>> financial conditions have tightened but the economy is still rolling. >> we have seen a remarkably resilient u.s. economy. >> we will see competition return in a lot of spaces. >> the u.s. consumer has been incredibly resilient. >> the consumer's story is starting to emerge. announcer: this is "bloomberg surveillance" with tom keene, jonathan ferro and lisa abramowicz. tom: good morning, everyone.

jonathan ferro on assignment this morning. i talked to his agent. he may return. on fed day, our special coverage this afternoon. richard clarida will be with us, the former vice chairman for global wall street. lisa, good to hear from dominic with all that is going on. lisa: it is fed day and treasury refunding day and it is unclear which will be more important. there is a question around whether it is just a placeholder meeting or the federal reserve -- stephen saying how many ways can you say we will see? tom: we will do a quick data check. it is simple here. equity markets are ebbing away but it is in the yield and currency space.

dollar-yen, give me a 7-day chart. crude oil eases back. global slowdown? you tell me. not given me much. the 7:00 a.m. chart, the explosion up to 151. lisa: overnight we saw central bank officials in japan saying that they have seen moves that are not aligned with fundamentals. they also came out with an unscheduled bond buying operation that highlights that they want things to float higher when it comes to yields but not this quickly. tom: i had an unscheduled bond selling operation to go grocery shopping. i look at the cost and i said i think i need to sell some bonds. the real, 2.48 percent. the dollar is stronger. 1.7 on dxy which indicates the turmoil. lisa: especially since so many thought it would fade. we are watching a double barrel of events. 8:30 am u.s. treasury refunding

announcement comes out. the key aspect is we know the u.s. has to raise more money but how? will they concentrate it in longer duration given the options or will they concentrate it in the t-bill space with the accreditation that yields go long and will go down. tom: janet yellen got criticism on this. are they supposed to gain the bond market? lisa: it is a great question. if she says we think yields will go back down, this is an anomaly. why wouldn't they say bills and wait for the year to rollover and then sell longer-term debt at much lower costs? tom: should we be doing a 100 year bond like austria? that worked out. lisa: now is probably not the time. ism manufacturing for october. a lot of people think of ism as being more current. tom: this is jonathan ferro's favor chart. lisa: you should talk to his

agent one more time. there is a question here about how accurate this is and that job openings are still highly elevated. it is amazing we are using this indicator as people thought of it in the past as highly messy. we will be here for the fed special. will this be an interesting meeting, tom? tom: silence on the set here. i think it will be because no one thinks it will. i somehow think the press conference will be energizing. i am centered front and center on the deterioration of the banks, the heart of the financial system. i don't like what i see. lisa: there has been such a deterioration near the lows that we saw back in march when we saw real potential, existential threats. tom: speed opening of the show. joining us now to begin strong on this day of the federal reserve meeting is dominic,

literally iconic at credit suisse. we are thrilled he could join us. i give you the phrase, super restrictive. is jerome powell's fed combined with market action a super restrictive fed? dominic: if you like the overhang of debt refinancing in the corporate sector, clearly the front end is super restrictive and those gains will have to get reversed aggressively at some stage. the issue is the timing. that timing has been pushed out because the consumer who has great balance sheets has decided that even as they spent all of their fiscal excess they were given after covid, they are deciding to leverage up even

with interest rates as high as they are but they can do that because of the balance sheet. that delays the impact of this restrictiveness which is a conundrum for the fed. tom: not higher for longer but just longer. what is the cost to jerome powell of the longer strategy at these levels? dominic: what has happened is that the fed has decided because effectively they are super restrictive. it did not want to keep on pushing up short rates. they have emphasized this idea that they will just hold at a high level for that much longer. ironically that directly feeds into a selloff in the backend, the idea that what will be called term premium is risk premium and short rates that will end up being higher. that gets priced into the market which is why you have had this

enormous bear steepening going on. in a way that is not a bad thing if you want to slow the economy because that will undermine and is undermining risk assets and it will help to tighten financial conditions overall. that is the impact of what the fed is doing. there is a risk that they run because you get people concerned about the refinancing of the treasury. when they decide to issue longer dated debt, that is coming in at higher interest rates and you start worrying about a vicious circle where if you cannot reduce the deficits, you have another problem because your interest service costs are going up at the same time and that will get people worried about this idea that the treasury will not be able to sustainably fund itself down the road particularly when you get those bigger issues coming up, structural issues that will mean higher deficits. lisa: there has been a

comfortable tension between the treasury department and the federal reserve especially because the treasury department is helmed by the one and only janet yellen who used to head the fed. how much will the treasury try to game out the market and give a helping hand to the fed by not concentrating on some of those debt sales in the longer end and wait for things to normalize? dominic: that is a great question and issue. strictly speaking, i don't think treasury should game things too much. they are not really traders and if they were, may be god help us. the idea is you have rollover risk. no one really knows how quickly long-term rates might resource -- might reverse. where is this mutual right? it might be higher. 10 years trading around 5% is the new norm. i think it would not be

appropriate for the treasury to try to game the markets for the near term and second-guess that short-term rates will come crashing down and they will be able to refinance down the road by extending maturity later. i think they will extend the duration. i think the estimates seem about right, $114 billion and putting it in coupons. because of the announcement earlier in the week, they can cut their supply so that is our expectation. lisa: people expect this to be a boring meeting. stephen saying how many ways can you say we will see. this will be a holding pattern and we see a distance growing where the market sees a chance of re-accelerating inflation at the same time that the fed is seeming to agree with janet yellen saying that yields will go back down. do you think they will bridge the gap today? dominic: they could. they always have the option.

obviously the selloff on the long end is very interesting and they can definitely address that in the conference call and basically say that is doing some of the work for them. they can also be, even though inflation has been sticky on the latest prints, they could be more optimistic on that. we have done some background analysis on that and the reason why inflation has been sticky, it has been on the demand side and less on the supply side and that is encouraging because that is more understandable and indicative of the underlying trend that is still in place for inflation. the global inflation picture has been better. i don't think it will be an uninteresting meeting or press conference. it is a question of how far jerome powell want to go down the road to reassure the markets. to what extent does the fed really anticipate or understand

that their actions at the september meeting were going to lead to this near 100 basis points selloff? it is very dramatic. did they really expect that? tom: we have known each other for years so i will go from the macro to commercial banking. bernanke taught us at princeton that financial structure and strength matters. i am looking at the technical constructs of the american banking system and i do not like what i see. should the fed full do in what is happening to the banks right now? should day today pay their meetings to the weakness that we see in commercial banking equity prices? dominic: absolutely and i think the thing that so many people miss is they think that banks are less important now than they were before because of alternative banking, private equity, fintech, other forms of

leverage in the system that people seem to think credit is elsewhere. credit is outside money which is a central bank. you can say stop the credit creation process. there is something called inside money which is the banking system and they continue the credit creation process. that pretty much is how credit is created. money can only be created by the fed and the banks. it cannot be created by private equity. they have to get their leverage from somewhere. you always have to go to the banking system and you always have to focus on if the banks are doing their job, even if the leverage or the ruling system is getting higher and higher, they are the ones if they pull the plug, then the whole system can implode. it is important what is happening with the banks. it is a big concern that lending is slowing down.

there is regulation and some capital restrictions taking place. that is all part of the cycle and as long as the fed is there to pick up the pieces at the end of it, then those pieces will need to be picked up. tom: you sound like the late great allan meltzer. are you concerned that the shift from deposits to money market funds -- is that going to destabilize the system? dominic: it has been a challenge but to be fair, the buildup that the treasury has done has come at the expense of a lot of the money market funds. the fed has actually managed this process relatively well with the help of the treasury. it is a relatively orderly process but it is something you want to keep watching. tom: thank you so much.

dominic konstam, terrific brief. lisa, this is so important in any given econ 101 book. chapter 23 is the banks and i never bought that. to me the commercial banking system is a huge part of the fed meeting that we never talk about because we are looking at rates, jobs. this is the fed meeting, i am looking at those charts on the bloomberg and saying maybe this is a meeting where he has to talk about the banks. lisa: they have been supporting the banks with that emergency funding program that can basically evaluate treasuries at face value. tom: michael mckee and lisa abramowicz really focus on this funding announcement at 8:30. we continue strong to continue this hour with yardeni research. this is "bloomberg surveillance." it is fed day.

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>> remaining offsets means defending ukraine is a break with a bipartisan process that can have devastating applications for our national security interest overseas. there should not be any political games played with our national security or trying to turn support for israel's self-defense to some sort of political football. we are clear how deeply concerning this bill is and how

it does not meet our national security needs. tom: kirby of the national security council managing the message yesterday in an extremely difficult 24 hours and broadening more in the eastern mediterranean. all the focus on gaza. the headlines have been absolutely atrocious. lisa abramowicz and tom keene we move away from fed day and move to international relations. oliver crooke is in tel aviv and joins us. i will not mince words and i will say this with respect to your reporting in tel aviv. allan taylor at the washington post harkens back to the prime minister's comments on pearl harbor of 1941 and the attack by the allies on copenhagen and the gestapo and i believe it was 1942. allusions to world war ii.

how is that received by the israeli people? how do they receive the prime minister talking about the offenses of world war ii given what we have seen in the last 24 hours? oliver: there are a lot of parallels that have been drawn throughout all of this from the barbarism of hamas and the defensive action they have taken as they say is a direct consequence of this and the consequence that benjamin netanyahu brought these topics up again was with the question of cease fire. they said would you consider a cease fire after 9/11 and with the question you are referring to, the allies had hit a children's hospital. this is what he was referring to and that this is the consequence of war. this has been the israeli defense. has it reached its limits? this is a question for the international community.

they the refugee camp is used to train hamas and they killed a high-ranking hamas member there along with another -- a number of other insurgents. how many hundreds of thousands were in that region? it is hard to tell. this has huge consequences as we saw with the hospital blast a few weeks ago. tom: sampson carries the gates of gaza. i am not an expert but that is the illusion back to biblical times. who will walk through the gates of gaza today? who is able to get out? oliver: the focus is on the gates of gaza and the southern border of egypt. there is more aid coming slowly but surely, still less than before this crisis. for the very first time we understand that we have foreign nationals crossing from gaza into egypt. this has not happened since the war began on october the seventh.

we saw for the first time egyptian ambulances driving into gaza, recovering people to take them out to a field hospital in northern egypt. these are meaningful developments in terms of the border. tom: thank you for your reporting, oliver cook. we have much more today. lisa: there has been an issue on the u.s. side of things. how deeply the u.s. will get involved and also how much aid can get past to go toward supporting both israel and ukraine. jennifer is covering all of this ahead of u.s. government affairs -- jennifer, head of u.s. government affairs. yesterday president biden said he vetoed. jennifer: he issued a veto threat, that is correct. we will see what the house can do. it is still an open question if they have the support because they have paired the israeli

funding with an offset that impacts the inflation reduction act and the expansion of the irs. they will lose the vast majority of democrats but they gain a couple while they lose a few of their own republicans, that is the question. we will see that play out on thursday. it's lisa: what does it tell you about the nature of funding agreements. if funding israel comes at the expense of taxes? jennifer: the house will have to negotiate no matter what with the senate. chuck schumer has the majority -- as the majority has said that this is dead on arrival. there is the expectation that there will be further negotiation. when it comes to offsets, this is a reflection of what is happening in america right now with regard to our own deficits that we are running right now and that is what republicans

really feel and need to answer to. tom: jennifer, i believe it is november 1. 16 days until november 17. it has been left in the debris. we have forgotten about number 17th. give us a brief of the importance of number 17 inside the beltway -- the importance of november 17 inside the beltway. jennifer: it is coming upon us quickly and it is not lost upon most members. most members who want ukraine funding through the house, republican and democratic numbers. the continuing resolution which is that stopgap that runs out on november 17 that has to be extended. the ukraine funding may have to ride on that continuing resolution however they work it out and we will see that over the next week. they are currently drafting another continuing resolution in the house. lisa: there is dissonance in the headlines and i am trying to

square them and i would love your help. on one side you see the fight escalating in congress and with the white house over financing to back the efforts. on the other hand we are talking about u.s. troops potentially being in gaza indefinitely after the war to keep some sort of peace. what is the appetite in the united states to have a protracted role in some of these conflicts that seem pretty intractable right now? jennifer: there are a number of steps we have to get to first. u.s. troops are in the region. they are in iraq. they are in yemen. this was discussed a little bit at the hearing yesterday with secretary blinken and secretary of defense austin. they have been attacked over the last week, two weeks. they have had to retaliate in those attacks. the expectation is to deter further escalation. that is the immediate issue before we get to the longer-term

issues in gaza after israel is able to contain that area. lisa: there is also a short-term issue with respect to president biden's approval waiting -- approval rating. more than 50% of muslim americans used to support president biden and now fewer than 20% support president biden. how will this color the debate next year? jennifer: an excellent point. the tension within the democratic party in seeing some of those polls, we have seen the protests across america. not just across muslim and arab americans but also with young people, progressives on college campuses and they do see that as a threat. how they will double radically work within their own -- how they are going to diplomatically work within their own party, we will see that play out. tom: jennifer, thank you so much.

jennifer on the war in the eastern mediterranean. to start us off in the bond market, i am looking at 10 year real yields, now 2.48 higher real yield into the fed meeting. lisa: we are fluctuating to higher highs. for the past couple of weeks it has been volatile. it has been more volatile for the stock market and we are still hovering within 10 to 15 basis of cycle highs. 4.89% as we contemplate how much debt the u.s. will sell in that 10 year maturity, that 30 year maturity to finance the growing deficit. tom: 8:30, economic data. m jobs. -- let's remember jobs. we will see that data. into jobs day friday, this fed day. stay with us.

lisa: "bloomberg surveillance." please stay with us into this afternoon. some good guests coming up on the fed show including richard clarida, the former vice chairman. a really busy day with some serious market dynamics. futures -17. the vix, 22, 21, 20 yesterday. i guess it is constructive. 18.32 in the bond market.

5.06, two year. well above 5%. the 10 year yield, 4.89%. it is about -- lisa is about ready to tip over. lisa: s&p futures are failing to get a bounce after three consecutive months of decline. that is the first time we have gotten three consecutive months of decline going back to march 2020. that is how unusual it is heading into a november period. people are not optimistic today and that tells us something. tom: it does. it is sector by sector. the energy complex with the price of oil had a poor month about it. i am complete focused on the banks this morning. i'm sorry. when i walked in, the terminal, what i found was pretty grim. we are watching currency. a stronger dollar this morning. dollar-yen, 151.20.

on a fed day, it is a fed day under surveillance. lisa: secretary of state antony blinken will go back to israel later this week as concerns grow about a mounting death toll after dozens were reportedly killed at a gaza refugee camp. the is really military said the attack quote lemonade in many terrorists -- eliminated many terrorists. all i can say the fog of war, i just get this feeling what we don't know is much greater than what we do know. what we do see is incredible pain and destruction. tom: the last 24 hours everyone can agree has just been absolutely brutal, maybe the worst i have seen in my life. i go back and i think the prime minister addressed this yesterday, this new media, this new social is revolutionary for

the prosecution of violence. it is in-your-face. we don't know what to do with that. lisa: at the same time we heard the head of jordan speaking with president biden which will be interesting to see how some of these back channel discussions and front channel discussions transpire. the deficit could top $2 trillion in 2025. bloomberg intelligence is rooted in the treasury announcement followed by the fed's latest decision at 2:00 p.m. that will outline exactly how much they could increase longer-term funding. the fed special coverage begins at 1:30 p.m. featuring jp mortgage, blackrock and former new york fed president bill dudley double barreling and they are self conferencing -- self-consciously not referencing one another. they are not pitted against each other but they have a very uncomfortable relationship right now. tom: i saw bill dudley and he

knows the international ramifications of this meeting. this meeting is overwhelmed by what we have seen in the bid of bank stocks whether it is the major banks or you go down the food chain to the smaller banks as well. lisa: if you don't get bank collapses, if you just get profitability getting diminished and market consolidation, is that bad? tom: i looked at citigroup's big value. it is almost a deutsche bank equivalent. i cannot believe i'm saying that. lisa: we talked with a member of kbw and he was shocked there was not more consolidation and that we need more consolidation and really what was happening was that there was not the approval mechanism that was moving in real time to get some of these transactions through. tom: bankers like to go to lunch. they don't want to merge. they are having too much fun

being bankers and all of a seven they are forced -- all of a sudden they are forced to merge. workers at cvs and walgreens are planning to walk off the job to address poor work conditions and prescription backlogs. cvs says they are engaging in a dialogue with pharmacists to directly address concerns they have. we just got some cvs earnings crossing with revenue beating expectations. earnings-per-share, $2.21 and reaffirming their full-year guidance. i am curious to see as we dig through the statement what they say about labor and base costs. tom: the front of the store and back of the store, up 8.8%. i think it is pharmacy based. front of store sales were down 2.2%. they sold less halloween candy and maybe they sold a lot more pharmaceuticals. met editorial on this is simple

-- my editorial on this is simple. my pharmacy next-door where i live, an absolute dump. it is the single worst branding of any corporation i know. it is a dump. lisa: aside from your corner drugstore, there is a question more generally in cities where a lot of the drugstores have had to lock up their shampoo and hair ties. tom: they lock up the doritos. lisa: how do you compete with amazon where you order it and get it in a box and you don't have to unlock it? there is this question about shrink which is theft and also the idea that they have to compete with labor costs in a new way. tom: an international capital strategies partner and with the council on foreign relations. when will he stop talking about

doriots and start talking about the fed? i remember when greenspan was looked at, what lunch was he carrying to the fed meeting. is there any intrigue to this fed meeting from where you sit in washington? heidi: the last time that the fed chair spoke before the blackout period, he referenced the elevated geopolitical tensions you were talking about earlier. aside from the absolute tragedy that we are seeing, the human tragedy, this is something where i am looking to see if there is a hand of an introduction of geopolitical risk and the potential for spillovers into global economic activity to come out of what he talks about

today. we are looking at a new speaker of the house and suddenly the funding on the table for national security is front and center. we are looking at whether or not -- whether this israel-hamas war actually increases and that we see anymore direct conflict. i am not in that camp but i think this is a tinderbox that everyone has to keep an eye on with russia-ukraine being a backdrop. military as well as economic issue. tom: at what level is jerome powell central banker to the world? we see upset in japan. lagarde tiptoed through her press conference. maybe she has a just inflationary tendency. are all eyes on chairman powell today?

heidi: yeah. even though i think there is a general consensus on the pause, this is the big meeting. the ecb is likely to keep rates higher for longer. no one really knows how long. the bank of japan with their yield curve control was a smaller move which made bigger news. all eyes really are on what chair powell is going to say today about the path moving forward. we have a lot of uncertainty in the market. i think some of it does come from new uncertainty, new concerns and those are related to what the implications are from geopolitical risk. lisa: the treasury and the federal reserve try to create the sheen of being above the day-to-day events, not paying

attention or responding in real time. yet there is a real question about whether the treasury will deal with a refunding announcement today, we will go with what secretary yellen said which is yields will go down over the long-term. why not just focus all debt issuance on the short end? heidi: between treasury and the fed and who will take the bigger headline, it is likely to be the treasury refunding announcement. there is a lot of speculation of where those funding costs will start to really hurt and where the concerns about the deficit which we also know is rising and is $2 trillion the new normal.

how does that impact the ability to borrow in the short, medium and long-term? there will be a lot of attention on the refunding statement as well. lisa: how does this challenge the u.s. ability to respond to international issues? this question around the geopolitical risk, the human tragedy, the question of how boundaries and territories will be redrawn and a real question in your view about how much the u.s. is willing and able to finance all of its endeavors. how much is the treasury's actions going to directly influence how much the u.s. is willing to go further into israel, into ukraine? heidi: we are in a world where geopolitics and politics and national security in particular trumps a lot of traditional economic and commercial rationale. when you are looking at

particularly russia and ukraine, this is an incredibly sensitive national security priority. if you heard secretary blinken on the hill yesterday, he could not have made this more clear that these are all connected and a lot of what we need to do is make sure that we stand up and take action, not just the united states but our friends and allies and that a lot of the funding of the $105 billion that was in the request is going to go towards rebuilding the u.s. defense industrial base. tom: thank you so much, hiding from the council on foreign relations with a broader view. look at the bond market. where three basis points lower yield. the dynamics are fascinating.

this dis-inversion suddenly, it is like ok, it is over. things have calmed down. i am back to 17 basis points. a difference between the two year yield -- the 10 year yield is a little bit below the two year. it will be interesting on this dis-inversion. lisa: especially because we expected it to continue to invert until the fed cut rates and that would be the leveling feature but it has been the opposite. if you take a step back what this means is everyone expected the fed to be overcome and have to cut rates. that is off the table at this point and now the bigger risk that so many people see is a re-acceleration of inflation and that is being expressed in part in the long end of the yield curve. when is going to bite credit, is my question. no one is saying there will be a

massive wave of defaults and i am looking at massive high yield bonds. that is the rule across the board. tom: rule number one is intervention is not just about the currency market. there is this thing called sterilized and un-sterilized. it is too much heavy lifting for early-morning tv and radio. there is another kind of intervention which is when a government steps into the bond market to make a quick adjustment. all of a sudden a bid, a lower yield on the japanese 10 year. we have been watching for that. he uses the bloomberg professional service to do that. cambridge writes a check on that. pretty cool. good morning.

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but is it restrictive enough? until the economy slows down, until inflation comes off, it is hard to say that. at a minimum they will want to keep their options open. they have signaled another pause but jerome powell has kept the door open to further hikes. tom: stanley noting the boy into third-quarter gdp which is up the calculus that chairman powell has to look at today on this fed day. u.s. capital markets, a great benefit yesterday. we move onto to the further benefit of all markets. lisa, help me out. the vix has improved. 18.22 over the last 48 hours. i have craziness within the fx market. some real tension within japan. no other way to put it. also in the bond market. the bonds are moving and they are dynamic. lisa: in japan they did

intervene. an intervention in the form of buying bonds. they did say that they see some fx moves not in line with fundamentals. it seems like they have a double-barreled bazooka ready to go try to find tune a very unclear program. then the u.s., i don't know what the bond market is responding to. we have hot economic data that has not responded that greatly. we have weaker economic data that has. how much is this getting whipped around by leveraged players that are making massive bets? tom: right now we are going to go to an expert on the chinese economy. he lived covid in hong kong for the news. he is our global correspondent on the washington watch today. we lost tony bennett this year and the giant of the ballot. absently iconic. he would sing, i left my heart in san francisco. are we going to leave the trade war behind in san francisco?

we have president biden meeting president xi jinping. how is that going to go? enda: the meeting will be significant, the first gathering of the two leaders in two years. it is more than getting relations between both. there has been this theme of stabilizing things ever since the balloon back in february. her member when xi and biden met in bali. we all know what came after that. i would temper any terms of what comes out of this meeting. perhaps an effort to stabilize at most. tom: i will put you in the place of stephen engle for years of watching the south china sea. how do you interpret planes and

boats flying close to each other , lumping into each other whether off of the philippines or in the vicinity of taiwan? is it the same old same old into this summit or is it a new level of tension? enda: it is not the same old same old. it feels like china is being more aggressive on those. we have seen those clashes with the philippine boat. a lot of terms of how do you respond there given the lines between the u.s. and the philippines. just answer one piece of the global jigsaw at the moment where we have geopolitics dominating all else. you have the middle east, you have the ukraine and everyone is watching east asia to see what might come out of the tensions there not just on the contested waterways but also taiwan with

an election coming up very soon in january. these are long-running sores but it feels like tensions are above what they were. lisa: let's put those ideas together especially given your purview. it is a fantastic position to be able to understand the crosscurrents of the economy and geopolitics. who has the greater leverage, the u.s. or china, when it comes to the economic backdrop to the political rivalry? enda: it is no doubt that the u.s. economic story has surprise on the upside. the u.s. is the locomotive for global growth. china has been struggling with post-covid is everyone expected. some more disappointing numbers overnight. on paper that would give the u.s. leverage. let's not forget that china continues to court the global south. it is not so long ago they were an expansion of the brix.

an example of where china is continuing to grow. it has influenced in the middle east the different opinions in terms of the reaction to the u.s.'s role and the role of china. even though the u.s. does have economic advantages, long-term projections for china economy growth are being downgraded. it is not as simple. china is courting the global south and the west is grappling to keep together some kind of western alliance. lisa: we haven't even mentioned the reporting earnings of apple. the big question is its ability to operate within china. do you have a sense of the crosscurrents of u.s. companies, international companies and their ability to operate in china my how much china wants to give a boost an economy that is flagging internally? enda: they do want for an investment and they are trying to court for an companies --

foreign companies. there are two aspects. do the foreign companies want to grow or expand their business in china or are they looking elsewhere? there is a threat will be a theme that they want to look elsewhere. the security apparatus continues to put scrutiny on foreign companies and the messages are very mixed. tom: as you well know, the yuan strengthen from eight to six and we have come halfway from a weaker yuan. in addition we have japan instability in currency markets as they attempt to figure out the future of yield curve control. what is the instability in the pacific rim right now? how do you gauge what the deepest of deepest markets is

telling us right now about the pacific rim? enda: is a strange one because if you stopped me in the street at the start of this year and say that the yuan would hit the 15 year low that it did and that china's real estate will be worsening and finances will be worsening and the economy would be in the state that it is, i would say to you that it would be shockwaves through regional currencies and global markets. the spillover from china's slowdown has been more contained. oil prices trading on $100. there has not been any spillover as it has been previously. the yield curve control story is the one to watch. if japan does pull out of that, then they will get into this sucking sand of returning through this. tom: then it goes back to the flows analysis, not so much the

interest rate analysis that the media focuses on. enda curran, thank you so much for the brief. he is in washington and head of all of our global economic coverage with bloomberg news. we have not said enough about the equity markets. 4200 which means john stole his lowering his s&p before the end of the year because we are running out of time before the end of the year. i don't even have my tree up yet. i'm starting to see people with their trees up already. that is un-american. lisa: i saw someone dressed up as santa claus for halloween. moving it up to halloween seems a bit ambitious. tom: i was out trick-or-treating and i went as yield curve control and someone across the street went as convexity. we did not cross. too much dynamics. 4200 spx madame 3300 -- 4200

spx, down 33,000. it was a massive bear market. we are just addicted to going up every month. lisa: not over the past three months. this is what i find interesting. we just had the first consecutive three-month drop going back to march 2020. november is usually a seasonal rebound. we are not feeling the love. estee lauder coming out and downgrading their full-year forecast. those shares getting really punished. there is a punishing type of feel in markets. tom: i missed lori earlier in the week and i really like to talk to her about the makeup about the non-dow stocks. she is on the mission of small caps. lisa: we actually went to the lowest levels will small caps back to november of 2020. tom: maybe i can help estee lauder. i need to work on my advanced might repair.

lisa: i am a big believer in advanced night repair. liquid liner. tom: i can brighten, repair and protect. edward yardeni has two night repair.

>> financial conditions have tightened a bit. the economy is still rolling. >> this has been a remarkable u.s. economy year. >> we see competition return in a lot of spaces. >> so far the u.s. has a long way to go but that can be

achieved. >> we see a story emerging. >> this is a story emerging peer -- tom: good morning it is tom keene and lisa. jonathan is on assignment. it is the two of us. the fed day drives into the afternoon. we have a great day for the fed show lineup. it started --starts at the 6:00 hour and we have edward joining us. we will have another speed through the opening segment. the speed you need to know is the slowdown in the equity market. and the bond market is giving us dynamics and we have our guest joining jp morgan on the inversion.

16 basis points think it is getting a small vanilla spread. worked talking about. and the x like got dollar strength. to start the dialogue, the currency is talking to us. no other way to put it. lisa: if you look at us and japan we do not know what japanese officials will do. it is risk aversion. people are worn out broadly with the concerns about inflation and dollar. tom: earnings season as well. we will keep you up-to-date with estee lauder tanking. and cvs is out, kraft heinz out moments ago. and i got this refrigerator stock -- and so we are doing ok there but do we care about the boring stocks? we are totally addicted. apple has new products. do we do team coverage of apple,

but we do team coverage of kraft heinz? lisa: i don't know for sure. but my we look at the headlines of coca-cola and the likes of caterpillar they are raising prices and increasing volume that speaks to the stickiness we have with price and wages. tom: and at one point is it where mcdonald's cannot raise the price of my number two value meal. lisa: and with the case of expensive coca-cola's and shrink flake and they can raise prices and still sell. that is i think keeping the fed up at night. 9 and with creek -- tom: and with kraft heinz, with the food thing they are doing back to 2015, that is eight years i call it -6% shared total return. the boring stocks we are in the earnings season right now it

makes for bad tv and radio but stay with us. lisa: and they become flashpoints for arguments. will they see a drop-off off in sales from those in big? tom: we will do a lot here in economics. and we have ed joining us in a moment. lisa: and then we also have the u.s. treasury refunding agreement that will take precedence over what we get later in the day. it is the idea of how much u.s. deficit will be financed by selling long-term debt versus short-term debt. tom: peter was brilliant on this ages ago in his public service he said do you want our treasury bond guessing? that is the heart of the matter and we do not. that is a wide consensus. issue the paper and move on. lisa: one said what they need to do is get rid of buybacks with liquidity and have predictable

options with saving in the long run. we have jolts data with the labor market thought to be volatile and it is now a key measure. this is in the month of september. there used to be two job openings for every one unemployed american but the question is how much those have gone down and what it tells us about the momentum in the labor economy. tom is yawning. and then we have a press conference after that with fed chair jay powell. and we do that with the host including bill dudley of the fed and richard clarida to formerly of the fed also. and jeff rosenberg. -- how important is this meaning that a lot of people think is the place. tom: you know we bought one bag of cute cats and the kids kept knocking on the door. lisa: i bet you had a line out of your door. tom: i started giving out bowties.

i gave him 10-20 of the old ones and said have a bowtie. you will love this. lisa: i'm sure they loved this. tom: some of them were as old as danny when he was at cj lawrence. it was interesting. and now we are with denny research. there's pressure about being in the market. what do you glean from the fed today? take all of your economics years ago, what do you want to take away from chairman powell? ed: he just gave a preview on october 19 which was not that long ago and yesterday we had a somewhat hotter been asked acted cost index and then we had consumer confidence numbers coming out and you spoke about jolts and there is something called jobs plentiful and the jobs are plentiful. the labor market is fairly hot. i think they will say the same

story and it will remain intact. and we will remain restrictive, we are not anticipating riches -- interest rates anytime soon. and if they do a cut it will more than likely be too rather than four. tom: are you pulling away from the belief of participating in the market? you have 5% plus cash equivalent. ed: you're right. my view was when you get the selloff there are buying opportunities because the long-term stocks do well. i guess i'm in the warren buffett jeremy siegel camp with regard to equities. the problem with getting out of the market at the top is smart you also have to get in at the bottom and that can be tricky. at this point, i think 5% is attractive, but over the long run we will find this correction is offering opportunities in

technology and financials and even energy. lisa: and financials let's pick up they are. where in financials do you think has been opened up after the correction? ed: large caps are safer than small-cap stocks. there's concern small-cap banking crisis is not over. we had a crisis in march that clearly the commercial real estate market is under pressure. small banks are exposed to that. but i think there will be a wave of consolidation and m&a activity in the banking area. right now it is like which one do you want to avoid? with the activity picking up. lisa: when we parse through what is noise and what is signal. i have to go back to the treasury refunding agreement that is coming out. it feels like he could have a bigger influence of pushing yields higher in a bad way. how closely are you watching

this? what is the breaking point to make you less optimistic? ed: look everybody knows that it will be a lot of money that needs to be raised from the next six months. over $1.5 trillion. and the investment team came out on monday and the bond market did not flinch. i come to the conclusion that the 5% may be the yield in which the market clears. there were interest rate demand equaling supply and supply may do the trick. tom: for trick-or-treat ed and joe put out a spectacular eight pages or 15 charts may be on your banking business. and it was looking at you looking at diversified banks and they've got act even -- 20, 30 years of looking back at bank pe, is this the buy of the lifetime? ed: i would not say it is the buy of a lifetime, that is a

jinx. i did not want to say that. but, i think as long as we get the economy right, the economy looks resilient. i do not think we will have a recession year. i think there are some odds of a recession. raising from 25% to 35% because of the geopolitical risks. my base case is that the economy grows, earnings growth and then the situation with large-cap cap financials should be all right. lisa: if that is your base case, why not go into small caps. it is leveraged buyout momentum and strength in the u.s. economy? ed: because i keep getting burnt fair. small caps have been attractive for a long time from a valuation perspective but this annoying recession that is supposed to be coming any day is not good for small caps. i think they are continuing to

be very attractive, but i want to see more signs that they are showing signs of life. tom: and the signs of life go to other sectors. i know you held onto every word with tim cook the other day with the product launch in apple. i would say we have not even seen this. it is the nifty seven taking it back to you. the bottom line is, if i own stocks, what do i do with magnificent seven? ed: you continue to own them. it will be a fact of life that they will account for a disproportionate large fraction of the s&p 500 market cap. right now there 27% of the s&p 500 market cap. that will not go away anytime soon. there are behemoths driving the market. they will continue to do that and they are amazing companies. tom: thank you for the brief.

and look for his research for the important eight pages on banking. fabulous chart showing relative valuation for three decades. it is great to talk with you. i think of michael darr to nisei the size of economics and heaven for bid somebody actually make a market call. lisa: what i thought and i always love what he does here, he throws in little nuggets that stand out like the fact he increased his recession call from 25-35% not because he thinks the economy is slowing down, but because of geopolitics. and that is hanging over all the discussions we keep having. human tragedy, the potential escalation, i keep thinking about how do you wrap your head around that. tom: yeah hard to see right now. -15 on the teachers. down 14%. lisa: we get earnings throughout

the morning and we got spu -- estee lauder lowering their full year or -- forecast. they say it was because of the outlook in china and israel as part of what is weighing on results. kraft heinz increased results. estee lauder shares are lower by 13%. you can see kraft heinz beating expectations. the shares are up, but not as much as you think. this is the story of the earnings season. tom: it is a earnings season and pricing power. and to me i go back to donald's. i was not here for it, but the answer is that mcdonald's had massive pricing power over 90 days. can they continue? anecdotally, does anybody go to the grocery store recently? i will have to sell one of the children so we can eat. lisa: it is strange you buy five things in you pay $150 and you think to yourself what did i just buy? tom: yes i have this amount of

money and then how many bags of groceries did i get. there is a short stack in the groceries i feel better. lisa: people earn more in then they still spend it. that is the same situation. some say that mcdonald's and coke are benefiting because people are downshifting rather than eating at other restaurants. are you downshifting to the value meal. tom: they move my desk every six weeks to keep me away from people and i feel like i am the value meal. i try to get there but they serve breakfast 24 hours a day so -- i get the stake, and you know. lisa: what are you talking about have you ever been to a mcdonald's? [laughter] stake and mashed potatoes. tom: that is ok. that is in the 8:00 hour. lisa: [laughter]

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>> we stand in a moment where many are making the bet that we are two divided, too distracted on staying the course. that is what president biden has to face with the supplemental funding request. when we look at all the pieces of the package, we see that and understand that we are playing whack-a-mole while they pose a ever greater threat to our

security and our partners. tom: secretary of state testifying to the senate as of yesterday. $105 billion under discussion there. and this is a topic of the day. and we speak with a lever crook in a moment. -- all over crook -- oliver crook in a second. and given the exhaustion of many officials it was wonderful to see the secretary of state escorting his cherubs out of the door for trick-or-treat. given his travel schedule it was great to see that. lisa: how do you create normalcy against a backdrop of anything that was less than ordinary. the treasury heads back to the middle east for diplomacy in israel and visiting neighboring states that have not been named yet. tom: for all of you joining the

story yet clearly the reporting from all over crook in tel aviv, the situation has deteriorated. running us is anne-marie in our washington location. i am struck by the images. how does the pentagon assist israel in war are the imagery you weed it -- read in the washington post? annmarie: it is horrific. yesterday a refugee camp was hit with a number of israeli airstrikes. one individual with an eyewitness on the ground told cnn they felt like it was the end of the world. this is a massive problem in terms of optics and -- on one side and horrific just because of the human tragedy unfolding for the world to see happening in gaza. and you hear this administration constantly saying and we heard yesterday with secretary blinken

and testifying on the hill that was interrupted a number of times by the way by protesters. they say they have the right to defend themselves and israel is on the quest to get rid of hamas they keep emphasizing that israel has to abide by humanitarian international rules of war and that seems challenging right now. tom: oliver is there a timeline by israel that is understood to be days, weeks, months, or dara say, years? -- dare i say years. oliver: it is likely to be weeks and months. with the officials we have spoken with at bloomberg and getting a steer on what they have in mind could be is -- they say as she -- as short as six weeks and as long as six months. it changes dimensions and we hear increasingly the conversation around what after

that? it's a difficult conversation to have and probably want to have today as well. even if israel succeeds at dismantling hamas its political infrastructure and military infrastructure and members that exist with gaza leads to the what is next big question? and you talk to people here there is despair about the long-term durable solutions. lisa: there is despair in the short term as well. what you think antony lincoln's goal is as he heads back? annmarie: we know he will talk with regional partners. arabs likely but we do not know where the stops will be. there will be about 400 americans, according to him, trapped in gaza and including their families it is about 1000 people and he says he's working on this every day. i think, for him it is top of

mind hitting americans out of gaza and working with israelis to find out what is next getting americans that were taken hostage by hamas. and when he goes to the other countries, the gap is wide in the public's spear -- public sphere calling for immediate cease-fire and the u.s. says they stand by israel and their right to defend themselves. what the world views that as is that the united states is giving them a green light of what they are doing in gaza. lisa: and we see iran playing both sides. definitely playing some of the proxy militants in neighboring countries. what is the reception like in israel about the idea of human and others getting involved. and they said they would be an shot rockets over. with the question ahead of the friday speech we are expecting. oliver: there is no shortage

where they got in all the places to worry about whether it is the northern border with lebanon, in the east with syria and now you see more projectiles going in the red sea and crossing over saudi arabia. and with the story bloomberg put out yesterday that was before saudi soldiers were killed -- four saudi soldiers were killed last week. and we mention it again, when you see the bombardment at the refugee camp and the headlines get out to the world and streets we see unrest in the west bank also. that is other flashpoint where a number of people have died and been killed there by the israeli forces as the whole thing happens. the focus is on gaza but this is a huge part of the conversation. tom: is the offensive ability of hamas -- has it been taken out? can they launch missiles now? oliver: when we heard from the

israeli defense minister. it is challenging to get a read on what is going on precisely but they have diminished. when i was back on sunday, we'd have not heard air raid sirens in tel aviv and that change dramatically yesterday we had a number of sirens and we heard explosions over the city of israel. there was a slower cadence in terms of the rocket launches, their capacity is diminished to a degree. but they are still at work. lisa: how much concern is there that israel may win the war it is waging but it will lose more in terms of public relations and ability to mentor with neighboring countries. how hard blind are people getting on both sides as this progresses? annmarie: right now what you see when you see images of the refugee camp hitting hit with the airstrikes, you heard the

israeli military come out and say that this was a key in part of the infrastructure for hamas. we do know and we have known with tough reporting in 2014 of how much hamas uses civilians as human shields. that makes the job for israel so difficult as they try to get rid of hamas. when they come to the normalization and the extension of the abraham accords, this at the moment will be incredibly challenging. long-term it is in the national interest of israel and other arab countries including saudi arabia to want to have a normalization with israel and maybe even more now. optically, the meetings are stopping at the moment. tom: in washington annmarie horner and in tel aviv oliver. and futures are deteriorating on s&p 500. there is also a secondary tier that is called level twos which is the standard index.

i look at that but i do not look at the dow jones industrial average. to give bank stock dynamics. lisa: it's going to be curious as we get earnings and whether we continue to get this type of disappointment in terms of the performance. tom: and the forward look. lisa: the forward look has not been so positive. and the overhang with what they were saying, this is in the forefront. oil prices i found have been higher and there is one area out there of why because demand is not they. otherwise, the prices would be higher in response to this. tom: energy having a tough october as well. and the ism numbers, jon ferro will be there for complete coverage. and coming up we have wells fargo mike schumacher joining us. and then we have had speak throughout the day. ♪

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it's overwhelming. it's everything. tom: berg surveillance. good morning to everyone. and a good early morning. we have michael schumacher coming up from wells fargo. futures deteriorate -13 and now -18. down .4%. and .5% down on the nasdaq 100. the vix does not give me any love yet. we will see where it ends up.

4.90 on the 10 year yield. one of the stories we need to talk about, west texas intermediate did not go to a 79 handle but oil is giving get back with dollar strength. one .07. dxy, ian is in the headlines but the answer -- yen is in the headlines but the answer is that they are lower. let's get to under surveillance. we will finish strong on under surveillance. katie greifeld at the top you are ignoring bit dog at 35,000. we will do it here in a moment. lisa: we will sort of do it. we have surveillance this morning we have gaza for the first time since israel began its innovation with television channels. this is u.s. sec. state antony blinken said to head back to israel after dozens were

reported in a gaza refugee camp. they targeted hamas infrastructure in the area and killed a senior leader of the organization. this morning we have another story out in the bloomberg this morning saying quiet pressure is building in the u.s. to restrain what israel is doing to save lives to prevent this casualty count amongst civilians. tom: and ethan on our team in tel aviv, i wonder what the private -- quiet pressures are, plural. with the domestics we have not dived into that. lisa: they are percolating to the surface very front and center. in an hours time the government quarterly treasury refunding plan is coming out at 8:30. there will be $114 billion of the funding. and then we will have a fed show. i love the commentary. tom: stop the show. why is this refunding going on?

lisa: this time people are worried about supply and in the past they are -- it was understood that there would be plenty of buyers whether it was bank of china investors. tom: or retail in america showing up as well. lisa: they are showing up but they are wanting to get paid. people are worried about the ability to deal with the incredible amount of issuance on the long end. if the said gives a reprieve or a free pass in the bond market it will come out and say it is not issuing as much as people expected on the long end. that is what i think. tom: we will have to see. lisa: closing arguments. and we have ftx co-founder sam bankman-fried trial coming to the end. he testified in his own defense after colleagues to stand against him. he faces what could be life in prison with one of the largest financial crimes in history. i have to be honest, this

comment to me, is not bitcoin or bit dog as you call it, it is something different with the nuts and bolts kind of -- a lot of people would say fraud. tom: on youtube and other platforms as well is ruined, the violence of this hour or hour and a half, ruin on what was happening when we were all shocked by this including at the beginning. they have images they are like tom brady and others telling you bye-bye bitcoin. this is a violent one hour, i cannot say enough about what they did with zeke fox's book, ruin is the show it is bloomberg originals and the book is never go up -- -- number go up. and many attorneys in the trial said it is in this book. lisa: yes they have admitted to the evidence. tom: we will have to see on that as well. we continue with our coverage

with the show with michael schmucker joining global head strategy at wells fargo. i love what you say with the distinction of yields moving ever higher versus finally leavening -- leveling out. that is versus yields and they stay here rather than the fear of price down and yield up. mike: it is interesting and lisa had a great point with respect to supply. supply hanging over the market makes people afraid to buy. the treasury dials it back a little bit today. the fed is not hawkish investors may say i will not commit to buy. if yields go up 50 basis points in a month, but i've not spoken with anybody in some time who is keen on long as asians right now. the fear is subsiding a bit and there is an appetite for bond not coming up. tom: what is the state of a

commercial banking system. we are there with the readjustment of balance sheets in commercial real estate. mike: yes, as far as big banks go idly that tamayo they walk out with employees. with respect to the call on midsize and regional banks. i think the issue there with respect to cre and others, if you go bank by bank the exposures are not that big on an institution basis. not systemic. you may see noise from a particular area but not going to send the economy toppling. tom: is this unified fed? we have not brought that up this morning. do you see dissent in the fed meeting today? mike: i think it will happen at the same time. when you think about the members of the fomc there's a number of new employees and they are dovish.

jay powell has a different motivation. and he wants to make sure that that is not his legacy. and so with the motivation to keep rates high, that may squelch inflation. they may say inflation is down, people are hurting, but that conversation may get tougher and tougher. there is a lead to dissent soon formally. i think that's likely over the next few weeks. lisa: let's step back and talk about how pivotal the week has been an we will look back on it as such. you came to this year and you talked about being bullish on the long-term bond. it's been a painful period for that kind of deal but a lot of people say it is delayed but not thrown off completely. what stands out to you when we get economic data with the surprise to the upside and then the fed decision will basically be we will see.

mike: it is interesting. it feels like a year. we've only been bullish three months, but it is worth three times hence the gray hair. it's been interesting with respect to a few things. bank of japan stands out. getting a little more tolerant of the yield rising. intervention seems likely to happen over the next few days, potentially tomorrow host fed. that's a big thing. and then we see the treasury at 8:30 it will not be a tsunami, that is a positive for the market. but as far as the fed, it is probably the least notable commentary we will get this week. and we know powell will play it down the middle. lisa: let's talk about what you think potentially could be the biggest ramification. were talking about refunding a remit. -- agreement. when we look at the other side. and the terms of longer sales

does that make you more -- bearish and reluctant to have the bullish feel and bonds? mike: yes it does. if the treasury comes out and says yields went up after our last announcement, we do not care because we have to fund this massive deficit and we will crack on that and increase issuance more than you expect. that would be negative. you can see a selloff of 10-30 year treasuries. and perhaps even more basis point if issuance comes out. let's say if they bump it up to four that is bad news for treasuries. tom: explain that again. a lot of people listening are saying that is great. what are you talking about? mike: it's a lot of bond market technical jargon, but the treasury talks about the refunding of the quarterly move in terms of the re-year, 10 year, and 30 year treasuries.

were talking about the increase in the size of the 10 year treasury auction this month versus three months ago. the market expects an extra $3 million, we think it will be too, but when it comes out it may seem like it is spreading quickly but is the message. the treasury would say in that case we will go big and early and get ready to steepen. tom: dan mike schumacher, if that is the case, it is always the thought will the chinese or japanese show up? do mom and pop show up? do we still by bills, notes, and bonds for our retirements? mike: mom and pop are showing up. there's a lot of move in the market than previously. when you look at short-term yields, t-bill five plus it is very straightforward with new tax benefits. very attractive. mom and pop are going to get more queasy with the long stuff

because there is significant market risk. when you go out to-three years that is possible. i think retail investors show up for this. lisa: if we get an upside surprise for the total amount of long-term debt the u.s. government sells over the next quarter. what is the ramification for stocks? an otherwise responding to volatility treasuries but not in predictable ways. mike: i would say negative for risk in general. the idea is that if the message from treasury is we have more to do and we will send yields higher it is not a good thing for the stocks that have been driving the market. tom: thank you for the brief and the nice explanation of why mike mckee cares about this important refunding announcement. we see that in less than one hour. all of a sudden it is like drama and i am interested. lisa: i look forward to that

day. it has been interesting. you should care. they really matter. they've been messy, they driven a lot of productivity. tom: and when the foreigners show up. let's go as ginny was stick as we can. -- genuine as we can. it is great when they show up. lisa: they have not been showing up. it goes back to how much domestic buyers can buy. and we look at the biggest banks that already have portfolios and treasuries on their books that they cannot liquidate. this is a big buyer not to mention the fed reserve. tom: for those on radio we set this up with like a bowl of wheaties and milk and some lousy coffee. it's like i'm sitting across a rectus table from bramlett's -- lisa and she is lecturing me. i will pay attention i promise. the futures are -18 down .4%. lisa: i do think this week was

relevant in a lot of levels. if you don't want to pay attention to auctions, by all means don't. but the bond market used to be the state asset class and it was a flashpoint of volatility leverage from hedge funds. but there is more action in stocks. tom: can i say you were talking with michael schumacher, the norwegian cruise lines, but you know about it? jonathan ferro was looking for a cruise out of italy. but he was on a cruise before i think down south and i do not get the business. then i looked at the income statement and they are hammered with covid and revenues have come back, but it is like the airlines. is there profit to be made? lisa: into a bigger point, i'm glad you brought up the airlines. our people sick of traveling? they are ready to go back to normalcy after the revenge

travel and revenge spending we saw on services in particular experiences over the last 18 months. tom: and i look at this. and it seems to be clear. the revenue recovery of travel has been great. somebody tell me where the prophet is. i don't, i'm looking, norwegian cruise, for those of us on radio it is back to covid pricing essentially. lisa: people pay up on those. have you ever been on a cruise? tom: i have not. lisa: where you have entertainment and a chair? tom: -- i get so seasick they would put me down in the band with no windows. lisa: that is definitely a way to get seasickness. for sure. tom: stay with us.

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♪ (when the day that) ♪ ♪ (lies ahead of me) ♪ ♪ ( seems impossible to face) ♪ ♪ (a lovely day) ♪ ♪ (lovely day) ♪ ♪ (lovely day) ♪ ♪ (lovely day) ♪ a bank that knows your business grows your business. bmo. >> no one is expecting the fed

to hike rates this week. the best way to move forward tomorrow is to remain relatively hawkish. they need to keep in i on the state expectations. tom: sonia martin. excuse me, d.c. bank. frankfurt. the fx monetary policy. and a nice conversation with the view on the global enter national economic perspective. we are distracted right now you get to this you get lucky and make your luck on surveillance where we book a world-class guess like wind then of brown brothers and then we do that when the received -- research lands and it is coming. and we had a blistering note on fed day from george of deutsche bank. and he had futures of -20 with the market deteriorating here looking at the real yield to point a poor percent. and i will get the dxy of ¥17.

15942 week end. lisa: you mentioned the note. let me tell you what it says. he compares the japanese yen to the turkish lira and the argentinian peso saying the japanese officials are wasting money. throwing good money after bad trying to come in and buy bonds and intervene in the fx market at a time where it is other events that will drive this. this is the conundrum, order japanese authorities willing or able to do to extend the tide if things break or get out of their control. tom: re-inflation here. and they have been doing that and in this point, it is like now what? now it is that they've got to work toward a strong end reaction. lisa: there's a profound

question of how you move away from a controlled market that was never a market over the last couple yours with -- years with yield curve control. how do you really sit into the wild? a free float at the time where -- without anything breaking or without sudden moves. tom: it says on fed day with the incredibly strong dollar seen since the september meeting, the global head of currency try to g at round brothers. you were with robert mundell at columbia that intervention the international currency dynamics. is there a theory to what japan is doing? are they making up original theory? >> first of all, it is a pleasure to be here with you guys. to me, it is an experiment. an ongoing experience. japan has been fighting inflation for decades. they've thrown everything at the wall. in the biggest integration was

negative rates and yield control. and it is finally getting out of inflation. it is also -- obviously the positives are very good. and getting out of them is always the hard part. the fed struggled after the financial crisis. so what we see unfold over the last year is haphazard. again throwing things to see if it works. and there's more fear and concern than anything else. and by many measures they are vulnerable. that is what we are seeing. i do think japan will exit the combination fully. and by that i mean a rate hike -- tom: why do viewers care in the western world? it seems removed over here with the yuan and china japanese yen, with the week yuan versus the dollar, it is concerning how

much for japanese yen is. why do i care in america? >> as you pointed out earlier in the segment, japanese pressers have been leaving japan and chasing the yield return elsewhere. that is because of the zero rate interest rate policy. domestic yields are not being up so we have capital outflows over the past year or decade. if we get an inflection point where things change and things go back to market-based levels, i think this year in japan and others is the rate of capital coming crash -- crashing back. and the second half of the fiscal year, it's moving to underweight in foreign investment bond. in anticipation of normalization. there is also capital flow stories that come at a time where we do not know what the fed is doing, what is going on

in europe, it is another added uncertainty with the market that they have to digest. that is what investors are worried about. lisa: it is almost deliberate ambiguity. will it create some soft squadron -- gradual increase and some control of departure from yield curve control? >> yeah that's what we are seeing. in my opinion, yield curve control is dead. they introduce the ambiguity where it is now 1% reference. what is that mean? a lot of people try and test the bank of japan not just on yield but dollar-yen. and for all intensive purposes, -- the deals are going up and they will continue to go up. they will be above 20% reference point within days. the upside i think 125 is a target for the market. where we go from there will depend on other global markets

is specially u.s. treasuries. but again this is normal. i would say it is an abnormal period. and in decades japan is at zero negative rates. yield curve control is normal and they are trying to exit that. tom: moments ago with the dxy unraveling right now. we are up against the 107 for dxy. it is clearly led by the yen dynamics. this goes with the banking talk. you have to look at the bloomberg screen it is screaming a certain level of tension out there this morning without being a toxic brew of gloom a. it is the markets that are speaking before the fed meeting. it is not all the message of the elite. lisa: to that point, how disruptive is the fact that the dollar continues to strengthen and not weekend as many thought this year. >> for the u.s. it is good

because it limits inflation. and in asia that his: double whammy by the yen and dollar. but you see the markets at central banks intervening to help support their own currency. nuc rate hikes from innovation last month nuc countries that are cutting rates. they slow their easing because currency is under pressure. it is a toxic move for emerging-market. and there is slowing global growth and slowing china. and easing cycles in emerging markets. that is talk it -- toxic for emerging markets. tom: you should have seen tom keene's face when you said toxic brew. tom: that was in his lecture. he said this triangulation is a big toxic brew. lisa: this is a difficult time

because people have been throwing around words like toxic brew for quite a while and we've been an uneasy equilibrium all year that has been capped off by a u.s. dynamism. you go what you mean? tom: i do not think it's an equilibrium i think the markets are talking about it. if you go back and forth on the bank you can rationalize it all you want with the yen 150 that is vibrant talking about it running thin. lisa: weigh in on that. are things breaking down more materially and more dramatic moves in effect? >> i think the main driver taking everyone by surprise is the strength in u.s. economy. and by extension the u.s. dollar, the fed and all of that. i'm ok, but the fed probably dips into a recession next year. i do not look for anything great like the financial crisis or banking crisis but we had a scare in march. and i think that is an idiosyncratic situation.

and all the tests suggest that the global financial system remains fairly resilient. we all know that does not mean a whole lot when it comes to push -- when push comes to shove but i think we are dealing with the post financial crisis situation where institutions and overseers and regulators are on the same page. hopefully willing and able to head off the crisis. we have frontier markets blowing up and commercial markets under distress. u.k. rate to -- of recession but nothing oaken. and the final thought is it looks to be a normal situation to the downside. once you get past the u.s. it is hiking, then it will slow and then we will have her red -- bounce back. it will not be too much to worry about. tom: we have to leave it there.

futures down negative. and we have priya -- joining us next as we look ahead to 2:00. good morning.

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>> the best way to move forward with the fed tomorrow is to remain relatively hawkish. they need to keep and i on expectation expect -- inflation expectations. -- eye on inflation expectations. >> the yield could come down a little bit. >> the fed has been so sensitive it is not locked apart the resilience in the consumer. >> this is bloomberg surveillance with tom, jonathan ferro, and the so in brando it's -- lisa abramowicz. we have tom keene and jonathan ferro, lisa abramowicz. jonathan is off and tom is grumbling. it is about how much longer term debt the u.s. government sells. tom: you are killing me janet -- janet yellen will figure out what to do with the new amount of debt that we've got. and mike schumacher made clear

in wells fargo that this could be a big deal. i will take his point. michael mckee was all riled up without commercial interruption to get through the a 30 hour. and he had the adp report and the fed day, the jobs day and what the market is telling us about the bank stocks. lisa: there's real uncertainty with the bond market volatility and the it investors are uneasy about the stocks. tom: we have disinflationary tendencies around the world. it is actually part of the narrative. part of this script. but with disinflation we have real economic contraction in europe. lisa: we do not see it in the u.s. that we continue to see data point after data point surprising to the upside with the employment cost index yesterday. and doing job openings showing that employees are being

requested and there's not enough of them. at a certain point, the mix of different events to me feels pivotal to understand the dynamic of whether this is an advice story or a question about inflation and growth. tom: we look at the bank stocks, the track record was minuscule. over the last 20 years it is a worse statistic. apple over the last decade is only up 25% per year. is that correct? that's what the bloomberg says. that is like an valenti's portfolio. lisa: when you see the liens outside of this store for people to go and buy $2000 a pop, no i do not think we need that. -- vet i went on and i purchased an iphone? tom: yes. lisa: you have to replace your phones when they break and get cracked.

and we look at the increase in earnings across the board. almost 300 s&p 500 companies reporting earnings. and the thing is pessimism. going forward and celebrating what is in the past. tom: alex webb is up to speed on it. i'm trying to get it -- up-to-date right now and trying to get joy going right now versus the gloom. microsoft has been a terrible 10 years. they are up 26.7% per year for the last 10 years. lisa: we are talking about this and we did get three straight months of declines in the s&p 500 which is the longest streak going back to march of 2020. starting off an all saints day with a dip continuing the selloff in the market with the s&p lower at least ahead of market trading. you can see this

across-the-board with the nasdaq where you see strengthen the earnings. tremendous strength and you see the selloff persist. tom: the selloff is they are. i worked for morning on bloomberg terminals. it was simple. the bank stocks are great. i rarely use that word. you thrown around like it is a kit cap -- kit kat on halloween but these are not pretty charts. technically where is the bid? who will step in there? lisa: you hand out bowties but i hand out little slips that say grim on them. tom: yeah. and we watch these important moments. and the answer is that you run out of candy and then i started giving out bowties. lisa: let's look at the market with the scenario marginally lower. and we have the real feel of a moving upward. i cannot say enough about mike schumacher and what he said of this will make the difference

with the refunding agreement in 25 minutes of whether he is bullish or bearish. 4196 right now not able to break through the 4200 level after the three consecutive month of declines. and crude, we've been looking at fluctuations. even amidst a very difficult geopolitical situation with incredible human tragedy. tom: the human tragedy as there but through the beginning, a believe october is the day they will look at that and i'm looking for west texas intermediate to lower oil prices. will we see is 79 handle on american oil? we are not there yet. but we see a week ago or a month ago. lisa: and arguably that is the story for a lot of underpinning in corporate america. and we had the head of acrid -- active equity in all spring

former late wells fargo. how much are you looking at earnings coming out and getting a signal for how pessimistically traders are trading them. >> great question. i would have hoped that earnings season would have brought more clarity but it has not. the reality is when you look back, earnings, for the most part are more than 50% in and they have expectations. you see a little bit of rub in growth and the 4% earnings growth of what has been reported so far year-over-year but the more challenging thing as you pointed out is the outlook. it is murky when you talk to ceos, cfos and that is what we think prior to earnings season as well. you're not getting more clarity from earnings then you are from the economic data. lisa: given the fact you will not get a lot of clarity and sentiment you lean into that and go with the flow and shift away from that and hide out in whatever haven you have designated as a haven. >> it's important points.

and i've spent a lot of time thinking about this and long history of doing this. it feels like right now we are in a transition period. moving away from an economy that looked very different into one that is going -- clearly different as well with higher inflation and likely higher rate. when you're in those transition period we are right now it is murky and hard to figure out the right direction. and later on, the pandemic, qe and all the fiscal spending that we had, it is really hard to make comparisons to any type of market past. that adds another layer of complexity and frustration for investors. tom: should we be diversified here or have more concentrated active and is meant bets? >> i think it is time to do

both. that may seem odd, but i think as an investor you want to stay diversified in this kind of environment. that is across sectors, across countries, across asset classes. certainly, i would lean -- i have a bias toward one management because you do not want to own the index. and any of the prices today. tom: ok. and i know i do not want to have the aaa organization with the milwaukee brewers we do not want to own that. what do you want to own? >> what you do not want to own is the high multiple stocks. there's more downside risk than upside in this uncertainty. you do not want to own companies with a lot of leverage but have to go back and look at more financing at a higher cost. and i think you have to be really careful to own, if you

are owning, especially the small cap space which i am a fan of. you have to be really careful that you do not own companies that do not have a leading advantage. tom: you been doing this for seven or eight years. is this the time to lift the vote on the bank stocks. you mention small caps. you have regionals and all of that in thousands of banks beneath them. and then we have all spring research every day. is it time to load the boat on banks that look grim? >> i talked to almost all of our equity major jurors -- managers yesterday and the answer i got was it is not time to load the boat yet. if you're going to own banks, you want to be very selective in what you own. and selling your former, we just talked about this, we will see if there's more damage to be

done. it is based on the same principles i talked about. how much is this changing environment impacting? i think we will see something that will fare just fine and to the point about consolidation that is true coming around the corner. but it is a difficult time to tell investors to load the boat. lisa: and to finish up, we are 20 minutes away from this financing refunding agreement announcement by the treasury department. do you plan on trading in any way? >> i think it is something that we would look at, but again as an active stock picker, we are focused more on bottom-up fundamentals. that has served us well throughout the years and obviously you pay attention to the macro and all the other dynamics by focusing on this. as we get out of the transition into the next cycle it will be a

clear winner. that is where we are focused. tom: what are you hearing with cash? i'm fascinated by the dynamic of the laws it money market funds. a less banking system overall. how do you handle banking cash in a managed portfolio? >> cash is, it is an allocation for investors. you know this with your leverage cash portfolio. tom: i do? >> within the equity portfolio. our job primarily as to invest in equities which is the main purpose. cash is in kind of a -- what is left over after those are made. typically we see cash flow below 5%. but our investors are allocating cash away from -- it is down from bucket with active managers

if they are looking for investment. tom: thank you so much with all spring. all sorts of considerations available over the years. and they are the strong group and they over the -- shown the high ground. it was a valued moment where they really owned it. everything to do with value. as you mentioned the small caps right now i think. this is been difficult to get it right. and the reason why they are not going well because they've gotten burned on it as so many others have. they say there is value here. and they looked really cheap and yet the pesky sentiment driver has popped. no one is more front and center -- tom: no one is more front and center than our key policy responded with michael mckee. he kicks off the coverage here.

all sorts of narratives here. we have a good time to talk with you today with the jobs data today and more data friday. with adp in the next two minutes. do you care? is there a new ferocity to their study of paychecks? mike: no. they would tell you there is not supposed to be and it is now an independent indicator that does not predict anything in terms of payrolls. we always say on adp day that we care about it because the market cares about it but unless there is really a weird number today i do not think the market will care about it because there's so much going on and other numbers out today in the fed and the refunding. tom: when we get to the most chest refunding in a moment we will line up the dots. this afternoon is the victor in place -- vector in place for a

more miserable job economy? i do not see it. mike: nor does anybody else. the forecast at the moment for friday is 180,000 jobs. that is still a very high number and above what the fed thinks is sustainable. the markets have thrown in the towel a little bit because they surprised everyone with their high and there may be a strong move. you get a better look when we get jolts at 10:00 eastern this morning. when we look at what else is going on in the economy and what we saw in terms of the eci with wages out. we have strength in the labor market. tom: mike mckee is in washington we say good morning to you let me say good morning to all of you on bloomberg radio and television. the futures of -15.

it is somewhere in the vicinity right now we have an adp report. what do you see? mike: we haven't adp report and it is weaker than people anticipated. 113,000 jobs created in the month of october. that is according to that apd -- adp fowlkes. the forecast was for 100 50,000. but adp called for 39,000 last month and we ended up getting over 300,000. take it for what it is worth. what adp is saying is that the goods producing sector produced 6000 jobs. manufacturing up by 3000. they had gone through a streak where manufacturing was losing jobs. construction 4000. leisure and hospitality is 17,000. in the -- education and health

services are at 40,000. they always kind of lead the way. in terms of establishment and those like meeting size businesses as 78,000 jobs as the leader. and the pay component. overall those who stayed at their jobs all races of 5.7%. does that change jobs of 8.4%. still stronger numbers in terms of wages. will it matter? probably as i say not. tom: the market moved here with the equity markets improving -15 up to -12. the two year yield gives some love from 5.0 5%. we are now well over this with four basis point. i do not know what to make of that this morning. and spread of the 15 basis points. help me out here i'm trying to

make something of it. lisa: a lot of people shrug off adp as not having a leading indication for the friday jobs report by the fact it came in lower than expected, then it came and at 113: thousand -- 113,000, yields may top out. you may get a boost to equities. tom: i want you to give us a full view on this disclosure. peter fisher, not ages ago, they would say we will not have janet yellen in the treasury making a check on the bond market. is there a history where the treasury is back to gallatin on the bond market and the curve? mike: to find out how you will, over the years the treasury has turned out with broadening their buying depending on what the outlook for interest rates is. in this case up to this point

they have been concentrated on putting stuff in the long end. they get criticism for it because the rates have gone up a lot recently. it will be interesting to see when they do. and 8:30 whether there is a sick begin change or not. the treasury is in the position to refine paperwork that it has maturing and having additional cash because the deficit is growing. they have to figure out the best way to do it and argue the been regular and predictable. at the same time, they want to be the lowest cost provider of loans to the government. lisa: can you tell us which indicators are the most reliable ? we get jolts, adp, what is the best forecaster for friday's number? ike: bob -- mike: oddly enough for friday's number a lot of people like to look at the conference board with jobs hard

to get an easy to get. they reflect people's experience out there and it was pretty good. -- it is only quarterly so it will not give a lot of information about what will happen going forward. at 10:00 we also get the ism manufacturing numbers that have a good track record. there is reasonably good data to try to build your forecast on for friday. tom: the markets move of adp, i do not know what to make of it. my head is spinning on this on the two year yield. for basis points on the 10 year yield. maybe better framework than equities in the last number. michael mckee, are we going to get a surprising date year press conference today. we do them, but everybody is telling me snooze-fest.

all of my radars up. i do not buy it. what could be the surprise we see this afternoon? mike: if jay powell put specifics to whether the fed is done or not or considering rate increases, i suspect he will come out and say it is on the table but we paused today. obviously if the fed raised rate today it would be a shock to the markets. there is no dot plot or new economic forecast so there's not a lot of news except for the decision and what jay powell says about it. historically he has been reluctant to say anything that leads the market too far in one direction. tom: right where is the mckey metered today? it's not like i look to the bank of england. the ecb -- that is rooted in america, right? mike: well, it has become

traditional in the u.s. with the board of governors not descending at all. we have not had a dissent in years from them. and the president only dissents on rare occasions. it does not appear anybody is out of the line this time and nobody has spoken of in the intermediate period saying the fed did the wrong thing. i would not expect a dissent here. what would be fun is if we got something like the bank of england where everyone vote and they have a publicize as three or four different votes. but in this case we will probably get a united number. lisa: if you're joining us we got the adp employment change coming in lighter been expected ahead of the jewel jobs report we get at 10:00 and ahead of the jobs number that we get in the nonfarm payrolls on friday. and it comes ahead of the treasury refinance that is just eight minutes away at the time of real tension in the bond

market. you can see that bonds are moving and stocks are responding in tandem. basically yields that are slightly lower and stocks slightly higher. there is a feeling of the softness in the u.s. economy will be welcomed. tom: we have not talked enough about the ism data. help us with ism. and this is jonathan ferro. he screams about this. we get breakfast and we are having the to read things that you there and -- why does he want to buy ism? what do you get out of ism in the first of the month? mike: the biggest thing it's been around since the 1930's so there is a long track record. the compare it to economic cycles and it has relevance to figure out what is going on. in this case we look at the top line number to see if manufacturing is still strong in the u.s. compared to the rest of

the world. under that, you have an employment number that will help calculate friday. and we are getting the prices paid number which is what everyone is focused on with inflation. tom: thank you so much from washington. we appreciate your comments and the set of narrative we have driving forward. we have time here and joining us is global chief economist of morgan stanley the, seth carpenter. thank you for showing up. after the refunding and all of that, you have to go in and say good morning, wonderful to see you. what is your message to the leader of the said firm. clicks this is a funny week where we have the fed meeting and the treasury refunding meeting. the treasury meeting is more interesting to markets. tom: peter fisher would say it

will be a nonevent. >> maybe it will be or not. when i was a treasury writing the financial -- market office and i would do the refunding, we would try as hard as possible to make it boring and not make the news but everyone is asking now will they upsize the cube on options and by how much. the market is so excess to where the long end of the curve may go they are looking for any clue they can get their hands on. tom: where is the first bid. are you looking at the sovereign wealth fund, mom and top -- pop in topeka? >> it has to be a little bit of everything but from my perspective with the adp numbers -- we will see what is going on with that. you did very well. and what we think at morgan stanley will drive more. we get the slowing in the economy that we are looking for in the fourth order and people will say ok we have a top on

yields and now we have to reorient it. tom: what is the number for q4 right now? >> we are down around .9%. a bit of payback. q3 was a gangbusters number. we are looking for this in consumption. but we also see weak investment numbers which is not an upgrade harbinger. and 1.3 percentage points in q3. that will not follow through. lisa: i'm going to go as tom keene is watching options. tom: yeah that is a dark black suit. we are honored to have seth carpenter with us for the many narratives of this very busy wednesday. he's with morgan stanley. futures -14. good morning on television and radio. radio.

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it's overwhelming. it's everything. ♪ matt: -- con: brimelow on top of the story, we are with you without commercial interruption through this half-hour. waiting for the headlines, futures -13. the many narratives that we see here on the first of november. and of course, the 10 year

yield, 4.90%. a stream of headlines and four of them have the famous michael mckee red sticky. michael mckee on this refunding. michael: let's put the fun back in refunding. $112 billion is what is going on, $9 billion more than the previous quarter. that 102 billion dollars is basically the refunding. most of the work is being done by the shorter end. three year no auctions going up by $48 billion. 10 years by $40 billion. $240 billion, i'm sorry. $24 billion offered. all of those larger coupon sizes than had been auctioned in previous quarters. the quarterly increase that we get is basically concentrated at the short end, which makes sense

since long and rates have gone up. the problem of course for the treasury department is that people are criticizing them for not terming out earlier. they have to pay more, so they are kind of locked in here at the higher rates rather than being able to take advantage of any falling rates. they do say that this may be the end of it in terms of raising auction sizes. they may raise auction sizes one more time and that should be enough in the first quarter of next year. they are going to maintain the auction sizes of the current rate so it is still a lot of work being done by the short end. by early december, there will be modest reductions to bill auctions as they realign the need, the borrowing needs with borrowing. that will go into late january. they are still working on the buyback announcement. nothing today on that. that will come with future refunding. the tom: two year yield comes in sprightly here, 5.05%.

three year bond at exactly 5% right now. equities improve and s&p futures down at negative seven so there is some movement to the market. maybe a little bit of dollar weakness, same with oil. the 10 year real yield was at 2.50 earlier this morning. now back down to 2.44. something bramo cares about. lisa: i'm watching the 30 year yield get really close to punching through 5% for the first time in a number of days, but to me this is really the story. the treasury department came out and gave a nod to market move if nothing else. frontload a lot of the purchases and then end up on a lower end not raising the tech sales to try to pressure some of what we have seen in terms of messiness. just quickly what we are seeing

here is a rally and this is what a lot of people are expecting. how much are people going to suspect that the treasury is directly responding to fears about disorderly auctions and some of the volatility that we've seen at the long end of the yield curve? >> they likely are, whether or not it is because wall street said it or because it is pretty obvious is open to somebody's interpretation. one really interesting note comes in a letter to the treasury department. these are the traders from all the top treasury houses along wall street. they know that the rise in yields that we've seen in recent weeks is likely because traders are replacing for stronger growth and at the same time, for a higher neutral rate for the fed. they are not putting a lot of weight on the idea that is the deficit.

they seem to be agreeing with folks who deal with these things day today. tom: michael mckee, thank you so much for the brief over the last couple of days on refunding. seth carpenter in the mckee segment is perfectly -- to the chief global economist at morgan stanley. are we all john williams this morning and we are readjusting? last week at a bloomberg event, 2.0%. are we really talking about a new inflation regime? >> i think you want to separate couple things. if you are comparing it to where we were from the financial crisis to covid, i think you have to say yes. the fed was consistently missing its inflation target of the downside. we are clearly above target now and over the next several years, they want to bring it down. but i'm not sure they want to go back to the old days.

if we are going to be averaging a little higher during expansions, you are talking about 25-50 basis points higher inflation. i don't think we are talking about the difference between 2% inflation and 3%. tom: what half-hour we have. have dr. carpenter with us on the broader economics of the moment. just exquisite here on fixed income dynamics and expert on your world about the difference rogers of the options. lisa: i want to dig in on the implications of this announcement. the idea that they are really going to force the front end to do a lot of the heavy lifting here. does that pose a greater risk than people realize? >> my view is no. there was a speculation back and forth a little bit earlier, and i think you want to remember

that the folks who are there, they have a structure. they have a framework for how to think about what to issue and they are looking at what the market is saying about where the market wants to pay up and with the market is demanding a discount. and at the margin, they will lean a little bit more that there yields plunging back below 5%. lisa: do you think it is an economic read on strength and inflation in the u.s.? >> know, it is still hard to pin on any single thing.

there are whole set of different narratives, one of which has been supplied. there's no two ways about effectively de facto got rid of yield curve control. so it's not just one single thing. it's everything coming together. so what's your compass at a time where we're expecting the fed to come the trend over the past 18 months clear downward trend if

you look at the gdp data consumption spending holding in. but a lot of the strength was in inventories. capex was, as you know, not very strong at all. and so we are seeing that slowing. and so what we think is the fed's looking at the same data we are they're driving by feel a little bit and they're not going to hike today. we don't think they're going to hike in december because inflation just keeps

are starting to see that payback starting to happen. and that has to crimp consumer disposable income. so that matters. durable goods, right? interest rates are high. credit card rates are high. people financing cars and other things. it's just costing more. and so they'll pull back on the spending. it's just extraordinary. seth carpenter, thank you so much. really, really appreciate it. with morgan stanley this morning. lisa got red and green on the screen. haven't said it all day. we've got a nice lift here in the vix pops under 18. bottom. i mean, basically what we're looking at, we're looking at is a bond market that's driving all the action you're seeing a lift to stocks as bond yields drop.

we're going to talk about just how significant this refunding announcement really was coming. yes, on the open. yeah, i'm really excited. bob michael of jp morgan in the studio, tom porcelli of pjm fixed income and kate moore of blackrock. to parse through how much this has sucked the oxygen out of the room, frankly, for the federal reserve. lisa brammertz, thank you so much. again, we welcome all of you here. really sparing dow was going to stay with you on radio and television here through the half hour. got a good 20 minutes to go here. and now to shift from the economics of doctor carpenter, much more to what we see in fixed income. ira jersey joins us. he's chief us interest rate strategist at bloomberg intelligence. ira, your thoughts on a refunding? clearly, the equity markets like it. yeah, i think people were hedged for maybe even more long end issuance than the treasury market delivered. and i heard you just talking to mr. carpenter there, talking

about it. you know, the fact that the treasury department kind of is looking for where they can get the best demand for the product that they're selling and and by doing a little bit less in the long end and a little bit more in the front end, you've seen a pretty decent rally as an as a knee jerk reaction to this announcement. it's a knee jerk reaction. but isn't this just policy prescribed over the decades of saying we're going to be measured, cautious and when in doubt, stay with short term paper? well, the treasury department has what they want to be. they want to be very consistent in how they operate. and they're always going to, you know, adjust issuance based on market conditions, based on demand. so so keep in mind, like something that lisa said early on, i, i have to push back on a little bit. the treasury department did increase its long end issuance quite substantially when interest rates were extremely low a few years ago, with the average maturity of the debt of

the public going from under under five years all the way up to over seven years, that's come down a little bit as they've been increasing a lot tom: should we have a french 50 year bond equivalent or a 100 year austrian bond evelyn? -- the equivalent? >> i was a little surprised that

when they announced a 20 year that they didn't also do a 50 year. the fifty-year need of the needs of certain after types. one of the big fear is twofold for the treasury department. one is big enough in size that it would really matter, and issue more of those. the second is that they were worried that liquidity would be very poor because they know that whatever they think cell would probably just put away insurance companies and some pension funds and never see the light of day, same ideas in a liquidity issue with that. so do i think that it work? yes, but you have to restructure it. tom: i'm getting a recollection that the tennessee accent of john templeton. he would say i predict there will be a shortage of bonds. through the recent years denton a shortage of funds, price of, yield incredibly low. is that a shortage of bonds

right now? is there a shortage of bonds right now? somewhat more imbalanced now than it was. you also don't have over the last 20 years central banks in the market at the extreme level that they were before. even the bank of japan is starting to pull back quite a lot on its bond purchases, so as you get all the supply and demand dynamics shifting you are going to have priced somewhat structurally higher yields in general regardless of how many bombs you actually have. tom: if you are just joining us, this is wonderful.

with no commercial interruption here for the half hour, set carpenter of morgan stanley joining us now. and coming up, i'm thrilled to say mark caban of the bank of america will join us here in moments. and i want to shift this over to where you live and mark caban a lives which of the inflation-adjusted yield. to me, that is the big difference permeating the system. i walked into that to 2.50%, 10 year inflation yield, really up against new, high inflation-adjusted yields. let's pull back a little bit right now. will that impinge the economy as you look at it from bloomberg intelligence? >> so yes, anyway it will. we had structurally negative real yields for a long time, and now that real yields are at 2.5%, maybe even moving up slightly more, i think we are

probably nearing the peak in yields for now. it will have a slowing effect on the economy, but i think it also gives investors an interesting opportunity here because if you are fearing inflation in 2021, you had to buy real yields. you had to buy the negative yield and coupons that were effectively zero. now you can actually get a real yields at a reasonable price where you know you are going to make 2.5% of inflation for the next decade. and i think that that is relatively attractive given the potential outcomes, given that inflation is going to be fought by central banks, that the central banks don't want inflation to be extremely high. it could be a win-win where you win if inflation goes up and you win if inflation goes down and central banks cut interest rates. you could wind up getting price appreciation from those, whereas you weren't going to get that back in 2021. tom: thank you so much,

bloomberg intelligence driving all of our fixed income research. these are small moves for global wall street. the major one is futures -14, even -15. we had a shot in the markets to green on the screen. the dow still red. nasdaq 100 again green and critically, from that 2021, dare i say 2022 level, we had a number of days here with 17.89 right now on the volatility index. maybe not the drama of 20 minutes ago, 10 year yield for a cup of coffee. we have the 30 year bond under 5%, 5.02% right now.

the real yield has given me some real move from 2.5 zero to 2.45. so maybe a less inflation fear out there. brent crude up. the dow story, we really looked at three hours ago. i'm going to call that stable, but a resilient dollar. piercing notes for bank of america, there is no other way to put it out of u.s. rates strategy. he's aged in the last 10 minutes. bana joins us this morning. i don't care. it comes out and to me it was sort of, i really don't care. janet yellen said we are going to do short paper, long paper, but we are the united states. our listeners, our viewers who are not sophisticated, do they need to fear the fiscal system of america? >> no, you shouldn't fear the fiscal system because the u.s. economy is still going to be very positive.

there will be buyers for treasury paper, it is just a matter of at what level they step in, and we had a lack of buying recently, but that is how the yield that had to adjust and that incentivizes more investors to think about buying bonds. we do think that rates are going to keep rising and stay elevated until you see one of two things. number one, until you see the macro data slow. we don't think you really see that yet. or two, until ucd risking. investors who think rates are kind of high, real yields are almost a 2.5%. maybe i should think about the risking in my portfolio. tom: this is such a valuable portfolio -- conversation that i've got to get right now. let's stay on this theme right now of our new hire yield regime. how far out are you in the long run? if you could take any given yield, any given spread, is there a cabana one year, three

years? how do you see the regime? >> we just think that rates are going to have to stay higher for longer, and we really believe that because we'd seen an economy that has been so resilient in the face of relatively elevated interest rates. as long as that happens, it means the fed doesn't have to cut for a while. when i think about longer, i think about five years plus. just because most investors who really focus on liquidity and liquidity management, they think generally two years, three years. but when i think about intermediate along, i think about five years plus. tom: i'm going to invent a phrase right now. i want copyrights on it if you use it. is it normal for longer? is that really what we are talking about? >> certainly we are back to a regime that looks a lot more similar to the pre-financial crisis than most-financial crisis. tom: let maturities due by --

what maturities do you buy given a five-year normal for longer view? >> it really depends upon what your overall investment horizon is and where your preferences are. if you are focused on content you probably want to be neutral to slightly over in your benchmark. if you're a more long-term investor, we think that you at best want to be neutral right now and you want to stay neutral until you see the signs of feedback that tell you higher interest rates are finally slowing the economy. not just a data point here or there, but tier one stuff. in labor and clearly in inflation. you want to stay neutral and you see the signs or include believe that a clearer and more definitive negative that for risk assets which i don't believe that we have really seen sufficiently yet. tom: i love to bust brian moynihan chops because you like no other ceo quotas research

staff. solicited report from cabana that you give to brian moynihan right now. i've got balance sheets nationwide and i've got everything else with massive fond losses christ down, yields out. should our listeners and viewers be afraid of this nonmarket market balance sheets? >> i think you were talking about bank balance sheets and appreciate his research, is a staunch supporter. we think that when banks are doing right now is that they are really prizing with woody. they really want to hold as much liquidity as possible. they are keeping reserves with the fed, and they are not buying bonds, they are not buying treasuries or mortgages and they are prizing liquidity because they know that they need to meet their outflow need. they know that there securities book is not particularly liquid because it is so loving value. you don't want to sell and

realize the loss. anna: so what do you do? what do you do if you are a bank who has got all of this out there and you don't want to sell, just like you said, but things could happen, things could change. how do you process that reality? >> if you are a bank what you are doing right now is your holding cash. you seem bank cash holdings not move down very much at all. they are bidding up on the liability side of the balance sheet, issuing deposits to take in more money as they are seeing retail outflows and then they are holding cash and they are going to continue to do that until they see signs that the economy is turning. until they know that long growth has really slowed down and maybe negative on year-over-year or six months average or whatnot. they are going to wait until the economy slows to extend out the curve and by the bonds. right now banks are not find duration. taken shrinking in a treasury and agency holdings and they are

going to wait to add duration until they see definitive signs that the economy is turning. when banks are doing right now was holding on liquidity because that is the most valuable thing they seem to believe. tom: what is holding out liquidity mean for mere mortals that can hold out liquidity? small business, 10% small business loans as well. i saw 31% charge card the other day. wasn't bank of america, of course. what does the public to given price down, yield up, banks saying i'm scared stiff, i've got to hold cash. >> it is a tough time to be a borrower. tough time to move, top time to buy a home, top time to be business if you need a loan. monetary policy is trying to slow down activity by reducing demand for loans and borrowing. if you are a small business and you do need a loan, you need to think about what other liquidity sources do i have? can i draw on any other type of the quiddity?

and you got to ask yourself, do i really need to expand? do i need to make that next investment? you got to make sure you can clear a much higher hurdle rate to justify those costs. that is a monetary policy works. to some extent, we are seeing that. but it hasn't happened to the extent that the fed would like. >> terrific brief on how we are all being buffeted around by this bond economy, if you will. maybe even the high for the day. on the currency front, i'm going to call it dollar strong stability as well. let me tell you about the data going through to november. jon ferro on a cruise ship somewhere said he is going to be looking in on that data. i believe that is 10:00, we will

see you then. on the fed, we begin strong at 1:30. vice cleverley, richard clarida and formally with the new york fed. what a great set of guests. good morning. good morning. the chase ink business premier card is made for people like sam, who make- everyday products, designed smarter. like a smart coffee grinder, that orders fresh beans for you. oh, genius! for more breakthroughs like that- i need a breakthrough card. like ours! with 2.5% cash back on purchases of $5,000 or more. plus unlimited 2% cash back on all other purchases. and with greater spending potential, sam can keep making smart ideas- a brilliant reality!

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lisa: some positive news from the bulls on the street from the treasury department. the countdown to the open starts right now. [speaking foreign language] >> everything you need to get set for the start of the u.s. trading. this is bloomberg the open with jonathan ferro. ♪