♪ >> we flipped to good news is good news and bad news is bad news. >> expectations need to come down. we have have an incredible run. run. >> there is a lot of opportunity for positive surprises. >> we are getting back into a more normal zone on consumer price sensitivity and that's key. >> this is bloomberg surveillance. kailey: from new york city, this is bloomberg surveillance with matt miller. lisa abramowicz will be back tomorrow. matt: i just read that there are a lot of words about the s&p 500

this morning. wherever lisa is i'm sure is paying close attention but she be able to get back. if she is an airplane away from us, it could be difficult because the travel chaos continues. kailey: especially for southwest airlines with reduced schedule again today. the ceo said he thinks things will be back to normal before next week. if you are currently stranded in an airport, probably isn't what you want to hear. matt: unless you are stranded in a great place. my brothers had their flights canceled in jamaica. they were scrambling to rebook but i thought why not stay? kailey: that sounds better than the cold we have been dealing with on the east coast for the last few days. did you see the latest data out of china after the news they are no longer going to require quarantine for inbound travelers, bookings were up like 250% for travel out of china.

can those chinese travelers actually arrive in other countries because we are seeing some restrictions put in place because of concerns around new variants. matt: what would be the demand to travel into china. there could be an exit is out and maybe they are concerned that china go back to a covid zero policy or maybury -- or maybe they don't go comfortable. -- maybe they don't feel comfortable. maybe things are going in the opposite direction i expected. kailey: i think it is revenge travel that the rest of the world got out of our systems. for those living in china, it's been difficult to do for several years. maybe that pent-up demand is what is coming to the fore now. let's check the marks because china initially had a positive impact on the equity markets yesterday but the rally fed into the close and this morning has been a little wishy-washy but we

are positive right now on the s&p futures. we still remain below the average year end target with just about three trading days to go. in the bond market, we saw massive moves yesterday with the 10-year treasury yield surging up word around the world. the 10 year yield in australia was up 21 basis points. the 10 year in the states came down about two basis points. we are higher than we were last time -- this time last week. matt: our friends trading this morning, we are watching the italian btp's and the spread from the bund is up and we need to wait to get to 300 before we worry about what's getting -- what's going on in italy. you so trading at $70 and change for nymex crude. i was looking at the commodities

index to see how far up we've shot since reopening china and we haven't at all. we haven't moved higher on that index so although you would expect a reopening in china to drive growth and demand for commodities -- we have seen prices take up here and there but if you look across the sector, you don't see a take off from the levels we have seen over the past few weeks and months. kailey: not the kind of behavior you would think china would inspire. let's get another perspective on this. how are you thinking about the china reopening story? how does it influence your expectations for markets across asset classes in the coming year? >> good morning, i think it's a major macro event. the bookings up to hundred percent coming out of china and traveling especially with

restrictions in place, i think tourism is one of the factors that will drive activity globally. those account for a few hundred billion dollars annually to chinese tourism in terms of global activity but it doesn't sound like much but i think it can be impactful. metals index is one that has perked up a bit and the australian bonds were up like 20 basis points overnight and that's an example of a country that will be directly impacted by china reopening. their expectation for rates are breaking up to hikes but i think markets are getting ready to face a macro factor for next year. matt: merry christmas to you.

happy new year if i don't see you before then. i had been debating with many guests over the past few weeks -- does he reopening in china and reversal of the covid zero policy bode well for global growth in markets as you would expect? or is it more of a concern if the disease spreads rapidly and causes massive amounts of fatalities in china? it seems to be up for debate but have we decided that it's good for global growth and good for markets and commodities and can you get ahead of that trade by buying into the year and? - end? >> the markets seem to be pricing that this will be a relatively positive catalyst for global growth but there is a lot pessimism out there that we will hit a recession next year in the united states and we are already in a recession in europe. the china reopening is weighing

against those expectations. yet there is a risk that the borders in china will open and there could be new variants atticus because -- and it could cause some disruptions. they say that disruption will be less and markets seem to be more leaning to a positive growth catalyst or at least weighing against recession expectations. i think you can buy into this so you could have international exposure. asia is an opportunity because that's an opportunity that has -- that is been a region that has been lagging. that's the last one you can trade. matt: since december 1, we have come down from about 4100 on the s&p 500 to 3829 yesterday.

typically, traders talk about or expect a santa claus rally, not these kind of drops. you noted that 50 years ago that the santa claus rally was about the last five days of the trading year and the first two days of the following year. is it still like that? does it bode well for next year if we get it? >> it may be possible. the china reopening is the story to maybe drive this rally. it's the last five days of the year into next year and it's that generating factor. it's technical analysis but it seems to be having a seasonal historical relevance. bonds are seasonal as well around this time. they tend to decline in the month of december so the combination of rising yields and

expectations of china affecting global growth positively, you could have a mini santa claus rally so we will see what happens. kailey: on the subject of bonds with the upward pressure of yields, the bank of japan decided to show up once again with unannounced bond purchases even though they made some tweaks to yield curve control and raised the cap. they are still conducting yield curve control. how much pressure will be on corona in the first few months of the year and whoever takes over to abandon that policy entirely if we see the inflationary pressures more persistent? >> i think corona has helped them abandon policy altogether. there is extreme monetary policy which is a major effort.

they can apply anything they want to apply in terms of easing. to do this unexpected move before getting out of office and recognizing inflation is rising in japan could lead to a different environment and protracted deflation that they were worried about. politically, you cannot leave the control out of the bond market and start taking about raising the policy rates to positive. i think that's with the market is doing. the two year yield in japan is positive and i think there is expect tatian that the control will be a policy from the past. i think corona has set it up for the new governor that could come into the bank of japan in the spring and may abandon the policy. kailey: the japanese yen is weaker against the u.s. dollar right now.

thank you for joining us. the yen story is not limited to today. the yen is the worst performing currency against the dollar this year. matt: i remember the days of you telling me that it's at $1.46. even that kind of recovery has not helped. i want to recommend ben's research. these notes are not only readable and understandable for a layperson but he takes a position and makes it all and he includes a lot of charts and i think it's helpful research investing in these markets. kailey: especially if you have a bloomberg terminal. matt: that's the basic package and then you add options like ben emons research.

i think he walks you through wall street the way you need to be every morning. kailey: we try to do the same but in a different way perhaps. we will continue to walk you through these markets as we get those are to the opening bell with futures positive 0.2% and we will continue the markets conversation in the next hour. catherine rooney barra will be joining us. this is bloomberg. ♪ kriti: ritika: china's decision to abandon its covid zero policy and reopen its borders have prompted a global response in country is considering whether to test or restrain travelers from china. reversal has triggered nationwide covid outbreaks. other countries are a waving new

restrictions. the number of fatalities has risen in western new york. at least 31 people have died in the storm dumped more than 40 feet of snow on buffalo. travelers are in a nightmare for thousands. southwest has scrapped 60% of today's flights. the vatican says the retired pope benedict health is getting worse and pope francis has gone to visit him. no word on what his illness is. he is 95 and served as head of the roman catholic church for almost eight years in 2013. he was the first pope and 600 years to step down. the biden administration will comply with supreme court that will keep border controls. the court ordered the restrictions known as title 42 stay in effect while a lawsuit goes ahead. president biden says he will enforce the order but believes lifting the measure is a good thing.

years of donald trump's tax returns will be released friday by a house committee. the -- account numbers will be blacked out and it will be the first complete look at the fallen presence tax records in the years he was running and in the white house. 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. ♪

♪ >> it's very normal now. that is why he has come to the right time that we will do without the vaccination pass. that is exactly what this government has been planning to do for normalization. it has come to a time where we don't have to rely on the vaccination pass. kailey: that was the chief executive of hong kong as they lift some of the last remaining covid restrictions. we continue to get the reopening news out of china and its surrounding region but that is not seeming to lift risk sentiment in u.s. markets.

there was a little lift in the hang seng market but u.s. markets are only modestly in positive territory. a little bit of a rebound from losses yesterday and yesterday was more about the bond market with the 10 year yield rocketing higher and we commented touch about basis point or so to three dollars 82 cents on the treasury yield. despite the reopening of china, wti crude is down by a full percentage point. matt: it's really the big tech stocks that are most notable. we were talking about tesla this morning and it's difficult not to use profanity when talking about these drops. the stock continues to get decimated. if we drop in the cash session, it's down eight days in a row,

the longest losing streak since the ipo. kailey: in the premarket after being lower by more than 3% earlier, we are no positive on the stock by 2.5% but it has been absolutely brutal for this stock over the course of the year. it's already down 69% in 2022 in the market value is no less than 350 billion dollars after starting the year is a $1 trillion company. the china story plays in significantly because what led the decline yesterday and what led to a lot of the deterioration in sentiment around this stock is concerned about demand in the china market and production at their shanghai market looks like. matt: a lot of it is elon musk and his purchase of twitter and maybe he has pushed for this but a 69% is mean and the stock world but he's into that kind of thing.

kailey: key sold a lot of tesla stock to do the twitter deal. matt: it's not the only tech stock that's losing. apple is down on concern about iphone demand so it's not just worry about people buying tesla's. you don't see a drop of that size and apple stock. it's down to $130 per share. kailey: the china market is what's crucial to both of those companies. as china reopens, once you get past the surgeon covid cases underway, do you start to see demand recovery taking shape? matt: alan wan is sitting by in shanghai for us. i know you have had a long day of covering this reopening and the news keeps coming in. give us the latest. we were talking about revenge travel and people finally allowed to go on vacation or booking flights.

