>> september is usually a tough month for equities. >> earnings are going to drive this conversation and fundamentals going forward. >> we see anything to suggest september would be better? no. >> weaved wages with the fundamentals will look like. >> it specifically moves in a slow and steady session. >> this is "bloomberg surveillance." jonathan: from new york city for

audience worldwide, good morning , this is "bloomberg surveillance." i'm jonathan ferro. our good friend and colleague tom keene would call this a snooze fast. lisa: he would be right. at least when it comes to the action with respect to prices. his real market activity when it comes to selling debt. we are seeing it at a record praise -- record pace. interesting that that is not actually having an effect on yields. jonathan: yields higher over the last couple of days coming in. yields at 135 on -- 1.35 on tends right now. they have a ton of reason to be cautious and that seems to be the story. lisa: what's interesting is how they are cautious. it is not go to cash or hedge your bets, its rotate into something safer and wait for a buying opportunity which tells you everything you need to know about how bullish the market is

paid jonathan: you don't cut your overall exposure, you just shift the competition of it. lisa: then you are protected. that's what we've seen. jonathan: the barbell. seriously. sitting on the fence worldwide. talk about morgan stanley. andrew has a ton of attention on cutting u.s. equities to underway. less so as morgan stanley was making the point that we've seen the worst of this. we have seen the worst of it for the economy and for the virus. kailey: she seems to think the month of september will turn out ok from a labor market point of view. the team making the case we won't have a lot of -- that doesn't mean we won't have a lot of volatility at play through the end of october. we are talking about just the economic risk factors, they are also talking about policy risk both in terms of monetary policy and fiscal policy and what the

jonathan: legislative agenda will look like. jonathan: what is the policy risk right now? what are they talking about? anticipating now for the next several months. kailey: there's a question of whether it's a new risk. we know the tapir is coming. it's a question of timing. maybe that uncertainty breeds more uncertainty. that may be more of what morgan stanley is pointing to. i think a relatively underappreciated risk and uncertainty for the past several months has been on the physical front. that may come to the forefront. jonathan: the equity market just off all-time highs. softer in yesterday's session. into the bond market where yields are lower by a couple of basis points. a small break of 1.35. into the fx market, just a little bit weaker here. going into the ecb tomorrow we

always talk about risk. talking about risk we are nearly always talking about downside risk. the number one question is what is the upside risk? what's the risk that things go right? that's been the most unappreciated risk for much of the last decade. lisa: this is where you will tweak me today because this is the issue. to me the idea this has been the issue, people missed out on the upside. if in doubt, buy. that's how it has been over the past 20 years per what breaks that paradigm? jonathan: we can do that with the northwest mutual management chief. investors in these three camps they fall into. those worried the economy is growing too fast, those were the growth is peaking, of those worried that stock valuations are too high. are you in any of those?

>> no. we got to may or june and economic growth was strong. covid cases were declining and we also figured out about what was next. people were worried about those three things occurring. that's where the worries were. see each one of those subsiding as we move towards the end of the year and that is the highest equity market led by more cyclical aspects of the market. value stocks, small-cap stocks in the euro zone. we do think there is room left to run, we have had this defensive versus cyclicals, defense has won the day over the summer but i think it's because each one of those three poles back by the end of the year. >> let's try to put some quantification around how much room there is to rally. what returns are you expecting and are you shooting for with the likes of a small cap bet at this point in the cycle? >> everything is less than it was before.

last year we went to equities with an uncertain outcome. i think about today, i'm a bit more certain about what the economy holds pushing forward. there are still uncertainties. the opportunities are smaller. i think small caps are set to outperform their large-cap counterparts. the euro zone is set to outperform both of those. much more muted returns, but still in the context of the 10 year treasury as you open at 1.32, stocks are still relative valuation advantage and that is in changing. that is were central bank impacting the most. lisa: we were having a conversation about big tech and how it was unusual we had record highs for the faang stocks on a day when yields rose. when we saw the low for the nasdaq 100 this year on march 8 and the 10 year treasury was at 1.60 on that day, we were still -- we are still 25 basis points

