>> we are seeing signs consumers

are pulling back spending. >> we have crewed structurally aiming higher. >> a lot of this demand is going to -- over time. >> it will be a consumer led recession. >> if you were to get a recession, it is likely to be a mild one. >> this is "bloomberg surveillance." lisa: it is a gloomy day in markets. hard to see whether fed chair jay powell will cite anything to address that -- say anything to address that in a positive way, or if he wants to. tom: continued weakness in japanese ian, sophisticated -- japanese yen.

he is not going to discuss japan directly, but he has got to discuss how central banks are adapting to inflation. 9.1% in the united kingdom. lisa: sophisticated angst of yen since 1998. at what point does it start to break? tom: i think this idea of -- obviously, we heard from bill dudley, we have a chairman who is going to say, we have got it. we have got everything in order. the question you are going to hear from senators is, what could lead this to break? they got a laundry list of worries. lisa: a lot of people are looking at stock evaluations after what we have seen, how much things have gotten beaten up. saying, we have priced in something that looks like a shallow recession. even bill dudley seems to project out. are we seeing a new investment cycle?

it is a counter to the gloom we hear out of prognosticators. kailey: it is a question of how much the market needs to price in. if you listen to mike wilson, he says this market is not prepared for the kind of economic downturn we are going to see, which is why he is looking down death 3000. oppenheimer, 5330. futures, 37.15. lisa: he is expecting a 40% rally. studies showing the divergence between where stocks are and where they are priced to be by individual stock analysts, one of the widest since 2000. where is the capitulation in price? kailey: we have been looking for capitulation for months, we never seem to see that disorderly selling pressure. it has been quite orderly.

there is a pattern and consistency to this market. it hasn't felt like a cathartic puke. [laughter] lisa: the sophisticated angst can be felt in the dollar. the flipside is the week yen. the strong dollar is the united theme, the remaining hedge at a time where bonds have been unreliable. tom: something that may be speaks to the difference of eight unionized, continental europe and london -- a unionized , continent of europe and london. the drama in the united kingdom is tangible, witnessing sterling cannot get out of its way, 122.46. they have the biggest railway strike in 30 years. lisa: at a time when people are relying on public transportation.

risk across the board as we see pervasive decline. nasdaq down 151, on .5%. bonds getting a bid, this is a change. this comes in tandem with crude going down to 103.90, down 5%. bad news is bad news for oil, a recession is not going to be good for demand when you have people who are going to the side not to drive or fly. tom: eight dollars 60 six since in the united kingdom versus five dollars, whatever -- $8.66 in the united kingdom versus five dollars in america. chief investment officer at morgan stanley wealth management, been there, done that. she has seen the dreaded conversation of recession. lisa, how foolish is it for morgan stanley clients to angst

over the estimates of what recession will be? lisa: we have always said, it is foolish for clients to try and guess. one of the things we were talking about with clients yesterday, even some of the folks who get paid to do this, i.e. the fed, have never gotten session forecasts correct. ever. i think this is something david rosenberg wrote about yesterday in his piece he puts out daily. the fact of the matter is, the best we can do is try and ascertain direction and relative order of magnitude. other than that, i do not think we can try and pander about where the bottom is, and how far will it go, what is going to be

affected until we are in it. kailey: when you look at the tea leaves and the idea of certain tech companies starting to lay off members of their staff or cut back on hiring plants, have we entered a new phase of the economic cycle that is beginning on the edges and requires a shift in strategy? lisa: i think we are -- markets art six to nine months ahead of reality. i am in the camp that the price action we have seen thus far is bear market. has probably discounted at least two thirds to seven dates -- 7/8 of the way there. i am guessing there is going to be a shallow recession. in that spirit, what is different about the labor market this time is that we have never

had the number of job openings, the ratio of job openings to applicants that we came into this period having. while we are starting to see some modest uptick in layoffs from some handful of companies, i think what is going to be different this time is that labor and the unemployment rate is going to hold up much better, because we have this cushion in what companies will do first and eliminate their job openings, as opposed to going immediately to firings and stafford actions. close on the subject of labor, higher labor costs are one of the higher costs companies are facing, what are your thoughts on the trajectory of margins from here, and if expectations are still too high? lisa: back in the fourth quarter

