>> right now, we haven't seen

the down close on the economy. >> it doesn't feel like a normal break so i wouldn't call it a recession. >> at best i think it is a midcycle slowdown. >> it is totally delusional. announcer: this is "bloomberg serveillance" with john keene, jonathan ferro and lisa abramowicz. tom: jonathan ferro, lisa abramowicz and tom keene. on radio and television, where to begin? the yield market does a two year yield, falling below 3%. europe, simile lower rates. john, growth slowdown insight. jonathan: more economic weakness, particularly in europe. they have to push back on gas use in europe because ultimately, they might get less supply out of russia.

tom: these are persistent flaws and they are seen within the oddities of the earnings season. some of the bigger consumers, industrial companies this morning. within the tangible struggle, company to company, some do well and others less so. walmart. jonathan: walmart is down, clearly a shift we have identified for the last couple of quarters. clearly experiencing higher inflation and the spend that is going on now, food and gas. where the food -- spent is not going either discretionary items we all wanted in lockdown. they got as much of the stuff as they could, and then they built to much of it. that is the difficulty we are having. it is a problem with the consumer. tom: leaving the middle-class flat on their back and it is a republican presidential debate as well. lisa: trying to basically bring out what it means to have a technical recession versus a

real recession while we are not in a recession or we are seeing from companies right now are the blanket prices. mcdonald's, coca-cola, and those that are actually cutting prices which is walmart, amazon, some of the other companies. how much is this a trend and how much is this a specific company by company story of execution and management as they deal with different types of clientele? tom: what is so important about lisa's sharp explanation is the basic idea of the partial differential or dynamics of price in units that the revenue wind. walmart says units are pretty darn good, but price is just not there. jonathan: we've got a margin problem. it sounds like a bigger issue than that. these are the things we've been discussing for weeks. since the last earnings season, you get another warning, you look at the price action, and so many people say this. you look at the information

once, then you look at how the market response to the information. this is not priced in, the fact that walmart is down 9%. tom: we are going to talk about the research piece of the morning, something that i'm sure dr. larry will write about. in upper range of where she thinks that that is going. i've never seen that. jonathan: that is the upper range. what is the base case? tom: above that a little bit. we are completely unprepared for that across the line. jonathan: not at all. certainly not. tom: help me out here. i literally don't know where to begin today so i'm going to begin with the equity markets. frankly they are more resilient than what i would suspect. jonathan: just a little bit

softer, half of 1% on the nasdaq. onto meditech tomorrow, facebook. in between you got a fed call. yields coming in on the 10 year. tom: mehta, thank you. jonathan: i'm with you, i don't like it either. it has taken me a while. lisa: it makes you feel philosophical. tom: the chief investment officer, you have to readjust and rewrite the market call. what category of readjustment are you thinking about right now as you see earnings, and as you see the economic data coming in? >> we've been thinking that earnings could easily beat the next few to drop to the market.

coming into this corner, that is the issue. the ones that have pricing power are going to be the ones that make it. talking about technology, dealing with currency issues. alpha and microsoft, both of these year to date. microsoft is more of a resilient commercial statement, and alphabet might be harder, investing heavily in their business. this could hurt their margins. better numbers now, less than alphabet does. jonathan: where does this leave amazon? saira: they're making the right investments in the shorter-term. that same retail problem we are seeing with walmart, they've

gone into their savings in order to spend. not as resilient as they been in the past, and we see that pretty rapid shift. back of the issue for amazon in the short term. lisa: given that you are seeing probably some of the downward revisions not being priced in, where do you see this earnings season taking the s&p through the end of this year, given what we've seen so far? saira: you look at the earnings seasons overall, it looks like a good earnings season on paper. it is shift the outlook, weighing all of that together. for example, that means we are likely already on a recession. employment still holding up. all of those are going to play into earnings season.

