tv Bloomberg Surveillance Bloomberg May 23, 2022 6:00am-7:00am EDT
>> there is a pervasive fog of negative sentiment out there. >> when every headline is negative, it is time to buy. >> i still think the dollar is going to be king in this sort of environment. >> their earnings are superpowerful and stocks are cheap at this point. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz.
tom: good morning, everyone. jonathan ferro, lisa abramowicz, and tom keene. thrilled you are with us from the world a comic forum meetings -- the world economic forum meetings in a very different davos, switzerland. a great set of guests coming up. we will tell you about that. but we need to set the stage in may of what always occurs in january. i'm stunned how jarring it is. i did not expect it to be so odd this year. lisa: not only is it not snowing at it is not freezing, but definitely the meetings. tom: somber. lisa: and i think that is appropriate. we are coming off the worst rout , the longest stretch of declines on the nasdaq and the s&p going back to 2001, and the dow going back to 1973, although no one looks at it, if jon were here. tom: jonathan on assignment, capri, where there's no wind.
we're going to put up with the wind and also look at the winds of change in this economy. the front page of the world a comic forum, by far the most serious, somewhere i have ever seen. lisa: how can they project optimism when we are facing a downturn? the head of the imf came out and said she does not see a recession. how much is this inevitable optimism they have to betray rather than something that is true, especially given the sort of hide food prices -- the high food prices and inflation crippling the middle-class? tom: the church bells of the valley behind us are you i would point out the first observation of this davos is it is definitely less corporate. there's less visible branding of the modern davos. it is much more like a 2008 or even earlier than that dollars
-- earlier than that davos. green on the screen. yields up about three basis points. even the dollar comes in a little bit. lisa: we see euro strength today as christine lagarde is coming out and seeing the end of negative rates by the end of september, really pushing for this idea of trying to tighten into what they see as huge inflationary pressures. we will speak to a whole host of amazing people today, including jason furman, a professor at harvard. we are also going to be speaking with ricardo hausman, also of harvard, but could have been president of venezuela. tom: or could one day be president of venezuela. the founder of this phrase original sin, there's a lot of talk about in the economics of the moment. lisa: we will speak to rebecca patterson, cheese investment strategist -- chief investment strategist at bridgewater, and
john kerry, u.s. special climate envoy and former secretary of state and a pedal moment for him -- secretary of state at a pivotal moment for him and for the democratic party. tom: he will always for me be the senator from juice it's dusty senator from massachusetts. i was -- senator from massachusetts. i was with him at the last davos. with newcastle coal in australia to the moon, global warming has taken a backseat, climate change. lisa: suddenly getting as much oil and gas as possible is what is invoke. tom: we will do a lot on economics on international relations, but we cannot ignore the market turmoil. we start strong with the senior portfolio manager of offspring,
global investments who has seen this before. thank you for joining us on short notice. what is different this time about a record pullback in bonds , price down, yield up? >> that's right. actually there has not been any place as far as a safe haven. if you look at corporate bonds, investment grade, junk bonds, even treasuries, everything is down about 10% to 12% total rate of return. there's really been no place to hide so far. lisa: how do you get optimism amid the stomach turning volatility you have been seeing? margaret: i think what has happened is the fed, having been sort of comatose when rates were low, the data signals were starting, has now talked very tough about aggressively raising rates, aggressively selling down their portfolio. it has really's aired the market to death. they only made 75 basis points of rate increases in the short end, but if you look along the
curve, bonds are up in yield 120 to 150 basis points. that is starting to roll over into the real economy, and certainly into the equity market. -- lisa: that the fed will step in at some point, that they will take notice of the carnage in some of these equities. margaret: may be attuned to wall street saying we need higher rates and ignoring what is going on in the real economy as far as consumer inflation, signs we are seeing employment start to roll over. those are worrying signs and i think the fed will see them. typically they lag the reality of the market, but hopefully
they will see they are beginning to do damage to the real economy, which is in pretty good shape. the excesses have really been in the zero interest rate part of the market, the equity market, the housing market, and other real asset markets. tom: i want to talk about coupon right now. the coupon has changed. the yield to maturity has changed. for our audience, what they are gambling on is i am getting a higher yield now, no question about that, but i am worried about price decline. how do you balance the greed of grabbing that higher yield versus the fear of bonds continuing south? margaret: i think we are very near the peak in interest rates because i think the economic status are going to begin to roll over and the fed will stop what they are doing. when you look at high-yield bonds old inc. 6.5% to 8.5 percent, trading $.90 on the dollar, for a longer term investor, that looks like a
pretty reasonable risk return alternative. frankly, it may do as well as the equity market, which we think will just be mid single digits to low double digits. tom: to be clear, and let's be clear here, mark e patel -- margie patel is acclaimed worldwide, did i hear you say your appetite for longer duration yield versus buying a dividend growth story? margaret: well, i think there's always going to be more money to be made in equities over the long term. but over the next year or so, especially if you are interested in income, net capital appreciation, corporate bonds, especially high-yield, are pretty attractive on a risk reward basis. lisa: what do you have to see in order to actually achieve this in terms of a downturn? a lot of people baking in a recession to a lot of valuations. you are suggesting that is off the table and high-yield is still the place to hide.
margaret: i'm assuming that is a big risk that the fed does not get the economy signals and keeps marching on with a tightening program, but i think they will see it is time to take a big pause. i think at that point we will more or less evaluate the market and perhaps be able to see a way through without a recession. if the fed keeps doing what they are doing, we may well have a recession at the end of this year or 2023, precipitate by their actions, as well as global weakening that could drag the u.s. market down. so i hope the fed will look around before they get to aggressive. lisa: why haven't we seen more substantial outflows in particular from bonds? we have seen some, but why haven't they ran a stampede from an instrument that should be rock solid? margaret: i think one of the reasons is because if you look at the yield, it is still very
low, so it is not really a competitive place to hide. it is not as if you could get 3% or 4% in money markets and say i will stay there. you are still looking at something at best approaching 25 basis points, so i think people are saying we have seen this volatility before, we will stay where we are. or some of those equity names that have blown up may be don't have anything left to sell or don't know what to do in this market. tom: thank you so much for getting us started here in davos . what is so important here and so far unspoken is all of the mucky mucks of happy valley are linked into long-term institutional money, and frankly in the bond space, it is worse in 2009 right now. i can't believe i am saying that, but it is. lisa: that is what rick rieder of black rock said. there was a "wall street
journal" article, and he was saying this is some of the most volatility he has seen in his 30 year career. a lot of people said what about 2020 march which about 2009 and 2008? the reality is this is unheard of. the 60/40 has gotten decimated, the worst year ever so far for this type of portfolio. how do you readjust? tom: my setting is turning, too, after the third bowl of barley soup. got to explain to our listeners, this is an american thing, the american fixation two decades ago of heidi abramowicz, girl of the alps, was extraordinary. explain the heidi of 20, 30 years ago. lisa: i'm so glad. yes, i was obsessed with heidi. it was the first chapter book i read. "the sound of music," the
flowers, it is beautiful. you are right. and you know what, i am not doing this again. tom: here's what we are going to do. we are going to keep the markets abreast. rebecca patterson will join us later from bridgewater. we begin to look at the new theory of davos amid the fears in economics and particularly, the market turmoil. getting us started here at the world economic forum on the themes of the moment. jason furman joins us from harvard. stay with us from the broda, for -- the world economic forum. ritika: keeping you up to date with news from around the world, with the first word, i'm ricky -- ritika gupta. the white house is walking back president biden's comments on taiwan and tokyo. the president said the u.s. military would intervene to defend taiwan and any attack from china. that appeared to break the long-standing u.s. policy of so-called strategic ambiguity. the white house later said the president simply meant the u.s.
would provide military equipment to taiwan, not sending troops. the biden administration announced a dozen end of pacific countries will join the u.s. in a sweeping up and i like -- a sweeping economic initiative. the new framework does not include any tariff reductions and it is unclear which parts are binding. in australia, the labour party's anthony albanyes -- anthony out money -- anthony albanese has been sworn in as prime minister. british prime minister boris johnson is repairing for another dressing down over illegal parties in downing street. civil servant sue gray is expected to publish her internal investigation to the details of the so-called party gate scandal this weekend. it may include digitally damaging photographs. johnson has committed to making
a statement in parliament on the matter. chip maker broadcom is in talks to acquire vmware and what would be a massive deal. be aware currently has a market valuation of about $40 billion. an acquisition would put our, that's would put broad -- would put broadcom into a highly specialized area of software. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. by ritika gupta. this is bloomberg. ♪ at fidelity, your dedicated advisor will work with you on a comprehensive wealth plan across your full financial picture. a plan with tax-smart investing strategies designed to help you keep more of what you earn. this is the planning effect.
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about less consequential than the rest of the world has because of our internal growth and strength. tom: the president of the united states saying we are not going to have a recession. [laughter] lisa: he is saying it is not a habitable -- not inevitable. what else is he going to say? tom: the president on a successful reset in the pacific rim. we think rubber doormats -- about robert -- we thanked robert hormats of about a week ago, who was excellent. we welcome all of you in may in davos. it is spectacular. i vote immediately they should move the meetings to june. third week, fourth week of june. let's get started right now at these world ahead among forum meetings with someone who can synthesize these together.
what he does more than anyone in this nation is stand up in front of right cherubs and teach them their first course in economics at harvard. he's the one who's followed on from martin feldstein to deliver what is called ec 10. what did you say to the eager students who have never seen a bond market like this and never seen the second derivative moves that we are seeing in markets as it relates to our economy? jacob: to our students, i told them that when the price goes down, the yield goes up -- jason: to our students, i told them that when the price goes down, the yield goes up. [laughter] what i am not sure your viewers are on top of is that i think this inflation is going to be pretty persistent good not where it is now, but above where the fed wants it to be. that means the fed is going to need to stay at it. a fed funds rate of 4% or higher, completely
plausible, not priced into the market right now. lisa: people believe the fed will rescue the markets. you are saying no way. why? jason: because we are way above our inflation target. that is the job the fed was assigned. you have a chair who talks about himself in the sort of wake of paul volcker, that historical shadow. he wants to bring that inflation down. the market is helping him do his job. i think this is not an accident. this is almost something that they are fine with. lisa: we should not have been laughing completely because the prospect of a recession is horrendous. do you think it is avoidable, as joe biden said? or do you think the fed has to essentially allow that to happen to cool the inflation as it is? jason: over the next year, i am not that worried. i'm always have 15% for recession, may be an -- maybe i am at 20% for the next year, but consumers are still spending a lot. there's people coming off the
sidelines for jobs. there's more inventory rebuilding to done. when you look after this year, that is when i get more worried. that is one more the fed rate hikes start to kick in and affect the economy. tom: the punditry out there i have never seen. it is worse than 2009. those pundits are silent when they listen to you. within the geometry of where we are, when we get interest rates where they are, when you give us the fear of a terminal rate to 4%, how does that link in to the actually real assumption of bonds -- the actuarial assumption of bonds and the return of equities? jason: i think the long bonds have not fully priced in that they think the fed is going to stop at 3%. that might happen. they might hit a recession and we go back to zero. but we could be well above 4%. i think that is a modal scenario. when you look at something like the along yields, they have not gone up the same way they have
gone up on the front end of the curve. tom: let's go back to the napoleonic wars or the panic of 1870, the gyrations out of world war i, a fractured europe and all. that is the fear that is out there for truly a generation or two that have not enjoyed what we are in right now. what does it do to a portfolio? what does it do to a pension fund? jason: that interest rate shows up and everything will stock price as the discount factor. that is why almost every single stock price is going down right now. tom: are you in the triple leveraged all-cash fund like me? [laughter] lisa: are you trying to pitch that? tom: they want me to start in either etf or nft. [laughter] the fear here is if we get a further first and second derivative move that we have all enjoyed for four months, that we are going to get a true -35% dow
, we will get bonds like we have never seen back to the 1930's. you up scribe to that -- do you ascribe to that? jason: i think that is a possibility. i look at households that have $2.3 trillion still saved up from the transfers over the last two years. i look at businesses still facing pretty good financing if they want to make more investments. i look at a global environment where the dollar strength is worrying me and the downdraft we are getting in net exports, so i am looking at those factors. overall i think we are going to see a lot of jobs this year. lisa: there are some people who believe the more we see in momentum and the lack of recession now, the worse it will be later. i point to people levering up on the consumer side once again. do you think that is possible? jason: the fed thinks inflation
is coming down to 2.5 percent. if that happens, there is a 25% chance of happens, it would be wonderful if we could avoid all of these things. inflation stuck roughly at 4% or 5%, i don't know what sort of pain you would need if you want to bring it back down. tom: long ago and far away, a columbia professor saw a kid at harvard and said this kid is different. he's going to work with me. how dead on was your mentor joe stiglitz on inflation and its discontents? -- on mobilization and its discontents? jason: i saw joe. he does not like globalization, but he likes it here in dollars. [laughter] i think we are seeing a pause in globalization. i don't think we will see bigger entrenchment because there's so much efficiency gains. but i don't think there will be
a big withdrawal from it, and i don't should be. tom: the agreement we have is that i get to choose one guest, so we have the optimism of jason furman, and you get joe stiglitz. lisa: that will be coming up, and he will be countering. we will say we heard you like globalization here at davos, that's what jason furman told us, and see what he says. tom: what are the markets doing? lisa: we had a little bit of a lift. tom: i thought your people talked to you and told you what we are doing. [laughter] lisa: the s&p is up 25, so you have a little bit of a lift. perhaps people trying to take a breath after the longest streak of losses going back to 2001. tom: 10 year yield, duplicate 2%. we got so much more coming up. rebecca patterson to be with us, and also, dr. win thin of brown brothers harriman. stay with us from davos, on
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davos, so different this year. much talk of the war in ukraine and much talk about deglobalization. lisa abramowicz is with me. jon ferro is on assignment. lisa: are seeing the greatest mentions of deglobalization in more than a decade. they are trying to change where they have their supply chain, make them more local. my hairspray is not resilient. tom: the swiss wind. lisa: this is going to be one of the key questions. how do you rearrange supply chains in a world where we are suddenly more dependent than ever on one another? what happens if suddenly we can't get chips from taiwan? tom: the chips are front and
center. right now we are going to rip up the script with win thin at brown brothers harriman. from his native burma, he is someone viscerally entwined with the pacific rim. thank you so much for joining. robert d kaplan talks about the south china sea and he walks around it in a circle chapter by chapter. he talks about the change in china. what does president biden need to do economically, politically to restore america's relationship with the pacific rim? >> thanks for having me. it's always a pleasure to be here with you two and also jonathan. i will say this. we had a bunch of comments out
of president biden today. many of them centered on china. the most important thing is this new asian partnership that he announced. china has been on the back burner since mr. biden came in and rightfully so. china seems to be circling back onto the front burner. pivoting back to the transpacific partnership that was torn up by the previous administration. it's a way to reassert u.s. interest in the region. it's a pretty big signal to china that we are still keeping an eye on you. we are hoping to provide counterweight to your influence in the region. obviously the details have to be worked out. i think the big statement from resident biden.
lisa: i read a bunch of headlines. president biden said the u.s. would defend taiwan. a lot of this view this as a complete upheaval of his position. it was walked back subsequently. he talked about his administration removing some of the tariffs on china. that seems to be what has been driving the yuan gaming today. -- gaining today. how do you view the idea of the removal of trump era tariffs? >> it's really eye-opening. it has been quietly dissuaded in the past. i was doing this new normal wear inflation is much higher than anyone expected. officials are looking for ways to ease the pain of u.s. consumers. it's always been a nice point of leverage that was gifted to president biden. president trump imposed tariffs. he took a great tough line against china and sort of handed these tariffs over to the u.s.
and it was always a good point of leverage for the u.s. to maintain. if they are discussing some sort of relief tariff, it would be on a temporary basis. i don't think the u.s. will want to give up that point of leverage. maybe a six-month window or more given how the supply chains are. i don't think it's going to be that all of a sudden everyone is buddy buddy again. it will remain contentious going forward. i think a lot of it is driven by dollar weakness. the pendulum of sentiment swings very wildly. it is sort of risks of u.s. recession are being priced in. it's a less hawkish fed.
for now the dollar is on the back foot. lisa: when the pendulum of doom has shifted a little bit to the pendulum of something a little bit different for the past couple of trading sessions. can clients get any conviction about going back into china after massive outflows given this contentious relationship of which you speak it? >> the whole china story has been complicated. covid zero has wreaked havoc on the chinese economy. about 5% growth target for this year. it's hard to argue for going back into china at this point. politically they are still cracking down tech companies. to me there's a lot of reasons to stay out of china at least for now. i think it's very dangerous right now.
given how the u.s. china relationship is back in the headlines. tom: i was talking with simon kennedy about the link to markets in the great economical. the global litmus paper is the dollar and the dollar system, the floating-rate system that we have. can we have market stability with a resilient dollar or does it destabilize so many emerging markets, does it destabilize flow so much that we are just not going to get to a solid market outcome without weak dollar? >> that's a great question. there has been chatter in the last week or two about some kind of accord to help weaken the dollar. a lot of it is really about the
pace. if the pace is very fast, that's where the risk of destabilizing moves happen. if you look back at the mid-80's, we had the dollar around 35%, 45%. we are nowhere near close to that. i don't think it's setting off the alarm bells yet at the g7. tom: this is so important in this comes up with all sorts of good work. in 1960, the u.s. was 40% of the global economy and we have come way down with a resurgent china. do we overemphasize our international market analysis and and our international economics as we try to analyze
america and what american bonds and american equities are going to do? >> the u.s. from an economic standpoint is not as dominant as it was. to take my reasoning forward, the yuan replacing the dollar, it's nowhere close to that because it doesn't have the track record, the deep market size. it's still heavily controlled markets in china. something like 2.5% of global reserves. it's like an iceberg melting. it's falling but it's at such an incremental pace, it's not something for you and i to worry about. it will be something for our kids or grandkids. lisa: before we let you go, we
only have a couple of minutes left. i want to get your sense of what christine lagarde said today. do you think it moves the needle but she came out and confirmed and said they plan to have no negative right policies by the end of september? >> it's the first time she's come out and said that. if you look at the calendar, a hike in july and in september does take your basis to zero. another hike in october and december -- in a sense it hasn't moved the needle on the rates market. the markets are still looking for 0.5 by year-end. i think the knee-jerk reaction. we could get close to the high
from a few months ago. i still think the u.s. outlook remains the best. we have had a huge move in the dollar the last couple of months. it's about the pendulum of sentiment. the truth is somewhere in between. tom: to go from jason furman to dr. thin shows the span of the debate here in davos. lisa: we talk about oil prices and how the inflation hits the middle class. this is also a big discussion of food insecurity and what that does to the social fabric. tom: i agree. the social issue this time around is food inflation. so much of it is about the
constraints that the international community has the shock of war in ukraine and the shock of what we are seeing in the markets worldwide. we will go to the source with barry eichengreen. i can't believe i'm saying this. i think 24 years ago. -- changed the dialogue of economics and it's very evident today in the constraints that nations have amid this food crisis. please stay with us on radio and television across america and worldwide. this is bloomberg. good morning. >> president biden says he will review trump era tariffs imposed on imports from china. that led to a rally in the offshore yuan. the biden administration has maintained most of the tariffs imposed by its predecessor.
president biden is seeking to reassure americans about the current monkeypox outbreak. the president said it was unlikely to cause a pandemic on the scale of the coronavirus and the u.s. has enough smallpox vaccine stock files to deal with the outbreak. a trainload of more than 70,000 pounds of baby formula has arrived in the u.s. it's the start of an emergency program to alleviate a national shortage that has left some parents scrounging to feed their children. police are searching for a man who shot and killed a goldman sachs employee on a subway train. goldman calls the death a senseless tragedy. mayor eric adams has boosted the number of officers on patrol. bank of america is increasing its limited hourly -- minimum hourly rage -- wage to $22.
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tom: christine lagarde about the international monetary fund. they said there was a feverish to get in the room. to worry about growth front and center. lisa: that's what everybody wants to do. what are they going to say other than it's not inevitable that we are going to get a recession. there is still a lot of strength. tom: we are learning so much here. lisa: we take a look at a world that is very much in turmoil. tom: rebecca patterson talking about the markets. we continue from jason furman. someone that has been with us through the many years of davos.
the title is practice of economic development professor at harvard kennedy school but that barely describes his contribution to economics on original sin. i historic day here when venezuela was blowing up. president biden is sending out solicitations to saudi arabia and year venezuela. should he be doing that? >> for saudi arabia definitely it can be a game changer. the world is now concerned about energy security and energy affordability. the world wants to reduce russian oil production. it would be good to have opec guarantee sufficient supply. russia joined opec in december
2017. we need to get opec away from russia and one way to do it is to tell opec we are going to restrict russia's access to oil technology and international financial markets. so we are going to make sure that russia's market share in oil shrinks. help us do it in a responsible way by you taking up the slack to keep prices relatively stable. i think it's strategic. i think venezuela is not a player. venezuela is not producing oil because they have destroyed the whole ecosystem to produce oil. a little change is not going to change the picture in venezuela and it's not going to change the picture of the oil market. lisa: out of the frying pan and into the fire when it comes to
needing oil that much more and setting prices up. is there a more effective way for the west? >> absolutely. if you embargo russia's oil and it cannot come out, russian oil production is going to come down. world prices are going to come up. if oil producers become richer and global consumers become poorer, it's a very expensive policy for europe. if you want a policy that gets what you want really is to get russia's oil. for putin not to get the money. the way to do that is you just tax the oil. it will have to be more or less the same price. for russia they would have to put a discount so large. lisa: this is the issue.
a lot of people are opposed to this. >> the secretary came out in favor of it and said she was going to propose it the g7 meeting so it makes all the sense in the world because if you are only taxing russian oil, you are not taxing all oil. so russian oil with the tax will have to compete with the rest of the oil. the month of money that putin gets is going to go down. winning europe out of oil is going to take months or years. you want to harm russian now, not in a few months or years. it's just smart that in that world, russian oil still comes out so world oil prices don't go up. but the cash flow of russia is hurt. tom: you on the high ground with barry eichengreen of thinking
how emerging markets can respond in financial markets and also within trade flows and real economies as well. should we be afraid now of emerging-market fragility's given a pandemic, given a war in ukraine and maybe also given big economy irresponsibility. how fragile are they? >> i think it's a mixed bag. we can talk about individual countries. but in general and the emerging markets, there is a lot of commodity exporters for which the current situation is a positive shock. they are either exporting oil or minerals or agricultural products and all of those have gone up in price and that's generating more income for the country as a whole. in a country like south africa, in effect on the country is positive, but it's super positive on the government and negative on households.
so you have a domestic problem of what does the government do with its unexpected extra income . energy prices are up and food prices are up. they are producers of food and producers of energy. tom: in the greater caribbean, how do we promote democracy? cuba. the castro regime moves on to something new and different. the mess in venezuela. how do we promote democracy within the greater monroe doctrine? >> first of all, it's on the short fight. -- it's not a short fight. these countries are supported by the likes of putin so winning in ukraine is going to extend that harms russia, it's going to harm
venezuela, the venezuelan dictatorship and the cuban dictatorship and the nicaraguan dictatorship. i think it's a long haul until we get to reestablish democracy. tom: with got to make it for the long call. ricardo hausman of harvard, thank you for joining us. don't get up right now. you're going to walk in front of camera 42. lisa: he made such a good point. this idea of the government might be getting the money, but if it's not effective, it will be hurting the population and this is where some of the social drawer is a big concern. tom: constructive markets after what you've enjoyed the last couple weeks. yields moving. please stay with us. next, rebecca patterson of