>> the fears we have today are tied to one thing, inflation. >> how can the fed or other

central banks they can give get it under control in 12 months time? i think that is incredibly implausible. >> the fed may need to overshoot in terms of rates. >> as long as inflation expectations remain anchored, i think the fed is ok with overshooting the target. >> the fed does not want to cause a market collapse. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone. on television, on radio, a monday to a very busy week. retail sales tomorrow, but mostly it is a recalibration in equities, a recalibration in bonds. jonathan: leading that effort is david costa nickel men sex. he goes to fort -- david kostin at goldman sachs. he goes to 4300. i keep going back to this point because it is so important. the fed is telling you they want

tighter financial conditions. the fed is telling you that they do not want higher equity prices and tighter spreads. they do not want a weaker dollar. they want a further tightening of financial conditions. that is essentially what mary daly of the san francisco fed said last week. i think that is so important going through this summer. tom: we are going to address that in a moment. in the last hour, it was clear there is a bond bear market. jonathan: there is, and in the treasury market specifically, have we seen the highs? 3.20% on the 10 year, was that high for this cycle? 2.58 percent right now. bank of america does not think we have seen the high on the front-end. they think later this year and the fed has to reassess, they have to assess the long dots higher. tom: the reassessment of this globally is not only equities and bonds, but it is about what

politicians will do with it. the language on inflation, the language on the pain to the middle class and the elites, it is stunning what we have seen over the last 48 hours. lisa: this is the predominant issue as people go to the grocery store and figure out what to do in aisle seven, which tends to be the most extensive aisle. we are looking at the market that is still showing signs of strength, at least in the united states. when do we start pricing in a growth scare? we are already there a little bit. wind does it come to fruition given the fact that consumers still have cash and are still spending? at what point do the retail sales we get tomorrow show was a very different picture? tom: kriti gupta he nailed this, the idea that consumers are still spending. lisa: the sort of bifurcation of the haves and the have-nots, how much does the fed pay attention to this? have they basically lost that social conference that seemed to

be a driver earlier because inflation hits everybody, and frankly hits the lowest income individuals the hardest, and that has to be there focus right now every region. tom: in your distinction of your reading over the weekend, it is almost like recalibration monday for me this morning. what was the distinction what you saw? jonathan: here comes downgrades. it is going to be the story as we count down to the opening bell. downgrades from goldman, morgan stanley, that in the near term say we could threaten 3400 on the s&p. we've got a downgrade on growth from goldman for the u.s. economy, a downgrade from citi for the chinese economy. is that it? some people will be asking that question. tom: here's my sophisticated data check to get us started. brent crude rounded up, $111. week up, -- wheat up, corn up. jonathan: your 10 year, 2.92

percent. euro-dollar, 104.19, of 0.1% on that currency. a little bit quiet in the fx market and in treasury markets. tom: i will go with that as well. rice has gone from 12 up to 17 here. that is u.s. rice. that is of course, a global story. tony rodriguez, head of fixed income strategy at nuveen, thrilled you could join ustoda you know the history of nuveen. it is steeped in original products way back 30, 40, 50 years. of course, the advent of the company in 1898. you have never seen price down like this, have you? >> good to be with you. the most difficult start to a here we have seen. we are seeing massive rise in rates in the context of how low we had been, where we were

pretty close to zero across the board, so you are seeing almost double digit negative returns for the fixed income markets. we think that is very much a significant re-rating on both the fed and growth prospects, so the fed has priced in pretty aggressively, so we don't see a whole lot more coming from that side, but we do think there's potentially some higher rates still in the medium to longer term end of the curve. tom: -- jonathan: talk to me about where that is going to come from and what is going to develop that story. tony: we think it is going to come from eerily -- come primarily from the front-end. when we look at the long end of the curve, the 10 year has been around 3%. we will probably see higher points than that over the course of the year. we have already seen a 3.20 percent. ultimately we end the year closer to 3%. the two-year basically rises up to be a flat curve. the idea is that further fed tightening is going to come.

