guy: monday the 27th, 30 minutes into the trading day in the united states. i'm guy johnson. alix steel is in new york. welcome to "bloomberg markets. yields up, take down? >> add onto that the higher energy prices with cyclicals outperforming, with some clients continuing the fed meeting now. if you have higher inflation, that's typically good for the idiosyncratic russell 2000. the s&p energy index catapulting higher and the best-performing names in the s&p are all of the energy guys. up by 2%, brent almost touching 80. you can see $90 oil there.

that's all to say we have 10 year yields pushing high. we are now at the highest level since june of 2020. 2020 one. how long does the playbook have to run? that's the real question. to kick it off we wanted to highlight the top stories this morning with the risk that we could see to the market that could disrupt any of that. focusing on the fed, eric rosen says that he's going to be retiring for kidney issues and we want to see what that means for the market. michael mckee is here with us. what does it mean? michael: not a lot yet, but it could have implications next year. 14 years at the head of the boston fed, he's retiring september 30, which is thursday. he's leaving very quickly and a lot of people are tying got to the controversy over asset trading that he and rob kaplan of dallas were buying last year.

he says it's because he has a kidney problem that has been exacerbated by the crisis over the last year. so for him, medically, to resign, so as he said, could focus on his health issues. we knew he was going to be leaving because his mandatory retirement age comes up in june of next year. this is much quicker than that. the boston fed had already started the search process and it looks like they will be able to get a replacement perhaps in time for the first of the year and the replacement will be important as we will see a lot of turnover at the fed with their critical year in papering and -- tapering and inflation, natural gas prices today. powell, his term as chairman ends in january. richard clarida duck, his term as vice chairman and on the fed

end in january. reggie corals is gone at the end of this month and the question is, does he stay on the board. now, eric rosengren. it's going to be a very busy couple of months for the biden administration to choose who is going to stay, who is going to go, and now the regional banks are starting to lose people in that will raise the issue of who votes on what next year and what they think. guy: yeah, it's another layer of complication on top of a fairly complicated picture for the fed. mike mckee, thank you very much indeed. we will see what happens with the chair, of course. politics, democrats heading for a short down -- showdown this week over the biden economic agenda with a planned vote on a 500 $50 billion infrastructure package. our bloomberg correspondent joins us now. does pelosi have the votes?

>> she clearly didn't have them for the day, which is what the chair told cnn this weekend, saying there will be a vote on thursday and the measure will be brought to the house floor for debate starting today and the democrats will be meeting at 530 p.m. starting today, kicking off a very, very busy week. what it really comes down to on thursday is whether or not speaker pelosi can bring the progressives on board to have the vote on thursday on bipartisan infrastructure. this is the deal she worked out to bring it to the floor today with the house moderates. the next few days will be critical to see what gets done with that budget pratt -- budget package. through reconciliation to get enough progressives on board, she says she will have a vote on thursday. alix: thank you so much, a lot to catch up on with that there. rallying at the start of the week, the crude market, tightening amid the global energy crunch. the latest knock on effect of

the power crisis is higher oil prices and the energy crisis in europe in the u.k. spreading elsewhere, stemming from a fundamental supply demand imbalance in the short-term across the globe. whether you are looking at shipping, chips, or other products. joining us to examine that story from the port of los angeles, ed ludlow. ed: there are dozens of ships waiting for a birth in port, waiting on average 95 days in what they do get one, they are confronted with labor shortages, a backlog on roads and rail taking too long to get off. record levels of delay here at the port of los angeles, handling 40% -- 47% of the imports and 30 percent of exports. we can get the shipping rates in asia, europe, north america, latin america, it's a sharp -- sharp uptick because policymakers in china are not afraid to shut this down, the

ports, to fight the spreading variant in china. the point of origin backlog is compounding what we are seeing here in the u.s. shippers are stockpiling in anticipation of a busy holiday with higher input costs. not just ports, but roads, the main contributor being the lack of drivers right now, rising wages, and the costs per mile soaring. the question going forward is how to fix this and we will be speaking to key names here throughout the day just to get the answer. guy: looking forward to that conversation continuing, ed. he will be back with us in the next hour. the port of los angeles executive director joining us to continue the conversation, as they say, 11:30 a.m. in new york , and we will be in l.a. for

