>> if they are going to do 75, it's better to do it sooner rather than later. >> the fed doesn't have much reason to slow the pace of rate

hikes. >> we still think the base case is no recession. >> this is bloomberg surveillance. tom: good morning, everyone. it's a tuesday before a fed wednesday and it is extraordinary, the market turmoil yesterday continues today. character of the market this morning is different than 24 hours ago. lisa: it felt like it was in freefall yesterday but it is fragile, there is a feeling of a lack of -- conviction step we saw a sell off unlike what we have seen in the long time. is it capitulation or buyers stepping away? we are the watching the end of a low interest you're in real time. tom: we all have our own red and

green, this flow into us and i'm looking at my tea leaves, sterling is $1.20 and jonathan ferro might not be able to afford to return from capri. kailey: what i'm watching is the spread between 30 year and 10 year treasuries which have turned negative again for the first time in years. that's for more than a decade. a long-term feeling that we could not be growing all that much. tom: that's price up, yield down, worrying about economic

growth out there. lisa: it's a lesser high than 10 year yields judgments people are expecting growth to be slower over the long-term. tom: what do you see here? kailey: take a look at the bank of america fund manager survey. stagflation is the highest going back to 2008. they call it the summer of volcker. tom: there are too many differences from 1979 step a bond bear market is price down and yields up and we see that with a vengeance. the vix is critical to me,

breaching 30. futures are up 15 and dollar strength confirming the yen and sterling is stunning $1.20. lisa: 8:30 a.m., the latest in a series of data. food prices, energy prices are climbing. the companies cannot pass along the price increases as much as they did. this could turn into a weaker margins.

how much can the fed pivot to the strong labor market. the fed is kicking off the to date meeting to discuss interest rates. how much are we looking at a baked in scenario of recession? at what point is there a faster tightening cycle giving the market supports? tom: we do economics and politics in the foundation of this in investing has been whether trading is for short-term or long-term. we will change the show now and we can do that with katie kaminski who is having a killer year shorting the space. i want to go back to what you have tattooed in your brain from

the cta crew which is anti-martindale accessible your bets, when you are not, you hedge your bets. tom: are you utilizing anti-martindale theory to take bigger short bets? >> i would say yes in the sense that we do really well when things are difficult. when people don't know what to do and that's exactly what is happening this year. we have complacency, denial and fear. that's the perfect scenario where markets can be more behavioral and less efficient. thus following the trend, is a less emotional way to trade in difficult markets.

tom: does bit coin trend? can you guys take a short on bitcoin and extended here at 22,000 right now? >> i don't trade bit coin because there is a lot of risk there. if you look to the trend signal on bit point, it has gone down quite a bit and you might need to see some recovery before we would consider we are having a new trend. i think that is a difficult call. it has significantly reverted from what was previous highs. lisa: when do you know to close out your shorts? >> we have a process where we are focused on confirmation. people have been calling this the peak of inflation and we say -- and we say you cannot call a peak until it's over. people were too early to call

the peak, we will start calling those peaks when we see that the market confirms that they are going down, that prices are going down. lisa: is it too early to call the bottom and the equity market? >> certainly, unfortunately that's the case. we need to see more confirmation that we are starting to see some sort of recovery. it's easy to react on one days move on a day like yesterday when we have reversal but we need to see some confirmation instead of reacting to one day. lisa: what you looking at to see we have peak inflation? what are those signs? >> the biggest thing we look at is empirical trends. you are seeing very similar patterns to what we saw during a rising rate environment. is this the troop bottom of the

falling interest rate environment? what we have seen is that we tend to be short and a rising rate environment, particularly when we get close to un-inversion where we are moving into more recessionary environments and that's the technical things we have seen in bonds. during those environments, error strategy will tend to be 70% short bonds. if we move into that environment, we will see more short bond signals over the next two years. tom: is it a crowded trade? are you concerned that everybody is on board with you? >> that's always the question when you follow the trend. the truth is, very few people are comfortable shorting bonds very few people are comfortable with the trade we have this year and that's why it's been such an interesting year.

we are doing things that haven't worked since 1994. tom: nobody's listening, are you three-1, 20-1? >> no, we are risk managers when we run at 12 which is lower than what you see in the s&p 500 over a long horizon. it's about diversification and funding opportunities across the entire sector across a large geographical region and following macro growth on many different traits. tom: thank you so much and congratulations on getting so many facets of this market right. we have to look at the bloomberg total return indexes. yesterday was a chump condition. lisa: it's a new regime.

we don't know when we see the peak in yields and we don't know when we see the full scope. suddenly, the market is rising in the fed funds rate peak of 4% next year. how does that reset the valuations that have gotten used to 0%? this is uncharted territory. why are you laughing? tom: the language today is too much. i got more mail on cathartic puke. say something intelligent while i give lisa the numbers. kailey: maybe the uncertainty is why we see little conviction in the market this morning. what does and -- what does an investor do after a day like yesterday being in bear market territory? the confidence in future seems like it's waiting as we get closer to the opening bell. tom: the total return indirect

drawdown is 16.9%. lisa: these are bonds that are supposed to be safe, areas of capital preservation and you are starting to see the outflows. you saw record outflows. tom: when you say bonds are safe, my grandfather would throw his book at you. stay with us. ritika: keeping you up-to-date with news around the world. president biden will travel to saudi arabia in july to meet the countries de facto ruler, the crown prince. the white house plans to punish saudi arabia for its human rights history but they have to deal with gas prices in the ukraine war.

u.k. household buying power fell for the most in 20 years. the pay for most workers is failing to benefit from the tightest labor market in recent memory. number of bloomberg news in beijing was released on bail in january according to the chinese embassy. it has been more than one year since she was detained on suspicion national security violations. she is said to be under investigation. bloomberg says we will continue to do everything possible to help her. the biden last week it's planning u.s. investors from scooping up russian assets. u.s. treasury office of si control says u.s. investors

require them. global news, 24 hours a day and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

>> when you think about it from a trading perspective, what has been missing the entire last several months is what i would call a cathartic flush out where you get the vix above 40 which is one of the things you need for a trading bottom. this week is fraught with peril. tom: the interview of the day yesterday day. they make it clear that ed hyman is looking for a settling of inflation at a 4% level which is a different statistic and adamant they don't see a recession out there. before we get to our correspondent in washington, the vix revisiting 21 and sterling is that $1.21.

lisa: it's breaking down to the lowest level since the heart of the pan them in. i was watching futures bouncing around and trying to get a bid and trying to regain and it's not that active today. there is a lack of conviction where people are trying to retrace some of their moves but it's not a wholesale buy signal. tom: brent crude is up. in washington, and marie joins us. it seems like the polarity is so stark in washington with the hearings and i don't know where the middle is where are the. centrist candidates of both parties, are they hiding in a bunker? anne-marie: i think you are seeing potentially one place of

middle and one place of compromise and that will coalesce around the gun legislation or the potential for it. it's not as far as democrats want to go but at the same time, 10 republicans are signing their name and what we are hearing is they want to go for this and that could potentially get passed through the senate which would be something that has taken years for washington to get around. there are moments. we only see a lot of partisan arguments, their pockets of potential bipartisanship in washington. at this moment, the drafting of gun legislation could be one of them. kailey: this administration is trying to see what sticks. how will this shake out at the

meeting today and the president biden speech in pennsylvania? anne-marie: the audience he will talk to will be about good paying union jobs, something the president constantly talks about filling the economy from the middle class out. they have thrown policy, communication spaghetti at the wall to see what sticks in terms of inflation. is it the feds fault? will we see higher interest rates and potentially lower inflation? is it the issue of a robust recovery and now a tight labor market? they are trying to get through the american electorate which the polls show that this is the number one concern and not just a reminder of the polls but every day when you walk or drive

past a gas station, you are reminded of that inflation stuff today, the north -- the number is north of five dollars per gallon. lisa: how are democrats cutting off president biden as the leader for the next term? how are they trying to reset? anne-marie: there was the new york times report the talked about the fact that democrats are leery about president biden running for reelection of the presidency in 2024. not a lot of it is being communicated in public with these are the talks behind the scene. just yesterday, the press secretary said of course the president plans to run in 2024. this will potentially become a little clearer after the midterm elections. tom: we have to leave it there.