below that. can you make the case if yields stay in this range? >> it's more of an economic growth than what's changing. is there a lot of liquidity around the globe? i think the small-cap and cyclical trade is tied to strong economic growth. people are worried about peaking. if anything it's a plateau, companies have huge amounts of new orders, backlogs of orders and low inventories, you've consumers with incredibly strong balance sheets who have been put out just a bit. i think you continue to see economic growth remains strong. i'm not sure if the 10 year treasury does. i think all of those things point to an economic cycle lasts a bit longer. and valuation, many economic cycle investors are ignoring still points to small caps being cheap relative to their counterparts. jonathan: small caps over large caps, you mentioned a lot of

people would say europe cheap to the united states and we've said that for a long time. you touched on the euro zone. what do you like about europe? >> it's much more cyclically inclined. europe has been cheap for a while and it was in need of a catalyst. the central bank has done things they hadn't done in the past. they've even gone a fiscal spending spree. you've strong cyclical economic growth for the first time in 10 years to 12 years. i think that's a backdrop for euros on stocks being appreciated. >> there's a column in the telegraph talking about how germany seems to be losing patients with quantitative easing under starting to indicate perhaps they don't want to keep the pedal going for as long as they have for the foreseeable future. it bleeds into the potential for taper talk at the ecb meeting. if they were to start talking about tapering there qe, would

that change your view on europe? >> it is certainly a risk. but they're advancing the ball slowly. central banks around the globe, i think people need to stop focusing on their day-to-day operation. it is still to do more, not to do less. still in the euro zone a bit less in the u.s., but in general overall central banks stand at the ready and continue to do so. right now i know there's talk of inflation. interest sets are well behaved. they are going to push as hard as they can for as long as they can as long as inflation allowed them to do so. moving into the end of the year, appalled that that taper talk. >> they use their hands for that. >> is this a good tom keene.

it's an oblong groundball. >> just for those of us outside of america who might be confused by football with the hands. lisa you mentioned dashers been writing the same article or a different version of it the last 10 years plus. lisa: the headline is germany has lost patience with quantitative easing. that said, there is a little bit more discussion from germany but perhaps it's time to wind down some of the bond buying and that is just isolated to germany. he struck a wonder if they will have a conversation. i am not saying this is gospel, but it is a risk out there. >> a ton of respect for the man. the issue is with the ecb it's unsaid but most people assume if you have a move in spreads that would set the policy.

in the same for the federal reserve. are they really can allow financial conditions to tighten aggressively in europe. there cannot allow spreads to get wider aggressively. >> is the policy response to simply close the gap between german and peripheral spreads per. -- spreads. >> the market said i think it is . the biggest story is a much harder one to sell. is that the ecb is no longer able to get what it wants. they somehow lose control over what's happening. that's a much tougher argument to make. a ton of respect for the man at the telegraph. it's just been a story for the long ash for a long time. -- for a long time. equity markets, negative about a 10th of 1%. this is bloomberg. ♪

>> with the first word news. in the u.k. today parliament is set to vote on prime minister boris johnson's new taxes. they will go towards paying for approved social care. the new revenue will help trim budget deficits bloated by the pandemic. in japan the government reportedly has told the ruling coalition will extend the state of emergency for 19 regions until september 30 according to nhk. the emergency covers tokyo and 17 others. two other regions will be downgraded to less strict measures. former president trump has a strategy these days. he teases another bid without actually announcing. getting donations in an amount that could scare off some donors to other candidates. by not declaring he can use the

money to act as a candidate without a restriction that comes with announcement. the coup in guinea is one reason aluminum prices rise. global demand booms. apple's next big thing is suddenly endowed. top autoexec feels -- apple is developed a self-driving car, leading the effort to step away. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪ ♪

