>> every indicator we have tells us the economy is heading sharply lower. >> the idea that growth will slow, i do not think it is debatable. >> the equity market tends to be the strongest when things are the weakest globally. >> the thing to do is to apply common sense investing. >> the picture will look a lot different. announcer: this is "bloomberg surveillance" with tom keene, jonathan ferro and lisa abramowicz. tom: good morning, everyone.

on radio and television, it is uneventful wednesday. it is a rapid pace wednesday. the tone, the second derivative, the calculus from the lady from westland. they continue to move this morning. jonathan: the line from governor brainard, we need to reduce the balance sheet at a rapid pace. chairman powell said the same thing. that is exactly what a few of us will do. we will look for the fed minutes. tom: we talked to bill dudley about what is the difference between the vulgar inflation and the brainard inflation and to me it is the intertwined nature of all of this with the pandemic, with the huge fiscal stimulus and i will suggest a massive mystery between bill dudley and david blanchflower is one debate. jonathan: we are moving quicker,

much quicker. balance sheet reductions will happen faster because rate hikes have not happened soon enough. the hikes started in 2015. the reduction started two years later. it was not years between. it was a couple of months. that is the change this time around and they believe they can go faster because this economy is stronger. will this economy hold up? tom: the next trip for abramowicz out to lax and up to mammoth mountain. lisa premium in mountain -- mama mountain, $7 -- mammoth mountain, seven dollars per gallon. lisa: this is the issue. we will get the democrats in this subcommittee hearing we are expecting to start around 10:30 a.m.. jon ferro will be watching it with popcorn as you get these oil executives coming in front

of congress to get rick to -- to get raked over the coals. tom: our prices are getting somewhat like prices in england. would you have oil executives in london go before the house of commons about couching? -- about gouging? jonathan: to go over that title at the subcommittee hearing today, they call it america's pain at the pump. if you wanted something productive out of this morning, based on the title of this hearing, it is unlikely we will get anything productive. tom: we will have a lot of good coverage with annmarie hordern. we have to do the data. i'm going right to the fix, over two big figures of damage. 23.34 on the fix -- the vix. jonathan: closer to 255.

this morning, moving up another nine basis points. up nine to 264. a monster move on the treasury yield through the curve over the last few months. tom: we will not spend much time on it but the rush of 2042 is front and center in any national finance. a real question -- front and center in international finance. right now, lee ferridge joins us. lee, what is new in your analysis with all of these stories, these emotions, the tough news of ukraine, how are you adjusting? lee: it is tough. we have been focused on rate hikes all year and now it is all

about qt. our fast -- how fast, when do they start, do they replace rate hikes. it is all about rate hike expectations. they have not moved over the last 24 hours. jonathan: before we predict the future, can we talk about the last few weeks? this is what chairman powell said. he said look to the fed minutes. the nasdaq is about 10% on the nasdaq 100. what was the last few weeks about? lee: that is a really good question. the market has taken the qt argument, -- we are pricing maximum rate hikes, 10 year

yields are below 2.5. real yields are significantly negative. that gives me reason to buy equities. that gives me a reason to buy duration because the peak of rates will need -- leave real rates negative. you throw in a much more aggressive to the, -- aggressive qt, the rates start to change. that will start to hurt. lisa: we have been talking about this debate in the bond world whether longer-term yield go down as a result of quantitative tightening, not go up as it plays out in the bow margin. where do you fall on this? lee: that is a good question. initially they go up. it is the opposite of two we. -- the opposite of qe. qt, if we look back to 2018, use our rising rates and equities

cracked so we rose the first quarter. equities sold off every march, rates stabilized, and we went higher. 10 year real rates in 2018, we saw the massive equity selloff which the fed backed away in the whole world changed again. you do get upward pressure on low minimum rate and then you see selloffs being the rates down again -- bringing the rates down again. lisa: if i had asked you a year ago at what point bond yields would have to go before stocks cracked, it would have been to 60 -- 260. based on what is being expected, what is the level of bond yields necessary for that cracking? lee: if we look back at 2018, it was when real rates got toward 1%.