>> yeah, these restrictions -- japan was one of the first countries to require chinese visitors produce negative test results upon arrival. other countries are taking precautions as well. kailey: it looks like we are having some difficulty with the connection. he has been covering this story all day. to put some numbers around the travel story -- matt: he was buffering. kailey: trip.com says holiday bookings for outbound flight from mainland china jumped 254% tuesday morning from the day before. that is just stunning and the question is, will there be demand to go into china? will it be the domestic population going out?

matt: i saw yesterday they are preparing to raise the cap in january 8 on international flights. i wondered how many people will flight into u.s. businesspeople going over there to do deals which they have had a difficult time doing over the last three years. you have to think about the people who have been trapped to want to get out. it makes perfect sense and i hadn't thought about that. it makes sense you want to book a trip as soon as you could. now that you can, you're probably looking to book a flight to anyplace that is warm. we were talking with alan wan in shanghai and has been covering this reopening 24/7 since the headline started rolling in post-christmas. a couple of weeks ago, we had these protests, the likes of which we found very surprising. you don't expect chinese

citizens to, and protest that severely against government restrictions and yet they did. the government has answered and said no problem, covid zero is reversed. will the chinese continue to protest or will they use their newfound power for other policies? kailey: it's a question of how far the communist policies willing to let this go. there is serious economic incentive 4g zheng paying -- for xi jinping. china used to be the growth market of the world. so many pockets of the economy were locked down for so long. they would like to achieve growth in 2023 but maybe in order to do so, might have to unleash your citizens. matt: bloomberg economics says they will achieve that in 2023. there is the possibility of

black or gray or white swans has to be huge. you've got to take that forecast with a grain of salt especially looking at a global recession. if we are not already in recession in europe, we will see a contraction in growth there. what kind of recession will we see in the u.s.? kailey: i understand we have all en wan on the phone from hong kong. icu, you are not just on the phone. we were talking about revenge travel. can you walk us through what the latest is because hong kong is making its own moves? >> japan became the first country to announce these restrictions to require that chinese travelers produce

negative test results on arrival. other countries are concerned like the u.s.. it's mainly because it's concern about a lack of transparency in china and concern that china is opening up the floodgates and there will be more variants floating around. the reality is, the studies show that the variants circling and china are similar to what we have seen around the world. other countries like malaysia and india are also concerned as well. taiwan is considering testing chinese travelers on arrival. one philippine minister said they want to consider curbs on chinese travel as well. i asked my friends what they thought about this. they didn't seem to be offended. they are worried that if they go

to japan, they may have to quarantine for a week. it's better than what has been happening recently. kailey: thank you so much for your continued reporting on this, please get some rest. we will be here with you on surveillance for the next couple of hours as we get closer to the opening bell. s&p 500 futures are up 0.2%. this is bloomberg. ♪

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kailey: three days is how much is left for the year of 2022. it's a holiday week and trading is lighter than usual but we are tracking it. kriti: a little bit more green on the screen then we saw in the early edition. we are seeing more conviction so futures are slightly higher but nothing to write home about. low volume in the russell 2000. a little more games across the atlantic so i wonder how much will be volume. the stoxx 600 is only up 0.4%. what has changed the narrative has been the dollar in the last hour and you want to look at the

intraday move because it's starting to slide a little bit and that weakness is corresponding in strength in some of the commodity currencies like the australian dollar or the new zealand dollar and the canadian dollar. the exception is the japanese yen which is coming off a bond purchases. you would think the commodity complex is higher but that's not the case today. brent crude in gold are actually declining which is interesting because it's coming as the dollar is getting weaker and weaker and those are usually inverse correlations. copper is interesting, it's the anomaly, higher about 0.3%. that's just to continue -- a continuation of the china reopening story. gold is down about 0.5% following a move lower cost commodities broadly. >> amazing that the pound has

managed to climb more than 20% since the budget crisis in england in outset one dollar 20. that's only been like three months. you mentioned dollar weakness and when the dollar drops, at least this year, that's been great for risk assets and that's what's turned around the market. i looked across the other currencies and the pound is that $1.21. it surprised me we saw this kind of gaining by 0.5% in one month? kailey: all it took for the u.k. was a total leadership change. thank you for the market check. matt: i thought i was talking to her and i saw that she is clear so she has left the room so she clearly can't answer me. kailey: you make a good point,

on the recovery and other g10 currencies raises the question if the dollar peak has been done and it's been a phenomenal year for the dollar and the rate differential story is what was driving that for so long but you have other central banks playing catch-up and more conviction in this market that the federal reserve will change course at some point next year even if they say they aren't. matt: it looks like the dollar peak at 1253 on the dollar index came at the end of september, right when we got that many budget out of the u.k. that's when you saw the pound go below parity on september 23. that's when we saw the dollar peak and since then, it's been a reversal for the greenback as well as the pound and the u.k. government. it's still a tory government. kailey: i can't believe that only happened three months ago

and that was just one of the borderline cataclysmic market events of the year. there was the pound, there was the yen at one point and that's just in fx. there have been so many remarkable market shaking instances over the course of 2020. matt: it's a poly crisis as our next guest puts it. is the co-chief investment officer. great to have you and thank you for joining us this morning. we have seen so many crises from the currency crisis and the fixed income problem in the u.k. as a result of that many budget but the war in ukraine has to stand out in 20 and the pandemic over the last few years. now we are heading for what most people think is a recession, a global global -- growth recession. i know you are focused on esg

investing, how do you deal with these crises? all of them lead to a re-think of energy policy. >> thank you folks for having me here. i want to step back and say what differentiates us at northstar as to how we think about the current situation is that we look at it enough all listed perspective. in terms of a poly crisis, we are confronting several challenges that pose serious threats to humanity. i am still concerned about certain items such as the war in ukraine. i am concerned about the fact that we don't have what i would consider a well plan to transition to renewable energy. yes, i am concerned about the fact that in terms of our relationship with china and the geopolitical risks that are present, what that means for our economy going forward.

while i am concerned about all of those things, i think it's important to step back and look at how all of these things are interrelated and what that means. what really means is when you look at the risk, the whole is much greater than the risk of the sum of the parts. that is really the way we kind of approach thinking about how we are going to position our portfolio over the next couple of years area we think about it in the sense that there might be one or two things that might go right next year. maybe the fed decides to stop raising interest rates but there are so many things we have to focus on with respect to managing risk. kailey: speaking about how you position your portfolio to hedge against that risk on a what does that actually look like in reality? >> what that really looks like for us is owning quality stocks.

these are stocks that we know well. we are not frequent traders. we also look for consistent earnings. we are currently focused on stocks right now where there is strong cash flow immediately. also look for good management teams. with that being said, i think quality besting capital it -- encapsulates what we are looking for right now. kailey: as you talk about cash flow in earnings, the ones that have been raking it in this year our energy companies. that comes back to your point about a revival of fossil fuel for a world that was supposed to be transitioning with the goal of reaching zero. the war in ukraine and the energy crisis in europe has driven everyone back to the legacy fuels. how do you think about that in a portfolio where you are trying to prioritize esg strategies but the same time, the prophet has been cruise? >> -- has been in crude?

>> we have a fund that is fossil free. our clients understand and we are in constant communication with them about these issues. that is somewhat unique. you are right, fossil fuels are up. when i started off and was talking about the crisis, if we don't figure out a way to address climate change, there is a serious risk to humanity. our clients understand that said they are more than willing to not profit from oil and gas right now. for us, it's not a consideration. you can still be highly diversified without owning fossil fuels. matt: that's an important message. we don't hear it is very often on this channel as a many investors are focused solely on prophecy was interesting to hear

you say that. it's also interesting to hear you say the fed could stop raising rates and that's what the market is hoping for broadly. what is your view from an esg perspective on inflation? it's been one of the problems for the transition to cleaner energy or renewable energy. inflation has driven us back to fossil fuels. how do you weigh the benefits of the fed policy versus the inflation that has put us here? >> good question -- in terms of the energy crisis, we don't have a well-thought-out plan in terms of transitioning. some of the uncertainty is expected and going forward, we will continue to see this type of uncertainty. anybody who is looking at the

situation at the beginning of 2022, we did not see the war in ukraine coming and we did not see the challenges that europe would have in terms of securing enough energy. with that being said, i think we will continue to have a lot of unexpected events affecting energy over the next few years. we are dealing with it the best we can. kailey: so much of it seems to come down to policy. a week from now, we will have a new congress in session with the republican controlled house and we have seen pushback on the some republican lawmakers on the idea of esg strategies. i'm wondering how you navigate the kind of political uncertainty when you are thinking about how to put together an esg portfolio? >> for us, this is not something

we have to be concerned with. over all, is very troubling. let me be clear in saying there is a string of anti-intellectualism running through this argument because when you think of what esg is, were considering nontraditional factors. most investors would agree that their clients want them to be well informed. it doesn't make any sense really to say you shouldn't look at all the available data that you possibly can when making decisions. for us, our clients support the strategy we have. he constantly had communications with them about these issues so it's not really a problem. overall, it's a problem because whether we like it or not, there is scientific evidence that climate is changing.

we also know that in terms of nature, we are consuming more resources than can be generated and that leads to a whole host of negative impacts from harvest and not having enough food and even more extreme events. this is very troubling because people will continue to lose their lives. kailey: we've seen so much of that over the course of this year. thank you so much for joining us. this is bloomberg. ♪ ritika: keeping you up-to-date with news around the world, stranded travelers in the u.s. but faced days of delays if they are booked on southwest airlines. the carrier has already scrapped

60% of its flights today and about 20% of tomorrow. in new york, the death toll has risen in western new york from the record raking storm. buffalo is digging out from more than four feet of snow. in hong kong, the government is making sweeping overhauls of code policy in an attempt to revive its reputation as a global financial center. they will no longer require proof of vaccination to entry to some venues. customers connected with ftx have sued in bankruptcy court to try to recover some of the billions lost in the melt down. the lawsuit asked for a judge to give customers payment priority over other ftx creditors. george santos poses a test for gop leaders kevin mccarthy. he has admitted that he fabricated stories on jobs at

big banks and property ownership to be elected house speaker and needs every vote he can get. he is the subject of an ethics inquiry but mccarthy's not saying what he will do. 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. ♪

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kailey: welcome back to bloomberg surveillance, we are counting you down to the third to last trading day of the year? we have three days left. matt: thursday-friday, yes. kailey: it looks like it will be an up day for the market today.

