>> this is a new macro regime. the risk premium has to go up everywhere when you see these types of moves. >> we don't see a soft landing is the most likely outcome. >> this cannot go on forever with food inflation and gas inflation where is. >> the dollar has been the key where people hide when things go wrong. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. tom: a most eventful friday,

getting set for may. six days until that fed meeting. jonathan: looking forward to it. we all expect a 50 basis point move from the federal reserve and then maybe another 50? what happens after summer, what happens when we get to what they think is neutral? tom: i didn't get to it with one of our guests this morning, but we will do it now. how hard do we focus on july 27, september 21, november 2? by november 2, sterling will be at parity. jonathan: i have no idea where it will be by the end of the year. when the numbers come out from apple, amazon, the numbers look decent from apple. then make it this fluffy guidance about what will happen in q3. not great. tom: lisa, help us out. the fluffy guide is the mystery

of china. lisa: it is broad-based and significant in terms of worry. when you talk about looking out into the future, there were 200 missions of recessions so far in earnings calls. even though we were talking about sustained momentum right now in the consumer. tom: let's go back to may 4, the press conference, big deal, let's assume it is 50 basis points and that. chairman powell cannot do the fluffy guide in that press conference. jonathan: i think people try. most of wall street is on board with the idea that we get another 50 basis point hike after that. deeper into summer, a series of year-over-year inflation prints should be decelerating. i wonder how they internalize that, respond to it. the ultimate question is whether they are willing to accept a

longer period of above target inflation. they are not going to tell you that, but how they behave will be suggestive of what their will to tolerate for the rest of the year. tom: philip lane did not want to go there in the last hour. we will get into this with katrina dudley. this idea of central bankers accepting 3%, inflation metrics? i'm not there yet. jonathan: the ecb right now has a tougher job than the federal reserve. tom: 120 oil is a different world. we are at 109.35. jonathan: watch the second round effects, watch what happens in germany. it is easy to say from a policy perspective that you can strip out energy and food. when you get to wage negotiations and they start to go to 8% over a series of years,

that is how this becomes embedded. tom: i'm going to do the real yield right now. 10-year real yield, -- jonathan: euro-dollar doing something or it has not done in a week. 105.47. we have a stronger year on the back of inflation. tom: joining us right now in studio, katrina dudley, research analyst at franklin mutual. wonderful to have you here. how do you take the technology boom that you were expert on and fold that over into macro strategy right now katrina: we were just talking about the

valuation of technology companies, looking at the sustainability of the cash flows, business model, and now the sum of the parts on amazon. you just talked about aws and valuing that as a almost trillion dollar company. we are getting some of these parts for free. amazon is just a great microcosm of what's happening in the global economy in terms of the cost pressures, the need to serve the customers. tom: our viewers are buffeted with this war, pandemic. huge disclosure, the reporting that we have is really challenging this friday. how do we use your macro strategy to maintain confidence to participate in the markets? katrina: i think you need to think about the markets as being like an escalator. there are bumps along the way but it is going up over time,

and it is one of the best protections against inflation. from that perspective, to the person on the street, taking advantage of these opportunities makes so much sense. tom: this is so important. katrina has never taken the escalator that you took at macy's. that wouldn't escalator -- wooden escalator. it is a threat to children. lisa: the fear of that buyers of strike that we are hearing about in tech appears to be pervasive. how do you balance out the downside risk at a time when bonds and stocks have been selling off in tandem and may well continue to do so? katrina: in terms of balancing risk, you make a good point. if you look over time, the equity markets are where you can cover your inflation.

