>> welcome to " bloomberg markets." kriti: more than halfway through the trading session, you are seeing red on the screen, down .8% on the s&p 500. the tech trade dragging down the entire s&p. a lot of news is in the 10-year yield which hit 3% but does not stay above it. sustainability is the question ahead of the fomc meeting. it is not just inflation. it is underlying growth. copper down on global growth fears. jon: certainly, investors feeling unsettled. we saw that in the underperformance for technology last month. as we go through the trading day again, we are seeing cautiousness with respect to amazon down another 3% after its worst day last week since 2006. we are continuing to roll

through earnings out of the technology sector this week. ahead of those numbers, we are seeing selloff pressure in those names. kriti: let's get to a big conversation. mark loewen spoke with erik schatzker earlier today at the milken global conference. listen to what he had to say. >> the key point i was making is everything you believe prior to 2008 no longer exists. jon: for more on the markets today, let's get more insight and analysis from michael regan. i guess we should start with the significance of the 10-year yield getting to the 3% threshold. we have had past conversations around how stock market investors would feel about it. we have already been feeling that for several months in the equity market. what is your take on what is going on?

>> i think that is true. i also think there is something to be said about when the 10-year yield is rising. the notion there is no flight to safety that will push money into bonds and bring yields back down is alarming for equity investors to digest because it means, what is the ceiling on rates? we don't know what would motivate people to come in and buy the bonds and bring rates down. there was a lot of hopes and speculation that friday marked the bottom of the selloff. whenever you see a huge drop like that, 3.6% on the s&p 500, and it took it back down to just above the intraday low in february around 4114, that looked to some people like capitulation bottom where we would rebound off of that.

today, we are seeing the s&p below the low of february. it set a new closing low on friday, but also below the intraday low today. that is raising concern that the friday drop was not capitulation. you can see on the chart the circles showing where the previous low was in february. selling stopped just short of or above that on friday. now we are back below it. if there was support at the february low, it does not seem strong. now the question is, what will stop the selling after this? maybe a little relief when we get some guidance from the fed on wednesday. right now, is calling into question how much further the selloff has to go and if there is support to stop the bleeding. kriti: you are pointing out the technicals. such a key point of whether

people decide to hop back into the market. the other is valuations. valuations perhaps don't matter when it comes to big tech, the idea that it is a haven and defensive play. i'm curious about valuations now which are back to pre-pandemic levels when it comes to this sector. does that even matter? >> they matter to the point that in order to have valuation expansion pick back up in the market and have them go higher rather than lower, you need to see that inflation story come into check and at least stop accelerating and get back to normal levels. i go back to the rule of 20 which says a fairly valued s&p is p/e plus the rate of inflation gets you to 20. with the p/e still above 20 and inflation at 8.5%, there is still a lot of mean reversion to

go that would repress valuations to get back to what people would consider a normal valuation for the index. we either need inflation to come down quickly or for valuations to compress through earnings growth or further correction. for now, it looks like the price of things will cause the mean reversion to happen. kriti: mike regan, thank you so much as always. let's go to the milken institute global conference where we are hearing from ken griffin with erik schatzker. >> that has terrifying possibilities. uncertainty is at an all-time high post financial crisis. the nature of the issues are the ones few of us have had to grapple with. the cold war we gave up as being part of history with the following the berlin wall and the fall of the soviet union.

we are now in a cold war with russia. let's think carefully about how to pick our words with china. things are at best at a point of détente but at a very fragile point in the history of relations between the united states and china. >> if we are perhaps at the greatest uncertainty since the early days of the financial crisis and perhaps the whole financial crisis itself, do you see that uncertainty resolving? or do you see more uncertainty in the months and years ahead? >> i think the next couple of months will be incredibly telling. we will find out the inflation story as it plays out through q2, q3, q4. expectations are that inflation will fall to an annualized rate roughly 4% by q4 which will give

the fed more latitude in policy. the war in ukraine appears to be at a point of stalemate at this point in time. the question is, how do you create an off-ramp for russia? how do you give putin a face-saving way to de-escalate this unfolding human tragedy in europe? and then, of course, we take it for granted that the pandemic has come and gone, but it has not. the good news is the ability for the mrna vaccines to be rapidly advanced does give us a safety net to a significant degree against further mutations in the virus. >> i framed my question to you in terms of the way most investors feel. they find it challenging. many of them are losing money in

their equity portfolios, fixed income portfolios. everything feels like it is correlating to one. it is investing harder for you and your colleagues at citadel? >> the model we think about is when the pie is getting bigger, that would be a good time for everybody in the world of finance. there is more money to go around. these are trying times because the pie is getting smaller.

equity, in a world with a shrinking pie. we have had difficult days over the last four months as the pie has gotten smaller. i would say that for all investors, these are really trying times. 10-year bond today, 3% yield. nasdaq had its worst month last month in over a decade, down eight percent and change. it is a really tough time for people to deploy capital. >> when you say you've had a few difficult days the past few months, what is a difficult day for you and citadel and citadel securities? >> for us, your difficult day is when you miss a significant opportunity or you are on the wrong side of a significant event. we have had plenty of opportunities to do both over the first four months of this year. the good news for us is there have been enough dislocations that we have been able to generate revenues that are far in excess of our losses. but these are trying times for all managers. it is difficult to deploy capital when the pie is shrinking every day. >> i want to point out something you probably cannot, which is that, all that being said, you are doing just fine. there were some numbers that came out today that some in the audience may have seen. citadel's wellington hedge fund is up 7.5% over april. it is up almost 13% year to

date. all five of your strategies are making money. i can understand given what we have seen in commodities that commodities might be strong. citadel has tremendous strength in quant. but the equity market is getting butchered. how are you able to perform consistently well? >> the key is how much you carry. we have carried the minimus -- de minimis. we believe owning outright mom is likely to be a punishing experience. there are incredible moves and evaluations of countless companies. if you are on the right side or quick to react to information, you can nimbly generate trading revenues in an environment like this. >> we began by talking about

what things feel like now. i want to know a little bit more about how you see things evolving. when i say things, i mean some of the stuff we have already talked about with inflation and interest rates, but also credit spreads and asset valuations. how do you see that changing over the next three years? >> there are two significant elephants in the room in the united states. the first is going to be the inflation story. that story is backdrop by a much bigger question which is, what has happened to our labor markets? there are still fewer americans working today than before the pandemic. we are millions and millions of jobs below trend growth in labor. although we have hired 8 million americans into the workforce over the last year and change,

bringing unemployment down from 6% to 3.6%, there's 11 million jobs open. in fact, there's almost two jobs open for every single person who nominally could be employed. bad is going to create a tremendous amount of wage -- that is going to create a tremendous amount of wage inflation as employers fight to bring talent in. that is a big problem in the u.s. economy. the second question is, where did these people go that left the workforce? there's a whole series of theories about why people left the workforce. the one that worries me the most is people in their 50's who decided to retire early. that is predicated on their family net worth. that is a frightening proposition because there is a material correction and asset values, you have left the workforce in the prime of your career with a nest egg that

might be disintegrating. i worry about that part of the exodus from the workforce because they may be surprised on the impact of their standard of living given the longevity ahead of them and the challenges ahead of us in financial markets. just to emphasize again, we are still low pre-pandemic employment levels with 11 million jobs open and only three .6% unemployment rate. the fed has got to think about how they cooled the demand for labor. that involves raising rates. right now, everybody knows the fed is behind on that front. part of this has been the hope that this very high growth in the economy would pull people back into the workforce. that is not happening very quickly. that is a real problem. >> to have clearly given this some thought. why do you think that is? the government is not writing

checks anymore. >> there is a theory that the significant transfers of wealth of households, remember, the united states broad enough money during the pandemic to fund a world war. the u.s. debt to gdp is at all-time highs in our lifetime. we put ourselves in a precarious position as a country having absorbed so much debt in the way of transfer patients to -- payments to households. some believe as households work down the level of savings, and savings are running about $2 trillion above where one would expect them to be, that as though savings work down, we will see people return to the workforce. that is one of the great questions we are facing. >> speaking up questions, you raised the question yourself, have inflation expectations become untoward -- unmoored? you just addressed one potential

source of further inflation which is wage pressure. there are other sources of inflation. you need only drive around los angeles to see gas selling for $6.50 a gallon. that is a problem. it sounds to me like the wage pressure part of it is yet to play out in your mind. what about the energy side of it? >> the energy side is a disaster for the west. >> a disaster? >> a disaster. if you look at the united states and europe, the dependency europe house on gas from russia means that as we are sending literally billions of dollars in aid to ukrainians, the europeans are sending billions of dollars of money to the russians a week procuring energy. >> less and less. >> not much less.

not much less. europe imports about -- about 40% of european natural gas comes from russia. objectively, they have no way to end that reliance over the next 12 to 24 months unless they embrace incredibly radical proposals that they have yet to do so. the price of natural gas in europe is a multiple several times the price in north america. north american gas prices our recent -- are reaching recent highs because of the demand for lng going to europe to help solve their challenge with sourcing supplies from russia. big picture, the west embraced the fight against climate change in such a profound way that we have grossly underinvested in fossil fuels.

as such, was a shock to the fossil fuel system like we are seeing today with the war in ukraine, we don't have the energy resources in north america and europe to solve the collective needs of the west. so, we have a price shock. you see it at the gas pump. the problem is that for the average american, gas prices are one of the great formation points of the mental model of where inflation is. you see it every day as you drive down the street. gas and food prices are two price areas with a lot of volatility but with very high visibility. they have an undue impact on people's perception of how much inflation there is. >> why do these things matter to you? i ask this question sincerely because there are people watching who might say to themselves, ken clearly is going

to be fine. the people who work for him are going to be fine. citadel is proving itself capable of making money on the hedge fund side and securities aside, in markets good and bad. why does this matter to you? >> which dimension? i have three children who have been born in what has been in my lifetime the greatest country in the world to be born in. i would like to believe the american dream that i have lived and my colleagues have lived continues to be open to all americans. that is deeply and profoundly important to me. i care deeply about that. what frustrates me right now is that a series of shortsighted policy decisions in the united states and in europe, and in particular the german dependence on russian gas, are further undermining the possibility of that dream being realized by

hundreds of millions of people in the last. -- in the west. i firmly believe a nation rich in intellectual capital and financial capital is a nation that can solve any problem. but our challenges in educating children that played out through the pandemic, the continued challenges with teachers unions and the quality of k-12 education, and the exorbitant price of college have put the intellectual capital of america at risk. combine that with the amount of money we will spend on energy, that takes financial resources away from solving our problems, including solving problems like how you get to a greener future, how you deal with chronic disease. to me, these are existential problems we are facing in the west that we are not addressing through thoughtful policy measures. >> historically, governments have been able to pull a

combination of three levers to revive an economy out of a slump. the economy is clearly not in a slump right now, but it may end up in a slump or recession. those three levers are monetary stimulus, fiscal policy, and taxes. it puts enormous pressure on the federal reserve to manage the situation and get it right. the last time you and i talked about the fed back in october in chicago, you gave chairman powell the vote of confidence. do you still have as much confidence that this fed, i should add that back then, inflation was real but more subdued, do you have confidence this fed is willing to tighten policy fast enough to retake control of the inflationary expectations that may be in doubt? >> i'm going to argue about the premise of the question.

there are two other dimensions that are important to the longevity of our economic growth. one is our regulatory policy. how much do we burden companies with an avalanche of regulation that deters growth and opportunity seeking? in financial services, the sec dropped almost 1000 pages of new regulation, proposed regulation, on the industry over the course of this year, which means i'm in my boardroom talking about the impact of regulation and not growing a business. >> and you think that is playing out -- >> across every industry. people get very confused as to why i am such an advocate for free markets. it is because there is a tone and rhythm of regulation that both protects consumers and maximizes growth. we are in one of these episodic moments where we are deluging

corporate america with regulation. the energy crisis we spoke about, biden comes into office, and immediately the tone is we are not going to frack in america anymore. we are going to reduce our fossil fuel capability. we did that very successfully. we raised the cost of capital for the extraction of energy. now, we are going to venezuela to try to buy oil. we are going to the middle east to try and secure oil. the consumer in the united states is paying the highest prices for gasoline in their lifetime. this is why the regulatory lever you did not talk about is so important because the tone from d.c. says to every corporate boardroom, are we growing, investing, or playing

defense? we need to be on a growth footing. but a growth footing where we are creating new jobs, where we are building new buildings, where we are solving problems. and not nominal growth because we have employed hundreds of thousands more people in bureaucracy oriented compliance roles. it is the wrong way to move our economy forward. having said that, i remember this conversation a few months ago and i said chairman powell has a tough job to fill. i still believe that. he is in a very difficult position because if the inflation is transitory, if we are heading towards a 4% rate by the end of the year, he has a lot more room to maneuver rates in 2023. if inflation does not break soon, he's going to have to hit the brakes hard. that will put us into recession.

one of the key things the fed has been very focused on under his supervision, under janet yellen's supervision, i know ben bernanke thought about this a lot, you don't want to slow growth down when people are on the sideline who are employable. the cost of human life of qualified people unable to find work is devastating. we have made a choice in the country. i think this is an important point to make. we are better off running the economy with a slightly higher risk of inflation and trying to bring as many people back into the workforce as possible rather than letting people be out of the workforce where their skills and employability crumble quickly with time. >> i have no doubt to are lots

of people here who are dying for me to ask you about crypto because your views on crypto have evolved from what i would describe as a skeptic to saying a few weeks ago that you were probably wrong to dismiss it. this was in a conversation with david rubenstein. you told david in all likelihood citadel would be making markets in crypto within a few months. where are you on that plan? >> you found a great hotspot topic of debate within my firm. >> within the firm? >> within the firm. all of my colleagues younger than i am probably think i am a dinosaur on this issue. they are big believers. they believe cryptocurrency has an important role in the global economy as a means of facilitating payment. i have to give that due consideration. these are really sharp people. i have to live with the reality

that it is what people perceive it to be worth. i may be skeptical about cryptocurrency. i also collect american obstruct art. lie is a painting worth $10 million -- why is a painting worth $10 million? value is in the eyes of the beholder and the market. one thing we do at citadel is we help people create portfolios they think create the greatest value for them. as such, given the institutional increase and interest in crypto currency, i think we need to be more involved. >> how soon? is it difficult to build a market-making business from scratch? >> it is difficult to build to the rigor we would want to. things like we ensuring we are not party to a transaction with north korea are really important

to us. they may not be to our competitors. but i'm not going to help fund the north koreans with their various ventures by mistakenly buying their cryptocurrency. we are going to run our business to a very high standard in the interest of making sure we are in the markets as a constructive participant and bring the best practices we see in north america into the market. >> would you describe that business, the one you envision as a market-making business akin to what you doing equities or more of an exchange? >> i would say it is probably a combination of the two is what we will end up in. we as a market maker commit our capital as possible. we believe change technologies important, helping to bring buyers and sellers together. >> do you feel any sense of regret for not diving in sooner? as you well know, there are

examples of firms, i will mention binance because it is the biggest, that have become in revenue terms and valuation >> i'm going to answer this in a way that is very personal to me. i wish i owned a lot of amazon 15 or 20 years ago. i wish i owned a lot of apple 20 years ago and kept it for like 20 years. i see one difference between those investments and having built a cryptocurrency firm over that time is i feel proud of what amazon has done for the u.s. consumer. has done for the u.s. consumer. we both walked in and i was checking my iphone. it has changed our lives. amazon has changed the ability for people to purchase goods and for a small retailer to offer

their products in a giant marketplace. these are businesses that have clearly changed the world for the better. i'm still looking for that story of how crypto has made the world so much better. i can give you the story as to how bitcoin consumes as much power as a small country. in a world that is fixated on carbon footprints, it is remarkable we applied the emergence of a cryptocurrency which has a footprint of a small or midsized country. >> for about a week last month, it looked like you might end up owning a significant part of chelsea, the famous english football club. the bidders you teamed up with were forced to withdraw. was that the right outcome? >> forced to withdraw is not the right choice of words. we chose to withdraw. when you have three people trying to come together to buy a team, sometimes a difference of

opinion at the finish line will drive a change in decision. let me be clear. chelsea is one of the great assets in sports in the world. if the situation was not so challenged with the sale of the team by russian oligarch at this moment in time, i think you would see us at the finish line. but there are bigger picture issues that all three of our families are concerned with that came into play. >>-- that is challenge number o. that is not always the easiest stuff to make happen. it is not the only asset in play, because of russian sanctions. and you have to be an owner of several trophy assets. is that the say that because of the issues you confronted