sterling just plunges. it's down to $1.26. lisa: this has to do partly with the dollar that is reasserting strength. initially, there was a little bit of weakness but it's not a positive. i think we can say that for the rest of risk assets. when the dollar is strong, people seek safety and what they know. tom: our next guest will join us next week. it's tomorrow. i can keep track. this is important, i usually

don't speak to anybody before the show. i'm so deep in my preparation but one of my people told me that the only reason kaylee could appear today was without a massive plug for crypto surveillance. that's at 1 p.m. business insider yesterday has scaramucci running the wine bar in davos. how do you approach the bitcoin game this afternoon? kailey: the faithful will always remain faithful but there are many people know rationing their faith in cryptocurrencies. even beyond the broader macro economic environment, there is also exacerbating factors in the entire space. the collapse of projects in

stablecoin. tom: what is a stablecoin? kailey: in theory, is one-to-one to the u.s. dollar but that doesn't always work stop we will break it all down with matt miller. i would hope you would be turning in. -- tuning in. kailey: potentially below 21,000 for micro strategy. this afternoon, crypto, look for that with futures up 17, this is bloomberg. ♪

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tom: "bloomberg surveillance." good morning, everyone. we have important guest coming

up, mark mccormick, encyclopedia on japan. i am going to do a data check at record speed. the vix 33.50. dow futures up 81. bitcoin moments ago giving way nicely under $22,000. yields all over the map, 3.30%. dollar strength indicated by a $1.05 dxy. sterling $129.90. kailey: they are heavyweights and tech bore the brunt of the selling yesterday. the ark innovation etf is a flagship growth.

it is down 20% not on the year or the month. over the last three days. tesla is up 0.8%, apple up 1.6% as we've seen the conviction in the buying giving way. other idiosyncratic movers, one is oracle. this is an earnings story reported after the bell last night. that is thanks to the cloud and strong demand in the data business. stock is up nearly 12%. news on twitter, elon musk is going to talk to employees at an all company meeting thursday. that stock is up 3.3%. the offer price was $54.2 million. tom: that is still there. kailey: that was what was

signed, sealed and agreed on. maybe he is raising an issue with bots and whether this will go through, but twitter employees will get insight as will we come thursday. michael jailer has a lot on bitcoin. below 21,000 dollars would mean a margin call after a 25% decline. down another 8% before the bell. tom: i have been remiss, the dollar is $1.29. from td securities, someone who looks at all currencies, someone dead on about dollar resiliency. mark mccormick is the global head of fx strategy. but we are going to do something different. get out your pens and paper and take notes. mark mccormick, premier on japan.

what you level -- yen level does japan need where this falls apart, this modern monetary theory that they have? mark: thank you for having me. i don't think it is a particular level. you think about the level you would like to see dollar-yen. we are trying to see where the central banks are moving. the major question is when does the boj go? it is not coming in the next month or this week, but we should be priming ourselves that $1.35 is coming and what medium or longer-term do we get? the biggest long-term trade is dollar-yen and is the most overvalued currency. things over corridors, a level that is important is $1.15 to

$1.25. tom: how do you and the asian team think you will migrate to $1.15 or $1.12? can it be smooth or is it junk conditions? mark: definitely junk conditions. there are interesting things driving yen that i do not think people are focusing on. japan is a massive importer of energy and other commodities around the world. there is a tremendous amount of foreign investment by japanese corporate side of japan which is weakening the yen. the question is whether moving boj policies -- people in the u.s. are looking for things that are cheap, undervalued, under positioned. this can turn ship for the yen

in the next six months. this is not immediate risk but the nonlinear effect. people are looking for other places to put their money. japan is going to fly well on that outlook in the next six months or so. tom: i cannot emphasize, lisa, this is not your father's japan. this is not about toyota and toshiba, but this is because of china. lisa: and because of the bank of japan's futile effort to command the bond market. at what point is the bank of japan fooling itself? continuing to buy bonds at a record pace in order to keep yields pegged at this ultra low level? mark: they are doing it now. the cost-benefit does not work in their favor. earlier in the year in terms of trade shock and higher interest rates and why would they continue the yield curve control? what we are trying to see --

there are mixed messages from policymakers. there is scope here that the boat is turning in markets are sniffing it out. it is an interesting concept and they are try to find ways to push against it. lisa: how big with the move be in the yen if they were to abandon the right peg? mark: it would be significant. we are talking a lot about people discussing intervention. intervention is less palpable than policy change, but if we see the policy change, knee-jerk could be 5% in the short run. a lot of it will hinge on the fact where we are in the global market cycle, where his risk appetite, and where we are relative to the fed and central banks. but the knee-jerk could be worth it. kailey:kailey: is that what has driven the recent bout of strength in the dollar rather than expectations of tighter fed

policy? mark: great question. a lot of this your people focused on relative themes. trade, growth, relative central banks. since april we have gotten a sliver and people gave up on the broader theme. the dollar and the fed became all-encompassing and what the fed has done is created an equity recession. china zero covid, russia-ukraine, but we are back to that trade. we are not thinking in terms of trade. you are not buying commodity exporters. you are selling commodity importers, but what is happening is the strength of the dollar is a single meta-theme that is deteriorating risk sentiment. we are bringing short-term cash back into the u.s. dollar. it is like a one trick move

where stronger fed policy, tighter financial conditions just as a single strong dollar with no other effects. lisa: you mentioned the headwinds facing euro. how important is parity? mark: i think it is a likely discussion. if you look at option pricing, which is an interesting look, it is only a 15% chance. we have a trade on we are looking to revisit the lows under 104. we have already seen the fed at a 4% terminal rate. tom: i have to leave it there because of time. mark mccormick, thank you, really appreciate it. lisa, i have been waiting for somebody to publish. the wall street journal over at

the death star talked about 75. the whole world went a frenzy and peter is out with a carefully considered note calling him the new fed whisperer. i think this needs a translation for our listeners and viewers who are goingm what? lisa: that has been a traditional conduit. they have one reporter that they give information to a head of a meeting. tom: i thought it was jonathan ferro. lisa: exactly. what the signal to meet is that the fed is watching carefully what has been developing in markets and they want to weigh in, but they are in their quiet period and they can't. when you do not have the fed's representatives owning up a storm, how do they get the message out they are shifting and they're going to move in an aggressive way? tom: but are we talking about 75 basis points tomorrow?

lisa: that is a 50-50 chance. you love the parlor game. do you want to play? let's play. citigroup moments ago saying 75 basis point rate hike is likely but 50 is more likely. at what time do they have to just do it? tom: i will go with that. first of all, they are doing it right now. they have the path underway and there are different arguments either way. kailey, i look at this, and we don't have to talk about bitcoin right now, but we can talk about the parlor game and the likely 75 basis points tomorrow. to me it is silly. kailey: but you have a string of economists on the street lining up behind 75 tomorrow. goldman sachs sing not just

tomorrow, but july. we had barclays out with a 75 call and when jp morgan made the call for 75 tomorrow, he said it as a nontrivial risk that it is 100 basis points. this is the reality we are talking about. tom: stay with us tomorrow after the crypto show. at 1:00 today the fed will decide. futures up a fragile 7%. this is bloomberg. >> president biden in an oval office meeting with key members of his cabinet indicated he is leaning toward the china tariffs with inflation at a 40 year high. they are looking to show action on bringing prices down. carrie lam says quarantine

measures have weakened sedition. in an interview, she said they still require seven-day quarantines for incoming travelers. still, it is unlikely to allow people to quarantine at home. in beijing, reporting the highest number of daily covid cases in three weeks. 74 infections on monday, the most since may when the capitol hit a record. a top official is urging beijing to control the outbreak as soon as possible. south korea's top diplomats say north korea is running nuclear tests. antony blinken in d.c. said the north would pay a price if it moves ahead. dragon windy weather is challenging fire crews from california forcing hundreds to

leave their homes. roughly 2500 have been evacuated . they have grounded firefighting aircraft. global news 24 hours a day on air and on "bloomberg quicktake." powered by more than 2700 journalists and analysts in over 120 countries. i'm ritika gupta. ♪ allenges require real insights, to get to tomorrow's opportunities. ( ♪♪ ) what can we expect in the coming year? this has been a record- shattering year for m&a. five trillion dollars in deal value. and we're still very bullish on the deal market for 2022. in this kind of climate, what are you advising clients to focus on? we really think companies need to elevate their risk management processes and also scenario planning.

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>> there is significant weakness in most economic models between q1 and q3. whether it tips the scales into recession depends on what you are looking at. but this is a material growth slowdown and guess what? whether it is recession or not, it is not the name of the game. tom: that was frances donald

from yesterday. futures very fragile, up five. the fix 33.75. sterling under 121. kriti: the consensus really now quickly but let's talk the implications. one of the arguments depending on what strategy you are talking about is to frontload the highs, get them out of the way, spoonful of sugar with her medicine. that is important when it talks about the way the economy can handle it. can actually handle the 75 basis points? for our radio audience, we are looking at three treasury curves. they are all the same color because the spread does not matter. what does matter is they are all

inverted. that speaks to the fact these are curves looked at as this beacon of recession risk. but the question is, if you do have 75 basis points delivered tomorrow, does that guarantee a recession or sigh of relief? tom: the mary poppins lead in is perfect for lisa. you know in every job that must be done there is an element of fun. you find the fun in snap. the job is a game including the columbia thread needle. lisa: you never know who is going to bring what out of a hat. ed al-hussainy from columbia thread needle. we have seen moves unlike what we have seen going back to the depths of the pandemic. was this a lack of selling, a

lack of buyers, or lack of anything going on and fear pervading? ed:ed: i would focus on two things. first, the fed has done a good job of trading markets to look for upside inflation prices. that is an important reflects at the moment and that is a function of the fed's communication the last six months. the second is liquidity. it is exceptionally thin in treasury markets. when we have rapid repricing these tend to be exaggerated. >> at what point d.c. market functioning breakdown in a way that catches the fed's attention and beyond. ed: market functioning, particularly in treasuries and credit and the fact that it

spread to investment-grade credit, is a yellow flag. this is one of the reasons the fed brought the balance sheet to bear did march 2020. it was to add liquidity. i think it is a really unhealthy sign that it is happening this early in the tightening process. >> it has barely begun and we have already seen markets move so far. 10-year treasury yield north of 3.3%. at what point do we actually see yields moving lower because of growth concerns rather than higher expectations of higher fed rates? ed: that is the critical question because, so far, we have seen the tightening cycle move forward in apparel a move in the curve higher. i think that dynamic was

difficult to sustain we have risk markets getting weaker. i think it will be a point at which -- we're seeing it right now -- but that inversion will become more aggressive. when that happens is a critical question. i think what we are searching for here is really the level of mutual. once the fed is priced to go above the level of neutral, the safe haven bid returns to the long end. we are not there yet. tom: i want to talk about the assumption or the plug-in if your bond portfolio is down 12%, you have to find new cash to put in. this is the cash refunding of pension plans, institutional money that had taken bond market losses. are we going to have a massive need to infuse cash into the

benefit programs and other quiet money? ed: it is not clear. i think those programs are quite well-funded. the level of funding in the programs right now is exceptionally healthy if you look at where they have been the last 15 years. there is money to be put to work in fixed income. but given the volatility, there is definitely hesitation. tom: to me, it is fascinating to see the institutional response to the greatest bear market of all time. what will be that response? how will it be expressed? ed: it is to look at this market and look at the yields in high quality credit with the level of yields in the long end of the treasury market. these are attractive entry points for medium and long-term investors. the question is, when you start to step in?

most institutional investors are looking for a quiet period because liquidity tends to be so thin. once this starts to come down and we get more certainty on what the fed is to do over the next six months, those investors should step in. lisa: before we have to run, how much does the fed watch this and decide to pare back reduction in the balance sheet? or support markets in a way to avoid the yellow flag with investment-grade bond yields? ed: excellent question. in my mind, odds are very good that the federal have to stop drawing down the balance sheet earlier than they anticipate. when they will do it, i think it is difficult to do while you are hiking. it sends a mixed message to the market. but it is likely to happen earlier than anticipated. tom: thank you for the brief. ed al-hussainy with us today. i look at the 10 and 30 year

bond and they are basically at terminal value. can you imagine where they will be if we adjust our terminal rate higher? lisa: how much of an inversion, of adjusting higher across the board? but still, longer-term pessimism for the shorter-term inflation will prompt further action. what had said is jaw-dropping -- ed said is jaw-dropping. they will have to draw down sooner because of the dysfunction you are seeing. tom: he skirted the question which i understand, but i'm sorry, the dysfunction is front and center. lisa: especially when you see things moving this quickly of markets that are considered safe. i am not saying i do, but some call them safe. tom: the bond giant of bloomberg, price matters. this is bloomberg. ♪

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