>> chairman powell told us was that the strong labor market strong economy would come through for cutting rates. i think that is still the case. >> you can see from the policies that there's no hurry for cuts anytime soon. >> i think they have scar tissue from inflation the last couple of years. >> jay powell may have a challenge corralling everyone on the committee. he may want to make the first move based on a strong consensus. >> the problem in the selby-like economic environment where it is not discernible, you are chasing your tail. >> this is bloomberg surveillance with the jonathan ferro, lisa abramowicz, and annmarie hordern. jonathan: good morning, good

morning. this is bloomberg "surveillance." with lisa abramowicz and annmarie hordern i am jonathan ferro. slightly softer by .1%. we saw it within striking distance of 5k on the s&p 500. waiting within five points of the close within 5k. lisa: it is not coming with a feeling of bullishness and innovation. it is coming with, all right, the mag seven are going to keep doing their thing. we are going to bank on that and maybe we can get there. it isn't exactly people are screaming, yes, let's go. jonathan: standing on the shoulders of fewer and fewer. the mag seven become the mag 6, 5, 4. we have good news. in the bond market, the 10 year treasury auction, the biggest slate on record. it went pretty well. lisa: it came in at a lower yield than where some of the

bonds were trading moments before the auction. why? because people are feeling better about the economic outlook? or because there's so much residual fear as a result of banking issues or concerned there will be a downturn? i wonder how much reprieve this bond market has gotten from lingering worries out there that are dampening down too much enthusiasm? jonathan: saying that this is about locking in rates. another opportunity to do that later. a 30 year supply. that number is 25 billion u.s. dollars. are we comfortable with the size of the deficit in the united states? lisa: we? who are you talking about? jonathan: not you. lisa: the congressional budget office came out yesterday, payment in kind junk bond where you borrow more money to cover your interest payments because you don't have enough in terms of the revenue. the u.s. government. you're talking about interest payments that are exceeding the cost of defense spending in the united states this year for the first time.

annmarie: net interest the highest going back to 1940. this is concerning. jonathan: so, we can rely on people in washington, d.c. to fix this. let's talk about the leadership. the race to be the president of the united states. the former president is confusing nikki haley with nancy pelosi. the current president is confusing french leaders. overnight he is confusing german leaders. annmarie: another episode of the president confusing european leaders. over the weekend he confused emmanuel macron with initial on that got a ton of blowback from the french press. in new york, at two fundraisers come he was telling the story yet again of his time at the g7. instead of saying is angela merkel who said, can you imagine if this happened at the british parliament, he confused with helmut kohl who died many years ago. jonathan: these people are dead. they are not here anymore. it is insane. lisa: do you want me to comment?

this is the question of what is the bar right now? yesterday, you have the democrats with a front runner who is the least likely to win against a trump. you have trump who is the least likely to win against biden. you have two unwanted candidates going face to face. it is a race to the bottom and we get to experience it for nine months more or whatever it is. annmarie: it is a political marriage. they are married politically for both to stay in the race. when we conducted our last iteration of the bloomberg news morning poll people can write in things that they like about individuals or candidates. for biden i'm looking at the responses. democrats are saying things that are concerning about his age and mental acuity. you have episodes like yesterday in front of peers, people who want to give him money. that is where it will become concerning.

jonathan: we will talk about the political mess in washington later in the program. we are down by 0.1% on the s&p 500 and equities are little softer. on the 10-year, 4.1172. later, the s&p 500 on the verge of 5000. ashton of eurasia group, inflation deepens in china. and looking to turn a corner. disney and the premarket, up by 6%. turning a corner. cutting costs. the stock is up by 6.6%. lisa: really trying to boost the cash dividend. this is the story we have seen with big tech. i think it is back to the future again. my want a -- moana 2? jonathan: there's a lot of examples of that at disney. lisa: going back to the tried and true and everyone is singing moana in the theaters. breeding the stall job. jonathan: the cfo coming up a little later this morning.

the s&p 500 is on the verge of 5k. leader come expecting the rally to continue saying, lower inflation and coming interest-rate cuts will drive an investor rotation from 23 u.s. and big tech winners to rate-sensitive losers. ben, striking distance of 5k within the s&p 500. what will lead to the broadening of the rally away from big tech? ben: a little bit of time until we get interest rate cuts. until we continue to see this idiosyncratic earnings recovery. those are the two drivers for new highs for the s&p 500 and global equities. the further that we get into it, we are talking about rate cuts and earnings acceleration. later in the year i think we are going to be seeing them. i think that is the trigger for the rotation from these crowded and justifiably very expensive big tech values.

everything else has lagged and is a lot cheaper. lisa: there has been some weaker than expected performance in certain pockets of equities and you can see that when it is unclear when the fed is going to cut rates. does this make you rethink some of your bullishness? ben: not really. i think we maybe recalibrate a little where we expect to make the returns. i think that we have had a little pushback on the pace and extent of the rate cuts. maybe you make a little less on the valuation side. i think with the economy growing as strongly as it is right now with the productivity boom that we have underway, and with earnings right now 80%, running at 8% up, better than last quarter, the earnings story is looking a little better, running ahead of schedule. lisa: ben, you talk about how the fed put us back, everyone said no way.

you were talking about being bullish and everyone said that you have to be cautious. you were right. now you are going full bull. we are talking about buying european real estate, broadening out. is this a now or later trade when we get conviction? ben: i think that it is a later trade that you get ready for now. i don't think there is too much risk to being early. i don't think there's anyone on the planet who knows european real estate is not a troubled asset class right now. double digit earnings declines, in recession, i mean, the bad news is out there. we may have to wait a little bit for the capitalists to really come through. do the research now. i think for europe and the markets, it will be annualized 35% on the s&p 500 right now.

i think that a bit of a slowdown, back ended but broader returns. right now it is a one like it -- one-legged stool. jonathan: not just real estate, is it the banks as well? they feel like great-sensitive losers over the last year, not the winners that we would expect them to be. ben: absolutely. there are plenty of risks. commercial real estate, china. the point that i would make is that these are the most talked about, slowest moving train wrecks in history. policymakers, everyone is all over that come i think. it discounted in markets. i'm looking at these cheaper, discounted sectors. that can be real estate but it is also basic materials, industrials, and partly financials, the biggest sector

in europe. there is also a big regional component to this. it is everything outside of the u.s. where the more cyclical sectors are more heavily weighted. they don't have the big tech sectors. europe and dare i say under my breath china. jonathan: china data overnight, it looks like inflation is deepening and china wants to deal with the symptoms to try to support the stock market without dealing with the underlying problems. how can you be optimistic about what is happening there now? ben: i am not overly optimistic. i think if you want to play the cyclical global rotation trade that is the place to go wrong for china. the risk is china is a value trap. the economy is up 15 times in 20 years. history is not on my side, but eight times earnings, extraordinarily depressed, investor sentiment, the authorities may be beginning to feel the symptoms, but at least they are dealing with something. let's not forget that this is

very much a self-inflicted problem. they decided to crack down on the over indebted property sector. they could easily wake up tomorrow and decide to be a little more forceful. that makes me moderately positive, but the risks are clearly higher in china than in many other markets. annmarie: but would you want to see out of china? we have seen then try -- of them try number things to prop up the market that didn't work. ben: they have some of the highest real interest rates in the world. interest rates, quite frankly. i think they should be more forceful on the property market, one of the underlying causes of consumer weakness. there are three drivers of the chinese weakness: property sector, weaker consumer, and manufacturing. i think that they can do more about the first two. they have the policy tool, they have the policy flexibility. they should be pulling the levers forward.

a little good news can go along way given how depressed and out-of-favor chinese stocks are. lisa: can you be moderately bullish on china and believe in the disinflation story? ben: you don't really believe the disinflation story. i think this was probably the worst month for disinflation, 30% declines in port prices.i don't think any of that will be repeated. lisa: i mean globally, the disinflation story for europe and the u.s.. the commodity-driven disinflation that a lot of people are celebrating? ben: i think that that is a given. i don't think that has gone away. the productivity boom, that is what is driving this immaculate disinflation that we are seeing globally. it was a real question whether that would continue, but right now we are seeing it. you could make the argument that maybe it does have some productivity beginning to end.

if octave it can grow at twice long-term average level in the u.s. i think that we can thread this needle and company profits will benefit handsomely. jonathan: it is good to hear from you. great to catch up. ben was one of the first to come on the show last year and talk about the return of the fed, which sounded foreign because we haven't heard it for two years, but he was right. chairman powell is willing to step in if things deteriorate and he is not afraid of strong growth. they're willing to embrace it. lisa: this is the reason your pricing in a 20% chance of a march rate cut. they told us you aren't going to get a march rate cut. the fact that people are expecting it means that there is some bogeyman that they think could rear its head. jonathan: the fact that they are pushing back and we are still talking about 5k on the s&p 500. the stocks are still doing all right. we are down about zero point 1% on the s&p 500.

an update elsewhere, your bloomberg reef. -- bloomberg brief. dani: israel in the u.s. are split on a proposed response by hamas to pause fighting and release hostages. benjamin netanyahu rejected the proposal. antony blinken told reporters that hamas' response create space for agreement. the u.s. has sought to ease of fighting in the middle east since october 7. connecticut governor ned lamont has revealed a plan for taxing remote workers. new york requires workers to pay income tax to the state of their job is based their even if they work remotely outside of state lines. the governor's plan encourages residents to file suits against new york to get tax refunds. he says that a proposal could generate over $200 million annually of successful. apple's limited release of the vision pro headset is prompting a hefty resale market. the $3500 device is only available in certain u.s. stores and overseas retailers are

charging a chunky premium. some are going for more than $5,000. apple has limited the rollout for the customization for each buyer. jonathan: let's pause. they are the masters at this. to create scarcity. all of a sudden you think 3500 is expensive make it $5,000. 30 $500 sounds like a bargain when it is available. i'm not sure that they do this deliberately or not. not that i have any inside information, but i'm saying that they are the masters of creating scarcity that may or may not exist. lisa: this reminds me of sneaker drops. this reminds me of the flipping that happens with sneakers. limited addition you can get these and sell them. that is a similar playbook. annmarie: one individual in

singapore is selling it for $6,300. we should have been buying them and waiting online and reselling them. jonathan: then what happens? $3500 feels good. it shouldn't feel good, but it feels better relative to what is happening in the so-called secondary markets. lisa: it is also for the buyers who want to be ahead of things, who want to be gadget folks. annmarie: hard-core gamers. jonathan: up next on the program, a fight over the border reserved for the presidential election. >> americans are ticked off that this is not resolved and they expect us to get things done. so, why don't we do that? jonathan: that conversation is next. you are watching bloomberg tv. ♪ what do you think, fever monster? what about zocdoc? zocdoc? dr. castell has a great bedside manner.

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that seems to be universal. i can make this work. i can make this work. no wonder more than 9 out of 10 clients are likely to recommend us. because advice worth listening to is advice worth talking about. ameriprise financial. jonathan: the stock market is very close to 5k at the s&p 500

at the close. equity futures pulling back a little bit. the yield given the thing, for .119 two, really decent 10-year auction yesterday. under "surveillance" this morning, a fight over the border preserved for the presidential election. >> less than 24 hours after we released the bill our republican colleagues changed their minds. it turns out that they want all talk and no action. >> americans are ticked off that this is not resolved. they expect us to get this done, so why don't we do that? jonathan: why don't we? senate democrats promising a vote on a stand-alone bill to deliver aid to israel and ukraine after the gop killed an attempt to combine border security and international aid. suggesting that the strategy may not pay off for republicans, writing that the border deal is a classic example of wanting to keep the issue versus solving

the problem. the defeat of the border bill is adding to the complication for everything. ed, as we know, and welcome to the program is always, as we know the president has taken the blame on this issue. is there any reason to believe that that changes in the weeks and months to come after the debacle of the last couple of days? ed: clearly, both sides are going to be positioning for the upper hand for the bite related to the border. there is a lot of polling that suggests that this election will be down to domestic issues such as inflation, the border, and geopolitical risk. for republicans and the reason that i wrote that is that for trump the border is core to his strategy to win the election. as a republican, why would you take away or reduce the strength of that fight? for folks like senator langford who had a really good attempt at getting a deal, he learned a

lesson that in politics when you are explaining you are losing. his base did not want the bill because they didn't want to take away the issue. they want to put a lot of pressure on president biden. president biden certainly does not want to have this as an issue going into november. there will be a lot of pressure on him for executive action. the politics here are swinging wildly, and i think that it is too early to say who wins but the pressure right now is going to be on republicans to explain what happened with this bill and for biden to explain what is happening with the border. lisa: with that as the background, how to republican side note for for nate to taiwan, israel, and ukraine when they said we aren't going to sign up for another dharma foreign aid until we have a border deal? ed: right now, plan b is going back to plan a. there is still a strong support of military aid to israel, to taiwan, to ukraine.

again, when you are explaining you are losing. the backup strategy is to do this defense-only bill. that was getting a vote last night. it went into overtime. they don't have the 60 votes in the senate yet, so they will reconvene today at noon to see if they can get one or two more republicans on board. they're going to give more amendments to go onto the bill to get them to the 60 votes. the amendments are probably border-related provisions. in the house this week we had a vote to have an impeachment of the hhs secretary, had a vote on an israel-only bill. they both failed. this shows the toxicity on these issues right now in d.c. there are real market impacts from the defense sector, what happens with folks tied to border security.

i would also take a step back and say that as d.c. remains in chaos, markets are hitting new highs.make sure that we don't get too much of this chaos in d.c. into our thinking as it relates to the broader market. lisa: it is astonishing -- annmarie: it is astonishing the republicans are struggling to get this over the leader when -- over the finish line when the leader is a defense hawk. ed: i think what we are seeing here is mitch mcconnell, who we always could be certain that he knew exactly where his caucus was and the votes were, he has really dismissed or moved away from former president trump. his caucus, as they are getting ready for trump as the nominee and head of the party once again, are moving away from mitch mcconnell. what mitch mcconnell wants versus what his caucus wants are increasingly two separate

things. is he going to be the leader by the end of this congress? i don't know. is johnson going to be the speaker by the end of the month? i don't know. when we have any bipartisan deals, what you should be watching is uniparty. anything bipartisan is being viewed by the republican base as uniparty, meaning that the folks in d.c. are not with the rest of the base. that gets hard to support. bipartisanship is a four-letter word right now in d.c. jonathan: let's talk about the future. it is clearly a mess and washington, d.c. if you look at this country at the moment do you hope that there is a different way in a different set of options, let's compare the two going into november. we have one leader, the foreign president, confusing nikki haley with nancy pelosi. we have another leader come the sitting president, confusing european leaders with deceased european leaders from different decades.

what will this look like not in two months but in six when this picks up? ed: i think that those are important, especially in the political context, but i try not to get into too much of the misquotes on the campaign trail versus what are the real policies. i am focused more on what are the policies of a president trump versus what are the policies of the joe biden? that is when i get questions of what folks are mostly focused on. when we think about the future, the election, what people are focused on is what happens with tax cuts as they expire next november, bank regulation, all of the policies versus the individual statements? jonathan: i guess what i'm focused on is their ability to orchestrate things in washington and deliver the policies that they are talking about. their ability to convey those policies to the electorate when they are campaigning. lisa: exactly.

we don't know what their views are, what the policies are going to be. it is not getting clearer because we are talking about the politics of it, the mishaps, etc. at a certain point i get the sense that a lot of people are tuning it out until they have to pay attention. i get it. jonathan: if you are frustrated by this now, wait a few months. annmarie: it is just warming up. jonathan: it is going to get so much worse. lisa: and they are serious. the cbo report yesterday put that to the fore. jonathan: eurasia group joining us with china. this is bloomberg. ♪ as a top-ten real estate manager, we harness the power of a 360° perspective, delivering local insights and global expertise across public and private equity and debt. our experienced team and vast network uncover compelling opportunities giving our clients an exclusive advantage.

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jonathan: the s&p 500 pulling back, down by 0.2%. on the nasdaq down by .2% also. the russell getting closer and closer to 5k at close yesterday. let's talk about the bond market, the 10 year. supply went decent yesterday, $42 billion of 10-year treasuries, a record for a 10-year auction. yields are lower than what we anticipated the 30-year later. $25 billion worth. the yield this morning, 4.3416. lisa: it comes in tandem with the market bringing down inflation expectations longer-term. the stability and the bond market is notable given that a lot of people are talking about the risk every inflation later

this year. it isn't showing up in the auction so we cannot care about it until it does. jonathan: a new number that i keep hearing is 105. the one 05 yesterday looking for the euro to drop from 107 to 105. lisa, talking about the same number, the prospect of dropping to 1.05. lisa: a bit more dollar strength but not the bold, crazy parity calls. this is the slow moving train. everyone knows that the u.s. is doing better than europe and now it is a question of if you start with the rate cuts and what has been priced in. if the strength of the u.s. had not been fully priced and relative to the ongoing weakness of europe. jonathan: and easing for the federal reserve. the fed pushes back against that and that is reinforced by the data that has been pretty strong. if the market embraces the idea of the fed's projection of three cuts this year is going to happen, then the dollar has

something like 2% to 3% upside, which isn't major when you think about it. from 1.07 to 1.05 on the euro. lisa: we have all of these loans, it is just calibrating what is priced in and how to re-risk some of the issues. that is what you see with this currency pair. jonathan: the euro is a touch weaker on the session. u.s. forces killing the commander of a neuron-backed militia group with a drone strike in a rock overnight with the pentagon claiming that the leader was directly responsible for planning and participating in attacks on u.s. forces in the region. the u.s. military vowing to continue its response. that effort continues. annmarie: we heard from hezbollah and they said on telegram, set your clocks for revenge time. it looks like our forces in the middle east are going to be on guard for what is going on. the cost and also in the red sea is a little different.

i took away from this strike the fact that this is not the united states degrading iranian military proxy capability. this is actually a response of three servicemembers who died in jordan. this will serve as a deterrent. we know where your personnel's and we have the ability to harm you. lisa: i started thinking about some of the corporate blowback. the fact that they talked about how this -- you haven't even seen this peak. they have ongoing attacks on ships and they expect a lower outlook for the year because of it. because of the ongoing conflict we saw sales of mcdonald's and starbucks fall off of the cliff. this is having a real impact on specific companies and i'm watching this as this continues. jonathan: this used to be one of my favorite companies' ceo's to interview. attacks on vessels in the red sea have pushed rates higher but shipments have been dramatically slow with carriers taking the long route around africa.

the ceo telling bloomberg this morning that there's no clear timetable as to when and how the international community will be able to guarantee safe passage. the stock was doing well off of the back of maybe higher rates, but this morning it is down by 16%. lisa: they were talking by how this could go on for another year. i don't think that they would want their shares to plunge by 15% and be cavalier about making some of these projections. if that is the case you have to worry about broader implications on a macro level. people are watching this as a possible risk. you're seeing it come into the numbers. i think that is important. jonathan: let's talk about a name that is higher. the walt disney company. bob iger says the company is turning the corner. the company beat earnings expectations thanks to cost cuts and performance of international theme parks. subscribers to disney fell in the last quarter but iger is forecasting streaming will be profitable by fall. also gaming, 1.5 billion dollar

investments in epic games. the stock is up by 6%. we will catch up with the cfo later today. lisa: the sports bundling effort, how that will play into all of this. b, where some of the growth will come from. you don't see the streamer subscriber growth coming there. where are they going to push this given that they try to raise prices and have increased profit margins? c, are we ever going to see new characters or is it all nostalgia? i'm serious. annmarie: they are trying to tap the star power of taylor swift which politicians are also after. i'm confused about disney announcing an espn service in 2025. what is the difference between the espn streaming service and the bundle that they are getting behind? jonathan: i have questions about that and this as well. this is one of the poster childs for american inc. mcdonald's and starbucks got

hit. disney still doing ok internationally. why are they doing ok? lisa: why is his utopia in shanghai profitable? china has not been family to u.s. businesses. jonathan: china, consumer prices are falling at the fastest pace since 2009 adding pressure on the government to step up support. eurasia group writing that the bias towards control and security-oriented policy coupled with a lack of clarity on policy further entrenching a sense of economic malaise. you are on the money. this is where we have been focused the last week, the last month. why they are so preoccupied with the price of stocks and not the underlying issues. it is not going to change anytime soon? anna: i have to say that that was my colleague's writing, but i agree that she is right on the

money. i don't think that it's going to change anytime soon. the reality is that the government is not prepared to respond with stronger stimulus measures. it is not clear what kinds of stimulus measures would really do the trick of boosting consumer demand anyway. there is this continued tension between emphasizing national security and emphasizing economic growth that creates confusion for businesses and is not helping the continuing weakening consumer demand. lisa: there have been surprising personnel shifts, including the recent firing of the head of the nation's security regulator in the wake of the briefing that xi jinping got.they appointed a new person, 58-year-old market veteran. what do you make of some of the personnel shifts? the abrupt changes that have come on the heels of some of these market moves? anna: i think that a personnel shift signifies that there is a

fall guy, someone to blame. if that person's got rid of and a new person is brought in then things can get better. but the policy direction overall, the signs of the policy direction overall, are not yet indicating that things can get better in a significant way. this person does have a considerable amount of experience. it could be that he brings in a policy direction that does help, but the focus on national security as opposed to economic development and growth makes that difficult. lisa: there is a question about what is behind the weakness. other people are talking about international trade as the trade deficit in the u.s. fell considerably yesterday and the data that came out. how much is a diversification away from china by the u.s. and europe part of what is behind the weakness? anna: i do think that that is

weak hiring in the manufacturing sector and that leads to weak income growth which leads to weak demand, but it is not only the manufacturing sector with a weak hiring. it is the services and construction sectors. it's bigger than just the lack of demand from developed markets that normally would be spending more on chinese imports. also, there is of course the fact that there is a weak property market and that the property market contributes about 10% of china's gdp. there is not any sector that really can fill in that gap. there is no chance of the property market rebounding to what it was before. annmarie: we just wrapped up meetings between chinese and u.s. officials, a working group, talking about a number of things like two-way investment restrictions and sanctions

against chinese companies. you expect anything to come from these meetings? anna: i think that the meetings themselves are important. the communication is important. what will come from the meetings is harder to tell. i think that the meetings help to signal, from one side to the other, with the major issues are. we know that the u.s. side has been raising industrial policy in china as one of its issues. the economy is heavily reliant on industrial policy today more than pre-covid, and that is raising concerns in the united states and elsewhere about overcapacity and the potential dumping of things like chinese electric vehicles to the u.s. another markets undermining the ability of those markets to develop their own domestic industries in those sectors. i think that this will continue to be a problem because this is one of the ways to generate jobs and get consumers spending again, to throw money into these emerging strategic sectors.

it also has negative implications. lisa: when you look at the potentially upcoming u.s. election, by then or trump most likely, how is china preparing? i heard one analyst say that china is more concerned with biden because he takes a multilateral approach against beijing while trump goes for beijing versus washington. who is china actually more concerned about? anna: i don't think that we know the answer definitively as to who china is more concerned about. i don't think that there is a clear answer as to who china would prefer, although there is a lot of speculation. it is fair to say that biden has taken a much stronger multilateral approach. that has been more of an emphasis for him during his three point five years in office. 3.25 years in office. it doesn't mean that trump would not take a multilateral approach. he was unilateral in his

approach to the trade were in the beginning of his administration, but if you look at the second half of his administration there was much more of an emphasis on reaching out to partners and allies to coordinate things like export controls, particularly the effort to try to discourage allowing huawei into different country's tech infrastructure. it's possible that the trump administration would pick up somewhat of where biden left off with the multilateral alliances that have been built and fostered, but it's not a certainty. on the other hand, unilateral trump is not necessarily an easy trump for china to deal with because he makes other nation's upset with his trade policy and his putting america first, so to speak, doesn't mean that he is predictable or easy to negotiate with. i think that it remains to be seen. we will see how the election pans out. jonathan: i am wondering, what

advice are you giving companies trying to operate in china? say apple in the last couple of weeks, struggling in china? one part foreign exchange, one part increased competitors on the ground, but also a sense of rising nationalism in the consumer that may be pushing back against foreign brands? anna: every company that has major operations in china and cares about being able to compete effectively in the china market is dealing with the geopolitical realities that are not going to change anytime soon. the tension between the united states and china is diversifying and trying to make sure that they are not overly dependent on china. that takes more time for some industries than others. it is taking more time for apple than it would for a company with a simpler supply chain. i think the reality is if you want to be a successful company

globally these days you still have to be successful in china. most of those companies are trying to stay in china in order to compete there. the in china for china policy. there is no reason to tell them not to at the moment. jonathan: it is going to get harder to do that, not easier. lisa: this is the problem with the election coming up and some of the uncertainties. this is why i'm curious about what disney has to say about that. jonathan: the disney cfi was coming up later this morning. here is your bloomberg -- cfo coming up later this morning. here's your bloomberg brief. dani: little profit growth for the year. the disappointing first quarter in 20 24 outlook overshadowed fourth-quarter earnings that beat estimates. paypal announced last month that it will cut 9% of its workforce as it trims cost and streamlines operations. disney is taking a $1.5 billion stake in fortnite games allowing

the videogame maker to use disney properties like star wars and avatar. it marks disney's biggest entry into video games after shuttering its international operations for games in 2016. the weight loss drugmaker continues to cause concern for snack food companies. the ceo has been receiving calls from other ceos adding that they are scared about it. he will not disclose names but says conversation center around how the drugs work and how fast they would rollout. jonathan: let's name them. i don't know the names. we could probably name them? it is the gift that keeps giving, this story. lisa: you talk to the cfos of these companies they say it won't have impacts, it is overstated. the fact that they are having private conversations? how many people? jonathan: how quick will the rollout be in america? can you increase production that fast? lisa: or still give people a

taste for certain types of foods? jonathan: do a sprinkle of this and make sure that they still like pepsi? for example. snacks, whatever, more generic. disney turning a corner. >> one year ago we outlined an ambitious plan to return to a time of sustained growth. this past quarter demonstrates we have turned the corner and entered a new era. jonathan: that conversation is next. live from new york city, this is bloomberg. ♪

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we just got an order from dinosaur, colorado. start an easy to build, powerful website for free with a partner that always puts you first. start for free at godaddy.com jonathan: don't miss this must want to later today at 7:30 eastern . the cfo of the walt disney company. disney is turning a corner.

>> just one year ago, we outlined an ambitious plan to return to a time of sustained growth and shareholder value creation. our strong performance this past quarter demonstrates that we've turned a corner and entered a new era. looking at the renewed strength of our businesses this quarter, from sports to entertainment to experiences, the stage is now set for significant growth success. jonathan: disney climbing in premarket trading after beating expectations driven by cost cuts and theme parks. also raising the forecast for streaming come expecting to turn a profit by the fall. the media analyst for bloomberg intelligence joins us for more. let's go straight to the streaming business. have they been too conservative with the guide based on what you're hearing from the company? >> good morning. with the streaming business, but they had to demonstrate was that the business can get to

profitability fast. i think that they did that with the most recent quarter. analysts expecting 400 million dollars in losses. they came in significantly below, 100 $40 million or so. they are on track. they did lose some subscribers, so that is slightly concerning, but that will reverse with the new charter agreement that they have in place. as we look ahead to this company, i know they guided to 20% eps growth. they are anchored by their parks business which is performing very strongly. if you look at the biggest earnings growth driver, i think that that is going to be the streaming business. jonathan: i have questions. mr. iger did not want to talk about him come but did you get the sense that he was talking directly to mr. peltz? geetha: this has been a distraction and overhang on the disney management team, all of the activist investors.

i think yesterday mr. iger really came out swinging. he is back with a bang. he was on a roll in terms of all of the things that he delivered, not just with financial results and execution, but in terms of strategy. you have the one-two punch with the streaming project. you have the espn standalone coming out next year. i don't know what else there is that disney can do. they know the business better than anybody else and i think the bob iger is right when he says that. no other activist or outsider knows the business or the brand better. and this is an unnecessary distraction and to fear and to fear it's for them. lisa: let's talk about the brand in the streaming business given that they don't invest in content and questions about how they are going to spin off or monetize the espn offering. where do you see the growth coming from? geetha: they are doing a lot of different things for growth. one was the investment that they

have in epic games, which is tangential, but definitely an investment for future growth. even with the espn streaming app, one part of it is defensive, but ultimately they are looking at this to add to the bundle. this is the beginning of the great content re-bundling. you have the espn standalone, the super app, they're looking to reclaim all of the people who cut the cord. you have 30 million cord cutters which will get worse with the new streaming app. they think it can definitely be a new growth area for them. then you have the parks business which they are investing heavily in to grow. i think that there are a lot of growth drivers that they have. the linear networks is going to be a constant overhang for them. lisa: there is a question about what price you're talking bout with the espn app and the spinoff. do we have a sense of what revenues and pricing? geetha: there has been some

speculation about the super app that is coming out this fall along with fox and warner bros. being somewhere in the $40 to $50 range, which makes sense. it will be interesting if people would subscribe to that. i think it is a fairly compelling proposition. you will not get everything. you will still need paramount plus, you will need peacock for the suite of nfl programming and sports, but the super app itself gives you 50% to 60% of all of the sports content that you want to watch in the united states, so still a compelling proposition.in terms of pricing for the espn standalone, they didn't give us much color on that end will have to be less than the super app, so i'm thinking around $25. the app will be different in terms of the functionality that it offers. i think that they are trying to integrate sports betting and more interactive features in the app. you are right. a lot will come down to pricing

and subsequently demand. lisa: i am confused annmarie: annmarie: -- i'm confused on espn. they will have the streaming service different from espn plus that they currently have on top of a bundle with fox and warner. which one should they be throwing all of their eggs into? geetha: this has been a head scratcher. we don't know if the espn standalone will cannibalize the super app or how it will work. ultimately, what disney is looking to do is make aggregation at the end of the day the holy grail. disney knows that bundling is really important. if you look at their streaming bundle, this is the most popular bundle in the marketplace. 40% to 50% of all of their subscribers take the bundle so they know that it works. they want to offer different flavors. so, you have the super app with content from different

providers, you have the espn plus app for the hard-core fan who wants to get into betting, more into the interactive features. i think at the end of the day you have the base bundle and it will be able to offer all of these different flavors with up selling possibilities. jonathan: did they give a price yesterday? geetha: they did not give a price. jonathan: still waiting for a price and a name. that is the question for the cfo later this morning. lisa: everyone is gaming out $40 to $50. the details come he will tell us all. jonathan: we didn't get $40 from nowhere. it seems $40 to $50. does that sound right? lisa: it seems like everyone is coalescing around that, so that gives them a free pass. there is how much revenue sharing there will be. jonathan: does this seem like a hail mary quickly thrown

together? annmarie: it might be. lisa: they didn't tell any of the sports teams. i wonder what kind of animosity there is from some of them saying, hold on. what exactly are you doing and how could this potentially affect us? jonathan: sports rights, how expensive or not they will be in the future off the back of a deal like this. the broader equity markets are lower by 0.2% on the s&p. in the next hour, the lineup. dan green of solace asset management. christina of invesco, and the disney cfo hugh johnston. that and more from new york city. the next hour of bloomberg "surveillance" is up next. ♪

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>> you still think recession risk -- we still think recession risk is up but not much of this point. >> you don't know if you will going to recession until you go into it. >> we see a soft patch in this economy during the middle of the year. >> there is validity to saying that things will continue to go well. >> this is bloomberg surveillance with jonathan ferro, lisa abramowicz and annmarie hordern. jon: cruise lines.

this is bloomberg surveillance alongside lisa abramowicz and annmarie hordern. fearing close to 5000 yesterday -- very close to 5000 yesterday. lisa: there's a feeling things will go well even if the fed does not cut sooner. jon: if i told you earlier this year, would you have guessed. if i told you earlier this year that the data would look decent, payrolls would be a blowout, ism would be strong, manufacturing and threaten to going to expansion,, and the fed would push back against the idea that they were going to cut, what would you say? annmarie: i would be hiding in a

bunker. this question of where are we in the economy still a question. volatility is picking up at the same time you are seeing a rally. he said that has not happened before frequently. >> it does feel like the doom and gloom has been buried to start the year. this is an observation about where we are. let's take the 10 year auction yesterday. will it be a problem? no problem. tons of demand. lisa: and how many people have pushed back on the idea the deficit is a problem? people are looking to lock in yields. a lot of people will take it. it matters when it does and until then people move on. annmarie: the fed chair said when asked is it urgent we can

say it's urgent. those cbo projections show our debt level is exceeding world war ii era levels. this is a huge issue. let's talk to secretary yellen. she will go before the senate banking committee today. will we be talking? about this? annmarie: annmarie: she will be asked again about is this idiosyncratic or have systemic risk? some republicans will want to point to the fiscal debt. the issue is whether or not it's biden or trump. you will get an increase in the u.s. debt. we are not on a sustainable path even when it comes to the trump era tax cuts. biden wants to keep some of those in place. lisa: everyone in the market is

hearing nothing unless there is some kind of policy prescription. people are tuning out the rest. jon: this is not personal for you at all. you are done with washington. it's amazing to me because it is february 8. you have nine more months of this. lisa: i will come around. we are not talking about policy. jon: it will get worse. lisa: but i want to talk about policy and there's a complete dearth of it in any serious way. you have to talk about the politics to get to the policy. jon: equities on the s&p -5.1%. within five points of 5000. equity futures down by .16%. yields are going somewhere. no big moves.

we talked about the 10 year auction yesterday. 30 year bond auction today. $25 billion worth. in the fx market, the euro a touch weaker. 1.07 63 against the dollar. dan greathouse later, just a shankman capital on commercial real estate, and domestic -- and do not miss the disney cfo. the s&p 500 closing in on 5000. a warning from evercore. the move to the round number of 5000 increases the likelihood of sustained volatility in both directions. dan greenhouse joins us more. is it a collision of fear of missing out in fear in the

market now? dan: it has been for 15 or 20 years now. this idea that -- the fear component of it now is that all this is being driven by seven stocks and when 30% of market cap is seven stocks, we should say six, but 25% of index net income is driven by seven stocks , it's impossible. but outside those names, i can give you stocks doing well. pull up a chart of united rentals, the hotel companies. the cruise lines. if health care is all eli lilly. hilarious. pull up a chart of merck. there's any number of these

stocks. on the industrial side, look at eden. there's other themes you can play as an investor be on those names that are helping drive gains. jon: perhaps credit is more instructive in that regard. because the whole credit market seems to be doing well. had a ton of supply to start the year. is that what you are saying -- are seeing? dan: yeah. in the credit market, you look at spreads. in ig, you have spreads of 700 basis points. high yield, 325 or so. those are tight levels that suggest on balance the credit markets are not concerned, but that's not telling you anything the equity market is not telling you in the form of either trading or enthusiasm around the market. lisa: i wish we could zoom in on

your time and understand what's on their. dan: we can zoom in. we have the technology. lisa: there's a helicopter -- bernanke with helicopter money. dan: the fact that it is bernanke he is dating my time -- my tie. lisa: is the helicopter cash still sloshing around? dan: i have been suspicious of the idea that this is all because of free money. you don't have the breadtth of performance purely because of the fed. it's a theme i have rejected and continue to do so. as not to see lower interest rates -- that's not to say lower interest rates cannot be beneficial.

lisa: there is alisa: -- lisa: there's a curiosity in the market. we have higher rates. zombies are not being rooted out and killed off. dan: party city. lisa: but not massive. dan: that is right. there's no widespread distress. there are reasons for that beyond easy money although the excessively low interest rates allowed riskier companies to trim their debt. the maturity wall does not hit until next year. companies have to start addressing that before the maturities come due. so sometime starting now, a lot of these companies will have to start refinancing. you already mentioned this in

terms of the amount of issuance coming to market. you will have to start addressing this. that aside, there's no indication you cannot address them. the spread between the effective yield on your debt and coupon is wide, which means interest expense will go up, but as long as the economy expands, i don't think this is a problem. jon: can we talk about one part of credit everyone is focused on, commercial real estate? we are working through a rate stock. we are still worried about whether we get a credit bump this year and whether that will be in commercial real estate. we know some things are coming due in that part of the market. dan: very sternly made some headlines in florida saying this is a $4 trillion market that probably has $1 trillion of

losses. i will say of the $3 trillion, a chunk of it is multifamily, a chunk of it is farmland. by the time you done slicing this up, you are probably down to $2 trillion. there's a donation between suburban office and we will call class abc. you can expand that to other regions throughout the country. look at the charts of boston properties. sentiment had gotten poor in the space. i don't have any insight as to when these losses will be taken although they probably will be, but the performance of the equities tells you people are starting to get -- their heads are wrapped around the extent of the losses. jon: we are try to figure out whether it's single names, a couple lenders, where it becomes

a broader market issue. dan: getting back to the fear and fomo, the concern about everything is whether it becomes a broader issue, the deficit, the dysfunction in washington. the concern is always that it becomes a broader issue. the truth is most times it does not. this is not rocket science. most of the time, markets go up because the meteor doesn't always hit the earth. lisa: should i be concerned you are just incredibly bullish. dan: there are certainly losses to be taken everyone should be this way. i am a realist. at any moment, the facts are x and it means y for your risk environment and portfolio allocation. i don't think anyone should be slavishly bullish or bearish.

i was bearish for most of 2022 into early ticketing three but the facts -- into early 2023, but the fence started to change. we have discussed this on air. you have many esteemed guests and i am one of many. the fact started changing in early ticketing three and a lot of people remained bearish. i think there are a few of us who said this does not seem to be happening. what does that mean for my positioning? it's not that i'm particularly bullish. the data is telling me to be risk on. jon: this is why i think the fed is increasingly more relevant. do they have the ability to respond to negative shocks? unlike 12 months ago, where if

anyone talked about the market rallying, he would give you his hawkish hits in the news conference, that's not where you are at anymore. they can respond and react to weaker data if they need to. annmarie: people are saying what a change. jon: massive shift. good to see you. congratulations. dan: i remember when ben bernanke went on colbert's show. jon: here's your bloomberg brief. >> israel and the u.s. are split on post -- on response by hamas. the israeli prime minister has rejected the proposal. the u.s. secretary of state told reporters hamas's response

creates space for agreement. the u.s. has sought to ease the fighting. demand for rental properties in manhattan surged 14% in january. the median price for new leases was up $4150. that is still lower than july's record-setting median price. christian rinaldo is the highest paid athlete in the world. he is taking home $275 million in 2023 thanks to endorsements and a contract. a new list found other athletes rounding out the top five. tiger woods came in at 14th with $80 million in earnings despite playing just three events and taking on -- taking home

less than $200,000 in prize money. >> commercial real estate is not worth what it used to be. it's a problem but not a surprise. everyone saw this coming. jon: a conversation next. live from new york, this is bloomberg. ♪ 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. but dr. xichun will take your sketchy insurance. xi-chun! xi-chun, xi-chun, xi-chun! thanks, bro! you've got more options than you know. book now. j.p. morgan wealth management knows it's easy to get lost in investment research.

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jon: two hours, 12 minutes away from the opening bell. equity 0.1%. had a ton of issuance of the 10-year yesterday. 30 year later this on this later on this afternoon -- later on this afternoon. is commercial real estate posing a problem? >> it is not what it used to be. >> it's a problem but it's not a surprise. everybody saw this coming so it's baked in. this is not going to come as a pandemic like surprise where it knocks the world economy over. jon: regional banks exposure to commercial real estate weighing on investors. new york community shares have been plunging after the bank

said it was stockpiling cash after loans tied to that. justin, cio of shankman capital, joins us. good morning. we say cre around this table and people say there's not much to see. what do you think? justin: it will be a tough place to invest. commercial real estate will take years to play out. they have exposure to manhattan and 20% of their poll -- of their portfolio is in rent stabilize houses. it will squeeze margins. that takes time to play out. we will probably not know about the problem. it's the fact that the $100

billion number was hit, regulations stepped in and they had to take higher reserves. these problems are throughout the banks. it will take time to play out because there's no catalyst to drive most of them to lower their valuations. lisa: this is something we were talking about with dan greenhaus. how do you figure out what is price in and what is not? we heard from jim yesterday everyone knows this. so how do you know whether people are accurately pricing the risk or if there is something more significant that will justify the gloom and doom? justin: you not --you do not know contagion until it happens. you do not know it until you see it.

we have some maturities coming up. you will see if you banks probably struggling but it probably still stays under the radar for the overall marketplace. lisa: how much is private credit masking problems in commercial real estate and beyond with respect to credit? justin: it's had an interesting impact on the public markets. they have been willing to finance companies that have been unable to get financing. so companies that might have gone bankrupt previously and you have already seen bankruptcy rates increase have not because private credit has stepped in and that has been willing to take on that risk. bankruptcy rates are lower and the risk has moved into private hands as opposed to public hands so we don't see those price movements as much as we might have. jon: there is always something to worry about.

that is the theme this morning. last year, it was navigating the shock last year. there's still an obsession over credit risk, the belief there has to be a credit problem somewhere. are we seeing them beneath the surface? you talk about rolling issues and credit. is that how you are framing things? justin: we are starting to see that underneath the overall market. we are seeing it in individual industries and areas of investment. in industries, if you look at cable, that's down 5% year to date in the high-yield market. telecom services is down 3%. that's in a market where equities are doing well and high yields are positive. you are also seeing it in broader investments. vc investing in private equity benefited the most in the

environment. pe does not able to monetize their credit and names. they are where you are seeing it first. as we move forward, what will happen is we will move from what's been a beta market from the last decade, all macro oriented, to a more idiosyncratic fundamental market. we are in that transition now and telecoms and cable are just an example. jon: what do you like now? justin: you have had two credit people on a that shone in a row -- you have had two credit people on in a row. i'm excited about that. people want to talk to us. if you look at the overall high-yield market, that for investors is a place to go to get interest income.

you are not talking about total capital appreciation but the overall class cannot provide some real return to clients. you do have to be careful about where you take that risk because you are seeing dispersion among industries and we think you will see a lot among the credit markets. jon: you are hearing from people you have not heard from and 15, 20 years. justin: globally, yes. all of a sudden income is back. lisa: i keep thinking about the beer goggles comment from the head of the dallas fed in 2013. i love it because it highlighted this feeling of why is my high-yield bond offering 4.9%? now we can say it's not outrageous. jon: we were talking about capital returns and bonds, blast years just to find that m

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jon: equities pulling back on the s&p, a mild move lower. in the bar market, the minds -- in the bond market, yields up. decent demand today. $25 billion on 30 year bonds. foreign-exchange. the dollar a touch stronger, the euro weaker. we are negative on the currency pair by 0.14%. the senate majority leader expecting widespread support for today's vote on a package for

ukraine, israel and taiwan divorced from u.s. border funding. that was abandoned by republicans last night. even if the deal makes it through the senate, it is unlikely to pass the house. this is where we were two weeks ago. we were talking about the need to put border aid in the package and now we're talking about to -- about taking it out again. lisa: they went into recess -- annmarie: they went into recess. the republicans had this deal on the floor and it was voted down because they said not a dime in foreign aid until we fix the southern border. now it's i guess we have to do the foreign aid without fixing the southern border. jon: i will not even ask you about any of this. let's turn to china.

further economic stimulus with consumer prices following at the fastest pace since 2009. cpi trapping 0.8% in january. ppi falling 2.5%, marking 16 months of deflation for the price of goods. different conversation in china over the last year. annmarie: what can they do? cut rates to zero? i don't know. these are things people are speculating about. a new person in charge of the patrol. what will a change of personnel do when they need to come up with a policy to support things? jon: i thought we called them the national team, not the plunge protection patrol. lisa: it could. be lots of things -- it could be lots of things. jon: disney shares rising

following outperformance of its international theme parks. they will invest $1.5 billion in collaboration with the maker videogame fortnite and creating a new sports streaming platform. let's discuss with the disney cfo. great to catch up. we spoke with you during your years at pepsi. let's get into these numbers. can you walk us through where the cost-cutting exercise is biting? hugh: it is an good morning to you and to the team. i'm excited about the progress we have made on cost-cutting. when you do these programs, you are always looking for is it flowing to the bottom line? what we communicated was $500 billion floating through the bottom line and you can see it in the form of margin improvements, a huge chunk, and

something we have a lot of confidence will continue because we are getting good traction and momentum on managing costs tightly while reinvesting in the business to drive the topline. jon: you have a story to tell. i don't this conversation to drown in a conversation about activists but i need to ask about nelson powell. have you spoken to him since you have taken on the numeral? hugh: briefly, not recently. we are just in a different spot on this. we feel it we have terrific momentum. bob and the team have spent the last year both fixing the business and now pivoting to building the business and you can see it in the results and our confidence. the share repurchase we have communicated, guidance for earnings, the increase in the dividend. we have confidence we will not only be able to do this for the short-term but for multiple

years. i don't think we need any incremental help. we need to keep this management team focused on doing what it's doing so we can deliver great results and make progress on the big strategic issues that will help us emerge from the disruption that's going on in a stronger position. jon: you have some wondering whether you are being too conservative on the outlook for streaming to turn a profit by the fall. what would you say? hugh: the guidance is to do q4. lisa: can you give us a name and maybe a price for this sports mogul? everyone is asking this. $40, $50? call it spike? hugh: we have not come up with a name for it. the focus is on how do we get the operating principles rights of the parties are aligned upfront on delivering a great

product. that is the focus, how we make it easier and reduce friction for the sports fan? we will get to pricing shortly. we will name it at some point i'm sure. what's most important is i think we will deliver a product that will make your life better if you are a sports consumer. lisa: do you think the idea of a bundle, getting people to find a sports team and the game they want, will take eyeballs away from some of the other providers, the cable networks that have traditionally had these contracts? you were going to bid directly on some of these sports rights. hugh: i think it will be targeted more at people who either were never in the cable bundle or already departed. at the margins, might there be a little bit of shifting? there could be but to tell you the truth i don't think sports will be the reason someone makes that shift all by itself. there are a lot of factors in.

we are focused on meeting the family ever they choose to be. we don't think we are motivating the fans to move but if they do move we want to be there. jon: we are interested in how you are going to bid for those sporting rights. do you think you might bid for them in a joint venture? hugh: quite the opposite. we will be bidding independently. that is something we are quite firm on. that is not the purpose of the venture. it is purely distribution. it's not about procurement of content. we will continue to compete with each other for sports rights. it will be a benefit to the league because it's no different in terms of the way we bid, but the reduced friction benefits the leagues as well, so i think they will be optimistic. jon: there was some reporting suggesting the leagues were not aware of this. have you spoken to them? hugh: i have not personally but we have as the walt disney

company. when you are putting together a three-way gv in the media business, trying to keep it private is challenging enough. to involve more parties would have created too much risk. we let them know the moment we announced it. lisa: we have more questions but i want to shift gears to shanghai's utopia -- shanghai zootopia. we have heard a different tone from other u.s. companies. how much are you seeing disney welcomed in china despite some of the rhetoric we have heard out of the ccp? hugh: we are very much welcome. disney is a sort of a beloved grand. it's part of the reason i came here is that it's a truly iconic, beloved brand almost everywhere in the world. so the chinese consumer is responding to what is a fabulous

park experience, which has been true in the rest of our international parts as well. everyone of our international parts made money in the quarter and are doing well. international parts revenue grew 35% so i'm optimistic about all the parks outside the u.s., including the one in china. jon: we thought people left mcdonald's and starbucks as well but there have been boycotts against america inc. we can think of disney as the company behind america inc. all around the world. how do you avoid that? hugh: it's a great question and i'm so not sure i can give you a great reason -- i'm not sure i can give you a great reason but we are about giving a smile and families coming together. maybe we tend to be more immune to that the most. jon: it sounds like you have been there years based on that response. good to hear from you. look forward to catching up with

you in the years to come. a lot to discuss on this company. lisa: i like the fact that -- he gave some details about bidding separately on those sports rights. that was interesting. i cannot speak to why disney has been immune to it. it's just people love it and hearing him. you see some of these brands hanging on and it's an open question. jon: the way they have navigated this is impressive. some of the answers. how will this up and what's happening with cable and media. >> his answers were interesting, especially as it relates to cable communication. clients would stay with charter if they have a separate streaming just a sports, which

we know is the main driver today of what people are looking to watch. how are those negotiations going to happen going forward with distribution between disney and the cable companies? it seems that will be a challenge with this type of transaction. lisa: does this type of transaction make certain cable companies dependent on sports revenues on investable? >> they will have to see how this plays out in the future because disney still needs the revenue from the cable companies so to go totally away from them seems unlikely, so i think a lot more needs to be developed as to how they will react and how the cable companies react. jon: you can understand my the companies did not have those broader conversations. that wanted to keep it confidential. they will be worried about this because once you have the joint venture they will not be competing against each other for

sports rights in the same way. clearly q johnston has a view on this. i will be intrigued to see the outcome of sports options. lisa: it goes to the point you were talking about, which is peak sports valuations now, and this could highlight that. jon: the problem they have is you rent the asset and you don't own it. you spend a fortune acquiring sports rights, develop massive production around them, pay people to present the programs, but you never own the rights. you can boost the value of the asset through your own work and investment. five years down the road, whatever the agreement, you have to pay even more to secure those sports rights again. that's the issue a lot of these players have had for a long time. i'm not interested in the objectives. as a consequence, will they bid as aggressively as they have in the past knowingness exists? that's still an open question.

lisa: their customers will keep being able -- potentially. what are we calling it? spike. annmarie: internally, it's called raptor. jon: where did you get spike? lisa: it's athletic. jon: an update on stories elsewhere. here's your bloomberg brief with dani burger. >> shares and paypal are lower. the company look as slow profit growth. the company's disappointing fourth-quarter outlook overshadowed earnings that beat estimates. paypal estimated -- announced it would cut 9% of its workforce. weight loss drug ozempic continues to cause concern for snack food companies. the novo nordisk ceo says he's been receiving calls from other ceos saying they are scared about it. he would not disclose any names but the conversation centered around how the drugs work.

the connecticut governor has unveiled plans to challenge new york state's tax role for remote workers -- tax rule for remote workers. the governor's plan aims to encourage residents to file suits against new york state to get tax refunds. lamont says the proposal could generate $200 million annually. jon: next, making the case for credit. >> if the soft landing, and this is key, can the fed cut enough? jon: that conversation around the corner. live 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?

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jon: stocks on the s&p pulling

back by 0.14%. the nasdaq is lower as well. equity futures ok. yields higher by a single basis point. 4.1366% on the 10 year. making the case for credit. priya: with the soft landing, can the fed cut early enough, cut enough to get that soft landing? you have to be careful, diversify the portfolio, make sure you know what you are buying. jon: investors weighing credit risk as officials temper hopes for rate cuts. christina of invesco writing the probability of something breaking in asset markets have diminished with easing in financial conditions. kristina joins us. we are all taught price for perfection and then everything started rallying and then we were told everything priced for

more perfection. where are we now? kristina: we are exactly how we are priced and i think it leaves us with u.s. assets stretched and it's hard to see a lot of enticing things, so we find more interesting opportunities in international markets because to priya's point on the replay, stocks are at the high, yield our at tights. there are interesting opportunities outside the u.s.. jon: the statement of the year, our jaws dropped. they said there's not enough bonds. are you finding the same thing? all that demand. are we lacking bonds? really? kristina: it is one and one

because we look at rates how the curve. you had record 10 year issuance, 30's today, 25 billion getting price, and record supply in january, and it seems gobbled up time and again, and i think there's this fear in the market of missing the fed going, and certainly, from the real money community, that chasing for assets. it feels like there's a lot of ponds in the market. lisa: it does not sound like there's a lot of distress. do you agree with christina -- with kristina that there's a push to find some opportunities outside? >> the average dollar price is $.92 on the dollar. you could only have bought high-yield below par in crisis times a guest -- except for

today and we have shorter durations and we have ever had and we are at the precipice of a large m&a cycle and the government has said we will not allow large-cap m&a so that means they will buy midsize companies. all those live in leveraged finance, so if you can buy companies at a discount to par before an m&a cycle, that gives you capital appreciation opportunity in addition to the fact that current yields are like 7% or a percent now -- or 8% now. lisa: is that something you are looking at as well? kristina: coming out of the covid period, you have a different historical context when you look at the default risks in these companies. i am not the credit expert but when we look at high-yield and ig on the surface, i think we are at tight historical levels.

that said, we have a fed that we have had some walked back -- some walk back, but their next steps are easing and that is supportive for risk assets. can rich assets stay rich? i think so. jon: you want to look international. where? kristina: emerging markets is probably what's most interesting and latin america probably draws the most focus. jon: why? kristina: this shift from globalization to regionalization and, again, we certainly have elections in the second half of the year and the volatility that will bring, but places like mexico and latam as a whole should benefit from that. you look at the hiring of all these major companies, amazon, all these major home company names that are hiring there and the ability for companies to

reach into those markets. jon: is this a shift from china? are we moving to vietnam, mexico to get around this u.s.-china breakdown in the relationship? kristina: that will probably be a follow-on impact in either way, look -- and either way, look, i think china is in some sense looking at its own issues and have a different growth prospect and other emerging markets. lisa: how much of this is predicated on the rate cutting cycle coming through? kristina: a lot of it is, certainly, but i think those are the next steps for the fed and it is still the driver of international and global markets. i think the message from powell again, when we are in the nitty-gritty of the rates market, there's a lot of concern of is it, march, may, june? powell's point he made that it's no longer about we need to manufacture a labor market

problem so i think it's a timing issue. lisa: when you are looking at these idiosyncratic transactions, how much are you factoring in rates? justin: the fed has made rates an impossible thing to ignore over the last decade because it's been the driver of whether it's risk on or risk off. we look at rates and where the fed is today and think we are going to be here for a while. the fed has gotten us to where we needed to be and now they will slowly decrease rates over some time but we will be more elevated than we were in the past. wherever that winds up being, it's still going to be higher than where we were. and so companies will have to figure out how to operate in a higher-rate environment. it will be harder and that's why you will have some companies do well in some countries do well and alive struggle because they

have not -- and a lot struggle because they have not had to operate in that kind of environment. annmarie: your thesis is tied to the fed cutting. does it matter to you, the timing of it? kristina: when you look at 2024 as a whole, we should see the same things. does the timing matter? yes. will there be some shorter-term crosscurrents of does the ecb go first or the fed? these back-and-forths. but for thematic -- but the thematic, it will be the story, and even the financial conditions we have seen since december. jon: it feels like the elephant in the room is the election. everyone wants to ignore it. lisa would love to it nor the election.

can you really have a call for things like the fed, inflation and growth without a decent idea of who is in the white house and controls congress given some of the policies we might see? justin: i think that is why nobody is talking about it. you can have your base case based on what you see today and we know one of the two options is chaos. that's what we had for four years. every day you had said read the news because he didn't -- you had to read the news because you didn't know what regulation would change. all these things will get wrapped up if we go that route and it could change dramatically how investors look at the market. jon: deals could make sense in 12 months time that do not make sense today. we will be talking about that joint venture with disney, warner bros. and fox. maybe the regulator is upset. you can imagine the regulator will be interested in 12 months if it takes -- if it is a

trump white house. lisa: does that affect where you might look or not? jon: fantastic to catch up. justin slatky of shenkman capital and kristina campmany of invesco. coming up, a roundtable with the richmond fed president, tom barkan, bob doll, and lee klaskow. the definition of what is greater confidence in how many more cpi prints do we need? lisa: and what is likely? exactly. jon: mike mckee will supervise. don't worry. from new york city, equity futures on the s&p down 0.2%. 30 year yield ahead of the option up three basis points, 4.36%. from new york, this is bloomberg. ♪

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>> what chairman powell told us is that a strong labor market, strong about economy wouldn't preclude them from cutting rates. i think that is still the case. >> as you see from the policy speak, there is no. >>.

>> i think he wants to make that first move based on a strong consensus. >> the problem we have in this market in this zombielike economic market where it is not discernible, you are chasing your tail. >> this is "bloomberg surveillance" with jonathan ferro, lisa, and annmarie hordern. jonathan: this is "bloomberg surveillance" alongside lisa abramowicz and annmarie hordern. s&p 500 negative by 0.2%. julian emmanuelle talking about fomo colliding with fear. that is the conversation over the last hour. this equity market keeps grinding higher. lisa: which is why people don't have a lot of love for it. the question of what you get if you have volatility with potentially record gains, does

this lead to a downdraft or more volatility with higher s&p targets? jonathan: earnings so far are doing ok. the walt disney company in the premarket up by close to 8%. 7.83% higher. we spoke to the cfo 30 minutes ago, constructive on the outlook for the company. lisa: the hopes and dreams of the brand. he was talking also about this joint venture that they will have, this sports outlet, how they will all bid separately. this point about how it will all be priced, a way to diversify and make it better for the consumer but not trying to blow anyone out of the is this. but it raises questions going forward about how this pans out. jonathan: are regulators going to be unhappy with the prospect of a joint venture between the legs of the walt disney company, warner bros., discovery, and fox? annmarie: that is one question. the second question is will it

matter who wins the november election? you also look at the ftc, where is jetblue and spirit right now? that has serious hurdles. will they like this kind of consolidation? jonathan: it feels like really early days. the leagues were clear, still need to work at a price, still not told a name. and still don't know how it will work from there on. lisa: which is curious because it will launch soon. it raises a whole bunch of questions, none of which were answered, but we have the sense that the mood music has not angered too many people. at least according to disney. jonathan: one impressive element of the disney numbers, international theme parks. we have been worried about consumer confidence in china. i don't hear that. we hear about the backlash to america inc.

don't see that when it comes to the disney company either. lisa: putting that aside, we heard about this dream, brand, the magic of that. the magic of buybacks, share repurchases, dividend, this is a notable element of this considering this is a feature of a number of the outperformer's. they give the cash back. i wonder how much this will be a theme as equity, cash, and interest become a theme. jonathan: it i could bottle bramo, i would do it right there. it's about the magic of cost cuts. isn't this what they want to see? lisa: how much of this is a direct response to nelson peltz? on the other hand, this is what a lot of investors are looking for. meta did a blowout quarter, but they also instated bigger buybacks and dividends. this is something i'm looking

for. jonathan: they don't want to talk about him but talking directly to him. the broader price action on the s&p 500 looks like this. negative by 0.14%. the 10-year, 4.1366. coming up, bob doll urging caution as the s&p flirts with 5k. warnings for the shipping industry. and richmond fed president tom barkin calling for patients when it comes to rate cuts. 90 minutes away from the opening bell, s&p in striking distance of 5000. bob doll from crossmark global investments out with a morning -- warning. fourth-quarter quarter earnings reports have exhibited modest margin pressure. bob joins us now for more. great to catch up as always. we talked about this in the last hour, priced to perfection and that we keep on rallying. what holds us back?

bob: hard to say. i am one of those that is fully invested but biting our fingernails. i can make a few observations. every week that passes, the expectation about how much the fed will cut rates to less. two, every week that passes, earning estimates come down a little bit. three, the stock market is selling at over 20 times earnings. i put those things together and i cannot make the case for a lot of upside other than momentum is very powerful. jonathan: you said it. four, the stock market keeps on rallying. are we standing on the shoulders of fewer and fewer names in the stock market, and is that necessarily a problem? bob: we saw that for most of last year throughout november and december, came into the new year, and you know the story. s&p 500 is lacking the magnificent seven although there has been some frame there.

these make cap stops are still working -- stocks are still working. i think the only way we get a significant broadening is more confidence about breadth in the economy and earnings. that doesn't seem to be the case today. lisa: i love your description, fully invested, biting your figure nails. i don't like anything about this but momentum is a powerful tool. what would make you change your tune? bob: if earnings estimates will go up, that the fed will cut rates. you cannot have it both ways in my view, you cannot have double-digit earnings growth, which is what the consensus has, and enough room for the fed to cut rates five or six times. one of those will get disappointed, maybe both. if you tell me i'm wrong and we are going to get multiple cuts, inflation is heading to 2%, and

we get double-digit earnings gains, i have no choice but to buy stocks. lisa: how do you play defense at a time when a lot of people say there is an equal upside to inflation and growth as a risk as there is to the downside? bob: the defense, portfolio positioning, i want quality. i one earnings per addict, earnings persistence. good cash for multiples. i want to have that balance in terms earnings and cash flow. lisa: which brings us to disney and hopes and dreams of share buybacks and dividends. how important is it for you to see some dividend increase, some share we buy back announced in these earnings. is that a defining feature of a winning stock, of quality? bob: it is a possible feature. i am more interested more broadly in cash flow, is increasing?

yes, what are they doing with it? i would prepare them to do that. cash flow, increasing cash flow, reasonable multiple on cash flow. secondarily, what are they doing with it? jonathan: paypal in the premarket is down 9%, struggling for profit growth. forecasting a little bit of that for 2024. as we have heard, cutting about 9% of the workforce. you have talked about the margins coming through. are we at that phase of the cycle where we start to see more layoffs coming from corporate america? bob: i think so. we have already seen it to some degree in technology. financials are picking up in terms of the number of layoffs. a lot of that is a reaction to, i have to support my profit margins. maybe i cannot raise my prices like i was before. which is typical of this phase, more normally where big price

increases are not normal. we have had that because the demand for so many things, and that is backing of some. jonathan: are you more constructed on some industries? bob: part of it is based on valuations. i come back to the cash flow. i think if we get into some sloppiness, if the market fades, financial and energy sectors, because of their cheapness, multiple on cash flow, may offer some defensive characteristics. then you have the staples and the price increases there continue to be good. jonathan: great to hear from you, bob doll from crossmark global. citi right on cue, bramo, weighing cutting 10% of the wealth employees in london. citi weighing a move to cut

roles at its business in london as the division chief looks to boost returns generated by the unit. you can say it is idiosyncratic, jane fraser's turnaround story, but these stories are piling up. lisa: maybe it is a normalization or maybe this is the start of a new cycle of cost-cutting. about 50 staffers there that this would affect in london. real question, what i was thinking about this morning, is this just normalization? i was looking at mckinsey putting people on notice. is this the way that it was before the pandemic or something else? jonathan: the stock is down by 0.4%. very marginal move. let's get you an update on stories elsewhere this morning. here is dani burger. dani: mckinsey is putting 3000 staffers on review as the economy slows. employees will have three month to show performance or be asked

to leave the company. more workers are facing the notice after headcount grew by 60% since 2018. similar firms announced job cuts at the end of last year while consulting pulled back from a pandemic boom. apple's limited release of its apple vision pro is leading to a hefty second market overseas. overseas resellers are charging a chunky premium, some going for more than $5,000. apple has limited the rollout of the new headset in order to accommodate the elaborate set process for each buyer. demand for rental properties in manhattan surged by 40% in january, -- 14% in january. that is still lower than july's record price of $4440 a month. new yorkers have been seizing on

the slight decline in cost from the summer peak. jonathan: thank you. just want to go over that again, not because my lease is up at the end of the month, but rent was up only 1.3%. just as negotiations begin. lisa: hold on. have you fully reset from the pandemic levels? jonathan: still working that out. rent has been coming up lots. rents are up 1.3% from january. next on the program, a morning. >> the situation is unfolding. still in an escalation phase. we have rejigged our network clearly, sailing everything south of the cape of good hope. south of the cape of good hope.

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jonathan: we are one hour, 15 minutes away from the opening bell. good morning. equities on the s&p 500 negative by 0.16%. up by a basis point on the 10-year. crude is positive by 1.3%. under surveillance this morning, maersk out with a warning. >> what is clear is the situation is unfolding, still in an escalation phase. we have rejigged our network completely, sailing everything south of the cape of good hope. we plan to do that for a while until we have a safe passage reopened in the red sea. this could be with us for a

while. jonathan: maersk down by almost 17%. reporting fourth-quarter earnings and guidance that fell short of expectations. warning of a glut in the industry when the conflict normalizes and freight rates return to normal. lee klaskow from bloomberg intelligence joins us now. the inflated freight rates. you have talked about this for a while. this will not last and ultimately rates will come down again. what is the outlook now? lee: the comments from maersk were not surprising to us. rates are up between 200 and 300% between the october lows looking at going between asia and europe. the reality is, the conflict in the red sea has been a short-term unsustainable push on rates. when things normalize, and they will, our view is -- not talking

years, months when this gets resolved. once it gets resolved, not only will ships continue to stop going around the cape of good hope, they will start going to the suez canal. that will create a lot of capacity on the market. with the shipping industry is facing is at least two years of supply outpacing demand, assuming normal growth trends and demand. that is well telegraphed. we have a pretty good view of site of where supply is going. it takes a long time to order and then build a ship. we have that data available to us. when you are looking at that, plus low single-digit demand growth, supply will be outgrowing demand by 200 to 600 basis points over the next two years. that will keep rates back to maybe not the october lows, but

well below where we are today. jonathan: i want to get into supply. the stock is down 17%. i know you don't do price targets but can you talk about that move? lee: since december, the stock was up 22% before today's move. the move in the stock near-term was a knee-jerk reaction from these creamy high rates. no doubt these rates are fantastic. expectations for maersk and most liners were that they were going to lose money. maybe the expectation is that maybe they will even make money this year. the reality is, that will still be hard to do, assuming this doesn't follow us through the year, the crisis in the red sea. it will probably be pretty hard to make money in this market when rates "normalize." lisa: i am that what is bearish

for maersk is bullish for humanity, not getting a prolonged conflict or fighting. do we have any sense of maersk's view of this, how unexpected the idea of a resolution is? lee: peace in the middle east is pretty difficult to get. assuming that israel and hamas end their hostilities, you would think that the houthis stop their attacks. the longer they do this, they will make more enemies around the globe. some of their neighbors like egypt are suffering a lot because of the suez canal not being open. they are losing a lot of revenue that they rely on. it is impacting global trade, china. while a lot of other countries are sitting on the sideline now, a lot of the interaction has been between the u.s., u.k. and the houthis, that coalition

could grow the longer this goes on. what i would also say, i am an analyst, usually a half glass full kind of guy. the good news is that maersk was predicting low single-digit volume growth. so that is good news for the economy. annmarie: the ceo said we have not seen the level of threat peak. are they going to start pulling back more ships going to the red sea? lee: they really have no more ship to pull back. the only ones going through the suez canal are tankers and drivable ships. a lot of the tankers are carrying russian or iranian oil, so they may get a free pass, but other ships that might be carrying goods heading to israel or maybe the u.s., u.k. goods, you will see those ships probably diverge around the suez canal. it is not becoming dangerous but it is becoming more

expensive for shippers. insurance has gone up significantly. it is becoming, not only are you putting your ship and crew at risk, you also have to spend a lot more money to go through the suez. if the conflict does accelerate and houthis expand who they are targeting, that would have a ripple effect on the dry bulk markets which have benefited from a rates perspective from the dislocation created by the issues in the red sea. annmarie: stepping back from the issues in the red sea, what have you learned from maersk in terms of shipping with china? lee: the reality is, china has not come out of, recovered as quickly as folks have thought coming out of the pandemic. we are heading into the lunar new year, so there should be a seasonal slowdown.

we are still waiting for china to rev up their engines to drive up not only the export demand but import demand of goods like iron ore, crude oil. china is the engine really for global shipping. as china goes, so does demand, whether it is the container liner industry, dry bulk industry. we are still waiting for them to emerge from their slumber, if you will. jonathan: let's talk about where we started the conversation, too much supply. you cover an amazing industry. we all remember coming out of the financial crisis, this was an industry plagued by excess capacity. ships given to build all hit at the wrong time. why is it difficult to manage capacity? why are we repeating that again? lee: a few reasons.

by the time you order a ship and get it delivered, it can be well over a year. when things are really good, they can turn quickly depending on the global economy. when the financial crisis happens, it is a snap in terms of decline in demand. you also have not a lot of rational players, players who are just looking to be the biggest, or players that may be subsidized by the government where they reside to ensure free-trade. they want to make sure their shipping industries are robust because either they need to import a lot of stuff or export a lot of stuff. there are a lot of reasons. it has gotten more consolidated over the years but we would still view it as a pretty fragmented market because there are a lot of small players out

there. jonathan: good to hear from you. lee klaskow from bloomberg intelligence. that stock down by 17%. bramo, not a surprise to him, but a surprise to many given the stock move this morning. lisa: headlines are saying that shipping boxes are warning about a prolonged conflict in the red sea. the problem with the share price, they would not have the elevated pricing they had previously. jonathan: freight rates will not last because demand is not great. lisa: what is bearish for their stock is bullish for humanity. seriously. jonathan: it is a point well made, i'm with you. lisa: it is hard to say that it is terrible that we are going to have a resolution to this conflict. interesting to see whether that is the case especially given the potential increase in demand. annmarie: i was taken back by

the ceo saying there is no clear line of sight on when the international community can guarantee safe passage for us. is he putting out this flag to washington, london to say that you are not doing enough to these houthi militants who have attacked us? jonathan: they have not been able to restore order as much as they have tried. the president has talked about it, but we will keep on doing the same thing to make sure that it does. jobless claims just around the corner. we will get to that. and reaction from a fed official. tom barkin joins us for the next 30 minutes. mike mckee, as well. all of that still to from new york, this is bloomberg. ♪ manage all your sales from one place with a partner that always puts you first. (we did it) start today at godaddy.com

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jonathan: live from new york city, waiting for jobless claims data. s&p 500 down .2%. the nasdaq also lower by .2% as well. the bond market, here are the scores for you. yields higher on the 10-year yield. 30-year up by two basis points. your jobless claims data, let's bring in mike mckee. mike: another good day in the jobless world. 218,000 j month, last week. we had the big jump the week before, backwards a little bit on that.

waiting to see the latest revisions to see what last week was. 227. last week was revised up and this week we come down to 218. on a continuing basis, 1,870,000. it does look like workers are still on the job, companies are still holding on to their employees. jonathan: yields higher on the back of this, up three or four basis points on the 2-year. you put this together with jobless claims, together with payrolls, ism services, manufacturing and moving, pretty good data over the last couple of weeks lisa: if you are looking for cracks, you are not seeing it. the real-time data confirms the strength we saw last week. the 10-year yield taking a leg higher. that is what i'm watching. longer-term, what does that

suggest about the neutral rate, long-term momentum? jonathan: we can have that conversation right now. real-time reaction with richmond fed president tom barkin along with mike mckee. things were being here. tom: i am happy the data did not surprise. jonathan: really strong coming out of the gate for 2024. how much weight are you putting on this stuff? tom: the data has been remarkable across the board. fourth-quarter gdp, 3.3%, jobs numbers last month, and all of them talk about an economy that is healthy. that's a great thing. i'm always cautious about numbers at the turn of the year. big seasonal adjustments. one example is the jobs number last month. actual jobs were down 2.5 million because a lot of the retail folks hired for christmas got laid off after. seasonal adjustments ringing up. that is a pretty big seasonal adjustment.

i am glad to see it coming in. that is the best data we have but i'm not sure that i will take too much out of any one month. mike: markets are interesting, if and when the fed will cut, emphasis on the when. you say we don't you to be in any rush, but when data like this, are you telling people, we are doing fine with rates where they are. tom: i have not said you don't need to be any particular hurry. you have a dual mandate with employment and inflation. the employment side of the mandate is operating at historic levels. 3.7% unemployment. it is a very strong labor market still. gratified to see inflation coming down, hoping we continue to see it come down. mike: you said you don't have a roadmap for rate cuts.

yesterday, some said investors shouldn't be thinking that the fed will cut rates six times this year because that would imply something is wrong with the economy. assume you would agree with that? tom: hard for me to get into market forecast because there are always two things going on david there is the rate normalization under a healthy economy coming down. the other is the economy takes a wrong turn and you come down faster. those things are a weighted average. there is a model that you take rates down quickly. that is not good for the economy. just one of the things that could have been. then there is the model, you toggle rates as the economy comes back into balance. lisa: under all of this is the mystery of the neutral rate, this survey concept that people throw around. deutsche bank change their view. instead of 3% in the post-pandemic reality, maybe 3.5, 4%. does that jive with your thinking? tom: certainly conceivable to

think that it has come up since covid. the challenge with these neutral rate estimates are the standard deviation. the center was about 2.5 at the last meeting, so it could be half, 4.5. you have to make your decisions based not on track to hit a theoretical neutral but what you see in the economy, how the economy reacts to rates. lisa: as i'm watching the data come in, i hear from all of these investors, they are concerned about re-exhilarating inflation -- re-accelerating inflation later in the year. are you worried about that? tom: we have had a lot to worry about in today's conversation. i saw the shipping conversation. jonathan: lisa specializes in worry. tom: i think you have to acknowledge how good the inflation data has been for the last seven months. core inflation, 1.7%.

that is terrific. i am not rooting against inflation but i am always trust but verify. we will get a few more months. i would very much like to see that trend continue, and abroad, because it has been dissed proportionately goods deflation masking higher prices in rent and shelter. the trend is good. you cannot argue with that. mike: how do you parse inflation? pce is down below 3% but when you look at the cleveland and dallas means, the atlanta sticky wage index, it all shows basically more inflation than your targeted index. tom: these numbers will converge over time. what is happening right now with inflation, you have a lot of clawback of goods prices increase that happened during covid. goods deflation is even more

significant than it has been over the last 20 years. rents and services are higher. these measures look at the center of the distribution, so they are looking at that center part which is higher, as opposed to the weighted average which is lower. if it broadens, everything will come down. mike: how do you make a judgment on when you think it will be appropriate to cut? what are you looking for? the phrase the chairman and others have used is measurable progress for the 2% target. how would you define that? tom: if i can get these numbers sustained an even better broadened, that is what i'm looking for. jonathan: there was a worry in the news conference, that chairman powell was not comfortable yet. i wonder if you are not couple either. the improvement we have seen over the last six months are due to so-called worn off factors. tom: headline inflation last year was 2.6%.

there was a 3.3% six-month period and a 1.9% six-month period. which do you believe? january last year was very inflationary. everything is leaning toward the numbers coming down. i expect them to come down over the next few months but let's see if they do. jonathan: it speaks to the rick that maybe we stabilize above target. the worry is we stabilize above target and if you have to start cutting interest rates, you have to hike again. if you start to move, you are stuck in that cycle and have to continue and cannot start parking again -- hiking again. tom: you always want to be cautious because you don't want to reverse course. 1986, after the volcker era, inflation was under 2%. the fed, which had tightened significantly, started loosening. in 1987, basically doubled, and

the fed started increasing again. that has happened in history. to the extent you can avoid it, you do. jonathan: does that way on you, the experience of volcker and co.? tom: a lot of people read about the history of fed tightening cycles not ending well. as you study the past, it is not like you see a lot of great examples that you are dying to duplicate. mike: the other side of the argument, inflation is going to keep coming down but you are not going to move fast enough and the economy will slow more than it needed to or even go into recession because the fed waited too long. tom: that is the risk you are trying to balance. i take a lot of signal to how strong the labor market continues to be, included in the claims numbers we saw this morning. you are trying to balance the risk. inflation still elevated. unemployment is still very strong. that is how i net out.

jonathan: we were in jackson hole talking to your colleagues about what they are seeing in their districts. the guidance we were getting is what they are hearing was different what they were seeing in the data. do the anecdotes conflict with economic data? tom: i will give you some anecdotes. i was in western carolina just this week. one is i saw a sale for haircuts , nine dollars 99 -- $9.99. there was a paper mail that just laid off a number of employees, and one year later, there are so many openings in manufacturing, all the people who didn't retire, they had jobs. that confirms a strong labor market. the third quarter, 5% gdp stuff, that is not what i was hearing either.

today, i'm hearing people are not hiring as much but they are not firing as much either. price setters understand their on the back end of the curve. demand, especially on the consumer side, is still healthy. lisa: do you trust the data? people have been saying that people are not responding to surveys to the same degree post-pandemic as p pandemic. does that factor in? tom: you always have to take data with a grain of salt, but it is also all you have got. you also have to be aware of confirmation bias. i try to dig into it and understand. what is behind the numbers? like the seasonal adjustments i was talking about earlier. i accept it and then try to test it, as opposed to rejecting anything that does not agree with my prior hypothesis. mike: i wonder if you were

seeing any mullets prior to the super bowl. the hiring we have seen in recent months. was it a surprise to see the january numbers? do you expect that to continue or do you think we will fall off dramatically? will you start to see on a plane and going up to 4.1%? tom: i was surprised how strong the numbers were in december and january. what i'm hearing is not as much hiring but definitely not as much firing. that is how i would put it. especially with front-line people, if you really fought hard over the covid era to bring people into your factrestaurantd to go into that fight again. on the front line so i, people are being careful. to the extent that i'm hearing anything about job cuts, it is

the professional side. maybe your pricing power is not what you thought it would be, you are worried about the risk on the operations side to laying off operating people. well, let's take a look at our overhead. some of the jobs announcement you have seen recently is proportionately look like overhead as opposed to frontline. jonathan: we have talked about those companies. there was a moment in the news conference where chairman powell was asked about the month of march. are we trying to work out whether that was chairman powell's view or the general view of the committee as well, that march is just too soon? tom: i don't prejudge a meeting. we will see what we get. i always think chairman powell speaks for the committee. jonathan: he was talking about the balance sheet, too. if they are not cutting interest rates, they could make a decision about qt. the decision you have to make, is it independent of the

interest rate decision, what happened with the balance sheet? can you do one and continue with the other? tom: independent of the interest rate decision because you are talking about normalizing, when is the right time to start normalizing rates. we are still in the process of normalizing the balance sheet. as chairman powell said, we will have a conversation about it. you want to plan what you do. i still have not seen any signals that we are closing in on the level of, the end of the ample reserves regime. if you add up the overnight plus the reserves today, we are still over 4 trillion. september 2019, we were in the 1.2 trillion in reserves without an overnight rp, without a standing repo facility. i think we are a pretty long ways from where we were then. we have to learn more but i think we are still a long way from where we were. jonathan: you do you hear people

say if you are cutting interest rates and still doing qt, they are running in opposition to each other. tom will stick with us. the richmond fed president will stick with us. let's get you up to speed on other top stories. dani: citi is wearing a move to cut 10% of its wealth employees in london, about 51 positions. according to a memo, the wealth business is "continuing to identify areas to improve efficiency through structural changes and cost-based productions." citi will cut about 5000 jobs before the end of this quarter. shares of ralph lauren are rising after its third quarter earnings beat estimates. the company saw total comparable sales up 9%, almost double what analysts expected. the ceo says the results "exceeded our expectations" led by momentum in direct to consumer channels.

the u.s. supreme court will have arguments today to see if donald trump can be excluded from ballots. lawyers will argue that his involvement in the 2021 insurrection violates the 14th amendment. trump's attorneys will argue that this doesn't apply to a former president. if trump were to lose the case, he could effectively be barred from holding the presidency again. jonathan: next on the program, banking crisis concerns creeping back in. >> i do have a concern about commercial real estate. it is manageable although there may be some institutions that are quite stressed by this problem. jonathan: that conversation continues just around the corner. in the equity market, s&p, futures negative by 1%. yields higher by four basis points on the 10-year yield. jobless claims coming in lower than expected. 218 against an estimate of 220.

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book now. jonathan: 42 minutes away from the opening bell in new york. equity doing ok, yields a little bit higher following better-than-expected jobless claims. the right kind of downside surprise. yields higher by two or three basis points. under surveillance this morning, banking stress concerns creeping back in. >> i do have a concern about commercial real estate. commercial real estate is an area that we have long been aware could create financial stability risks, losses in the banking system. this is something that requires careful supervisory attention. jonathan: investor looking for signs of financial stress after

fears and commercial real estate sent shares of new york community plunging. banks across the globe preparing for potential losses in cre. tom barkin around the table with us together together with mike mckee. fantastic to continue the conversation. the worries of the banking sector last year, different from this year. last year was working through interest-rate shocks. now potentially credit stress. is this coming up in the committee? when you saw that with nycb, is this something you talked about collectively? tom: commercial real estate, as the secretary said, is a known issue. i was in d.c. yesterday doing a roundtable with some real estate executives. that is a market struggling to come back. you can feel the stress in the commercial real estate area, particularly downtown office. many banks and nonbanks have exposure. important to take into account in terms of stability.

but it is not a new kind of risk. we have gone through real estate cycles. it wouldn't stun me if a bank or two ended up wrongfooted, but the system knows that real estate is an acid with a certain amount of risk. i hope and expect we have enough capital to whether that. lisa: people have speculated the fed would cut rates in response to another bank failure. do you think that is an accurate assessment, is that not the correct channel of response? that is what is pooping the market, a lot of people are saying. tom: you have to take into account when you think will happen to employment and inflation. if the economy were to turn south, that is a case for normalizing, but the economy would have to turn south, as opposed to some bank oversight response. mike: the chairman said this is a manageable problem, commercial real estate. i want to ask if you think that in the context of fed officials,

including the then chairman telling us into thousand seven that real estate would not collapse? tom: sorry, your question is? mike: do you have a good handle on this, can you be sure this is something you can handle? tom: we are spending a lot of time with them, going through real estate assets, trying to understand what the risks are, reserves against those risks, making sure we have those properly handled. with the scope we have got, we are working hard on that. you never know what you don't know. what will happen in the nonbanks center, you don't know, what could happen with real estate assets. we have ever had done with the banks that we oversee working through it. mike: does this way on your thinking on when you may want to cut interest rates? the story that real estate people tell is that this only get worse over time as companies get closer to their refinancing. tom: i think it's important to take commercial real estate apart.

there are huge sets that are quite healthy. data centers, retail is healthy. holding part of multi family. we are really talking about office. downtown office space, that is where the biggest risk is. i am sure there have been losses, will be losses in that space. but as i said, it is a known variable. if you go back to our stress test assumptions, you will see stress on commercial valuations. lisa: there are a lot of known variables is why we are worried. a lot of worry around the table. credit people no longer worried because some of these maturities are no longer an issue. how do you understand the fact, people talking about zombie companies, zombie real estate, the world would be turned on its head as the fed raises by five percentage points. how do you manage around the fact that that has not happened? tom: is it possible that some of

them were wrong? [laughter] here are the numbers that have really spoken to me. if you look at the total interest burden for individuals and the total interest burden for companies, and you divide that total interest burden today by total revenue, total personal income for individuals, the numbers have just now got back to 2019 levels. that means there are a lot of individuals who refinanced mortgages or pay down credit cards. a lot of companies refinance their debt. a lot of companies were wrongfooted in this, but in aggregate, this total interest burden has not hit the country in that scope that a lot of people predicted. it could. that is a reason to be cautious on the economy. on the other hand, the continued month on month demand sort of argues against it. jonathan: two minutes left,

which means we should talk about something you don't want to talk about, politics in washington. when senators and official start to write letters to the chairman about policy, how does the committee respond to that? big election year. you talk about live meetings. we wonder how live they are going into elections. how do you avoid getting into politics? tom: i thought the chairman was brilliant on 60 minutes. he clothed with a brilliant answer, we just try to do the right thing. annmarie: the chairman also talked about the urgency of the fiscal health of the country. cbo yesterday, that will hit a record high. so much of that is net interest payments. is that a reason to cut rates? tom: i assume you will have other people on to ask the question whether we should cut debt. we are trying to focus on inflation and unemployment. having rates being at restrictive levels is good for

the long-term. if we can get inflation down to where we want to, if employment can stay in the right place, rates will normalize, reducing the burden. our objective function is not around the country's debt burden. our function is what congress has asked us to do, inflation and unemployment. jonathan: appreciate your time as always, which means that president tom barkin along with mike mckee. a brief look ahead to tomorrow. u.s. air force veteran david depula. a lot to talk about with that group. lisa: especially if maersk sees things resolving. we will see what he says about the red sea. jonathan: equity futures done by 0.1% on the s&p 500. from new york city this morning, good morning. this was "bloomberg surveillance." ♪

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>> i am manus cranny in for jonathan ferro. just look at these markets. a whole new world for disney. we have tech on fire. the countdown to "the open" kicks in right now. announcer: everything you need for the start of u.s. trading, this is bloomberg "the open" with jonathan ferro. manus: futures fluctuate. the rally that drove the mark to all-time highs. the bond mark