we are still -25 right now. this time around, the level is lower, valuations are higher, and things are more nervous as we are fighting this issue. real rates positive, maybe was 25. -- maybe plus 25. that puts us normal the where we were this time last year. that level is where they really crack although there might be more concern. there is more uncertainty this time. do you throw in the inflation level? do you throw in the aversion of the curve? do you throw in ukraine? probably positive real rates in the 10 year. but maybe not even his highest 25 basis points. jonathan: we are not far away. people listening are thinking about what they should do to their equity exposure.

it is a host -- is it a wholesale reduction across the board? in the homebuilders, we have seen it at the transports. what should they be doing? lee: i would be reducing -- i am naturally a bear -- naturally bearish on equities. it is just the way i am. i would be really looking at. we have that bouts -- we had that bounce in march. if they start at $40 billion, $50 billion a month, which is feasible, then that will be a lot to swallow and that will push real rates quickly and that will be bad news for equities across the board. you think back to late 2018, there was no discretion. everything went down. that is the playbook you have to

start looking at. that is the only qt playbook we have. that is the one you have to start looking at. jonathan: why are things so depressing on these bond desks? what is this all about, lee ferridge? lisa: you did not even let him respond. lee: it is being english and an economist. it is a deadly combination of english economist. the most pessimistic combination you can get. jonathan: definitely. lee ferridge there. lisa: that is why you like to tweak to me because you personally emphasized clearly because you are also british and you favor economics. there you go. jonathan: getting exposure to the lee ferridges of this world. it gives you that worldview. equities down 1% on the s&p. on the nasdaq 100 down by 1.6%. tom: i'm going to take your

point of two big days back to back yields. one would be enough but off the move yesterday, today, nine basis points on the 10 year yield and this is a lift to the curve, a complete reset off of qt. jonathan: lisa asked the right question. she always does. we have gone over it a couple of times, haven't we? the bait -- the debate is divided on that. lisa: the question is do yields have to go up first and then come back down when the turmoil takes place. jonathan: coming up, catching up with senator bill cassidy, the republican from louisiana. this is bloomberg. ritika: keeping you up-to-date with news from around the world, i am ritika gupta. the u.s. and eu will propose

more sanctions on russia after the discovery of alleged atrocities in ukrainian towns abandoned by retreating russian forces. penalties will be increased on financial institutions and state owned enterprises plus sanctions will be placed on unspecified russian officials and families. treasury secretary janet yellen will warned of the enormous economic repercussions of the board in ukraine. she testified before a committee. she will highlight the risks of rising food and energy prices. she will make it clear the u.s. will not ease the economic pressure it is putting on russia. this year's unprecedented bar round accelerated after more from the federal reserve. the central banks will reduce debt hauling, sending debt levels after completing an eight month losing streak. speculation is being raised about russia and a potential

technical default. the finance ministry paid rules to some of its debt obligations this week because for an banks refuse to process $649 million of payments but it did not give russia the option to pay in rubles. two top executives will step down this year. an asset management chief and the president alix stern. they will be succeeded by the cfo. 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 am ritika gupta. this is bloomberg.

>> we are still bullish on oil. we see oil trading up to $125 a barrel. i want to emphasize that what this does is it crowds out more investment. it makes a small term worse because ftr release is not a long-term solution to underinvestment. jonathan: jeff perry of goldman sachs, his call is still $125 on prude. equity futures are negative by

1%. on the nasdaq 100, down by 1.6%. the bond market eating into the equity market gains. yields up by seven or eight basis points. a move of 262 on the 10 year. crude is up by one point to 8%. there is a house subcommittee hearing on oversight and investigations of the committee on energy and commerce and the title of that later this morning, gouged at the gas station. big oil and america's pain at the pump. it is not -- tom: bill cassidy is from louisiana. he is a force in baton rouge wedding 59% of the vote in 2020. before we dive into the clear and present gouging, i need to talk to you about the distance from detroit and the democrat

deborah dingell and john dingell out to kalamazoo on route 94 and fred upton. fred upton retired yesterday, almost in tears, the senate because he is being pushed out by the trump part of the gop. you lived this. you had a nice reelection in 2020. can you comment on the gop vendetta against those that said we need to impeach the president? sen. cassidy: fred was redistrict in a tough way. he lost 350,000 base voters. there are folks in the party who are mad at folks like upton and me who voted for impeachment. that is the way it is. you do what is right and you live with it. i think fred is incredibly proud of the integrity that he showed. tom: with the enthusiasm that we hear and suggest that the republicans may take the house and i the republicans may take the senate, what is the new

majority republican congress need to do day one? sen. cassidy: we need to start going after inflation. inflation right now is being driven by energy costs. the cost of the pump on your fuel bill and the inputs to the fertilizer that go to the crops. that is a lot higher now as well. i propose an operation warp speed. within 10 months, something predicted to take 10 years, we should take a regulatory kind of let's get together and figure out how we can increase supply and decrease prices for us and our allies within 10 months, if not, shorter. we can do that, but we need operation warp speed. lisa: what do you see moving into and away from reliance on fossil fuels? sen. cassidy: there is a regulatory uncertainty for durables.

there is a regulatory uncertainty for carbon capture and -- carbon capture. what i'm speaking on is the ct u.s. that louisiana has been waiting for region 658 to get off of their duffs on our application since october of last year. lisa: are you saying basically that it could be a regulatory fix that could plug the hole, that could plug the gaps in some of the supplies that we are seeing stemming from russia? sen. cassidy: it could be a regulatory fix as well as regulatory certainty. right now, it is death by 1000 cuts to fossil fuels so why are you going to invest when opec they decide to crash prices and you are left with regulations? my point being that if you could have regulatory certainty, have a little bit of capital injection and commit the federal government, your oilfield

service providers will not leave you hanging bankrupt. then we could rapidly improve and increase production. tom: today it will be big oil that will talk about price gouging but you live it's in donaldsonville, louisiana with cf industries, the largest nitrogen fertilizer company in america. explain how the people in donaldsonville are not price gouging fertilizer. sen. cassidy: natural gas as a feedstock for fertilizer. -- is a feedstock for fertilizer. if your inputs rise, it will increase the cost of the final product. there is the ability to ship. there are other aspects of the logistical supply chain. it costs more to maintain your plans and more for labor because of inflation. that will be because of the gap -- that will be a little bit of a gap.

you could fill up the price were a middle person will buy it and sell it at the market rate but at some point there will be a markup. lisa: amid the concern around gas prices, how concerned or upset will you be if you see oil companies post gangbusters profits in the next earnings season? sen. cassidy: you want to look at the reason for their profits. let me just say that. if they are going to use that profit to turn around and invest in the new fields that we need in order to increase production, that will be a good thing. let me point out about a year ago, people had to sell their oil below zero price. there was no storage. they had to pay people to take their oil. there will always be rises and falls. what you want to see is the capital investment that long-term creates more certainty in terms of the fuel supply.

jonathan: bill cassidy, thank you for being with us. this quarter, we get earnings season for the q1 story on the fourth of may from pioneer of natural resources. lisa: it will be fun. tom: we have seen it all before. can i do a quick correction? i misspoke. i did not even know that al knew the map of michigan. al, thank you for watching "bloomberg surveillance" five days a week. i said fred upton is in the senate when he is from kalamazoo in the house. jonathan: al from new jersey listens, not wash. -- not watched. religiously. this banter. cannot get enough of it. tom: al watches the dow jones industrial average. tom: of 26 basis points --

jonathan: up 26 basis points. heard on radio, seen on tv, this is "bloomberg surveillance."

jonathan: yesterday on repeat with equities down and yields higher. good morning. equities negative by 0.9%. on the nasdaq 100, negative 1.5%. your next up, fed minister. what time? lisa: 2:00 p.m.. i feel like this is equivalent to a press conference. jonathan: it is that big. lisa: it is that big. jonathan: usually that is when i get the call and you are smoking a cigar. how about i read the minutes for you, tom? tom: i wish i could go to sleep with a beverage of my choice. right now, futures -40. with michael collins, he is with

pgim. at nyu, everyone knew the most prestigious math program was if you could survive it, in new york. michael collins survived mathematics at binghamton was a big deal when we were growing up. buried in your mathematical note is the wage worry including what bill dudley saw in the last hour may ebb away. do we see evidence of that yet? michael: we are starting to see the labor market growth flattened and may be rollover. we have seen it in hours worked in the report we got on friday so we have the peak rate of growth in wages, the peak rate of inflation as well.

