>> the economy is stronger than it was. >> we are in a pocket of uncertainty. >> when you start to get in this position, the economy just only has so much for momentum. >> in terms of something breaking, that could be in front of us. >> if rates continue to rise, there will be a financial accident. something is going to break. >> this is "bloomberg surveillance" with tom keene, and lisa abramowicz. jonathan: good morning for our audience worldwide alongside tom keene and lisa abramowicz, i am jonathan ferro. we have a new cycle high on a 10 year yield, 4.69 -- 4.70.

tom: it is a mugshot of in yield and it is very technically elegant. dean curnutt to start is strong in the 6:00. he will talk about that. a massive correlation in currency markets. jonathan: yields of, dollar stronger? tom: dollar stronger but it is the way the dollar is stronger. maybe the japanese are fighting to keep the yen off of 1.50. the answer is markets are moving. tom: can this equity markets -- jonathan: can this equity market lived with it? equities could work in a hybrid environment. the s&p 500 returned 15% every year from 1985 to 2005. when will rates were 2.5%, can we live with these rates? lisa: this is a key question.

you are saying an increasing number of analysts come out and capitulate, whether it is morgan stanley or goldman sachs. yesterday, tech stocks outperformed. where is it going to hurt? it is counterintuitive. jonathan: manufacturing is getting better, not worse. payrolls on friday. tom: the numbers are getting better. lisa: on one hand you could say you are seeing a resurgence in manufacturing but prices came in lower than expected. this is the hope, people are hoping we get the immaculate -- tom: the immaculate implosion is going to be commercial real estate. they are short futures, not 30 year mortgages. everybody is going to refinance. the 10 year real yield, i have

lost perspective. 2.33% is a mugshot. jonathan: from city -- citigroup, here is his stake -- his take "if that move above 50 materializes and sustained, it would make a near-term recession even more unlikely." that is the take. lisa: it feels as if more people are coming around to the holland horse view of things which is maybe why we are seeing the rise in yields, a sign of u.s. strength, or something else. j.p. morgan sank this morning that something doesn't feel right, it doesn't feel connected to fundamentals. it feels like people are testing when something will start to crack. if it doesn't, let's get going. let's get more yields. jonathan: yields are rising for the wrong reasons.

when you get upside on the economic data, you get high's, you can make that a good story. and you get yields on the back of treasury funding, i would argue that things are may be a little more difficult. tom: for go back to the view of a five-year slow down and china is going to do okay here. it is not going to do 5.6%. your point on the reasons we are moving come all we can do is observe the data. that is all the central banks can do, they are completely data dependent. jonathan: equities positive by 0.1 percent, a small list on the equity market. yields higher by a couple of basis points. 4.70. foreign exchange, 1.04 on the euro. tom: something you have been on top of, a 40 year bond in germany, 3.17%. their 3.17% is not our 3.17%.

tell us they do not have the same bonded debt and banking problems we have. jonathan: i would argue 3% in germany is something like 5% or 6% in the u.s.. lisa: considering we were negative. tom: this is how they do it in bridgewater, they just say yeah, it is equivalent to this. jonathan: why not? lisa: one thing i find disdain is with all of the fed speakers, there is a consensus they need to hold rates higher for longer and a consensus we don't understand what is going on. atlanta fed president, the latest giving us this ambiguous motion of -- ambiguous mush of we are watching stuff and we are not sure where things are. this was stated that was discounted not too long ago and then the pandemic hit and this

became the premier highlighting. we are expecting it to come in but remain strong. total vehicle sales will be trickling out throughout the day. this will be manifest -- this will be fascinating. we are sing strikes, seeing loan rates going skyhigh, still they are expecting an increase in total vehicle sales. surprising strength underpinning one of the goods in addition to services. tom: joining us, dean curnutt of macro advisors. are yields rising for the wrong reasons? dean: i would say so. it is not higher for longer. the data is not exactly accelerating. it is not an increase in inflation breakevens. i think that is about indigestion. treasury surprised the market with this new need for supply. just a voracious appetite for deficit spending.

i studied financial market history and episodes of volume, we are at the 25th anniversary of ltc, in 1998. the yankees won 125 games that year. sosa and mcguire hit -- home runs. tom: steroids. dean: the u.s. produced a government budget surplus. that is not going to happen ever again. also steroids. so much of this is the fiscal side. people use the term fiscal dominance. we had the central banks running the show for a decade. it has flipped. i look at the back end of the yield curve as a function of markets have got to clear at a certain price and there is too much supply coming against qt. it is a precarious time. jonathan: is history and a guide

when we start to say we can live with these levels, is history and a guide as to if we can live with this or not? dean: not really. looking at history, i am remembering the bond market massacre from 1994. . it was october 1993 the 10 year yield at 3%. a year that it was at 8%. year-over-year cpi was unchanged. you can see how these rates become more relative to the inflation facts on the ground. debt to gdp was 40% back then. i am concerned about that side of things. rates are a very self-correcting thing. lisa, you talk about something is going to break, that is a risk lower thing. either the economic medicine is going to work, and i argue it will, leading to lower growth

and lower activity that brings down inflation or something breaks. either one of these is going to lead to lower rates. tom: finally we have the dean curnutt question, we cannot go back up unless we get catharsis. do we need catharsis to turn and move higher? dean: ultimately for the market, let's use the s&p 500 as the base risk assets, for that to become investable, we have to feel like we see the economic medicine tickled. tom: give me a vic's -- vix number on that. dean: when he five to 30. it doesn't have to be -- 25 to 30. it does not have to be 50. you can go back to the period when we saw the vix low. lisa: whatever monetary policy you end up getting is going to essentially be a self-correcting

lower rates going forward. what happens if that doesn't happen? what if there is no financial accident and this is sustainable and we live with 4.7% rates? how much more volatility demand of seeing -- volatility do we end up seeing? dean: we were talking about losses on balance sheets to securities holdings. the increase in the 10 year was 40 basis points in q2, it is double that in q3. those losses are going to be even more substantial. the potential for an accident is there. these higher rates ultimately are going to bite. it is interesting to listen to the fed speak. you have guys like jerome powell and williams who are more like i think we are close to done and folks like nestor and bowman who say i think there is one or two more but also we are going to get here and hold.

i think even the holding is going to be a problem for the economy. lisa: who is feeling the pain from the increase we have been seeing? dean: we know the housing market is that a standstill. your best asset is your 30% fixed mortgage. cre is going to be the first disaster. it is already in motion and banks are a big funder of that. a lot of times that the fed talks about we are going to raise rates and decrease the demand for things. for supply of credit is going to go down as well. folks are sitting on decisions they made that turns out were poor. that capital process is in the process of breaking down. there is the accident part and then the medicine of lower availability of credit. jonathan: if we neutralize that, the banks sitting on the long end, sitting on unrealized

losses, 30-year issues, treating like $.50 on the dollar, has the fed fed neutralized that since the spring? dean: they have this available for sale hold to maturity, this fictitious thing in a pile over here. is there another svb in the offing? i never want to close the door on things like that. you always have got to be looking over your shoulder for some episode of risk you were not contemplating. even if you don't get an accident, the supply of credit is going to go down because these folks are in situations. let's use cre as the front and center one. that is ready supply of credit is damaged most quickly in 224. jonathan: sit in the front end and wait? dean: two year note, five percent, it is going to grow

strong if the cycle gets upended. jonathan: this is awesome. thank you so much. cash is a beautiful thing. tom: cash is a beautiful thing. what is interesting about this is the motion or lack thereof out there. i have in the bloomberg total return index a 2% down in price gets us to new lows for bonds. what is that going to look like on people's statements where people are what about fact 18.5 month cd? lisa: yields will go down, there will be this financial accident. i know this feels like one step too far in game theory, but if people believe it is not sustainable, yields end up going down and if it is sustainable there is not enough strength. tom: i will go back to the hope and prayer of the three month

annualized disinflation trend well under 3%. that is not in the market right now. jonathan: this conversation is going to continue, chris harvey in the next hour. very shortly, terry haines on the latest in washington, d.c. a serious conversation in the bond market about fiscal issues being priced slowly. i am not sure that conversation is happening in washington, d.c.. that conversation is up next. live in new york, good morning. ♪

tom: a second straight -- jonathan: a second straight session in the bond market. just sort of -- short of 4.70. reached that earlier for a intraday cycle hi. 4.6995. the dollar stronger against absolutely everything. we go against the euro. -- weaker against the euro. talking down 102. tom: yen really doesn't move. you wonder what the shenanigans are. i have a 1.4989. i did not get to one point 50 and i think that is a lot to do with their system. it is a different toxic brew than monday but the tensions are there. jonathan: behind the session is -- tom: what are you watching on

the screen? lisa: i am watching bond yields. tom: she has not looked at the equity market since nixon was president. lisa: talking about how the tech stocks outperformed, i will say this, even kit juckes came out saying the fx market is in the peanut gallery watching the bond market waiting to break something. that -- we see that consistently and we have the past 10 weeks, 11 weeks. tom: the 10 year 2.35%. should we do politics? terry haines joins us with a historical perspective. this is what you have to know in terms of the look the arguing. there is people who are the, can experience -- who arc the american experience. lincoln and douglas debates in the 1850's.

drag it forward to 1910 where speaker of the house, a gentleman from illinois, was basically going to be thrown out. he survived. terry haines on the new joe cannon, kevin mccarthy. what is the distinctive feature of the attempt against this speaker of the house? terry: one, washington small ball and one for the markets. the washington small ball is it shows that the house is pretty much ungovernable to begin with. matt gaetz wants to talk about that people deserve to know how the house is governed. he is showing them perhaps inadvertently. what markets he is there is no u.s. government attempted to deal with the debt or deficit with entitlements.

that failure is bipartisan. anyone who does not believe me needs to remember they went off on vacation seven weeks instead of dealing with this. this crisis is self-created. in a time when you are talking about the bond market and other real-world consequences, washington does not even understand how it's on government is affecting the broader markets. tom: you look at the government failures out there, what do the next three to four days look like? don't they have required is to do something? terry: they do come at the same time there are procedural things that happen first. mccarthy may escape by the skin of his teeth. it has been a delegate coalition from day one. regardless how it turns out, it will get more ungovernable with

mccarthy there or mccarthy deposed. whoever takes the job is going to have more onerous conditions put on him than mccarthy will. is is very bad for anything fiscal and even for avoiding a shutdown in 45 days. jonathan: a conversation we had with commerce and french field, the privilege of acting recklessly for a long time. washington, the government has had the privilege to act restlessly -- act recklessly. a question we asked french hill, do you think they understand in washington they are losing the privilege of acting recklessly with the nation's that? -- the nation's debt? terry: i don't think they understand that at all. the author of "doonsbury" said

even in utopia there is myopia. the drama that goes on in the house or the senate is the be all and all of politics and they don't have a. broader responsibility is rife. the lack of humility is rife. that is going to continue. that is playing into bigger market decisions. the gradual degradation of washington, d.c. political credibility is something they don't even understand they need to pay attention to. lisa: we are looking at a potential $1 trillion of interest payments in 2025, maybe more given how yields are going up. when this congress address this and account for this in budget cramped and facing concerns about pushback without dealing with the big issues?

terry: the last time they tried to start that process was with a balanced budget agreement 25 years ago and surpluses that were disrupted by 9/11 and the fallout from that. where do they have to? yesterday. when will they? as long as there is a divided congress, they are unlikely to. one of the things i always tell markets is -- i always tell you and tell markets is don't misunderstand that there are a lot of centrists in the senate and the house who want to address all of these things and do so in a responsible way. what we will see is the rise of those centrists once markets put pressure on them. jonathan: wonderful to get your perspective. terry haines of pangaea policy.

you have all of the bond supply, the deficit, the debt pilot, and then the dysfunction. is this playing off of the dysfunction or just of the debt supply -- or just the debt supply? lisa: from what i have been reading, and i will trust the experts, they talk about the debt supply given it is increasing and the dysfunction goes to this idea that they are not going to get it under control. they are not going to reduce spending. their is not going to be a policy prescription to move forward. if that is not. buying until something breaks. maybe they will start to lower rates. is almost as if someone hopes something breaks in the market. jonathan: what is more importantly the context. this is happening in an expansion, not a downturn. that is why it is difficult to get the market to say, let's by the 10 year. but stay constant duration. jobless claims down, it is difficult to get there. tom: dead on.

as jamie dimon said, we have a technological edge. the people in america that benefit from technology are fine. there are a lot of other people. jonathan: perfect guests to doc about this, robert tipp from pgim income next. equities up by 0.15% on is be 500. a new intro cycle high. this is bloomberg. ♪

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jonathan: welcome to the program. equities on the s&p 500 positive. yesterday virtually unchanged. q4 going absolute and nowhere. the nasdaq is up. camping down to payables on friday and earnings kicking off next week with j.p. morgan next friday. friday the 13th for j.p. morgan numbers. tom: you're looking at the screen. what is important for "surveillance" is we don't talk about what we are going to do. all three of us look at different material. i am the least into it and i learn a lot when john and lisa bring out a certain point. i am sorry, there is no bid there. this is week sterling ready to

breach to the lows. jonathan: remember post-brexit when breaching 120 was the most you could do? tom: you did 10 hours straight and i house -- and i was having breakfast in mayfair. jonathan: i am well aware. lisa: post breakfast. jonathan: you did turn out for the london open, we watched bank stocks plummeting. which seems ridiculous now. tom: look at sterling giveaway. jonathan: i would you turn to the bond market. the 10 year right now, 4.6953. the yields are up. a new cycle high. on a 30 year, 4.8129. this is why the dollar dominated yesterday.

a snapshot of things against the euro and the yen. the euro, -- can we make it into big 12? dollar-yen, close to 1.50 -- close to 150. tom: came out of berkeley, the first job he had come and we will get to the interview of the day, we have to do it on "surveillance. i am psyched robert tipp is on. this is what you want in this type of market. jonathan: under surveillance this morning. you are not slowing us down. republican matt gaetz starting a motion to remove kevin mccarthy from his position citing that he supported a bipartisan deal to avoid a shutdown as justification. the boat could come as soon as today with kevin mccarthy needing a simple majority to survive.

what a mess in washington. lisa: all this screams is november 17 we will be doing the same dance. probably good to get any clarity between now and then? probably not. the issues we are dealing with the fiscal policy which are being expressed in the bond market probably are not going to be addressed. jonathan: let me wrap up the fed speak. the cleveland fred president -- fed president saying "i suppose we may need to raise the rate one more time this year and hold it there." that contrasts against the thoughts of michael berkeley saturday fed is "likely or near a sufficiently restricted level of rates." i get a sense this is a difference of degree and not of kind. there is hardly anything you might call as someone as hawkish and somewhat establish. lisa: that is where i was going to go. the details around the edges of one more hike or not is sort of a wash.

what i find more interesting right now, are they happy about the move? by the excited to see the market come around to their view? we are going to hold rates higher for longer, and now actually inflict the pain they have been looking for. is that what you are going to hear or are they getting concerned about the pace of the move? jonathan: jamie dimon telling emily chang that ai is being used by thousands of employees at j.p. morgan and likely to lead to improvements in worker'' quality-of-life. >> technology has always replaced jobs. children lived to 100 and not have cancer because of technology and probably working 3.5 days a week. jonathan: i hope he is right. when i saw this, this is what i thought. i hope if we make these massive

productivity gains we will work less. but haven't we made massive gains in the last 50 years and we are working this, not if not more? how can we have any faith and business leader gets productivity? you can only work 3.5 days. i think they want output. you will be working five days and i will, too. lisa: if i am working 3.5 days, i will get paid for 3.5 days and i will have to get another job to pay for college bills. if you are working 3.5 days, is that a better quality of life or is that less pain? -- less pay? tom: workers competition has gone from the top of my head 30 to one to 100 to one. the singular feature was the acquisition -- equitization of

capital gains, titian. -- of capital gains. on this debate, it was about equity competition. -- equity compensation. jonathan: the standard they point out on many factoring is that china's share of manufacturing in 1990 was five point sent and that had gone to 3.5% -- 34 -- 30.5%. that could be a nightmare at the same time. if you report services with ai and you don't have the guardrails to protect workers and you repeat the mistakes of the last 30 years in manufacturing as with services, this is why hope jamie dimon is right. i hope for a better world and rework must to enjoy it. i fear we will make the same

mistakes we have made the past 30 years. tom: we go to a more narrow successful audience for society versus a broader society. this is the interview of the day for global wall street on where we are with bills, notes, and bonds. robert tipp out of berkeley defended pgim chief strategist. why is this different than the other 18 you have witnessed? robert: there are similarities and differences. the thing you don't see often we are seeing is a change of time. we were in an environment for a decade, post-european crisis where the tendency for the 10 year treasury was two and 40 bond it was around -- and for the bond it was around zero. the fed is a saying we need to

be at 5% plus and we are comfortable around the city code. the data is telling them that 4% is the center of the range and then to get policy, a restrictive end of the range until they get inflation down. since going on in europe where they are engineering a higher interest rate environment there, this is the end of the financial crisis and return to a more normal level of bond yields. tom: i look at what pgim does commodore work with allstate for years, it is about a shift in the actuarial assumption. what is the new pension actuarial assumption look like? is it higher from where we are now? robert: i would not worry about them. i don't think they ever fully adjusted to the low interest rate environment. i think the financial community

will do just fine with this level of interest rates. investors and policymakers are getting dragged kicking and screaming to the new environment, especially the investors. the biggest pitfall is adaptive expectations. there are a lot of distractions with cyclical noise, government shutdowns, each economic region being in its own cycle. it is very hard for people to wrap their arms around that. the fed readjusted. they are fun -- they are one of the few institutions that started to believe in a 2.5% nominal fed rate would be neutral forever. they are starting to move back up. this environment was clear from 2022 that we could be back in a 4% to 6% environment. that is what people need to wrap their heads around. lisa: are you saying this selloff we have seen in 10 year treasuries is not done and you

see enough momentum and rationalization that yields could go beyond 5% to even 6% on the tenure? -- the 10 year? robert: absolutely. that is not a base case, but if you imagine the best news on inflation might be behind us, we have the energy price going up, high interest rates, cribbing housing supply around the world at a time when housing is in short supply, that is an unusual configuration. you could get bad inflation numbers, a signal that higher rates are coming from central banks. the curb shade is only ready for rates to come back down. it is not ready for the higher for longer idea. whether that is a one in six or a one in three, you could end up between five and six on the 10 year. i think it is likely we had up to 5%. the underlying trends moderating

in the u.s. less than other places but even in the u.s. it is. bettel on inflation -- this battle on inflation is over and we should be seeing the rates come back down next year. i think we have seen a move back up towards the central tendency and right now the fed fed is not convinced the cycle is rested. there is upside risk. lisa: you are talking about the inflation outlook, not for fiscal backdrop which a lot of people said was known that we would have a big supply of bond sales and not the fed began the other side. is that one of the big drivers or fundamentally the data has been coming in better than expected and this is an economy that needs a 10 year yield -- a 5.5% 10 year yield? robert: up until the turn-of-the-century, the supply bulges were not that bag -- not

that big. the fiscal situation is huge globally. we are dealing with governments that have bigger debt stocks, much bigger rollover. we have just come into the qt period where that means the central banks are no longer coming in and scooping up a big chunks of the auction. the markets are forced to think hard about where things are everyday. on a day like yesterday, there were no treasury options of long year -- of long-term bonds. there is a relationship there. it tends to make curves steeper. it makes -- stephen nash steepen. that is one of the minor pressures contributing to the selloff. we have seen that with the downgrade, with the refunding announcement and the other big factors driving the markets kicking and screaming to the

reality that we will be up in this zip code. jonathan: robert, thank you. we have not been in this zip code since 2007 on a 10 year yield. of two mrs. points. 44 billion dollars of 52-week bills coming to a market near you. numbers we sort of had to get used to. lisa: that is not where the drum has been. the bill market has been relatively stable relative to the tenure yield. i keep thinking about this idea that crisis happen in debt that is aaa rated or at the top levels. crisis happen in securities perceived as a safe. is there something else we are missing when you have such a massive selloff in the benchmark safe asset of the world? tom: we have been mother of all debt against equities, any measure you look at is straight. the other thing i look at is a

disinflationary force in place. people like ed hyman and david rosenberg, known as the thing to the. jonathan: yields are climbing. tom: they are climbing and they will go the other way and it will be cathartic if you get the workout. jonathan: crude back in the 80's. that conversation coming up, next. wti, 88.35, brent crude, 90.15. good morning. ♪ to find your personal style. endless hardie® siding colors. textures and styles. it's possible. with james hardie™.