>> markets are in a tough place. i think you have a period we

think the growth data in the u.s. will look week in september. a lot of weakness might be in the rearview mirror but the week data will be reported in september. jonathan: still liking what he sees in japan and europe. alongside lisa abramowicz and kailey leinz, i'm jonathan ferro. a bit of price action creeping downward in the equity market. done more than a 10th of 1% on the s&p. the same move on euro-dollar. down a little bit more, a 10th of 1%. a weaker euro. yields come in three basis points. erasing some of the move sprayed the move higher over the last couple of days. let's talk about the china story. mr. dalio in a bloomberg radar event saying it's a part of the world will neglect not only

because of the opportunity provides but you lose the excitement if you're not there. damien, there's been some excitement in china that's for sure. let's talk about with happening in credit. >> we have to focus on the largest property manager in terms of debt outstanding in china and effectively downgraded to double see which puts it into almost default. you 13 million in cash on hand, -- have 13 million in cash on hand. they will be spending interest payments on bank loans that are due on the 21st of this month. effectively the default is in the works and that's not a good thing. we see the spill over in china credit specifically. all of those bonds trading at a significant discount in the case of one's own it some -- nowhere near ever ground which is trading at $.25 on the

dollar. jonathan: this is a century planned economy. the questions you ask about what happens in china are not questions you typically ask another country. -- other countries. what are looking for the policymaker. >> we expect a lot more credit to be injected into the chinese market. we three times what we saw in the month of july. we are looking for spillover and contagion effect. we are looking for construction materials, furniture in china because that's can get hit on the back of all the weakness we see in the property sector. >> i do wonder when we talk about contagion how much could be the archegos effect. the idea people could be levering investments in ever grand bonds or stocks and then also investing in other securities they will have to liquidate in order to make good on those losses. is there anything close to a sign of that type of occurrence. >> we have to disregard everything from moody's and

focus on the rating agency in china which downgraded the bonds last week. it made them ineligible as collateral to be used for leverage by banks in china. you are absolutely right. you and i, i have no idea what the extent in the interbank market, that's what we're focused on. it happened very quickly and we are seeing the price impact for sure. >> you've been in this market for years and you have a lot of contacts trading, what are they saying in terms of pressure points in the pace of some of the market moves, in terms of signs of this leverage being unwound from the system. our code this is nothing new for emerging markets pre-you wait for these opportunities when political risk is heightened and the bonds selloff to this extent you will see them 30 step in here and pick up some of these bonds at deep value. there's a difference between structural support going on, there's optical hold code issues.

the fact the company may be able to get some assets off its balance sheet. there's a lot out there for the stress managers to look at and take advantage of. >> when we talk about the pursuit of common prosperity more broadly, a chinese state that will be more tolerant of distress or failure. >> probably not. my chief real estate credit analyst based out of hong kong believes this is nothing new. basically these bonds are trading with value now. i do think this is different. i have to agree that despite everything george soros said, there is room to concern here. you can ignore china. the value discount on some of these bonds isn't to be ignored. especially in a world where real yields are declining and negative in markets. >> may be more on the ray dalio

side of things. when you're trying to make an investment in china, is it greater regulatory risk or the economic slowdown. >> i don't think you can really have one more than the other. for me it's not good to be about the economic slowdown. i think the growth here is overdone globally. again this crowding in effect like south africa and brazil, the commodity producers which stand to benefit from this. that's what we are talking about. >> who owns this debt? >> a lot of people think it is chinese corporate's in -- that really owns the bonds for a lot of these. we don't have a lot of holding data which is something we are working on. suffice it to say there are a lot of benchmark following index investors where this debt is finding its way into the portfolio. >> just trying to find out how

much of a blank box this is. >> i wish i had my black suit on today but i can tell you. >> is that it can looking part of this that we really don't know a lot? >> we don't know who owns it and what their positions are especially they can post some of these bonds as collateral. it goes back to the issue with family offices we so i couple of months ago. who will be exposed. warren buffett said when the tide goes out. here we go. jonathan: we just don't know who that is yet. >> i can tell you are trying to figure out how to censor yourself. >> how are those markets doing? >> pretty boring to be honest with you. down a little more than a 10th of 1%. down three basis points. do you think the archegos

routine, but we went through, the episode isn't that a decent analog for what's taking place? lisa: damien was saying they are looking for it, we are not seeing it necessarily huge pockets being pulled out of the market. whether we reach that trigger is unclear. i do not know and i don't know enough to say i know or a don't know but i do think increasingly the more international the world becomes in the more you get the likes of ray dalio investing in china despite these regulatory concerns, the more likely you are to get some of those pockets. >> damien knows we get a little bit nervous. >> added to the list. barbell, idiosyncratic. >> doesn't just become a broader em story eventually? >> for china it becomes harder for them to become idiosyncratic.

