>> it's still our concern about covid and concerns about geopolitics and whether the long-term growth prospects remain. >> we are optimistic the disinflation story takes hold. >> the u.s. consumer has begun a divestment phase. >> the year a very aggressive central bank tightening and quantitative tightening are starting to bite the economy and they are biting hard. >> we expect the fed will hike for longer. >> this is bloomberg surveillance with tom keene, jonathan arrow and lisa abramowicz. jonathan: what a brilliant week

of conversation. bob michele of jp morgan was absolutely brilliant yesterday. live from new york city this morning, good morning for our audience worldwide, this is newburgh surveillance on tv and radio. -- this is bloomberg surveillance on tv and radio. the bad news is just bad news. bonds are doing what bonds are meant to do. tom: it is whiplash, whatever you want to call it, my head is spinning over the shift from whatever you are talking about whether it be good news or bad news. it's hugely tangible after the data yesterday. jonathan: our next guest will tell us the mood following the price action. following the biggest one-day decline on the s&p 500, the markets new year rally has concluded.

that's the latest from evercore this morning. tom: stay with us on television and radio because we will do this off the fixed income market which is if you are in stocks, that's you just what you observe in the two year yield today is a textbook case of if you are in equities, watch the bonds. jonathan: the whole curve has dropped in last couple of days so the 10 year peak in october. we are out -- we are about 100 basis points south of that. tom: we are a family channel but it's a textbook lower yield. it has moved from 4.72% down to 4.07. this is how you make money in bonds and we never talk about this in financial media. it's the price change and if you

what the two year yield in early november, you made a 5% capital gain. jonathan: if you want the day ahead, jobless at 8:30 a.m. eastern time and we will hear from the vice chair of the fed and from the new york fed. tom: i agree we have a cumulative speech from the vice chairman. she has leaned on wesleyan economics and it's truly interesting and monetary theory. the big debate is trying to gain this inflation unemployment metric with where output is. that's john williams front and center and build dudley i believe will be with us as well. jonathan: good morning to you all, equity futures are breaking down six/10 of 1%.

equity futures are a little softer and yields come in a little bit, big rally in yesterday's session. in the effects market, 108.29. positive fed speak this morning but the ecb president will be speaking. we are only focused on the risk of doing too little right now and we've discussed it a million times. what's the biggest risk? tom: i spent quality time with mr. knott of the netherlands. americans don't know this name and you need to become familiar with. i was most impressed by the rigor of his economics. jonathan: the hawks make a continued push. let's talk with greg battle. 3400 on the s&p year and is your

price target and not -- and you are just looking for a rip. you are the most barest strategist on the street right now. talk to me about the journey to 3400. >> good morning, i think the target itself is less of an outlier than what it seems. if you look through the forecast for the first half of this year, people are looking for recessionary price action and for the equity market to make new lows. we are not looking for the type of v-shape recovery in 2020 when it was a harder environment. that leads us to an equity market that could have healthy declines this year. tom: the bnp paribas hallmark is to under shoot gdp and you -- and you've always been right about that. that devolves down to the x- axis. give us the timeline of this equity weakness.

is it by quarters or do you get into the depths of 2024? >> we've seen some pretty big declines in the last calendar year which was far more a story of multiple compression then recessionary price action. what we are looking for is recessionary price action we think that can start with the current earnings season and we've seen that economic data this week and we saw alcoa after the bill yesterday which was a troubling release and over the next couple of weeks, we think earnings season will be a challenge. we think the economic data will decelerate and we could see some real capitulation in terms of earnings forecast. we think the next two earnings seasons could be the most troubling. tom: when you look at the cross moments around the equity market and when you look at the fancy derivative chat, what does it say about the bit being placed right now?

-- about the bet in place right now? >> we are seeing a reflection of what we've seen more broadly which is a more constructive start to the year. the vix traded down to an 18 handle which is low relative to where it's been over the last year. that is reflective of this kind of china reopening, warmer winter in europe, starting to translate into a short trend and may be people are thinking the elusive soft landing is coming but that's inconsistent with the data. retail sales, industrial production, empire manufacturing, this is decelerating aggressively. we think there are signs of complacency and i think the vix sub 20 has been a bad signal for the markets. jonathan: listen to this, the

manufacturing data undeniably week. why does this continue? aircraft and autos have momentum and the dollar sold of supporting the exports and manufacturing wrote an global growth has rebounded. he's pushing the idea we could have a more resilient economy than some expect, what do you say to that? >> i think we've had an incredibly aggressive timing cycle from the fed. we know these things have very the legs. her economics team points to nominal gdp is something that historically has been a signal for deceleration in terms of economic momentum. they expect that to happen at the start of the second quarter when q1 earnings are being delivered. there is undoubtedly been a real deceleration in terms of earnings forecast momentum. each earnings season has seen

downgrades a little larger than the last of we think we will get figure downgrades over the next couple of weeks this earnings season and we think we get your downgrades as we move through q1 earnings. jonathan: how important is history here? you mentioned evercore and he said no bear market has ever bottomed before the start of a recession. >> i think that's a great stat and we produce that piece and looked at every recession and their market over the last 100 years and that was one of the takeaways we've seen. we think we have a recession this year and the data tends to be deep and long. we have studied all of these crashes and we see some notable similarities between where we are today and where we were in the early 2000. that was a bull market that was driven very much by multiple compression and retail participation. it's very similar to the bull market we experience prior to last year.

the unwind was long and deep and we see a lot of similarities to that today. tom: your shop has an absolutely original heritage in china that goes back well into the 19th century. bnp paribas and china, can there predicted boom and and of covid and their new five or 6% gdp growth overcome the equity gloom? >> i think we have seen the power of the reopening trade in the u.s. and has been the driver this year of the more constructive start for equity markets globally. we would question whether that would be sufficient alone to offset some of the headwinds we see domestically. it certainly raises the question of relative performance globally and this is one of the reasons why i more comfortable with his errors you for u.s. equities. in the case we are wrong on the global macro economic outlook stronger, we think there are

regions other than the u.s. that are likely to lead that charge higher. jonathan: 3400 on the s&p 500 is the call, thank you. it reminds me of morgan stanley, bear markets will confuse investors and take their money. tom: i don't have an opinion on this but i would go to the observation of multiple bear market rallies and you become used to that, pulled back until you don't and the question is what are the set of circumstances where it becomes a bull market? i would suggest there is not that many people calling for a bull market. some people are away from the gloom we just heard. jonathan: i think the tug-of-war continues and that has not changed. those on one side believe we are

about to pay the price for years worth of monetary policy tightening and those on the other side were pricing in a re- covering off of the back of china reopening. the problem people have at home as they are asking what has changed apart from the fact that we had a rally? what has changed in the last 24 hours apart from the fact that we had a selloff. i think the range has changed. tom: the confusion on hard data versus soft data, we will talk about this and it's an important date of thursday. jonathan: what has changed is the breakdown in bond yields. the two-year yields just north of 4% and the 10 year yield is 3.37. live from new york, this is bloomberg. ♪ lisa: keeping you up-to-date with news around the world -- his surprise announcement in new

zealand, the prime minister is stepping down before a general election later this year. she says she doesn't have the energy or inspiration to seek reelection in october. she is 42 years old i became the world's youngest female leader when she led the labour party to power in 2017. strikes coordinated by french unions look to bring much of the country to a standstill today. it's a protest against government plans to revamp the pension system and a test of president emmanuel macron's ability to resist pressure. workers in railways, schools and hospitals and traffic control are among those taking part. ukraine president is once again calling on allies like the u.s. and germany for tanks, artillery and longer-range missiles. he spoke on a video link to the world economic forum in davos and said the additional weapons will be used to target russian forces occupying parts of ukraine and not inside russia itself. two federal reserve policymakers favor a downshift of interest

rate hikes. the dallas fed president and the philadelphia fed chief laid out the case for smaller rate increases. that came after data showed inflation at the wholesale level decline. we have learned that crypto's genesis capital may file for bankruptcy as early as this week. the lending unit of digital currency group has been in talks with various creditor groups amid look a liquidity crunch. it's warned it may need to file for bankruptcy if it fails to raise the cash. 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. ♪

jonathan: following the biggest one-day drop in the s&p 500 of the year, going back to the middle of december, we have losses this morning i -- with equity futures down. the bond market and attention on jobless claims at 8:30 a.m. and then we get fed speak. the new york fed president is coming up as well. 336.96 on the u.s. 10 year, we are down almost 100 basis points from the intraday highs of october. i said it earlier, bad news is bad news and that drove the equity market lower yesterday and bonds did what they are supposed to do, they rallied in the face of that. tom: they were talking about the

nine -- the shift of nine days of exuberance. maybe the fed cares more about a 3.99 print. jonathan: a handle without a doubt because this federal reserve is having this conversation but ultimately, still pushing toward five, the five handle on fed funds. they are telling us when they get there, they want to stay there for a while. neel kashkari said that's the next phase of what we are trying to achieve. it's not get to five and start counting, its weight there and be certain this inflation restoring is over. tom: we will have to see. i am completely data dependent on this. we saw a decline yesterday and doubt futures are negative right now. -- and doubt futures are negative right now.

