speed up the end of the pandemic disruptions. researchers in south africa found omicron appears to cause less severe illness and provides protection against the delta variant. they also found people who previously caught the delta variant can contract omicron, but people who get omicron cannot be infected with delta, particularly if they have been vaccinated. encouraging news in new york city. health officials say the coronavirus surge is declining and hospitalizations are dropping dramatically. the daily number of cases dropped to about 17,000 over the last week, down from a peak of more than 42,000 on january 3. still, cases are much higher than they were in october and november, when infections were hovering around 1000 per day. u.k. prime minister boris johnson denies he was warned not to go ahead with a party in his office garden during the first

pandemic lockdown. the prime minister's former aide accused him of lying about the matter. the prime minister said nobody told him the party was against the rules. it threatens prime minister johnson's political career. major u.s. airlines are warning of catastrophic disruptions from wednesday's gradual rollout of 5g wireless service. a trade organization urged government regulators to prevent 5g from being implemented within two miles of where aircrafts fly. airlines are worried the new signals could interfere with aircraft instruments. global news 24 hours a day, on-air, and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i'm mark crumpton. this is bloomberg. ♪

matt: it is 1:00 in new york, 6:00 in london, 2:00 in hong kong. welcome to bloomberg markets. here are the top stories we are following from around the world. stocks drop and yields surge. all of the 11 s&p sectors are in the red with a two year yield eating its highest level since february 2020. full market coverage ahead this hour. a $69 billion deal. microsoft agrees to an all cash purchase of activision blizzard, creating the third-largest gaming company in the world. what hurdles lie ahead as microsoft embarks on its biggest deal ever. is the everything bubble about to burst? we ask oaktree capital's howard marks who warned that all assets were in a bubble and that the fed should let rates normalize.

all that and more, coming up this hour. as we saw, the s&p 500 down almost 2%, the lowest level of the session. the nasdaq down 2.33%. behind the drop in tech has been the surging yields. we are seeing that across the curve. two year yield up above 1% for the first time since the pandemic started. u.s. 10-year yield at 1.86. the curve is flattening. five basis points of flattening within one hour this morning, so a lot going on in rates. a lot going on in m&a as well. let's turn to our deal story, microsoft buying activision blizzard for nearly $69 billion in cash, creating the third largest gaming company. it is also the 15th biggest m&a deal in the past decade.

joining us to discuss is david kirkpatrick, ceo, editor-in-chief of techonomy media. what do you think of this move by microsoft? really it's about time, right? call of duty, which is made by activision blizzard, is one of the biggest generators for the microsoft xbox. david: activision has a wide range of games, candy crush, call of duty, were craft. we have seen microsoft signal much they wanted to go into consumer businesses even more than they have with their efforts to buy tiktok a couple years ago, reported efforts to buy pinterest, and now they are succeeding in going into gaming in a much bigger way to pretty much doubled the business they already have in gaming based around the xbox. at a time when the metaverse is

the theme that people are excited about, this should position microsoft to become a significant player over time, if the metaverse really happens. matt: the tech side of the business is clearly important. a column this morning about the best stock picker of 2021 betting on a.i. he invests in the chip that will make the metaverse a.i., apple products, but content is still important. this is what activision has, this is what ea has. can we expect these content creators to rise in terms of value? david: absolutely. this is the kind of deal that probably any smart media company would have wanted to do, and most of the other big tech

companies possibly would have wanted to do. the kind of talent that activision has within its portfolio is extraordinary. the content is what will determine the success of the future of media, which gaming will be at the center of gaming is much more important to media the way that we normally think about media it is a huge business, comparable to the movie business globally. for many people, much more important. matt: i know that all too well as someone who spends far too much money in games. what are the hurdles that will need to be overcome, some antitrust action? david: there could be. i suspect it will be approved. one of the interesting things about microsoft's position, more than any other big tech company, they have a global of virtue about them.

they are not really seen as a predatory monopolist, when in some ways they probably are, but not to the degree that google, amazon, facebook, or even apple. microsoft is seen as a benign owner for an asset like this on balance and that should smooth the passage to approval here. in dramatic contrast to facebook, which could never have done a deal like this, even if they would have wanted to. matt: thanks for joining us, david kirkpatrick, ceo, editor-in-chief of techonomy media. coming up, we are talking to howard marks, cofounder of oaktree capital group. erik schatzker's has been doing a series of interviews with him through the pandemic. we will get his take on inflation and rates as they rise.

the two-year up over 1%, back to pre-pandemic levels. this is bloomberg. ♪

matt: this is bloomberg markets. i'm matt miller. last year, oaktree's howard marks describes assets of being in a bubble. now that rate hikes are priced in, four this year, three next year, let's go over to erik schatzker who has been talking to him a lot in the pandemic. erik: always great to have howard marks here on bloomberg television. i cannot help but begin with you on inflation.

it has been two whole generations since the u.s. last wrestled with raging inflation. of course now prices are soaring again, financial markets seem increasingly uneasy. are you worried about inflation? howard: i am worried about inflation. inflation -- everyone wants a little inflation. let's remember, the last 20 years, every country has been trying to get 2% inflation but have not been able to do so. a little inflation is good, keeps everything moving. but excessive inflation is not desirable. in short, for the most part, higher inflation means higher interest rates, which means lower asset prices. that is what is going on now. erik: higher interest rates could also throttle the economy. do you feel the post-pandemic

recovery is now at risk? howard: i don't think -- first of all, i proudly assert that i am not an economist. as you know. but i think we will continue to have a recovery. with higher interest rates, all else being equal, it won't be what it otherwise would have been. low-interest rates are an incredible stimulant, so the economy will be less stimulated. erik: when we spoke a few months ago, you described assets as being in a quote everything bubble." you urged the federal reserve to let interest rate normalize. should we want, do you want, does oaktree want jay powell to use this opportunity, with inflation staring us at the

base, to pri the everything bubbleck? howard: i don't think the fed should try to manage asset prices, but i think it should try to create an environment which is conducive to the economy doing its thing. but i also believe, other than at the extremes of over inflation and hyperinflation or recession, i think the fed should be relatively passive. that is why i called for hands-off, naturally occurring interest rates. interest rates have been artificially low. they were made low to get us out of the pandemic, lockdown of the economy. that certainly has served its purpose, the economy has come back strong, has been strong. the demand related to that strength to some extent is

contributing to the inflation we have. i think interest rates have to rise. the economy has to be less stimulated. we are seeing that. the more interest rate increases sooner than the fed had let people to believe, all of this will cool off the economy to some extent. erik: here is the question, the fed thinks it can breathe incrementalists, but i don't need to tell you because you been around longer than me, soft landings are notoriously hard to achieve. what if the policymakers are wrong, and beating this round of inflation requires something like paul volcker's saturday night special of 1980? howard: let me respond to the second part of your question. we don't have inflation like volker faced. he came in, inflation was

considerably higher, and it had been going on for 6, 7, 8 years. we don't have those conditions today. it will not take what volker did. i have a note on my wall in my office. we don't need 22.75% interest rates. i assume that people only work at the fed believe that they can engineer changes in the economy which they desire. you called it soft landing. you have this knob, and you turn it a little bit at a time to get the economy and rates where you want them. in my opinion, that overstates the ability of economists to act

with precision. it is hard to get exactly what they want. the first interest rate increase may not cool off inflation very much. the second one may do more. the third and on the fourth one may impinge on growth. it is very hard in my opinion to get these things exactly right. erik: since you were actually managing money in the 1980's, at the time for citibank, what is the oaktree view on how to invest in inflationary times? howard: if you think you are going to be living in inflationary times, you should have things in your portfolio that would do well in that scenario. number one, you may want to have more floating-rate debt than fixed-rate debt.

you may want to have more properties that you can rent out, where you have the ability to increase rent over time. companies that grow fast enough to outpace inflation. these are the traditional ways to deal with inflation, number one. number two, i would not come as i said in a recent memo, invert my portfolio. i would not throw out a bunch of what i just described. what if you are wrong and inflation cools off naturally? eight months ago, jay powell thought inflation was transitory. what if it turns out he was right then? you just do little changes at the margin, in my opinion. oaktree is not a macro investor. our investment decisions are not

directed by macro forecasting because it is so tough to get it right. i think buying good assets at attractive prices for the long-term is still the best tool in any investment scenario. erik: to take the other point of view, if not a point of view, a possibility. if the fed loses control and has to check up interest rates, that has implications for certainly fixed-rate instruments. howard: it has implications for the prices of fixed-rate investing. if you buy a 5% bond, you put out $100, you get 5% interest a year. interest rates go up, the price of the bond falls to 75. if you are right about the creditworthiness of the issuer, you get your money back at the end. $100 back.

when you are a credit investor, as we are, used to be called fixed income, you should not care that much about prices going up or down. returns in our area -- we have the great luxury that returns our contractual. the borrower takes your money, promises you interest in the money back. your return in the ultimate says does not come from the market but your borrower and your contract with him. people shouldn't get excited about buying and selling and getting out in time, getting back in in time, which is so hard. if they have entered into a credit contract with a good borrower, they will get the yield they signed on for. that they should be happy with that. erik: so glad you brought up buying and selling, because your latest memo -- you may even call it a mini manifesto against

selling. you explain many reasons not to sell at any point in time, but the reason i am bringing it up, timing, as they say, is everything. some people will read this memo, whether they should or shouldn't, as an exportation not to sell. i can't imagine that is what you intended them to think. howard: no, i want to sell for the right reasons, not the wrong reasons. most individuals, and i daresay, most people listening to this program do not have the ability to time buys and sells. you mentioned timing, i thought you were going to go to the quote from bill miller, one of the great investors of our

generation. he said it is time, not timing, that works as an investor. time in the market. getting in, getting out, hard to do. being in over time is what makes people successful as investors. a great professional may be able to add a bit to that by getting in, out, overweighting this and that, but very few people can do so successfully. i think most people traded too much, erik. most people treat to their own detriment. erik: i wanted to ask about oaktree, not a bunch of traders either, but you have traditionally made money by capitalizing on distressed prices, and that requires having

to sell some things at some time in order to raise cash to deploy at opportune moments. i wonder if that is where we are yet. howard: i hate to say it but your question is a bit fallacious. but we have done successfully is raise additional money in anticipation of buying opportunities. when we saw fundamental problems in the investment environment, not saying that before saw a dip. when we saw fundamental problems in the investment environment, historically, we have gone out and raised additional capital which we were able to deploy when those problems arose, depressing asset prices. we did not sell -- as a matter of fact, one of our tenants of philosophy says that we are not

market timers. we do not sell in advance of a coming dip because it is so hard to get that right. erik: obviously, that is what establishes oaktree from somebody investors out there who do think that they can time the market. always a pleasure having you on the program, howard. the cofounder and cochairman of oaktree capital. this is bloomberg. ♪

matt: this is bloomberg markets. i'm matt miller. let's get something to caught my eye, goldman sachs and its earnings. the firm's equity traders posted a decline in the fourth quarter. revenue fell 7%, missing analyst estimates. equities business falling 11%. meanwhile, compensation and

benefits, the single biggest driver for expenses, rose 33%. goldman shares are sliding on the news. the stock is having its worst day since june 2020, now down more than 10%. we call that decimation, reducing anything by a 10th. the rest of the s&p 500 hitting session lows as we start the hour down 2%. nasdaq tech stocks leading us down. it is the rise in yields, 2-year above one, 10-year at 1.86, causing investors to leave these so-called growth stocks. this is bloomberg. ♪

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mark: welcome to the bnn and bloomberg audience. i'm mark crumpton with bloomberg first word news. americans can order free at home

covid-19 tests. each household can receive one set of four tests. shipping begins later this month. the site is a push by the bonded administration to increase access to at home tests which have been in short supply since the start of the omicron surgeon last month. to order tests, go to www.c ovidtests.gov. republicans are were riding a wave of fundraising in the lead up to novembers midterms. throughout the last year, the gop racked up 559 million dollars for federal, state, and local races through its win red online platform. that includes $210 million from first-time donors. a total top the $523 million democrats raised in 2017, right after former president trump's election. the bonnet administration is

taking steps to fight the growing wildfire risk across the united states. the forest service is targeting 50 million acres for prescribed burns and thinning. officials say the plane will focus on regions where out-of-control blazes have wiped out neighborhoods and sometimes entire communities, including california's sierra nevada mountains, and the east side of the rocky mountains in colorado. global news 24 hours a day, on-air, and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i'm mark crumpton. this is bloomberg. ♪ >> i'm jon erlichman, welcome to bloomberg markets. matt: i'm matt miller. stocks falling across the board.

treasury yields served as concerns arise central banks will have to boost interest rates sooner than expected. microsoft is buying activision blizzard and a blockbuster $69 billion deal to create the world's third biggest gaming company, uniting two of the biggest forces in video games. it is the biggest purchase ever for microsoft. the future of crypto, the popularity of digital tokens rose in 2021, but it may just be the beginning, as bitcoin payments could become the new norm. although a lot of things would have to change, like faster transaction times, less expensive transactions, less energy intensive. we will discuss all of that. jon: a laundry list, for sure. going back to what you said at the top, we are seeing stocks

tumble, yields climb. we are sounding like a broken record but the reality is, this inflation reality, expectations rising from interest rates, are taking a big bite out of technology. it is time to bleed into other sectors. the nasdaq 100 the year down more than 6%. the fact that you are seeing other sectors not participate suggest investors feel uncertain about equities broadly speaking. the goldman sachs story which we have been covering today highlights that maybe financials do not go up to offset technology every trading day, so we will keep watching it. yields an interest rate is where we want to start. you have markets betting on at least four rate hikes from the federal reserve this year. money markets reflecting increased speculation that the

fed may opt for its first super size borrowing costs. traders are contemplating the possibility of a 50 basis point move in march. the markets are trying to get their heads around that. matt: that is fascinating. i was talking with ira jersey this morning, chief strategist for bloomberg, and he said even though we had this story last week of the markets expecting four rate hikes, kicked off by goldman's forecast over the weekend, this is the first time it is priced in. not only four rate hikes in 2022, but three in 2023. it looks like those rate rises will come sooner than expected. a lot of people moving their terminal rate forecast now to 3%. jon: we have seen that reaction in equities and technology stocks.

let's cover more of the asset landscape and talk about what it may mean for bonds. somebody who knows about that, elaine stokes, loomis executive portfolio manager. nice to have you with us. i will start with your general takeaways on these market moves. elaine: it is not surprising. to me, it is the market catching up. we have gotten a lot of news from the fed. they have said, we have been behind, little bit wrong on our expectations with inflation. they also tell us that they think we are at or close to full employment. if that is the case, they will pivot toward inflation. and if they feel they are behind, they will do some catch up. the market, to me, is catching

up to where they should have been. they should not have been a surprise. we were expecting yields to go up the better part of last year. matt: if 4% is not full employment, 3.5, i don't know what is. in terms of rate increases, how many do you expect this series will bring us? the more conservative forecast for terminal rate is around two, but i've been hearing people say three. elaine: i don't know if i would go all the way to three, but maybe somewhere in between. it is easy to expect three rate hikes, just to do some catch up. i am always in the camp, we would prefer higher rates than what we have today, so it is ok to go a little bit farther. gives them a little more breathing room when we do hit the downturn. the question for me, are they

going to be able to continue? it really comes down to how strong is the rest of the world? i think the u.s. economy is in good shape, but i am really getting worried about what is going on in china and some of the emerging markets, their ability to keep up, keep the momentum going. jon: i want to stay with that for a beat. the world is still navigating through covid-19, and depending on where we are looking around the world, when you look at the world of yield you are watching, you see some of that unevenness reflected, as well. elaine: absolutely. that to me is the opportunity setting itself up. what we are seeing across the globe is disengaging of the cycle.