we think those estimates need to come down. lisa: i want you to elaborate a little bit more on something you said, that we are probably already in a recession, it is just a political discussion. how did this really shape your view? do you believe that we are in a recession regardless of how we define it, and we may be climbing out of it, but we are already there. saira: we are in a recession and then we heard the market valuations with the conversation of what is priced in here. i don't think everything is priced within the markets. plus, they have that inflation rate one way or another, we are seeing a cooling. the fed could give it an 2023. that sounds optimistic to us.

the interesting thing in terms of how far you just will go, how do you think the chairman will respond to the economic data? saira: i think that would be something i think the markets expect. what we will be curious about is how much more are they going to tighten going over? the tea leaves that everyone is reading to try to understand if they are more hawkish or less hawkish. jonathan: particularly earnings a little bit later. a good amount of debt looking for the tea leaves. tom: that is often the case. but we are talking about is the

swing to neutrality on radio. -- on the way to restrictive. i am certainly moving away from accommodative. jonathan: lisa, that is the problem. tom: one with the last time we were restrictive? lisa: i guess people would go back to probably decades ago if we are talking about actual restriction. the messaging given the loosening of financial conditions. do they want to see them tighten? if they acknowledge weakness, does this become a problem for them? does it concern with receiving already about rate cuts next year? is that a really bad thing? are they not going to acknowledge that because they want the tightening to continue? they want markets to fall, they want yields to go higher. the markets got ahead of itself. how much did they push against that? jonathan: that is the warning from weeks ago, do you remember?

lisa: that is really the issue. i really can't emphasize how interesting this point really was, that if the fed has to reverse course and cut rates next year, that could be the trigger to inflation expectations. maccabee the real problem. at what point the fed say we could go slowly or we could go slower than some people expect, but we got to keep them there for much longer? jonathan: the next person that comes on the program and says rate cut in september 2022, we have got to ask them where is inflation? tom: i just think it is too much. i just don't think there's anything other than the gaining of it within the futures markets. i'm sorry, i don't think there is any value in it. up we go, and then we go downwards.

jonathan: ok, anything else? tom: no. jonathan: tomorrow, the federal reserve decision. this will be great. why don't you do a promo later? tom: i just think gaming out 18 months is absurd in a post-pandemic america. jonathan: the market is always gaming things out 18 months now. tom: i don't think it is of value right now. jonathan: you don't think financial markets are of value? tom: i don't think too game out 18 months is of value. i am way more interested in the early framing of the 50 basis points. way more interested in that. jonathan: looking forward to the conversation later. from new york, this is bloomberg. >> keeping you up-to-date with news from around the world for the first word news, the

european union has agreed to reduce natural gas use 15% at the prospect of a full shutoff from russian pipe flow seems increasingly likely. the green light has been given for a proposal to cut gas usage over the next months. general electric other priced hosting better-than-expected cash flow. sales saw 27%, continuing to battle inflation. coca-cola be wall street estimates reporting a 60% increase in organic revenue flows. the company says it has increased global news 24 hours a

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>> it's about the economy.

the economy starts to slow given that the fed gets rates into a modestly neutral sense, the equation changes. the fed needs to have the policy stands of trajectory on inflation and dynamics on growth that gives them comfort that in a year to a year-and-a-half, inflation is the below 3%. jonathan: great to catch up with bruce kasman. i'm jonathan ferro, the equity market looks like this. we are down 4/10 of 1% on the s&p and nasdaq. walmart getting hammered this morning after cutting its profit outlook. once again, we are getting used to this from the retailer. yields are down six basis points. growth concerns leading over things in the united states. look at the euro. the euro-dollar -1%. concerns about russian gas, high

gas prices, and lower consumption of gas going into winter from europeans, all weighing on the outlook to growth. tom: really can't say enough about the tensions in the market, exceptionally complex. normally before a fed meeting you would think it would be pretty quiet, it is not. jonathan: not with europe in the mix, not now. a republican from arkansas barely mentions is financial services, his banking life, irrespective on capitol hill to talk about the central banks. one of the jewels of bloomberg is a guy named craig torres. he's been writing on the federal reserve for years and he sent me a blistering note overwinter they're going to be a transitory investigation? let me cut to the chase. washington is transfixed with january 6 and it was 2019 when