what is the covering inflation mechanism? it is pricing. when we are looking at these pricing conversations, we are going back to fundamentals, saying what is the pricing power of this franchise? pricing power is a balance and we are starting to see those conversations. you need to put in enough pricing to cover your costs but not too much or you will see demand destruction, or as we heard yesterday from mcdonald's, the trading down into lower-priced products. there is a balance going on in corporate america that needs to continue. i think there are so many different companies and franchises out there that we like, that are strong, and if you are a stock picker, this is the time where it really starts to shine. sometimes you need to take off that macro hat and dig into the weeds and look for names that make sense with that pricing umbrella. lisa: how much pricing power

does big oil have? katrina: they are a commoditized market, so absolutely none. at the moment it is like 1999 for them. everything is doing just great, no one is talking about taking away that proverbial punch bowl. if you look at it, companies are being extraordinarily shareholder friendly. instead of taking these excess returns and going out and exploring for more oil, they are returning you to shareholders. i think we really had a regime shift here, and that change is really good for shareholders. tom: this guy from perth, australia emails in saying she is from australia? every parent watching this has a kid going, just shut up and go to bond university. tell us about your bond university in australia, which

is one of the great academic successes in the last 40 years. katrina: it is australia's first real venture into private universities. most of our universities are public, this one was established by alan bond. i was -- we do three semesters a year. jonathan: this richard guy said let's build a school, ivy league like, and it actually worked out? katrina: it did. having those three semesters gives people the flexibility of taking a semester off without disrupting their academic career. when you can do that, you can go do those internships -- tom: come on. what that means is you can go out with the veronicas on tour. jonathan: you are missing the punchline. how long did it take for you to get your degree? katrina: three years. jonathan: the four-year degree

in the u.s. is a total waste of money. katrina: we actually teach young girls about how to evaluate the cost of a college education here in the united states. we get them to look at salary data for the jobs they want, and then we have them evaluate different options. tom: let's get you on the same page. from england, from australia, you look at the american education machine as one big scam? katrina: i think jonathan is. tom: what i'm suggesting -- jonathan: what i'm suggesting is you can see how they could reduce four years down to three, and save everyone an extra year of tuition. katrina: i hear what you are saying, but in england and australia, you specialize much earlier, in high school. i chose a business degree in ninth grade, that is when i started taking accounting courses.

americans don't do that. if you want to take that year off, you also need to implement some type of reform in the high school process. however, offsetting that, you have produced some excellent schools and excellent graduates that have a very general perspective, general view on the world. tom: she is finessing. jonathan: katrina, thank you. katrina dudley of franklin mutual. you have to stop calling people from australia qantas. his name is brad. future down 1% on the s&p. nasdaq, down 1.3%. the hate mail from colleges around america coming in right now. this is bloomberg. ♪

lisa: news from around the world, with the first word, i'm lisa matteo. chinese coming is party leadership has ignited a market rally. a statement said that authorities should keep it taught me running with a regional range. it also promised -- that was in line with estimates. the new numbers will raise pressure on the european central bank to end the crisis area stimulus and raise interest rates. the central bank in russia cut interest rates more than forecast and indicated that borrowing cost may fall even lower. the bank of russia lowered its benchmark rate from 7% to 14. policymakers also more the country may face a deep two-year

recession in the wake of the invasion of ukraine and sanctions. chevron posted the highest on the lake -- quarterly earnings in a decade. that led to higher prices for everything on natural gas to diesel. exxon posted earnings that missed estimates. the company took a $3.4 billion charge related to its russian operation. still, exxon will boost its share buyback to $30 billion by next year. 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.

>> this brutal war of aggression being committed by russia against ukraine has brought into sharp focus the power and purpose of american diplomacy. our diplomacy is railing allies and partners around the world to join us in supporting ukraine militarily, economically, and with humanitarian assistance. jonathan: that was u.s. secretary of state antony blinken. this is bloomberg surveillance. the nasdaq 100 down.

disappointing guidance from apple. yields are higher by three basis points. in about 12 minutes, we will have the employment cost index in america. tom: as wages and benefits conflict, that is the number. you wonder within the inflation debate, what we have heard a couple of weeks ago from jan hot cs at goldman sachs, this heated statement of full employment of employable america. you have to wonder is that the surprise of may and june, legit wage inflation? jonathan: here is the city take. they say it is the most important data point this week, the employment cost index. we project 1.2% quarter on quarter. a surprise would not change plans to hike 50 basis points in may, but could affect down the line. there call is four 50 basis

point hikes one after the other. tom: we will do that next week particularly with our coverage may 4. right now we digress, as all of washington does, a small soiree on saturday that launches the summer in washington. we thought we would catch up with terry haines. in the old days, there was no air-conditioning and everybody left. now there is air-conditioning. how frigid is washington, d.c. going to be the summer? terry: good morning. it will be as frigid as it ever is. but there will be a lot of hot air that will move things around. you have an awful lot of things in train here. continued covid spending going on, increased ukraine spending,

the whole kerfuffle about whether to forgive student loans and the like, you still have the build back better thing hanging out there. a lot of things will continue to heat washington up, but no doubt, life is better here with air-conditioning. tom: there are things that we can discern from democratic discussion. what can the republicans look like? i cannot get a handle on how many pieces of the gop there are. how many are there? terry: my usual advice to folks is that you don't look at two political parties in washington, you look at four factions. conservative republicans, centrist republicans, centrist democrats, progressive democrats.

we get progress usually when the central sides on each party come together, annual spending and the like. when we don't get a meeting of the minds in the middle, we usually don't get policy. that is not a bad rule of thumb. lisa: yesterday we heard from janet yellen as well as president biden on the line they are using going ahead with inflation, calling the gdp print "technical." and then janet yellen, a full throated support of what we got from the stimulus package, saying that is not the reason for any negativity. are they going about this the right way or are they foundering ahead of the midterm election? terry: they are grasping on anything they can order to make the case. secretary yellen is one of the only people saying those things, as you all know better than i, the consensus is completely in the other direction. the president has been doing

everything possible to deflect blame upon his own administration, but that is not playing in public, will not play in public. some pr moves are not going to cut it. compare those statements to what happened yesterday with an economic contraction. for whatever reason, that contraction, how resuming the economy is, etc. people only hear "contraction," and that is a political gift to the other side. lisa: and when they see gas prices going up. we are getting earnings from a number of the big oil companies today. i wonder what the trajectory will be for the democrats and how that will play with a public who don't buy that it is price gouging? terry: there is a great misunderstanding about why the

price at the pump is the price of the pump. that's been going on for a very long time, going back to the oil embargoes of the 1970's. katrina mentioned this, too. it is vastly more commoditized. number two, people understand, a year and a half ago, prices were not what they are. the party in power gets the blame. george w. bush got a great deal of blame when prices went up greatly in 2008. this president will get a great deal of blame for gas price increases, whether he deserves them or not. underpinning all of that you have an awful lot of spending going on between the covid run out's over the next several years which will amount to actually dollars, continued support for ukraine, student loan forgiveness which is going to cost about $320 billion

should they do it at the $10,000 level. there are a lot of reasons why this stuff will be sticky and politically sticky on the current administration. jonathan: terry haines, always good to catch up. this is the issue for this administration. conversations on programs like this, we can pick up gdp that was really good. the print from yesterday in the first quarter was not bad. the problem is that nuance does not play well on the front pages of the newspapers. you have negative growth for q1 together with 8.5% inflation. for the administration, rightly or wrongly, people will say what can you do? it is just deeply uncomfortable for them to say anything. tom: i have trouble with rationalizing away the backend of the gdp equation trade. trade and inventories stuck out.

michael mckee knows better than me. but the bottom line is that people that ignore trade ignore it at their peril. jonathan: back to the conversation in just a moment. we will have the eci in america. michael mckee in studio.

jonathan: we have a little bit of data in the united states. your last thought before the federal reserve meeting next week. to break the data down, we can cross over to mike mckee. mike: good morning. the numbers have not crossed yet. the numbers we are watching, i'm watching, is the employment cost index which actually goes up 1.4%. the forecast was for 1.1. last month was 1.0. the question is, and we will have to get the latest details on this -- it has not loaded yet. the point is, that is what caught jay powell's attention. big jump in third-quarter numbers.

the federal reserve he decided should move to raise interest rates. personal income is up half a percent, better than forecast. personal spending numbers, 1.1 percent, significantly better than forecast, 0.6. personal spending was 0.2% in february. the important thing to remember, these are backward looking numbers, already in the first quarter gdp numbers, but they suggest we saw a pickup in spending over the last month of the first quarter, after the covid squeeze in january and february. data deflator numbers, pce, the fed's favorite inflation index, up .9% month over month, much

higher than the .5% we saw in february. year-over-year basis up 6.6%, higher than the 6.3% for february, but lower than the 6.7% wall street was expecting. core up .3, matching last month. core year-over-year, 5.3%, lower than the -- 5.2%, lower than the 5.3% we saw in february, was expected. the story here is the diversions we are starting to see between headline and core inflation. headline driven by food and energy. core not rising as much. this is playing out as the fed expected. but as you were saying before we went to the break, it is hard to put all of that into a newspaper headline. jonathan: as soon as that employment cost index dropped, this market shifted to the front end of the yield curve.

go back one week, the high of the year was 2.78. still off of that, but we readjust in a material way, up 11 basis points. tom: mike mckee, before we get to tom porcelli, i want to talk about eci. the spike that we have seen in measuring wages and benefits. the bottom line is it is a spike. that is what we have. is the eci spike the same as an inflation spike, whether it is german or u.s. inflation? mike: in theory it would play into a wage price spiral. workers would say i need more money. we don't know if companies are still paying up to attract workers back in or if we are getting some second-round effects. wages and salaries went up 4.7%

in the first quarter, according to the eci. it was 4.5% in the fourth quarter, and that had gotten jay powell's attention. 4.7% does it suggest good news, nothing slowing down about wages. tom: perfect to get to tom porcelli, expert in wage dynamics. you are the best guy to talk to about this right now. is it a wage spiral? tom: i am sympathetic to everyone looking at eci because powell mentioned it, but it is a quarterly number. we have a new month, we have marched in hand, april soon enough. if you are looking at wages and salaries, month on month, continuing to slow. make no mistake, we are looking at high run rates, but at the end of the day -- everyone wants this so fast.

they want to wake up one day and inflation back to 2%. this is not how it works. there are a couple of interesting shifts happening right now. one of them is wages and salaries are slowing down on a month on month basis. i saw the beige book from last week, i thought that was interesting. there was this commentary embedded throughout. looking at the comment here. a few firms noted that they are reevaluating their employment level and may be ready for some attrition to reduce staff size. comments like that are embedded throughout the beige book. i want to be clear, we will not wake up one day and everything will be different, but we have to look at these signs of how things are starting to shift. jonathan: you know what this means for markets, the reason people care is because chairman powell told us he cares. this is about the reaction function for the fed.

how do you anticipate this data will develop? mechanical peak developing in ppi in america, may already have seen it. how do you think the fed will internalize that data and react to it? tom: this is the question that we talked about the other day. the idea that the fed will need to quantify to some extent. think about what they did last year. last year was all about getting to maximum employment. forget about inflation. it was a bee line to get to maximum employment. we have seen how that works out when you have your blinders on and only focused on a single side of the mandate. the question today is are the only going to focus on getting back to target inflation? i think you all know this, you are speaking to somebody who thinks that inflation will slow down as the year progresses.

but if this is a march to target, you will blow through 350. you won't get to target until well into next year, from a core perspective. i think the fed needs to define what they would feel comfortable with from an inflation perspective. if it is target, you'll be meaningfully higher than neutral and you will cause a recession. lisa: where do you think they should be comfortable with inflation coming down to? tom: it really is about the movement of inflation. if, by the end of the year, you are holding a three handle on core inflation, i would say you are in a good spot. it's about the movement of where we are going, the narrative in place at the time. easy to say right now that inflation will be at 8%, because that is all the people see. as the year progresses, the tone on that will be different.

as the year progresses, the tone on spending will be different. if you look at the lower end consumer, the fourth and fifth income quintiles, they don't have the ability to overspend, which is what happened last year. the data is clear on that. i was listening to you earlier. i think tom was completely spot on. i think yesterday's gdp number is fascinating. that is a really interesting report, has nothing to do with the fact that the consumer held in. i think it has everything to do with trade and inventories. this feeds into our story so nicely. i think it's really interesting that the inventory builds have been staggering over the last couple quarters, absolutely staggering. subtracted from growth yesterday but only because of the delta, the build was less than what we saw last quarter.

but the last two quarters we have seen an enormous amount of build. think about in the context of the other thing subtracting from growth, trade. we have -- the annual run rate is 18% over the last two quarters. this is amazing. what is happening is, we are building all of this inventory, at the same time that the consumer is transitioning from good spending to services spending. what do you think will happen to goods prices in that context? they will fall pretty sharply. lisa: i know that your view is that the fed should not go too quickly and force a recession. what would you have to see in the data that would make you change your mind about the momentum that the fed has to curtail? tom: if we are wrong, if inflation remains elevated, that the fed should engineer recession, should get aggressive and talk this thing down.

i've said this many times before on the program. i think a little bit of patience and making sure you are noting both sides of the mandate will get you to a pretty reasonable place. we don't have to generate a recession. i don't think we will have to if inflation slows down, but if it doesn't, we may have to. jonathan: do you think the pivot was more about securing a second term and not the eci? tom: no, i don't think so. i don't pretend to know jay powell in any meaningful way but i don't think that was driving it. jonathan: just inquiring minds. tom porcelli. tom: you are a conspiracy theorist. jonathan: big conversation with mohamed el-erian of bloomberg opinion. we will get his view on the latest economic data, the latest earnings, what it means for the

markets and central banks. after that, the view from the white house. tom: a more important conversation that it was 24 hours ago. he has to massage a negative gdp statistic wrapped around, as tom porcelli suggested, two of the five quintiles flat on their back. jonathan: uncomfortable moment to explain. negative growth and inflation at multi-decade highs. amazon, the big loser on the day. on tv and radio, this is bloomberg surveillance. ♪ lisa: keeping you up to date with news from around the world, i'm lisa mateo. let's get to first word news. president biden has broad support from congress for a

massive $33 billion ukraine aid package. lawmakers could finish work by may 9, but if democrats assist on attaching funding for coronavirus vaccinations and treatments to the package, action could be delayed indefinitely. officials in china are defending the covid zero strategy as the best way to fight the pandemic. they say the outbreak is coming under control with cases in shanghai showing signs of turning around. the lockdowns have been criticized for existing -- exacting heavy social costs. potential money laundering case at deutsche bank. the prosecutor's office says it relates to trades made by the bank. cathie wood's ark innovation fund is heading for its worst month. the etf is down 26%. the fund has declined almost 70% from its all-time high last year. key holdings like zoom and

teladoc tumbled from there pandemic records. the fracking boom is turning texas into the earthquake capital of the u.s. west texas is on track to overtake california and alaska with a number of earthquakes measuring 3.0 or higher. there is little doubt there is a link between the drilling in the jump in seismic activity. even industry insiders acknowledge that. 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. i'm lisa mateo. this is bloomberg. ♪

>> that that needs to get to about 3.5% on the fed funds rate.

if inflation is to cure that we anticipate or supply-side shocks, it's possible that that needs to be more aggressive than that. if you look at how the economy is from the labor market, we don't see a soft landing as the most likely outcome. tom: updating the recession call for deutsche bank. i'm sure over the weekend they will do a reanalysis. lisa and i will be diving into the weekend notes, jp morgan starting with their prospects this friday evening. right now, in his wheelhouse -- and i want to stop for a moment, with a host of "masters in business." chief investment officer at rit holds wealth management. barry ritholtz is a wonderful sense of finance and investment, but his absolute wheelhouse -- i first met him at some public event. i think nixon was president,

i can't remember. but you were talking about trusting the process. he has written a memo in these to mulch was times on the process, it is the heart of ritholtz 101. you are dead on. i looked at the main note from hindsight capital. what is the process over at hindsight capital? barry: so, this is a concept that our bloomberg calling john authers started in 2008 when he was at the financial times, talks about how successful we all are when we know what already happens. unfortunately, investing is a forward-looking prop -- process, not a backward looking process. my favorite thing going on right now, you have volatility, the market down 10%, hotter sectors