some modest -- some moderate upward pressure on rates will come with that. we look at risk markets, withing there is still potential further widening coming, but that the majority of the widening we have seen in credit markets is behind us. lisa: give us the scenario in which this comes to pass because what you are talking about is something that speaks of perhaps a longer-term inflationary outlook that does not scream recession in the same kind of way that some other outlooks do. is that correct? is this basically saying the fed can tighten as much as they are planning and we still get some persistent inflation, and along with that, growth? tony: i think the story is that we are going to see inflation for the next two years, but we will also see inflation moderating from where we are. the inflation in our view is -- peak inflation and our view is behind us. the question is if there will be further shocks to the system if

inflation stays elevated for an extended period of time. the underlying strength in the economy is in the corporate balance sheet and the consumer. is it enough to support a soft landing? of course, the landing strip has gotten shorter and narrower week by week, month by month, but right now we still think, if you look at the goldman forecast implicitly saying a soft landing, we still think that is something that they could achieve, but clearly the probability is declining as you see weakness in china, as you see the russia-ukraine war continue, as you see zero covid affecting the china markets. lisa: in this soup we have of geopolitical elements, of a fed that is tightening come of a post-pandemic reality, where is the haven? tony: right now we think that the haven is what we would call a evers if i'd portfolio. so the haven is not going to

come from any single asset class. but when we look at the fixed income markets, given the re-rating we have seen with rates higher by almost 200 basis points at the front end, with spreads water by almost 150 basis points, we think a diversified portfolio of fixed income spread assets and some credit, some treasuries, excuse me, also provide a little bit of cover in case we see another downside from supply chain pressures or geopolitical risk. we think that portfolio which today is yielding you a good 200 plus basis points more than we were at the start of the year provides a reasonable risk-reward for an investor, see you are earning close to mid single-digit returns in an environment that is still pretty uncertain and in equity market that is still clearly at best cased fair value. jonathan: wonderful to catch up with you, as always. tony rodriguez of nuveen. a tough year as we talk a lot

about tech. let's talk about the banks. jp morgan you to date down about 25%. oldman down about 20%. we go over this to remind you of how money we have seen in the red, the deep red this year. bank of america down 21 percent. mike mayo of wells saying jp morgan must prove to investors that "its superior standards for strategic and financial discipline are still intact." it has been a tough year for wall street. tom: i strongly agree with this. you are going to see a massive honing of business plans and tactical execution going into labor day to get ready for the compensation season next year. i really can't say enough about how much fixed income has gotten hammered. we have never seen this. i've lived this, but this is much worse. your down in bonds. you constitutionally can't buy

jp morgan equity. what do you do? you clip coupons. that is the old phrase. you claw your way back. it is a motion in fixed income of clawing my way back that is going to be the story for late-summer. jonathan: how do you claw your way back in the equity market? i think what we often forget is basic math. if you drop from 100 to 50 and lose 50%, that is where we are in a lot of funds, and a lot of names in this equity market. tom: you differentiate -- i'm laughing, folks, this is a joke that jon and i have -- you differentiate between value and growth, and the answer is you grow your way out of a bear market. how do you do that in bonds? jonathan: taking a lot of losses. and we've had the interest rate adjustment. we have not really started to see the credit risk adjustment in a massive way just yet.

lisa: and if you do start to see that, do you see treasury yields go the other way? do they become a haven again as the growth scare percolates? jonathan: up next on this program, a good friend of the show, the chief economist at the milken institute. looking forward to catching up with him. from new york, this is bloomberg. ritika: keeping you up-to-date with news from around the world, with the first word, i'm ritika gupta. another dramatic change triggered by russia's invasion ukraine. they do members rallied around finland and sweden after they announced plans to join the alliance. the one country that voice concerns was turkey. they're unhappy with relations with kurdish militants. two gauges of economic activity

have fallen to the worst levels since the start of the pandemic. industrial output on it but italy fell to 2.9% in april, while the consumer spending shrank 11.1%. our group has agreed to -- carr group has agreed to -- carlyle group has agreed to buy mantech international. mcdonald's is leaving russia after more than three decades operating there. the fast food chain will sell its russian business and take a right off up to $1.4 billion. mcdonald's said continued ownership and russia is not consistent with the company's values. jetblue has begun a hostile takeover attempt of spirit airlines. it launched an all cash tender offer and is urging shareholders to vote no on the airline's takeover by frontier airlines. the purchase is three dollars less than its initial bid.