it seems like a little more conviction is coming in. we still remain below were strategists at large that we would be ending the year. they were guessing around 4000 but we have a couple of days left. the 10 year yield is down about 10 basis points are well off the highs of the year. we reached that a matter of weeks ago and crude is not getting a lift, down about 0.1%. matt: the so-called santa claus rally that everyone was hoping for that every year we talk about actually happens the last five days of the year and the first two days of the following year at least according to yael hersch from the stock trader's almanac. maybe we still get that and maybe we still make it to the year-end target of 4000 and change but it looks like it will

be by the skin of air t. kailey: so santa claus comes to town after christmas. matt: you have to deliver the presents to the kids first. the national air and space museum is open to the public following a massive renovation. joe mathieu sat down with the museum director for a behind-the-scenes look at the washington, d.c. institution which includes new exhibits and emphasis on how diverse voices played a role in space exploration and he hopes the museum will spur more innovation. >> it's known as the sanctuary, the iconic displays, the sense of history that it brings. what is scarier, planting an f-14 on the deck of an aircraft carrier at night or re-envisioning one of the most busy museums in the world? >> i think the bigger task is re-envisioning this national treasure for the future. we know the impact you just said

it has influenced you. i came here 1977 and i was 19 years old and i was struck by the d.c. three above us. i made that connection that the lead to my professional life in aviation so we know the power. it's not as scary as landing a night on the ship but very important. >> the level of stress might be approaching that. it's interesting to think that this wing has been closed since before covid, 2018. you said when it reopened recently, the real measure of success is when visitors return home and say you must see this. is that already happening? >> absolutely, we are getting about 5000 visitors per day and have had good feedback through the media and visitors. part of it is because almost 50% of the artifacts in the museum today are here for the first time.

we are able to expand the storytelling and await the other measure of success is we hope everybody coming into this museum, however they present or whatever they look like or whatever the -- wherever they come from, they will be able to see themselves in the stories and artifacts like i did in 1977. >> the big talker is the x wing fighter from the star wars movies. it's not an operational aircraft like some of these other exhibits but it speaks of the vision you have in connecting fantasy with innovation. what is that lesson for young people? >> it starts with an idea. there is that moment of inspiration and it can come in a number of ways. if you go into the destination moon gallery that tells the story of apollo, you will see games and some things young astronauts were influenced by his children. we know the iconic value or the influence you value of these artifacts. i've taken some heat for the x

wing. people said it's never flown so why is it here. i remind folks that we had 6000 planes that never flew so it's meeting our audiences where they are. what connects to them that resonates and we know the power of the x wing fighter does that for a lot of the audience. >> you got a lot of competition for eyeballs in interest and trying to appeal to kids weren't tiktok and social media and have the attention span of a 10 second video so i'm guessing this helps bridge that divide. >> it does and what we hold dear at the smithsonian and here at this museum is a commitment to authenticity and accuracy. when you come here whether it's in person or virtually, this is the real deal. sometimes, some of the other media and influences in our lives cannot lay that claim. it's important we hold to that because not just the artifacts

and how real they are, it's the people stories behind them. >> there are amazing stories around this including the apollo mission and the apollo 11 capsule. it reminds us of the harsh environment that is space. as we sit here, an orion space capsules orbiting the moon. how much to current events drive the mission for the museum? >> people think about museums having a retrospective look so why do we have a gallery dedicated to the apollo missions, what's the relevance? other than the fact that it was an amazing story. the president a few months ago used to the term moon shot. what does that mean to a generation today that was not alive during apollo? most of the people coming into the gallery today would not have been alive to see the launches

of the saturn five and apollo. the reason we tell the apollo story gets down to four elements -- one is to take on a big challenge and solve problems you need a strong vision that president kennedy articulated. you need a commitment of national resource, 400,000 americans with millions of dollars working on the project. you need a tolerance for risk. you have to be willing to take chances. and then you have to have that ingenuity that i think is often underestimated. when you put those things together, what the apollo missions demonstrated as you can do incredible things. how does that play up with climate change and curing cancer and some of the seemingly tractable problems? i want for that gallery and say no, we can solve problems. >> a seven year project in total? >> yes. . >> it's a huge undertaking so

does it have a price tag? >> it's taken on by the citizens of the country as their taxes will pay for a portion of rebuilding this building. it has had a lot of wear and tear since it first opened over 40 years ago. importantly, the actual gallery, the look and feel is financed privately and through corporate and individual benefactors, people that have trust in us and have given us their treasure, their donations to finish this project. that equates to over $250 million. >> you are a full-time fundraiser as well? >> indeed, but people don't give to me, they give to the museum and the stories we are telling. >> i am compelled by your personal story and your career. 315 traps, more than 500 hours flying the f-14 tomcat, the iconic fighter plane that has

its own cult following now. you went on to be the manager of dulles airport, reagan national airport and the director of the air and space museum. but you have said in conversations that in-flight school, you experience something called a flight down? >> absolutely. >> you actually failed the equivalent of a certain exercise that you needed to pass in your training. i wonder how much that influenced your approach to your career or your trajectory after that? >> it's very humbling to be told that you failed and something you worked hard at. i think what it does is it's a test of character to decide how invested you are in what it is you're doing. with exploration with apollo and all these stories, there was failure along the way. you learn from your failures. it's always important not to

repeat the failures but learn from them. to think we will do incredible things either at a level like this museum, land the person on the moon or in my case, learn to lien aircraft on and off a carrier, failure is part of that process. kailey: i love that conversation. i love any time anyone brings up an f-14 because my dad was a naval aviator. matt: we thank you for your service. kailey: he appreciates that. i'm sure he is watching and listening now. we are not at home, we are working this week and working through the market action this morning. about 2.5 hours to go until the opening bell and futures are up by about 0.25% and we will discuss that coming up. this is bloomberg. ♪

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>> we have flipped to good news is good news and bad news is bad news. >> the worst won't happen by the end of the year, it will happen in the middle of the year. >> we had an incredible run. >> there is a lot of opportunity for positive surprises. >> we are getting back into a more normal zone of consumer price sensitivity and that is key. >> this is bloomberg surveillance. kailey: just a few days left to go in a brutal year for equity markets around the world. from new york for our audience worldwide, good morning, this is bloomberg surveillance on bloom -- on television and radio.

john, tom and lisa are off today. and matt miller speaking german. let's talk about the markets. matt: it's been interesting because we have had a year when at the beginning of 20, strategist were forecasting 4900 on the s&p 500 and now we are not even at 3900. we are coming in 1000 points below where we thought we would be and we have had unexpected negative surprises like the war in ukraine. that is what has been problematic for the energy sector, driven inflation higher and probably will pushes into a recession in 2023. will we even get to 3900 on the s&p five -- 500 at the end of next year? kailey: considering how consensus has changed over the last few months, how much up or

down side is there to those forecast looking into the year ahead? the consensus seems to have built that it will be a very rough first half and eventually we will reach up bottom may be as low as 3000 if you believe morgan stanley and something in the shape of a recovery will take place but ultimately will get us back to where we are now. a year of little to no return whatsoever but upside or downside risk, given the year we have been through, you cannot rule anything out. it looks like we will have a recession. matt: then earnings will have to be revised down again. another analyst said we have not had a recession where evaluations haven't fallen to 15 times forward earnings. we still have a ways to go. 3500 would be a best case scenario if we get a recession in that opinion. probably below that. kailey: you have the top down

strategist saying estimates need to go down but they are simply not revising so there is a mismatch there. earnings will be more pressured if inflation is more persistent. there has been concern over the last day or so -- were so of china refueling the inflation. matt: the reopening in china is one of the big stories. how do you prepare for 2023, how do you wrap up this year? let's bring in catherine rooney vera the head of global macro research so she is a top-down person. thank you for coming into the studio in a cold, dark and wet new york. >> i'm from new jersey but i live in miami. matt: what you think about the

conundrum -- it doesn't seem like a recession is even priced in yet and it's crazy given the ring one expects a recession. >> i think we are beyond talking about a recession. it's all about inflation and yes it's about laois and but for me, it's about the labor market is it's been so strong and increases in salaries are not commensurate with a 2% inflation target. the fed knows it has to get inflation higher. matt: we will talk with claudiasahm a little later and she thinks that's a mistake to argue that the phillips curve is still alive and well and you've got to push up unemployment employment to pull down inflation. >> i would like to hear her view

on where the neru is which i think is 4.9%. for the natural level of unemployment, if it's 4.9 percent, anything below that is inflationary. what's the view on wage price spiral? matt: i'm writing these questions down. >> looking at history, and unemployment move of that amount is never not coincided with an economy already in recession. i think that's important to note. the yield curve is pricing in recession but there could be normalization next year and my thing is everyone is talking about have next year the fed will not cut but if you look at history, the past 14 monetary cycles, the last hike versus the first cut, that timing is much shorter than you think.

it's on average four months. kailey: chairman powell says we are not going to do that, higher for longer and will not give up until inflation is our target so even if inflation is cooling, we are far away from that. what gives you the conviction the bed is not going to tolerate the weakness in the labor market and the broader economy as they say they will and have to make that pivot? >> i think it will have to come down to how far the labor market rolls over. i think unemployment goes to 4.9%. it's hard to estimate. matt: we are at 3.7% right now? >> yes and i think it needs to force the labor market roll over. we talk about the supply-side forces improving and used car lots are packed now. matt: i've seen prices come down considerably. >> i know you love cars.

i think supply-side forces are improving and you have china reopening. the demand-side really hasn't taken a hit yet. matt: we also got a $1.7 trillion omnibus. >> we do have inflationary impulses but that will aggravate the demand-side which hasn't yet rolled over. consumption is still pretty good. it's been very resilient. if you look at the conference board, that's been resilient and that has a strong correlation with the unemployment rate. if unemployment moves higher, confidence drops and you get a rollover in consumption. people are still spending even though inflation is very high because they have jobs. kailey: when people are still spending and maybe leveraging up the pandemic money, what does

that mean for corporate earnings? people are still out there tolerating higher prices and can you continue passing on higher costs and margins and profits hold up? >> you have nominal growth it inflation so i the next year inflation will come down. i've been out of consensus on that since the beginning of this year. stagflation to inflation was my outlook for this year and i think we could get earnings having to be revised lower and nominal growth in my view is positive but real growth next year i have it -0.4%. i have four quarters baked in of negative annualized growth in the u.s. matt: savings rates have fallen substantially. during the pandemic, they shut up to record highs for american

savings rates and now we are back down to about 2% savings rates. michael mckee pulled up bank balances. thank balances are still holding pretty high right now. they start as a rollover a little bit but they are still pretty fat. the u.s. consumers should not be counted out quite yet. kailey: you can find this on your bloomberg terminal. matt: let's just say they will that big time during the pandemic and we showed this and they have held their pretty well. however, credit card debt is starting to climb and the consumer is starting to leverage of. how do you take this into account and put it into your investment strategy? are you still defensive and wind -- and wind we find an inflection point where you can start investing again?