that conference -- conversation with him. let's talk about what's happening in germany. centerleft social democrats appealing to potential partners to join in a new german government. is he going to get his way? the german election, incredibly close overnight. we have more now with the latest, they are putting the call out, looking at the green and the process. how long before we get a german government, how long is the process going to take? >> he says he wants to form a government before christmas, but we know how long that lasted last time, it was almost six months. we really don't know yet. he says -- scholz says he wants the support of both parties, but that's going to be

difficult. they are not exactly on the same page when it comes to the fundamental big issue of climate change. the greens wanted to basically have an interventionist policy and put up a lot of public money. the other side once a more liberal, market approach and don't want to spend more money. this is a sort of contradiction of trying to square a circle that he has to somehow manage. alix: thank you, we are going to follow this over the next couple of days and hours. alright, coming up, the rotation out of tech into financials. is it just kind of getting started? yields are really pushing higher. a senior portfolio manager, joining us next. this is bloomberg. ♪

guy: from london, i'm guy johnson and this is "bloomberg markets -- guy johnson and this is "bloomberg markets." abigail doolittle is digging into the details. abigail: today tech is down as the tech shares are seeing and inflation valuation concern. reflation, the 10 year yield on the highs, it's thereabouts and more recently back at 100 50. putting reflation and inflation back into focus. as for what's helping, it's all about the banks, energies, materials, sectors tied to an

economic recovery, all sharply higher over the last weeks to months, nice gains for those sectors. as you can see, energy financials, materials, industrials, the cyclical value trade is back on and if it ties into small caps, this is super interesting. the bloomberg terminal, taking a look at the 10 year yield in white, and blew we had the russell 2000 with a piece of the reflationary trade and more recently we have seen the 2000 underperforming as the yields came in, but now as they are backing up you can see small caps are stuck here and starting to outperform a little bit relative to the s&p 500. alix: it's trying really hard. i'm going to make the connection here, harvard business moving their first-year students online after the outbreak and as they continue to reopen despite delta, what happens if we start

to shut down in some ways? even just pockets, what does it do to the narrative that the market is more aggressively pricing in? guy: going back to what abigail was talking about, reflation or inflation, the port of l.a., experiencing huge problems because they can't get truck drivers. as powell set on friday, you've got a tight labor market at the same time as high unemployment and it's a bizarre situation and the virus is kind of the key. it could be a situation where inflation pushes higher because you don't have the staff to deliver what you need to be able to deliver for the economy and you cannot get the stuff from around the world because of the supply chain bottlenecks in parts of asia or key commodity areas. i think these things are all connected. we haven't talked about the virus really in quite some time but i wonder if actually it's going to become more of an inflationary narrative working our way through the winter.

alix: you have to wonder, though, what the combo does to growth and expectation issues. if it isn't anchored and the rates start to rise, that's a material difference for the fed. or you get the headlines about shutting this down, going online, shutting this down. does that way on your spend in a short-term scenario? guy: it's going to make you cautious, isn't it? slowing the economy down to provide a short-term inflationary impulse in some of the numbers. yeah, no, it definitely all comes together but you may see the data abundantly clear at the moment. it's a slow down. going through a slow down at the same time that we talk about reflation trade. go figure alix:. alix:right, so what do we do?

valerie joins us. do you buy into this reflation theme? valerie: we generally stay balanced in this environment. we have seen. 's --. periods about for storm and's but on a trailing basis the growth has outperformed, so it's important to remain diversified in your portfolio terms of the factor exposures in the same way that you maintain a level of diversification across sectors. these regime changes can happen quickly and over the long term depending on your time horizon, it's to your benefit to maintain a level of diversification. guy: how do we think about this diversification? people talk about our bell strategies so much that i tune it out. but is that what we need to think about? banks on the one

hand with a technology growth and? is that the is that the strategy at the moment? or does it need to be more nuanced? it seems to be the way we are pivoting? valerie: we have exposure to both in the portfolio that i manage, large-cap managing environmental, social, and governance issues. yes, we have exposure to financials and technology. we are underweight energy, which you were just discussing. but talking a bit about the covid issue, to me that is very important and for some reason we seem to have forgotten about it. but covid is certainly not over. it's not over in various regions of the country and it's certainly not over in various countries around the world. large-cap companies have exposure to global markets and that is what we are seeing now in terms of the supply chain

disruptions. many of them are in fact covid related. alix: is there a sector more insulated from that, bringing us back to financials? these supply crunches in part sparked by covid, financials can be relatively immune and take advantage of reflation. >> ely ones that might be immune to that would be the regional banks. if you are investing in large money center banks and financial institutions, they also operate globally and obviously must've their business is affected by yields. i think it's very difficult to insulate yourself from this exposure. perhaps if you looked more in the small and mid-cap sections of the market will find companies that are more sort of focused on the u.s. market exclusively, right? then you may not have the same type of challenges that you do with the large multinationals.

guy: i'm struggling with this concept of reflation at the moment. it doesn't feel like reflation. it feels like we are struggling. the data are not good. companies are talking more and more about supply chain shortages and that is going to throttle back growth. does this feel like reflation or something else? the conversation about stagflation has started to emerge recently. high yields, yes. does that necessarily mean higher growth? valerie: i don't think it is implying stagflation. i think what we are seeing are the challenges of reopening and really increasing output. we had a surge in aggregate demand coming out of the pandemic and the output or supplies simply has not been able to meet the demand. i continue to believe that although some of this inflation may be higher for longer, i think the bulk of it is

transient. with the exception of wages. what we hear from companies across sectors is that it really is more of a employees market rather than employers market at this time. particularly at the lower end of the spectrum and across all segments. alix: based on that, which areas have better pricing power? which ones have extra room to do that and which ones are kind of maxing out a little bit? valerie: i think that you see it within the sectors varying considerably. some have the power to pass on costs to consumers and also in some aspects of technology, some companies have proprietary technology that is mission-critical to organizations and are therefore able to pass those costs onto to other companies on a business to business level. it's very company specific and

we are probably going into the next upcoming earnings season going to see a wide range, a wide range of responses here. guy: i think it's going to be a really interesting earnings season. i saw what nike had to say the other day, the supply chain bottlenecks. you hear company after company talking about this. do you think that the market has priced that it in? that the middle of the story is factored in? the expectations continue to be that these companies will be able to power through. is that going to be the case? valerie: i don't think it's necessarily priced in. corporate profits have been so strong the last couple of quarters, just pro rata -- phenomenal performance and in the back of their minds people understand that we have issues with supply chain, covid, everything else, i don't know that it's really baked into the numbers, so to speak. i think there will be some

surprises that could create buying opportunities as well, with companies that have healthy outlooks over the long term perhaps having a little pressure on their stock price. guy: valerie, great to talk with you. thank you very much for joining us for that analysis. what are we going to do later? we are going to talk to a company backed by leo dicaprio. it's going public. it's called polestar. alix: leo? are you guys buddies? guy: oh yeah. what do you call him? alix: leonardo. caprio. it's a double name. you have to do it that way. you can't say leo. [laughter] apparently.

guy: volvo has made a deal for

polestar to go public through a merger with guggenheim. dave wilson is here with the details. dave: polestar is a company started in 2017. volvo cars, that's controlled by china. we are talking about a china connection here in terms of the deal. you have got to understand that polestar is a company already making your calls. unlike others who have gone public through the blank check route. 10,000 cars sold last year. there are a couple of models already available with or to come in the next few years. that's how you get to a $20 billion valuation on the company for sure, when it comes to this deal. the billionaire door brothers

and guggenheim, coming together. in july there were reports that the deal was in the works, so you saw the shares jump up and come back down and now that the deals are happening, the shares are pretty much back to where they were around their peak in july. people seeing the deal as a positive when you consider where the shares were originally sold. alix: so, what does happen to the shares when the deal is completed? dave: that becomes the real question. a lot of companies have gone public through this blank check route that haven't done that well with investors once the deals were completed. there is something called the d spac index that tracks. in terms of market value, you could see how the company would stand up at 20 billion dollars. nothing compared to tesla or some of the others out there.

and lucid, which i mentioned earlier, doubled the valuation in terms of dollars. but beyond that, just the idea that this index peaked back in february and is now down 40% since then and was down more not long ago. you have to wonder what happens now as the deal proceeds. guy: dave, thanks a lot -- alix: dave, thanks a lot, good set up for us. don't mix -- miss our upcoming interview. house democrats on track for an intense fight over the upcoming big project. we are going to talk to the vice president for policy. he used to work for chuck schumer. this is bloomberg. ♪

>> let me just say we are going to pass the bill this week.

i promised we would bring the bill to the floor, that was according to the language of those who -- that those who wanted to bring the bill to the far road into the rules. but i am never bringing a bill to the floor that does not have the votes. alix: that is nancy pelosi talking about prospects of passing the infrastructure bill this week. i want to bring in jim kessler, third wave executive and former policy director for chuck schumer. you have been in the trenches, have had to pass bills that no one wanted to pass. i wanted to ask specifically about the human and structure it is always divided until the last minute. there is always prominent of last-minute. is this time different? jim: we are in the midst of a 96 hour high wire act, but the trapeze artist will get to the

other end. by the end of thursday, we will have an infrastructure bill that passes the house and goes to the president's desk. i believe there will be a framework for the reconciliation bill, the human infrastructure bill, that will be somewhat less than the $3.5 trillion that is the target right now. guy: somewhat less? jim: substantially get -- less. there are a lot of democrats focused on the priorities, what is going to get done? but my guess is that it will be somewhere in the $2 to $2.5 trillion range. senators like joe manchin and kyrsten sinema are looking for a number that begins with 1. this is ultimately going to come

down, because there are practically zero votes to spare. zero in the senate, three in the house. alix: does not rule out $2.5 trillion. what are the chances that progressives take it and walk away, because they are not getting $2.5 trillion? jim: very low. you can do an awful lot with $2 trillion. you can do all of the climate pieces that are not being done in the infrastructure bill for $ 700 million. there these massive middle-class tax cuts, that is another $700 billion. that gets you to $1.4 billion.

there is another 600 or $700 billion that i think is important. guy: how quickly does this money go out the door? one of the things of markets are going to have to figure out are we going to see checks? are we going to see some of this money coming out weekly, which will be a short-term boost to the economy just wanted to struggling? i am wondering how the mechanics of distributing these numbers, how the mechanics are going to work? jim: let us say we are at the $2 trillion on the reconciliation package. that is over 10 years. certainly, the things having to do with climate are spread out, but the tax credits for electric vehicles, that will affect industry almost right away. the child tax credit checks are already going out. they will continue to go out. the parts that are income

supplements for folks in the middle class, those will continue unabated. the flow will be ongoing. alix: more with the infrastructure before we get to the debt ceiling and the shutdown, if we get a $2 trillion bill, what does that mean for taxes? jim: if you -- if this bill is going to be paid for, then -- and it is not superhard to get to $2 trillion in paid force. that would mean a corporate tax rate of 25%, far below the 35% it was for the previous several decades. probably higher capital gains rates. health care savings, some irs

enforcement. that gets you to $1.5. there are some other things that can get you nickels and dimes. it gets you to the two number. guy: the math vaguely backs it up. alex mentions the government shutdown. how would you handicap that? if we get a continuing resolution, how far is it going to kick the can down the road? is the biden administration going to want to make any change if there is any issue over the debt ceiling? if it gets messy, you are going to need the fed making sure it has got itself covered. i am wondering how this is going to work? jim: the continuing resolution, this is government funding. i expect that he will be done by

september 30. it will either be done for several months or throughout the entire year. there are different options. the issue is the debt ceiling. right now, it is attached to the continuing resolution. republicans are adamantly opposed to voting for the debt ceiling, only because biden's president and democrats are in congress. they have voted for this before. the debt ceiling is going to have to go on the standalone reconciliation bill, most likely. that takes time. that is the parts that i am most worried about, because there is a congressional calendar that moves awfully slowly with reconciliation bills that you would have to ground up. -- have to rev up. this is the place where the trapeze artist can fall off the wire. i think it is a travesty the

republicans are not voting for this, because all of this debt ceiling increase is really about the policies that existed during trump. this is not about spending. it is allowing the debt limit to grow with existing policies. alix: it is a political football. the other wildcard that guy and i were discussing -- our energy prices. you have oil prices for branch at $80. it's the biden administration, are certain congressmen freaking out at these prices when the path of least resistance is to keep a lid on cap x spending and on production? jim: if this was september 2022 with the midterms six weeks

away, i think democrats would be a lot more concerned about the political fallout about energy inflation. right now, there is a lot of time -- we will see a lot of fluctuations between now and then. the question is are we seeing temporary inflation that has to do with an economy that is revving up after being in a coma? will that transition out by the end of the year or early next year? i believe it will transition out, but prices will not. it is a political problem if it is closer to the election. guy: how does washington deal with inflation? inflation is generally regressive. what does history tell us about how the two interact? in theory, it should hit the

weakest of society the hardest. we are seeing energy prices going up, food prices are going up. there are shortages. that is not going to hit the upper end of society that hard, but it is going to hit the weakest. how does that play in d.c.? jim: it is a difficult problem to solve from washington policy levers. you can do things that the fed is not going to do with food prices. it was hard to say. one of the things that democrats are doing, they are trying to get wages up so that wages keep pace with inflation. there is a child tax credit and the earned income tax credit, which helps low and middle income families pay their bills. that is the way they are trying to make ends meet. ultimately, for vaccines and other efforts with covid, we

also want to get more people back into the workforce. some people are still reluctant because they do not feel it is completely safe. the last thing is our immigration policy has been stuck in quicksand for the last several years. normally, there would be more folks coming into this country taking some of these jobs, particularly lower wage jobs in the food sector and food production. that is not happening. guy: it feels eerily familiar in the u.k. thank you for your take on some of these issues. jim kessler, third wave vice president for policy. we talked about this idea that there is a reflation trade. the data do not speak to that. the manufacturing index at 4.6 it was expected at 11.

the data are edging over. it is going to be some of those issues that jim is talking about -- a shortage of materials, shortage of people, companies are struggling. there was a crumbling effect on the u.s. economy. at the end he is that in theory, we have a fairly large amount of slack from a labor point of view. in theory, this should not be happening, but it is not. alix: also, the six-month outlook is now at 11.5 versus 15.1. usually, we see something like now we feel bad but will feel better, but the future is starting roll over. guy: all of it is going to be something that we think about when we think about central banks policies. is that rate hike really going to be delivered? maybe not, because economic

growth story is maybe not as robust as we thought it was. let us examine one of those facts in more detail. the energy crisis, the potential domino effect. the energy aspects director of research joining us next. this is bloomberg. ♪

>> this is a bloomberg markets. you are looking at a live shot of the principal room. port of los angeles executive director coming up and 1130 p.m. in new york. this is bloomberg. ♪ guy: you are watching bloomberg markets. let us talk about this reflation narrative. economists -- we are talking china now -- are beginning to

sound the alarm on the impacts of the energy crisis. china is facing a multitude of factors, but one of them is energy. the latest to downgrade the forecast. quite significantly, full-year, 7.7% from 8.2%. these are big downgrades. it is not just energy. it is a multitude of factors. ever grant, the slowing down of the property sector, could have a major impact. mike mckee joining us now. >> the thing about this crisis is that evergrande is a china problem, but the energy crisis is worldwide carry a look at

