How’s the Fed Feeling? | Bloomberg Surveillance 01/23/2023

We have a Fed here who is not backing
down. What is the market saying?
I don't believe you. It's cutting in its pricing and rate
cuts. It's already seeing the data roll over.
The way they're feeling now is comfortable that they may be done enough
or getting close to having done enough. At some point, you have to move to 25.
Because you've done a lot. You don't know how much damage that
you've done. Expectations for the remainder of the
year to 2023 are quite bleak. Earnings are supposed to go down.
This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa
Abramowicz. Good morning, everyone.
This is Bloomberg Surveillance Jonathan Ferro in London, Lisa Abramowicz.
Back from the Alps and I'm Tom Keene. I don't have a life.
I did absolutely nothing unlike London in the Alps.
We welcome all of you.

John Farrell with us here.
Coming up on Foreign Exchange, an important discussion with Germany's
stretch. And we say welcome back from a Happy
Vale. Thanks.
It was kind of happy, actually, when you really Thurston in the Ville.
No, no. Because there were some people who under
the breath said that they did expect things to turn.
What I thought was interesting was the divergence between the economy versus
markets. People more optimistic on the economy.
Markets not so clear. And that's where the divergence really
seems to be. Well, you're starting in a week here of
economics, finance, investment, lots and lots to talk about.
But let's link it into maybe the key statistic and I think a surprise for our
viewers and listeners, Lisa, and that is simply Q4 GDP first look.
Two point seven percent.

I guess that's a recession.
Yeah. Well, this to me is compelling.
People know this. Well, Hitler.
How much do we end up with some sort of recession?
How much do we end up with a better than expected outlook?
Right. Which is really what a lot of people are
expecting because people still kept going out and spending and we are seeing
weakness, but it isn't really coming through in force.
But really, this goes back to this idea of profit margins being kept.
Morgan Stanley, the House had two reports over the weekend.
One from the economics perspective. We could get a soft landing from the
market's perspective. Mike Wall saying we're still going to
get that drop off and earnings are going to see it in this quarter.
Yeah, well, it's zinger, I thought, you know.
And John, if he was here, we'd talk to him about it.
But he's in London.

And what I love about him, Mike Wilson,
is he's waiting for the last stage of a bear market.
He's not saying it's here now, but he says you need that and we're not there
yet. Companies are going to lay off workers
as quickly as many people had in the past because they know what happens.
You can't hire them again. They also want to remain competitive.
So they're not going to necessarily raise prices as much.
You're not seeing the same kind of margins as you did last year.
So price so earnings could go down even as the economy kind of muddles through.
Well, that's going to unfold into the economic data.
The week is an important week of economic data here to the February 1st
Fed meeting.

I mentioned the GDP statistics or some
S&P PMI numbers. John believes that I'm looking at retail
inventories is an interesting dynamic claims or you were gone.
We had a 1 90 print on ISE. It was shocking.
Wasn't the labor market supposed to weaken at the same time?
There are a number of reports coming out.
It's taking longer to really get a new job.
It's taking a longer for companies to hire people.
So softness around the edges screaming on a Monday here on a full workweek,
five day workweek, something on. Let's look at the equity markets here.
Negative five Dow futures and negative 12.
The VIX really doing nothing, twenty point to seven dollar weaker.
Again, John Farrell coming up with Jeremy Stretch of CIBC.
Two cents spread, real yield, not giving him much love this morning.
And Lisa, an elephant in the room yet lining up.
Brent crude, eighty eight point to zero, the highest going back to November.
And this to me is one of the most interesting elephants in the room.
When does the inflationary element of the reopening of China start to bite in
a more material way in the expectation of a happy landing, of a happy existence
that a lot of people are putting out there?
I do want to give you a sense, today is kind of a slow day and this is the quiet
period for the Fed ahead of the next one.
He is back into it.

I wanted to give you a sense from we're
looking. No, it's not auction free.
This week there are three auctions and I'm most interested in the five here.
So there's a two year forty two billion dollars of two year notes that are being
auctioned off tomorrow, 43 billion dollars a five year notes on Wednesday.
Thirty five billion of seven year notes on Thursday.
Five year yields is where I'm interested.
How much do people buy this story that the Fed, the ECB can get inflation under
control? They're pledging to how much are they
going to pull their foot off the brake? A little bit sooner than people expected
this week.

Tons of them. We get Southwest, we get American, IBM,
credit card providers, American Express, Visa and MasterCard.
But the ones I'm watching, Microsoft tomorrow, Tesla Wednesday and Intel on
Thursday. Those are the most interesting and this
is important coming up later on the program.
Daniel Ives of Wedbush. Here it is.
It could be a two hour interview. I want to focus on Apple.
Is the one company left standing in the layoff.
Dirty word derby. What do you want to talk to Dan ISE
about whether they can still be the leadership?
Because that seems to be the message from the returns that we've had.
So this year also just want to say that Friday, eight, 830 a.m., we get personal
income and spending. At 10:00 a.m., we get University of
Michigan sentiment survey for January Core.
P.S., how much is core inflation, the measure that the Fed looks at?
How much is that? Good to see this this week?
Yeah, I didn't know that.

Well, you know, there's now Lisa
Abramowicz back from Davos. We'll talk much more about lessons
learned from the World Economic Forum meetings.
One thing we know is the lesson learned is listen to Mario Patel.
She's at all spring global investments. And what is so important about her
decades of work is the fearlessness to mix from fixed income to equity.
What is your weighting, your relative dynamic of fixed income versus equity?
We're geared over on the equity side. We have been actually, even with the
Fed, increasing rates last year. The reason being rates were so low, we
felt that there was just the potential to lose money on the bond side as on the
equity side and not only played out. And this year we see rates have come
down quite a bit. So, again, we don't see we think bonds
are a OK bargain, but really nothing exceptional, particularly when we think
we see better opportunities on an on stocks.
How does that angst in particularly the the tech angst which is being
underplayed over the weekend? I get that.
How does it play into your core framework of dividend growth or use of
cash? I do think that we're going to see more
of an emphasis on on dividend growth and higher than average dividends for stocks
that do well, particularly because we still have a lot of high PE stocks who
need to have their P E deflated, especially if we see lower earnings,
which I think is as a general consensus bull market.
Just to go back to what Tom was talking about with tech will techs to lead in
whatever rally we see in equities.

You're expecting.
I think tech will lead certain sectors. I think the semiconductor sector will
lead, although we may have to wait for midyear to see more clarity about
increasing demand and also because the prices of those stocks are rather
reasonable, the dividends are rather reasonable.
We still think the high P E tech stocks may have some underperformance this
year. So are you basically rallying around the
idea of these job cuts? Are they positive to you, as is to wash
out the cost cutting that you are looking for?
Or is this just a story that perhaps has been given up too quickly?
Is there a distinction between the haves and the have nots right now that you're
highlighting in terms of what you're buying and what you're not?
Well, I think as far as job cuts, the market is generally regarded, that is
very good for earnings, but it really telegraphs what those companies think
their business outlook is.

You don't lay off ten or twelve thousand
people because you think you'll see a spring back at the end of this quarter.
So that says to me, companies looking at their business are looking to be more
cautious. So when you say that you don't like
bonds and you like equities, what is it about bonds that you don't like?
Is it that basically you think that people aren't pricing in the rate hikes?
Is it that you basically just don't think that they're going to have the
same kind of return profile? Or is it just the equities offer more in
an early cycle kind of feel, which some people believe we're entering into our
will by the end of the year? Yes, I think you have to be early for
equities because you'll never really catch to the bottom.
But really, if you look at investment grade, say a grade and you're looking
at, say, to little quarter three and a quarter for five to 10 year maturities.
Those are yields that you can really say I can make a lot of money in and even
high yield double B's or more around six and a half, say eight and a half for
single base with maybe five to ten point discount.
That's modestly attractive.

But if those do well, equities have to
do even better. Are you over the weekend?
I saw a massive effort to find some analog back to the Boston Tea Party over
where we are right now. What's the analog you use in terms of
saying 22, 23 and Dare? I guess 24 is like, what?
What's it like? Well, it's not like anything because we
never had a period of multi year near zero rates and a deficit that's so
extremely high. The time when the economy did OK, so I
think that's what's different. I think people are banking too much on
the Fed being more modest. A 25 basis point increase and that will
somehow Causey no recession to occur. So I think people are being too
optimistic about that and not maybe cautious enough on what the damage is
being done to the real economy that we're seeing in those early statistics
that Lisa was talking about.

Tom, the Tea Party, what's the analog
for that? The Tea Parties analyzed the last time
the Red Sox had a shortstop. One more question, if I could.
On Friday, as an exercise, I looked at my bond portfolio, my long duration
Austrian. Ninety seven years taken a bit of a
loss, but I think it's unknown how much investment grade quality corporates are.
Down, down, down. Is it the mother of all times to buy
quality investment grade corporates? Well, I think they're really rather
modest. Actually, the investment grade and high
yield have done about equal to the equity averages Dow and Standard and
Poor's. And I think, as I said, the returns are
rather modest. And I think there's still some
uncertainty about will we see rates actually begin to taper down or will we
see rates actually go up? If we have higher defaults or much
slower economy.

So I don't see a tremendous opportunity
in bonds at this point. Margaret, Paul, thank you so much.
I just want to say, folks, to give you your wisdom in the Boston market.
Margi Patel was a young, young kid and there was a triangle of fixed income
excellence. Daniel Foss, Felix Smith and a young
whippersnapper Margi Patel, that made it the best fixed income block in the

Margi Patel now with all spring giving
us was in there. Would you learn there?
I mean, with her experience, she's over in equities land.
What I think is fascinating is exactly that.
She's 75 percent in equities, I believe, or something like that, even though she
had training really as in the bond space.
What she said there, if bonds are going to do well, stocks are going to do even
better. So why not just go stocks?
Well, that's a core thing here.

But what I see is against consensus
Covid, even while you were gone up Happy Valley.
The basic idea here is everybody's on board bonds.
All my radar is up. I would agree with that, especially if
you still have inflation. You still have central banks that are
committed to doing something that potentially could be a lot.
Did you know, investment grade and high yield both gained about three and a half
percent in the first three weeks at the same as the S&P.
But did they get back in the last couple of days?
I mean, high yields like Iraq.

Yeah, a little bit, but not that much. And what you can see is that people are
still going in because they want the coupon and they see that on a relative
basis to the past 10 years. You're actually still getting yield on a
Monday. Get ready for Fed meeting February 1.
We're getting ready for that. Right now, our team is working on a
stellar group of the usual suspects. Looking forward to that.
We do that with a very busy week of economic data and conversation to drive
for. Dan is scheduled to be with us here with
Wedbush. Jeremy Stretch with our John Farrell in
London in a bit. Futures a little bit of a loss.
Negative 7, the VIX twenty point two zero yields kick it out of their way,
three point five 0 percent on the 10 year.
Two year, we're on a three point nine nine watch.
Forget about it.

That's up to four point one eight
percent. Stay with us.
From London. From New York.
This is Bloomberg Surveillance. Keeping you up to date with news from
around the world with the first word. I'm Lisa Mateo in California.
Authorities are trying to figure out the motive for a mass shooting at an Asian
community near Los Angeles. Ten people were killed when a gunman
opened fire in a ballroom during Lunar New Year celebrations.
The suspect, described as an Asian male, was found dead of a self-inflicted
gunshot wound. Paul Allen will ask Germany permission
to send its German maid leopard tanks to Ukraine on Sunday.
Germany's foreign minister said if Berlin were asked about the tanks, it
wouldn't stand in the way. The failure to work out an agreement on
tanks has overshadowed pledges to send more military aid to Ukraine.
China says more than 1600 people died of Covid in the week before Lunar New Year

It's likely the real death toll was much
higher given the scale of the outbreak. Meanwhile, a top Chinese health official
suggested more than one point one billion people had been affected since
virus controls were dismantled late last year.
The Justice Department has found more documents containing classified
information at President Biden's home in Delaware.
FBI agents searched the home for more than twelve hours.
They're said to have found classified notes from the president's time in the
Senate and vice presidency. Ken Griffin's citadel made a record
sixteen billion dollars in profit from clients last year, the largest annual
return from a hedge fund manager. Now, it also surpassed the amount John
Paulson generated in 2007 on his bet against subprime mortgages.
Estimates from LCA to investments showed the top 20 hedge funds turned out twenty
two point four billion in profit after fees.
But losses grew outside the industry giant's global news 24 hours a day on
air and on Bloomberg Quicktake, powered by more than twenty seven hundred
journalists and analysts and more than 120 countries.
I'm Lisa Mateo.

This is Bloomberg. If one side thinks that the other one is
more responsible for the debt at thirty one point four trillion
dollars, that's that is totally not accurate.
And this is deceptive. We're all responsible.
We have thirty one point four trillion dollars.
That's a runaway debt and no one's hold themselves accountable.
If you're going to use the debt ceiling for anything except for the tricks, OK,
which is what probably might happen for a while, we're going to pass the debt
ceiling. You're exactly correct.
It has to pass. The gentleman from West Virginia, Mr.
Mansion on Meet the Press on NBC was good to catch up with him there.
Thank you to many of the Sunday talk shows for their efforts on Bloomberg
Radio. It's hugely popular, a Sunday redo there
on Bloomberg Radio. And part of it is, well, getting
together or not. Of course, Senator Manchin of West
Virginia deep in that list.

So let's first go to something that I
really think over the weekend was there, which is the trade idea that if we're
not going to trade with China, who we're going to trade with the needle sharing
is a very thoughtful, no doubt. And Capital Economics talking about is
the next China, Mexico, Vietnam and Eastern Europe, Poland as well,
sheering, leaning there on the Davos, a trend of what's the next globalization
look like? What did it look like in Davos?
China. That's what it looked like.
Hartley Absolutely. Full stop.
And that's what I thought was most interesting there.
Companies so hinged to China, they cannot afford to move away, can't go to
Vietnam, got auto manufacturers. Well, it's not just with respect to
manufacturing, but it's also with respect to selling assets, with respect
to the political environment where if you don't manufacturer, you can't sell
there. And so it's really hard to see how it
really diverges the west in the east. And the same kind of way I'm talking
politically when the business environment is quite different.
You and I know that there's early Davos folks, middle Davos and late Davos
usually centered around the piano bar.

But forget about that chart.
You know what a splash in early Davos this year.
Did that carry forward through Wednesday, Thursday, Friday?
That was the entirety of a lot of the conversations.
They had a lunch with Lihir, the vice premier of China, with a lot of a number
of the manufacturers, in particular the chip makers, to understand the backdrop
of that. So there was very much a presence there
and there was very much a willingness to do business, which again, raises the
question of how does this bifurcation really come about.
I'm guessing Taiwan wasn't invited. Right now, we'll go to Washington where
she's always invited. Annmarie Horden joins us now, a
Bloomberg Washington correspondent. We've been talking up on surveillance.
Emery, the typical usual changing of the guard claimed Zion's as chief of staff
to the president.

Let's begin with civics one on one.
What does the chief of staff do? This is really the top managerial role
in the White House, and this is the individual that is the gate keeper to
the president in charge of the schedule in charge of who gets access to the
president. So it's really a critical role.
Also, part of that is going to be obviously outreach with Congress.
So this is a really important critical role that has a lot to do with the ebb
and flow of how The West Wing works.

A lot of to go forward.
Let me go back. Was clean, successful?
Many would say clean was successful in the sense that look at the president's
legislative priorities, what he was able to get through Congress worked in a
bipartisan way to get hard infrastructure done and at the end of
the day, they got their bill back better in a mini form done in the Inflation
Reduction Act. And he also was able to make sure the
president was onboard or really helping to get the president, helping the
president get the rest of Europe and Western allies on board when it came to
obviously Russia's invasion of Ukraine.

I think many would view him as being a
successful chief of staff, even if they don't agree with his politics.
And you mentioned a lot internationally, and that's really where I wonder where
Jeff Zients comes into play. His new chief of staff, considering his
lack of experience internationally. How are people concerned?
This plays into just the discussion we were having trade with China.
I'm not sure people are concerned by anything with science in terms of
international experience.

This is someone who served on corporate
boards like Facebook. He has deep managerial experience.
He was a consultant. He was a founder of an investment firm.
And anyone you talk Jun I've talked to a number of people this weekend say that
this is someone who he's known as Mr. Fix It.
He's able to get things done. So that's why a number of individuals
are excited about his appointment, thinking that he could be a good person
to be that gatekeeper to the president.

Also, they're really about to get ready
for a fight with Republicans when it comes to the debt ceiling.
And under the Obama administration, he was the head of the NSC, the National
Economic Council. So they think this is someone that's
well-prepared for that domestic fight, although you do talk a little bit about
some of the issues and his board service on Metta, among others.
How much does this indicate that the Biden investigation is pulling back from
some of the discussion about going hard against some of the big tech names?
I'm not sure that people are thinking that because Zion's is now the chief of
staff, that this means that they'll have a different view on tech, right.
He left that board because he didn't agree with the direction of where that
tech company was going. So potentially some may think that he
has a special inside view. I think when it comes to this
individual, what Republicans probably will most likely say about him as chief
of staff was while many would say that, yes, he was able to get a lot of shots
out of the door.

You have Dr.
Foulkes talking about the fact that he was this great management mind in order
to take the Biden administration's Covid policy of really making sure that
everyone across the nation had access and fair accessibility to shots.
There was that stent that there was a lot of pushback from Republicans and
Democrats as well as European leaders when they didn't open the borders into
the U.S. And that was the summer of 2020.
Wanted took them to the fall to get up to the allow, allowing more travelers
that travelers are vaccinated to come into the U.S..
Mary, let me cut to the chase.

Science is a big night, a baby, whatever you want to call it, out of Boston.
Yes. And the bottom line is he's got more in
common with Mitt Romney than anybody else in Washington.
What's Senator Warren's going to ask? Because, wait a minute, is this guy a
Democrat of moderate or progressive ilk? And the answer is she's going to say Mr.
Science ought to pay a wealth tax. I mean, is this the guy the Democrats
want is the gatekeeper to their Democratic Party president?
Tom, this is exactly what the discussion in Washington is.
It's those centrist Democrats are excited to see someone like him take
over this role and think he can do a very good job.
And then you have those like in the Warren camp that he's just not
progressive enough.

He has too many time ties to the
business community. But what you've seen this administration
do is two years. They really leaned into the progressive
side of the party and you started to see them walk a little bit of that back.
Also, as the president is preparing for a potential 2024 run, quickly, what's
your day calendar this week? What's the appointment?
The moment the party, whatever that matters to Annmarie Horden, I think it
has to be tomorrow, the president Obama and congressional leaders.
And that means Speaker McCarthy. And let's see what comes out of that
meeting. The president maintains that he will not
negotiate the debt ceiling and all the Republicans out on the Sunday show
saying that the only way forward, a complete success.
We go through that list without talking to Annmarie Horden, never mentioning
classified documents. Annmarie Horden, thank you.
So much. Do that.
You, Mr.

ISE, we'll do that next time.
Exactly. In Washington as well.
You know, it's the American way. It's an exhausting process.
What I've kept score of personally is exhausted treasury secretaries.
And you see them right after their tenure.
And they're they're just exhausted nor destroyed.
You can see all destroyed. I didn't like it.
Ninety days later, it's like, wait, is that the same guy?
Well, that's it. Also, there's a lot of this, right?
I mean, basically, they come in and they age 40 years during their tenure.
There is this issue of the debt ceiling debate.
We remember back in the day when we were fighting and, you know, making making
fun of some people who indicated that some of the things that were happening,
the Republican Party might indicate its just that point taken.
But I think that look, I think that the important thing here is the longer term

Everyone's expecting that there will be
some sort of resolution. But the longer they go to the deadline,
the more there will be this flare up in this freak out.
Does that actually have any longer term consequence or is it basically just to
walk you to your point, I would suggest that 2011 has scarred all, including
those that think this is a non-event, which we heard some of this weekend as
well. OK, I'm going to set this up and then
we're going to do this in the next half hour as well.
Terror is on assignment in London that is correlated with a small soccer game.
If you really fly into his heroes through the fog of the weekend, you look
down on the River Thames is a football field, soccer field out of the movies
that's called for help.

Go to Jonathan Ferro about that with
Jeremy Stretch at London. Stay with us.
From London. From New York.
This is Bloomberg Surveillance. Good morning. Bloomberg Surveillance, good morning on
a Monday Lisa Abramowicz in New York, back from Davos.
Mr. Farrow in London.
We'll go to him here in a moment on Tom Keene.
Thank you for joining us on a really interesting week before Central Bank
Derby. There's an auction derby out there as
well, as Lisa mentioned earlier. But now I want to take 30 seconds here,
maybe even a little longer. It's deserved.
I would think for people that ignore crypto right now, they ignore it at
their peril. There's something we had some
conversations on this last week, Lisa. And there's something percolating below.
Even as Bitcoin comes up looking me in terms of the genesis and the
bankruptcies and the issues GMO where it's a wash out.
What I thought was interesting is behind the scenes people who are into stable
coins or some of the other instruments that are a little bit more established
and what regulation are kind of hoping for the failure of some of these other

They want to just get the washout done
so they can move on. That's the optimist view.
Well, and the optimistic view views crypto less as sort of a speculative
tool and more as an instrument to disintermediation, the western unions
and the bank. The harder Zeit Ghost.
Over the weekend, I put this out on Twitter and I have the clearest memory
of sitting with John and we're watching World Cup.
And I'm looking at one of these crypto people promising eight or nine or 10
percent on the web.

In the heart of the matter, as I
mentioned, this whole thing is structured on what we used to call a
yield hog. It was real simple.
Margi Patel would know this, that we talked to you earlier.
You can make 7 percent instead of 4 percent.
Isn't that the whole shtick? And actually, there are a number of
stories of people who put their life savings in some of these accounts, but
they thought they were high yielding accounts.
There was this one guy who put his mother's savings and she keeps asking
him, where is it? How is it doing?
And he keeps lying to her.

He doesn't have the heart to say so.
I'll get it out of games, change. It is painful stuff, especially when it
raises this question. Well, who's then telling them you can't
promise 8 percent, 9 percent yield if you don't have what's backing it?
You have to put a disclaimer saying you might lose all your money or not be able
to. Know now painful crypto for Bloomberg on
the terminal is under the currency key. Are we still under the illusion?
Big dog is a currency? I don't think so.
Well, there is the sort of interesting distinction between bitcoin as a
commodity like speculative instrument and other aspects of the crypto universe
as a currency from a bigger standpoint.

There is a question of how do you foster
innovation and not, oh, here I go. No, I'm serious.
In a period of restraint with higher rates and at a time of rampant fraud
when people were bad actors could go into a world that was really pumped up
by low rates and do what they want. They're going to the restroom.
You get out the surveillance court dollar stronger today.
ADX Why were the one to one level just barely yen one thirty point two?
To Jeff Toobin, it's sort of quiet here.

Over the weekend, I'd look at euro, a
sporting as well, rounded up one point zero nine and Jonathan Ferro live in
large with a one 24 rounded up on Sterling Ferro looking at, I think 4000
square feet over that, literally a cutesy pie.
Metroid Dow Jones Square foot cross. The River Thames is well short.
Ask you to go there. We'll see the soccer chat for later.
I mean, John, Currency Dynamics has led in London by the recovery from 1 0 3 2 1
24 2 things. It's home number one, unfunded in U.S.
dollars. So much rather tight, one 350 than 120
plus. That's clear.
The second thing, I've got a guest with me.
Do you have to do that to make Fulham? Repeat after me.
Keep Fulham, Northwestern, West deaf.

Well, get to where?
With all hands. You're killing me.
You're right, darling. Right now.
Want to weigh 83, very close to 1 0 9. We took out that level a little bit
early this morning. I'm happy to say here in London.
I can catch up with Jeremy Stretch, the head of G10 Affect Strategy at CIBC.
Jeremy, great to catch up with you, buddy.
Good to see you. Front page of the FTSE this morning for
all to see. Europe can avoid recession.
The Eurozone can avoid recession. Can the eurozone avoid recession?
Well, suddenly the mood music has materially changed because of the
retreat that we've seen. And European gas prices.
And, of course, we've also seen that Chinese reopening narrative, which is
providing a slightly more constructive backdrop for the German export sector.
So the combination of these two factors does suggest that Europe might.
And Germany of the leadership of that might just avoid that negative GDP

And that's obviously one of one of the
Catholics which has really been driving this U.S.
recovery narrative alongside the presumption that the ECB simply much
more hawkish on the Fed. And they said the relative story, isn't
it stagnation versus recession? Now we need to talk about stagnation
versus expansion and recovery. It's a big difference between the former
in the last century and I think there is.
So in a sense, I think what we had is that obviously going through the third
quarter last year, we had enormous degree of negativity priced in or baked
into the sort of the eurozone recovery narrative, because, of course, we were
talking about the potential for gas rationing.
Now, here we are at this stage in the in the in the winter period.
Now, it is remarkably cold here in London, as we know at the moment.
But the actual winter itself has been relatively mild thus far, and if you
look at European gas storage levels, it's run.
They're running around 20 percent above the sort of levels you would've expected
normally at this time of the winter.

So that eases the burden in terms of the
re refilling of those gas storage tanks through the course of this summer.
And of course, we've seen Germany opening its liquefied natural gas ports
in terms of Williams Haidi Lun, for example.
So the ability for Germany to get those LNG capabilities will or flows from the
US in particular has helped to alleviate some of these recessionary foreign coal
as well. Over in Germany?
Well, it's the same, which is which is in it, which is an interesting one.
So in a sense, that's one of the legacy issues.
So that's why it was fascinating to see, you know, the Gretta Thornburg narrative
being put alongside at the World Economic Forum in Davos.
You mentioned the ECB is a question for you, 2023.
Does the ECB hike more than the fat this year?
Yes, I think it does.

I think we're we're very much in this
steady and significant policy narrative. You know, it's a sort of paraphrase
Madam Nygaard and throw Margaret Thatcher into it.
She is the lady's not for turning in terms of the interest rate story from
the narrative that we saw from last week.
So it seems likely to go along with the comments in class, not over the weekend
that we're going to see at least 250 basis moves in the from the ECB, the
next two meetings. Do they go beyond that in terms of into
the spring? Possibly, yes.
So that, I think, does suggest that the ECB is gonna be a little more hawkish
than the Fed, because if we're if the market is right and obviously markets
are tending to be very aggressive in terms of calling for a moderation in
terms of policy tightening for the Fed, then that does suggest the ECB.
We will get Jason Kelly this morning writing in London for SOC Gen, saying a
spoonful of optimism helps the dollar go down.
You wanna play that against the yen, against the euro?
How do you play that story? Well well, I think that I think the yen
is an obvious and an interesting one, because, again, we've seen a degree of
policy uncertainty really writ large after that adjustment in terms of yield
curve control back in December.

Now, these minutes from that meeting
that have been released overnight suggests that a lot of the BMJ members
were worried about the communication aspects of that change.
But I think it was it was always going to be the case that, you know, to expect
a degree of policy normalization for the BMJ this year, but more so after Kuroda
leaves office, because, of course, he's only got one more meeting to go.
So I think, you know, I think there is still some substantive scope for yen
appreciation. So we know we'll be looking for you.
Runs up to maybe 131, 132 in the nearer term to provide better levels to stop
short looking for a return back to 120. The words we use matter.
You said normalization and Japan in the first same sentence.
So we've had several decades now, zero rates in Japan.
What's a normal.

Well, that's true.
I mean, I've been in the market for some considerable time and Japan and Japanese
monetary policy has been generally the same.
They've been always attaining for this, aiming for this 2 percent inflation
target, which invariably they've missed other than and sporadic in exceptional
circumstances as we're seeing now. Normalization, I think is a process of
moving away from that negative interest rate policy.
So I think that's going to be the dynamic that we're going to see.
So if we start to see Japan moving away from those negative rates, that has
enormous implications for fund flows because, of course, Japan being the
major exporter of capital, exporter of credit in terms of looking for those
higher yields.

If there is a degree of dislocation in
terms of those fund flows and that exiting from Japan, then I think that
has more normalized implications. So as we look for Treasury KGB spreads
to continue to compress, that provides that momentum for dollar and to move.
I talk to me about the limits, about how far the BMJ can go, how far they can
pull back from that yield curve control. I was thinking about the ECB in Europe
in the last year. And if you told me they were going to
deliver what they have delivered on top of throwing in Kutty as well.
I would've had real doubts about what could or couldn't happen to the bond

I would have expected the periphery to
face a real, real difficulty. I know spreads have wider.
I know yields are out over the last 12 months or so, but not to the extent that
I would have said. Have you been surprised by that?
What does that inform you about how far the BMJ might go?
Right. Because if you think about what we've
seen from the ECB, you would have thought that B2B balloon spreads would
be pushing to 50 basis points or higher and starting to really create some
degree of fragmentation risk. So in a sense, I think that we have seen
a degree of relative calm, if you like, in terms of the movements that we've
seen in terms of monetary policy.

And I think that's going to be
interesting in terms of Japan's. Can they tolerate, you know, long and
yields 10 year yields moving up 3 on 1 percent?
I think they probably can if we get a more normalized yield curve in Japan.
So I think, you know, there is this scope for an adjustment.
I'm not suggesting that near the beach is going to be suddenly adopting a very
aggressive pace of balance sheet constriction.
I think it's more about removing or easing those considerations, terms of
yield curve control, removing that negative rate dynamic and then
encouraging some of these fund flows to remain onshore.
I think that's the sort of the dynamic rather than necessarily going for a
complete sea change, even with the confines of a new administration.
Let's finish on the set.

The DAX got the last word.
Governor Wallace would have called him at Davos last year, but certainly
endorsed the 25 basis point move this year.
Are we done after that? I think we're then getting to a
situation where we are. Actually, right.
The end game and I think the data will then determine that.
So I think we are still very much focusing on employment and earnings.
I think those are the team that, you know, the obvious benchmarks.
And then, of course, looking within the CPI print to see how things like those
rent dynamics play out. So I think we are very, very close to
the end game here. But I think the other issue that we
would still take take issue with from the market perspective is that degree of
cuts, that rate cutting that's priced into the market.
We're very close to the end of the hiking cycle, but we don't necessarily
think we should be pricing in cuts with the second half.
The final question, markets have to grapple with ever changing probabilities
and price them accordingly.

Who's got more chance here?
The Federal Reserve got into five or Tottenham.
Getting a top four finish this year in the league will continue.
My son has a massive Arsenal fan that I've really, really not.
I really cannot answer anything in the affirmative in relation to telling him
that we go Jamie Strachan, CFA saying, I'm not going to see you, mate.
Thanks for having us. Tom Keene here in London.
That does it for me. Until I catch up with you in Estela a
little bit later over at JP Morgan, he's going to drop by as well.
An important conversation. Regina, what's really important here,
folks, is this is a work assignment for Mr.
Ferro. After the surveillance NAB, I'll be
joining Tottenham, follow him.

And John, what I think is really, really
important here and this is something that we don't have an American sports.
This is basically my amateur take the Fenway Park of English football.
You're going large. You're live in real.
You're not in the Johnny Heinz handstand.
You're going to be in the hammy stand each six.
What's it like in the hammy stan of this little ancient 1896 stadium?
I've been craving cottage before. Tom, it's quaint.
Let's put it that way. It's also pretty difficult for their
white team to come and visit that because if you see the condition of the
the locker rooms where they get changed, not fantastic match in Manchester City
coming from up north with their, let's say, multi-million dollar facilities.
Tom all the way down to Craven Cottage in west London, where things are a
little bit more old fashioned and dare I say, cheaper for those you on radio.
Out beyond the Dome of St.

Paul's lies full of John Farrow with an
important bone Congress. So do it.
OK, great. That's okay.
You know, Quantas is in my ear full of Fulham.
It's Perth and Fulham. I'm like, you sound for him anyway.
Futures negative six. Stay with us.
Bruno is back. Farrow has gone to another normal day.
Surveillance down ISE soon. Keeping you up to date with news from
around the world with the first word. I'm Alex Mateo in California.
Authorities say the suspect in the shooting deaths of 10 people in an Asian
community near Los Angeles has killed himself.
The attack took place in a ballroom during a Lunar New Year celebrations.
It's believed the suspect, described as an Asian male, tried to carry out a
second attack. Nearby in the UK, ambulance workers are
walking out today in the biggest strike by first responders.
Trade unions are protesting pay levels in Britain's National Health Service.
They're demanding a double digit pay hike.
Germany and France warned that the European businesses will have to ramp up
spending to compete with the US and China.
German Chancellor Olaf Schulz and French President Emmanuel Macron met in Paris
on Sunday.

They discuss how the EU should respond
to President Biden's Inflation Reduction Act.
The measure includes roughly 500 billion dollars in spending and tax breaks to
benefit U.S. companies.
Bloomberg's learned that President Biden will name Jeff Zients as his next chief
of staff. Today, Sciences, a former business
executive who was one of the chief architects of Biden's initial Covid
team. They'll replace Ron Klain, who will
leave in the coming weeks.

The White House chief of staff is among
the most powerful figures in Washington. And hedge fund Elliott Investment
Management has taken a multi-billion dollar activist stake in Salesforce.
The firm says it looks forward to working constructively with the
business. Software company Sheryl's of Salesforce
have plunged since their peak in 2021. Global news 24 hours a day on air and on
Bloomberg Quicktake, powered by more than twenty seven hundred journalists
and analysts and more than 120 countries.
I'm Lisa Mateo. This is Bloomberg. Tech is really weak compared to
everything else, a broadly defined tech. And that's just not something we're used
to. The tech is the key to this earning
season. If you take tech out or tech broadly,
fine, you have a 5 percent EPS growth this quarter.
I mean, who would think that tech is the thing that's holding everything back?
And I think that this continues for longer than we think.
I've just brought you yesterday.

Thank you for the notes on last week's
separate Lisa Abramowicz in Davos. And John and I are holding court in a
really, really interesting week. When I tried to do that this week, going
into the Fed meeting that we have Feb. 1 features negative 7, the VIX twenty
point to eight. Bonds not giving me much your three
point five zero on the tenure yield. Lisa and I both noting oil Brent crude
where my eyes are film the NBA 21. Every time I look, oil's up another
couple, two or two. So there we are.
Let's get to it right away. Lisa in New York, John Farrell in
London. And joining us now, Daniel ISE is senior
equity research analyst at Wedbush. We're going to dive right into this and
we'll talk is so many, you know, on a two hour conversation with you and go
eight ways. We don't have that.
Two things. Apple, as I guys this weekend, they're
separate and distinct. And the other is this news fortress.
Benioff Let me start with Tim Cook.

It's going to be a victory conference
call for Apple. What will you listen for from the last
non layoff company standing? Well, I think, look, they were
tacticians in terms of how they built the business and demand despite, you
know, many yelling fire in a crowded theater is holding up a lot better than
expected. We're not seeing any sort of major cuts.
That's going to be a big narrative on that earnings call.
Explain to our audience, the McDonald's owners of Apple, they farm out their
manufacturing like McDonald's farms out their hamburger.
McDonald's serves hamburgers. Lisa, thank you.
I appreciate that. No, Tuvia.
You know, they know the franchising. Apple is almost doing a manufacturing
franchise thing. So how unique is that within tech?
To me, it's a huge distinction. What one of their strengths.
And it's why Cupertino is unique in terms of how they've built out in China.
And that supply chain.

And I think the thing that, you know,
we've talked about more and more control of their ecosystem chips.
They're essentially being Intel at their own game.
And the innovation that's happening in Apple that gives them multiple even
margin advantage over others. And that's why in others in tech,
they're laying off an apple, I think opportunistically continues to add to
Salesforce right now, 79000 people. Benioff is a force under his own.
And here's a fact, CRM down 51 percent from peak market draw down 50 percent.
Apple market drawn on 24 percent. What's the damage, its sales force?
And what does Elliot want to do to get it fixed?
Well, I think for Benioff Clock Krugman, it's not just with Ali and other ACT
Star board and others, they're going to continue to drive.
I think significant margin improvement profits could be potential spin offs and
other strategic changes. And I think it just shows Salesforce,
you know, in a very strong position with their install base and cloud stock's
been, you know, an underperformer of late.
And I think our view is that these are festival situations for activists in
terms of what I believe in TAC, we're going to see more and more activists,
you know, especially in this market.

So Salesforce shares in premarket
trading up 4.5 percent after this announcement that Eliot had made this
multi-billion dollar investment and sales force.
What other companies are good targets for this festival that you describe for
activist investors? I think you're going to see it across
the board, in software and in chips. I think those are really the two areas
that you're going to see. Activists really spend a lot of their
time, not just because of the margin situation, but also this is the time
where you're seeing tech firms cutting across the board.
You know, obviously, despite what we're seeing with Apple, and I think that's
really creating now in terms of MDA growth opportunities, potentially drive
more buybacks, dividends, especially in under invested tech landscape.
I believe it is under invest as we've seen since 2009, which I believe the
earnings setup is bullish over the next few weeks.
What are you pointing to? And you say that because some people say
that's actually not true and that people are still heavily invested in big tech.
They haven't given up that that.

What are you looking at statistically to
say that they're actually still under investor Jagged Day talking to show
investors 22 years? This feels more like 2009, 2002 relative
to sentiment. I think how many are invested going into
earnings and I believe very now in New York City, cab drivers, Barash and Tech,
I looked in the dividend growth of Apple to bring it back to the Cook Victory Lap
and the Cook Victory Conference call. I don't understand.
I don't get the whole share repurchase thing as well.
It's almost like they don't want to be a Dow successful blue chip stock.
Dividend growth over the last 10 years from 11 cents per share.
And how many fewer shares? I believe they're up to 23 cents right
now. Do they do they shot the landscape by
poppin and institutionally appropriate dividend?
Well, I think for Cook in Cupertino, that's always been the conundrum because
it sends the signal in terms of growth.

They don't want to be known as rightly
going 45 miles an hour because this has actually come and go and some 1 percent
yield is right. Lane going 45 miles an hour.
Well, I think for them right now, they're going to try to find that sort
of balance in terms of dividends and buybacks, because, you know, there's a
company that continues to generate just massive, massive cash flow.
And I think it's that balance. But they are going to continue to
innovate and grow in some of these huge growth areas.
So who are they going to cannibalize from?
You mentioned Intel and how they're beating Intel at their own game.
We get Intel earnings on Thursday. How much are we going to see Apple
really hurt? Chip makers by making their own and
circumventing them entirely. The scariest thing to the chip sector is
cook in Cupertino because they're essentially your Tom.
One of the bigger buyer chips. And now they're going to really own more
and more of that landscape. They want more control of their

And I think you're going to see that
more and more notches on the chip side. But even a I in some other areas and I
think that's a theme that we're going to see with Apple, because it Tom talks
about this period of time. They're going to get stronger Apple.
You've been very vocal about the haves and have nots within big tech and you're
giving a pretty rosy picture, the underinvestment in the apples of the
world, perhaps in the sales forces of the world.
If activist investors get involved, what about Facebook?
What about metal? What about some of the others that have
perhaps a bit more of a challenge in a different way?
I think there you'll continue to see room Zuckerberg continued pivot further
and further away from metaverse.

I mean, obviously, it's a long term
strategy, but will it be renamed Facebook?
I mean, look. Because realistically, they they're
going to realize more. And you see why that stock's up
significantly since those cuts. They've got to double down social media.
It's an arms race there in terms of digital advertising, what's happening?
And that metaverse strategy, which seems so good, 12, 18 months ago, name change
was awesome PR move. I think more and more realizing that
that was not the right move. It's Valentine's Day look like for Mr.
Musk. What's his February look like?
I mean, there's so many moving parts here.
You're expert in the Tesla thing. Twitter's a private company.
But Dan. We're how Elon Musk gets to, I don't
know, Silesia to leap year this year. How does he get to February 28?
Well, I think first it's a CEO Twitter. I think that's really important.
Further distancing himself. Are you short listed?
Look, in my opinion, I believe, you know, even though the is not even those,
it's like pharaoh you.

Even though that something.
No, but seriously, I think they have to. Yes.
Name CEO, Twitter. You've got ripped a Band-Aid off this
week in terms of deliveries, in terms of what I believe is pay 35, 40 percent.
And then I think third is just really showing that that demand story is going
to be strong. Just real quick here.
When are layoffs not going to be a great thing for the shares of these tech
companies? Because that's what we've seen pretty
universally. Yeah, I think we still see another 5 to
10 percent if we get to the middle of the year and there's more and more cuts.
That's where it gets dark. But right now, it's an excuse for these
companies to cut after spending like 1980s rock stars.
John from England e-mails and says Sterling's 124 is down what his price
target is on Apple. Ferrell's gonna make some money here.
Yeah. So one seventy five.
Two bold KS. And I just believe this is one where
many yelling fire in a crowded theater. But Apple is going to be a rock of
Gibraltar in this earnings season. So you got a bookcase there, 137 to two

And I believe right now you start to see
some of the parts. I believe the serve as some of the parts
come on. Some of the parts services business.
You could rationalize the services business conservatively, one point four,
one point five trillion. And you start to sort of you will get
that hardware business and where we're going to go into an iPhone 15 cycle and
there's a stock price on what is a share price on that.
I can't read eight pages of ISE. What's the sum of the parts?
Share price. Whose share price?
Right now you have what I what I do is 70 to 80 dollars right now per share is
is the services business. And so if you're getting everything else
for on you, 200 for like 100, I believe I believe you could get iPhone hardware
business significantly being underestimated in this multiple
compression. You will see the summary.
Lisa, my clothing consultant, just e-mailed in and said, can you kick the
can you get the ISE? Look,
I just.

Well, yeah, we're going to work on that
later. But I do want to say you're the one who
compared Apple to McDonald's. If you go to an Apple store, there are
people lined up. Can't get people to check out quickly
enough to buy a thousand dollar two thousand dollars of merchandise.
So that's really something that I think there process risk and distribution risk
off their income statement is brilliant. I mean, this goes back through this goes
back to Larry HAVERTY and the rest of Dan ISE.
Thanks so much. Don't make it very visible.
Those are good questions to inform you on technology or into a Monday as well.
Future's negative seven. We're looking at the bond market, so.
Jonathan Ferro in London, an important conversation coming up on fixed income
in London, Olivia DA WALA with us as well.
Rock Creek, stay with us. This is Bloomberg.
Good morning. We have a here.
It's not backing down.

What is the market saying?
I don't believe you. It's cutting in its pricing and rate
cuts. It's already seeing the data roll over.
The way they're feeling now is comfortable that they may be done enough
or getting close to having done enough. At some point, you have to move to 25.
Because you've done a lot. You don't know how much damage that
you've done dictations for the remainder of the year to 2023.
A quite bleak. Earnings are supposed to go down.
This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa
Abramowicz. Good morning, everyone.
Jonathan Ferro in London. Lisa Abramowicz.
Back from the Happy Valley, I'm Tom Keene with Lisa in New York.
We welcome all of you on radio and television.
An eventful five day workweek. Everybody onboard this week into the Fed
week next week. And Lisa's real simple here as we churn
here with economic data GDP coming up later.
First look at Q4. It's all about driving to February 1.
How much do we get from the Fed, this feeling of that step down that they're
talking about? Does that really refer?
But this is really the issue to me is does it matter?
Does it basically just mean that they're building an insurance by going slower,
but they're going to get to the same place and hold it there for just as
long? And that, to me is the distinction that
is really being debated in markets.

You know, you you're in the Gulf Stream
in Zurich runway there on Friday. And we were talking to Andrew Holland,
who Holland Horse was on fire. Was Citigroup were there?
He said, yeah, we've gone 50 to 25, but he did not give up on the migration to
some form of 5 ish terminal rate. And he's not alone.
A lot of people saying the same thing from the analytical community, but the
market's basically rejecting that and still pricing him rate cuts at this

How much are we ignoring the
inflationary impact of China reopening? How much are we ignoring the
inflationary impact of a Europe reignited by a warmer winter and people
able to go out and spend and different aspects of the inflationary picture
continuing to accelerate? These are some the issues people are
worried about. And the head of the Norwegian Sovereign
Wealth Fund basically said we could see inflationary accelerate and that would
be a worst case scenario for all. That's the gloom.
But that's Iran. Hydrocarbons in the green.
Thank you. Will Kennedy from London for I think
that's ferals or they were party last night.
Is it a new LME week? Yeah, it's it's an asset.
Alan Jones in London. It's no easy.
Let me wear that. Oh, that eighty eight point four zero.
Just as the beginning of this show, we're about ready to round up Brent
crude to eighty nine dollars a barrel.

And that folds into that inflation.
Lift the gloom crews talking about. Everyone said that there would be more
demand coming from China as they come back online.
The Lunar New Year is being celebrated this week, so it's quiet over there.
But after you start to reopen after that, you might get a real sense of
that. At what point, then, has this been a
story about energy and energy prices that went down offset and disinflation
was the story? Right now, if prices go back up,
people have to start thinking about what happens.
If that really is, we have to see and of course, the school of thought on China
opening and demand large that we will get some form of lift here above 100
dollars a barrel.

We're halfway there, I'd say off of the
disinflationary joy that we saw a number of weeks ago.
We had a really nice synthesis coming here up here on E.M.
and global economy. But I think we really got to go through
the data now. Futures give me nothing this morning.
Negative three right on the screen throughout VIX giving me nothing, twenty
point two, two yields lower. We are on the low yield watch.
It turned around abruptly. I think it was Thursday, three point
five zero on the 10 year yield, a little bit of less inversion.
But I do want to point out 10 year real yield, inflation adjusted yield, my
benchmark still quiescent at one point to five.
And Lisa, just to close it out, the Bloomberg Financial Conditions Index is
back up to an accommodative positive point to zero.

Does it mean anything except the Jerome
Pollard says it's a job not done, major thing.
The issue that I have is people have stopped talking about this, the
financial condition, NASDAQ, they're saying, you know, they're just looking
at the real time data and they're going to be patient.
This is attention. How much do they talk next week about
the financial conditions and the easing there and what that means for their
inability to transmit financial policy through that year are looking at this
week with today is a pretty quiet week in this quiet period ahead of the Fed
meeting next week.

Treasury auctions, we've got a two year
note tomorrow. We've got the five year notes on
Wednesday and we've got the seven year notes on Thursday, watching the five
year at the belly of the curve where a lot of people were investing.
How much do you start to see people move back from this belief that the Fed will
go duff to stymie inflation in the longer term?
How much you start to see people bake in the expectation that inflation will
remain higher for longer? This week, a slew of earnings.
We got Microsoft on Tuesday, Tesla on Wednesday and Intel on Thursday.
I'm especially interested to hear what's going on with the chip makers,
especially in light of what Dan ISE was just talking about, about Apple kind of
cannibalizing the business away from the Intel's of the world at a time when
they've got a glut of chips.

Very curious also from Microsoft.
Sure, the cloud computing system and the investment there, how much companies are
going back to those tech investments? And Friday we got a slew of data after
getting the GDP print for 4. Q After we get a host of other data.
Durable goods. We get personal income and spending and
core. PCG The key metric that the Fed looks
at. It has been rolling over just a touch.
Does it turn the other way and does it flatline?
How much does this give a sense of where we are in the base looks at the way
people look at to get a sense of inflation headline out right now out on
the Bloomberg. I want to underplay this.
This is Spotify of music streaming. And you've got some real out competition
from Apple Music and the wonderful titles Spotify to cut about 6 percent of
a 67000 workforce. Not a big deal, but at the margin,
they're sort of a tea leaf for the morning.
Well, just the layoffs continue and the shares rally.
I mean, to me, that's the.

You mentioned that.
Yes, Rose shares are up more than 3 percent now ahead of the market.
That's what you see. These tech companies announce layoffs.
Their shares are up Friday as we're resetting for the week.
And we really decided to look at asset allocation.
We continue that theme this morning with some good other stuff coming up.
John Farrell in London on fixed income strategy here in a bit.
But right now, leave your door. Wallace joins us with Rock Creek Group.
They are an exceptionally thoughtful group with real hydrocarbon focus and
also with an E M band. We're thrilled she could join us this
morning live for what is cash right now is cash and asset.
Last year, cash was definitely an asset. We were overweight cash and it helped
our portfolios. This year, we are starting to put a
little bit of money to work incrementally within fixed income more
than anything else, a little bit too early to be really chasing things sync

We think that at some point we're going
to want to start extending durations of fixed income is a big focus today.
What do you do with energy? Is the only survivor of an ugly 2022.
You people have got terrific natural gas history.
How do you how do you frame that or how do you bet on that out?
Three years? Yeah.
And you know, Lisa, you mentioned two of our main themes.
Will the energy shock from the war on Europe continue to be contained or do we
see part two this year? We saw winter warmth.
We started seeing European subsidies. We've seen the US tapping into the
Strategic Petroleum Reserve, support containment.
And then we see China. On the other hand, you know, demand for
oil is going to increase as China reopens.
And so we're kind of looking at all of these factors and saying is the second
half of the year going to be a little bit like we were seeing some of the
tensions in the last year.

So let's put those two ideas together.
You are saying it's not time to lean into duration, but you're waiting, too,
and the potential for the energy crisis to rear its head.
What are you waiting for? We've seen a rally already, so yields
are already almost a percentage point off the recent highs for the 10 year.
What are you waiting for to say it is time.
Yeah, and it's a continuous conversation as markets are moving.
But we've seen a disconnect, right, between market expectations and the
Fed's hawkish announcements. The tenure seems to be stuck a little
bit around three and a half percent because markets think that the Fed's
going to have to pivot and reduce rates.

We think that the 10 year could retrace
at around 4 percent at some point early this year, and then that's going to
signal a good opportunity to slowly start buying duration.
Again, we're looking for good entry points to start extending duration and
our fixed income portfolios. But we don't want to chase anything
because we do think that we're still a long way off from the Fed, really
signaling any sort of even pots. What's interesting to me is the idea of
a 4 percent 10 year yield and the implication for equities that previously
sold off when yields went up. But if we have an environment where
pause, where it's a positive look at the economy, at what could potentially
happen with growth, is it also going to be positive for equities in the short
run? I think equities are going to be maybe
potentially a tale of two halves this year.
You know, we think kind of middling for the next six months.
But I think you're going to have to pick your spots.
You have to remember the S&P is still trading around 18 times, whereas
Europe's trading around twelve and a half.
And I'm in certain countries even lower.

So it could be a valuation story.
That hasn't been our belief with you and our son.
Let's just talk about the vogue again. I believe it was a vote 12 months ago,
24 months ago. Thirty six months ago, you get the theme
E International are back. Is this time different?
You know, it feels like a little bit of a consensus trade because you're
starting to hear people really talk about it more.
And again, you can't generalize.

Yeah, I mean, China to Brazil, to India.
These are completely different factors and clearly different time horizons.
You have to have it as an institutional investor.
You have to be in emerging markets and to some extent you have to get China
right. Because that is the still biggest
determinant in any portfolio. I'll leave it.
Thank you so much.

Olivia Dawn BARLOW with Rock Creek Group
there on the allocation mystery here. We really try to cover that here in
January as we move forward. As John says, you know, market outlooks
are to be done March 31 after everybody gets a year set up.
Doug Kass with a really important insight.
Thanks for listening and watching down in Florida, Mr.
Cass. He's with Sea Breeze with real money at
risk. And when we talk about share buybacks
and Doug CAC, no, Dan ISE is really good at this.
Lisa, there's two kind of buybacks. You buy back shares in your share, count
goes down. They can tell.
Fifty years ago, think Apple now and then there's your buying back shares and
you look brilliant. But it's a complete shell game because
you're issuing shares out for compensation and it's a wash.
Mr. CAC mentions is with Amazon and the
like. I think that's a really important
technical point that's often missed. Well, there's a bigger there's a bigger
point behind that, which is people look off into the share buybacks as a
tailwind to a lot of companies and all of their performance.
And there isn't as much share buybacks that are planned this year.
So what kind of pressure is that for equity performance at a time when shares
are lower? And that would certainly be a
counterbalance and that's something people are analyzing.
There was a great study done a million years ago.
I'm going to pick on Textron, which is a name for the past.
I'm not sure that was the company, but we'll say so because it's a Monday.
And basically they did a study at Textron and basically companies buy back
their shares at the top of the market.

Well, that's exactly say, no, we don't
want to do that. Bother with the market.
That's the you know, there are no brighter than I am.
They should they should be the triple levered share buyback program, the
triple leveraged Austrian bond program. I hear it's a really successful.
You're not there for that. That was painful.
I mean, some of these bonds, you know, I mentioned I don't like the mentioned
bond names on air, but, you know, in the old days or Pimm Fox and I would get out
the Blue Book and look at the Standard Poor's Blue Book.
I mean, a given investment grade bond is done 10, 15, even 20 percent.
It's going to take a loss to get that right.
And this whole happy reset to a normal that's going to be sustainable.
That can actually compensate for this working right now and getting up to 4 am
countdown clock here to the flim tots game fair.
We'll be in Atlanta. NIKKEI.
Back to that.

He's in London.
I'm sorry, brain freeze. Excuse me.
There is Celia will join Mr Farrell. He is with J.P.
Morgan in London. Look for that here in a bit.
Futures at negative for Dow futures, a negative 4 1/2.
How could that be SPF Dow? Same futures.
Good morning. Keeping you up to date with news my
around the world with the first word. I'm Lisa Matteo Paul Allen will ask
Germany permission to send its German made leopard tanks to Ukraine on Sunday.
Germany's foreign minister said if Berlin were asked about the tanks, it
wouldn't stand in the way. The failure to work out an agreement on
tanks has overshadowed pledges to send more military aid to Ukraine.
In California, authorities are trying to figure out the motive for a mass
shooting in an Asian community near Los Angeles.
Ten people were killed when a gunman opened fire in a ballroom during Lunar
New Year celebrations. The suspect, described as an Asian male,
was found dead of a self-inflicted gunshot wound.
The Justice Department has found more documents containing classified
information. And President Biden's home in Delaware.
FBI agents searched the home for more than 12 hours.
They are said to have found classified notes from the president's time in the
Senate and vice presidency in the UK.

The power grid is asking some households
to cut energy use today, and it's likely to extend the request to Tuesday.
A plunge in wind power and freezing temperatures are testing power producers
ability to keep the lights on. And Spotify is the latest tech company
to cut jobs. The streaming giant said today it is
cutting its employee base by about 6 percent.
The company has about 98 hundred employees.
Spotify stock fell 66 percent last year as investors question when they'd see
returns from big investments in podcasting global news 24 hours a day on
air and on Bloomberg Quicktake, powered by more than twenty seven hundred
journalists and analysts and more than 120 countries.
I'm Lisa Matteo.

This is Bloomberg. We should have a clean look at the debt
ceiling because the 14th Amendment to the Constitution says nobody should
question the credit worthiness of the United States.
I don't think anyone should flirt with not paying the U.S.
his credit card, which is what Republicans are doing.
We should raise the debt ceiling. But if Republicans are saying they won't
do it and they're threatening our credit worthiness because they want cuts, let
them cuts on the table. One of my favorite people on the planet,
Timothy Kaine, understands that if you are at the University of Richmond, you
get to go to the ring dance, which is a holdover from another time and place.
He is the former mayor of Richmond.

He taught at University of Richmond Law
School and worked his way along the path to a vice presidential candidate with
Secretary of State Clinton and then on to his work in the Senate himself.
He's part of the matrix that's out there.
John Farrell in moments from London on fixed income Lisa Abramowicz and Tom
Keene in New York on radio and television.
And we go to NYSE Horton, Bloomberg, Washington correspondent, to speak of
Senator Kane and the idea that's percolating.
Anne Marie of governors as presidents, a civics one to one day, governors make
good presidents.

I think some might agree.
I guess it depends who you ask. They have their own little fiefdoms and
domains, right? They're almost the president of their
own state. So they go through the motions.
I think at this point in Congress, things are so volatile, which is why you
see both parties potentially looking to governors
to be their leaders in the 2024 election, especially on the Republican
side. Greg Valliere with Bloomberg earlier
this morning in his very early morning really emphasizes this today.
And it can be the governor of Michigan Democratic to be the governor of Florida
Republican as well. But they're percolating up.
Are they advantaged in terms of getting ready for the primaries because they're
distant and removed from the Capitol Hill?
Darby. I definitely think so, especially when
you just see the fact that there's just nonstop political debates, even on
things like obviously the debt ceiling, which has been the central debate on
Capitol Hill between Republicans and the White House Republicans and Democrats,
what they're going to do about it.

And does this really even resonate with
the American people that are worried about everyday things like higher
grocery costs or higher rent? And I we spoke to Governor Sununu of New
Hampshire last week, and he was pretty direct when he said, God, no, I'm so
happy I'm not in Congress. And he thinks he can get a lot more done
outside of Congress. And it does set individuals like him up
for a better run in terms of especially the PR, when you want to pitch yourself
to the American people, at least to percolate over the weekend, boiler off.
That would be Mr.

Daniels of Indiana percolating as well.
Mr. Trump, I guess, pushing the subtext Mark
Gurman, the subtext of a lot of what you're asking Emory about is will
President Joe Biden run again? How much pressure?
I mean, that's basically what we're talking about here.
I went to London replacing the pressure here.
How much is it really ramping up from other Democrats against President Biden
saying, stop it already? You're not popular, especially with the
classified documents, which we didn't mentioned last hour or mentioned this

Let's start setting people up to run
instead of you. Was in the classified documents and the
drip drip of them, and over the weekend we have another one, an FBI surge more
than 12 hours. A fourth batch discovered.
All of this is going to make it a lot more politically embarrassing and harder
for the current president as he wants to potentially talk about a 2024 campaign
and run, on the other hand. This president did get a lot done in his
first two years as president. Right.
And at the same time, there was supposed to be this massive red wave referendum
on President Biden in November. And there was not.
So he is in a position now where many in the party do feel like if he wants it,
he has proved himself. But again, yes, there's still, of
course, are those whispers about it is time for a younger generation to take to
take the lead. Biden should be embarrassed by the
situation. The words yesterday of Senate Majority
Whip Dick Durbin talking about what's going on, the classified documents.
There does seem to be a lot more pressure.
I understand some of the winds.

I understand some of the the arguments
on the other side. If former President Trump doesn't run.
Is it likely that President Biden will also step down from the race?
Well, it's an interesting question, because if you look at one of the latest
polls from Suffolk County, USA Today, it shows that Biden would still be Trump,
but that say a Governor DeSantis entered the race, he would be the one that could
beat Biden. So potentially, if Trump was to bow out,
the current president maybe would also look to the Democratic bench, which at
this moment looks kind of slim. But the president also has to be careful
about the timing of all of this.

He will become a lame duck president the
moment he says he does not want to continue to a 2024 race.
I look Kurumi Mori at the setup for the week and the politics is folding out.
Help us with the calendar into the year. When does the what does the primary
season start? And by that, I mean, when do the
centrists from both parties confront the very hard left and very hard right rings
of their party? Is that autumn?
Is that summer? When is it?
Well, I think it's already started. You we heard from Nikki Haley on Fox
News talking about the fact that she hinted about her own run and wanting to
get involved in the Republican primary. There's really no reason why anyone
should come out too soon, right? Right now, we only have one individual
that says he is running for 2024, and that's former president Donald Trump.
So a lot of people want to see who decides to get in the race and if they
are going to want to go up against them.

One of them, one of the more key parts
is who once you're in it. When do you back out?
The timing of backing out and making sure that you are part of potentially a
future candidate and giving that individual
the help and the lead way and the campaign financing that they would need.
But I would say by this summer, you'll have a lot more names percolating around
Washington. Emory.
Just real quick here, which party gets hurt the most by the debt debate, the
debt ceiling limit and all of the drama around that to the debt ceiling?
Well, yes. Well, it was do you look at if you look
at past polls, it is Republicans who have fared the worst when it comes to
the debt ceiling.

And this goes back decades because they
continuously bring up this fight, saying that they want to negotiate spending on
it. When you saw during the Trump
administration, Democrats went on with the debt ceiling.
The Republicans had to raise it. The former president Trump was in power
and they voted for it. So when you look at past polling of the
American people, it's the Republicans that it actually hurts more.
Annmarie Horden think you so much in Washington this morning.
We'll continue on that. Right now in Lincoln policy moments ago
and he says this is not 2011. Treasury dynamics will be very different
off the shock of any kind of rate decrease, a reading decrease.
And there also is the lessons learned from private previous eras.
And, you know, we were hearing about I do and just where Emery was talking
about the sort of political liability of being on the wrong side of this debate.
Even former President Trump was out saying, please don't do this, don't
don't be an obstacle to passing this. He was talking to fellow Republicans.
This is really an interesting moment as we end up with something that could be

But people aren't necessarily pricing in
yet. We'll have to see.
I mean, it's to me, I'm still waiting to get out to summer.
And as we heard from one Democrat. I'll be honest, I can't remember who it
was made with Senator Kaine. Can they just show us their spending
cuts, which is what they do want to show?
I don't want to play that card, to say the least.
Yeah, well, it's not very popular for Social Security payments to be cut off.
And that is seems to be a big concern that happen if there's some form of
shutdown as it was. Look, I will just throw out that it has
to become an issue if banks don't understand where the funding is going to
come from while they actually process payments.
There are things like that that go on behind the scenes, just like this is
like a hot stove. It's a hot stove.
League debt ceiling topic like the Red Sox is just pain.
It is painful. I will say that.
Painful, painful. Also the bitcoin.
I sold it all at fifteen thousand twenty three thousand dollars.
What did you get so interested in? Matt Miller.
Matt Miller grew a beard.

I said, that's going to be all in.
Are you going? Hold on a minute.
Where did this come from? Futures are negative three if you break
the VIX, twenty point one, a ten year old John from London e-mails in and says
it's cold here. Quote, Bonds more to your yield, four
point one a percent. Stay with us from New York.
From London. This is Bloomberg. Bloomberg Surveillance, good morning on
a Monday. Bramble Bakshi says bonds, bonds, bonds
will be looking at bonds, bonds and anything else to the hour, let's do a
pharaoh like bonds, bonds, bonds. Data check is that 1 8 percent on the
two year rate sort of down towards three point nine nine didn't get their reverse
back a little bit higher.

Yield up a basis point this morning,
2.5, 0 percent across a two year. And the former benchmark PS somewhat
related into a 30 year mortgage, three points, six, eight percent.
We're watching Brent crude. Seriously, Eddie 827.
It gets our attention fair in London with an important bonds.
Bonds. Bonds interview.
Where to do one here in a moment. Lisa, I want to go to you.
How about that housing market? Yeah.
Well, that's been a serious question. How much more pain is there?
And honestly, when when I was speaking with people at last week, they were
saying there could be another 10 percent decline.
Come on. This is what drives me nuts about Davos.
OK. Well, you're talking do can't decide on
a weekend whether to take the helicopter to their fourth or their fifth home.
I should listen to them about housing. I take your point.
There is a feeling of how close are you to the reality of anything that normal
people deal with at sort of a highfalutin kind of affair like this.
That said, when people look at the granular data, there has to be some
retracement with mortgage rates where they are.
And that was definitely a theme that we heard pretty persistently, not only from
executives, but also academics and others.
What did you learn? I'm going to guess off piste, as they
say, when you're off the deck of the famed those view of Bloomberg.
What did you learn about the Schwarzman Blackstone real estate experiment is
they call it.

So basically, if you end up as an
institutional investor owning large swaths of single family homes and
renting it out, what do you do? Honestly, I don't have intel in terms of
whether they're going to keep buying or whether they're going to sell.
But what you are seeing in the data is that rents are continuing to climb
because people are priced out of buying those homes because of the mortgages.
That's a tangible fact. I do.
I think that because honestly, look back historically, rents don't go down that
easily. It usually is.
They stay the same. And people have to be housed where it
was guilty. This is only one.
John Miller owns the high ground on this.
And once again, a luxury apartment study this weekend of stuff nobody could do
that could even afford the tax payment, let alone the property that I just was.
John Miller, with all of his wisdom, would actually go to like Queens, 47
blocks around six Greek restaurants.

We'd probably learn more from that than
anything else. Well, there's a huge bifurcation and we
see this ongoing and this is why it's so hard to get a handle of the data.
Right. Between the lower and the middle and
then the high end, which seems to be insulated from a lot of the pain.
And we continue to see that. Whether it's the housing market or
beyond, do we have equity, lovely debt? What are we doing with Spotify?
Let's start with Spotify, because they're now, as we talked about, we
talked about how they cut are there announced layoffs of about 6 percent of
their jobs. And what I find interesting is the
shares are popping. They're up almost 5 percent ahead of the
market. To me.
How long does this go on where if big tech companies or even medium sized tech
companies announce layoffs, their shares rally.
And we just heard from Dan ISE, it's probably going to happen until the
middle of the year and then people might end up getting a little bit more
concerned about more pain killer, just Spotify.
And, you know, what do I know about this?
For years, five year track record there, they're negative 40 percent per year,
total return.

I mean, is this a viable business?
Are they are they are they a zombie company happened to be trading public, I
guess is what I'm asking. And I'm not going to answer that.
But I will read this in another way, which is how do you identify the tech
companies that have staying power, the apples of the world?
How much are we looking at a sea change in the business of, say, podcasting,
which Spotify was massively invested in? So we do have that.
Also, I wanted to take a look at Salesforce because the Marc Benioff
empire, as you'll see. How wrong about you?
Do you see Elliott Management coming in, the reports that they have made a
multi-billion dollar investment? I find it fascinating this point that
Dan ISE also is making about how it's going to be a festival for activist
investors. And those shares also are up about 5
percent. Basically how they're going to make the
cuts necessary, make the management changes to the spin offs to get some
some action back to the shares at some value.
Tesla Tesla reports earnings on Wednesday and those shares are up about
two point two percent.

They announced cuts and you talked about
them on Friday, cuts to the pricing. Yeah, very interesting, actually, for
some very good reading on that. But why is it because of a lack of
demand? Well, is it because they're trying to
basically price out their competitor? Yes.
And get ahead of the GM and the Fords of the world?
Exactly right. And what they're doing here when
revenues are price plus units cut the price, units go up and revenues do
better than you would think with a 20 percent price cut.
So how much does that really give a feeling ahead of the following week?
We get the GM and the fourth of the world's reporting earnings.
We get a sense of what the demand is like from those earnings results we will
see and again, the 10 year yield, three point five 0 percent in the crosshairs
of the retail damage and fixed income. Truly an historic year is the Charles
Schwab Company of San Francisco. From the Schwab Center Finance for for
Financial Services, Colin Martin joins us right now.
Their fixed income research acts. Colin, I'm going to cut to the chase.
It drives me nuts in financial media where finance where fixed income
sophisticates talk about spread.

They talk about dynamics.
They talk about as if 2022 didn't exist. I looked at one blended iconic bond
portfolio down about 17 percent. I looked at an individual piece, which
I'm just going to mention. The 30 year Microsoft piece is down 30
percent from its price peak at one 10 is.
Well, let's begin with a look back. How bad is the carnage?
Well, Tom, it was a really bad year in 2022, and what we tell our clients at
Schwab is unfortunately we can't undo that.
How we do like to frame it, though, is making sure that you're really matching
the investments you own with what your time horizon is.
So many use that Microsoft example you just gave us, because a lot of times in
the financial media, we hear people sort of sensationalize things with like the
30 year Treasury and, you know, the carnage witnessed there.
But the way we look at it, Tom, a lot of our clients and a lot of individual
investors aren't owning 30 year treasuries or 30 or Microsoft bonds.
Maybe they have a liability in 30 years.

But we don't think a lot of our clients,
a lot of individual rights. So we really focus more on the
intermediate side of the equation. But I think another way to frame it is
what I said before is matching that time horizon if you buy a bond and you're
holding it to maturity. These prices are unrealized.
These are these are not actual paper losses.
They're not realized losses. And you know what to expect at a given
time frame. Now, the same is not true for it, for
funds, of course. And that's a whole different story.
But we can't undo what we saw last year. It's been a strong start to 2020.
We don't expect this pace to continue, of course.
But we still think the outlook is favorable now.
But again, you just need to align your investments with your timeframe and
objectives. And what's so important there, folks, is
Mr Martin. Absolutely.
Nails were people like me go out to the sensationalism of 30 year or dare say a
ninety seven year Austrian piece to get a big number to put, make a banner pop
on television or even a banner to pop on radio.
With that said, what is the duration that you have, the duration of U.S.
papers, five, six, seven years? Do you come inside that within in most
portfolios? Now, we think that's OK, Tom.
And actually, if we look if you're looking for good examples instead of a
30 or 50 or you can go to those European hundred year bonds, that's gonna give
you a better bang for your buck.

But in terms of what we're telling our
clients, you know, five, five duration or even a little bit more would be OK
with us. The way we frame it is to not just be
short right now. I know that's a concern, especially
given last year's performance. But we think there's this idea and
hesitancy to move further out in the curve because of the inverted yield
curve. Right.
A common question is why would I invest in a 10 year bond to three and a half
percent? If I can get more in a money market fund
or a six month T bill and we'd rather lock in those yields with certainty.
So what that magic number is, we don't really have when it's going to depend on
each individual investor, but we think it's probably a little bit longer than
what most individual investors have right now.
Come on.

Don't you get a little concerned or feel
uneasy given the rally? We've already seen how much yields have
come down. It's concerned that maybe the trades
already up. It is a concern, we said, when we
published our 20, 20, 3 outlook. We thought the 10 year could fall to the
3 to 3 and a quarter percent range. And we cut awfully close to there in
just a few couple of just a couple of days.
Our guide is is a little bit more difficult now.
And we understand it is a difficult pill to swallow, to accept a deal that at
three and a half percent when it was just four and a quarter percent for the
10 year. You know, back in October.
So it is a little bit more challenging, but our outlook really does remain the
same because we do think growth should continue to slow.
We think what we've seen in the soft data should translate to a softening in
the hard data.

We think inflation is going to continue
to trend lower. We think as time progresses, we will see
those Fed rate cuts. And that's really what it comes down to,
because if you look at intermediate long term yields, work markets are forward
looking and seeing, well, what's the average of that short term rate over X
period of time? Now, we don't know if those rate cuts
are going to come in 2023. We think it could be a 20 24 issue.
But we do think that as growth continues to slow, we will see yields kind of
across the curve, especially in the short and fall a little bit.
Well, that's a second half.

Twenty three and early.
Twenty twenty four to shoot. Colin, when do you think that inflation
will fall to 2 percent? The Fed's goal?
It could be later this year, it's probably a 2024 thing.
One thing that we look at a lot is first is, is wages.
Yes, they are coming down, but they're still at an elevated level.
I think that we know is is a key driver of inflation.
And we'll just look at the broad labor market landscape.
It's still relatively strong, richer, still trying to figure out how we how
we, you know, marry the two issues of that.
The headlines we see of all these job cuts and hiring freeze announcements
with a still low unemployment rate. But given that that hard data we see, we
think the labor markets remaining resilient.
We're also looking at these monthly numbers.
I think the P.S.

Report this week is going to be
important. We're still at that, you know, two and a
half, three, three and a half percent level if you look at those monthly
numbers. So we're still looking at twos and
threes, you know, two point two percent, point three percent.
We need to see point one. Point two is before we're more
comfortable that we're gonna get to that 2 percent level.
Conroy Thoughtful. Thank you so much.
Mr. Martin is a sharp center for financial
research as well. What you said there, Lisa?
I really can't say enough about it, which is if you've got something
moderate duration, you're in carnage down 15 percent, down 10 percent, you're
scared stiff. You just hold the puppy back to
maturity. The iconic book on this is Inside the
Yield book, Sidney Homer and Marty Liebowitz.
I was directly involved in bringing back the second edition of it.
It is a rite of passage in bonds.

You have to read it.
And the major message was you heard from Colin Martin is don't panic and hold it
to maturity level and just extrapolate that out.
This was one big discussion that has been in the private markets where if you
basically just don't price and the pain, does it go away because everything will
back back to where it was in the value that it used to have.
You've got regulators, you've got central bankers saying, no way, this is
going to be an area of pain.

And you have people on the market
basically saying this is why it's good to have the price.
I don't know if I'm more direct, depressed 50 years on from inside the
old book, The Majesty of Sydney Home or in Martin Liebowitz, or you know what
Fulham is going to do for him? Which is it?
It's the one that doesn't indicate what we're gonna have for dinner.

It's going to be one of those as well.
Stay with us. This is Bloomberg.
Good morning. Keeping you up today with news from
around the world with the first word. I'm Lisa Mateo.
In California, authorities say the suspect in the shooting deaths of 10
people in an Asian community near Los Angeles has killed himself.
The attack took place in a ballroom near during Lunar New Year celebrations.
Now it's Billy. The suspect described it as Asian male,
tried to carry out a second attack nearby in the U.K., ambulance workers
are walking out today in the biggest strike by first responders.
Trade unions are protesting pay levels in Britain's National Health Service.
They're demanding a double digit pay hike.
Germany and France warn that European businesses will have to ramp up spending
to compete with the U.S. and China.
German Chancellor Olof Schulz and President French President Emmanuel
Macron met in Paris on Sunday.

They discussed how the EU should respond
to President Biden's Inflation Reduction Act.
That measure includes roughly 500 billion dollars in spending and tax
breaks to benefit U.S. companies.
Bloomberg's learn that President Biden will name Jeff Zients as his next chief
of staff today Sciences, a former business executive who was once the
chief architects of Biden's initial Covid team.
He'll replace Ron Klain, who will leave in the coming weeks.
White House chief of staff is among the most powerful figures in Washington.
And Spotify is expected to be the next tech company to announce layoffs.
Bloomberg's learn that the music streaming giant is planning layoffs as
soon as this week. Spotify stock fell 66 percent this year
as investors question when they'd see returns from big investments in
podcasting global news 24 hours a day on air and on Bloomberg Quicktake, powered
by more than twenty seven hundred journalists and analysts and more than
120 countries.

I'm Lisa Matteo.
This is Bloomberg. There's enough software price and wage
data for this Fed, too. I think the way they're feeling now is
comfortable that they may be done enough or getting close and having done enough.
I am quite uncomfortable that they've actually done enough here and I think
we're going to see that in something well coming data.
Andrew Hall and her Citigroup was really an eventful week in Bloomberg
Surveillance. We thank them for making available their
lead economist and I really can't say enough about their conversation and got
many, many notes off of the intelligence as it could from UCLA.
Andrew Holland was Lisa just killed it there last week.
There were 50 beeps.

They go to 25.
But the heart of the Citigroup matter, along with so many other people in the
parlor game, if you will, is they will not retreat from where we're going.
It may take longer to get there and then a level than that and all the stuff
you're addicted to. But the bottom line is they did not
retreat from five point X percent. I just say bonds, bonds, bonds, bonds,
bonds over and over again just to make sure you have faith.
I figure if you get a fed world they're talking about.
I think it's price down, yield up. But for which denomination?
It sort of depends on whether people think that there's going to be some sort
of recession that gets induced by that rate.
And then all of a sudden people start investing in longer term debt.
But these are the questions that people have kind of shrugged off because they
believe in a soft landing, which I think is seems more likely with certain of the
aspects, with energy, with, you know, what we've seen with a warmer winter.
But does that sort of upend this idea of the Fed backing away, which a lot of
people would want to see? John Farrell in London.
We'll talk bonds with John Farrell here at the top.
The eight o'clock hour Lisa Abramowicz of scones bad from Davos, some Tom

Thank you for joining us on radio and
television. It's really important to book.
Damien Sasso, our in the Year of the Bunny.
We're doing that right now. It's a chain.
It's just basically Asia shut down right here of the bunny.
It's the year of the Bunny Asia. It's a gorilla bunny.
Michael Jordan and Brad Pitt. We talked about this thing.
George Michael, they're all bunnies. They're all hopping around out there.
I mean, I'm not a but I'm a tiger. How does it shut down the entire east
going? Stone It shuts down.
I mean, look, I mean, it wouldn't show that it's a week.
It's Golden week at Spring Festival.

People go home and spend time with their
families. Can you get a lot of mobility?
You know, the cove. How does Covid overlay on that?
What we're going to find out, I think I think it's going to be a very
interesting holiday this year, given what's going on with Covid and what's
going on with hospitalizations and everything.
So link in your world a micro decision or choice of a China recovery into a
given country. How does it impact Vietnam or Indonesia?
You know, you pick the country. Well, I heard Lisa talking earlier.
You know, she had some good conversations out in Davos about how,
you know, it's very difficult to move your business out of China entirely
because you want to sell into China. And so if you move out of China, you're
not going be able to sell into that market.
Right. Which is a very good point.
So there are some real decisions that need to be made.
But rest assured, we are seeing a lot of people, you know, reengineer their
supply chains into places like Southeast Asia, like Vietnam, as you're as you're
referring to.

Although it's not at the pace.
I think many like Leland Miller and a lot would've expected.
Certainly we're not seeing the reshaping into Latin Americans and Mexico and
Brazil that one would have hoped for. But those currencies have absolutely
killed it. And look, I mean, now is the time as an
emerging market practitioner to be looking to receive in emerging markets.

Because if you do and indeed believe
that the Fed is going to pause at some point in time, yeah.
That means the other markets are going to probably pause as well.
And you're going to look to, you know, receiving the front end.
A lot of these cards, a lot of people are starting to look at Brazil, Mexico
to that extent. They're looking at Eastern Europe,
Hungary, the Czech Republic, finally. And so, yeah, I think that I think
there's probably some legs there. I have to say, I actually Google it.
Year of the rabbit after you said that, because that's what I did in the
fireworks that come up.

And it said that people who are born in
the year of the rapid are believed to be vigilant when he quick minded and
ingenious. So just some value add there.
As we talk about the reopening of China in this new lunar year, there is an
issue of its effect on commodity prices with a lot of people from Chevron's CEO
to the head of the IEA coming out and saying we'll probably boost prices of

How does that up end or add to some of
the emerging markets bet that a lot of people are piling into?
Well, I mean, the bet has been a softer dollar.
Here's the interesting thing you have to think about, right?
If we do see inflation remain sticky for longer, it's called 4 percent, not 2
percent. Right.
Tighter conditions are going to be here to stay.
And let's just look back at the last 10 years.
Well, let's look back. Since 1970, we've had a number of bull
markets, you know, in emerging market currencies and foreign currencies in the
dollar. You know, this dollar bull market is
four years longer than the last two since the 1970s.
And it's been eleven years and running prior to October last year.
Secondly, if you look at the growth in private as opposed to publics and
talking equities, primarily eleven times growth in private is only three times
growth in equities. I mean, it's still a pretty big number.
But this just shows the amount of these these liquidity conditions, these easy
money conditions, conditions, how that engineered all this stuff that's out
there in private land that's going to finally rear its ugly head, I think, if
conditions remain tighter for long.

So I agree with you.
Rising energy prices, copper prices are up 11 percent year to date.
Copper is up five of the last seven years, Lisa.
So, you know, if you're talking about the bull run in commodities, you're
talking about conference and oil. I agree with you.
Sticky inflation, it's going to be a risk.
Do the fundamentals matter if you get a prolonged selloff in the dollar?
No, not anymore. I think the dollar is really the beast
that keeps kicking. I'm not going to lie.
You know, there's so much noise that go into what drives the dollar each and
every day. Money flows and all that kind of good
stuff. But the dollar is really the kicker
here. When the dollar moves, everything seems
to kind of wake up and follow. You know, we could talk about
fundamentals to we're blue in the face of the dollar's moving the wrong way.
It doesn't matter if you are a good to get the football here in the moment you
to expertise.

But, you know, it's the only reason we
had John. Very quickly here, what are the emerging
shadows in the there's just purchased, barely percolating this discussion of
shadow banking, shadow economy off of the telegraph, did a great job in this.
And in Davos as well, what is the E.M. shadows out there you're paying?
It's not. India and Mexico have huge nonbank
financial kind of sector crises at our flight.
Shadow financing. Right.
Which is kind of legal. I mean, they're a publicly traded, huge
companies in many ways. That is risk to them.
What Zoellick names we know or is it you don't they're in your portfolios if you
own emerging market, U.S. dollar debt fund or some of those bonds
probably are in there and wish you would be able to sell out of them at this
point, because it's not really a sustainable model for funding a domestic
economy, in my opinion. But you have to resort to those types of
all those kinds of shadow funding opportune, you know, kind of sectors
crop up because you can't bring dollars.

I'm sure you can't get funding
externally. I've already gotten messages saying
you're so gloomy. And to me, even if things go well,
you're still gloomy. And to me, is that basically what you're
saying? Yeah.
I mean, honestly, that basically what you're saying, that people are all
positive on emerging markets, but you still see the shadows out there that
could potentially rear their ugly heads out of Christ.
ISE get a little I'll get a laugh holds up.
He'll tell us what's going to talk about the bull opportunities.
And I hate to say this because I'm going to get beaten up for it.
But I mean, you look at Ukraine and you look at the value and the unprecedented
support for there for that economy.

I mean, they've got a lot of dollar
bonds out there, a lot of GDP warrants. I mean, some people going to look for
value there. You talk about the elections that we're
seeing in Nigeria. Peter Roby, Labor Party may not get a
PDP coming in. He's promising to re profile their debt.
There may be some value there. Argentina, the whipping boy of emerging
markets. It's just the 20 1930s.
They announced that one billion dollar buyback program went from 19 cents to 30
cents in a week. Sorry.
You know, we haven't have it just for those who we're talking for.
I didn't know there was a sad, very depressing reading.
It was really a sloppy, gross, ugly, clumsy, classy game.
That's fine. But let's move on to what might write a
dream match of Eagles 49ers. I mean, this is what the networks and
all that. I'm guessing the betting world is loving
one and a half point spread there for those next marathon next to nothing.
Jalen hurts.

Looks awesome.
The Eagles look awesome. I mean, their defense looks great.
But, you know, CMC, I mean, Brock Purdy, I mean, the 49ers are good.
But the real story you hit on it was that snowball was Joe Barrow.
I mean, Joe Coleman, I mean, he was throwing lasers in a blizzard.
I don't think I've ever seen anything like that.
Mean he is awesome. To be fair, is 49ers Niners, Eagles, the
real Super Bowl this year? No, absolutely not.
I think actually, if anything, I'm more impressed by well, before Patrick Holmes
got hurt. Yeah.
I mean, the chiefs and the Bengals look to me to be the favorite.
But I mean, the Eagles look good and both games are about one to one and a
half point spread.

So they're both going to be very tight
games. If Vegas gets gets their way, is the
betting just growing in leaps and bounds?
I mean, has it become like a British equivalent to Premier League pharaohs?
But like, you know, I don't think his mother knows it, but he remortgaged her
house today and for him. And so I've done that up to date on
this. There actually is geo it's, you know,
kind of geo mapping data on this. The the link, Lincoln Field,
Philadelphia. And I'll talk about a city that gambles
if you can actually see this, hotspots of them hitting fan ball and draft
kings. It's really unbelievable.
And out of the Lincoln field more than any other field in America by far.
So if you saw what was going on, the link, I mean, to, quote, show L.A.
it was lit, man.

I mean, OK, but we're always lit when
Damian says with were there on the sport to come on American football and, of
course, English football. John Farrell on assignment.
Yeah. So you keep saying that.
I mean, saying that you're here, but watching the game always go gone.
I think he's I know he's in the hammy stand there.
It's just little it's like Wrigley Field in Chicago.
It's just little tiny completely on. I don't know.
I bet that you see, I waved to him when I come into Heathrow.
All I know is that he actually eats says pie correctly.
Unlike you there do a nice photograph of which evidently is really a faux pas.
Little meaty pie thing.

Oh, de Luca, somebody comes up to me.
I'm sitting there with Mrs. Keane in the Reichstag.
She's. Thank you.
Stun him like, sir, you're in the pie room and they have to show me how.
Well, know, right? It's all right.
It's not like. We're going to come back.
I think Jonathan Ferro would later apply all over my face.
That is great on radio. This is Bloomberg.
Good morning. Stay with us, if you dare. Investors are really realizing now that
serious growth slowdown is probably a height of ISE.
If you look at strategists forecasts this, this may be the weakest year I can
I can remember in terms of forecasts this year.
Basic food inflation speed yields are likely to peak and that's what we have
witnessed in the last six weeks or so. The market is leading the Fed on the way
up and leading the Fed on the way down. It's a delicate dance the Fed is trying
to do. This is Bloomberg Surveillance with Tom
Keene, Jonathan Ferro and Lisa Abramowicz.
Welcome back.

Good morning.
This is Bloomberg Surveillance on a Bloomberg radio and television Tom Keene
Jonathan Ferro Lisa Abramowicz. John is in London checking the weather.
It is the quiet period is quiet because of Fed officials aren't speaking ahead
of next week's meeting. But I have to say that we're actually
now able to focus on the real stuff, which is the earnings that are coming
through and that perhaps will justify either the bull side of the bear.
It's good to see you. This we get a lot of economic data here.
And I'm going to go to how I started the show this morning, Lisa.
We're going to get a first look at Q4 GDP in 29 minutes.
And I'm sorry, it's recession gloom and we're pop in on a 10 year basis, 20 year
basis, normal GDP.

I don't get it.
People are basically looking past the near term and saying things are going to
turn the corner. And you have this sort of belief that
suddenly we're going to have a good first half and a bad second half of the
initial take on 2023 was reversed within the first week.
Now, how much do we get the earnings that they have justified or they don't?
Mike Wilson continuing to say in the first quarter, we're going to see
something that really pushes back real earnings and margins, compression, bank
earnings, I think showed the audience include is secrecy is and I'll get that

I can pronounce it like Monday morning.
I'm barely awake. You're but I'm sorry, Morgan Stanley
plus plus plus your interview with James Gorman and Goldman Sachs will not plus
plus plus a few others there. Maybe we get there through it all.
Most important conversation at Davos. Let's go to it right now.
You guys were brilliant with Gorman on the national debate, which has worked
from home. I thought that was just spectacular.
Well, right now, if you talk to any executive, they're sick of it.
And that's basically what they're saying with the work from home experiment on
the margins didn't work on aspects that did work.
And it's not going to put the genie back in the bottle.
You're not going to see that, as James Forman said.
But you aren't going to necessarily get it all worked from home kind of

Did you see all the job listings for
work? For home, there aren't that many.
But the number of people who are looking for work from home jobs is just
extraordinary as people try to make. My theory on this going back into the
pandemic is if you sustain work from home, you get a compensation shift
because people have to travel. I mean, you know, I'm live in large and
fancy and I don't know this, but many, many of our viewers and listeners out of
the commute and it's demonstrable if you're not work from home.
What was interesting during last week's discussions, even Jane Fraser, Citigroup
was one of the pioneers. They were saying actually, OK, it's nice
to have flexible work situation. She talked about retraining people if
they weren't performing and they were working from home.
There was a feeling of frustration that I saw pretty universally between all of
the executives.

You go to the data check.
I mean, look at the Bloomberg Financial Conditions Index was just telling me we
are not restrictive and Mr. Paul has work to do.
Well, and that's what you're seeing right now.
We were initially negative, but now we're positive on the margins across the
board heading into the open just marginally, basically flat 39 thirty
nine ninety going to 4000 before all of a sudden we get some sort of rocketing
or do we just keep on climbing? You see right now with a euro gaining,
it's honestly the strongest going back to November.
And I do wonder how long we continue to get that versus the dollar stronger
since April, I should say, as people look to the warmer than expected winter.
How much do we also see the expectation of hawkishness from the ECB pushing that
euro higher at a time when people were really positioned for weakness?
I mean, look at Brent crude up 1 percent.
You see it right now on television.

For those of you on radio, West Texas
Intermediate, 82 44. Brent crude rounded up eighty nine
dollars a barrel. It's a different world, hit.
Ninety dollars a barrel. And I also would point out the idea of
Bitcoin printing right near 23000. You got a feeling of that big equity
lift we got on Friday. Will it surprise this week?
Right now, there's no surprise, intelligent conversation in London with
our Jonathan Ferro. And he has Mr.
Stele of J.P. Morgan.
John, it's. We were just reflecting on the fact that
you eat a pie at a football game with a knife and fork.
I'm still trying to get my head around. It was embarrassing.
People coming up and where's my robe? It was John.
I kid you not.

It was painful.
I need to hold your hand all the time. Take I'll be back in a second day.
And stealing if J.P. Morgan Asset Management alongside us
today. Great to have you with us on a boat.
And I want to start here because I think this is really important in the United
States. Ask about the debt ceiling and people
shake their heads and they're like, not this again.
Is anyone asking about that when you go around to see clients in London, in the
U.K., across Europe? Are they asking about it, to be
completely honest? No, not not really.

It is the no.
The odd person is starting to to think about it.
But I get the sense that's a case of. We've been here, we've seen the movie.
There will be a bit of to ing and fro ing.
But the reality is at the end of the day, there will be some resolve around
that. Do you think they should CAC?
Not yet. I think ultimately you need to get you
to wait until we get into the stage where actually there is going to be a
material impact that's going to be later over the course of this year.
I always look at the bill market to see it as any spikes in certain certain
maturities we're not seeing yet. Yes, the market's not really
particularly focusing on it, and I feel that we've had over the last few years.
This isn't the first time we've had these these conversations.
There's a lot of there's a lot of other things going on in the world before we
get to probably worrying about it.

Well, the ultimate test of that is if
the debt ceiling hits the fan. Do we buy the 10 year treasury?
The answer in years gone by is yes. Do you see the answer changing?
Probably, but more so now, just because actually you've got some yield on the 10
year treasury. We were happy to buy the 10 year
treasury bond in 2011 when there wasn't much yield on the 10 year note.
This time there is a definite thing that will be the case and the flight to
quality will will favor those those bonds.
Where there hasn't been any yield and hasn't been for several decades.
Is Japan. I know there's a massive focus for a lot
of people here in London for you as well.
Looking at sixth income, there was a meeting back in December.
We had the meetings minutes and it suggested that the government official
there actually requested a recess, suspended the meeting.
What do you think is going on at the BMJ and do you think the government is happy
with it? I think the reality is when you look at
where inflation is in Japan, it's not what we've seen in the US.
It's not what we've seen in Europe, but it is going up.
And at the moment, their policy looks at odds with with what's happening.
The reality, though, is they don't want to cause untoward volatility in the

I'm not I don't want to I can what's
happening in Japan to be what happened in the UK a few months ago?
Sure. But they don't want to see that level of
volatility. So I think what we've learned from the
Bank of Japan over the last couple of months or so is that I think we gonna
get there, but they're going to do it on their own terms.
They obviously widen the band when the market wasn't expecting it.
The market was hoping for something last week.
They didn't. And they're actually doing these
facilities at the moment to try to keep financial stability.
We're going to get there.

It's inevitable, I think.
But they also want on their own terms. Two words.
Want to talk about normal and market. Those two words, I caught it with Jeremy
Stretch in the last couple of hours of CNBC and he said Japan is the next want
to normalize. And I said, what's normal?
I've got no idea what's normal in Japan when they've been doing this now for
decades. The other word I want to talk about with
you as well is the word market. Is there a market, a sufficient market
with private demand both domestically and internationally for Japanese debt
for when this VHA backs away? Does it exist?
Is there any sign of the one actually being that right now that's going to be
challenged? Because obviously the Bank of Japan own
a huge, huge piece of the market, particularly in the in the short dated
10 years and in where they've obviously been looking to control control yields.
So I think that's an open, open debate.

Obviously, we're going to see the market
reprice to work to where it should should do.
But the reality is there is a huge amount of securities owned by by the
market, more than any other reprice, too.
We don't know if there's a market to actually what you get, what you can do.
If you track the 10 year GDP yield and put it on top of a 10 year Treasury
yield and you see Treasury yields move higher over the course last year, that
the 10 year GDP suddenly hit hit the upper bound.
If you've done that before, then there was a pretty good relationship.
So if you reach continue to track that you're talking somewhere 70 to 75 basis
points given where the 10 year treasury is.
That probably seems as as a good starting point.
As I said, inflation in Japan isn't what it was in the US and Europe, but it's
going up. We've got wage negotiations coming up in

I think they're going to have to let
that go. So don't fight.
The Fed used to be the phrase and they've been reflected on that.
Should I fight the VIX? I think the interesting is I said they
want to do on their own terms. So at the moment, they're trying to push
some of the shorts out of out of the market.
If you've got a long term view that you can hold that and actually yields will
be higher over the medium medium term, what kind of numbers are you thinking
about on the yields? I think 25 basis points on the 10 year,
I think. Can they go beyond that kind of number
doubt in Japan? I'm looking at the things right now that
are taking place across fixed income and with central banks.
You're talking about the BMJ backing away from the yield curve control.
The ECB is doing duty. They've got officials running out all
over the place.

Some 50 basis points, 50 basis points.
I think the Bank of Greece pushed back a little bit in that world.
Is that bullish or bearish for fixed income at a time where I've got pretty
much everyone in fixed income saying buy bonds, all these things taking place,
Japan. The ECB cutesy all over the place.
Is that bearish or bullish fixed income? It depends what part of the fixed income
market you're talking about because the US, where people are looking to buy
bonds are seeing the bigger repricing. We've got more evidence over the last
week or so that we are having a slowdown.
Retail sales, we're gonna have the Fed who want to slow down from their pace.
The European Central Bank, the Bank of Japan, they're behind the Fed.
We've only just got to neutral in Europe.
And as she said, what is neutral in Japan?
Maybe we'll find out.

No, I.
So they need to do a little bit more. And I actually think Europe is
particularly interesting at the moment because we were in a world where they
were hiking rates to deal with inflation.
Now inflation's coming or likely to come off because what's happening in energy
prices, that should be good for the economy.
Growth is supposed to be especially in recession in Europe at the moment, and
we're not. So are the ECB going to maybe have to go
slow a bit further as they try to battle this?
So definitely there's a dynamic between wanting to own US fixed income and then
being a little bit more cautious in some of the other markets around the world.
I wanted to squeeze this in because I asked this question earlier.
All week, does ECB hike more than the fat in 2023?
Yes, seems to be the takeaway at the moment.
Instead, this is fantastic. It's good to see it from JP Morgan Asset

That's to guess in the last couple of hours.
If I've said the same thing, this ECB in 2023 set to hike more than this Fed
reserve. Good to see you, John.
I looked at it this morning. First charter I looked at was ECB on
their financial conditions index. And they are way, way behind the
improvements that we've seen both in the United Kingdom and in the United States.
John, if you go across the party bridge today, I mean, you're out there at 4 AM
watching the game. And I've done my research, John.
And the next time I'm there with you, I don't know why I'm not with you now.
Bahram ISE. You know, I just don't want to be alone.
But the steak and whiskey pie at Putney Pies and I talked to and they said
they'll even teach me how to eat correctly.
I'll get you a packet pot, some of send it back, maybe get you a couple of
frozen ones.

Jihye Lee mushroom used to be my thing.
I'd like to think it's awesome. It's a pocket pie.
You bring a brace of those offers of work.
Well, you know, bring a brace of those back for the team and to my grandma.
Oh, and do you microwave? I think this is the one day of the year
that I think fans in New York, Tom, are happy that we're talking about
international football and not your kind of football.
It was after what happened to the Eagles.
Let's talk about it. Well, I agree.
And frankly, I like the pace you taught me.
I like the pace of English football versus the takes for ever American

Jim Farrell in London.
All this week was important conversations as well.
Lisa Abramowicz and Tom Keene here in New York, futures, they go green up 6.
Stay with us. Great gas in the next hour with Pharoah
from London. Keeping you up to date with news from
around the world with the first word. I'm Lisa Mateo in California.
Authorities are trying to figure out the motive for a mass shooting in an Asian
community near Los Angeles. Ten people were killed when a gunman
opened fire in a ballroom during Lunar New Year celebrations.
The suspect, described as an Asian male, was found dead of a self-inflicted
gunshot wound. Poland will ask Germany permission to
send its German made leopard tanks to Ukraine on Sunday.
Germany's foreign minister said if Berlin were asked about the tanks, it
wouldn't stand in the way. The failure to work out an agreement on
tanks has overshadowed pledges to send more military aid to Ukraine.
The Justice Department has found more documents containing classified
information at President Biden's home in Delaware.
FBI agents searched the home for more than twelve hours.
They are said to have found classified notes from the president's time in the
Senate and vice presidency.

Spotify is the latest tech company to
cut jobs. The streaming giant said today it is
cutting its employee base by about 6 percent.
The company has about ninety eight hundred employees before today.
Spotify stock had fallen 58 percent since the end of 2021.
Global news 24 hours a day on air and on Bloomberg Quicktake, powered by more
than 20 700 journalists and analysts in more than 120 countries.
I'm Lisa Matteo. This is Bloomberg. I currently favor a 25 basis point
increase at the FOMC next meeting at the end of this month.
Beyond that, we still have a considerable way to go to our 2 percent
goal. I expect to continue tightening policy
passed this. To be biased, one of my favorite,
favorite people and now in monetary policy is Christopher Waller.
He is a research horse from St..

He is one of those people that was weaned, undoing, creating and reading 30
page PDX. And he has prodigious abilities.
There's all different types. Lisa at the Fed, he's the research wonk
and you have the others and they all are coalescing around a view that the Fed
needs to do more, but perhaps not that much more.
Yeah, well, we'll have to see. And of course, the devil's under the
prior to the economic data we're going to see, including important data here
this morning. Let me get that up right now.
Am I right in that we've got the leading index here at 10:00 and then tomorrow we
go into a raft of economic data is staggering to the 26 of the months.
And to me, that key first look at GDP figures abate a little bit of lift to
the market, just like what we saw on Friday as well.
Dow Jones Industrial Average, thirty three thousand five hundred forty seven,
but straight up on four thousand on S P X on the equity market.
Now, Gina Martin, how times are the briefer?
And Gina, I want to go back to my great mentor in London, Mignon decide with a
definitive book on Marx's history and on the travails of capitalism and the
Economist magazine, Deci.

Lord Deci has always said profitability
matters. Where in your world do you see
profitability? Is it net income or is it up the income
statement? Know, I think this is a great question
and a really key question for 2023 in particular, because last year, 2022 was
really about shrinking margins, particularly relative to expectations.
The analyst consensus is anticipating rising margins through the course of
2023. We have started to see actually in this
earnings season, company cost cutting is what is really driving the earnings beat
for the first time in a long time. Companies are actually missing on sales.
So for the first time since the first quarter of 2020, 2019, we are seeing the
S&P 500 missed the sales expectation, but nonetheless, b, the earnings
expectation because of those cost cuts.

So profitability is becoming a very
important factor for performance. And I do think we will see that continue
to perform all year. I don't want to pin you down on this.
And I understand sector the sector, particularly banking, is an axe as its
new ISE. But if revenues are lighter because of
disinflation, let's suggest and we come down to gross margin and then various
and sundry CFA margins and then we will also over to free cash flow.
Which measure of profitability is the one to study?

So we we track operating margins very
closely. And to your point, that's very difficult
to do when you're thinking about the financial sector, which you really have
to analyze separately. Nonetheless, we do look at operating
margins. We analyze the operating margins for
nine of the S&P 500 sectors, excluding financials and real estate, of course.
And intriguingly, operating margins are on are beating expectations for most
sectors so far this season. Now, what's most interesting in the
broader landscape is the reason for the sales mess.
And I think that that's really important to understand why our companies missing
sales and what companies are missing sales.
And most of the mess is because of the decline in commodity costs.
So we're seeing it concentrated in expectations for energy and utilities
companies as opposed to the broader index, which has serious consequences
for what you're thinking about in terms of an inflection point on earnings.
We believe that 2023 will be a year where you see earnings and flat more
positively into 2024 because of this margin dynamic.
But I think we want to watch really carefully over the next several weeks of
earnings season.

You know, we really kick off earnings
this week with about 90 S&P 500 companies reporting.
We see the next three weeks as the most critical and most consequential for
really framing that outlook for an inflection point on margins, an
inflection point on earnings in 2023. So what you make of all of the narrative
is, Gina, that you have companies that aren't going to lay people off, not
necessarily in the tech world, but elsewhere, because they couldn't get
workers during the pandemic. And they've been scarred by that.
They're not going to lay off workers to cut costs and they're just going to see
it in their margins. Is that basically a myth or are you
starting to see that? Well, I think that it is very industry
by industry, we say you're correct to point out that a lot of the cost cutting
so far and the layoffs have come in the tech space where we saw some of these
tech companies doubled their workforce. So the caucuses of the pandemic.
So they're saying, you know, we're seeing somewhere between 5 and 10
percent layoffs into 2023.

I do think it is industry by industry,
sector by sector, though, because there was limited over hiring in some segments
where they couldn't find workers. So they're not going to necessarily get
the margin benefit. Now, when you look at the true weakness
in margins and you focus on the operating margin lines, the areas of
weakness were concentrated in the tech space.
It's the communications DAX in particular, but also the tech companies
to a lesser degree, consumer staples companies and some consumer
discretionary companies where you have some issues with margins.
Those are the four sectors I think you watch most carefully.
The rest of the indexes is going to be less about margin, significantly more
about sustaining revenue growth as we go through the the economic cycle.
But it is not yet paid the whole index with one big broad brush when it comes
to this issue.

It just it certainly is much more
idiosyncratic risk at the company level and then even broader at the
undersecretary level. Gina, I was reading Mike Wilson's
comments over the weekend and he's been pretty consistent in his message.
And he said the question is when will equity indices price the current
weakness in the leading data and the eventual weakness in the hard data?
They believe it's this quarter. How do you push back against that if you
don't necessarily believe that you're going to see that margin compression?
Well, I think we all can sort of argue about how much was already priced,
frankly, in 2022. Our models would say that in the
downdraft that we saw in June and then again in September and October, we
already priced a pretty significant earnings recession coming into 2023.
It's a difficult time in the cycle, frankly, because investors are scared of
this word economic recession. But the reality is the earnings stream
has been in recession for more than a year.
We look at overall unadjusted earnings.

They peaked back at the end of 2021.
They're down about 7 percent. The analyst consensus without expecting
them to drop double digits over the course of from peak to trough.
So there is a degree of weakness that has already been priced and also is
already anticipated. I think we're starting to see that with
the earnings season where a company beats are being rewarded at double the
average pace, company misses are certainly not being being punished with
stock price declines in that respect. From that respect, it would suggest
we've already priced in a strong degree of weakness.
I think you do have to have further evidence that things are going to get
much, much worse for stocks to react extremely negatively in the first
quarter. I mean, I'm a junior very quickly here.
We're in it. We're a run out of time, but I get
another lift to the market.

I've got Dow futures up 88, SPF up 9 as
well. We saw the big lift on Friday.
And all I do is go back to the gloom of 73, 74 and whammo, 75, 76, back to back
2 years. What precludes that from happening
again? Well, I think the inflation dynamics
certainly reminds us all of the mid 70s is there even the early 80s, which was a
lot of volatility and inflation, certainly whipped around stock prices.
That said, I think you do need to understand where you are in the economic
cycle and what has been priced by the equity market.
It is extremely important to understand that equities do precede the economy.
Equities do price what is likely to happen in the economy over the next 12

Over the prior twelve months.
So what we're doing in the equity market analysis that we do now is saying where
are we going to be in 2024? Because that's important to consider for
framing your outlook and for your positioning.
And frankly, our work would suggest we will be in that early cycle recovery by
sometime in 2024. That means 2023 is an inflection year
for the U.S. equity market, where you start to rotate
into early cycle sectors, you start to think about value has been unlocked, but
you have to do so on a company specific and industry specific basis.
When valuations are as high as they are, an inflation risk is still relatively

Gina, thank you so much.
Gina Martin Adams to get us started strong on Monday on the equity markets
and again, a big lift on Friday. Late, late, late.
Some people missed that and read on the screen.
And now Lisa reversing futures up nine. That was my fault.
You're saying basically I'm back? No.
Things have merit. Lisa's reversing futures.
I do wonder, though, when it's bad news. Bad news.
We asked about that last week. And this will be a week of discussing
that as we're almost back. We'll analyze what is what is good news.
Good news, sir. The other side.
We'll do that. Claudia, some anticipated.
Stay with us. Bloomberg Surveillance Monday morning on
radio and television, thank you for joining us on economics, finance,
investment and international relations haven't even touched on Ukraine and the
tank debate that went on all weekend and I would suggest picked up and got some
steam to it.

John Farrow in London, look for his
effort here in twenty nine thirty minutes as well.
He's got a great set of gifts of guests lined up.
I noticed. I believe Christian Romani will be on
there, who's got real money at risk and asked to make real allocations forced
into the market. Cash is not a luxury for DAX mining.
And that'll be interesting and interesting conversation.
At least Abramowitz rumored that from Davos.
Is there, is there let Jack, do you have let Jagger.
Are you back? You can judge me in about a half an hour
and tell me whether I'm too late.

Yeah, it's great coming back from Europe
with a jet lag actually being somewhat convenient for our schedule.
It is. You know, it works out as well.
Lisa here. We'll get through the week together.
Mr. Farrow, again in London.
It's a good thing given all that's going on over there.
Lisa mentioned the labour unrest in the United Kingdom as well.
Futures up six. We had read them the screen earlier.
There's a little bit of a pop to the market.
The VIX write down on a twenty level.

Don't want to make too much about it,
but we're watching with yields higher. I'm going to call it a more constructive
tone on the market. And let's rounded up eighty nine dollars
a barrel. I'm Brent crude.
Maybe that's the thing to watch in February.
And I would note a Bloomberg Financial Conditions Index, which is miles from
restrictive as well. This is a joy.
She's hugely controversial. Always brings up a fire of e-mails and
social and Twitter and the rash. She's Claudius.
Who is Michigan economics and really thoughtful about this identification of
inflation. The link to the labor market, some of
the older theories that maybe don't work and some new research that needs to be

She's, of course, with some consulting
and a former Fed reserve economist. Claudia, let me go.
I want to get to a more thoughtful thing, a more theoretical thing.
But in your note is something that is ancient high inflation, Cure's high
inflation that is foundational. Discuss that concept.
Right, well, we have to remember the Federal Reserve does not set prices
right. This what we see is in there, in there,
right there, they're raising costs of things like borrowing, which are
important in decisions.

And yet this is an interplay of hundreds
of millions of American consumers and tens of millions of businesses.
So I as someone who follow consumer spending very closely in my 10 years at
the Federal Reserve, the retail sales last week were kind of a punch in the
gut. Right.
The American consumer really I mean, this is 70 percent of GDP and yet this
is mainly good spending. And businesses need to get that signal
like consumers will get price sensitive. So there's the idea of the high
inflation at some point that consumers pull back and then the businesses, you
know, they've got to price it in and at least to tamp down that inflation and
maybe even cut some prices.

There are the two M's in the academics.
There's a University of Michigan and all the great inflation work done there over
the years. And also a small startup school on the
banks of the Charles River in Boston, Massachusetts, Institute of Technology.
Claudia, I want to talk about Olivier Blanchard, the new effort, which I think
you're in close link with, which really says we need a more rigorous analysis
and less a Fed driven analysis of where we are.
In the heart of what Olivier is saying is we think the Fed has too much power
and that there are other broader long term factors moving this great
disinflation like demographics, just as one example.
Do we put too much weight on the Fed in terms of their ability to fix things?
I think that's absolutely the case when we think about the real economy.
The Federal Reserve has big effects in financial markets.
That is absolutely the case.

