>> this is not amendable market run, this is just a correction. >> something that stands out is how rational and orderly it is. >> the fed is going to cut rates, that is what the equity market wants to hear in order to have a sustainable higher. >> the fed will back off if inflation comes down. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: afford a losing streak and a second day of gains.

morning. for our audience worldwide, this is bloomberg surveillance, alongside lisa abramowicz, and jonathan ferro. the equity market getting closer to chairman powell in jackson hole. does this sound like a week they were market do you? american airlines pilots approving a new contract that would provide 46% in cumulative pay rates there's spain raises and retirement contributions over four years. sounds like a tight labor market to me. lisa: wonderful way to start the show at a time when people are worried about what this could mean going forward, given the fact that not that there are shortage -- strikes, but there are not. they are willing to give extra money to the airline pilots and other workers. so that with ups and others. what does that say about how tight the labor market is and where the power has shifted?

jonathan: 9.6 billion dollars in incremental costs we can discuss. the progress they've made on inflation over the last several months, the past year, at the same time, a labor market that is still looking tight, perhaps inflation higher for longer, stickier, and rates higher for longer as well. lisa: nick, who is often thought of as a fed whisperer coming out with will they or won't they start to adjust higher with a 3% target, they won't, because they won't start -- stop there. but are they less willing to compromise a labor market that does look so strong and that a lot of people are cheering? the answer seems to be not sure. jonathan: the bond market down three basis points, the move has been phenomenal. in leslie for hours, yields we have not seen since 2007. lisa: do we have a better sense why? the american airlines deal you

talked about, the ups deal the fact that workers are getting paid, it makes sense. we're looking at potentially the fastest growth in gdp going back years. makes sense. but do we really understand why? jonathan: we both said nobody can agree. most people are sitting here picking their poison and that is what is so uncomfortable. using moves like this over the space of a month, we can all agree a is what is driving it. what i have for most people, i asked the same question every day, what is underpinning this move. the response i get is all of the above. lisa: pretty much. i think it is interesting that you got a rally in tech stocks and stocks that previously reviewed -- were viewed as rate sensitive, even with yields going back 16 years. what does that say about the consistency of the strength and

how it is not going to be torpedoed by yields at this level? jonathan: the story of the month so far, banks down on the s&p 500. s&p adjoining them. depositors have quote shifted their funds into high interest accounts, increasing the funding of banks, they have squeezed liquidity from many banks, while the value of their securities, a large part of their liquidity, has fallen. it sounds like a characterization of what happened four or five months ago. lisa: are they just plain catch up or is this a specific concern, especially when we see them go up -- the smaller banks. yesterday, charles schwab going, saying they would cut real estate to save expenses. they were saying they were doing it because of investor pressure,

and it comes after the s&p downgrades. schwab shares are lower today, investors are not satisfied. what is going to satisfy them but there is opportunity for strength at a time when there is a yield if you can capture it? jonathan: equity futures on the s&p 500. we are positive by 0.4%. lisa: today everybody is going to talk about whether people can abandon dollar. leaders of the brazil russia, india, china, a lot of animosity toward the dominance of the u.s. currency. the dollar has been more resilient than people have expected. amid the retail earnings, exporting goods, macy's before the bell. urban outfitters after the bell. some housing stocks lows coming out, and the toll brothers coming in within range. we will go through that in a bit.

the richmond fed president and chicago fed president, the fed governor. will it mean anything for fed chair jay powell? probably no. he takes the view that we say is less possible if he takes the recommendations. jonathan: a lot of people would say that. it will be full of fed speak this week, kicking off later this week, global allocation fund portfolio manager at blackrock. for you and the team, is it a buy? >> you probably can look back six or 12 months from now and say this is a decent report but i don't think it chases. we are moderately underweight duration in our multi-asset funds and we are getting to a point where you are getting value back. but the long end his heart and

the reason, the 10 year further out, is the question about how much you should get paid to own long-distance bonds and environments where unplayed -- inflation uncertainty is much higher, compared to five years ago. people have been demanding the higher rate to go further on the curve and that could go higher still. jonathan: pandemic low, 31 basis points on the 10 year. if i promised you 400 basis points more than that, you wouldn't have ripped my arm off. can you walk me through why we are not going back to where we were pre-pandemic? russ: it was a time when people had no idea if the economy would even be able to reopen. but obviously we had the biggest surge in inflation in 40 years

it is still bouncing around 4.5% and not collapsing labor market. it is at multi-decades heights. that is not changing quickly. the fed finished the tightest campaign in over 40 years. if there is uncertainty about when they're going to be able to ease, four or five months ago the market was convinced that even though you had this rabid tightening cycle, by the end of the year it would be cut. all that together, the inflation, the uncertainty about the fed, the resilience of the u.s. economy has left us in a very different place. lisa: a year ago, if someone had said 10 year yields would be at 4.4% almost, they would say it would cause a recession, break the economy. now equities can look past this and keep rallying. at what point does something give? and equities keep rallying in the face of yields at this level? russ: that is a great question.

i think there is a level that will be more and equities. we've had a tough august. but the dynamic of the market has changed. we looked at how stocks were performing last year, this notion of rate data. the stock sensitivity. the interest rates. it is much less important than it was. he raised the point, the 10, multiyear highs and one point 5% yesterday. particularly the parts of the market, the growth stocks that are stable growth, companies with strong cash flow and strong earnings, they have been able to move higher this year even if rates act up. there is a whether does a level without start to become an issue. right now, this is more of a headwind. those early companies, the unprofitable tech, denver the stable mega cap names.

lisa: you said there is a level. what is it? russ: i wish i could give you a number. we are seeing the real 10 year yield started to break out of that range, starting to break to percent higher. i will be concerned if that continued. what would help the market is to see those real 10 years pull back below 180, the level that is consistent with the range we have had for several months. if you keep grinding higher on real rates, at some point you are going to see things break. jonathan: do you think it is odd we are talking about real yields on 2%, multi-decade highs and then we are considered where the biggest ipo's in this country in the last decade? russ: it is not crazy for a couple of reasons. the first, if you went back 15 or 20 years, no one would have been traumatized by 15%. that is about what you would expect.

why are the 10 year yields up over the last several months? we've all realized how resilient the u.s. economy is. if or wrong conclusion. we are looking at an economy that is likely at a soft landing. that is why the mark has been resilient. you can see it conduct market. lisa: the soft landing is predicated on the idea that the fed is going to be patient. it is going to take a look at how quickly inflation has come down. it was going to do it anyway and we are not going to kill the labor market to get to 2% right away. how much is the entire market coming to the view that the fed will be less restrictive and more willing to allow inflation to run hot for longer? the implicit to point something

goal, for the benchmark rates. russ: there are some of that in the narrative. the question about if you can declare -- you've already put monetary policy into a restrictive territory. are they willing to wait and be patient given the fact that we have seen inflation come down? one of the things i think will be of interest is how at jackson hole they address that. and to the extent it acknowledges we have seen this backup and yields. jonathan: thank you. big move in the bond market. the monster move. major moves in china as well. hang seng on a seven-day losing streak.

things were difficult. we rally about two percentage points. questions being asked, speculation, the estate. lisa: people are looking at this -- it would pair with what they are doing in the currency market. stop being so dramatic about the situation -- that is the theme we keep hearing in china. jonathan: not just on the substance of what is underpinning these moves. you can do some artificial buying if you want. i'm implying that is what it was, i'm not saying that's what it was. as we don't know. but have we done anything to change the fundamentals? the policy shifts we have seen, people concluding they are

insufficient. they came out with earnings, some of the weakest we have seen in about three years. what we have seen so far is not changing the underlying story at all. lisa: yesterday, they said helicopter money. is that really what it would take? jonathan: the fact that we are here in august and we've got guests like lisa talking up helicopter money in china when eight months ago we've been talking about reopening and a boom in the second largest economy, goes to tell you how much things have changed. from bank of america, live from new york city, good morning. ♪

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>> a technological revolution we think we are undergoing right now with generative ai, it did not negate the idea of a recession. it postponed it. i think that is part of the narrative. we are going to have a recession at some point. business cycles are not canceled from things at this. jonathan: chief equity strategist at evercore, a big event for this market. some people arguing perhaps bigger than what you may or may not hear from chairman powell later this week. into the market, where equities are positive on the s&p 500.

0.4%, so much attention in the bond market for good reason. yields lower by three basis points. a new cycle high. 4.35 on the u.s. 10 year. we thought we had left the highs behind in october. lisa: this comes despite concerns that the fed is going to have to be more aggressive to curtail gdp that is re-exhilarating. people looking out to the longer term and sing this is a new regime. a structural shift to higher inflation, higher term premium for u.s. debt. jonathan: here's a quote from the former fed presidents latest column. i suspect that the bull market is over. the study economic expansion, to follow the 2008 financial

crisis. the paradigm has shifted. how yields are back. the view this morning, we will talk about it more in the program later. nibbling a little into yield and duration. we are in a regime shift. are they going to do a bill dudley? forget about bond returns. jonathan: file that firmly in that column. if you heard that from a fed official it would be a big piece of news freighted -- friday. lisa: people used to say low rates contributed to low inflation. now you hear people saying if you are earning income on your cash, you can spend more money and it is stimulative. i wonder if there is any discussion about that. it sounds counterintuitive but it seems to be true.

jonathan: drew from metlife, that is his view of the world. i wonder if that is what he is focus on now. at the same time, we are considering the third-largest ipo ever states i. bloomberg's alex webb joins us out of london. we used to cover this a long time ago when it was listed in london. walk me through what is in the table and what kind of valuation we could be looking at. >> it was acquired by softbank in 2016. since then, now finally, we have heard about all the other things going on. finally they have decided to bring you back to market and they are doing it in the u.s., not the u.k.. much to the chagrin of british politicians. there talking about whether reporting suggest they want to 60 to $70 billion valuation, they might sell as much is 10% of the stock. when you look at the numbers,

the valuation looks punchy. it would be trading at a multiple that is likely premium to the philadelphia stock exchange, semiconductor index. that is the benchmark index for chipmakers in the u.s.. but the company that is not growing now, much of the ship industry is not growing and that is also why it is not growing. the designs are likely to far outweigh this. it is the likes of nvidia -- but it is also declining growth. it may not be as big and ai play as the perspectives want you to believe. jonathan: only talk about nvidia, can you run us through why this is so important for softbank to get a win after the difficulties they've had over the last 12 months and several years? >> when we speak to softbank

investors, a lot of them say they want to get rid of this. there is so much capital tied up in n, it was a deal almost seven years ago. if they get the valuation there talking about, is likely to be returned about 100% from what they paid. but if you compare the performance of the philadelphia stock exchange and superconductor index, returns about printer percent for investors excluding dividends. if you put the money in a tracker fund, you might have done better if you are softbank. freeing up that capital is something they would like to do. the one caveat is there only doing 10% if it performs better down the line, there is scope to enjoy a better return on the lion share. lisa: how much is this indicative of a market that has largely been frozen? >> there are a lot of people looking at this space. i did a piece for businessweek where there is fascinating

private equity exits, the ipo markets have been closed. a huge test of whether they might open up again. there are lots of companies sitting there ready to pull the trigger, reporting suggests instacart may be about to go public. but the german maker of sandals, birkenstocks, may also be going public soon. if it doesn't succeed, there may be rethinks on that front. lisa: instacart and birkenstock are not exactly established designers that are used in every single iphone every made. there is a question about whether the market is open but only for select companies. is this going to be an anomaly or is this going to be an example of what market appetite could be? >> if it is a success, there is

no guarantee the others will be a success. if it is a failure, you start to have a re-think. this is a core part of the chip industry. there are investors in semiconductors or people would say fundamental technologies, they would say if you believe in the long-term trajectory of the industry, you have to be in on. the same you have to be in the contract manufacturer in taiwan. it is a massively important and almost systemic that are systemically important player in the semiconductor industry. if it has a struggle, but of course they ipo market has bigger problems. jonathan: can you believe birkenstocks are think? lisa: i like them. i don't have them but i appreciate them. i did not take you to be a birkenstock person. jonathan: they wear socks with them. i can't get on board with that. move on from that quickly.

london, u.k., the epicenter of the proposed deal. can we close things there? >> they might well do. they authority to this with bloomberg radio, there was a change in tone, she seemed very open to approving the deal. there is been a concession. the u.k. -- whether microsoft would get this dominant. they've agreed to license the cloud gaming ip. if you look at the share price of activision and microsoft, expectation, the deal will be closed. ubisoft trading up, as you'd expect given the likes of call of duty in the gaming space. jonathan: not lost on anybody,

we're talking about yields and multi-decade highs. we are considering the third biggest ipo. compared to the start of the year, investor expectations, market positioning, valuations have moved up. there is no more fear. there is only complacency. lisa: or the battle between ai, hopes and dreams versus yields. jonathan: the foreign relations on china and the ongoing summit. from new york city, this is bloomberg. ♪ ncial health and you're trying to do that through multiple systems, that makes it very, very cumbersome. ♪ it's not just tech, it's not just people. it's how they work together to provide

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♪ jonathan: a second day of gains on the s&p 500, futures positive by 0.4% on the s&p. the nasdaq, up by 0.6. after yesterday at the close, down for the month of august, about 4% on the s&p 500. the nasdaq, attributing losses to 5% or so. the equity story in the bond market, a two year yield, about 5% in yesterday's session for the first time post svb. the two-year this morning, 4.98 47.

getting all of the headlines for the right reasons. lisa: suddenly, you see almost a 50-50 chance the fed will hike rates again. this comes at a time when only two other times they have crossed that 5% threshold since 2007. we are at new levels. jonathan: jonathan: and we are back there, considering after svb -- the financial conditions would lead to recession, hard landing. 10-year dropped to about 325. now, 100 basis points north of that level in several months. lisa: we are seeing those products highlighted again and again. we tried that, tested it, we are good. jonathan: china wrapping up the

defense of the u.n.. pushing up funding and setting a new record for the reference rate of the currency. under pressure in recent months as the china economy continues to struggle. lisa: is it that they really want to keep it stronger or they just want to control how quickly it depreciates? there's an issue with trying to control the message through cosmetic adjustments or interventions. at what point is there a reassessment of what has to be done or an acknowledgment they're not willing or able or they have a new pair -- this is the big question. people are looking at china's weakness in saying it is a positive because it might import disinflation. if it gets stronger it is a positive because they will import goods. why isn't it a negative? maybe china loses in every buddy else wins but it doesn't seem that simple. jonathan: it is a negative for

plenty of people. if your focus on inflation, great. growth, not so good, particularly in europe. if you are stateside looking at above trend growth, maybe you think you are insulated against this and less expose for structural reasons. if you are in europe, germany, coming out of a reflect -- a recession when inflation is too sticky, you got a growth problem. what are they going to do with those cross currents at the moment? lisa: especially with the climbing significantly. there is an irony here. the germany, the powerhouse, the economic powerhouse of europe is losing stature to the tourism dominated southern nations in europe that are seeing their economies outpaced germany by a significant margin. it changes the power structure.

jonathan: for the italians, the spanish, perhaps. the s&p following this, cutting the outlook on a number of u.s. banks, a tough climate for lenders. a number of smaller banks, right" the decline in deposits has squeeze liquidity for many banks while the value of their securities, which makes up a part of their security has fallen. you could have said it several months ago as well. lisa: it has not caused the credit crisis or profound illiquidity in these banks. it is a slow bleeding story. the fact that people have shrugged it off at a time when we are seeing yields continue to rise. it points to the strength of these companies, they have convinced markets, or the power of the narrative. it overwhelms everything. people can power through at higher levels.

jonathan: closing close to 7% lower. the index down almost 9%. worst since march if we close at august here. lisa: and the charles schwab move was important, they said they are going to cut staff and real estate to shore up about $500 billion of costs a year. the shares are lower in premarket trading. even though they are doing this to can -- to appease concerns of investors. it wasn't enough or doesn't work, it is unclear what people are most worried about. jonathan: we have a program at this story. pilots at american airlines approving new contracts that would provide 46% and camilla to pay rises and retirement contribution over the four-year term. worth around $9.6 billion, making it the most expensive labor contract ever. lisa: the investment group says perhaps what is most interesting

about these labor negotiations is there are not strikes. the deals are not getting done in the companies are paying up because there that desperate for labor. that is how much the power spectrum has shifted to workers over companies. this contract also preventing last-minute changes to some degree. that will lead to more plain cancellations. it is wonderful for workers because that means it will have a better life and they can plan their existences, which is fabulous. i'm just saying there are consequences to these things that might be felt on the other side. people are still going to be willing to do it. jonathan: it has been a problem over the last several years. lisa: did you ever want to be a pilot? jonathan: of course. lisa: will people embrace a? jonathan: not american airlines, a fighter jet which is different. i had a leather jacket.

lisa: i had a dream of racing horses and stuff like that. jonathan: this is the dream. joining us now, living the dream, senior fellow of the castle. if you want to hear about china, the ceo had to say. we're not seeing this -- the changes as we are anticipating. what is it about china but they are trying to do but not achieving? >> the problems are not entirely new they are facing now. they've made a series of bad policy choices over the course of covid, the alliance with russia. they are the demographic challenge, super challenged on debt. you have the deflation,

disinflation conundrum starting to appear. you really need to have some kind of something to -- some kind of national stimulus. but there is too much debt in the system and there has been an allocation of resources, a very big puzzle to solve. you're seeing a continuation of additional bad policy choices like let's not tell anybody how bad things are going, whether it is youth employment, the banking system, or any negative reports that could,. they are heading in the wrong direction comes to policy to address what is an increasingly challenging situation. lisa: you've seen the flows of capital and watch them closely. is there any connection to the weakness we are seeing in china

and the selloff we are seeing in u.s. treasuries? >> i don't know if we are looking at the connection between the two so much. i would think of them in separate buckets. the challenges we are seeing and the need for people to intervene is to stem domestic challenges and i guess you could make the connection that there is capital there is -- that is coming out of china. whether or not they are going into treasuries, unclear. lisa: we are looking at the question swirling around china's economy at a time when this symposium is taking place, for sale, russia, india, china and south africa, looking to bring

in or potential participants and talking about the dollarization. does this catch your attention in a greater way that it has before or is it a lot of noise to try to bring people to the table at a time when there is a lot of dissonance between members? >> this is the big event happening today and tomorrow. it is the 15th brix meeting, the summit of leaders. xi jinping is going to be there, putin is not. you have a mix of interests at the table. you don't have willing participants, india for example wanting to support a ambitious goal to counter the west. there is not a clear plan of how the acronym will expand to a lot of other letters and what that

as an institution will do. is it a general assembly they are putting together? when it comes to the currency, they did take it off of the agenda. they think they realize -- i think they realize it is not feasible. until you have a deep, liquid, tradable currency that is -- that can counter and challenge the dollar, that would most likely be the euro. you are not going to see a currency per se actually evolve. one thing i always looked to, russia and india are using the ruby for trade. you're seeing russia with a billion stranded assets and stranded rubies because they can't actually convert and use

the currency because of sanctions. it is complicated but i don't see the challenge to the dollar as a real thing. i don't think this is going to be at. you might see in the distant future some kind of digital currency. but the challenge is not going to come from the bricks. jonathan: the president was blunt about these issues. he called china a ticking time bomb. he said folks do bad things. what do you suppose the bad things are that we should be on the lookout for? heidi: the obvious is really the big question about taiwan that hangs in the balance. when we look at the political and national security -- they

prioritized it in a way that is much more aggressive than anything we understand. we look to youth unemployment and the fact that they are not publishing the statistics anymore is not going to make the problem going away. you have additional studies coming out with how many chinese have taken to not being interested in participating in the labor market at all. college grads are delivering coffee. you have a one child policy that gave a whole generation of kids whose parents focused on getting them to a better place and now they can't find jobs in a place where the demographics are that ticking time bomb.

that is one very big ticking time bomb. so yeah. i think that was probably where president biden was going with this. they are multifaceted challenges and i do think it is domestic security that will be an issue because of the youth unemployment issue. jonathan: we are not going to be able to hear anything about it because they are not going to publish it anymore as you suggested. heidi, the school of thought that as things get higher does harder with the economy, they become more assertive. next, the prospect of 6% on the 10 year yield, katie. this is bloomberg. ♪ wake up, achievers.

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>> this isn't yet about any kind of yield growth slowdown. at a period of below trend

growth is going to be necessary to get that quote unquote last mile of inflation. the danger is that the fed should not be showing as many cuts in 2024 even as inflation has come down. jonathan: amh rights in, kind to birkenstock. i would not guess she was a birkenstock person. i'm shocked. in 40 minutes, she thought she would be talking about the gop debate tomorrow. we'll talk about that. an ipo and prospect later this year. lisa: i don't understand your version. put away the socks. just in general. jonathan: there is a place for that but not manhattan. mesa: what do you wear on the beach? jonathan: why would i wear

sandals on the beach? you wear sandals in the sea? lisa: no, you take them off. if the sand is hot, you are walking across it, want some thing to protect your feet. jonathan: tom would be so onboard for all of this. let's play it guess who. last year, we had a ton of signals but the only one that seemed persistent going into this year's short bonds. that is really because it is a contrarian signal, something few people really want or are confident with. early january 2023. in the name, katie kaminski. chief research strategist at office and plex. this shot you have held on bonds is paying off over the last month. you knew it would get attention. let's breathe some life into this conversation.

what is it you saw at the start of the year that is continuing now and you think these forces are here to stay? katie: we have seen short signals and fixed income all year, not as strong as last year, but what is interesting about this recently is we have started to see the market agree with us and we've also seen fundamental leaders say this might have to happen. higher rates for longer. jonathan: is it time to back away? why is it a movie want to stick with? katie: this is a good question. i'm asking myself this as well. we've looked at the data with technical signals. when the curve is still inverted , it tends to work well. as we see a flatter curve, it becomes more mixed. if we can see a steeper curve, we're probably going to be long. we are still within the transition period where we can have a very interesting trend environment as we see the curve flatten out and everyone realize

why hold long-term debt when you could have such a good return short term and if the data is not clear about we're going to cut rates quickly? it is a question about long-term cash flows and people are starting to realize this is the real issue. lisa: every day we asked people, why now? the bond selloff is something people were talking about. it seems to be reasserting itself. do you have an answer to the now of the selloff? >> i think it has to do with behavior. i think everyone would rather wait to see of something is going to come to fruition. that is what you are seeing. sitting around waiting to hear commentary. they're pretty sure they know what it is going to be. the real truth is we're asserting to see the data consistent with the narrative that this is going to take some time and higher rates could be part of what is the new normal

in a world where we have experienced so much inflation and a different post-pandemic economy. it is starting to turn around and i'm seeing fundamental investors agree. lisa: how important is it that stocks have been able to rally in the face of these yields? is this sustainable and some thing people can lean into, that yields will stay this high and the world is not going to collapse as a result? >> that is tricky. the backdrop of yesterday, yesterday brought that to light. saw an environment where stocks were up, the nasdaq was up and yields were up to 16 year highs. that is a weird situation for markets. if it is actually the case that those things coincide, it means the market is accepting higher rates which could be a good thing. on the other hand, i will be skeptical of how big of a move we have had this month. we could have had a little

relief rally yesterday. i think we need to watch that correlation trade more closely going forward and see if this positive correlation environment is actually going to stick. jonathan: we can see the rates on the screen. i wonder how may people are paying them. we have not had the great refinancing here. some people think it believes -- it begins next year in high yield. do you think this economy can tolerate these rates beyond 69 months? >> this is a tough question. that is what they showed us. it seems like people wake up and say there is a good deal for a yield here or this is not working. it is hard to predict when people are going to refinance and when those particular events are going to change their behavior. people behave friendly and in a higher rate environment, we have seen that shift in short-term

rates. we have not seen it in high-yield or long-term debt yet. this is interesting because it is said people might be trying to wake up. headlines about treasuries, you guys were asking about that. could it be the time? this fall may be. jonathan: the 6%, that gets a lot of attention. is that a call from you? forecast? >> no. we don't forecast but we do see trends in data. if you look over longer-term horizons, 6% is not a crazy number for a 10 year. i know it is for those about to have been living in a decade of low interest rates, but those who look at the technical signals of long-term historical patterns, that is not a shifting rate for many periods in economic history. if we have prices on the upside

of inflation in the fall. jonathan: katie kaminski there, on the bond market and why it potentially could go as high a 6% on the u.s. 10 year. it is the old normal that many of these guests keep perfecting on. lisa: something i've been thinking about. if you are really able to earn 5%, let's say 6%, go to the conceptual figure on 10 year treasury yields. let's say you are earning that amount of money and you are borrowing at 7% or 6%. it is a wash. if you have assets, you can see how people could extend themselves and it not make a difference. it depends on what the assets that people have -- does it end up disproportionately affecting people on the lower ends of the savings and income sphere, while allowing the luxury at the top end to keep chugging along and doing better when you are actually getting yields? the stimulative effect of yields

no longer at zero. jonathan: without a doubt. if i'm cash rich, asset rich, i'm fine. if not, i'm not so great. i've been wanting this for ages. a ton of savings, five or 6% interest. lisa: and you are risk-averse and you have certain constraints. you think about how that changes the dynamic in a more material way that is not being factored and because people think high rates are restrictive, low rates stimulative. is a contributing to low inflation, is that the reverse as we start to see yields stay at higher levels? jonathan: it does not seem receptive now. if we will have the refinancing that begins particularly in high-yield, look what they have borrowed out in the last couple of years and with a have to now.

some change we have to diving -- digest. lisa: i was reading stories and looking at the data yesterday of all of the companies that have refinance or restructured, really worked to extend that window out. i'm raising the prospect that maybe it is more than 1, 2, 3 years. people eventually themselves and if that is the case, it is hard to understand the transition mechanism of high rates in this economy given the lack of effect it has had so far. jonathan: it has been a huge difficulty. that is why we are still wondering if the lags are short or superlong. joining us later, we will wrap up some retail earnings. about an hour from now, macy's, we will recap this. annual sales and earnings guidance. equities up by 0.4%, close to

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>> this is not an end of bull market run, this is just a correction. >> one thing that stands out is how rational a lot of elements of this is. >> we are in a situation where we are seeing pressure on central banks. >> the fed is going to cut rates next year. that is what the equity market wants to hear. >> the market will back off if inflation comes down. >> this is "bloomberg surveillance."

jonathan: this has not been a quiet august at all. live from new york city, good morning, good morning. this is "bloomberg surveillance go alongside alisa -- alongside the awaits, i'm jonathan ferro. adding just a little bit more weight to the s&p 500. equities up 5.5%. there have been many surprises for 2023. the u.s. economy has been one upside surprise after upside surprise. consumer discretionary and focus with the airlines and cruise operators. brammo, retail and focus all over again. lisa: we have been getting a slew of earnings, and we will work through all of them, but the highlight is resilience. keep seeing that despite some concerns. we have seen that in shares your today. people continue to spend. jonathan: this sets up the conversation with chairman powell on friday.

at jackson hole, wyoming. i'm sure you are all familiar with that. just how resilient is this economy going to be? how can discretionary spending hold up? lisa: if people are getting 48% increases in their wages, or whatever the latest labor agreement was with american airlines, the nick cannon 40. wage increases, real incomes will continue to increase. and all of a sudden disposable income. that is the perfect world. people are shrugging it off but it goes to this question of, how long do you wait until you start to say, maybe my assumption is not accurate? jonathan: 46%, but what is two points between friends? lisa: i knew you would correct me. jonathan: everybody's going to see these headlines. ups at the end of this contract, what is it, 170,000? you can correct me. the airlines, 46% cumulative pay

raises. everyone is going to see their headlines. they are going to go to their employer and ask for the same thing. lisa: there was an article overnight that talked about when people are looking for jobs they are seeing the increases they could get in their wages that are not as big as they used to be. there is a signs of a bit of cooling on the margins, that i take your point that right now there has been a shift to labor and it does not seem to be diminishing, even as we are a year into this tightening cycle and at the highest levels going back 16 years. jonathan: you have raised the question, is there a window here where you have to do with it before it gets embedded into the system, before we start discussing that wage price spiral we have been talking about for the last 18 months? lisa: if it does not seem worried about a wage price spiral. it raises a question of embedded inflation expectations that are good and inflation expectations

that are bad. we keep hearing discussion around whether the fed will allow percent inflation as a target. is that embedded inflation expectations or healthy? are people going to be talking about that at jackson hole? i expect that to be a significant conversation as people came out at correct policy is. jonathan: if they are behind the scenes we will bring them to you on air, course. the s&p positive by .4%. dominant story for the last month have -- has been in fixed income. a new cycle on a 10 year, 4:35. -- 4.35. lisa: you mentioned retail earnings and we have been getting a slew of earnings. we just got macy's, dick's sporting goods. dick's sporting goods came up a low expectations with sales and eps that came in lower than expected. those shares are lower by more than 18%. not so when it comes to lows --

lowe's. people are not moving, so they are making their homes nice. macy's reaffirming guidance. again, the strength there. dix perhaps a different story. maybe people have all of the fishing rods they need. today we are talking about the leaders of the bricks nations -- brics nations talking about how to make -- how to move closer together to counter g7. questions about the dollar, whether they are going to counter that. we are going to be talking about that on an ongoing basis. today fed speak ahead of jackson hole. tom barkin will join in about half an hour. and austan goolsbee and michelle bowman will be speaking throughout the day as they give their divergent views on how to handle this. i'm not expecting to hear much from any of them, because all of

them don't have much to gain by saying anything too aggressive. the market is moving in their direction. they want to see yields moving higher. the fact that you are seeing the markets hang in there, isn't that a good thing? jonathan: i hope tom barkin knows where he is meant to be. lisa: [laughter] if he shows up here i won't get upset. jonathan: you know dix calls their customers athletes? and you start discussing fishing and stuff like that. his fishing is poor? lisa: do you think golf is a sport? jonathan: i do. lisa: so wise and fishing a sport? you wade through it and have to cast. it is like this versus this. jonathan: that is a deep question. jill carey hall with us. good to see you. you have upgraded your view on consumer discretionary. could you walk us through why? jill: sure.

the consumer has been holding up well. real wage growth turned positive for the first time in two years, even though we have higher rates in the u.s. consumers are better positioned in a lot of regions with fixed-rate mortgages. i think the consumer has been solid. we are seeing a potential shift from services spending doing well, now goods spending has been starting to turn a bit consumer discretionary is more exposed to goods spending. i think positioning, when we have looked at fund manager holdings of consumer discretionary stocks, is at extreme lows. from that perspective the sector is starting to rank better in our four work as well -- our quant work as well. if the fed is done hiking soon that is when the consumer discretionary sector starts to work. jonathan: it was this pandemic savings, and we have been told

repeatedly this has been burnt out. we have been told by quarter after quarter, but let's say this is the quarter. you think we could have the seamless handover from the support we got from savings to the support you could get from a tight labor market? jill: i think the key part there is it was excess savings and returning to normal savings trends. if consumers are feeling good and have higher wages, you know, i think there is still potential for consumers to spend. we have seen this earnings season the consumer discretionary sector still seeing retail earnings come in, but the sector has seen some of the strongest results among the sectors so far. really big beats on the top and bottom lines. the trends have been holding up well this earnings season. lisa: i have been looking at the s&p consumer discretionary bucket. shares up 26%. going back to the banking crisis.

there has already been a lot baked in, and we are seeing yields go higher. if yields continue their sustained move or stay where they are, are you concerned about going overweight, given how far the stocks have gone? jill: i think valuation does look expensive and you take out some of the largest stocks, in terms of amazon and tesla. valuations look or reasonable, then if you compare it to consumer staples -- we have downgraded consumer staples and upgraded concessions -- -- at this point in the cycle this is when we think it makes sense to become more cyclical. that is where active managers are very under positioned, both hedge funds and long-only funds, relative to defensive sectors. it is at low levels when you compare it to the last decade or two. lisa: what would you say to people that argue some of these cyclical companies are more leveraged to where we are in the yield space?

have to borrow more money, have to be exposed to high borrowing costs in a predictable manner? jill: there are certainly some sectors where there it -- where that is a lot of risk. in the high-yield market, some of the areas are strategists have seen the bigger risks have been health care. those are the areas where, for small caps, an area where i am tactically positive right now, but i think medium-term there are more risks around refinancing, that is an area where a lot of health care and non-earners, a number of sectors like real estate have the rehire refinancing risk. i think it is something investors want to pay attention to. you know, having screens on leverage and short-term and floating-rate debt is a factor i think is going to become more important. jonathan: thanks. yields up, banks down. why are yields up and banks down? what is going on with banks? jill: thanks, we have started to

see, actually, when i look at our flow data, after a long period of underperformance and uncertainty after march we started to see a pattern of inflows there. we have obviously been through earnings season. i think right now we are waiting to look at how banks react to credit conditions, all of that. we have seen a period of stability. when we look at all of the sectors across the board banks are someone that ranks well in our work, especially large caps. in small caps you want to be more cautious giving the exposure to regionals and the higher regulation risk, which could impact multiples. but for a lot of the larger banks these are high quality. after the last crisis cleaned up their balance sheets and look a lot better than they did heading into that crisis. another cyclical sector that in our work looks relatively well-position. jonathan: preference still equal weight s&p 500 for you and the

team? jill: we have had a 4300 target on the market. we saw very strong mega cap leadership early in the year that started to broaden out the last couple of months. that is our continued expectation, is that the equal-weighted ex -- s&p 500 will lead. moreover broadening out of leadership. small caps could see a recovery rally, tactically. jonathan: two weeks ago that was consensus view. a few weeks of a bull market selloff and, oh no, hard landing? lisa: there is that noise on one side and it seems like stock players are playing in a totally different sphere. we are going to keep chugging along and earnings seem pretty good. jill: jill carey hall of bank of america. welcome to the program. the s&p 500 positive by .4%. coming up, monica dicenso of jp morgan. we need to talk about this bond market.

the two-year 35% for the first time post-svb failure. what a turnaround. look at the charts for fixed income. lisa: racing again i was trying to give some reprieve to people from last year's losses in the bond market. i suspect you have been getting some feedback on sports and what counts as sports. the list of things, you know. jonathan: dresses cash dressage, ballroom dancing. i might offend the many bloomberg terminal users better into artistic swimming. [laughter] that is our audience, brammo. lisa: please write in. i want to talk with you. i would argue it is a's ward and curling as a sport. jonathan: there is a club for terminal users. for artistic swimming. they did -- they get together thursday afternoons. lisa: you cannot keep a straight

face. [laughter] you are making this up. jonathan: stop stereotyping people, lisa. gennadiy goldberg joining us in about 10 minutes time. new highs on a 10 year, highs we have not seen since 2007. on a 30 year, highs we haven't seen in more than a decade. we'll yields at 2% on a 10 year and an equity market bouncing back, up by .4% on the s&p. potentially a second day of gains on the s&p 500. your 10-year this morning, 4.3122. we will catch up with bloomberg's annemarie. ♪ she didn't know they were talking to her. i just could not hear. i was hesitant to get the hearing aids because of my short hair. but nobody even sees them. our nearly invisible hearing aids are just one reason we've been the brand leader for over 75 years.

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>> we need powell to come out. if we want the equity market to settle down and yields to settle down and continue to move higher for the equity market, powell has to come out and reaffirm what the dot plots were saying, that there will be cuts in 2024. jonathan: victoria fernandez. everyone looking into their crystal balls, trying to work out what chairman pal is going to say on friday. it is amazing what bloomberg terminal users get fired up about. here is a quote for you. "it is massively impressive and a brilliant discipline. it ain't a sport."

you go, on artistic swimming. lisa: in the south artistic swimming refers to someone's ability to stay afloat without getting water in their beer. jonathan: good to know they are focused on that. lisa: and not anything else we are talking about. jonathan: the s&p 500 positive by .4 percent. equities a bit higher in the face of yields at multi-decade highs. 4.314 two. there is still sedated to come, early september. i think the very first day of september there is a payrolls report. then it is on to september 17 for cpi. lisa: they are data-dependent, so which data is going to make it or break it for them and what point is it three month trailing? what is going to cause some reality check where they feel they are on the right path? jonathan: we have a debate over

in milwaukee. we want to follow the money. that's what we do. here is from the team here at bloomberg. the former president holds more than a 40-point lead in the average of national polls and has the money to match it. his legions of donors have poured in more than $61 million into his coffers since he launched his third bid for the white house. compare that to second place, ron desantis. or than three times what the santos --desantis has raised since may. lisa: the fact that trump is not going to be on that stage with other contenders push -- put so much focus on ron desantis. there seems to be feeling he is losing a lot of momentum. who is going to pick it up on the others? jonathan: joining us now annemarie, our chief washington correspondent. follow the money.

how much money is sitting on the sidelines waiting for these debates to work out where that money should go? annmarie: i think a lot of it when it comes to the major donors who everyone thought was going to piling them heavy to out the summer on governor desantis. a lot of them are taking pause and waiting to see if there is a potential another candidate that rises. we have seen this restart from governor desantis' campaign, and it has not worked. when you look at the grassroots enthusiasm, that is where you can see a lot of the ways decide where they want to put this lower-level capital money into candidates. nikki haley is a star when it comes to that. there is another individual the data and money shows potentially this person could start to shine. that is senator tim scott. about 40% of his donors also donate to the former president. and that is the biggest amongst all of these candidates.

so when it comes to a group of people giving a former president , 40% for tim scott are also going to him. when it comes to the former president and you look at this money he has, those resources could potentially be drying up quickly, and this week is going to prove that when he shows up on thursday. he says he is going on thursday to fulton county, georgia to turn himself in. this is going to be his fourth indictment. lisa: what do you expect the actual debate to look like without the former president and his counter programming. on x, that is the latest we are hearing with tucker pearlson. annmarie: that does look like that interview has wrapped up. the former president sitting down with tucker carlsen, who also used to be a fox news host. without the former president on the stage it does give more breathing room for these

candidates to talk about policy. if you look at some of the latest polls, that is what voters are craving. they want to hear with these individuals have to say, not about the former president, which they are constantly asked about, or policy initiatives. what is their path regarding the economy and what are they going to do to bring inflation down? many voters continue to say is still hammering them and it comes to higher rent, higher energy prices. without the former president in the room there is going to be this avenue for them to explore actual policy dialogue. the issue is the host are going to have to ask about the former president. these candidates are not trying to just be the nominee beat president biden, he also need to deal with this encumbered within their own party who is dominating in the polls. lisa: we have a sense of how much the core of the republican party are people who are concretely in trump's cap uses people who are going to be

watching the debate to see what the issues are and parse through who else they can get behind? annmarie: trump holds the base continuously, and that is about 30% of the republican party. what was interesting, and an iowa and nbc paul is that individuals are open to their second choice candidate. there is an openness in iowa too. they are still open to their second choice candidate and have high favorability ratings for an individual like senator tim scott. but these individuals have yet to break out. so, it is not set and down that trump is going to be the nominee. if you look across the polls and see his wide margins -- more than 60% in the latest poll with his second-place individual, often are desantis, at 16% -- it does look like this is a done and dusted primary. when you look closer into the polls and some of the other

questions being asked in key places like iowa, you do see that there is a path for someone to potentially emerge. jonathan: unions are getting pay raises, big time. american airlines, ups. is that in the president's favor? annmarie: it is, because he wants to campaign on being a pro-union president, and then he can look back and say, look at what unions are doing. i was correct. but this is going to be a tricky month for the president up until september 14, we could potentially see a strike of autoworkers. today is an important day because the uaw will vote today whether or not to give that leverage to their president, to put a strike on the table. they are asking for a lot and have even touted that this electric push coming from the biden administration, they say washington, d.c. needs to know this is not hitting the right nerve with our workers. jonathan: thank you, down in washington.

lisa, you said we have had to pay raises without the strikes. so far, so good for this white house. this could change quickly. lisa: uaw asking some pretty aggressive things and looking to shut down some of the emphasis on electric vehicles that seems to be propagated more broadly from the administration and globally. he could be more of a class. they are having some pretty big asks, and this is a concern but something like $1 billion in extra costs each year for the automakers. jonathan: it's real money. real money for the airlines as well. lisa: they realize they need their workers more than they do the money. that is the shift. jonathan: we have a tight labor market. unemployment near 3.5%. and we have tight monetary policy, we are told. kennedy goldberg -- gennady goldberg is going to join us. your top three all-time protect

ipos in america? medic, 16 billion. hooper, $18.1 billion. we keep talking about tight monetary policy, supposedly, and at the same time we have basically one of the biggest ipos in much of the last decade? lisa: it is one of the reasons people think this is not a restrictive policy. on the other hand, arm is an established behemoth. i'm curious how much it can be a parallel. jonathan: -- arm is not birkenstock. lagarde was a member of the french national synchronized swimming team. lisa: thank you, tom. [laughter] ♪

jonathan: equities doing ok on the s&p 500. we have a left on the s&p, on the nasdaq as well. attempting to deliver a second day of gains. the nasdaq positive 5.7%. trimming me to date loss. that is the equity market. in the bond market, eight to year, 10 year, 30 year looking like this. in the bond market, a new cycle

high for the 10-year. 4.35. yields lower by a couple of basis points. on a 30 year, levels we haven't seen in more than a decade. you have to go back to 2011. lisa: it is shocking some of the levels we are reaching and people trying to buy, and then not so much. look at the slowly losing steam of the treasury rally of the earlier morning highlights, how much people are concerned about katy kaminski's 6% treasury yield. jonathan: not a call, just to be clear about that. we have got the dominant factor in the fx market being u.s. real yields. positive and climbing over the last month. that means dollar strength. take a look at the euro. 108.84. that is the story. it has got to be, right? positive real yields, euro stronger.

happen to 115, 120? -- what happened to 115, 120? lisa: everyone thought the ecb was going to raise rates more this cycle. you have europe suffering more from the slowdown in china that is accelerating, even though it was supposed to be seeing some momentum pickup because of the reopening. now you have real yields. at a certain point you have to wonder, at what point is this going to be self fulfilling, that the dollar keeps gaining? jonathan: nothing boring about this. look at chinese equities. look at the hang seng. the hang seng, the chart is unbelievable. in a couple of minutes we rallied a couple of percentage points seemingly out of nowhere heading into the close. obviously that move is fueling speculation about what is behind it. lisa: clearly it is people saying, now it's time to buy. i'm just kidding.

everyone thinks the state production patrol came in and started to hoover up a lot of stocks. they are trying to give guidance to investors, guidance to banks saying, please don't sell as much as you buy, and stuff like that. it's not working, so people thinking they are taking matters into their own hands. at what point do they have real solutions versus cosmetic shifts to control the narrative and speed of some of the losses? jonathan: what about the substance? i have mentioned this quote a million times. if you want insight into china you can't do much better than hearing from a miner. policies have been put in place that are meant to stimulate new stocks in the property sector. we are not seeing that translate into changes on the ground. that is overwhelmingly the view right now. they have done all of these tweaks. without they would deliver something. they have reopened the economy. we thought it would lead to a broom.

that was the consensus view. it has not delivered that boom at all. lisa: unwilling or unable? that is what people are wondering. is this an administration unwilling to really expand the capital to do this? or unable to really stave off some of these declines because they are pushing on a string with efforts that could undermine the financial sector? jonathan: it is the first thing we all look at at the moment every single morning, waking up stateside. here is another one for you, s&p, following moody's and cutting their outlook, citing a tough climate for lenders. the s&p lowering their grades for comerica. this might sound familiar. the decline in deposits has squeeze liquidity for many banks, while the value of their securities has fallen. you could have written that in march. you could have written it in february for that as well -- for that matter as well. lisa: in them a march people were wondering, does this mean they are going to stop lending altogether?

and we are going to face a credit crisis? the answer was no, didn't happen. and now you have s&p following moody's to raise questions around profitability. it is a different question than a question round ability to lend, leanness to land, and something that matters to the economy on a broader scale. jonathan: if you have those first two stories things would sound terrible. and then you hear about this. softbank's arm filing what would be the largest tech offering since alibaba in 2014. what does that tell you? things sound terrible when you talk about the banks, about china, about restrictive monetary policy, and then we are staring down the barrel of one of the biggest ipos in the past decade. lisa: anything that has to do with the tech sector especially, people expecting to be enthusiastic. this is a company that nvidia had wanted to buy before softbank. softbank is retaining a bigger than expected chunk of it. does this say something about

the ipo market or tech or both? how much are we trying to parse through two the narratives -- two narratives with hopes and dreams fueling the sense that everyone can look past higher yields. jonathan: this one is particularly unique. i have known the former management for a long time. a well-established company that was listed in london, taken off london, taken in by softbank, relisted. i don't know how much you can learn about arm from that. lisa: it is a deeply proven company with a hefty footprint in all things smartphones. it is unclear that that is going to be an example of what is going to happen with instacart and birkenstock. jonathan: birkenstock. the one to watch later this year. [laughter] joining us, gennadiy goldberg, the head of rates strategy at td securities. what are you most surprised that since the collapse of svb? gennadiy: i think the two year

back at 5%. i think that is the pain trade for a lot of banks. you are mentioning things that had slipped from the headlines. talk about ranking pressures, right? you will see that once the aggregated qt numbers are out. if you track maturity and available-for-sale losses at banks the pressure is on. especially as we head into the fall it is going to be interesting to see what happens on the banking side and whether that creates a new round of pressure as we head into fall. lisa: it is interesting to me that you see the front-end being more surprising. gennadiy: sustainable for how long, i guess? the question i'm asking myself is, how high can rates go before it becomes almost self-limiting? before these real interest rates begin to weigh on the economy? and that starts to drive us in

the other direction? at what point does the economy break under the weight of real rates? i don't think we there yet. but i think the market is ignoring a lot of this interest rate pass at their own peril. lisa: there is a level -- we are not there yet -- how do you even determine how to look for that level at a time when people seem to be looking past this? yesterday even tech stocks rally. nvidia was up more than 8% and a time where treasury yields were hitting the highest levels going back to 2007. gennadiy: i'm cautious about giving too much credence about what happens in august. the markets are then. not to insult the folks at the desks, but the markets are thin. the confidence from investors is low. haven't seen very confident investors investing in treasuries. they are still waiting for that tipping point, they are wondering what that point here is where they are no longer going to be losing money on their interest-rate holdings.

folks are trying to dip their toes. like you said, they are getting burned every day. there's going to be a point where a lot of folks will want to jump in. is that enough for a high enough point where the economy breaks and we start to move back the other way? no it doesn't seem like it, but interest rate pass-through is long and variable. it's going to take some jonathan: time for that show up. these yields where the stuff of dreams three years ago. i want to keep hammering on about that. this was the stuff of dreams three years ago, and now we are trying to work out, is it the stuff of night? you touched on it. it is highly dependent on how you frame this move. do you see this move as a reflection of an extension of the cycle or a recipe for the end of one? gennadiy: i think is -- i think it is the latter. i think the highest -- higher rates rise the more likely your team and the cycle. is it 3% in five year real rates

or even higher than that? if you look at five-year real rates on a 15 year basis, these are the highest levels we've seen. if you look at it on a 30 year basis we are about halfway through the range. maybe we are seeing a normalization of policy. and by that point we will start to weigh on the economy. jonathan: you have to make a risk assessment and give me one. is it highly balanced, a semester -- asymmetric? gennadiy: i think you want to start dipping your toes here. that has been the sentiment for a lot of investors. it is the next three to six months everyone is worried about. if you ask most investors 12 to 18 months from now they are expecting the economy to slow. but three to six months from now, that is the big fear. lisa: at what point are higher rates like this stimulative? gennadiy: stimulative for a lot of the lending, certainly. you have a lot of investors trying to push -- to put their

cash into all sorts of new places. the good what is happening on the money market side. cash has value once again and it is the first time in 20 years we have had cash at value. folks can put their money into a people -- into a tebow. why invest in equities? it was a point where that is going to weigh on the economy. don't think we have quite hit yet. jonathan: good to see you. gennadiy goldberg of td securities. you are really pushing that point, are you? that maybe this is starting to become stimulative? lisa: if you think about it if you are getting money for your cash and there's so much liquidity sloshing around, maybe it has come out of but -- of bitcoin -- there is a question round, maybe that goes into cash, but there is still plenty to go into stocks and everything else. so then on the margins if you are making money off of your

money than that is going to give you money, right? you can do something with that. jonathan: who is you and who has a higher marginal propensity to spend? people with cash or not much cash at all. lisa: that is a good point. jonathan: if you look at the u.k. now, the interest on savings, that amount of money has gone up loads, but those people don't have a higher marginal propensity to spend. if you think about the next 12 months with mortgage costs, particularly in the u.k., the people that do not have all of that cash getting all of those savings, they've got to pay up big time over the next 12 months in interest costs on their mortgage. those individuals are not going to have a higher marginal propensity to spend. the difference you are going to make on the economy is going to be much higher over the next 12 months when you see the seed into people carrying debt. lisa: especially when people think at what point the savings are going to run out. it is a specific subset of the population. jonathan: that is why this

argument still stands. you might think monetary policy is not restrictive now, but wait here. which is the conversation the federal reserve is trying to have going into jackson hole. the s&p 500 positive by .5%. coming up, a man who knows way more about this stuff than any of us do. vincent reinhart. going into that jackson hole speech, just a few days away. lisa: i'm curious whether he agrees with jason furman, who called for a reassessment of a 3% target for inflation versus the 2% target. and whether that is acceptable. whether that starts to leave this feeling that, ok, what is to stop them from kicking in up to 4.5 percent? how do you control it if you feel like it is a moving target? jill: chuck grom joining us in about five minutes. what he call it? discretionary recession? lisa: that seems to not be

happening quite yet. unless you are working for dick's sporting goods. but that had been happening for a while. jonathan: specifically the retailers, i think. did you see that difficulty in certain places? lisa: that is what they say, then you look at the results and parse through line by line, there still is enough discretionary spending. you look at the s&p 500 discretionary stocks, they are up 27% so far this year. this is not exactly forecasting recession. jonathan: i hear you. the new excuse -- student loan repayment. we heard that from target, from walmart. we will have that conversation in a moment. live from new york city this morning, good morning to you all. ♪

>> the consumer has been solid. we are seeing a potential shift from services spending doing

really well to now good skinning has been going to turn a bit. consumer discretionary is more exposed to goods spending. when we have looked at fund manager holdings of discretionary stocks is at extreme lows. jonathan: jill carey hall upgrading consumer discretionary. she thinks it will continue to surprise. your equity market is leading the way, and invite about .5% on the s&p 500. near session highs and potentially delivering a second day of gains. in the bond market, built near two-decade highs. this bond market rally this morning is fading. at the moment your 10 year down by something like three basis points. lisa: katy kaminski finally has company with bond bears. all the people saying they want to buy, where is that conviction

when day after day they just get absolutely burned? jonathan: 30 basis points intraday in 2020. if i told you i will give you for basis points more than that, just wait three years? you get there and people alike, is the only place in the world where there is a sale and people run away from it. if there is a sale anywhere else in a market economy people run toward it. with this, it is completely different. lisa: with with a t-shirt, the risk of getting something of lesser value is not that great. with the market people are worried about what they don't know. is this truly a regime change? because this does not look like a bargain. this looks like a time to sell, because things are going to get worse in terms of on prices down, yields up. these are some of the existential questions people are asking.

jonathan: chuck grom joins us now, senior analyst at gordon haskett. on this program you said discretionary recession. you seeing signs of that from the earnings we have seen this morning? chuck: yeah, generally speaking almost everybody is comping negative, and i think you can go back to last week's target report and look at the big bellwethers, and walmart who sells a lot more food, business was a strong, and target continues to be really soft. but as you guys know, the market is forward-looking and we are starting to see signs of stabilization in discretionary. we are seeing some signs in home furnishings that certain parts of the business are starting to stabilize. we will see him up at there is a lot of mixed data points out there today. lisa: let's talk about the specifics that have come out, macy's in particular.

it saw a bit of a pop as they reaffirmed guidance, and now shares are lower as they are looking at mark downs being insufficient to declare inventory. is there a larger story about price tolerance, about the middle tier retailers and how tough it is for them to move their materials? chuck: i think the bottom line for macy's is that some parts are really good, and i think generally speaking inventory levels continue to be healthy, that there is definitely a weakness across certain parts of retail. there is no one-size-fits-all right now. we continue to watch the trend and we will see how some of the data points come out. lowe's, he wouldn't expect to see that with rates moving higher, but they continue to be healthy. lisa: people are renovating their homes. i do want to talk about dick's sporting goods. shares plunging after they missed their forecast.

talking about theft is one of the biggest reasons. how much more have we heard about theft among all the retailers, particularly over the past two years? chuck: it is an issue that is not getting any better. the problem is retailers cannot price to at right away. that is where the margin surprise comes from. everybody is talking about it. home depot has cited it. dix today was not necessarily because of theft. their sales were below plan and for the pandemic they kind of put up a foul ball for them. lisa: at this point we are looking at a situation where people are expecting discretionary spending to run out. is there an area of the market where we are seeing this, and do you view some of the warnings we have heard from ceo's as it simply trying to lower the bar so they have an easier time crossing at later? chuck: that is a good question. one of the things we are starting to see, and we saw in

macy's today, is the rise in delinquencies in their credit card businesses. that is something we need to keep an eye on. we are starting to hear it today. macy's' credit income was much lower. we are seeing some cracked in the consumer, but we are still ready upbeat. when you look at real wage growth, three consecutive months of positive wage growth, we haven't seen that in years. we think back to school to be healthy -- back-to-school could be healthy. the weather breaking like you would expect to see. we are more optimistic than we were three months ago. i know we talked about that discretionary recession. it is really company-specific right now. jonathan: you know the new blame game. this ready-made excuse, lisa talked about at one million times, student loan repayments. who does that affect more? chuck: it will affect more the target's of the world and walmart.

it is going to be an issue. i don't think it is a huge issue. we come back to real wage growth offsetting student loan repayments, but at the end of the day people who have not been repaying a student loan are going to be, it is a net negative. lisa: when you talk about the fact we are seeing people switch back to goods, which goods are getting the biggest part? is it the idea of investing in your home, is it close? -- clothes? chuck: we follow cosco. you get a really good snapshot on the consumer and certain parts of their business. we are starting to see that stabilization in consumer electronics. we are starting to see it in home furnishings. we are not seeing declines, you know? we are seeing flat levels on unit volumes. and we will continue to see -- like i said, the consumer has money.

they are willing to spend. if we see services start to pull back we think when people are spending more time in their home they will continue to invest in their home. that is an area that could continue. see numbers like home depot, stabilization, lowe's numbers were healthy relative to expectations. home furnishings, you are starting to see signs of it. jonathan: chuck, sounding a bit more constructive. chuck grom of gordon haskett. just a change there in the mood from stock compared to a few months ago when we were talking about consumer discretionary, just a little bit better on the margin. lisa: join the club. this seems to be when everyone is feeling now. everyone expected the savings to be over last quarter, the quarter before mother quarter before that, and it is still there. at what point do you start to say there is some kind of fulfilling, kind of structure here, whether it is higher wages, less inflation letting people continue to spend? jonathan: you have asked whether

higher interest rates are stimulative? my example is very specific, the united kingdom. the u.k. specifically, whether that carries as much weight in the united states, i think it is a question we have to ask. lisa: who is going to benefit from these higher rates? it is people who are savers, people who have discretionary spending. these people are typically not the ones who spend the most. who are not going to spin on the margins because they are earning an extra thousand dollars from their savings. at what point is this just simply long and variable lags? jonathan: superlong ones. monica dicenso is going to join us shortly. monica is going to add to that in about five minutes time. lisa: she is not alone. we heard that from job -- jill

carey hall, from so many investors saying there is upside. which is why we have seen stocks hang in there. can you think about two years ago you say that the yield on the 10 year would be 4.3%? jonathan: laughed out of the room. lisa: and then that stocks would be rallying? jonathan: laughed out of the room. if you said nine months ago tech would be aware it was, you would be out of the room -- laughed out of the room. i would say the biggest surprise has been the growth profile of the u.s. relative to what we have had from china. the fact that you have had significant upside surprises in the u.s. coupled with significant downside surprises in china, when we thought the economies would be going in the opposite direction. we are discussing stimulus in china and a tighter policy in the u.s. at the beginning of the year we were talking about cutting interest rates at the federal reserve. remember that? lisa: we were supposed to be cutting rates now. at least back in march. and now maybe not until 2025.

jonathan: chairman powell in jackson hole, days away. live from new york, this is bloomberg. ♪ the first time you made a sale online with godaddy was also the first time you heard of a town named dinosaur, colorado. we just got an order from dinosaur, colorado. start an easy to build, powerful website for free with a partner that always puts you first. start for free at godaddy.com

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quite this is not yet about any kind of growth slowdown. >> we are likely to have a mild downturn next year.

>> powell has to reaffirm what the dot plots were saying, that there will be cuts in 2024. >> might be in a higher interest rate environment. >> this is "bloomberg surveillance." jonathan: we are counting you down to chairman powell this friday in jackson hole. live from new york city this morning, good morning, good morning. this is "bloomberg surveillance." your equity market, trying to build on the gains of yesterday. snapping that four-day losing streak. main event in the bond market, yields we have not seen since 2007 on a 10 year. lisa: put those two stories together and what do you get? people shrugging off higher yields and saying they can be managed in an economy that can be managed by artificial intelligence. as well as people that are not

running out of cash to continue spending. jonathan: who are you describing? lisa: that's basically what the story of this morning has been. consumer discretionary hanging in there much more than people expected. yields trying to go down. not really succeeding as much as people would hope. and stocks continuing to tear upward, in particular the tech names. jonathan: so what is chairman powell's job? andrew hallman horse publishing, pal is unlikely to push back against higher yields. -- powell is unlikely to push back against higher yields. lisa: what took you so long? this is what we have been saying for so long. this is what people were expecting. is this what it takes for people to believe the fed, that they are going to keep rates higher, -- higher? this is how some people are getting this out. jonathan: to actually start to

bite because they are superlong? is chairman power going to endorse these moves on friday? people are asking for more. is he really going to go into that conversation this friday given that john williams, his right hand man, has poured cold water over that in the last couple of weeks? lisa: and basically talked about the idea of cutting rates going forward. jonathan: in 2024. lisa: if growth slows, then rates where they are is much more restrict than where they are right now -- restrictive than where they are right now. i don't know how much he is going to get into any of this, even though the title of the affair is about structural shifts. but are there structural shifts? is this time different? are we in a higher-inflation paradigm that requires a different response? jonathan: 12 months ago we knew

what he would talk about. the pain, where's the pain? this time around it is kind of a no pain. whether they will hike, whether they will hike much more after that. what can he say? lisa: some people think he will heal close to the minutes. people are going to be looking for any kind of guidance that they are going to allow inflation to run hotter for longer. we have already gone that. they are talking about inflation above 2% for a substantial period of time. if they could lean into that that would be interesting. jonathan: equities on the s&p 500 up by .6%. the yield of dreams. yields a little bit lower back couple of day -- a couple of basis points. monica dicenso, the head of global investment opportunities at j.p. morgan. good morning. it is good to see her. is this dip a bite? monica: it is it depends on

where you're coming from. a lot of people started the year waiting for a dip. they realize they missed it. if you are under allocated to equities, yes, you should be adding a little bit. jonathan: as you are aware, was start buying stocks, for the people who missed it. the argument we are making is it is going to equal out. is that your argument now? monica: i think you need to be careful going too heavy into tech. we will see what nvidia does this week. most people i work with had too much tech last year. probably had too much coming into this year, and they need to broaden out their exposure. doesn't mean you cannot see tech work. lisa: we heard this from a host of other people. at some point higher yields will bite. but not yet.

what are you looking for for the higher yields to matter, to throw you off course? monica: they did matter last year. it was the pace of the yields last year that spooked people. now pace is moderating. i think a sharp move higher would be what you see to buy tech a meaningful way. that is going to weigh on valuations, so you need earnings growth. lisa: sharp rise. i want to define that, because right now i am looking at an increase of about .5%. this is a pretty significant move. how significant is significant? monica: what we saw last year, last year was very significant. this is significant, but the expectation is we hang in here one more hype. that is where you can be more comfortable on the equities. to be sure, there is a lack of fact. that probably still has not hit the market, so that is why i would add a little here, but you have to expect volatility going

into your and. it is a great time if you have equity exposure to think about hedging, or use that volatility as we get to later this year. jonathan: help us out on the fixed income side. a lot of people listening, sat in cash, to be took on some t-bills at the beginning of the year. they are looking at yields they have not seen since 2007 on a 10 year maturity. further out on the 30 year curve. what do you suggest people should do? sit in money markets or look at the 10-year? monica: i think you need to go along the curve. i don't think the fed is done. that backdrop you need to be thoughtful. most of my clients do not have a next -- do not have enough fixed income. if you are worried about what the fed will do, look at places like emerging markets. there you can add fixed income.

even if spreads wider number -- wide and a bit more. lisa: every week on "surveillance" we track the roller coaster that is sentiment in the narrative swinging rapidly between no landing, soft landing, no landing, what have you. is there more greed and fear? monica: it is shocking how much sentiment has changed this year. the money is still sitting in cash. it does seem very clear to me when you look at this market, soft landing is the consensus. you have to be position for something out of matt. i still think you're going to have pockets of volatility in this equity market will give you chances to keep adding. the market is telling you the expectation off landing. -- that they expect a soft landing. lisa: what is a soft lining that would allow this market to

continue apace, given how consensus it has become? monica: i think you need to seek earnings holding next year. that is not predicated on a multiple expansion significantly. if you do not see earnings hold in, there is risk to that. this july quarter has been good, so we have seen numbers come in strong. that has given people confidence. we have to see how that plays out in the next couple of quarters. it is why you want more ballast, because you need that insurance in a portfolio. jonathan: there is some expectation chairman powell might say something significant on friday. i wonder if that is just because it was at jackson hole. if it was not a jackson hole would you expect anything from chairman powell friday? monica: i don't know why. i don't think the incentive is there. i would think he sticks similar to what you heard in the minutes. i just don't see the incentive to be that tall. it would be exciting for us.

jonathan: you want something that will excite you. totally. you give it back, what is the incentive to say anything new on friday? lisa: there is none, except maybe to take leadership globally with central bankers there. jonathan: possibly. his lagarde on the same page with him? lisa: are they on the same page with themselves week to week? at what point are they looking at data with some comprehensive view? jonathan: when you say they are data-dependent between meetings what you think that means? monica: i think they want to see continued proof that this increase in rates is having an effect on the economy. but i think it is this tricky balance that you want to do enough to get where they need to go on inflation, but not so much you break everything. that is an incredibly hard thing to balance. that is why me and many other people say you have to expect volatility. jonathan: this was great. it is good to see you.

monica dicenso of jp morgan. do you remember what kelsey said from jp morgan earlier this week? it is always at this point where people start talking about soft landing. i think she went back to a businessweek story that had been written about a soft landing in early 2000 or something like that. it is almost verbatim, the conversations we have had time and time again. lisa: it is like spinning around really fast and not feeling until you stop. there is a question of, if you hike rates at this point and get to the end, when you get to the end is when you can understand what the effects are. that said, and what point do people get exhausted by the gloom and doom that some people have been propagating out there that could potentially have been wrong? jonathan: some people. we have found where mr. barkin 's. i understand he is speaking at the pennsylvania chamber of

commerce and will take questions. lisa: he also says if the u.s. has a recession it will likely be a less severe one. so, leaning into the soft landing. even if there is a recession it is going to be a little less painful. jonathan: he rephrased the question as to whether we have been sufficiently restrictive. you have asked that question too. lisa: this arm ipo, if it goes well and companies are able to finance, is this a restrictive market or is this efficient? because it is fine. jonathan: vincent reinhart joining us. he will join us in about 20 minutes time. the s&p 500, positive by .6%. we are light on economic data over the next couple of days, that after chairman powell speaks within a week you will get payrolls, a couple of weeks after that you are going to get a cpi report in america. lisa: i'm glad you asked about data dependency. what is our threshold for what

is good? at a certain point are we looking at a market that is strong and the federal reserve that does not want to go against the grain? i'm not saying they are being political, but if inflation is going down, their focus less on the pace of how quickly inflation is going down and more on, it is kind of going in the right place. do we need to do more? jonathan: they want to avoid the accusation of being political. it is always unavoidable in an election year. the look of cutting interest rates going into the election next year. not great optics, is it? we know that is something they want to avoid. lisa: there is a concern that some of the goods disinflation has stopped and you are starting to see it reads calorie -- see it we accelerate. i'm curious what the fed is looking at that give them confidence that inflation is going to return to that 2% target.

what data are they going to get that gives them that conviction? is it going to be the jobs report? is it going to be cpi? jonathan: neil. track -- i have not mention his name in a full day. i think that is the neil daughter argument. airlines, just kind unbelievable agreement between the pilots and american airlines. an unbelievable sum of money. unthinkable several years ago, which speaks to the moment we are at in this labor market. the s&p 500 positive by .6%. yields near multi-decade highs. your 10 year, 4.31. ♪

>> i think over time the financial sector does look attractive. you were talking about the underperformance recently. in addition to some of the cyclical concerns it might also be regulation and potential refinancing needs coming from the sector. once that settles down that will be a pretty attractive place to look. jonathan: she is one of the best. just a clinic on fixed income. just to get into the market action for you, in the equity market, potentially two days of gains on the s&p 500. yields are lower by three basis points. your 10 year, 4.30 82.

i was just joking that on the weekend i am an ups driver. on the weekends i am flying a plane for american airlines. lisa: american airlines? that jonathan: jonathan: is your airline? pilots approving a new contract that would provide 40 so percent in pay raises and retirement contributions over its four-year term. along with improved scheduling, sickleave, and insurance benefits. it is pretty impressive. lisa: depending on how things go you will be a uaw worker. jonathan: i will be making hummer evs. lisa: not evs. jonathan: internal combustion engines? lisa: bespoke investment management came up with this point where they said it is not that there are strikes that are happening, it is that they are not happening that is the interesting thing. that these companies are paying up. i think american airlines something to the tune of $250

million of expenses tied annually to some of these increases. and they are swallowing them because the workers are more important than that extra cash. jonathan: i would say this too, in certain instances this is the revenge of the labor market. this is a decade of sitting there every year with your boss and being told inflation is a 2%, this is your payraise, inflation is at 1.5%, this is your payraise. it is 10 years of that concluding with this. hey, what happened to the last 10 years? every time you set me down and said ask, this is what is happening now. lisa: i would take that a step further. and then you add to the fact that corporate profits have outpaced labor's share dramatically over the past couple of decades. if you take a look at that gap it has been widening. now suddenly they are saying, wait a second, you need us and you have seen again and again how much you need us. jonathan: joining us is mary schlemmer stein. wonderful to cap up -- catch up

with you. let's start with this deal. how much is this going to hurt american airlines? mary: american had been accruing for the cost of the contract. they put out a statement saying it is going to boost the unit cost because there is a calm -- there is an extra amount when they need -- when they renegotiated that agreement they had. that is going to increase their unit costs about 2% this quarter. for the floyd year he is not boosting the unit costs. jonathan: how does this stack up with the agreement you saw over at delta in the spring? mary: delta reached an agreement first and their value was about $7.2 billion over four years. american's has been valued at $9.6 billion, and that includes quality of life benefits. that is the total compensation. delta does have some provisions in its contract with their pay will take up if united and

american approve contracts that have higher pay. united have not voted on their contractor. american also has a snapper proposal on their pay rates. lisa: just how dire is the pilot shortage right now? how difficult is it for these companies to retrain -- to retain and attract workers? mary: for the major airlines, they are doing well on pilot supply. the problem i have had recently is pilot training. there are some bottlenecks where the real shortage is still hitting on the regional airline level. there are still a lot of regional jets not being fun because they do not have the pilots to fly them. lisa: this raises a question about what is going to happen if there needs to be a longer lag or warning period for some of the pilots before they are called into work? is this going to increase the cancellations and delays, or is it going to be covered by a greater number of staffers?

mary: it depends on airline to airline what their provisions are. a lot of the pilots are negotiating new rules on reserve and reserve pay. that is part of the quality-of-life issues they have gone after in this round of contracts. that is one of the reasons they are so expensive, is they did seek quality-of-life improvements. jonathan: it has been a decent year your today for some of these stocks. united up by something like 30%. can we talk about the performance of the business at the moment? we have seen some domestic focus carriers flag a softening of demand, lower ticket prices. how do you think the year ahead is shaping up for some of these airlines? mary: the domestic focus ones are hoping that travel is going to rebound for the winter holidays. they did see it fall off domestic demand because a lot of people chose this summer to fly

internationally. for a lot of people it was the first summer they could go internationally, the first time covid restrictions had been lifted. that produced record revenues for airlines like american and delta. the domestic-focused airlines are hoping that for the winter that rebound on people trying to visit their families again, visit their friends for the holidays. it is interesting that frontier airlines today offered a sale just for today where you can get a free checked bag if you flied september 5 through the 30th. it makes you wonder, what is their september booking, what is that looking like for them? lisa: we are talking about how the staffing levels at american and delta and the other major airlines are coming into balance as they offer more perks. what about air traffic controllers and concerns around a lack of staffing there? there was a new york times article that highlighted at least 46 close encounters or

planes almost crashed into each other last month alone. that these are increasingly apparent and frequent because of the staffing shortages in some of the air traffic controller units. what is the latest? how much are they remedying that? mary: there are certain areas of air traffic control, particularly in the northeast and florida, where they are shorthanded. the other problem is you have a lot of new, inexperienced air traffic controllers because just like all of the other jobs in the airline industry during the pandemic, a lot of them left, they retired early, went to other jobs. it takes several years to train air traffic controllers. you have the combination of being shorthanded, and people who are not experienced, especially for the busy control centers. and you have people that are still going to be in training for years. jonathan: what is it about checked luggage, trying to bargain with us? you get to the gate and you

clearly want to carry it with you, and they offered to check it for free. what is the incentive for me to check my bag for free when i clearly want to take it as a carry-on? lisa: how much do people actually check their luggage? they have to make it so that people can't put their luggage over the overhead. this is a pet peeve of mine. they have created this rush where people jockeyed to get online to be the first on so they can get their luggage into the overhead. then people swarmed the front and everyone is really pushy and it brings out the worst. jonathan: in delta specifically. just every airline. lisa: have you seen it at american? jonathan: yes. i hate the rush. they forced me to put my suit into my carry-on a few months ago flying from l.a. to new york. i complained and they didn't care. so, there you go. and i'm still flying with them, so what does that tell you? the things we put up with. lisa: the violin is out. i'm playing in. jonathan: play it loud.

mary knows these airlines so fantastically well. these are big deals. delta in the spring, that sounded big at the time. now american airlines with something bigger. lisa: and uaw up next with respect to voting on whether or not to authorize a strike during this is, to me, the sleeper story of 2023 and the balance of labor shifting back to the workers. jonathan: the revenge of the labor market. coming up about 30 minutes from now, will catch up with fixed income. colin martin of charles schwab. all of that still to come. live from new york city this morning, good morning. ♪

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lisa: if we hold onto the gains we have seen so far in premarket training, it will be day to after a four-day losing streak.

earnings coming in a plus or minus this morning, but stronger-than-expected. a dollar strength versus the euro. the 10 year trying to go down. just floating back up as the session goes -- grows older after hitting yesterday the highest levels going back to 2007. it is a light week for economic data. fed jay powell speaking at 1005 eastern. we're going to hear from christine lagarde from the ecb. we get some housing data at 10:00 a.m.. it raises this question when we get house sale numbers. can we call this a rebound in home market if there are no sales or very few or if it is anemic. is this something evidence of a unhealthy trend that is developing under the surface.

joining us now is drew. we didn't get results from lowe's. stronger than expected. we get toll brothers earnings after the bell. can we call this a rebounding market when sales are stagnating. drew: we have been describing the u.s. housing market of two markets on one hand. mark is down 7% from their peak -- markets are down 30% down from their peak. that lack of inventory we spoke of is finally -- finally demand towards the builders. builders have been buying down rates. when you see someone in the resale market paying seven and a half, someone to the new home market is looking at five and a half. the broader housing market, i would not call it a rebound.

if you look at total sales in the existing home market, which is the biggest part in the larger source for the competition for the builders. we are in a rate of 4 million. we are still down a long ways. we have a situation where volumes are being repressed, but home prices are stabilizing because of the inventory situation. lisa: sort of push forward to today when we get the toll brothers results. a lot of the homebuilders are offering rates of five and a half percent to extend their own mortgages to buyers of their homes. is this the new effective -- is this basically what is happening no one is paying the 7.253% yield on a 30 year mortgage. no one is paying that coming into the market right now? drew: the majority of the buyers are leveraging their national

rate. they are not paying what we are seeing quoted at the market level. if you look at where rates are now, if you check before we came on this morning, seven and a half percent. we are at seven and a quarter. we are over 100 basis points since the beginning of april. while people coming into the new home market are getting a lower rate, that rate is going to go higher. i think the concern in people investing in homebuilding space is going to be at one point the buyer start to block. the builder start to leverage backup on their use of incentives to keep traffic moving. we saw from the nh hv, traffic fell sharply. we think if rates do sustain at these levels, we are going to see the use of cell incentives come back. lisa: before we get to our next guest, this is the topic of the morning as we see yields going

to the highs going back 16 years . how long are the lags? are we starting to see yields bleed into the housing market in a concrete way to give you conviction that we are just seeing the start event rather than seeing the worst of it? drew: we have seen a lot of pain in the housing market, particularly in the second half of last year. but we have not seen a recovery. that has to do to the fact that rates are so elevated. the fact that rates are still elevated does not give consumers confidence in the fact that we could be heading higher from here, seven and a half closer to eight. i think that continues to pressure sales volumes to next year. lisa: thank you so much for being with us your we try to understand whether the yields are sustainable. vincent reinhart has been

tracking this for a long time and waiting in on how this economy -- weighing in on how this economy has been strong. i wanted to start there. are these yields sustainable where they are right now? vincent: they sound easier to explain them they were a few years ago. inflation is going to settle down into 2%. the term premium, risk premium that investors are going to pay are going to turn positive instead of negative. the natural rate of interest is probably higher given how robust economic activity is. in a sustainable. it is particularly sustainable because a key message chair powell in jackson hole is going to -- the policy rate is going to rest on a high plateau for a

while. that is going to feed into longer-term yields. lisa: we have been talking about long and variable lags, whether they are very long and very stored, -- short, we have seen the worst of it. which is it? vincent: it depends on sector. that is the question for jackson hole. it is about shifts in the economy. the monetary policy maker comes down to the question, what is the transmission of monetary policy come how long are the lags? answer is, sector by sector. the lack of monetary policies will not go national. we already went through one segment in the economy were it a shorter, real estate. homebuyers depend critically on mortgage rates. builders depend critically on mortgage -- marketable rates.

the remarkable fed tightening a lot sooner than a lot of areas. other parts of the economy have a cushion between aggregate demand and monetary policy. household still have a lot of retained savings from the -- they got from 2020 and 2021. as the buffer gets smaller, you will see the interest rate effect bite more. lisa: as a get earnings from macy, dick's sporting goods this morning showing a bumpy picture of where the consumer is and how much savings they have left. what is your sense in the fact that everyone has been saying the savings are running out, now they are going to be running out and they still have not. does that make you think they are not going to run out or people were a little premature in how quickly they thought they would dry out? vincent: it tells us that we did

not appreciate how good cash flow was at the beginning, that household saved a lot more when they got from the government then we expected. and continue to save for a while to come. if you look at a typical saving rate relative to what households were actually doing, they must have worked down at least half the cash flow. that is still half. you should remember states and localities also got fiscal transfers. they have a cash pile on the sideline as well. those state governments and localities in particular are cyclically sensitive. with the federal government did was, lengthen the length of the monetary policy by insulating

some of the interest sensitive parts of our economy to the fed policy. lisa: it really speaks to what could happen if the fed keeps rates where they are, even if they do not raise them again. keep some where they are through the remainder of this year and all of next year, potentially into 2025. how longer they have to keep rates where they are to start filling the bite to make it to where it actually has the transmission mechanism intended? vincent: remember how chair powell describes the rates. how fast you raise them, what level you go to, how long you keep them there. we are really at the third stage. how long do we keep them there e. it does not matter if they raise them or keep them unchanged, they can compensate by keeping

the policy rate there for a longer time. that is now the strategy of monetary policy. the longer they keep rates on that plateau, the more effects of the prior increases in rates we are going to see on the economy. that is the bank message to hammer home to investors -- that is the big message to hammer home to investors. the important point is, it is not going to be cut as quickly as you might think right now next year. they are keeping rates at a plateau. they waiting for the lags of the effects of monetary policy to play through. if they are patient and see those lags, they do not have to add incremental restraint because they have the restraint in the pipeline. lisa: do you think chair powell is going to say anything

subsequent this week? vincent: if he does not have to talk about paying like he did last year. he has to be more neutral then he came across at his last press conference. the main message he has got to want to send is rates are going to want to be around current levels for a lot longer than you think. lisa: that seems to be what people are adapting to right now and the implications for longer-term seem to be giving everyone some angst in terms of what yields are the appropriate yields for the rest of the market. thinking you so much for your insights. we have been looking at a 10 year yield that is trying to go down and is now not really going down all that much as people gained out higher inflation and higher rates could look like in the stock market.

we have seen them driven more than 8% yesterday continuing with the gains today ahead of their earnings report tomorrow. s&p futures 4435 up half of a percent. coming up, david of the carlyle group will be talking about the money-management industry in and time of great transition. there's this question as we look out to what this new market really is. i am going to bring you this quote from the new york fed president who wrote in a bloomberg op-ed. i strongly cement -- suspected bond bull market is over. the steady economic expansion that followed the 2008 financial crisis is no longer element. the paradigm has shifted and higher yields are back. vincent, a quick word on more than on that assessment. he will be joining us in jackson hole's talk about that. there's still question whether that is becoming consensus, that

there has been a shift. we heard from katie kaminski, she could gain out yields 26%. there are more people joining her camp. we heard earlier this morning how he is nibbling at some longer-term bonds. in general sees this as a new reality. the question, how long you see that before it starts to bleed into earnings and corporate health. we are seeing some concerns as you pastor some of the earnings about the consumer, more of that then we heard from walmart and target in terms of worry about some of the savings. we are hearing from dick's sporting goods they will be cutting's corporate staff members as they try to deal with situations that is not as positive as it has been. in the markets we will keep track of those real yields. this is bloomberg. ♪

>> we look a 20 year rate of return of 6.8%. over the last 20 years we have been able to hit that. the last 10 years we have been unable to exceed -- able to exceed that. 20 years long-term patient investors are targeting at 6.8 return. lisa: you can watch more of that with david rubenstein. it comes at a time where we are finally -- pensions are able to finally get the yield they have been looking for. i remember people used to say at eight and a half percent is a dream. david rubenstein, i am happy to say joins us now of that show and cofounder of carlisle. isn't this the golden era for pensions to get the returns that they need to get to meet their

obligations? david:'s fixed income returns are better than they were. money pension funds in the united states are underfunded. the largest state pension fund at $465 billion is underfunded. it is about to me percent lower than having full funded. -- 20% lower than having full funded. some state pension funds are massively underfunded. kentucky, connecticut, illinois, funded at mainly 40% of their overall obligation. it is a challenge. fixed income rates are higher than they were before are a plus. there are many state pension funds that are massively underfunded. lisa: this is a reason why there

had been a consent in a low rate environment of how much some of these funds will have to lever up to get the returns to become funded. do you feel like the risk taking appetite amongst some of these funds are diminished or has grown as you see the opportunity to meet the obligations without asking for additional contributions from members? david: a lot of the state pension funds are pleased that the fixed income element of their portfolio is going to perform better. if you get 5% yields on treasuries, you are getting close to what you need to do. six point 8%. most of the state pension are designed for actual purposes to yield about six to 7% or so a year. some are able to do it, some are not. the easy money is probably behind them, which is the high-tech which showed great equity in recent years. they are going to have to do the

hard work of getting this without the high rates return state often got in venture capital or other ivan investments. lisa: money never feels easy. at what point has it been easy money at a certain time when people have been looking forward? so david: private equity has performed well over the last 10, 30 years or so for a large public pension funds. those who have done very well are the ones who have gone enormous amounts of private equity. the state of washington is overfunded by more than 100%. it has 120% of what it needs. they use a private equity to get there. those who are participating in private equity from the 80's and on have done pretty well. some have lagged behind. the this issue now, expectations

are very high among employees about what their retirement benefits are going to be. we have to make certain we can achieve those retirement benefits. it is very easy for state legislature to say we can give me certain benefits but it is not easy to earn. therefore, you have to increase the taxation on everybody else in the state. which means the state contribution to the pension legislator or the tax or future -- are playing. you can get a higher rate of return. you either pay tax people higher or you have to have higher rates of return. there's no easy way to get to the desired results. as i've mentioned earlier, the social security system we have in this country is a pay-as-you-go system. when i pay my social security every week or so as not to fund benefits right away. we do not have a system like

canada or australia like most countries. we have a funded national pension system where we will never be able to afford that. we have promised benefits that are so high we will not be able to achieve the kind of system we have in china were they fully funded -- almost fully funded the pension benefits they promise their workers. lisa: isn't this part of the reason why yields have risen as much as they have on treasuries, particularly on the long end? david: yields have gone out because interest rates have gone up. and that has made it easier for people who are fixed income investors to get a higher rate of return. that will continue for some time. i do think it is a issue that all of us have to deal with. we have a demographic issue in the united states. people are living longer than they were before. the social security system was

set up late 1934, the average american lived to 65. we were able to cut your social security at 65. there was not a big gap because most people were not living too much longer than they were going to be able to get their pension benefit from social security. the average age is 81, 82, 83. you have a big gap because people are retiring and collect your social security at 65 but are living much longer. we have taken the social security system and used it for so many other purposes. we have a big gap. the only way to solve that problem is increasing taxes with social security, which is hard to do politically. or reduce politically. there is no easy way out of the problem. lisa: it is something we are going to hear politicians speaking in the election season. how some of the plants that need to be funded are handling this?

do you expect them to lean more into alternatives at a time of -- where some people are questioning where the golden era is over, whether we have already seen with the ipo market. who have said taycan is not happening at the same degree. -- take out is not happening at the same degree. david: the market is saturated than it was 20 or 30 years ago. it the returns will be higher to receive. there is no doubt that alternative investments, the stress really state, stress debt, buyouts, growth capital, venture capital. those things tend to outperform public equities by a fair bit. you're going to see a fair amount of people going to these alternatives. will they outperform at the same amount they did 10 to 20 years ago? maybe not.

lisa: go ahead. i was going to shift really quickly. to talk about whether there is going to be a continued focus on esg etc. given the fact that there has been quite a bit of pushback. i know you did speak with nicole about that. what they she have to say about that? david: esg has become controversial in the united states. the controversy of yes she does not exist so much outside of the u.s. politicize it in the u.s. to some extent near i do not think esg is going away. i think people will talk about it less. larry frankfurt says he does not use the word esg appeared the truth is, most investors want to have some sense that the investments they are doing is not destroying the environment or doing things that are not appropriate. there is no doubt that some

people have falter back weird there is a reaction of esg -- there is no doubt that some people have faught back. lisa: thank you so much for taking your time here catch this interview on bloomberg weld with david rubenstein tonight at 9 p.m. in new york on bloomberg television. a fast ending conversation where yields are higher. some of the riskier parts of the market, especially given some of the gains we have seen so far this year. coming up on bloomberg tv at 12:15, cfo of zoom after they delivered somewhat better than expected earnings as people continue to use that method of meeting. although, perhaps less so during the pandemic. markets clawing onto the gains.

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>> everything you need to get start of the u.s. trading. this is bloomberg, the open. jonathan: live from new york, coming up, treasury yields hitting multi-decades hi, moody's cutting banks and china attempting to squeeze. we begin with a bond bear market. >> bond markets are rising, >> yields are up to 60 year hi