tv Bloomberg Surveillance Bloomberg July 29, 2022 6:00am-7:00am EDT
>> this economy has materially slowed down. we are not in the roaring 20's. >> what you are seeing is what we would expect. >> most importantly, inflation is coming in a lot slower than i have been expecting. >> the inflation remains too hot. >> it was that meeting to meeting guidance from chair powell. >> this is "bloomberg surveillance." jonathan: live from new york city, for our audience worldwide, good morning, good morning. this is "bloomberg
surveillance." alongside lisa abramowicz, i'm jonathan ferro. together with kailey leinz. futures positive .1%. tk is out of the building, on vacation. he might be back on monday. what a rally we have seen in this equity market. two gains of gains. -- two days of gains. lisa: the biggest gains post-fed meeting in history. how do we parse this with reality? does this get supported by facts or is this opium on the heels of a lot of pessimism? i think that is what people are parsing through. jonathan: did you see what bank of america said? he says when you get to 4200 it is a sell. it is too early to price in a fed pivot. lisa: the idea that yields have come in dramatically. people are saying this fed is
not going to have to raise rates as much as much as they did weeks ago. how does this parse with inflation? how does this parse with a cost index that could show ongoing strength? how do we get a sense of the fed backing away from its rate-tightening policies? jonathan: do you want to do the recession debate now or later? lisa: later. jonathan: you are sick of that already? lisa: whether we are in a recession or not a recession, a technical recession -- maybe it has not broadened out fully. the question is, are we on this trajectory to a weakening that ends up in some sort of recession in the next six to 12 months? it is not whether an ber is going to come out -- do you like this argument? jonathan: i know you rehearsed this. you were ready to go. i've got one ready to go i will share with you later. amazon up by more than 11% this morning. kailey leinz, looking at the
earnings out of apple and amazon, if you like this market, you have a green light to keep going. kailey: they represent 10 percent of the s&p 500, so you can bet they are taking the broader market with them. for apple the beats were by a narrow margin. this is not a quarter they blew out of the water, so it shows you how much concern there was about a deteriorating environment for amazon is much talk about a potential weakening in the consumer. it does not look like they are seeing it yet. jonathan: this performance this morning, up 12% in the premarket. up .7% on the s&p. the nasdaq up by more than 1%. yields have been headed in one direction over the last month or so. south. this morning just a little bit of a bounce. euro-dollar, lisa, we have to talk about the data out of europe. record-high european cpi. germany stagnating. this is getting harder for this ecb. lisa: germany standing out, with
other regions doing better than expected. how much is this a natural gas story and issue of what is going on with russia and the pipeline? how much is that going to determine the future of the german economy? today we get the employment cost index at 8:30 a.m. we also get personal income spending and the pce deflator for june. i'm looking at how much we see an ongoing acceleration of the pace of wage gains. right now the market believes that the fed is going to be able to back it away. call it a dovish move, whatever you want to call it, that is being priced in. will people be able -- will people be forced to rethink that? we get the university of michigan sentiment data. inflation expectations over the next five to 10 years. it did soften recently, which is possibly why people have conviction that the fed could
back away. how much do we see it weaken? how misty -- how much do people see the headlines about recession, how much people see the prices they are paying and continue to feel negative about the outlook? or do we see a rebound? it is a real messy soup of data, as well as understanding of what is coming ahead. the earnings parade does continue. chevron and exxon should be reporting within the next minutes. i'm curious about colgate and procter & gamble, the consumer staples. how much are people going into those and moving away from discretionary items? it has been a motley picture so far. the take away from me as we get the best monthly gain in the s&p going back to november 2020, his people have priced in so much worse than we are getting, but people are cheering a bar that has been lowered and a company stepping across it. i think about apple.
this is not an incredibly strong earnings trip. traders have priced in so much worse and that is what we are seeing. that is going to be the theme of this earnings season. jonathan: amazon is a piece of that for sure. your day ahead, looking ahead at that data 8:30 eastern time. let's get to the conversation with tony crescenzi, a member of the investment committee at pimco. how rare is it to have consecutive quarters of really strong gdp growth and contractionary real gdp, and how is the fed meant to respond to that? emily: the federal reserve should recognize there has been a lot of ups and downs in the economy in this cycle since 2020. it was only last year we were looking at gdp numbers on a year-over-year basis in the double digits. we probably should be looking at it in that context. the federal reserve is too. it recognizes the initial
conditions going into this recession, if it is one, we should not obsess over whether there is a recession. we should be thinking about what the depth of it might be if there is one. the initial conditions going into this year -- as we could certainly call it, given the two negative gdp prints -- it is quite strong and lots of areas and suggests the economy can handle strong negative conditions. so, it is likely that the economy fares better than many expect when we are in a recession, if we can realize it when we are in it. lisa: this is the reason i don't understand the market's reaction to the recent data and fed meeting. if the economy does have underlying resilience, which seems to be the response to markets of some of these earnings, why are people pricing in a fed pivot?
why are they pricing in that the fed will start cutting rates as soon as the first quarter of next year? tony: it probably is a recency bias and reflects the experience of the 2010s, and the idea that the federal reserve cannot go very far with their policy rate. we agree with the idea of a new neutral that we established in 2014. that the neutral rate today is probably lower than it has been historically. i think investors are missing -- and this is why yields today you could say are at the lower end of their new range, and that ranges probably 3.5%. they are missing is the 1970's experience and the degree to which chair fed powell respected. real quickly, burns, from 1970 to 1978, and miller, when the inflation rate declined, when there was some disinflation from
the high levels that existed then, they let the policy rate declined too. they let the funds rate stay the same. or as paul volcker cap the policy -- whereas paul volcker kept the policy rate up. because he no -- and chair powell does -- that expectations were the key. we have new legions of people in the public that believe the inflation rate could accelerate. so the federal reserve needs to be conscious of that. in other words, only boomers like me thought the acceleration could accelerate before this recent episode. now millennials, gen x, gen y, are believers. therefore the federal reserve in 2023 ought to be cautious about cutting the policy rate and declaring victory on inflation when it moves down. it will be vulgar -- paul
volcker-esque. kailey: lisa mentioned it is the best month for the s&p 500 one back to november 2020. it is also the best for bonds going back to 2020. how long can they keep moving in the same direction? tony: as i mentioned, if you think of valuation metrics and the possibility of recession and things of that sort, perhaps for the bond market yields moving toward the lower end of the range, so in the three components, the term premium, the policy rate, where the policy rate should be, and inflation itself, you come up with the math, most equations seem to suggest a range ahead of 3.5%. what markets seem to be doing, at least in the bond market, is entertaining the fact that the fed cannot go far. it is probably settling into
range. for the equity market, some of it reflects the optimism that might be building not just toward the idea that the policy rate may not have to go as high as some feared, but that the economy is stronger, at least it's foundation is stronger than many thought. there are lots of reasons to think that, ranging from the household sector's balance sheet, skinning us of inventories relative to history. automobiles, an extremely strong banking sector. and the need for investments in defense and supply chains and the green transition. so, lots of good things that investors are starting to think about. again, for bonds i think it is a reinforcement of confidence in the fed, and the fed has regained control of the inflation narrative. the markets are benefiting.
benefiting from the fed's tough love. jonathan: this is way too constructive for 6:00 in the morning. tony, good to catch up. i'm jonathan ferro. your equity market with a left, piling into equities over the past couple of days. we are up on the s&p. up more than 1% on the nasdaq. this from credit suisse. whether or not we are in a recession will be debated by academics. today's report reflects a weakening in economic activity, and for now bad news represents good news for stocks. more still to come. this is bloomberg. ♪ ritika: keeping -- >> keeping you up-to-date with news from around the world, i'm leigh-ann gerrans. the euro area economy has expanded by more than three times the amount economists expected. that comes at a time and inflation and a possible russian energy cut will send the region
into recession. gdp rose .7% in the second quarter. inflation sent an all-time high in july. president joe biden and jinping have told aides to plan an in-person meeting. the two spoke on the phone for more than two hours yesterday. that call, centered on taiwan. matters could get worse if house speaker minute -- house speaker nancy pelosi visits the island. beijing is warning of a firm response if that does happen. the biden administration has approved a $.4 billion in weapons to germany. the package includes fighter planes and cruise missiles. the state department announced it made no mention of the war in ukraine, did say the sale would support a nato ally that is an important force of stability in europe. apple has offered just enough good news to by itself time.
the company's quarterly revenue narrowly beat estimates and iphone sales held up to than expected tim cook said he expects revenue to pick up again in the coming months. i'm leigh-ann gerrans. how will your business adapt to change? you could hire an office full of peyton mannings. what's up, peyton? good morning, peyton. hold for peyton. they'd huddle.... welcome to the peytonverse. such a visionary. game plan... you go. no, you go! and call audibles... double our investment in omaha! omaha! omaha! omaha! or you could use workday. omaha. the finance, hr and planning system used by over half of the fortune 500. for a be-agile-like-an-mvp world. workday. for a changing world.
ahead of us. growth is slowing globally. inflation remains unacceptably high. in this administration's top priority is to bring it down. jonathan: janet yellen there. after that negative gdp print yesterday. the recession debate yesterday was tedious, wasn't it? my goodness, it went on all day. lisa: i've been waiting for it, what is your rant? jonathan: if you ask a republican, they will tell you a recession, ask a democrat, will tell you it won't. the whole thing drove me nuts. in the u.k. this was simple. two consecutive quarters, negative growth, done. call it a recession. then you get to turn around and say, ultimately there are some underlying points of strength and we can talk about them. but it has become so politicized in the united states. certain people will say it is
not just about depth and duration, it is about diffusion. look at the labor market. i'm with you. ultimately things are not getting better, and for market participants that is what you are focused on, right? lisa: cheers. i think we are in agreement. it was a frustrating exercise because i felt like everyone was talking over the real issues. jonathan: in this market you are training on what the mber might tell you? on the nasdaq 100, up more than 1%. typically when you make a lot of money in tough times you may be quiet about it. kailey leinz, the energy players are not quiet about this at all. kailey: thinking of -- speaking about things getting politicized, look at oil. we know they were raking in profits, we did not know this much. chevron is returning more
capital to shareholders, with a $15 billion buyback. the ceo seems to know how that would play with the biden administration. in the statement he pushed back on the idea of profiteering, saying we more than doubled investment last year to grow both traditional and new business lines. chevron is increasing energy supplies to meet the challenges facing global markets. so they are helping consumers too? jonathan: that is not going to be in the government's communications. they are going to lead with a $15 billion share repurchase program. lisa: that is when all of these companies are doing. they are putting their money back and not investing in production, because why should they if they do not have a clear backdrop of what the regulatory outlook will look like? jonathan: emily wilkins in d.c., our government reported. how do you think the government responds to a $15 -- $15 million
-- $15 billion buyback program? emily: they have really put the blame for some of these high gas prices we are seeing on oil companies, saying look at the profits they are turning right now. some of that needs to be passed along to consumers. that has been the line democrats have stuck to, even as you heard republicans say it is the biden administration and the regulations that are causing high gas prices right now. i think to a certain extent even though you have heard secretary pete buttigieg, other white house folks point out gas prices have been falling, they still know this is way higher than americans were dealing with last year, and it is a concern going into the november elections. lisa: how much is that the reason why in the recent bill having to do with targeting cleaner energy and investing, how much are they looking for that to offset demand in the near term versus being an agenda point that was there before the
pandemic and now has a reason to accelerate? emily: i think there is a little bit of both in what you are seeing with this overall package that includes $369 billion for various climate initiatives. everything from research and development to funding to help folks purchase electric vehicles, trying to incentivize that. one of the things you are going to hear democrats make the argument on in this bill is this is going to help with energy security for the u.s., by trying to look at some of these cleaner energy alternatives might make the u.s. less reliable -- less reliant on foreign oil. expect that to be one of the talking points from the white house as they try and sell this bill. assuming everyone is on board with it. we still do not know if senator kyrsten sinema is a yes. there were concerns she had about that carried interest loophole that gets killed in this version of the bill. that could lead her to be a no. if that is the case, this
legislation is probably not going to go anywhere. lisa: of course, on the subject of energy spending, it also includes permitting for drilling on federal lands, just how joe manchin probably got on board with it in the first place. if kyrsten sinema is not onboard, there is likely no path to reconciliation. what about the other legislation they are currently working on? emily: reconciliation is really the big package they are trying to work on right now. lawmakers say they are still reviewing the bill. it is more than 700 pages long. i think the biggest concern no from a number of fiscally conservative democrats is, will this impact inflation? they have heard from folks like larry summers, who has been critical of the biden administration, that this will not. the taxes they put in place will offset the spending, that it will increase demand, increase supply, and the bill will be a good thing. that is what the democrats are banking on, that these will not
be impacting inflation numbers. might wind up helping americans if they can use the price of drugs. that might put money in americans' pockets. of course republicans are raising the red flag that this could impact inflation, tying it back to other major bills immigrants have passed. jonathan: thank you. emily wilkins down in d.c. i love that larry summers is now a source of reference for this administration when it comes to this bill for the whole of last year. lisa: maybe they are trying to say he has more credibility because he basically -- i don't know, what is the correct way of saying it? basically eviscerated their previous spending plan and said that was the reason why a because the inflation we are seeing. they are now using him and saying, even he supports us. [laughter] jonathan: politics drives me nuts. should we talk about that call between the u.s. leader and the
chinese president? two hours and 20 minutes. how do you think this went when xi said whoever plays with fire gets burned? lisa: he has said that before. nobody said it was a constructive call. in the past everyone always talked about how it was a constructive call. nobody said it this time. in two hours and 20 minutes they agreed and meeting potentially in person, but there was nothing else like m&f that. jonathan: just a passionate -- nothing else to come out of that. jonathan: just a passionate exchange, make sure you put that quote out there, and the next guy reads his statement. you just happen to do that over a call. lisa: jon ferro, the screenwriter. jonathan: play with fire, get burned. this is bloomberg. ♪
the likes of amazon and apple. the last two days, up by almost 3.9% on the s&p 500. credit suisse said it when it comes to economic data, it is bad news is a good news story for this market. i hate that and we are going to talk more about it. does that sound sinister enough for you? on a two year yield yesterday we came in at about 13 basis points. this morning, a small balance to 287. in europe, stuck in a rock -- stuck between a rock and a hard place, that is germany. you had strength elsewhere, but that is problematic. how does this ecb respond with cpi that far and away from a nine handle? some people think we have not seen the highs yet. equities in europe, gaining on the stoxx 600 by .8%.
i have to say, goldman, sharon bell out this morning saying she can smell the complacency from miles away, and they do not like this market. lisa: a lot of people have been talking about complacency. we are still seeing that rally continue and a lot of short positions come out. we are poised for the biggest rally coming back -- going back to november 2020. some people last year were talking about how there was a faulty call in transitory. included among them, barbara ann bernard. she was saying this is not the case, it is stickier. you need to plan. she is the chief executive officer and chief investment officer of wincrest capital, joining us from the bahamas. can you talk about what you make of this rally we have seen so far in july, which might be the biggest going back to november 2020? barbara: thanks for the opportunity, lisa. i think this is a bear market rally, for sure, and based on
hope, not free cash flow. not on the free cash flow of the consumer and not on the free cash flow of the corporate. what we are looking at is negative real wage growth, which is why we have the lowest consumer confidence in 40 years. what businesses are facing are the highest ppi rates in years, which is why small business confidence is at an all-time low. these businesses are facing low visibility over demand for their goods and the cost to produce them. meanwhile, the market is rallying on hope, not free cash flow. i don't think it is sustainable. lisa: let's go to the phrase that jon ferro hates the most. that the more people start to talk pessimistically the way you do, they talk about possibly some sort of pivot from the fed. why is this not the right way to look at it, since it has been the right way to look at it for the past few decades? barbara: let's break that down.
his bad news ever really good news? the fed will not raise rates, so we are talking about multiple expansions, not eps expansion. a healthier, -- a healthy economy is based on eps expansion. you don't want to fight the fed, but we want to help the economy, don't we? lisa: in theory, but on the subject of the fed and how they would view what we have seen in the equity market, a rally, financial conditions getting easier, at what point will they have to push back on this? barbara: i feel like they induced this rally. either i was on the wrong call or misunderstood the market, but what i heard was, there is no more guidance because we are tired of being wrong, and our goal is to bring down inflation for a soft landing. but we understand that is challenging, and it has gotten more challenging in recent months. none of that is positive to me. i think the real error was
calling 2.5 a neutral rate. in my economic textbooks that is not the case, particularly not when inflation is at 9%. that is what is fueling these forces, that the same time you start trying to squash. he also says the dot plot is the best indicator. what does the dot plot say? that we have 100 basis points this year and 50 next year. rates are still rising and we have consumer and business confidence following. we have never raise rates -- raised rates into falling confidence. we have never raised rates in the u.s. fed to debt gdp ratios are so high. if we do induce a recession the real risk out there is, you have a lower tax receipts and higher interest expense, which is also not a pretty picture.
as an active manager what you want to do is stay nimble and humble. now focus on data, which is going to be volatile. kailey: chair powell has said they need to be humble as well. what does that mean you want to buy? in the environment you are describing, in theory higher rates mean you necessarily don't want to be owning, but may you want that cash flow. so what do you do? barbara: a great question. we are net short and have a mountain of cash to buy great opportunities. we do not think we are there yet. we have initiated two long positions all year. the barrier to entry to get into our fun right now is so high. what is an attractive opportunity? we are talking about companies trading for the cash on their balance sheet. that kind of upside/downside skew is the margin of safety i am willing to take.
otherwise we have been generating on the short side. we had 37 individual short positions. this is a real stock-pickers market. you would be very happy if you were long amazon and not walmart this week, right? being tethered to an index that is further downside is where i see the risk. lisa: you see a lot more potholes like the ones we have seen in specific names? i am thinking of some of the darlings of the pandemic era. do you see more of that coming or is this an ongoing bleed short positions will capture? barbara: absolutely. lisa, think about the rising rate environment. it is crushing eight cohort of companies whose business model was built on free money. all of that speculation has to drain the swamp. you are looking at companies over-levered, counting on free money, and they are really going to be in trouble. we have not seen the zombies
fully deflate yet, and you are also looking at companies in the pandemic era that took on a ton of debt. you look at something like carnival cruises, who did a $1 billion equity raise. if you go by what royal caribbean said this week, demand is not there. that is a problem. the shorts are very company-specific. it is more specific than a macro view, this is a real source of our for generation in a market like this. jonathan: this final point is so important. alphabet versus facebook as well. barbara ann bernard of wincrest capital. that has been the story of the week, hasn't it? if you look at walmart, amazon, things are just about ok. alphabet, things are all right. google doing all right on the ad revenue. the dispersion within those industry groups is pretty interesting. lisa: which raises a question of whether this is an execution issue or consolidation?
how much is that the story of the bifurcated earnings, rather than wholesale weakening that pretends something to come on a macro scale? jonathan: given amazon and apple, we are doing ok this morning. here is the quote of the morning so far from barbara and. there is no more guidance because they are always wrong. kailey: and they are tired of being wrong. she is saying the equity market heard this the wrong way. that what she heard from the chairman is they are still going to be reacting heavily to inflation, and that is after an equity market rallied two days, the best post-fed rally we have seen. it is interesting how you are seeing economists saying one thing, people like harper and saying another, and the market doing something different. is this the pivot that the market seems to be focused on? jonathan: i wish there was a live feed of the sendai during the news conference with
chairman powell. lisa and i throwing up her hands and going, what is going on? another meeting with stocks rallying hard, and is this an unwarranted loosening of conditions? do you remember what rosenberg said? lisa: they were saying people are trading on hopeium. that said, and just to be contrarian to myself -- and i know that his head-spinning -- i go to gina martin adams, who was talking about this rally could be viewed as constructive. we have not gotten the best of earnings and a lot of these stocks still rally. are people saying it is priced in, and what are the pricing in? the counterargument is, i do not see how the fed is going to losing fissions as early as next year if inflation does not come down way more. jonathan: rates climbed, didn't they? that was poison for this equity market. rates have dropped away and that
is seemingly bullish for this market. at a certain point you start to think about, why are rates down? that is the point that mike wilson has been trying to make for some time. you have mike wilson on the wrong side right now, and you have jp morgan on the others, who has been on the wrong side all year and is on the right side right now because this is what he has been looking for. lisa: i question whether that works this time around. how does the fed losing conditions? how do they back away from tightening positions -- from tightening conditions? if we have a four handle on cpi how can the fed go ahead and say, you're going to start cutting rates? they risk going back to the 1970's, and that looms large over the fed. jonathan: inflation has a nine handle. given the tone of the conversation this week, i think you could forget that sometimes. futures on the s&p up .8%. on the nasdaq, up by 1.2%.
the earnings good enough from some of the big tech players, helping out a massive week of gains. we are off to the races for the bulls in this market this week. from new york, this bloomberg. leigh-ann: keeping you up-to-date with news from around the world with the first word news, i'm leigh-ann gerrans. nancy pelosi is set to leave on a trip for asia today. the question is whether she still plans to stop in taiwan. reports that she is considering a visit have caused criticism from china. taiwan was one of the central issues discussed in a phone call between president biden and xi jinping yesterday. biden warned him against military action to reunify taiwan with the mainland. bloomberg has learned the
chinese government did ask tiktok if it could open a propaganda account. the goal was to target western audiences with content that showcases the best side of china. tiktok turned down the request. tiktok is owned by bytedance. it has tried to distance itself from chinese government influence. in the u.k. rishi sunak has admitted he is an underdog in the race to be the next prime minister, he is vowing to fight -- to fight for every vote. the former chancellor admitted his pledge not to cut taxes until inflation is under control is not universally popular. this trust has promised to cut taxes as soon as she takes office. shares of amazon jumped we early trading. amazon's second-quarter sales beat estimates and a gave a revenue forecast for as much as 17% growth.
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>> we are really not seeing the demand decline you would expect from a deep recessionary environment. even if -- even with the european and u.s. demand declines, -- jonathan: energy aspects director of research. from new york, good morning. futures look like this. up .8% on the s&p. the nasdaq up by a little more than 1%. kailey, exxon up by about 3% this morning. kailey: both have been beating expectations, chevron boosting
its buyback program to $15 billion. returning capital to shareholders as they break it in. with of these companies seemingly throwing in a line for the biden administration in their statements, talking about how they are ramping up investment to meet demand. i don't know that the biden administration bill see it that way as they talk about profiteering and price gouging. jonathan: you think? chevron doing ok. do you think these buybacks slip under the radar this morning because of what has been happening with gas prices over the last month? lisa: perhaps it is expedient for this administration to say that is great, good job, you guys are helping the cause. and that is why gasoline prices have gone down. jonathan: just a group effort. lisa: go team. [laughter] jonathan: david short has things to go -- stephen schork has things to say. talk to me about why gas prices are down over the last month. stephen: absolutely. when you take the u.s. economy and put the consumer up against the wall, they are going to
respond. demand for gasoline is well below normal at this point in the season. and we adjust seasonally where we expect demand to be, and when we do our analysis we are going to take out 2020, because we had the severe demand destruction. you're not even looking at those levels. when we are looking at demand, that has been the driver right now in the pullback in prices. unlike the white house spokesman, who claimed about a month ago that the spr release was solely responsible for the pullback in gasoline, i just don't get it. gasoline peak at over five dollars a gallon. you look at the last 46 junes, prices were 60% higher than the real inflation-adjusted average of the last 46 junes. in july, even though we have had
this pullback, prices are still 40% greater in the last 46 julys. we have had a pullback must solely because of a pullback of demand in the united states. that said, we are still looking at much higher prices. this is beginning to transition into the earnings we are seeing reported by the big oil companies. lisa: there is a lot here and a lot to unpack. i want to hone in on one aspect, just when you take the economy and you can get lower gas prices. the earnings we are getting might be weaker than in previous years in terms of the magnitude of beats, they are still ok and there is constructive data out there. you think this is a result of what is going on with fed policy and the weakening statistics, or is this a logical demand-side response to prices that were too high? did we see where demand destruction kicks in? stephen: i'm certainly on the boat this is a demand-driven at this point. a little bit of a change in the
calculus everyone has had to deal with is the impact of substitutions into the market. of course i'm talking about ev's and hybrids. that threshold, that pain point for americans where before it was $3.60 retail at the pump, this is the price point that we began to see demand destruction. of course that has risen over the years. i personally as an and note drive an electric hybrid. i get blended about 70 miles to the gallon. i'm not as sensitive to price as i was 10 years ago, so that threshold has moved higher, including with gasoline prices now at above five dollars a gallon. we are now starting to reap that benefit of demand destruction. the consumer is responding. keep in mind, we have also had substitutes, but the other thing we are dealing with we have never had -- and this of course
is covid demand destruction. what i mean is, one of the reasons gasoline was always the most inelastic as demand was concerned was because we always had to drive to work, we always had to drive our kids to school. we no longer had to do that -- have to do that. a number of us are still working from our homes. even as companies have opened up -- and again, my daughter, first job out of college, she wants to go to the office, her office is only open two out of five days and she has to work from home for those three days. so we have that optionality again, which is raising the price. even with substitutes, even with our ability to drive fewer miles, demand destruction is starting to react. kailey: obviously there is optionality in the united states, but in china sometimes you do not have an option and they locked down entire cities after outbreaks. that does not seem like a policy
changing in the near term. how does china factor into this pricing equation when that demand comes back? stephen: absolutely. that is an excellent question, because the problem -- and this has been the problem -- is we are not addressing the imbalance globally between supply and demand. to your point, demand is still masked. this is what caught the industry -- all industries, airline industry, food industry, so forth -- flat-footed. we are not even fully back on that demand. so, yes, we are adjusting in north america and europe, but in china, because of what xi says that she can shut down entire cities -- but if we ever do emerge from this covid nightmare and that demand comes back we are going to be in the same exact position we work in the early 2000. we went from the 1980's and 1990's where we under-invested
in oil production because the demand was not there and oil prices for those two decades lingered at well below $20 a barrel, but when demand started to come back after 2000, after the recession, it wasn't just the united states, it was europe and china. this is when china's economic engine really became a factor. that was a key driver in driving oil prices. that is where we are going this time, when china finally does come back with their full demand. jonathan: awesome to view on things. stephen schork there, the schork group. talking about the commodity market, chevron up in early trading. delivering decent numbers this morning. you know i am happy to share any shade that gets sent our way on twitter. it is a line for you. bloomberg bashing europe, where the economy is growing while the u.s. is in recession, inflation
is lower than in the u.s. that coming on twitter. lisa: thank you. jonathan: what do you make of that, the u.s. versus europe right now, just subtract the shade? what do you make of that? lisa: i make that we are behind -- europe is behind where the u.s. is in terms of the trajectory of the tightening. does that mean they are not ever going to get there? unclear. they face a different scenario when it comes to certain economic backdrops. jonathan: i think, in energy? lisa: lack of wage growth. jonathan: that is the big tail risk. teachers on the s&p up .8%. live from new york, this is bloomberg. ♪
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>> this economy has materially slowed down. we are not in the roaring 20's. >> what we are seeing is what you would expect. the economy slowing down. >> inflation is coming in a lot slower than i have been expecting. >> the inflation remains too hot for them to think they are going to stop. >> it was that meeting to meeting guidance from chair powell. >> this is "bloomberg