Surveillance: Recession Likely Within Year, Misra Says

speak with when it comes to bond yields. Priumistress, she has ice in her veins. She's just you know, she's just cool, common collected. Priamizra absolutely is cool, common collected. So I want to get a cool, common collected view of what's going on. Priamira TV Secure is head of Global rate Strategy. Prey love having you on today on this bond focused morning. How would you frame what we're seeing today in bond markets? Chearn, Thanks for having me on.

A little hard to be cool and connected when all of my EE curve signals are suggesting a recession is very likely a greater than fifty percent chance in the next fwelve months. But you know, really it's been a perfect storm for the treasury market. You've had global growth being weak and that's brought global bond deals lower, so there is this duration gap grab. But I think we have to look at you know, the underlying data, and

manufacturing in the US looks very weak. We've been off the camp that if manufacturing is this week, US business investment is weak, it is going to filter through into the non manufactor or the services sector. And so we've been actually pretty nervous about growth. So you had this I think filtering through as the U S data is looking a little not great um and you know, services looking okay, but it is a lagging indicator. And then

I have to add the Fed. I think the Fed continuing to call this a mid cycle adjustment, that's a problem for the market. I mean, when were the last time the Fed East race, which they did two weeks ago, and the yield curve continue to flatten. So the bond market is telling you that the Feds behind the curve and really needs to do more than a mid cycle adjustment. So this is the word of the day, and that is recession. Everyone is looking at what's going on in

bond markets. They're saying recession. When when are we going to see recession? Right? That's it's really in all the question. So you know, we've got many models for recessions. If you look at any econometric model looking at US data, it actually does not signal a recession any time in the new future. The problem is it is backward looking data and we are in unprecedented times. I mean, for the global economy to be this week and for the trade headwinds to be this week, I'm putting lower weight

in the econometric models. Then I look at the yield curve. The yelk curve tends to it's a wide range. But when the two stents curve in birds or after the three Montenian birds, which has been go to since March, it could be anywhere from six months to eighteen months. So it's a wide range. We're thinking somewhere in the nine to twelve months. Were how closer way to an emergency meeting? I mean there's any number of ways looking this pre I know you're not going to talk about

another bank. Deutsche Bank is broken down from a six fourteen to a six point one zero euro equity share a five ninety nine on uh Deutsche Bank pre I would guess, is really not good. Commerce bank record low, etcetera, etcetera. What's it taken your study of history in the bond market to make a central bank move intra meeting. Normally you need significant tightening and financial conditions, so we've seen this for example, UM, after a t c M was impacted.

I would also say, you need a US shock, so Lehman goes down and they do come in right away. I mean, if you look at broader financial conditions, and again I'm on the road, but I don't think we're down more than four percent on the S and P from the high. So financial conditions have not tightened enough. And so I think the FED is going to say, look, we'll do what we can, and as the leader UM you know, comes in, we will respond. But any emergency

move I think needs the SMP down from here. Okay, well there's a statistic, folks from I'm just suggesting, Lisa, the immediacy that you and I see on our Bloomberg screen is extraordinary for any given August. And then there's a question pre Amster saying that the US manner session the next nine to twelve months, based on your analysis of it, Can the FED stop that? If the FED came out and said we're holding an emergency meeting and we're cutting rates by seventy five basis points, that's a

great question. It's one of the reasons we've been looking for cuts next year as well. I mean, we have seventy five basis points pencils in for this year in terms of FED cuts, and then another seventy five. And this is where I've been getting pushed back. And my point has been, look, what can frederate cuts do? I mean, can can they boost up housing? At this point? Is the problem with global growth and UM business investment being

weak due to trade uncertainty. I don't think some race cuts actually work, which is why the FED, I think, will be forced to cut a lot more. Right now, the thirty year yields at two point oh one seven three percent, the lowest on record. How long that wait? We're now on a watch I mean with the gamma that we've got to to Lisa, I mean continue, but we're on at the third year, Bun. It is a watch. Morning here in the surveillance studio is how long can we go here. It's very hard to put a number

on it. I would say right now, the longing is the only place that hedges you against risk asses. So given by risk asses are right now, we're not that low from We're not even you know, ten percent down from the high, I think that the long end has a lot more room to decline. Now if stocks are significantly lower, then you expect an emergency move you know, that can provide some sort of a floor on on thirty a years. The other thing I would point to

is look at global rate. You look at by German thirty year is so I think a lot of what people thought that it can't go much lower. All those um you know, theories have been thrown out the window with the boon mom. So I think it's got a lot more room because it is the only safe haven. I think people have who have been hiding out in bills because they're giving you a higher yield. We'll need

to move out. The COLT learned your speed data check right now futures to tier eight negative futures negative three eight four the fixed two point eight zero points twenty point three to the yield from the thirty year to zero two ten year one fifty seven in a huge thirteen basis points within version the two stones one. What's the playbook here? Is it just a by duration to buy thirty year bonds across the board as much as you possibly can and yield flattners. Yes, I think the

yelk of steepening trade is behind us. We really need the FRET to come out and say that they're willing to go all the way to zero and that this could be the start of a lengthy easing cycle for that front end to move. So it is about the long This is really improtaned, don't mean to interrupt it. This is really, really, really really important the FEDS to go to zero. Do they need to wait for single digit one percent or subone percent g d P or can they affect that policy given a better trailing g

d P? Right, and now the FED has been creative. I have to say earlier this year, the FED came out and said, you know, when we're close to the video abound, we should be preemptive. And that's when they that's one of the reasons why they east two weeks ago. Now they need to come out and say, you know, we've been pitching this and selling this as insurance stuffs in mid cycle adjustments, we should be willing to go

more a lot of focus on Jackson Hole. I don't think this is the place where they give that signals. But you know, if SMB is down ten percent fifteen percent between now and Jackson Hole in a week, I wonder if we get that message from the FED, are they willing to do That's? Where are you, Lisa? Are you going to Jackson Hole? Are you sending me you should go? I mean it's really cool. Pria, thank you,

this has been wonderful. Pria miser TV securities. Lisa, why don't you bring in miss Calvacina, whom I think was medicated to get through this this morning with futures negative. Calvasina, I'm so glad you're able to join us, because really the key question this morning is our US equities to sanguine about the backdrop here. Laurie Calvacina is head of US equity strategy at RBC Capital Market. So, Laurie, are you expecting equities to turn a little bit lower here? Hi? Lisa,

Hi Tom, thanks for having me on UM. At least I think the answer to your question is yes, Um, we we really do feel like we're we're kind of where we deserve to be at your end, but in the inter and we think there's more pain to come in the market. And I think, you know, even if you just look back at how markets have traded off big recovery lows, you know, twenty uh you know, sort of background the nine eleven lows, we do tend to have these periods of consolidation, so just at a minimum,

we've been due for one of those. Um. But but I do think that yesterday's trading action was really puzzling. I don't think the announcement from the Trump administration on Delane sum and I stress some of these parists to December. I think it was maybe not quite much ado about nothing, but much to do about a little Well, Laurie that the rais is a really important question. Who's trading? Who's

trading on these headlines? It's not our clients. I mean we we we heard actually that people in particular on the retail stocks are a little bit better to sell into the end of yesterday. UM. I do know that I talked to a lot of clients who are really just kind of pulling things in, going neutral on their sector beds still trying to look for individual names that they like. But I do think there is just a

tremendous amount of straation on how to deal with these tweets. Laura, let me cut to the chase and Brahma's demands that I do Fibonacci's today from the President's announcement yesterday. Let's call it the capitulation of the partial caven whatever we went on futures. This is SPX up a lot, and we've now brought in well over eighty percent of that. We've retraced eighty percent of that good news green on the screen yesterday. Laurie, what is the significance if we

break through the low seeing yesterday at five am. I think it, I think it is. I think it is very significant. I think the reason why we sort of had a nice pop and then didn't really do much yesterday is that there's there's not really that much to do on this news. I think what we've done is shore up earnings expectations a little bit for the second half of the year. Um. But really the core issue with this trade war is how it is affecting business confidence,

how that is affecting CAFEX how that is affecting hiring. Ultimately, if hiring is effect that that will affect the consumer regardless of what they're doing with these terraffs and and business constance. Nothing was done yesterday. Okay, we'll give us an update. I mean, I know you're not in speaking terms of Tom Percelly, but what is your run rate g DP that you're working with as an equity strategist.

So what we did is we actually for our twenty earnings growth expectation, we decided to be very conservative and we plugged in one point eight per cent in real terms. And that's basically if you if you pull it up on the Bloomberg terminal, that's basically where the cell side consensus is for next year's GDP. So we're factoring in a sluggish earnings are sluggish growth environment. It's a sluggish

revenue backdrops for earnings. Now, the significance of that is number one, it brings in our earnings growth assumption to about five percent. That's about half of what the cell side bottom up consensus is anticipating. Street numbers are running at ten percent on earnings growth. We think they need to be cut in half. If that GDP number is right. The other thing you have to con sitter is that sluggish GDP and something like one slightly below two percent.

It is historically a very consistent trouble spot for equity markets. About two thirds of the time markets have been flat or down if you've had GDP in that one to two type range. Laurie, thank you so much, so really good, I mean really good update. This is the interview of the day for all of you of Global Wall Street on China. And I don't mean Hong Kong, but I mean the border. I'm as guilty as anyone. I've been honored to speak to Dr Roach of Yale University about this.

If I say I went to China, I land at the airport, I always get in some big fancy Mercedes that can't afford. They take me to the Mandarin Hotel. I wanted the office to see von Man. Then I go back to the hotel. Then I get back in the Mercedes and go back to the hotel and go back to the airport and say I've been to China. George Friedman has been to China. He's the geopolitical futures and we're honored to have him on today, George, you are riveted on the dynamics of President G and the

modern experiment that is the Communist Party. Where does he want to lead them? Well, the first thing he wants to do is hold country together. Two thousand eight was a rattling experience. China is an export addict, and as customers stopped buying, or at least not buying as much as they did. The country is divided between the part you visit, the coastal region, which going through there you can think you're anywhere Western country, and the interior, which

is enormously poor. That's where maud Say Tongue went to raise his army to come back to the coast and clear them out. So the real question here is can g hold a country together? He's a dictator and they didn't elect a dictator to put a dictator in charge? Again, will its power because we're feeling comfortable. They did it because they were worried. They're worried, and within it is the Hong Kong Henry Olsen in the Washington Post talking of the protesters wanting to develop a third Chinese at

Hong Kong, Chinese off the Han and Mandarin experience. How does President She see that? How does he see the culture of China that folds into the military power in the sense of dictatorship. The People's Liberation Army has always been a domestic group. A flaught in Korea didn't do well, but the People's Liberation Army is a domestic security organization. It is to guarantee that the Communist Party will stay in power. He doesn't want to use it, obviously, he

wants everybody to be happy. What frightens him by Hong Kong is not only the vigor, but two other things. First, failure of Chinese intelligence, domestic intelligence to detect that this was going to happen as a result of his actions on criminal law, and the fear that is going to spread into China. We tend to look at China as enormous success. Well, like all countries, they go up and down,

and they come in trouble. And when they get into trouble, the more important thing than the economic is the political. How will people respond? And this is what the Chinese are extremely worried about from Hong Kong, that will spread. How do you respond, folks, if you're just joining us? George Friedman of Geopolitical futures here. I just can't say enough about his work on the linkage of defense to society. They have a type fifteen tank, a z t Q tank. I don't know if that's lined up as a light

tank on the border, et cetera. But how do you respond to what I'm going to editorialize is the fearmongering of green trucks in military at the border fifty miles from the central district. Well, they're desperately trying to intimidate demonstrators. They wanted to go home. They wanted to go away, and they don't want this crisis. Uh, they can come in and crush the demonstrators whenever they want. They don't need the fancy material that you can just do it.

But the fear is one what will do to its international image? It has tried to portray itself as a symbol of modernization to be emulated. They do this and it loses that capability. And secondly, as bettinam and square, how the rest of China responds the real problem that he has. He was wanted to solve these problems. He can't solve any of them. He has to solve the economic problem. He didn't manage Trump. He hasn't made any progress in the South China. See the one Belt, one

Road initiative has kind of fallen apart. How fragile George is he in the time we've got left Elizabeth economy and see if far is very big on this. We look at the media in the Western world as a communist party is monolithic. It's not I get that, But how fragile is his tenure is the supreme leader of

this communist party? Well, if he winds up losing Hong Kong on top of very bad news out of the Chinese economy, which is probably worse than the news that they releases, uh, they're going to be some very serious questions about whether or not this is the direction they want to take. And if he cracks down too hard, they're going to ask that question. And his most important job is handling his biggest customer, the United States, and

he failed. So I would have to think that inside the Central Committee, very quietly, there is discussion of what's going to happen, and I think he's nervous, and I think that'll wind up resulting in him going into Hong Kong. George, thank you so much for being with us, particularly early early in your Austin, Texas morning, uh, three or four hours ago. We really hope to speak to you through the week and into this uh into the August as well.

George Freeman, of course, founder and chairman Geopolitical Futures and just a riveting piece. Again, we protect the copyright of all of our guests. We have the Freeman literature. You can get it from Geopolitical Futures and a bit here we're actually gonna talk about Kathay Pacific and what all of this means to global travel, the protests in Hong Kong, and what we observed. We have the number one guy in the world on how we're all addicted to those

charge cards. Right now we get frequent Frickson came miles with Ira Jersey of Bloomberg Intelligence. Ira, what's the correlation right now of your on market with the equity market? Yeah, so the correlations negative right now. So you know, equities go down and fix income prices go up. Um. You know,

this is a lot different from June. So in June it was basically the the lower yields and and the yields going lower because the FED was going to be more commendative and you know, data was wasn't great, but it also wasn't terrible. That helped equity markets go up.

But now what's happened over the last five weeks or so as you've seen that turn the other way where um, you know, bad news is bad and you wind up having a flight to quality into rates from other ethic class is you know, a math guy and this is out of reason Fabosis talking to one of our young troops here yesterday, and I didn't notice that the classic fabosies a thousand, forty eight pages. I quoted that in the discussion I was having in the Fabosi the dynamics

of yield are different than the dynamics of price. This is a great mystery to people right now. I would suggest it's price up. What's the buying frenzy that you observe at Bloomberg Intelligence. Yeah, it's it's all about sentiment. So the sentiment because of of the seeming higher risks out there, and that's causing this flight the quality into

UH into treasuries and other government bonds. And interestingly, you know, and this is not something new, but the fact is is that the US government yields are still higher than the yields and most other developed government bond markets. So um, you know, even even the UK which also has positive yields, right that one of the few European countries that does UM thirty year yields. There are are one percent thirty year yields here are two percent, So we still have

UM significantly higher yields. And if the dollar is going to keep on appreciating because our economy is doing better than everyone else, then this is the place to be. You want to be here, maybe on an unhedged basis. Deutsche Bank, this is important headline. This is aside from IRA Jersey. But I gotta go to this iro. It's so important for global Wall Street audience. I'm getting the headline up right now. Deutsche chairman Art Lightner searching for

his successor is the headline. I'm looking at a six point one for euros per share. And if I can get over to the A d R uh No, it'd be help if I knew the symbol. David Wilson, where are you with? I need you? Deutsche Bank. Oh, I'm killing folks, I'm just killing this today. D E U T S c H E Bank. There's four thousand people just in New York. IRA. I don't know where the a d R is on Deutsche Bank itself, that's all you need to know. Negative three D six on the

doll IRA. What's credit doing? Link full faith and credit with the credit risk of the investment grade market in the high yield market, how do they link in this crisis? Yeah, So, so you've seen spreads wide and somewhat, but there's still you know, a lot of people are not particularly worried about UM, you know, corporate credit UM the default at the moment because balance sheets, particularly for large US corporations that make up the investment grade market have UM you know,

still are still look okay. So it's not a fundamental story, it's more it is more and more sentiment. So you have seen spreads wide and significantly since late July, but they've actually stabilized here over the last week. Now. I suspect that if you keep on getting the draw down in inequity prices, that spread probably widen a little further.

But it is one of the places that we have been hearing anecdotally that there's still demand just because you do pick up that in metal yield our Jersey too, short to visit, stay with us and publishing today for Bloomberg Intelligence as well. We now turn to not a lighter topic but off the markets, but nevertheless critical to our global audience. And that's how we move ourselves. Our businesses are families around on jets. He is Brian Kelly

who single candidly has changed how the world travels. Brian, good morning. Could you fly to Hong Kong today? Do you have confidence to book a ticket ten days out, three weeks out and say Keith to Hong Kong? Yet you can absolutely fly today. The airport's back and pretty much fully operational. They've got security outside of the terminal so that only ticketed passengers can get in. That being said, if you are booked, you can cancel for free or

change up until tomorrow. But you know what, I choose to go to Hong Kong right now as a tourist. Probably not, but you know no, no tourists have harmed in any of the protests. But pretty unstable time. If you ask me, what are the dynamics right now? And what you helped invent, which is how we're all addicted to these charge cards with miles, the Apple card getting resoundingly negative and tepid reviews because it's really not linked

to the incentives that you helped invent. I mean, does Tim Cook need an Apple card that says you get a hundred thousand miles if you sign up for the thing. Well, they're certainly dipping their toes into a very competitive market. Um, you know they're there. I think they're gonna learn a lot about credit card marketing. Uh that simply buzz Isn't

you know? Smart consumers want value back their spend. The Apple card has some interesting features around technology and design, but I don't you know, I'm not rushing out to get one because you know, you basically lose money by using it, by not using more lucrative cards. But it's an interesting concept about, you know, no credit being pulled until you're approved and things like that. Brian Kelly's on

all these romantic trips, folks. My trip is I used my Frequent Flyer miles to take the shuttle down to Philadelphia and you know, cashman that way. What's the dynamic of the industry right now? Clearly every seat's taken on every plane, right, every seat is taken a lot. You know, you can still find those savor level awards, but you've got to be a little bit more flexible. But you know, you know, I'm flying to Venice for the film Festival

over Labor Day. Flights were eight grand on United. Even at the peak level, I used a hundred fifty five thousand miles one way for business class and ten bucks. So even when you have to use more miles that those hundred fifty five tho miles got many cents per mile and value. So um. While you know there is a creep up and inflation in the amount of points needed, there's still tremendous value to be had. And and folks,

I've seen that where the tickets have gone up. Okay, this is the number one thing I get from family members and from listeners as well. The place is packed. I can't get a business class seat. Why don't they move those little flimsy walls between business class and economy and premium economy. Why don't they just move them back

and put in more business class seats? Why not? They actually are so there're a lot of airlines are getting rid of first class and putting in more business class, especially on the retrofitted United planes that are now flying to London, the player's seats are actually adding in more, more business class seats and better ones at that. So yeah, I mean we see, you know, premium economies expanding business classes, growing first classes, decreasing or going extinct altogether on some airlines,

do they make money on business class? I mean is that? What business class is? The bread and butter? You know, those premium passengers pay an outsize proportion of revenue, and and premium economy economy is kind of a you know, can can be profitable, but bears are still really really low. Um globally, you know, four ducks paying to Europe. So we gotta we gotta end with a natural trip. Okay, are are you a chart? Girl? Just got married in Athens?

Talk about a Greek wedding and I was going to go there, but it was four hundred thousand miles to get the thing done. Am I better going to Greece on my miles? Or am I better going to Denver on my miles? Which is a better value? Here here's my tips. I actually would fly Norwegian. They now fly from New York to Athens NonStop, and it's like fourteen hundred bucks in their premium. But their Premium Economy is a big recliner seat. It's not a life flap bed. But I fly. I'm six ft seven and I fly

to Europe. I would save my miles and fly Norwegian and use my miles on a uh different trip. You're sick. How do I get to London? What's the Brian Kelly way to get back and forth to London? You know? I use UM so I actually buy Alaska Airlines miles seventy thousand. You can buy for fourteen hundred bucks and that's what we'll let you redeem. For British Airways first class. You get the concord room, which is uh, you know, the nice way to do it. This is just sick.

Brian Kelly, I hate you. Uh the points guy reinventing and changing the travel industry. It's good to check in on him. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio