>> we have had an economy that's in a soft patch but i don't think >> is going off a cliff. >>i'm bullish on equities. i think we will have a bullish broadening. >> selective even in what appears to be a nicely broadening rally. >> the prospects for growth look recently good. >> i don't think you have the kind of growth we had given the -- >> this is bloomberg surveillance with tom keene jonathan ferro and lisa abramowicz. >> live from new york city, good

morning. for audience worldwide this is bloomberg surveillance on tv and radio. i'm jonathan ferro. s&p pulling back again. last year's big winners some of yesterday's big losers turning 20 upside down to start the new year. >> we are nowhere near supported right now. i noticed there's a fair amount of hysterics out there. a biblical proportions. when you look at any chart. spx upward. we are nowhere near the tendency support. >> headline this morning. hsbc with this one. cut stocks, cut credit, go to cash. >> who has been talking about goldilocks heavily into risk all of last year even though people were bearish.

is it because he actually sees earnings going down or they're not beating this inflationary trend. he said sentiment and position. that seems to be the anti-goldilocks. >> he is using the word giddy. it's the same idea. there is an effervescence. >> this line jumped off the page to me. we continue to believe from a multi-asset perspective the biggest risk is not from a sudden deterioration but another pricing in rates. tom: the repricing is there. antoine telling it on the analysis of private equity and private equity. their struggle with the new regime. things got better. no one's really framed that up. jonathan: saying the same thing. tom: what did he say? jonathan: this is gassing but

ultimately he thinks it could be another repricing in rates. next stock, fed minutes, did not they discussed cutting interest rates sometime soon? lisa: how much credibility does this have? how much are people poised to sell bonds if there is any pushback whatsoever of possibly cutting rates this year. right now even neil donna who is been talking about this disinflation came out and said six cuts seems like too many. this is sort of the sober january where it comes back and reassesses. let's get back to work. jonathan: a sober january on wall street. that's what this is. yields pushing higher again. yields up by two or three basis points on the 10 year by three or four. equity futures lower negative by .2%. i talked about 2023 turning

upside down to start 2024. lisa: the biggest rally in the dollar going back to march. this retracing of some of the trades from last year especially the people saying the ecb wouldn't really have to cut rates. here's what we are watching. richmond fed president tom barkan is speaking to the raleigh chamber of commerce. does he lead into some of the softness we are seeing. we get ism manufacturing. ism manufacturing. i know you have been in on this. we have seen a steady contraction since october of 2022. more than one year really speaks to the disinflation in goods not services that's driven some of the recent sentiment. it is the fomc meeting minutes. did they, didn't they paid what matters is how much does the market reprice to any assumption that the fed doesn't want the market to price in six cuts. how much do people have.

a trigger finger to sell bonds in response to any pushback. tom: i'm reading cameron dawson's research. jonathan: sure you were afraid cameron dawson joins us now. chief investment officer at new edge. are you sitting on the fence? i'm reading this first line in your book. saying we could have a scenario. cameron: i think there is going to be a scenario where you can easily see people get drawn further into this market. we think positioning is overweight but not as extreme as it was. so you could see some pain get pulled in but the reality is you could see a rationalization that sentiment is very extended. it's how you react to market rallies or corrections is how you will win in 2024. jonathan: let's talk about the

word from max this morning. biggest risk, another repricing in rates. cameron: that's the pain trade. it is that everyone thinks inflation is fully vanquished and then get surprised as things like oil prices move higher. rates move higher and then all of those stocks but re-rated up 30 or 40% because now they are not worried about their balance sheet anymore. that becomes an issue again and you get a reversion of the names that were lower quality. tom: dare i say double digit 11% earnings growth for this year. is that in the price now or will that develop in the first half of next year. cameron: we have to think about the path of 24 will be pricing and what happens in 2025. if a recession looks more likely in 2025 that's when you see those assessments get caught. the thing that is the biggest

challenge for earnings estimates in 2024 is topline growth will re-accelerate in a year when nominal growth is expected to decelerate. can you see that happen at the same time where we get less inflation and pricing power, yet a big acceleration. tom: if you look at staples and discretionary, you have a model out there you go back for 6% down to 4%? cameron: there are idiosyncratic pockets. health care had its earnings down almost 20% last year. that will flip positive. that's what we are trying to look just outside the macro driver. staples being one that can get away from this dynamic and looking more to the idiosyncratic opportunities. lisa: our banks idiosyncratic opportunities?

cameron: there is pockets of banks where there is in expensive areas. banks have the tailwind of the less inverted of curve. then we have to consider things like etf p. all of these things that could be big drivers of bank earnings or at least appetite for bank risk as we go through 2024. lisa: it sounds like you are not buying the rotation story. cameron: we have to have an open mind at great companies with great balance sheets and near monopolies could still underperform simply because positioning is so crowded and because valuations are so allocated. tom: are we going to have rotation or not? lisa: that was some of the thanks find a selloff that was led by big tech talking about this with apple. how much does that have legs

versus what we saw last year and everyone said this is the year to sell tech and by the end of the year everyone was saying nvidia, magnificent seven it will save the united states. cameron: what a different set up because at the end of 2022 would record outflows. you look at the course of 2023. $40 billion of inflows into technology. so really this could be about positioning and pain trades and the fact that you already re-rated tech because now it's just one turn away from the 2021 peak valuation. jonathan: the risk here is higher rates. lisa brought up banks. how are they responding to that given what they said last year? cameron: it probably puts into sharper focus again issues of commercial real estate because

we have breathed this collective sigh of relief that higher for longer is dead. if it is not in the path of the cost of capital is actually marching higher could mean that we have to reprice some of the balance sheets. jonathan: when we talk about the banks, is a jp morgan and then everyone else? cameron: some of the regional banks are underpriced. we looked at balance sheets, they are not as extended or as issued as some parts of regional banks. some don't have as much commercial real estate exposure. so they are trading at very discounted valuations. if we are going down at value this is one of the areas we are actually looking. tom: the last five or six days a jp morgan capturing one out of five profit dollars in american banking. if that isn't the third or

fourth or fifth i don't know what it is. jonathan: it's jp morgan versus everyone else. tom: capturing some 20% of profits. i'm sorry i don't have the source in front of me to site. jonathan: it's a must read. cameron, thank you. good to see you. pushing forward. fed minutes with some data coming out later. let's have a little chat on the conversation about payrolls. meeting estimate in our survey. this can change going into the number. the survey gives you an estimate of 170. here's the view from goldman. 190 on payrolls. less than 3.7% on unemployment. if you're looking for a slowdown in the broader economy doesn't scream slowdown. lisa: this is the reason my

repricing seems to be the biggest potential risk because this -- does this represent consistently disinflationary environment when you have wage inflation at 4% year-over-year. this to me the underpinnings of just how much average hourly weeks these earnings are coming down whether we are seeing the unemployment rate rise re-issued lower than it had been before. all of these paint to the fear that we could get sticky inflation or a ticket back up in how much prices are increasing. tom: tomorrow -- today is wednesday right? looking at claims when we see the lift up off of 211,000. five years ago 211,000 is a gift from god. jonathan: lisa mentioned the

manufacturing. it's been sub 50 since late 2022. it's been in contraction territory. of course manufacturing is worth having a look at but ultimately it did not tell you what was happening in the u.s. economy. focusing on claims just spoke to the resilience and sometimes the strength of the u.s. economy. lisa: this is the reason nathan pointed to this divergence. he put out a note yesterday basically saying that right now given where service inflation is running it's around 4% and it's way above where the fed would need it to be. tom: i go to the eci year-over-year. it's one of many statistics and the answer is 2.5, 3%. we have a ways to go. jonathan: are fed speakers taking a day off? tom: they are probably waiting.

lisa: he is speaking twice today. jonathan: logan and bostic. lisa: we might add some in there. tom: do they have one day were all the nonvoters speak. lisa: tom barkan is a voter. just want to say. tom: goolsby i think is off. jonathan: i doubt it. coming up in the next hour. tracy of the wells fargo investment institute weighing in on all of this. equity futures pulling back just a touch. adding to the losses of yesterday. from new york this morning, good morning. ♪

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>> the president said we are ready to act in self-defense if needed. we won't get into specifics of military operations but the president has always been committed to protecting our service members abroad and that's what the president is committed to. jonathan: that was the white house press secretary on abc yesterday. the biden administration looks to this -- defend against attacks in the red sea. a senior leader of hamas killed by israel in an explosion in beirut.

tom: not the time for a civics lesson and distinction between hezbollah and hamas. a triangulation lisa talked about. a triangulation between gaza, of the west bank and now to the northern border in lebanon. it's a long ways away from gaza. jonathan: let's go through the board together. wti down on the day now. $70 and $.25. brent crude unchanged. lisa: we felt this yesterday where crude parked in response to sending a warship to the red sea. the risk aversion took hold. does that reverse at some point or is the risk aversion and incredible supply from the u.s. dominate in otherwise commodity market. jonathan: crude was up close to

3% at one point. at the end of the day down by almost two. tom: 69 in the blur of yesterday. enthusiasm and a tough stuff mark -- stock market. joining us now on our many politics -- terry, i don't mean to make light of this because they are tragic france but you say to the cliche we are all quiet a multiple fronts. is america ready for multiple fronts of defense and offense in the military? taiwan, ukraine and what we see in the eastern mediterranean? >> i think there are two answers to that end both of them start with no. one is the level of actual preparedness to be able to do

what franklin roosevelt called the arsenal of democracy. the answer to that is no. the others sense is -- are we emotionally ready for that. i don't think that is the case either. either in the public or markets frankly there is an understanding of exactly what needs to happen and how. if we were actually working on this to the degree that we need to in three regional conflicts and potentially more we would probably be invoking the defense production act and the president has not invoked that. tom: the world bank keeps score on this. 33% defense to gdp. here it is 3.5%. it's higher than the others but is the basic idea in washington we are spending enough on multiple military efforts? >> the basic idea is we ought to

be spending as much as we are and that seems circular because it is. what we have is a situation where the back-and-forth over budgeting and what we will spend in defense. what that comes around to his are we going to maintain current levels of spending or are we not? generally speaking we will maintain current levels but if you think responding to a threat means spending more money on it as it usually does on other areas. i don't see that defense. lisa: how much are people paying attention to january 15 and the iowa republican caucus? terry: i think they are paying a great deal of attention to it. a tumbling series of events that will happen in both internationally and domestically . the domestic event will be the

iowa caucuses because then we will figure out whether trump supporters are more energized or fatigued by everything that's been going on. internationally we kick off with the taiwanese elections which stand to create additional market jitters no matter what happens. china will bear its teeth even more but if the more assimilation based candidates win people will be confused about what comes next so either way it will be a problem. lisa: you say people of been complacent about political risks. this always seems to be the charge. politics happened in markets go the opposite direction. why is this time different? how should people be paying attention from a market perspective. terry: my point is simple which is there are two things related

to this that underpin markets. one is geopolitical risk, of the other is u.s. domestic risk. markets have been so used to for so many years for the idea that there will be relatively stable u.s. politics and relatively stable geopolitics. that they forever forgotten or never experienced a time when neither of those were true. my concern is we may be approaching that domestically. i think we are certainly approaching that geopolitically with all the potential problems that exist. tom: from iowa to new hampshire. when we get out to october and the convention before that. does any of this talk matter or do we vote domestic policies? terry: right now we vote domestic policies.

the concern about people -- the policies hitting their pocketbooks and bloomberg has done some excellent work on this as to why we should take peoples inflation's concerns seriously. beyond that us if everything else is a concern in the public that we are not responding well enough to foreign crises and we are a bit a step behind and the question whether the biden administration will be up to it firstly. and secondly whether the alternative, whether it be for a republican or third-party candidate feels like an improvement will also be important. jonathan: good to hear from you. happy new year. pushing forward through the rest of the program. dan ives will join us in 20 minutes time. the big move lower yesterday in apple. all-time highs to the close yesterday.

we will catch up with joe cassidy. lisa: i am so looking forward to this conversation. mike from wells fargo came on and was talking about citigroup saying he expects the shares to double and triple. at this point even cameron dawson she's looking at regionals. buying the dip in banks after a pretty brutal year. tom: i understand the major banks can buy anything. but to cameron's good point, let's go. i've been saying let's go for five or six. it's -- that's been a long time. jonathan: stocks have been going great we have regional banks up by almost 14%. tom: when are they going to

merge? scale is the word. lisa: the areas in the room. this is the question around private credit, a private equity. all of these behemoths that have these money pools, tons of investors and lock up capital. how do they compete if they have to pay people big bucks to come in and lead? jonathan: january 12, early february. two names for you to put in the diary the next couple of weeks. constance hunter on this economy looking ahead to fed minutes later this afternoon. this is bloomberg. ♪

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jonathan: live from new york, here is the price action for you. -.3% on the s&p. on the nasdaq 100 down by .4. the nasdaq with the biggest one-day loss since october which incidentally was the last time we had a weakening loss in the market. the nasdaq turning things upside down into 2023. big gains turn into some marginal losses for the equity market. just throwing some fuel on the fire. max of hsbc.

some interesting calls to start the year. yesterday a downgrade on apple. this morning hsbc. going to cash. lisa: talking about reverse goldilocks at a time when everyone had priced in the good news. the good news overwhelm some of the dampening effect on yields and that seems to be what people are focused on. >> let's talk about the bond market. looks like this on a two year run now higher by three basis points. on the 10 year. yields higher by four basis points. tom: the 10 year real yield 1.7 5% and i went back and looked at the moving average stuff -- studies. a level below that at 1.20 and too many guests have suggested we tend to see back to 1.60. i wonder how desperate of the financial -- global financial wall street is to get the real rate back down.

that's really a desirable goal. jonathan: you remember in and december yields lower. november december equities rallying. first down day for the u.s. dollar since 2020. the whole of last year in reverse. the u.s. dollar showed some strength again this morning. >> it was the biggest move for the dollar. the biggest strengthening move going back to march. we saw a significant shift as people thought maybe the u.s. economy doing better than europe matters for something at a time people discounted the ecb following through with rate cuts. jonathan: i think that was from tk. >> did you catch up on your sleep yet? lisa: to walk through that. >> it's january 3. >> i'm thinking january 5 or six

for instability. positive by .3%. harvard's claudine gay stepping down following controversy over anti-semitism on campus and accusations of plagiarism. she wrote in a statement it said in the best interest of harvard for me to resign so the community can navigate this moment of extraordinary challenge. the focus on the institution rather than an individual. >> a lot of people saying this came as a result of plagiarism accusations. regarding how the school would respond to anti-semitism. the bigger question here is what is free speech on college campuses? how will people foster a true platform of people on all sides and air their discussions without pressure on one side or another to be silent and this to me is the discussion but we are not hearing loud enough from some of these colleges. how they will move forward on that level. tom: someone said to me what are

the five most important conversations of 2023. there mark coming off the dinner in new york talking about his university of pennsylvania. my guess is the billionaires out there, the philanthropist at the schools are looking at this school by school. jonathan: we shouldn't make this about rich guys taking on leaders at universities. lisa you mentioned what this is all about. free speech prayed on campus over the last 10 years preferred speech, not free speech. do your point they have to figure this out. >> that's what interests me more because it's just people pulling their check books away from the colleges that's not free speech either. at this point how do you have a conversation about what is truly a way to enable a diversity of thought without penalizing people via shadow banning or dock thing. tom: you are the university of

chicago. why are they different than the other schools? lisa: there is a history of not necessarily having a partisan take but there is no university stance on any political issue. they do not come out and say we stand with this and that. they did not have to come out and take this stance. everyone speaks for themselves. jonathan: more on that story later. new concerns over wider conflict after a senior hamas leader was killed in lebanon's capital. six in total are dead after a drone strike yesterday. since the attacks on october 7. >> there hasn't necessarily been any kind of response this is what israel said they would do. they would go find the different hamas leaders on the different nations and take them out. if nobody from hezbollah was killed if it was three people who were killed and they are

largely connected to hamas are they going to respond given what happened? these are some of the reasons people aren't paying as much attention to this. >> this is the question over the last two months the prospect of this spilling over to other places. tom: we mentioned here 20 minutes ago because geography of israel goes from the south up to the east and the north of lebanon. jonathan: here is your update on it. investigators confirming the airlines flight was cleared to land before crashing into a coast guard plane. all passengers aboard the airbus airline were able to escape as the -- burst into flames. five-member is a coast guard plane were killed. it is still under investigation. jonathan: when you read the stories -- lisa: when you read the stories of survival and what they did to get them out, they deserve that honestly. >> you know the video we all

ignore. i think we should probably pay attention to that. >> actually reading those sort of -- jonathan: given the near misses we've had in this country in america took place in japan over the last 24 hours isn't that the ultimate fear here in america. based on several ports across airports in this country. tom: i thought i was pretty clumsy about it but you nailed it. it is an american thing. frankly i think it's a european thing as well. a huge intractable budgetary issue. this is about spending money. jonathan: i think elsewhere it's a tragic wake up call. tom: constance hunter joins us. she is a senior advisor i love your note where you fold in the economics. how linked now the economics to

coronado to what we see in the stock market. >> they are linked because of what's going on in bond prices. because we saw pullback in the third quarter. expectations increase. this impacts how people feel about the economy and how they will spend and that is the big question. what happens with the intersection of the economy lower inflation and how the fed responds. >> the concept of an incremental editorialized alan greenspan invented. how important is it for them to do one or two of five or six rate cuts now versus wall street rates at the fed are sky high. >> i think their goal is to assist main street. so if they do those cuts they will be to assist main street. i think it would be beneficial to main street if they do that and it is our view.

i don't think the data quite gets them there yet. i don't think it quite gets them there. they need to see the six-month annualized rate of 2% on their key metrics. with its core pce, they need to see that in order to move and maintain their credibility. jonathan: in line with the data it makes perfect sense. what do you make of the recent communication around rate cuts and how do you expect that to show up in the minutes. lisa: what we are -- >> what we will not see is talk about rate cuts. that's going to be not part of the minutes. they are part of the forecast, as they have said we are focusing on other things and that means we will show they are focused on other things. i think the minutes, while everyone will watch them for little signs of did they slip in a sort of slight communication, what we need to focus on is

what's happening with the data and will we need to understand from the fed is is it only inflation or are they taking into account a slightly softer economy coming off of that blockbuster q3 slowing down in q4. this is good to be slower growth in q1. >> didn't we get the reaction function shift from the fed. but basically if they see inflation coming down even if it's well above their target and there's concerns about the service sector inflation. even if housing prices are taking up that they will cut rates because they are more concerned about the employment market than anything else. >> let's dissect housing. so what you see on new home sales and what you see on existing home sales, that's not what's in the cpi. we have rental prices and market rental prices are falling rather dramatically and that's going to

feed in to the owners rent. similarly supply is a huge factor in the prices we are seeing and higher rates limits apply. so you can make an argument and a credible argument that if you have slightly lower rates you would promote more supply and they would be less likely to have this price pressure. >> the reason why am struggling with this is i'm trying to understand what the reaction function is for the fed. will they look at potential situations will they look at the fact prices are rising. they still have sticky service sector inflation. that's the biggest fear that a lot of people have. >> it's a legitimate fear but if we look at the run rate and the forecast by march you will see a six-month annualized rate at 2% and then the question is have they hit their target by then. you look at someone like messer, saying we don't have to get to 2% to cut rates, we just need to

be making credible progress and you have a lot of fed presidents who have said something similar. and so the question is what constitutes credibility. do we need to see sticky services, we need to see service prices falling or are we ok with disinflation pulling down the whole index. jonathan: do you pay much attention to the shifting complexion of the fomc committee? constance: it does matter. it absolutely matters in terms of absolute votes. in terms of the tone of the conversation, but for the most part there's been a fair amount of consensus and then there was that whole school of thought you don't want groupthink. do you want every vote to be a consensus vote when it makes sense for some dissent. we all say we want diversity of thought and ideas. so some dissension actually i think is a healthy sign. jonathan: why haven't we seen

the official dissent? constance: i think the rays and then hold has not been controversial. i think it's been a prudent thing to do. i think we haven't seen dissent on that because a reasonable person would think that makes a lot of sense. >> i'm waiting for the hand to go up tom. someone to just say it might be time. >> the way the united kingdom does it is dramatically better. the consensus that the fed recently has been more in consensus. this dissent free we are the world. constance: i don't know if it's we are the world. but to the point when inflation was running high they had to kill it and they had to raise rates rapidly. promoting the quickest pace back to the 80's. then he saw inflation coming down. now is when you would see dissent. and you see people raising their hand saying in the margins this is what i will emphasize. >> great to see you.

those fed minutes coming out a little bit later on this afternoon. they will discuss interest rate cuts. tom: some, several. mckee keeps track of these. a few said. several said. i am embarrassed to say i have never read it in entirety. jonathan: that's different. lisa: what does that mean? jonathan: it doesn't count. tom: they line up everyone who was there. 400 people in the room. ♪

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had been so brutalized in 2022 when the bears sold. the long duration they sold. but they sold the good stuff that was highly profitable. babies that got thrown out with the bathwater and the decisions they were building. in essence wanting to avoid -- you want to be selective. jonathan: one stock to watch this morning, apple. the tech giant falling 3.6% at the close. its biggest one-day drop since september. here's the quote we talked about in the last 24 hours. the continued period of weak result coupled with multiple expansion, according to barclays is not sustainable. tom: do you agree it was just one of the reasons we went down yesterday? jonathan: not the reason, but one of. tom: let's get right to it.

this is so important. dan ives joins us, he is a full on any number of technology companies. at some point -- dan, what is a channel check? i just don't see it. dan: for us in terms of our supply chain checks. focusing on what demand looks like in terms of the suppliers, there have been -- that's bullish. ultimately it shows demand through the holiday season has been on par and better-than-expected and to me that's what i focus on rather than -- tom: you have been gracious about this and your success. but when you do a channel check

are you counting iphones? are you over in china guessing the manufacturing line? looking at how many people from lisa's family are buying apple. what's a channel check. dan: we are in apple stores around the world. we are also talking to suppliers basically trying to triangulate what we think units will look like for the quarter and the year. that's how we've done it over the last decade. you're always going to have differing opinions. talking about barclays downgrade. we continue to stick with our checks that that's navigated more right than wrong. when you look it's easy to teach shocks relative to may be some of the fears out there. especially the first day of trading. it's a groundhog day. we sought last year as well. it's underestimated. 250 million is the install base

upgrade cycle that's due in that window. >> let's get into it. you mentioned barclays. the continued period of weak results continued with multiple expansions, not sustainable. in that is a statement of fact and then an. the statement of fact is iphone sales. they haven't been great for the last 12 months. that's a fact yet it's been coupled with multiple expansion. the opinion piece is they are saying it's not sustainable. are you suggesting that it is? dan: what i'm suggesting is the next three to four quarters you will have iphone growth. you have growth coming out of china despite the fears and i think the most important thing is services. i think there will be teenager type of growth. that's key to the multiple expansion story and then we go into later this year more

monetization from an ai in the next liar. i think it all results and this is going to be viewed as more of a golden buying opportunity rather than the start to hit the elevator exit. >> how much is your call predicated on the idea of rate cuts. of rates coming down is much as people think. >> that's probably five or 10% from multiple perspective. we saw 22 the disaster, 23 in terms of popcorn moment is the fed can a cut in 24. it speaks to our overall goal thesis that the soft landing. you are starting to see you now more and more focus on tech. i think now multiple expansion 203i think the numbers show in 24. that's the difference. 24 is where the numbers come through. 23 was more the multiple expansion. lisa: you mentioned how china

demand will pick up. i wonder if it will be for iphones. yesterday this caught my attention. the chinese automaker byd surpassed tesla in terms of deliveries for the first time. you are seeing that really start to be a main theme. people said that would never happen. people say it's never going to happen. the chinese consumers will throw out there iphones. what makes you so confident. dan: when you focus on tesla, it's essentially a two horse race. china was strong for them but i think it does speak to domestically byd, they've done a phenomenal job. when you look at what's happening within the china market from that perspective it speaks to just the base they fell in china. right now the irony is despite

geopolitical the last 18 months, apple has gained in market share because the average high end middle income chinese consumer they wanted the iphone despite them trying to push huawei. >> i'm so pleased lisa brought up the easy comparison. they have the potential to be the industry story of 2024. down beyond byd on tesla. how much of a reality check are we getting for the industry for the likes of gm and ford? dan: i think a big reality check. they have pulled back in terms of the ev strategy in detroit and the problem here is what do consumers want an ev or to a tesla. that's really the issue that starting to play out. tesla at this point is doubling down. would no doubt there have been

much more moderate demand than we've seen across the board i think is that plays out you will see others feel back while others will go more aggressively. >> i wonder what you think the endgame actually is. they've been generous with their time. they talk about the change in execution maybe not a change in strategy. would you expect a change in strategy this year and what would that look like? >> a slight change in strategy where they pull back on some of their long-term numbers in terms of ev when they expect to go full eeev. the uaw also put their back against the walls. a different cost structure and they are trying right now it's a tight balancing act that they are trying to get to in detroit. i think that's tough going up against the likes of some of these other ev's. that's a big part of the problem that they are focused on especially now with the uaw.

>> good to hear from you, happy new year. constructive on the likes of tesla as well. with finish off the ev's. the distinction, the difference between the ambitions of the administration and governments around the world to achieve these lofty goals in ev's and reconciling that with the support for unions over the last 12 months. whether something has to give in 2024. lisa: you are seeing it in ford and gm ratcheting expectations. it goes to dan ives questions. do people want electric vehicles or do they want a tesla. our people waiting to see whether you will have some sort of buildout of the charging station. you are seeing a massive slowdown in general. >> where we are on that -- where are we on that number? it's really slowed down. >> u.s. auto sales will be up less than 2%. you are seeing that pretty

steadily in the numbers coming up today and tomorrow. >> citigroup moments ago reaffirming united airlines. how do you do that with the wayfarers have come down? i don't get it but he has it leg up. i've never seen this phrase before. united airlines is re-feeding -- re-fleeting. cathay pacific was out off of bloomberg asia. i think that's >> >> like deplaning. vstoxx had a really strong finish to the year. coming up next on this program. tracy mcmillan of the wells fargo investment institute will join us shortly. your equity market negative here by .3% on the s&p. yields pushing higher by four or five basis points. the dollar weaker starting 2024 with a bit of strength against

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>> we have had an economy that's in a soft patch. so i think there is some room for broadening out of the market. >> i think we will have a bullish broadening. >> you want to be selective even within what appears to be a nicely broadening rally. >> i think the prospects for growth are good. >> i don't think you can have the growth we've had given the economic backdrop we are looking at.

>> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: good morning for our audience worldwide. alongside tom keene and lisa abramowicz i'm jonathan ferro. your equity market on day two back by 0.3% typically when you get days like that tk screens go to cash. tk cut stocks and credit. go to cash is the call. tom: it gets respect. max out front with a bullish call next year. he was pretty lonely on some optimism for 2023. i do know what he is saying this morning. everybody is back. there some liquidity in the market and i need to see it settle out. it's around the key economic data we see. >> more data coming up later

this week including payrolls on friday. the call this morning is not based on the risk of a sudden deterioration inactivity. it's based on the risk of another repricing in rates. lisa: not only are we going to see weakness but people will wake up to the strength and realize maybe they priced into many rate cuts. many -- maybe people have gotten over their skis and we will see reverse goldilocks from the person saying goldilocks last year. it is tactical and important to note. that said, to me this highlights the sober january we are in. people are reassessing the euphoria of nine straight weeks of gains and saying is it really worth continuing. >> i love we are branding -- rebranding january. we've seen big moves in november and december. let's take the bond market to year. down 41 basis points. two year yield december down 43

basis points. these are some big moves we have seen in stocks and bonds in the last few months. lisa: the technical analysis i'm looking at the nasdaq right now. this is easy to do on the bloomberg terminal. yet we've come down but we are not out of support because we had that joy november and december hurried let's remember corrections are good. 10% down is good. that's normal. you get the fear back in the market. when was the last time we had that correction. >> you mention tech. apple struggled yesterday down hard. one thing that did struggle, jp morgan. all -- earnings from them a little bit later this hour on that stock and that sector. >> it seems like anything that's good for bank stocks is amazing for jp morgan and anything that is bad for bank stocks is fine. for me the key question is

what's good for jp morgan good for banks is what good for jp morgan good for jp morgan. jonathan: the latter and not the former for the stock. looks like this on the s&p 500 pulling back yesterday. by one third of 1%. yields up again by four basis points. first trading day of the year dollar stronger. the euro. >> brilliant continuation of what we saw. fed speak does resume. everyone is pleased to hear that. the richmond fed present begins his day long discussion with a number of different events. does he lean into some of the market softness saying people got over their skis when it came to how much they were pricing in the rate cuts. ism manufacturing. jolts job opening. what i am curious about we have seen more than a year of sub 50 ism manufacturing rates.

do we see a continuation of this and does it matter considering the disinflation from goods has not played out in services in the same kind of way. honestly this to me as one of the biggest mysteries. you shouldn't follow the manufacturing numbers. >> do they talk about cuts in the minutes based on what you've just said? >> we may get the answer. >> a few. jonathan: discussing interest rate cuts. lisa: i do think we will get a reaction from markets that will be interesting to understand where people are positioned right now. do they press the sell button if there is not explicit discussion of rate cuts in those minutes. >> that's where the price action might be later on this afternoon. because you won't be awake. tracy mcmillan, head of global asset at investment institute will be awake at 2:00 p.m..

wonderful to catch up with you and happy new year. recent data feeds the soft landing thesis. we remain skeptical. why are you skeptical? >> mainly because the fed has signaled three rate cuts in 2024 but the markets have taken that to mean six rate cuts in 2024. so there has to be a reconciliation that will happen. markets are saying that inflation just keeps falling and the economy holds up and we are skeptical of that. we think that either inflation falls because the economy continues to weaken or the economy stays strong and the fed is not able to cut six times. so as we go through that reconciliation process we think that's probably going to pressure rates a bit higher and pressure equity markets a bit lower. tom: absolutely brilliant on the

call that earnings will not be the double digit earnings a lot of the street is looking at. where will it be evident to the earnings will be short? is it revenue, is it gross margin? tracy: it's probably good to be both of those. it's probably going to be on the revenue side because consumers may start to pull back. we have a tremendous spending over the holiday season what think that might be the last hurrah for especially the consumers lower down than the inflation. we are starting to see a lot of stress there and as they look to expand spending they may be looking to borrow and borrowing costs are now much higher and so that is going to limit spending in those lower quartiles and our research has shown the upper quintile cannot make up the

difference is on the consumer starts to weaken here and so that will pressure revenues. the margins are also going to be weaker here because of expenses related to continuing wage pressure. so we think that's going to be a big part of it as well. >> i'm struggling to understand the rationale for different people as they get more bearish in the rally. it seems like max kettner is talking about strengthening the economy causing rates to be higher. you are saying rates will be higher but we will have the economic weakness a lot of people were expecting. is that stagflation. given that a lot of people it will bring down inflation and rates further. >> may be one thing that's being missed here is lower rates really started to take hold when the treasury went to a shorter duration issuance. and when they pave it back to

longer term paper, that could pressure rates higher. and as rates move higher we do think that's going to pressure risk assets. so we do think the economy can continue its weakening trajectory even though rates might start to move a bit higher. >> what will we do with the use of cash. given the caution i see here there's going to be free cash flow. what's going to be different this year? >> what we are going to see in terms of investor cash spending and the free cash flow the companies have is that more money will be flowing into cash assets. it's probably going to be flowing into equities as well. but the right way to see a bit of a pullback in the equity markets before we start to see that cash flowing in. >> this goes to what we were talking about. a bit of a pullback. aren't corrections good because

they bring up the fear to go higher? >> corrections are good and i think one thing investors often miss is corrections tend to happen every year. we typically see a 10% pullback at some point through the year. that does give investors the opportunity to rebalance their portfolios. so if an investor is invested in a diversified portfolio with stocks and bonds, short-term fixed income is one place we like right now because it's a holding place and we got that pullback. we can move assets from fixed income, short-term fixed income back into risk assets and we do expect a broadening out of the equity markets by the end of the year. >> let's finish up this question around whether we will see a rotation, that rotation trade out of big tech. are you actually bearish on big

tech as you expect to see that rotation? >> we are neutral right now on information technology. we were favorable for a good part of last year. took some gains and we moved it more to cyclical sectors like industrials and materials. we also like health care here for the defensive nature of that sector. >> thank you for being with us and to happy new year. tracy of wells fargo investment institute. skeptical of the soft landing thesis. the data has been moving in that direction. >> everybody is recalibrating and i love what robin did, i love what sam potter did at bloomberg just collating 607 out lux. do you have an outlook? jonathan: no agenda. tom: there is an outlook.

everyone has an outlook. lisa: i don't even have the sense of if we get certain economic data with the market response will be. news for equities, bad news for equities given the fact rates could go up. about treasury issuance, to me caught my attention because it would not catch anyone else's attention. it's interesting the treasury has been issuing more short-term debt if they go back to issuing long-term debt yields go up. >> we set a lot in this program. sometimes it's really difficult and the market off the back of it. the bet on interest rates even those forecast where the fed will ultimately end up they got the call on the economy dead wrong. how many people saw the fed going to 5.5% and then the economy delivering gdp growth at something like 5% in the third quarter. >> this has been the big

surprise from last year. the big surprise is do we get the long and variable lags or are we just going to move on and we can talk about this interest. >> if you are just joining us welcome to the program. the price action pulling back just a touch. -.36%. yields are higher by four basis points. it is truly turning 2023 upside down. >> i understand the lunacy of us trying to come up with a narrative for the entirety of 2024 with trading days. two trading days in 2024 and all of a sudden we've summed up january. that said it tells you where people were positioned and this feeling of euphoria people are got checking right now. that is a telling moment given where the bias for the previous weeks. >> jp morgan's phil is joining us in the next hour.

conversation you do not want to miss. former senior u.s. intelligence official on the latest out of the middle east. >> with a question on conversation of the day. fractured international relations jonathan: the prospect of escalation is still the question. tom: that's really important. a more multiple depth at the same time. we are not used to that. it's different. >> equity futures in your session lows. negative .4% on the s&p 500. yields are higher. the dollar a touch stronger. good morning. ♪

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>> the president has said we are ready to act in self-defense if needed. i'm not going to get into specifics of our military operations but the president has always been committed to our service member and protecting our service members abroad and that's what the president will be committed to. jonathan: the white house press secretary as the biden administration looks to defend against attacks on the red sea. the risk of that taking place may be escalating just a touch based on recent news.

the latest this morning. a senior hamas leader killed by israel in an explosion in beirut. tom: it's not all that great a distance from gaza and lebanon. in the eastern mediterranean it shows the multiple fronts and there's a meeting -- and immediacy. jonathan: taking the temperature of this in the commodity markets really difficult. crude lower. wti doing nothing. brent crude positive by .1% to $75. >> we do this with an authority, norman rule joins us now. senior advisor for strategic international studies. norman, when i say the lebanon for all of us of a certain persuasion we are completely

formed by something frankly stunning. which is the beirut barracks bombing when we lost marines at an iwo jima level. where are we now with lebanon. with hezbollah. do we have a relationship or was it forever fractured 40 years ago? >> that is an excellent point. i remember that incident well and lost friends. the event of 40 years ago had a different message for the world, of the u.s. pulled out of lebanon at that time and osama bin laden later stated watching the withdrawal of the united states from lebanon was one of the motivators for him to undertake his operations because he realized the west could be pushed back out of the region. tom: are we being pushed back now within the multiple fronts lisa has outlined?

gaza, the west bank. is america being pushed out now? >> we have a very different profile and diplomacy will likely increase in intensity in the coming weeks because we need to come up with a way to move lebanese hezbollah north of the border so israeli citizens can return to their homes. the tens of thousands of israeli citizens and so that tens of thousands of lebanese can return south to the border which has become such a flashpoint in recent weeks. >> hundreds of thousands of people have been displaced as a result. i am curious whether this is an escalation. the fact israel did attack according to hamas but also with a nod from israeli officials to kill this hamas executive. >> israel has stated from the beginning that it would eradicate the hamas leadership

responsible for that action and therefore this is no surprise. what you have to look at is this drone attack which israel has not admitted but is undertake -- understood to have taken. it demonstrates an exquisite and dynamic intelligence capacity. as they think about its response to this, it's got to think about what is known around us and what can we get away with and what will happen to the people who might be involved. lisa: do you have any sense of what the conversations are like with hamas, hezbollah and the iranian leadership. a lot of people think they're taking some cues from iran. but you have the iranian warship going to the red sea making noise and trying to interrupt western shipping lines. >> iran's proxies have no strategic drivers to involve themselves more fully in this conflict. it would impact multiple

strategic areas for again that's uncertain they have multiple incentives to raise the intensity of attacks against israel to show they have skin in the resistance game. i should note that today is the fourth anniversary of the killing of cost him soleimani. that's a time you would expect them to attack just for that symbolic anniversary. jonathan: let's talk about it. the assassination of the major general is easy to forget it ever happened. several weeks later we were all drowning in a global pandemic. what has happened since then with the relationship between the united states and iran between two different white houses? norman: very little. what took place did produce the possibility of some sort of engagement of's -- of hostage released by the iranians in exchange for personnel but

iran's original activities did not change. i don't think the white house expected them to change. more so iran's nuclear program. iran is now producing enriched uranium at a level that no state has not pursued a nuclear weapon has ever produced. it has no civilian use for the nature of its current enrichment. you have to ask yourself the question has the west de facto recognized the nuclear program. the white house would say no. tom: i'll do this is one final question. taiwan continues to come up in the first of the year conversations. do we have good intelligence on mainland china? norman: the united states intelligence program against china as stated by central intelligence agency is robust and work significantly. i won't comment on those operations. but i will say it's been such a

priority that is in all source intelligence programs in a variety of different aspects will have a good understanding of some of china's activities and provide a warning that policymakers need. jonathan: thank you for the update. thank you sir and a happy new year. january 5, official. it's been established for a long time. lisa: just because of that i will say happy new february 29. jonathan: one of those years. thank you for that. that's news you cannot use. lisa: march 5. jonathan: i can't believe it's been four years since the assassination of cass him soleimani. watching this play out on the news. facing a real prospect of may be

some kind of military escalation between two nations. that was basically the big story to start the year and then all of a sudden trying to get pandemic and it's not talked about. tom: robert kaplan really emphasizes the underplay of iran. lisa: i will point out iranian state police -- state tv is pointing out there were some explosions today on this anniversary day. we don't know more details about it but still that tension coming down with raising the question to norman. the fact of the u.s. has not gone more aggressively against iran raises the question of whether they tacitly accept the nuclear program they have been continuing or is there this ginger dance to avoid a massive confrontation that nobody wants. jonathan: what is a ginger dance? lisa: want to get up and do it?

[laughter] let's just move on. tom: can i point out something? do you know here at bloomberg february 29 is a workday? lisa: news you also need to know. jonathan: are you suggesting it should be a national holiday? tom: it should. they are squeezing another day out of it. jonathan: i think the election should be a national holiday, i really do. tom: if you're going to do it on tuesday. jonathan: it's an easy one. lisa: we get to say happy new year for an extended periods of time. jonathan: my preferred speech would be january 5. ♪

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jonathan: following nine weeks of gains on the s&p 500, the equity market makes brevity. lower this morning by 0.4%. the nasdaq 100 down by .6. so and small caps down almost a full percentage point. the nasdaq yesterday, the worst day since october, following a 54% rally through 2023. lisa: i just imagined somebody on the monkey bars, meeting gravity. can you create a narrative from this and is system rotation people were looking for or is this more dramatic were people

got ahead of themselves? it is hard to make a narrative but gives you a sense of how crowded positioning was, particularly in tech. jonathan: big winners last year and the big losers yesterday and big winners yesterday, health care, utilities, banks stood out. yields up, thank you, jp morgan. lisa: and citigroup coming out talking about the stocks and then at what point we talk about what is good for jp morgan is good for jp morgan versus all the banks? there is a feeling that something has to give. private equity companies will have exits on their funds, ipo's, companies that have to refinance debt. they will cash in at a time when you do see enough stability. jonathan: next week our earnings from jp morgan. in the bond market, yields up. five basis points. 4% on the 10-year, 3.98 with fed minutes later.

lisa: due date or don't they discussed the potential of rate cuts this year? happy new year, just want to mention that. tom: while we were -- jonathan: it is ok. tom: not only happy new year but birthday greetings jonathan ferro. jonathan: thank you. tom: so what is it like to have a birthday new year's eve? jonathan: on new year's eve. tom: was it traumatic? jonathan: my heartfelt emotional birthday wish from december. everybody messaged me, apart from -- tom: i was not aware. my people did not tell me it was your birthday. what was it like as a kid? did you think they're are having a party for you? jonathan: they celebrated when my birthday finished, fireworks, champagne corks, and then going to bed really early. lisa: this is the reason why you

have an issue with happy new year. let's discuss. childhood trauma. tom: that is our first under "surveillance" today. jonathan: thank you for the birthday wishes. let's finish on the euro, we talked a lot about how 2024 so far, early days, of course, the dollar is no different. lisa: we saw the biggest rally yesterday, the dollar stronger than the euro since march. just a sense of how we were set up for this because everybody talked about how they would not cut rates, and a lot of people butted into that the last several weeks. jonathan: based on deterioration of economic activity, the ecb has got to be out front. tom: it has got to be way out front. i would look at swiss franc as a triangulation of what is going on. jonathan: which has been

superstrong. the dollar a touch stronger. as syria leader was killed in an explosion in beirut. the palestinian militant group said israel was behind the strike, raising fresh concerns of a wider conflict. the whole coming after another of the carriers came under attack in the span of a few weeks. lisa: if you are curious of how the market is responding, and you look at crude, it is down, it is not. so as we look at potential ramifications, markets are not waking up to them. i keep pointing to this insane, does this mean the risk is off the table or our markets ignoring geopolitics? jonathan: 13.3 billion barrels is shaping up to some extent. tons of data we need to talk about, manufacturing and jobs comes at 10:00 a.m. eastern.

later this afternoon, 2:00 p.m. eastern, fed minutes from the december meeting, a meeting in which chairman powell said in a news conference that officials discussed rate cuts. since then, we have had officials saying different things about that of his tail. we expect the minutes to strike a delicate balance between the two camps. lisa: i am curious about how the market responds because it will be the data and we can dance around this all we want, but it will not drive things three days from now. jonathan: 2:00 p.m. eastern time, big deal. tom: i think we will go to where wage growth is, and the eci wages and benefits index is nowhere near where they have permission to cut rates, nowhere near it. jonathan: let's talk about house prices. manhattan home prices rising for the first time in more than one year, purchases, fourth-quarter up 5.1%, the first annual

increase since the third quarter of 2022. you might think this of interest rates, but no, more than two thirds of buyers paid cash, the highest share since they started tracking in 2014. two thirds pain cash. lisa: in the median price, $1.16 million, not exactly people on the lower income sphere or saying, yes, interest rates have fallen all the way back down to 6.5%. tom: it is a good message that we could aggregate things or i particularly do around three zip codes. it was a lot of nuances nationally. which is supposed to be rent disinflation that we are supposed to be seeing. we will get to yield, great, and we are joined by janet d goldberg -- gennadiy goldberg.

you say we will get to a lower rate regime, 3%. i know they have to wait for wage inflation to come in, but how far behind his jerome powell right now? gennadiy: that's the question, they have sent a dovish signal. there has been pushed back on that dovishness. they don't know. what scared them is inflation actually coming in a lot faster than anticipated. they looked at inflation coming 50 basis points lower than their q3 and q4 projections, a heck of a next. you are talking 50 basis points in one quarter. that makes real rates a lot higher than the expected. that is height main financial condition significantly. jonathan: i feel like some officials are trolling us making us feel like we did not hear what we did. i have to pull up that he did

say that it is clearly a topic of discussion now in the world and a discussion for us at our meeting today would you expect to see something like that in the minutes at 2:00 p.m. eastern? gennadiy: i think there will be a lot for everybody. i think there will be hawkishness and dovishness. you will see discussion come through, but you will not see an exact commitment to cutting rates in march. the market right now is almost perfect we priced in for a march cut. you will not see that in the minutes. minutes will be a discussion about what it would take to get the fed comfortable. wages are not quite there, but inflation is coming lower, so the data is important but the inflation data next week is more important than the fed minutes and payrolls than anything this week. lisa: the reaction function seems to have changed at the fed and that is bigger than what fed chair powell said. it seems the fed is more

amenable to the idea of cutting rates in response to inflation going lower than anything else, especially in protection of the labor market. do you see that being reflected that suddenly it is not about long-term kind of feeling that they need to kill off once and for all disinflation beast? -- this inflation beast? gennadiy: i think they are getting more comfortable with inflation getting a little more under control. they are reluctant to break out that banner yet, but what they are saying is we have the labor markets chugging along, we can start bringing down rates earlier. we do not want to over tighten. that is the message for sending and why they have tipped their hand that they are net dovish but the markets are probably overreacting a little bit. lisa: are they? look at housing prices, rents are coming down and that is what we see in some of the inputs to

cpi, but home prices are climbing. that will feed and later. there are other areas or inflationary pressures that come down the pike that are not reflected in the data the next couple of months. how much is the fed going to miss the boat in terms of being able to kill off inflation or will we see that later this year? gennadiy: even if you take a more aggressive profile into account, 50 this year and next year, going back to percent on the funds rate, if you take that into account with inflation projections, it will still be 6.5 to 6.75, one have 75%, excuse me at, a little too high. we are looking for a real fed funds rate that is notably positive to anything we have seen the past years. it will still be tightening but not at the pace the fed was tightening at. we are at 3.5% now and declining. tom: toronto dominion has great

toronto maple leafs seats, maybe you can talk on this, tear good point about elevated real rates and attention in private equity and credit, i did a three month liver to go back to 1985, almost 40 year regression of the great disinflation seen in three-month, that benchmark, right now we are out three standard deviations higher yields. it is an anomalous in every sense of the way. what is the urgency now of the fed to normalize rates to assist a financial system that may be breaking? gennadiy: i think they're worried about over tightening and that is what they are telling you. that is what powell tipped his hand to. i don't know how much on board they are with really delivering that soft of a landing, and that is the big tension, how aggressively does the fed pursue the soft landing and how comfortable are they that they

declared mission accomplished on inflation? how comfortable are they that that easing is going to feed through into the data fast enough to deliver that soft landing? because markets are perfectly price now for soft landing. jonathan: did you get the feeling that was chairman powell on an aircraft carrier saying mission accomplished? gennadiy: while also somehow ignoring that and making belief that that banner was actually behind it. jonathan: that is what it felt like. gennadiy: that is what you got from the other fed speakers, including john williams came out days later and said there was no banner, there was a mission accomplished banner, so they are trying to have it both ways, which is why i think late in the cycle, you need to be careful about listening to the fed and think about what they have to do. they are telling you they want to deliver a soft landing, which means they would like to be more aggressive with cuts, but not aggressive enough to actually start them tomorrow or the day after.

if inflation keeps coming down, and that is what they were telling you, they will deliver those cuts probably starting relatively soon. jonathan: hasn't the market already cut rates for them? gennadiy: effectively, so they over eased financial conditions and that is the risk right now. have they thrown another round of financial conditions easing into the mix where they don't need to deliver the cuts or go in march, and they can go inmate or june and keep financial conditions accommodative? jonathan: we have payrolls friday, 190 estimate for goldman sachs, what are you looking for on friday? gennadiy: 180. there is uncertainty around payrolls, so keep that in mind. lots of seasonal factors. the important thing is unemployment at 3.8%. if that stays steady, that tells us we are not deteriorating that sharply. if we drift higher than we normally have, if that continues, that tells us there

is more labor market slack. we will see what happens on the demand side. we have not seen layoffs yet. jonathan: thank you. appreciate it. looking ahead to payrolls friday. the consensus in the survey, which is after the moving target, we have new estimates, about 170. 190 is the estimate at goldman. we just heard that gennadiy is looking for 180. tom: there are payrolls out there somewhere. we are up to 2025 on that. i am still getting used to 2024. jonathan: next, gerard cassidy from rbc. this is bloomberg. ♪ fresh, warm hot dogs!

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double the next three years but this is micro break for jane fraser. jonathan: that was mike mayo of wells fargo, naming citi is topic for 2024, who says he expects chairs to more than double the next three years. this is a fresh record high for the first time in more than three years. gerard cassidy, rbc capital markets, writing this, "after a tumultuous 2023, we believe banks are well-positioned for an outsized return in 2024 an investor should overweight the sector and portfolios are co-he joins us now. -- the sector in their portfolios." he joins us now. is this off the back of higher or lower yields? gerard: we are expecting that the yields gravitate lower, especially at the front end of the curve. take a look at what the fed has done.

if we truly are at the terminal rate for fed funds in the past core tightening cycles, when they have started to cut rates, it has been a catalyst for bank stocks. what we are expecting, as the market is, is at some point in 2024, they could cut short-term interest rates. lisa: is this very bank or jp morgan? gerard: good question. jp morgan has been a risk off trade, and it has been spectacular. if we are going into a risk on environment, which i believe we are, if the fed is finished tightening, and jp morgan is probably going to be a source of funds from many investors. it is a stock that is owned everywhere, a great stock, but risk on maybe better to go. lisa: a source of funds, i love that. a euphemism that you could raise money to buy something that you think will return more. the fact that you think it will

be bank of america, do you lean into the idea that citigroup and its revamp with some of its streamlining, cutting units and massive job cuts will be the real winner? gerard: over time, it is certainly going to be an opportunity to be a winner. they still have a lot of heavy lifting. jane fraser is leading the charge year. it is a complicated job, turning around them ocean liner. it was early progress. a lot of heavy lifting, but if she can succeed and management succeeds, this stock is undervalued with great upside. but it has been a value trap for many years, so we will have to wait and see. tom: i went to a seminar at tucker anthony a long time ago, and i was lectured that things are supposed to return nominal gdp plus a little bit. make it eight percent, 9% once in your lifetime. jp morgan turned that upside down. you do not see this coming.

nor did anybody else. the returns of 10 years, 20 years, 15% or so, there are 30 year return. what did harrison -- what did dimon get right? gerard: really jamie dimon, or give harrison credit, i guess, for emerging from bank one when jamie dimon was there ceo and dimon has taken over since then. it has been his focus on delivering for shareholders, both through expansion and growth, and at the same time controlling expenses. they have done a good job in diversifying their revenue. the consumer banking business is profitable. on top of that, they have a strong capital markets business. the bear stearns acquisition, it was difficult in early years because of the reputational problems that came along with it has worked out actually well for

them. i would say the diversity of revenue and the focus on leading and delivering for shareholders. tom: but are they the fifth bank of the united states? over the holiday, somebody said one out of five profit dollars comes to jp morgan. they are building their palace on park avenue right now. i mean, to the butch cassidy idea, who are these guys? are they the bank of the united states? gerard: i don't think they are the bank of the united states, but they have done a great job in delivering for their shareholders and employees and communities. it has been a big growth engine for the company. the global economy, this economy, as well. it is a leadership that they have under dimon and you know that many of his senior folks have left jp morgan and are now ceos of other banks, and so he has got a very deep venture, and

the execute. that is the key. banking is a commodity business. it is all about execution, and jp morgan is executed externally well. lisa: what is the business model that you want to execute as a big u.s. bank? this is one of the key questions we had last year when the rise of private capital, private equity, private debt, was challenging the capital markets activity of certain big financial institutions. the jp morgan that in some ways has been stealing their lunch. gerard: you are right, the private equity and debt area is certainly growing much faster than the banks, but believe it or not, the shadow banking industry has been taking the bank's market share for 40 years. go back to the early 1980's, look at the market share that the banks had of lending into the united states, it was over

40%, the shadow banking market was in the low 20's. it has flip-flopped. the bank's market share now is in the low 20's and the shadow banking is over 50%, so the banks have done it through consolidation. when tom and i were young, we had over 18,000 banks and today there are 4600. jp morgan has been a big beneficiary of that, and they have been able to create those efficiencies, so they can and will compete. i don't think the banks are going to be put out of business, but they don't have the market share that they used to have. we have to remember that the economy has grown dramatically in 40 years, and they are more probable -- profitable than ever. lisa: what about smaller banks? given the fact you are talking about a bigger slice of overall activity, you have not seen that so much in smaller banks, and you will have real commercial real estate pressures, as well?

gerard: it depends on how small the bank is and who owns it. i have maintained that this banking system we have in the u.s. is polarized with small banks at one end, and large banks at the other end. if the owners of the smaller banks, private banks, or regional saving banks or other banks, if their owners are comfortable with owning returns at equities of 4% or 5%, and they are not going to sell the bank, as long as there is fbi insurance, they will remain in business indefinitely. if you don't have a bank with 30 billion in assets, not running up to what shareholders would like to earn, then they will have to consolidate. consolidation will continue. we are in a pause right now, but long-term trend has been consolidation and the industry will continue to consolidate. jonathan: let's finish on washington. i was speaking to your colleague yesterday, affecting unaligned that came from the description

of residential politics on the horizon like staring at the sun. is that what it is like for you? have you put thought into the changes in washington and what that might mean for companies in your coverage? gerard: it is a good question because it is the topic du jour this year with the election coming. all we can say is that under the current administration, there has been more regulation of banks, particularly with the protection bureau. we do not know who was going to be running just yet in november, but if trump is the candidate for the republican party and if you us to win, his administration had less regular and for banks, so if that administration was to come back, we would expect to change the heads of different financial agencies in 2025 and they would probably be less relation for the banks. tom: i think bloomberg radio was missing it today because we are seeing the fireplace with rod cassidy here on bloomberg television.

south paris maine, $325 per cord of red oak, delivered to shea cassidy. that is eight or nine cords of winter. he needs to think about that. jonathan: it is expensive, but don't you love the smell? tom: and that damn dog is over by the fireplace. his dog is called elizabeth. jonathan: thank you. gerard cassidy of rbc capital markets, thank you. coming up later on bloomberg tv and radio, a morgan stanley executive chairman james gorman, as he leaves his post as ceo. an exclusive conversation. that is the exit interview a little bit later. lisa: with tim hick coming up and taking over, taking the helm of the big shift that has been goldman sachs for so many years for can they continue to do that? jonathan: looking forward to the conversation. next, philip temporarily --

philip camporeale. ♪

>> i do think the fed is probably going to be disappointing relative to the

speed at which rate cuts are priced into the market. >> i don't think the fed is going to deliver with market is expecting. >> you start to see data that is more inflationary. that narrative on how much the fed will cut has to change. >> the fed has been insensitive. >> you have the fed wind at your back in 2024. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning. jonathan ferro, lisa abramowicz, and tom keene. day two of the new year, a struggle and the equity markets, the world turned upside down. thank god, at 10:00 a.m., we had the jonathan ferro statistics. jonathan: ism services matters and manufacturing less so. it has been sub 50 since late 2022, and we are following that to make a trading call on the broader economy, and you would just be dead wrong. it is decent if you focus on jobless claims and this week is

about the jobs report. the estimate at the moment is 170, 100 90's from citi and goldman. -- 190's from citi and goldman. this is not what we expected to start. tom: and wage inflation, do not pass go to the fed so far. they cannot move until wage inflation comes down. jonathan: they are teasing it. chairman powell furthered with the idea. later this afternoon at 2:00 p.m. eastern time. tom: in underpinning here, lisa, this is your wheelhouse, the idea that the bond market turned upside down, private equity and credit are canadian shop today, talking about certain transactions up in canada. what is the stress in the credit market right now? lisa: nonexistent. what you have seen is everybody flooding into credit, riskier and riskier as the year went on. the question is if that is warranted. a lot of people say that is because we have been able to handle these rates, and if they

are going down, and tested, let's refinance and get it underway. tom: in the ft today, there is a wall of cash and private equity looking for a warm spot. at the same time, they have a wall of cash invested that they are trying to get out of, and that is stop this year. lisa: if you take a step back, so there was 2.5 trillion one part or side of equity, if you take a zoom out approach, there has been stasis and a lot of capital markets the past year because of how high rates are. when things start to defrost, which direction will they go? will you see evaluations reset given the fact we have not seen visibility? or will we see all things to the moon, everything is a go, and inflation will continue to reignite? tom: we need to see exits. jonathan: exit from what? tom: ipo market? jonathan: banks going public?

tom: it is a part of global market. futures are negative at 21. the vix has not come back, 13 .6 on the vix, still -- jonathan: i wish he had a camera for when you weigh in. lisa takes a deep breath of like relaxation to stay cool and calm. lisa: no, i just glad you to find exits. jonathan: anyway. price action looks like this. let's get the screen up on the s&p 500. coming back to this, 4.34, i sat down with him early on in the year, and he talked about the biggest risk being upside, and he was right to call that out. long equities and long credit, when everybody talked about maybe it was the other way. this is what he said this

morning, the biggest risk right now, and it is not deterioration in earnings activity. he is looking for another repricing in rates. if you look at the numbers that goldman sachs and citi are looking for in the payrolls report friday, you keep seeing that if the fed cuts anytime soon, maybe you do get that. tom: i will go to short-term rates, as well. the 10-year real yields, 1.75 percent, and td securities just said that has to come down. i don't know if they will get it down to 1.5% or 1.2%. jonathan: the 10-year is pushing 4% this morning on the 10-year treasury. tom: i believe it is multi-asset, and philip camporeale joins us now with jp morgan. which asset is the best to be in right now? philip: equities. it is pretty simple.

we have a fed who did their last hike in july and an economy that we think only has a 20% probability of going into recession in 2024, if you put those two things together, have a 7% overweight to equities, the biggest one we have had in equities since before this crazy tightening cycle began in march of 2022. there is a good reason why. we can now play defense with bonds, and i can exhale saying that because we really do believe that the risk has shifted from inflation being the risk and rates being the risk to if we are wrong on the equity side, it is probably because growth is slipping and bonds. we are trying to make diversification great again. tom: i brought up the bloomberg total return index, which is an elegant chart. it is up against resistance here. we have bonds as historic disappointment in bonds. is it clear now for total return on bonds? philip: we think it is because

there is a big difference. we have been talking a lot about maybe they don't ease this much? i think that is fine, but we think it is a very low probability that they are going to hike again, so that is a regime shift. so how many more tightening's do they have left? we said this year maybe they don't use as much. if i can put a bow on the fourth quarter because i have the chance to, my favorite portfolio is 60/40 portfolio, up 10% in the fourth quarter, and the three-month index of 3.1%, and that three-month tebow is still my biggest competitor. jonathan: this 60 and the 40 is not meant to work at the same time. philip: when they go up together, we are happy. jonathan: that is the problem. now as we come into this year, we might see a difference. defense is back in bonds, what has changed? philip: that primary risk of is

inflation a problem, is the fed going to raise rates? they're worried about their dual mandate, or just full employment and price stability, and its departure from where we were from march of 2022, when they played catch up on inflation. lisa: given the fact you have the biggest overweight position in equities since before the fed started its fed hiking cycle, are you doing that the selloff now is a buying opportunity or are you seeing this as something you would like to wait through four adding more? philip: i think you find sympathy, rates are on the wrong side of 4% in the 10 year. there is some sort of realization here that maybe we overdid the easy and there could be near term volatility in equities, but that is noise. the real signal is the fact that the freelance economy is on soft

footing. all the pessimists have finally thrown in the towel, been that we are in january 2024 now, so that is where we stand. it is not that the equity market is going to suffer from a growth story or a huge labor market slack or business caution. i think it is the fact that it overdid it a little bit on the right side. the 10-year should probably be between four and 4.5% the first quarter. lisa: given that it might be more of a rate story than anything else, it is notable that tech is underperforming and it raises the question about whether you can have the recovery you talk about and an underperformance on the index level because big tech does not cooperate, is that something that could happen this year? philip: i think that could have legs, so if you look at the cap weighted s&p 500 lua should at 19 times, equal weight -- s&p 500 at 19 times, equal weight is high for not that much longer. all of the other s&p 500

companies that we are worried about, two things last year, recession or high interest rates, those companies will have a chance. whereas big tech companies benefited in march from silicon valley, and apple does not need a loan from regional bank, and they benefited from the fact that they have tremendous free cash flow generating all the income. so i think there could be a rotation and more positioning for them. tom: this is critical. you mentioned the 60/40 triumph and that is all great, except that most of our viewers and listeners, to them, apple is the portfolio. psychological, that is a bogey. is that idea just go away? philip: no because those are high-quality companies. it does not go away, i just don't think it takes the leadership this year that it did last year because the fundamental story has changed, folks being worried about high

interest rates, and free cash flow, you have financials, and that was a great cyclical story that was on their own this year. jonathan: you set this one up for us, the financials next jp morgan because jp morgan has done really well. the rest of the sector struggled. why is that going to change? philip: i think that was more on the fact of do we have a recession? in one of your last segments, it was a good story. in a risk on trade, banks usually do it. that is what we are trying to set up for in 2024. are you in a recession or not? we have a low probability of recession this year. and the unemployment rate we think stays at 4%. that should be good for banks. jonathan: your earnings come out in a couple of fridays. jp morgan is just around the corner. and then we get the tech players like apple. what are you looking for for the

fourth quarter as we hear from those companies the next months? philip: our earnings estimate this year is about 10%. and i think what we are going to hear from these companies as i think a little bit of a sigh of relief on the right side. i believe the u.s. consumer continues -- you mentioned ism services and i could not agree more. ism manufacturing, you ask people who have been around a long time, and they think that matters. we are a.service sector economy now i believe they will be focused on the consumer the fourth quarter. that has held up very well. jonathan: happy new year, thank you. philip camporeale of jp morgan management, looking for a change of leadership in 2024. tom: the basic idea to those select few who own the magnificent seven, the basic idea is if you own them, what do you do? do you walk in and sell them? you're going to tell somebody to sell microsoft right now?

jonathan: if you are just joining us, welcome to the program. here are the scores on the s&p 500, negative by 0.4%. yields a little higher by four basis points, 3.97 on the 10-year, closer to 4%. in 17 or 18 minutes time, we will catch up with torsten slok of apollo. lisa: i am curious to see about the softening we were hearing about from wells fargo, this question of is it enough to bring inflation down but also support some of these pretty robust profit expectations and the rotation that people are talking about? right now, the economics is really going to be front and center, and you asked the most important question, what is the indicator you need to follow that will be signal and not noise? jonathan: one of the last two months, it has been jobless claim, any reason for it to change? tom: to me, the fundamental

issue is the wage dynamic in america. it is better, but it really has not broken down. we are not beyond the pandemic wave serves. jonathan: real wage growth will support the consumer, and this economy is the consumer, and we saw that indiscretion with big names and big moves. a really strong finish to 2023. coming up, henrietta treyz of veda partners. the price action pulling back again this morning. session lows on the s&p 500 after some pretty stellar gains through 2023, of more than 20% on the s&p, more than 50% on the nasdaq 100. from new york, this is bloomberg. ♪

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>> people are not particularly pleased with either options, how the parties or system operates. looking at the favorable ratings, which is the proxy at this point is a contest to see he was gaining traction with the public, really, none of them are. no one is really shocked or impressed. of course, january 15 is down the street. a lot can change, particular when those first results are coming up but right now nobody is dominating. jonathan: that was the editor-in-chief of gallup

speaking yesterday on the mood of the american public as we enter a presidential election year. this line jumped out to me, if you look at favorable ratings, which he says is a really good proxy, i think at this point, to see he was gaining traction with the public really, none of them are, but it is a feeling across this country, away from the fringes, extremes, and it is a great disappointment of the candidates on either side they will be facing off further president of the station at the end of the year. tom: there is a point to negative ratings really matter. as we get towards the election, the primary season beginning in iowa and new hampshire, the bottom line is, we are ended the season, or the negativity needs to be measured. lisa: what i find interesting is because of both candidates, nobody is really talking about the fact that we are less than two weeks away from the

beginning of the election season where we have the iowa caucus, and then 10 days after that, we have new hampshire, where suddenly we get a read on what the landscape will be, whether nikki haley can gain traction on the republican side and the field for president biden. no one is talking about the challenges of president trump. people seem to be shrugging it all off. jonathan: it is like right here. i talked about their response for market participants. it is like staring at the sun right now. tom: i like that. to lisa's point, this is important. i don't see a drum roll to new hampshire and i don't know that means, i really don't know how to interpret it. let's get to it with henrietta treyz. the distinctions between manchester and concord. i look at the dynamic right now

that we just talked about, i have a lot of retirements going on in capitol hill. what are we going to see the first 90 days politically on capitol hill? henrietta: you are going to see a tremendous amount of activity and noise. we have two potential shutdown dates, a looming sequester of defense, and then you had to start of the various trials for president trump, the first midterms and primaries, and then a deal on u.s. southern border aides. there is a lot of policy, but i would interject a little bit, the opportunity for investors to learn so much the next 90 days is underappreciated to read you have one third of the country who is going to decide the election and who may be holding up for another candidate with a percent of republicans, and they will all start making choices after the first three primaries, so this next two or three month

interval will be a momentum opportunity for either candidate and what i have stress to our clients is one of the candidates on the presidential ballot is joe biden is down, and there is former president trump, so as we go into the first quarter of this year, which candidate would you prefer to be? there is a lot of opportunity for read through and forecasting that is stark. tom: super tuesday and marches important reaching into the summer. you have any idea what the conventions look like? or will they be original? henrietta: i don't think there is an opportunity for trump to be ousted after iowa, and what we have seen from the republican challengers is that they are sort of hanging on, and i think that the hope is that they get to the convention period this

summer and may be trump's indictments and trials and fallout from scenario where trump is front and center and bidens approval emerges as a positive, and then there was a party shift. there are very low odds that trump is not on the ballot, either in the primary on november and is the republican nominee, but if there is opportunity for change for any candidate and chris christie is also trying to hang on their, the next opportunity is not until the convention, and that since an opportunity for it to be interesting but other than that, i don't see an opportunity for change, and biden is the democratic front runner. lisa: you mentioned the legal challenges for donald trump, that has been a benefit for him, is there any signal that that could change? henrietta: who is it at a benefit with? democrats, no.

independents, no. republicans, yes. republicans support trump and that is what they are showing. it is not sufficient to win the election. you need the independents. one thing i would encourage folks to look at as they face uncertainties of the trials is that the supreme court decided to weigh in on abortion. so we will get additional inflection points that have impacted the way independents and democrats and republicans have come out, and abortion issues have overshadowed it. but that is to be expected. lisa: i smile when we talk about leadership change within the market composition because we will get a massive leadership change maybe in the united states, where you get the first rematch, once again, of two presidential candidates since 1956. how should the market be doing this? henrietta: i think there is a

lot of opportunity for directional indications the next few months. we will get so much clarity the next 90 days. don't discount that. one thing i recall is that in 2016, people were convinced that bernie sanders would be the nominee. 2020, they were convinced he would be the nominee. it was a failure to read through what the numbers are telling you. they are telling you right now that people are open to another alternative, and in three months, there will not be one. where do you see those voters going? to their base? biden has the biggest gap within his caucus, but also in defense, where do they go? since 2016, the democratic party, so you would have to overlook 2018, 2022, and assume it would be different in 2024, and that defies logic. jonathan: let's finish on this question, do democrats need a plan b? henrietta: first of all, i don't

think there is one. i doubt it. and in this scenario they do, there convention would look like the confusion and momentous occasion that i describe the republicans, where you have some kind of emergent at the last minute, but they have overlooked that the next in line is the vice president, so there would be a three-way race between those three candidates if you were to come to the convention for democrats. jonathan: thank you and happy new year. good to catch up. henrietta treyz. tk, do we need a plan b? tom: that's a sensitive question. i think everybody awaits it. it is a calendar item. i cannot emphasize enough with the questions to the left and right are calendar items. lisa nailed it earlier, saying that the calendar is disrupted. for whatever reason, i don't see

that anticipation. yes, iowa, but east coast bias, new england bias, i am focused on new hampshire, and i am sorry, the focus is not there, as in previous cycles. lisa: i wonder how much henrietta's line is one that the white house is looking to. you are seeing the former president trump's ceiling, and that will shift over time. what happens if it doesn't? there is no plan b. do they need one? unclear. jonathan: i am sure there was someone out there saying, do we need one? i am an absolute shock. we will speak to torsten slok of apollo next. this is bloomberg. ♪ y, brent! if you had to choose, would you watch paint dry or compare benefits plans? compare benefits. gusto makes it easier to find the right plan for my team. i think i'm going to need new glasses. no problem. you're covered. choose benefits without the mess.

jonathan: equities pulling back on the s&p 500. adding to the losses of yesterday off the back of nothing really on the s&p 500, negative by 0.3%, yields higher by three basis points. 3.97 on the 10-year. later, we will get ism, fed minutes, payrolls on friday, and jobless claims. we will get fed speak, too. here is flavor of it coming from

barkin, a soft landing is conceivable but in no way inevitable. they also to be on a path back to normal levels. lisa: this to me is mediocre pushback. you are not releasing seen any reaction in the market. this is, look, pump the brakes, this is at a time when everyone has priced this in to perfection and this is the balance we will hear in the couple of minutes. jonathan: two way risk around the conversation for rate cuts. tom: that is a nice way of putting it, that there is an asymmetry the last 90 days, certainly after powell's extravaganza couple of weeks ago, and the answer is, yes, they would like to become more symmetric about the outcomes. no surprise. barkin saying more additional rate hikes that remain on the table, so that is creating that symmetric approach that they dream of, maybe dream is the operative word. jonathan: michael mckee can talk

to us about the dream of the year, let's talk about the fed speak and the data, what are you looking for? michael: everybody is looking for any indication of timing of rate cuts and what they might say about the number of rate cuts. barkin talked about that this morning, saying that all of this is in the context of their forecast. they put out forecast inflation, unemployment and growth, and then they talk about the possibility of three rate cuts, and they say the rate cuts depend on the forecast being correct, and in his pushback, he says to the folks on wall street, i would caution you to focus less on the right path and more on the flight path as inflation continues its dissent. i think the pushback idea is still out there, the fed trying to get everybody to realize that this is basically data

dependent. i think that is what we get out of the minutes today, too. tom: when we look at the wall of data we have seen, to barkin's comments, we will get wage inflation data. are we seeing wage inflation come down? michael: we are not seeing disinflation. we are seeing a slight drop in the month over month gain. because of the higher payrolls, the pay increases people got last year, is bringing the year-over-year level down, around 4%, and the fed is looking for three, 3.5. they don't seem to be too worried about a wage push inflation coming up. they are more concerned about other aspects of inflation, which would make cpi next week interesting. lisa: we are still looking at these barkin comments and i keep thinking the horse has left the barn. right? he is trying to push back, but we are not hearing it in the

market. the market is saying, nice try. and they are not doing anything. that is what i am seeing. jonathan: did you see the michael mckee's tweet about the tug-of-war between markets in the fed? michael: i welcome everybody to look at it on twitter or threads, but basically to boil it down, what the ad does is put out a compendium of 19 different forecasts, and we picked the middle number. and that becomes basically the median that everybody focuses on, but it is not a plan but 19 different forecasts, so you have to look at it in the context of which thomas talking about, everybody says this is what we think will happen. and if it does indeed happen, then this is what we will do. or this is what each of them would do. and if you look at the dot plot,

and we have talked about the dispersion of dots, it is still pretty wide for next year from six to one. or none. so there is not any real set of what they will do. jonathan: the range on the federal reserve is pretty wide, and it is now for 2024. like the forecast for s&p 500 year end, we can talk about the average and median but at the high end, you have a 1000 point spread to the low-end. tom: the fall over to the equity markets is really apt. after the pandemic, we have a great unknown out there, so we put it into all of our coverage, including january 11 on inflation. right now, our conversation of the day, synthesizing this together, torsten slok is chief

economist at apollo management. i will pull you in here, a whole bunch of threads. the bloomberg natural index-ish -- financial index shows massive accommodation, but i look at the new sofr nic restriction in the paper market and the illiquidity on wall street. how urgent is it for the fed to make some direction on the march cut or dare i say january 1 cut? torsten: it has a number of dimensions. first is that i mentioned on the real economy. it has eased financial conditions dramatically and this runs the risk we might see a repeat of what happened debt the bank. remember, it was said a few weeks ago that the easing of financial conditions boosted gdp growth to 5% in q3. could we see the same where the easing of financial conditions might actually be boosting the housing market, labor market, goods inflation services?

we are not out of the woods when it comes to battling inflation. on the real economy, the easing of financial conditions a supportive. there are some issues when it comes to the tightness in short-term markets, and the fed has to play this difficult tug-of-war between everyone of the financial conditions.how much can we ease financial conditions on the front end of the curve? this is the challenge for the fed at the moment. lisa: you did not listen, they do not respond to the condition of financial conditions and they did not seem to think it mattered last press conference, so why should it now? we are hearing them say, just kidding about that question. torsten: they were debating in october and september, maybe financial conditions did a lot of the work for us. now they are saying that it does not really matter because it fluctuates so much. i still think it is a little bit inconsistent what they are saying when there data dependency only talks about the real data. if you take the easing and

financial conditions we have had and stuff it into the model of the u.s. economy, you will get a boom of up to 1.5% growth over the next seven quarters of gdp. it will be supportive as a tailwind to the economic outlook. lisa: we did have td securities on earlier, and they said with the idea that inflation could remain sticky and we could get this ongoing growth, the fed could still be restrictive and cut rates given the positive real rate. do you ascribe to that or do you think it means many fewer rate cuts going forward for the fed? torsten: i think that is right. for the better part of the last year, we have talked about higher for longer. now the conversation is more restrictive or longer. they can still be restrictive if rates come down because real interest rates are what matter. as inflation comes down, the fed can gradually begin to lower rates, but note also that if you look at the outlook for futures, you still have the bottom around 3.5%, 4%, so one conclusion for

asset allocation is that we are not going back to zero. we still have higher for longer, in the sense that the level of interest rates and the free risk rate on page one of your finance expert will be significant higher for the next several years and it was from 2008. jonathan: the interest rate of the u.s. economy, we have seen rates go up aggressively and not slow down the economy. as rates start to come in and financial conditions ease, you are suggesting the economy picks up. can you explain that to people that white easing financial conditions will boosted? torsten: the conversation taking place is it is important to remember that that is a function of whether you talk about the interest rates sensitive component of gdp or the non-interest rate component. if you split gdp into cyclical components and also quicker, -- and noncyclical, the main part

is housing, and housing response dramatically to higher rates. the idea that the economy did not respond to higher rates, that's wrong. the economy did, but it was that interest-rate sensitive parts that did. but the non-interest-rate sensitive components, like travel, restaurants, hotels, had such a long tailwind that that more than dominated the slowdown in the housing market. splitting that debate away from the academic textbook is so important because it becomes critical to think about did parts of the economy that are sensitive to interest rates, did they respond, in particular housing,, rosaries? they did respond -- groceries? they did respond. jonathan: and fantastic explanation, so let's build on it. what is the forecast for gdp the next couple of quarters for you? we heard from hsbc and they said the highest risk right now is that they have to reprice its

higher. torsten: on the bloomberg screen, i will see that over the next six months, we are very close to 0.4 and 0.5 on gdp for q1 and q2 two, so the answer is gdp growth is continuously slowing as a result of the fed's campaign of hiking rates. the new risk is because of the fed pivot, that means interest rates are components that are dragging down and they may begin to rebound and now it is up 5% because it is a leading indicator, meaning that the components of the cpi make up 40% of the index, so that means that if something except 40% of the index is about to rebound, we could come back to that discussion about maybe the rates markets will have to reprice to hire for longer and more restrictive. tom: i looked at the two year adjusted rate yield, and i came ease -- use the word never over 20 years. the duration of a high two year

route rate we have never seen. we hit a spike in 2008 with the great financial crisis, but the sustained high two year real yields are absolutely unprecedented for global wall street. how unstable are we right now? torsten: from a fed perspective, if you take the economics textbook out and think about what matters, it is real rates. real rate. the challenge for the fed is that they still want to have a soft landing and we all want one, and that would be the best outcome from so many dimensions, but what is beginning to matter is that they have now sucked so much liquidity out that we are at a point where we have started to see some strings in the plumbing you are highlighting. that is why real rates has a different impact on the long end and what it means for the real economy to what real rates mean to the front end and financial markets. jonathan: if you are just

joining us, to get you up to speed on the s&p 500, negative by 0.3%. yields higher by four basis points, 3.97 on the 10-year. if you have to guess year end, a guess, fed funds year end, five handle, four or three? torsten: i would say i am on the four handle. this hold back and forth with the pendulum swinging, where we suddenly these financial conditions, get the burst like we didn't q3, we could -- like we did in q3, we could get when a q2. the fed pendulum swings between the vision hawkish, and the fomc members would say that this was not intended to be dovish the way the markets interpreted it. that means that markets will still have a bumpy road. i think the risks really hear are that we will still have a lot of challenges with inflation simply not coming down as quickly. do not cherry pick the three

month, six month and two month change. take the 12 month change and that tells you we still have a rough road ahead. jonathan: so it was fine tuning as opposed to the start of the cycle? torsten: that is why barki n's comments are interesting, there are different views on what need to be said but i think once we get that boom as a result that is coming along of the easing of financial conditions, i think we will be back to the pendulum swinging back and a more hawkish direction. jonathan: just fantastic to catch up, happy new year's. torsten slok of apollo management. equities bouncing in obsession those on the s&p 500, from new york, this is bloomberg. ♪ how am i going to find a doctor when i'm hallucinating? what do you think, fever monster? what about zocdoc? zocdoc? dr. castell has a great bedside manner. so many options.

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>> jenny i will make it easier to access information faster. -- gen ai will make it easier to

access information faster. i and bullish on it. it is a part of every industry and will increase productivity and make our lives better. jonathan: that was the ancestry ceo speaking with david rubenstein for you can watch the interview tonight on the david rubenstein show peer-to-peer conversations. just want to check the price action as we kick off day two of trading's. equity market on the s&p 500 pulling back by zero point -- 0.4%. turning 2023 upside down for a brief moment. yields higher by four or five basis points. 3.9744 on the 10 year. the euro 1.09223. tom: deborah was the -- you know ancestry, they show the entire

criminal history of the tom keene family. jonathan: are you paid up for that? tom: yes, i paid to find out how bad the ancestors were. david rubenstein, what an interesting challenge to take this new technology over to our ancestors. what is the deborah lu distinction? david: she is running the largest genealogy company in the world and has a really good technology background. as a result, she is applying it to historical records. it is much easier than it used to be to figure out where your ancestors came from and how far back you can trace it. it is really amazing, so many people have a real interest in knowing where they came from, who were their grandfathers, great-grandfathers, and so forth. now you can do that much easier. tom: i suggest they were all baltimore orioles fans, as well. if i look at what they are doing, part of it is an ai frenzy, and in your discussion

and work at carlyle group, is it a part of ai that seems to be a moment or fad? david: ancestry started 40 years ago and they rely on records, but with ai, they can feed into the computers more information more rapidly than before, and as a result, what used to take nine months, they can now do in nine days or nine hours. the result is that they have a very good ability to figure out where you came from. do you know where your ancestors are or where they came from? tom: the ones that were in jail. ross came over and handcuffs. that is my middle name. he came over and handcuffs. lisa: david, aside from genealogy on the handcuffs of the tom keene predecessors, i am curious about what this is going forward for a whole host of companies that need to make serious investment in artificial intelligence to glean the

benefits of this. is this something that gets isolated to bigger companies with the capacity to invest real money? david: every company in the u.s. and probably every company that we are out is trying to figure out how generative artificial intelligence is affecting the company. i know my company is looking at it. nobody knows exactly how it will affect their company. if you go back to the dawn of the internet age, many people made predictions and some turned out to be wrong and right. but the internet changed the way we live and think and exist. i think generative ai will for a lot of these younger companies because now they can do things that they did not have the resources to do before because generative ai enables them to do things they could not have done years ago without this technology. it is going to change the world but nobody really knows how. lisa: do you have a sense of which industries are adapting to

certain artificial intelligence deficiencies more quickly than others? david: the technology companies that have a lot of technology, people and their employment roles already, and people who are engineers, people with living dye technology that are at an advantage, so the company set seem to be doing externally well on ai are large technology companies like google, microsoft, this book and so forth, but there will be a lot of small companies coming along in each is that people don't know -- in niches that people do not know exist today. think about this, 50 years ago, there was no google, microsoft, and now they run our lives. tom: i have to turn to harvard, you have been a great supporter of the harvard corporation and you are founding of the harvard counsel, there was penn,

harvard, and there may be others. comment on the resignation of the president of arbor university -- of harvard university. david: i was on the board for six years, became the chairman of the university of chicago board and resigned and retired in july, so i think it is good that this has been resolved. it is sad it happen this way, but i don't have inside information. harvard is an extraordinary university and it is our oldest, but i don't really have any fresh insights that i can give right now. tom: chicago graduate, lisa abramowicz, what is the university of chicago getting right? david: the university of chicago has a policy of not commenting on public events, so we did not issue a statement on what is happening in israel. there was pressure to do so, but we have a history of not

commenting on public policy. we have a policy there that says people can say almost anything they would like on the campus, not to incite riots and so forth, but it is a different university than others i've been associated with, and their policy is being led right now by an extraordinary chemist who is now the president of the university, so we have not had some of the challenges others have based, and many are looking for the chicago model to see if they can adapt that to their own situation. lisa: this is kind of perhaps a personal question but it is something i know that is a big topic of discussion in my household, do you find that the people who apply to your company do not have the kind of critical thinking skills they have had in the past? do you think the higher education system is preparing kids in the same way they did 10, 20, 30 years ago that you need them -- to do the work you need them to? david: people out of colleges

and universities today have more technical skills than when i graduated. i think that universities are doing a reasonably good job. why is it that people from all over the world would like to come to our universities? we have an extraordinary number of foreign students who come, and we don't see that many american students going to foreign universities. that is because students are well prepared. as a student, you have some response ability to figure out what you would like to learn and how hard you would like to work. you can take easy courses and not learn much, those are not the kind of people we do want, but you do find dedicated people with certain skills. what i look for is not technology skills but other people actually know how to read and write and have an interest and intellectual curiosity and if they have the capacity to work hard and if they would like to make something out of themselves and not just get a salary. jonathan: another conversation, just like tk. so likable. david, looking forward to the episode later. david rubenstein of the carlyle

group and host of peer-to-peer conversations on bloomberg tv. that conversation was dead on, brilliant, particularly towards the end. what are we preparing this generation for? what are these academic institutions doing and how have they changed? it is just the beginning of the conversation. lisa: to that point, this question of a focus on technical knowledge as a technique ologies -- technicalities ship so quickly, maybe they need to shift back to the basics, which has been a conversation. how do you do that at a time where the technology is shifting a lot of the experiences? tom: there is a shift, but i would size of some of what you are talking about, lisa, as this course is hard, -- jonathan: that's a different conversation. tom: i got an email ones from one of the offsprings, the middle child, she took microeconomics for three days and tells me, this is really hard. i said, yeah.

and microeconomics, you develop critical thinking skills around dynamics concepts, geometry, blah, blah, blah. what you are talking about is actually going to school and studying? how strange. jonathan: it was nice to close out this hour with you. holding down the fort on the open today, i will go through the lineup,"' sherrod brown, all of that -- pimco, all of that coming up. lisa and i are working on a special project. tom: i think he is killing it at 5:00 a.m. jonathan: with dani burger. tom: i not here. jonathan: you are barely present now. tom: 5:52. jonathan: to be fair, neither am i. still adjusting to a brand-new year.

from new york city, equity futures near session lows. this is bloomberg. ♪ c'mon, we're right there. c'mon baby.

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>> from new york city, this is state of play on the markets. day two of the worst opening across assets since 199099. the countdown to the open begins right now. announcer: everything you need to get start for u.s. trading, this is bloomberg "bloomberg the open" with jonathan ferro. ♪ manus: coming