like tech down 20%. right now, everybody becomes an expert on what you should have done six months ago. that is not how investing works. tom: i look, barry, at how investing works, but we have to recalibrate out of this, of amazon and apple, their struggles with supply chain and all the rest. do you ignore that noise or is that a part of the analysis at ritholtz's hindsight capital? barry: "ignore" is the wrong word. you have to put it into context and understand the long-term. there are two moments that challenge long-term, long-only investors. that is when they buy stocks and when they hold stocks. when you are buying something, whether an index or specific company, you are full of hope,

wishing for the best, you sort of strap yourself in and get ready for the ride. that is actually the easier part. the harder part is when we go through these drawdowns, which by the way, our normal. they are a feature of markets, not a bug. 2020-2021, we didn't get a drawdown, that is the abnormal situation. the reason we make money in equities, the reason stocks are such an attractive asset class, they are hard to hold onto through these moments. if you can put your behavior under control, put your emotions in a box, the less you do during these times the better off you are. lisa: definitely that luxury for a lot of people that have money in the market, perhaps not looking to put extra money to work. but there are a lot of people, as they get bigger bonuses, trying to figure out, do i enter now or wait?

is the idea that you keep going, do what you want to do, if you are looking with hindsight capital, is this a good moment to go into the nasdaq after a more than 20% drawdown? barry: i will give you a two part answer, first a broad academic answer, and then we will drill down. the broad academic answer is two out of three times, 55% of the time, you are better putting the dollars to work right away then you are dollar cost averaging. you get a windfall, inheritance, bonus, whatever that lump sum is, you win the lottery, putting it in immediately is a higher return strategy than dca over time. the reason is most of the time markets tend to go up, and when they go down, they tend to be shorter, sharper corrections that we see under normal circumstances.

that is the academic research and theory. specifically, when looking at individual companies, go back to the post .com collapse. a lot of the companies that collapse were spectacular guys like amazon and apple, but lots of companies that collapsed, forget about returning to their all-time highs, they never got appreciably above those post-collapse lows. when you are not buying a broad asset class, when you are buying specific companies, you are making a bit on that specific company and not mean reversion. buying the q's down 50% is a mean reversion bit. but a specific company, are they aig or lehman? you don't know. tom: look forward to your report on hindsight capital in june. barry ritholtz. lisa, we have to look at the two year yield which resets. the ugliness of x number of days

ago, yield gets better, boom, 12 basis points. 2.74% on the jay powell note. lisa: getting to those post-2018 highs again. jay powell cannot look at that eci coming at the hottest in data going back to 1995 and say, maybe we should take it slow and be patient. you are seeing this spread out throughout markets. i wonder how they will dovetail both the gdp, which had some concern in it, as well as this employment cost index. i do wonder how they are going to message some sort of certainty amid uncertainty. tom: the message is just do something, just do something timed to an election year. there is a political debate which is important, but also, frankly, the market debate,

which i believe has been tested in april, lisa? lisa: fair to say. worst month ever for global bonds, definitely a painful month for the nasdaq. i also want to point to amazon ahead of the open extending losses, down more than 10% now. shocking how big of a waiting this is in the index. it is a tale of two different techs. this will be more consumer discretionary perhaps. how is that treated in an era where there is a bit of a slowdown that we are not seeing with the consumer? tom: setting up for the weekend, important to understand that we will be buried in readings all weekend. clearly after the uproar yesterday, a mandate for a triple viewing of "caddyshack," "animal house," and "stripes." lisa: that says lots of tang and

more. tom: i am like the grandson of tedd knight, just going from drink to drink at the country club. jason furman at 12 noon. good morning.

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to the world of business, balance of power with david westin, insight from about power players. this is bloomberg. >> tina for big week. good morning, good morning. 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: live from your city, we begin with a big issue, wrapping up the big week. >> it's a critical week. >> we've been on a roller coaster ride. >> earnings have been quite strong. >> what's not come in strong's forward guidance. >> instead a great backdrop. >> companies are reluctant to push guidance. >> we are seeing the big diversions between some of the winners and losers. >> there is a sense that there could be some demand obstruction. >> companies are bottomed out. >> some of the pins addition a -- positioning is negative.