'Bloomberg The Open' Full Show (06/26/23)

from New York City for our viewer

worldwide I'm Lisa abramowitz in for

Jonathan Farrell right now we are

looking at complete stasis as the world

watches to try to understand what's

going on with Russia 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 parrow

all right

coming up markets on edge with Traders

preparing for the second half as fresh

geopolitical uncertainty emerges out of

Russia and Global Central Bankers warn

of more rate hikes we begin with the big

issue investors digesting the rebellion

in Russia

it's been a roller coaster weekend the

issue is quite is around Putin a lot of

uncertainty uncertainty on the on the

Russian side uncertainty volatility for

the markets Traders this morning just

acting a little bit on the side of

caution there is a real air of of

caution and pause there's a certainly a

negative indirect impact that we have

seen Market reaction diluted markets now

need to contemplate what the future

holds the longer term ramifications

there is some doubts some worries

perhaps about Supply we could see a

surge in commodity prices this is all

very fluid we have a massive chess game

if escalation were to increase things

could change I don't really think anyone

really knows what the next move is going

to be we don't have a clue about what

can happen next

Bloomberg's Maria tadeo and Anne Marie

harder joining us now with more Maria I

know you've been speaking with people

over in Europe where is the main concern

right now where is the balance of logic

where people are basically honing in on

in terms of ramifications of what we saw

over the weekend

and look there's a lot of question marks

in terms of this deal and the deal of

course I referred to that uh alleged uh

compromise that was reached out on the

Saturday and negotiated by the head of

Belarus Alexander lukashenka between

Vladimir Putin and pregosian this deal

is a reason fundamentally why precaution

and Wagner allegedly pulled back from

Moscow and the idea is that nobody would

be prosecuted there would be a sort of

amnesty and precaution would head to

Belarus which of course is an

independent in theory a separate country

to Russia now today the Russian State

media however says that they have not

dropped the investigation into Mutiny

and there are serious questions as to

where it is or what are the whereabouts

of preg ocean I think the other big

quick question excuse me that was made

clear by the Secretary General today is

this has ramifications in terms of what

happens with Wagner and this group of

mercenaries which not only operate in

Ukraine but in a number of places in the

world the Secretary General also

repeating this is what happens when you

have mercenaries fighting your war and

again a message for NATO as far as NATO

is concerned the key point now is to

keep supporting Ukraine at this stage

whatever they need allies should not

provided and Marie how much in

Washington DC is that the takeaway that

this gives Ukraine an advantage and it

continued doubling down at this point or

are you hearing a slightly different

tone for the people in DC

well I think Washington administration

does think this opens the door a bit

more for Ukraine to make strategic

advances when it comes to Putin's

invasion of their country specifically

because now as Secretary of State

Anthony blinken put in a number of

Sunday shows over the weekend now what

you have is Putin dealing with tension

um and the most serious threat we have

seen on him and his power since he came

to power than he ever has so he is

dealing with a lot of internal politics

many and what we play over the weekend

was chaotic a spectacle Russians also

lost their lives and what happened over

the weekend so now Putin's attention is

going to have to be split and that is

why they think there's potentially this

opening for Ukraine but as Maria says

there are a number of questions that

still remain unanswered regarding what

happened in terms of this deal and where

does this leave Putin is military some

analysts I'm speaking to also say

potentially this will mean that Putin is

going to become even more of a hardliner

and really double down his aggression in

Ukraine which is the reason why am

Bremer was talking about the nuclear

stash and was concerned about it Maria

todayo in Brussels and Marie hodern from

Washington D.C a fabulous team thank you

so much for that update let's continue

the conversation now with JP Morgan

Stephanie Roth and John Mackay of

Schroeder's John how much are you

shifting any of your views based on what

we saw over the weekend in Russia

I think it's a very very hard thing to

do it's a great question Lisa and thanks

for having me on I think the probably

the easiest thing you could do at the

margin is maybe increase commodity

exposure gold obviously is always a good

geopolitical hedge uh geopolitics

generally doesn't matter until it does

and it obviously mattered a lot over the

weekend it seems sort of abated as news

has emerged that obviously burgosian has

removed himself and and gone

um gone across the border but you know I

think Emory hit the nail on the head

right this could um you know increase

the likelihood that Putin does something

more aggressive at the very least

weakens his hold on Russia so then

Commodities are probably the easiest

thing you can do at the margin to hedge

a continued rise in geopolitical risks

this is a key question at what point do

we do we see some

inflationary

inflationary force from this type of

conflict if Ukraine possibly has an

upper hand in the conflict or

alternatively some sort of ongoing

conflict in Russia really does take

barrels of oil off the market

yeah it could certainly have a an

inflationary impact from a from a

headline CPI perspective but it would

also at the at the margin slow down

growth in the future and I think the the

really important message for for

investors is adding core duration fixed

income really makes sense here because

recession risks are rising