the word transitory was launched by the chairman toward an inflation theory. you republicans and democrats have to investigate the path from transitory? >> i think so, tom, and i don't disagree with that. a lot of the challenge that we have now is that the federal reserve market policy is late in the face of the tremendous fiscal stimulus. they should have began shrinking in 2020. they should have come off zero. part of that was jay powell and the board agreeing august the 2020 to let nation overshoot the 2% target, saying that they were not concerned about it because for 70 years, they have been having a hard time getting inflation to 2%. i think it deserves a thorough investigation but i think we will find that the pandemic just jumbled the fed economic

forecast and congress response. tom: there has to be a respect for the uncertainties of economics. are we asking too much of our institutions and particularly our central bank given the shock of a once-in-a-lifetime pandemic? >> i think that is conceivable and i don't expect to take too much pressure off the fed because i think a lot of people democrat and republican in the summer and fall of 2020 felt that we should stop buying one under $20 billion per month and begin to taper and maybe start sending out expectations for coming off zero, and we did not do that in the face of tremendous fiscal stimulus again from 2020 and 2021. lisa: but given the economic uncertainty that we currently face, do you think it is better for the fed to air on being much more aggressive and curtailing the inflation now, even if it causes people to lose their jobs? a lot of people say it is a

necessary evil to bring inflation down. >> lisa, i think we should focus on priced ability at the fed. that should be there core mission. they shouldn't have let it get out of hand. it will have to focus on priced ability to return their good but progress in the executive branch should be focusing on the supply side, away from people going back to work, not adding to regulatory burden at this critical moment, not proposing to raise taxes. those are all things only supply-side that i think would be helpful as we navigate this tough time that congress described, and uncertain time between recession and inflation. tom: having the supply chain fixes are going to take time, but it is something we have seen repeatedly. what do you do about an unemployment rate that is expected to rise, a labor market that many people say has to weaken in the face of elation in

order to get us back to where we need to be? >> inevitably, they are making mistakes. we seen this movie before. it is very tough to put inflation back in the bottle. the fed has an obligation to price stability. families are also hurt by five dollars plus gas and the effects of inflation. you seen the walmart announcement today. consumers are being crushed by inflation. don't forget these are two sides of the economic charts. tom: i want you to speak to harkins all right now and the rest of the world. what do we not get about arkansas? what is the number one thing global wall street doesn't get about the pixie dust of bentonville, arkansas. french: the ozark is an amazing place. great food, great water. they had no infrastructure and

sam walton created walmart, when jd created jb. to me is about american ingenuity, american perseverance, not taking no for an answer. tom: there was a chamber of commerce announcement. jonathan: congressman, thank you. on the fed, we've got to get into diversity of thought as well. it is a big issue. a problem in the federal reserve for a long, long time that remains that way. look back to the december projections in 2022. rates in 2022, they saw funds at 0.9%. 2023, 1.6%. 2024, 2 .1%. i can tell you they saw inflation this year at 2.6%.

the ukraine war stuff, that is not an excuse for getting your forecast this wrong. tom: i feel very strongly the war is removed from this. it was a dreadful call but as mr. hill said, i think it is so important if we go through all sorts of investigations, the overlay will be that there was a pandemic. lisa: when we hear about the possibility that unemployment is going to go up and it is a necessary evil, there also is a policy prescription here that there isn't a lot of discussion about the things that are more complicated. jonathan: on the political side, i agree with you. totally agree with you. yields down five basis points on the 10-year. from new york, this is bloomberg.

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jonathan: in many ways, the week begins right now. big tech earnings coming up after the close. microsoft down to the fed tomorrow. then it is apple and amazon on thursday after the close.

futures right now, negative one third of 1%. yields down six basis points, dr. talk about europe. what is the market share right now without a discussion about europe? the euro, just weaker. the big concern about european gas. tom: the euro is weaker but what is important is the way it is weaker. i would also notice in the yield compression, the real yield is stunning. from 0.6 down to 0.36. can we begin to frame out a -10 year real yield? jonathan: dare i say we could frame out anything. tom: what we are going to do now, this is a special treat when we say good morning to tom for sally, -- tom purcelli. he is ill, so stepping in on

short notice, a gentleman who can slice and dice the american economy like no one. stephen is working on the american economy. which part is the biggest mystery right now? >> the biggest mystery really comes down to the inventories and to trade. those are always the most volatile components. we pretty much know what is going to happen in terms of the rest of the components of the report, given the indicators we have. this is portrayed in the inventory numbers. jonathan:jonathan: tom: what about export dynamics tom:? that could be a constructive number, keeping us out of recession. can you agree? steven: it certainly is possible.

we also know the important part is certainly a big drag as well. that really will be the telling sign. the final sales numbers are going to look pretty horrific. it is now a question of where the actual gdp numbers due or not. to be honest with you, all of that they -- the debate about whether or not we are in the recession or not is kind of an academic discussion because for most people, it looks and feels like a recession. lisa: one thing that is not theoretical or academic are the earnings we are seeing right now. others hanging in there with pricing power, mcdonald's and coca-cola. is there anyway we have seen from retailers and the earnings because of the nature of what walks like a duck, talks like a

duck? steven: we track all the s&p 500 companies. we track the bottom up numbers. we look to see how revisions are unfolding. what we are seeing is a clear downward trajectory. we are not at the levels yet where we can say we've reached the all clear where we hold everything in, but we have come a long distance. a month ago, it was plus 0.3%. it is now in the -18 area. it needs to get down to that -20, -30 area. there's more bad news on earnings to come. lisa: what does this mean in terms of the nature of the recession that you've first seen? steven: what we are dealing with are not the recessions we've

been dealing with since 1990. those were credit-related sessions. those were environments in which we had a fundamental flaw in the fabric of the financial system. we don't have that here. the net result is the degree of the downturn, the length of the downturn and the ability to develop a negative feedback loop which has been the biggest problem of the last several downturns. tom: you have the joy and we have a joy of a move which is turbocharged. only in dominic's analysis of the dynamics of the federal system, into your economic outlook. steven: we do believe that this economy is reaching a downward trajectory and at the federal reserve is probably less likely

to go from rapidly raising rates for using rates to rapidly raising rates to more gradually raising rates. we are both an agreement in that environment, and i think that is the real critical message here that differentiates us from most people on the street. most people want to believe that we have an economy right now where the federal reserve reaches this crescendo in terms of frontloading the rate hike story that they will begin to reverse policy. we don't see that in any way, shape, or form. one of the key think the federal reserve needs to see is a significant easing out of labor market conditions. in an environment in which we just went through covid, where people were ordering just in case, i think the flip of that on the labor market is people are going to be less willing to shed workers than they normally would in a downward trajectory

environment. instead, they will look to reduce their hours. there going to be reluctant to shed those workers, and i think in that environment, it keeps the fed more on a rate hike passed on a rate easing path as a lot of the bulls want. tom: a persistency at whatever level the fed settles out at, neutrality or even prescription, what does that do to the incurred rate of 2%? do we migrate down 3% as the new 2%? steven: there is no doubt there is an academic discussion going on that the terminal rate is shifting higher and that the natural rate has to be moving up higher as well. these are the same people who gave you secular stagnation which put us in the environment of your dealing with today. earlier in your conversation with preventative hill, you guys

were all kind of bashing the fed, i think you should be bashing economic academics as well, the fundamental underpinning of what we really did for the economy. there is a lot of blame to go around, even in the financial services committee. jonathan: do you mean larry summers? steven: there are a lot of people in that camp. there he was certainly very vocal in that camp and i think the reality of the situation, there's a lot of people who go right along with it. secular stagnation i think is part of the reason why we got to where we are today, and that has not been held to task. lisa: do you have a sense of what people got so wrong that is going to cause you to be more accurate in terms of what the new regime that we are in right now? looking at stagflation, are we

looking at the pandemic that is going to reset? steven: i am not in that camp. i do like that work. but i think the big difference between now and secular stagnation is what you were talking about earlier in your discussion before i joined the show. the currency in the 70's was where the euro and the yen are now. the dollar was going down rapidly, out of control. the central bank was not doing what it needed to do. what you are seeing here is a central bank ministering what needs to do, the global financial markets are recognizing that, the currency is moving up on the backdrop of that as well, and i think that is an important and significant difference. the other significant differences where we are in terms of demographics. back in the 70's, the baby boomers were moving into the labor market. they caused a great deal of

dislocation. we are now going from the millennials the generation z, and much smaller cohort. there is a big difference in demographic. i think those two factors are key. that third factor that separates us from the stagflation environment of the 70's, the energy price made a lot of merit -- american manufacturing obsolete. now we are capable of dealing with $100 barrels of oil and we have done that without any great visionary environment. i think we are more likely to go through a business cycle than resetting back 20 environment where we got to worry more about global deflationary risks and what is happening in europe and asia, in particular in terms of chinese growth should be telling you that in a world where we are building more manufacturing, we are going to create another supply problem on the other site.

jonathan: it is always thought. and always gets us thinking. just in terms of an example of an industry that went out there and ended up with too much inventory. the retailers, we can talking about walmart all morning. there were some courageous people to talk about this. the massive nominal gdp and from the fiscal pop, that is what people do. they predict the retailers going to spend, particularly mr. bezos and amazon. to react to that, also a business decision. now what? jonathan: walmart is set up. tom: what they've got to do, they have got to clear the market at five times the speed they think they have.

frankly, so does new york wall street. these banks are going just rapidly. jonathan: we will be catching up with jp morgan and -- the earnings still to come. maybe they will join us after they have caught up with me. i will try to work it out. futures lower. this is bloomberg. >> keeping you up-to-date with news from around the world, the european union is preparing for the possibility of cutting russian energy supply. they have agreed to cap natural gas used by 15% for the next winter to reflect dwindling gas displays from russia -- supplies

from russia. president -- former president trump on naked first trip to washington today since leaving office. the january 6 committee has been detailing his attempt to remain in power and for failing to call off a violent mob of his supporters. in the u.s. congress, the beginning of the internet will make a --. and mcdonald has reported second-quarter sales. we are talking estimates. the fast food chain digital sales also rose.

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>> i think cash flow, stability, good quality companies, when this is all over, are going to be valued. tom: truly one of the most interesting people in finance. we don't see enough from him, we don't hear enough from him, and we do so with david rubenstein. this is a really interesting and important interview on shareholder activism. nelson peltz with us tonight as

well. david, congratulations on dragging him out for some clear conversation. what is the nelson peltz model up to the present day? david:'s model is consumer-oriented companies are companies that have pretty good businesses that are maybe underperforming, they have lost their way a bit. you buy stock in the company, you would like to make some changes, maybe i will go on the board, and he tries to increase the value of the stock without taking a company and it has worked quite well for him. tom: and what is important, david, and correct me if i'm wrong, there is not a lot of yelling and screaming. he does this in a measured way. am i right on that? david: correct. the early days of activist investors, they kind of took

stock, they were fairly loud about making changes. today, it is very quiet. he doesn't really do much publicity, but what he wants, he tells the ceo, and they don't really have any publicity. if the cea does not, he may sometimes do a proxy fight, but he has prevailed generally intimate companies much more valuable. lisa: he's been speaking to you, talking about why he dropped out of wharton saying the best advice he ever heard -- i knew i didn't need to know much more. that said, he does have a macro with the dominance of those stocks. what is behind that? david: his view is that you did ok in the stock market in the last couple of years if you're in one of 12 different stock, amazon, apple, or things like that. but the rest of the world wasn't doing so well and many of these companies lost their way.

he got on the board of other companies like dupont. he has been doing quite a successful job of increasing the value of the company without having to try to take it over and leverage up the company. lisa: we also get lost in the macro discussions here and the difficulty of deeming out what is going to happen in six months, let alone two years. from your perspective, is there a very physical game or business to play taking a look at the nuts and bolts of a business regardless of what happens and being able to identify the companies that are doing this? david: yes. take company like procter & gamble that lost its way, wasn't spending enough money on marketing, and he goes in and presents his position about what they should do and tries to do it relatively quietly. interestingly, he doesn't have enough money to do it all by himself, so he does have

third-party investors just like other private equity firms, and he leon used his own money, but that was not enough to do the kind of companies he is interested in now. tom: the question for you that i would ask of mr. peltz, do we underestimate within the back-and-forth of the financial media and the recession uproar right now all of the deeper you slow going on? we underestimate how corporations adjust? with you suggest rather that right now, physical corporations in the news today are adjusting and adapting to the cards dealt them? david: there is no doubt that large organizations of any type move more slowly. they have bureaucracy, and it is not easy to get something done. so sometimes these companies are not ahead of the curve and in some cases they have been, but

is not easy to anticipate a recession well before it is apparent that they have to be laid off. these companies are the ones that probably have to be funded a bit by someone like nelson peltz. tom: lisa: shopify just confirmed a report in the wall street journal that they are planning to cut 10% of their staff. they are supposed to lead by the end of the day. this is a significant part of their workforce given the fact that they were building up over the past couple of years. from your experience, how much is this going to be the theme of the next 6-12 months? companies cutting back after spending rapidly due to shifting preferences post-pandemic? david: i think you will see a lot of that because some companies staffed up anticipating we would have growth for a longer time then we were likely to have it. there is no doubt there is economic slowdown.

some have definitely overstaffed and i think the tech companies are pretty good examples of that. tom: a small piece of real estate on the island of manhattan, he has got you interested in that, doesn't he? david: we didn't get into that very much but it is something he has been involved in as well. he is a person who takes on a couple companies at a time, one major company at a time, and focuses on it. i would say this wasn't the case early on. early on, people didn't know what he was all about. tom: thank you for the generous time, i can't say enough about this interview with nelson peltz. thanks for that. look for that 9:00 p.m. tonight as well. lisa, we've got to get back to the tape but i am frankly surprised at the resiliency of equities. lisa: how much has already been priced in? that is something we've been

talking about all morning. with amazon in a downward forecast, considering the sharp reaction, shopify shares down. the slot for online businesses, this was one of the most expansionary companies over the past couple of years. for them to come out and give their reducing 10% of their staff highlights the moment that we are in and to david's good point, how many other companies are right behind it in the wake of the pandemic? tom: it is a cloud-based commerce platform. i have no idea what that is. lisa, basically, it is a pandemic stock. lisa: amazon is going to be considered one of those also. how many are there comprised of a pretty significant portion of the overall index in the economy?

the questions that people start to talk about, what is the recession, does employment have to participate, what happens when the fed tightens? these are the questions being embedded into these earnings reports as companies come out with less conviction around staffing. tom: we will have our special coverage tomorrow. mcdonald out with a headline right now, inflation pressures impacting margins for the rest of the year. i think they will put inflation somewhere out there. lisa: inflation is not going away. will someone be able to raise prices more than walmart? the number two value meal. tom: a cheeseburger with up up and away. stay with us, futures at -17. ♪♪ this is bloomberg.

lisa: big couple of days coming up your futures down .4%. the countdown to the open starts right now. ♪ jonathan: