>> the market is very excited around policy rate speaking. >> is there even more to go? i think there is if the rally becomes broader. >> the next six months, we expect inflation to come down. >> the aftershocks of the pandemic in terms of the economy are settling down. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: today winning streak on the s&p. attempting to become three. good morning to our audience worldwide. this is bloomberg surveillance on tv and radio along with tom

keene and lisa abramowicz, i am jonathan ferro. equity futures are positive. earnings from goldman sachs at 7:30 a.m.. a little later, we passed the baton from wall street to silicon valley. netflix is coming up after the close. lisa: netflix is sneaking up, but i would mention, this is a new netflix, and there will be profit sustainability, and i bring this up because of a lot of what we see around the world this morning. that is corporation adjustment. netflix adjusted seven months ago, and the fruits of those laborers will pass along today. she is adjusting. it is appearing with a massive shakeup, and that is what you are going to see here. it is shakeup wednesday. jonathan: we have set all week it is not about the major players on wall street. bfa, western alliances a name

youth heard a lot over the last few months. here's the bad news. interest expenses are up 25% from the previous quarter. it is getting more expensive to attract that capital. lisa: what is fascinating is that it is getting more expensive. it is harder to get profitable. but the share is ripped. that raises questions about how low the bar has been set already. if it is get deposits at all cost so you can fade out the existential risks. is that what we are talking about with the banking index as the highest level going back to march 10? tom: in the last 10 years, shareholder return per year, morgan stanley, with that wonderful interview yesterday, up 15%. just below that. for james gorman we will rounded up to 15% per year. goldman sachs is up to 9% per years. that is the tension. jonathan: maybe things get

better from here. that is the message in the interview yesterday. tom: i am just not up to speed. i don't know what they are doing, but i would say that equity is a surprise. across all of this. they hang out with sonali basak. they have leverage. they have a martini shaken, not stirred. jonathan: does that mean you are smooth? tom: i'm not smooth, god and no. jonathan: i feels like, globally, pulling back from those peak rate hiking cycles, going into summer. tom: i will give the journal credit. i can't remember who -- maybe it was bloomberg. all of the disinflation out there, and the u.s. is at the best position of this inflation, and the united kingdom is finally rotating around. that is a good feeling that you've got. jonathan: let's see if we can

keep that through the summer. we need more like that, but has been good for the last month or so, compared to where we were. let's touch base with the market. s&p futures up 0.4%. it is sparking a rally in the global bond market. treasuries are doing well. the tenured is 3.76. lisa: large banks -- goldman sachs reported 730, and we have zion throughout the day. i am interested in regionals. goldman sachs is a fascinating story, in terms of what happens post market, but tanks have climbed back -- banks have climbed back to the highest valuation since march. can we climb further? other earnings -- we are going to get netflix and ibm after the

bell as well as tesla and united airlines. i am also watching carvana which had a surprising announcement that they are going to move forward with their earnings release from august 3 two today before the bell. we don't know why the market is taking that steeply lower. and we get u.s. building permits and housing starts. we saw a huge rebound in the last month reading. we are expecting that to revert more towards the norm, but this is the question. do we get a housing rebound at a time where this is the one area people are pointing to as the most interest-rate sensitive? jonathan: economic data is 25 missed away. bulls are out there at the moment. here is the outlook. jonathan gallup was in and around the price target on the s and k. 4500 on the s&p 500. that sounded bullish a few months ago but now not so much. the recession will be averted, the inflation will remain

sticky, and monetary policy will be tightened only incrementally. tom: mr. gallup, if you need a referral? stop by here. as he nailed it or want -- what? he absently nailed it. -- absolutely nailed it. tom: if you need a word, i can -- you don't meet to put that in. jonathan: fantastic research to read. tom: there's just fantastic research there, there's no other way to put it. jonathan: daniel morris, do you agree with that? inflation might be sticky but monetary policy will be tightened incrementally? >> more or less. we will have a slowdown and not recession. i would not overstate the case

for risk assets. it is certainly not a recession. that is better than what we were fearing, but it will be a trend of slowing down economic growth. we will get economic data over the next few months, so it is a modest but not environment, but not for us. signals of a signal appreciation, and when we add on top of that valuations, we take from the u.s., us bashfully protect, and if we are anything, we are underweight and market equities, on the concern of the front of the market you have right now. >> the hallmark is really going back to the outstanding china coverage. if you actually nailed gdp back 15 years. a very great caution on the recovery of the great financial crisis and all of that. you are doing great work, and such, but do you link the economics into the investment outlook? how much do they dovetail into each other? daniel: it's a good point to

make, especially when we talk about china. how much we test about the gdp, and of course it matters in the long run if you do a chart of non-umbel -- nominal gdp. quarter to quarter and month-to-month basis, there should be other things that drive corporate profits, and i think when we look to china and we look to the consensus earnings expectations for chinese stocks, whether china gets 5% real growth or for -- 4.75, that is not the key determining factor of those earnings come through. if they do, the market should reflect that growth. daniel: right now you are liking the developing nations and equities, partially because of the promise of chinese stimulus on the heels of subpar growth according to the price target. you said you are underweight develop market these because of the froth you are seeing? where the froth? daniel: i one hand, if you look

at earnings growth forecast on the nasdaq, it will end at 24 25. it is 16 to 19%, which is quite a bit above the long run average. we can talk about how viable those expectations are, but they are quite bullish. also on those arguably high earnings forecast, you have another high pe, and if you think that should be lower, it is even higher. it's not like i don't like the case for growth stocks, but there has been quite a run-up, and we think that is vulnerable to aggression, particularly if the fed doesn't come through and cut rates. this is a real rate, discount rate that hits valuations. lisa: the distinction between what you are saying what others are saying is that they come out and say you might not see the appreciation so broad and out. it is time to get into other sectors, which we have been seeing over the past couple of weeks. how do you draw this distinction that it doesn't mean it's time

to go into less loved sectors like banking or oil or consumer discretionary, but rather that big tech itself it is going to lead lower in the index? daniel: for us, it is about relative opportunity. that is not to say that in other parts of the market you can see further appreciation. we like to see better balance in the u.s. market between tech and the rest of the market, but it is overweight to ema and china. if we look at what those earnings expectations are and the multiples being put on those earnings, we need to see more upside potential as opposed to an absolute call you will not see appreciation in those parts of the market. tom: the quality issue goes back to international stocks. that is not something we have addressed recently. with all of these dynamics, how do you set up for two years out, three years out, with quality international, including european equities? daniel: for europe, i think the

challenge is we are already seeing a more rapid growth slowdown than we are seeing in the u.s., and if you go back to a people are expecting at the beginning of the year, it is both europe and the u.s. are slowing down appreciably. you are trying to see that argue play more in europe and the u.s., and i think that goes back to a much more substantial stimulus you have in the u.s. over the last couple of years with the fiscal stimulus at the beginning of the binding ministration and the inflation reduction act and so on. even in the long run, that is not supposed to work. it is boosting growth now, whereas in europe, at a minimum, we are reverting to trend. with the most recent core inflation data we got out of the euro zone, core inflation is still well above the ecb target, so we need to see, if anything, further growth with an argument for a lot of upside potential for european equities. >> is that a reason to buy or sell? that is quite a move in fixed income and your. let's wrap it up. gilt yield is down.

write down the curve to 30 at the front end. is that a buy or a sell? >> we did go along -- go long guilt in treasury, so we are enjoying the rally in yields, given to the point where we start to evaluate the long, but that is where we have been position, and that is working well. >> is working very well. congratulations on that call. not working to badly. there is your move. down something like 30 basis points on a two-year this morning and the u.k. to 476. the 10-year is down 20 basis points to north of 4.1%. there was a sneaky suspicion that the bank might have to go again, 50 basis points, but the economic data in the u.k., perhaps changing the conversation a little bit. a little bit of a downside surprise. the right kind of downside surprise in the u.k.. tom: that's what the governor needs. it is the move, but my basic --

help me, you have live this, i would suggest core inflation is stickier than here. i would guess. it is interesting to see, but are we correct that real estate inflation filters into the united kingdom economy much quicker than here? jonathan: i was say the transmission from monetary policy and the u.k. to the bullish market is much much more direct. given the mortgage market and the u.k. given the one in the u.s.. tom: can i give a symbol for east coast wall street? this is the wonderful mr. will end who is more diminished -- and missed each day. he picked up the pieces after the death of robert williams, and these are the definitive small bank operations in the world, and they are by no means a small bank. it is amazing to see them do 3.4%, per year, for the last 10 years. this is one of the good banks.

what is so distressing here for me is that this is the bank that has put up business goals as how to run a bank, they are barely getting it done. lisa: if you're joining, they just reported earnings, and they are beating earnings-per-share, but this is the key, they are beating on deposits. here is the theme. how much do we see deposits at any cost being rewarded at the regional banks. again, it steams off the bigger existential risks. >> better news than three months ago, but it is costing them. that is for sure. equities just about positive. from york city, good morning.

>> it is welcome news that inflation has fallen. it shows that if the government and bank of a good are prepared to take difficult decisions, we can win the battle against inflation. nonetheless, for families up and down the country, prices are still rising too fast, and there is a long way to go. jonathan: it is a long way to go. that was jeremy hunt, the chancellor, following data out of the u.k.. a downside surprise coming in soft month over month. cpi at 0.1%.

the median estimate was 0.4. the previous number was 0.7. significant improvement, month over month. core, year-over-year. it was at seven, now it is at six. what you are seeing is a big rallying on the bond market as they are saying to pay back bits of what you can expect over the next several meetings. who knows if that will change a month from now, but so far so good over the last couple of weeks on the inflation front. here's what the market looks like. a running in the delta market, yields down by .3 on the air. 3.75. that is the economic data. resubmission doubt -- mentioned -- lisa mentioned housing data. we will hear from goldman sachs, and that will shift from wall street to silicon valley. we also hear from tesla, as well. futures are positive by 0.4 percent. just a little lift, a grind higher over the last few sessions. tom: goldman sachs we can talk

about. it will be a big deal. it is underrated, but i will note oil is back to 80, or brent crude back to 80. it is a small matter. maybe it shows a little better tone on global demand. jonathan: it was said 90 is the ceiling yesterday on the program. tom: what's great about that is geopolitics -- is not just about microeconomics and supply and demand and all of that. there are some real movable parts at least in the optimism we see out there. we will digress right now to the pessimism of your belief in the american political system. expert on this is wendy scholer. her text is definitive on the introduction to civics. i got an email from alanna north in scotland. she said to me, how dumb our politicians in america today? i am reading the first volume of world war ii, of roosevelt,

marshall, a very young dwight david eisenhower and such. and the intellectual caliber there is shocking. how dumb are our politicians. how do uninformed are they on the world of scholer? wendy: i need a statistic which is that 99% of congress members have a college degree. a four-year college degree. being a college professor, i don't want to say they didn't learn anything in college, but at least the people elected to our congress are quote unquote well educated. i think the issue is international focus. the idea that the bad things that happen in the rest of the world, particularly in the erosion of democracy, will not affect the united states. put our head in the sand. go back to you about us. these things will not affect not only are particle system but our economic system, and that is the mistake. that is the nearsightedness that

we have to worry about. tom: that's where i wanted to go. i'm figure of 1942. we are going across africa and the british are saying the americans are not in this war because we were isolationists, we were distant. we had the luxury of two oceans before pearl harbor. rate. how isolationist are we right now? wendy: technically we are not isolationists. we are actively supporting ukraine. we are giving them -- we have already done, we've given them weapons that the united nations and other organizations asian give to anybody. cluster bombs. we are involved in supporting ukraine. we have troops all over the world. we are now watching things that are happening in israel with the erosion of the judiciary, and there is our partner in the middle east, and how do we justify supporting this country if they start to go much more authoritarian? we actually are quite involved all over the world, but the politics of the united states me we don't talk about it. biden doesn't talk about enough. he has a meeting this week with

the israeli president, but nonetheless, it is not political sellable, it is not attractive to voters. particularly voters worried about inflation in the economy. lisa: especially voters ride by january 6 and donald trump and the deep state. local warfare getting entrenched in the fabric of this nation per at how much of a distraction is that? what is your take away from the last 24 hours a legal news and the former's response? -- former president's response? wendy: it doesn't say anything about sedition or treason. those are things that will keep all trump from being president of the night states. other charges might put him in jail, but we don't know if that means he can't also service president of the night states from jail. literally, we don't know that. those charges coming down do not look to be the most serious charges that would preclude him from taking office if you won the election. americans are now looking at the idea of recession.