-- and when will we reach an inflection point where you can start investing again? >> when you get the change in the labor market, i think that's where the market drops a bit further. i think we could go lower on the s&p 500 and i think we start talking about the fed guidance turning a little more dovish. i am in the camp where the labor market determines how weekly the fed would stop talking about higher for longer. the fed is all and now but the policy mistake has already been made kailey: thank you so much for joining us in studio. how are you getting back to miami? >> oh, god, spirit airlines. for tall people, that's complicated. matt: it's difficult and i don't envy you we will talk to helene becker about the airline

situation she says they have a strong balance sheet so as an investment, maybe not the worst airline but i have heard them referred to as south worst. kailey: thank you again for joining us and best of luck with your travels. i just took a look at southwest stock, down another 1% after a 6% loss yesterday be as it could still be a reduced schedule for days. investors save it could translate into a nonsignificant earnings period. most everything is probably better than tesla. i wonder if we will continue to see the market fighting the fed next year or markets questioning the fed credibility. until we see unemployment take up in the fed doing to raise rates and russia's there, i think market will continue to

ask those questions of jerome powell. kailey: it's a question how strong the market pushes back against the fed and how the fed pushes back in return. this is a conversation we will continue to have. christina cooper will be with us at 8:00 a.m. and we will discuss more about the markets as we have futures in positive territory. this is bloomberg. ♪ ritika: keeping you up-to-date with news around the world, in western new york, the number of fatalities has risen from the record-breaking snowstorm. the storm dumped more than four feet of snow on buffalo. travelers are booked on southwest airlines and it's a nightmare for. they have delayed 60% of flights

today. china's abandoning of covid zero policy has prompted a global response with countries considered whether to restrict travelers from china. the policy reversal has triggered nationwide covert outbreaks but the u.s. and japan are weighing new restrictions on people arriving from china. the vatican says retired hope benedict's health is getting worse due to his age and pope francis has gone to visit him. benedicts is 90 five and serve as head of the roman catholic church for almost eight years. he became the first pope and 600 years to step down. the biden administration will comply with the supreme court order that keeps in place order controls. the court ordered the restrictions stay in effect while the lawsuit goes forward and president biden says he will enforce the order but believes changing the measure is overdue. years of donald trump's tax returns will be released right a

buy a house committee. information such as account number will be blacked out in the documents will give a complete look at the former president's tax records for the years he was running and in the white house. 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. ♪

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>> we should expect some legislation but i don't think you will get a comprehensive bill that some wants but i think it will be more narrowly targeted. that's something the congress understands, like a money market fund, like a deposit account they can get their arms around that. kailey: the policy research director speaking to us about crypto regulation yesterday. it has been a terrible year for the cryptocurrency market. bitcoin down on the year 64%. what is down harder on the year is tesla, down 69%. matt: it's not as bad as tesla will be my refrain for the end

of 2020. it's been unbelievable to watch this crash. bitcoin is down considerably on the year but to me, still amazing to see bitcoin trading at more than $16,000. i bought my first one for $600. 16,000 is still pretty amazing for lines of code. considering what it is and considering what has happened with the collapse of ftx. bitcoin initially dropped on that implosion but since then, has been so stable. it's the envy of the rest of the market in terms of the lack of volatility. it used to kailey: be the poster child for volatility. bit going is getting stuck in consistent ranges in the volatility is evaporating and a stock like tesla which was a $1

trillion company, one that should not be that volatile given its size has been the opposite and it's been going bananas. matt: 11% drop yesterday caught my eye this morning. ed ludlow was telling us it's down 25% over the last seven trading days. i always pull up a comp screen when i look at stocks. i want to see have the have done against the broader market and other competitors. it automatically reverts to a five-year window which is a good way to look at stocks. over the last five years, tesla is up 400 20% so if you are a long-term investment, it's not the worst thing that has ever happened to you. at one point, it was up almost 2000%. it has definitely come in from the highs we saw during the pandemic. let's get over to ed ludlow who

covers tesla and the eeev space. i believe you are still in london, did chelsea win last night? ed: 2-0 matt: scoring two goals is amazing for a soccer game. it must have been exciting. ed: it was exciting what i was cold and i was late. shall we talk about tesla? matt: what the heck is going on? you are saying seven-day losing streak in the worst since 2018 and has dropped 25% since then. if we drop today it, it could be the cursed -- the worst losing streak since the ipo. ed: when i left for the stadium last night, the declines were significant, 11% to kline's but when i went to bed, rsi was at

16. the pressure has been immense. over the last seven days, seven sessions, we are down almost 33% with every year to date decline is $.69. we are higher by 1.6% in premarket. either tesla has snapped its worst run with seven straight session since september 2018 or you go the other way and say this stock has avoided its worst ever run of the client. it has never dropped for eight consecutive sessions. matt: it's way oversold. you have to tell people that means the relative strength index. ed: the question is why, what is going on? we started this conversation two or three weeks ago about key risks with elon musk into distracted by twitter. investors took to twitter and

other forms to voice that concern but the narrative of the last few sessions has been around demand. the latest catalyst for the 11% drop in yesterday session was a report from reuters that between january 3 and 19, tesla will cut production and shanghai. at the end of january, following january 19, they will shut the went down completely for the rest of that month to make scheduled updates for repairs which is part of the chinese new year. there seems to be a worry about demand. kailey: if it is about demand, are we talking about demand for electric nichols waning or the demand for tesla as a market share? ed: there are many more options for the investor and the consumer. there was a time when he wanted to be an equity investor in electric vehicles and tesla was home -- was the only game in

town. that's not true anymore. rivian and lucid are the worst performing stocks with 80% to kline's which is worse than tesla so the argument doesn't stand up. on the consumer side, there are many more options available and many more legacy players from the united states and europe starting to produce in more meaningful volume. there is still noise from the market about this brand equity issue, the discount on tesla right now reflects anxiety about elon musk and his behavior. that's one school of thought out there. matt: you were right and i double checked. we are holding into your word and lucid is down 84% your to date. rivian is a bummer because i love the truck is down 83% year to date. both of them underperforming tesla so what's the problem with

rivian? are they not meeting production targets? ed: at the time of the ipo in november 2021, they were so overvalued that they shut past $100 billion of market cap. they then met the reality of production coupled with the supply chain crunch. we started this year with rivian hoping to make 50,000 eeev's across the market. they look on track to 25,000 this year. investors have pulled back their expectations. a six-figure ipo because of the amazon backing. it was sexy, and electric pickup truck now, reality takes hold. kailey: and they come crashing back down to earth, thank you so much as always. we covered the ev part of the conversation that we talked

about the comparison between some of these companies and crypto. on the subject of crypto, we continued to get updates around the ftx bankruptcy and the latest is sam bankman-fried said he barred about half $1 billion to buy a big stake in robinhood so who does that state belong to and what happens with these assets in the bankruptcy? matt: normally, the answer is it belongs to the executor who is running down the company and trying to pay back the people who lost money in the bankruptcy. the problem is there are number of different jurisdictions that want to claim ownership. it's not just the bankruptcy court in new york for a bankruptcy court in delaware but i think it's antigo wants a piece, the bahamas wants that stake, some failed crypto lenders claim they were given that as collateral want it as

well so it's very interesting. it's one of the assets that creditors will take over. kailey: customers are also suing now because they want to be made whole first. we are watching markets more broadly beyond the crypto world and equity futures are positive by of -- by around 0.3% in the 10 year yield is trading at $381. -- at 381. managing director and portfolio manager will join us coming up. this is bloomberg. ♪

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matt: this is "bloomberg surveillance: the fed decides." alongside matt miller, i am kailey leinz. many people are trading volumes that will be light but we are seeing if santa claus shows up. he already got the gifts to the kids. right now, futures in positive territory. more conviction dropping closer to the opening bell. s&p 500 up 3/10 of 1%. 3865, if i can get my words out. as we have been discussing, that is still below where strategists were hoping. kailey: we are looking for about 4000 and change.

matt: the same is true for the end of 2023. strategists are saying we are not making any headway in 2023. they think, for the most part, we are coming down in the middle of the year and then back where we are now by the end of the year. kailey: it is not about us going nowhere the next 12 months. a lot of volatility and the roller coaster is expected, even if it brings us to the same place. the consensus is earnings expectations are going to come down. you are going to see the pain in corporate profits that the fed is doing and the resulting demand effect it has in the u.s. economy. as a result, more pain is to come in the first part of the year. it becomes a question of if the fed will pivot and of recovery will follow. matt: it is interesting to see the top down strategists really negative on earnings but bottoms

of analysts are saying we see more. there is a huge delta -- i think tom would say that. kailey: any three letter word for tom. matt: i never know which camera. they have six different cameras and a handheld. [laughter] kailey: for our listeners on radio, you are spared our bobbleheads. matt: but you are missing out on my beard. kailey: this is true. i am going to put a pullout on twitter if we like the beard or not. matt: let's get back to the important business of the day and that is the markets. we are fortunate to have david sowerby standing by, portfolio manager at ancora. thank you for joining us. there is a couple of dynamics that we have been talking about today.

the fight between the market and the fed. the market does not believe jerome powell is willing to push into higher unemployment and really difficult equities, prices, and especially not if it the fixed income side. the other dynamic is that top down strategists see a very different when it comes to earnings. help us, help me, in terms of what i should be looking at for 2023. david: love to be here, first. matt: thanks. david: it is the bottom up. what are companies telling you? that matters more than the wall street strategists lined up end to end. but the bottom up is companies are generating 11% to 13% cash flow margin and are selling on a free cash flow basis, as well as

price to earnings. that is what is going to guide me in 2023. the negative sentiment is good for next year's returns as well. i am more often than not fully invested in stocks. matt: is that equation going to continue to make mathematical sense if the fed raises to 5%, 5.5%? if unemployment goes to 5%? are we going to see those earnings pan out in 2023? david: they could go lower when we start to get the anecdotal news for q4 earnings. but they had a free cash flow yield. companies have a 6% to 7% cash flow yield which is favorable to the 3.7%. i think the market has room to digest more negative activity

and the fed has more work to do to get inflation into the 3% handle. but here we are, fourth-quarter, we are up 10% for most investors. i think that sets the table for 2023 being a little bit better than average. that might not be consensus, but i think it holds. kailey: you say up 10% which is what the annualized total return for the s&p has been over the course of several decades. but if we are talking about a world, and even if the fed pivots and begins to cut, the consensus i am hearing is we are not going back down. we do not live in that world anymore. how do expectations for what kind of returns you can generate in equities need to change to reflect that? david: i think if you set the table for the s&p 500, which may not be the best barometer he next year, but if you dig

down into the mid-cap and small-cap range, i think you can see high single digit rate of return. that is going to outperform bonds, outperform other asset classes, and frankly, the fed needs to do more work. there are not enough monitors at the fed board that recognize inflation is, and always will be, a monetary event. they have to be more restrictive for the first quarter and once the incremental inflation news gets better, and it is starting to, i think that sets the right backdrop for the, let's say, tempered risk on strategy. kailey: in your mind when we think about the fed overdoing it versus the risk of under doing it, which is greater? david: well, they tend to always overdo it whether it is on the restrictive side. they could overdo it but number one, if you are looking at the

return on stocks from 1967 to 1982, they were down 50%. if the fed over does it to get inflation back to that 3% handle, i may not like it in the near term, but i like when i look out three or four years and say, where am i going to meet my pension fund liabilities? where am i going to get returns? it is a stockmarket back in that 7% to 8% return. matt: you are on the investment advisory committee for the michigan pension fund, $50 billion, $60 billion pension fund. how are those big institutions going to fair into -- fare 2023? are they going to be able to get the safe returns they need? david: i think if they are just looking at 2023, it is not the right thing to do. 10 years is too long, frankly.

you try to put a lens of two to three years and it is still the, i want to have 50% to 60% of my assets in public equity, leaning to the u.s. and then it is the alternative areas that substitute your fixed traditional incomes. whether it is the state of michigan, which is skilled in private equity. i sit on the city of detroit's committee. we are looking at private credit as a solution outside the traditional fixed income. that is how it comes together, like a good orchestra, and you can generate returns between 6% to 7%. i think that is an achievable goal. matt: the governor appointed you to the economic development corporation for michigan as well. how is the economic situation? you are so deeply ensconced in ann arbor, detroit.

how are things going as we see tesla and rivian producing ev's? nonetheless, seriously underperforming on the equities side, general motors and ford? david: the bottom line for michigan and detroit is it is in a much better economic shape than it was in 2000. tax foundation ranks michigan 12 in the country for competitiveness. that is the best research on how competitive your state is. in my mutual fund, anecdotally, there is 31 stocks, one is general motors. we own many small-cap companies like jackson national and lansing. the prospects for michigan are pretty good, even when we know in recessions the state of michigan gets it harder. the combination of job growth and income growth is prosperity. michigan is faring quite well. matt: david, the wolverines

absolutely embarrassed the ohio state buckeyes. it was a horror show. nonetheless, we could see a rematch if michigan beats tcu and if, a much bigger if, the buckeyes be georgia. what is your prediction? this could be the biggest game ever for a national championship. david: back to when michigan beat washington state for the championship in 1997. i remember that vividly. my prediction is as good as my prediction for annual returns for the stock market. might as well flip a coin. [laughter] nevertheless, michigan gets by tcu. you hope georgia beats ohio state. i do not want to see another rematch and then maybe at the end of the day, michigan's great kicker kicks a field goal and we

are talking the first national championship for michigan since 1997. matt: that is a comeback. david: how is that for a prediction? kailey: we love it. david sowerby, thank you for joining us. i have to say, i am at the point with georgia like i was with alabama. i automatically route against them because it is no fun when you are that good. matt: i am rooting against them. i think the game is saturday night and i am going to be skipping any new year's eve celebrations to watch. i hope for a rematch. i want to see the buckeyes come back and prove themselves against the wolverines. because if they don't, i will know how much michigan has earned it. of course, georgia is a better football team, so it is unlikely the buckeyes are going to win. what an amazing comeback for the wolverines. for the rivalry, i think it has been amazing. david sowerby comparing it to annual returns, he pointed out

over the last 70 years, we have had 10% compound annual returns. although you do not typically see that in one calendar year, as long as you are fully invested, you participate. kailey: if you are of a certain demographic, closer to my age, that is all you have ever known. it could be a brave new world. we will continue our conversation. coming up, senior research analyst at cowen inc. will walk through the drama with the airlines, specifically southwest, which is still struggling with delays after that christmas storm. this is bloomberg. ♪ >> keeping you up-to-date with news from around the world. stranded travelers in the u.s. could face days of waiting to get to their destinations if they are booked on southwest. the carrier scrapped 60% of its flights today and 20% of tomorrow's. in western new york, the death toll has risen to 31 from that record-breaking storm.

the city of buffalo is digging out more than four feet of snow. in hong kong, the government is making a sweeping overhaul of covid policies in an attempt to revive the city's reputation as a global financial center. hong kong will scrapped limits on public gatherings and no longer require proof of vaccination for entry some venues. customers at ftx have filed suit in delaware bankruptcy court. they are hoping to be first in line to become some of the billions to gain some of their billions back. newly elected republican congressman george santos admitted he fabricated stories of college degrees and property ownership. he hopes to be elected next week and needs every vote he can get. in the past, he might have been the subject of an ethics

inquiry. mccarthy is not saying what he will do. air travel is coming back but there are not enough planes. there is a backlog approaching 13,000 airliners. airlines have fewer seats to sell which means prices will stay elevated. global news 24 hours a day on air and on quicktake by bloomberg. powered by more than 2700 journalists and analysts in over 120 countries. i am ritika gupta. this is bloomberg. with the lowest transaction fees and keep more of what you make. with a partner that always puts you first. godaddy. tools and support for every small business first.

>> the tools we use to recover from disruption, clearly, we need to double down on the already existing plans to upgrade systems for extreme circumstances so that we never again face what is happening right now. we are focused on safely getting all the pieces back into

position to end this rolling struggle. kailey: bob jordan, southwest airlines ceo speaking as the airline continues to struggle with the aftermath of that chaotic winter holiday period over the weekend. we saw significant weather delays and cancellations, but southwest the worst. the stock struggling this morning, down 8/10 of 1% after a 6% decline yesterday. for the equity market, is positive in the futures session. the s&p 500 up 3/10 of 1% to 386 6 and the 10 year yield moving lower. may be assisting risk sentiment. the 10 year down to the 380 level. crude is up to $79 a barrel. looking at natural gas as we talk about the winter weather, natural gas is down about 5.6%. matt: let's talk about that with madison mills of bloomberg quicktake. she joins us in the studio and

let's talk before we get to the power grid and the gas prices about the weather chaos canceling thousands of lights. madison: it is very chaotic and it does not appear to be letting up soon. we are seeing just in buffalo 31 dead, four feet of snow. it is expected to warm up over the course of the weekend heading into next week, but just as we are seeing conditions in the northeast get better, in the west, we have this atmospheric river that is causing chaos. in the bay area, roads closed. matt: atmospheric river event? kailey: that sounds bad. madison: that is meteorologist terminology. it means there is heavy rain, heavy wind and even snow in some parts of the northeast, particularly portland, northern california. a lot of areas that are not equipped to deal with the snow. that might lead to a similar situation we saw in 2021 in

texas. they are not used to dealing with this. kailey: and their power grid was ill-prepared for a weather event. not just snow but the temperatures and people being able to power and heat their homes. to what extent were power grids prepared this time around, having texas already gone through that experience? madison: there are backup systems in place so half of u.s. households heated by natural gas can have a backup plan and stay warm. those backup systems, as we have seen, failed over this week. really pointing to the need for a lot of infrastructure change. we saw secretary pete buttigieg mentioning this last night. there needs to be a lot of infrastructure change and investment in clean energy systems that are going to provide a good backup plan when these systems go through issues. i want to point out supplies of natural gas plunging the most in

over a decade last week. severe drop in supplies across the u.s. matt: i remember obama talking about the need for an update to the infrastructure and that was a while back. i am not confident we are going to learn our lesson from these issues. the airlines may be a different story. madison mills talking to us about the weather and the chaos it has caused for travel and for consumers alike. let's focus on the airlines. helane becker joins us of cowen inc. there have been thousands and thousands of cancellations. we are not close to getting back on track. how is it for southwest right now? helane: good morning. southwest is not close. everybody is within what i would call their normal course of

doing business. the cancellations are relatively low. southwest accounted for more than 80% of all cancels yesterday. for them, they are just behind the curve. they probably will not get caught up until the weekend at the earliest. kailey: we have seen modeling from analysts at citi the talks about a 3% to 5% earnings hit. i wonder what signal this is on the longer-term operation health of southwest. if something like this could happen at this scale for this long, does that mean they are ill-equipped to handle weather events like this? what went wrong that could go wrong again? helane: they had a confluence of a lot of events. you had the weather and moved across country, hitting denver and chicago hard. united is in both of those

locations and did not get hit as hard but still impacted. for southwest, i think at midway there was a lot of icing and san diego had fog, ice in dallas. everywhere they were they had weather. the worst of it is there systems are not equipped to handle it. historically, southwest under invested in i.t. and technology and this has come back in the past to hurt them. they were investing aggressively this year that was one of the catalysts for the shares. the new scheduling system for employees was coming up. but one of the issues we saw yesterday was an aircraft with a bunch of flight attendants heading to a city, but the crew working the plane were short one flight attendant. according to the pilot on board, any one of those other flight attendants offered to work the

flight, but could not get through to scheduling to say, we will take it. so, southwest canceled the flight. they are doing what should be automated by hand. when you have 6000 flights a day and you probably should not, you should have two thirds of that, they do not know where their people are. the have to reset the entire airline. kailey: it is a broken system. helane: i think so. matt: it does not make sense. i understand the weather is very bad in some places. my buddy showed me a picture of his parent's house in buffalo and it is snowed under. i am 49 years old. it snowed most winters of my life. this happens in the winter months and an airline should be prepared for it. has southwest management learned any lessons? will they invest? will they stock up at midway with deicing fluid?