>> we don't think demand is going to come in stronger than expected a listed there is a change in every economist's judgment about where economic growth is going to be. the grab from china and from europe and from the u.s. coming into the market really weighs heavily. jonathan: ed is not able, he is

looking for 70's to return next year. speaking to romaine bostick and katie greifeld after the call yesterday, the bearish call from citigroup. equity futures on the s&p 500, totally unchanged. yields higher breakable basis points, by the two basis points, the 4.70 on the tenure. -- the 10 year. tom: petroleum is one of the things not moving and i remember gold and silver having a fickle ty to it. you're looking at $100 oil, two cups of coffee ago. 90.17 on brent is not where we were a week ago. jonathan: we are still in the 90's on brent, in the 80's on wti. tom: we are good to go to abu dhabi. yousef has done a good job out

there. joining us now overall hydrocarbon commodity work worldwide, will kennedy in the united arab emirates. abu dhabi was in opec before the formation of the united arab emirates years ago. the view from abu dhabi, what is the power this morning of opec? will: opec are ready to stay the course. they're not too worried about day to day divisions in the market. this fall that we have seen over the last two days will strengthen the conviction that policy is correct and the need to hold course and keep interest -- and keep industries going. we heard from the minister yesterday, he said the policy feels right to him. i don't think we should see any

change in the policy which is to hold production down until the end of the year. tom: the split is personified by ed morse of citigroup, suggesting demand might be there. others are saying demand will be there. what is the zeitgeist of this event in abu dhabi? by the demand plus or demand minus -- are they demand plus or demand minus? will: i think people are optimistic about demand. bed's -- ed's view is a bit of an outlier. when you touch people here, there confidence that even if it is not as strong as in china, they will still see demand growth. we spoke to the indian oil minister and he stayed positive about india's energy demand. he says yes, there are economic issues. yes, energy costs do cause a

problem. fundamentally, demand continues to grow. lisa: one thing we have learned is opec+ will not tolerate crude below $70 per barrel. they want prices to stay where they are currently? will: i think that is right. is less of a conversation this week than last week when we saw this back towards andy seven dollars per barrel. there is a conversation about if we get to $70 to -- to $100 per barrel, if they got there how much further they would want to go. there are economic dangers and one of the things we are saying is interplay between energy prices and interest rates. if they push too hard on the price, that might cause central bankers to consider further tightening. and then you see the market reaction we have seen this week

as interest rates rise and the delegates stronger. there is a real question of opec is comfortable with 100 but there has been a debate over how much further than that they want to go. lisa: what is the move like over in automatic -- over there? go ahead. will: the mood is very strong. it is a packed event. there were people here selling everything from pumps to drill bits and business is good. there is talk about how industry can lean into carbonization, get on top of some of the emissions within its own industry. there is no gloom about the long-term prospects for will demand here.

i think people see it positively. tom: is fresher -- is russia there? will: they are. we have not seen any russian ministers but it is quite striking. there are a lot of russian energy companies exhibiting. a russian gas company has a big stand and there is a whole russian pavilion full of russian service providers, russian drilling providers, pipe manufacturers. there is no issue between the uae and russia. russia, when you are here, is clearly still part of the global oil and gas industry. tom: the merge at the dish --

the merch at the aggression pavilion, there has to be a good bottle of vodka. lisa: we were talking about how they want oil prices where they are. have they got any sense that they have lost control over prices or are the only -- four had the only consolidated power over the last couple of months? will: i think they feel pretty good about their influence in the oil market. i suspect they feel they have a group of things. if you think about the actors that can change the narrative of oil on the supply side, it is only opec and that really means saudi arabia, uae, and russia. it is only those players that can dial oil and gas production up and down and that gives them sway over market. the demand side is a different question and the risk is received big slowdown in the global economy. they then probably have levers they can pool.

it is hard to see where more suppliers are coming from. there is a big deficit in the oil market even if oil demand softens. right now there is a deficit created by opec+ cuts and industries are falling fast. there is a big demand for oil now which is sucking oil down and that is exec we were saudi arabia and their allies want things to be. we will have ups and downs week to week, but i suspect if you talk to opec ministers, they feel good about where the market is. jonathan: i saw those numbers out of cushing. great coverage from you at the team over the last couple of days. will kennedy there. brent, 90.25. speaking of the merchandise come along time ago i was milan. you go around the corner and they would have all of these kiosks, tables, politicians giving out some merchandise.

go around the corner, lined up, press echo at the end. it was unbelievable. that was proper merchandise. tom: i find it interesting. you set has done a great job there. the interviews were fascinating. there is a whole mystery to every moment we are in. my only keel here, i am sorry i am up two basis points. 2.5% on the 10-year will yield. -- 10 year real wheeled -- real yield. lisa: the whole zoom and remote delay has been exhausting for so many people that now they're going to be in person and they are flying around. jonathan: did you give that some thought as to why that crashed and burned? this is why we are bullish crude. lisa: way are not assume the

meetings taking over the in person meetings? people want to do lack of delay and connectivity. jonathan: this is good. tom: this speaks to the "surveillance" travel schedule. jonathan: i know where you are trying to go. lisa: where? jonathan: he wants to go to the g7 in italy. tom: mother country. jonathan: father country, technically, but sure. crude, $90.20. can relive with the yields up here in 10-year? 4.7057. we will get by. candy equity market flourish with bond yields where they are? that is the question. ♪

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>> the economy is quite stronger than it was in the previous cycle. >> we are in a pocket of economic uncertainty. >> the economy only has so much more forward momentum. >> in terms of something breaking that could still be in front of us. >> if rates continue to rise there'll be a financial accident. eventually something will break. >> this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. jonathan: we will start every show just quoting the 10 year.

4.7057. your equity market is slightly negative on the s&p 500. on the 10 year 4.7057. tom: markets on the move like yesterday but different than yesterday. real confirmation. the currency is weaker. we will not waste time on it. this dollar strength is tangible. it is not urgent but it is tangible. jonathan: dollar-yen it getting closer and closer to 1.50. lisa: no one wants to test the $1.50 line in the sand. that is why you are seeing that threshold. something robert tipp of pgim said last hour that the rest of the yield curve is only prepared for rates to go lower in the year to -- in the near term. it seems like the 10-year is moving and other things are not

going along with it. they are counting on this to be a temporary blip in then it will right size itself. jonathan: i have a lot of guests who i can name off who think this move in the long end is associated with the treasury reissuance and we are starting to take this little bit more seriously with the 30 year through 4.80. lisa: is a global move. this is the full faith and credit of so many other global markets. at what point does this trickle out into other parts of the debt sphere? how much can this be isolated to the 10-year and the thirty-year versus fixed income into high-yield bonds, investment grade credit. at what point does this crimp the way the channels of credit get disseminated? jonathan: earlier in the spring when we had the banking difficulties, it is happening slowly. ultimately it is moving in that

direction. spreads wider. tom: as it spreads wider it is grinding. i will look at the headline data and what is not happening. i have a vix of 17.93. that states equities are removed from what we are seeing in bonds and currency. jonathan: slightly negative on the s&p 500. lots of data and fed speed to talk about. equities going almost nowhere this morning. yields very close to 4.71. just seconds ago, 4.70 119 on the 10 year yield. lisa: people trying to buy are having a hard time. at 8:00 we get atlanta fed president raphael bostic. you put it really well. trying to parse the differences between these fed speakers is a matter of details. at the core they are sending the

message higher for longer. they are on the same page. at 10:00 we get jolts job openings. how much do we see ongoing strength that a time we have seen job openings go down? we are still at high levels relative to history. tom: i'm out of touch on the number that matters. this is a big deal today? jolts are a big deal? lisa: maybe. are they looking to go screaming into 10 year treasuries if we get a worse than expected number? i think the market response may be more interesting than what we actually get from the data. total vehicle sales throughout the day. this speaks to what you are talking about before. we were expecting manufacturing to drag services down. instead we saw the ism outperform. we are expecting an increase in total vehicle sales regardless of the fact that consumers have increased discretionary spending. jonathan: strongest data back to

july 2022. the president engaging with this program. he tweeted speaker mccarthy and the majority of house republicans must keep their word and secure passage of the support needed to help ukraine as a defense itself. we are the indispensable nation in the world. let's act like it. that is the latest from the president given the spat in washington. tom: and speaking with some authority of 50 years of where the u.s. fits into all of the complexities. jonathan: amh running us in about 10 minutes. joining us now is chris harvey. good morning. would you like to start with the old price target or the newer price target? the old price target is 4200. are you more comfortable than that with the 4420 you upgraded it to? chris: we are ok with 4400.

we said 4400 was a soft landing. it does not look like we will have a hard landing so we bumped it up to 4400. we stink weevils -- we think we will spend more time at the top end of the range. yields are approaching that 5.90 level we saw in october. cpi is down 200 basis points since then. it looks like the fed tightening cycle is close to being over. buyers should start to materialize. we will see. tom: you are the single best qualified person to ask this question. in your youth you were in for before degree water in long island to pay the bills. if this works, where is your line in the sand with the equity markets? where's the tension point? chris: like all good equity strategist i will shift.

yesterday was really interesting. it brought me back to 1999, 2000. interest rates went higher, old economy stocks went down, new economy stocks went up. that was reminiscent of 1999. when you ask me for a line in the sand i cannot give you a line in the sand. tom: there was a march distant for that when there was a line in the sand for all of us. chris: what we are saying is 4200 is the technical level. we think that level holds. we have to wait for rates to washout. there's been a lot of talk about rates. we think you should start to see buyer showing up pretty soon. the other thing we would like to see is something from one of the fed members saying something like rates in the back end. maybe john said this before. if you look at what is happened to the 10 year, since the

issuance, since janet yellen said we will need a lot more paper, real rates have gone up. this has not been about fundamentals. we may have to wait until november to find out what the needs are in the short term. we find out in november the needs are not as bad then we can find some ground. in the interim, maybe one of the members says something. lisa: is the 4450 call you have predicated on rates going down or staying where they are? chris: what we need to stability. rates do not need to go down. the underlying fundamentals are still good. we just had a major conference season. we had pre-announcements. the pre-announcements were benign so we think the underlying fundamentals are fine so we just need rates to stop. if we do not know where the top of rates will be we do not know

where the bottom will be. jonathan: you do not need rates to go down, you just need them to stop going up. are you seeing signs tech leadership is stabilizing? chris: i think so. yesterday you have a lot of the defensive's rolling over because rates are going up. utilities, a lot of leverage in utilities. a lot of leverage in staples. people are running to uber caps. if they go up, the market goes up. jonathan: is that ai or all of the above? chris: what we do is look at the russell top 50 and you have ai. you are buying a premium of 10% to 15% of the market. stable balance sheets, less volatility, better earnings. jonathan: -- lisa: when you say yesterday it was buy the new economy, sell the new economy. will we get more of the same in

terms of the dynamic of the main is been seven orders stocks leveraged artificial intelligence, the new tech outperforming while everything else loses value? chris: that has been our call. we were saying we thought you would have a broadening out of the market in the spring. that was because people thought the economy is not going to be as bad as expected. what you need for small caps and mid-caps to do better is a stronger economy. we think the uber caps of the ones that outperform. tom: i would narrow it further to say technology, new economy that is stronger versus many of them that do not. lori calvasina is a percent of russell 2000 is not profitable. that is not apple. lisa: we are seeing 10 year yields climb through intraday highs going back to 2007.

at what point do you rethink your assumption? chris: let's talk big picture on yields. if you look at real rates. go back two decades. the high end is about 2%. if you look at inflation expectations, the highest 2.5%. not for a sustained period of time. 2.5% plus two is 4.5%. now we get to 5%, all the sudden we see real rates going higher, now the back end is a lot more restrictive. that will weigh on the economy. that will sew the seeds of bringing it back down. we can get to these levels but it will slow down the economy a lot faster and then things will come back down. jonathan: good to see you as always. this equity market softer this morning. yields are higher four basis

points, to short of 172. i think some people wish the equity market was 1.72, four point72. -- four point72 -- 4.72. you have to go all the way back to 2007. you can go back -- tom: you can go back 21 years to when you came down to the great moderation. jonathan: your s&p 500 negative .17%. the dollar is stronger. the euro is breaking down. the 12 week of your weakness against dollar strength. negative .1%. in the next hour -- michael o'rourke. tom: i have yen breaking through

to 149.91, almost buttressed up against the high. jonathan: it we need to talk politics with amh. it is messier this time because we did not know who will be the speaker. lisa: that is what we heard in her interview with jim jordan. there seems to be deja vu because no one is dealing with the real issues. maybe some of the people in the center. it does not seem like there is a conviction or a consensus to change the dynamic that is roiling bond markets. tom: i just think about it. you think of the power of amh. matt gaetz stood her up like he had some sort of fundraiser. jonathan: i understand he came back later. tom: how do you stand up annmarie hordern? jonathan: when people accuse you that you're only trying to

secure tv interviews maybe you stop doing tv interviews. tom: matt gaetz of florida standing up amh. what was that about? jonathan: chris harvey is disgusted. 4.72 on the 10 year in america. up next, amh in washington, d.c. on the latest on the mess in the nation's capital. from new york, good morning. ♪ ♪

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>> i think the american people deserve to know the coalition that really governs them. kevin mccarthy likes to pretend is he makes coalition with conservatives but all he does is -- yellow brick road of working with democrats has been architected by kevin mccarthy. if he stays in power it will be him continuing to do democrats bidding. this is a revealing exercise it will show the country who is really in charge. jonathan: congressman matt gaetz of florida speaking after filing a resolution to oust kevin mccarthy as house speaker. the politics messy in washington, d.c. your 10 year off. yields higher by more than four basis points.

4.7244. the touch of dollar strength against the weaker euro. the currency pair negative .05%. tom: we are all watching different things. the real yield shocking. because of the events in washington we go immediately to annmarie hordern. our bloomberg matt gaetz stood me up correspondent. he was scheduled to be with amh but he had a matter at hand. we will digress to the campaign of 2024. i will go back to the gentleman from new jersey who lost a family member in georgetown and the tragic crime accident. this is not as dramatic. there was a carjacking in the navy yard and it speaks to where

we are going in 2024 affecting all of our listeners and viewers. that was in 2024. who will be soft on crime. jonathan: let's start there. the crime of the heart of our nations capital. on that incident, what is the latest? annmarie: we know the representative is ok but his car was hijacked. this was taking place in navy yard yesterday. he is safe and coming on the program this evening. he is a representative of a district that borders with mexico. he is very vocal about what needs to be done. he is very vocal on what needs to be done when it comes to the border. this is not the first incident we have seen in washington, d.c. where an elected official was at the center of a crime. this is something that will get a ton of attention. there has been a spike in crime in washington, d.c. five days ago.

the levels we are at for homicides is the most it has been since the early 1990's. this is a big concern for a lot of individuals. jonathan: car thefts, motor vehicle thefts have soared 106% so far this year. robberies up 68%. homicides have surged 37%. that is the nation's capital. tom: this is important. to bring it back to nixonian themes on soft on crime, what is the democratic response to what we are seeing in d.c. and around the country? annmarie: there is going to be a growing chorus of individuals who say d.c. has to get tougher on crime. jonathan just went through the statistics. this is something a lot of people talk about. they feel the city is more

unsafe, they worry about the cars, walking on the streets, whether it is the middle of the day or at night and you will see more democrats realize they need to be not just outspoken but potentially push the mayor to do more. tom: let's go onto the theme of wednesday this week. what is the to do list for the speaker of the house? annmarie: shore up his votes. this is something we have not seen happen since 1910, but there is concerned mccarthy could lose his speakership. the most important meetings are the democratic and republican caucus. both of those groups will meet at 9:00 and it does appear the fate of speaker mccarthy is in the hands of hakeem jeffries. mccarthy could only lose four republicans if all of the democrats vote in favor of ousting him. what punch bowl news is reporting is that there were seven republicans who are a hard

no, we do not want mccarthy, or we are leading that way. this has to play into hakeem jeffries hand. republicans want to talk about comments he made on pot save america that if a speaker is elected he should be speaker for the entire congress, to have some institutional continuity. potentially hakeem jeffries will say some democrats do not show up or vote present to make the margins easier for mccarthy to clear. you don't have to vote that you want to keep him, but do not vote at all. this morning will be very critical depending on what catherine park or hakeem jeffries decide to tell their conference. tom: i find it fascinating, the easy way out for mccarthy, which is to do a john boehner 2015, go through the process, maybe he survives, and then he resigns.

is that a possibility? annmarie: it is a possibility. it is also a possibility that he go through this process and remain speaker. it is not lost on kevin mccarthy how important this moment is and what it led to first speaker john boehner. the carthy was house majority leader when john boehner was the speaker. mccarthy did not have the votes after him. it ended up going to paul ryan. he is very aware of what this moment means right now and what past speakers have done. republican speakers have been dealing with this for years. it does seem like mccarthy at least very openly is talking to matt gaetz and they do see a path where he can maintain the speakership. the chair was on with us last night.

he has full support for speaker kevin mccarthy. he has his full support, but also because of the fact that his name has been floated. remember those 15 rounds, his name was floated. jonathan: as this mess continues they are not getting the work done they need to get done. the president has tweeted he would like to see a for ukraine. you know speaker mccarthy would like to see money for border security. how with these things come together? annmarie: this was a massive distraction not just a border security and ukraine eight and also the 12 appropriation bills that need to get done on the senate side and the house side. then they have to agree on it and send the appropriation bills to the president of the united states. when the debt ceiling deal, when they were able to agree on the debt ceiling deal, if they did not get those appropriation

bills there is a cut of 1% across-the-board. that is the impetus these individuals have to get the work done. the issue is this will be a huge distraction and take a lot of days. if speaker mccarthy loses this then we have to go to a speakership battle. how long did it take in january for that to happen? these are some of the concerns. you talk about ukraine aid president biden is steadfast. he feels like congresses drawdown authority -- the president will be reaching out to allies to tried to temper their concerns that the united states will be there in support of ukraine. kevin mccarthy made it clear on cbs that he once border security and ukraine aid to be linked. he said there is no ukraine aid if we do not get enough security for the border. jonathan: amh on the latest in washington, d.c.

i wonder how close we have with politicians having a chart with the 10-year-old -- with the 10 year yield. up 60 -- up six basis points. lisa: they will have to look at it when they pay the interest rate expenses. that will become a real issue. jonathan: at that we are getting closer. i am not saying we are there. tom: the bank of little rock is not normal in washington. jonathan: meghan robson is up next. ♪

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jonathan: session lows. down .3% on the s&p 500. on the nasdaq we are down about .5%. off .4% on the russell. here is the epicenter of the pain in the bond market. 10 year yield higher six basis points, 4.7390. a high of the session is the hive the cycle on the 10 year yield. tom: to get everybody's attention. we will give you equities and bonds. how about real estate? i made a 7.80 on a 30 year mortgage and i cannot quantify the trend to 8%. it is in place.

jonathan: blame game at the long end of the 10 year. the budget deficit, we talked about that all morning. how about china? this from torsten slok -- may beat china is behind the rising u.s. long rates. china is slowing procyclical and -- as a result china has fewer dollars to sell into treasuries. china has been selling $300 billion in treasuries. china part of the story for what is happening in the long end for torsten slok. lisa: saying they have sold $40 billion since april. at what point this this ad not just to the wall of worry but the wall of buyers stepping back? it is potentially japanese buyers, it is the federal reserve, it is china. who is going to pick it up and is their realization that the big bonanza is not coming into

by everything so why do we want to catch a falling knife? jonathan: they should up every -- tom: they should up every morning to buy and bid up on the margin. my bowtie is a mess. the answer is three quarters of a percent. lisa: people love it, especially on radio. jonathan: three quarters of a percent is the yield because china gave us a free lunch. now we are going the other way. jonathan: lisa and others refill her -- refer to the bond market as catching a falling knife or sticking your hand in a blender speaks to where it is at. let's turn to foreign-exchange. dollar-yen looks like this. the euro weaker, the yen weaker. we get closer and closer to 1.50

-- we get closer and closer to 150. what happens at 150? lisa: basically there has been intervention by japanese authorities when you hit the 150. i am speculating that currency traders are saying we will go as close as we can and see what happens because bill not tested and go against the whale. at the same time you can feel them testing it out. jonathan: the whale is what is happening at the long end of the curve. 10 year for -- the 30 year getting closer to 485. republican matt gaetz formally starting a motion to remove kevin mccarthy from his position starting -- citing kevin mccarthy support as a bipartisan deal. a house vote could come today with mccarthy needing a simple majority to survive. another look at the labor market with joel stated to at 10:00 eastern time.

bloomberg economics expecting hiring to slow. the highlight is still u.s. payrolls on friday. 170 thousand jobs for september is the estimate. the team at bloomberg expecting the unemployment rate to hold a 3.8%. the estimate is a drop to 3.7%. lisa: which is the wrong direction for the federal reserve where they're hoping for more slack in the labor market. when it comes to the jolts data there is a school of thought we might be seeing elevated levels because of the jobs and skills mismatch. the skills needed to fill the roles might not be -- it speaks to the uncertainty of the moment. if we work 3.5 days a week because of artificial intelligence, is this going to be that some people working six days a week and other people out of the job? tom: this speaks to two america or three americans.

a book 15 years ago on the d education of america. i have trouble with the jolts survey which michael mckee loves because of two or three america's. there is part of america that is basically unemployable. where they fit into jamie dimon's dialogue with emily chang? jonathan: i think there lots of problems with job openings because it is so easy to post a job opening. it is harder to get someone in a seat and hire them. that is why payrolls is still front and center. the trial for sam bankman-fried underway in new york. there 31-year-old facing decades in prison, accused of fraud against more than a million clients. his former colleagues are expected to take the stand against him over the course of the six week trial. at the height of his wealth believed to be worth $26 billion. lisa: we heard from mike lewis

that as long as he gets internet access in jail he should be fine. tom: i don't think it is funny. this is just an outrage. we are dealing with internet in jail? he is innocent until proven guilty. are you telling me he is asking for internet in jail? lisa: this was in the interviews michael lewis, the author of the book about the downfall did. jonathan: who is taking a lot of heat. lisa: that was one of the things he said that there is an expectation he'll probably spending the rest of his life in jail. tom: really? annmarie: -- jonathan: the impression is that michael lewis was under the spell of sam bankman-fried. lisa: that was the impression. he was making a hero of him. jonathan: they -- tom: they do this on the crypto show. jonathan: that is today at 1:00

p.m.. tom: kailey leinz briefs meet as she can. we will turn to a really important discussion. meghan robson joins us as we look at the debt markets. john and i are on the u.s. dollar yen watch. the real yield is someplace we have never seen it. meghan robson, head of u.s. credit strategy at bnp paribas. i am absently fascinated. you go right to the heart of the matter. a lot of people have to refinance. you guys are expert at this. how does anybody refinance in this market? meghan: it is a great question. we expect refinancing to drive dispersion into 2024. so far the market has been able to handle this well. most issuers have not had to come to market and refinancing,

given the bulk of borrowing we saw during covid. into next year we estimate 16% of the investment-grade market will have to advance 13% of high-yield. there is differences among sectors so there will be winners and losers. ultimately it will drive decompression across markets. tom: bnp paribas has the single best corporate lunch in the island of manhattan. not that i have been there to taste the fancy white wine that no one else serves except bnp paribas, but if i am having a fight -- if i am having a fine lunch i am looking out at commercial real estate. meghan: we see commercial real estate and we think it is a well telegraphed risk. we have focused on the exposure to banks. we see regional banks as being much more exposed to the commercial real estate issuance

and the losses we will see so that drives -- we are cautious on the regionals where you could see greater losses concentrated there. lisa: you think the risks are being accurately priced into spreads? crossing over the 400 basis point level but still far below where we were in the past couple of years. are we reflecting a financing risk that is inherent? meghan: we have a forecast that spreads will move wider into the end of the year but we are forecasting a more narrow range than we previously expected. you've seen all of this tightening in credit conditions but fundamentals have been able to help hold up well. we think that justifies a more narrow range. to break us out of that range we are looking at the consumer to rollover. weakness in the consumer and our economics team thinks that will happen later this quarter. lisa: are spreads a less

relevant feature when we are talking about yields at a time when the treasury yield is to begin a more volatile manner than penny stocks? we are looking at a 10 year yield posting new highs every single day. is that what you are watching and what your corporate borrowers are watching? meghan: corporate borrowing is very focused on all in yields. it explains why supply has been lower. from our perspective the higher yield levels will be driven by a higher return premium. eventually for credit to start competing with the investor base risk-free versus a corporate bond we think the floor on credit spreads could be higher than it previously was in order to start competing more with the treasury market. tom: when does the mid step in on fixed income? it is it a stochastic call when you have to wait for it to

happen or is it something you can protect? meghan: can the treasury market we think rates have already overshot fair value. we have treasury yields and in the year lower. closer to a 4.3 level. from our perspective that will meet credit and carry can still be an attractive trait. we think investment-grade long end can outperform if we see stability in rates and we also like the loan market where in higher quality you can get a pickup in carry over bb high-yield. jonathan: help me with the 4.30 call. what gets us there? meghan: it is getting back to the term premiums. we have a term premium and recognition from markets that growth will slow. part of the repricing has been a feature of this expectation growth can be much more resilient. part of it has been higher term premium and a piece has been this resiliency in growth.

as we start to see some weakness in the consumer that could come down. jonathan: 4.73 on the u.s. 10 year. meghan robson looking for a move towards 4.30. yields higher. we have played that game a time. the euro in touch weaker. the dollar against the yen, the yen a little weaker. 1.40 9 -- 149.95. there is a line and people do not want to cross it. lisa: it feels like this is a highly technical market where it feels like people are watching and trying to understand why the moves are happening and that is the reason you get torsten slok pronunciations about china. jonathan: let's check out the equity market. equity futures look a little something like this. -.4%.

this from andrew hollenhorst. the tenure selloff continued. manufacturing pmi rising to 49 provide evidence that goods weakness has bottomed and the u.s. manufacturing sector may soon be expanding further reducing the likelihood of a near-term recession. the recession call getting pushed further and further out. tom: we have seen this from a lot of different houses. maybe from citigroup or they've been right on higher rates. if you have good stability and some form of manufacturing stability, you lose that disinflation part of goods versus services and that does not get you to the arch disinflationistas. like how i did that? six syllables. lisa: everyone has been working

for a circuit breaker, something to push yields back down to something more manageable and it has not come. at what point, if the fed says we will stay on hold, does that lead to a further on mooring of rates? jonathan: yields we have not seen since 2007. coming up, governor ned lamont from connecticut. good morning. ♪

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>> it turns out that as an expansion it gets longer and longer, more of the wage gains go to people at the lower end of the wage spectrum. these are beneficial things. to have that, the record is also clear that we need price stability. jonathan: that was chairman

powell discussing labor market conditions in york, pennsylvania. apparently got in your full from small businesses grappling with high prices. lisa: they are really feeling the inflation. being squeezed from both sides. that is the theme they are hearing. strengthen inflation concerns is overwhelming the concerns the small businesses have about rates. jonathan: your equity market breaks down. down .5% on the s&p 500. equity futures softer. yields higher. yields higher six basis points. 4.7369. earlier 4.74. in foreign-exchange the euro in foreign-exchange the euro a touch weaker against the dollar. and tom has had one eye on dollar-yen. 149 146. jonathan: -- tom: this goes into

7:00 tonight, there wednesday morning, if we get a 150 print. this is fuzzy. i to look at the 10 year real yield and what that percolates through to business in america. i've never framed that statistic. i've never sat at home and said -- jonathan: if you fudge yourself with these numbers you will feel the pain. tom: with some -- with the support of ray dalio in connecticut they have put together a soiree in october, the greenwich economic forum. behind that in support is there governor ned lamont, governor of connecticut and has a storied history of doing business and attempting to keep business within connecticut. the idea of the transfer of connecticut to a greater new york business as well. thank you for joining us this

morning. what will you do about florida? what will you do about somebody in a million-dollar palace in greenwich or someplace else or somebody in a $122,000 rental paying $4000 a month in connecticut and both of those people saying i am moving to florida? what are you going to do about it? gov. lamont: good to see you. this is not a soiree, this is a hard-working group. we have a lot of fintech and financial services here, moving here. you are right. a lot of these firms also have a foot in florida. there is a competition. greenwich and stanford and miami. when it comes to housing prices we are very competitive. when it comes to workforce and young folks ready for the fintech world of connecticut is very competitive. we have had tens of thousands of

new families move into the state of connecticut and each of the last few years. i think we are making progress. a lot of people want to be here. tom: what is your most effective tax policy to compete with the american south? connecticut, they have a few marginal taxes. what will you do about tax policy in connecticut? gov. lamont: i don't think we'll ever be as cheap as florida when it comes to taxes because they can tax sunshine and tourism. we have an amazing education system which is a big plus. we have reduced taxes for everybody earning up to $250,000. we are the lowest in the region so we are making real progress. we have a limited the estate tax for everybody except the top 5%. i take that into account but i

also have to sell connecticut on the attributes. that is not just the lifestyle or easy access, new york or boston, great place to visit but would not want to win there. lisa: how difficult is it at a time to build up connecticut when you are losing population and you do not have the leeway of borrowing to build so they will come? gov. lamont: you are flat as a pancake for 30 years. we were losing population. a lot of older folks were going to florida. that is turning around. during the covid days our schools were open. a lot of folks move into the state. a lot came from new york and they stayed so our schools were expanding. the biggest shortfall i have is housing. i've to make sure we have enough housing.

lisa: some businesses are looking for that tax advantage. it is not just older people. i am wondering how much you can cater to the tax side of the equation when you cannot plug the gap on the borrowing side because of where yields are? gov. lamont: i can tell you that frontier, which was nearly bankrupt, did move their corporate headquarters but all the staff is still here. sit adele and apollo moved to the state. we are taking in order economy and slowly moving to a newer economy. i like the trend. taxes is a variable. new england, northeast is more expensive than the sunbelt or as i call it the hotbelt. we are getting more competitive every day and i think our workforce is a big advantage. jonathan: do you have a migrant crisis? gov. lamont: i would not say it

is a crisis but i watch it carefully. we have had a few thousand migrants. for us the waiting list is three weeks to three months. it watch it carefully. they have to get control of the border. that is the deal. jonathan: you are a sanctuary state? am i right? gov. lamont: that is not true. we have a couple of cities that claim that. we are not a sanctuary state. that said we have to get control of the border. tom: what you make -- jonathan: what you make of the attitude changes in places like new york where year or so ago they were welcoming migrants and now they seem to be turning their back on that once they after confront what that looks like? gov. lamont: i think a moderate is a liberal who was mugged by

reality. new york city has hundreds of thousands of new migrants that they have to shelter. kathy hochul has been very outspoken that if these people are there they'll have to be on welfare or they will have to get a job. it circles back to the fact that you have to control your border. jonathan: we saying that what we saw on this issue was virtue signaling without a price and they have now been mugged by reality? gov. lamont: we have had a lot of migrants going across the border going back to donald trump "caravans of terrorists" and whatever he said. we have to control that. maybe recognize venezuela and do some things to mitigate people wanting to come into the united states. tom: i am thrilled that you find

how we will save banking in the northeast. as you know you had six football field platforms in ubs long ago and far away. it is not that it did not work out, it is technology advanced forward. with work from home and technology, how does connecticut stay financial? gov. lamont: i think work from home is a good trend for us in the sense we used to have everybody commuting back and forth into the city and down to wall street. a lot of them wanted to be closer to home so they moved their headquarters. we are finding is maybe you are in the city two or three days a week. our metro-north trains on friday are not crowded at all. we will cut down there. people have a different lifestyle. i think the fact that you're closer to home in connecticut, you do not have to do the commute five days a week is a big plus for the connecticut

lifestyle. jonathan: appreciate the update. let's do this again soon. governor greg lamont of connecticut from the greenwich economic forum. confronting issues a lot of people are talking about. tom: he has been a straight talker. this is a guy who grew up advantage. fancy schools like exter. he has always been a straight talker about the cards dealt including high taxes in connecticut they real poverty sections in connecticut. this work from home thank, he is in the crosshairs of that. tom: his line, liberals mugged by reality. tom: absolutely. that will be a huge deal as look to ouhinon team. jonathan: michael o'rourke of jones trading coming up next. this is bloomberg. ♪

♪ >> there's been some weakness overall economy overall, much less than we would've expected. >> the fed reaction function is to make sure growth slows below trend. >> while i do think 2024 cuts are still on the horizon, there

are starting to be some doubts about how many cuts come about when. >> investors are going to start to look toward the end of 2024 and give up on looking to the end of 2023. announcer: this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. tom: radio, television, same as monday. markets on the move. it is about price down, yield up. take your weapon. i'm going to go with the 10 year yield, a benchmark yield. jonathan: same story, different price. new cycle high on a 30 year. the equity market break down just a touch. is it about the data? data was good yesterday. better than many people expected. is it about yield curve control out of japan? is it about the debt issuance out of the united states and

washington, d.c., or is it about china? take your pick. you said pick your weapon. pick your poison. tom: i know i'm never right. i can think about it as hard as i want and i never get right. you don't see the problem coming but we've not had the catharsis yet. jonathan: that's for sure, 11 weeks of the. about to be week 12 if this is anything to go by. negative again. at least getting closer and closer to that line in the sand. lisa: it's almost like people are just testing to see you is going to step over the line. there do seem to be these breaking points, these thresholds. policymakers grapple with a new reality. suddenly, the central banks, the policymakers are losing control on some level, and they are ok with that if it blink -- brings inflation down, except for japan. have they lost the plot?

have they lost the ability to tamp down on yields? jonathan: japan has got two opposing forces. weakening on the one side, treasuries on the other. and at the moment, they are showing some appetite to do something about putting the lid on it. haven't seen the same thing in foreign-exchange. let's see what happens. tom: the second, third, fourth intervention is never as effective as the first one. we are not in the business of predicting interventions here but we are going to be very in tune to it. we can do equities here in a minute after the data check but i just want to show this. as life goes on, this is someone who dresses warm talking about apple. this was made i believe over at

citigroup. i think that is gross margin solidity and it reaffirms apple to 240. so in all the chaos, there are people still out looking at apple as a moonshot. jonathan: there's one interview i've been excited about all morning. jeffries. that note that came out in the last week, if united airlines can get their passengers to lose some weight, maybe they could save on fuel costs. they are actually cutting the numbers. they are crunching the numbers. it is a whole new world in america. lisa: my favorite was the interview with the ceo of kellogg's, the maker of angles and cheeses, saying that we are going to take the is antidrug very seriously -- ozampic drugs may be seriously.

tom: we are in a wonderful template is to use how the bramo-cam to this gorgeous, grain edifice. these guys are talking about the weight loss drug. i've got six interns over here looking at me, and two executives over here. you guys are giving me grief about this. this is tough work. jonathan: you feel the need to actually tell people you are not on it. tom: what are the side effects? this thing is a free lunch. lisa: the side effects are supposedly not things that we are going to talk about at rectus time. jonathan: it can make you very ill. tom: lose strength. quick data check, the 10 year real yield. i've lost respect to the new high. jonathan: i want to know the

changes that warren buffett traded to go along with companies that have contributed to some of these issues. lisa: they are going to mitigate it, so it is going to be fine. tom: warren buffett, if you want to join us to talk about it, come join us. jonathan: it would be lovely but i sense that he probably won't come on to talk about it. equities on the s&p, negative. yield a whole lot higher. there we go. 6, 7 basis points higher. tom: right now the perfect guests, and the equity markets, what do you make about the short-term's and that is out there, the short-term trends? michael o'rourke, in the old days, you and i had otc traders, we would call them up or we would give them giants tickets

and they would tell us what was going on. we don't have those old days anymore. what he perceived in the equity market now? what is the tone that you see? >> i thought the utilities sector provider and a great signal yesterday. the group closed down almost 5% and i think what we are witnessing here is the broad market investors waking up to this new interest rate environment and obviously we focused on it this warning. we are then in this low rate environment to see it fed post-global financial crisis very long time. i think the market see that is going away and we are starting to see multiples recognize that rates are definitely going to be higher for longer, but what you are seeing is you're going to hit air pockets on the way down

as you go back to more traditional multiples for stocks. jonathan: have you got a decent read on why yields are so much higher? we've had so many different explanations on that. the focus a little bit more on the budget deficit out of washington. what is your focus on? >> they are all out there. the budget deficit is out there. higher for longer is coming to a reality where the market has been in denial of that, this environment that was pretty much driven by china. that has gone away. i'm a big believer that the neutral rate is higher than where the fed sees it as being now, so on those measures alone, you have to say there is a risk that interest rates are going to be higher not just for longer. it could have been generational lows of interest rates going

forward the same way the early 80's were a generational peak in interest rates. that is with the markets need to acknowledge right now. lisa: how much have different markets adjusted to the idea that you are putting forward that perhaps the 10 year is reflecting more accurately which is higher rates for longer and possibly nearing 5%? >> i think we are starting that process now and i think that is what is really interesting. because if you go back the past few decades, the average multiple for the s&p 500 when the 10 year yields was in 10 basis points at the direction of these current levels, it is about 14% lower. 17%, 18% lower. so there's a lot of room. there was another one about "the magnificent seven" yesterday saying that the premium

valuation is at six years. those premiums are going to get tighter as the broad market continues to exact -- extract. tom: 18.54. we did this to start the morning off. where is catharsis right now? don't give me this 20 level, give me some drama. >> it is significantly higher. there is a lot of risk. q4 is going to be very challenging. markets still expecting 10% earnings growth. we have the highest interest rates we had in 16 years. i mean, i think you would have to see the vix north of 30 to see some type of process. i think there is a lot of risk going forward in the market is only now starting to price it in. jonathan: utilities have suffered, discretionary has been getting battered.

where do you see under the lid of the s&p 500? where do you see which sector is most vulnerable? >> i definitely think it is the groups that are leading. they have these premium multiples. you're talking about the biggest stocks in the world, trading at almost double the premium of the market. now it is 1.6, one .7. and again, those premiums will contract and that is where a big risk comes in the play. almost four out of every five futures down yesterday. the rest of the markets has been pricing in risk. they are with a larger risk comes into play because if start breaking down and selling off, you are going to feel it even more.

and then you throw when this whole government shutdown being avoided for 45 days, making it to the week before thanksgiving. it just gives investors another reason to be more defensive and we had a pretty big year for the s&p 500. it is a good signal to take your profits and walk. jonathan: just to be clear, you are not aching about a retest of the october low coming up to the anniversary of that on friday the 13th, for what it's worth? >> i think it's absolutely possible. i'm not sure it is going to happen this year, but i would be more cautious now than any time since probably april of last year. jonathan: michael o'rourke, thank you, sir. we could retest the october low after last year. equities on the program, welcome. -5%. yields higher by six basis points.

just short of that at the moment. lisa: i'm just digesting what michael is talking about, this idea that the big tech names have really driven everything and we are seeing the pain that is being priced in in other areas. does this get us to a market that may be higher, but under the hood a very painful reality of dealing with rates where they are? how much does this disconnect grow over time? tom: i think it is so important to separate profit-making, free cash flow companies and juggernauts from everybody else. a brilliant essay with brilliant charts today about the free cash flow generation of a celine t-shirt. do you know what those things run? $22, i thought they would be coming in at $29.

if it is my size, if they made them. the markup, are you kidding me? they make them in the same factory. they fullback in margin, but lisa they are profitable. lisa: so by luxuriant by tech? tom: put the teacher in the dryer, that is the pro tem. jonathan: they shrink, they do. catch up with jeffries on the airlines next.

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♪ >> at this point, i suspect we may -- may well need to raise the funding rate once more this year and then hold it there for some time as we curate more information on economic development and assess the x of the tightening of financial conditions that has already accrued. jonathan: the cleveland fed president speaking to business leaders and lawyers of the 50 club of cleveland. welcome, equities and session lows down by 0.6% on the s&p. the dollar stronger, the euro negative by 0.1%. let's round that down. looking forward to this conversation all morning. rising fuel costs weighing on the airlines but it could be a

positive just around the corner. as new weight loss drugs hit the market, crunching the numbers in writing this. united airlines would save $80 million per year if the average passenger weight falls by 10 pounds. this wood trim 1790 pounds from every united flight, implying a saving of 27.6 million gallons for year. that is some big numbers. tom: this is important. i'll do some research for you. my father died and i had to take on very short notice and economy trip. i didn't have a choice, get on the plane. and i can report to you a surveillance analysis which is appropriate for someone who owns electrical equipment in credit suisse and now at jefferies. the economy with of a united seat is 16.8 inches and business class is a lofty 20.7 inches.

i had to set up the entire way because i literally couldn't get in the seat. it is worth in fenway park. jonathan: that is brutal. let's start here. how did this study start? what are the underlying assumptions going toward this? >> kudos to the jeffries equities research department for pulling this beast together with 30 analysts across the department and how weight loss drugs could potentially helpful and impactful to industries. for airspace and defense and airlines, airlines are constantly trying to save you will. fuel is 25% of their costs, something out of their control. fuel is up 20% and engine manufacturers are having trouble getting the fuel efficiency costs. so we said what if something out of their control happens in 175 people on the flight lose 10 pounds because of whatever diet

they are on? what does that do? we checked a stat going back to 2018 that poor united airlines put out there. they saved one ounce on every passenger seat from changing the feedstock of the paper that they used on the united airlines magazine and saving 11 pounds per flight. so we extrapolated that and took 10 pounds per passenger, 175 people per plane, what happens to the fuel savings? we saved $27 million. it is only 2% but it is a savings out of their control and you don't need a new engine for that. jonathan: so this is a what if. are you prepared to say that this is a proxy now for ozempic? >> variable cost is very difficult for them to manage with fuel going up. in all seriousness, that is impacting shares of the airlines. so far, labor costs are up 40% as well.

with 50% of the cost of significantly, it is definitely weighing on the airlines and we are going to see that into q3 earnings coming up in two weeks time. but the cost element is waiting in and the revenues are as well. tom: i had to go back for united airlines. i was thunderstruck at the percent of business class seats. the more i look back, it is bigger and bigger. one study says they've gone from 30 seats to 46 seats. when is the time and business class simply takes over the profit proposition? >> >> going on right now is the haves and the have-nots. for the first time in a long time the network carriers are having their way because that premium passengers holding of the pressing element in the mainline cabins are seeing price deceleration year-over-year and overcapacity to leisure markets. you are really seeing a tale of two markets were southwest,

jetblue are pretty announcing pretty negative results on their visibility, and delta and united are seeing premium pricing happen because of the business class. lisa: let's put that together, this idea of the potential for weight loss to improve the margin for some of these companies, and the idea that a lot of the companies are earning the most from the front of the cabin. how much can they really push in terms of extra expenses before they have a real pr problem? what would happen if you had a company come out, one of the discount carriers, and say we are going to weigh everybody before they get on the plane and if you are over this, we are going to charge you more? >> i think that is part of the problem with the discount carriers. it is a lot more difficult, there is no variability in the class you sit in. i think we are far away from waiting passengers. jonathan: we weigh bags, don't we? you get punished if your bag is too heavy, don't you? lisa: how much can people

handle, how much can people put up with? paying for drinks, paying for snacks, paying for the air you breathe, paying for how much you weigh. at a certain point when does this become a real problem? jonathan: but where does that 10 pounds come from? are you making assumptions about what could happen to the average weight of the passenger? >> i think these weight loss drugs. clearly i'm not on them but people tend to be on them and if they lose an average of 10 pounds, 175 passengers per narrowbody, why bodies are 300. it was actually in light it because we cover the airlines, the aircraft oems like boeing and the engine guys like ge and rtx and they are having such mega issues building these aircrafts, it was just a fun way of looking at something that is completely out of their control, not having to do with making a few slides with spirit. and the engine manufacturers,

obviously having a tough time with the contamination in the engine. it is a different angle of looking at something completely out of their control. jonathan: let's get to the nuts and bolts of what is happening right now. are you starting to see limits to the consumer appetite for flying domestically in america? >> that is our debate in q3. we are going to see what results after bring. we downgraded southwest airlines in the beginning of august on that structural call that the u.s. domestic consumer is in a tough spot, student loans are coming back. it is weighing on their savings. that mainline cabin passenger is going to see some difficult times. pricing is up. we saw q2 pricing down 1%. there he different from the story we are seeing in the premium business class cabin. very different from transatlantic. so in as a matter of what we see in q3 results. jonathan: tom: i just ran through the paris flight which i

think at one point was $7,000, even $9,000 in the pandemic and all that. shocking statistic. 2600 $12 business class to paris out a couple months, when you're are planning months out. economy used to be $700, even $900. it is now $534. you pay premium to apply -- to fly. jonathan: you paid a premium, just to be clear. the latest on the airlines. coming up in the next hour, kim and doris and new age wealth to try to navigate through some of these bond market issues with a 10 year yield. just pulling back from cycle highs, your 10 year cycle high earlier in the session. tom: stay on that, folks and particularly global wall street. just a depth coverage of fixed

income dynamics. jonathan: love matt. tom: different places, but he is the real deal. lisa: i'm laughing that you're saying we are heading back down before .72. if you had said that a week ago. i'm not criticizing that, i'm just saying it tells you where we are. jonathan: sensitive about these things. i'm all right. equities coming back just a little bit. we are -50.5%. live from new york, good morning.

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♪ tom: bloomberg surveillance, jon ferro needs to prepare for the 9:00 hour and of course, that shakes japanese yen. stronger in the last 10 minutes. from the precipice of 152 a stronger yen, which is 109. indignant in the bond market as well. -- indicative. lisa: i take your point about the coordinated move as john was talking about, you are seeing that in the currency markets, moving away from some of these other levels. are we seeing buyers staff in, or just a moderation of what you would call moonshot of yields heading higher? tom: do we have fed speakers today? lisa: we have raphael bostic

coming out about a half hour ago. tom: joining us now, our chief speaker analysis. always a jolting interview, michael mckee joins us. >> you combined the two thoughts. tom: i'm going to combine three. major league baseball, the real season starts tonight. mindy of bloomberg briefed me on the baltimore orioles. a mindy brief is a lecture. we will have more on her majesty, i can't say enough about the excitement of going into the world series. i want you to clean your expertise on what the four were he said yesterday. we have time to act carefully, think about what we do.

does it really make much of a difference? i think michael barr doesn't usually talk about monetary policy, but he did yesterday. it's not so much about raising rates once more, it is how long we're going to keep rates high. that is the real question. tom: we talked monetary policy, a parlor game. forget about all that malarkey. michael barr, what is he and his bank supervision doing to study this interest rate move on our basis in? >> he talks to banks all the time obviously and is talking to bank examiners all the time and their message has been very similar since march when we had the banking system, make sure that you are in good shape. but the data that the fed has collected is basically telling them that banks are tightening

credit, but it doesn't seem to be beyond what would be normal in a situation where the fed is raising interest rates, so we are going to have a little bit tighter credit. now the question is who is going to borrow, how many people are going to borrow? is this going to be different because they are trying to shut off or bring down the flow of credit and at this point, it hasn't had as much of an effect as previous fed tightening's. lisa: although now we are finally seeing the tightening in the long end. do you think the fed is believed to see the market waking up to what they are saying? >> we were pricing rate cuts and still are to a certain extent, but the fed is not going to be cutting rates anytime soon, not until they see inflation coming down. inflation has been coming down faster than they thought. we may end up with core inflation is lower than their anticipation which can change minds about where the fed is going to be next year, but for right now, the fed likes the

idea that conditions are tightening because that is what they are trying to do. tom: if we get david rosenberg and others disinflation, three-month annual, do academics , do they bring that right over to the bond market where yield will follow the disinflationary trend? >> essentially yes, but people are not looking at the disinflationary trend in terms of what they are pricing in the markets right now. they are looking at where the fed is going to keep interest rates. the fed is saying it is going to keep interest rates at least at 5.5% through next year, and if they come down, you look at real rates coming down to about 3%. that is still not going to be the kind of zero rate environment we had before. it is not so much inflation as it is how do you get inflation back to 2%? tom: are you going to be around

for jolts at 10:00 a.m.? >> i am going to be around at 10:00 a.m. tom: be there. conference four is one of the great institutions of america. to be blunt, full disclosure my grandfather was involved. this goes back to world war i, it goes back to trying to figure out how to aggregate statistics before the revolution of 1947 and statistics as well. on to the modern-day and gail foster is incredibly important work and the conference word is absolutely definitive on the pulse of business in america. what is business doing right now with his yield move? >> i think businesses are looking at the fact that the cost of capital is rising and they are starting to pull back on investments certainly when we look at our co confidence measure, many ceos, even 84% think there is still going to be

a recession coming and they are starting to think about what to do with investments. but surely they are still holding onto workers. jonathan: i look at this and this goes to the conference board research, that is convex of the of this real rate, this new environment we are in. the rate of change is shocking. do you see that in the conference for research? >> certainly when we asked consumers what they are really concerned about, deep in the weeds they say they are concerned about higher interest rates and what that means for purchasing items, especially big ticket items that you need to finance. you are still mainly concerned about inflation and certainly they are becoming more worried about the labor market. lisa: the fact that there is more concerned about inflation there is more concern, does that solidify to you that we are not going to enter a recession in the near term, that we can keep going the way we are just simply because they keep seeing the

customers, they keep seeing the sales? >> i think we are seeing some slowing in sales certainly wouldn't retail sales came out in august. i think the consumer is going to be faced with a number of hurdles, just as this weekend. student loan payments returned and that is roughly 44 million people impacted. many of those people are between 35 and 49. those are peak spending years. when you add that on the fact that many consumers is spent that money are turning to credit card use, certainly with higher interest rates still yet to impact the consumer spending, we think that we are still headed for a short, shallow recession probably in the first half of next year. lisa: the key component that we've been looking for is the labor market. there is a question about whether some of the wage increases will offset the

inflation, will actually be of the appositive wage growth which we actually started to see in the past number of months do you foresee that being the new reality just because of the structural tightness of the labor market? >> we had two things going on. wage growth is slowing especially in services. not so much in the jobs where you have to physically show up to work, but inflation is coming down, at least underlying inflation. there is an offset so the first time we've had several months of real wage gains. but still only ask consumers what are you worried about, they are still complaining about food and energy prices and we know that energy prices are rising. that is a bread-and-butter type issue and for many consumers, it doesn't matter what is going on. if it costs more to fill out your tank, than it costs more to fill up your grocery cart in the world is not a great lace.

you are seeing the activity of labor unions coming out saying we are not the pace with those increases at the pump, increases at the grocery store, demanding higher wages and getting them. how much are you watching this with interest to highlight how much we can see wages continue to go up at a significant pace simply to offset the pain you're talking about? >> the key thing is the number of people in unions now is much lower than in the past. i don't imagine that the actions we are seeing and increases in wages due to union actions are necessarily going to spiral out of control and filter throughout the rest of the economy. but like i said, we are seeing wage growth slow. we are going to see that slowed to a more sustainable pace. tom: what we see in the jobs report? i'm asking for a friend.

>> i don't know with the numbers are but i would not be surprised if he saw continual slowing and the number of gains compared to last year just looking at three parts of the labor market. we are probably going to continue to see job losses in those sectors that did very well during the pandemic and are not doing so well now, and also some continued gains in health care and hospitality. tom: what about the real wage? you've got the doom and gloom dana peterson managed to get. are they also going to have disinflation? do i have a level or even an increase in inflation-adjusted wage? >> it depends on your inflation gains. if you use headline, it is probably about level. like i said, overall inflation is rising because of gasoline prices. but if you use the core, you will probably cease and easing or some improvement in real adjusted wages.

tom: dana peterson, thank you so much. rameau did it, she was out with decisive analysis an hour ago. it is a little calm her than the hysteria. lisa: i'm not going to take full credit to it. there is this question at what point we reach sums of knitting point where yields are self-correcting, and i'm looking right now at this question around what the relative value is of earnings on the s&p 500 vs. 10 year treasury yields. that gap is getting really close to the narrowest getting back to 2002. we started looking at these types of relative value, wonder when you are getting the pressure that pushes yields a little bit lower. tom: it is a toxic brew. certainly we heard from multiple people today, lisa, that you've got to get out to 25, or dare i

say 30 to get any sense of sweat out there. i don't since the sweat out there in the land of our listeners and viewers. i don't mean to speak lightly of the commercial real estate where i do see some sweat. lisa: there is a lack of sweat when people are getting wages, getting jobs, but we've heard this again and again. companies have a bigger problem with inflation and with hiring than they do with getting a loan right now. tom: futures -26. futures down 6/10 of 1%. lisa: coming up we are going to be speaking with david rubenstein of the carlyle group. i'm really curious to hear about his discussion with howard marks but i think this is going to be interesting at a time when we are seeing this question about long-term valuations from someone who has decried fed policy for as long as they have.

tom: i'm looking at rubenstein and just saying what is the effect on the orioles winning 100 games and they get to sit out the wildcard soiree? do you get stale sitting up the wildcard soiree? that is the only question for rubenstein. lisa: is that why you were signing? tom: no, i actually watched 10 minutes of duke football this weekend. lisa: how did it go? tom: it was good, they are planks and serious football. rubenstein called up and said this is an outrage. it is not like the on sanders in colorado but into the same rubenstein effect. lisa: did they have taylor swift in the fans? tom: when you are duke you don't have a taylor swift. lisa: how much they are marketing that is going to be really interesting. going forward i think it is going to be a really important date to see whether we can see this yields move state. if we continue to see this state, at what point does it keep getting legs, or do the potential buyers the kind of

wonder what is behind this? tom: data check here, futures deteriorate. dow futures, -168. the vix now out a full point. in currency, let's go there. 149.94. good morning,, good evening in new york for wednesday morning in japan. sterling, 120.71. looking at 3000 square feet in kensington. stay with us, bloomb surveillance. surveillance. ♪

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>> i would like to see the fed get to a neutral position which is neither stimulative nor restrictive. i would describe that as two of the four. if inflation is true, the fed funding rate should be higher than that so that there is a positive real fed funds rate.

tom: howard marks, he's with oaktree and long-ago securities analysis at citigroup. he has been out front and center on the debate over prosperity and capitalism in america. great supporter of the show. lisa, he and i go back far enough to where he was just a huge support when i was trying to figure out what to do with equities bonds currencies commodities. lisa: he is a tour de force in one of the founders of the market in many ways. he has said he started in stocks, didn't understand them and then he understood bonds because it is a cash flow question of are you going to get your money back in are you offsetting the risk of why you are seeing with respect to the potential for a default or lost payment? tom: a spirited conversation. did you get the equity call for

mr. marx? >> i wouldn't say so, but what you described about him was certainly true. howard marks started in 1995 oaktree with his partner and in the ensuing years, it built into one of the largest data operations or investment firms in the world. incredible track record. howard marks is best known for the memos he writes through his clients which are seen all over the world because they are more than just his clients and he is very intelligent and what he says about the markets and what they are likely to do, and i suspect the federal reserve probably reads them as well. tom: howard marks it is not so much what he does, but what he does not do. what is the number one thing that mr. marx and his philosophy tries to avoid? >> he tries to avoid undue risk. we tries to make sure he understands exactly what he is investing in, and he loves to invest in fixed income instruments. the main point of the interview with that he sees a gigantic

shift in equities to fixed income instruments over the next couple of years because those interest rates are likely to stay high in his view and it is likely that more and more investors will say i don't want to take the risk of equities when you can lose all of your money, and i'd rather go into fixed income where you're going to get a current yield and are almost certain to get your money back. lisa: the golden era for credit, particularly private credit at a time of that kind of yield. before we get there, how much is there going to be some sort of washout of companies that finance themselves during a low rate era that don't really fit with a much higher borrowing cost? >> for sure there will be some companies that don't work out. i think particularly things in real estate which borrow a fair amount of money. commercial real estate and office buildings are going to have some real debt restructuring problems. but overall the issue he wanted to address is the macro shift in investor sentiment away from equities and private equity and

more toward fixed income and private credit. of course, is in that business but i do think he has a lot of truth what he says. lisa: i'm wondering for your perspective, you've been in this business a very long time and i'm wondering whether you think that in some ways because of the amount of money going into private credit to whether private assets, they are going to offset some of the lending constriction that we are going to see from banks. in other words, they are going to take over that role more and more as banks are forced pullback with balance sheet that they have full of treasuries. david: the banks are generally regulated pretty tightly in many ways. the private credit market where you have many private firms that are not regulated with this particular aspect of what they do, they have some greater freedom to do things and there is therefore some tension between the banks and what they can do and the private credit firms and what they can do. and i suspect ultimately congress will take some look at whether there is a problem. i don't think there is a problem

but if you're already false and so forth in future, people may take a look at private credit. right now the private credit market is operating pretty efficiently and i don't see any need for regulation. lisa: how much is the expansion of private credit offset some of the contraction in lending that we seen at banks? frankly with companies that are struggling with interest rates, offering them extensions, financing deals to offset some of the impact of higher rates. david: it is offset to some extent the credit credit people still have to charge fairly high interest rates compared to what we saw three or four years ago, so it is not as if it is a free lunch. private credit firms are able to do things that banks can't do, but they can't give away the money for free. there are constraints and there are fewer deals getting done in fewer larger deals getting done generally, particularly when you have to borrow enormous sums of money. tom: i'm going to throw you a curveball and it is not your beloved baltimore orioles who

really start strong and these baseball playoffs. yesterday we saw a spectacular announcement of the nobel prize in medicine out of the university of pennsylvania. that is a school north of johns hopkins on mrna. you've put money where amount is. i want you to talk about the efficacy of fancy guys like you ponying up money in your case to johns hopkins university and to paul fuchs. he was at stanford. the david rubenstein professor in medicine at johns hopkins. why does a guy like you directly support peer science and medicine research? david: that particular investment is designed to help with hearing. i've had some children who were born with some congenital hearing loss. my own hearing is probably not as good as it was 10 or 20 years ago, and what i learned and what hopkins is doing research on is

this. birds have hair cells in their ears and they regenerate them throughout their life so they never really lose their hearing. humans have about 20,000 at birth, and during the course of their life, they lose them and eventually if you lose enough of them, you are able to hear at all. the question is can we generate in humans hair cells as birds do as well and if we can regenerate them, we would eliminate the hearing problem that people get when they get older. tom: the claim of johns hopkins is your research versus applied research. we wouldn't have had a covid vaccine without research like you just described. are we doing enough in that area? david: you can never do enough, but mike bloomberg is the biggest donor of johns hopkins, the biggest donor to any one university in the history of our country. he's given staggering sums to johns hopkins.

a lot of it is for research. i think research is necessary if you're going to have applied research. pure research really develops the kinds of things you see that was done at the university of pennsylvania because it was not thought at the time that there was necessarily an application that would solve with covid but ultimately turned out that way. pure research is necessary to get applied research. tom: i can't say enough about this. those on radio, the research capabilities of m.i.t.. david rubenstein, thank you so much in conversation with howard marks today. also at 10:00 a.m., david westin. i guess formerly of bridgewater, can't believe i'm saying that. and more subdued market. lisa: it is less of a moonshot,

less of a steady line up. 4.72 percent on that 10 year yield. still a stunning to to stick reaching intraday highs. at a time when people are looking at growth that was pretty good, looking at a fed that is normally on hold for longer, they are not seeing the financial accidents some people thought would be the case. tom: how do you measure the tension in the commercial real estate market? is there just an easy spread you go to every morning to see the agony of commercial real estate? lisa: there was a story that i thought was really telling about how there is a tower on 50th street in new york and there is a law firm that just decided to terminate its contract. tom: going over to hudson yards. lisa: 50% of all of the office space in this building was owned .

this property has a $1.2 billion mortgage. at some point, when does that start getting priced into the market more? some people argue it has already gotten priced in to some of it but we don't understand the ripple effects, and we don't even really understand the change in office property in particular. that is the reason why people point to this. other areas have been much more resilient. tom: we've been resilient. thank you to our team for really putting together a set of interesting guests to see. futures deteriorate -30. these are s&p futures. 10:00 a.m., weston in conversation with --. this is "bloomberg surveillance." please stay with us.

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jonathan: new quarter same story, yields up, suck some. could morning, your s&p the session lows, the count onto the open starts now. announcer: everything you need to get set for the start of u.s. trading, this is bloomberg the open with jonathan ferro. jonathan: live from new york, coming up, the bond market sending yields to new cycle highs. nation's capitol distracted by a gop power struggle and sam bankman-fried trial begins. the vigilantes, a back -- are back. >>