better than perceived. The challenge banks have on selling loans or liquidating assets is they dont want to take big haircuts. They would like to take time. Sometimes they can do that, other times they have to take action. In nycbs case, you will see them take action quickly. The 10k will be resolved within 14 days. A lot of that are changes that have to happen. We have seen other banks of internal controls and Large Companies like jp morgan and wells fargo. They have made their changes and move forward. Annmarie the underlying issue is Interest Rates. Nycb, pour stress testing and higher Interest Rates, who else is having poor stress testing . Should we expect this to happen every few months . Chris nycb is unique in terms of having crossed over 100 billion with an fdic transaction , not prepared to do stress testing this year. That is idiosyncratic. The rest of the industry is all over this. The issue Silicon Valley bank issue was about security is underwater and deposits out of whack because they had large picture capital deposits. Those deposits are gone. The industry is in much better position from any uninsured deposit standpoint. Nycb has excellent deposit flows the past month. Deposits have been stable, the company is going to make money this quarter. It is unfortunately have to make these Board Changes now. It is going to be for the long run much better to do this housecleaning today. Jonathan outside of nycb, isnt the market coming your way . Jp morgan closing at an alltime high. Monthly gains on the s p 500 last month. The regional banks, lower through february but nothing drastic a given the single lamp. Is the market coming our way . Chris i think so and he will see the tangible keeps growing for companies. We will probably see markets go up again on higher rates at the end of march but we can handle that. Most banks are managing expenses well and at the end of the day, the net chargeoff companies are reporting our modest. We are worried about stress testing but ignore the fact that chargeoffs remain low. Jonathan nothing to see here. Ultimately making the point here that we should not be down 30 if this is truly that kitchen sink moment. Lisa the second one. They had this before, it was a kitchen sink moment before. When you kitchen sink something, there is not anything left to kitchen sink again. There is nervousness about what we dont know in banks, the risks we havent fully priced. That is evident in one name. Jonathan i dont want to sink volume three anytime soon. President biden and donald trump offering different visions on the southern border. We will be catching up with chris valliere. That conversation just around the corner. Equity futures on the s p 500 down. 1 . This is our future, ma. Godaddy airo. Creates a logo, website, even social posts. In minutes how . A. I. impressed ay i like it who wants to come see the future . get your Business Online in minutes with godaddy airo when i was your age, we never had anything like this. Get your Business Online in minutes what . Wifi . Wifi that works all over the house, even the basement. The basement. So i can finally throw that party. And invite shannon barnes. Dream do come true. Xfinity gives you reliable wifi with walltowall coverage on all your devices, even when everyone is online. Maybe well even get married one day. I wonder what i will be doing . Probably still living here with mom and dad. Fast reliable speeds right where you need them. Thats walltowall wifi on the xfinity 10g network. Xichun will take your sketchy insurance. Xichun xichun, xichun, xichun thanks, bro youve got more options than you know. Book now. Jonathan four months of gains on the s p 500 heading toward a second consecutive week of gains on this at the end nasdaq. The nasdaq going nowhere. The s p 500 down around. 1 . Yesterday, pce comes out in line. Yields came back lower, down from the highs of the year on a two year, down to 459 4. 59. Lisa it is a tail risk, things to worry about, the list got shorter for the moment. People thought maybe we would see an upside surprise to inflation and that we could wait about sticky inflation, a runaway sense of the economy where you dont get the immaculate disinflation. It came in line, the tale risk taking off the table, back to the basis. Jonathan lets talk about a turnaround for dollaryen. First close sub point sub 150. Back up. 3 . A weaker japanese here. Work with me, we are not yet in a position to foresee the achievement of a sustainable inflation target. The governor pouring freezing cold water on any imminent rate hike. Lisa someone whos is not familiar with the story says i dont hear anything but blah blah. On one hand we might be getting closer to what level the bank of japan was looking for yesterday and then you come in saying not yet and this is enough to pour cold water. This is the reason we are noticing massive moves. Jonathan this is a policy effort decades in the making route. Theyre not going to move like chairman powell like its going to do a News Conference and said lets go. You are going to get a surprise for the boj but at the moment theyre not willing. Lisa i am old enough to remember this was on the tale risk. This was one of the worries. I dont think we can remove japan from the list of worries. Jonathan you can click that and play it out later this year. We will see if that should have been on the list. Dollarwon end, 150. Chinas factory activity shrinking for the fifth straight month, another sign of weakness. The country also seeing a continued slump in the Housing Market. The value of newhome sales from the Biggest Real Estate Companies slighting 60 from a year ago. February sales were down nearly 21 from january. Those numbers are ugly. Lisa a lot of people seem to be coming on the show and getting bullish on chinese equities. Michael from bank of america saying chinese stock funds saw their largest weekly outflow in the last week. To be people viewing it as a trade see it as reaching the end at a time when the data is not turning around that much. Jonathan the market was up 9 in february. That is quite a squeeze. Lisa this isnt people running into that nations stock market saying lets go, this is people saying how bad could it possibly get . It seems to be where it is fluctuating. Jonathan that hasnt had that warm and cozy feeling for international investors. Fed president williams saying the San Francisco fed president telling bloomberg there is no imminent risk to the economy. March is a busy month for Central Banks. Bank of japans stable target might not be in sight. The ecb is going to decide next week on the seventh and the fed decides on march 20. Lets spin the wheel. Which one do you like . Which one are you focused on coming ecb, boj, Federal Reserve. Lisa i would say more ecb. The Federal Reserve we hear a lot from. The ecb has a more difficult nut to crack given that inflation came in hotter than expected and compare the modeled country to country. They have a different mandate where there is one nation fractured. You have a lot of nations with Different Division outlooks. That is much more challenging at a time they are facing weakness. Jonathan the Growth Profile is drastically different and has been. Kallum pickering is going to join us. President biden and donald trump clashing on the southern border. This is a joe biden invasion. Three years ago we had the most secure border in history. People were not coming because they knew they were not going to get in. Pres. Biden heres what i would say to mr. Trump, instead of telling members of congress to block this legislation, join me or i will join you in telling congress to pass this bipartisan Border Security built. Jonathan President Biden challenging trump to make progress on immigration after stalling a plan and a congress. The Biden Administration is still installing an executive order. Greg valliere joins us. That is the talk. What policy change are you expecting soon . Greg probably none. It is unlikely we can get biden and trump together on this issue. There is a desperately needed to aid ukraine. Matt is a driver for many people on capitol hill that is a driver for medicare blood capitol hill. I would say there is a one in four chance we get immigration legislation revival. Annmarie what about an executive order . Will biden be pushed into doing something before the election . Greg he needs to do something. This perception by the public that biden does not have a plan has hurt him. If he loses the election, he may lose because of immigration more than any other issue. He has to do something. I would not rule out an executive order fairly soon. Annmarie showed blamed biden but we are seeing any uptake of individuals blaming republicans as well, those in congress and the Trump Administration. Do you think biden is able to turn this around the way toms was it did and push it to republicans for not meeting him on a deal . Greg he will try. I read a lot about harry truman who won a surprise reelection based on fighting against a donothing congress. If you say if you see joe biden say it is a donothing congress day after day, it might sink in. Lisa what can biden do singlehandedly versus does he need congressional signoff in terms of some preferential president ial order to take care of something on the border . Greg there is not much and not much she can do for ukraine or israel or taiwan. Those are gridlocked. I think there is would you be a budget bill finally, this long torturous fight may come to a close because april 30 is crucial. That would require a new extension. On april 30, we have automatic acrosstheboard spending cuts. Nobody wants that. No democrats want that. Lisa this is people expected this kicking the can down the road. Does it give you any hope we are going to keep kicking the can down the road which is the best case outcome we can have in washington, d. C. . Greg it is the best case. We will kick the can again. We have no deadlines of march 8 and march 22. I think they will be kicked down the road. If we get to summer and they say we will do a bill for the rest of the fiscal year, that could happen and they will start all over again. Jonathan lets talk about money. Biden has a lot of problems and money is not one. I am talking about campaign fundraising. Groups allied with biden have committed to spending more than 700 million to help them defeat donald trump. How important is that going to be . Greg it is huge. It is a sleeper issue. Biden was in california raising more money. There will be no shortage of funds. At some point money loses its clout. Right now, the financial advantage for writing is a significant. It is one of many reasons why it is too early to count him out. Annmarie when you look at the other side, the trump money, a lot of issues because he is using Campaign Donations to pay for legal bills. What kind of cash strapped is he going to be in this summer . Greg you would think it would be considerable. Nikki haley has fired away on this issue without many results. I would say by summer they legal nightmare for trump is going to be draining finances quite a bit. It is a big issue. Lisa one of my other worries right now which is what pemco is talking about, the deficit. The fact that we are facing off with both candidates not willing to cut the deficit. Everyone is like we know this. There is this feeling there has to be a higher term premium in the space to offset the risk that seems to be evident. They say is starting to take hold. How much does the bond market had to selloff before washington takes notice . Greg you talk to people on capitol hill and they dont want to address it. They cannot figure out what the prescriptions might be in terms of spending cuts or tax increases. The year that ended september 30 we had a deficit of 1. 8 trillion with a good economy. I forbid he economy could be softer, it could go higher than that. I dont sense any urgency on capitol hill. Jonathan i am not sure when you will get some. That will come down to whether this bond market actually sells off in the fashion that would require some action. That is where the pressure needs to come from. Have not seen it yet. Lisa we saw a pimco paper on this and there are a lot of papers on this. They are saying this could lead to a higher structural term premium. Yields remain higher regardless of inflation. This could affect everybody in the space they are buying into. This has been the person who cries wolf time and time again. Has something shifted . Everyone i talk to says may be and other people say it is the yield. Jonathan you have made me smile so much, how long is this list and is european chocolate on it . Lisa it actually is. Also the policies behind it. It raises a new specter of risk in fiscal policy and tariffs are important, also. Jonathan i was trying to work out of the chocolatefiscal policy connection. Lisa chocolate is important and if you start having best chocolate jonathan shrink solution. Huge deal. Is the president going to talk about this in the state of the union . Annmarie they will be debating how much time they should spend on trumpflation shr inkflation. If the president talks about it, he is him on the issue for consumers which reminds them that there is inflation and it wasnt here prior. Jonathan this issue has been around for decades. Why all of a sudden are we jumping on this bandwagon . Lisa certain things were not sticking so lets try this one. Jonathan throw it at the wall. Lisa when you get a box of cereal. Jonathan cattle feed for humans. Lisa it like a quarter field and they say they want more space to cushion it. It is filled the less. Annmarie companies have been doing this for decades. If their input costs are higher, they have to figure out a way to raise costs or put less in so they can make money. Jonathan equity futures. 1 . Lets give any update elsewhere. Here is the bloomberg brief. Dani Lexie Navalny will be burned today in moscow. Police have been deployed near the church. Alexei navalny died after falling ill in a remote maximumsecurity prison. Dell headed for biggest gain in months following a report that beat expectations. Tagamet for ai servers is driving the momentum. The stock has more than doubled. Elon musk is suing openai and the ceo, he allegedly breached the agreement by putting profit ahead of benefiting humility humanity. The relationship with microsoft undermines the original mission of creating Opensource Technology that would not be subject to corporate priorities. Musk was one of the early funders. That is your bloomberg brief. Jonathan the fed you expect Interest Rates later this year . We are ready to make moves and adjust as the data demands is to give. It will probably be appropriate to start to reduce rates in december time. Jonathan that conversation coming up next. Live from new york city, this is bloomberg. Hey you, with the small business. Whoa. Youve got all kinds of bright ideas, that your customers need to know about. Constant contact makes it easy. With everything from managing your social posts, and events, to email and sms marketing. Constant contact delivers all the tools you need to help your business grow. Get started today at constantcontact. Com constant contact. Helping the small stand tall. 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. Jonathan equity futures on his 500 negative but recovering. We are down by 0. 07 . The fed in no rush to cut rates. I expect us to cut Interest Rates later this year. Right now, there is not a sense of urgency. We want to avoid holding on all the way to 2 . We are ready to make moves and adjust as the data demands us to do. It will probably be appropriate if things go as we expect to see us to start to reduce rates in the summertime. Jonathan fed speakers waiting on the data, pushing back cuts until later this year. Inflation data raising and a, the fastest pace in a year. The payrolls report due later today. Kallum pickering sees the fed cutting four times this year starting in june with the economy heading for a slowing down. Berenbergs kallum pickering. The good news is we did not see bad news. Kallum yes, more evidence that the u. S. Economy is humming along nicely, may slow in the first half of the year. It looks like it wont wind buddhist slowdown. Jonathan we have seen a story from the Federal Reserve. How synchronize do you think because there going to be . Kallum the risk is that the fed goes less rather than more. We were discussing what this question around the yield curve but no efficient means. We have to ask which press is wrong, the 10 year the short end . Short and is 150 basis points too hard but you need more of the long end. It is possible we are adjusting here to the higher growth, higher inflation environment. We are having a little bit of a problem here and Central Banks are having it, understanding what is the normal rate of real gdp, where will it settle, and what Interest Rate you need to balance the economy. All of the upside risks in the u. S. Who would have been open for seem to be playing out on unlimited growth, productivity growth, demand, the government getting away with fiscal stimulus. Is a nice story. Lisa good fiscal stimulus, i keep thinking about money going into this market. What is the u. S. Doing that europe is not that is making it flush with cash and supporting growth . Kallum what can the u. S. Do that no one else can do . We are in a 7 deficit. You say what you spend that deficit on . 10 rise yearoveryear in investment growth. Fiscal policy is to toward boosting the assets of the country, boosting supply and adding to longrun potential. Mitchell physical acts are not simply just knocking down old coalfired power stations and building new greener, but it just adds to the debt. You are right at the time when you have a normalization in demand growth. Lisa are you making the argument for could see this growth and flush of liquidity without any inflationary surge . Kallum u. S. Seems to be matching demand and supply better than a country at the moment. Better than europe because we are more exposed to the Global Supply shocks. Whilst we have the hope that this can continue, strong growth acceptable inflation without the need to cut much. If the fed only goes two or three times this year, bond market volatility but as an economist i am happy about that. The risk that happens there is for me is about what happens next year. We are a closed aunts between supply and demand but we are matching. If you end up with a president , not naming any names, that raises important trips, reduces immigration and that besides i want stronger growth so i am going to cut income taxes, you have an efficient album you have any efficient problem. It is reported to live the economy do what it is going to do. If the vatican tickets for off of the break, great. We have more growth, i will be happy. Annmarie how do you start preparing for trump 2. 0. Kallum the market is going to wait until the fourth of november and that aside. We are always overtaken by events in life so should not be assuming the next four years look a certain way. A lot depends on how europe reacts to geopolitical risk. From a macro perspective, as long as fiscal policy is oriented to the supplyside and the u. S. Continues to enjoy good employment growth, it is a question of whether inflation settles in high twos or low twos. Annmarie at what point are bondholders going to want more to hold u. S. Debt . Kallum as long as you dont have a major efficient problem, i dont see why we should be pushing up u. S. Rates significantly. Maybe they need to be 50 basis points higher but that reflects real growth as upside risk for inflation. If fiscal policy would you change to be demand focused, then you would worry about inflation problems. Remember the lesson of liz truss in the u. K. The reason those deficit Spending Plans of panic to markets is because they were inflationary in an economy that was strained. Are you raising demand when demand is already Strong Enough or are you trying to resupply in order to match the increased demand . The u. S. Gets away with it. Other countries probably couldnt. Jonathan interesting. Liz truss, quite a lesson. Kallum it was reaganism without the dollar. Jonathan supports every novelization of rates at her level. What has changed between 2019 now . What has changed that would lead to that outcome . Kallum lets imagine a world where we did not have covid and did not have the invasion of ukraine. We remove supply shocks. U. S. Rates would have been drifting higher, this neutral rate. We escaped the weird funk after the post financial crisis. The fed started to react to this change from 2017 onward but had to adjust ritz downward. Neutral rates have drifted higher so you can ask the question, you like to refer to rstar, it is 4 or higher. Clearly have 150 basis points of tiring, of tightening, not 500 basis points which is why inflation expeditions have come down, widely Housing Market has corrected but consumers havent panicked and the job market has slowed. Jonathan are we sufficiently restrictive based on that . The Federal Reserve seems to have a different view on what neutral is. Kallum we are going to find out where neutral is. It is hard to be precise at this moment. I feel killing inflation rather than allowing the economy to run hot. Our markets are not systems, their adaptations and their depth represses. A world where prices grow at 1 is not sin he knew strong signal about investing here or there. The more you have 3 growth, the more signals you have to do something. I would prefer to say lets run the economy hot for a while and let this week normalization take place than risk killing the upswing. Jonathan a lot of should versus will. What do you think they will do . Kallum june is going to be a massive month. To bank of england, the fed the ecb are going to cut rates and it is a question how far they go. Four for the u. S. And then a question if they can go 50 more next year. It is a close call. Lisa it seems like if things are surprising to the upside in terms of Economic Growth, why would they cut more than they are saying that . Kallum last year the u. S. And percent annualized probably twice the rate of the control growth. This first half we are going too slow to 2 annualized. Inflation is probably going to come down so the fed will get any opportunity in q2 to start cutting Interest Rates. Then you have momentum a few times and then the second half of the year, lets see if Inflation Expectation starts to creep up as the economy starts to accelerate. Then you will ask where the fed can stop. Jonathan unity see bramos we need to bramo camp. We just need to check bramos reaction. Kallum pickering there. Coming up, Avery Sheffield and mario parker. A chocolate conversation with javier blas. That is coming up next. Annmarie coming up on easter. It is going to be expensive. You got this. Lets go. Gobble gobble. Ive seen bigger legs on a turkey rude. Who are you . Im an investor in a fund that helps advance innovative sports tech like this Smart Fitness mirror. Im also mr. Leg day. 1989 anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq100 innovations. I go through a lot of pants. 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The all new godaddy airo. Get your Business Online in minutes with the power of ai. Markets moving closer to where we think things should be. There is a lot of risk that the fed rates longer. They are likely to her on the set of caution. Once we start cutting, we are going to cut aggressively towards a normalized world. The fed is more likely to remain on the sidelines rather than reengaging in rate hikes. It is becoming increasingly likely maybe we have no rate because this year no rate because this year. This is bloomberg surveillance with jonathan ferro, Lisa Abramowicz, and annmarie hordern. Jonathan live from new york city, good morning. The second hour of bloomberg surveillance. Begins right now. Your equity market on s p 500 almost entirely unchanged. Starts with a blow at jobs report, cpi, upside surprise, ppi, upside surprise, pce comes in line. This is what christian has got to say. No new bad news. This is what the market traded on. Lisa everyone is looking for the tail risk which is why i have a list of worries. Can we get continued growth in upside surprise without commensurate inflation . There was a half second people were worried. Pce wasnt surprising and everyone went back to goldilocks nirvana. Jonathan stocks had the best month since november despite everything bramo said. S p 500 up by 5 . Stocks in europe is up by a similar amount. The nikkei is up. I will keep going just to torture you. Even the csi 300 in china is up by 9 . That is a decent month of gains. Annmarie that is a massive month of gains and yet japan is in recession, the United Kingdom is in recession. It is hard sometimes to understand the economy versus the stock market. Lisa i keep going back to people having and out west you, being ready to go and they can respond to any weakness with cutting rates. To me, it is unclear whether we can get Growth Without inflation, whether the ei boom is going to bring productivity in this prefect based jonathan would you like some negativity . Single man, nycb single name, nycb down 26 . Jp morgan yesterday, record high. The baking index is performing in line with the index on the s p, up 4 over 5 . Even the regional baking index down 3 and we have known about this issue all month. Lisa people have been trying to sniff out to the losers are in the small bank space about a year. If they have spent a year trying to sit it out and reprice where their holdings are, is this going to surprise them . The Biggest Surprise is given that, why are people not more alarmed with a kitchen sink and then another kitchen sink . Jonathan nycb is down by 26 . Bramos list of worries gets shorter. Coming up, Avery Sheffield with opec likely to extend cuts. Megan robson from bnp paribas. We begin with stocks at record highs of following a fourth month of gains. Avery sheffield saying this, the market is partying extremely hard. Valuations are stretched and fundamentals are being overruled. We think that this creates underappreciated downside risk. You sound like a guest lisa booked. Lets talk about downside risk. Welcome to the show. How long is that list . Avery the risk in terms of what has been priced in. As you have been speaking about, we are running a six to 7 deficit in that environment. It is hard to see much economic downside absence or something happening in the banking sector. The economy looks like it is humming along. It is okay. From a stock perspective, what is priced in with the nasdaq, 29 times, S P Community 21 times. With real rates, the highest they have been since the gsc. There is a lot priced in. When expectations arent met, the downside can be very meaningful. We would say it is probably more like it to happen in stock specific basis rather than the market as a whole given the generous spending from our federal government. Jonathan you said something about chairman powell that his ultimate goal was to make people happy. Is that still your description . Avery i think he was listening because since then in the january fed meeting, he did come out and say explicitly, which was a little refreshing, that inflation looks like it is picking up a bit and we are not likely to raise in march. Even mary daly this week on bloomberg saying consumers are concerned about inflation, one of their top risks. We cannot really lower rates to continue to stimulate the party in the way hes adjusted he might from his comments in december. Annmarie this is something i thought lisa this is something i thought was interesting, he said things to make people happy but did not address the issue of financial conditions easing and what that would do to push them further away from their goal. Do you think that is because it is no longer relevant or because they are not aware of how much the incredible easing in financial conditions has made it were difficult for them to congress inflation . Avery at that moment in time, he just didnt want to stop the party. It is clear financial conditions eased so much but he was hoping inflation did not accelerate for a while and he would have leeway to keep everything on a steady course. Because inflation has accelerated and is prominent in consumers minds, financial conditions are flowing so quickly they have had to walk back this financial conditions dont matter, we are going to do what we are going to do. They are flowing through and so they are going to have to respond to it. Can you really ease without celebration . So many stocks are priced as if the fed is going to ease and stimulate demand from the current level rather than that they would ease in response to things getting worse. Lisa this morning i walked in and said everybody talking about this partying as if it is a negative. What if there is nothing wrong with this party . We are just as much money going into cash funds, more going into equities. Is this healthy . Avery the issue is it is leading to continued inflation with ken which consumers are not happy with. If they were happy with their tropic prices, happy with happy milk prices and the cost of housing, it wouldnt matter. Consumers arent happy. That is where we have this issue that you cannot just keep stimulating the party and have people actually be happy. Annmarie we see a divergence in consumers and you talk about this in your notes. Not all consumers are not spending. Avery right. The high end is continuing to spend. Low end is continuing to spend with their not happy with where they are spending. Today much on chocolate and coffee, not enough money left for discretionary. The higher end consumers are continuing to spend. This is one of the issues we are facing. If everyone wasnt spending, it would lead to deflation but enough people are spending that it creates inflationary pressure. The feds tools are very blunt. If stimulus demand for everyone. The low end consumer gets hit more. That is a real issue. We think that is going to keep the fed more in check for longer. It means the Consumer Sector and other sectors being price for a stimulate demand for these levels are unlikely to live up. Jonathan that is the third time you have alluded to this. The risk at the singlegame level, what are these names single name level, what are these names . Avery i will speak more generally what were seeing. In the Consumer Sector, you have stocks priced at 30 times or 40 times earnings that have been real leaders, brands people have loved for a long period of time. Care facing increasing competition they are facing increasing competition that benefited from lower income consumers trading up. They are not reflecting those wrists those risks. Also companies that sell furniture, home improvement, everyone is passing in these cuts restimulating demand. Demand might fall further before it comes up. You Advent Software sector. You look at the software sector, very different results from software companies, companies priced for eviction and many benefit from a high but maybe not as people think. We are already seeing those stocks correct and we will see these welding bubbles deflate. Companies out there that dont have that bubblelike dynamic benefit from any economy building along have some opportunity to the upside. Jonathan given the names you have cited, i can say companies that rhyme with rose. Avery for the s p as a whole, you have your magnificent seven. The performance of the magnificent seven has diverged underneath the surface. Is, medic of what we will see in the market as a whole. Will four of those things that have done enough this year be enough to that weakness . Two others, a little softness . That is probably what is good you drive things at an index level. We have already seen bifurcation and the level of valuations within those companies, it is hard to make a call on the index as a whole. Lisa i love your idea about specific companies and this brings me to french call centers. This really is an important story. This is a company that fell out of bed because clarna said it is doing the work equivalent of 700 employees. I am curious how many teller performances are out there. Avery there is more and that is an area where we will cai having earthquake type trucks rather than ai being a rising tide of lifts all boats. That lifts all boats. There are these companies that want to meet expectations. There are also companies that are mifid to be disrupted and dont have it priced in. Jonathan Avery Sheffield, thank you. Morgan stanley talked about this, the difference between ai and enablers and ai adopters. The second piece is the piece you are alluding to, Companies Take it on and succeed and others which might struggle and fail. Lisa i love this story and it is hard to talk about in generalities but there are companies that are going to do better with respect to productivity and than those in two weeks called out of business because their entire model is getting disrupted. That under the hood work that is not that itself to is interesting. Jonathan i think it does lend itself to morning tv, how are labor will those companies be . Where will those job losses be . You will find them in asia and india where a lot of those call centers moved to. Lisa it is a great point in terms of cheap labor and were it gets blown out. I would also argue in the u. S. There is Something Like more than one million Grocery Store cashiers. Think about jobs like this, the rank and file. What happens to all of those jobs . Jonathan cheap labor, chatbots. Equity futures on the s p, 1 . Be cemex me feel small when she talks about french call centers being on this list but i am with you. You need your weekend. Best get any update on stores elsewhere. Here is your bloomberg brief. Dani eurozone inflation is less than forecasted in february which backs the more cautious ecb officials. Consumer prices rose 2. 6 yearoveryear 2. 6 yearoveryear. Biden will push plans to increase taxes on the wealthy and lower Prescription Drug prices in his state of the Union Address. He plays juliets economic agenda for a second term in office he plans juliets economic agenda for a second term in office. Janet yellen said any ukraine it has been held up in congress as the countrys war with russia enters a thirdyear. She said the eu has offered ukraine very meaningful financials but the total does not seem like enough. Jonathan up next, a battle at the border. This is a joe biden invasion. It is a military operation. This is like a war. Pres. Biden this is what i would say to mr. Trump, join me or i will join you in telling congress to pass this bipartisan Border Security bill. Jonathan we will head down to washington, d. C. For this discussion next. Good morning. Investment opportunities are everywhere you turn. But at t. Rowe price, were letting curiosity light the way. Asking Smart Questions about opportunities like advances in healthcare. And how these innovations will create a healthier world tomorrow. Better questions. Better outcomes. Hey you, with the small business. Whoa. Youve got all kinds of bright ideas, that your customers need to know about. Constant contact makes it easy. With everything from managing your social posts, and events, to email and sms marketing. Constant contact delivers all the tools you need to help your business grow. Get started today at constantcontact. Com constant contact. Helping the small stand tall. Jonathan two hours 10 minutes away from the opening bell. Yields a little bit lower bicycle basis point. 4. 23 65. A battle at the border. This is a joe biden invasion. Three years ago we have the most secure border in history, there was a secure border and people werent coming because they knew they werent going to get in. It is a military operation. This is like a war. Pres. Biden this is what i would say to mr. Trump, said policies in issue instead of telling them was of congress to block this legislation, join me or i will join you in telling congress to pass this bipartisan Border Security bill. Jonathan donald trump at President Biden making dueling trips to the u. S. Mexico border. A key issue in the runup to the president ial election. Mario parker joins us for more. The rhetoric is far apart, how far apart are they on policy . Mario it is night and day in terms of the gulf between biden and trump on policy. The republicans exacted what they wanted out of President Biden in terms of immigration and border deal and then renege on that deal and that meant back on that deal for trump who wanted to keep the border is a vulnerability for his opponent looking to november. Annmarie when it looks to executive action, biden would have to use the law that former President Trump wanted to use. This would be suspending the entry of foreigners when determined their arrival is not in the best interest of the country. If he was to go that route, how much pushback with you get for the Progressive Left . Mario he would get a lot of pressure from the Progressive Left. He has been mulling this for the last three weeks after that the deal was scuttled, whether or not he has the executive authority to do something. Visavis donald trump. You all are in new york, we see some of the pressures on bidens side from democrats. Illinois, new york, some of these big cities being inundated with migrants based on this again meant Governor Greg Abbott pulled. Biden is caught between a lot of different pieces between his party and the republican party. The fact that we saw him go to the border was a followthrough for a promise that he was going to go out on the road and take this fight headon, try to explain to the American People the politics of what happened. Lisa toms annmarie tom swayze talked about the border. What is President Biden going to say next week in the state of the union about the border . Mario it is quite unclear right now what people say other than the fact that he is going to put the onus on republicans. He will point to the fact that he did concede to republican demands in the deal they scuttled. Essentially he is going to cast donald trump as a puppetmaster over the republican party. The gambit on the outside is that republicans feel it is so entrenched of an issue for biden that he would be able to dig himself out of the whole. In terms of the state of the union, bideds bidens campaign is casting that as his vision for america, another seminal moment in his campaign. They want him to start having a vision looking forward and communicating that to voters while trying to explain to voters some of his key legislative compliments, how they have improved their lives. Annmarie is there evidence of what biden is trying to do in terms of taking the border issue head on saying you are the one who blocked this deal i could have gotten done . Any evidence that is working in terms of voters planning republicans . Mario in terms of evidence, the evidence is scant. We had a morning concert poll that came out and showed more voters blame republicans for what is happening at the border by a five percentage point increase. That is not a lot given where biden is on the issue. If you look at former President Trumps recent stop speeches, you can see some lenses of what his key aides are telling him. He says nothing about immigration being bait for democrats said something about immigration being bait for democrats. Probably his analysts told him it is so baked in that it is with this political gambit to convince his party to go back on that deal they had. Jonathan mario parker in washington, d. C. On the difference between donald trump and is sitting President Joe Biden on the southern border. The fed will not cut rates in 2024, quite a call. The reality is the u. S. Economy is not slowing down and the fed provided a strong tailwind to growth since december. As a result, the fed will not cut rates and rates are going to stay higher for longer. He offers 10 reasons, a very long list. I will go to the 10. I will shorten the. Shorten the. Shorten them. It is exhilarating. Underlying measures of trade inflation moving higher. Super court inflation, preferred by chairman powell trending higher. The labor market remains tight. Small businesses are planning to raise selling prices. Manufacturing surveys show a higher trend in prices paid. Services prices paid, also trending higher. We are going to raise Worker Compensation as well across businesses. Asking rents are rising and more cities are seeing raising meds rising rents. Financial conditions, the obvious one, easing. Equity markets rather to alltime highs and spreads are tight. Lisa the indication we got from chair powell at the end of last year has worked against their goal to get inflation down. This is what avery was talking about a couple of minutes ago. It does matter. This is factoring into some of the strength. How many people are going to come to his view . The jim beyonca camp was a lonely camp and still not being present in. Jonathan i want to remind you how quickly things change last year at how the times we had a different narrative in the first three months of 2023. February was no landing, almost x everywhere we are. March, banks started to fail and then it was all of a sudden hard landing. This is the way i would think about it. The probability around a range of outcomes has shifted markedly. I have no idea where we are going to be at the end of this year but the world has moved toward that perspective. The chances of that happening now are some attire at the start of march than a month ago. Jonathan there are not lisa there are not signs of people were talking about signs of worry people were talking about. Concerns about inflation, it is kind of stay given to the edges but it is coming in some places. All of these worries seem to be kept in check enough for inflation do not come down as much as people expected. Jonathan equity futures on the s p 500 are softer, negative by. 1 . Treasury yields lower by a business point or two at the curve. Lets call it 4. 60. Boyle capping his second straight month of gains as cocoa see its biggest rise in years. We will dig into the market with javier blas next on the program. How am i going to find a doctor when im hallucinating . What about zocdoc . So many options. Yeah, and dr. Xichun even takes your sketchy insurance. Xichun, xichun, xichun youve got more options than you know. Book now. Jonathan not sharing my thoughts on that, no chance. Equities on the s p not a chance. Negative by 1 10 of 1 . We got nowhere on the nasdaq 100. The fed will not cut rates in 2024. The reality is the u. S. Economy is simply not slowing down. The fed pivot provided this since december. Getting to the twoyear, its been as low was 1. 4 . At the moment 4. 6. Yields down by one basis point. In line with expectations yesterday. Youve got to price out another three cuts. Whats the upside potential on that . Lisa we were hearing that could be above 5 . For the next two years talking about the fed funds rate that will remain at 5 or 5. 5 i love the way he began because it was basically you all have been so bearish and so wrong. The market went into 2024 expecting six fed rate cuts. You look at the data and thats the reality. Can we get the. 10 on the long list of reasons. Financial conditions continue to ease . Does that become more if we do indeed go in that direction. This is the game theory at the moment, can they get the inflation rate they want if the market thinks they will be accommodating and try to keep this party going. Right now you can see this play out in the Mortgage Market when rates go down even one half of 1 you can see people apply for mortgages. Rates rise back up, everyone goes away. Thats financial conditions easing. Jonathan three cuts this year is consensus. In the bond market at the moment we are down to basis points. If you turn to Foreign Exchange we get to the euro slightly positive. Speaking of an ecb that might not be able to cut rates anytime soon. Upside surprise on inflation out of the euro zone, its coming down and still around three which is better than 4, 5, 6 or seven. Lisa it is not coming from services, this is from other areas, of the goods disinflation continues. At what point do you need to see Services Inflation coming in more aggressively . Just listen to the Austrian Central Bank governors earlier this morning. That man is not in a rush anytime soon. New York Community bank shares plummeting. The company saying material weaknesses in how it contributes loan risk. The results from ineffective oversight and monetary activities. And why they also announced a change in management warning investors it expects to miss a deadline for annual report, that stock on my screen right w is off the lows around 20 . Talking about a company thats been beaten up over the past couple of months, to me i would think the more interesting aspect is how its being treated as an isolated event. People are falling into the idiosyncratic story hook line and sinker. If you are just joining us at home and you missed that today, i think those numbers matter. The largest real estate exposure comes from 37 billion with apartment loans with regulated complexes. It is truly a video syncretic. Lisa the issue i have is why do they not have a handle on what Risk Management issues there were one month ago. Is this an nyc issue . The reason the issues are lower is because of that. Jonathan clearly they had a big execution problem. President biden walking back comments telling reporters hes hoping they have something on monday. Biden spoke the leaders of qatar and egypt, hoping to broker peace deal between israel and hamas. The cynical might say those comments were made just ahead of that michigan primary to get some support he otherwise did not have. Abigail already peeped annma rie already people are saying that. Muslim americans were going to protest about, they dont want to see biden is the candidate. He says hope springs eternal. If a deal was to get done they would have to be before ramadan on saturday. Yesterday there was a deadly confrontation in gaza and you of the white house saying they want to investigate this. You have dozens of palestinians dead. Its good to make the hostage talks much harder when you have continued flareups like this. Jonathan more on that later. Tesla rolling out another just a number of incentives. The incentives include insurance subsidies and discounts on some paint colors. Triggering further cuts from local competition. We can call this a price war with byd slashing its models by 20 . Lisa how much does this cause a real issue for tesla its already seen its margin hopefuls come in quite a bit. Do they then after cut prices in the u. S. Or are these markets divorced from one another as the u. S. Throws up walls to any chinese cars. Youre paying a little bit more than 20 tariff if you wants to imported a chinese car right now. The issue is worldwide. He said if there arent trade barriers byd would demolish the market. Whether they can and whether they will be allowed to compete there. If you end up with this situation and we dont know whats can happen but lets go through the white house statement from the president yesterday on the National Security issues around chinese vehicles, lets say they go as far as banning these vehicles that you can buy them in america are the chinese just in a sit there . The authorities to allow foreign manufacturers to sell in their market when they can sell abroad. What happens next . A lot are expecting there will be some retaliation. We can really game this out in any linear fashion. The other question is what is the price at which an electric vehicle can be sold to breakeven and how does this stymie if you have less competition, how much is it keep Prices Higher on electric vehicles in the United States that leads to lack of demand which weve seen consistently. Yesterday this was slightly different, it wasnt about unfair trade practices, big subsidies, statesponsored industries. We have that here in america as well as europe. This was about National Security. Its a very different ingredient. How much are people willing to go with this and this is the reason i say its about National Security so it will go through but what does it mean for electric vehicle adoption. I think that something a lot of auto manufacturers are grappling with. Tesla a little lower in the premarket. Oil posting a second straight monthly gain expecting voluntary supply cuts into the Second Quarter. The market anticipates a full rollover instead i believe the cartel has a chance to add a bit of extra supply taking some shortterm pay for a longterm gain. Can you walk us through that . What would the longterm gain be for doing that now. Brent crude is it 85 a barrel and i think what opec is doing continuing to restring production in the First Quarter into the Second Quarter is can it continue adding a few more dollars at that price and its not to be subsidizing the u. S. Shale industry. We know that each dollar metals ash matters that each one triggers a significant increase and i think that the time is for opec to say 80, 85 we do not need to subsidize them the u. S. Shale industry because if opec continues to restrain now what they will find is harder later in the year. That is the game. Theres a real question of where the line in the sand is for opecplus. How low can prices go before it is unsustainable for a group of countries that have relied on crude income for a most all of their investments. You cannot ask that question two opecplus it very much depends on which country you asked. There are smaller retail countries in the middle east which can leave perfectly happy with current prices much lower grade i think some countries in the middle east 65, 70, you asked the same question in saudi arabia. The current price is the bare minimum for people to accept a very similar question russia. The key difference from the opec we used to know 10 or 20 years ago it is the saudis who really want the high prices. Whats the saudi ceiling . The saudi floor for the price is somewhere around 80 a barrel. They want to guarantee 80 so theyre aiming somewhere between 80 and 85. I think they happy Keep Oil Prices all the way up to 100. They dont see a particular problem for the global economy. They believe the economy can take it. They are sitting comfortably somewhere between 80 and 100. Lisa im going to reveal something that you admitted you are stockpiling chocolate. Why are you stockpiling chocolate . Do you think its can get that much worse out there . I stockpiled on all of Oil Last Year and i was happy when the price went through the roof. The price of cocoa is at 150 . The price of chocolate on the supermarket is going to go up and go up quite significantly over the next six months, the market for coco is facing a structural deficit. They are well behind the demand between demand and production. Its going to be in 2024 the largest and 65 years. The only cure for the market right now is higher prices so we argan a c higher prices in the supermarket so im just anticipating for that. Annmarie thats already what these Chocolate Companies are telling us. When you look at the market is it whats going on in west africa in terms of weather drought and disease and some of these crops or is it tariffs coming into play from europe. There is a mix of factors and certainly the weather has been very unfavorable. Its been dry recently. It was too wet a few months ago. We have deforestation and they have been producing new planted area, thats not can i help. I think the biggest problem is they are reliant on a group of west african countries for 60 of the coco. Thats ivory coast, nigeria and cameroon. There is been planting in those countries for the last few years. The trees are producing less and less and those trees are more sensitive to bad weather and disease. We have had a lot of that in recent months. Diseases are quite widespread. It was in ghana and ivory coast and thats the big problem at the moment. Its a combination on all of the above really restraining supply this year perhaps also into next year. Jonathan would you like to explain to the audience why they shouldnt worry because the chocolate here isnt really chocolate. You really want to put me in trouble. I really as with all of oil i try to get high quality chocolate here in europe. Jonathan it comes from one place, it is not italy. Jonathan good to catch up. Lisa a lot of the italian oil is made with spanish jonathan thats not the real stuff. Lisa ive had this debate already. Youve touched on a really important point. If it was spanish why wouldnt they label it spanish . Why wouldnt they . Lisa people think. Its worth more from italy. Jonathan because italy is better. The average hersheys bars 11 chocolate. I get the dark. Thats if you want like the health benefits. People like different things. I dont understand white chocolate. More sugar apparently. Lisa i think he is onto something with stockpiling. Its on my list. Lets get your stories elsewhere prayed heres your bloomberg brief with dani burger. Dani Thomas Jordan stepping down the end of september. Hes been the Swiss Central Bank chief for more than a decade and steered them through the debt crisis and adopted the worlds lowest Interest Rate. Dont miss our interview with Thomas Jordan today. Dell is headed for the biggest gain in six months of 24 after reporting fourthquarter results that beat expectations. Analysts a demand for ai servers is driving momentum. The stock is more than doubled over the past 12 months. Meta winding down his news feature in the u. S. And australia. They will withdraw support in april. Publishers with existing agreements will still be able to push content at least until their deals expire. Lawmakers have been pushing for them to compensate publishers for their content but they say demand for the service has declined. Jonathan thank you very much. Striking a delegate balance in corporate credit. We feel like this start of the year is almost a repeat of last year for surprises to the upside and inflation. Yields moving higher, credit spreads tightening and then something happens. Jonathan you know what confuses me, reeses pieces. Lisa its peanut butter. Annmarie thats what they are pushing out. I just dont get it. You really like that dont you. Thats my dessert. Jonathan from new york, this is bloomberg. Get your Business Online in minutes with the power of ai. With a perfect name, a great logo, and a beautiful website. Just start with a domain, a few clicks, and youre in business. Make now the future at godaddy. Com airo is personalized based on your goals, whatever they may be. All that planning has paid off. Looks like you can make this work. We can make this work. And the feeling of confidence that comes from our advice. I can make this work. That seems to be universal. I can make this work. I can make this work. No wonder more than 9 out of 10 clients are likely to recommend us. Because advice worth listening to is advice worth talking about. Ameriprise financial. Jonathan equity futures on the s p negative by 0. 05 bond market yields lower by a single basis point. In Foreign Exchange, the euro positive by 1 10 of 1 . Under surveillance this morning striking a delegate balance in corporate credit. We feel like this start of the year is all most a repeat of last year. We had a slew of goldilocks data , a surprises to the upside in inflation, yields moving higher, credit spreads tightening and then something happens. Heres the latest, enthusiasm remains in the credit market as spreads grind down in the face of a record february for corporate debt issuance. Expectations for 2024 are high. And positioning, of the fundamental risk profile for credit has improved with progress in financing spreading at these levels. Talk to us why you think these themes can continue. Thank you for having me. I think what credit is really reflecting his Downside Risks are much lower so if you are an investor you are buying credit now because a lot of the risks that came into the year look better and credit provides good carrie. The maturity wall and highyield youve chipped away 40 of the expectations of maturities we thought would have to be reified this year and yields are levels relative to october were refinancings are more of a speed bump rather than a roadblock roadblock if you will. How much supply that we have seen has been pulled forward from what we expected and how much of it was catch up from last year. Lets look at ig. February we saw 200 billion of issuance and the headline number has to be taken with some caveats. About 25 of that is just for jumbo, deals. The headline number is much more in line with historical averages when you take those out and weve also seen a lot of the issuance is refinance. Its not necessarily a lot of new net supply the market has to absorb which someone explains why credit spreads have been able to maintain uptight levels. Lisa whats the bigger risk for you . The investmentgrade side or the highyield side. The Interest Rate sensitivity or the sensitivity to return. We have a few broadly of decompression. We maintain very supportive technical backdrop and still have yield buyers coming in at these levels. Highyield i think could hold in well assuming rate stay at these levels and growth holds up ok. But if we see any risk outside of the baseline scenario i would expect highyield to be more vulnerable. We got some of the flows data overnight and what we could see his people are still piling into bonds but investmentgrade u. S. Treasuries you can see those inflows. You can see 3 million into treasuries and into investmentgrade. It was the first outflowing u. S. Highyield bonds going back eight weeks. It was not that much. Does that mean something to you about a tide shifting . It speaks to how much we rallied in high yields. We are getting close to 300 basis points in spreads. At these levels it would make sense to back up a bit. Our spread target for year end is 350 basis points so i think investors who are buying credit for the spreader the risk premium are starting to think a little bit more not just piling in but you see more buying and selling rather than just all in. Jonathan we just had a note im sure you heard us talking about it the fed will not cut rates in 2024. The reality is the u. S. Economy is not slowing down and the fed has provided a strong tailwind to growth since september. We still have an expectation of four rate cuts this year. The fed will start in june and continue for the rest of the year. For credit thats going to provide relief and a lot of our leverage finance issuers are expecting that in particular floating rate loan issuers will need to see to get refinancings done. I think the scenario torsten has laid out would be bearish for the loan market where you have private equity sponsors and a lot of these issuers are thinking i just need to make it six or 12 months and theyll have that on the borrowing side. Does that become is that sort of this idea that if we dont get these rate cuts. You will see the maturity wall and the idea of interest coverage, back into risks third or Fourth Quarter if we dont see those rate cuts. Maturities that have to be reified this year we are almost halfway through those but looking we will have the maturity wall step back up again. This could be coming back into the discussion. Which companies are truly surviving till 2025. Does this cutting cycle on the precipice of failing survive . I think its not just the 100 basis points but theres a confidence the cutting cycle is underway and if your private equity sponsor you have cash on hand. You will have to pick and choose and you wont infuse cash into every company you own in order to help them survive. There is this element of if the fed cutting cycle is underway we could see three cuts this year, for cuts next year i think there is confidence that i will put this cash into a company because i can see it down the line being able to survive. Can you describe how the mood has changed with clients . In the equity market we try to work out pockets of exuberance overtaken things a little bit too far. How well received her these messages in your circle . One way to see that were quantitatively is positioning. A positioning indicator in the 90th percentile. I think the one place we havent seen investors add is the lower debate part of the markets. You are not seeing a wholesale buying of that but what single is in high yield. The riskiest rating bucket over the last month. I think it reflects positive conviction for the rest of the year among investors. Spreads super tight. Tons of supply. I really think its a good point because it matters why the fed is cutting rates. If they are cutting because theyre trying to keep this party going then great, get it. But if its because theres real damage its good to create a very different type of scenario that doesnt look at thriving in 25 but may be held long it is still. Thank you so much. Coming up on this program, laura of dish live from new york city, counting you down to the opening. Equity futures are totally unchanged on the s p 500. Yields up a little bit lower down about one basis point. Crude is higher. 7963. When i was your age, we never had anything like this. What . Wifi . Wifi that works all over the house, even the basement. The basement. So i can finally throw that party. And invite shannon barnes. Dream do come true. Xfinity gives you reliable wifi with walltowall coverage on all your devices, even when everyone is online. Maybe well even get married one day. I wonder what i will be doing . Probably still living here with mom and dad. Fast reliable speeds right where you need them. Thats walltowall wifi on the xfinity 10g network. Rates markets are moving closer to where we think things should be. A lot of risk in the fed waits a little bit longer. This point still is once we start cutting we will cut aggressively towards a normalized world. The fed is more likely to simply remain on the sidelines rather than reengage in rate hikes. Its becoming likely maybe we have no rate cuts this year. This is bloomberg surveillance with jonathan ferro, Lisa Abramowicz and annmarie hordern. Jonathan live from new york city this morning, good morning. For audience worldwide. Lets get you to the weekend. Jonathan what are you breaking up the show for . Can you send the camera back. I can do it again. Get the camera to go back. I can send the camera back. Lisa lets get you to the weekend. Jonathan i need the account in my ear. Thank you. Silence. Lets get you to the weekend live from new york city this morning, good morning for our worldwide this is bloomberg surveillance. Maybe i wouldve got there. Theres no way you wouldve gotten there. Maybe we wont get any cuts. I will go through them now. Lisa abramowicz everyone. Annmarie hordern, jonathan ferro. The fed will not cut rates in 2024. The economy not simply slowing down. The fed pivot providing a strong growth since september. More people are coming around to this idea of being in the margins. How much is that create a reality check to the market hitting new highs where everyone seems to be shrugging off concerns. I think its been an exhausting whipsaw feeling of incremental moves to sort of grinding higher not feeling too enthusiastic but there is nowhere else to go. Jonathan lets push ahead to next week. Payrolls friday. A sneak peek of the survey. 190 k is the median estimate. This moving target weve put together more of these estimates for you. 190,000 is the number. If you look at unemployment without unemployment sit at 2 for two consecutive years. Looking for this to stick at 3. 7. Theres a reason this is coming out saying they wont get rate cuts this year. If you come up with a theory it might call for weakness. If you look at the reality it is not showing that. So when you say the reality is portraying strength. Thats the reality in the economy. Lets talk about politics as well. Avoiding a nearterm government shutdown. Im not sure if we can avoid one entirely this year then we have super tuesday with nikki haleys campaign holding on. The president delivered the state of the union. Huge week for politics next week. What is he going to say in the state of the union that pushes his campaign forward. We have reporting he will talk about tax cuts, they had a chance to roll back a lot of trump era tax cuts early on in his administration and they did not do it. They were not able to close carried interest loophole. So what is he going to talk about on the campaign trail. We have seen him talk about raising the Corporate Tax rate getting closer to the 28 . Politico reporting one of your favorites, he might address shrink felicia and. Talking about the economy, the job market is doing well. Under 4 for two years but inflation is still hurting them when it comes to consumers and they will bring it up by saying actually its the companys fault. I cant wait for friday morning coverage of that speech. A delayed start to this hour. We can cut out the beginning for the online version. I said lets get you to the weekend. Lisa its getting into 8 00. Its ok. Jonathan can i proceed . Equities unchanged on the s p 500. Are you turning into tom . In the bond market, 4. 25 on the 10 year. Michael on why market to love move to run. Why evs will be central to u. S. Economic leadership and lowering of Fs Investments on why she sees Interest Rates normalizing at higher levels. We begin our top story kicking off stocks at alltime highs and strategists on wall street racing to great targets. Saying im quite constructive on the economy and markets. I think seeing 5500 on the s p or even higher is a distinct possibility. Michael is with us around the table. Goldman sachs, 5200. Its not great. That is an upgrade. You would send 5500 and beyond, what gets us there . We have this condition after the december omc which is weve got the fed stock talking about hikes. Im on the page about very few cuts meaning zero this year but i would also argue the fed, of the lack of hiking is whats key here. Theyve announced the sort of big message of pivoting away from hiking if anything the action is on the cutting side rates. Now the dual goldilocks condition means concurrently this is really unusual by the standards of the last 12 to 14 years is you have a working consumer in this condition as well. But you have the worker consumer were real wages are climbing, inflation broadly is falling in your seeing wage gains go higher and higher. The concurrence of that where you have a fed pivoting doing a dovish pivot into 3. 7 unemployment with gdp continuing to be strong is really pretty remarkable. You can imagine a world where we get to 5500 this year with no rate cuts in 2024. I can actually. What it really underscores a lot of this is a shift, a slow subtle but increasing probable shift of going from what we knew before covid sort of the low nominal world into something with a higher inflation form but also growth. And a higher nominal gdp outcome there where Interest Rates are going to adjust towards that. So i think i am officially at one to two cuts this year. I think theres a very reasonable case for zero cuts but if the earnings are there. Lets not forget you put up my quote about the what will drive the rally here. Youre looking at 20 Earnings Growth yearoveryear for the mag seven. Even as inflated as those multiples are, of the priceearnings to growth ratio is around 1. 1 for the mag seven. Jonathan you keep saying seven but you actually said six. Whos dropped off this list . Michael dropping them out is less consequential. Of all those stocks to report the one thing that was the most problematic on earnings there, they are also the smallest and have a whole bunch of secular headwinds to face with eeev narrative evolving as well. But those core six of the big ones and those are the ones driving the big tech story but they are really driving and underscoring the broader s p. Jonathan do you need lisa do you need different leadership or is it the same thing basically driving this even if rates go higher and continue underperformance for the russell 2000 and other issues. The textbook tells you the lack of a real vulnerability, i dont know if it has to be the case. If these companies are able to generate the earnings the street expects them to, and they end up lifting up the other ones. As long as the other 490 stocks dont fall apart on earnings or fundamental basis there, they basically holds together. I dont see why it has to be problematic. What is the hedge. Basically are talking about the potential for no rate cuts and a selloff in bonds at a time where that used to be the haven. Whered do you go now . If you want a market hedge i would advocate looking at calls on the s p put. For a whole host of reasons. If youre asking me about duration is not as safe. Because of this lower motion version of the backup in yields, i think its i dont want to say big tech, but they are the Business Models are pretty strong and so forth. If you are a long only management you have to think about that, those earnings even as inflated as evaluations are. You look at things like gold and so forth. Im listening to you talk and thinking if you see big tech as the growth driver, as a potential safe haven why not just lever up, go all in on them completely. I think it would probably refrain from doing that. I think the market is capable of just pushing this for a while. What im saying effectively is the valuations for the markets going through massive contortions over the last five years. The increasing rates and all that. I think the expansion or contraction stories is kind of behind us. Right now if there is Earnings Growth those will go higher. I think you can expect Earnings Growth from the Magnificent Six to be reasonably strong this year. I have bigger questions about the s p. You drop tesla out of the mag seven. How investable is the auto sector in america right now . Im not an expert on the auto sector but i would certainly say this that i think there are massive questions about whether the ev is going to stick and i would say whether the pricing can adjust in the Business Models can adjust, i think it is pretty tricky. Michael, thank you. We will be talking with an expert in just a moment. Youve always got an opinion. Lets give an update on stories elsewhere. Heres your bloomberg brief with dani burger braided dani burger. Dani jordan has been the swiss Central Banks chief for more than a decade braided he steered the economy through the euro area debt crisis and adopted the worlds lowest Interest Rate and also handled the collapse of credits we sprayed dont miss our interview later today. President biden plans to increase taxes on corporations and the wealthy and lower Prescription Drugs addressing that in the state of the union next week. Biden plans to lay out his economic agenda for potential second term in office trying to convince voters his administrations efforts warrant another term. The state of the Union Address takes place on thursday evening. Janet yellen says any plans to seize russian assets cannot be seen as a replacement for aid to ukraine. Ukrainian aid has been a key issue held up in congress. In an interview with bloomberg she said the eu has offered ukraine very meaningful finance but the total does not seem like enough. Thank you. We are going to take a break now. Take three minutes out. Up next, are you ready . The u. S. Cracking down on chinese evs. And its going to be very hard to make it outside of these two in the industry. Lets get you to the weekend. [laughter] jonathan ive never seen you like this. From new york this is bloomberg. captivating music the first law of thermodynamics states that energy cannot be created or destroyed. but it can be passed on to the next generation. jonathan its a quiet start going into the weekend. Going almost absolutely nowhere. Yields are higher by a single basis point on the 10 year. Under surveillance this morning the u. S. Cracking down on chinese evs. The stock has been doing an extremely good job. And now the chinese are coming in filling the void and the gain leaving much room for those two to be successful. You have tesla meeting with the best chinese players and its good to be hard to make a living outside of these in the industry. The white house ordering a probe into potential data and cybersecurity risks posed by chinese ev sprayed President Biden saying chinese policies could flood our market with its vehicles, opposing risks. Im announcing unprecedented actions to ensure cars from u. S. Roads from countries of concern do not undermine our National Security. Joining us is ellen of third way. The former chief economist afford and the u. S. Department of commerce. I have a first question. If chinese vehicles are going to pose a National Security risk what are the chances may be they are just banned . We did hear from the sec. This week following the statement from President Biden and she basically said we will look at everything. We have to study this and make sure we protect and our National Security is not at risk. They are looking at everything. She said all the way from banning to insuring that the tech in the eeev is americanmade or made by one of our trading partners. So they are going to look at everything they do rate studies and the department of commerce and i think its worthwhile. We have to make sure that we protect and have National Security, freedom and capitalism at the top of our list. Lisa do you think this is more of a matter of National Security or preserving jobs in detroit . I think its first and foremost National Security. We have seen instances where our National Security has been compromised and we know we have to make sure in the future that we protect and defend and thats absolutely critical. The u. S. Manufacturers, a lot of our other manufacturers they are not shying away from competitiveness. Nobody wants to have a protected market that means basically we end up weakening our product creation over time. We need competition to ensure we have ongoing innovation. Innovation is key in the electric vehicle market. Theres more coming. The source of that innovation has been in china. That source has been really in pyd coming out of the world second las vegas second biggest economy. Wouldnt it hamper the trajectory to more electric vehicle friendly future to ban chinese vehicles from being sold in the u. S. And bringing down the price point progressively . Look at vw. Look at ford, their initial first generation electric vehicles, gm, they made commitments. Tesla weve also seen incredible product now coming out of hyundai kia. So lets stand back and say its not just china. China has been subsidizing their electric vehicle industry for two decades now. I remember at ford when they start the subsidy programs and they invited u. S. Leaders, manufacturers like ford or gm to china to help them with Product Development, modeling, forecasting, innovative product creation. Its not like it happened in china without a lot of support. So now what do we do . We have to get competitive. This industry is going to electric vehicles. If we did a study on competitiveness if you go to third way when the america leads. Youve got 27 trillion of Addressable Market between now and 2050 as we transition to ev sprayed its not a question of if, it is just when. Infrastructure and Product Development and rolling out an emerging technology all of that takes some time. Its not like its going to happen in a Quarterly Earnings report. We have the italian leader visiting the white house today. Italy is set to be asking byd to potentially, set up shop and be a manufacturer in italy while at the same time the u. S. Is thinking of completely banning ev sprayed i thought this interim would take a multilateral approach when it comes to china. Doesnt this administration need to shore up where the europeans are as well when it comes to chinese evs . Ellen super good question. Italy used to have an Automotive Industry and so i can understand why they want cheap vehicles coming into their market to satisfy where they are in terms of their Economic Growth and prospects. But here in the u. S. We have already developed the beginnings of an electric vehicle market. Have asked it. If we find that byd ends up with no National Security risk, come into the market. I dont think anyone is shying away from competing but we need to make sure we understand that that market in china has been subsidized for many years, but we are not going to lose the terms of our automotive market. We have 4 million jobs in the Automotive Industry and the job multiplier of about 10 where those paychecks of workers have been spent in local communities at businesses, Retail Businesses and all different types of consumption. Its not like our Auto Industry is going to go away. It is absolute core to our u. S. Economy. And thats why policy is really working. In fact there is a study done of Clean Energy Investment monitor. Org. In the Fourth Quarter this year, theres 12 billion thats inflationadjusted a quarterly rate. In terms of investment in the ev supply chain, critical minerals, Vehicle Assembly and charging equipment. So there has been a lot of investment growth in the ev supply chain just in the last year. And we are only starting because these programs last for about 10 years. Jonathan one piece of pushback. You can say italy used to have an auto manufacturing industry. 5000 employees will be deeply unhappy. Thank you, its good to see you. Good catch, thanks. Lisa you are like an italian. You are the ambassador. I have to press the conversation a little bit. Coming up very shortly, why investors should reframe their Interest Rate outlook. We will talk about that after that big note earlier this morning basically making the point that he does not think this Federal Reserve will cut at all this year. We will catch up with him monday at 7 30 eastern time. Good news is good news. Treat its on its face that it will be bad news for the fed rate cuts and thats what a lot of people are thinking about. We can still get to 55. Annmarie Jerome Powell is on the hill next week. What is the timeline for these rate cuts. He went out to 60 minute saying i think shoring up the American Public in an Election Year why he had to go down this path. Jonathan you turn up and ultimately say the same thing you said in the last News Conference may be you inject something new or fresh. But its always the lawmaker making a clip to make a commercial to speak to his constituents or her constituents. I hated. It drives me nuts. Practiced in the mirror. How am i going to find a doctor when im hallucinating . What about zocdoc . So many options. Yeah, and dr. Xichun even takes your sketchy insurance. Xichun, xichun, xichun youve got more options than you know. Book now. I think hes having a midlife crisis youve gim not. Options than you know. You got us tmobile Home Internet lite. After a week of streaming they knocked us down. To dial up speeds. Like from the 90s. Great times. All i can do say is that my life is pre i like watching the puddles gather rain. Hey, your mom and i procreated to that song. Oh, ew i think youve said enough. Why dont we just switch to xfinity like everyone else . Then you would know what year it was. I know what year it is. Jonathan the people at ferrari would be insulted as milquetoast, its art. The s p is positive at point 02 . On the bond market, the 10 year up by two basis points. But they are moving in one direction after an in line report. Lisa how many people are going to come around to know right because this year . Jonathan maybe were normalizing a much higher rate profile in this market. Lets finish on the euro against the dollar, positive by 0. 6 . The wrong kind of upside surprise on the cpi pushing back the deadline on the need for urgent breakouts. Lisa Consumer Prices rose 2. 6 in europe as compared to a 2. 5 . This comes from the services side. Is it coming from fluctuating commodities . Jonathan all this talk about on march rate cut from the ecb or Federal Reserve. This is only two months old. It doesnt seem like they will hike anytime soon. It would not be the first time they change their mind before the meeting. Lisa is it on your list . Jonathan i dont have a list. Maybe thats the difference between you and i. Lisa this is why you havent seen much action because no ones willing to get on that list. Jonathan 1. 08 on the euro. President biden and donald trump in dueling visits to the border. Lisa this is a biden innovation. Tell congress to pass this type partisan bill. Jonathan miles apart but addressing the migrant surge before the election. 300 miles apart but with the rhetoric, how many miles apart . Annmarie if he does an executive order he would be using the same law trump relied on. Its a very different joe biden then leading up to the 2020 election. He was writing about restoring asylum protections and bringing more humanity to the border. This is a huge problem for democrats that is the number one concern. Jonathan what did obama do differently . That biden is not doing . Annmarie he came into office and basically said, we will not take the same approach trump did. People say that was the shot heard around the world for individuals to say is easier to get into the United States. Lisa if you look at the new trial two point know he wants to arrest all immigrants here and have active deportation. Its a slightly different t rump. Jonathan waiting to see what the policy will be from this administration. We had a move of 30 on nyc be. The bancshares plunging after material we miss and how it attracts loan risks. It stems from an effective oversight, Risk Assessment and monitoring activities. Lisa weve been talking about the idiosyncrasy of rent control issues in new york which is specific real estate. How will that reprice real estate . Jonathan in the last 24 hours we have heard two guests a survive until 2025. What if you get no rate because in 2024 . Lisa especially if youre talking about higher rates because of the strength of the Magnificent Six or five. There are companies that will do better with higher credit risk. Jonathan lets talk about Interest Rates, John Williams reiterating he does not see rate because coming anytime soon. They expect us to cut Interest Rates this year and that makes us with inflation coming down in the economy and better balance. But right now, there is not a sense of urgency to do that. Jonathan we have had so much the seer. Lisa to have all the fatheads come on and have them to get out . Jonathan they havent had to change their views the same way the market has had to. Lisa they had three rate because this year, is the balance of risk shifting in a different way . We talked about the potential for rate hikes. The idea of no rate cuts, i want to hear about that. Jonathan the chief economist on rankin investments. Lets go straight to apollo, they are saying no because for 2024. I know you are not there in the same way but the forces that lead you to believe that where reading normalizing what are they and could you share those views that torsten has . Lara while the fed has signaled they wanted change policy it may not clear the path to the rate cut that they are hoping for. At the end of the day we see no urgency on the economic side to cut rates and i think we need to start to get a little more nuance with the real rate story. I think the fight could surgically cut to keep policy at the status that it is. We need to be really careful to push back against this idea about needing rate cuts. Jonathan what has changed in the economy to change your thesis . He described if you take out the supplied side, was a leading to that . Lara im a big believer in the moderation we experienced since the financial crisis. This will be blunted by massive fed cut rates. I think we saw that with the trade wars in the Trump Administration and capitalized on a more volatile cycle where the fed was able to raise rates before the pandemic. This is all been towards the unwinding of that. The process has sped up and from here, were out of the world where inflation stays at that 2 lane. The reality is from a policy perspective, if you cant rely on inflation be low you need to be much more proactive and thats a different world than weve had. The investment that we are seeing these are really positive innovation and thats when i want to lead people with. This is a great opportunity for investors that we havent seen in decades. Lisa you talk about where you see that opportunity why are we seeing people rethink the idea of rate cuts in scope and size do you think the fact that we saw greater accommodation of markets with it and easing of financial conditions that is helped inflation stay higher for longer . Lara there is a behavioral component to this. Markets have been used to rates being low in the idea that that has been normal and many look ahead where in the world where the yield curve is still inverted and we need that to normalize. I think markets were relying on if the slightest opportunity that the fed slams rates back down. Were not in that world anymore. I think the Banking System would be thrilled with a slowing yield curve again. Lisa this idea that the most expensive, overpriced area that some have suggested is 10 year treasuries are pricing in this higher for longer scenario how much higher could it go before it becomes punitive . Lara i think we will visit 5 this year and we need to think about the fact that it was the speed with which rates move that made 5 feel punitive. Without zero Interest Rates you will see companies that were artificially afloat come under distress. This financing will get done and there will be a price adjustment but this opens up a ton of opportunity for investors. We are in a place where there are a lot of options for investors they give you doubledigit returns. Jonathan here we are, back to where we used to be in the good old days. 10 year is at 4. 27. They think we can retest 5 . On the long end. Lisa we have heard marcus say the biggest mispricing is on the long end because its been fluctuating in response to these cuts. Jonathan we will have a new payrolls report in hand and lets talk about it. If that data doubles down you will have to move because it is difficult to dismiss it you double up in february and then we have a trend. Lisa then you get questions about fiscal spending. Jonathan run, dubai. Equities on the s p 500. Heres your bloomberg reef with danny berger. Dani is reviewing its dealings with the head of the franchise group. It doesnt expect any significant changes to financial results. Meta is winding down its newest feature in u. S. And australia. New stabs, will be able to post contest until their deals expire. Meta says demand for the service has declined. Elon musk is suing openai and sam altman by putting profit ahead of benefiting humanity. They say their close relationship with microsoft undermines its mission for open Source Technology that would not be subject to corporate priorities. That is your bloomberg brief. Jonathan he has a point with the microsoft thing. Conceptually, once microsoft makes an investment is not a charity . Lisa intellectual freedom in kumbaya with coding. Throughout 2023 into 2020 for all three of our brands has been remarkably resilient. Jonathan thats coming up next on the program. Life from new york city, this is bloomberg surveillance. The future is not just going to happen. You have to make it. And if you want a successful business, all it takes is an idea, and now becomes the future. A future where you grew a dream into a reality. Its waiting for you. Mere minutes away. The future is nothing but power and its all yours. The all new godaddy airo. Get your Business Online in minutes with the power of ai. Jonathan lets check out apple in the free market. It has been softer this morning negative by 0. 6 . The price target is 232 and it was 223. Apple offices the headwinds to product revenue. Lisa there is a stability point, not necessarily the growth point. Jonathan the stock lower, down by 0. 6 . Our guest at all three brands has been remarkably resilient. Once they find us they are value focus. The percentage of those taking advantage of ltos are up. Jonathan target, kroger and gallup reporting next week. The combination of real wage growth and improving inflation should become a source for consumer to shift back to goods. Can you identify the companies that you like in think are underappreciated . There no audio. Chuck sorry about that. Its important to look back. What we heard from a couple of retailers is that were beginning to see sign of units being picked up. When we look forward we think we will continue to see that across retail and i think companies that we think are poised to benefit would be target. Their mix of general merchandise has been under a lot of stress. Target will benefit from the trend. Jonathan going to goods away from services, why is services plateauing . When you look at pc data uc services as a total of pc is balancing out and goods could recover but is predicated on inflation. As prices compress we think real wages are accelerating. Lisa there has been a shift under the hood in the narrative with respect to the divide between higher and lower income families in spending. There seems to be a renewed appetite to spend as well, do you expect that to come through in earnings . Chuck if you look at the pressure of the low indices because of Higher Energy prices, gas prices of food it is consist of the low Income Customer. As we look forward to the low Income Customer will see a benefit. Tax refunds were really low and that hurt the lowend customer when food prices soar. We think Dollar General and dollar tree and walmart could benefit. We do believe in that trade. Lisa in terms of credit card receivables continuing to climb, do you think thats a head fake or do you think its a warning sign . Chuck is a yellow flag. If you look at Household Debt is still really low. This is not 2008. Annmarie they say the amount of bonds could search to 64 billion well above the 46 billion from a year ago. When do you get concerned . Chuck we will continue to monitor the credit data we see in the delinquencies for retailers we cover that have credit card businesses. Kohls, target, lowes. Their Credit Trends are deteriorating but is not a red flag in our opinion. Jonathan can we talk about consumer delinquencies, there are so many competing theories. The consumer is pretty decent but there has been clear deterioration, which one is it . Chuck we would like to see how the consumer reacts. As we move through the spring we think that spending will continue to accelerate and thats a trend we could start to see. We will continue to study the data and its important to keep in mind when unemployment is at its lowest level since the 1950s, the consumer can spend. You spoke about value, value was involved. Consumers will spend at cosco but they will also spend for big ticket items. Jonathan chuck, is good to speak to you. On monday, jane foley, and tor sten slok with his call for no rate cuts in 2024. Lisa both of us tend towards the catastrophic. I wonder how much of that list is positive . Jonathan at the end of the book is says thank you to me and tk. Annmarie for me next week is less catastrophic thinking but the information we will find out out of washington. Jay powell, biden, and primaries. Jonathan live from new york city, this was bloomberg surveillance. Welcome i am in is currently this is not a bible says so Goldman Sachs we will debate that, right now. Everything you