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tv   Bloomberg Surveillance  Bloomberg  May 19, 2022 8:00am-9:00am EDT

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>> it could be a situation where the consumer is saying no more inflation, i'm not going to buy the higher prices. we are looking for peak at least in headline inflation. >> it is going to be harder to get that soft-ish landing. >> i would say the session is pretty likely in 2023 in lots of places. i think it is blind luck if we can avoid them. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, i think. "bloomberg surveillance ." it is a toxic brew out there was a market in modest recovery from where we were two hours ago. everyone recalibrating. jonathan: that is the good news, that we are off the lows. the bad news, we are down 0.75%. everybody is reassessing, but
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they are reassessing in a very peculiar way. they are reassessing in the short term, but not in the long term. in the short-term market, very cautious. high cash, looking for more downside. in the long term, looking for a relief rally because there's a belief out there that if things get tough, that this fed will step back. tom: that is the bet right now. we have a really confirmed bull coming up. this is much watch -- this is must watch, must listen. people are glued to this. that is the real yield coming back within the vicinity of zero. what a shock if we return to a negative real 10 year yield. jonathan: that has been a change as well. we were looking at a one-way road to higher real yields, and then we have backed off because largely the shock has changed. if you think about it, we have gone from an inflation stock to a fed shock, a big pivot, a rate
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shock, noah growth scare. that third piece is what we have started to price a whole lot more recently. tom: is it the same in london in the city? jonathan: in terms of what, the cautiousness? without a doubt. they are conditioned by what is happening in the u.k. right now. you are always conditioned by your surroundings. in the u.k., high inflation, upside risk to inflation, downside risk to growth. you look across the channel to europe, they are facing recession. i will say this as well for the u.k. and yearly -- and europe. in the u.s., people believe peak inflation is in our past. in the u.k. and europe, they think that number is still in our future. tom: we've got to go to the toxic brew company, dayton, ohio. lisa, you said it, it is a toxic brew. that captures perfectly the emotion that is out there. what are you focused on? lisa: the idea of this market looking at stagflation.
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they are basically talking about inflation that is persistently higher and growth that is coming down, and they think the fed is going to start backing away. that seems to be the consensus baked into the idea that to your yields are coming in. they are coming down even after fed chair jay powell said we will do what it takes to bring down inflation. so how does this translate over the longer-term? is this basically people expecting that inflation will roll over sooner as a result of demand drop-off? if that is the case, what else do we have to price in in terms of some sort of downturn? tom: what do you see in credit spreads? i get the tension, i get the reason the pros are watching. the difference in whatever you yields are in the discussion, why does it matter right now? jonathan: carnival, that is all lisa wants to talk about. [laughter] lisa: basically, the cruise line operator yesterday sold debt at 10.5% yields. this is big. they sold debt seven months ago at 6% coupons. this morning it is selling down.
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in the early trades, people are demanding even more yield. why would a company come to market to raise debt, but what does this say about what companies actually have to raise money, how much higher those financing costs are going to be? tom: we've got to stop the show. should we do a cruise? jonathan: i don't think we should do a cruise. i do think we should pick up on important points that lisa made. tom: no come out of jacksonville, we can do a cruise. i wear something appropriate. we can do a cruise to the caribbean. jonathan: lisa, you've made two points here. is there a problem with the company, and is there a problem with broader markets? there's always a difference between the price adjustment and credit, and whether a company can actually come to market or not and raise capital. they had to offer up a whole lot more yield, and then you're seeing performance in the market is poor. it is weak this morning. let's make two points here. first, tell me about what using this means for the company, the
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fact that it came to the market in conditions like this, and tell me what your response is to how we are performing in this new issue market of the back of what got issued yesterday. lisa: basically, it seems like there are a lot of mysteries to be unpacked, but this new issue market is not friendly right now to companies that need to borrow. tom: everybody is making it up as they go. i'm looking at one number on the screen, safe haven switch. as of yesterday we saw a strong swiss franc. not a big deal, but it is a little tea leaf of the sweat that is out there. jonathan: we are down on the 10 year to 2.84% right now. futures down 0.9% on the s&p. tom: our conversation of the day , john stokes was just john stoltzfus joins us of oppenheimer, their chief investment strategist. you will rationalize this to retail and institutional.
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how do you have courage to own equities this morning? john: well, thanks for having me on the show. i got to say, where we are right now, the market is all in a tether because what is happening is we are moving from free money to money that is less free. essentially, perhaps easy money come along way from what people are thinking here. i think the danger is negative projection taking anything crossing the tape here that is worrisome in projecting that will stick. the big call here, regrettably we have to wait a little bit to see if what the fed is doing is the right thing. if that shows that inflation goes into check, things will get a lot better, we would expect. tom: the legend of opp co. is details. what is your experience about how corporations will adjust to
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this new 2022? john: just think of that cruise line that we just heard of. tom: you want to go on the cruise too? john: i don't know if i want to go on the cruise, but i would love to see the features of the covenant on that bond. you can just imagine it is very flexible. they are paying a ton of money right now in terms of the coupon, but i'm willing to bet that if things get better, that bond will get called pretty quick. i have no idea what the covenant looks like it you just got to figure they are going to protect themselves, and with reason. the only difference i think where we are going is bond issuers going to begin borrowing money and bond buyers are going to get aid commends rick to some extent when they buy a bond.
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that is a healthier environment than free money, which we have been living in since the pandemic in april 2020. jonathan: a ton of if's, and you said the banker will protect them. i'm not sure that brings comfort to a lot of money because i've heard people saying to stay long equities, and we are down hard, aggressively so. that is on the on wall street i'm hearing. the end of the summer feels like a lifetime way for people who have lost about 30% this year, and maybe even more so in single names, crypto. what are they meant to do the next few months? john: you are pointing out the most aggressive stance's. it is greed and fear and a lot of leverage area for longer-term investors when they look out, this is likely in hindsight to become a bump in the road. usually when the fed is in the process of either taking away liquidity or adding liquidity,
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right away the smartest guys in the room always say the fed is going to fail, the fed is pushing on a string, and than the fed does its thing. sometimes it makes mistakes on the way, but generally it has pivoted successfully to either bring the economy back in line with much more reasonable rates in terms of coupons, or it becomes more accommodative. it all depends. i've been doing this for 39 years, and my gut is telling me right now this looks a lot like 2009, before things straightened out. it looks like 1994. it looks like the fourth quarter of 2018. these things, a futur -- these things, if you projected negatively on that point, you missed the rally that followed thereafter after things were basically right sized. jonathan: i hear you. john stoltzfus on the latest.
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just to point something out, it is not the most extreme view, this is the consensus view on the street right now. here's the data. the median forecast on the s&p 500 year-end is 4800. it is 4800. just look at the market where we are. the street is still very bullish going into year end. the only thing that has changed is the near term on the three month basis, they believe there's more downside risk get on the medium basis, wall street is still very bullish. tom: they will recalibrate, particularly into may, into june, and i would suggest 4800 will come in. i would look far more at expense , mergers, transactions, combinations. what are corporations going to do to move forward? for them these are huge adjustments. tom: i'm not here -- jonathan: i'm not here to say that median view is going to be wrong. i'm just here to point out that it is very detached from what is happening now and over the last
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five months. lisa: how much of it is completely dependent on the fed winking, coming in and saying actually, we are not going to go as far, we are not going to have to do as much because inflation is starting to ease? how much is that baked into the valuations and assumptions in those bullish views? jonathan: on the nasdaq we are down about 1%. on radio and tv, this is bloomberg. ritika: keeping you up to date with news from around the world, with the first word, i'm ritika gupta. china's top diplomat has again warned the u.s. about its increased support for taiwan. in a phone call with national security advisor jake sullivan, they said the u.s. is going down the wrong road, and that could lead to a dangerous situation. top american naval officer said taiwan must prepare itself against potential chinese aggression through military deterrence. a sign that beijing is strengthening its energy ties with moscow, just as europe
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turned towards banning imports. china wants to replenish its strategic oil stockpiles with cheap crude from russia. president joe biden has invoked emergency powers under the defense production act to try to boost production of baby formula. he has also ordered that government planes be used for imports of the baby formula. it has emerged as the latest crisis for the white house, months and could ease soon when production restarts at a key plant. another u.s. retailer cutting its forecasts. kohl's says it is reviewing strategic alternatives and continues to engage with what it calls multiple interested parties. spirit airline has rejected jetblue's latest $3.3 billion takeover offer. that sets the stage for possibly a contentious vote by shareholders. their choice is either to back jetblue or standby a pending combination with rival deep discount frontier airlines.
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>> i would separate sessions are -- i was a recessions are pretty likely in 2023 in lots of places. it is plain blind luck if we can avoid them with the number of
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pressures coming from the system. but europe is right in the firing line. jonathan: i don't think strategists should be able to come on and make a call the day after the team lost. that was kit juckes the day after arsenal lost, and he was so gloomy and bearish. do you think there should be a regulation against that? if your team lost the day before, you don't get to come on. tom: i agree. lisa: let him respond to that, come on. jonathan: on the nasdaq we are down about 1%. bear in mind that ac milan has a title game this sunday and i am not at work monday. tom: very good. jonathan: i am just abiding by my own rules. tom: milan can be good. i like some of the food at the train station there. jonathan: thanks for weighing in. tom: we are guilty of this, and i am incredibly guilty of this. we look at the joke of me going below 59th street or the idea that was to our audience is in three zip codes and a couple in
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london as well, and we forget about the open plains. mike rounds knows where the missouri river is. he knows getting from pierre, south dakota over to the target store by 29 north of sioux falls is something difficult to do. evermore so at five dollars a gallon gasoline. the senator from south dakota, their former governor, joins us this morning. i want you to give me a visceral picture of the emotion in pie the emotion at that target store north of sioux falls. what is going on out there away from the fancy people like global wall street? sen. rounds: i know you like dollars and cents. the average south dakota family right now is paying over $604 more per month in living expenses and what they were in january 2021. that is $7,000 plus per year more, and wages aren't going up that fast. when you start talking about
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that in places like south dakota, the pain is real. it is the same thing across the entire country. worst part about this whole thing is this is policy induced. when you start driving up the price of fuels, diesel, natural gas, and so forth by policy determination and you start limiting the amount of supplies that are being produced, and you recognize that you are doing it, and you do it anyway, then it is a policy induced movement. we can do a lot to change that right now in the united states, and it has got to come back down to an administration recognizing that -- look, i know they are fighting climate change, but the bottom line is you've got to have a strong economy to do a good job on that, and they are hurting this economy with their policies. people in south dakota feel that and they are not happy about it. tom: gerald ford of the republican grand rapids, michigan persuasion said he was going to whip inflation now.
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what is the republican prescription to this inflation? sen. rounds: one is demand. you can do that through action at the federal reserve, but it is because we put a huge amount of cash into the economy earlier, and that was a president biden decision without the assistance of republicans in january of last year. number two, you have to reduce the cost of energy, and that means you produce more energy. all of the above, whether it be nuclear, whether it be more pumping, more leases being released, and allowing them to get that crude oil out of the ground with additional licenses, and then allow them to be able to actually move that to the marketplace with pipelines. at would be an immediate thing. finally, you have to address the workforce issues. i know this is not a popular thing to talk about, but we have to have legal immigration reform. we need visas. we need h to be -- we need h2b, h2a visas right now.
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we have recommendations in place. all of those would help reduce inflation in this country and the effects would be immediate. lisa: just to push back a little bit, you are talking about the issues with certain policy prescriptions that led to the inflation, but a lot of this, a lot of economists say it is driven by some of the supply disruptions whether it is in china or particularly the war in ukraine. how much do you see inflation staying high as a result of certain national security decisions being made that you have supported? sen. rounds: first of all, i think the actual inflation or trends with regard to the supply chains and so forth, a lot of that has to do with the cost of transportation of those items. can you have supply disruptions? we had it during the previous administration, but you did not see that driving up inflation. you saw inflation begin almost immediately upon the recognition that we were going to have increases in the cost of energy within this country, and they were going to be increased by policy determination.
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once again, if you look at the actual cost of energy and the impact that has on all types of pricing for services and products, it is a no-brainer that you can begin to reduce inflation if you address the cost of energy. it is in all of those products. lisa: aside from the energy issue, would you agree with potentially relaxing certain tariffs on china, perhaps changing to reduce inflation domestically, that it would be prudent to keep certain things in place? sen. rounds: there's always the possibility of looking at modifying policy with regard to needed items, but remember, there's a reason why we put those in place in the first place, and that was to try to develop domestic production. if you can't do it domestically and you try to look at other alternatives with other countries, it is not that we want to produce everything in the united states. we would love to have good trading partners. but we also have to recognize
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simply going back to china does not fit into the long-term scheme, and as long as they are going to try to continue to steal the ip in this country, we need to continue the enforcement of trade deals and the limitation of trade with china whenever possible, until they come around and recognize that they can't be stealing the ip, copyrights, and so forth. i would be very stingy about going back on what we have already done with china. i tried to develop some of those product lines with our other allies and other people that want to do business with us under the rule of law. jonathan: thanks for your time today. we appreciate it. there are only a couple of things that i think you can find that democrats and republicans agree on at the moment, and one of them is china, and it has been for a number of years. tom: and on this indo pacific trip for the president, that is absolutely the immovable force. whatever happens, why is that going to change? jonathan: a difficulty for this
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administration and the previous one is how do you reconcile your domestic economic problems, your goals here, with your foreign policy objectives as well? china front and center. russia too, for that matter. lisa: and europe trying to wean themselves from dependence on russian gas and oil, but in the u.s., how much is this increasingly going to be a calculation? how much do you keep a firm line when it is causing prices to go up and you are on a four year election cycle? this has been one big issue. jonathan: futures are down about 1% on the s&p. on the nasdaq 100, down by 1.14 percent. yields are a little bit lower. we are down six or seven basis points to 2.81 9%, and crude down a little more than 2% at $107 a barrel on to beauty i. this is that on to beauty i. this is -- on wti. this is "bloomberg surveillance ." ♪
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jonathan: some economic data and america moments away. on the nasdaq 100, down by a little bit more. yields are lower by zero point -- by six or seven points on the
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10 year. waiting for some jobless claims in america. here's mike mckee. michael: good morning, jon. 218,000, so a slight rise in the number of people filing for first-time unemployment claims. 203,000 was the unrevised number last week. waiting for that revised number. the other number we wanted to keep an eye on here is the philadelphia fed because the empire index collapsed last week -- or earlier this week, i guess it was. the philly fed manufacturing index comes in at 2.6, it looks like, which is significantly lower than 17.6. which was the april number. so it looks look a slow down there. new orders rise in the philly index. the other one we want to see as prices paid fall, 79 versus 84.6, so mixed numbers out of philadelphia manufacturing.
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not sure what that tells us about the progress of the economy. but jobless claims tick up just a little bit. they are still within a range. does not suggest the labor market is falling apart, but we are maybe starting to see people hire more slowly. jonathan: equities are lower by 1.15% on the s&p. basically the same on the nasdaq 100. seeing a little bit of a shift. yields come an extra basis point on the 10 year. the 30 year, a break of 3%, down about seven basis points on the day. tom: 30 year bond under 3%. we will have to watch that carefully and see how it plays off of this data. i've got to ask about the gentleman from carnegie mellon. what was the major distinction yesterday with charles evans? michael: he has gone from we don't need as much at the beginning of april 2 now we may need to go above neutral to slow down the economy. that is probably the take away from him at this point as far as the markets are concerned.
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something very interesting has happened. the markets have moved the yield curve above what the fed officials are saying is the neutral rate, so forward guidance is making a big difference in the economy right now compared to interest rates, where we are already price for neutral or above, so maybe we see the economy slow a little bit more quickly than people on wall street are fearing. that raises the question of does the fed go too far, too fast, but it could also mean they have to do less in the long run. jonathan: thank you. i thing that raises the big question right now. it is so difficult to strike the right ones in this economy, whether you are in the c-suite or the central bank. tom: we are all making it up as we go. there is no other way to put it. down negative, spx negative. the vix was at 33, fractionally improved. all time, stephen stanley, amherst pierpont, who is
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brilliant at forecasting. i got to go to your wheelhouse. have you changed your forecast in the last 48 hours? stephen: i guess the one thing that has changed a little bit is the retail sales numbers in april that work quite a bit stronger-than-expected, so it looks like the consumer retains a lot of momentum, and as long as that of the case, the economy should be in good shape, at least in the near term. tom: when you look at fed policy and the idea of the bloomberg financial conditions index tightening, what michael mckee just said about terminal value dynamics, is this a fed that will change its tune before the june meeting? stephen: no, i think they are very much focused on inflation until they see convincing evidence that inflation is coming down towards something they can find acceptable. they are going to plow ahead, and i think chairman powell wanted to thicket away -- wanted to take away a lot of the near-term volatility by announcing that they are liquid
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to go 50 in june and july. i thing that is pretty much big in the cake. we will see what happens as we get towards the end of the summer and into the fall. lisa: this is why i find it fascinating that some of the turmoil we are seeing in equities and other risk assets are translating into a bid for bonds even on the short end, even on the two-year yield. do using this is misplaced in terms of what people's confidence is that the fed will actually step back a little bit from an aggressive plan in the face of stagflation? stephen: i think financial markets have a really tough time discounting things that are likely to happen or may happen in the distant future. we have this tug-of-war right now between a strong economy and very firm inflation in the short-term versus the possibility that the fed is going to end up tightening so much that we get a recession somewhere down the road. the debate really is about the timeframe of that and the likelihood of that. i think the markets are just having a hard time with that. the markets want to look forward and if something is going to
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happen two years from now, they want to price it today, and it makes it very tough. personally, i think the fears about recession are a little bit overblown, not in the sense that we are certainly not going to get a recession. i think a recession is at least a 50-50 bet, given how far the fed is likely to go. it is just that the timing is pretty far down the road. i think we are talking about 2024, maybe later. i think the markets have a really tough time trying to properly discount something like that that is so far down the road. lisa: how far the fed is going to go, how far they are willing to go. right now it seems like people are bringing that back, even as fed chair jay powell says we may have to move to a restrictive stance and other fed members say the same thing. the market is saying not really, you will get to neutral and reassess. do you think this is also wrong, that perhaps the terminal rate is closer to 3.5% for the fed funds rate rather than 2.5% or 3%? stephen: i do, i think the fed
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is going to have to work pretty hard to get inflation down. people are starting to get used to it, which means it is going to be harder to snuff out. this has been a big focus of mine for a long time. i think the markets are not pricing in a high enough terminal rate. i think we are likely to see something closer to 4% than 3% at the peak of the cycle, and that is why i think there's a good chance that the economy is going to slow down 18 months, 24 months from now. but in the meantime, i think there's a lot of momentum, and i think that inflation is going to continue to be a problem for the near-term. tom: what does nominal gdp do? stephen: in the near term it is going to be high. i think real growth is going to be in the neighborhood of 3%, and prices obviously are rising very fast, so nominal gdp is going to be in the high single digits this year, and probably
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still in the mid to high single digits next year, so well above what is sustainable long-term, and that is why the fed is having to do what it is in the process of doing. lisa: when you are looking at a market searching for a narrative and struggling to coalesce around one, right now the dominant narrative is that you are seeing a deceleration in spending, you are seeing a consumer pullback, you are seeing companies with margin squeezes that we have been waiting for and they're finally starting to lead in the data. how much are you looking forward in seeing this as the predominant narrative in the months ahead? stephen: i think the consumer still has a lot of momentum. you look at the numbers on the household balance sheet, households are sitting on trillions of dollars of extra savings accumulated during the pandemic, another the economy should be pretty much fully reopened, i think we are going to see a bit of a feeding frenzy in the late spring and into the summer in terms of travel and
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going out, whether it be to restaurants or ballgames shows or whatever the case may be. i think we are going to get ready strong consumer spending over the next three to six months. beyond that we will have to see, but i do think that the economy retained considerable momentum in the short-term. one comment i would make, i thought it was interesting, the take away i had as an economist from the walmart and target results, it seems like the predominant narrative around that was that consumer is slowing, but basically, what i heard is demand is still strong, but profit markets -- but profit margins strong because they overestimated how much ash they underestimated how much their costs have gone up. that means the next step should probably be more price hikes to recover those lost profit margins. so we will see. at some point there is tension between that and consumer willingness to pay, and maybe we are getting to the edge of that for certain products.
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certainly housing, it seems like. people are starting to get high home prices, and i think we will see that broadly across the board at some point. but there is a big tension there in the short-term, and i think it will be an interesting dynamic over the next several quarters. jonathan: great to get your views, as always. stephen stanley of amherst pierpont. on that final point, does it resolve itself in a favorable way for this economy, for this market, and for a lot of people the bias is so obvious. it is lose-lose because if they can pass it on, that means prices are up in the can do more. and if they are come up people are worried about a downturn. lisa: i agree, but the nature of the loss in markets is going to be different. this is where bond market reaction is fascinating because it is taking the natives -- the negative side of that, saying they cannot pass along prices to consumers. what if it is the other way around? what if this is a precursor to more price hikes, and that gets passed along just fine because
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the appetite to spend is there? jonathan: remember retail sales? it was only two days ago. no one talks about the retail sales data point at all. it was only two days ago. tom: stephen stanley started with that. this is a central bank that is data-dependent. i would suggest the market is doing a lot of the heavy lifting for jerome powell. jonathan: isn't that your drinking game, data dependent? tom: it is. the tang is here. jonathan: any excuse, right? tom: we've had a huge response to a cruise. do we do a miami to barbados thing, sort of easy for people to get to, or do we really go large and do more out of athens, where you go circular back? jonathan: how much are you going to pay me to get on this ship? because i would never do it ever. tom: the fees are stunning. lisa: this is the way the conversation goes. tom is saying we are going on a cruise. jon says i'm never going to go on that. tom says, where are we going to
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go? jon says no, not going to do this. this is "bloomberg surveillance ." tom: i've been going back-and-forth with cruise critic. they are really wonderful. february 2023. it is doable, miami to barbados. jonathan: in about two men it's i get to walk away. the idea of being stuck on a ship with you, that is tough. that's tough. futures down 1.2% on the s&p. tom: i have floaties so i can swim. jonathan: and you told us about your choices beat outs, best choice speedo -- choice speedos, too. i will pass on that. [laughter] ritika: keeping you up to date with news from around the world, with the first word, i'm ritika gupta. president biden meets today with the leaders of finland and sweden to discuss their bids to join nato. turkish president erdogan as opposed to the move because of the countries' stance on
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kurdish militants he considers terrorists. police have wrapped up their high-profile party gate investigation that already caught prime minister boris johnson. more than 126 fines have been issued. none of those were identified. a spokesman said that johnson will not be fined another time. sri lanka has fallen to default for the first time in its history. get flags to creditors it would not be able to make payments with the grace. . -- with the grace period. authorities warned that inflation may hit 40%. mcdonald's did not have to look far to find a buyer for its operations in russia. the existing licensing has agreed to buy the entire portfolio and operate the restaurants under a new brand. earlier this week, mcdonald's became the latest company to announce it would pull out of russia in the wake of the invasion of ukraine. global news 24 hours a day, on air and on bloomberg quicktake,
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powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. ♪ at fidelity, your dedicated advisor will help you create a comprehensive wealth plan for your full financial picture. with the right balance of risk and reward. so you can enjoy more of...this. this is the planning effect.
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>> there is clearly elevated risk for things going into recession. inflation is high. we have a coming down over the forecast period, but it is not going to be low. it is not going to be back to the 2% target anytime soon. tom: seth carpenter, morgan stanley. we are all recalibrating this morning. dow futures have modestly improved to -327 now. spx, -41. the vix was out two big figures.
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a little bit of improvement. yields have come in with some of the economic data this morning. lisa: people are pricing in a slow increasingly. you are seeing that with the bonds getting a bid. i wonder how much this is baking in the determination of the fed to get inflation under control. tom: that will be part of the debate. we welcome all of you on radio or television. this should be a three hour discussion. his ability in our international relations links to our economy is formidable, with his works at goldman sachs international for years. robert hormats joins us with tiedemann. i'm hearing in every interview we will see a defense buildout by germany, we will see a defense buildout by the united states of america. the president waltzes off to the pacific rim. what do we need to rebuild in
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the pacific to show the flag in an appropriate manner? robert: two things. one, i am glad he's doing this now because i think there was a feeling in the pacific that we were so preoccupied with ukraine and europe that we had more or less forgotten about the pacific. this trip will demonstrate that we have not forgotten and that we realize it is important. second, he's got to get this set of alliances organized. there's been a lot of talk about coordination, but there has not been much progress on trade. the cooperation between the united states, japan, australia, new zealand, all of these are important. he has got to demonstrate that this is a sustainable alliance. pulling out of tpp was one of
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the worst possible things we could have done because it showed not only a trade set of actions pulling back, but it showed we really were not committed to a sustained relationship. tom: i want to get through this quickly because lisa has some important questions. all republicans and democrats are against tpp. my guess is they are against in the pacific. let's go grain miller to the reported three -- let's go granular to the reported victory of marcos jr. in the philippines. how do we shift our modern behavior back to what you and i knew in our youth? robert: this is a critically important point. the way to look at asia is there are two island chains. one is very close to china. the chinese have really increased their domination over that with their small islands in their new air force bases they
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put in. we have to demonstrate that we have credibility in the so-called second island chain, which is the philippines, the marianas, guam, australia and new zealand. we have to show that we are strong, a strong presence there, and working with the philippines, which is critically important. it was in world war ii and it is now. that i think is going to be extremely important, to demonstrate that we can work with young marcos and develop a base structure which was, as you know, virtually eliminated. lisa: how optimistic are you that the political noise will be able to dovetail the national security issues of shifting around some trade ships at a time when inflation is very much at the forefront and people are more concerned about how quickly prices are rising as a result in part of some of the supply chain
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disruptions and realignments? robert: a very good point. the president is in a difficult spot. on one hand, it is clear that a lot of the tariffs we have imposed on china do contribute. they are not the main contributing factor, but they do contribute to higher prices in the united states. and yet, if the president were to appear to be weak on that, it would look like he was weak on china. they priority here, it seems to me, is to deal with the inflationary issues. we can demonstrate that we are still resolute on china by strengthening our alliances in the region, which gives the president more flexibility to lower some of the tariffs on china, which really have not had a impact on china anyway, but certainly have had an impact on prices in certain sectors of the united states. so if he is tough and firm enough in building our alliances, it gives him a little
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more wiggle room to take action to reduce tariffs on certain chinese items, and he needs to develop these trade relationships that we threw away when we got out of tpp. he's got to resurrect those and make sure that we don't just talk about them, that we have a firm and sustained program of trade cooperation with these countries in the end of pacific. lisa: we just have a little bit of time left. what grade would you give this administration in terms of reaffirming some of these alliances? robert: i give them very high marks. i think the president making a major trip to asia is going to be very important. there's going to be a g20 meeting coming up. whether he goes is not clear. but i think that anything he can do to demonstrate with these friends and allies in the region that we are back and credible is
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important. the one thing he also has to do is make sure he can get bipartisan support for sustaining this because a lot of these countries will say they are making this trip, but if the house flips and if you get another administration a couple of years from now, that could pull back american alliances in the region, so we have to show not only that we are doing and that we are firm in doing it, but b, this is a sustainable proposition. we got to figure out how to deal with the chinese issues that really matter. these tariffs really have no real impact on china. there has to be other stuff on intellectual property as well. tom: ambassador, we are out of time. we will continue this discussion. robert hormats of tiedemann
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advisors. all i can think of is the british phrase obe, or overcome by events. that is the only way this massive tension between international relations experts and the agreed-upon republican-democrat resistance in congress, it is one of the few real certitudes we have going on right now. lisa: a certitude amid a sea of uncertainty. i will say i am just watching that bond-stock relationship reassert itself as people get increasingly gloomy as this turns into a pendulum of gloom. tom: can we agree it is a toxic brew? [laughter] lisa: i was talking specifics, but you can have your toxic brew. tom: stay with us. on radio, on television, good morning. ♪
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michael: -- jonathan: what a messy market. your equity market down another 1%. negative follow-through on a brutal session yesterday. "the countdown to the open" starts right now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro.

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