82% of davos attendees follow the dow jones? jonathan: are you saying it's an elitist index? tom: they all follow the dow. jonathan: i think we agree on that, there is no separation. tom: joining us now in washington is anne-marie. i want to go to something three days ago and this is your skill which as you go to a store in three days later you are on this. brief us now on a bipartisan congress that hates china and yet secretary yellen is in the process of a u.s.-china thought. three days on from that shot, how can you interpret that? annmarie: even if you have lawmakers that want to throw stones and create legislation or

committees that are going to look into and combat china in terms of whether it's trade or human rights or taiwan, the u.s. is still going to have a relationship. these are the two biggest economies in the world. we should caveat her statement with the chinese vice prime year. he is on his way out. he is a lame-duck but what this does is it opens a pathway for communication. what is key to her sit down in zurich is the fact that it came before her tour of africa and she's going to go to these countries that have big issues when it comes to dat that china owns. -- two debt that china owns. china has made inroads in these countries with belt and road so i wouldn't read too much into their sit down as being a huge thawing of relations, but they

are talking again. remember how dire the situation was between these two countries in terms of diplomacy after speaker pelosi went to taiwan. you have the secretary of treasury speaking to her counterpart. he is on his way out and we have secretary lincoln headed to beijing. the policies have not changed. nothing has changed but they are talking. tom: they are talking and they have to move forward into some sort of bilateral or multilateral approach. are we on the edge of multilateral in america? i don't sense that with the animosity of congress toward getting anything done. annmarie: no, with china, maybe you can see something get done. we saw congress banned tiktok on all government used phones. tom: wait, we need to be clear --

are you still on tiktok? annmarie: i never was. tom: i wanted to clear that up. annmarie: you have to look into the analytics behind tiktok in terms of potentially what could be pushed out to users who use it. this is a big concern among lawmakers because of the fact that so many young americans actually get their news from tiktok so maybe they clip a segment, talking about something they want to learn about and in those 20 seconds on tiktok, they learn about it. all kidding aside, there are inroads into bipartisanship on the hill when it comes to places like china. jonathan: can i get away from tiktok for a moment? the democrats say they want a

deal with republicans on the debt ceiling and how important is that this year compared to the last few years? annmarie: he is an important voice but he's not as important as maybe the prior two years of the biden administration. everyone called him president manchin because they needed his vote. he was sometimes difficult to get on board and we saw that with a lot of legislation the administration was trying to get forward but he is talking about setting up a committee to look into the u.s. debt and work in a bipartisan way and how they can make sure that things like social security do not become insolvent. the issue they have here is that the administration and democrats, for the most part, are not going to negotiate spending cuts when it comes to the debt ceiling. they see these two issues as separate paths and they don't want to negotiate. senator manchin looks open to

the senate to run the idea of setting up a committee to look into this. this is going to be a really difficult fight. the markets are shrugging it off and it is very early now. we will have the treasury going into this special accounting measures, but in the summer, this is going to come to a huge fight between the republicans and the democrats and it's a divided congress. the worry is that this becomes to the brink so much that we could, not default, but potentially another downgrade like 2011. jonathan: it's too early. i get the resave response from everybody on wall street. here we go again. they say it's too early for me to care about but eventually they will care. we will dive into it more in

about four months. tom: that's where i am. we are way ahead on this but the fact is, it's percolating and we got some smart discussion coming up. jonathan: annmarie, thank you very much. tom: i just tiktoked joe manchin and every other news media type comes up. i think we should be on tok ik.k jonathan: the version they get in china is different than the version we get in the united states, particular for young people and how they consume information. you said something earlier, it's not that washington, d.c. hates china, it's that much of washington dc hates the policies coming out of the chinese communist party and i think that's an important distinction. tom: it goes back to world war

ii and the formation of the communist society and the powers of china as well. there are a lot of ghosts here the go back. there is a lot of nuance here that a more modern dialogue misses and leads to that bipartisan angst. jonathan: they seem to have frustration with multi nationals the west. tom: they've got to get business done. jonathan: futures are down by 0.7% right now. the sell off continues. ♪

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jonathan: a couple of hours away from jobless claims a little later this morning. good morning to you, equity futures on the s&p 500, -0.75% and the nasdaq is down about 0.8%. the nasdaq snapped a seven-day winning streak yesterday, going back to 2021 so a little softer this morning on the back of week data. in the bond market, the two year is just north of 4%.

after coming very close intraday to 480 in the last few months, we have backed away. the intraday highs over the last 12 months back and not sober, we are now at 300 -- 3.3751. 18 basis points lower on the 10 year. tom: it's been static but i would suggest that the pullback yesterday, the tension from economic data is seen in equities and bonds and commodities. it's very evenly distributed which could be a good feeling for a lack of panic. jonathan: things were finally intuitive. the date it was bad and the market response was bad with equities lower and then bonds behave the way you would expect. bonds rallied and yields dropped. let's finish a foreign exchange,

euros dollar, they could drop away from 50 after hiking 50 and we hear from the sent role bank governor in davos that that number could will be 50 for the time being, pushing back against that, the ecb president said 50 basis points. she spoke earlier this morning saying inflation is way too high and 2020 written three won't be brilliant but better than feared. the big story over the last couple of months, what's the against risk, the risk of doing too little or too much? does one outweigh the other? the fed said it was about the risk of doing too little. what do you hear from the netherlands? exactly the same argument over the ecb. it's only focused on the risk of doing too little right now. tom: that's the politics of not having unified fiscal policy.

to me, the great attribute is moving from the man with -- japan which is highly troubled to the united states is the animal spirit of the three economies that are starkly different. give your credit for improving their nominal gdp trend and japan is usually problematic on top line gdp. the u.s. is leading the way but will that shift this year? i don't think so and christine lagarde, her major constraint is just the economic might of 17 nations for 20 nations. jonathan: we said there's a big difference between good, bad, and better. christine lagarde said the news has become more positive, that we could see only a small contraction and she said it won't be really and but it will be better and i think we need to be clear about this.

the story in europe is not a good one but just a better one than feared and that's what ultimately matters to markets. tom: the bad news/good news thing i think is a month -- is a bunch of media baloney. ben emmons makes it clear that there's been a shift in the markets and we have shifted on disinflation from more difficult disinflation. what does that do to the dots? can you imagine that? jonathan: i we can guess which dot belongs to which country. tom: we can do flags. jonathan: equities this morning are down 0.75 percent and more fed speak including to day.

that's coming up later in early this week, the philadelphia fed president repeated his support for quarter-point hike. >> the days of us raising 75 basis points at a time have surely passed. in my view, hikes of 25 basis points won't be appropriate going forward. jonathan: harker says this -- tom: this is an important voice particularly on burgeoning em and we will see how that works out and we will speak about it this morning. his jerome powell central to your world? >> he is the debt she was the central banker to the world last year and now we are seeing more dispersion in the data and the

economic outcomes. while he will be key for marcus to get right, i actually think one can focus on individual stories this year and look for opportunities that can decouple from what the fed is doing. he's still someone important especially for emerging markets but less so than last year. tom: which pacific rim emerging-market is most emerging in 2023? >> the most obvious one is china. china was a mess last year. the rest of the world reopen post covid and china was behind the curve and this year, they are emerging so indeed it's the most emerging. also from an impact to the rest of the world and the rest of the emerging markets, china is quite pivotal. that's what they are watching and that's what we're focused on this year. it will allow em to possibly

outperform developed markets. tom: it's a currency bet as well. can you model out 5% gdp, real gdp in china? can they get back to a pre-covid level or is a new lower level on a democratically run china? >> if we had this conversation three months ago, i would say 5% for china but what we have seen is a couple of things which are important. the speed of the reopening for china, they went from zero to 100 area you went from zero covid to know covid in china. the dip in activity we saw and other e connie's when they were reopening was likely to come much faster in china but they are facing much less fatal strains of covid relative to the

rest of the world. we are seeing activity pick up much faster in a shorter time. you are looking at sub-utilization, traffic on the streets which is bouncing back pretty fast. china is going to be a big headwind for growth to emerging markets and it will be quite positive to global gdp. the second thing i think markets perhaps are not focused on is we've seen a complete turnaround. china was focused on high tech and domestic consumption, now they are refocusing on the real estate market. they are going back to a version of the old school growth model which is very supportive of gdp across the globe. it's also easier for the economy to push that fiscal stimulus. 5% is not necessarily aspirational.

if they carry on with this and easing some regulations, 5% is very realistic for china. jonathan: how inflationary do you expect this reopening to be? >> that's the wildcard. we just had one of the largest consumer commodities in the world that has been shut down for three years reopening. there is an ability you might see of increased demand whether it's energy, which could derail some of the tailwinds from inflation perspective. we are also penciling in slower gdp growth in places like the u.s. and starting to see the data showing the u.s. economy slowing down. you may have some give-and-take from aggregate global demand which will be able to undercut inflation expectations.

on the plus side, you have supply chains completely starting to reopen again which will also be another positive tailwind. you should be watching this to see how things play out but the initial knee-jerk reaction of being inflationary for the world is not necessarily that clear cut. jonathan: we have explored how investable china is over the last couple of years. last spring, people said china was on investable and those reasons are still out there. what's the optimum way of getting exposure to this story without perhaps going directly into chinese markets? >> from our perspective, that view hasn't changed. we are seeing some sort of rapprochement from china to the u.s. the genie is out of the bottle. once you show you can pivot from a regulatory perspective at home when, it makes it hard for

investors to come up with a base case scenario. while we are positive from a perspective on china reopening, we think there are better ways to express at than directly into china. we look at places that might and if it either from an export perspective so big commodity exporters like chile will look to benefit from this. that's one place where we are quite constructive on the outlook for the currency going forward. even places like thailand that will benefit from a tourism perspective. close to 40% of tourism in china -- into thailand comes from china. we are starting to see those numbers picking up again and we expect that to be in that beneficiary of the china reopening going forward. jonathan: we are doing it all over again in china, isn't it amazing? tom: it's weird to talk about that. jonathan: we've got the rest of the year to do it. tom: diana, thank you as always.

thoughtful stuff about how you should get exposure to this story, directly in china or outside of it? tom: all of us have gotten lazy and em has just been pushed aside. i think there is a reason for a surveillance trip. jonathan: over the last decade, it's where the outperformance is. tom: now we are in a new world. jonathan: that's after they made the argument repeatedly and been wrong. are they right this time around? tom: we could do the show from batavia. jonathan: that's a great idea that we will talk about. it will be like a food tour. a food/travel tour.

tom: when you get off the train in london and go north on that road to the stadium, you do the bar tour. jonathan: that's different, we are not doing a pub crawl, we will do something else. tom: i like it. what were we talking about? what was the spicy? jonathan: we will talk about that in a moment. bill dudley is coming up at 7:30 a.m. this is bloomberg. lisa: keeping you up-to-date with news from around the world's -- the world's first youngest female leader is stepping down. the shocking move new zealand prime minister says she will resign ahead of general election in october. she told reporters she does not have the energy needed or a third term in office. the labor caucus will vote on a new leader january 22. the u.s. is adding another more powerful weapon system to a military aid package for ukraine. about 100 stryker armored vehicles will be included in a

$2.5 billion package. it will be unveiled as part of a broader announcement by western allies of new hardware for ukraine set for friday. in the u.k., almost half a million workers are set to walk up their jobs on february 1. unions represented civil servants, teachers, university staff and train drivers will take part. they are demanding higher pay to cope with the worst inflation in decades. work is in the u.k. began mass walkouts in november. global news, 24 hours a day, on-air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo. this is bloomberg. ♪

we all have a purpose in life - a “why.” no matter your purpose, at pnc private bank we will work with you every step of the way to help you achieve it. so let us focus on the how. just tell us - what's your why? >> china is transitioning. china is already deploying a massive amount of renewables. they are the largest producer of renewables in the world.

what we need to do is get less coal and begin to move away from coal. coal that is not reducing the emissions is the greatest challenge right now. jonathan: that is the u.s. special climate envoy, from new york city, jobless claims coming up a little bit later. tom: you said it in a soft, posh kind of voice. jonathan: you are the only person who thinks i sound posh. tom: that's because i can't tell. jonathan: no one would accuse me of that. equity futures right now are -0.75%. what a move in the bond market, aggressively lower yesterday, down 18 basis points on the 10 year and now up one basis point. we're looking at jobless claims later and of all the fed speak, it's important alongside the new

york fed. tom: i agree we have to frame this as different and eclectic group of academics at the fed with governors and presidents and the vice chairman but some are monetary horses. richard clarida will join us. he has a certain theoretical, almost mathematical monetary economics and brainerd is different but when she speaks, it's the way people stop and listen is different and that's what we will see to day. jonathan: they are scheduled to speak, the vice chair at 1:15 p.m. eastern time. mr. williams of the new york fed will speak an event in new york at 6:35 p.m. eastern time and those things can change but that's what's on the schedule now. tom: i want to give a major shout out to the london-based

bloomberg green program. michael bloomberg has done a massive philanthropy toward what we will do worldwide about coal that is part of the discussion on a new esg and oil forward and a discussion in vienna for opec. leading our coverage is will kennedy. every time i look at bloomberg green, i get angry because the articles are long and so informative, actually have to read them. what i'm learning is there is a whole new lease on life or coal. australian newcastle coal north of perth and it's up in the coal boom. how does the world change with coal up 600% in price? >> i think that price tells you two things. it tells you there is a broader global energy crunch. that has impacted gas and impacted coal hugely but it

tells you something about esg. one reason coal prices have gone so far so fast is because people are building new coal mines. we are relying on the coal mines that existed. there is demand for energy but there is no growth in supply of coal. you get those two things together and you get prices like this. on the surface, it looks like a world still relying on coal but it's being driven by how esg is changing the world. tom: there has to be a theme about china reopening. my amateur take his china uses coal. what does that do to oil and what does that do to esg? >> we might expect chinese energy demands across the board. china needs all types of energy,

old and new, and there will be a demand for both. the point that john kerry made is well-made. if we think about solar, china installed a record amount of solar last year. it's expected to beat that record this year. china may well install more solar than the rest of the world put together in 2023, maybe slightly more than half. that tells you how much the energy transition is being driven in china. the demand for energy will be driven presumably by what we are discussing. it's also driving up the demand for coal. they are using more coal and are not attracted to gas because it's so expensive. both of those things, a huge investment in renewables, slowly creeping up coal demand exist side-by-side. jonathan: can we talk about coal supply?

there is this story going around that europe got lucky, europe just experienced mild weather and that's how they've gotten away for this. how important has it been to reopen some of these coal plants? >> clearly, there were times, especially in december when it was very cold across europe, when germany was using coal more intensively than india and china. there is no doubt that germany got through this winter. we can say that europe has got through this winter but there is no doubt that only happened partly because it was warm but also because germany was ready to put coal to work. that coal intensity number this winter was striking. in a country that purports to be a leader of the green transition, it's less than ideal. there are extenuating circumstances to do with ukraine, but it's quite striking they were using coal more

intensively than china. tom: we are committed to this. i was in a hotel deep into china and they were actually serious gas masks in the hotel room. the smog was that bad. is germany and eastern europe and industrial france, will they have gas masks in the hotel rooms? >> i don't think so. the number has experience for a couple of weeks. tom: we've got to make a show out of this. >> there are places in poland, a country that uses more coal than any other in europe and where people are extremely short of fuel this winter where they were burning all sorts of rings where the air quality was disastrous. it hasn't done anything for the

european air quality across the board. jonathan: diplomatic as ever, will kennedy in london. it's super important and is not talked about enough. it's been about these coal -fired plants. in davos, switzerland, there is a conversation about esg which is warm and fuzzy. tom: you are not warm and fuzzy and i'm not. jonathan: we should highlight it's laced with contradictions and has been. over the last 12 months tom: what we learned is there are microeconomics with the success of many people. we've gotten rid of the coal. you can see the san gabriel mark -- mountains in los angeles. think of the london of dickens. you could slice a knife through the smog and things have changed but what is the next move given the war and the build in coal?

newcastle is north of perth. jonathan: thank you for that geography. tom: if you read neville shute that's how you pronounce it. you learn that you say perth. jonathan: for the moment i thought we would have a serious conversation. tom: neville shute is serious. jonathan: another big lesson over the last 12 months is we have been told for decades by academics that open trade between countries can prevent conflict and that has not happened between the europeans and what's taken place with russia. that's a real reality check. tom: that's massive and it goes to henry kissinger and real politics and there has been some really good essays. i would mention robert gates and condoleezza rice who said there are certitudes that collapsed.

it was 2008, belgrade. that was the moment where nato overreached in terms of the opinion of many people and that's where the globalization failure came from. jonathan: it's a difficult moment and the war continues. equity futures on the s&p 500 art -0.7%. we will keep -- we will catch up with the chief investment strategist at cfra. i think many people are following this and feel like the mood all is the price action. tom: in 90 minutes, we will see some economic data as well. this is fromquantas from perth area i say melbourne and it's totally wrong. i don't know what you say. jonathan: melbourne, australia. tom: thank you for that.

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>> there are still concerns about covid, and geopolitics, still are concerns about whether the long-term growth prospects remain. >> we are optimistic the disinflation story takes hold and goods prices don't have to rebound sharply. >> the impact of a year of very aggressive central bank tightening and quantitative tightening are starting to bite the economy. they are biting hard. >> we are expecting the feds to

hike for longer. >> this is bloomberg surveillance with tom cain, jonathan farrow. tom: the surveillance map beforehand matters. we are not going to do football chat here. it's fluid now. it's about global capital flow floes have taken over english football. if you and i were in day voas, we -- da davos, we would be out front. we'll talk about netflix in a minute. i'm sorry it has to do with the internationalization of capital. jonathan: we pass out the store last nievment maybe why we are not there. we'll catch up with lisa later and james of morgan stanley. from new york city this morning. good morning, our audience worldwide, equity futures negative. this is bloomberg surveillance, after big day losses yesterday. off the back of economic data.

retail sales, industrial production. tom: there is a shift. we have a shift back. my major message this morning is this is evenly distributed across equities, bonds, currencies, commodities. this is not a story. it's a slew of economic data that was weak. jonathan: it's a story people were waiting for. tom: the bloom crew has been waiting for. we are back to the correlation. jonathan: does it stick? tom: that's the big thing. maybe it's about earning season. with sam stovall coming up that's beautiful. jonathan: netflix coming up. tom: i want to make program note of this. no one has been out front on this like craig and michael. jonathan, in the 9:00 hour, will have i-a nan that. could be a one-hour conversation. jonathan: go back to sport. how frustrated are you right now. i line them up any weekend.

italian football on paramount. the premiere league football scattered on peacock or on other networks as well with nbc. and then i have to go from hulu to paramount to peacock and work out where this is. tom: there has to be a consolidation. that's the solution. it will not come from the bankers but the public and look at the gradens -- gradients. they are going to look at the gradients -- you are laughing. the cable gradients are there. that's what's going to change the dialogue towards consolidation. jonathan: have we got the mass penetration we were waiting for? can i use the word crappy, i used it. turns into the crappy cable business this wasn't meant to be. wouldn't you agree? they were spending this money on content, this growth, and bang, reality check.

tom: there is more money being spent on content. but the gross-dished' love to talk to michael about this. the bottom line is the gross hollywood p.n.l. is one big loss. whether it's movies or whatever. we'll talk about this through the day to the interest of netflix this afternoon. jonathan: i watched avatar for you. tom: i'm glad you are. jonathan: nothing good for two hours and the last hour is good. if you like the graphics, it's a nice experience for three hours. i don't get it. people are obsessed with that movie. we going to get the see wall after -- sequel after this and another as well. tom: this is at the piano bar years ago in the heart of titanic. there was james cameron talking to us, me and emily, who invented all this with us. he was down to earth. he was riding a high with tie

toonic. imagine what he did, he redid it again with avatar. jonathan: this movie has been a massive success as well. netflix . tom: we should weight it like we do bankings. we are both guilty of that. jonathan: equities look like this on the s&p. down .8%. a bit of a bounce up two basis point on a 10 year. 33878. e.c.p. official after e.c.p. official say more rate hikes to come. euro dollar a little stronger. a quarter of one one percent. joining us sam stovall, chief investment strategist at cfra. can you tell me are we going to see a big rally that continues through this year? or are we starting to get a reality check about what's going to happen with the economic data right here in america? sam: good to talk to you.

i think that china will be assisting economic and earnings growth as the year progresses. i don't think it's going to be a v-shaped pivot once they open up. there are too many problems investors have to overcome in the first half of this year here in the u.s. questions being whether we do end up in a recession, how deep is it going to be, etc. tom: sam, the arc of robert stovall to sam stovall is the arc of value line sitting on the floor you would trip over in the acclaimed star system what you do at cfra. what's so important here is stovall is not afraid to look at every sector where financial media's completely focused on tech and banking. it's a disease, you know it, sam. which sectors matter right now that nobody's talking about? sam: what i find very interesting, tom, is that we are seeing a rotation out of the defensive sectors, consumer

staples, utilities, and into those groups that were beaten up back in 2022. i like to say that following a decline in any calendar year, the market has risen an average of 14% in the subsequent year. and we tend to rotate from first to worst. meaning that we tend to move out of those sectors that held up the best during the market decline and into those that were beaten up. areas like consumer discretionary, communication services, real estate, etc. tom: the two-year yield is a textbook chart. it's screaming lower yields. say a broad sense you and i agree there is a disinpoliticianary tendency. what does that do -- disinflationary tendency. what does that do to the top line revenue growth? sam: when you have an expectations for lower, intermediate, and longer term yields the implication is inflation is becoming less and less of a threat.

the fed probably won't need to be raising rates as much as they are telling us we need to worry about. we are thinking that they end up pausing after the rate hike on february 1. and history tells us nine months after the lacerate hike, the fed tends to cut interest rates. i would tend to say that we are likely to see an improvement in earnings expectations and improvement in revenue growth prospects. and overall profit margins as well. jonathan: talk about one industry, autos. autos are really, really interesting point right now. we had tesla come out in the last week and deliver 20% price cuts in someplaces, including the united states andure on ron some -- and europe on some products. how might that bleed through the rest of the industry? sam: tesla is so large on a market cap basis as compared with the other sectors within -- companies within the consumer discretionary sector, auto

industry, etc. discretionary is one of those areas that has been improving recently and we are expecting to see earnings growth of about 10% in this quarter. as compared with a 3% decline that we are looking for. also i think that the real question is if we can get tesla to turn around, our analysts are still optimistic on the shares a year from here. once we get that kind of a rotation, then i think we could end up seeing an improvement in the sector in the industry and it's not just going to be ford that will drive the way. jonathan: pick up on that. this is important. initially when we saw those cars a lot of people saw a problem with tesla. i wonder if that's a problem for everybody else as they start to invest significant amounts of money in their e.v. products. sam: i think the e.v. is the way of the future. a lot of stumbling will be occurring along the way in terms of the cost. in terms of the distance that

these cars can traverse, etc. i certainly believe that as time progresses we go from the gas to the hybrid, to the e.v. i don't think it's going to be just a single jump. i think that hybrid will be around for quite some time. jonathan: good to hear from you as always. fascinating we are having this conversation about the potential for an economic down turn. a rise in unemployment. sam is liking what he sees in consumer discretion. tom: for those younger, this is a heritage in history of old time financial media where sam stovall's foretruly owned the high ground. robert was more than competent. particularly in times of crisis. in the measured view from sam which leads to that optimism is about doing the hard work sector to sector to sector. the modern disease is what's apple doing, netflix .

jonathan: that's not going to change. some of those stocks you named, apple, have such massive weightings on the index. they reduced just what they look at to four or five names. tom: energy the a few years ago. i had a scary thought that sam is the kid that's going to come on air and i will be there with my walker. what do you think? jonathan: i'll be retired. and you'll be going. tom: don't have a choice. jonathan: i'm looking at one thing it's high yield. until this week high yield spreads have tightened year after year even with the survey data indicating things were not looking good. how that spread between the survey data and what's happening with high hi yield spreads -- high yield spreads reconciles with the next few months. tom: where did you get your first international anti-ic dote. we are so privileged to do this. we are sitting there in london or here and somebody emailed you from wherever.

you are like oh, my god, they are watching or listening. jonathan: australia. they were listening in australia in the evening to the show. i thought that was cool. tom: my first one was vietnam. a 15-year-old. my next was in perth because we were doing cricket. i need to say good evening to melbourne. i was lectured. jonathan: what we should do when we open the show have different recordings for different places so you get a good morning. good afternoon. and good evening. tom: brilliant. that's a value add. jonathan: management would love that. the amount of work that goes into it. great suggestion. tom: it would take five takes. jonathan: equity futures on the s&p. negative 3/4%. tom: i want to severe ronica's

playing some club there. ♪ >> surprise announcement in new zealand the prime minister is stepping down before a general election later this year. she says she doesn't have the energy or inspiration to seek re-election in october. ardern is 42. she became the world's youngest female leader when she led the labour party to power in 2017. chris lagarde says inflation is still too high. she vowed the e.c.v. won't let up their attempts to return to the 2% target. she spoke at the world economic forum in davos. a small contraction in the economy is likelier an the recession. french unions look to bring much of the company to the stand still a protest against

government stands to revamp the pension system. workers and railways, schools, hospitals, air traffic control are among those taking part. ukraine's president is once again calling on allies like the u.s. and germany for tanks. artillery and longer range missiles. he spoke on a video link to the world economic forum in davos. he said the additional weapons will be used to target russian forces occupying parts of ukraine and not inside russia itself. global news 24 hours a day on air and bloomberg quicktake powered by more than 2700 journalists and analyst in 120 countries. ♪ and it's easier than ever to■ get your projects done right.

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♪ >> similarly the debt limit. i have been through a lot of these. i think at the end of the day we will meet our obligations and not cause substantial disruption. god i wish we could move past this. it would be catastrophic for the united states and for our sense as a serious country if we were to actually default. jonathan: larry summers, former treasury secretary catching up with david weston in switzerland. from new york this morning. good morning. looking forward to that conversation with the outgoing fed president of kansas city. what time? 10 a.m. eastern. you going to the west of the country? tom: kansas city. everything is up to date there. jonathan: on what front?

tom: he has no clue what you are talking about. jonathan: what are we talking about? i was in oklahoma. acted. tom: you were in oklahoma? jonathan: i was the guy alli who went around selling stuff. the salesman. that came through the town. i'm not sure we have that on video. tom: here's what we are going to do. a round table here on the silliness of the debt ceiling, debt limit. i'm do history. mike mckee joins us, truly with the knowledge of the mechanisms involved and the damage that professor summers and most importantly the president of the new york fed, former president of the new york fed, bill dudley talks about as well. emily joins us in washington with the political realities at the moment. michael mckey, my mother sold

war bonds in world war ii. this was getting from congress running things in 1917, after 1939 and 1941 where they lost control of the debt process and we began the silliness of the debt ceiling. is this debate now like the 47 other debates that we have had over the years? mike: the same in the sense that we have to raise the debt limit, which was originally designed to make it easier. congress used to have to pass every -- approve every bond sale in a separate vote. it was designed to make it easier for treasury to sell debt as we went into world war i. now it's become a political football. if the closed captioning on the tv is going to show what i say, just put sigh in there. this is one of the more ridiculous things. larry summers said had he been through many of these. i have been with him. 1995 was the first one i saw. i remember that the treasury secretary at the time, bob

ruben, came up with the extraordinary measures that they are now using going into effect today, janet yellen anounsed it -- announced t we hit the debt ceiling today. they are accounting bookkeeping things. they suspend investment in several retirement funds for civil servants. then once this is all settled, they make them whole. once in the past they lost about $1 billion because they didn't get made whole. the issuance of state and local government securities, which is very wongy, hasn't been -- woningy -- w much onky, hasn't been done that. and 2011, that's where the one where s&p downgraded the u.s. we almost had a major problem. this is the stock market and also credit card rates at that time. you can see s&p just plunged when we got to the debt limit cliff and almost went over.

it sent rates for borrowing up significantly. it was a major problem for the u.s. economy. people tend to forget that. this is when we did not default. if you look what could happen, this is what moody's guesstimates could happen if we hit a default. g.d.p. falls by 4%. 9% unemployment. and destroy $15 trillion in wealth this. doesn't even address the fact for years thereafter our interest rates would be higher. tom: bring in emory. i'm going to suggest the debt limit debate has a moral or almost religious continuing -- tinge of debt is bad. how much of the washington ballet is about the moral debate of this debt ceiling? emory: this is really -- it's political grandstanding. this is an easy way for both sides to throw punches at each other. what we heard yesterday and we

talked about the last hour from senator manchin is this idea of actually looking at it in the way we did it in 2010 which was this council that was basically called the simpson bowls council of 2010. the right doesn't want anything when it comes to including tax hikes, the left doesn't want to cut down on spending programs. so then you are left with basically this panel and religiouses evaporating. he was trying to incite that kind of mode of bipartisanship to look at issues on all fronts. but the issue is, tom, both sides have drawn their battlelines. the republicans are saying, they will not raise the debt ceiling, which by the way is fake in the sense that congress has imposed that ceiling, they say they will not raise it unless there are spending cuts. and the white house and democrats on the most part are saying these are two separate issues. we are not going to be taken hostage by the debt limit.

the battle lines are drawn. whether or not they come and have a discussion we have to wait and see. it's too early. jonathan: you know how people of wall street see this instantly. one message from a terminal subscriber. and treasury yields rally on a flight to safe from default. there is on wall street it doesn't matter. we get there. it's important. ultimately avoidable and the true test how people feel about treasuries, when they get close to this they buy them. is there any reason to believe it's different? mike: yes. that's the problem. it's republicans who usually bring this up. debt ceiling was raised four times without any problem during the trump administration. it has nothing to do with what the government spends. it's only a club to try to get the other party to do what you want. the odds that we actually default have always been low because we know this is a terrible thing. except this time analysts are

saying, this could be a thelma and louise moment where we go over the cliff because the fat tails are there. this is a congress without some real right-wing hard-liners who have basically taken the attitude see what happens. representative andy biggs of kentucky yesterday tweeting out, we should default. jonathan: that's stunning. that's stunning. tom: ann marie, i think it's important. the new right. what's their power here to take a moral stance on the debt ceiling from the ones mike mckee has experienced? annmarie: the white house is just using that as fodder to say, look, these republicans are not serious about the health of the u.s. economy. this is different as mike says because of these groups of hard right liners. and their power was on full

display at the start of the 118th congress. it took numerous, more than a dozen votes to elect a speaker. again, this is the plumbing of congress. the plumbing of democracy this should not have been a spectacle in the way it was in terms of how we have seen it in the past. you come, there is a plan. you have the power. they used it for mass concessions. some of those concessions are about this issue. the debt ceiling. pouter they have is this one motion. one individual to vacate, meaning one person can call for the owing of mckart -- ousting of mcyairt if they don't like how -- mccarthy if they don't like how he's hamming the situation. tom: we'll talk about this as length. the giant from the university of war wick, he makes clear -- jonathan: warrick. my former school. tom: i didn't know that.

david has a definitive debt, the 5,000-year history, states that this is about a moral consequences. this goes back to ben friedman at harvard. mike: the debt ceiling is not moral. all the republicans and democrats have to do is sit down and negotiate. it has nothing to do with the debt ceiling. pass the debt ceiling. spend less. tom: road show. jonathan: relax, we have another six months of this. mike: it may take a disaster to get this done. jonathan: we have seen this movie before. will it end differently? love the thelma and louise. an edge on our bake sales. we need more ways of connecting with customers, fast. i know some consultants with great ideas. can they help us improve our digital experience? absolutely. they've invested over $2 billion in tech. that could really help us manage inventory.

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♪ jonathan: economists, i am knew you would come up with that. tom: i have had a sheltered life. jonathan: i can tell. from new york city. price action for you on the s&p. a message earlier this morning, good night from sydney. tom: thank you, i like that. jonathan: equity futures, negative 3/4%. the loss yesterday on the s&p, biggest one day drop on the s&p 500 since the middle of december. it had been a decent start of the year for equities worldwide. the last 24 hours we pull back. particularly in the united

states off the back of weak economic data. retail sales and industrial production. that weight on the yield curve that's for sure. get to the bond market. two year, 10 year, 30 year, aggressively lower. not the full% on a two year. 4.08%. getting close to that level. one point in the last 12 months. october going back to this, october 4.33, 4.34. right now.33842. aggressively lower yesterday. today up about a basis point. tom: wait to the tape. there is follow on from yesterday's equity weakness. jonathan: off the back of the economic data. see what the data looks like. 8:30 eastern time we get jobless claims. foreign exchange. eurodollar looks like this. 108.19. a quarter of one percent. hawkish continues, french central bank governor in davos

switzerland speaking yesterday. today christine lagarde. and the dutch central bank from the netherlands saying we are focused and only focused on the riskle doing too little right now. the e.c.b. right now sounds like the federal reserve maybe late summertime. tom: i like that idea they are six months behind. three, four months behind. i don't know what they are behind into. they have a war. we don't. i think it's not madame lagarde could be overcome by events but it's way more fluid. jonathan: good news. is avoiding recession. they are still looking at something like 0% g.d.p. growth. are we going to get good news later this summer. the debt ceiling looms in washington. bill dudley wrote the following. the debt limit doesn't contribute meaningfully to fiscal discipline. ten courages political grandstanding. it risks the default. world's wealthiest and most powerful nation. tom, it should be abolished. tom: strong language.

william dudley is an important economist. former president of the new york fed. someone more than any of the feds steeled in the grind of market economics and working day-to-day through policy realities. bill dudley joins us this morning writing for bloomberg opinion. a huge distributor. bill, i was talking with michael mckey, this goes back to the fiscal state of the nation at goldman sachs. in 2011 and more recently in 2015 the fed was proactive in modeling out debt ceiling outcomes. do you just presume they will do that this time? how will your company assist congress in measuring those risks? bill: definitely contingency playing. what do you do if there was a default on the debt? what do you do if there was not a default? the way it works if you actually run out of money, the treasury will decide what payments to present to the fed. presumably the treasury will

decide to prioritize debt repayment and interest payment so there isn't a technical default. the fed will basically honor the payments the treasury presents. what the fed can do also is shore up market functioning in the treasury market. what we saw in 2011 is the treasury market got very unsettled as we got close to the deadline. people don't want to buy treasury bills occurring aren't the time the debt limit could be binding. money market funds, outsourced from treasury, into commercial banks. the fed has a responsibility to try to preserve market functioning. the question of the debt auctions themselves. the treasury is -- auctions the debt but the fed runs the process. it's important we have those auctions there are more bids than what's on offer. if there were not enough bids at auction with sale, that would be a terrible blow to the financial markets. tom: i look at this, bill, i'm going to your economics and the

great barry ikeengreen and what he said about gold and emotion of gold. how do you respond to the moral consequences of our debt, the emotion of the right, they had a huge response to your bloomberg essay, the moraled consequences of this debt. how do you respond to that like he would respond to gold? bill: simple. the point is look what's happened to indebtedness over the last 20, 30 years, it's soared even though we had the debt limit ceiling in place all during that time. the let limit clearly doesn't restrain spending. we tripled the amount of government debt relative to the economy over the last 30, 40 years. the debt limit is not doing much to actually constrain things. you don't want to mess around with the creditworthiness of the united states. if you do mess around with it, even if you do avert disaster, you can have consequences. in 2011 the debt limit was raised at the end of the day barely in a timely way.

yet the s&p downgraded the credit rating of the united states from a aa to aa you jonathan: you experienced this when you were at the fed. the gained out possible fed responses to defult, what did you think you could do back then? bill: i think there is a couple things the bed fed can do. tell market participants we are going to continue to engage in the treasury market. we'll take defaulted securities as collateral. as well as securities that haven't defaulted. you don't want the market to start to lock up because people can't raise money against treasury collateral because they are worried the federal could be in default. we'll treat defaulted treasury securities in all our operations. we value defaulted securities at market prices. the fed basically saying we are

going to keep the market functioning, the treasury bill market functioning. if things got bad enough the fed reserve could engage in interventions in the secondary treasury market. come in and buy like you saw during the early stages of the covid pandemic. the fed would not want to do that because they don't want to get involved in the middle of a political controversy. if the treasury market started to melt down, the fed would come in and participate in the secondary market. the fed can't do anything about the auctions themselves because they are preclude interested buying directly from the u.s. treasury. jonathan: build on this. the attitude of people on wall street, we are familiar with, is that this happens, we get through it. if it gets dicey, guess what we do? we buy treasuries. you get those kinks at the front end of the curve on t bills. do you see that changing? what's the whether? bill: i think that's what generally happens. what people assume there are going to be a lot of ground in

the end the debt limit will be raised. what that means if we mess up even just one time and don't raise the debt limit, it will be a huge market surprise. you go from the probability of default .01% to all of a sudden there is a tell default, it would be a huge blow to the financial markets. tom: bill, tell me about our ratios as compared to the maximum doom and gloom of japanese ratios. to our listeners and viewers in a debt ceiling debate, the three, four, or five ratios that matter, are we fiscally constrained or doing ok? bill: the big difference between us and japan is we very much depend on the kindness of strangers to hold our government debt. the u.s. has run current account deficits for decades. a lot of the u.s. assets are held by foreigners. foreigners don't have to hold u.s. debt. there is a risk that they could decide that maybe the u.s. isn't

so creditworthy. tom: they are credit yoirt, as jon mentions wall street says let's get through this and move on. it could be a singular damage given one screw up. what is the proactive process of secretary yellen not to get a bipartisan support, that's impossible, what is the proactive process of secretary yellen to solve this before the autumn angsted? bill: convince a number of republicans, more moderate republicans, to come over the fence and join democrats in raising the debt limit in a timely way. jonathan: wrap things up with the recent economic data. we have 60 seconds left with you. the recent survey data bill, how much weight would you put on it? what we saw in manufacturing earlier this week. bill: things are weaker. although i think part of this is the rotation af way from goods back to services. i think we need to see the

january data. we don't know how much christmas sales were distorted by the fact people bought a lot of stuff in prior years during the pandemic. i want to see what the january looks like. i'll have a better sense this christmas weakness is just a lull. or whether it's something more serious. jonathan: how would you change your thoughts if you were still there? does this do anything to change your thoughts about the pace? bill: they made it clear it's 25 basis points at the next meeting. and weaker inflation data confirms that. it's almost certain they are going to do another 25 basis points move in march. maybe the may meeting is up for grabs. it will be hard for them to stop. if they stop, financial conditions are going to ease. jonathan: this was great as always. we appreciate it. former new york fed president on policy. not just on fed policy. on this debt limit.

a week and a half later this summer. the x day as early as july or late as perhaps october. that's a big window. tom: what's odd about this, this is reading goldman sachs a million years ago, it used to be partitioned. the fed never talked about the dollar. the fed in angst talked about fiscal policy. there was no modern monetary conflating this. now it's all in a jumble together. for our listeners and viewers, don't know how to advise them who to listen to. i'm not sure where you go within this debate. jonathan: bill nailed it. no one expects this to be a problem. if there is one, it could be massive. tom: 100%. jonathan: you'll hear it again and again. i hear you at home, what you're saying. they can buy treasuries when things get dicey, that's what always happens. does that change this time around? tom: that's the question. jonathan: that is the question.

tom: to me, going back and worth with annmarie on this, the political grandstanding phrase that dr. dudley used in his important essay is there. why is there political grandstanding? because there is a huge body of americans who feel debt is a moral evil. it is evil that the u.s. is in debt. and at the same time they are getting massive transfer payments from the united states of america. they are cashing the check even as they morally hate the debt which leads to the political grandstanding. jonathan: latest bees from bill dudley on boomberg opinion. do away with a debt ceiling that serves no purpose. you can probably put that on the shelf. maybe repurpose it a couple years again as well. tom: don't think there should be a debt ceiling. jonathan: spend, spend, spend. i bet. equity futures on the s&p, down .8%. bloomberg.

>> up-to-date with news around the world with the "first word." i'm lisa mateo. the world's first youngest female leader is stepping down in a shocking moving new zealand prime minister says she will resign ahead of a general election in october. she told reporters she doesn't have the energy needed for a third term in office. the labour caucus will vote on a new leader january 22. another powerful weapons system to ukraine, about 100 striker armored vehicles will be included in a $2.5 billion package. it will be unveiled as part after broader announcement by western allies of new harper for ukraine. in brazil the president is down playing the importance of an independent central bank. told global tv it's silly to think an independent central bank governor would do more than what he was appointed by the president. he also vowed to see those who

rioted against him earlier this month are brought to justice. apple plans to take on amazon and google expanding its smart home lineup. there will be new displays and faster tv set top boxes. that comes after apple relaunched its larger home pod speaker. the new product line will start with a tablet that can control things like thermostats and lights, show video, and handle face time chats. global news 24 hours a day. i'm lisa mateo. this is bloomberg. ♪

♪ >> what is different this time is everyone's on the look out for a bubble. is there complacency or not?

we have been expecting a recession. it hasn't come yet. there are a lot of reasons why it may be pushed off until the back half of this year or maybe into next year. you do have new tools out there. jonathan: he was brilliant yesterday on bloomberg tv and radio. sat with us for almost the full hour. brought out an important quote from him, the impact of a very aggressive central bank time, a year off it, plus q.t., are starting to bite the economy, biting hard, investors are make the decision, get into bonds. what do we see, investors -- tom: it was a bob michele day. this is a disinflationary tendency in how you handle it. i leave it up -- i think you are doing a better job than me on this. i would say the current version is not the story. the real yield comes in a little bit. it is about specific yields and

specific spreads. jonathan: it just dropped of the the inversion is still there. the whole curve, yields aggressively lower. your 10-year is about 339. just short of 340 on a two-year, north of 4%. 4.08%. equity futures are a little lower. down about .8%. your next stop, netflix after about -- tom: right now, this is what we do at bloomberg surveillance. we want to bring you experience on the sell side and people advising and doing securities research. she is a legend in the business. jessica. long ago and far away she would put out a 10-page effort for opco. we would all have to stop and read every word and every sensitivity analysis of her work. she has a new war.

a for global wall street to take notes this morning. jessica, thrilled to have you the streaming wars? jessica: thank you for having me. thank you for remembering oppenhimer. a long time ago. with the exception of netflix , everybody is losing a lot of money. it's critical that the traditional media companies make the transition. lane yar paid tv universe is declining and quickly. the viewers are going to streaming. they want to watch what they want when they want. their ratings are down dramatically. the air dollars will follow. tom: i look at your optimism on streaming, i'm going to go to the most troubled, call it david's warners brothers digital, you are at lunch with him at the sunset tower hotel. what's your question to him and the rest of the industry about what's the rate of change here?

what's the speed forward for the streaming wars? jessica: they are a little different. it's an interesting company to pick up. w.b.d. will launch their combined service in 22. we don't know exactly what that will look like, how it will be priced. do they keep discovery plus -- allah cart but integrate it because -- ala cart but integrate it because it's very loyal cash cow. discovery has an enormous library. it's not just warner brothers. but turner. when they launch our expectation they'll have news, sports, entertainment, documentaries, nonfiction. that's a little different. the ones who have launched already like paramount plus or peacock or disney plus you can see their numbers. they are losing billions of dollars.

tom: jessica, to your enthusiasm on netflix and get to this afternoon, mandalorian coming out for disney plus to save the day when, do they get to profit? what is your axis at banc of america when they finally turn profitable? jessica: in the case of netflix they are profitable. they are a completely different level than all the other traditional media companies who have joined the party later. there are massive losses -- in the case of warner brothers discovery losses peaked at 22. paramount plus and others, next year. it's a long road to profitability. the margins in the business don't see what they are ultimately r they 20%? can they scale up beyond that? it's clear that the economics will be far worse than the paid tv, the traditional paid tv. tom: i got eight ways to go

here. there is so much to talk about in the losses being taken. i think i have to go to the heritage we see right now debated at disney over fox. mr. peltz is in there knocking around and others it's about a gentleman in his 90's, rupert murdoch. if i was having coffee with you and gordon, i would say what is the outcome for the murdock empire five years from now? how do you visualize that? jessica: i think rupert murdoch has proven to be the smartest person in hollywood. he sold at the peak. and the assets he kept are the live assets. live news, live sports. they are doing very, very well. second they are not losing billions of dollars in streaming like others. fox is in a very different position because they are much smaller.

they have bite size. they could be broken up. they have a great balance sheet. they could buy something. they are in a completely different position than the other companies that you mentioned. whether disney or paramount. or comcast with nbcu. jonathan: this might sound like a rant. we were having this round early this morning. this is meant to improve the user experience. it hasn't. it was meant to be cheaper. it isn't. jessica, it's becoming increasingly expensive. we look what we pay for the streaming caps and ends up way more than what we were paying for cable. how does that end do you think? jessica: obviously consumers should have probably stayed with cable. that's over. we'll see where cable levels out. you are 100% right. that's why the biggest issue facing streaming is charm. consumers it's easy to turn on and off these services. unlike cable where you had to wait for your service man to

disconnect, take the set box. it's easy to go on and off. that's part of it. tom: you and i lived this, i remember dennis doing the same thing, one of the dumbest things i d he told me you have to pay $50 a month for cable. i told him i was nuts. of course i was totally wrong. take it back to the guy that invented this. brian robertson. comcast. what does traditional cable do to get back to the persistent cash flows that they enjoyed? to me it's done. jessica: 100% agree brian roberts is one of the smartest people i know. they have done an amazing job. they are do deals. they see around corners. peacock launched, their content -- they have invested in content the way others have and they haven't had those losses, either. the video business, it's

shrinking for them. they have been very creative and strong in broadband. their broadband business is much larger than video. they have also been more aggressive in terms of trying to capture the viewers and make it easier for them to watch all apps in one service. i'm surprised the time-warner cable, the government wouldn't allow them to do t having comcast in new york would have been amazing. they make television viewing very easy. tom: jon has to say goodbye. to be honest, all we want to know, do you have the power to get english football, premiere league football, on one streaming service? can you fix that for us? jessica: i don't know about that. isn't a lot of it on peacock? jonathan: then you have to guess it's on peacock. hulu, live tv. "usa today." jessica, thank you.

thank you very much. drives me insane. absolutely insane. i said this before, i cut the cord because i thought it looked better. i didn't want the cables in the house anymore. i didn't want the cable box. that worked out for a little bit. now all i've got, hulu, paramount, we've got apple, netflix , you get prime with prime. what else? tom: i have way less. jonathan: did i mention peacock? tom: this is what i do. i talked to paul sweeney about it, who like jess yaik is expert on this, i won't do five or six or seven services. the kids don't watch it. jonathan: one or two things. sport and news. jonathan: all they do is on tok tik. jonathan: that's the new name. give our trade recommendations and call it toktik.

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>> rally into recovery and that we will hit a soft landing. >> it seems very aspirational to

me that it will end in a soft landing. >> there is a delay, >> the market is interpreting the fed's commitment rate. >> markets don't have to crash, don't have to search. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. tom: i'm tom keene, thank you for joining us in new york, on television and on radio. the rally of 2023, it is over. futures at -34. jonathan: biggest one-day loss of the year so far going back to december of leicester on the s&p. bad news, bad news industrial production, retail sales and bad news makes good news for treasuries. tom, all jobless claims this

morning the number we are looking for is 214 it doesn't scream recession. tom: and mr. harker who talked yesterday i'm sorry the philadelphia fed business outlook statistic but after the empire disaster of buffalo new york, i have to be looking at mr. harker's landing to see what the spirit is. jonathan: i think if you are in risk management mode you move away from 50 and that's quickly become the consensus. has the destination changed for them? i hear 25 but also still here five on fed funds and ultimately the data will dictate whether they get there or not. i think they are throwing the towel in the commitment. tom: how not to get to 25 and 50, get it done. let's go, move quicker and then stop. jonathan: we know why they keep talking about five, petrified of making the same mistakes and backing away to early.

they are petrified by history. that is what you hear from others. tom: this is the asymmetric risk. i don't think we need to talk about japan now it's a quiet day there but this is the asymmetric inking of fed officials, central bank officials and i'm going to say that comes over to the asymmetric mysteries for corporations like netflix this afternoon. jonathan: after the close starts to report tech. our next guest is going to talk about how big tech is not making a comeback anytime soon. tom: she was invited to davos. jonathan: we didn't tom: get to go either. let's do the data here and i have to center in today on the two year yield which i think, it's come back a little bit 3.99 two year yield. jonathan: against the fed in the face of the fed. tom: we are not there yet. jonathan: 4.1% on the two-year

what a turnaround. today we have a balance up for basis points. but we have been trading in the three 30's after training -- trending in the four 30's back in october. tom: and for the housing data to come out at 830. i knocked my microphone there. it's just beautiful. housing starts building permits and such mortgage rates have come and but i wonder what the trends are that we are saying in real estate. jonathan: let's look at cancellations, what's happening there. tom: is this in the 60's and 70's where you are closer to the office? or do you think it is something? jonathan: i'm not purchasing right now. i haven't seen the correction in new york real estate. tom: not at all. jonathan: i have seen rates go up sure. tom: we are going to get to our

guest right now but we don't think rationally about realistic because we live in this odd city. we welcome you across the nation and particularly in melbourne today. jonathan: nice. for the record i'm about to renegotiate my rent so the landlord's listening is a terrible market, absolutely terrible. you don't want to do it. stick with it. equity features right now no bus here in the equity market we have 9/10 of 1% on the s&p we are done about 35 points. 10-year, 341. tom: 26 minutes before economic data alicia levine looking at equity and capital markets i'm going to go math on you right now. first and second differ of it if what is the convexity out there? what is the accelerated force that scares you? >> what scares me is the pricing in the soft landing that is

happening since the beginning of the year because as you know, it's not actually what happens in the data that moves markets, it's what's already priced in. so everybody was defensive by the end of the year. china reopening, the growth impulse, tech is going to make a resurgence, great for stocks, great for multiples. the soft landing is out there and it simply wasn't priced in at all. then we move towards that end that is ultimately the risk. in the end to the peak fed funds rate is parsed by the market it is about 50 basis points less and where we think we are going. it's not that the market is necessarily wrong it's that if it is wrong the reaction is not going to be a pleasant one. tom: my faries lester the gravity has returned. he's got a book magisterial and misunderstood called anti-fragile which is the mathematics of what you don't see because you don't have skin in the game which leads to the

shadow baking debate. what is the mystery out there and the bet that is being made for 2023? >> the bet that is being made is that the macros story from 2022 carries over to 23 meaning that if the second derivative on inflation is negative, even deflation, that will rally the market. that is the problem. because the bond market has already priced in the recession, has already priced in lower inflation and with that, if you are only looking at multiple expansion as a way to rally the market when most market participants are assuming that earnings have to come in that is the problem. the story this year is the earnings risk and the recession risk not the inflation risk anymore that second derivative has been clear for several

months. it's being driven by a drop in commodity pricing. that's been clear but you can only go so far on that and that's the dance. the dance between lower yields, lower inflation but if you are getting to the percent it's because you have a recession. jonathan: where does that leave tech? >> we have talked about this for the last few months. the multiples there are still too high and every cycle, there is that moment where leadership shifts. it typically is caused by a recession or some kind of an event and you see it very clearly, what happens here is sort of that excitement of multiples and tech and exponential growth and then it starts to be over by the middle of 21, more towards the value industrials, cereals, commodities. so we think the next cycle, maybe not the next year but for

the next cycle it will be more challenging because they were the leaders before. if you go back 50, 60, 70 years cycles of outperformance and the break tends to come around recessions or big events. covid was one of those events. jonathan: regime change. i think selling microsoft has been pretty clear the microsoft ceo the following words, they are not hiding they are telling you this loud and clear with job cuts here is the quote during the pandemic there was a rapid acceleration i think we have to go through a phase today where there is normalization in demand. they are telling us upfront. >> you don't have -- you don't fire people when you have growth ahead of you. the message we are getting from this particular sector is that growth is slowing. we have seen it in the stock prices. you still have stocks trading at

60 times forward earnings. those have to come down they tend to be concentrated at the top of the market. so ultimately that's a tough place to be. tom: they are not all in cash. >> know, we are not in cash. we don't do that. so we recently raised our exposure to fixed income. we did that at the end of last year we have tilted our equity exposure to be more value oriented and to look at some of those things that are underneath the surface, not the top 10 names that everybody still has in their portfolios hoping they are going to outperform this year we are looking at more value and growth at a reasonable price. tech names that have earnings and dividends, that's great. that is what is going to work this year it is the growth at any price. that story was last year and that will continue in this

cycle. if you remember, after 2000 nobody wanted to own tech for about seven years. tom: same thing here? >> the leadership will not be here and the lesson will be hard learned. jonathan: that's got to compromise the index in a massive way. >> we like industrials, we like materials we are still raw in energy because and by the way let's talk about the wti quietly went from 70 to 80. tom: you haven't been watching but we have been talking about that. jonathan: she listens and watches every day, tom, what are you talking about? >> i do. jonathan: thank you for making the effort, it makes a massive difference. >> so great to be here with you guys. jonathan: time is up, tom. it's my job to bring you in sometimes. alicia, thank you. tom: what she said about the

partition between cash flow in the others, that's where i am. jonathan: regime shift. tom: redeem shifts, free cash flow is gospel. jonathan: daily update from andrew holland we call it -- we tried to get this out of veronica yesterday. i told you they could have waited. tom: you have to start asking more questions. jonathan: slow into 25. core pce inflation, likely 0.32% following softer wages, likely to convince fed officials to slow the pace of rate hikes to 25 basis points at the next meeting. a look at the 25, move away from 50 and they still committed to this idea we get to five. that is the conversation we need to have. live from new york, this is bloomberg. >> keeping you up-to-date with news from around the world with

first word on lisa mateo. a surprise word from new zealand arden to step down later this year. she is 42, the world's youngest female leader when she fled the labour party took power in 2017. european central bank president says inflation is still too high and she vowed that the ecb won't let up in their attempts to return it to their 2% target. she said a small contraction in the con ami is likelier than a recession. follow where zelenskyy is calling on allies the u.s. and germany longer-range missiles, tanks, and artillery. he spoke on video and said the additional weapons will be used to target russian forces occupying parts of ukraine and not inside russia itself. bloomberg has learned that

crypto's genesis capital may file for bankruptcy is earliy as this week. it is scorned they may need to file for bankruptcy if it fails to raise the cash. global news 24 hours a day on air and on bloomgerg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo, this is bloomberg. ♪

>> all i see is elevated services as a symptom of an overheated economy particularly a tight labor market which will have to be brought back into better allan's the overall inflation rate to return to 2%. jonathan: the latest fed speak will continue a little bit later this afternoon you will hear from the vice chair. the core of the federal reserve the only one missing there is chairman powell. that's come about quickly, has in it? the decision just a couple of weeks away. tom: we made a big deal about inflation, retail sales we will get some data here in 12 minutes. it is important but i think we have a clear understanding that

no one has a clue on what the consumer is doing. retail sales is terrible united airlines said no it's not. jonathan: just crushed by those estimates and the moves we have seen have already been tremendous let's talk about this just briefly. leaning towards 25 city jumps on board they had a call for 50, they dropped that. now looking for 25 basis point hike that seems to be where we are. tom: and we are disciplining along the way our next just -- guest is going to help us with that i have to watch this two year yield. i have to be clear that our guest here nailed the movement jonathan:. much lower. 18 basis points that is a big deal. tom: allen joins us right now.

we are thrilled that he could join us today. alan, you absolutely nailed the consequences of lower yields if the u.s. to your on the way to 25 moves lower what are the consequences of the outcomes for our listeners and viewers could say a 3.7 whatever percent to year yield? >> i think that's being overly bullish and thus -- the market has come a long way. it's suggesting we are overdue some sort of caught -- consolidation i wouldn't want to get too excited about 3.7%. you are talking about fed funds speaking some nearing for 7/8. i don't think that's going to come down. that really we to rate hikes.

what's important here is the lower the terminal rate, probably the longer the plateauing period that we see in terms of short-term rates and fed funds in particular. that really acts as a constraint for two years. so i think 4% is probably, that's a line in the sand. tom: "bloomberg surveillance", we don't keep calls of the year but we got the timeline right. your colleague matthew lewis eddie absolutely nailed a recession but a recession further out. the deutsche bank called on economic dynamics with market and fx analysis. how do you take his great call and fold it into a view for 2023? >> on the fx side have been downplaying to some extent the

adjustment and the impact you are seeing from u.s. rates to the u.s. dollar. we think lester you went through this perfect storm where rates accelerated the topside and it was very hopeful but it was much more than that. it was the story of chinese growth weakness it was the story of the ukraine war. and the impact therefore on japan and current account position. all of that is in reverse really. really just the change in the growth outlook in china, the improvements in the payments picture. it was already improving, a little surprising there. so the other elements on the other side of the dollar have been helpful in terms of currency appreciation for the euro, the yen, and the u.n.. the dollars weakening partly inn

the right side which is the more obvious. jonathan: i have been trying to dig into this the last couple of days. can you go through this for me it's two competing forces. i stress better, not good, but better situation which could drag yields higher and then we confront weak economic data in the united states, potentially putting yields lower. >> generally the u.s. gets wagged by many other things, other markets and such. i would generally focus on what the fundamentals are doing, what u.s. growth is doing. i think the issue you have now is that the 10 year yield doesn't trade much below sort of a hundred 50 basis points.

the 10 year yield is going to have a hard time much below three and 38. that is the 10-year gilts. when you think in terms of equilibrium funds rate you don't really typically get the spread that is much lower than that anyway just in terms of the terminal rate. and in terms of the longer-term equilibrium rate suggest that you either need a lower terminal rate or you need the market, the need -- the market needs to foot the idea that rates are going below when the fed cuts rates which typically i think that's not unreasonable to expect. jonathan: we go into the quiet period after tomorrow with the federal reserve. we hear from the vice chair today, what would you look for from those speakers before we go into this meeting at the end of this month? >> i think the next meeting is effectively clearly signaled at

25 basis points. that's pretty close to what the market is priced in so i don't think it needs to be any particular pushback to the next meeting and really they don't like signaling much beyond that. i think there can be some discussion about the easing of financial conditions and the fact that this might be may too supportive for growth i think there is a discussion about the idea that the unemployment rate ultimately needs to go up for inflation to head to 2%. that is what we have in the works at the moment is inflation perhaps going down to 3% or thereabouts to get to 2% to really does she really need a much weaker labor market that element is where the promise really lies. i would like to see them talk more about. jonathan: thank you. jumping on for us. the center which replaces i'm not there. tom: for those of you worldwide

there is an iconic set of towers at the southwest end of central park the time warner center. which is the warner bros. discovery center i guess is what we would call it. for them to move uptown which i have heard has really worked out well jonathan: if you live on the upper west side. you can walk. tom: is like the 59th street bridge. jonathan: you just want to stick with that? tom: whatever. simon garfunkel told me is the 59th street bridge. jonathan: i know music. tom: it's better than thelma and louise. futures, look at it john they just won't give it up. jonathan: what a beautiful partnership this is. yields are just a little higher.

five minutes, jobless claims come out. great lineup in the next hour of bloomberg tv. michael nathanson you think i get expected know the studio? tom: that is an important conversation. jonathan: likewise with michael nathanson too. with mona, we need to talk as well. what a change would difference i say. tom: enjoy the expenditures. jonathan: thank you. tom: john, you should try to. jonathan: i'll make the trip over to casa ferro.

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tom: bloomberg surveillance, good morning. nationwide and around the world we pause now for economic data and what i'm going to say, folks, this is important. mckee excellent, housing starts building permits we know that. mckee excellent but guess what, i have never said this the philadelphia fed business outlook, i am on that and so is michael mckee. here he is right now. >> we are waiting for philly fed to drop what we have we have housing starts and they are worse than last month not as bad

as anticipated. down 1.6% during the month of december. building permits are down 1.6%, they fall 11.2% revised to 10.6 but housing starts forecast to be done for .8%. so we are seeing finally maybe some of the higher mortgage rates working their way into new home construction. it's going to be something to follow. builders had a lot of backlogs we will see if they are starting to slow down or if it was weather-related. the philadelphia fed is out and the philadelphia fed comes in at -8.9, that is an improvement from -13.7 which was the december figure. now the number everybody wants to see in all of these ideas and kind of things is the price paid index. it falls to 24.5 from 36.3 the

prices received index versus 20 81. we are getting a much better inflation story in almost every bit of data that we get. jobless claims, 190,000. i don't even know what to say. tom: stop and discuss. >> seasonally screwed up is my guess. it is a crazy low number. it is down from 205 the week before and whether it is correct or not, i don't think it's really telling me exact -- the exact story it does say to everyone no real change in the labor market and that's going to be something the fed has to consider here. tom: 190, i take the averages of jobless claims. and i have seen the financial conditions just in the last moments. some people say we are

restrictive or sort of near restrictive and other people are saying look at the data, we are not restrictive, which is it? >> this is going to be a sharp tibet -- debate. it's what happens when you are in a tightening cycle and the fed is close to its terminal rate. jim bolick the other day saying we are not restrictive yet. we will hear from john williams today. tom: i'm going to do academics here in a minute. tell me about the academics of john williams and what a pro like you will listen for from the gentleman. >> he was the first to articulate the idea that jay powell like an onion of inflation. lowered levels. tom: i was looking at that. julia mckee, ok. the onion, please. >> we will see where he thinks we are in peeling that onion.

it's really not a question of 25 versus 50 this next meeting they want to be careful as they go forward 25 seems big and everybody -- pretty much everybody on the fed is talking about that. i wouldn't be surprised if he's as 25 felicity what he says about the terminal rate and brenner because she has been the most elvish of the fed. we are going to have a lot hitting the economy and maybe we are starting to see that. we need to be careful as we go forward. tom: very interesting to see here and of course yields are higher here. 4.11 in the two year yield shows movement of the morning. this is a great honor. mckee is going to talk to kansas city fed here with real competence of public policy. chief u.s. economist from berkeley joins us now but far more his academics is entrenched in the debate of the moment. years ago a guy named olivia

blanc charge said this book is a classic. it's called interest comprises by michael woodford. when you were at princeton, you were esteemed under professor woodward and all that. it's a knowledge of the underlying theory of what interests and prices do to people like you do you have a theory right now that's operative? or are you flying blind? >> morning, thank you for having me. we think of the framework that's got -- that is described in the textbook. it really underlies a lot of the thinking among policy bankers. across the world i would say. people think a lot about the

policy through the communications, as the central banks through the effects of policy actions come along return as well. i think the forward guidance is a direct implication of the framework involved in the textbook to and that is something that has been used at length by central banks read tom: we are in a continuum from covid shock, a medical disaster and all the supplies that, not supply-side but set -- supply dynamics. where are we in that timely right now? >> i think we are very much revisiting a more normal dynamics now there is a lot that has been very unusual, very unique with the pandemic but what we are seeing now is a classic tightness in the labor market having, you know, labor

supply is fairly limited. and that results in substantial wage growth and the classic tool of policy here is to keep raising interest rates and tightening policy in order to obtain the labor market and tried to bring the economy. so that inflation returns back to the recent target so i think this dynamic is something that we've seen over time and we are seeing it suddenly back in the 70's. tom: right. >> and now the fed is using those tools again. tom: the trend of disinflation that we have and the disinflation coming done with great rapidity do you and berkeley feel central banks are behind the rate of change of disinflation back to something near-normal? >> so we do think your that

disinflation is going to come down pretty quickly both we do, certainly when we do a bottom up approach looking at the individual components of the cpi. and also looking at top-down with the tightening policy that has taken place last year. and is going to keep having an effect in incoming months. likely be lower than 3%. tom: the outcome of this is i guess three point 5% and you would suggest that to 4.5%. i think our viewers and listeners would say that's an abrupt move were others like james bullard saying it's normative. what are the consequences to the public of a move from 3.52 4.5%

unemployment? >> i think it's going to feel very different by the time we had the economy slowing as we are seeing some data suggesting that retail sales are pretty weak as well. we expect more weakness coming in. the latest date we have seen is probably more affected by weather is well and other special factors but we expect it coming in and the in employment rate to gradually increase. we felt several months for know when the unemployment rate is high level together with inflation coming down and wage growth moderating someone it's going to feel a lot different. in particular if rates are a higher level. rates will be going up another 25 basis points. then followed by another 25 basis points and emerged, it's going to bring a very different

constellation of micro factors. tom: folks just joining us here with this wonderful tale of marketing the sum of all our fears what is your biggest mystery for 2023? what is the unknown unknown as you synthesize last year's debacle in the markets? what is your unknown unknown right now? >> political issues is a big source of concern but i do think something that might, it appears unusual is really this labor market that continues. including this morning's jobless claim suggests a liberal market

and how does that really line-up with the overall economic activity slowing so i think there are a number of factors that are new here and that are emerging. tom: thank you so much for joining us. little bit of an academic exercise there but i thought we could move, we could move to something different than the debate of 25-for the as jon ferro mentioned earlier this morning on market economic citigroup an adjustment coming down to 25 it's a quarter of a percent move there by citigroup. futures -32, dow features negative two 603i see looking at the morgan stanley aboard here in midtown manhattan. david westin with their leader

james gorman, david? >> i'm here with your coanchor and we do have james gorman in the chair. james, thank you so much for joining us. your earnings came out and i heard a story, once, some time ago wealth management may not be as exciting but over time you do better is that what we saw? i notice your stock went up 6% goldman went down >> 6%. >>first of all, thanks for having me. i told the board a couple of years ago what i would really like to see, selfishly, is a very difficult environment. i don't want to see it for the country but for morgan stanley because i wanted to prove the business model would you find when things are really difficult. in fact, we had our second best year ever in revenues and net income.

what it proved was the volatility of the market, everybody understands. the volatility of underwriting, what happens when things are very uncertain, what we proved is by having between five and $6 trillion of his money under management, that is stable and that was designed 12 years ago. lisa: one thing you said was you were planning the wealth management acquired e*trade, is there another acquisition that you're trying to target? or is it going to be growth? >> it's a mix of both. we started about 14 years ago and we acquired a wonderful little company in canada which did all of the workplace stock plan businesses for a lot of the s&p companies.

we bought mesa west which is another company. we keep acquiring those spaces. lisa: is there room for another large acquisition? >> there's always room. we like things that aren't balance sheet intensive. we like things that help grow scale and spaces we understand. and we like things when we know what the capital picture looks like. the moment we have been quite aggressive with our buyback, we increase last year but we are also dealing with changing. you are managing between had it distributed through buybacks and what you need to do to invest in the business. so it's a multi-sort of chess game that we are playing. >> there were some difficult things that you were happy to manage.

highly leveraged loans for acquisitions and things like that. is that crimping your ability going forward to make some of those loans, are you changing the risk calculus? >> we've been, i would say conservative over the last two years. in fact, it was september a year ago that i met with management and said let's all just put it in -- pull it in. risk actually declined at the end of the year so we did that. within the leveraged loan space, again, a little conservative but we had a lot to follow. obviously going to take some losses they are absorbed in their numbers but you also generate a lot of interest and fees. i think we are really well-positioned but we are not trying to be aggressive in this environment. lisa: is one high-profile lawn that we don't have to talk

about, the twitter loan which led, could morgan stanley end up owning twitter? >> i have never been asked that question. no, we could not and up owning twitter. lisa: do you plan to offload? >> elon musk is one of the greatest entrepreneurs and business people in the last century and that's not an exaggeration. take the boring company alone, let alone space x, let alone tesla. this person has extraordinary capabilities. twitter is a great company. obviously, it has gone through restructuring. i'm not going to talk about the specific loan position we have but we are very comfortable with our position. david: there are a lot of things we don't know about the economy. the rates are going to be higher? the interest-rate's are going to be higher, how does that basic fact change your business?

how do you manage your business differently when you have rates at four, five, 6%? >> we had the official environment. i remember when i came to the united states as an unsecured student and the banker afflicted i paid 24% my first mortgage was 14.5% so we have lived in a surreal world for a decade. that is the legacy of the financial crisis to get the economy back to where it was central government kept interest rates near zero which then along came covid. then along came the russian invasion of ukraine and finally you turn the corner in 2022 when the federal reserve and other central banks around the world not by coordination, just by need had to normalize rates back to neutral. i see it as sort of a natural consequence.

i don't think it's particularly alarming. david: but which part of morgan stanley's business are hurt? >> we benefit just net income in the wild is this. we managed just over $300 billion of deposits. and rate volatility obviously helps your macro trading business. it hurts companies wanting to do deals because of the cost of financing. people bring down the margin loans because it's more expensive. there are gives and gets, if you will but what i loved about the performance of the business buster, which again was not a record, but it was a great year. with those gives and gets we had a growth and attracted over 300 p.m. of new money from clients. lisa: there seems to be an incredible amount of optimism. suddenly, things seem to be

moving around a corner and i had asked to you think it's overplayed? so why are you so optimistic? what does the optimism look like here? >> i have seen all the cycles in my career and i have seen some really dark periods. the financial crisis after september 11, even though the only recessions in 93, 94 the best in 97. you have to go back a long way. i think what we have been through, if you stuck up the negative stuff that happened first in 40 years first global pandemic in a century, first war in europe in 70 years. and highest rate increase because of inflation in 40 years. that is a lot to throw at people. and where are we now? it's not bad that there will be a recession and will it be

shortened everyone is saying we can deal with this. two things like think can change everybody is basically repeating back to each other but they heard from the last person, let's be honest. most people are. and things have changed number one the inflation numbers are definitely, there is clear evidence inflation has peaked into is coming down. when the fed will get us to 2% remains up for debate. and the second is not just the opening up of china but china has embraced the rest of the world more aggressively in the last few weeks. in a way that we haven't seen for some time. so the big question coming out of congress and president xi

being reelected by the congress, was where it is china go from here? does prosperity mean effectively dividing so everybody gets a piece of it or by growing the pie. what we have seen is divide the pie to grow the pie. lisa: does that mean you have more confidence to expand in china? >> we have a business in china, we have a huge business in hong kong and we continue to have i think of to 1000 people in various functions. but now i think we need to see a little more clarity of chinese policy. a little more sober discussion and right now i think we are certainly in a watch but to be more positive than we would have been 3, 6 months ago. david: talk about washington,

the debt ceiling. i hear two things. what is your reaction? how do you take into account the devout -- possibility will the default? >> was it churchill that said americans will take the ride? i called i'm confident that politics will finally get to the right place on this. the other option is just not an option. lisa: people are also talking about the new normal, work from home. david here with jane fraser what is the new normal? is it coming to the office 40's a week? is it flexible? >> i think it is very specific to what you do. if you are a tax attorney who doesn't want with other teams.

it doesn't matter if you are in an office or not there are different kinds of jobs. the main point is post-covid we learned you can function, iran morgan stanley for three months for three months from my home office. so is pretty remarkable. we proved we actually can do it by not going to the office but should you? that clearly, to me, the big answer is no. we won't put the genie back in the bottle. for some people, of course but morgan stanley we are kind of, business by unit. my rule is always if you are not spending a majority of your working time in the company of your colleagues you are missing out on mentorship, development, eq, just reading the signals and be -- debating watch people handle the stresses that go on

and the unspoken body language so is three, 40's a week and i don't think the changes in a hurry. some people are training. it's very business specific but my golden rule is don't put the genie back in the bottle. on the other hand, this is not an employee choice. they don't get to choose the competition or promotion, or staying home five days a week. i want at least three or four days. david: you talk about responsibilities of ceo, there are people saying one of the jobs is succession and for every good ceo, we have seen a general and not so well. you said maybe three more years how do you approach the question of succession? how do you set it up for the good of the institution? >> very intentionally. you should have some sort of envelope or some sort of something happening we have done

that from a very first board meeting in january 2010. but more realistically you plan a generation of people who can take over. we have three executives who can replace me. they are all very talented executives and we are trying to feel out the skill base and ultimately the board will decide who is the most qualified to run. i am extremely intentional about it. i would definitely step down, i'm not going to stay in this job for life and it's a healthy for the way it's constructed. the mission is to grow the next generation. i work on a 10, 20 your plan and that's how far i am taking it out. this is my 14th year so i have been plenty of opportunity to develop. the great news is we have that. lisa: tum, back to you. tom: i notice the really

interesting comments by mr. gorman, work from home. chrome of week is w ft. david westin with wall street, look for that, a special edition coming from davos, switzerland. the world has changed, there's economic data. i was looking at a couple of notes. really frames out how unusual claims are. anyone that tells you they understand the initial jobless claims of the united states of america, weren't as fast as you can. hold onto your wallet. 190,000 unclaimed that is absolutely stunning coming out of this pandemic. please stay with us through the day. if futures improve marvelously

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jonathan: live from new york city this morning. jobless claims come in at 190,000. the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading. this is a bloomberg the open with jonathan ferro. jonathan: live from new york,