um they've been elevated for quite some

time and this is just another reason to

be more defensive in portfolio

positioning that is something that I

know Morgan Stanley's Mike Wilson has

been agreeing with for quite a while he

warned over the weekend that U.S

equities face a wall of worry writing

quote the headwinds significantly

outwell the way the Tailwinds and we

believe risks for a major correction

have rarely been higher we believe the

next leg will be about deteriorating

pricing and Top Line disappointment John

we heard Stephanie there basically

agreeing with a sort of defensive

positioning albeit not necessarily with

exactly this call John do you see it the

same way

we do and look I think Mike wrote that

note and making it a bit of an

assumption here but I think you wrote

that note before knowing that uh there

was this attempted coup attempt in

Russia so I think at the margin the

reasons he's citing our fundamentals uh

I'm going to deteriorate over the

remainder of this year the price you're

getting paid but the fundamental Outlook

is not good and so you need to reduce

exposure I'm sure there's plenty of

other reasons he cites in that report

and we would agree with that I think if

you look back at the beginning of this

year obviously the Outlook was pretty

bearish uh I think sentiment has shifted

quite a bit to quite a um a bullish

Outlook hopes for a soft landing and we

don't agree with that we still think a

recession risk is fairly high in the U.S

it's been pushed out a little bit given

the strength of the consumer but it's

still probably going to happen in the

fourth quarter of this year and a

recession will lead to weaker earnings

and you're trading at 19 and a half

almost 20 times future earnings on the S

P you're not getting compensated for

that risk but I would say and we have

been saying for the past year plus is

this new environment this new regime

we're in of higher stickier inflation

means you need greater diversification I

know that sounds like Shore shoulder

shrug we've heard that before but you've

seen markets like Japan do

extraordinarily well this year and sort

of it's a forgotten Market no one's

talking about it much the Dax the CAC 40

uh Germany and France have done better

than the us this year so spreading your

bets a little bit in this time of

uncertainty we think makes a ton of

sense Stephanie from your Vantage Point

you were talking about some sort of slow

down in the need to be defensive what

are you looking at to determine that at

a time when Carl Weinberg of high

frequency economics earlier this morning

on Bloomberg surveillance said that he

is the most positive on the U.S economy

going back to the 1960s because of

employment and the strength of the

consumer

I think it's hard to be really positive

looking forward because the FED is

trying to engineer a Slowdown so they're

they're raising rates keeping them

elevated at about five percent for quite

some time and that's going to have a an

impact they're going to get a Slowdown

one way or another and if we don't get

that slow down the fed's just going to

have to keep hiking so so risks remain

quite high but we are getting closer to

to the FED pause which is an important

thing so what are we looking at there

employment needs to slow down into the

to the 100s is currently around 200 000

we need to see continued signs that

rates are restrictive that's the case

Bank Banks lending has has certainly

slowed down from where we were last year

and we need to see continued signs that

inflation is cooling down so we've

gotten some of that I think claims are

going to be the most important thing to

watch they have certainly risen over the

course of this year and that's that's

one important sign of cracks under the

surface and John this is the reason why

diversification becomes so complicated

as I'm sure everyone's been talking

about but you say that it's important to

diversify your portfolio and yet if the

FED if the ECB if the bank of England if

the bank of Japan or not the bank of

Japan they're their own story but the

rest of them who are meeting in Centra

this week are talking about the

potential for higher rates for longer

then are bonds truly a diversifier at a

time when stocks as you say look a bit

heady in valuation

we think they are I mean the yield you

were getting paid at the beginning of

last year didn't compensate you for

higher yields right the risk of Rage

Rising you're getting compensated for

that now so the impact of if we're wrong

and if a Slowdown doesn't happen and the

FED keeps rates high for longer along

with other central banks and rates rise

from here it'll hurt but it's not going

to hurt you nearly as much as it did

last year so we would agree with

Stephanie we think it's worth taking on

some duration the other thing I'd keep

in mind is at the beginning of last year

obviously fed funds were at zero 10-year

treasury yields were significantly lower

than they are today the market sold off

on the fear of rising rates having an

impact on the economy we now have those

higher rates and everyone's kind of

blase about the impact in the economy

just doesn't make much sense you know

those those two things just don't um you

know they don't tie together so our view

is get slow growth that should result in

longer yields probably falling a little

bit further from here but I think the

key there is they're not going to fall

back to zero we're not in this

environment anymore where the fed's

going to be able to step in you see

weakness in the economy weakness in the

market goods and they cut rates

immediately because of higher inflation

so it's a much more difficult

environment than we've been in for quite

some time Stephanie Roth

look right now at some of the stocks

moving ahead of the opening bell Abigail

too little joining us Abby hey Lisa well

overall we have stock futures basically

unchanged down ever so slightly but to

the upside pack West they sold 3.5

billion dollars worth of asset backed

loan portfolio to areas management

boosting the company's liquid liquidity

amid continued concerns on deposit

outflows Lucid also hire sharply higher

up nearly by nine percent Aston Martin

joins with Lucid in a saudi-back EV

partnership has also sent Aston Martin

Shoring on the possibility of something

new for both of these companies and then

finally Tesla not so much down 1.9

percent one of the big drags on the

market this morning cut to a neutral

from a buy at Goldman Sachs on a tough

pricing environment plus as you know

Lisa this stock is already more than

doubled in 2023. just some small gains

Abigail thank you coming up Central

Bankers warning of more rate hikes

inflation pressures continue to run High

and the process of getting inflation

back down to two percent as a long way

to go thank you

that conversation coming up next from

New York this is Bloomberg

inflation pressures continue to run High

and the process of getting inflation

back down to two percent as a long way

to go additional policy rate increases

will be necessary to bring inflation

down to our Target over time we're very

far from our our inflation Target of two

percent I expect that we will need to

increase the federal funds rate further

to achieve a sufficiently restrictive

stance of monetary policy it will be

appropriate to raise interest rates

somewhat further by the end of the year

fed officials ramping up the hawkish

rhetoric as Governor Bowman calls for

better supervision of U.S banks ahead of

their stress tests that come out on

Wednesday saying quote we need to

consider whether examiners have the

appropriate tools and support to

identify important issues and demand to

prompt remediation increasing Capital

requirements simply does not get at this

underlying concern about the

effectiveness of supervision Bloomberg's

Jersey joining us now for more ahead of

a very busy week particularly on the

Central Banking front and if it weren't

for Russia Ira we'd be talking about

sintra and how all the central Bankers

the major ones from around the world are

getting together what are you looking

for in terms of a United hawkish message

from the essential Bankers coming out on

Wednesday yeah I think with the UK and

the U.S seeming like they're going to

hike a little bit more it'll be

interesting to see what the ECB and some

of the other developed Market central

banks

suggest that some of these discussions

that they're having I think from a

market perspective is interesting that

some of the most important information

we're going to get is going to be in the

middle of the night in in the U.S so for

example Powell this week at one of the

panels he's going to be on is going to

be on a 2 30 in the morning New York

time so um so a lot of the market moves

may happen overnight so we have to be

aware that uh that when we come in in

the morning we might see some pretty

dramatic moves depending on how hawkish

or Dove or seemingly dovish some of

those comments might be what's your

sense

duration of how long these central banks

want to hold rates High versus how high

the rates are going to go how unified

they are in their belief that the

duration is more important than simply

the terminal level

well I think I think there's two parts

of that Lisa I think firstly that most

central banks really want to make sure

that inflation is trending lower toward

their their various targets which for

the most part is two percent depending

on which uh um which measure of

inflation that you're looking at

um so for for the Federal Reserve I

think that that means that you're still

looking at well into 2024 before we get

there and in the summary of economic

projections the FED even doesn't think

that they're going to get back to that

two percent Target till 2025. so so the

the FED might be pretty reluctant to

start cutting interest rates at any

point really in the next 18 months

unless it sees a very significant uptick

on the unemployment rate or

um and or a significant reduction in

inflation it seems like it's going to

hit their target so so they've been

trying to hit on that but the market has

not believed that the Federal Reserve

and indeed some other central banks will

be able to do that because

um that the market seems to think that

they'll either be an exogenous shock or

that the that the economy will weaken

enough that it'll start to that they'll

be forced to actually cut interest rates

earlier maybe than they would like to in

some of their projections Ira Jersey

thank you so much still with us for

Stephanie Roth and John McKay and there

is this question as we talk about

tightening policy how far and for how

long Stephanie you were talking about

how they do want to kill some of the

momentum in the economy they want to

induce some sort of downturn why do you

think this economy has been so resilient

to higher rates so far this year

I think it's been partially driven by

the consumer and this is all related to

labor market the labor market has been

really really strong largely driven by

the service sector so Leisure and

Hospitality that's been a really

important driver and until you start to

see a real weakening in the labor market

the consumer is going to just keep

spending and and on top of that they've

started to take out a little bit of debt

so you've seen credit card loans pick up

a little bit so once you do start to see

weakening in the labor market then the

economy will slow down and get the FED

what it needs we're just not really

there yet do you think it's a matter of

how long Stephanie they hold rates high

or do you think that it's getting to a

much higher terminal rate than people

previously expected

I think it's keeping rates at a

restrictive level I don't think they

need to hike that much more but

potentially just one more time but

keeping rates at a restrictive level

we're starting to see signs that

restrictive rates are having an impact

and we just they just need to stay there

for for a little bit more time so while

housing is bouncing a little bit still

at weak levels manufacturing activity

has has really gotten gotten hit pretty

hard recently and then it's really just

a matter of the the labor market

starting to cool as a result of of

companies realizing that nominal growth

for their companies have slowed down

below below where interest rates are

John do you think that people

underestimated just how much resilience

was baked into the economy and how long

some of these loans were I'm thinking of

mortgages for 30 years that no one is

really paying seven or eight percent on

their mortgage or very few is that the

reason why there is going to be a

resiliency for much longer than people

previously expected

yeah I would agree with a lot of what

Stephanie just said right it's the

strength of the consumer the health of

the balance sheets obviously coming out

of a hopefully a one to 100 Year

pandemic which resulted in massive

amounts of fiscal stimulus most most of

which went directly to Consumers uh

balance sheets and consumers weren't

spending during that time now they're

coming out they're spending more

interest rates have moved higher and

there is this lagged effect you know

some people say it's six months some 12

some 18 months but I do think you've

seen sort of these weird knock-on

effects that no one sort of expected

coming out of a higher interest rate

environment home builders for example

doing extraordinarily well because

existing homeowners don't want to sell

because I've got a three or three and a

half or four percent 30-year mortgage

that they're just not gonna they're not

going to want to trade you know I know

how to say it up to a five or six or

seven percent mortgage for a new house

they'll stay in their homes for longer

so that takes Supply out of the market

and so there's all these knock-on

effects that I just don't think people

um fully understood or fully appreciated

I think to some degree of allowed the

economy to be stronger than expected

obviously the labor market as well which

Stephanie already covered Michelle

Bowman was talking uh over the weekend

about stress tests and the need for

greater supervision not necessarily more

Capital held by the biggest Banks from

your Vantage Point John do you think

this has been the main sort of hold back

for the FED for why they're not taking

rates even higher right now they want to

get a better handle on the financial

system and where some of the

vulnerabilities might be

uh perhaps I think it's potentially a

little bit of that but I think it's also

and look that mattered a lot more three

months ago when you had the potential

for sort of cascading effect amongst the

banking system which we haven't seen

thank God because of some of the uh

measures that the fed put in place but I

think it's also just the lagged effect

of hiking 500 basis points in you know a

little over a year and seeing what the

impact is on markets and again going

back to agreeing with Stephanie here uh

you know it doesn't really matter

whether they hike another 25 bits 50

bits or 75 bits I think what really

matters is how long are they going to

stick with rates at these levels and see

what the impact on the economy is I

think that's the primary driver of the

FED sort of pausing here Stephanie as we

head toward those stress tests on

Wednesday is the banking crisis over

I think the crisis is over but the Slow

Burn on the economy is probably not so

really what this means is just banks are

going to pull back on lending we've

already seen that and it's just going to

be a continued tightening of conditions

in in the economy this year bank loan

growth has slowed down to about three

percent on an annualized basis versus

seven or eight or nine percent last year

so it's going to be a slow burn weakness

uh heading heading in the economy this

year rather than a crisis that part is

is probably over which types of the

economy Stephanie do you think will be

most affected by the withdrawal of

liquidity or the withdrawal of credit

from uh some of the bigger Banks

so the the bigger banks are a little bit

less exposed to the commercial real

estate size that's that's on the small

Banks um so you'll probably see it in in

cni loans and certainly Consumer loans

that'll that banks will probably start

pulling back and tightening standards

there and that's what will get us needed

uh that needed slowdown in the consumer

John do you think that that's going to

pressure credit at all or do you think

that that'll bolster certain areas of it

where the the public and the private

credit markets take up some of the slack

from the financial institutions

I think the private credit markets are

going to have a hard time doing that and

a zero interest rate environment Capital

was pouring into those strategies

getting a a lot of weight to the you

know the impact they would have on the

lending markets I think that uh that

trade is is dwindling it's diminishing

it a little bit and so I think you know

coupled with higher interest rates and

obviously you're seeing delinquencies

rise as well we've seen that so far this

year obviously the problems in the

commercial real estate market have been

well covered banks will pull back

private lenders will also pull back and

that will lead to

um you know a Slowdown in consumer

spending and slow down to economic

activity Stephanie Roth John Mackay both

of you thank you so much meanwhile

earnings from Carnival just crossing the

terminal Bloomberg's Abigail too little

has the latest Abigail well Lisa it's

really interesting because this stock in

the pre-market had been up more than two

percent now it is down nearly four

percent so in an intraday pre-market

basis a six percent move a big reversal

having to do I believe with a Miss

relative to the current quarter guide on

adjusted ebitda they're looking for 2.05

billion to 2.15 billion the estimate of

2.09 so it's the low end is missing that

relative to the quarter they reported

they beat sales uh the loss was narrower

than expected they're seeing very strong

demand in the second quarter with total

bookings reaching records for all

sailings so some mixed messages I think

that the backdrop though Lisa that we

need to understand up nearly 100 on the

year expecting Perfection not quite

there Abigail thank you coming up the

morning call us and later closing out

the first half of 2023 we're looking

back and looking ahead with Troy guyeski

of FS Investments that conversation's

still ahead this is Bloomberg

thank you

time now for our morning calls a look at

some of the analyst recommendations on

the Wall Street this morning first up

Goldman Sachs downgrading Tesla to

neutral highlighting the challenging

pricing environment next up UBS

downgrading alphabet to neutral

expecting limited upside due to

monetization risks with AI and finally

upgrading Sherwin-Williams to

outperform seeing encouraging Trends

from the housing market coming up Troy

gayeski joining us of ff's Investments

this is Bloomberg

foreign

for Jonathan Farrow moments away from

the start of trading and the stasis that

we saw earlier in the day is turned into

a bit of softness a bit of red across

the board as people reassess the risk of

what happened in Russia about a tenth of

a percent almost two tenths of a percent

decline at the s p and the Russell we're

still seeing a bit of a bid into bonds

we are seeing people look at this to a

Haven but less so than before tenure

yields at

3.71 a bit of Euro strength ironically

after especially a lot of people

concerned about what potential risks

there could be it has settled out with a

bit of darlar weakness and Euro strength

and crude still lower by about four

tenths of a percent One stock to watch

at the open Carnival Cruise Lines the

company out with earnings just moments

ago facing high expectations with the

stock nearly doubling this year alone

Melius research weighing in ahead of the

results writing quote following the

recent move in shares Carnival has a lot

to live up to and that seems to be the

response Bloomberg's Abigail Doolittle

joining us now with more Abigail yeah

price to Perfection and investors not

thinking that the results and the

Outlook are Perfection the stock right

now down uh more than eight percent its

worst day since November of last year

now of course uh ahead of the this uh

report it had been up almost 100 on the

year so again that idea not quite what

investors were expecting but it's

interesting because it doesn't seem so

flawed from a surface view Lisa they put

up a narrower loss than expected they

beat revenues they put up 4.91 billion

dollars almost 3 percent better they're

talking about an acceleration of demand

in the second quarter total bookings

reaching uh records of all sailings the

one big flaw that I can see is the ebitd

the adjusted ebitda guidance for the

current quarter the low end is a little

bit below the estimate so perhaps

investors seeing some weakness there the

conference call starts at 10 A.M so

perhaps there will be more color that

will come out that some investors are

already seeing but again this stock down

eight percent its worst day of the year

investors not getting what they were

expecting and some of the other Cruise

operators also down in sympathy Abigail

Doolittle thank you so much turning now

to the financials Coleman Sachs is said

to be cutting a number of managing

directors across the globe as it

confronts a Slowdown in Deal making the

latest moves coinciding with recent

reductions at JP Morgan and Citigroup as

well joining us now I'm so pleased to

say is Bloomberg's Channel we're looking

at about 125 managing directors Lisa

being cut over at Goldman Sachs these

are more senior positions including an

investment banking after a prolonged

deal slump now we know that deals are

starting to come back it certainly is a

merger Monday as we see it today but

again remember how much these banks have

hired this year is almost halfway

through and you're not seeing a jump

back enough to justify so many of the

jobs that have been brought on in recent

years over at JP Morgan that cut number

is about 40 people across different

levels of seniority you have another 20

Bankers over in Asia also facing job

cuts and then you have Citigroup looking

at dozens as well both in investment

banking over in the United States as

well as corporate banking over in London

so you are seeing Banks starting to nip

at the heels of their Workforce in

multiple layers of job Cuts now I would

also say there's a lot of uncertainty

about how this year continues to unravel

we are seeing some of the very top ranks

also move around a lot and jump to

Rivals as well so not all is bad news

but it is a tense time on Wall Street

and we are seeing people look for new

jobs at the same time both in trading

and Investment Banking thank you so much

and turning now to Big Tech the NASDAQ

100 looking to rebound from its biggest

weekly decline since March and getting

no help from Wall Street with both Tesla

and alphabet on the receiving end of

analyst downgrades this morning joining

us now Bloomberg's Ed Ludlow from San

Francisco

UDD Ed some downgrades on the from the

likes of alphabet and Tesla yeah good

morning Lisa let's start with alphabet

the parent company of Google UBS

downgrading to neutral from Buy in the

near-term money monetization risks risks

in the medium term they're talking about

Revenue risk from new generative AI

powered search results displacing ad

inventory among the mega cap names that

UBS likes they prefer Amazon and meta

both of which have a buyer rating with

better risk raw profiles than alphabet

tests are also a really interesting one

Goldman the latest name to downgrade the

stock to neutral from buy two factors

one the surge in the stock that we've

seen and you and I have been discussing

for what seems like weeks and months now

but two they also note the declining

average price of new vehicles from Tesla

it's the fourth downgrade that I can see

at least in the last week Morgan Stanley

Barclays and DZ have all downgraded

downgraded their calls on Tesla but

remember this is a stock that's up more

than 100 year today kind of zooming out

just really quick in the NASDAQ 100 like

the rest of the market we're coming off

the biggest weekly decline since March

that week where we had the bank banking

crisis unfold we saw this move into

bonds uh you know Thursday Friday I kind

of think there's still a little bit of

Central Bank rates inflation and what it

means for some of the valuations on the

NASDAQ 100 in terms of single names

going forward though thank you so much

sticking with tech permeable Dan Ives of

wed Bush expecting the sector to

continue its out performance writing

quote heading into the second half of

2023 we see a much broader Tech rally

ahead as investors fully digest the

ramifications of this 800 billion dollar

AI spending wave on the horizon and what

this means for the software chip

hardware and Tech ecosystem over the

next year joining us now Troy guyesky of

FS Investments Troy so great to see you

it has been too long do you agree that

this does seem to be an area that even

though it has been highly valued so far

this year has a lot more room to go

well I think over the next five seven

years for sure the issue in the shorter

term though at least is we've discussed

is that we're entering a period of

Market history we're having the greatest

liquidity suck of all time and that the

FED is back to do an aggressive QT and

draining the balance sheet remember at

close to five times what they did in the

last QT while banking lending has

completely stagnated now uh when the

treasury is replenishing their checkbook

and issuing t-bills notes and bonds at a

very Furious rate so you know back to

the points you guys made on Carnival

there are a lot of expectations baked

into that share price appreciation just

like there have been intact and AI is

certainly for real it will drive Revenue

it already has obviously in Nvidia but

is it enough to overcome very elevated

multiples at a time where recession risk

is the highest it's been since the dark

days of the pandemic when you're having

this tremendous Exodus of liquidity from

broader markets so in our estimation you

know the risk reward of being a long

equities if these valuations is not a

attractive at all it pains me a little

bit Carnival and Nvidia in the same

sentence in some sort of yeah that's

right it just doesn't feel quite right

but I'm wondering if that is the uh the

parable here that basically the idea

that Carnival had been bit up and price

Perfection to such degree that even

beating results even beating endless

expectations wasn't enough to stem some

pretty significant declines do you think

that's a playbook for what we're going

to get from alphabet and Google alphabet

at Amazon and uh potentially even Tesla

well I think it's more we're sort of

reverted back to this late 21 period

where markets were moved from pricing

Tech at Ford cash flows because they are

cash flow monsters to back to price to

sales again and we thought that we'd

extinguished that last year with

obviously the dramatic revaluations but

anytime you're buying in equity or any

security um price to sales that are

extremely elevated it's just very

difficult to get the organic growth that

you need to justify that again

particularly at a time where recession

risk is set arguably 70 to 80 percent

and you're having such a drain of

liquidity so you know the the strongest

rallies are always in Bear markets we

still believe this is a very powerful

bear Market rally and it will ultimately

make lower lows but again the good news

lease is we're not going to have a

repeat of 2008 we're certainly not going

to have a bear Market as bad as 2002 it

just we've priced uh all the good news

in and it's really hard to get overly

optimistic about expected returns uh

being long beta right here how long have

you been past domestic because one thing

and Neil dutta came out with a scathing

note to all of the Bears out there

basically saying all right if you're

wrong for six months you're just wrong

and I know that probably stings for a

lot of people including Mike Wilson who

you've been quoting all morning but do

you feel like that is the sign of a peak

in terms of valuations that people are

all capitulating at this moment or do

you think that that is something to pay

attention to that the Bears have gotten

it wrong oh yeah so capitulation Cuts

both ways it's a great point I mean

we've really been embarrassed since the

end of 21 when it was very clear that

you know the FED would have to hike Half

tank aggressively we didn't know how big

QT would be but we knew it would be a

meaningful impact

um and again within bear markets you do

have very powerful rallies just go back

to 2001 as an example when the FED had

already started to cut right and then

you had these monster spare marker

alleys so capitulation Cuts both ways it

reminds me of late last year say

September October when some of the few

remaining Perma bowls uh were starting

to throw in a towel and now you're

starting to see people that we think are

rationally cyclically bearish I start to

throw in the towel as well again if the

s p was at 14 or 15 times forward

earnings and recession risk was 10 20 we

could have a different discussion but s

p is back up to 19 plus forward earnings

session risk is much higher and again

this is the first time in this bear

Market which started in the beginning of

22 where you've had the FED doing

aggressive QT while Bank Lending has

stagnated while the treasury is

simultaneously pulling out five to six

hundred billion dollars for markets in a

very short period of time so that just

doesn't bode well from a risk reward

standpoint but the great news here Lisa

is they're still attractive things to do

it's the best time we seem to be a

private lender really since the global

financial crisis you need dry powder to

take advantage of that but whether it's

senior secured commercial real estate

lending now you have Middle Market

corporate lending where you're having

five to six percent higher yields as

recently as 16 18 months ago there's

things to do you just don't want to be

greedy this is not a time for greed this

is a time for for a rational Northwest

Quadrant efficient Frontier investment

strategies so okay just putting aside

the people who are agreeing with you or

saying you know what we're still bullish

how come someone couldn't listen to this

and just say well this is you know

talking the book a little bit in the

sense that let's go into some of these

other instruments that aren't traded as

frequently so aren't going to reflect

some declines but at the same time uh

you know this has been an area where

people view increasingly as

diversification versus aren't they also

going to sell off if we do see some sort

of material sell-off in the equity

sector

yeah so it's a good point at least and

that gets back to Beta or sensitivity to

broader Equity markets and remember it's

not just beta to equities it's also beta

to real estate

um and so you really have to be focused

on areas that are being economically

resilient to that downturn again that's

why you want to be in the senior part of

the capital structure so you have far

less downside risk while at the same

time because the FED is already you know

take so aggressively you're earning much

higher yields than any of us streamed of

18 months ago so if you can make high

single digits even low teens with far

less downside again if the s p was at 12

or 11 times forward earnings like it was

you know prior to qe3 and during the

Eurozone crisis you know you could argue

both areas have attractive upside but

we're at elevated valuations for

equities high yield Bond spreads are

still relatively tight and there are

areas in markets now a lot of it driven

and exacerbated by the pull banking the

pullback in Bank lending where you can

get Equity like returns with far less

downside risk and we just think that's a

more intelligent way to position

yourself at this stage of a cycle and

it's probably something that Morgan

Stanley's analysts would agree with

Morgan Stanley's Mike Wilson we were

talking about him earlier he warned of a

wall of worry facing off with equities

reading quote the headwinds

significantly outweigh the Tailwinds and

we believe risks for a major correction

if rail even higher we believe the next

leg will be about deteriorating pricing

and Top Line disappointment Troy I know

that you have been agreeing with that so

let's put some numbers around this what

type of Correction could we be looking

for where is it led by and you know how

long could it potentially be

yeah so so look to us we've always

started this bear Market as much more

mild than 2008 of the financial crisis

or 2002 something in the order of 25 to

35 Pizza trough as opposed to 50 or

greater you know we think a rational

downside Target again that it's not

going to stay there for months and and

quarters and years but it's somewhere

around 32 to 3 400 for the s p where you

know earnings drop to 200 you get a 16

to 17 multiple on that which again is

higher than the October multiple of last

year and that implies about you know 15

to 25 more downside from here so

certainly very very painful and the

other part that's important here at

least say that I don't think it's talked

about enough is you know if you could

sit here today and say hey live five

percent upside in the s p i got 15 to 25

downside but guess what coming out of it

I'm going to make 80 to 100 the next

three to four years because the fed's

going to cut rates to zero and they're

going to do another QE well hey maybe

you can tolerate that short-term pain

but the next one Market is going to look

a lot like O2 to O7 which is driven

exclusively by earnings growth and not

by zero interest rate policy not by

multiple rounds of QE because we're not

going to see another QE unless we have

an economic or a market disaster which

at that point you're going to be begging

for the FED to come in and bail

everything out so again focus on

Northwest Quadrant strategies except a

modest return nice single digits to low

teens some would say is better than

modest and make sure you have as little

downside as possible not not if but when

the next recession begins late this year

or early next year Troy how have you

explained some of your conservative

positioning at a time when a lot of

people are getting greedy

yeah we'll look Market's moving cycles

and waves and you know I think you have

to have a consistent viewpoint on asset

allocation right and what we're talking

about here big picture is you know most

investors for 12 13 years uh got very

comfortable with equities appreciated

north of 12 15 18 and fixed income at

least not getting uh out of stated uh

obviously 2022 is a complete reverse of

that and now we've seen a short-term

comeback in 60 40. but if you think the

big picture here Lisa the big picture is

the drivers of the dominance of equity

returns coupled with a period were bonds

outperformed expectations one was

Limitless money supply growth that's

obviously a headwind as far as I can see

the other was interest rates going lower

and lower and lower which Justified

higher prices for every asset and then

the third of course was The Wonderful

Chinese labor market which helped boost

corporate margins from five and a half

percent to over 13. all those factors

are no longer Tailwinds in fact two of

the three-year headwinds and rates are

obviously not going to be the headwind

they were last year but they're not

going to be the Tailwind they were from

1982 to 2021 right so you know again

back to valuations if you had a more

rational valuation right now I think you

can make more bullish arguments that hey

maybe the s p can go from 15 to 19 times

guess what we already had that move we

went from 15.75 to 19 a change in a very

short period of time driven by arguably

the narrowest market rally in history

that just doesn't bode well for future

gains and it means you have to be much

more realistic with your expectations

try guys you're sticking with us coming

up oil prices in Focus after political

instability in Russia

some some worries perhaps about Supply

um about this but this is a massive

chess game

I don't really think anyone really knows

what the next move is going to be

we just have to admit that we don't know

how Ukraine's going to work out and how

that's going to affect the world I mean

consider the possible ramifications of

what could have happened this weekend

right a political disarray in the Soviet

Union taking the third largest producer

of crude oil in the world off the market

taking a large dominant Purdue and major

Commodities off the market these are

events that on just on the economic side

you know could shake up the world

economy substantially

commodity markets meanwhile breathing a

sigh of relief Dr the Wagner group

called off a short-lived armed rebellion

in Russia the militia reportedly taking

control of one of the Southern cities

where several oil and gas pipelines

intersected here to take us through the

ramifications is Bloomberg's Julia

fonseres Julia what's the latest

it's very clear that markets If This

Were a normal Market would have rallied

one to three dollars but because

sentiment macro economic sentiment is so

low right now markets aren't looking at

geopolitics at the moment they don't see

Supply being disrupted and so they're

going to wait for that to happen until

something happens it's very interesting

seeing oil up 30 cents and not really

caring as much about this move even

though we did have a pop earlier in the

markets but it's very interesting to see

that macroeconomic sentiment keeps

dampening all of the supply fundamental

and geopolitic drama Julia thank you so

much and truly an important update

you'll be updating us throughout the day

back with us is Troy gay ski of FS

Investments Trey how much are you

looking at Commodities as a hedge

against geopolitical risk versus

something that could potentially

continue to sell off if say the opposite

happens in Ukraine gains Headway and we

end up unleashing some of the

bottlenecks

yeah I think the the confusion level in

Commodities has really never been higher

uh you know on the one hand you have

obviously China's recovery is not going

well at all

um the U.S consumer you know isn't

necessarily running on fumes because the

labor Market's still relatively strong

but you know the clock is ticking on the

strength of consumption and then you

have all the geopolitical prosperence

right now so you know again one of the

things that's nice about focus on say

liquid multi-strategy funds or

strategies that don't have that downside

risk in a geopolitical storm is you can

find other ways to geek out fairly

consistent returns you look at yield

curve steepeners they look attractive

again you look at the secular slowdown

and refi activity driven by higher

interest rates there are ways that you

can monetize much smaller inefficiencies

in markets without having the Gap risk

to some disastrous outcome in Russia or

a far darker outcome in China right I

mean you think about how fast that uh

Bullock arguments Unwound so yeah from

our perspective your Commodities have

strength they have higher floors for

sure but it's a very dangerous game to

play right now if you're going long oil

based on the expectation of some type of

geopolitical event just quickly here

Troy do you think that the commodity

space and oil in particular has lost its

its position as a Telltale sign on

global growth as a macro hedge against

some clear Global trend

yeah it's much less clear now than it's

been you think back over 10 20 30 years

right because and this has been one of

our arguments why it's hard to

understand why you could have a true

super cycle in oil in particular just

given an electrification of the world

we've always thought copper made a lot

more sense as a large deep liquid

commodity because there you're going to

have a really Relentless demand whereas

on the oil side you're going to continue

to have demand destruction or at least

far less growth than you've had a higher

cyclical upturns and then geopolitically

it's very difficult to ascertain you

know which outcome would dramatically

benefit you that isn't disastrous to

other parts of your portfolio Troy

guyeski thank you so much for your time

as always right now let's take a look at

some of the sector price action this

morning let's get to Bloomberg's attic

guilty little well Lisa when we go into

the Bloomberg terminal and take a look

at the IMAP given the fact that we have

this ever so slightly small game right

now gain right now for the S P 500 we

have more gainers than not for the S P

500 but it's someone muted the biggest

gain being energy well actually that's

not so muted up 1.5 percent materials up

eight tenths of one percent real estate

Industrials also up seven tons of one

percent so I missed both there's

actually some pretty solid uh gains to

those sectors on the downside Healthcare

down about one percent Consumer Staples

down about six tenths of one percent uh

net net though overall the it's

interestingly so they gain up for the S

P 500 uh somewhat small up about three

tenths of one percent it's going to be

interesting to see whether or not last

week being the worst week for the S P

500 since March if we just shrug that

off or if there's going to be some kind

of follow-through on that selling action

Abigail thank you so much coming up the

market moving events the HP watching

that's next in our trading diary was we

do see a bit of strength as the session

grows older this is Bloomberg

thank you

time now for the trading diary what you

need to be watching this week President

Biden discussing U.S internet

infrastructure at 11 45 a.m Eastern new

home sales and U.S consumer confidence

coming on Tuesday the FED unveiling the

results of its stress tests on Wednesday

plus we'll hear from Central bankers at

the ECB forum and finally U.S GDP and

jobless claims coming on Thursday this

was countdown to the open this is

Bloomberg

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