of last year, one of the things we were trying to be loud about was the on sustainability of margins. we felt, we were seeing these peak margins to the s&p 500 into the double digits, profits as the share of gdp of where they were, we were witnessing record operating leverage that was a result of this mismatch between the pricing power that companies had at the beginning of the reopening of the economy and their actual cost. there were lads because of the way we account for inventory and the way we hire -- lags because of the way we account for inventory and things of nature -- that nature. we are in the catch-up phase, we think margins are going to be vulnerable. this has been one of the great mysteries in why the sell side

has been so complacent to earnings estimates. tom: this is where i wanted to go. if the sell side has been complacent, are we going to be surprised by corporate use of cash that shrinks? lisa: potentially. i think this has been the problem, the sell side analysts have stopped doing work, this is the era of array gift he -- reg fd. cannot say anything until the exact minute. tom: oh. lisa: that their lawyers say it. tom: i have been screaming about reg fd and the effect. it is tangible. they cannot talk until they are right there. lisa: they cannot talk until they are right there. the analysts have stopped going

work, they just listen to the words coming out of the mouths of either corporate management or our federal reserve chairman. it is really awful. investors are smarter than that. our guess is, there is a large amount of earnings disappointment that has been priced in. we need to see those estimate cuts kick in so we can ascertain what is the real price earnings ratio of this market. right now, it is a bit artificial. tom: lisa shalett, morgan stanley. thank you. lisa wants to be like, what are you talking about? the answer is, reg fd changed the way the sell side communicates with corporations. this is the first time we hit full face, can netflix say how bad things are until they -- a precise moment where they say how bad things are? lisa: are we going to get more

amazon type moments where you get a complete rethink of what the outlook is, and it is not telegraphed in any kind of way that is normal? how much does it take for the analysts to capitulate on their expectations ahead of that? tom: i was a card-carrying member of the lunch bunch, where you listen to corporations. within five days after reg fd came in, those lunches dramatically changed because lawyers were afraid of what corporations could say. equally important, our interview on foreign exchange, mark mccormick coming up. futures -54. vix, 34. this is bloomberg. ♪ ritika: president biden once congress to do something about soaring gasoline prices. he will call on lawmakers today

to enact a gasoline tax holiday. average gas prices in the u.s. are five dollars a gallon. federal taxes make up $.18 of that. in the ok, inflation risen to a new high. prices rose 9.1% in may from eight year ago. brought range -- more signs of inflationary pressures building at the wholesale level, material cost increased on record. north korea's jim -- kim jong , had a top level meeting with the countries military, testing nuclear warheads to fit on a new generation of --. the senate has voted to -- a gun safety bill, final passage expected later this week. backers call this measure the

biggest breakthrough on the issue in decades. it is designed to improve background checks, ensuring schools and giving federal state funds to combat gun violence. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am ritika gupta. this is when berg. -- this is bloomberg. ♪

>> you need to be patient. there is pressure on the ecb, pressure on the bank of england, the bank of australia. a lot of countries are playing catch-up when it comes to getting inflation under control. tom: russ koesterich of

blackrock yesterday. help me, lisa. 9:30, we see headlines. opening statements at 10:00. finally, he speaks. lisa: opening statements expected to be short, a reiteration of what he has said. what i'm interested in is the questioning and answering, what does he avoid saying, and how much does he double down on this idea they are willing to spur a recession if that is what it takes to bring inflation down? tom: jon off for two weeks, one week, i do not remember. it is a holiday. lisa: you quote the dow, you mock the holiday. tom: he goes on vacation, unlike me, who is glued to my phone. going, omg, look at japanese

yen. [laughter] futures -59 right now. you get somebody quick when there son moves and you cannot attend. mark, explain to our american listeners to -- and viewers why they should pay attention to the institutions of japan, and their experiment with modern, monetary theory. mark: vacation is when you do not log into bloomberg for a week. in the context of yen, it seems like the boj wants to earn credibility on inflation. if five-year inflation expectations are higher, maybe push wages higher, they need to get past the july upper house

election. what is interesting is, we are focused on the internal drivers, what is happening in china, the external drivers, which relate back to oil, terms of trade and rates during what we are seeing is the markets worried about recession fears, 50% chance priced in of u.s. and other countries. if rates are starting to turn over, we'll rates are cap in oil prices are down 10% from the peak, the question around the yen is, what is going to push dollar-yen higher is the market has to push away from the boj has done, they continue to try to weaken the yen. there is more volatility, more uncertainty. fading dollar-yen is a deepened trade in the short run. tom: on the pacific remark, all of a sudden, i got dollar thai baht. weaker thai baht.

i got a 10% depreciation from february. does that matter for chairman powell today, and the crucible of the capital? mark: what matters to powell is the context around the international inflation environment. he talked about a lot, i think everyone focused on the month over month inflation. that is the barometer. every client we talk to that is trying to think beyond inflation is like, what is the next month over month print do? a big driver of this is commodities. oil has started week over week and month over month, start feeling more confident they can put on on inflationary based strains and hope we are in the peak inflation environment. tom: the international study that mark mccormick does is what chairman powell is saying. lisa: the idea of an emerging

market issue, or some sort of mass disruption as the dollar continues to strengthen. do you see that is something plausible, if not likely? mark: what is interesting is, we talked about it in our note. there is a lot of different structures around the world. the number one question we are getting, when does the dollar peak and when do we seek trade come back again? with nem -- an em, it is about fragmentation. there is countries where you have stagflation, which is weak worth and high inflation. there is countries all throughout asia where growth is slowing and inflation is slowing, that is china. you are getting policy divergence. asia is trying to boost their credit cycle, you can get a weaker remedy, but a lot of people are saying, i want to buy were financial conditions are easing. people are talking about moving

into asian equities. you have limitations on how these currencies can weaken. bimah is challenged because it is a salad at -- satellite connected to russia. people are focusing on, i can see a weaker revenue, a stronger korean won, china is stimulating while the u.s. is being priced higher for a recession. the divergent traits are becoming interesting again, where emerging markets are unpacked into different regional prospects, rather than the whole group of whether they underperform versus the u.s. dollar. lisa: the answer may depend on what currency you're talking about, but where is the line between tighter policy is helpful to a currency, and hurtful? mark: it depends on the context we are in. you are talking about high inflation, week growth. what is critical is, it is

trying to maintain policy credibility. if you look at which currency basket has outperformed, it is still positive because you got higher terms of trade, higher oil prices, central banks have been aggressive and active. even around peaking inflation, there is conversations about seating rates in mexico and brazil, which is not the type of trade you would have. the line here is, who has established the most credibility around inflation? while we are pricing in recession risks, which country has the ability to stimulate on the growth side? this is where europe is interesting, you get fiscal stimulus coming from the euro zone. if they can alleviate the fragmentation between buns and ecb's, you have -- bonds and ecb's, you've got something that is starting to come together that could anchor the euro within the next six months. tom: mark mccormick, local head

of fx strategy. i missed this headline about 40 minutes ago, putin of russia channeling jim o'neill. bricks are working on a basket base reserve currency. i think that is brazil, russia, india, china. i think those are the bricks. lisa: the bigger issue to me is, how do they get away from the weaponization of the u.s. dollar in the same kind of way? can russia get support for a reserve currency to compete? tom: the brick reserve currency is as likely as manchester united winning. next, abby joseph cohen. this is bloomberg. good morning. ♪