And yet their mandate is in inflation
and in full employment. And that's been a big my big attempt is
to draw attention to the fact that one of the reasons that we've had so much
inflation is our economy was not resilient, whether it was supply chains
or we had underpaid workers, and that those are not levers that the federal or
the Federal Reserve can pull. And we have learned in this crisis.
Fiscal policy is powerful, something as powerful.
We should spend a lot of time getting it right in terms of how to use that.
The Fed is I mean, we've learned a lot about the Fed, but it is not our
powerful is their most powerful tool. Well, I want to just say, Claudia, last
week one of the conversations not on air behind closed doors of executives of
companies worldwide. We're not blaming this, blaming the
supply chain disruptions. They are blaming the last payment that
was made out in 2021 to stimulate an economy that already was flush with
cash. And they're saying it's going to take
time for that to work through.

But that was the main driving factor of
inflation. Do you disagree?
No, it's the beginning of 2023. I mean, we it's absolutely in the mix.
Right. And this is the thing about we learned
that policy was very powerful. We also took a big dent in consumer
spending when everything shut down. There's still a lot of pent up demand.
I think we forget this time last year we were coming out of an O macron wave that
really was affecting, if nothing else, getting keeping workers on the job.
And then we were hit by the war in Ukraine.

There have been some really important
disruptions to the economy, to our daily lives since those stimulus checks went
out. And frankly, you can only spend those
ones. Right.
So there's actually been a drag on fiscal policy that probably has a lot to
do with some of the weakness we saw at the end of this past year.
Well, Washington is pretty much in gridlock.
So there's a lot of not a lot of faith that there could to actually do
something on the fiscal side to address further beyond what they did with the
Eye Inflation Reduction Act and beyond. Based on a lack of fiscal impulse and
what's going on on the monetary side, do you believe in a soft landing kind of
scenario or do you think that that is overly optimistic based on the empirical
evidence that people point to on the margins of a slowdown?
So I worry some about just using the word soft right as we come out of this
and inflation comes down.

This is going to be a bumpy ride.
We had three months of really encouraging data on inflation.
If you really think every month after this is going to be a smooth sailing, I
think you're deeply misguided. Right?
This was something that Vice Chair Lael Brainard said towards the end of
December when she questioned some of these simple models of inflation like
this is going to be a bumpy ride. Now, I think to me it's not as much
about the soft, quote unquote, soft landing.
2023 needs to be a path back to something that looks like pre coded

And it was very disruptive getting away
from normal. But I think that's the goal.
And the Fed needs to see that right. It's not just about hitting two percent
inflation. It's a magical point in time.
They really have to believe that it's sustainable.
If we're trying you to get back to normal and I think that was a great
theme at Davos and clearly a great theme of the show that we've done here in
2023. Part of that is that there'll be change
will be technological progress. Maybe there'll be government support,
particularly in Europe with the war. That's all fine.
But it pushes us away from the gloom or caution of secular stagnation.
And that started with Elvin Hanson years ago.
Lawrence Summers has picked it up to great effect as well.
You've really pushed against that.

There is some optimism that we can get
back to normal and move beyond secular stagnation.
Discuss that. How do we do that in the coming 12
months? Well, I think if nothing else, the past
two years have put a big question mark on the idea that we're just in this low
growth state. I mean, for the first time in several
decades, we had a job full recovery. Right.
So the idea that there's just something fundamentally dragging down the economy,
I think we should put that into question.
Now, when you mentioned the broader trends before about demographics and
technological change, I mean, these could be weighing against that that
recovery. And yet it's also the case that we were
much less destructive to workers and businesses through this recession.
And that matters in terms of do we have long term scarring or do we have some
long term after this economy? So what are you looking at data wise?
We get a slew of it this week heading into next week's Fed meeting.
What are you looking for to know whether we're going one way or the other.
In other words, the most telling of the indicators.
So I'm absolutely looking at what service is spending.
What we see.

Because, again, the retail sales was
really weak. That could be a rebalancing from goods
back to services. We need to see that.
And then once the consumers really balance balancing business rebalances
workers rebalance. Right.
We've got to take some pressure off of places that don't normally have a lot of
spending. And yet if we see services spending,
that looks like what retail sales did with, you know, a 1 percent drop, like
that's a big red flag in terms of we're losing the consumer.
So that's a big piece of it. Obviously, I'm looking at wages because
the Fed is looking at wages and yet they're slowing down.
I think the Fed's goal this year is to be boring and I think they're on track
for it and it's probably not going to be okay.
Let's make a pact, Claudia.

The Fed can be boring.
You can't Claudius so much with some consulting here and always
controversial, pushing back against some of the main tenants of economic, she
really lays out the arguments that are going to be had.
And again, as I got to bring it up here, I'm sorry, folks, I don't have a
memorized. We're all fixated on February 1.
I want to get out to June 14th, July 26. Does anyone have a clue what those Fed
meetings look like? The answer is no.
But people are trying to figure out whether the Fed gets to 5 percent,
whether it's in 25 basis point increments or not, and then holds.
Right. And just remains there for a longer
period of time, which means throughout July with I threw out a September going
through there and not necessarily cutting like the market is pricing in.
What I find interesting is some of the empirical data.
If you take a look at job, searches are taking longer.
There is a Wall Street Journal story about that.
There was a story about how a growing number of companies were responding to a
survey or planning job cuts outside of the tech sector.
So there is this pressure that just isn't yet showing up in the numbers.
And how big that pressure is just remains to be seen.
What's so important here and it really doesn't depend when you're looking at
but in terms of caution, not gloom, but caution into some form of economic
malaise or economic soft landing or economic slowdown, contraction,
recession is it happens quickly.

There is a huge respect across all
opinions. Dr.
Sam, Dr. Summers and the rest that to your point,
when it goes it goes into the Fed, three point five percent.
Do they get out to 4.5 percent inflation or does it unravel from there the
snowballing effect? Because if somebody gets laid, they
can't spend as much and all of a sudden you get all of, you know, all of the
negative impacts that are feeding on each other, which could lead to some
sort of thought of some sort of catharsis.
I just I wondering, since people are saying it's going to get pushed out.
Does that mean it will be short and shallow?
I mean, that whole discussion that seems to be consensus or will it mean
something different than that? We may we'll have to see the agreement
we have as Brett Marcus go down. Brammer does a day to check, markets go
up. I do the data check.
So I'll pick it up here. Futures up 7.
Dow futures are beating to the VIX 20. How does that point 0 6 of the day?
You know, I'm sorry, it's important.

Bitcoin on the edge of 23000 for those
keeping score. Brent crude rounded up eighty nine
dollars a barrel up a stick. That has my attention.
Dollars stronger after a weaker dollar. Morning.
Please stay with us. Jonathan Ferro in London.
Coming up at the nine o'clock hour. This is Bloomberg.
Good morning. Keeping you up today with news from
around the world with the first word. I'm Lisa Mateo in California.
Authorities say the suspect in the shooting deaths of 10 people in an Asian
community near Los Angeles has killed himself.
The attack took place in a ballroom during Lunar New Year celebrations.
It's believed the suspect, described as an Asian male, tried to carry out a
second attack.

Nearby in the UK, ambulance workers are
walking out today in the biggest strike by first responders.
Trade unions are protesting pay levels in Britain's National Health Service.
They're demanding a double digit pay hike.
In France, President Emmanuel Macros government is moving ahead with its
pension reform plan despite threats of more protests.
The proposal would raise the minimum retirement age from 60 to 260 for more
than a million people took to the streets last Thursday to protest the
plan. War are set for next week.
Bloomberg's learned that President Biden will name Jeff Zients as his next chief
of staff. Today, Sciences, a former business
executive who was one of the chief architects in Biden's initial Kobe team.
He'll replace Ron Klain, who will leave in the coming weeks.
The White House chief of staff is among the most powerful figures in Washington.
And hedge fund Elliott Investment Management has taken a multi-billion
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Shares of Salesforce have plunged since their peak in 2021.
Global news 24 hours a day on air and on Bloomberg Quicktake, powered by more
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I'm Lisa Mateo.

This is Bloomberg. We're not seeing huge demand in high
yield so far this year. What we're seeing.
I think it's more technically driven. There's no supply.
We are still anticipating a widening of high yield spreads.
When that recession comes and timing, that recession is difficult.
But when we do see that recession spreads tend to widen to an 800 basis
points. Kelsey Barrow of J.P.
Morgan Speier Region, along with J.P. Morgan recently and I must say, they've
got a diverse set of opinions all centered around attempting to game a
recession. John Farrell getting ready in London for
the 9 a.m. New York time.
Our Lisa Abramowicz and Tom Keene here in New York.
Lisa, I go back to NBER, what Mr. Podesta's doing there and the idea of
two quarters of decline. You know, it's a recession way after it
is a recession.

But can we say we're in a recession
right now? I hear a lot of people walking away from
that because there has been no there have been no surprises that happen to
the upside. Right.
China reopening, people viewing this more as a positive than the potential
inflationary impulse. And then you have warmer than expected
weather, which has really helped Europe. So a lot of people think we're OK.
Does the GDP print change anything, even if it's technical that we get out in
Friday at all? But, you know, we're going to have to
see. And to me, and this goes to the economic
data, which is first seen in the bond market, let's cut your expertise would
have high yield spreads down after your sojourn in Europe.
The answers, they could continue constructive, right?
They were constructive. Constructive, a little bit of a sell off
when you had a little bit of the wobble in equities and then constructive once
again, people seeing the opportunity for yield more than the opportunity for

And that to me highlights how people are
looking through this and saying corporate strength, regardless of higher
financing costs and potentially weakening consumers.
Very good. What we're going to do right now is
speak to someone who invented it. I really can't say this enough.
I'm going to go back to the shock and awe point and figure charts of 1880 and
through the early part of last century. And then in the 1940s, there was dropped
upon us, someone who said you can plot a stock and you can draw lines of support
and resistance. His name was John Maggie.
One of his great disciples was Ralph. And compared to say he's a chartered
market technician, co-founder barely describes his contribution to looking
back at what Price tells us about forward.
Ralph, honored to have you with us today.
I want you to discuss the modern idiocy over catharsis.
We need catharsis to make a bottom in the equity market.
Have you observed catharsis that drags us out of this bear market?
Absolutely, Tom.

Thank you for that kind introduction.
I have to have I have to stress October 13th.
Tom, the Dow had an intraday price swing of fifteen hundred and two points.
No one's talking about it. In technical parlance.
That's called a key reversal day when the low of the day and the high of the
day precede the previous day's high low. And that to me was a major turning
point. And since that October low.
To the December 13 tie, the Dow is up about 20, 21 percent.
The S&P is up about 18 percent.

So there's been a nice recovery.
And since then the market's been consolidating.
I think we're making a bottom long term in this bull market.
The study of technical analysis with great respect for Dow Theory and the
rest of it was done at a time of non derivative instruments.
We now live in a world of ETF ISE of massive indexation and all the formulas
of support and resistance that you helped invent.
Did they work in this time where the New York Stock Exchange really isn't the New
York Stock Exchange we knew. Yes, I.
I appreciate that question, Tom, but remember what technical analysis is all
about. It is following the laws of supply and
demand, buyers versus sellers. And that has never changed.
The emotion of investors has never changed.
Fear and greed all manifest in what we follow.
So if you believe in price, which I do. That's I don't own an indicator on price
and I follow the trend.

The price buyers push him up, sell is
push him down. It's that simple.
Ralph, on the spectrum of risk versus fear of risk appetite vs.
taking all your chips off the table, where are we?
For me, I've taken. I've become a little I become very
aggressive coming at it at October 13th. Lo And I think since then, if you look
at foreign markets like Europe and you look at emerging markets, they have been
leading the U.S.

So I think it's broadening out. I say put chips on the table, play the
game. What makes you feel like this has
staying power like this is the early stages of something more sustained vs.
a head fake ahead of something that a lot of people say is a necessary
byproduct of monetary policy? Good question.
My mother's talking about October 13th LOL and rallied and too much to Dec.
13 tie and that since December 13th we've had a pullback.
The Dow has dropped about 6 percent or so.
I think the S&P had an 8 percent decline.
And those levels right there, we are looking at that.
That would be thirty two thousand five eighty one on the Dow and three thousand
seven sixty four on the S&P. Those are very short term support
levels. That's where the buying.
She could be. I keep my eye closely on that on a short
term basis. And I think we're holding up well.
Ralph, I want to get back to the arch issue of the day, which is the failure
of the American retirement system, because people are in and out and in and
out of the market.

We're at one of those moments right now
where millions of people are literally saying, how do I summon the courage to
get back into the market? And I'm going to go to the to the crew
that you weren't I or weaned on in Larchmont, New York.
Mike Burke, chart craft. Mr.
Cohen's work. And, of course, Earl Blumenthal.
They knew when to have the courage to get in to the market.
How do you get into the market like you did in 1975?
When you say get into the market, you mean participating and trading.
I'm in cash and I need to go long. How do I get back into the market?
If I'm scared stiff? Well, again, I again, being a technician
and I think you got to look at levels. And I think in the days ahead, literally
excuse me, in the in that very short term, the next couple of weeks, just
watch because we're in the early seasons right now.
We still got a lot of dialogue about whether it's a recession and not a

And you've got the war in Ukraine.
If we can hold above that October low, which I think we will.
That to me would be the final test. So in the next couple of weeks,
volatility we hold above those low. Right.
I think looking out tortured second half of this year, I think we're going to be
in pretty good shape. You're off.
Never enough time. Ralph Acampora there on technical

Just honored to have him on with us
today, Lisa. I can't say enough about the legacy of
this and the idea of what technical analysis does for you is one of the
first heated conversations they had a Bloomberg and with great honor to the
late Garry Terkel. Bloomberg has terrific technical
analysis, is a general statement. What this is about is trend.
You're not in the market. How do you get on the trend?
How do you stay on the trend and when do you have the courage to get off the
trend? And of all the people we talked to, the
one that alludes back to Ralph and came poorer is someone like Chris Romaine
Bostick yesterday.

He gets to me.
It's interesting to hear how you can judge in some sort of more objective
sense that spectrum of where we are versus fear versus greed.
And that's been a huge issue of contention at a time when a lot of
people are looking for the silver linings and finding them in real
developments versus people who say it is very hard to see how monetary policy can
end up with something that is an optimal experience on this within the daily
surveillance babble that we do.

John doesn't do babble in London.
We'll see. Just listen to babble.
Yeah. Back here in New York, it's wildly
asymmetric in that Ralph and computers world.
Maybe it doesn't help me get into the market.
That's a different set of decisions like what Bram was saying on TV today.
But boy, does it help when you want to get out of the market.
That's really where technical analysis does much better.
The Death Cross and I like that you push in my book.
I try and do something about it. Tells me that I go blog DAX across the
board. The death cause is I don't know where
Ralph is on it. It's absolutely useless.
I have. Don't get me going.
It's a very hard element. OK.
Right now it's a little DAX fundamentals.
It's hard to get a handle on the fundamentals, which is a reason why
technical analysis perhaps is interesting to look at as well.
For a feeling of the supply and demand Ralph was talking about.
I'm In the World with Edward Hyman and the wonderful John Murphy.
You've got to use a more technical, fundamental and a little bit of
economics overlaid on top and just say bond.
Some people telling you that next pharaoh in London.

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