helane: sometimes they get caught out but you are correct. people have the right to be angry and annoyed because, to your point, this is 2022. they should have invested years ago in the systems and they did not. matt: do you change your opinion on the stock? you like to southwest before this. helane: i don't think we do. the shares are reflecting the disaster that has befallen them. i think you will see the impact. you mentioned the 3% to 5%. we think it will be in the hundreds of millions of dollars range. they are offering refunds, offering to buy you tickets on other airlines if you can find a seat. consumers should keep the receipts to submit to the airlines. i think in the first quarter we will see them heavily discount tickets to encourage people to

try them again. i suspect they will do everything they can to speed this up. there was a fuel shortage at one location but we are seeing sporadic fuel shortages around the country. but i think the other part of what southwest needs to do in the short term is cut back their ambition. even though they have hired enough people, not everybody is fully trained. the schoolhouse is full as they work through this and get back up to speed. but i just don't see how they get by with another storm like this without super investment in systems to improve things. kailey: clearly, something has got to give because there are a lot of people, including the department transportation, that are not happy.

helane becker, thank you so much. do you know what i am hoping 2023 brings? better airline tickets. matt: i thought you were going to say flying cars. kailey: that seems less realistic. this seems like the more realistic scenario. matt: i don't know how much cheaper airline tickets could really get. and i always think about -- when i was a kid in the 1990's, i flew out to the west coast to see the grateful dead and then i flew out again in 2015. my ticket cost the same over 20 years. kailey: fair enough. fish this weekend. matt: i got tickets. thank you very much. [laughter] kailey: we will speak with kristina hooper, chief global market strategist at invesco. s&p futures are positive by 3/10 of 1%. this is bloomberg. ♪

>> we flipped to good news is good news and bad news is bad news. >> their worst will happen by the end of the year. >> expectations need to come down. >> we have had an incredible run. >> there is a lot of opportunity for positive surprises. >> we are getting back into a more normal zone of consumer price sensitivity and that is

key. announcer: this is "bloomberg surveillance" with tom keene, jonathan ferro and lisa abramowicz. kailey: good morning. this is "bloomberg surveillance ." i am kailey leinz alongside matt miller. we are trying to fill some giant shoes but they are off on holiday week. nonetheless, we are positive in the futures session. matt: do you think tom wears a size 14? kailey: i have no idea. matt: i was a 13 or 14. kailey: i am not a short person and he towers over me. matt: and me. he must be about 6'7" because i'm six foot he is taller. kailey: which is why he gets the big chair, which is what you are sitting in. matt: i am not sure i fill it but we are seeing futures higher. european equities trading

higher. we saw that at this time yesterday and then we saw a real turnaround. dragged down by the big tech companies. concerns about apple's cell phone production, concerns about tesla's car production in china dragging us down and giving us an 11% drop in tesla. seven days in a row the stock is down. 69% year to date. kailey: the direction those typically move tends to be the way the broader market moves. but to your point on tesla, it is far less a heavyweight than it was earlier on this year. at one point it was one of the largest companies in the s&p 500. is not even in the top 10 after seeing $700 billion wiped off the market value this year. there was a note earlier about how tesla is on pace for its worst year and quarter of all time.

it has seen bigger intraday jobs but over the longer term, we have not seen moves like this for the stock since it went public. matt: it is doing worse than bitcoin. kailey: which says so much. matt: i think for tesla, for big tech, for crypto, it has been as horrible as the queen would have put it. i got that from kristina hooper. chief global market strategist at invesco. you got that from her majesty, queen elizabeth. but she was not about stocks and bonds. what does 2023 look like if we have had, you know, the pandemic leading into incredible inflation and the war in ukraine making it worse, the fed hiking us maybe into recession? how does 2023 look any better? kristina: i think after several extraordinary years, and by

extraordinary i mean extraordinarily bad and traumatic, what we are getting too is a more normal environment. we are likely to see the fed ease what has been a dramatic level of tightening. i do not mean ease per se, but downshift tightening and hit a pause button in the first quarter off 2023. something of a return to normal. it is not going to be an easy transition, but i suspect 2023 is going to be more normal than the last three years. kailey: leadership from high tech and low borrowing costs, that is not the world we have

lived in in 2022. using a stock like tesla as an example, how much more do you think those stocks need to deflate? how much more devaluation could be coming for certain pockets of the equity market? kristina: clearly, tech is under pressure. the high valuation areas of the stock market are under significant pressure and that does not change overnight. in fact, when we get to more of a risk on environment, as global risk appetite grows, we are likely to see a movement towards lower valuation names, more cyclicals. i do not think this is going to be a time when we see tech rebound dramatically because rates are so much higher. we will go through an adjustment period. we have already started that process. we could see more of that in 2023. again, it will be more normal which means we are unlikely

to see big gains by stocks in general. but i do hold out hope, and i believe strongly, we are likely to see a positive single-digit return environment for the s&p 500. matt: yesterday we were talking about i think 17.3 times forward earnings on the s&p 500. since world war ii, if we do get a recession, valuations have dropped to 15 before the bear market ended and turned around. do you think we could fall that far? that would put us at 3500 or below before we could climb back up into the end of the year. kristina: we have to keep in mind this is a very compressed economic cycle. things are moving faster than they typically do. i think we are going to see a number of different forces converged at the same time.

we will have that headwind of downward revisions to earnings. that is a given. we have not seen that priced in yet. having said that, we also have a market looking ahead to the potential for the fed to cut rates by the end of the year. certainly, just hitting the pause button will take pressure off risk assets. i think that we could actually see earnings downwardly revised and we can also see as the year progresses movement toward multiple expansions. kailey: that is all on the equities side. but we know, or we have heard, there are alternatives to equities. matt: reasonable alternatives. kailey: tara? matt: that is what i will say. kailey: however you want to pronounce the acronym tara, it

seems that world has changed. how are you feeling bonds into the new year and how much you want to be allocated in that asset class rather than equities? kristina: great question. fixed income had a horrible year in 2022. that is what we saw in terms of a dramatic tightening cycle on the part of the fed. where we find ourselves today is looking out on a year when we are unlikely to see much in the way of rate hikes relative to what we saw in 2022. that gives breathing room for fixed income. at the same time, we have seen yields go up significantly, making many areas of fixed income quite attractive. i would focus on investment-grade credit as we see the struggle between risk on and risk off environment. the level of -- the maturity

wall is pretty low. we do not see debt maturing the next 18 or so months. this is a good environment. companies are fundamentally more sound than they were in the last significant recession we went through. this is a very different environment. as we transition through the year, as we get through the downturn in the economy and look forward to an economic recovery, that might be a time to increase risk appetite. but right now, investment grade credit looks attractive. matt: thank you for joining us. really appreciate your time, especially during the holiday week. kristina hooper talking to us from invesco out of connecticut. i wonder if she plays pickle ball? i need to gather pickleball players and paddle players around the connecticut area. i am putting out the call. kailey: i've played pickleball i

think three times. matt: how much fun was it? kailey: i am not the world's greatest athlete. matt: i do not believe that. kailey: i could use more practice. matt: you could practice with me. what a great christmas sport it has turned out to be. platform tennis, paddle tennis, i have been playing my whole life and i got my wife into it. i found out when she got into it it was actually invented in my backyard. literally in my backyard. in scarsdale. the first lived in my house and the other in my neighbor's house and in 1925 they built the first platform tennis court behind our homes. kailey: that is really cool. if you ever decide you want to sell your house, include that. matt: they did not tell us that when we bought it. kailey: i feel like i need to update everyone on the beard

poll. matt miller is attempting to grow a beard. more people are fans. matt: you have got to give me time. it has got to fill in. it has only been two weeks. can we get a close-up? [laughter] i am not sure if my boss is going to like it, or my wife. kailey: maybe if we get enough people voting yes, that will override that opinion. that is a nice zoom in. 55% say keep it. matt: that is pretty close. kailey: they are still open. matt: we are looking at futures right now up about 0.25 of 1%. we will see if we come down. kailey will talk to gerard cassidy at rbc capital markets. i am going -- that is the jon fe rro break. kailey: you need to get ready

for the open. matt: he puts on a different blue suit. i think he changes the blue suit every day between "surveillance" and "the open." he focuses in on equities for the stock market open at 9:30. kailey: that is coming up. equity futures right now in positive territory about 3/10 of 1%. interesting to see a reversal in the bond market. yields coming in three basis points to 3.8%. this is bloomberg. ♪ ritika: keeping you up-to-date with news from around the world with the first word, i am ritika gupta. stranded travelers conveys days of waiting to get to their destinations if they book with southwest. the carrier scrapped 60% of its flights today and 58% tomorrow. >> i want everyone dealing with

the problems we have been facing, whether you have not been able to get where you need to go or you are one of our heroic employees caught up in a massive effort to stabilize the airline, we are doing everything we can to return to a normal operation. please also hear that i'm truly sorry. ritika: southwest shares down after falling 6% on tuesday. china's decision to abandon its covid zero policy and reopen borders prompted a global response. countries are considering whether to test or restrict travelers from china. the policy reversal has triggered nationwide covid outbreaks. the u.s. and japan are weighing new restrictions on people arriving from china. the vatican says retired pope benedict's health is getting worse due to his age and that pope francis has gone to visit him. benedict is 95 and served as head of the roman catholic church for almost eight years. in 2013, he became the first pope in 600 years to step down.

the biden administration will comply with the supreme court order that keeps in place sweeping coronavirus border controls. the court ordered title 42 stay in effect while the lawsuit goes forward. president biden will enforce the order but believes lifting the measure is overdue. global news 24 hours a day on air and on quicktake by bloomberg. powered by more than 2700 journalists and analysts in over 120 countries. i am ritika gupta. this is bloomberg. ♪ ate sales tax with avalara, you don't have to worry about things like changing tax rates or filing returns. avalarahhh ahhh

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>> 60/40 did not work in 2022 but it is set up for a good run in 2023. expectations need to come down. we have had an incredible run but it does not mean you have some massive selloff. we just have to temper expectations. kailey: ameriprise director of

equity research speaking with us yesterday about earnings estimates need to move lower. maybe expectations are not matched with reality. of course, we are not all that far away from the next earnings season. jp morgan will kick us off january 13, which is two weeks from now? matt: i am looking forward to that but what really matters is how earnings fare throughout the next year. recession is driven by the fed tightening financial conditions which means it is going to be more expensive to borrow money to buy a house or a car. if all of that happens, can companies meet earnings expectations which stand at $210 ? kailey: it comes down to whether

the demand destruction is going to take place in a more material way. that is what the fed is trying to engineer with higher borrowing costs to deter people from borrowing and continuing to spend money. but so long as they do, companies have the ability to pass on higher input costs. and to this point consumers have been tolerant. it is a question of how long that lasts. let's get a quick check on the markets. the s&p 500 futures are right around session highs, up 3/10 of 1%. 3867 but we were also positive yesterday and we saw rolling throughout the trading day. we can see if this will stick. you are also seeing a rally in the bond market. yields reversing yesterday's move with the 10-year moving down to 3.8%. we can talk about volatility in the equity market but in the bond market as well.

from the highs we reached earlier at the end of the fall, back to 350 edna back to 380? matt: almost 340 a month ago. we were up at 425. just look at the move index. it has ticked up very high when you put it against the vix. one of the question is, is the vix broken? the market is really pushing jerome powell. they may not believe the fed is going to keep on this tightening path until 466 was the median and now 525 for 2023. let's bring in barry ritholtz, opinion writer for bloomberg.

the market continually pushing against the fed and not believing what powell says. the fed has to keep proving the market wrong. how long can it go on? barry: when you look at the long history of federal reserve forecasts, the consensus tends to be not that great. but as to their own behavior, they are pretty awful at it. when you go back a year from now, even after inflation ticked through 3%, 4%, the fed was talking like, hey, there is not a whole lot of expectation. so, the street is skeptical the fed is going to do what it says. keep in mind i think the street, wall street, and finance is much

more savvy as to the realities of inflation than the fed, which tends to be more academic. the street is much more pragmatic. the street knows goods inflation has already come down and they also know services have rolled over, but it has not shown in the models that the fed is looking at. kailey: let's keep talking about the street and the idea of consensus. there seems to be a great deal of consensus right now on what is going to happen next year. we are going to end up in the same place as we are now but it is going to be a trip downward and then upward to get there. do you get nervous when there seems to be that kind of consensus? when i hear everyone singing the same tune, i feel it is likely they are going to be wrong. barry: the notable times when everybody has been saying the same thing, i remember in the fall of 1999, everybody was convinced trees grow to the sky

and there was no stopping. march 2009, we will see no recovery. that reflects human emotions and when the crowd gets enthusiastic, hold onto your wallet because bad things are going to happen. matt: don't we price in those events? yesterday we were talking and we need to go down to 15 times forward earnings before we see an end to the bear market. that is historically what happens and then turn around. but catherine was with us and said, maybe the market is already pricing in the recovery. can you skip past pricing in a recession if you are that confident a recovery comes on the others? barry: everybody is focused on the here and now. we lose context of the bigger picture.

we have discussed mean reversion before. from 2010 to the end of last year, markets gained 13% or 14% a year. that is nearly double historical averages. while we are coming up with wonderful narratives explaining what is going to happen, i am comfortable with the concept you cannot grow at double market rates for more than a decade before there is a little bit of mean reversion. is at the fed? is it earnings? is it inflation? or maybe this market ran too far, too fast on zero rates and now we are kind of resetting. it does look like the markets have priced in a mild recession. down 20% is a mild recession. i do not know if they have priced in anything more damaging or hard landing. kailey: if we could take one stock as an example, in 2020 to

2021, tesla was up 58%. then it is down 69% this year. can we get your hot take on what is going on with a stock that used to be so highflying and worth more than $1 trillion at the begin of this year? and has seen all of that, or a large part of that, completely obliterated. barry: let's look at this in four phases. the first phase was, elon musk slapped laptop batteries in a lotus, a little roadster, and that was the birth of the new ev industry. for a decade, they had that industry to themselves. they were way ahead of everybody else technologically. the interface, the management of charging, the charger network, nobody was even close. they were a decade ahead. that was phase one.

phase two was when everybody figured out late 2019, early 2020. as soon as tesla starts to become profitable, they are a lock for being added to the s&p 500. all the traders front ran the major indexes saying, this has to be bought by blackrock, vanguard street, everybody else. we are going to get ahead of it. that is how you end up with a $1.2 trillion company worth more than the other automakers combined. now the back half of that. $1.2 trillion is ridiculous, ford and mercedes, bmw, go down the list of the hot, new ev's. that is before you get to things like rivian. competition starts to take the wind out of their sails.

eventually they are going to give something back. kailey: and the stock gets punished. barry: and then he makes the call this year to buy twitter. kailey: which is an entirely separate issue. unfortunately, we have to leave it there but thank you so much. tesla up 69% in 2020. down 69% in 2022. from new york, this is bloomberg. ♪

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kailey: this is "bloomberg surveillance." alongside matt miller i am kailey leinz. we have an hour to go into the opening bell in new york city. kriti gupta his joining us with that. kriti: thin liquidity and light volume. not much different than ours ago when i checked in with you. the russell 2000 up 2/10 of 1%. the stoxx 600 up 3/10 of 1% but the stock market around the world is kind of on autopilot. it is almost at the whim of the dollar. this has been the theme you have

seen all year long. you look at the one year chart, every time you see the dollar strengthened, interest rates are going to be driving the trade. the stock market drops and we are seeing the futures do the same. every tick higher is moving the stock market higher and lower. as we see a pullback in the bloomberg dollar index, futures are thriving. there is a ripple effect that goes beyond that. the 10 year yield comes to mind. the 10 year yield is down two basis points. it has been unchanged the last two days. to see that move pushing the dollar down and the dollar, by the way, weaker against all currencies except one and that is the japanese yen. overnight, the boj boosted their purchases which weakened the currency once again. 133.75 handle on the yen. as we see the dollar weakening, you would think the commodity

complex was higher, but it is lower by 0.20%. matt: thank you very much. a look at the markets overall. i want to bring in claudia sahm, former federal reserve economist and one of my favorites. i can see that you care about people in your work which is something that does not always come through in economist research. i feel like you are more of an oberland person. i want to talk about the recent pc row. to get inflation down the fed has to put --

-- how is that wrong and what should the fed be doing differently in order not to destroy the lives of working americans? claudia: i think a big lesson of 2022, which is been extremely disorienting. we have had 40 year high inflation, it is time to scrutinize the rules of thumb, like the phillips curve, that have been used for a long time to think about, what is the trade-off? the low unemployment means people have less money to spend. most americans, it is their paycheck. low unemployment means people all the way up into the middle class have money. that is not a bad way to think about the trade-off when it is all demand driven. a lot of stimulus checks, big wage increases, but honestly, we

have a pandemic that is still affecting china and the world. and we have a war in europe. you really should not use the phillips curve. it is a nice rule of thumb and would be great if it worked to calibrate everything, but this is a lesson. we are in uncharted territory and thus, we have got to dig deeper in terms of what the fed does. matt: how else? inflation also, i mean, ronald reagan, i am sure one of your favorite presidents, described it as an armed robber or bogeyman that steals from the working classes. it is very high right now. if you look at the not accelerating inflation rate of unemployment, that shows when unemployment is below a certain level, it is going to be inflationary. we were talking with catherine rooney vera earlier who

says, once you get to a certain point, these are inflationary. do you agree? claudia: up until covid started most of the macroeconomics community was like, this is broken. the federal reserve showed they have no idea what that number is. unemployment kept going down and inflation did not spike. given all the disruptions in the labor market, particularly the drop in labor force participation, that affects the unemployment rate. the things they look to as a way to think about, what would normal and sustainable look like? it is really hard to know what that is at this point. i think this is where the fed has to get back leaning into the data.

we have seen inflation coming down without wage growth slowing. that tells you there is some relief that comes without the fed pumping high interest rate increases, fast interest rate increases into the economy. it is time to be more patient and look at the early stages of the data. it takes a long time to get to consumer price inflation. kailey: on the subject of consumer price inflation or inflation in general, the fed looking at the pce deflator. the idea of made-up numbers or arbitrary numbers, 2% is what the fed set the target. something like that 2% number. is that no longer fitting of the new world in which we live in, post-pandemic, war ongoing in ukraine? if we are looking at lower labor force participation, higher energy costs, should they

be rethinking the 2%? claudia: it is far too early to have that discussion and honestly, it muddies the water and makes the fed fight harder to get to percent. they are extremely concerned about their credibility. i am not sure who questions the fed will fight inflation but they are out there. there is still a chance as we come out of the pandemic that we have the path back to 2%. that is a conversation for this time next year or the middle of the year after. i do not see any reason for the fed to be moving that 2% target. if we get back to something like normal, they could not even get to percent before covid showed up. -- 2% before covid showed up. kailey: you mentioned how china

is still shut off from the world. now it is opening back up rather rapidly and the surge it is dealing with in the medium-term is going to be more demanding for commodities. how do you filter that into your thinking about the trajectory of inflation and how monetary policy has to respond? matt: we also have a $1.7 trillion omnibus, deglobalization which has to lead to some inflation, or at least less disinflation. claudia: absolutely. what is happening in china is a wildcard and we know the fed has limited tools to deal with commodity price inflation. we still have a lot of food inflation and that is not something interest rate are going to chip away at. what is happening in china is extremely tragic as they reopen.

every time covid came back it set us back in getting back to normal. things closed down and opened back up. i agree on the commodities space that that could be a tough one and that was a lot of the problems the fed had. a lot of the inflation concerns over the past year when we had the spike in energy prices. we are not out of this. there is a path back to normal in the u.s.. on the globalization, i would be careful about taking the last few years which has been extraordinary with the pandemic for big structural changes. matt: fair and very difficult to do. for years now income inequality has been on policymaker's radar and you could argue that is what drove the big populace forces we have seen globally.

has the pandemic made income inequality worse? or have we made any progress? claudia: during the pandemic, what we have seen so far, the fiscal policy, the labor market coming back strong, that made a big difference for the bottom 50%, middle-class on down. for the first time in many decades, we have had a job full recovery. and that really makes a difference for the vast majority of people. you see in wealth inequality data the increase in what bottom 50% have in the bank, it is enormous relative to after the great recession. we have done some things to narrow that inequality. the top is doing well. even with some correction in the stock prices and billionaires,

their recovery came fast as usual. and yet, i think it opens up some big questions. can our economy handle a job full recovery? we need to have those. there is a lot to figure out why this caused so much disruption and yet, we really helped people that have not gotten a lot of help. matt: great having you on the program. really love reading your research and your peace. claudia sahm talking about the fed should look at things differently than it typically has. by the way, i was being sarcastic about my ring in my comment, but i found the quote. he was famous for saying, inflation is as violent as a mugger and as deadly as a hitman. which i think is something that people do not really appreciate

anymore. when i was a kid, we had just gone through the 1970's and 1980's. voelker had to drive rates up to super powell levels to fight inflation. i think we do not understand how bad it is for people. maybe now we are getting a new taste of that. kailey: it can cause a lot of pain, especially for those trying to feed their family, drive their car to work. they have felt in a real way and that created a political problem. but inflation dynamics is something you will discuss on "the open." matt: yes, i will. robert tipp coming up with me. we miss you, jon. kailey: and tom and lisette. matt: this is bloomberg. ritika: keeping you up-to-date with news from around the world with the first word. i'm ritika gupta. stranded travelers in the u.s. could face days of waiting to get to their destinations if they booked with southwest. the carrier has already scrapped

60% of its flights today and 58% tomorrow. in western new york, the death toll has risen to 31 from that record-breaking storm. the city of buffalo is digging out from more than four feet of snow. in hong kong, the government is making a sweeping overhaul of covid policies. it is an attempt to revive the city's reputation as a financial center. hong kong will scrub limits on public gatherings and no longer require proof of vaccination for entry to some venues. customers at ftx have filed suit in delaware bankruptcy court. they are hoping to be first in line to recovered the billions lost in the meltdown of the empire. they asked the judge to give them repayment priority over other creditors. newly elected republican congressman george santos poses a test for gop leader kevin mccarthy. he admitted he fabricated stories of jobs at big angst, college degrees and property

ownership. mccarthy hopes to be elected house speaker next week and needs every vote he can get. in the past, santos might have been the subject of an ethics inquiry. mccarthy has not said what he would do. global news 24 hours a day on air and on quicktake by bloomberg. powered by more than 2700 journalists and analysts in over 120 countries. i am reading group debt. this is bloomberg. -- i am ritika gupta. this is bloomberg. ritika:

>> chair powell has been frustrated by these rallies in the market, these undesirable rallies that ease financial conditions when they are trying to slow the economy down. by holding a longer string of rate hikes over the market, i think they hope to kind of prevent that relief rally that you are alluding to.

that they can hold markets in check for longer. kailey: macro policy perspectives president and founder speaking with us about whether the fed needs to push back on easing financial conditions. a relief rally faded throughout the day is today into the futures session, the rally is fading as well closer to the opening bell. under 45 minutes from now. s&p 500 falling back toward zero unchanged level. we are up less than 1/10 of 1%. in the bond market, we are off session lows on the 10 year yield down 10 basis points to 381. it has been a brutal year for bond and stocks. the worst year for the equity market going back to 2008. let's talk about one part of the equity market and bring in gerard cassidy.

great to speak with you. 2022 has not been a good year for stocks broadly. one would think with borrowing costs moving up it would be a better year for bank stocks. and yet, that is down 25%. how do you expect the banks to fair performance wise heading into 2023 with recession risks front of mind? gerard: you are right. the banks struggled in 2022 and if you look by quarter, at the start of the year, the banks started out strong. revenue growth was going to benefit from the rise in interest rates. but the russia-ukraine were broke out. from july 1 until the end of november the bank stocks

outperformed the market. people realized the revenue growth was being orchestrated by the fed and was going to overwhelm any higher credit costs. that went out the window the last four weeks and the stocks have sold off due to credit risk. in 2023, it is going to be a fight between rising credit costs versus revenue growth and we have to believe there are many banks that are going to be able to generate revenue growth that will offset higher credit costs and we will see that showing up in the fourth quarter numbers, which will be reported january 13. kailey: it is those results that will set the tone in the new year as those prints come two weeks into it. what are you expecting we will see? how much weakness in the investment banking and the dealmaking ipo's, how much will that be offset by better net interest and trading? gerard: you bring up a really good point. the investment banking business

has been very weak in 2022. the ipo has essentially shut down and the ecm numbers are down 75% to 85% for the whole year. merger advisory businesses are going to show weaker numbers as well. and the dcm market has been weak. the trading area has been able to offset that, but the numbers have been weak. the diversifying banks, jp morgan, bank of america, citi, they have offset the weakness. morgan stanley and goldman do not have those offsets. kailey: what do you expect the tone to be from the management of these banks as they look ahead to a new year? do we see a recovery in the pipeline in ipo and dealmaking activity? or is that going to be a persistent struggle?

gerard: i think it is going to be a struggle for the first six months. the reason being the fed is still in monetary tightening. as they continue with their qt, which will continue throughout the year in raising short-term interest rates which will probably go into the spring until we get to about 5%. because of that the equity markets are going to be choppy in the first part of the year and it is going to be tough to revive the ipo markets. the other thing is how did the investment banks convince these private companies that were valued higher in the spring and fall of 2021 and now the valuations are down 75%, 80%? how do you convince them to go public? it is going to be difficult. i think it is going to be a tough year in the first six months and get better in the second half of the year. kailey: definitely a difficult time to come to the public

markets. you mentioned the banks that have greater exposure to the consumer which raises the question of loans and demand. loan growth was hard to come by during the pandemic because people did not need to borrow. now people want to borrow, they are facing the higher cost to do so. what are you expecting on the loan growth side? gerard: loan growth has been an extraordinarily strong area. we write about it on friday afternoons and as of last friday, it was about 11% for the industry. normally loan growth will grow at nominal gdp growth. let's assume we have a recession next year. inflation comes down to 3% or 4%. that will still give us nominal growth. loan growth next year should come in around that level.

maybe higher for consumer and corporate. that is the other part of the story. banks have dealt with this for 30 years. now there is re-intermediation and the banks are gaining shares in the commercial lending area. kailey: what about loan loss provisions? how much people expect those could move up -- how much do you think those could move up? gerard: that is the key number this year. it is going to be how much will the banks have to set aside? they are coming into a slower possible recessionary year in strong credit shape. we have to remember the largest banks go through an annual stress test due to the dodd frank law. i think the banks are in a good position to handle the slowdown in the economy/recession.

that does not mean provisions are not going up. the question is by how much? that is a hard thing to project. we know they are going to go up. credit losses, which are near four decade lows, are going to go higher. we think net interest revenue growth in 2023 -- which i do not ever recall banks posting 35% revenue growth. it will slow but still plenty of growth to cover higher credit costs. kailey: finally, you say banks are well-positioned heading into a recession but that does not mean the leaders do not have to make difficult choices if things are slowing down. knowing a large part of our audience are bankers, what is your expectation in terms of the decisions banks are going to be making around their workforces? be that layoffs or reductions in

compensations and cost cuts more broadly echo gerard: i think is going to be a tale of two cities. more people will be positioned in 2023. investment banking is in depression. we had layoffs already in the fourth quarter. we expect more to come if the business does not come back. but those like pnc, these companies continuing to look for growth because they are in the commercial banking business and not pure investment banking like goldman or morgan stanley. kailey: gerard cassidy of rbc capital markets, thank you for joining us. i am sure we will be hearing more from you weeks from now. jp morgan will be kicking us off january 13. let's get a quick check on the broader markets. as we draw closer to the opening bell, we are seeing the gains in

the future session roll over s&p 500 futures up less than 1/10 of 1%. only by two points are we higher at 3857. in the bond market we are seeing the drop in yields reversed. earlier it was down four basis points and now only one basis point at 3.82%. despite the reopening news, we get out of china and hong kong. you are not seeing a bid for oil. wti is down 7/10 of 1% at 78 point $96 a barrel. that wraps it up on "surveillance" but stay tuned. "balance of power" coming up later with chris smalls, president of the amazon labor union. this is bloomberg. ♪ ahhhhhh business license guidance?

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matt: from new york city from our just for our viewers worldwide, i am matt miller with markets on an upswing with s&p futures up 0.1%. countdown to the open starts right now. ♪ >> everything you need to get set for the start of u.s. trading. this is bloomberg, the open with jonathan ferro. ♪ matt: the gains are looking tamer than they were earlier this morning and that is the big issue. fading hopes for a santa claus rally. >> the santa claus rally.