maybe it is not going to happen. maybe gas prices are less. maybe inflation is coming down. we are looking at inflation coming down. we are looking at the day-to-day and the economy, and they are not focused on 2024. the republican party has to manage the trip trip of all of the investigations that will lead to convictions, and if your rule of law convicts president trump, and he has to go to jail, do the republicans completely reject our rule of law in that way? that is a big and existential question for the republicans right now. >> you talked about how people are focused on prices and how much they are changing at the grocery store and if we are going into a recession not necessarily with the noise in the particle theater behind some of the other discussions that come from the former president. are you saying that the media is making more of this than the population is with respect to what the response is to it or do you think this is a residence among people who have followed

the former president? that this actually galvanizes them in a more meaningful and relevant way? wendy: this is the problem for political observers and campaign people. the summer before the year of the election, people are not paying attention. that doesn't mean they are not hearing about it or absorbing it, but is not a priority for them. galvan's nation may happen, but there is a ceiling in the republican party. in 2016, it was 40% of the entire voting population of the primary. so it is not as if they have the majority of the republican party law, stock and barrel. that is the problem. the problem is that these charges focus on trump and don't give any airtime for desantis or chris christie or anyone else trying to make their way. that is the big problem for the republican party. even if you could get a little bit of traction, the potential for these charges soak up all the oxygen. jonathan: will have a chance next month on the debate states. how do you think this will play out for the republicans next month?

wendy: we don't know if you will participate. if i'm donald trump, i do not get on that stage because for the first time, i will be the target of all the criticism. even though it has been muted on the campaign trail, on the debate stage, will be people who go straight after trump. it is not an advantage to trump. they don't need visibility. he doesn't need that to get a score based up the door, so i don't know why he would participate except for ego. he doesn't want there to be a media event for anyone else, but not for him. i don't think it is a good strategy for him. if he doesn't show up, you have to ask yourself how many people watch these debates #giving the candidates other opportunities to get their names out there among republican voters and the voting general public. jonathan: thank you. when he schiller of brown university. a month away from that first debate. for the republican primary. august 23, hosted by fox news. that is not the first time i've heard that characterization of what the former president should or shouldn't do. a lot of people would say why

take the stage, but at the same time, they are thinking, maybe ego will take him to the stage. lisa: we have gone so far beyond politics. i go to the cumulative nature of this. what is next after whatever happened yesterday? i believe that is georgia, but it is to be kind, original, to say the least. jonathan: we will have chris christie little later. on balance of power grid that's interviewed watch. the new jersey governor chris christie sitting down with the team. from your city, this is bloomberg.

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jonathan: let's get to the bond market and equities. equities on the s&p 500, futures just about positive. on the nasdaq, closing out yesterday on the nasdaq 100 stop gains we have not seen since 2020. think about the returns of 2020, huge year. think about this year, 45%. that is how big this year has

been. massively unexpected. the highest since january 2022. tom: looking at six months up, eight months up or the round-trip down we went ugly come up, broken even. i will go back pre-pandemic. how the indices has done from december 2019, to me that is more interest than anything else. jonathan: the bond market, yields lower in the u.k. by something by 20 basis points. in the treasury market, down about three basis points on a 10 year. downside surprise on u.k. inflation. pushing through the fx market, the dollar weakness and then dollar strength.

euro-dollar, 112 point 23. the want to watch this morning is sterling. tom: visited tangelo move? -- is it a tangible move? jonathan: we were thinking maybe you go six and perhaps 6.50 and some. we pair those bets after that mood this morning. lisa: don't you think it is strange that sterling is weakening given the fact perhaps you could get the bank of england not having to raise rates as putatively into weakness? isn't it a strange move that suddenly the economic profile is less important than the rate hike -- tom: that is economic ambiguity. the u.k. has surprised with a lack of recession, with economic growth during this inflation. jonathan: i would say this is about rate differentials more recently. it has been difficult, think about last year at the end of

september, it was the financial stability aspect come also the fiscal policy risk. lots of variables. over the last few weeks, it seems certain -- sterling strength off the back of a more aggressive bank of england. tom: for the american audience, and clinic on the united kingdom and europe and potential for economic growth most of joining us now is kallum pickering. the metaphor i want to do is sheffield united blades, use ago, they ended up -- years ago, they ended up buying the china football team. there is an export from the united kingdom of capital over to china i guess to support global put all. how is it within brexit this new trade dynamic given the buffeting inflation and that come how is u.k. doing on

addressing china, on addressing world trade? kallum: it is a good question. there is been a huge change in the distribution of trade for the u.k. it shifted away a little bit from the eu and more toward non-eu trade but it is not a huge move. these are generally things that happen over time. to a large extent, the high cost of trade through trade barriers and of course the weaker sterling has not shifted to things between u.k., you quite as one might have expected. as result, you have not had the trade shipped which is -- trade shift. tom: what are we going to see? is berenberg an optimist, coming out of this pandemic come frankly, the tangential war in

ukraine, can you be a trait optimist on united kingdom? kallum: you can make a positive case for the u.k., no doubt. you need to add a little nuance around what economic strength means. the u.k. is no longer a fast-growing advanced economy because of brexit but for a host of reasons, potential growth has slowed decidedly. before the financial crisis, it was probably 2.5% and now 1.5 percent. even the potential growth is slow, on the balance sheet side from bank capital, household savings, consumer credit, you can make the same case for businesses, that is low and cash is high, the balance sheet is incredibly strong. when it talks about downside risk, we have to worry less about that. the u.s. -- the u.k. has got from a fast-growing economy to an economy with good balance

sheet. much less exciting both ways. we avoided recession over last winter despite the pessimism around one. looking ahead, the recovery will probably be restrained. lisa: everyone cares what is going on in the u.k. because it is dominating the bond market after reporting cpi dropped to 7.9% from the earlier read on a year-over-year basis of a .7%. how similar is the disinflation in the united kingdom to what we're seeing over in the u.s.? kallum: it is almost the same mechanic with probably around six months for two reasons. first, there is technical aspect around how energy prices pass through the u.k. u.k. labor markets, which are very tight, seemed to have reduced higher wage response. this is the thing that has the market a little bit worried.

what you have in the case of the u.k. is tight labor markets which allow workers in part to defend this real income shock. the thing i am most focused on is inflation expectations for consumers. look at consumer. inflation expectations have calmed down almost to normal levels. household workers are bargaining their wages up because past inflation, not because a future inflation expectations, therefore as inflation falls because of the sources of inflation start to ease -- energy -- what you will find is wages start to come down. i don't see any evidence here -- it will help the bank of england pause with rights a little earlier in the market which will allow the u.k. to avoid a hard landing. lisa: it has been pointed out

all we are seeing with this inflation is the post-covid normalization. this has nothing to do with tightening monetary policy, which they say has been not it way through the financial system yet and any kind of meaningful way. do you agree? what does that mean for when some of the rate hikes to take effect? kallum: that is part of the argument that bank of england needs to start soon. best guess would be half of the tightening so far is pastoring to the real economy. -- passing through the real economy. if that bank of england stops now, there is still more tightening to come. i would not be saying this is all to do the post-pandemic unwind. there is definitely an element of monetary policy in their. for instance, the housing markets.

get the negative impacts on the economic activity directly because there is less housing activity. it also on consumer demand as result of things like wealth effects. if you can spot the monetary effects, you -- if you look hard enough. tom: is this a recovery where we are leaving half the population behind? kallum: it is certainly true the best in class parts of economies always do well first. so london, southeast, paris region. curiously enough, what we have not seen in europe is a big gap between northwest european economies -- so the big three france, germany, u.k. -- and peripheral europe, which is typically left behind. pre-pandemic level of gdp. about the u.k. i france, germany.

that is accursed is developing. tom: what is the best euro value for germany right now? slow down any fracturing. -- manufacturing. what your level does germany desire? kallum: it doesn't really matter for germany. i know this is a non-consensus view, but the quality of german products basically demand is quite inelastic. there's not much competition for the products that are made because they are so specialized. when the world is doing well, what expensive german quality manufacturing products and that pushes the euro. probably a signal there is decent demand for products out of these manufacturing-oriented economies. on the downside, when the euro is weak, it may provide a little

relief but it is generally because the world is not in good shape. i would rather have a strong euro. jonathan: kallum pickering, thank you of ehrenberg. -- ehrenberg. there is the latest news from carvana. the earnings and debt restructuring. the pact cuts over 83% of 25 and 27 and cuts interest expenses by more than $430 million year for the next two years, apparently. carvana in the premarket by close to 7%. if you want the earnings, $.55, the estimate, was 1.12.

a little bit better on that front. lisa: carvana was the darling of the pandemic and got decimated with this question around used cars and whether they were going at the same kind of traction. and now, there reporting they are creating some actual cash flow, albeit still a loss, but that a pathway to profitability. to me they pulled for the earnings from august 3 and made the surprise announcement yesterday, perhaps because they got this packed together with a debt holders, everyone assume the worse and now people are rethinking. jonathan:. extending maturities tom: -- tom: lisa, you nailed -- this is something i am nutso about -- what is the profit proposition? on the back of a cocktail napkin in a bar, what is the profit

proposition of something like carvana other than moving deck chairs and financial engineering? lisa: they are an online-based used car sales platform. they offer to come and get your car and by your car and -- tom: i understand the concept. lisa: other car, said dealerships to this as well, are online and will offer the same services so to your point, there was a chunk of time where people were saying, where did they distinguish themselves? now they're trying to create a new platform which is the reason you're seeing such massive fluctuations. jonathan: let's get a five-year chart on the screen. you know what it looks like. take a look at this. , on. we are down by something like 89 percent based on yesterday's close. tom: this is a meme stock?

lisa: it was. the bar is so low and the share prices are just so low that any positive news will create a very big percentage pop. right now a 20% pop. that is the kind of response we are getting. jonathan: it would be -- tom: joe elliot is going to show up? def leppard? jonathan: are we going to get tickets? tom: it is a dow component.