>> idiosyncratic works. all of that good stuff. i'm so cool, calm and collected. this is bloomberg. ♪

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jonathan: live from new york city on tv and radio, this is "bloomberg surveillance." here is your equity market on the s&p 500. not missing much. down six on the s&p. i know i'm underselling today a little bit. yields are lower by two basis points. lisa touched on the debt supply a little bit earlier. 10-year note's coming at 1:00 eastern. 1:10 eastern, the new york fed president will be speaking and then mr. kaplan of dallas speaking at 6:00 p.m.. not just the sovereign side, i talked with the 10-year note issue. we have a ton of investment-grade debt coming in

crossing the bloomberg terminal, walmart kicking that off as well. >> the idea is that there is a record pace of sales the day after labor day. we have the greatest number of issuers, to market yesterday and why wouldn't they? this is the best time you can ever imagine. borrowers have good balance sheets and can borrow record low rates. in make sense and my question is wet -- what -- why is this a warning signal? >> borrowers have good balance sheets. >> for the most part they have been at least reducing their borrowing costs for the longer term. how long that continues if you see the activity coming up, we will see. it is just so much debt. is there no consequence? >> there's an easy tory to -- an easy story to spin. typically this is a busy.

for issuance. >> everyone was expecting this to be a busy time for issuance and the weakness we saw the corporate debt space was for people who were reserving cash to buy this flood of issuance. >> amazing story over the last 18 months. >> coming up on 20 year -- >> 20 years. jonathan: coming up is the strategic research --. walk me through this. >> it is understandable it's coming up at this point to take our gdp forecast for the third quarter down. some of this is on the demand side and some on the supply side. we saw consumer confidence fall. we saw the payroll, and weaker than expected. wheels also saw the production cuts.

at the beginning of the year the idea of supply chain problems with something assumed to be temporary. it will still probably be temporary. both on the good side and on the labor side. what we might need another word of this story. we have slower growth and we are looking at price increases at homes, cars, other areas that are getting stickier. we are also starting to see rent start for the cpi and other measures. that's the type of inflation that we want to think about. >> let's talk about the word and what goes into a word, are you comfortable with this? you touched on it a little bit. it is not stag in the stag-fl

ation. talking about -- is there a better word for this? >> we try to cause it -- call it a scare. if you emphasize the word scare you or getting in the right context. this is in the 1970's where that word was popularized. if you think of the 1970's in order to compare prices you had to load the family in the station wagon. drive back home, get your calculator out. and hope he didn't spend more on gas while doing that. it is not that type of environment. there are factors that are very strong on the disinflationary side and the ability to care -- compare prices instantaneously. these are all still operative. we don't have the -- have to take that picture from the

1970's and use the words itself that was applied, but the idea that it still to be appreciated especially in the third quarter, the very short term. >> is also the possibility of optimism around a good inflation. a look at the wage data in particular. the idea the average wage the people ask for when they first start jobs rose substantially year-over-year. they fed wage tracker, the lowest income earners are doing the best when it comes to how much their wages are going up. doesn't this give you some hope that perhaps it won't be stag-fl ation, but just inflation? >> there's an organ to be made that the inflation target was too low and so the fact we hit the zero bound over the past decade and stayed there in many cases in countries say maybe we

should be thinking about tolerating a little more inflation when it comes to managing the economy. if we wind up slightly above 2% for several years that probably ok for the economy. the question is are markets priced for that. if transitory meant we are above target for a couple of months because of some disruptions and pressures on reopening, that gets passed pretty quickly. transitory means 3% inflation for three years. then i think we have to compare it to what's in the bond market. >> a lot of it comes down to the labor market and whether it's too tight or tighter than people expect. what is the view on that? >> there have been a number of issues with labor force participation in the last year and a half. obviously the health concerns which have resurfaced in the

past six to eight weeks with new virus variance are still in play , there of been issues with childcare. but also with the peace of the economy and outfitting together as well. the supply chain issue on the labor side. there been additional benefits provided. those have ended. those of change the labor supply picture, there is been a hesitation on the participation rate. we're not done with the health issues. we are probably not done with some childcare issues. the assumption has to be overtime labor supply shows up in that will matter for slack in the labor market in the ability to grow again. it's not as the wage increases are always a bad thing, they have to be matched with productivity increases. the good thing is we have wage gains but also productivity

gains. that means unit labor costs stay down and then you have products growing and wages growing. >> you said we are not done with some of these issues and that could mean the data picture is still cloudy and messy as we move forward. can the fed make a move in that environment. >> it certainly makes it harder. there was a case to be made for a september data. that's probably off the table after last week's jobs report. the jobs report wasn't wholly bad. the unemployment rate came down. if you wanted to dig into the details you can still see a labor market that looks like it's in the process of healing and interrupting. it's probably going to stay somewhat interrupted here in september. as we move into the fourth quarter with the fed is talking about doing is tapering qe, taking a tool off the table that still might be -- still might

not be appropriate. additional qe at this pace may not be the right tool. i still think there's room to have that discussion over the next several months. >> if it's not the right tool to address some of these issues and what difference will it make when bond buying starts to be reduced on a monthly basis. >> when we look at the past decade, a of this is led to bond --. -- a bond tantrum. the issue with qe provide some credibility for guidance. as long as the fed is buying bonds, investors seem to be willing to give the fed the benefit of the doubt when they say they won't raise interest rates. the challenge for the fed is to change the qe position, change the paper without starting the clock on tightening. it may not be the case the

economy is robust enough to put your foot on the brakes. you want to take your foot off the gas in this world we are talking about. splitting tapering from tightening, changing how that clock has worked, creating credibility for former guidance. >> that's the goal, timing the objectives. thank you. at the top of the hour, the strategist will be joining us at 9:00 eastern time for the open. a conversation you do not want to miss. mandy thinks the risk that is underpriced is upside risk. upside is underappreciated with all the focus on the attention to downside risk we think they may be underpricing the right tail. that conversation coming up. >> on the flipside you have goldman sachs managing director saying high valuations of increased market fragility. people concerned about that,

maybe that's the tempered bat. in terms of the upside risk considering there still is some hesitance there. >> can we climb the wall of worry? >> the bias to this equity market very clearly is to the upside. we could be heading 212 days without a 5% pullback. we've seen the records on the s&p through september 8 and we have four months to go through the end of the year. there is no reason to believe the equity market can keep climbing. >> keep counting. the s&p negative, the bond market yields within two or three basis points on tens. i'm get a run, thank you for the last couple of days. the man with the bowtie and a very husky voice will be back with us tomorrow. i cannot wait. i'm being real.

>> i did not say anything. >> much more that still to come. this is bloomberg. ♪ >> with the first word news, i'm ritkia gupta. opening statements set for the trial of elizabeth holmes print at one point, the company was valued 1.5 billion dollars for questions arose about the legitimacy. china is said to continue its purge of the hong kong electoral system. in the last 10 months over 300 elective -- elected legislators from pro-democracy groups have been removed from group -- from positions. the global market rebounded last month. domestic china shipments rose almost 50% from july when they had plunged.

most of them headed for europe. j.p. morgan chase is extending its services into the auto industry. the terms of the deal weren't disclosed. few, parking and other services. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪ ♪

>> i think china is going to have one very strong creation of

the technological future. it's one of the reasons the land of scaling. i think it's very much a game on circumstance. >> reid hoffman speaking on peer-to-peer conversations. you can watch that entire conversation airing at 9:00 p.m. tonight eastern time. joining us is david rubenstein. reid hoffman, a really important person to be talking to at this moment where we see this tech battle heating up between the u.s. and china. where did he throw his hat in terms of which region had the upper hand in this tussle? >> there is no doubt silicon valley has of the upper hand for decades. he does think china is now competing effectively with the united states and you have these two polar opposites in effect. china with one system of

entrepreneur activity in silicon valley with another. he thinks the chinese are doing what he's calling blitz scaling. that's what happened in the united states with amazon and apple. very large companies that operate to scale. >> that's the bigger picture. yet the micro picture has been an increasing crackdown on some of these behemoths. the company's that are benefited from their approach. how does he view that? does he believe that will sponsor innovation and put a damper on it by raising regulatory uncertainty? >> clearly china wants to make clear the chinese government is the most important thing in chinese society and once the entrepreneurs can recognize that they can go about their business. china clearly doesn't want companies more powerful. they have had some kind of crackdown or regulatory strengths. they haven't had quite the same thing in the united states. american onto burners are free to build companies without the

constraints and concerns that people have in china. >> good morning. you mentioned apple, amazon, these behemoths seen grow in the u.s. prayed as he believe those companies are getting too large? >> he does not say that, in part because he is a person who is still on the microsoft board. it would be difficult for him to say microsoft is become too big and too powerful. he does say we have five of these gigantic companies and we will get 10 of them soon. companies like salesforce will become one of those companies or netflix will become one of those. those are big now but they will be much bigger. he doesn't worry because he thinks there will be more of these companies. >> are these the companies he's interested in getting into now or what would be safer? >> he has had a very good venture firm.

he is a venture investor who he was an early investor in facebook and airbnb. he likes to find young entrepreneurs who are really talented and have a good idea and back them. he is an unusual mix of being an entrepreneur and venture investor. and a very successful angel investor as well. >> yourself also being a pretty big investor in companies at the earlier stages, is there any question of what the structure of such dominant tech behemoths of the top does for innovation and for some of the smaller companies. how much of a competitive advantage can they have and how much can they get with respect to data which reigns supreme? >> there is no doubt the large technology companies have a lot of data and they are using it for the purpose of their corporate purposes. there will always be someone with a new idea, he likes to back people we things have a vision of where they will go and have the capability of getting

there. it's a different skill set than being in entre nous or. -- entrepreneur. reid hoffman is a very talented individual. he has a certain modesty that i think reflects the fact is very secure in who he is and is very well-respected by his colleagues. a lot of people, behind their back people are snickering about them. that's not the case with reed. >> we heard a chorus of large name investors over recent weeks weighing in on the debate on whether or not you can invest there. you've george soros saying that would be a tragic state. i'm wondering what your take is. >> i think george soros is point with the geopolitical issues than the government constraint issues, things that are different than if you invest in

them you'll do well. as a rule of thumb i think investing in china will produce very good profits. you have to be comfortable with some of the constraints you have but there's no doubt there's a lot of constraints in other countries as well. i think it's a very good place to invest, but there are some challenges you have to get comfortable that some of the governmental actions are not to be one's you will be comfortable with if they were happening in this country. >> have you shifted focus with respect to your appreciation of china investments even with g jinping's recent announcements about the common good? >> right now, china has 1.3 billion people and it will be a gigantic market for some time. the chinese governmental system is different and americans have to be comfortable with that. if not, you can invest in many other places. if you're comfortable they will have a heavy regulatory hand in things you can get comfortable with investing there. i have invested there. i am not fully out of china.

every country has its challenges. the united states has challenges. you can argue we have all the governmental actions everyone is comfortable with here either. >> nobody would disagree. david rubenstein, cofounder of the carlyle group, do not miss that a 9:00 p.m. tonight, reid hoffman. speaking about the landscape for technology at a time when it really is preeminent. you think about how much money has been raised for some of these venture capital funds and others to get into the tech dominance we are seeing everywhere in the world right now. >> we talked about the wealth creation. wealth creation in silicon valley, nothing beats that. >> it has been with the dynamism of growth and has been the backbone of it. coming up, senator rick scott of florida and congressman sean maloney of new york to discuss how to open schools, mask

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jonathan: it is a quiet wednesday morning.

your equity markets not doing much, just sliding negative. the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading. this is bloomberg the open with jonathan ferro. ♪ jonathan: from new york, we begin with the big issue, the return to normal delayed, not to railed. >> things are almost back to normal. >> a lot of are starting to push back that back to office. >> corporations have pushed off their full return to office. >> sort of a recovery delayed but not derailed. >> the delta variant when to be a risk. i do not think it is going to complete we derail it. >> we still have -- complete lead derail it. >>