tom: you are going on calculus like while brainard did yesterday when she talked about the rapid pace of the second derivatives within these markets. how do you actually prosecute management given the rate of change right now? michael: we all know that the markets really focus on second derivatives. it is the change that really matters more than the stock. when it comes to quantitative tightening, people are looking at the balance sheet at $9 trillion so if it goes to a $.5 trillion, but is the big deal? it is a big deal. when the fed embarks on quantitative easing you see a correlation with asset prices going up. while we are contemplating in our shop is when they do quantitative tightening, you get asymmetrical pullback in asset prices or is it more measured as the fed tries to signal that

quantitative tightening is watching paint dry and it is on autopilot and it is not going to be a big impact on the markets. but i worry it will result in tighter financial conditions. lisa: since you walked into the debate of the day, does quantitative tightening calls higher long-term bond yields are lower ones? michael: it is the opposite of whatever buddy thanks. by the time they start the quantitative easing, typically rates have plummeted. you are in a recession. a big risk off and what happens when they start buying bonds, rates go up because what they are trying to do is get inflation higher and it is going to be the exact opposite when they do quantitative tightening. look where rates are. look where inflation expectations are. they are peaking here. by the time they start tightening policy through rate hikes and simultaneous quantitative tightening which we have never seen in our lives,

this quick reversal of monetary policy on so many fronts, i think you will see a peek and rates. lisa: a peek in rates at that time. are you buying 10 year treasuries at this point and saying 2.6 present looks golden over the long-term? michael: we cut duration earlier this year and we were short duration marginally in the u.s. and really in the last week or so we have covered most of that and we are flat duration. there could not be a better entry point. i would love to be in a long-duration at some point over the next few months or few quarters but at this point, we are just waiting for the right entry point and it will come right and it typically comes around the time the fed starts tightening policy aggressively and it really has not started that yet and it will start in earnest really soon. tom: the movable feast which is the terminal yield for the

terminal dot plot has a level. what is the terminal yield right now? michael: it is fascinating to look at what is happening with forward rates, what the market is pricing in. the markets are pricing in a funds rate right now, like a year and a half, course 23 and a quarter. 300 basis points of incremental tights. one year and two years and three years after that the markets are pricing in almost 100 basis price -- 100 basis points of rate cuts. the fed has just started hiking in the markets are pricing in 100 basis points of cuts. tom: i call it the parlor game. it is idiotic. what you just said, what i find fascinating, and this goes to what bill dudley was talking about, is the idea of in a year

and a half, what does the pgim conservative money world do if you get that magnitude of change over 18 months? michael: probably the base case that you are going to have growth slowing. i believe we are at the beginning stages of what will be a significant level of demand from higher inflation and now you are seeing higher rates and tighter financial conditions and mortgage refinancings are plummeting. mortgage rates are plummeting at 5%. housing has become unaffordable for most of the people in this country. that is tighter financial conditions. growth is going to slow. it is just a matter of how much and how fast but certainly in a year from now, we could be in a very different world where the fed is taunting rate hikes and

contemplating cuts. what you do as an investor, you try to take a long-term view knowing that in three or five years the funds rate will be back to zero. it will probably be back to one at some point so you want to take advantage of that, capitalize on that capital gain you can get by being long-duration. lisa: tom, i want to be clear. did you call it the parlor game, idiotic? tom: i was talking to richard timberlake of georgia. timberlake never wrote about this. anna schwartz never wrote about this. lisa: this is unheard of territory and michael, this is what you are picking up on, the idea that at some point the fed will trigger a downturn and you will see growth slow down.

the question is will it be something controlled or will it be a dramatic downturn from a recession sooner than expected? deutsche bank says they expect a recession in the united states in 2023. do you agree? do you think that is looking likely after what the fed has to do to get markets to believe them? michael: i think the probability of a significant global slowdown , and you are already seeing it in europe and china. we got pmi's out of china below 50 today and the u.s. cannot be an island of prosperity so you will see global growth slow. the question is what does the recession look like and i am pretty constructive on this one. if you look at consumer balance, corporate balance sheets and the liquidity they have and the profit margins and the wherewithal to withstand some weakness, this is not going to be a big business or consumer-led attraction. i feel like it will be like 2000 or 2001 where you get a big

correction in asset prices possibly and some pain in the markets but back then you hardly saw consumer spending go down at all and maybe it is that kind of mild recession. jonathan: you are just awesome. i have missed sitting around the table with you. michael collins of pgim. it is an interesting exercise to have with pgim. if i can guarantee you that recession at the end of 2023, what would you do differently today? what would you do differently today in this market? lisa: a lot of people say nothing. they would continue going into risks because they have six months before they have to start going into cash. it is the nature of the recession. it is how quickly it is a downturn, what particular sectors, is it led by the consumer or led by a lack of investment on the corporate side. we don't know. jonathan: you missed one thing that tom said.

is that what you call our team member? tom: that is his name. that is his family nickname. i know that for sure. let's put it in perspective. i thought senator cassady was brilliant. excess profit taxes, 31 years ago, 1939. at that time the dow was at 3000 and life went on. we somehow got through it. jonathan: let's kick off energy. the prime minister of london. he spoke to vladimir putin of russia and urged him to declare a cease-fire and then went on to say this and this sets hungary apart from germany, italy, from the rest of europe. hungary has no problem paying rubles for russian gas and that is from the hungarian prime minister just months ago. tom: it is rubles from hungary they convert to what? it is the ruble price and the mechanism of that trade.

the bond this morning john was a foreign issuance of russia outside of russia and it was dominated from day one. on a commodity product, you could do rubles and you keep some and convert the others. there is a cost. jonathan: this is a political question too. we will catch up with damien sex and jack caffrey of jp morgan asset management. his name is brad. it is just brad. tom: i did not know that. jonathan: futures down 1% on the s&p. honestly. family therapy after the show. looking forward to it. this is bloomberg. ritika: an ex oligarch says that

russia is already at war with the u.s. and western allies and a costly one. the oil mogul told bloomberg that because of sanctions and shipments to ukraine, russia is fighting the west on ukrainian soil. a nationalist russian politician who partied with a key partner of vladimir putin has died. he was 75, the founder of the liberal democratic party and known for his outlandish and sometimes racist tirades. his party was part of the system that gave russians the illusion of choice that back to putin on important matters. the european union foreign policy chief called of sentiment -- called a summit with xi jinping a death dialogue. they did not want to discuss the war ukraine that cost down how

much they will offer. jack bloomed believes they can win approval. they said they would pay for a breakup fee if regulators lost the deal. they will evaluate the offer. frontier reached an agreement. boeing is hauling two cloud computing companies to help with a digital makeover to give airplane designers and software developers more tools. boeing has multi-agreements with amazon, microsoft, and google. the company plans to send hundreds of applications to the cloud. 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 am ritika gupta. this is bloomberg. this is bloomberg.

>> the fed will have to tighten financial conditions enough and

when the fed has done that in the past, it has always resulted in a recession. that is not their intention. their chances are very low. tom: bill dudley, a piercing essay this morning linking the stock market and its level down the road is what the fed will or will not do. we will get that out on twitter for you and his comments were quite something. i want to make note, lisa, help me with the ruble. 80 come out to 130, and now back to 80. it has gone round-trip after the entry of the war in ukraine. lisa: it never happened with the ruble and what kind of market is this? can we call this any market that is effective of where rubles should trade? should there be more international interest? tom: it is a litmus paper. i do not have a stronger opinion other than to say i have been watching russian bonds which has been an ugly morning with questions about how they will be paid in dollars or ruble and to

see one bond move on a dollar base down from 28 to 27, 26 and below that. we migrate forward on the equity markets. kriti: you are seeing a round-trip when it comes to the fixed during the stand of the war. you are seeing the risk appetite that was pulling out. let's get to my chart of shows the vix going back five years. the average handle between 2018 and 2019 was about 15. post-pandemic has gone to 25. to the war, it has gone to as much as 26, 25 and. -- 26, 27. this is markets pricing and the impact of the work. the other piece is when it comes to the equity market, who are the players. my sources tell me that the institutional basis is not there.

this is a function of the retail trade. tom: 23.22 after an 18 handle and the good news of late last week. thank you so much. a meeting with lindsey piegza, chief economist of stifel. tell me about the observation. first i have to get to april 15. what data matters as we try to get to the eyes of april? lindsey: the fed will be focused on inflation. inflation is the driver of the new position and it is inflation that is driving this forward pathway for rate hikes. the fed is telling us that the consensus is for six additional increases potentially coming in 50 basis point increases. that aggressive pathway is driven by inflation so as prices continue to rise, we get

lingering pressures from the supply chain disruption or new upward pressures from the russia-ukraine conflict that will determine the pathway forward for the federal funds rate. tom: in goods and services, what is the distinction in moving from seven to 8.3%? is that a good umph or a service umph? lindsey: i think it is both. the fed is watching the fact that prices are no longer transitory. they are broad-based across every sector and that is sparking fears that we are moving closer to a wage price spiral where prices rise, pushing prices higher, etc. the fed is focused on cap a inflation, c --apping -- capping inflation and eventually moving on to an outright decline in price growth toward that to present -- 2% target for the

fed. lisa: do you think people are underestimating or overestimating the strength of the consumer? lindsey: i think people are overestimating the strength of the consumer. we hear about the consumer and the economy being strong. the economy is not overheating. the economy is not strong. the economy is moderate and arguably poised to already slow and we are still struggling to grow organic legs in the aftermath of the pandemic. consumers are still relying on accumulating savings as a result of very generous federal programs, as a result of a shift in spending patterns from pre-pandemic to post-pandemic, and on an additional check in mailboxes for the enhanced child tax credit. there were a number of factors that build up the wealth and that continues to support consumers for now but it will

not support consumers indefinitely. lisa: that is where i was going to go, the time frame. how long is it going to take before that weakness starts to present itself in earnings and other economic data? lindsey: we are already seeing the weakness. if you look at fourth-quarter gpd near 7%, when you strip out inventories and look at final sales, you are talking about 1.5% and q1 gdp shaping up to be a significant disappointment below 2%. we are already seeing that weakness. the bigger question is when do we see that translate into a negative gdp. i think we will continue to float around positive territory for the next six to nine months by getting that first outright negative print by the first quarter of next year. tom: you are looking for a negative print on real gdp by the first quarter of 2023? lindsey: that's correct. i think at that point the fed will have raised rates enough to choke off the growth. will we see a technical recession? that is a question for whether

or not the fed can identify the weakness and pullback after rate increases. if they continue to move forward, i think we go into technical recession. if they pullback, we may be able to navigate not necessarily a soft landing, but a very brief dip into negative territory. tom: there you are, two days in a row. dr. piegza, thank you so much. i was shocked by the word transitory. i wax poetic. transitory, oh transitory. remember when transitory was everything? that was ages ago. lisa: we dropped the word and we dropped the concept.

after dropping the word, people clung to the concept that we would see these base effects and new inflationary pressures in the form of what we are seeing from ukraine and the discretion -- destruction in the exports of oil and gas. at what point do we get to a place where we are crisis-free? tom: the only base effect that matters is from electro harmonics. they have a compressor to die for. it has opto feel. it is base effects. electro harmonics of long island, they just kill with this. they own it. lisa: i am looking at bonds on the 10 year yield. i love your guitar stories. i just cannot really add much to it. i think the move in bond yields has been dramatic. tom, will it get worse or better after the meeting minutes that

you are not going to read? tom: i think the minutes of the meeting -- some of us and several of us will drive forward this story. stay with those on radio and television. this is bloomberg. back to you in minutes.

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jonathan: finds down, yields are up. the contents of the open starts

now. >> everything you need to get started. this is bloomberg the open with jonathan ferro. jonathan: we begin with the big issue. >> the five and the 10 year are starting to respond. >> this is the markets readjusting to a much faster pace. >> reiterating the fact that they want to move very quickly. >> they are trying to maintain inflation credibility. >> removal, they into that phase.