>> i think the investors look past what has been going on in the market.

deals were done, people will trade. i think the market sensibly look at the big picture items and said, the rest of the scaffold us, and that is why we are trading the way we are trading. >> things are going to get better for the investment bank. a little bit later in about 44 minutes from now, earnings from goldman sachs. let's break down the price action this morning. equities drifting a little bit higher on the s&p 500. a bit of dollar strength against some sterling weakness. we snapped that winning streak

on the euro and yesterday session. i want to get to western alliance. here is a name we have talked about a ton. out with numbers yesterday afternoon. stocks down about 2%. deposits coming back to stop the bad news, it is costing them big time. interest expenses up 25% from the first quarter. tk, you can track the money but you have to pay up for. tom: let's get to it. the index is what people like herman chan watch. he has been the foundation of bloomberg surveillance bank analysts -- analysis, should say, since i think march, whatever it was, st. patrick's day when the world blew up. what did you learn yesterday from western alliance? herman: we saw was returns were a bit more normal circumstances. the positives are coming back

and greater than analysts had expected. but they're paying upper deposits. the good news, they are reducing some higher cost holes that borrows -- you can see market expansion going forward in the back half of this year. you are seeing capital increase as well. they are taking tangible steps to return to a bit more normal pattern. jonathan: getting crushed? herman: it is to disappoint a bit because of higher cost deposits but the expectation is the margins should expand but going forward. jonathan: we were wondering about ability or inability to finance the economy. can you walk us through what it looks like across the regionals right now? we understand deposits are better but they have to pay up to do that. what about lending? herman: it has been a bit tepid. things are bit soft both on the demand side and credit

availability. the banks have talked about pulling back in certain areas, citizens have talked about getting out of auto lending, out of lending to mortgage companies. they're pulling back on the margins and have talked about commercial borrowers, business borrowers. they are bit more cautious going forward as well. lisa: what is the business case going forward for how they're going to get an edge especially versus the behemoths that are delivering massive returns? herman: that is a good question. what we're seeing is the regionals are playing a bit more defensive mindset. pulling back on lending, shoring up their capital base, trying to support their deposits.

liquidity requirements, struggles on the top line. this will take a bit of a timetable. lisa: this idea they're getting deposits but having to pay up for them, citizens financial did come out, shares lower about 2% premarket trading after basically having the same income u.s. bancorp just coming out, net interest margin basically in-line, a little light, the total average deposit slightly under the estimate of $500 billion. at what point won't it be worth it to keep paying upper deposits just approved they are not failing? -- just to prove they are not failing? herman: you can see deposits have been pretty stable across the industry for the regionals. one of the reasons why you may see some going forward is the banks are pulling back on lending. there's a higher bar for profitable lending going forward given the fact the marginal cost of deposits is almost 5% at this

point. being able to deliver profitable growth is a struggle. that is why your seeing a bit -- tom: hermann, i'm looking at what the tone you are giving us. there are only two ways to cut this. the major question is, will a given bank be a smaller bank in the future and the other side is when in god's name are these people put out of their misery? 30 year, total return, under 7% per year. that is mediocrity defined. when did they merge themselves out of pain or does everybody just become -- compared to jp morgan? herman: you would expect to see merger and consolidation over time. there are a few factors involved. number one, the regulators in the biden administration are bit more cautious on bank tieups over the past couple of years. tom: they would what two relatively it a video banks

--itty bitty banks? herman: given the fact of what happened in march and april, but it still remains to be seen. the second issue, there is a bit of a balance sheet issue because of the way rates -- tom: explained that. that is really important. everybody has fiction on their balance sheet because it is priced down, yield up. that is not pretty. but if you make then you have to show that loss. herman: it could create a tangible book value. tom: pretty good. one third of our audience just turned off. jonathan: meant to sound positive. tom: i mentioned this the other day. i have no idea other than the executives to lunch.

there seems to be a massive effort to make sure that we maintain these regional banks. we have heard from the federal reserve in terms of blueprint and higher capital requirements. lisa: are you more negative on the sector? herman: things are moving as expected. the balance sheets are pretty stable. deposits are coming back or stabilizing.

the cycle where you could see some as a quality deterioration which we are seeing a bit from things like western alliance and citizens. things are steadying but there are some challenges going forward. jonathan: you see it from u.s. bank compass as well. herman chan, thank you, sir. maybe the drama for now at least, and you can make your own call, is over. you can see, to bank, how many thanks data pullback. tom: we did not touch on the next time he is on, we have to look at the politics of this. if the republicans take the high ground in different parts of congress or the presidency 1, 2, 3, 5 years outcome how does that change the dialogue? to a greater extent, the

republicans want -- jonathan:. u think the democrats what the same thing? tom: very american. lisa: you also talked about it. just saying. tom: how far is shekel from london? jonathan: i would say a 4 hour drive. tom: but on the train, we can go. chef field. i want to go. jonathan: i can find is a game to watch. anna han coming up shortly.

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the idea that we have saved five million people's lives, it's overwhelming. it's everything. >> the fed is doing the job. >> the market is really excited around right speaking. -- around rates peaking. >> we are hopefully getting to the point where the aftershocks of the pandemic in terms of the economy are now settling down. >> this is bloomberg surveillance. jonathan: goldman sachs this

hour, live from new york city for our audience worldwide, this is bloomberg surveillance alongside tom keene, and lisa abramowitz. i'm jonathan ferro. we run things out with mr. solomon, tk, in several minutes. tom: cinelli bassett will give us the details -- chanel he boss look -- sonali basak will give us the details later. jonathan: basically the worst may be over for the investment bank. birds the end of it, it got better -- towards the end of it, it got better.

lisa: maybe we have turned the corner in an economy everyone said was going into a recession. the line from all of the banks has been the economy is not going into recession. how much of a tell is this? jonathan: there's a clear divide between the regionals and the big players. we have talked a lot of about western alliance, this morning but that was widely anticipated. tom: it is come up pretty good. as a rule i don't follow 200, 210, but i am interested to see how earnings pullback. jonathan: i can't get away -- i can't wait to get away from the earnings in sala conrad --

silicon valley. it's just a bunch of numbers for me. just do it after 4:30. tom: can we talk about the sign of the times? it is the world;s first etf to offer 100% protection, not loading management and transaction fees watch today in the u.s.. the headline, first etf with 100% protection against equity losses. jonathan: can you explain that? tom: no, i can't. this is a triple leverage all-cash fund. someone is actually doing this. jonathan: they got that idea from you. tom: first etf with 100%

protection against losses. jonathan: i need to read that story. i can't make sense of it. our chat on twitter -- bar chat on twitter. jonathan: the s&p is positive. the guide -- lisa will give you the guide for the morning ahead. yields bank down three basis points. over in the u.k. we are down 26 basis points on the front curve off the back of this. some dollar strength against the euro too. sterling, pound against the u.s. dollar 1.2513. we are down 0.9%. lisa: bank earnings do finish up

today and about half an hour with goldman sachs coming out, very curious to see how they view investment banking piggybacking off of morgan stanley. we have heard from citizens financial. the thanking index of the s&p 500, back to levels we have not seen since march but still a long way to go since they were pre-some of the concerns in march. 20 s&p companies are reporting. we got car vona that was a positive surprise, up 20%. w we will als -- we hear from netflix and ibm. still the feeling is in the housing sector, we are seeing a rebound from the lows talking

about, rolling recession may be it is over in the housing market. tom: anecdotally what do you see in housing? the walkup i am in, it is like a rental frenzy. jonathan: are you asking lisa or me? tom: both of you. tom: there -- lisa: there are different markets. the new york city market is different from some of the sun belt markets. rents are going down, prices are not. jonathan: a headline out of china, vowing to protect business. this is about boosting the private sector, that just helping out state firms. looking to optimize conditions for the private economy. the data has not been great in china over the last few months. it was capped off by the recent gdp numbers we have had in the last couple of days, tom. tom: it feeds into this need in

property investment where they started bailing out property. i would go over to chengdu. i think we will see a lot of this coming up. it is to mastic. anna, great to have you with us in new york. you are looking for a 10% correction. you threw in the towel on that over the last month. what has gone right for you over the last month? >> one of our biggest calls this month was needing entertainment. that call came in because we wanted to see that pivot of spending from goods into something more services, a little more about away from home trade but at the same time you see this network and cable having this poll.

we had that sweet balance as one of our biggest calls. we will throw in the towel on, that one but something we are still watching here is what will be the pace of this rally in the back half of this year? can this uber lead rally -- jonathan: i --tom: i am fascinated by what you think revenues will do. the calculus jargon here is the partial differential. how do you see that playing out over the next year? anna: when you have this top line figure, it is important to figure out if that is declining how can margin increased to make up for it? what about prices versus volumes? we have seen volumes declining. elasticity returns to normal, so what happens to that bottom line? these margins continue to be

compressed. the market seems to look through those things. perhaps they are trading on next year's earnings or expectations. what if we get rate cuts and easing also trickles into investors' minds and look at equity valuations above what we expected? lisa: do look at what the returns have been and say "we are going to keep buying"?anna:e important than directional. it is more the sentiment of how much contraction are we seeing, will it be light enough for investors to look through? is the consumer in dire need or pulling back sharply? we are seeing the consumer still remains resilient.

that general slowing tells us things are cooling a bit, but if the fed is able to give us that goldilocks, almost that powell put in terms of economic can onsumer spending -- lisa: it is a confusing market for people trying to extrapolate out a price point. how bullish can you get with a momentum trade even when you see some of the earnings coming in softer than expected? anna: you are seeing the momentum factor that top, top leaders have started to rotate and that rotation can also bring a little turn in volatility. when we think about how long the market can ride momentum, long no doubt, but who those momentum leaders are, that continues to

-- that is what we used to look at technicals. jonathan: shine a light on your client conversations, if you can. do you sense capitulation? anna: the beginning of this year burned a lot of people. a lot of people came in more conservative. we are worried about -- you were talking about that etf protecting against losses. people were happy to take 4%, and they missed out on 20% at the first half of this year. that mentality, they have to remain strong the rest of this year, but what underweight names have been the most painful? when did they capitulate on that? jonathan: if you have sat on cash and missed out on this rally, and you feel foolish, are you chasing big tech? or are you going to places where you have not seen the gates? anna: we are not bringing out the tissue boxes just, yet but

it is a difficult conversation. lisa: [laughter] anna: you want to be chasing in some ways. at the same time when the train has left, look for growth opportunities in other areas of the market, places were valuations army be more friendly. tom: where is a friendly valuation out there? anna: we can look for actual sustained growth. tom: autos? anna: autos that's a little bit of a hard sell for people. tom: to i thougt you to say carvana. jonathan: anna, thank you. they will.

they backed away -- they will look for a 10% correction this month. welcome to the program, if you are just joining we are positive by 0.01%. look out for those netflix earnings later. we will hear from victoria fernandez in the next hour. netflix up today 61%, cracking down on password sharing. we understand that is leading to more sign-ups. i wonder how many people just cancel? tom: my anecdote is it is the only thing that is used at home besides youtube. the other is peacock. did they raise prices yesterday? jonathan: i have peacock for one reason -- premier league football. tom: i listen on bbc radio. lisa: each service caters to a different demographic.

peacock raises prices by one dollar, netflix is catering to the teenager and preteen, that is my sense based on the programs coming out. tom: wednesday is outstanding. lisa: they are addicted. it is a problem. jonathan: that feels like home life. is that the description? how expensive hulu is now -- it has gone nuts. tom: they have to raise prices defined profitability. jonathan: now you have these writing strikes. netflix is actually best positioned because of the catalog they already have ready to unveil. interesting things later.

>> i guess under biden administration you would expect this. president in the polls and was actually -- president trump went up in the polls, so what do they do? weaponize government. jonathan: we will get a view of that in just a moment. we are moments away from numbers at goldman sachs, 13 minutes away from those earnings, equities going into it slightly negative by 0.2%. i think we can call this unchanged. .

yields aggressively lower following softer than expected inflation in the u.s. last week. that is good news for bullish bonds. better dollar strength out there against the euro, much more so against the pound. sterling, clinging onto 1.2914. tom: you can guilt come 0 -- u.k. gelt came in. jonathan: that means a lot. thanks. tom: joining us now as

anne-marie hordern. jonathan: i am fascinated what you are -- tom: i am fascinated what you are going to say to chris christie. how do you treat a chris christie onset tonight? >> i think you treat him like a candidate. he obviously wants to have this lane where he is one of the few who goes directly after the former president. we know that about him. it is important we are getting his take on a number of important issues you would ask any presidential candidate, not just what he thinks about the former president. what was so astonishing yesterday's there was supposed to be this huge reset for the desantis camp. they were doing a sit down interview with a nonconservative network and yet the first few

minutes of the interview wasn't -- interview was dominated by the former president. he continues to take all of the oxygen out of. the room i think it is very interesting t geto everyone's take on how they feel about the former president, but also have a feel about of range of issues. jonathan: do they want him on that debate stage next month or not? annmarie: that is a great question. i think the american people want it because they want to see exactly how trump will interact with a lot of these individuals. chris christie wants it. potentially, the former president could take the oxygen right out of that debate stage and make it all about himself. that means others struggle to talk about substantive issues. it is an interesting one.

the issue becomes, of course, if he doesn't join the debate how would he distract from the debate, because everyone says even if he is not on that stage, he will do something else. there is potentially worry about counter programming. lisa: how much of the message of the former president is resonating? how much is his support among republicans holding strong? annmarie: it is the base. the base continues to stay with him. they will not leave him. that is the stronghold he has on the party. this is very much so what we talked about yesterday, regarding 2016. the former president was able to win a plurality. he was able to maintain a stronghold on the base, which is why you hear a lot of individuals like governor sununu in new hampshire come out and say what is so important when we gear up for 2024 is everyone can

jump in now but it, is important to know when to exit, when to leave the stage and when to throw your support behind someone else so the remainder of them could potentially oust trump if they are able to coalesce around a different individual. this is something the republican party struggling with at the moment, and it happens when the news continues to dominate around the former president . yesterday was the target letter he said he had received. that means we will be focusing on another potential indictment. lisa: should we be focusing more on president biden and potential competitors in the democratic party? there is a question around his popularity, his lack of ability to really draw in younger voters at a time when this is getting to be a competitive race.

annmarie: at the moment democrats are still coalescing around biden. they maintain he is their candidate even if there are whispers under their breath about what shows up in poll after poll about the president's age. former president trump and his older age as well. the thing with the thing with biden is yes there is rfk but many struck him off as not a real challenger. the potential problem for the democrats is if the no labels camp really starts to pick up and you had senator joe manchin kicking that off and flirting with what intentionally would be a third-party run of 2024. at the moment it seems he is just flirting with it, but if you read this stuff from

control, if a third party was to get into this race, the votes would take away from the democrats. they would hurt biden more so than they would hurt the republican party. that is potentially one of the challenges the democrats and biden that face, less so from within the democratic party. tom: unfair question, but let's go there. to get to friday, what will you be watching for from a trump camp. does he need more attorneys? different attorneys? does he need to put a cork in his mouth or not? what is the thing you are looking for with all you are reading on this? annmarie: i'm not in a position to give the former president legal advice. we know he struggled for a while to find fit attorneys when he was dealing with the documents case.

he is still dealing with the documents case. there was a hearing yesterday. we have seen him previously get target letters and informed the world that he will be indicted. with this last target letter, he said there were four days on which he could be indicted. i think that is what everyone is waiting and seeing. jonathan: which investigations should we take seriously and which ones should we ignore? from your perspective, which of the investigations currently underway are more serious? annmarie: there is currently the documents case that is incredibly serious. he said he was indicted and that will be tried in florida. this would be incredibly serious as well. abc news this morning says this target letter mentions three

federal statutes, conspiracy to defraud the united states, tampering with a witness, these could be very serious charges. the third one we do not know yet, but that is potentially waiting in the wings as the fulton county indictment from their attorney. those three are the top ones. beyond that there is a defamation case. jonathan: looking forward to the conversation a little bit later. be sure to catch former new jersey governor chris christie on balance of power. earnings are just seconds ago from goldman sachs. fixed sales and trading revenue, big number for goldman sachs of course. that comes in at $2.71 billion.

let's get to sonali basak. >> if you take a look at the numbers, it is pretty incredible because even though they beat on, the top line there was a significant miss on the bottom line for goldman sachs and the lowest roe they have seen in years. what happened here? there are a few items that are hard to parse through. there is the asset management unit that has a $1.2 billion hit because of the hits they have taken to their commercial real estate value. they're trying to reduce their balance sheet. we will talk more about commercial real estate later because they have a hit tied to green sky. this is hundreds of millions of dollars down because they are taking a goodwill charge from that business that they are

looking to sell all or parts of they bit the bullet in this quarter and you're seeing it down in the result. what was good about the results? equities trading came in above expectations and they came in above morgan stanley. that has been an investment line for goldman sachs and they are eating significantly. it was a lightness and also a little deeper of a turndown than expected. we will want to hear from david solomon and the executives on if there is a turnaround here, whether things have really bottomed because that will set the tone for the rest of the year and the ability to bring in more money. they have done quite well herein equities, their bringing in record management fees. tom: it is completely unfair to sonali because you are doing a great job doing this in real

time. i am buried in the powerpoint 15 pages. i am on page six. they did a 21% margin on wealth management, but that was knocked down to a year to date pre-tax margin of 6% "from the results of marcus loans and historical principal investments." does marcus permeate the goldman sachs world, or is it compartmentalized under some sort of consumer banking format? annmarie: when you look -- sonali: when you look at the marcus business, they have so much of the loan business they said that they will do. they took again from the sale of that loan portfolio. this is a messy restructuring of goldman sachs' disney's -- goldman sachs'business lines.

they cannot seem to get out of it fast enough when it comes to reducing their balance sheet, but they are on track to reduce that balance sheet according to their goals. it is a tough market for commercial real estate. will the market forgive them for it? those debt and equity investments have also come in below expectations at a time when goldman is trying to raise more money to have third-party asset management, so you have two things -- you have the historical consumer business we know have hit a hard time, and they're trying to change quickly, as well as asset lisa: is david sullivan losing the room? is he losing support as the underperforms of the one time big rival of morgan stanley? >> there's no way to say this differently because the r.o.e. is worse than expect it, as well as not only being the worst

among -- for itself, but among every big bank this quarter, so it is certainly a tough pill to swallow, but the question is, what kind of leg room doesn't give to make all of the changes they say they are going to make. he had a strategic plan when he stepped in into thousand 18 and 19, now, he has a new strategic plan. what is the timeline to start showing more success. interestingly, into the morning, it is trading at a high -- higher price ratio than bank of america. people have been a rewarding this, and they're winning in equities, but is that enough with all of these big changes? >> we are -0.0 8%, wrapping up earnings on wall street with goldman sachs, the last out of the gate after the financials, and we will move over to silicon valley, big tech, tesla, and the likes of that after the quarter.

let's rev up the quarter for wall street. based on what you have heard from jp morgan, bank of america, morgan stanley, goldman, where do these rank this quarter? >> jp morgan was the unequivocal low out in the room. they came in with the highest r.o.e., as well as a massive profit jump, even without first republic which would've been a huge jump in the income where you see the big investment banks. it takes a little bit of a dip. the goldman decline in profit is significant, and the expense bases are high for everyone of these banks. all for different reasons. so, can the comeback in investment banking, can the rise in income, can that save wall street this year is my question. >> thank you. stocks are negative by 0.7%. say will be back a little later with some of those earnings calls with goldman sachs and david solomon. slightly negative. let's get to the broader market with equities. we can take a look at the s&p 500, the nasdaq, and the russell. there we go. features are unchanged on the

s&p, on the nasdaq. we are positive by 0.14%. slightly firm with the year today. absently flying past 40% on the index. as mentioned, tensions will shift away from the financial and we will get to the tech players, and the dominant stories of the year so far in the stock market over the year. next week, we will hear from alphabet, meta-. netflix is coming up a little later. in the bond market, you will notice a bit of a rally. yields are lower. this is off the back of development in the u.k.. inflation is coming through softer than expected in the united kingdom following a similar move in the united states last week. we will pair back to rate hike. not just the estate, but also the u.k. this morning. the gilt market is rallying really high, down more than 20 basis points on the front end of the go curve and in the treasury curve. yields are lower by three or four basis points. on the 10 year, we are down 10 basis points at 3.76.

>> 97 basis points knocked down to something outrageous, and certainly, versus the whole market, waiting for housing data in one hour, we have a new inversion back trend to where we were a week ago, and the inflation method, the 10 year real yields, it is just not doing much, but nevertheless, it won't give way to the disinflationary story. it will make the next lug lower to signal inflation. >> let's signal on foreign exchange. must put you through the fx market. more recently, you see a much stronger euro. that backs away one touch. we are down 0.1% on the euro. the bigger move is in sterling. cable, the pound against the u.s. dollar. much weaker pound this morning on the back of inflation figures. the pound is dropping by 1.4 percentage points against the dollar. if you're just tuning in, welcome to the program. goldman sachs with earnings from a month ago. the headlines read as follows. net revenue is 10.9 billion. the estimate is 10.46.

fixed sales and trading revenue at $1 billion. the estimate is 2.81. a key measure of profitability, we talk about a lot much softer versus the peers prayed goldman sachs in a moment, negative by 0.3%. darting around a negative territory. >> on radio and television this morning, we welcome all of global wall street, and they note allison williams from bloomberg intelligence. she is brilliant at this. looking at a 16 page goldman sachs powerpoint, i am looking at it in my own way. to watch allison williams to my left go over this puppy, how alone is goldman sachs right now? my basic take of 15 pages of powerpoint is no other bank is displaying this urgency. >> i think goldman is in the middle of changing their business, and that is always messy. it tends to be the week one. what we saw this quarter, it was

pointed out with a low r.o.e.. that is due to the real estate impairment. you heard me talk, and probably many others, and commercial real estate will be a long story for the banks, for most next, but goldman sachs has a sizable investment portfolio. this is something that, prior to the financial crisis, it was significantly built-in. they are shifting their strategy, but they are taking hits today. there market to market. if anything, this highlights the fact that they've already unwound that strategy. is that of putting this on the balance sheet, they're going to a model where they invest alongside investors and have fees. there will be write-downs. there are gains and losses. >> and the 15 page powerpoint, i'm thinking of a betsy grace question. what is the ratio or page or deck that shows these solomon

excellence right now. what shows they are righting the ship and moving for? >> i am not sure if the number one number is in this presentation, but to the point we just spoke about the alternatives, the alternative fundraisers are what is most positive about the future. i think from an analyst, whether sell side by side, the cost ratio is the thing that analysts are going to focus on because we did have these big impairments, and obviously, that is suppressing returns, but if we strip all of that out, goldman still has to do better on the efficiency line. >> we are not at the end of the earnings season for the big banks on wall street, but is the -- conclusion that goldman sachs lost? >> you could say that. from a broader picture, credit card is the business, and if you are exposed to that business, you are doing well. i think we are going to see j.p.

morgan not only versus the goldman sachs and morgan stanley, but versus some of the regional banks as the results come out. loans are growing and it's a profitable product over time. you can see it is over earning right now, so as losses continue to take up a year from now, we might be talking about winners and losers on the quarter based on that business, but certainly, this is -- i wouldn't say mainstreet is winning over wall street because it is a very specific part of 8 -- work -- mainstreet. it is a little bit of a different business, but wall street is taking it on the chin this quarter. lisa: the people who are getting this business have very high fica scores. it is not as though they are on the floor, trying to make ends meet. we are seeing, aside from credit card lending, real deceleration. in loans. by big and small banks. a real retraction.

coming out with a deck, talking about how much we expect continuing lending to slow print what is your view? is that the conclusion here? they paper deposits, and as they get more cautious about who they will lend to? >> i think that the commercial environment will continue to slow, of course. how bad that gets depends on your view of the economy. it seems like in general, the market view of the economy improves. but, until we get that recession, will be talking about the recession when it comes, or if it comes, etc., so, there does have to be some element of factoring in the potential downside, but the fact is, commercial loan growth is slowing. we saw improvement, and bank of america talked about utilization rates, their customers have sort of steadied on that front. with net interest income, that was the interest on the upside. that was from j.p. morgan.

i think that is due to card. the cost of deposits, we have been talking about this a lot, especially since vanke failures in march where there was a deposit flight. i think that has steady to a migration which is what you would expect, and i think there is a bit of a relief at the big banks. that is not -- it is steady and great it is not as bad as feared, the outlook is studying. jonathan: i have a chart normalize from 2007. it is all the different banks. is the aside, goldman sachs looks good versus morgan stanley when you go back 15 years or whatever it is. it is stunning how citigroup's alone. what is the urgency -- i talk about bitcoin. dog. what is the urgency to get city dog righted fast? it is an outlier of all of these fancy names. allison: it is an outlier it is

a frustration. i've said this for years. tom: it is gone from a flat line into thousand nine to a general statement. what is the to do to join the team? >> i think jane is doing it. i think michael corbat started and jane fraser is taking a steeper acts and perhaps the best thing that could've happened to them is this regulatory scrutiny and the fact that the regulators have said look, it is a long time. you need to get things in order. there is a necessary investment, and it continues to weigh on the short-term, but on the long-term, we will get them to be a more efficient bank. i think what jane is doing in terms of focusing on the profitability of markets to the international retail banking business, that is a business that only two banks were ever in globally. we've seen it doesn't work. i think that is the vehicle book. instead of having bragging rights, let's not focus on the

top line. let's focus on the bottom line. jonathan: the best thing about goldman this morning is that thomas tong about city and not goldman. allison williams from bloomberg intelligence. they're probably happy with that, aren't they? that you're talking about this. tom: i'm an amateur on this. and williams is legendary, you have all of these adults we talked about this. i just don't think enough has been set about going back 15 or 16 years. goldman sachs, based on the bloomberg data i have, is outperforming morgan stanley. they are really coming along, coming out of the pandemic. we know the story, but i don't know if this is a blank find blame or a solomon blame. there is all of this angst out here, and the fact is that jp morgan, morgan stanley, wells fargo, bank of america down below, and city dog, they bring up the backend. that is my new name. yet it going. i was younger. i was thinner. i was talking to football

players from harvard. let's get this thing going. jonathan: it's not his fault that you are younger and thinner. tom: i'd like to talk to jamie dimon about this. jonathan: i'm sure he would love to be on the record on this. tom: allison is nodding her head, but come on. this is the ugliest chart in global finance. allison: i will add in because we get wrapped up in the quarter and who won and lost this quarter, but it is important that an investor has to take the long review -- longview, and the quarter is a mile marker on the long view. so, goldman is a tough quarter, but what's the journey they are on, and we look at whether they are making the steps to get there, and as you said, pulling back and looking at citigroup. it can sometimes be a long journey. jonathan: thank you. thank you very much. it is a journey. if you're just turning in, this is a journey. welcome to the program. equity futures are -0.5%.

for goldman, the stock is negative by zero point 4% of goldman sachs. didn't talk about the headcount. 45,000 employees. 5% fewer workers. we have seen a lot of that, haven't we, compared to the pandemic i boom? that stock is over. tom: i will save it for another day, but the cost discipline moving forward, given the interest rate we have returned to his going to be interesting. jonathan: stacked our coming up. amanda lyman, and kneel in the next hour. equity futures are just a touch softer. from new york, good morning.

>> there is no question that with china gdp being slow and inflation being relatively

tamed, that tends to create more disinflation and slower growth in the united states, all things being equal. that is a factor, all things being equal. >> that is a voice i've missed. the former dallas fed president kaplan. the decision is a week away for the fed's next move, and most people anticipate it will be a rate hike. it is what comes in september and beyond, and for that matter, in august and jackson hole. if chairman powell does as we anticipate to prepare the speech, with jackson hole last week to now, spot the difference in the labor market. unemployment is in and around 3% grade spot the difference with fed funds bread that is easier to do. we've gone from zero through 5%, and we still have not bitten into the labor market and quite the way people think we will. equities on the s&p 500 are negative, just a bit softer there, and the rally and treasury continues. we are three basis points down in the 10 year.

down much more in the u.k. as we get another soft inflation print. in the west, develop economies today, and last week, we wrap up earnings on wall street with goldman, goldman sachs. the stock is slightly negative. fixed sales and revenues coming in later. headlines you need to get through, but of all the big banks, on wall street, over the last week, i think most people can conclude that you can identify this this morning. lisa: lowered expectations didn't cross that hurdle, and goldman sachs is the loser of the earnings season. jp morgan is the winner. going forward, if that changes, then the question really lies with the morgan stanley question with james gorman which is, do you now see a revival? jonathan: wrapping up earnings on wall street. tom: you go through 15 pages of u.k. consumer markets, and on the break, we were talking about a people business at the end of the day.

i'm going to cut mr. solomon some major slack here. jonathan: that's a first for you. tom: he was handed this, and he managed to forward. the fact of the matter is, on some of the pages, we are doing well. number one in this, number one and that. we need to work it out and get through it, and they are doing it with a new interest rate regime which is what i think is not a small note. jonathan: five is different than zero. tom: free money and easy. we are going to move on. amanda lyman is joining us from blackrock red there is an equivalent overlay here. as mr. solomon and others, including mr. fink have to deal with the new interest rate regime, which harkens back 16 years, 20 years, 25 years, as you brilliantly saying your note in macro credit research, there is a new higher cost of capital. have we adjusted to this or are we in earning -- early innings?

amanda: we are in the early innings of adjusting to that. one of the interesting things from my perspective looking at these earnings from yesterday and last week, was that companies are taking reserves against interest sensitive pockets of commercial real estate, but they are saying they will need reserves, even if there is a soft landing. it is not necessarily reserves in the event of a worst case downturn, but reserves, even if we kind of get an ok outcome, and i think that is ok with leveraged loans where we expect to see the default rate to outpace higher bonds, and for areas like commercial real estate where we wrote we are in the early innings of that distress cycle, and i think what is really challenging in this pocket of the market is that there is going to be a new sense of price discovery, so maybe the ltv's in the cap race that the market has used in previous

periods to understand are the floors, they might not be as relevant this time around, so rather, we are looking at cash flow of assets. we are looking at the basis to require to bring those properties up to market, and that is heterogeneous, and i don't think we know the answer to that. jonathan: how isolated will that be in credit? amanda: we are expecting most of the pain to be on smaller banks. the data tells us they have had bigger exposure over time. we are also seeing that is where a lot of the reserves are being up picked, but i don't think it is limited to those areas and i think in some ways, cash is fungible across the system, so if this is a reason to pull back on lending, that may be felt in other areas of the market that are not necessarily directly related impacted nonetheless. >> even as is, we are seeing a big contraction in auto lending as well as others.

aside from the credit card loan area which is on fire, how much do you expect that to accelerate and pressure credit in other areas. amanda: you are talking about that with the restructuring news and i think it is interesting that companies are already restructuring the maturities that are coming out in 2025 or 2027. i think on the corporate side, that is a pressure point. on the consumer side, i think it is interesting. you have mentioned the federal reserve data earlier this week. there was a chart that showed financial distress, and it showed the percentage of consumers who thought they might need to thousand dollars coming up over the. of time, and those who thought they would be able to get it. those numbers are moving in the wrong direction, so i think for those consumers at the low end of the economic spectrum, there is going to be a pressure point. that being said, i view it as normalization. as opposed to deterioration in the consumer. lisa: that's right was going to

go with this. people are saying we've only seen a small part of the ramification from the fed tightening cycle. how far do you expect deterioration to go, and how will it will be expressing your credit market? >> the first half of 2023 has surprised us to the upside in terms of the resiliency of the corporate credit market, specifically when you look at the high-yield market and the leveraged loan market. that hasn't extended all the way down to the very low end of the capital structure, so if you were to look at the current level of the high-yield index of 380 basis points, at that level, you think triple c spreads would be tighter than they are now. around 100 or 150 basis points higher. we are not seeing that. there is a limit to investor comfort with the overleveraged deterioration of fundamentals. that probably extends, so there is a lot of talk about the equity market rally broadening. what i actually think is there

is probably some scope for resilience still at the high end of the high-yield spectrum, specifically because supply has been so low. technicals are really important, as you know. they have been friendly, but i think that is probably in your -- near-term issue. over time, i would expect there to be more weakness in the market as we see defaults flow through and risk premiums rebuild. portly, we don't see a recession as a necessary ingredient in default. similar to how the banks default and talk about they will need research reserves even in a soft landing, i think enough damage has been done in the cost of capital and in the environment as alluded to, that we will see an uptick in defaults regardless of the broad base. it will be focused on the leverage loan market on a relative basis. i don't think we are immune. >> the bottom line is that goldman sachs has eight page of that, and allison williams alluded to that. we are talking this morning about a wonderful office of

cream victoria street in london, there is a motel 6 that i stay at across the street. it is two blocks away, and in between our office in the motel 6, it is an office building. it is a b property in the media this morning for it is basically at half of its value. i'm speaking as an amateur, maybe 40%, 60% discount, but that seems awfully pervasive for each and every city. how does black rock or blackstone, how do electives or black that, how do they adjust to that over two years? over a refi cycle? >> i think we are early in the innings of this distress cycle, and i think what is really important is the price discovery. i think one of the other points of conservatism that is really going to be relevant in this particular cycle is that we look a lot at class a, class b, classy properties, but the market is evolving so quickly that those properties may be reclassified lower. >> i can't say enough how this

is important. >> just because something is class a today, as it becomes older and ages, and there is more competition and more price discovery, it is probably lower, with competing assets. >> price discovery loss. >> that is from 15 years ago, later you say things like that. i'm not saying it is as scary or will be, but just, you know, some similarities or parallels. exit will be a longer default cycle in the financial crisis. we know that was a multiyear cycle. perhaps it gets frontloaded. >> i don't -- no i don't think it is priced and because of the price discovery lacking. >> thank you. brilliant. excellent as always. absolute clinic on commercial real estate. victoria fernandez across markets. we are going to turn our attention to the earning still to come. from netflix, tesla and some housing data, at about 34 ms.

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it's an amazing thing when you show generosity of spirit to someone. and you want people to be saved and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. >> all of the data is starting to show us that may be we won't have a recession. >> businesses are remarkably

resilient. >> if the economy is to chug along, we will avoid a recession. >> we are headed towards a 2% euro. >> if we get more loosening in the labor market, it is hard to see that we will durably or sustainably get back to 2%. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. >> good morning. jonathan ferro, lisa bromwich and tom keene. on radio and television print i guess we are done with anchor earnings. no we're not. much more to come. the bank netflix is reporting this action. you alluded to this earlier. thank god the big banks are over. now we go on to real america. >> can we go on to netflix? let's talk about netflix. write down the password sharing. we have been led to believe that they will be up off the back of this. we will see what the number looks like. a lot of people believe that is discounted in the stock. the names of buy something like 60% your today. we have strikes with the catalog over a netflix. how can they retain their

audience, the eyeballs for the next 12 months if this continues? there are some analysts who believe that this network, network -- netflix, his best positioned to handle this. >> a log charted on the rebound of the pandemic on the recovery as mentioned, a password with a more persistent cash flow, but maybe they are closest to getting back on trend of all of the beleaguered media business. >> they are making money. >> they are making money. the challenges for the people who got into this business, thinking to see plus, thinking earnings, chasing subscriptions. can they do the same thing? they've been cutting back other names, so it looks like netflix is on top, and it's been captured in the name so far this year. >> i want to dive into the barbie hysteria but we will not do that. it is too important. we are joined by victoria fernandez, but the bottom line is, is earnings season out in reinfected from a grid credit squeeze has a bold lifting ever

higher. >> 4700 printer earnings season starts next week. this year, we've been, by big tech, the big seven, they started to report earnings next week. tesla is a little later, but next week, when you get alphabet, meda, marcus off, early august, that is going to define the early -- earning seasons for a lot of seasons -- people, especially in 2023. >> your thoughts on this, take it to the credit. amanda was brilliant, i thought, just on slicing and dicing this. what does credit say about our witty bullishness. >> i think what you are seeing, broadly is a risk on field. the question is, what are the fundamentals, and where do they bite more, especially as we see some of the big bank earnings demonstrating that restraint in lending. we could get a default cycle, even if we don't get a recession. there will be companies that will have a difficult time paying back their bills, refinancing, cutting debt loads,

akin to what carvana is trying to do or achieving that, but on a broader level, this speaks to the near term. potentially, momentum continuing, and longer-term. at some point, fundamentals matter. >> can i point out the 4701 year out from now? it is up 4%. that is how -- it is super bowl is from a months ago. quick super bullish, and we've come so far. to be fair, john has been killing this, but it is a tweak. >> yes. >> deutsche bank. 9:30 a.m.. we have nothing else the sacred that's just my taste. >> let's get down. >> anything else on the show? anything else? >> i will tease you later. >> that's the tease. >> i'm trying to understand that the bond world is out front of the equity world. i think what i have heard is it is ready quiet in default, fear, gloom.

but mercil real estate. >> look. there are a lot of issues here. there is a granularity of perhaps private credit markets having the same dynamic that the high-yield bond market used to have, and some of the distress is more apparent there. this is going to some people it a larger sense, and this is what we've heard from anaheim earlier. we have seen fundamentals come in not so strong. people look past that because they see the 401(k) getting bigger, they see the money in the stock market. they are like, let's go. we are happy. they keep buying. how long can that continue regardless of what we can the earnings? asked 13.34. we are happy. that is able market. >> it is able market, or is it? some people think this is a bear market rally. they might laugh at you. but some people think morgan stanley -- they might believe this is a bear market rally. >> you mentioned paragons. greg is very cautious. >> even more cautious. he has been for a while. equity is unchanged on the s&p.

bonds are rallying on treasury. inflation is softer and the u.k.. by three or four basis points on the tenure. 374. it is onwards. housing data and 25 minutes. >> it will be interesting to see. just right now to join us, victoria fernandez, the chief market strategist, and the charm here is twofold. one is, she is living the heatwave across our dome and the southwest. and she also has a key dome of her own of clients who are afraid they've missed this equity market. let's go to abilene. 106 to begin with victoria. what is the actual anecdote you see of this horrific heatwave in texas? >> look. it is killing it here when it comes to the heat. we are super hot down here, and i guess you can relate somehow when you look at utility stocks and what is going on with air in houston.

with the texas crude, you can relate that to the energy center, but you can also relate this to the hotness in the market. i have been much more cautious on the market than a lot of people have as of late. i have looked at what is going on in the market, and i can say yes, i see this. bullish momentum. it is momentum factor. it is the surprise factor leading this market right now, and you have to take it antigen that in some way. but the interesting part is we see this momentum and look at this red flag splashing in the market as well, and we say, how do we combine these two things to have some risk management for our clients while still taking advantage of the heatwave in the market. >> list pick a name. he reports earnings later. what do you do with a name like netflix or a performance like that? >> these names have run up so much this year. i think you have to be a little cautious here. you talked earlier about some of the increase in subs because of

the password sharing going on did that has been priced into the stock. you saw that jump in the stock price on the previous, so let's look at other elements and see what they are saying about advertising. what are the subscribers doing with the at base component. what does that look like? are we seeing some subscribers coming to the lower price components or are you still getting some higher prices there , if you are going to have a strike or nectar strike, netflix is positioned to go through that because they have international exposure. i will watch a foreign film with subtitles. i am ok with that if there is nothing else on tv. i think netflix can ride through that a little bit, but be cautious if you don't own it. it can tweak your position depending on earnings this afternoon. i'm not sure i would go all in on the name at this point. waiting for a pullback if you don't have this already. >> is everyone gets a euphoria that we've been hearing about,

how are you navigating? you don't want to get out of the market, but it sounds like you are shifting away from some of the big tech names into a more defensive area. how much have you been doing that over the past few weeks? >> we've been doing that quite a bit. we have been much more cautious i would say than the market has been, itself. because of these red flags that i mentioned, you look at the leading economic indicators from 14 months ago and you look at the inverted yield curve, and we are strained to see it steepen a little. that is a signal historically of a recession coming. there are elements telling you that the session could be there, but the support you are seeing in the market, high beta versus low beta, industrials versus utilities, that is telling you there's still some momentum there, so we do have some cyclicality in the purple your, we have tech names, but we are just not buying those highflying names that you are talking about that could start reporting earnings like adobe.

we are by names like oracle. but we are also going and having some of those more stable names. grocery stores like kroger. you seem prices come down a little bit. people are buying groceries so kroger is a good name. general mills. you can see these hit in the staple sector. i think you can go in and pick these names up and give a buffer to your portfolio because it will be choppy. we are not taking a recession out of the cards, one hundred percent. >> where do bonds fit into this, especially's as we were just talking to amanda from black rock who is saying we will see a default cycle, even if it is a recession. >> we have seen investment grade names, and not just a default going higher, but the leverage component going higher. some of those names -- you want to be careful to watch that. we have been in high yield, but i think you are playing a little too risky if you do that with

the thought that it is still among the recessions later in the air, but wrist -- credit has a place in your portfolio. you lock in the yield right now. there is a shorter part of the curve coming down with expectations of the terminal rate dropping about 25 basis points over the last few weeks, but you can still lock-in a shorter into the curve with a reason not to do that, and you can couple that was something longer out the curve with a little bit of duration in your portfolio because it yields have peaked for the cycle, you want to have some longer duration and take it vantage of the yield coming down in 2024. >> they are coming down this morning. that is for sure. across smart mobile investments, it's been helpful, thank you. it is been a year painful trades. i have to say this is incredible. a high-yield credit spread rid still near the top of the year at 379. >> he is under 400.

i didn't know that. >> south of 380. we have been talking about going through 550 on fed funds and the pain that would come, the default cycle that would begin, and what would happen to credit spreads that get wider on the reception -- recession, and we are talking about all over again. >> and even if we talk about this and they say there no issuance, by the way, the issuers are better quality, so doesn't matter, so at what point do we start to see high yields lead and give a sense of a credit to stress that everyone is talking about. >> that's it. it is spreading gloom and lisa is all over. what i would say is given the bull market in the wonderful presentation by victoria, i don't understand the level of fear of missing out right now. i just wonder how to gauge the fury of people that they didn't know netflix back when queens bank -- gambit was number 100 >> net lexus going in one

direction. >> is very good. one of the few things there. >> what about or movies and subtitles? are you into that? check out movies from the late 1980's. there are some great movies from the late 80's. really interesting. just a nice fictional town in sicily. it's beautiful. >> that's where you want to live. >> it is too hot over in phoenix. told us to hot red >> is brutal. >> is hot in the summer in phoenix. if you're just joining the program, welcome to the program on the s&p 500 futures. >> you can say that with a straight face. >> coming up in about 20 mistimed, some housing data. this is the latest from city. softer than expected inflation will keep the market optimistic. resilient growth can coexist with global inflation slowdown. housing data this morning may serve as a reminder of ongoing supply demand imbalances and remaining inflation pressure. andrew of city. i'm looking forward to data for the macro on the market.

you've got him coming up at 830 eastern time, so just after the data drops. >> that's going to be interesting, and what i've learned this week, and maybe it was 10 days ago, i've looked at the relative size of four or five states. the real estate market of new york florida, calvin -- new york, florida, california, is different than anything else. it is not homogenous. not in any way, shape or form. >> if you want to say something about phoenix? >> i think you just think, it is hot in phoenix, but now it is. >> is really hot. >> you could even say it is hot in phoenix. >> evidently. >>'s record hot. it is currently hot. >> they are painting things. you saw the weather charts. >> they are painting think so reddit is purple. >> it is already. but it is true.

>> you see a network cable in media group still having a pole. we thought that might be a sweet balance that was one of our largest calls, and right now, as we see it, we stepped off the pullback call. we will throw in the towel admit that, but we are still watching that. what will be the pace of this rally in the back half of the year. can ai really top the rally to continue? that is what is weighing on people's minds. >> the number one quach -- question for a lot of people. equity strategist at wells fargo, securities with the winters keeping to win. is the rally broadening beyond the mega cap.

>> will see if they lift. >> is no longer big cap is it? i don't know if make it cap gets this done anymore. it's just unheard of. >> nano cap. we want to go. >> take your pick. >> that's where were at. >> the s&p 500 futures are just about positive. turning positive in the last couple of moments. in about 13 minutes, we'll get economic data, housing data, and your opening bell. , director that. >> going to dive into this. it is important. we are coming up on a serious housing data which will give you good coverage, and that is this a realness of the moment in the world of mandeep singh. he is a senior serial analyst for bloomberg intelligence, dealing with ai, dealing with the silly valuations right now. and just as one idea with the microsoft melt up yesterday that we saw to new highs, there have been heavily burdened by 3.1% long-term debt, and they have a

way to cost an average cost of capital of 0.1%. i haven't even look at free cash flow generation other than gillian's, and i can just see them as -- is it redmond were there offices are? they are in redmond, screaming we've got to get to the 3 trillion market cap by august 1. we have to catch up. is there a competition between microsoft and apple to get bigger, better and all that? is it tangible or their two separate worlds. >> there is a sense that microsoft is coming at it from the enterprise side. apple, obviously, they are heavily consumer focus, and right now, i think everyone, even though they are focused on ai, what microsoft has done yesterday is say that ai is just not a feature. we can monetize it with a product. there talking about a $30 subscription on top of what they are selling with their office suite. that is huge. i am sure they've got some due diligence in terms of figuring

out the pricing around it, because for a new product like that, to be priced at such a high point, that is telling you something that they are confident that this will resonate at the enterprise level. >> we are speaking with mandeep singh a bloomberg intelligence ahead of this inception of the earnings kick off her big tech which will happen after the bell. we will get ibm. we will get netflix, and how much are we going to learn about where the bar is set and if it is too high or too low? >> i think the incremental revision, the positive ones will come from the companies that can monetize this genitive ai wave and expectations have gone up, but what microsoft said yesterday is that we could generate almost 30 to $40 billion in incremental revenue over the next two years. that is huge. that is not in the consensus numbers, so that is where you have to be selective with companies. i don't think every company can do it. you have to go to the semiconductor makers, or the software providers. they are at the cutting-edge when it comes to monetizing.

>> are you saying that you suspect that people are overpricing the monetary boone that will come from ai, and how democratic it will be spread? >> right now, everyone is talking about ai. you listen to any earnings call, any management team, they are talking about ai. in terms of what it does to your top line or profitability, that is what you have to figure out. we know these workloads are expensive. it will raise your infrastructure costs. can you monetize it, and that is where i think there is some gross margin offset, but as long as you can do what microsoft said yesterday, they are looking to monetize. that is 40% incremental margin, and that is what wall street is looking for in terms of driving these positive revisions. >> what is the sustainability of microsoft double-digit revenue growth. i say this as i look at 10%, five fear dividend growth, and i'm looking at hi norma's multiple. it is not like luxury, but it is

a stupid multiple, to be direct. our people modeling in ai, and on ai, i don't care about ai, but are they modeling and double-digit revenue growth for the mandeep singh world? >> as of right now, you see these companies are expecting to grow at a 10 or 12% topline, and with revenue growth. and the ai contribution is not there. that is in line with the software spending, that is where it is a zero-sum game in the sense that microsoft is able to pull up 20% loss growth. that is coming at the expense of something. should -- genitive ai is driving growth. >> on a simple basis, if i go 10, 10, 10, 30 percent off, i am at 30% revenue growth. do you model that in the world. >> you have to look at how the software spending grows. historically, it has grown around 10%, and microsoft is growing in line with the long-term growth rates in the software sector. if they are growing 20%, that is

coming at someone's expense, and you can already see this legacy of cloud shift. that is going to probably speed up in the sense, people will invest in digital transformation initiatives. they have done that with it will take things to a new level in terms of what they can do with ai. >> we have an lvmh model. they are moving weather goods in paris or something. >> this is mandeep singh world. it is nuts. >> it is more lucrative than that. i do want to end with a quick note on tesla because they are reporting earnings after the bell. we have seen disk cut and pricing over at ford. how much is the demand for ev as luxury vehicles at the price point. how much is that really coming off? >> everyone is thinking tesla is not just an ev maker, but there is in atomic driving element to this, that is what is driving valuation. generative ai is built around proprietary data and what you can do in terms of automation and stuff like that.

tesla, to an extent was early in terms of thinking about that kind of model. whether that helps them roll out there software to the entire install date, that remains to be seen, but we know people are paid $15,000 for the software. if they can kind of expand that, that would be a huge high margin business for them. >> keep an formula one. not because of not ask, but let's see what they can do with the engine, with sustainable fuels, and lessee if they back away from the hybrid engine. then, i wonder what will happen to the auto industry. that is why we are watching mila one. i think that will be interesting. >> not just that. >> but it's interesting, from an industrial policy perspective, what these governments are doing right now. i think it is arguably very good for economic growth to get all of that fantastic for employment, but how much these companies spend to invest in electrifying there manufacturing lines, and to come up with these

easy fees, and then what happens in five to 10 years difficult for something. >> you are way out front on this. you could do a job slot. >> i don't think mandy steam wants that. >> you have been way out front on this. i've been thinking about this of your comments. i go back to the destroyed international auto show. it's gotta be 12 years ago with ken prewitt, and they said to me, tom, only hybrid will win. he was seated about that. that ev, they can't figure how to do it. >> we get where the government wants to go. i get that. as a powerful thing, but with the engineers have come up with, i think it will be interesting for the next five years. >> especially with a national security overlay, given the materials that go into these batteries come from china. there is a question about who the winners, who the losers are, and what the alternatives are prayed they get discovered in this process. cheer point, the takeover of the industry. >> i think it will be great. is really going to be important.

>> thank you. you know this is really bad. i miss the noise, i missed the sound. >> thank you. >> thank you. >> we appreciate it. >> that was great. really interesting. >> coming up, george for economy were looking forward to that. >> big chatter around the opening bell, and we are then speaking about netflix and the earnings, still to come, with anna from capital markets. the managing director of that. that will be fun. equities on the s&p are unchanged. opening bell is one hour away. >> coming up new data. >> ai and housing.

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>> bloomberg surveillance, job claims tomorrow, but tomorrow, housing permits, all that stuff with red and green on the screen, with 13.35. yields are lower. it is coming a little bit up from 3.74%, and the 2-year note is 4.1%. brent crude is importantly over 80. there is a looser feel to the market print lisa abramowicz, and tom keene, and we are joined by an expert at america's housing economy. the data this morning. >> this one comes out on time.

housing starts are dropping significantly. that follows a 22% rise. for the prior month in may, averaging out, it is in all that bad, but the expectation is 9.3% decline. building permits are down 3.7%. they were up 5.6% in may. average that out, and we have a revision to the may figure for housing starts here. 15.7% instead of 21 .7, but basically, what we are seeing is healthy homebuilding markets, and there is a study out from redford that 91.8 percent of americans have a mortgage under 6%. >> 77%. >> nobody is selling their existing home, so you have to buy a new home, and there really that as fast as they can get it. >> you get a statistic or how many people are employed in construction, and is not keeping up with the business they are doing. that is a limiting factor.

>> mortgage rates are a limiting factor. if we get disinflation, mortgage rates come down, but where they are right now, into the autumn, are they a limiting factor? >> they are deafening -- definitely a limiting factor. that pushes people -- up sign pushing my microphone. >> that pushes people into the new home market. >> that is why i find it interesting. in some ways, the homebuilders stats are a direct outcropping of the mortgage rates as they are. we are seeing a slight tick up in the mortgage applications, earlier today, how far could we go with this. how strong is this demand, and at what price. how much are we seeing the disinflationary effect of some of these materials really spurring activity that we get in this homebuilding sector? >> i don't think it is disinflation for it a lot of homebuilders are buying down mortgage to get you to sign it contrary.

i understand that is easing up a little bit, but you could get in the fours not too long ago prayed concessions from the homebuilders. you are right. the price of construction materials has come down. that helps the builders, and maybe that helps you get a little bit more in your home, but this has kept us afloat. appliances, electronics and furniture, we have seen a big game yesterday in the retail sales report, and that is one reason why. >> the share of the market, i will not say much about what is going on with 3.7 0%, a little bit of a basis point, but you are back from the rocky mountains. we can talk economics. but in honor of the late great ken prewitt to help us invent, he was inventing bloomberg surveillance print he was a great fisherman. and you have the mother of all fishing stories to use a phrase from ken. you caught a trout the size of your leg. what did you capture out there? >> are you hunting for a fish? it was the last fish i caught

and it was 28 inches. >> that's bigger than two feet. it was big. it snapped the rod. i was trying to end it, and i managed to -- did it by you? >> i generally don't bite. did you go to the school of trout fishing? is that how you do this? >> flyfishing. >> how come we don't have a life like he has? he is flyfishing in the rockies. >> there's a rumor were going to jackson hole later this year. i will take fishing lessons bread >> no way. >> are you going to take fishing lessons? >> i would take fishing lessons. why not. >> thank you so much. with her economic data, right now, and this is important here, with green on the screen, there is a little fractional lift to the market. for those of you gloomy folks, this is the interview of the day. there have been optimists, there are general optimists and reasoned optimists, and one of them is neil.

he is the head of u.s. economic research at renaissance macro. he has been extraordinary out over the last three months, six months, but the last two years, saying that this is america, the resilient. the chart is out there. it is finally -- we have legitimate real income growth. will we sustain that? >> i believe so. thank you for having me on. obviously, there are a lot of disinflation in the pipeline over the next three to four months. the most obvious is used cars. we know that jose auction prices have been coming down prey that will bleed into consumer prices for used cars and trucks. supply chains are improving. that is going to take some pressure off of core goods. there is disinflation with release growth. at the same time, we know the labor markets are holding up. that's going to support real

incomes, and if the real incomes are rising, consumers are going to spend that money. that is the linchpin for holding a better than expected. >> atlanta has numbers and a 2% statistic q1, and all of the sudden we are migrating on atlanta gdp. whatever it is, i don't care about the number, but my question is, to the gloom, what is the statistic of positive gdp in america, a gross recession. is it .5, do you have a number in your head? >> i would define the growth recession as a situation where the economy is -- has a positive sign in front of it, but that growth is not strong enough to keep the unemployment rate from rising, so typically in a growth recession you see the on appointment rate go up, so that is effectively below a potential gross state, but that is not

what we have right now. you mentioned the atlanta fed. that number is tracting -- tracking 2.4%. very little contribution from consumer spending, and that will build over the summer, frankly, but, look. there is more upside to the economy. we are growing above potential, and that means whatever the unappointed rate increases, bobbing around, it will probably be short-lived. >> we are not on a situation where we will see above 4% unemployment rate >> goldilocks seems to be the moment that we are in. a lot of people are saying that. how long can goldilocks last? >> talk to me in the fall. that's what i will say. i am sort of in the goldilocks camp.

there is a suspicion about how long that sustainable moderation inflation could be. it is a question that needs to be answered. i don't think we can answer just yet. but, when you look at economic scenarios, the risk of recession has receded dramatically. so now, it's a question for investors about where you put those other percentages. do you -- i think the markets are right to allocate a bit more to the soft landing story, but i think, you know, you can make a good case that we are getting over our skis here. we should put some potential on the reflationary boom scenario. >> owing to double down on that. people are little too sanguine of the steady disinflation that they expect to see. where do you see reinflate and coming back down the pike, especially if you hear all these people saying the fed policy hasn't worked his way through the system and still has more

restraining to do? >> home prices are rising. they are rising for four months in a row, we get read -- weekly data from redfin, and that is more up-to-date. that shows continued increases in home prices over the summoner after seasonal adjustment, so to the extent that home prices go up, and if your landlord, the underlying value of your asset is rising, you will not go around cutting rent. so, it leads me to believe that we could see some upward momentum and housing inflation in the cpi statistic that is in the first or second quarter of next year. that would be the obvious area, but more broadly, let's take a step back, and what are we talking about here. we are talking about real growth improving. real growth is improving. over time, that it erodes physical capacity, and that forces economic actors to bid up wages and prices. so, i have a little bit of

skepticism in terms of how far we can push this story. >> given that, how far do you think the fed could go? do you think people are pricing out future rate hikes, and is that inaccurate that you think that is wrong? >> whom i to say what is right or wrong. but i would say, just if it was me, the probability of a hike, after july, they are somewhat higher than the markets are currently expecting. a you so much. we have major breaking news. we have to run off. extraordinary on this 2% american real gdp. he is with renaissance macro. as well. our timing is a bit off. we have mandeep singh from half an hour ago, doing giggles about microsoft, but here are the headlines. just off the activision blizzard earnings announcement, and it is a set of headlines that gives you an intraday lift to

microsoft, and it's is fractional, but that is off the melt up yesterday. i want to clock this now at 361. about a 5% lift since 10 a.m. yesterday. >> the activision acquisition has been held up in a bunch of litigation and other regulatory concerns. a question around whether it will be executor or not, but activision blizzard is giving microsoft more time to complete the $69 billion margin per that is the latest news prompting a leg higher, slightly in premarket trading. there certainly a deadline being extended to october 18, so they are going to also -- it's a good amount of time, but also, in return for this, they have agreed to some new terms. they are the can. >> yes. the regulatory issues, i wonder how we see and what we receive in response to the government,

given the travails of the government last couple of days. i don't think clearly on this. i was with bloomberg, the clearest memories of just one headline slipping out on a lazy day at 10 eight -- 10 a.m.. i was worried about what was in the food court. >> they haven't been successful with their troubles, that is what linda has been concerned about. a lot of pushback from congress. >> netflix earnings this afternoon. standard & poor's 500 near flat, up one 10th of a percent. >> after the bell, we get netflix earnings as well as tesla kicking off some of these big tech earnings. to me, this is interesting. given the run-up, this is the

big test. john was referring to this. big bank earnings kick the seasons and the meat is an tech names as they deliver not with expectations. >> this is a cross-section, and i think the dispersion of businesses of the way the income statement looks, the balance sheet looks, intact, it is far greater than in banking, which is to say goldman sachs is a different platform then jp morgan. microsoft is an enterprise world and apple is a retail world. to complete them together is really unfortunate. >> i'm trying to avoid that. >> it is a good point, but in terms of returns, you can complete them a little bit on a different scale. >> netflix shares are up here today. tesla shares are up 138%, your today. to give you a sense of the incredible roar that we have heard, it is just a car company pre-at >> three under 61 shares,

with a first purchase of microsoft, and the annualized returns over the last decade of i don't think i should be in their stuff. bill gates is not involved. i shouldn't lie. 29 .3%. >> how do you price that? howdy price market dominance? how do you price getting ahead of trends that have to be adopted front -- from countries around the world. >> i have to give credit to jp morgan and how much money that has been lost in the market, by not participating. that is jaw-dropping. futures are up to. dow futures are up five. we quote this from jonathan ferro. stay with us. this is bloomberg.

>> we look at investment banking, trading, advisory, winter they come back and how robust will that be? >> i don't know when exactly,

but i do believe it is bottoming. i think deals will start getting done with. they happen in the back half of the year. i'm not so sure. it may be next year, but it will definitely be during next year when we see this, if not this year. >> james gorman p it we say good morning to all of you. morgan stanley there, the success of wealth management, and much other with arson ali bassett. lisa abramowicz and tom keene are here. on wednesday, yes, there are economics. housing data came, and i will call that a percolation of the market trade that is pretty much what we see right now. we have bitcoin hundred 30,000 prayer that is a topic of the 10:00 a.m. hour. futures are reading great on the screen. 13.30. we are going to have a conversation that we did not have with sonali basak and allison williams. they are the heat of the earnings coming up, and the numbers, the powerpoint, the ratios, but with bloomberg news, we can sit back and actually

look at the discussion that is being had. i am looking at a board, and i will go william cohan on you. david vinh year lived in 2007, 2 thousand eight. peter oppenheimer, we talked to him, all the time. kimberly harris. a new board member, kevin johnson. what is the spirit of the board if they look at -- it is too much to say a train wreck, but simply a tension and complexity of the underperformance of goldman sachs. how does this board respond? and don't forget the incoming board member tom montag for over two decades at bank of america no returning to goldman sachs. >> will be list -- whole be the response of the board? works they will tell you the stock does not fall off a cliff. they are ok. they are not getting antsy because over the last five years since he took the seat in 2018 today, goldman stockist on will print they will tell you they have done x quarterly well. the reality is they have done the middle of the pack, and the

middle of the pack is not a crisis. >> this is critical. i'm thinking of david, it the clearest memories of him going back-and-forth with me. august of 2000 seven. there was a huge responsibility running the ship, essentially. initially at goldman sachs. the collective memories of the board at goldman sachs, including mr. montag, how do they respond to this? is there a sharp word or is it like a mackenzie meeting where everyone is planning in a complex way to move forward? >> i think reality is no one will be comfortable seeing all of the noise and headlines. but what ultimately they want to see is stock performance. they want to see that their own targets to achieve the goals they set out has obviously been strategy turnaround, some one 80's on the banking strategy, but they've committed to a new strategy. as long as they can deliver on that, the board will be content and ok. it doesn't look like anyone on the board is thirsting to make a

change right about now. >> where will the growth come from in this new strategy? >> that is important. a lot of analysts, a lot of them or some of them are calling it a kids -- kitchen sink because the numbers are really bad. we're down equity for percent. how does that compare to some peers? it is the worst among the banks. they posted 20 percent return on equity, so that is not good, they've a few consecutive quarters of goldman missing on this goal which is the question -- where does growth come from? you know, we hear james gorman talk about this yesterday, goldman -- gorman said that investment banking has arrived. it will look up forward. when that capital reopens, when dealmaking goes up again, you can rest assured that goldman will not be in a good place, and they will look to point out the increasing durable revenue in the asset management business. >> it seems that the banks that are most diversified have been benefiting from the recent

enthusiasm over the last few weeks. how will goldman appeal to this or will they essentially say they are a niche markets focus bank. we have tried our foray into consumer banking. it didn't work. >> it is certainly not saying that. they tried a different tack. they are very good investment banking and trading. we are expanding into retail banking. we have that as good as our investment banking franchise. that clearly didn't happen. he wasted a few years going into the space and then try to retreat, but you talk about the two pillars. investment bank and asset and wealth management. that is the one place you can hope to show growth going forward. >> i think this was page six of our presentation creative a -- very clearly laid out that commercial real estate has challenges. what is the uniqueness and commercial real estate versus other major banks? >> quite a few important things. they have operation control with commercial real estate at $10

billion of investment. it had a hit there. there is equity investment. a lot of it through principal investment. >> like in singapore is a general. >> from offices to warehouses and everything else under the commercial real estate rubric. that is about 15% of the total loan per folio. they have taken some hits there. they have taken hits on investments and consolidate investment spree that is a contributing to the hit this quarter. >> five percent year-to-date, a percent is another figure to look at because that is year on year. it doesn't include new analysts batching take. one would think that they have done the biggest exercise needed . they have an exquisitely said that, and if they do need to

take more action, that tells you there is a lot more bad news to come out of there, so they will certainly be hoping that they do not have to take any more headcount action. they've already done three different rounds in the last year, and that doesn't show great management, frankly. >> taking a step back, we did just wrap up the earnings cycle in the big banks, and it seems as though the themes are deposits cost something, particularly in a small bank. credit is contracting on the margins, and credit cards are the sweet spot. how would you wrap that together to push it forward and say where is this going for the next quarter? >> all of those points are true. credit is contracting, but look at the commentary we are getting from some of the big consumer banks. look at what jp morgan is telling us. rates are going up, and probably in a year or 2% on the credit card for polio. we have a normalization, not auditors a should read we normalization post-pandemic. we are not that concerned.

if the economy is not as bad, or at least a trajectory does not appear to be as bad as for your performance ago. main street remains ok, wall street opens up with a return of capital markets, and that will mean continue good news for the big banks going ahead. >> you will be out of the tennis there is a gray goose pavilion or whatever. is this just like a moment, or will this be a big deal where he steps in? >> we have some other people disagreeing, and coleman has been ink conversation with tom montag. >> is this solomon dialing one 800?

>> this is solomon dialing. he is one of the greatest partners at goldman sachs, and he has made an effort to court tom on tag over the less fees. brought him back into the goldman sachs retired partners dinner, and for several years, bank of america. david solomon brought him back into the full come in the last several months, he led the effort to bring them onto the board and he is a big prominent voice when it comes to risk expertise. >> looking for bloomberg reports. my basic take -- looking at the jp morgan, and goldman sachs looking very well. it is completely underplayed.

looking back 16 years. that is not in the zeitgeist right now. >> when people talk about goldman sachs, they are talking about the recent missteps with marcus and underperformance on the margins with respect to morgan stanley. longer-term, you are apsley right. but going forward, where's the growth model #that contains to be the question when they are on the asset management. as well as the massive wealth management business. si futures are up pretense of a percent. it will be interesting to see what happens there. driving forward, political discussion with washington. looking at wall street time, the gentleman from new jersey, christopher christie, and joe mathieu. oz a power this evening.

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alix: jonathan: live from new york city this morning, equities totally unchanged on the s&p 500. we are shifting our attention to silicon valley. the countdown to the open starts right now ♪ >> everything you need to get started for the just written to get ready for the start of u.s. trading, this is bloomberg be open with jonathan ferro. ♪ jonathan: live from new york, global bonds rally asa