we started out with everyone going in at the same time, frankly. covid hit the world with a bang. now, we are coming out very imbalanced. we have everything from the zero-tolerance policy, zero covid in china, to almost a denial, late moved to get their arms around it in other countries. we will see that weighing on the ability for global growth to really start to springboard. matt: what do you do, as a western investor -- we were just talking with howard marks who noted the importance of incremental moves.

you don't want to change your entire portfolio at once. even the smartest people have difficulty forecasting the future. he was also talking about the importance of being in the market over time, rather than attempting market timing, because of the obvious difficulties of that. elaine: i completely agree with that. what i see are people are going to panic. people dealing with inflation worries, people looking out, will panic and see some of these losses in their bond portfolios and not think that they can continue to work for them going forward. and they will put themselves into a place where they are taking on too much risk. there is a lot of opportunity within bond portfolios. i brought up emerging markets already. there is high yield, there is securitized, there is

convertible bonds. there are a lot of other ways to use your bond portfolios to get credit risk and not necessarily just interest rate risk. we are also focused on the interest rate risk now that it makes me nervous that people are going to move into riskier assets at the wrong time. matt: great to get your insight, appreciate your time today. i hope that we can talk again soon. elaine stokes from loomis. coming up, we are looking at another aspect of the market today, another big deal. i believe the size puts it in one of the top 20 deals in the last couple of decades. definitely microsoft's biggest deal ever. this is a two point $3 trillion company spending six to $9 billion to buy activision blizzard, and acquire the crown jewel, call of duty. goldman sachs was a soul advisor

for microsoft, continuing a hot streak in investment banking, on a day that its fourth-quarter trading revenues came in lower than expected. that decimated shares. activision had a soul advisor as well, so real deal fees coming in for bankers. what it means for them and the world of video games. this is bloomberg. ♪

matt: this is bloomberg markets. i'm matt miller. with jon erlichman. it is our stock of the hour, microsoft, spending 69 billion dollars to expand its presence into the game and videogame industry. gritty has the details for us. kriti: $69 billion deal for a $2 trillion company. $95 per share, that is how much is getting bid on. that marks a 45% premium. activision has come under quite a lot of scrutiny for the sexual harassment case which has weighed on shares, in addition to falling under the pressure of the chinese regulatory, which is eating into. the stock this is not just the 15th biggest m&a deal in the past decade, also the biggest m&a deal in the tech industry,

biggest acquisition for microsoft. when you compare the stocks, they were two major pandemic beneficiary stocks, until activision started lagging behind. that regulatory scrutiny in china and sexual harassment case when it came to activision and the c suite. mobile gaming is also a big part of the equation. it is not just getting a foothold into gaming. they have a number of major franchises, but mobile gaming will be a piece of it. this is something that you heard from take-two's acquisition of zynga. crucial to the future of what the gaming industry will be like. jon: put together, you have take-two and zynga, microsoft and activision, a market scratching its head, wondering if we will see other big deals. kriti: that will be the big

story for tech. microsoft sitting on about $130 billion in cash. they also have a very low borrowing rates as well, so this will bring to the forefront some of those stories, what will apple, alphabet be doing with their cash? we are seeing some of their peers, videogame makers higher as well. electronic arts, take-two, ubisoft all higher. i do want to point out that antitrust will be an issue when it comes to some of these combinations but perhaps not priority number one just yet. jon: something to watch closely. the deal specifics. and we are learning today goldman sachs is the sole banking advisor for microsoft. the firm reporting that big jump in investment banking revenue in the latest quarter, so that was one of the bright spots in a

challenging quarter. sonali basak joins us now. i saw allen and company also getting in on the action. when we covered that sun valley conference, activision and macro software in the same circles. bankers always looking to get a piece of the action. sonali: the boutiques have really been investing in the gaming industry, new media, and it is too early to think about league tables. allen and company and lion tree are two of the top five. they are heading toward these big gamers. lion tree on the zynga deal, and now allen and co. on this activision. don dietz had been a technology banker. to see them be the soul advisor on the microsoft deal really is an affirmation of the tech business, after five years in a

row of goldman sachs taking them number one spot in m&a. matt: it is funny, you mentioned league tables. you can see them on the terminal. i click onto this deal, and i see that goldman is the sole advisor to microsoft, but allen was the sole advisor to activision blizzard. a lot of fees, of course they earned it. was this deal conceived at the allen and sun valley, idaho conference co? sonali: that's a great point. at what point did activision decide to sell, after the lawsuits started to emerge? activision has long been closely held. the executive was larger than life, so these were problems that came in lately. microsoft has a long-term investment in gaming. another thing to think about, it

is interesting to see the boutiques interested in gaming. we knew eventually this would be red-hot. i don't think people thought $70 billion red-hot. it is interesting the gaming deal comes as the first deal of this size since before the pandemic, when deals of this size were in the health care industry. how will this shape the deals of the future and the ability of companies to actually acquire things with the ftc's blessing? matt: interesting in some anyways because the content is so important. call of duty has to be one of the most important franchises for both xbox and playstation. i know a lot of kids spend a lot of money in that videogame. by the way, my gamer tag. the future of crypto, why this

could be the your digital tokens become a critical asset in your portfolio. that is what they keep telling us. this is bloomberg. ♪

matt: this is bloomberg markets. i'm matt miller. with jon erlichman. consumers and businesses are increasingly using digital tokens for payment despite the volatility. our next guest think this is just the beginning. joining us is harry yeh, founder of quantum fintech group. i spent a few weeks 10 years ago living only on bitcoin, spending that at grocery stores, bars, buying gift cards to pay for gasoline. ironically, also at gamestop. back then, it was mildly

difficult to transact using crypto. today it is incredibly difficult. if you are using bitcoin, it takes a long time, is expensive and energy intensive. how does that change? harry: thanks for having me on the show again. it is progressing quite a bit. before bitcoin looked inefficient because of threats action processing time. then ethereum came along. now you have blockchain's where you can essentially use usdp to transact. most of the transaction that we are seeing at the conference and how we are paying our vendors is through stable coins. jon: one thing that i will remember from matt's experience was community. you have to know who to talk to and where to look for help. it is feeling like that especially with the volatility. can you talk about that, the

process of everything going on under the sun right now? harry: cryptocurrencies are still in their teething stage, however, we are seeing something similar to the 2017 bull market. we are in the middle of able market, but this bull market is a little bit more unique. in the last bull market were not any stable coins, but there are in this current bull market. this could be what we are starting to call the super cycle, mainstream adoption of cryptocurrency because stable coins are starting to happen. some of the projects, high yield farming, where people can take their stable coins and cryptocurrencies and park them into projects and earn yields up to 10%, upwards to 200%. jon: we only have 30 seconds left.

we are seeing crypto, like tech stocks, under pressure. what will you be watching over the next few weeks? harry: phantom, tomb, watching the price of bitcoin and ethereum. they are the bellwethers of the industry. if bitcoin does well, the entire industry does well. i don't think we will see any interest rate hikes anytime soon. they will continue with the money printing. you will see a lot more movement on the upside for bitcoin. target price around $400,000 the next 12 months. jon: appreciate the time. harry yeh from quantum fintech group. this is bloomberg. ♪

mark: u.s. secretary of state antony blinken will meet with russian foreign minister sergei

lavrov in geneva as the u.s. ramps up its warnings that moscow was prepared to attack ukraine. the state department says secretary blinken will press russia to immediately de-escalate tensions on the russian border with ukraine where moscow has amassed more than 100,000 troops and equipment. secretary blinken is in ukraine today meeting with president zelensky. senate democrats are on the verge of handing president biden another defeat as they take up voting rights legislation with extraordinarily long odds in the evenly divided chamber. the legislation's fate will be sealed if two democrats vote against changing senate rules. the issue could come to a head wednesday, the same day president biden has scheduled a news conference. former new york city mayor bill de blasio has given up his run for the governor's race.