>> destination is clear. defendant wants to orchestrate demand. >> a strong message coming from the indicators. >> just waiting it out. they didn't buy the january rally. >> markets look expensive. earnings expectations look high. you have this bearish narrative. i call it the bearish truck and it is coming. jonathan: you want to take a dig

at chelsea? tom: it was fun this weekend. it was ok. i am moving forward to formula one coming up. jonathan: let's pick up on the bond working. from new york city, for our audience worldwide, good morning, good morning. this is "bloomberg surveillance, live on tv and radio. alongside tom keene, i'm jonathan ferro. features positive 5.4%. 4.83 on the two-year. flow came at 4.03. an 80 basis point in under a month. tom: for the 401(k) and the equity market that ignores bonds, we are now at a gigantic stage. it sets us up for emerge of his street. there was the headline of the german 10 year yield back to

2011. i am looking at what the pros at, which is the vanilla spread in record white in version. jonathan: have to deal of the silence of waiting for payrolls and more information and the cpi print. three weeks of losses on the s&p 500. the year today as year-to-date gain we celebrated in the past has been cut in half -- the year-to-date gain we celebrated in the past has to be cut off. tom: the vectors, the key thing is do they continue into march? dollar with a little strength. the 10 year yield, or percent, what does that signal to the housing vector, jobs? i am looking at the 10 years. jonathan: equity futures

elevated by .4%. three weeks of losses on the s&p 500, the longest losing streak of the year. in the bond market, 3.9531 is the 10 year. up a couple of basis points on the two-year. euro-dollar 1.0569. here we are back to 1.05 on euro-dollar. tom: talking about a slowdown in the trends and when is the china opening. m i am watching of the reader. it is at 6.95. what is the dynamic here? jonathan: here today --

year-to-date, the nasdaq was up 7% -- 70% and the s&p was up. tom: we are giving it back. jonathan: there was a story encouraged by jay powell said it had started. payrolls report came out for the month of january and everything changed really quickly. no longer about the fed backing away. tom: i saw over the weekend and it is true that it is a foundational leakage to fed dialogue and debate and action and that comes off of the data. jonathan: 12 months ago, the fed was still doing qe. that was 12 months ago. we were talking about the fed peaking at 2% and now we are talking 5%.

tom: john stumpf us -- stove ;futz -- john stolfuz joins us. higher rates mean growing inflation risk and lower rates point to hire -- a hard landing. how do you grapple with this and what it means for equities? john: we look at this, it looks like the fed is doing the right thing and that counts the most. it is the end of free money and a rough hit for high leverage players and will cost them a lot more money.

the episode federal reserve and even mistakes, the fed gets it right and we get back on track. we have to look at it. we think it is a great opportunity to diversified -- diversify it further. short duration stuff for those who don't want to dedicate themselves. for private investors who are intermediate and longer-term focus, for traders, with type of uncertainty, there is opportunity to have lots of fun on a day to day basis. long-term investors, we can't help thinking of looking at the babies who get thrown out with the bathwater.

this pause that we have had in the upside of the market maybe a pause that refreshes when we look at it in a few months. tom: if the fed gets it done, that means successful disinflation. what is the history you observe come in your optimism? what is it 4400? i look at where we are your optimism. if we get a powell friendly disinflation, what does gdp do and how does that fold into the stock market? john: we may see gdp at a moderate pace, inflation slowing , not only the supply chain of the stickiness of inflation caused by just retailers being

hesitant to give things away to cheaply as competition returns across a number of the sectors. that would be disinflationary. the china reopening has inflation related to commodities perhaps. over all it would bring back competition around the world with the diversification of the global supply chain that has occurred would likely heighten the competition as we go forward. disinflation is not a concept that is dead. it may be around the corner if not on the current landscape. tom: which sectors will benefit? let's start with banking. banking is so important and you have an historically inverted yield curve. how do jp morgan and company do? john: when we look at jp morgan,

we think coming out of it don't feel as bearish as jamie dimon was concerned. we are owners in shares of that portfolio but we think the big banks will benefit from this and in the process of not only loan making at the commercial loan level but also benefit from trading. there are a lot of things going to happen for the banks, industrials, technology, and consumer discretionary, and if you look at the rally since october 12, the sectors have done remarkably well except for consumer discretionary, as i recall. jonathan: so many people struggling with this market this year and trying to work it out. john, thank you.

in the financial times, it is time for the u.s. to regret his fight against inflation and should hold the fed more responsible to conquer raising prices. tom: is the real story here on my date with what i am seeing in the bond market, are we getting comfortable with the dreaded 6% level? jonathan: think about how quickly things have changed. we have gone from a saint there is a gap with the fed and the market -- we have gone from a thing of it is a gap with the fed and the market. it will come down to the economic data and whether it continues to be as robust as it has been. when you go through the research , ask people where we think will be in june. some people think it will continue in some people think we

will just hit an air pocket. tom: it is not a polarity of opinions, it is seven opinions. there is a confusion out there that leads to six or seven what if's. when i am looking at -- i am not predicting it, that is not what john and i do, what is the least probable. org just moved to new highs. the price breaks down and goes through the lows of october, some of the yields we quote every day what does german italian do? some of the secondary team leaves. it is comfortable to have our guest. jonathan: he will be joining us. we are sitting here thinking, there's so much debt out there.

on sovereign violence shoots which are infinitely stronger after the pandemic. now we are focused on the nature of the debt, take mortgages, many notes have a scene about the mortgage market now and back into thousand eight and the proportion of mortgages in the united states and how much that has come down. tom: i agree that we are not where it is scrutinized but with durable goods pending, home sales has a micro data that can enforce the trend we see. 89 basis points is the key number for me. jonathan: the cio and co-founder of capital management is going to join us. futures up 18 points, .5%. from new york, this is bloomberg. ♪ lisa: british prime minister

rishi sunak and ursula meet today to settle differences over northern ireland, finalizing the post brexit trading arrangement which has been an issue since the agreement was reached in 2019. saudi arabia signed agreements with $4 million with ukraine. the foreign minister made a surprise visit to kyiv and met with president volodymyr zelenskyy. asked week saudi arabia voted for a united nations resolution to have russia pull troops out of ukraine. it has been found that a laboratory leak most likely caused the covid pandemic. according to the wall street journal, the classic -- the report said the department made its conclusion with low confidence. a wood boat filled with migrants broke apart after smashing into rocky reefs.

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>> we have at this point not

seen them take the step of providing weapons to prussia for purposes of the war in the -- two russia for purposes of the war in ukraine. we are sending a clear message, as are our allies, this would be a mistake, because those weapons would be used to bombard cities and kill civilians and china should want no part of that. jonathan: the white house national security advisor speaking on abc saying it is -- china is tying itself in knots over russia and ukraine. the wall street journal reporting over the weekend, the u.s. energy department has concluded the covid pandemic most likely rise -- arrived from a lab leak. the third paragraph is equally as revealing the new report highlights how different parts of the intelligence community arrived at the sprit judgments

about the -- at disparate judgments about the pandemic. they join the fbi who is saying the virus likely spread by a mishap at a chinese lab. four other agencies along with a national intelligence panel said it was likely the result of a natural transmission. two agencies are undecided. tom: which only means annmarie hordern can decide. she gets the final vote as well. this story from michael borden and warren strobel and and reordering joins us. what is so what? that was three or four years ago and i get that we should look at it in jonathan laid out the argument for it. but what is this so what now or two years from now? annmarie: the bottom line is

that the u.s. government and members of congress and the american people want to know the origins of this virus and also, i imagine, many members of congress want to hold china more accountable and potentially use it to shore up allies as they try to combat china on the international stage on a number of fronts. jake sullivan was asked on a number of shows and what is fascinating this you have all of these agencies unable to come to a final conclusion. but to jake sullivan's point, it was president biden who wanted to bring the national labs into that conversation and the department of energy controls those labs. tom: in the movies, matt damon doesn't work for the department of agency. what do the intelligence people say about this? annmarie: they are mixed. to the wall street journal

report, four other agencies still judge it is likely the result of natural transmission. the fbi and energy department are on one end and there is the national intelligence and four other agencies on the other end. i don't have an answer. tom: how will the chinese respond? do you have any inkling? is this just a further affront to china? annmarie: china will respond as they have been that this was not a leak on purpose or this didn't even come from a lab. that is how china will continue to respond, i imagine. when you are hearing about lawmakers ask about this, a senator from alaska said that china will lie to the international community. jonathan: jake sullivan also addressed providing lethal aid from china to russia what have we learned? annmarie: what we learn from jake sullivan and the president

being to reporters is that they do not see china acting on that right now. but they do see is jake sullivan said it is still on the table. the conversation in europe last week was about the report about potentially a contract for, because he drones from beijing from a chinese company owing to moscow. this remains a huge concern for the administration and they clearly are outlining to the international community that there will be consequences. but what will the penalties be if china crossed the line? jonathan: is easy to come out and say there will be consequences, but what are the consequences? have they been clear about that? annmarie: they have not been clear about that and jake sullivan said he will not do microphone diplomacy and thinks it is best to talk about this through diplomatic channels. you see the administration

trying to shore up european allies and reaching out to top level officials in china and their counterparts and also say, this would have serious concerns in dealing with not just the united states but in europe if you cross the line. it is an awkward moment for china as they are about to have a welcome for alexander lukashenko, this week. jonathan: why are they being so transparent with their intelligence? annmarie: maybe this is the administration seeing this as a way to potentially warn china. they are being outfront that they have this information and maybe they are putting this on guard. the other thing is, they potentially don't know to the full extent what the consequences would be. it depends on what the material is that these chinese companies

provided. tom: just to sneak this in, right now, the governor of florida, did he have a good weekend? annmarie: he had a great weekend. he was in mar-a-lago and encroaching on the former president's turf with a lot of people at a retreat he threw. it does look like he is picking up steam. tom: i am looking at this and all of this by an intrigue, i can see bob de niro, angelina jolie, and jonathan ferro in the sequel to this. it has a certain sense to it. annmarie: i want to go to the premier. tom: pete -- jonathan: you want to get into the movies? tom: i don't want to get in the movies. jonathan: the energy department made a judgment with low confidence, according to people

who read the classified report. the fbi came to the conclusion that the coronavirus was from a lab leak with moderate confidence. which is it? tom: kailey: a lot of people -- tom: a lot of people putting in a lot of effort. it is a timeline and we are three years on and don't have an answer. jonathan: and i think people, for good reason, want to know why this happened. tom: absolutely. jonathan: are we going to find out conclusively three years later? it will be difficult to work it out conclusively. tom: from a medical standpoint, it has huge validity because if there is any microbiology learn from it, that is something you have to go after. jonathan: dear remember when this was a conspiracy theory and now it is something we are openly discussing -- do you remember when this was a conspiracy theory and now it is

something we are openly discussing? tom: is like the fed minutes. jonathan: i am at that confident at all from the fomc. annmarie, thank you. let's talk about the degree of confidence the fed has. i imagine for chairman powell his confidence is taking a real bruising over the last month. does the ark of his communication. think about disinflation and and then the data hits. tom: breaking up monday, what do need to know? the singles tell is the 2-10 in version is up at a new low, -90 basis points. ira jersey and others aggressively called for this unthinkable inversion. others are trending towards new price weakness, yield up. maybe we are not there yet. jonathan: even mike wilson with

morgan stanley said we may have one last stand. he said it depends on two things, interest rates and the u.s. dollar both need to fall for the last stand to have a chance. do you think they will fall anytime soon based on the information so far? tom: yes, the housing data coming out. the micro data has real value. and we will do that here. durable goods, pending home sales. i know you are glued to the dallas fed manufacturing. jonathan: i am glued to this -- when is the last time we can say this, frances donald up next. ♪

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jonathan: equities trying to bounce, three weeks of losses on the s&p 500, the longest losing streak of the year. features up by .5% on the s&p. two year yield coinciding with a closing high on the s&p 500, the day before the payrolls report. yields were 4.03%, now it is 4.83%, and make a three basis point move in not even a month. if you push it to the fx market, the outcome is.

it is at 1.0564. the euro up.1%. last week, and another read on cpi. tom: something i want to mention which is off plot going into frances donald. with the nigerian elections, e.m. is fragile and i believe the imf has four global economies that are hugely troubled and part of that is fed interest policy. i'm sorry, powell and the higher yields have an impact. jonathan: they don't want a resurgent u.s. dollar and we have had that in some places. here is a coat from frances donald, the fed is in a terrible bind. it is highly possible growth is negative in 2023 but inflation

is above 3% and unemployment is a sub 5% as labor according becomes a fining feature of the coming recession. the pandemic realities of this labor market. tom: what is important is the way frances donald constructs her note. it is fleet readable. i have been in panels with francis -- it is hugely readable. i have been in panels with frances and it is dense how she does it. jonathan: the gdb equation, just so you know. tom: she leaves with econ 101, joining us is frances donald at manual life of canada. good to see you again. we have a fed in action. they are wildly ex post. what is

the data that matters? frances: i suspect we will move away from the traditional, gdp and will have to get deeper going forward. the nature of growth and how the slowdown compacting the economy is likely to be uneven in -- and we are likely to see a lower unemployment rate. during covid, we had millions and millions of job losses but load job -- low-wage jobs. we might see the tech and finance having a larger impact. inflation will be problematic because it is not about the headline number but about what segment of inflation is incident rate sensitive or not. the level 1 data will not be enough to tell the story. we will have to work harder in 2023. tom: explained the goods

partition and vectors as we look into march. frances: this is some ways is straightforward. the unwind from covid will push down goods and services. looking further than that, which is we have inflation that is interest-rate sensitive. taking down the excess savings. it is not so much goods and services that keeps me up but it is supply versus demand. they did this year, how will the fed be combating the remaining inflation which is food price or geopolitical, esg driven? we are going to have a moment not just from the fed but the global bankers and i think it will start this year for they have to admit their ability to control the cpi number is weaning, both on a cyclical factor and structural basis. jonathan: when they say we want to get sufficiently restrictive,

what does that mean? frances: your guess is as good as mine but i think they are looking for more balanced in the economy. they got a lot of it in 2022. looking backwards at 2022 we were saying, that looks like a landing. significant drawdown in marketing, a bear market in the s&p. -- and the housing market, a bear market in the s&p. jonathan: what is the wall at the end of the runway? recession or accepting a higher inflation rate? frances: i think it is a little bit of the two of them but it depends on the timeline. what concerns me is two quarters of negative growth and something we have been discussing internally, rolling recessions or looking back in history ec periods of expansion downturns

that fluctuate -- history, you see. as of expansion downturns that fluctuate -- history, you see periods of expansion downturns that fluctuate. we are not in reflation but closer to stagflation. we are going to be a slower growth environment with irregularity. tom: what is your plan on this? we had met lizette he from deutsche bank who was brilliant on a delayed call -- matt lisanti from deutsche bank who was brilliant on a delayed call. frances: i will agree with matt that it is the end of 2023 that is the problem, especially around june and july. that is when the momentum in disinflation begins to pause out.

based on the traditional indicators, by mid to end 2023 is when we will see the consumer and jobs picture. we have to evaluate the leading indicators. tom: i want to go to your knowledge of canadian macro economics. what could jerome powell learn from the bank of canada? i look at select develop nation banks and they are taking a different path than the fed. what is the lesson learned from the bank of canada from washington? frances: there is the challenge. and it canada and the smaller developed countries, you have less ability to control inflation with interest rates. going into next year, if you are australia or canada, impact on your economy from higher interest rates becomes much more severe because of housing

reliance and the ability to control inflammation declines. what i see is a problematic situation where the fed can tighten global conditions but bank of canada cannot. it will create a bigger divide. tom: i set her up with that question to go to you. imagine the bank of england and what they have to do or ecb if jerome powell gets inversion of 95 or 100 basis points with a 30 year mortgage going higher. what does it mean for the other banks? jonathan: they are all wrestling with similar issues. the character of the new economy that we might face labor according. go through that piece by piece, the post pandemic labor market realities, what are they that have been accepted just yet? frances: keep it simple. look at the employment to

population ratio. what percentage of americans are working. 40% of americans are not working. move aside the participation rate but we are looking at an economy and we are missing 2 million workers. where did they go? a lot required early and a lot are dim with childcare and health issues. we have not come to the reality that the concepts of demand and supply for labor may not work the same way the textbooks told us they did for the last several decades. our new equations on how to evaluate what brings labor back to the market have to change pretty significantly. jonathan: what brings labor back to this market? frances: we know from history if you make people poor enough they will have to go back to work. but is that what should be -- what we should be doing and what central banks should be doing?

this is the challenge that ice -- i hear them say they are going to reduce demand. but the supply shocks is that the medicine we are securing? what is the role of the central blank -- central bank? this will be a problematic question for central banks. jonathan: these it politically these institutions are going to come into some real trouble once people start to figure out the vote in the election is perhaps less important than what happened across the road at the federal reserve? frances: there are certainly already beginning to see the challenges associated that when you begin to recognize what impacts the mortgage and how much things cost that really it more of a monetary policy question. financial services will also have to have a moment where we realize monetary policy dominance that has ruled so much of the way we invest money and

live our lives, is challenging because moving forward the inflation the system is likely to become blessed -- less interest-rate sensitive but more. central banks need to do it and investors need to do it and eventually the general public do it. jonathan: it is good to have you back, and a happy birthday from last week. frances: thank you. jonathan: going to the post pandemic labor market realities and the point at the end about this institution, the federal reserve, when they talk about demand destruction, what are the actually talking about? unemployment, people losing jobs, that is ultimately it. tom: i would say demand destruction for many listeners and viewers is housing. you lived it with the difference of reddish mortgages versus u.s.. you're over your pending sales, look for michael mckee on that.

the gift from the biden stimulus was up 53% and they have migrated on a linear function down to -34%. i have never put a banner up. your over your pending sales up 53% to -34%. i have never done that. jonathan: this market is so broken from the pandemic interest rates. tom: out west and migrating east, you wonder when it gets to us like it is out west. jonathan: is happening at home, many people are not moving. tom: there are four or five issues, but that is the new big issue. jonathan: from new york, this is bloomberg. ♪

this: with the first word, i'm lisa mateo. space at sam nasa scrubbed a rocket launch for lift off early today. -- space x and nasa scrubbed a rocket launch for a lift off early today. the next opportunity will be thursday. the world's top finance chiefs nailed to agree on a consensus statement because of an impasse over russia's war in ukraine. the meeting issued a summary as opposed to a traditional statement. russia and china objected to the wording on the war. language had been cleared by all participants in november. hong kong may scrap its mask mandate as soon as early next month. indoor and outdoor mask requirements may be removed at the same time but masks would still need to be worn at high risk laces, including hospitals. the mask mandate as last pandemic restriction. only one fit of businesses in

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just search or scroll to see upf on hundreds of projects. and when you book and pay throug you're covered by our happiness it's easy to make your home an a check out angi.com today. angi... and done. >> i want to be clear, we are not yet seeing inflation going down to target fast enough.

so central banks need to stay the course and until we are comfortable that price stability is recurrent. jonathan: it is amazing to hear her talking about starting the year with recession, slowing down, europe, u.s., china and other central banks have to keep owing because inflation is not back to target -- keep going because inflation is not back to target. futures positive .5%. we will talk fx in a moment. euro-dollar topped the day before payrolls. the same day the two-year bottomed at 4.03%. the yield is 4.83, an 80 basis point move. euro-dollar has come back to 1-05 core -- for good reason.

tom: i am sorry, fixed income, front and center. it is more emergent right now. we are near a true print of 89 basis points and i believe i never said that. jonathan: were up by 9% on the s&p and now the gain is 3.5 percent, something like that on the s&p 500. cut in half. tom: 2:30 this morning we got a print of -90 on twos. i stand corrected. the real yield up to 1.57 is not .30. it is a grind, a migration. we -- where are we at the end of the week with the jobs report? jonathan: n year, 2.56. -- 10 year, 2.56.

german two-year is at 3% and having a real conversation about the ecb taking rates to something close to 4%. that is not what i imagined. tom: alberto gallo, when is that the beginning of next hour? we are thrilled to bring him to you this morning. i want you to bring him in, because you are the only one that knows this. jonathan: you are going to get yourself in trouble. that is not what it is, just to be very clear. tom: the real gap is the foreign exchange and reading stephen major. jonathan: how important is his work? >> it is vital. it is interesting, your intro to

the segment, a bizarre story to the year. i remember people were saying you have to i the dollar as they are tumbling toward session and now he's here you have to buy the dollar that is exceptional. pretend we get a soft cpi, will be like, the fed will have to cut rates by june of this year and what were they thinking. it is this fondness of the market that we are forecasting. let's take the most recent piece of data and extrapolate it for the next nine months and that is where we land and what we will talk about as being a certainty. we have said, we don't have a clue. the market collectively doesn't have a clue and hence we will get a choppy market and that is exactly what we are getting. tom: can you establish trades on this, speculate? daragh: you can expect the

range. this is what steve major said. you respect the range and you can make a lot of money. you can make a lot of money and soccer betting on a 0-0 outcome. tom: is that the one joe elliott loves? daragh: every football team has some cultural association. we should go elton john if we are going there. jonathan: that is a much better one. tom: what is your trade right now within a range found market like this? daragh: the dxy dollar index has pushed towards 106 and getting towards the top end of the range . it might feel brave to say we have to respect that range but i think we do. i can see us retracing lower on

that. euro is a candidate in that context and maybe sterling and we began. if you going dxy, the other side is you have to go euro-dollar higher. tom: that takes out the e.m. component. i see argentina peso out to 196 and the black market pushing toward 400 pesos. is the e.m. falling apart where you can make a speculation there? daragh: we can talk about g10 ranging but there are some key levels that have moved on dollar-yen. i don't think i would call that. tom: it is monday morning. jonathan: the china piece is the most important and what is your read on the reopening? daragh: it seems to be heading in the right way.

we navigated the chinese new year and had some massive dislocation terms of mobility data. you think about the u.s. part of the equation and the china part and even european numbers unexpected. the pmi's last week were good on services. i think you had the deutsche bank guy on and he was talking about the late recession. the reality is most of the numbers are stacking up toward a second-half recovery showing more momentum than the first half of the year. i think china will be a part of that. i don't want to over dramatize what we are seeing at the moment. inflation has not been great and is too high but coming down. jonathan: he started this conversation by describing the two sides of it, dollar strength is either great or bad. are we summer between that for

you -- are we somewhere between that for you? daragh: should we be trading on the base of ux exceptionalism or -- of u.s. exceptionalism or recession? we will flip when we are in the moodle ground. you have to step -- middle ground. you have to step back. we love to say it, is doing until lunchtime and we will do that for the rest of the week. i think we have to step back. inflation is slowing, perhaps not back to target but slowing. activity looks like it is set to recovery through the second half of the year. what does that mean? it is constructive for risk and a headache for a cyclical or countercyclical like the dollar. you have to think the chop will be followed by the flop. jonathan: are we just waking up

to the fact that the data is just good? daragh: you have to avoid the buyers but the mindful is the data turning and are we in a situation where the u.s. economy will show renewed price pressures? used car prices have been mentioned as one thing to watch. all you can do is look at the fed said, look at the data. it feels like the bar is high at the fed to reopen the pace. then it becomes how often do they raise rates by 2025? tom: overlay steve major's historic call of a lower rate regime and where we stand this morning. does hsbc stand with an historically low rate regime call? daragh: think it makes sense.

we are headed toward a period where we should have this inflation and we still have -- have disinflation and we still have waiting on yields. have to see -- weighing ills. let's not get caught -- weighing on yields. let's not get caught up. tom: since he moved to new york, do you think he is more cynical than he was in london? daragh: i'm just older. it comes with age, not geography. tom: can you see the gap? jonathan: you can.

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>> destination is clear, ultimately the fed wants demand destruction. >> there is a strong signal coming, a few hard to ignore. >> a tougher spot. >> just kind of waiting it out. they did not buy the january rally. >> markets look expensive, earnings expectations high. you have a bearish narrative,

and it is coming. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: the bearish truck is coming. good monday morning. lisa abramowicz will be back tomorrow. good morning. this is "bloomberg surveillance" on tv and radio. futures positive .5% on the s&p 500. last week dreadful, biggest weekly loss so far on the s&p 500. tom: looks like the ides of march, caesar salad. it is the vectors of march, and it continues into this week. i call it an accelerating tendency. 89 basis points, basically a low. did you see the german 10-year? i mean, i am sorry. if you are in the u.s., you have

to really pay attention to european yields, which is why our guests coming up are looking at that. jonathan: this two-year yield in america is punching everyone in the face with long equity risk. 4.83%. that is a problem for a lot of people. tom: i have to get this up -- sorry, i do not have it up right now. pending home sales today, case-shiller tomorrow, some confidence data. important for you, march 1, you care about ism. does the fed care about the first look at march? tom: without a doubt. we want to work out whether january is a fake or not. was it confirmed by what we see in february? we will get a sneak peek of that with the ism. payrolls is not this friday, next friday. and you have to wait for cpi and the federal reserve with a new set of projections.

you have to imagine that it will shift higher. tom: the simplistic idea, for those keeping score, it is this terminal rate derby we are in. i did not really pay attention to it when we were ultra accommodative. but now it matters because we have gone from ultra accommodative to accommodative to now some sort of restrictive, and then what? this week, this is telling me we're going to model out and be ever more restrictive. jonathan: i said this months ago that the fed was doing q. week and basically at 0 -- was doing qe and basically at zero. s&p 500 futures up about .5%. last week, dreadful loss after three straight weeks of losses, longest losing streak of 2023. a little bit higher on the

10-year, 3.95%. euro-dollar trying to find a firmer footing after declining every session of last week. now positive .1%. 1.0564. we have a special guest in the studio, alberto gallo, co-founder of andromeda capital management. welcome, good to catch up. i know you are up on the year. single digits, is that right? that is because partly it has been happening in the rates market. you have been thinking about higher terminal rate. what has been going on for the year so far? alberto: the interest rate was zero just a couple years ago, and everyone thought monetary policy was the only thing in town. this is now about fiscal policy, entering the fiscal policy decade. we never hear about austerity. no government in the world is

talking about austerity. we are in a wartime economy and governments are spending at 5%, and that is the inflation generator. demo you see fiscal -- the moment you see fiscal policy raining and government stopping spending, you will see inflation. even with very high debt levels, you still see government spending at 4%, 5%. that is driving inflation up. so we see the fed still not doing enough. they need to go towards 6%, perhaps even higher. and at the yield curve is too complacent with the temporary high interest rate environment. higher for longer is where we are going. jonathan: you think that few at the front end should be pushed farther out, how much? alberto: over the last few weeks, we have seen the two-year and the three-hype widening, and we need to see the three-year parts pricing higher here. it is not just a one-year to

two-year. we are definitely not getting cuts this year. tom: is now a time for safety and quality or are you comfortable buying distressed? alberto: the consensus has been yields are high, they might not be here, why not purchase investment-grade debt? but the spread is pretty tiny now, below 100 basis points, so you might as well by treasuries. so many conviction, you go to a high-yield environment, high-yield bonds, and you have the double-digit coupons compensating. tom: i am just asking for a friend, looking at the aston martin 10.5's of 2025 year. bonds aren't volatile. they have gone from 110 to 90 and back to 99. i am asking for a friend here, does he need to slide into

these? alberto: yes is the short answer. tom: i will take the next question. i will take 20 of those. [laughs] alberto: the biggest question, are we going back to the pre-covid world or a different world? tom: what does a different world look like? alberto: pre-covid, higher taxes. today we have stronger fiscal policy, high tax and high spending. it goes to the bottom 50% of the population. even in europe, there spending 4.5% this year despite high debt levels, so this creates inflation. it is not going away. so you are in an environment of state capitalism. governments help companies. you want to be short government debt because governments are increasing more and more their load of debt, and you want to belong corporate debts in strong countries. sometimes it is better to be a

weak company but in a strong country. jonathan: does that mean be long the national champions of germany? do you describe germany as a strong country, the u.s. as a strong country? alberto: in the developed world, there is generally room for fiscal policy easing or continued fiscal spending. companies that benefit are not just the national champions, not just investment-grade companies, but it is also some of the high-yield firms, some of the retailers. holiday maker companies. there is an airline in finland. so there is a lot of names, a lot of firms that governments cannot let go. state capitalism environment, you're betting on the survival of the company. tom: it is said that that is the single airline of europe that has figured it out.

jonathan: alberto, what you're saying, i do not think a lot of people will get their heads around, saying we can be short core government bonds, get those higher rates, but you do nothing they're going to damage corporate credit. alberto: they will, but they will damage emerging markets, damage the weakest firms, so that is why you want to be active in the market, not just all in. we're going to see more vol, but there are some companies that have the cushion. those are the ones where you wanted to be. you get paid today a pretty good return in those firms. we are cautious. we think we have higher terminals, financial institutions still losing. not hurt yet. there was the crisis in the u.k. , but no one really got hurt yet. that is by the fed is not going to stop. tom: another guest said this is the fiscal decade. you are an expert at finding

opportunity and full faith in credit fiscal the which country are you studying the most right now? alberto: on the long side, we like europe because we see his struggle -- stronger fiscal policy support. but emerging markets are where you want to be cautious because, with a stronger dollar and more geopolitical conflict, you have countries that are on the brink. there has been already some defaults, but you're looking at elections in turkey this year, looking at more instability in egypt. emerging markets have been the trade of the last two decades, and they are much weaker now. it is not coming back. so we're going to see more defaults there. tom: i look at the imf meetings coming up, and once again, imf to the rescue. do you think it is still emerging right now in nigeria, egypt, turkey, obviously, that you have to step aside and wait? alberto: imf is rescuing these countries, but obviously, the

bondholders are subordinated. maybe in the future we will need a different mix of funding. there is a recent quip by one of the sub-saharan countries saying 10% interest rates or the kiss of death for us because we cannot sustain them. so if interest rates are costly high, which might be the case with fiscal policy and process it inflation, -- persistent inflation, then you have to find a different structure for capital -- for em countries. jonathan: treasury market, you made a call that the front end needs to be pushed further out the long curve, we have the five-year at about 4.20 2, 10-year at about 3.95. alberto: we need to see the five-year 4.5%, more towards 5%. in complacent world here on the 10-year with spending, we're just at the beginning of the

year. there is a lot of demand after last year. everyone said bonds cannot be done two years in a row. but we are in a different world. jonathan: what i hear is you do not think this year is the year of the bond. alberto: not yet. it takes a very active approach, and our process is about screening the opportunities, not being beta focused. tom: is this the year of the ac milan? jonathan: it better be. we won yesterday, 10-0. we are doing more formula one through the week. ferrari, he is supporting aston martin. tom: fernando is there, come on. jonathan: we really let fernando down, ferrari did. should have given him a championship. trouble. alberto, thank you. this was great.

alberto gallo, andromeda capital mag -- management. this is bloomberg. lisa m: keeping you up-to-date with news from around the world. british prime minister rishi sunak and ec president meet today, a signal that two sides are ready to settle their differences over northern ireland. finalizing the process brexit trading arrangements has been an issue since the withdrawal agreement was reached in 2019. saudi arabia has signed agreements worth $400 million with ukraine. the foreign minister made a surprise visit to kyiv and met with president zelenskyy. last week, saudi arabia voted for united nations resolution calling for russia to pull its troops out of ukraine. a u.s. government investigation reportedly has found that a laboratory leak in china most likely because the covid pandemic. according to the wall street journal, classified report on the energy department probe has

been provided to the white house and key members of congress, and it says the department made its conclusion with low confidence. a fresh wave of layoffs at twitter, the nationwide cutbacks included teams from engineering and product. sources say some employees learned they were leah -- laid off and via any mail late saturday, and others found out when they cannot log into the internal system. it is unclear how many workers were impacted, but insiders say it could be dozens. global news powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo, and this is bloomberg. ♪ lomita feed is 101 years old.

when covid hit, we had some challenges. i heard about the payroll tax refund that allowed us to keep the people that have been here taking care of us. learn more at getrefunds.com.

pres. biden: there's too many other things i need to finish in

the near term before i start a campaign. people raise issues about my age. it is totally legitimate to do that. all i can say is watch me. jonathan: president biden in an exclusive conversation with world news tonight david muir here in the united states. it will come up repeatedly if he announces he will be running in the next election. tom: it comes up. it is a unique thing. what i would really point out is the uniqueness of it is almost an american thing. i am not even going to equate the chinese and the japanese with it. maybe there is some asian nation i am missing in my monday morning brain, but i am stunned at the youth of the baltic states, the youth of england and, frankly, england, and the rest. it is a unique american past. jonathan: and other republican candidates set to be on the ticket potentially, nikki haley

one is interesting. i think politico did a story on this. i think people believe it should be a new generation, but is she isolating the older age cohort of the republican base when she says things like competency tests for people over a certain age? tom: that was very controversial as well. i think it is being played about fox news, mr. trump still does well at the polls. hugely fervent. for our international audience, as lisa would stay -- say, it is a stew. jonathan: if you get nikki haley and other competitors, you get the trump vote and kind of everyone else spread out. tom: but they are running for cabinet positions, and somebody is running for vp. jonathan: you think they are? tom: absolutely. jonathan: they had pledged not

to run against the former president, and now nikki haley is. tom: i wish it was done like you guys. futures of 21. what else do you see? jonathan: yields on the 10-year, 3.90% -- 3.95%. we had alberto gallo talking about may be a five-year that is to push 5%. unbelievable numbers. this came over the weekend and speaks to what he was talking about, just fiscal policy, using cbo data, shows interest rate payments on u.s. government debt have doubled from $1 billion today before the pandemic to now billion dollars. toss and slug over the weekend, to $2 billion. tom: and we will see more of that if we break through to new hire yields. now we go to annmarie hordern. here's the way it works, if you are a two-turn -- if you are a

two-term president, basically your second term ends at the midterms. they kiss that -- this gets president biden fit 2026, and he will celebrate his 84th birthday right after that election. how do they adapt and adjust to that reality? annmarie: they are adjusting to it in the sense that the president says he is open to people questioning. you heard him in that interview with abc news questioning his age but says watch me. it is a matter of time now before he officially announces he is going to run. i think this question about age, whether or not it is current president biden or former president donald trump, who is obviously going to be running, is for the american people to decide. tom: there is a style of presidency here with the president would sit back -- mr. reagan was very comfortable with that, i would suggest -- and then there is a more modern style of might -- micromanagement.

do you see a trend here were president biden is stepping back and delegating authority and decision-making? annmarie: at the moment, no. the president is very hands-on. what you hear about him is that he wants to hear every single detail of an issue before he makes a decision. but, potentially, if he was going to have a second term, given his age, maybe he would be delegating more. i think it probably depends on the circumstance and the issues at hand. but i think this weekend we showed that, not only from the president sitting down with abc news, but dr. jill biden, the first lady, her interview with the associated press, when she said how much more does he need to say before you believe him, and she was asked if it was about a time and a place, and she said pretty much. and their granddaughter tweeted, preach, nana. so it is pretty obvious that

current president biden will be running. we're just waiting on the details on when he makes the announcement. jonathan: i think we run the risk of getting too far ahead of ourselves as we discuss the nature of the next administration. he is going to run and going to campaign. in the last election, the current president was able to make a referendum on the former president donald trump, and he did not really campaign that much. do you think he will be able to do the semi-good? annmarie: no, he will have to be out front campaigning across the country if he was to make this bid for 2024, and the president talked about that. he said i'm not ready to start a campaign, still a lot of work i need to do in the current administration. so then you will really have an incredibly busy white house, a lot of people that need the president's time for issues of the day, but then politicals in the room wanting him to get out and talk to the american people. jonathan: have we given enough thought to that, tom?

based on the probability, we could have just another face-off between the former president and the current one? tom: i have looked at the numbers, and the answer is yes. and there is a history of that in america. this is not original. in british politics, it is not the way churchill came back 15 times. jonathan: do you think the current president would prefer to run against donald trump? tom: yes, any democrat would. jonathan: when you go to the head to head of the current president versus the former president, biden is still up there, but when you ask democrats who with the like to run against the big candidate, he is in? annmarie: a lot of democrats are concerned about his age and do want this generational change. but many would also be honest and say if it is going to be a rematch of 2020, then biden is

likely the best person to be the former president. but we should also talk about this republican party in terms of the primary, desantis enjoyed the most support among primary candidates in a recent intelligence poll, so this survey shows he is by 40% of respondents compared with 31% for trump. a few months ago there was a suffolk county pope that said, yes, biden would be to trunk, but those numbers would be much more difficult if he is facing off with the florida governor. jonathan: something that will be difficult for the current president, many people saying the same thing, in the last election, he was able to be the other guy. i am going to unite the country, i'm not president donald trump, and some of these interest, maybe center-right republican voters might say, you know what, that might be the right direction for the country. how do you repeat the act given the way he has governed? annmarie: i think what will

happen is this administration will try to tout their legislative wins, whether in foreign policy in the ukraine, which that is a big divide right now within this primary camp, or whether or not it is the legislative wins like hard inflation, which they got bipartisan support, or the chipset. then they will point to issues that former president trump is talking about and still say, do you want to go back to that "chaos" of those four years or do you want us? but it makes it in a much difficult position than they were, say, in 2020. jonathan: we are going to be doing this for another 18 months, just amazing. amh, thank you, donnelly d.c. -- down in d.c. some people say you get to figure out how people are in shorter elections. tom: it comes to me down to the history of states rights, and

the states have the right to hold a primary, etc., etc. every state wants a primary. we used to have a date calendar when i was a kid, but it did not seem as painful. part of it is media scrutiny. jonathan: do you think it is because as you get older, you get more -- futures right now on the is a pete trying to bounce. last week was ugly, up about .5% right now on the s&p. tom hanks likes aston filler. he was at the game the other weekend. cannot figure that out. 10-year gilts higher by two basis points, 3.96%. ♪ go production. go faster and safer. emerson automation software helps breakthrough medicines get to market at warp speed. go human go. go boldly. emerson.

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jonathan: equities up to kickoff the trading week, up .5% on the s&p, nasdaq .5% also. one market, two-year yield higher. we take some of that away, still higher by two basis points. 4.8385 on the two-year. closing high all the way back to 2007 at the front end of the yield curve for america. the fed is now so far away from its dual mandate to the fomc,

they may use more hawkish forward guidance in raising the fed funds rate but they could also accelerate the rundown of their balance sheet. let's toss some smoke there, introducing the idea that maybe they do a little bit more qt. tom: i take the balance sheet point, as well, but it is just where we are versus weeks ago and certainly months ago. you have been good about showing the migration of the two-year path. that goes into the taylor rule, which is a complex measurement of where we ought to be, and we spent a lifetime of stanford students not doing the taylor rule, and right now those mathematics are just under 10% is a taylor rule. that is shocking. that shows out -- how out of whack we are. jonathan: if you go back to september 2021, they had year

end 2022 at 90 basis points. that had to get revised, had to get revise, and had to get revised appeared we're still revising the terminal rate higher, and they are said to do the same thing at the next monday meeting. tom: you have the taylor rule estimate, looking at the bloomberg 11.7%. the neutral real rate plus inflation plus alpha beta gamma, the rest of it, and you throw in the jochen factor. you just need to know where we ought to be and where the fed rate is, is as wide as any i see, including coming off the great financial crisis. jonathan: we start the year, and a talked about this earlier, yet they market down here, the fat with the dot plot, and we were talking about how to close the gap. the fed will revise that dot higher at the next meeting.

i will say this, if we see confirmation of the january trend in the month of february, we will have another payrolls report and another cpa report that the fed can also take a look at. -- another cpi report that the fed can also take a look at. tom: remember 13 months ago come of the test for equity movers? one day, it was a train wreck. jonathan: you are doing stocks now? tom: 'bramo is not here. goldman sachs is this week's equity mover for global wall street. fortress solomon, there is some mystery here. mike mayo and the story is pretty scathing looking for what mr. solomon and others will say in the goldman sachs roadshow. jonathan: investor day tomorrow. tom: are you going? i was not invited. jonathan: for good reason. tom: how are you going to exit

your commercial bank effort, even though it is a small part of the company, to assuage her partners? jonathan: there is an assumption there then, you think they will. tom: i think it is an assumption that he has to speak to the management and heritage of the company, and i will take mr. solomon's point, but we are arguing about a small part of the bank. i believe sri is with us in a bit. jonathan: in about 10 minutes. goldman is up this year by 6%. if you want a comparison, morgan stanley is up 15%. tom: price book, there will be answers. we will talk to our goldman sachs expert on that. right now we're talking to bond market expert katrina dudley with franklin mutual, wonderful goldman take, as well.

in your opening paragraph, you announce the youngest baby boomer is 59. how does that demographics fold into a long-term investment confidence? katrina: we are looking at the wage spiral and looking for workers to come back into the workforce in order to address the fact that our unemployment is extremely low despite the fed having made some significant rate hikes and trying to try to cool the economy and that inflation number. don't forget, inflation is somewhat of a catch 22, because if we have inflation and then we need to pay our workers more in order for them to be able to get goods and services, that increase in wages and feeds back into that inflation spiral. we either need productivity or need to get those workers back into the workforce, and that is where the baby boomers come in, because the 59-year-olds are now starting to retire.

tom: do we need immigrants from australia? katrina: i think australia is facing the same problems. we're trying to keep as many of our workers in the country as we can because a lot of the same trends that are impacting the united states are affecting other countries. that is the fact that we have had such access to the chinese workforce for so many years that companies have taken that for granted. as you say, we are now in a situation where companies are really struggling to get workers. tom: i would suggest, and the recent data always dated, that was some enhancement of productivity. the adults in the economics make real clear we must see a durable productivity enhancement. do you at franklin templeton observed that? katrina: the problem is that productivity is very much a lagging indicator. at the moment, we're really suffering from the fact that to attract workers in, we're having to spend so much time training

them and bringing them up to speed. you look at things like the supply chain, just bringing online a worker who can drive a truck, you cannot just put someone in a class-a truck and expect them to drive it. they need to be trained and certified. and all of that training is a drag on productivity. so even if we have in place a lot of metrics to improve it, it is going to take much more time than we expect. and the risk is, as we talk about earnings, is that this is the risk to margin. the fact that you have these higher worker costs and if you are in a company, you may not be able to sufficiently pass it along in terms of pricing, which will compress margins. jonathan: looking across the equity market, is there a sector -- sector or group that is more labor-intensive? is there a place you want to be or do not want to be? katrina: the easy labor a question is the services economy, so anything that is

highly geared towards services is overly dependent on workers. but the way we think about it is somewhat different. we look for companies that have really got a great history of treating their workers well. the reason is that they are going to be magnets for workers, and that will give them a competitive advantage versus other companies that have not done that. you can see that economy within industry. i have been an active stock picker my entire career, and it is a really exciting time because these are things that models cannot capture. you need to be out on the ground talking with management teams, understanding their culture and those factors. jonathan: can you give us a specific example of that so we understand it better? katrina: one of the examples is some of the rail companies not been great in terms of how they treat their workers and as the economy has ramped up, they have had a really difficult time being able to capture those benefits because they do not

have enough workers. in terms of the rail industry, there are regulatory constraints that mean you cannot run a train list you have an appropriate number of workers. -- unless you have an appropriate number of workers. they thought the people laid off would come straight back, but they are going to other jobs. tom: good point on active management. with the turmoil that we have coming off of covid, is your choice set smaller? are there fewer things to pick from, and do you need to be less diversified, making larger sector bets and individual stock bets because you are constrained by choice? katrina: i have to tell you, we do not bet in equity asset management. we do the research, and that is the one term until all my analysts to take out of their vernacular. because we are going in there during the research and understanding the company. so i have to start with that

because it is something that really frustrates me, that people think we are betting with their retirement savings, and we are not. as i look at the companies that i want to invest in, i am looking for strong franchises. i am also looking for companies that have got factors that will help them get pricing that are outside of just cyclical factors. for example, look at the industrial space. you can take a company where the industrials have the electricity -- electrification and trend, a tailwind, and have a lot of government money coming in. we have under spent on capex. so you have all the structural tailwinds, which are drivers come and it will also give them the pricing power. having that power means they can take care of their workers and protect margins at the same time . we like that set up. tom: i look at the type of set up here, and i get it that it is a three or five-year hold. do investors have patience

for that anymore? katrina: it is a competitive advantage to have that three or five-year, because you need to be able to invest through the cycle. you may have companies today investing in the workforce, and if you believe they are doing that position them for three to five years, and a number of these companies have invested in trends that may not bear fruition and for a couple of years. if you think of investing in software to a company in the machine, it takes time for the revenue to come through. in the tech sector, we have been so used to that type of big company where it is kind of we will invest today and give you cash flow tomorrow. i think some of our industrial companies, we need to change some of the narrative and say to these companies, it is good, we would like to see you make those investments, to take that short-term hit in terms of the downward trajectory of profit that will result from that

investment knowing that the returns will come into the future. but you are right, you need to have that three to five investment horizon. that is also part of what you need to have in order to take advantage of some of these legislative changes that have been made. legislation is slow, and you are not going to see that money in three to six months. jonathan: katrina dudley of franklin mutual, thank you. tk, no bets. tom: active passive. in another interview, this comes down to the active passive debate, the overlay of the economic and fixed-income talk. we babble about it all day. jonathan: next hour, more income talk, chief economist at wells fargo joins us. next, we talk goldman sachs and their upcoming investor day. lisa m: keeping you up-to-date with news from around the world.

spacex and nasa scrubbed a rocket launch shortly before liftoff early today which would have sent u.s. astronauts and a russian cosmonaut to the international space station. a ground system issue was blamed. the next opportunity will be thursday. president biden has ordered your two-door health surveys following the train derailment in ohio. representatives from federal agencies visited about 350 families over the weekend. the train was carrying toxic chemicals. we have learned that hong kong may scrap the mask mandate as soon as early next month. andor and outdoor mask requirements may be removed, but masks would still need to be worn in high risk places, including hospitals. a mask mandate is hong kong's last pediment restriction. hsbc is looking for a new global headquarters in london that is about half the size of the current space. the bank wants between 400,000 and 600,000 square feet.

they plan to cut office space by 40% globally compared with. pre-pandemic levels the current lease in's and 2027. pfizer reportedly is an early stage talks to purchase seagen. a deal would be expected to command a premium above the company's $30 billion market value. seagen develops drugs to treat cancer and related diseases. global news powered by more than 2700 journalists and analysts in more than 120 countries. i am lisa mateo, and this is bloomberg. ♪ the first time you made a sale online was also the first time you heard of a town named... dinosaur? we just got an order from a dinosaur, colorado. start an easy to build, powerful website for free with a partner that always puts you first. godaddy. tools and support for every small business first.

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92% still active? seems high. seriously? it's just a bike. wait. they make a treadmill with an intuitive speed knob? yeah. want to try? 92% stick with it, so can you. start a 30-day home trial today. terms apply. >> we are at a very uncertain time given we're changing monetary and economic conditions very quickly, and that is having

an impact to slowing down economic activity. if you are running a good financial services firm, you have to assume that we have some rough times ahead and you have to be cautious with financial resources, sizing of the organization. jonathan: that was david solomon at goldman sachs speaking in december. there investor day takes place tomorrow. your equity market looks like this this monday morning. a lift on the s&p, up .5% on the s&p 500. yields a little bit higher, by single basis points. 3.9570 percent on the 10-year. a little dollar strength. another read of eurozone inflation later this week, and after a week of euro weakness in dollar strength. tom: the economics is there. 3.96% on the 10-year, and back

to 2011, a high rate regime, part of what we see for all of global wall street. and all of global wall street tomorrow i believe, will be focused on the goldman sachs investors day. the kid comes out of hamilton college, objected as a security analyst at goldman, everybody get in line. he builds a career in bonds, leverage, finance, and such. then back over to goldman sachs and climbs on board. what was mr. solomon's first day at goldman sachs like? what was the real back story? >> back in 2000, probably filled with regret because it was a few months after the ipo. in the last 20 years, he has built an exceptional career at the firm because now he is running goldman sachs complete, one of the four most wall street

powerhouses there. when you think about a bank that can communicate with governments, institutions, hedge funds, you are thinking about goldman sachs. solomon's talent is to take that and try and make it something more than that. in the last five years, he has had mixed results. tom: in your wonderful article today, which i will put out on twitter, you talked to a guy named mayo who i have talked to for a number of years, and he said this is a guy that nailed it, just as you said, and he had one course where he butchered appeared have you ever butchered a course, jon? jonathan: many times. tom: how does he fix a few tomorrow? sri: mike mayo is in some ways the dean of wall street banking analysts. when he says i can give you a+ for legacy businesses, which is still 70% of their business, that is a good grade. but then he says he has had

middle results on many other fronts, including an f grade and consumer operations. so you have failed a class, and what is the consequence of that? that is important. the image you have of goldman sachs is a place that is not dollar rate average. so when you spend so much time in saying you could build a new platform that could become the leading digital banking firm in the country and then that gets unraveled, that puts a lot of pressure. even after the reorganization they announced a few months ago, that has not satisfied the partners or investors and analysts, so they are still seeking answers. the question, are all options still on the table or will they be forced to do another reticle rebound? jonathan: are we suggesting they are tolerating average at the top of the business? sri: average rating overall, yeah. if you listen to mike mayo, he has a skull from a+ all the way down to f.

jonathan: who is responsible to correct that? sri: at goldman sachs, it is interesting. some of it comes from people reporting it to mr. solomon, because even if it is a public company, it is still a partnership, and the partners still have a reasonable amount of sway. ordinarily we would say the board, but they do not kick and scream when the performances average. they are there for crises. they do not say, well, your stocks aren't great, times up. tom: massachusetts financial services own 2.4% of the stock, and they just learned it is a partnership? is that what i heard? jonathan: how much tension is there between the partners and the ceo? sri: it is out in the open, clearly some grumbling, some would say a revolt. the top of the house has recognize that. david solomon recognize there is

some dissatisfaction in the ranks. they point to that these are people who are unhappy with the compensation in 2022 they came up the ridiculous highs of 2021. the dealmaking business is not back and people are still twiddling their thumbs. they point their fingers and say that will not work. tom: great article, gorman, book ratio, 1.a. i looked at operating income, i was told, look at operating income. morgan stanley 25 cents on the dollar. and i modeled the challenge of goldman sachs, a lot less, 17 cents on the dollar. how do they get that ratio up? sri: the amazing factor, if you look over five years, if goldman sachs were to make $400 billion in revenue, morgan stanley were

to make $350 billion, there still get chance equity investors would value that more because visits -- because it is much more predictable. as much as 2022 was bad, and some was the fact they did so well in 2021 may go against them. tom: i think about sanford bernstein who wrote a black book on goldman sachs, if they did that right now, could they develop the persistency of cash flow of the modern global wall street ship? sri: when you go back to 1999, the goldman sachs ipo prospectus talks about the need for building stability in earnings, talk about how asset management will play a key hold. 25 years later, we are still talking about that. it is about execution. goldman sachs has been trying to do that in the last five years, focusing effort into their asset management business, into

building this juggernaut. 2010, when morgan stanley talked about going deeper into wealth management and building scale, it is not that equity markets believed them, not like there was a re-rating. it took a while. does david solomon have that runway? tom: solomon had a cameo in the billions. did gorman? no. we have witnessed this at davos. it is an interpretation of personality. not saying it is the heart of the matter, but that is the unspoken. sing this with great respect for everybody at goldman sachs -- saying this with great respect. jonathan: original race, lloyd blankfein at the top, david solomon, shorts. how difficult would it be for the current ceo of carlisle to take that role?

how different would it have been if it was him and not david solomon? sri: it is very hard to judge. you would have had schwartz come up through the trading ranks. tom: would harvey had done the bank like david did? sri: a tough question, tom. jonathan: it is difficult to answer. i ask because i think we often give these ceo's too much credit when things go right and not much when things go wrong. you have said that they are supertankers, difficult to maneuver. i wonder how much different things would have been if leadership was different. ultimately, the frustration with david solomon that comes up is not just the decisions but the nature of the individual who is making the decisions. perhaps they pandemic was a great example of that when you see these stories that the ceo was frustrated with bumping into people who worked for goldman in

the hamptons. the question was not being asked, why was the ceo in the hamptons? is it about the personality or the decisions? sri: fairpoint. but in his defense, the seat of the goldman sachs ceo is one of the hardest jobs in finance and has a lot of scrutiny. everyone has personality quirks, but it appears larger in that seat. did schwartz have personality quirks? maybe. maybe we would have found out and the carlisle ceo and certainly would have found out with. goldman. tom: solomon and gorman, don't overlay. morgan stanley, 18.5%, goldman sachs 11.2% per year. jonathan: that was good enough. sri, thank you. looking forward to your coverage tomorrow, the latest on goldman investor day tomorrow.

equity futures, s&p still elevated, up .4%. coming up, gene tannuzzo. ♪ this is ge aerospace, advancing flight for future generations. ♪ welcome to a new era of flight.

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>> folks are just kind of tired of the uncertainty. >> i do worry about too much

focus on these lagging indicators. >> there are a few good data points that have come out. they are a trap. >> growth is definitely not as weak as people expected three or four months ago. >> we are not at the beginning of the cycle, where close to the end of the cycle for the fed. announcer: this is bloomberg "surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning. we welcome you on a monday. an eventful monday, as we stagger into march. futures up 17. john, equities, no. even fx, no. bonds, bonds, bonds. jonathon: that is the driving force of this market. on friday, a new closing high for a two year yield, the highest since 2007. bottom line, we have absolutely no idea what sufficient

restriction is at the federal reserve. tom: stay with bloomberg for the day, because every two hours, there is some sort of record. earlier, we saw a difference between the two-year and 10-year. we watched the decimal move over to 90 basis points. jonathon: hi since 2011. the ecb is going be hiking as well. look out for that -- for their next meeting. rates were still at zero. they went into the march meeting and came out with a new plot. 2.8%. tom: we headed dots on march 22, right? what did they look like, what is the dispersion we see? no one knows. jonathon: amazing. it will be close to 550, may be. that is what the market is pricing. we have touched on this a few

times. we have to close the gap, but how do we do that? the fed is going to be lifting that., if the data sticks. tom: we are going to get a complete bond data check and a moment. but one more observation, jobs delayed. i believe it is march 10, aged jobs day. jonathon: will february confirmed january echo it will come down to payrolls and the cpr report. you want a sneak peek of the markets right now? tom: please. jonathon: yields high by three basis points, just short of four basis -- of 4%. tom: we are going to regather in the bond market. that means a changing attitude. someone always good at that is gene tannuzzo.

how have you changed your view with a new leg up, and do you have to steel yourself for priced down the october lows in price? gene: good morning. when we look back to where we have been since the october lows in price or highs in the yield, we have had two months, december and november of 2022, where growth and inflation both looked softer. one month in january, both of those data points looked much, much hotter. you put those things together, what does the aggregate tell you? what is it tells us is that we are moving back both in growth and inflation. it's what we would refer to as the old normal, that pre-covid growth rate, closer to what we saw in 2015 to 2019. we think january, while it was certainly a warmer and stronger

month, it will prove to be a bit of an anomaly as we go forward. tom: summing it up altogether, you have to come up with a conviction on bonds. how any convictions have we heard this morning? jonathon: i think we have changed at least five times. tom: what is the columbia thread needle conviction of duration? gene: right now, we are constructive on duration. i think the simplest variable to look at is the real 10-year yield, near 150 basis points positive. that is restrictive territory by most measures. that should help restrain growth. they're starting to see that as inflation pressures start to abate. we can look at the inflation report from january and say that was higher than we expected, with the largest contributor to that being housing. there is ample data to suggest that rent and owners equivalent rent will be coming down in the next few months. that gives us comfort to hold more duration, particularly

further up the curve. i think it is that two-year point that will sin the message that rates will stay elevated for an extended period, may be one year or more. jonathon: ultimately, do you think we go back to the pre-pandemic years of low inflation, low grades -- low rates of growth? how many months of january would you need to see to change your mind? gene: we added 500,000 jobs in the month of january. that is a fantastic turnout for the labor market, but also mathematically unsustainable for more we are at the start of the employment rate. there are not enough human beings in the economy to continue to repopulate the labor pool that way. i would expect that we would see that to slow. if we did see that over another month or two, absolutely, i think we have to reassess the thesis. i think that is something with be mindful of. this is been a resilient

economy, one where i think rather than looking for the big day were the entire economy goes into recession, we need to be looking at pockets of the economy and specific industries that are seeing that weakness, and seek to navigate those rather than wait for the big bang. jonathon: where are you seeing that? gene: there are three areas. housing and home builders, that makes sense a lot with regards to where interest rates are. we see that in manufacturing. that was weak into the fourth quarter at the beginning of this year. maybe starting to get a little less bad, but still a weak spot for the economy. the third piece, which is a little more broad, is looking at that lower income consumers, where delinquencies are rising. we see that in auto loans and consumer loans as well. those are places we need to navigate as we invest. but even with those pockets of weakness, we may not see that

and ber classify the entire economy in a recession. tom: rationalization among institutional wall street after a brutal last year, and i don't need to tell you about total return, is that this time you can be more flexible and fungible in your belief because you'll make more along the way that you couldn't make 18 months ago. it is a coupon going to rescue fixed income wall street this year? gene: i think it is critical. should think of 2022 as when fixed income got its last name back. you soften the blow of volatility. when you look at 10-year treasuries at 4% or investment grade assets like nonagency mortgages with yields over 6%, or even short duration high yield in the 8% range, these are equity-like returns with a fraction of the volatility.

even if you have the fed arm wrestling over another quarter-point hike or two or three, -- jonathon: comparing this to the conversation we had system its ago with a different guest, it was totally opposite about the bond market and the new regime we are in. jean is talking about going back to the old years. our other guest was talking about a new reality. tom: i really detest this word with a prescient and i circle it every time i read it, "paradigm." do we go to some new paradigm or return to what we knew? that is certainly a 36 month call. jonathon: what is your call on fiscal policy and whether it complements this feds effort or complicates it? gene: over the last 12 months, it has been an additional restraining and tightening

factor on the economy. throughout the course of this year, that will start to fade. i think it will be more neutral throughout 2023. it will depend on new policies from here, if that is going to change the regime. i would not call it fiscal policy at this stage a game changer. it was a stimulant two years ago and that has gone away. jonathon: this was great as always. gene tannuzzo of columbia thread needle. tom: what is critical here is that 12 months from now, even nine months from now, you are publishing your 27 day outlook. you are in the final rewrite, right? tom: yes. -- jonathon: yes. [crosstalking] tom: can we talk about valuation siri? i am just -- valuations here?

mario andretti's son is looking at this for gm and cadillac. then, i look at what a baseball team costs. the head of the mlb was quoted in the vicinity of $2.2 billion for the cost of a new baseball team. where does this money come from? i'm serious. jonathon: it costs so much money to run those f1 teams. a fortune. they have tried to put new budget caps into place to make it more affordable for new entrants and make it more competitive, because otherwise, you would have the likes of ferrari and mercedes spending as much as they possibly could on winning, which is what used to happen. you would have as much testing

as you wanted, as many pieces, parts, money, all of the above. they are trying to constrain some of that. tom: did they get relegated? jonathon: some teams drop out of the sport. that has happened many times. tom: i can't get a handle on the money being spent. i just don't understand it. jonathon: have a good look at the salaries for the drivers. have a good look at that. tom: you would be great at that. jonathon: what, driving formula one cars? tom: they start at seven years old. they start with carts. jonathon: the guy who runs red bull tom:, a great guy. tom:we should get him on here. jonathon: we should. he talked about this one time he figured he wasn't going to make it. he was coming through the first corner of, i forget what track. he said there was this moment where i would just lift off, instinctively my brain could not connect with my foot to keep it

down. i watched someone go past me flat out. he said, that's when i knew i wasn't cut out for. they think differently from us. jonathon: lewis hamilton, those guys -- tom: they are tough. jonathon: well put. [crosstalking] lisa m: heaving you up-to-date with the news from around the world. with the first word, i lisa mateo. reddish prime minister rishi sunak and ec president meet today. it is a signal that the two sides are ready to settle their differences over northern ireland, finalizing the regions post-brexit trading has been an issue since the withdrawal agreement was reached in 2019. saudi arabia has signed agreements worth $400 million with ukraine. the kingdom's foreign minister made a surprise visit to kyiv and met with bilotta mayor zelinski. there was a united nations

called for russia to pull troops out of ukraine. an investigation has found that a laboratory leak in china most likely caused the covered pandemic. a classified report on the energy department had been provided to the white house and key members of congress. the "journal" says they made their conclusion with " low confidence." global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i am lisa mateo. this is bloomberg. ♪ ♪

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>> i do think china is a major threat against the united states. there are encouraging this war by working with russia.

china needs to know there will be consequences. we have isolated russia economically. we can do the same thing in regards to same -- to sanctions against china. china needs to understand they need to be on the right side of history here. jonathon: going to hear a lot of that. maryland. why do always mess that up? mary land. tom: it's like i say warwick. same thing. [crosstalking] tom: they break the front end off every third race and put the new one right in. jonathon: that costs serious money. we talked china. we will do that in a moment. let's get price action briefly. the people in maryland love me. up zero point 5% on the s&p 500. like the people of warwick love you. tom: really? jonathon: i'm sure, yeah.

tom: i want to do a more focused discussion here on the distance. trust me, there have been people from taiwan who would grab me by the bow tie and tell me to shut up, this is the way it is. libby cantrill is an expert and head of public policy at pimco. i want to get away from the zeitgeist baloney. plus he made a trip to taiwan, the former speaker. but other politicians have followed. what is our relationship with taiwan right now? libby: good morning. starting out with the light questions on a monday morning. i think the purpose of former speaker pelosi, then the delegation that just went last week, is to, in many ways, i think send a pretty strong

signal to china that the united states will continue to support taiwan. of course, our policy in terms of strategic and bq 80 has not changed, in terms of the one china policy. but we are, i think, very much sending a signal that should that change and china in particular do anything to disrupt that, that fragile, tenuous relationship, the united states will back taiwan. there are some preemptive measures that the united states is taking, in terms of providing arms, making taiwan a porcupine so to speak, in terms of being able to defend itself. but i think the visits in themselves are very symbolic, in terms of sending a signal to china that the united states is monitoring this. tom: perfectly said. they are symbolic. except all of a sudden, the secretary of defense was talking to the younger of the

philippines about four bases over there. there are relationships with japan. do you see in that republican-democrat bipartisan discussion in capitol hill in washington? libby: i think it's difficult to do anything formal. the trans-pacific partnership was trying to get to that, at least isolate china economically , but i think a defective policy is emerging both from the administration's perspective and also the capitol hill perspective, to really try to alienate or isolate china to graphically. tom: this is a chilling discussion from my youth. it is like a war, i am guessing, in 1972. [crosstalking]

jonathon: libby, i want to go to a publication that a chinese manufacturer was in discussions with russia to sell them drones. the united states and ministration has been very transparent about the intelligence they have been receiving. we want to understand what the consequences might be. what do you have in mind if that did so happen? libby: you are exactly right. the administration is trying to be as transparent and forthcoming here in terms of their warnings to china. it doesn't seem like we have intelligence that they are providing military or legal aid to russia, but a pretty stark warning from secretary of state lincoln, that if they should, there will be consequences. in terms of those consequences, there are secondary sanctions. that is sort of the tip of the tongue of many politicians since the invasion of ukraine. there has been this view that china has been complicit in all

of this. i think secondary sanctions would absolutely be on the table, then more expert controls. we saw the administration move through with punitive controls on advanced semiconductor chips. but that could also expand to other sectors, should there be intelligence that china is providing legal aid to russia. if that should come to public light, i think congress in particular will move forward pretty quickly on this. jonathon: can we talk about a couple of cross currency? the administration seems to be on the same page as congress when it comes to containing the economic threat that may be china's communist poses. when it comes to supporting ukraine and the military effort, if we put all of that together and we face the very real possibility, probability, of ending up in a proxy war with

china unit ukraine, what would support look like in congress to continue funding the military of ukraine against russia? libby: to be clear, i don't think the administration wants us to be a proxy war at all. i would say that although there have been a lot of media reports about the softening, especially among republicans, it in supporting ukraine, i think that is overstated. i would contend that the center has held in terms of support for ukraine. we had minority leader mitch mcconnell very emphatically saying that the support for ukraine will continue. that may come with more conditions and oversight from the republican house in particular, but i think the point here is that there is a lot of congressional support for ukraine, regardless of what happens with china. and if it does devolve into a proxy war, which i don't think anybody once, particularly in

the administration, you will continue to see even more support. tom: quick question. in the headline of the papers today is this never-ending legal debate on student loans. does that engage washington or is that a story off the radar? libby: it has very much engaged washington. it is also a really important issue for a lot of democratic voters in particular, a lot of young voters more broadly. i think a lot of folks will be watching this. our view has been that the legal justification for the student loan cancellation was a bit tenuous. even former speaker pelosi had said that they needed to do it and president biden had said that it was with congress and not the administration. we would not be surprised if the court decided with the administration, but a decision probably won't come until later this year. we will have to see. i think lots of people will be paying attention to those

arguments this week in front of the supreme court. jonathon: this was nice. it has been too long. libby has been avoiding us. libby: [laughter] never. never, guys. i would rather you be talking about other things. tom: it is so depressing. jonathon: libby, thank you. libby cantrill of pimco. this got this in. given that it was named after queen mary, i get a pass on "mary land." did you know that it was named after queen mary? tom: not queen mary of late 1905. jonathon: king charles's wife. tom: this is queen mary going back a few years. i'm thinking like 1550. it sounds great. we have had this argument at

bloomberg for years on pronunciation. my answer is, whatever is comfortable. jonathon: you know what, i agree. we shouldn't judge. tom: i was told that mexico should be pronounced " me-hee-co." i was watching emily and paris and she says it that way. jonathon: are you going to be ok on your own? i'm going to go. tom: you're leaving? jonathon: yes. jack caffrey, jp morgan, looking forward to that. has this guy been drinking with tk? he has been talking about european banks. he is a very smart guy. ♪

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tom: as we say good morning to you on this monday, and interesting economics floor. we go to march 10 to get through the jobs report. it is the oldest, lengthy is stte report. along the way, there is important economic data. right now, we speak to the durable one about durable goods, pending home sales later. durable goods, they matter, don't they? michael: they do. it was a little weak in the fourth quarter, but it comes down even more for the first month of the year. durable goods orders down 4.5%.

transportation is up 0.7%. boeing had a big month in december. there is payback statistically for that, which probably explains the transportation number being positive. x defense and x aircraft is up 0.8%. businesses did pick up spending during the month, it looks like. shipments were up 1.1%, which will add a little bit to gdp. the durable goods orders begin the month on a reasonably good note. i will have to get the break out and see exactly what was spent. but i am assuming headline decline. tom: i have gotten front of me six or seven years of durable goods data and many great economists are always looking at the three month moving average. any of the moving averages i look at off the covid wackiness show durable goods sustaining at

a higher level than they were in 2017, 2018. is that what we observe in the american economy, or is it just boeing? michael: you have to take the boeing numbers out. your airplane, the gulfstream, it distorts the figures. but also, cars have been a distorting factor. we have had strong car sales, then they dropped off, and now they come back. you are getting some rebounds effect there. at this point, it looks like business spending has been hanging in. we have not seen as much in terms of durable goods purchases by consumers until last month. we did see an increase there. it will be interesting on wednesday to see the ism manufacturing numbers and see how much is going into inventories and how much is going out the door. tom: very quickly, housing data. i want to come back to you after

dr. bryson. how key is the data today and tomorrow? michael: we want to see what is happening with prices. prices have started coming down. they did drop a bit. the question is, when did it start making it into the cpi? that takes about one year. rents sign one years ago -- one year ago are just showing up now. we will see it show up in the data the fed cares about as we get to may or june. tom: a durable report from michael mckee. nasdaq up 0.7%, 12,085 on the nasdaq 100. it is a joy to bring in jay bryson, with jp morgan let me start with a basic idea. is jerome powell the banker to the world? is see the central banker to the world in honor of joe rhodes?

>> i think over a number of years, he has been the most important banker. is he banker to the world, here to bail out the rest of the world, no, not necessarily. they only have two objectives. that is inflation in the united states and the unemployment rate. but certainly, the federal reserve is the most important central bank in the world. tom: you memorized a rule watching march madness down in temple hill many, many years ago. torsion schlock -- suggesting there was a taylor rule. what is the equation jerome powell is using if the taylor rule is busted? jay: you think about the taylor rule and there are two variables. one will be inflation and the other would be the unemployment

rate, or the gap there. i think they are, the overwhelming weight is on inflation right now. the fed right now is much more reactionary than forward-looking. if you think back to jackson hole a few years ago, they essentially throughout the forward-looking stuff. it's all about, where's the economy right now? they're trying to feel their way in. it is all about inflation right now. that's where all the weight is. tom: so much of this is our complete focus on the fed. are we going to be doing this all year? the fed derby, the dots derby, the michael mckee there be. are we going to be doing this the rest of the year? jay: i think so. i think there will be a high weight on what the fed is doing. if we get a few months from now and it looks like the economy is

really starting to slip, i think what really becomes important our initial jobless claims and other label market variables. but for the foreseeable future, i think it is all about the fed. tom: i'm looking at this almost as domestic final sales. can we "slip, or just say it is the housing market and other financial distortions slipping, and the rest of it does pretty well, like durable goods to show? how does that mix play out? jay: if you think about the consumer right now, it is very, very strong financially. you could have a recession this year in manufacturing. strong dollar, weaker growth than the rest of the world, may be weakness in the housing market. that is what we have seen for the last year now. consumer spending could continue to hold in there. even the fact that consumer spending is 70% of the economy, you could have a few sectors in the economy in a recession and the overall economy would not

necessarily tip into recession. tom: that's right where you want to go. you have an mbe are -- nber recession. we are down three basis points, 10-year yield migrates down two basis points. just a little bit of curve inversion. i don't know if you saw that. i look at this stew, as lisa would say, that we are in. to me, i want to partition it. if we slowed down, we don't also down, do we? jay: no, that's right. there are lots of different sectors in the economy. you think back to 2015 and 2016, china was having some real problems. the manufacturing sector back then was in a recession, but the overall u.s. economy was not. you can have certain sectors going down and not the whole ship. if some of those sectors go down a lot, like manufacturing and

housing, then you start to get job losses, it does start to bleed into other sectors and the economy. it's a really tricky situation that the fed finds itself in right now. tom: jay bryson, to the global footprint which you commended for years at wells fargo, how urgent is it for imf right now, with nigerian elections and that, but how much of a moment is it right now for the international monetary fund? jay: if you look around the world right now, most of the world is slowing down. look at europe. it's not as bad as six months ago, when energy prices were through the roof. fortunately, when you look around the world, there are not signs of big debt bubbles like we had 20 years ago in asia, places like that. obviously, the imf is a very, very important institution around the world.

my sense is, the overall global economy right now is ok. it is also the front to political situation and there's is the potential for a lot of stocks -- shocks, so it's good to have that backstop if it's needed. tom: thanks for joining us. jay bryson with wells fargo, chief economist there. what we have is a moment of equity markets lifting off some of the very challenging days. we have had futures up and down. nasdaq not at a stick, but almost there. even the vix cooperates at 21.40. in the yield space, a yield reversal, higher yields threatening up to record yields this morning, coming down 4.78%. right now, michael mckee, to give us a clinic here on how

removed the fed is, i was thunderstruck by torsten's locks note on the taylor rule. with a fabulous function on the bloomberg. i did not understand how removed the where we should be is from where the fed is right now. they cannot catch up to where we should be right now, can they? michael: the utility of the taylor rule these days, and there's a lot of discussion about that, it tends to back fit better than it does to predict. john taylor told me he invented it for predictions. to get ultra wonky, you have to know the number you are plugging in for the output. that is a really hard thing for people to come up with these days. i was talking with a fed official on friday who said that

the calculations were so thrown off by the pandemic that it has been hard to come up with even a number you don't trust but just a number at all. tom: mike is on the phone all day, folks. he is working nonstop on this, to the point that jonathan ferro mentioned earlier. there is a group of people who say we are going to get back to some form of the paradigm pre-covid. there's another group saying we are moving on to something different. where are the people you are talking to on that? is it two separate camps, or do they feel we are going to get back to some kind of economy we once knew one of -- long ago and far away? michael: i think there are two separate camps, but without a huge level of confidence in either prediction. we don't know exactly how the end of inflation is going to come about, whether demand craters because companies are raising prices, or companies feel like they have raised enough to cover expenses.

it is going to depend on where the fed has to set interest rates in the next few years. we have got to get inflation back down. once that happens, what kind of world do we go into? that's a part of her body's turn to figure tom: can i suggest that when they do the dots, they do it for everybody in the press conference? [laughter] that would be interesting. michael: at the economic school, they taught me not to make predictions. tom: michael focused on housing data at 10:00, then ism data. coming up on radio and television, rob arnott. ♪ damian: --lisa m: keeping up-to-date with news from around the world. spacex nso scrubbed a rocket launch shortly before liftoff

earlier today. authorities blame a ground system issue. the next launch opportunity will be thursday. president biden has ordered door-to-door health surveys following that trained around it in east palestine, ohio. representatives from federal agencies visited about 350 families over the weekend. the train was carrying toxic chemicals. off the coast of italy, a wooden boat filled with migrants broke apart after smashing into rocky reefs. at least 60 people died and dozens more are missing. authorities say the boat had more than 200 passengers when it left from turkiye. td bank has agreed to pay 1.2 billion dollars to settle litigation involving the stanford financial group. a lawsuit had claimed that a group of banks enabled the $7 billion ponzi scheme of allen stanford. stanford international bank sold billions of dollars in fraudulent high certificates of deposit.

pfizer report it is an early talks. it will command a premium above the company $30 billion market value. they develop drugs to treat cancer and related diseases. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i am lisa mateo. this is bloomberg. ♪ ♪

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sometimes i use the phrase, "more game theory, less econometrics." you really want to establish the cart ability of the 2% inflation target. there is a certain amount of demonstration to markets. if you move quickly. tom: the gentleman from india, james bullard. that has been one of his themes here and most unusual ties. car bring in my guest here, i look with the guy from indiana did. if you are at villanova and it is your birthday, and you're getting an nba, you need to lean forward when rob arnott speaks. we sent birthday greetings to simon. thank you for listening and watching bloomberg "surveillance" in these unusual times. rob arnott is absolutely unique. out of the university of

california, he did one of the hardest things you can do in research. he did brilliant research, then kept doing it. that is an extremely rare commodity in the racket. to say chairman of research benefits, it barely describes his contribution to the financial analyst program and the thinking out there about what to do and what not to do. rob, thank you so much. somebody's going to say you are bearish and that. forget about that. what is the biggest mistake right now in a type to construct? what is the thing desperately not to do right now? rob: i think the most serious mistakes investors make our performance chasing. whatever has done well, by more. whatever has faltered, shun it. secondly, blinders. focusing strictly on domestic opportunities.

i'm not bearish when things are cheap. stocks outside the u.s. are reasonably cheap. value stocks outside the u.s. are very cheap. we find all sorts of narratives relating to china, to ukraine, for not investing outside of the u.s. but the u.s. is priced at more than twice the valuation multiples of non-us stocks. to avoid those two mistakes, it is awfully useful to think interns of forward returns, not past returns. forward returns are a function of what is the yield, the historical growth and income, and if there is any valuation mean reversion toward historic norms, is that going to help or hurt you? tom: do you suggest that on a national or even international basis we are going to have a regime shift and what our interest rate will be that will

allow for the fiction of a better nominal gdp, a better animal spirit out there, but in the long run will pay off? does rob arnott have to shift up from an anchored 2% to a new interest rate regime? rob: i think we are in a transition from a failed experiment with near zero and negative interest rates. that effort to stimulate an already growing economy was beyond foolish. i think we are seeing the beginnings of a regime shift back to a point where interest rates matter. think of interest rates as a speedbump. if you have a speedbump on a street that is too high, it stops traffic. if you have a speedbump that is nonexistent, you are going to get the occasional reckless driver driving way too fast.

the same thing applies with interest rates. when interest rates are too high, the economy is shattered. interest rates now are back to some someone's of normal. people talk about powell channeling his inner vulgar -- broker -- that would mean making the fed funds rate 14%. he is not channeling this, he is dabbling with increasing rates in a fashion that hopefully won't do too much damage. it is all based on a very naive neo-kinsey in view that you have to wreck the economy in order to rein in inflation. tom: help me with my idea of the theme of 2023. if we get a normal rate regime, something any listeners and

viewers have never experienced. let's say we get to regime of even 20 years ago, that we will see what i call the great zombie roll up. there are all sorts of companies out there, domestic and international, that just are not going to make it. how can you profit from that? rob: you can profit by investing broadly diversified into markets that are cheap and will cushion the damage of those. you can avoid that damage by looking at quality metrics and not investing in companies that are highly likely to go bust. you can measure interest rate sensitivity for companies that have large gaps. be very wary. don't own them unless they are cheap. there's a lot of companies in the meme stock community that have huge debt. as that debt gets repriced, they are likely to struggle.

the notion that high interest rates are going to hurt the value stocks is actually way too simplistic. tom: one of the great quotes last year, something i think you will appreciate, always controversial, saying the physics is back, the gravity is back in the equations. you have certainly alluded to that. what i notice also is that we have been addicted in our modern trading to bringing in our hold period of average investments from years into months. dare i say, not even days as well. if we get the world you talk about, obviously i agree with you. are we going to learn that we have to have a longer holding period for our investments? rob: i think a holding period should be a function of where your personal skill set is. if your skill is in short-term trading, i would never advocate that kim griffin take up the

idea of cycle investing. he is doing the rest of us a huge favor by trying to scalp a fraction of a penny off of every trade you make. it gives you great liquidity. so, focus on what you are good at. i am focused on long-term. i am a long-term investor. i want short-term investors to be there to provide the liquidity. folks who are not good at short-term, but are playing the short-term game, they are also providing liquidity, but they are likely to get badly hurt, and they often do. tom: let me finish up with the arch question, all radars up on this. i had the usual active managers trotting out, telling me this is the time for active to outperform. many of them ascribe to your international view. rob arnott, an update on active versus passive, please.

rob: i think the whole active versus passive thing is complete destruction. passive managers on the market. that means that if you take them out of the equation, what you are left with is that same portfolio. that is what the active managers divvy up. an active manager can win, but generally only if another active manager is losing. it is a silly game to say this is a great environment for active investors or a great environment for passive. the before performance of actively managed mutual funds is nearly identical to that of passive. and it always has been and it always will be. the key question is, can you choose active managers who are likely to have an edge and whose success will be funded by other active managers whose bets don't work?

look for that in your investing. tom: we have to leave it there. rob arnott, thank you so much. i really cannot say the uniqueness of his research, no one has done as much as rob arnott. check out his work in charlottesville, virginia. michael mckee sending me a missile, saying this has to do with tech spending. spending in defense in america on the war in ukraine, also on the resupply of our defense abilities. you see a shift, with futures up 35. nasdaq now up 1.2%, a nice equity live. yields reverse. jonathan ferro has been medicated for the next hour, with the yield reversal here. two-year at four basis points, 10-year at four basis points as well. one of the most interesting guys in washington, it john kirby

with david westin on "balance of power" at 12 noon. good morning. ♪ save 20% with the lowest transaction fees and keep more of what you make. with a partner that always puts you first. godaddy. tools and support for every small business first.

jonathan: off the back of the longest weekly losing streak of the year so far and we are looking for a bow's. equities up .9%. the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro. jonathan: coming up, equities u