jetblue says it will pay the higher price if spirit agrees to a transaction. 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 ritika gupta. this is bloomberg. ♪

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>> are big issue is how little tightening is priced for next year. 30, 40 basis, that is a joke. you think about the biggest inflation worry in the last 40 years, and how can the fed or other central banks really think they can get it under control in 12 months? i think that is incredibly implausible. so we expect a lot more tightening to be priced in for 2023. jonathan: there's consists us -- there's consensus about 2022. it is 2023 where things start to break down. futures down about 0.3%.

on the s&p 500, down 0.2%. from new york this morning, good morning. this is "bloomberg surveillance ." yields essentially unchanged on the 10 year. yields up by almost a basis point. crude down by 1%, just short of $110 on wti. tom: long ago and far away, one of the dominant themes was rice, a huge part of cambodia's use of income. completely different in the united states. aggregating all of this after the shock of pandemic and war in ukraine is will kennedy, leading our coverage on energy and commodities, and he joins us this morning. as a general statement, how much does rising energy prices fold into something as basic as rice or wheat? will: it is a key component especially of wheat.

wheat relies on tractors and harvesters to plant, to fertilize, to harvest those crops so it all adds up, along with fertilizer combo something we have discussed several times. that is one of the factors feeding into higher prices right now. lisa: what is some of the other causes right now? we are also looking at bad crops, that some of the weather has not been conducive to really yielding the amounts people have wanted, including in india which is one reason they have given for banning certain exports. how widespread is the weather component? will: it is very important and it is coming at a time when supplies are tight for a number of reasons, principally of reasons, principally the war, which has stopped almost all grain exports from ukraine, one of the world's biggest suppliers , and the blockade of their ports meaning that none of that is getting out. that has created a tight global market. a country like india would not

be particularly important in normal times to the global balance. it is small, relatively small exporter, but right now the whole market is quite stressed. as you say, whether is a big part of that. you've got travel conditions in india making people pessimistic about the forecasts. we got difficult weather conditions in the u.s. planting is behind where it would normally be. it is worrying. so these weather conditions we are seeing around the world, at a time of a very tight global market, and that is why traders are jumpy. wheat was up by the limit today in chicago. it is starting to test the highs we saw immediately after russia's invasion of ukraine. lisa: the reason why we are talking about this ahead of the open is partly because this is a crisis unlike a lot of -- unlike what a lot of people have been seeing. what is the historical analog for the shortages come for the price hikes we are seeing in

basic staples for everyone, but particularly in the developing world? will: the obvious example is what we saw in 2011 when rising wheat prices led to food riots around the world, and specifically what was seen as one of the key drivers of the arab spring. people are concerned we are going to see something similar. events in places like sri lanka, which has a number of drivers, of course, but rising stable prices always add to political crisis. going back to what tom said at the beginning, one of the saving graces and reasons why perhaps we are in a slightly better situation than 2011 is that rice prices, the staple for about half the world's population, have remained relatively subdued, not something we saw a decade or more ago. that is one slight cause for optimism. tom: what do the experts say about the linkage of rice to wheat, or are they completely delinked? will: they are not completely

delinked, but there is not as much substitution as you think. the rice consuming parts of the world tend to be pretty discrete , and there will be a bit of substitution on the margin in places like africa. but on the whole, wheat is the world's biggest stable, and as long as those prices remain subdued, i don't mean to sound overly optimistic, but it does not mean it is bad as the situation we have seen in the past. lisa: financial markets usually focus on oil and gas prices in the forefront. how much is that shifted where it is still very much, what is happening with russia and some of the bands that even germany is now implementing? will: for many countries what we are getting is a run-up in both food and fuel prices at the same time, which is one of the key drivers of inflation if you think about the u.s.