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tom: good morning. futures, -60. we are here to address chairman powell today, a discussion about that in a moment. cohen joins us, she is

entrenched at the columbia business school. professor, what a shift to go from the 25 hour week of goldman sachs down to the job as a professor at one of our acclaimed schools. how abrupt has the shift been? abby: it has been a wonderful adjustment for me. i was an adjunct to columbia for almost a decade, i knew what i was getting into. i love the students at columbia. half of them are from overseas. i am spending time with a lot of different faculty, working on new curriculum materials for them, incorporating the real-world aspects into the academic worker. tom: the foundation here is a rite of passage if you are in the racket. you must read either 1934 graham

dodd, or maybe you catch up with graham. and coddle. write up, we look at graham dodd and joseph:, which is the new book out of columbia business school. how do you take the fundamentals that we were weaned on and drag them forward into jerome powell's modern age? abby: that is a wonderful question. let me set the stage. that is to say, the last few years, the fundamentals have mattered less then things like momentum and investor enthusiasm. you take a look at the strong correlation between the technology stocks, cryptocurrency, and say, these are financial assets in which valuation approaches didn't matter much. i think we are back into a period in which it does matter, fundamentals of earnings, fundamentals of margins,

fundamentals of inflation and interest rates, putting that altogether in terms of appropriate valuation models that will make a big difference for investors going forward. >> how do you model the fundamentals at a time when people cannot game out whether we have a hard landing that looks like a depression? what point do you game out recessionary outcomes in your fundamental analysis? abby: there are two ways to look at that. we can gain out -- game out alternative scenarios so we have a sense of the range of possibilities, not just for equities, but other financial assets. at the end of the day, and investor portfolio manager has to say, what do i think is the most likely scenario? you can plan for the worst if you have very little risk tolerance. you can plan for the best if you are highly risk-averse. many portfolio managers are

aiming for something in the middle, where they are trying to identify what is the most likely scenario. some of your earlier guests indicated what seems to be priced in right now is a mild recession, certainly not a severe recession. kailey: do you look at the end of the era of free money, or look at the pause, a momentary reprieve from the old truck low rate of more than eight decade as we try to curtail inflation -- a decade as we try to curtail inflation? abby: money is not free anymore. in many cases, it is not particularly expensive, particularly by historical standards. what we have seen in this raised -- rise of interest rates, the fed is likely to move those short rates higher, we have seen an increase in the intermediate and rates that affect consumers for mortgages. what we have to recognize is

that, when money becomes more expensive, in some ways, investors, households, become much more careful with it. if it is no longer free, you are going to see less leverage, which is a good thing in portfolios. for example, we have had incredible returns on private equity portfolios. basic returns were good, but they have been turbocharged by significant amounts of leverage which hide the underlying skill set of the portfolio manager. there are many corporations that took advantage of inexpensive money to leverage up their results. when money is no longer free, you get to see a better picture of whether those corporate managers and portfolio managers are doing a good job. >> you talk about how people are more careful of -- with their

money. it's not just corporations and investors moving money around during the pandemic, you had stimulus fueling the retail investor. they have been a force within these markets. what happens when that goes away? abby: what we are looking at is the situation in which individuals in many cases became overly enthusiastic about some areas of the market. equities and elsewhere, including digital currencies, that offered good momentum. what we are moving into in capital is what happens when the momentum breaks down, and you need to start looking at the valuations. individual investors have many different factors that they need to be concerned about. some of it has to do with how much longer they have in their investment to rise in, what else they might need the capitol for,

and someone. we see less money going into things like cap-weighted ets, we have not seen the intermediate aspect. i do not think it is going to be all that bad. tom: i say this in great honor of your 2005 paper, which is definitive. it is codified within the cfa institute. aristotle on investment decision-making. we have dragged ourselves, professor, from the elegance of 2005 to 2022 discussion of what is called a cathartic puke. how does catharsis play into fundamental analysis and the confidence to own equities? do i need to go down substantially to find a base to own equities? abby: we are in a situation where beta will be -- data will be less important. tom: explain that, please.

that is really important. abby: investors always think they are smart in the bull market. if you are invested in bull market, almost anywhere in a bull market, the beta of the market, that has to do with slopes of lines and someone. do not confuse able market for genius. that is beta. alpha is security selection. one of the curious things about the last two to three years is, it is hard to get alpha. investors, professionals who use sophisticated approaches trying to identify what particular securities they want to do -- to invest in often stumble, because alpha did not matter much. with this dramatically set in the markets, the overall decline, the great down of the

momentum orientation, and the recognition that the economic cycle itself is shifting. we see a move towards alpha, that is not just within the u.s. equity market likely to happen in other developed markets, as well. also, think of it more broadly in terms of categories no longer all going to be moving. >> we have a minute left. does this mean that the end of this standard 60-40 in terms of working and meeting a nuanced approach and allocation. abby: let's recognize the fed's 30 plus year period is over. that does not mean a year or two from now, inflation will be under incredible control, interest rates still rising. i do not expect that. we are exiting that 30 year

period in which fixed income securities were a good place to be invested, that 40% rule right now may not be such a clever thing. one other point, that aristotle paper talks about the importance of understanding the data. one example right now, there is so much focus on headline cpi. you guys have done a great job of contrasting headline cpi to core cpi, but the fed is looking at the better measure, which is core pce, which is running three to four percentage points below the headline cpi. rather than looking at an 8% number, they are looking at a number that is 5%, may be lower. it is still a rising inflation, i do not mean to suggest not. it is not like as awful looking as the headlines would suggest. tom: thank you for joining

bloomberg and bloomberg surveillance. this is the arch debate, the idea of the gloom of 8%, whatever it is. omg, when do we get back to 2%, versus as professor cohen mentioned, the marginal move. core, six point -- 6%. you come down a little, how does that change perception? lisa: how does that factor into active investing? we talk about that and the contours for recession with tony to spirito. this is ultimately the question. are we looking at a recession that might not be so bad or might be priced in? tom: did you notice how we got

abby to say cathartic puke -- tried to get her to say cathartic puke? i tried. futures -50, now -62 on the standard. jon ferro futures. this is bloomberg. ♪ ritika: president biden will call on congress to enact a gasoline tax holiday. he is expected to make a statement today, average gasoline prices around five dollars a gallon in the u.s. federal tax is at $.18 a gallon. in afghanistan, 920 people killed. hundreds injured in a earthquake. the magnitude 6.1 quake dropped

in the southeast part of the country overnight. the government has sent rescue teams. a crackdown on tech companies may be easing. president xi jinping promoting what would be called the healthy development of the payment in big tech sector. beijing has promised to unwind crackdowns in 2020. the american affiliates of the largest local crypto exchange finance were trading for bitcoin. finance u.s. plans to eliminate the charges for more tokens in the future, that will put pressure on other exchanges like coinbase to lower their fees. rinse on one million apartments in new york city will go up by the most in nearly a decade, 3.25% raise for one year leases and 5% for two years. that will affect the political promises that the mayor made, who signaled strong support for

businesses and owners. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. ♪

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>> i think it is going to be a mild recession at this point. household and business balance sheet's look solid. you get a deep downturn when -- i do not expect that to happen this time. tom: bill dudley, former president of the new york fed, a blistering note today on hard landing. it is a required read. lisa put it out on twitter, i retweeted the retweet of the

retweet. kailey in for jon ferro. kriti gupta here. kriti: we are talking about how high prices are. this is something becoming a global issue. we do not go to the u.s. gasoline, if we go to the european wrestling issue. inflation is higher, cost-of-living crisis is far worse then in the states. i'm showing you a chart of margins, the gasoline margin relative to brent crude goes to 2005. what you need to know, from 2005 cut 2019 is almost a straight line when you look at regression. there isn't a ton of movement in refining margins. 2020, 2022, a sharp acceleration speaking to the need for refining capacity. the record demand. a topic president biden has

mentioned multiple times, as recently as yesterday, and response to that scathing letter to the chevron ceo. tom: thank you so much. we prepare for chairman powell, coming up with headlines at 9:30 and to his testimony after opening statements. you will hear that and see that on bloomberg. we need to breathe, we need it from where the televisions and radio will be tuned in, that is 1600 pennsylvania radio. anne-marie horton joining us, what does president biden need this morning from jerome powell? annmarie: how he is received on the hill. what is the tone of his reception going to be? very harsh? you are not going to get a standing ovation, but is there going to be reception that senators like what the fed is doing in terms of wanting to

tamp down inflation, becoming more hawkish on it. the questions are going to be about inflation, and while you are trying to control inflation, how much does a risk -- how much of a risk as chair powell see when it comes to a scope of not going into a u.s. recession? tom: the panic of recession, amy cohen saying we need to look at fundamentals. the fundamental for pearman -- chairman powell and president biden is core inflation. there is glimmers of hope, right? annmarie: glimmers of hope when it comes to core inflation. mike mckee asked the best question, are you going to chase headline inflation, a.k.a., are you going to chase higher oil prices? chair powell said, our mandate is inflation. he made clear that americans do

not like high inflation, it is obvious. you see that every day in things that are part of the headline number, which is gasoline prices. kailey: the most obvious sign of inflation is the price sticker at your gas station getting higher and higher. when do the politics of inflation, the problematic politics of inflation for the democratic party, turn into politics of unemployment, and potentially, higher on a limb and, as a result of the fed's action -- higher unemployment as a result of the fed's action to tame unemployment? annmarie: it is going to mean, we saw this in the fed forecast, slower growth and higher unemployment. it seems at this moment, this is something this administration, the fed, is going to swallow. they have made it clear inflation is the number one issue. tom: we are trying to get visceral with our guests about

inflation. with you, i have got to go to jay powell and the september 2021 meeting, which will be after he gets a can of tomatoes from the harder family after your august canning of tomatoes. the price of tomatoes is up 55%. it is everywhere. whether you are canning tomatoes with annmarie hordern or not, it is inflation everywhere for jay powell. annmarie: it is everywhere. groceries, gasoline, rent. when comes the groceries, part of it is exasperating -- exacerbated with russia's war with ukraine. that will show up in the most full normal, developed parts of the world. places like egypt that have a massive import. america is a farm to truck to table economy. we get our groceries through

truck, the president is going to call for a gas tax holiday on castling, as well as diesel -- gasoline, as well as diesel. tom: it is about the process of hydrocarbons within our agriculture system. thank you, we look for the invite to the hordern canning of tomatoes in august. the kitchen must be destroyed. kailey: i hope i get a cam of it. how do we know when the can rationing comes? tom: we get food gifts from time to time. this testimony is not normal. the headline just came out, i do not have it in front of me. new canadian inflation back to 1983. it is hitting every country, everywhere. kailey: it is hitting consumers across the board as they grapple with higher costs for necessities, raising the

question of how long they will continue to send discretionary items. as the item -- as the market grapples and the response that does him of central banks, you are seeing pressure in this market. equity slower, the 10 year yield right now, down 11 basis points. tom: i'm glad you bring that up, matt from ducati emailed. what should we look for in crypto as we touched 19,000 earlier? kailey: we got a taste of 20,000 once again. crypto is coordinate it with water risk sentiment. tom: you think so? kailey: on a day were equities are down, crypto is giving it back. hard on the conversation as we talk about the potential inflation hedge, that has not been performing as of late. tom: futures negative 58, 8

deterioration in the last hour. vix, 31.23. 3.16% on the 10 year. two year break 3% would be a huge deal. we are not there, 3.09% on the two year yield. we draw your attention to the testimony of the chairman of the federal reserve, the monetary report to the nation. we will bring complete coverage of that on radio and television. look for the headlines in about 35 minutes. futures, -58. dollar resilient this morning, the yen, 135.85. this is bloomberg. ♪

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lisa: the countdown to the open starts right now. >> everything you need to get start for the set -- set for the start of u.s. trading. this is bloomberg the open, with jonathan ferro. lisa: we begin with the big issue -- investors bracing for chair powell. >> i don't