what it is doing to the chinese manufacturing economy. china does not have enough natural gas either. they are pushing down on production. the government is telling some companies to close. they do not want to use coal, because they want the skies clear for the olympics. we are seeing supply problems starting to multiply. applesauce some of their suppliers shut down recently in china. prices are reflecting the problems around the world. the lines here shows what is going on in asia and in europe. we are seeing incredible price rises. i do not should put this in here, but $27 for natural gas. the u.s. is seeing an increase as well, but not nearly as much. we are seeing cutbacks, manufacturing start to slow. you mentioned that with the

dallas fed survey, we are starting to see problems in the u.s. we will see more inflation because of the supply chain problems and energy problems. that is going to be an issue for the fed. if they were to raise rates, that cuts economic growth. the same for central banks everywhere. alix: usually, i am emailing make to clarify economic indicators, but today i got emails about natural gas. >> you can see here how we have less than last year. most of five-year average. you can see the price. alix: for more, under spring in -- left us bring in amrita sen. amrita: these things take time.

the near-term, we are constrained because of the lack of russia volume. chinese demand is good. you will not get a response overnight, but prices here should come up. structurally, we do think prices are going to be higher, because, ultimately, this is what happens when you are pushing energy transition to the extent that they are pushing it. now, cast costs to become -- gas has to become a baseload. you're going to get structurally higher gas prices, which has an impact on oil. it is crazy. it sounds like the 1970's. guy: what are the price implications for the other energy assets? we know that gas has gone up.

we have seen oil prices climbing. how much more of the gas affect has yet to bleed into the other calories at work? amrita: just a few weeks ago, oil. branch products were the cheapest products -- energy products in the world. that is why you have seen -- we have been saying for the last few weeks that we do think oil is going higher. brent, that is why you have seen the move higher. it becomes a question of at what point do your of aixa -- choke off economic growth? this is not an infinite amount. we are switching a lot of industrial activity in europe in places like china. this has big implications.

going back into the transition side, it becomes a question for policymakers. what are they willing to tolerate? are we willing to tolerate switching off lights and not having power if it is a cold winter versus blue skies? this is an interesting winter. alix: also, the curves remain higher, just in the last month alone? you're seeing a nice divergence over the next year. what does opec do with that? what does the u.s. do? president biden is not going to like $80 oil, but it is hard to good u.s. producers and say, pumped more, when the path of least resistance is to say, pump less. amrita: this is tricky for opec. if you remember just at the last meeting, we are talking about prices below 70, but they stood there course and said we will

bring back the 400,000. monday, they will do a similar thing. they will bring back another 400,000. the drip feed will continue. they are going to keep bringing this back to the market. these are small volumes. we are looking ahead into a winter, if it is a cold winter, that will get absorbed quickly. at $80, you are biting into demand destruction. let us not forget india. that is why you are getting on these countries. i want to highlight the fact that for oil, inventories are extremely low. there is not that much of a buffer. ultimately, if prices go too high, opec will have to come back to the table and safe maybe we need to bring back more liquor. that is not going to happen straightaway, but it can happen in a couple of months. guy: quick question on russia.

what does russia do next? the pressure is mounting, but it has its own stops to fill. when did we see noise out of russia that is going to pump more? amrita: i think so. if you look at what is coming out of them, not very much. domestic filling is very important, but politically, they're going to wait for nord stream 2 two. . guy: thank you very much. this is bloomberg. ♪

alix: let us get a check on the european markets. i amrita could group that.

a lot of the games we had at the start of the session in terms of what is moving high, it is some of that reflationary trait. energy stocks, oil, brent pushes towards $80. panic buying here in the u.k. bank stocks moving higher. moving to the downside, those technology players and semi stocks. guy: next. the details of the german election. this is bloomberg. ♪

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>> this is bloomberg markets:

european close with guy johnson and alix steel. guy: monday the 27th, what you need to know with europe. the spd's olaf scholz cuts a mandate to lead after the election. the u.k. steel crisis continues with 90% of stations apparently running dry. ministers met this morning with boris johnson, there are discussions about bringing the army in, there are industry discussions taking place this afternoon. paul starr agreed to go public in a deal that would give the bank it $20 billion valuation. the company ceo will -- ceo will join us.