the u.s. will be affected by high wheat prices. it will be true to the whole food chain, and that comes as consumers are dealing with gasoline prices hitting records. that is the mixture that consumers in many parts of the world are facing. of course, and places outside the u.s., that comes at a time for dollar strength is making the cost of commodities imports high already. so it becomes quite a mixture for many countries. jonathan: wonderful to get your perspective on things, as always. will kennedy on agricultural commodities, not just energy. the rising protectionism is a real threat going forward from here, regardless of india's contribution to exports in a particular good. that is a bad sign. lisa: it is a bad sign when people start hoarding basic food for their population because they are worried about riots, worried about the price of

goods. at what point do we enter a regime that we have not really seen in modern history with respect to food supplies? even janet yellen coming up this morning and talking about how this is probably one of the biggest crises to emerge from the ukraine war. jonathan: this is the spillover, and it might just be the beginning. tom: but also it has a history of arab spring. let's be honest. inflation had a huge thing to do with the upsetting of the middle east. our expert eric martin of the international monetary fund studies egypt. jonathan: developed markets likely escaped that situation. catching up with mohamed el-erian, talking about the eem type situation that dm faces this year on so many different fronts. tom: i am going to go with that. i think the tone here on a reset monday into midyear outlooks is how do you do a midyear outlook on food other than, as will kennedy said, even rice up this morning? jonathan: that's about the only

thing that i can process, the outlook to midyear, about two months. through the summer, i got no idea. lisa: can you even get out two months, honestly? jonathan: two fed meetings, just about. lisa: this is uncertainty of a new caliber. tom: i've mentioned this a couple times this morning, but i think the financial media has grossly underplayed the decline in price in fixed income away from the typical things we quote. it is stunning, some of the numbers i am looking at. lisa: driven by rates, it has been a bloodbath. but how do we move from that to actually go forward, and where do you find the value if you are clipping coupons? jonathan: tom, we are the financial media. lisa covers this all the time. tom: "the real yield" is the best show on tv. jonathan: come on. [laughter]

jonathan: live from new york city, this is "bloomberg surveillance" on tv and radio. alongside tom keene and lisa abramowicz, i'm jonathan ferro. futures unchanged on the s&p. on the nasdaq 100, down about 0.1%. that is something we would not usually cover. that is a monster downside surprise on empire

manufacturing. mike mckee into the studio to cover this one for us. michael: it is bad news, and it does show we are still having problems in the economy. it is not exactly clear whether this is a supply chain problem or a falloff in demand, but the empire number does drop 36 points to -11. the new york fed is saying that new orders dropped significantly and delivery times lengthened, so it does look like we have run into some problems. -11 point 6%. it was 24.6% last month. jonathan: down about a basis point on the 10 year. no big changes in the equity market. if we get a series of numbers like this, what do you thing this could mean or maybe won't mean for the federal reserve in the next few meetings? michael: i don't think it is going to affect the fed too much because they have to wait and see what happens, but the real

issue here is are we seeing a decline in confidence, either because interest rates are going up, or because people see problems in the economy? if you get a decline in confidence, you're going to get less investment. this is kind of what the fed wants, but it may be happening faster than we anticipate. the empire number does not always correlate very well with the national ism figures, but they were down a little bit as well when we came into this month. lisa: these have been highly volatile numbers and they have been swinging pretty violently. there was pretty substantial growth last month. how much does this really give people a sense of what is going on versus being one more tea leaf, the first of the metis leaves we are going to testing may -- the may tea leaves we are going to get? michael: it does sometimes set

the tone for the month. it is the most recent data that we have for manufacturing, and it will lead us into the philly fed, and from other fed brinks -- other fed banks around the country. we get the national ism, and it is going to be a question of whether this is a supply problem , whether it is china and the problems we have with getting stuff out of there in covid zero, or whether it is demand, all of a sudden people have decided they don't want to buy stuff anymore. jonathan: mike, thank you, as always. just ahead of this print, we got this note from andrew hall and horse and veronica clark -- from andrew hollenhorst and veronica clark over at citi. "data on wage and price inflation remains most important for asset prices. this is particularly the case given chair powell's strong indication last week that price stability is his key concern."

so even if we get these downside surprises on economic activity, there's this belief in some parts of wall street that the fed keeps going because the focus is on something else. tom: and then the message from goldman sachs, they did frame out unemployment rates that are elevated, but not anything that we would call a crisis. right now let's move on with this economic analysis of the united states to a more global sense. also of the milken institute meetings, william lee joins us, their chief economist. can the markets constrain or restrict the fed? if we look at the bloomberg financial conditions index, it is sort of doing its job right now, making financial conditions more restrictive. how will the fed react to that? william: right now the markets are doing 110% of the fed's job because the market increases are way above where, as jon just said, actual increases, but also the expectations of that aggressive policy stance is

something that the markets have clearly priced in, and i think it is based on some misguided information. my former colleague andrew is focused on the aggregate wage price numbers, and i have been looking at the micro wage price numbers. i really don't see massive signs of a wage price spiral, 1970's style. in fact, most of the wage increases have been going where the labor shortages are appearing, the lower wage workers, the younger tenured workers. tom: you are world-famous for this, and it goes into a decile analysis, i would guess. economists like citigroup love to aggregate numbers together. what part of that decile analysis matters for chairman powell and the view forward? william: chairman powell absolutely cares about the aggregate number, but do you see aggregate wage price spiral? granted, the fed has lost credibility since it's meetings. the average breakeven rate is

well above 3.5%. but given that, i think we should not get too carried away with how much the fed has to tighten. don't forget, verse time -- for the first time in fed history, we have two policy tools, the balance sheet and rates. they have not talked enough about using the balance sheet to target those red-hot sectors in real estate and consumer durables by draining the liquidity and then easing up on the amount of rate increases they will need. this is the first time in the history of the fed with two policy instruments. it may be able to escape crushing the economy to bring inflation down to its target level. jonathan: some of that in the market ended in a mess. they are doing this at a much more aggressive level, twice the speed once they get going. can you add a little bit more color to that, how much they are bound to do with the thomas sheet and how much this will affect the economy through financial conditions? william: this is uncharted territory because the fed has really never done balance sheet

before, and the last time they did it, they did in a very clumsy way. it has to be very careful in using that mortgage backed securities holdings is that is where the real red-hot sector is in the real estate market, and rating liquidity there is going to be critical. but now the treasury runoff will be done on almost autopilot because they are so short. but the key to the fed policy stance is how aggressive does it have to be with rates on top of that. if they really believe there's a wage price spiral priced in, it has to be priced in, no doubt. but if you are above the median wage or median profile of the median worker, you are not getting the 10%, 12% wage increases. you are barely getting 2%, 3%. so i think the fed has to cool off a bit in terms of worrying so much about that wage price spiral. the really is no sign of it yet taking hold, and that is something that wall street has missed entirely. lisa: even so, if the is targeting inflation, there are

so many inflationary pressures coming from china, from the supply chain disruptions come which are not necessarily positive for growth, which are not necessarily signs of momentum. still, the fed has shown a willingness to target demand in order to respond to supply-side responsys. what is your view on how far they would have to go to normalize the supply and demand side of the equations? william: that is the lesson learned from the 1970's. you cannot let inflation get out of the control. the fed's job is to equilibrate supply and demand. the wrong way to do it is through targeting investment, which is the cost of capital. right now i think the key to inflation in the future is productivity enhancing investment. that has to be encouraged. i think to took that off just for the sake of hitting its 2% target in a reasonable amount of time would be a serious mistake because that would cost us in the three to five year horizon

boosting inflation without those investments. lisa: we've got a two year treasury yield at about 2.5 percent. the team over at bank of america was we will catch up within a little bit here believe it will go up to 3.5%. do you think that would be enough to torpedo this economy, to actually send the united states into recession? william: it would be enough if we drain liquidity adequately. it will not be enough by traditional measures. so i think this has got to be a time when the fed can the longer say the balance sheet is the passive tool and the secondary tool. it has to become the primary tool for cooling the economy. as far as china is concerned, the real key to watch is whether or not china becomes aggressive and takes over taiwan because the lesson from ukraine that shocked the leaders over there is that the world came together and became much more cohesive. that will put a stopper, i think

come on military incursions in taiwan, but will not stop there cyberattacks or political strategies. so supply constraint is a real issue because tsmc is global. there is no substitute for advanced chips. we could find another place to buy wheat, to grow corn, but we cannot find another tsmc. jonathan: within the communist party, do you think the leader president xi is in a place where you can make a step as bold as the one you just described? william: right now, if he gets his third term, the one thing on xi's mind is that he will lead the legacy of returning taiwan to china. this is something no one has accomplished, not even joe en-lai or mao zedong. this has been a chinese obsession for decades, so you bet he's going to become after taiwan. the question is how. right now the world coming together about ukraine i think has put a stopper on any overt military actions.

jonathan: wonderful to hear from you, as always. a different perspective, and for some people, a worrying perspective on the future developments. tom: this is bill lee of the pacific rim and his work on imf. i would say this is an undercurrent where there's this huge focus on ukraine, we understand that, but i would suggest there's an undercurrent of new analysis on taiwan and then down to the south china sea , particularly after the philippine election, that is maybe something to talk about in the fall. jonathan: coming up in the next hour, mark cabana, head of u.s. rates strategy at bank of america global research. a really punchy forecast for the front end of the curve from them. 3.50% on the two-year, essentially forecasting yield curve inversion all over again. 3.50% on twos, 3.25% on tens. lisa: this has been the idea people have. how far does the fed have to go to become restrictive, and does that mean if we do get yield curve inversion recession again?

jonathan: empire manufacturing absolutely dreadful. futures unchanged on the s&p, unchanged on the nasdaq. tom: is newcastle united dreadful? jonathan: they are not that dreadful anymore. they are better at this point in the season than they were about six months ago. you need them to win, tom? or at least get some kind of result? tom: it's in the middle of the "surveillance" nap. jonathan: you will wake up and watch it? this is bloomberg. ritika: keeping you up to date with news from around the world, with the first word, i'm ritika gupta. twitter is now on course to wipe out all of the gains the stock has made since elon musk disclosed his stake in the company. chairs are lower in premarket trading. on friday, musk tweeted that the deal is on hold, but that he is still committed to buying. after a trip to kyiv, senate republican leader mitch mcconnell says he expects the senate to pass a $450 billion -- a $40 billion aid package.

last week, republican rand paul held up the aid bill, arguing it is to ask pensive. germany plans to quit importing oil by the end of -- importing russian oil by the end of the year. german officials are confident they can solve logistical problems in the next few months. russia's share of german oil consumption has declined to 12% from about 35% before the war in ukraine. it is the latest move by a wall street bank to retain talent in a hot job market. koman sex will announce senior staff can take an unlimited number of the acacian days, cording to a complete memo seen by bloomberg. junior employees at coleman's to have limits on vacation, but they will be given at least two extra days of the year. the u.s. justice department is investigating a massive killing in buffalo as a racially motivated act of violent extremism. it left two people dead and three wooden -- and three wounded.

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>> in the beginning of the war, the perception was that nato is strong and nato can deliver. the only thing eu can do is express different levels of concern in public statements. in the war proved that everything is completely different. it is nato that is an alliance, as an institution, can do very little, if anything. tom: speaking with our maria tadeo this morning, an important conversation. the news we are seeing in finland and sweden just stunning this morning on the war in ukraine. lisa abramowicz and tom keene with you on radio, on

television. and now, to get out front of a sacred oath, mark esper. you know him as a secretary of defense of modest controversy for president trump. but far more, the most coveted award at west point. there is a statuette west point, and far more the heritage you have seen of one douglas macarthur. when you won the leadership award at west point, and honor of douglas macarthur, is a big deal. mark esper joins us. tell me about what general macarthur would do today with all of his controversy within the republican party the middle 20th century, isolationism and that. what would general macarthur do with his modern defense department that we have? william: it is a great question, and thank you for the introduction.

macarthur, we would consider him today to be a combatant commander. but for west pointers and others in the military, we must recall his famous saying about duty, honor, and country. that is the west point motto. he said those three hallowed words dictate what you want to become a what you can be, and what you will be. it was that phrase and that saying that in some ways guided me in my tenure as both secretary of the army and secretary of defense. tom: i'm fascinated by your thoughts. this is a very sophisticated word, so i don't know if you saw this at west point, the ginorm ous nato exercises going on right now from estonia down through lithuania and throughout. are we ready for this new world? william: we are getting weighty. we advanced a offensive strategy

that i mean by top priority, but this also described a new era of great competition defined as china as our top strategic adversary. to confront these countries we need to modernize the military and equipment, or training, or doctrine, and all of these things are underway. it is important that the pentagon continue with what we developed during my tenure and that we also provide the funding. you can't do it without having funding. i have been disappointed by the white house, divided administration's funding requests these first two times. they have been flat. thank fully become risen increased the spending. that will be critical to driving change in modernizing the armed forces. lisa: based on what we have seen with russia's invasion of ukraine, how should the u.s. military view what to expect with xi jinping and taiwan, especially as he does seek yet another term? william: it is the great question. -- mark: it has been evident

from their actions the last 90 days that they are not quite the power we thought they were in terms of military cape ability, so this has been a strategic failure across the board. it is an economy of $16 trillion, second largest in the world, 10 times bigger than russia. economic interdependencies that run around the world. we are seeing just because of the shutdowns due to covid, and shanghai and other places, how the supply lines reach. so we need to be very careful about how we prepare to deal with china. we need to send the proper signals of resolve and determination to defend young democracies like taiwan, and make sure we are going to defend this world order, these norms and values that have helped promote prosperity and freedom around the world for the last 75 years. lisa: the trump administration was known for looking inward, to being very nationalistic and the approach to geopolitical

concerns. we are at a moment where nato seems to be coalescing in order to deal with russia and the invasion in ukraine. how much should the u.s. military and beyond build on this coalescing of nato and work with allies in order to get some sort of bigger presence, whether it is in asia, or at least to figure out how to respond if there is an invasion of taiwan? mark: we have subtly have to. i consider myself a reagan republican. he believed in offensive democracies in the world order as we understand it, and believes we should stand up for our friends and allies. i made it an important plank of my tenure to go out there and try to strengthen our allies and grow new partners. i'm a big believer in nato. having served in nato as a young and gentry -- young infantry officer, i believe we need to continue to do this. it is good to finally see nato coming together, more countries committing more for defense, and

we have possibly two new countries joining. ironically it is vladimir putin who brought the alliance together. the key thing will be sustaining this momentum as we at some point look eastward toward china. tom: the nation was fractured off of vietnam, republicans fractured, democrats fractured. it was equal opportunity. but we were still adjusting, and now, as robert gates would say, from our holiday from history, we are still adjusting to the debris of vietnam. are we adjusting in real time, and how do republicans and democrats come together to help those with a sacred oath? mark: you are right, after the vietnam war it took the army 12, 15 years to really rebuild under president reagan. i think now we are coming off the wars the last 20 years in iraq and of gena stan, and we began rebuilding the army, so it

will take time and money. i've set on many occasions the last couple of months or so that the greatest threat i see facing our country is the extreme partisanship on both sides of the aisle that is creating dysfunction in washington, d.c. until we solve that problem, it will be a challenge to take on the big issues such as our growing budget, $30 trillion. how do we come up with a consensus with regard to a strategy toward china? how do we address these big issues facing our country? that is going to be key going forward. tom: mark esper with an important book. for those of you on radio, you just need to know there is a certain weight to it, like 600 plus pages. mark esper, "a sacred oath," really can't say enough. lisa, what an odd monday. it was really a recalibration monday. . lisa:lisa: especially -- lisa:

especially after all of the notes over the weekend that said there could be downside. if we are pricing and simply the fed tightening, perhaps we are there. if we are pricing in a recession, there is more to go. that was the view of lori calvasina and a bunch of other strategists. how much is that going to become a consensus? tom: stay with us on bloomberg radio and television through the morning. jon mentioning the city group note that came out maybe 20 minutes ago as well. i would state for those looking for optimism, the vix under 30, 29.07 gives modest comfort. stay with us. this is bloomberg. ♪

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jonathan: good morning, good morning. with your s&p 500 down a couple of tenths of 1%, "the countdown to the open" starts 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 new york city, we begin with the big issue. there comes the downgrade. >>