Full Year 2023 SoftBank Group Corp Earnings Call

May 11, 2023

Sarah.

Speaker 1: ira

Speaker 2: has been making a dramatic progress and making a big move around the world. In the Michele going to deal withwheres this

Speaker 2: Should we just keep in defense or should we have a balance with offense?

Speaker 2: So that's kind of one agenda we have to analyze from the various angles.

Speaker 2: So first, I would like to share with you our consolidated results for the past one year.

Speaker 2: here are the net sales of consolidated results.

Speaker 2: We have a slight increase 6.5 trillion.

Speaker 2: and as an holding company and also investment company

Speaker 2: Profit and loss of investments is kind of a large impact for us. And year-on-year basis increased by 2.6 trillion yen. It's quite a big...

Speaker 2: But as a number for fiscal 2022, it's still negative numbers here. And based on such a loss on investments, that also gives you the numbers for income before income tax and the net income. So compared to the previous slide, it's making the incrementals, however.

Speaker 2: that the number itself is still the negative. But at the same time, I believe we do need to have a bit of colors on the local investments.

Speaker 2: So here, again, gain and loss on investments for Bijon Fund segment, the last fiscal year, fiscal 2021, we have a negative of 3.6 trillion yen and fiscal 2022 was an even more difficult year. So it was negative 5 trillion yen.

Speaker 2: at a loss on investment in fiscal 2022. So compared to 2021 it was even tougher. But at the same time a soft bank groups.

Speaker 2: Our own balance sheet investments wise.

Speaker 3: Thank you.

Speaker 1: We have.

Speaker 2: large shares in Alibaba and the transactions utilizing Alibaba share has gained us, gave us a quite a good gain of 4.6 trillion yen which I will touch on that later but starting from 1999 we start the investments on this in this company

Speaker 2: And this is a kind of a good result that we've been able to receive after such an investment.

Speaker 2: As a comparison for the gain and loss on investments, it's been materially improved on consolidated basis. But investment strategy, including Softbank Vision Fund, has been lots of learnings and we also need to con...

Speaker 2: study how we should be in offence mode for the further future.

Speaker 2: And if you break it down to by segments, maybe it's much easier for you to understand. So investment business of holding companies, which is mainly contributed by Alibaba, 2.3 union incrementals compared to previous fiscal year.

Speaker 2: In the fiscal year 22, 3.3 trillion yen. In the vision fund as segment it was negative 4.3 trillion yen which was

Speaker 2: minus a 1.7 trillion compared to the previous year. So net income on consolidated base, I want you to see kind of a movement of the net income.

Speaker 2: by quota basis.

Speaker 2: When it comes to Alibaba related transaction, that has been recorded largely on the second quarter of last fiscal year.

Speaker 2: So this...

Speaker 2: It's something quite remarkable. We should put this aside once and first do the comparison with the first quarter and also to the third quarter. These are the most difficult times for us.

Speaker 2: And compared to that moment, we believe that we'll be making good improvements so far.

Speaker 2: And for the Forex.

Speaker 2: throughout the fiscal year there was fluctuations

Speaker 2: But for this fiscal year it was relatively depreciated and that itself is actually

Speaker 4: Yeah.

Speaker 2: Net asset values should be the biggest

Speaker 2: impact, but actually this was 1.3 trillion increase. And on a P&L basis, it's about 0.8 trillion negative, but the equity basis is 1.3 trillion yen increase on the accounting basis. So in total, forex was a kind of positive for our company.

Speaker 5: Thank you.

Speaker 2: And also interest rate.

Speaker 2: So I would like to emphasize this once again. Our company.

Speaker 2: Usually, many people think that we are a debt-heavy company. And if you are a debt-heavy company, interest rate will be negative for you. Increasing the interest rate is negative for you. And I understand that many newspaper articles are concerned about this. But actually, we don't have much impact from the interest rate raise.

Speaker 2: Because if you see about 77% of our debt is fixed rate. Floating is about 23% of which

Speaker 2: 14% of the US dollars.

Speaker 2: and 9% are the Japanese yen basis.

Speaker 2: So dollar, interest rate is hiking, but at the same time the management rate is also high as well. So that increase in the receivables of interest that actually giving us a positive. And in Japanese yen. So that increase in the receivables of interest that actually giving us a positive. So that increase in the receivables of interest that actually giving us a positive.

Speaker 2: Even increasing 1% in interest rate in Japan, but still impact is only 7.5 billion yen. So 7.5 billion means.

Speaker 1: Bye bye!

Speaker 2: This is going to be very minor compared to our total huge number of assets.

Speaker 2: And in addition, along with the increase in rates, we have seen a decrease in the rate

Speaker 2: Fixed rate.

Speaker 2: price is going to go down. So those bonds that we will be able to buy back by having a decrease in price, then that we will be able to gain from that gap. And that's something that we've been working on for the past few months, and about close to 50 billions.

Speaker 2: of the gain on redemption has been recorded for FISCA 2022.

Speaker 2: has been recorded for fiscal 2022. So there are several...

Speaker 2: or initiatives been

Speaker 2: taken place in agile basis.

Speaker 2: for the past one year. So rate hike in macroeconomy's point of view, there are many things.

Speaker 2: To the market itself and also the equity market as well for the impact to Softbank Group's finance

Speaker 2: It's very minor as an impact wise.

Speaker 6: Bye.

Speaker 2: Now, let me talk about the Vision Fund, which I'm sure you're interested in most.

Speaker 2: The Vision Fund started in 2017.

Speaker 2: And at the close of FY22.

Speaker 2: cumulative gain or loss in investment was 8.5 billion lower than the book value which we are

Speaker 7: Disappointed.

Speaker 7: disappointed, but

Speaker 7: we have to figure out how we can improve this trend.

Speaker 7: But if you take a look at the numbers by quarter and the trend, you can see that the trend

Speaker 7: On consolidated basis,

Speaker 7: We presented previously and likewise.

Speaker 7: vision funder

Speaker 7: January to March, April to June last year were the toughest time.

Speaker 7: and we have to record a lot of validation loss.

Speaker 7: But at certain point of time, we look at the variation very severely.

Speaker 5: Let.

Speaker 7: But every quarter.

Speaker 7: the negative numbers have been smaller and smaller.

Speaker 7: coming back to the vote that we started.

Speaker 7: And we have Vision Fund 1 and 2 as you know. And first Vision Fund 1.

Speaker 4: Thank you.

Speaker 7: We invested about 90 billion, which is shown on the left hand side.

And the cumulative investment return.

was over 101.

So we are looking at the positive trend here.

If you look at left hand side of investment.

70% already public.

and 34 billion private companies.

which includes ARM.

Vision fund wants performers

we will keep looking at and expect a lot.

from the investment of Vision Fund 1. For Vision Fund 2, which is still facing a difficult time.

It started three years ago and they started investing two years ago.

And investment costs so far, 50 billion.

And according to our conservative valuation, currently fair value is around 31 billion.

For Vision Fund 2 compared to Vision Fund 1, we have more diversified. We have varieties of portfolio companies. And after they go through the tough period, they have to go through the tough period.

us be.

We'll continue supporting them to make sure that they will turn around their businesses.

Looking back the last year,

Next slide shows end of March 2022. Pie Chats have three colors, blue, gray, and orange.

Blue indicates gain. Red indicates loss. Green indicates no change. Looking at the right-hand side, you see

The bigger pie chart portion has loss about 73 percent.

Looking at portfolio companies that have lost their values.

There are different reasons why they list values.

Performance of portfolio companies, market factors.

and also rate change.

especially when it comes to value.

especially when it comes to value private companies.

has impact because you have to apply discount.

for private companies and they calculate based upon the interest rate. When interest rate goes up, then

present value gets smolder.

So all in all, the last 12 months,

have been very tough, and we have to learn a lesson from that. Again, tough year.

So we limited investment in such.

difficult period of time. We invested 2.2 billion in the first quarter but after that less than 1 billion in 2021. 10 times more investment we have made in 2020.

Thank you.

In Borgís purchasing sources, customersRESagi.org. We have a special opportunity of

there were some successes in terms of stock offerings and monetization. As you can see here,

there were some successes in terms of stock offerings and monetization. As you can see here, there are four

stock offerings. And on the right hand side, it shows sales or monetization before listing or after listing.

These companies have been monetized.

All in all, we are looking at 7.7 billion in terms of sales or monetization of the portfolio companies.

You take a look at the period from January through March. Combined, fair value was 2.1 billion negative, but compared to...

First quarter and second quarter, 2.1 billion is very small in terms of negativity.

Vision Fund One in fact recorded plus.

For Vigenfun2, very tough because most of the portfolio companies are private.

In fact, public investments drive regional fund one's good performance.

The index turned positive in the last year.

And we have to take this opportunity going forward.

So again, the last quarter of 2022, the results were like this.

Regional fund has invested in around 500 companies.

And we get a lot of questions.

Thank you.

about

financing against such tough market condition.

But 94% of portfolio companies are well capitalized. They have 12th of month runway.

So overall, they have enough financial capabilities on their own.

and also variation method.

And also, valuation methods remain the same.

And

And... Great summary of our

companies that are ready for listing with appropriate size.

is $37 billion.

So those companies should.

give us high hope in terms of their growth opportunities.

Since inception of the fund, we keep disciplined monetization strategy because we have external third party LPs. We need to make sure that we get back.

distribution and also for preferred stockholders we want to

We pay the capital as soon as possible.

So cumulative proceeds since inception is $56 billion.

Now touch your bone arm.

Thank you.

We have Navneet and Kimi Waddasan with me today.

And arms Ian is not here today.

because

Thank you.

They have come...

so far in terms of preparation for IPO so we are not allowed to disclose those things.

But all in all, I can say,

has been performing much better than we expected. In fact, three year CAGR is 16% and in terms of just EBITDA, three year CAGR, 60 billion, excuse me, 60%. Business motivations.

Arm has unique strength and arm has attracted a lot of attention and they have been performing so well in terms of finance.

Recently, they submitted Form F1.

And after that, we are limited in terms of what we can say publicly, but again, I can say preparation for IPR is going smoothly.

And let me also give you a summary on fiscal 2022 initiatives. So environment stays unstable. And when you look at the stock market trends, look at the over one year trends.

You see the very bottom.

yellow graph is a venture capital index so compared to the beginning of the year it's reduced declined by 30% in the very top a little bit of a high volatility one which is a golden drug on China these are the Chinese companies index

And still it's showing about the decline by 10% or so. So in any market it's been a tough year for everyone.

In the past one year that we've been in defense and what did we do in terms of defense?

First of all, we made a full effort in monetization in earlier schedules. The reason for making it earlier, that's something that's based on an experience, but the equity whenever you monetize, the biggest risk is time.

So if you have a shorter time, that risk is smaller. If you wait longer, there will be a variety of factors may be impacting and made us difficult to monetize. Therefore...

Once we decide to monetize, we try to make quick movements as quick as possible. That is something that we have been thinking and we execute along with that thinking.

Once we decide to monetize, we try to make quick movements as quick as possible. That's something that we've been thinking and we execute along with that thinking.

Even more important is to kind of slow down the investment activities in the past one year investment activities.

was one tenth compared to the previous year. The previous year we invested about 5 trillion yen.

compared to the previous year. The previous year we invested about 5 trillion yen.

It was not that we had the same amount budget for this fiscal year, but compared to last year, there were five trade union cash out in the last fiscal year, and this year it was one tenth of the cash out. So that's actually even more effective compared to the financing itself. And also, uh...

being an organization because when the time of investing in 5 trillion yen and at the time that we are investing one tenth of that, the organization needs to change and address the changes as well. And at the same time, not only cash positions, but also gross debt reduction is also important.

So to show you the safetyness of our balance sheet, cash is not the only way that we can tell you the safetyness of our balance sheet. But also we should be able to communicate to you our gross debt reduction so that that's going to give you more comfort on our safetyness of our balance sheet. So those are the kind of main defense initiatives that we've been doing. As a result, we are going to be doing a lot of work to help you get the best of your balance sheet. So I'm going to go ahead and close the session.

As you can see, these three indexes are always the most important indicators for us as an investment company.

When it comes to different business or different company of course they have their own important indicator but for us of course the margin is important for some companies but us we are the investment company so we believe these three indicators are the most important KPIs let us it's body compared to last year in amount having

has decreased from 18.5 to 14.1 to the union but I do recall from the previous page by keeping the defence mode low to value.

has decreased from 18.5 to 14.1 to the onion but as you recall from the previous page by keeping the defense mode known to value has decreased from 18.5 to 14.1 to the onion but as you recall from the previous page by keeping the defense mode known to value

being improved from 20.4% to 11% cash position from 2.9 trillion yen to 5.1 trillion yen largely increased here.

So this is a kind of a summary of the one year in the past. And I would like to go through one by one. So biggest reason for the net asset value decrease is the share price. So as I mentioned earlier, the forex impact is positive for us, but the variation of each portfolio company has declined. So that was a big impact for net asset value.

about the same as the food year.

So from December end up to date it's been very much improvement.

and the change in net asset value. So the share price movements in a positive way have been impacting to us starting from 1998 over 25 years net asset value history here.

These past two years we've been seeing a big drop but still 14.1 trillion yen. So we have a repeatedly seen the volatility but at the same time we are making good growth and that's the kind of a strategy you have in our mind.

Loan 2 Value

on to value I believe

Since we became this investment company style, I think that we've been, this is a kind of a best improvements ever for the loan to Baddoo this time. So 25% is our financial policy number as a threshold. And this number is not something that that's going to give us a big damage if we exceed or anything like that. 75% is not. So it's not going to have to necessarily be perfect from a financial-."

sense in the cash position 5 trillion yen. I don't recall this number actually in the history of our company but with this cash position 5.1 trillion yen and you can see this waterfall.

A year ago, 2.9 trillion yen.

And we had a monetization program. This is executed 5.72 union. And….

that we had just accumulated but we had some cash allocation too so we have reduced 2.4 trillion of the debt repayments. I believe 2.4 trillion is quite a large number that we can do for the repayments and here...

return to the credit or the bond investors and at the same time we have done the buyback which is the return to shareholders. New investments of 0.4 trillion yen so relatively small so those three 3.8 trillion yen has been used as a cash out and still we keep 5.1 trillion yen of the cash position with us

Thank you.

So this is a breakdown of net asset value. What are our holdings and how are those holdings being changed? So I just wanted to show you the kind of three years history.

starting from 2021. So orange portion has been decreasing dramatically. That's something easy to tell. This is the Alibaba Holdings.

Three years ago we had a share in a level of 43% amongst our net assets and that's been

monetized over years and we have

5%.

Because we have a forward contract which does settle in the year ahead, the two years ahead, that means that that is still with us as in our holdings. these are opportunities, not just for people, but it

But the agreement itself has already been made and concluded, so I believe that can be effectively monetized as a result.

other assets proportion being increasing so very

Second from the bottom is the vision fund is increasing vision fund portion. This dark blue portion is actually diversified over almost 500 companies. So this is well diversified already.

and we have about T-Mobile, and the Dojo Telecoms, and so on. So ARM is going to be a very liquid asset once they go public, and the LISIG company, T-Mobile, Dojo Telecom, is also a main thing, give us a good strength in terms of the liquidity as well.

we have about T-Mobile, and the Dojo Telecoms, and so on. So ARM is going to be a very liquid asset once they go public, and the LISIG company T-Mobile, Dojo Telecom, is also a main thing, give us a good strength in terms of the liquidity as well. Regions

Looking at the geopolitical situation, this is also important to keep in mind. Three years ago, investment in China was taken account for about 50%. This is Alibaba and others, and as a result of some monetization, I believe that we've been well managed.

and balanced in terms of diversification amongst the regions. Now that China's proportion has been decreased down to 15 percent, and now we have more kind of proportions in U.S. and European countries now. Europe , Middle East and Africa looks a bit large because that in...

and over 22 years it has grown to 9.7 trillion yen and gave us as a monetization. So over 22 years IRR is 57% which is tremendous number I believe. So IRR...

If you sell immediately after you buy, then you may have such a good number, but if you hold for over 20 years, and still keeping this 57% level of the IRR is surprising, I believe. And you see the...

very beginning of the investments, the handshaking between Jack and Masa. They are both young, aren't they? And actually, once that I joined Softbank and the first foreign entrepreneur that I met was Jack Ma and also Joe Tai. They were just zero revenue back then, but they were...

actually full of energy and They are very positive about the market and I was so impressed to see them. So that's something that I remember But I didn't expect this much of the growth and I think that the master has a great eyes To kind of pick them up to invest in

So defense is very much look solid.

So going forward, how we will operate in 2023?

forward how we will operate in 2023.

Defense only ear to offense ear

We need to look at both external factors and internal factors.

The latest market trend is shown here from December to March.

Both NASDAQ and venture index exceeded 110.

So it's been showing great return and looking at our portfolio.

Vision Fund 1 and Vision Fund 2, although they are under NASDAQ, but still they are performing well.

And interest rate is tricky. And the US.

There is a lot of discussion what they are going to do going forward in terms of rate. Financial turmoil that is happening recently may slow down.

interest rate hike. So from a stock market perspective the climate might be better.

And the volatility index has been sort of stabilized. And geopolitical risk indicator which is created by black locks.

When a surprise risk takes place, you see a huge hike. For example, on the far right, when Russia invaded Ukraine, they...

When a surprise risk takes place, you see a huge hike. For example, on the far right, when Russia invaded Ukraine, they had a huge peak.

Even though trend-wise the line goes down, but that doesn't mean there's no risk. But those risks have been factored in, then things should be stabilized.

We showed you three, four charts in the last quarter. We see signs of improvement, however, from our perspective.

That's not exactly the case because your particular risk

Russian, Ukraine, US, China,value Noniss

Ukraine, US, China, selection around China. Unfortunately,

Those geopolitical risks in the last one year have not been addressed and we don't see any solution. So we have to keep that risk in mind even though we see sign of improvement in the last three months.

We can't simply restart investments. That said, we have to look at different aspects, which is technological evolution. Since we founded our company, we have to look at different aspects, which is technological evolution.

We wanted to make people happy through the information revolution. And since we founded the Vision Fund, what was our vision? AI revolution has been a part of our vision always. AI can redefine every industry.

And from that perspective, we want to identify and invest in opportunities.

And a lot of things are happening and evolving now.

And a lot of things are happening and evolving now, especially...

vegetable recently is

Visible recently is generative AI.

which has been growing exponentially.

Sometime around 2017, we started using the term singularity.

And even before that,

Ten years ago, we released 30-year vision and we communicated the same message.

We thought that it could take 10 years or 20 years, but now we are seeing much faster speed in terms of technological evolution. AI is finally coming. Maybe some people are still skeptical, but we are seeing much faster speed in terms of

believe AI is finally here even though there are some risks. Like I said earlier, in 2017, when we announced the financial results, Mr. Son said, someday we will see data being analyzed and reasoned about by AI.

Back then we didn't know when it would come but we said we believed that date would come.

And this.

Image.

Image is

part of an report released in that year. It says a singularity when AI supposes human citizens will be the biggest paradigm shift in human history.

Again, AI is finally common, especially generative AI. There are a lot of developments going on around AI and what's the trend?

So for example, to reach 100 million user numbers, Facebook, Twitter, they spent five, six years, but chat GPT, only two months within two months that they have reached 100 million user base. Of course.

compared to the time of launch of Facebook.

those the time of launch of Facebook. Processing speed has been faster.

payment speed faster, volume of the transaction became larger

and the information volume has increased. So that's also the factor, but at the same time

This is something that we have to accept or embrace as a reality. A variety of the development can be considered as you see here. Just in one example, translation, customer data.

Data analysis.

analysis. Those......

by only entering into CHA-GPT that you may have some answers from them.

drawing or creating sentences or writing books that we don't want to lose against AI, but they have their own way to actually generate and produce such products. And also timeline-wise...

drawing or creating sentences or writing books that we don't want to lose against AI, but they have their own way to actually generate and produce such products. And also timeline wise, uh,

speed of gathering information to create the products, actually that is the most effective in terms of...

way of working or way of living and something that we may be able to take an advantage of. So while we use, we do also need to find what are the issues. So improving productivity, addressing social issues and those are...

are something that we expect and why we use such technology and also need to learn and know the technology itself. At the dawn, I think it's about the same as the time of dawn of internet, that half of 1990 when we start the launch of internet and now that everyone actually have your smartphone on you.

Year 2000, actually I joined SoftBank Group from the previous job and the big banks actually that the email address has not been there on their business card and that was very surprising to me because the banks some banks

youth.

the technology. So as a company, Masa himself or Softman KK, CEO Misamiyakawa, also announced yesterday at his earnings that why don't we try, why don't we use so that we'll be able to tell what's good and what's bad.

And that's something that we should share amongst our employees, amongst our people, so that we want to be the kind of a first mover to use such technology. Then we believe we will be able to become the company who can lead such technology as. So that's something that we are actually communicating to our employees.

of technology so that we will be able to contribute to people's well-being and that's the kind of a company's philosophy. Companies we are here for so along with such learnings we would like to grow the business.

So having more good understanding of new technological revolution, we also need to think about how we should be addressing the coming months and years. So in the coming year that we don't know how the volatility is going to change, volatility probably remains still high.

led by Masa as a business model.

Not all the investments are successful.

but we should not miss the investment opportunities. And we have to have a good and solid financial policy so that we can make sure that we're not going to miss any investment opportunities. That's why we believe our financial policy is important.

Therefore, we have a financial strategy for fiscal 2023, so we have no change at our financial policy which we've been having, but at the same time, we would like to have financial management adaptable to both defense and offense.

financial policy, I have no change in any words here. So same policy as I've been communicating to you in the past few years, maintaining LTB below 25% in normal times, maintain at least two-year worth of bond redemption in cash. Actually, we have about six-year equivalents of bond redemption in cash with us.

and at the same time secure recurring distributions and dividend income from vision funds and other subsidies that we have to keep good communication with our visual funds and also our subsidies to make sure that

So we have a very important base, which is our financial policy. And based on that, we will also like to make a good balance with the office. Resilience is going to be very important. And as long as we can keep our financial policy, we will keep our financial policy.

Then I think that we can go for the next step, which is to invest in information revolution while maintaining financial stability. As a result, when it comes to capital allocation, which is always the very serious discussion in both objectives meeting, so we would like to see how the market change, how the...

environment change and the financial policy wise that those two major stakeholders which are the shareholders and the bondholders and also there are other stakeholders as well but first those two major stakeholders the one that we have to make them happy

So why are we keeping our safety needs of our balance sheet? Then that we would like to make a good balance between new investment activities and shareholders return. For the shareholders return wise I believe that we'd be making a quite a good number of return to shareholders.

in the past five years about 4.5 trillion yen buyback has been done. I don't think there are many companies like us who have been brought back such a level. So that's something that I hope you appreciate and we will continue for the discussion and at the same time we need a safety.

that I would like to give you a summary. So.

Solid defense is in place, has been in place, and also at the same time getting ready to go on the offensive with the AI revolution on the horizon and the financial management that drives both defense and offense.

In the current business, it's mainly from two engines. One is Vision Fund and the other is Arm. And Arm is making a very good step forward, relifting by confidential submitting just for F1. Vision Fund, of course, had challenging years.

but now that they are continuously focusing on increasing value of portfolio companies. So, I'm really thinking it's also going to be the good contribution to the Vision Fund performance as well. Vision Fund, that we shouldn't be looking at only one fiscal year.

the activities go on to next year and on. So I want you to see a kind of a long horizon. Japan, for example, is a very good company. So for example, PayPay is making a very good progress as well. So I hope that you can expect on us for the future. So that is all from me. Thank you very much and we will be happy to take any questions from you.

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Thank you. The from Bloomberg. I have two questions. First about a chat GPT.

I think that you are very positive about that GPT and yesterday, Niyakasam, SBKK,

mentioned that they established a generative AI company in March. So as a certain group, do you have any strategy about

AI, Denierative AI and CHA-GPT. That's the first question. Navneet or Kothosa, especially since it seems like you are teasing out a potential shift into offense mode a little bit. Would that mean a bounce back in investments starting this quarter since you are kind of into May?

and

our

approach to generative AI. Yes, you're right. Miyako-san talked a lot about chat GPT, generative AI, and we were worried because he might talk too much. And Song-san had stopped making presentation at financial results announcement.

Yes, you're right. Miyako-san talked a lot about chat GPT, generative AI, and we were worried because he might talk too much. And Song-san had stopped making presentation at financial results announcement for the last.

six months or so. What he has been doing instead is, of course, studying ARM and ARM's business model. And as you know, ARM chip is essential to AI.

So, working on AI should lead to taking leadership position in AI.

In the last few months there have been a lot of services and products launched

in the last few months. There have been a lot of services and products launched in the market.

And from our perspective, what kind of businesses that we can create from those opportunities? Those are the things that we are currently working on.

Not only things that are available now with generative AI, but we have a broader vision, like I said earlier, when Vision Fund was launched.

our vision has been such that AI will redefine every industry.

Against that background, how and what kind of companies that we should work with?

and how we can implement strategies as a soft bank group. That's important. Yes, Anya Kasan mentioned that he created a company, just created a company. So it's not a big deal yet, but as approach to AI.

how we can implement strategies as a sub-bank group. That's important. Yes, Anya Kasan mentioned that he created a company, just created a company. So it's not a big deal yet. But as the approach to AI we'll get through it quickly.

That indicates something to you. And as a parent company of Softbank KTE, which is an operating company, Mr. Son,

looks at this big theme and how we approach, how we are going to work on at a general shareholders meeting.

I hope that Mr. Song will share his view as much as possible. Nothing is confirmed or finalized yet, but we'll see how it goes. I'll now need to take on a question, please.

In terms of investment activity, as Gautasan said, during the defence mode over the last 12 months, we have been making investments, but we are very selective and deliberate about those. And as we find new investing opportunities that are attractive, we will continue to make investments.

I guess, as investment could be. It really depends on the opportunity. If it's a very attractive opportunity, we can invest considerably. So it really depends on the opportunity. Is the investment opportunity leveraging artificial intelligence? Is this a good tech stack? Do they have positive unit economics? And is this a company that can scale?

So depending on the investing opportunity, we would be looking to invest. Thank you. If I may add...

For example, three years ago, we invested five trillion yen over 12 months or so. Back then, what we did was...

to make an investment as much as possible to

to make an investment as much as possible to cover

broadly, but now we are facing against the wind and we have to ensure financial soundness and financial strength. So we have to be very selective in terms of investment.

But now we are facing against the wind and we have to ensure financial soundness and financial strength. So we have to be very selective in terms of investment. So

We can't charge ahead right away. We will be selective continuously. Thank you. We'd like to take our next question. So next gentleman to the current person who made a question.

I have two questions, please. The first one is about Alibaba. So recent how much percent of the holdings do you have in Alibaba and of which...

How much are used for the forward contract? So with the settlement with such forward contract, can we say that effectively you have used up all the shares?

Effectively, all the shares are being used for such contract and some others. There are some details there which is going to be a bit complicated, but overall, I would say from the financing point of view, all the share has been utilized.

shares which will be decided whether to sold or settle in shares at the time the maturity month

shares which will be decided whether to sold or settle in shares at the time the maturity of next month.

Regarding Credit Suisse that I would like to ask you, so this green sale which was the industry of the vision fund and there are legal lawsuits where the claim is made by Credit Suisse and I would like to ask you how you position about. This is very unfortunate.

and the credit says we've been very close with them.

and this time a green cell which was also an investee of Bijon Fund and from the Credices point of view

They the green sea was a counterpart for the financial transactions, and I believe they had a good

relationship as well, but at this time the legal lawsuit, they are the kind of a lender in the lending business and they are saying that the money they lent is not repaid.

the time facing challenging environments.

So why are we supporting?

them and had the hope that they can turn around and make their growth. And there are times where we have provided additional resources.

In return, they have provided the convertible.

or shares and that resource was to use for the repayments and they should have been using such resource for the repayments. However, that...

has not been actually used for the repayment, which was not our decision and we have

no such responsibilities for their decisions, we took the risk and provided support for them to turn around. And because that money did not come back to Credit Suisse, so that Credit Suisse is upset about us. Anne

And about three years ago, our legal team made a very thorough investigation and very thorough reports on that. I don't know how long it's going to take, but I have no doubt that we're going to lose the case on this matter.

So I am very sad that this case has been raised because credit is one of the very close financial institutions and I cannot understand why this kind of claim has been raised. And we had about 20 years of relationship with the Asia-Pacific.

region of the Credit Suisse and because of the management of the Credit Suisse, they may have some reasons which we have no idea but have to make such claim. So this is baseless claim that they are making.

I don't want to lose our reputation because of such a baseless claim, so that if there is any speculations or any speculated articles, then I will be...

sure to clarify our positions and our understandings. There are some ways that or tactics that you may be able to use by providing or not providing information but I don't want to lose.

such a gain. So that's something that I would like to position us about. Next question.

So it's not like when the traffic signal turns from red to green and puts an axle.

So it's not like when the traffic signal turns from red to green and the put axle, it's not like that.

If there are companies that we should collaborate with and if there are companies that we want to consider operating those companies, when that kind of timing will come, it's more like how we cross.

The crossroads without traffic light.

There is no pipeline in sight, but when an opportunity comes, we want to be

Positive. Last year, unless something unusual happens, we would rather...

a past opportunity, but this year, if we are comfortable by checking every aspect, then we want to take steps one by one.

So it's not like...

Right away, we start investing, but it's more like taking opportunities. Any other questions?

gentlemen, the third row from the front, please. I have two questions, please.

gentlemen, the third row from the front, please. Now, he from Nikkei Quick News. I have two questions, please. So simple question.

OpenAI, why you haven't invested in this company? Was there any discussion you turned down or...?

you are not looking into this company or what was your position about OpenAI?

you are not looking into this company or what was your position about open AI? I hesitate to make any comments.

We knew this company, but we didn't make any investment in this company and there are many reasons why, but I don't want to discuss that further. Do you have any comments, Navneet?

company but we haven't or we don't we didn't make any investment in this company and there are many reasons why but I don't want to discuss that further do you have any comments in that need no I agree with you go to Sun no comment

In the process of the decision-making for investments, I believe that's something that I cannot discuss. My second question is about to confirm with you some facts.

In the process of the decision making for investments, I believe that's something that I cannot discuss. My second question is about to confirm with you some facts. Silicon Valley Bank

Year 2000, you were acquired some bank and Nisai bank and Silicon Valley bank was also involved, but were there any capital relationship with your company, with the SoftBank Group and Silicon Valley Bank? Few years ago, you saw rest emotes Of what it was $20,000 Germany £4 million covers 36 Clarke residents

there is no such relationship with Silicon Valley Bank. This time, I recall this, I hear this bank's name and that recalls me from the back old days. The first job that I, after I joined the SoftBank Group that it was a dismerger of these new credit banks, so that was something similar, familiar name for me.

This time I recall this, I hear this bank's name and that recalls me from the old days. The first job that I, after I joined the SoftBank group that it was a dismerger of these new on credit banks, so that was something similar, familiar name for me.

Then the next question.

About V-Work, you recorded about 600 billion or so. How do you view?

And currently, as a group, how much stake you have in V-work?

Our view

To investments in WeWork, you asked. We expected huge growth.

since investment and eventually

The vast support that we provided to rework

hoping we work with a turnaround. But then, COVID-19.

hoping we work with a turnaround but then a COVID-19 took place.

and property market tank. So they have been struggling.

and property market tank. So they have been struggling. And

still struggling in terms of their performance, but we still expect them to turn around the business. Navneet, any comment? So as you know, WeWork is a public company and we are insiders, so there is limited information that we can provide.

Also, WeWork's earnings took place on May 9th, so I think I would defer on the performance of WeWork to their earnings that just happened.

About percentage of stake, economic stake.

They have been going through a restructuring, but about 70 percent. Are there still affiliate? Any reason why they are still affiliate? It's not subsidiary. Can you all define your name?

Well, yes, definitely affiliate for as classification is concerned. Any more questions? Thank you. Any other questions, please? Before that, let me add a little bit. As Kimi Adasan said, that's correct. Thank you for voting.

voting rights base is less than 50%. So please continue. My name is Uno from your MUTI newspaper.

right space is less than 50%. So please continue. My name is Uno from your Miwudi newspaper.

What kind of AI areas are you going to invest in? That's my question. So as an investment company, of course, performance is important for you. And there are maybe many expectations on AI, but at the same time, there are many challenges as well.

At the cabinet meeting, democracy is important, human rights important, so there are many discussions regarding basic rights and basic concepts.

As SoftBank Group, other than performance, is there any criteria that you would like to set when it comes to investment in AI? If you have any, please share with us. That's my first question. And my second question, being offensive, is there any criteria that you would like to set when it comes to investment in AI?

And also, you mentioned about generative AI, but the restart of investment, is that going to start with generative AI, or are you going to invest in other than generative AI as well as you turning into offense mode?

For the second question, let me answer from your second question. So it's not that we only invest in generative AI, but still AI is the kind of a main focus. So anything AI related? A simple Heard treble, turn it off if you're still used to listening, for a quick fingering up or down hi.

we would like to consider. So it may not be too speedy. We need to be good in selections.

would like to consider. So it may not be too speedy. We need to be good in selections. And after then…

What kind of things will be target for investments? It's probably too early to tell at this moment.

What kind of things will be target for investments? That's probably too early to tell at this moment.

we have more use in generative AI, what kind of jobs or tax may have a dramatic change? Actually, SoftBank Group is also known as a lifestyle company, so that's something that we are very keen to focus. How can we change people's lifestyle? So that's same as when we started our business.

and there were no any software wholesale business around the market. And we wanted to kind of create it so that the people are living easier. And then we saw internet, broadband, iPhones.

So those are kind of keywords in how we're going to target to. It's something that you can imagine. And once the right time comes, then even my boss will be telling you. Thank you very much. Any other questions from the floor?

Mr. Son has an insight in technology and wait until I ray you?

opportunity comes and wins eventually. And how excited Mr. Sun is at the moment about AI.

Koto-san, in your presentation, you mentioned a lot of things about AI, but...

If Mr. Song was here, what would he say about AI? I'm sure there are still risks. You mentioned that Mr. Song might share his view at AGM, but...

excitement that Mr. Song has, can you share with us? Well, if I talk too much, Masa might give me hard time, but...

Excitement that Mr. Song has, can you share with us? Well, if I talk too much, Masa might give me hard time. Excitement.

I think is tremendous excitement he has. In the last six months alone, six months ago, generative AI, I don't think many people heard about generative AI, a new generative AI.

is tremendous excitement he has. In the last six months alone, six months ago, generative AI, I don't think many people heard about generative AI, a new generative AI, but still...

He had too many things to start around AI. And he was like...

He was excited as much as when he launched the company. And sometimes I'm worried if he has time to sleep.

because rapid growth and development of

generative AI and AI itself. I think I can't explain clearly how excited he is but

I spend time with him every day and I try not to be overwhelmed by him too much.

time with him every day and I try not to be overwhelmed by him too much. Next question.

Pink shirt gentlemen please. Imaza from Mainichi newspaper. Regarding WeWork I have one question and also one question about Alibaba so start with WeWork.

In a financial report in the page 7, 600 billion additional loss has been recorded. And I believe there are some loss in the past and cumulatively how much loss has been made. That's one question. And after April ,

I believe that convertible bonds exchange has been made after April . There are new kind of development there. And how that is impacting to the first quarter for your consolidated results.

As for investments, I would say about 11 billion.

of which remaining is 400 million. And other than that, some loss on guarantee, majority of them are

and fourth quarter of fiscal 22. That's been already recorded in fourth quarter of fiscal 22. So total loss, cumulative loss, how much was that?

or with your restructuring, is there any impact to your consolidated base? That's after April . Depends on after April .

for investments, depending on the share price after them. On page 7 of the Financial Report

April 23rd you have done something and is that going to impact? That's after fiscal 23. So that's reflected to the numbers after fiscal 23. Do you see, have any ideas on what kind of impact?

April 23rd you have done something and that's going to impact. That's after fiscal 23. So that's the reflected to the numbers after fiscal 23. Do you see, have any ideas on what kind of impact? It depends on the market.

So it depends on the share price then? Yes. And also depending on the credit situation, credit status. And I have questions about Alibaba to Gotoh-san. In the past 20 some years, Alibaba shares have been very important for you. And now you've been monetizing all of them.

depends on the share price then, yes, and also depending on the credit situation, credit status. And I have questions about Alibaba to Gotoh-san. In the past 20 some years, Alibaba shares have been very important for you and now you've been monetizing all of them and all of their ocean foremost, not just Mahdura, but many others because they pay their monies a lot. And I Lavana-san will definitely be the flagship, I thought it might be something I SuchquED as it, the CEO that May Big Rod has someone I would love to supportberg the

mentioned earlier in over 20 years. Because of Barriba Bachears that you've been able to convert your business to the investment company, can you give us a summary of the past 20 years?

So these numbers are the performance of the investments, which I think this historical number that we rarely see and they brought us tremendous...

contribution and they were a great friend of ours and Jack has been serving as a board director for quite a long time as well and a great friend for Masa as well. And at the same time while there are some challenges in Chinese market they became a good bridge.

for us so that we were able to learn and experience a lot in Chinese market too. Alibaba themselves, in the very beginning of the business, they were just exploring what kind of business model they should be establishing and actually we were working along with them and because in a great and huge market in China, what happens if we do this and do that.

and they set up the hypothesis and executed by Jack Ma. That's why I believe they became such a great success in their huge, became a huge group. And we were able to spend the same time with them, which was a tremendous experience for us. I have been there at the headquarter of Alibaba.

In the interest of time, this will be the last question from the floor. Now we'd like to take questions from Zoom participants.

Please refrain from connecting to other livestream to avoid any echoing.

Please refrain from connecting to other live stream to avoid any echoing. YVETTE ARM attic

Inagaki-san from Financial Times. Inagaki from Financial Times. Thank you for taking my questions.

To Goto-san, in the presentation, you mentioned a lot about geopolitical risks. You stressed geopolitical risks. And you also mentioned that there's no solution.

That's why you are very concerned about geopolitical risks. Without solution,

against those risks, how are you going to address them? Of course, your graphical diversification is...

what you are doing, but as risks can get bigger, how are you going to address those risks and where from your perspective those risks might be presented? Thank you. Global supply chains have been disrupted.

by Russians invasion into Ukraine Business person like us was surprised because we have built the supply chains based upon the belief that

People are born good, not born evil. Although we believe that humankind can find a solution to address such issues,

risks. But we have done a lot of sensitive studies on our assets. What if our assets went down by 50%, which by the way, we are still safe even though assets value went down by 50%. So what we are doing is to make sure that we are ready for any...

judgment is very important. Of course, China is something that we are concerned about from geopolitical perspective, but Russian-Ukraine issue is the biggest.

Thank you. And next question is Mr. Nagoshi from NHK. Please unmute and start your question. Yes, this is Nagoshi speaking. Can you hear me okay? Yes, thank you. Thank you very much for taking my questions. So there are some speculations or articles regarding fortress cells. Thank you.

What is your approach on your fortress? And another question is about yesterday's Miyako-san's presentation. So, also that you would like to create the GPT new company, and the Softbank Group is also involved in this discussion.

fortress and another question is about yesterday's Miyako-san's presentation. So also that you would like to create the GPT new company and the Softbank Group is also involved in this discussion. So what is the

process for your creation of Japanese version of the GPT. So, I have no comments on that. I don't think we can make any comments about that. And for yesterday's Miakawa's presentation, there are many comments and remarks.

I hope that you kind of understand from what he said. Because this is just a couple of months movements creating companies or either in Japan, or there are lots of discussion going on in the many movements done. But that's not only by Softbank Corp, KK itself, but also...

Masa himself is involved in the discussion too, so the discussion just begins. And coming back to rework cumulative loss amount. $11.5 billion and $0.9 billion provision, so $12.4 billion in total.

That is all. Thank you. No questions speaking. So what is your ultimate goal? Do you have any specific ideas or views for the goal? I want you to have a good expectation on this and let us work on that.

results briefing for the fiscal year ended March 31st, 2023.

The video footage of this printing will be uploaded on the corporate website.

Thank you very much once again for joining the SoftBank Group Copernix results briefing for the fiscal year ended March 31, 2023.

I missed that.

with Tom Kean, Jonathan Farrow and Lisa Abramowitz. Live from the nation's capital for our audience worldwide, good morning, good morning. This is Bloomberg Surveillance on TV and radio. Alongside Tom Kean, I'm Jonathan Farrow. With a bit of a secret, Bramo is going to make a return potentially tomorrow. So looking forward to her joining us right down here in Washington, D.C. The future's right now on the S&P.

aside the meetings of the IMF and World Bank. I'm not there yet. John Anthony sold an Irish Jersey publishing for Bloomberg intelligence used the word accelerate what's happening in the short term paper market is accelerating right now. We've got a big division a diverse spread whatever pick your word if you will between what the Fed is projecting what the market is pricing. We've talked about that a lot on this program. John Williams of the New York Fed not worried about it at all. He was speaking to him. I was surprised. Yeah. And he said.

at which they tightened and shaking off any potential blame about what's happened. Yeah, that's a horror of the matter. Yeah, what's so important here, John , is raising rates. Now what? And what I hear, I mentioned this yesterday, pause, pause, pause. Those kind of choices that have to be made along the way by us and also by the ECB as well. He pushed it away. The questions change though, Tom.

A few months ago it was about how far are we going to hike. Now it's about what are we going to reduce rates to. How far will we cut back? The IMF started this week, TK, by saying, and I think making some headlines, and we'll be talking about it through this week at the IMF meetings at their headquarters later on this week, Tom. They're making the point that rates can go back to pre-pandemic levels. I've heard a ton of pushback against that. Richard Miller writing for Bloomberg today just says it's real simple.

Can you consider Professor Summers of Harvard or can you consider Professor Gopenhaf at the IMF? And there are two wide debates here. What I would suggest is you say the consensus into these meetings is to push back against the grimness of the IMF and the World Bank as well. That's going to be the debate down here in Washington. We'll revisit that debate in just a moment. I want to pick up on the price action and start with equity futures on the S&P 500. If you are just tuning in welcome to the program. We are just about positive by 12 points on the S&P up around about a third of 1 percent yields back in by a couple of basis points. No drama here on a 10 year 330.

If you think about what a two year is just going get a little bit further down the curve. Tom we've gone from north of 5 percent was it to staff before just like that in a month or so. It's like that. But quickly on the BTM screen there's still a lot of 5 percent tension. It's out there. And that goes to the bank to bring it full circle to how we opened John . That goes to the banking crisis. And what are you going to see there. Some of those charts.

are pretty fragile right now. Joining us right now is Peter Oppenheimer, Chief Global Equity Strategist at Goldman Sachs. Pete, great to catch up with you and good to have you with us on the program as always. Can we start with the question that Tom and I were exploring. Citi Group economists say banking stress contained. Apollo Storston Slock says the credit crunch has started. Is it one or the other Pete for you?

Well, it is, I think, a little bit of both. I mean, the banking crisis has been contained, given that there's good access to liquidity. And the strongest banks, both in the US and in Europe , have very strong capital positions. So nothing like the situation we were seeing during the financial crisis. But nonetheless...

particularly in the US you are seeing a big pullback in bank lending particularly in mid and small sized regional banks. And that is going to have an effect of tightening financial conditions for a large part of the economy. Given that smaller companies rely disproportionately on loans from that part of the economy. So I think the big question is what spillover this really has.

to the real economy and does it avoid recession? Our view is it does, but I think the market, to Tom's point, is very much already pricing in a soft landing and quite a lot of optimism. Remember the first quarter the US was up 7% the strongest we've seen at the beginning of any year since 2019. So I think there's still risks for the market.

And Peter also pricing in some profit headwinds to the financials as well. That was a sector that for a long time you've advocated for. We saw that big move off the bottom last summer in European banks. You were talking up that sector for a long time. What are you advocating for now given the developments of the last month. Well in Europe's case in particular we've been overweight of Europe and still think that non-U.S. markets offer better value and they're generally doing better. I think that can continue.

We like the banks in Europe . We like the deep value sectors- banks, resources and oil sector. They all had a fantastic year. Last year's rates rose and the fundamentals improve for them. They've had a very difficult start the year, but they remain very cheap on a relative basis, are as cheaper as they've been at any point since the financial cris, if not cheaper, and the fundamentals are a lot better.

We've been pitching that against the kind of barbell of having also a focus on what we call the granola is the big defensive 11 companies that dominate the index. They make up about a quarter of the European index. And we like in the U.S. as well. Strong balance sheet stable margin businesses which again are quite dominant in the index. I think that's one of the reasons why the index level things have been holding up quite well. The biggest companies are quite defensive.

Peter, help me here with the banks. In Europe , I've got banks with very substantial dividends and maybe subpar dividend growth. Over in America, maybe I've got some growth in banks, but what I have is shattered banks. What does Goldman Sachs do in owning banks now and also in the partition of what to buy? Well, again, the focus I think we have in banks globally is more in Europe .

them and the regional banks are putting back, they're having to pay more in deposits, that's going to hit, I think, their revenues. So I think you have to be much more selective if you're going to take exposure to the financial sector there. Is the financial crisis over, excuse me, is the banking crisis over? This is a big debate this morning in the Zeitgeist in America. From your view from London, are we all clear of the trauma of...

volatility in U.S. cash. That's a very high hurdle for many assets to beat. And inevitably with us with the fastest rise in interest rates not highest level but fastest rise we've seen since around 1900. I think there will be other negative fallouts from that. And where that occurs is yet to be seen. Obviously there's a lot of focus on commercial real estate and other areas to play for.

we see.

Peter, wonderful to catch up and get your perspective as always. Peter Oppenheimer there of Goldman Sachs on the latest in the financial sector and for equities as well. Michael Hartnett of Bank of America puts out a weekly note. The flow show and in the flow show in this week's weekly note Tom. He said sell the last rate hike of the Federal Reserve. Sell the last rate hike. It's been out there. There's a history to that. I don't diminish that.

The question is when's the last rate hike? And we need to make clear there's a select group of guests that say it's not over with one more rate hike. I mean, there's a very substantial crew that says wait for the data to turn. It's plain and simple, it hasn't turned. We're still seeing inflation. I believe we have an inflation report this week that may be more important than the IMF meetings. The CPI coming up tomorrow, Tom, there are some people who think the last hike was the final hike of the hiking cycle. Sure, well, that's part of it. That's a big divide right now, I'm with you. Let's talk about the calendar. So CPI comes up tomorrow. We've talked a lot about the financials and the banks. They report later this week. It really kicks off with JP Morgan, Tom.

on Friday. I spoke to a couple of guests yesterday, was talking to them both on the record on this program and off the record as well on telephone calls and TK, many many people just saying the same thing is that for them the financials reporting this week and through next week just as important, maybe even more important than what they're going to see from CPI or from payrolls last Friday. On a Tuesday morning setting up for the IMF and the World Bank and setting up for some great conversations. What we need to state is from Friday to now.

There's this new fragility in the short-term paper market that has to be studied very carefully. I mean, it's just a really odd moment on a Tuesday morning. What do you think is going on there, Tom, that you're concerned about? Is there anything actually to be concerned about? No, no. No, I don't think... I have not seen any reporting of scandal or crisis. I think it's a reality of what deposit flows do and frankly what the American public does in their choice of where to put 4.8 or 5% money. This is what Peter Chiam of Academy said yesterday.

on Friday. We'll be here down in Washington all week for the IMF meetings. From Washington, this is Bloomberg. Keeping you up to date with news from around the world with the first word, I'm Lisa Mateo. The Pentagon says those leaked documents that detail U.S. spying on other countries is a risk.

war capabilities. That came as Pyongyang cut off communications links with South Korea used to reduce tensions on their border. This year, North Korea has tested new weapons and systems to deliver nuclear strikes against the U.S., South Korea, and Japan. In England, the state-run health service is bracing for its most disruptive strike yet. Tens of thousands of junior doctors walked off the job today for 96 hours.

They're joining other public sector workers who are demanding bigger pay hikes to make up for inflation. New York Fed President John Williams is rejecting the idea that the Fed's rapid interest rate hikes led to the problems in the banking industry. Williams says there were some specific issues with the two banks that failed. The Fed's benchmark rate is in a target range of 4.75% to 5%. That's up from near zero a year ago.

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would remain below 3% as we projected it earlier this year and what is more concerning it would remain around 3% for the next 5 years.

and we're struggling to break out of it. Spoken to a lot of people, Tom, have said the same thing. They expect to break out to the downside with one exception. Anastasia Amoroso of iCapital, to you and I on Friday, who thinks we can break out to the upside here. I'm with her in the sense no one else believes it. I think she's pretty lonely. And I call these other people out there that are uber bulls. But I think the headline of the last four weeks, John , is how the equity market has been resilient. Granted, it's that time of year that we have to go back to it.

any fresh guidance after developments of the last 30 days or so? It's a really important question and I'm going to get guidance from Federal Express in that like lemmings off a cliff everybody's going to find some form of restructuring. What's great here John , you're not going to remember this, but LTV, the only one in Washington that remembers Ling Temple vote is Terry Haynes and that is the conglomerates

de-conglomerate their eyes and then after 10 years they come back together and do it again and then they hire Mackenzie and they do it again. I mean that's a cycle. Are you saying the only person who gets rich is Mackenzie? Well, or Bain or BCG or you know, I mean that's when you fly into Washington. Do you see the houses when you fly into Washington? Not bad are they? You come down to Potomac it's so romantic. The smallest house is 5,000 square feet. Are you thinking of moving here? No, the front hallway is bigger than yours and my apartments combined.

historical perspective now. How upset is the city over intelligence secrets leaked including on Egypt? How big a deal is this? I think the I Think it's a big deal. It is not catastrophic It is a situation where we all understand that we all spy on each other firstly secondly that That what this sort of? Document dump hasn't really been done

in at least a decade or more. You know we get about one of these a decade going all the way back to Pentagon Papers and that sort of that sort of grants which was different. Biden's going to have some cleanup work on the aisles with with allies. But but overall I say it's not that big a deal because it's not going to shake the foundations of alliances anywhere. But to politics it says new technology. John John's on Discord like three times a week. But the answer is there's a new tech.

been upgraded for the last several years and now they're going to be in a crash program. They're going to do slowly, John , because they're stuck in traffic out by Herndon. I mean that's really what's going on. That's what's going on. In Virginia, yeah. That's what they're doing. Okay. Would you like me to get this back on the rails? That's a Washington angle. Okay. Okay. It's in

and the comments that he made over the weekend in a couple of interviews. Terry what did you think of them just to begin. I thought generally that what the president was doing was trying to try to both mediate between the United States and China and actually position France in a position to be somewhat between the United States and China. We all talk about the European Union like it's a unitary body. And in fact you know of course it's 27 countries that have very different agendas in very different places.

Macron's agenda is to make sure that France has markets, you know, defense and otherwise, and he made that very clear. Do you think that Europe faces the very real risk of repeating the same mistake it made with Russia? Yes, I do. Absolutely. There's there's such a thing as mediation. There's such a thing as making sure that you have communications open to both sides. There is also a serious.

possibility for kind of willful misinformation, willful desire to abandon yourself to the idea that we can deal with China in the same way we can deal with the United States or other countries. I don't think that's so. What do you think the White House can do about this? I think what they can do frankly is rally the other countries in the European Union and surround Macron. And I suspect they're already doing that with the U.S. You actually think Macron might be lonely? Yeah I do. I do to some extent. Yeah. You know because to your point you know Germany doesn't want to make that same mistake.

that. I bring this up because one of our staff is down at Disney World as we speak spending $3,000 a day on tickets.

DeSantis and Disney and Orlando and it seems now there's a new Democratic rapid response to the Trump part of the Republican Party. Is that a sea change in strategy and policy by the Democrats? I don't think it's a sea change. I think it's a new thing. Yeah and both parties end up doing this and Republicans seem to be flat on their feet right now and they'll probably get back and start responding.

But you have to remember that what went on in Florida with DeSantis, what goes on in a lot of other places, appeals to a broader base too. But we're to the point now where the political rapid response is more obvious and more important in some ways than the substance of what's going on. And that's out of whack, certainly. I mean, I look at this, John , and the speed of responses here, and it's again...

But what I think is you see day by day very slowly is a situation where the hard nuggets still exist, but increasingly people are looking for kind of Trumpism without Trump. And let's remember, too, that a lot of the Trump agenda, including the China agenda, has now gotten has now gotten adopted largely by both parties. So, you know, people are looking for a candidate without baggage. Who is that?

Today it's DeSantis. I mean, DeSantis is, frankly, I think, right where he wants to be. You don't want to be... Forty or thirty points behind President Trump? Well, there's a guy you'll remember, Tom, and John won't remember, to get back to this. Pat Buchanan. Pat Buchanan was a very young guy working for Richard Nixon. He got all discombobulated because in 1967, George Romney was winning the nomination and Nixon took him aside and said, you don't understand. I'm in second place. That's where I want to be today. DeSantis is where he needs to be today.

brilliant George Smith dad I'm aware thank you thank you John thank you that was brilliant just wonderful as always live from Washington this morning good morning to all equity futures on the S&P 500 positive by about a quarter of 1% this is Bloomberg

session. Similar move on a 10 year maturity. That yield is three thirty nine twenty five. We're down about two basis points there. Want to finish on foreign exchanges briefly for you. Euro dollar. The high of the year. One ten thirty three. Remember the high of the year just after the ECB before that monster blow out payrolls report in early February . The payrolls report I believe was February 3rd. I think February 2nd was the intraday high of the year on euro dollar. Short of that right now at one oh nine eleven.

news flow which way does it cut and that's the mystery just on that one parameter as you mentioned Euro. There's some real debate, I mean there's people looking at 120 strong Euro which seems out of the realm of thinking. I think we're all working through the calendar and continue to do so. We'll keep revisiting that.

CPI comes up tomorrow. We'll have full coverage of course right here on Bloomberg TV and on Bloomberg Radio. Veronica Clark of Citi expecting inflation to come in a touch higher than others expect. They expect core CPI will rise by 0.5 percent month on month for a second consecutive month in the month of March. Highlighting that core inflation is yet to slow substantially. Further confirmation that core inflation is not yet sustainably slowing down should keep the Fed raising rate again at the May FOMC meeting and Tom of course the call from Citi is that they don't necessarily stop in May.

they may well keep going. Andrew Holland Horst and Victoria, Veronica Clark have really reaffirmed that and I think this is a really important conversation for those of you talking rate cuts, Veronica Clark of course at Citigroup. Veronica not only do you talk about the place of inflation right now but you say if anything you'll be surprised to the upside. What parts of American inflation push us to the upside? Yeah, yeah when we do our placement forecast you know we really do a very detailed bottoms up forecast.

inflation dare I say it's double digit? I don't know if we'll quite get to double digits but I think we can definitely see that for that component picking up not even necessarily as CPI data that we're going to get tomorrow but I would look more for PPI data later in the week that's what will matter for PCE inflation but you can definitely see that running consistently at five you know maybe six percent you know getting closer to double digits maybe not quite there yet though. Veronica you think this Federal Reserve can go further you and a team over at Citigroup the big question outstanding

that of course you know from from higher rates and it's not that you're going to see it immediately you know this is much more a second half of the year end of the year type issue for the broader economy and then for the fed you know the more near-term pressing issue is that you'll still have three months or so at least of pretty consistently strong inflation prints and it seems hard to see a scenario where they're pausing or we're still running core CPI at point

five and a half to five seventy five so that's a 25 basis point hike in May another in June another in July and again it comes down to this timing issue where it will be tomorrow the CPI report before the May meeting probably a lower bar for them to hike still in May that's what the dots show

But before the June meeting, after the May meeting, we'll have two more CPI prints and those look like they can stay consistently strong. And then at the June meeting, we'll have an update to projections for inflation, growth, and the dots. And it seems unlikely to us that we'll have to be revising higher their inflation forecast so they're not still hiking. I think that keeps them going. The markets, of course, we'll just get there over time as we get consistently strong inflation data. Veronica, this is really important. You just said there stop the show. You and Andrew are reaffirmed.

like the Fed's facilities are working to control liquidity issues and if things do stabilize, well, we know that the Fed has all of those other tools to deal with financial stability, but we do still have this price stability problem and their only tool really to deal with inflation is rates.

So where does a money market fund go? I mean I don't want you to be a rate strategist for Citigroup, but if I got the Howlin' Horse Clark call, I think I'm looking at a money market fund of 5.5 or even higher percent, right? Yeah, I mean we certainly would have short term yields going higher again.

You could see more and more deposit outflows, of course, but we were already happening even even before the banking crisis But that is what needs to happen. You know, you need people to stop spending, you know, you need credit to Contract and that's what slows the economy and brings down inflation John you know, I look at this John and it makes size your compliance officer just fell off the chair Listen to that. I mean if you get a Citigroup framework What does that do to sulfur, LIBOR, all the Ira Jersey?

risk and we have seen some of those cracks show up at this point but I mean I think that for the Fed at least you know they would see their all their other tools that they've used you know the new facility, the discount window as helping to control those financial stability issues and and it is a really tough situation I'm not saying it's an easy thing for them it could be in a comfortable couple months here.

price since the March report which came in early April of last year. Veronica, some people look back to the data of last week and they're looking for noise versus signal. Was the data before the payrolls print the noise or the signal? Because we have a string of misses going into that print. Yeah, yeah we had some softer ISM ratings, we had job openings that came down, your revisions to initial and continuing jobless claims that maybe those look a lot higher now and are trending a bit higher.

services in a 50, 55 range. We should be expecting job openings to be coming down. And I think the labor market data, of course, on Friday, it is still a very strong labor market. The unemployment rate is still very low. It looked a lot like a 2019 kind of job sprint. But when you're running core inflation that's pretty consistently at 5%, you have to be worried that a tight labor market like that will just add to the upside risk for inflation. Veronica, this was great, as always. 9 o'clock, then, Iber City.

out rate cuts. I didn't hear that there. I don't believe. You don't hear it from the Fed. You don't hear it from Citigroup. The city is taking rates further than the Fed are willing to take rates at the moment. I don't think the Fed is willing to come out at this point and make the call that the stress of the last month is contained and they've got a deeper understanding of how much the spill over what it's actually going to look like. City's ultimately making that call.

Citigroup is making the call that they think the spillover that you get from the last month will be limited and For that reason more weight will fall on the Federal Reserve to do more. And the other thing here is is Holland, Orston, Clark They're gonna need security to walk by the IMF building because they're miles away now Maybe they'll go there someday, but on a five-year three percent global GDP call Citigroup seems miles away from it

set of guests to join us here over the number of days, Tuesdays through Friday in Washington, but John , three shades there. They returned to where they were let's call that the Powell 2%, institutionally Powell has to say we're going back to 2%. Above 2% is former vice chair Clarida, a great friend of the show writing in The Economist. Richard Clarida is saying maybe not and others as well.

And then you got another group looking at an entirely new regime. And the debate is, John , where is that new regime? Is it 2.8%? Is it 3%? Dare I say, could it be higher? I can tell you that in about 20 minutes from now, we'll catch up with Mike Schumacher of Wells Fargo and we'll have that conversation with him after an amazing call from Citi, who still believe rates can get close to 6%...

Keeping you up to date with news from around the world with the first word, I'm Lisa Mateo. President Biden will head to Ireland today for a long awaited return to his ancestral home. His first stop is Belfast, Northern Ireland, where he'll meet with UK Prime Minister, Rishi Sunak. He'll then travel to the...

John Roberts to conduct a probe. The Senate Judiciary Committee controlled by Democrats will soon hold a hearing on the court's ethical standards. In China, the government plans to require a security review of chat GPT, I like bots. Now providers of the generative artificial intelligence service must ensure content is accurate and neither...

needed to stop the collapse of the bank. Parliament didn't get a say in the deal, and the takeover cannot be derailed by legislation. And Warren Buffett is turning his focus back to Japan. Berkshire Hathaway has kicked off a yen bond sale. And Buffett told Nikkei that he plans to boost his investments in the country. Their shares of Japan's major trading houses jumped after Buffett said he'd raised his voice.

There's losses being allocated by the world system now, but we should keep in mind if you just lower the interest rates back down, it won't solve the problem. What that means is that people will suffer from inflation. The dollar weakens, the inflation rate goes back up, and that hurts the poor the most. So I think there has to be a goal of finding a low inflation.

quickly on the S&P 500 equity futures shaping up as follows on the S&P slightly positive by two tenths of 1 percent on the S&P 500. You want to lower by three basis points 338 on the U.S. 10 year. Just to know for Bloomberg surveillance Lisa is going to kick off a new surveillance newsletter today. I just want to point out where you can sign up. You can sign up at Bloomberg dot com forward slash newsletters for daily insight from Bramo and the best moments.

from Bloomberg surveillance. Very cool. A pinch of gloom in it, come on. It's got it. Lisa's driving this product. It's got to have a flavor of goo. It's got to have some worry to it. It's got to. It's gonna be the daily anxiety. Yeah. You know? It's eight pages, 12 pages? I don't know. It's killing it. We'll find out. It's killing it. I believe first edition today. So very cool. Well, much more about that and some of the digital stuff we're planning forward here as well. This is extremely important conversation because of the number of narratives in Washington and all my years of doing this, the spring meetings of the IMF in Morocco later this year in October .

There's five, six, it's like Howard Johnson's years ago. There are 28 flavors of narratives on where we are heading. A student of this is Douglas Redeker, managing partner, International Capital Strategies, but far more a former executive board member of the IMF and affiliated with democratic politics in Washington. Doug, thank you so much for joining us. You're a Vassar a million years ago, and you're sitting there and they go, look, IMF, there's two narratives. What happened? Why do we have 14 narratives now?

Oh, look, I don't think you can start with the IMF of 20, 30, 40 years ago. I think it's a completely different institution. I think right now, it has very little to do with the IMF and more to do with the world. So I guess we're better off if there's not one overwhelming crisis, if you go back to the Greek crisis, the Euro crisis, COVID, even Russia, Ukraine, those were dominant themes that squeezed everything else out of the room. I guess if you want to look at this through rose colored glasses, the fact that we have multiple different narratives is probably better than we're all overwhelmed by a single one. That doesn't mean any single one of those is easy to resolve or the week is going to come out with anything that is.

Do we have an international rescue culture? We have a domestic international rescue culture We have an international rescue culture whether it's called rescue culture or an entitlement culture Yeah I think everybody assumes that there's a put Some form of put whether that put is a central bank put or a fiscal authorities put or an IMF put everybody feels Somewhat entitled you've got me sounding much more pessimistic and negative than I thought I would be but the fact of the matter is yes Imagine if Bremer was here. Oh my dear He'd be standing up walking out

And to date that's been a fairly solid bet. I don't think it's sustainable, but you know, not being sustainable can be two years, twenty years, I mean there's a long time, right? In the long run we're all dead. And Doug, what did we learn last month with regards to exactly this? Well, so what we, I think it's too early to know what the long term consequences are.

of SBB, Credit Suisse, et cetera. And by the way, I divide the two into totally different camps, but let's lump them together for the purposes of this, which is to say, yes, rather than letting unfettered capitalism, creative destruction play out, everything is systemic. You want to know what it is we learned? We learned that everything is systemic. So when SBB is suddenly systemic, it was the 16th largest bank in the country, it was not systemic by traditional metrics, but suddenly when it turns out that your Zoom call might not happen on Monday because Zoom was a big deposit or an SBB, that's systemic.

I don't know if that's how we contemplated systemic when we started this. So if everything is now systemic, is it just implied that all deposits are insured? Oh, look, I think that both Secretary Yellen and other authorities have gone very far to making sure that they send the message that implicitly, yes, but explicitly, they don't have the congressionally mandated authority to say yes. So they're saying yes with a caveat, or they're saying no with an asterisk. Yes, but we can't say yes, but yeah, go to sleep at night thinking and knowing that your deposits are insured. Doug, your work is to combine economics with law. Years ago, Skedman-Arbson.

all that and then Salomon brothers as well. I am fascinated how you respond to an IMF five-year call of economic gloom of global GDP three percent or less Malpass came out at World Bank and had a two-handle on some form of present global growth. That's not Barack Obama's better America or better global. How'd we get so negative so fast so entrenched in our gloom? So I have high regard for the economic teams at the bank and the fund and there's a caveat coming there's a but.

The but is there's a certain amount of group think that trickles into a lot of this. And so you have desk economists who factor in their individual country projections into the regional, into the WIO or the GFSR. And what you end up with is not necessarily a holistic, strategically oriented five-year forecast. It's almost bottoms up to the point where it's two bottoms up. That's the single best.

discussion of that I've ever heard. I'll take it one step too far maybe. It's their space to make the accusation that some of these forecasts are political and not based on economics? It depends on how you define political and what I mean by that is I actually think there's a lot of people who are very technocratic who keep their heads down, who have their pencils to their papers or the equivalent and they are making their forecasts based on their best estimates without regard to politics. I think there are some other decisions of these institutions, program lending, certainly policy choices.

that are highly politicized, probably more than ever before, or at least in the last several decades. Well, listen, Doug, you're being way too polite. Kenneth Rogoff, who's got a nod in equates with the International Monetary Fund, has been borderline scathing that the IMF has become the World Bank. Do you agree? Well, it hasn't become, but it's certainly trending in that direction. I think the current managing director of the IMF's instincts and experience are much more aligned with her experience at the World Bank. And I would make the counterargument that David Malpass, in taking a harder line on lending to China,

or enforcing China to the table to be more transparent and more conciliatory towards debt restructuring has taken a more stingy, which would traditionally be seen as an IMF style approach to some of the emergency lending coming out of COVID. Can you come every day? As Tom might say, should we make some news here? Are you suggesting that Gil Gavis should be at the World Bank and Malpass should be at the IMF? Oh, I would never make a suggestion about personnel at that level when those decisions have already been taken. Whether in fact they were the perfect fit for the job under the circumstances that we now have, let's say I think both of them have done an admirable job in their current positions and I wish them the best of luck. They were given a pandemic, we've got to remember that. Absolutely.

an essay I believe it was from Project Syndicate. He didn't mince words. John this is an IMF that's taken on a pandemic mission very much like the world equity futures on the S&P 500 now positive by about two tenths of 1 percent. Coming up a little bit later on on the program Mike Schumacher of Wells Fargo looking forward to that conversation with interest rates. And you know it's a little bit lower by three basis points.

It's incredible how quickly the lending market is shutting down and we're worried about whether the Fed's going to raise rates 25 basis points. From the Fed's perspective, their primary concern is this wage price spiral. We've been calling for a tighter Fed. That tighter monetary conditions will surprise you some way, shape or form. I still think you're going to go into a second half recession, but not all recessions are created equal. I'm similar to you, I think, thinks we're going to find it hard to get back to two. But let me just to echo what everybody's saying.

Washington. She's going to launch a newsletter a little bit later this morning. I'll bring you some details on that too in the next 30 minutes or so. Let's start with the price action equity futures on the S&P 500 slightly positive through most of this morning going into CPI tomorrow. Then on to bank earnings later this week. Equity futures on the S&P positive two tenths of 1 percent. Tom yields lower by about three basis points on a 10 year 338 68. I'm looking inside the two year yield the convention within financial media is to look at the two year and the 10 year the vanilla spread. You've got to go inside that.

So let's frame the great rate debate right now. You've got the Federal Reserve who are basically projecting in their median dot and the dot plot, maybe one more hike a little north of 5%. A market year-end pricing gain, a ton of rate cuts, then shitty, 550 to 575 on Fed funds.

I would suggest they're above Anna Wong of Bloomberg economics there. And this is what surveillance is about, folks. We're going to have Michael Schumacher with us here in a moment, who I think has a more quiescent view, you know, as far as on the different rate structure out there. But that's the debate here. And then you overlay that with the 60,000 foot IMF.

slowdown in economy. And as you mentioned John lower rate regime call out a number of years and it makes for it. It's it's Brattle. I guess Brattle. Where's the brand. I think. You know where I was going. It's a toxic through this comment on the call from the IMF in the last day or so that rates will return to the pre pandemic level from say 2019 2018. This idea that we go back to two once we've dealt with the inflation problems. Tom I thought we'd spent the last six months or so saying things had changed and we weren't going back.

Yeah, I don't want to go into it right now here at the top of the hour. We've got to do the data check and get to Mr. Schumacher. But John , I can't say enough about the intellectual divide about other factors out there. Do you believe that there are depressants like technology, immigration, maybe hydrocarbons that bring that yield down or not? That's a raging debate that will be addressed over the next four days. Let's go straight to Mike Schumacher, the global head of macro strategy at Wells Fargo. Mike, great to have you with us, sir, as always. Good to see you, Mike. Good morning. Let's talk about the call from...

far they'll have to cut back. Mike the IMF putting out its research its outlook suggesting that rates will return to pre pandemic levels. Mike would you go that far. No. Look the IMF is entitled to make forecasts like anybody else. But here's the thing John . When you think about the dynamics over the last six to 12 months.

Complete shift in psychology. Inflation still stubborn in a lot of countries. I think that's going to keep rates pretty well above pre pandemic levels for a long time. So back to 2019 levels not any time soon. Many many years. Is your macro strategy Mike Schumacher based around service sector core not coming down. I mean you've got a better view on headline. Core is somewhat persistent here. What does service sector core do to the Wells Fargo call. Frankly Tom people care a lot about service sector core because Jay Powell cares about it. So I'm in that camp too. Mr. Powell support. You support me support new investors. So.

just how much easing the market's priced in. So it's it's got these two factors out there. One inflation bad Fed wants to squelch it. That implies more hikes. Number two financial system angst rickety structure etc. That apply a lot more cuts. We think there are too many cuts priced in both for this year and for next year.

The big test is going to come in the second part of this month, a lot of earnings releases. If the system gets past that, I think you'll see the number of cuts priced for 23 and 24 go down a lot, and that should push up things like the two-year yield. Bring it in close. A managing director of the IMF just emailed me and says, ask Schumacher what we see tomorrow. Mike Schumacher, what do we see tomorrow in the inflation report? Yeah, focus on coral. We've got that coming in at 0.4%.

And that's probably not going to shock anybody, Tom, but we think about how the market reacts to surprises as well. And in our view, it's very skewed. So let's say core comes in hot, 0.5, 0.6. We think we have much more of a reaction to a hot print than a weak one, because again, the Fed wants to hike. And in our simple calculus, the Fed's going to ease only if something breaks. So core coming in at 0.4, 0.5, even 0.3, it doesn't really change that aspect of the Fed's decision making. Two banks breaking, John , didn't get it done. We need more than that. That's the question, isn't it?

Well the immediate concern was spillover. Mike have you drawn conclusions on how much spillover we're going to see from those incidents?

Really tough to see and quantify at this point John . S.E.B. seems like it's pretty localized when you think about credit suites. That's a more challenging difficult unwind. But assuming that deal closes pretty soon probably not a ton of spillover. But I think the bigger issue is in particular in the U.S. you've got thousands of banks in a particular something like 100 that range between 10 billion and 100 billion in assets. We simply don't have a lot of visibility into those balance sheets those structures right now. Are they huge. No. But collectively could there be a problem. Perhaps.

Well Mike, I'll keep returning to the question I've returned to then. What are the longer variable lice of a banking shock? And is it too soon to draw conclusions? If you're the Federal Reserve and you sit there on May 3rd, do you have the incoming information, the sufficient information you need to make that call? No, you don't know at that point. You'll know if you had an immediate problem. That's going to be evident in the next week or two. But there simply is not enough time to know, is the system really on solid footing right now? A lot of clients talk about things like commercial real estate. Where does that go? Probably doesn't look that great. Will it set up that information on May 3rd? No, I doubt it. What about deposit flight, deposit betas? How much does having an iPhone and a fancy app change those betas? Well, they get faster, they get higher, but...

To what degree? We can't tell, neither can the Fed quite yet. Mike, John Williams at the New York Fed said basically it's not our fault. It's not because we went from 0 to 4.5, 5% in a space of 12 months. We didn't have anything to do with this. These incidents, idiosyncratic. Mike, would you take the same page as John Williams over at the New York Fed? Well, I think you've got to focus on monetary policy versus the Fed's regulatory authority. And does it make a lot of sense to have those really?

embedded in the same institution. We did a call recently with Sheila Bear. She said no. They should be split to some degree. So monetary policy yes it's been aggressive but frankly the Fed waited a long time to get tough too. It could have moved certainly back in 21. I think that would have helped quite a bit and it chose to wait.

My shoe Mac. There goes his governorship. Thank you, sir. A lot of people share that view. I keep going back to it. The language that the Federal Reserve used I think was misplaced and it was wrong of us to to echo. This wasn't front loading. It was back loading. They had to go quickly because they were late, not because they were trying to get out in front of anything. There's a big difference there Tom. I call it the slew rate which is electrical engineering 101. The bottom line here is to your point on the x-axis they delayed. Boom, up they went. So what do you do now? This is why I keep bringing up pause, pause, pause.

is an easy solution that gives Jerome Powell optionality. It's just vapor. So Mohamed El-Erian wrote in to both of us actually on this point, Tom. Are you speaking to me? He is. Thanks. Later this week too. It's exclusive. He said a couple of things and there's basically going to be three potential scenarios now. You can pause and then just pause through the rest of this year. You can pause and then start cutting. Or you can pause and then you need to start hiking again. Yeah. That's a problem. This is key to a steamer show.

written by Bramo with a flavor of gloom every single day I'm sure you're all looking forward to it. I love that title, flavor of gloom? The Daily Anxiety. I will figure it out as we go. You can sign up at Bloomberg.com forward slash newsletters so that's Bloomberg.com forward slash

Newsletters. It's a very cool deck where she's like making a fortune on this on the side She's gonna do I hear she might do subs in the future sub stack. Yeah, I haven't done that She's gonna take a paid monthly subscription and put out the daily claim. Oh, that's a newsletter there It's gonna go into a number of the themes here Obviously the anxiety will be there if Lisa's driving a bus But you know the answer is there's a lot of different themes as opposed positive. Look at Veronica Clark I know you marker. I know there's a difference just to be very clear. Lisa's not taking

countries is a risk to security. The papers include an assessment of weakness in Ukraine's military. The Pentagon is conducting a damage assessment. Meanwhile, the Justice Department is trying to find out who leaked those documents. In North Korea, Kim Jong-un has called for what were described as practical and offensive war capabilities. That came as Pyongyang cut off communications links with South Korea, used to reduce tensions on their border. This year, North Korea has tested new weapons and systems to deliver nuclear strikes against the U.S., South Korea and Japan.

The firm has faced numerous setbacks during the year-long market downturn for digital assets. Lauren Buffett is turning his focus back to Japan. Berkshire Hathaway has kicked off a yen bond sale and Buffett told Nikkei he plans to boost his investments in the country. Shares of Japan's major trading houses jumped after Buffett says he's raised his holdings in them.

Global News, powered by more than 2,700 journalists and analysts in over 120 countries. I'm Lisa Mateo and this is Bloomberg.

Security Council spokesperson referring to a recent military intelligence leak. We'll catch up with AMH in just a moment on that. If you are just tuning in, welcome to the program. Here's a flavor of the price action for you on the S&P 500. Futures through most of this morning, positive so far on the S&P 500, on the NASDAQ on the S&P, just about positive at the moment by about a tenth of 1%. The bid returns to the bond market yield to a low...

positive here Tom by five six tenths of one percent. Maybe quiet into the inflation data tomorrow John maybe just churning here as well. But the short term paper market is doing more than churning. And again it goes back to it. What level is this banking angst over. And the answer is I don't think anybody knows. Deposits woke up to 5 percent interest rates available. Tom we've seen a lot of deposit fly. And it's not just about as Peter Chav Academy said on this program in the last 24 hours that deposit.

born identity correspondent joins us today. We want Matt Damon to come to the rescue here. The movies are the CIA like this. The movies are the intelligence community like this. He drives a very cool car. What's the reality right now? It's not Matt Damon and the born identity. No, certainly not. This is a difficult moment for the administration. This is potentially the biggest data breach.

And there obviously is a Department of Justice investigation to find out how did this happen. The biggest document, revelations the documents have, potentially some are saying that they could have been doctored, but the biggest really comes to the war in Ukraine. And the issue going into the spring, and we know that Russia wants to have this fresh offensive, is that will they now capitalize on this vulnerability of these leaked documents that exist along thelocked Teen Waroby

The whole issue is modern technology in the intelligence community of Washington. Is anybody dealing with this? Well, right. They had the hard printouts. If you're talking about the classified documents, the former president and current president, that there are also special counsel investigations into, these were hard documents. But as opposed to those, these intelligence documents were leaked on the internet, things like Telegram. That's where they are surfacing.

To be clear here, they were linked months ago. We just didn't realize they had been leaked. Is that right? How unusual is that? Well, some of these are obscure sites, and also some of the stories are coming out even today. We're learning more and more. So today, the Washington Post is an exclusive from these leaked documents about what Egypt was trying to do, which was sell rockets to Russia, but to make sure that the United States wasn't going to be aware of it, to keep it basically on the down low because Egypt is a huge recipient of U.S. aid. So as the days and weeks progress, I think there's a lot more we're going to learn from these documents, and it's causing a huge headache for the administration. Terry Haynes of Pangea came on the program in the last hour, and he said, we all spy on each other.

Does this at any point compromise how the US gets this intelligence, garners this intelligence? What's so important to me here, Jon, the Cambridge Five is Mohammed Al-Erian and four others that root for Queens Park Rangers. Are you suggesting he's just fine now? Fine, yeah. Cambridge Five is from 1963.

Kim Philby and John we grew up in America with this arrogance that our intelligence community was far superior to those crazy Brits. That's gone I would say with Snowden and now this mess. Yeah I would say I would I would say so although these in like the UK the United States you're saying the crazy five Cambridge you're talking about the five I's they share intelligence so there is concerns as well for those countries that share a deep amount of intelligence in the United States that potentially are some of their methods and sourcing or Intel is also breached in these late documents. You mentioned something important intelligence gap.

Did you say that we don't know if it's all out yet? There may be more stuff to come out? Well, we have a news story on the Washington Post exclusive about Egypt. Potentially the documents, as Jonathan was saying, are out there, but we haven't gone through all of them to see if there's any new stories. So which one's the most controversial at the moment, away from Egypt? What do you think is the most controversial thing that's come out? The most controversial is regarding the war in Ukraine.

about leadership in Ukraine? Well I think this is more about the status of the Ukrainian military. That's what these documents are. What is the status of the Ukrainian military when I saw a headline this morning that the Russians have 75% of the grievously fought over city? The concern with the Ukrainian military is that they're not going to have the ammunition.

things Tom. We kind of know these things happen, but when you find out these things to this degree, Annemarie, you realize just how effective some intelligence community gathering actually is. The level of detail that the United States has on on individual countries, just remarkable. Yeah, and to be clear, I think the whole media, and I know it's surveillance, we feel this strongly, we're not going to speculate and guesstimate what that look, you mentioned balloons.

I mean there's all sorts of rumors we didn't talk about with the balloons because they were you know not supported Well, we said at the time at the time someone I remember talking about it Who was the outrage for was it for China or for public consumption? And it was to some degree it found like it was for public consumption because the administration was aware and Maria was Hamlet And remember secretary of state Anthony Blinken was scheduled to go out a trip planned even though he knew this kind of thing Yeah, the issue of course with the spy balloon was that it became public amh also the catch-up I always we should say alleged Chinese as always you can fit in with it of course It's alleged because because the Chinese Communist Party said it's not so let's read

Is it too early for the countdown clock for the inflation data? I believe it's about 25 hours away. TK loves this stuff. 25 hours to go. Can we get a Ben Shillley-Lowe countdown clock? About three hours away. Three hours away? Three hours away, maybe. From Washington, D.C. this morning, good morning to you. Here's the price action at the moment on the equity market. Futures slightly positive through most of this morning on the S&P. Now turning to the

last month or so. Just an aggressive bull steep note which basically means you've got a big rally at the front end of the curve. We've gone from north of 5 percent to south of four. Had a look at 360 ish last week. Tom right now. Three ninety eight. So let's stop the show and partition the brilliance you just said which is is it an interest rate and monetary analysis.

or is it just the blunt instrument of economic slowdown? And that's what Mr. Hartnett's talking about, is forget the Fed mumbo jumbo, just on a GDP basis, we're not gonna be there, which channels what we're hearing from the IMF. I'll keep returning to the conclusion, the consensus view after the banking stress of the last month. The view was that would turn into a disinflationary bust. And that was captured in the bond market pretty quickly. The two year goes from north of five to south of four, had a look at 360 last week off the back of a week with interior impatient Fundamental stock modified in the seats, but magnesium appeared again

a week of weak data, Tom, so to speak, in the U.S. economy. And then payrolls gives you a lift again at the front end of the curve with a bit of an upside surprise. But Tom, ultimately, that's the call at the moment. And you can take a different view if you want. The Federal Reserve's certainly taken a different view on things. They think they can get rates to north of 5% and hold them for the rest of this year. I think we're setting up here, folks, for the different views. And again, it goes to the inflation report. And I want to make clear, we are in Washington, but we will continue with our global economic finance and investment coverage here around international relations. Someone who does that each and every day.

in the Beltway with Rock Creek Group as a Leafy at Darwalla managing director at Rock Creek really managing money listening to institutions and where to place the next marginal capital. You dovetail, it's actually like your beloved Georgetown, you dovetail economics right into finance and investment as well. Are you petrified about an IMF call of OMG, global recession? I think you know the IMF came out in October but we've also seen some contrary opinions out there right and then you look at the equity markets, you look at the disconnect between equity markets and bond markets both telling you extremely different things and I think it's a little puzzling out there.

I do think unfortunately there's more downside in the equity markets and there is upside today whether or not the IMF is right on their five-year seven-year calls in terms of global GDP. So where are you in the equity market? Are we in all cash? Are we in the triple leveraged all cash fund or can you participate in the equity markets given your caution? Well last year cash was one of the best trades out there right or the six-month T-bill wasn't a bad place to be was probably the best trade of a lot of institutional investor portfolios. We are defensive and pretty cautious on equities. That being said you have a long-term portfolio you can't be out of the equity markets and you would have missed what an eight percent rally twenty percent rally in the Nasdaq if you

growth stocks. And if you look at the very big tech let's say the top five cash on the balance sheet, lots of layoffs, lots of massive cuts, you could argue that they're not in a terrible position for the rest of the year. The question is what about the rest of the tech sector and then let alone the private sector in tech.

So let's get a little bit more specific. So I can look at Meta, they talk about the year of efficiency. This talk has done tremendously well. Yeah, today Tesla, another name, some difficulties over the last week or so. But yeah, today, I think still up about 40% or so within tech, which is just a massive monster universe. What do you think is vulnerable? Yeah, I think definitely you have the larger tech, which is not as vulnerable as those smaller companies that are going to really be, you know, very much prone to consumer demand and an economic recession. And so if you get an economic recession, you're going to see the majority of smaller tech companies really struggle to survive. The soul and the heritage of RUG.

You saw that some of those renewable energy companies had their best years ever last year, a little bit more trouble more recently, but I think longer term that is where you want to be. If you just look at the future in terms of the five, ten year time horizon, that is where companies are going and their business models are going to have to change. Unfair question, but we've got to make some news this morning. Does Big Oil have a future?

I think big oil will always have a future, but depends on what you define as big oil. That might change. What would you define as big oil? Why do you think that would change? Talk to me about that. Well, I think in 5, 10 years, big oil might have a large percentage coming from hydrocarbon, from renewable energy sources. I think it'll have to have alternative energy sources to diversify its business. Last year, we saw a bit of a spread emerge between the US players, massive outperformance in the equity market, the big integrated oil majors versus the European players. Now, the European players still had a decent year, but relative to some of the US names, underperformed.

Do you think that's because the US names were a purer play on fossil fuels relative to the European names which have gone elsewhere? I think there was also some macro headwinds, right? I mean you looked at all of the tensions in terms of Europe that it affects from the Russia Ukraine war energy winter all of those I think that was probably a little bit more of a macro headwind potentially for some of those big European oil plays versus the US which are a little bit more isolated. I'm just wondering, the reason I ask that question is I'm wondering from your perspective which of the oil majors are better positioned for the transition that you're expecting? Where do you think some of these names need to be in the future? I think some of the European plays were far ahead in terms of the European names.

go on five years. I think that's really shifted and I think there's a lot more negative or caution on China and doesn't need to be as big of a play in your emerging markets portfolio. Are there places like India over the next five years that will take that role.

Big change, Tom. We could go like another 30 minutes there on China the India. Tim Cook, good morning Mr. Cook. You want to stand on that for Apple please? Well I think Apple already knows where the future might be heading. Thank you. They're very subtle about what they do. I'm so impressed by Tim Cook. Tim Cook with the previous administration was just never in the firing line.

with the Trump administration, managed to avoid all the heat and fire, everything, all the fury, which is never in the firing line. And then a new administration. And he still looks really comfortable. I think it goes back to the wonderful Mr. Jobs. There was, frankly, I'm not going to mince words here. Part of it was because this was a Syrian immigrant who founded this incredibly successful once in a lifetime company. And the answer is they always had a distance and reticent from the news flow. Mark Gurman of Bloomberg, of course, wrote that fantastic story in the last week or so about how China, Alifia, how Apple is trying to pull back from China, but doing it in a diplomatic way.

care on all of the above. Well this is what Rock Creek invented here. I mean Miss Besselosh and the whole crew they just wrapped it around a geopolitical discussion. That's what people listen to down here. It's why you've got to synthesize you know I mean I mean take Lisa's kids they're on the couch doing the Robin Hood meme thing. You've got to synthesize World Bank and IMF analysis.

into what do you do with AMC and GameStop? The big development, Tom, I think, in the last week still is the words of Macron on China and the daylight that he's put between the United States and Europe . Now, whether you think that's just a lone view of a man trying to make some news on the international stage because he's got problems at home, I think that's maybe the cynical take. I wouldn't go that far. I think he truly meant what he said about the relationship with China that he'd like to see that Europe might have. And I've been remiss not to bring this up, and you've been great about bringing it up, and I 100% agree there's a Frenchness here.

to what he's saying that harkens back to de Gaulle ages ago. You're not going to fly your jets over my country. That's what it was 50 years ago. The criticism that he's received though after the last weekend, I think it's really really important. Particularly on Taiwan. This is exactly the kind of thing that the Europeans used to say about Russia. And they've ended up with a bunch of stranded assets.

and a misplaced energy trade, the leadership after leadership across the European Union has built up. Now, Angela Merkel in Germany was warned about this repeatedly for more than a decade. And what have we experienced over the last 12 months because of that? And I think where those words might come back to haunt the French leader is on the very topic of Europe itself. Because at the same time, you can't say we won't just follow the US into a crisis that does not belong to us. When you are also expecting the US to follow you in Europe for a crisis that many people in this country, Tom, are arguing does not belong to the United States.

Oh, yeah belongs firmly ancient in Europe's back Yeah, and the other thing I would say is he's fighting for his political life my amateur take is on the domestic front He is more than challenged and it's not just about adding two years to the retirement age. They're going from 50 to 52 50 to 52. I thought it was from the 60s and higher and I think it's Paris It's like can you imagine you could retire at 50? No, I could I hope that was so long ago John I cannot imagine that thank you for bringing that leaf is looking at us like are they always talking? I think a lot of my generation. I think we never is never gonna retire And if you thank you Lila mitt is coming out the co-founder and CEO of wonderful You know, we'll talk a little bit more about China and focus on the economy as well. Just a sneak peek at a market for

UK Prime Minister Rishi Sunak. He'll then travel to the Republic of Ireland to mark the 25th anniversary of the Good Friday Agreement and celebrate the recent Brexit deal. Senate Democrats want an investigation into undisclosed luxury trips that Supreme Court Justice Clarence Thomas accepted from a wealthy Republican. They've asked Chief Justice John Roberts to conduct a probe.

Senate Judiciary Committee, controlled by Democrats, will soon hold a hearing on the Court's ethical standards. In China, the government plans to require a security review of chat GPT-like bots. Providers of the generative artificial intelligence services must ensure content is accurate, and neither discriminates nor endangers security. That casts uncertainty over AI bots unveiled by China's largest tech companies. A setback for Moderna. The biotech company says a final stage study of its first experimental flu shot hasn't accumulated enough data to determine how well it works.

So now Moderna will start a study of an updated version. A flu shot is crucial to the company's future. Its COVID vaccine sales are expected to drop off. And Apple CEO Tim Cook heads to India next week, where he will open the company's first stores there. That underscores Apple's ambitions for the country as a growth market and a manufacturing base. Sales of iPhones in India have reached an all-time high. Meanwhile, annual exports of iPhones assembled in India have reached billions of dollars. Global news powered by more than 2,700 journalists and analysts in over 120 countries.

I'm Lisa Mateo and this is Bloomberg. We still have that terminal rate at five and a half to five seventy five. So that's a twenty five basis point hike in May, another in June , another in July . And again, it comes down to this timing issue. You need people to stop spending. You know, you need credit to contract and that's what blows the economy and brings down inflation.

It's a feature, not a bug. Veronica Clark, economist over at Citigroup, looking for rates to get close to 6% over at the Federal Reserve. 550 to 575, still the call from Andrew Hollenhorst and the team over at Citi. Welcome to the program. Here's a flavor of the equity market for you. Just a brief snapshot of things in the equity market at the moment. The futures turning lower. In the last 40 minutes or so, we're down not even a tenth of 1%. We're down about 0.04%. Elsewhere into the bond market, we go with a 10-year basically unchanged. We're down about 0.10-year yield. 341-ish, 340. 93 on a 2-year at the moment. A 2-year yield comes in. A single basis point. Just short of 4%. $3.99.

74 getting closer to that forehandle this morning and backing away from the move lower we've seen in yields a little bit earlier on this morning. Just want to finish up in the FX market with the euro just north of 109 against the US dollar euro dollar 10907 Tom positive four tenths of 1%. The next stop we've repeated it this morning over and over again repeatedly CPI coming up tomorrow, five minutes as well and then onto the bank earnings through through the week on Friday. In the split there on CPI tomorrow between core and headline it's been there before it's not a new idea but maybe it's a more predominant idea now that you may get a good headline.

But core, even the people away from Citigroup are saying you may get a Citigroup like core to provide some eggs. And that should keep the Fed in the game on May 3. That's the view. But given how quickly things have changed over the last month or so. I know this is still a few weeks away. Exactly. I think they should change this as fast. Three more. Yeah, three more times before we go forward. This is a treat. If you're at the International Monetary Fund, you're going to lean forward and listen to Leland Miller. He's co-founder, chief executive officer of China Beige Book out of the Washington and Lee UVA Combine. Leland Miller joins us of China Beige Book. I'm just going to cut to the chase. He's going to write about consumption.

They're not 70% of GDP. What's consumption in China? It's a lot less, right? It's a much smaller share than these, you know, these pies that they like to print, say, you know. Consumption is structurally weak in China because they don't incentivize consumption. The state represses households, it represses private firms, and so consumption has a very hard time ever getting a pickup. They've ramped down investment, but incentivizing consumption has been a very difficult task. How do you respond then to World Bank, and particularly IMF, five-year global GDP, shockingly subpar, 3% or less, and they'll say, yeah, India and China have a buoyancy, but everything else is weak.

And you're modeling out a China that's less than buoyant, right? I think so, yeah. I mean, 2023, we're going to go into better economic numbers in the coming months, no question. But it's going to be a head fake because the most dominant model for China going forward is one of significant structural slow down. And this is something in which the party has given up on the high levels of growth. It's not focused on, you know, prioritizing growth at all costs. It wants to strengthen the core. It wants to tamper down its debt levels. So at this point right now, the entire focus is how do you get China through the next economic model into something more sustainable. This is much, much slower growth going forward.

number enough for it to be politically palatable, you've got to stimulate a little bit, but you're not stimulating like you used to in the big stimulus sense. So the number is going to be much lower. So high unemployment in a place like the United States. So democracy is a threat to the political future of the individual in the White House. In China it's an existential threat to the Communist Party, the whole regime, the system.

What kind of levels of unemployment. What is the rest of the economy look like as you transition from 5 4 3 2 and maybe even as you say that 1 percent GDP growth demographics are enormous headwind for China. But in the short term they're very salutary because you have fewer people in the workforce. You have fewer people. You know if your population growth you're going to have less of a problem with employment. It's just it's going to help ease the trend. So in the short term the fact that China has all these working population headwinds it's going to help the transition if they do it right. But it means the long term picture is going to be extremely challenging. What is their fiscal space. If somebody walks in behind those red doors into the lead.

people in there for two, four, six years. They don't care. They're going to do their spending and they're going to get out. In China we have to have a long term sustainable solution to how we spend. We may not be at the end of that road. We don't know where on the road we are at. So they are pivoting all their economic policy making. What is the distinctive feature of your micro research right now. China Facebook is acclaimed.

credit. And what we saw in the first quarter was amazing because it was the biggest single one off drop in credit costs that we've seen in the history of China. Facebook over a decade of data rates just dropped through the floor and they dropped where retail services private firms SMEs all the places that China really wants to get to. So we have been very cautious about saying that the government's providing policy support to the economy for several years now. There is policy support going to the economy right now. It's one reason we're much more bullish on Q2. We always suggest that China has control of its destiny that they can.

up those holes and make sure that the ship doesn't doesn't sink. But it means that you're dealing with much slower growth over time as you're as you're chasing non-productive. So much the right question. What would you look to. Tom talked about electricity in one particular city and you mentioned credit. Where can I get reliable data on what is actually happening in the economy which is why we used to look at extra electricity usage back in the day because people didn't believe you could trust the GDP figures. You mentioned credit. What would you find reliable information. Well look I mean there's not that many good sources of data right now.

Bloomberg of course. Bloomberg of course. And China Beige Book of course. But the problem here is that when there are these macro indicators that are used as proxies for the economy, Beijing gets it and then they start manipulating that data. Very quickly, Liz Economy, the river run black, she changed the dialogue of China. She's always said Xi is weak domestically, fragile domestically. Do you buy it? Well he's undergoing enormous challenges right now. But it doesn't mean that Xi is weak to the point where he's going to lose control. But it does mean that when you're associated with...

Where the economy is going with where China is going with the you know with China's international image so much it means that you have many more Challenges at just being a leader of a country you now represent China on the international stage We've talked a lot about macron visit over the weekend. What was your response to that your reaction? It's the French being French. I mean I Know I I don't think that there are many people writing op-eds about how what a beautiful strategic Stroke this was for macron to do it You know that there's this chasing after the idea that hey the US and China are great, but France is important, too You know I think we can look at the international stage and see see the problems with this on radio You're not gonna see this on TV. Don't do this. We don't want Miller full colon. It's the French being French We just told us see that this Leland. Thank you. We'll never

negative just from Washington. This is Bloomberg.

For the Fed's perspective, from a macroeconomic perspective, there simply is still a very clear indication that the labor market is tight. There were some mixed parts of the data, but if the Fed wants to go, they've got the excuse to go 25 bits. It feels like we have one more hike in the cards for the May meeting and the Fed keeps policy stable for the remainder of the year. We've never...

This is Bloomberg Surveillance on TV and radio alongside Tom Keene. I'm Jonathan Ferro. Your equity market futures just turning negative in the last 45 minutes or so on the S&P 500. TK, things just warming up down here in Washington. Things will get a whole lot busier as the week grows older. And why don't you bring it up? Let's wander through the week. I think this week today is rather more general. Tomorrow, even at the IMF and the World Bank, they will parse United States inflation. It's that important, frankly, on an international basis.

And then with the vengeance we really get going after the World Economic Outlook presentation, I believe tomorrow into Thursday and Friday, they have much more to do with the shocking, not gloom, but just the caution the IMF has about the path forward. And the attention time increasingly as well will turn towards the financial system as we talk about the bank earnings and reflect on the shock we've seen over the last month. I agree, this has to be overplayed here. It's a different IMF World Bank meeting and it has to do not only with the banking tension here, but also with the financial system.

but a distant memory of I believe it was a Swiss bank that was challenged a while back. Yeah. That's sort of unspoken here, but nevertheless there's credit squeeze to remember. 12 months ago we were talking about hiking into high inflation, central banks around the world needing to do more. 12 months ago are we running the risk of hiking into a crisis, whether it's the ECB and the Federal Reserve, after doing a lot in a very small amount of time, a very small window, 12 months zero to north of 4% approaching five. John Williams in the New York Times talked about this at the NYU at New York University overnight. John Williams mentioned...

larger issues going on than just worrying about the ISLM function in Hicksie and economics. Well, they've still got to deal with the consequences and we need to think about the ripple effect of the shock of the last month Tom. Some and we mentioned this earlier including City, Veronica Clark, Andrew Hollenhorst making the point that they believe that any spillover is likely going to be contained.

and limited. Others think the credit crunch has started. Now where you come out on that is going to shape your view on how far you think this Federal Reserve can go. If you're in the former camp city you think rates can go to 550 5 or 5. If you're in the latter credit crunch Apollo others you think perhaps the last hike of this cycle has already been delivered. That's why we see such a spread on the streets. I would think that politically they'll move away from financial analysis. Yes I'll look at any bank crisis that would happen or deposit flows and that and far more to just a pure GDP analysis.

of 3 percent moving under 2 percent and if you get under a 1 percent US GDP dialogue either present or guesstimates into the future that's when you really get a change in dialogue. Joining us now to talk about some of this, Alicia Levine, the head of investment strategy and equity advisory solutions at BNY Mellon wealth management. Alicia, wonderful to catch up with you, we miss you and we wish you were here down in DC with us. She's up in New York this morning. Alicia, I want to start with a line from Bank of America and Michael Hartnett. Michael Hartnett put out a note and he said investors are too optimistic on rate cuts and not pessimistic enough on recession. Do you agree with him? So the equity market right now is in that betwixt and betwixt...

pricing in a soft landing and it's pricing in a wait and see what happens. Unlike the bond market of course which is pricing in a pretty notable recession. The two's tens, the three months, ten year, it's all out in recession. So the equity market's not pricing it in at all and the thought that the Fed's going to cut three times by the end of the year which is what the pricing of the curve is presupposes a pretty notable slowdown that that the Fed is forced to cut.

is growth at a reasonable price. And what that means is we don't want to be sector specific but we do want to be in companies that have growth rates on the revenue line and can maintain their margins and therefore bring earnings to the bottom line. And you can find those companies throughout all 11 sectors and that's how we are focused.

investment theme right now because you know the risk of being out of the market is that you miss the rallies which ultimately grow out of this. In the end nobody has a crystal ball and while it looks like we're headed towards a recession if we're not, not to be in the equity market, it's only a mistake. But Alicia, Adam too is with us yesterday of Colombia and he made real clear nominal GDP is a just analysis. Do we get a sprightly nominal GDP that colors or deceives that GARP strategy? It doesn't because nominal GDP feeds right into earnings.

And so in the end, we don't talk about real earnings. We don't talk about earnings separate from inflation. We talk about nominal earnings. And this is how the market is priced, which is why it's not always the case that inflation is bad for the equity market, because it does get filtered through earnings, which are nominal. So GARC does not take that away. The issue is the margins. In the end, let's focus on the revenue line, which will be flattered by inflation and on the cost line and the margins, whether or not the costs are coming lower as inflation moves lower. If that happens, then you're set up for an equity market that can really rally into the half of the year. So it's all about what happens during earnings season and the margin line.

Well let's talk about earnings. You know the arc of earnings season the banks go first. Alicia will hear from JP Morgan later this week. What are you expecting to hear from some of these major players in the financial sector. But the big question is going to be on the outlook and the question is going to be on on funding going forward and the impact of any kind of regulation. I think in the end the large banks and even the medium sized banks have weathered the first quarter very well. Higher rates did flatter some of the earnings there. The question is you know what does the new world look like when the FBI and the Fed has guaranteed some deposits of the two banks that failed.

What does that mean going forward on regulation and how does that impact earnings? That's really the big question here. I think most investors or at least analysts on Wall Street have become experts on bank balance sheets at this point. It's a little bit of a joke, but true. And I think the issues are well known. So there's no secrets out there. It's not shrouded in mystery. The issue really is what happens with regulation going forward, which is an unknown. Do you have to make the assumption now? Can you make a conclusion that it will be a less profitable world for these banks? Well I would expand that to the entire S&P, which is that earnings estimates have barely budged in the last five weeks.

since Silicon Valley Bank and Signature Bank failed, and I think that doesn't really pass the reality test here. So overall, earnings have to move lower, so it's in all the sectors, simply because the pressure of it is going to move lower. I think there are certain sectors, particularly in some of the cyclical sectors, that have really already had their bear market and the bringing down of earnings estimates quarter after quarter after quarter, and I think those actually, interestingly, are places to invest simply because they've already signaled either inventories were too high or they've cut estimates so many quarters in a row that you're starting from a very different place.

So I'd expand that for the ESSP. Are you talking about retailers, Alicia? I'm not talking about retailers. I mean, some of the semis, for instance, are really interesting. Because if you think about quarter after quarter, there's a reason they've rallied. They've rallied because they were down 50% to 70% last year on lower guidance and inventory gluts and slowdowns that were projected. Well, they've already had their bear market. They've already had their correction. And I think going forward, it's an interesting place. Interesting. That's a cool. Alicia, love catching up with you. You know that. Alicia will have been there if we in Wymella Wealth Management out of New York. Here in Washington, DC. Just want to pick up on some economic data we had a little bit earlier this morning.

a survey from NFIB, it's a small business survey, closely followed in the United States, Tom, and that 9% of owners who borrow frequently said financing was harder to get compared to three months earlier. That number, the most since December 2012, according to that survey from the National Federation of Independent Business, out a little bit earlier this morning. This is the microdata, it's all coming out, it can be this, that, the other thing as well, and what's so important, is this a trend, or is this a one-off? And I don't see anybody guesstimating it's a one-off, it's a trend in place, and you'll wonder where that trend will be, three NFIB studies from now. And to what extent, to what degree, is that a substitute for more rate hikes from the Federal Reserve? Oh, there's no question about that. That's ultimately the call here, right? Oh, there's no question. That's ultimately the call.

Yeah, I strongly take that point and I go to Dominic Conston was way out front was super restrictive and he and Jerome Powell you and me and the rest. We did not guesstimate that we would have a super restriction from banking dynamics. And yet that's the surprise we've had in February . Usually step away from the studio in about 20 minutes time to prepare for the next program Tom. I have to say I'll be glued to the TV and the radio as well through the office because coming up at about 845 Eastern Time. So about 30 minutes from now Tom Keene one on one with John Bolter the former national security advisor TK I'm looking forward to hearing you talk with John a little bit later. Incredibly important interview.

That came as Pyongyang cut off communications links with South Korea used to reduce tensions on their border. This year, North Korea has tested new weapons and systems to deliver nuclear strikes against the U.S., South Korea, and Japan. In England, the state-run health service is bracing for its most disruptive strike yet. Tens of thousands of junior doctors walked off the job today for 96 hours.

They're joining other public sector workers who are demanding bigger pay hikes to make up for inflation. The founder of blood testing startup, Derenos, has been ordered to report to prison this month as scheduled. A judge in California rejected Elizabeth Holmes' request to remain free on bail while she appealed to her fraud conviction. Holmes was sentenced to more than 11 years in prison for deceiving investors.

And billionaires Tyler and Cameron Winklevoss are using their own money to support their crypto exchange Gemini Trust. Bloomberg's learned the twins have made a $100 million loan to Gemini. The firm has faced numerous setbacks during the year long market downturn for digital assets. Global News powered by more than 2700 journalists and analysts in over 120 countries. I'm Lisa Mateo and this is Bloomberg.

When you think about the dynamics over the last six to 12 months, complete shift in psychology, inflation still stubborn in a lot of countries. I think that's going to keep rates pretty well above pre pandemic levels for a long time. So back to 2019 levels, not anytime soon, many, many years. That's the call from Mike Schumacher, the global head of macro strategy at Wells Fargo, pushing back against the IMF view that once we've dealt with inflation rates can go back to pre pandemic levels. That's going to be a key key feature of the conversation down in Washington as we approach the IMF meetings a little bit later this week on this program. I'm happy to say that Lisa is going to return.

Tomorrow looking forward to catching up with Bramo. I can tell you now she's been working tremendously hard on this She will be launching a surveillance newsletter a little bit later on this morning. You can sign up at Bloomberg com forward slash newsletters That's Bloomberg com forward slash newsletters to pick up Brahmo's daily musings on Bloomberg surveillance with the very cool seven names on it It was the working title three months ago was toxic brew, but then the daily anxiety Anxiety yeah, I like toxic brew. That's nice. Well. Yeah, you know I mean you got a pop on the internet and out on Twitter You can see this out on Twitter. We're gonna flog the hell out of it very cool Well, I'm looking forward to it begins today, and they're just gonna be back on a program with us

tomorrow morning. So we'll be covering the IMF World Bank meetings through the week down in DC with a full team. Right now on the Bond report, Ian Lingan joins us, head of US Trade Strategy BMO Capital Markets. And Ian, you know, I was getting a brief this morning from my senior executive qualified producer, Qantas, and Qantas said, Tom, you got to look at the BTMM Go screen on the Bloomberg. You look at it all day in what are you seeing in the three months in in paper right now? What is the indication from one month?

Two months, three months, dare I say six month yield. Well right now at the moment Tom what we see is that the most high yielding aspect of the treasury market is in the very front end of the curve and what bill rates are responding to are two things. First we have a monetary policy maker in the form of the Fed who's willing to get us to terminal and hold terminal for an extended period. So that's going to impact the three month bill. That's going to impact the six month bill. But perhaps more importantly there's a fair amount of uncertainty at the moment as it relates to the debt ceiling.

and the potential for dislocations in certain bills if they fall into the window where the Treasury Department risks missing a payment. And I look at the three months as compared to 10-year yield, the three months, 10-year spread, and I'm not allowed to do standard deviation studies in Washington, it's un-American, but if I did, the inversion of that curve back 20, 30 years is four, five, six, dare I say seven standard deviations, massively inverted. What does that signal? Well, historically, the Fed has looked at the three-month bill versus 10-year curve as an indication of the probability of a recession within the next 12 months.

So at the moment, it suggests that we are at a high probability of a recession in the year ahead. What I think is more fascinating is that market participants are very interested in attempting to extract the severity of the inversion and map that against how large of a recession we might or might not see. I think that's one of the key uncertainties, if for no other reason, because embedded within this is the idea that the Fed is going to be effective in containing inflation expectations.

for banks because they can borrow at comparatively low rates and lend at higher rates. Fast forward to today however and we're in a unique environment where financial assets more broadly are responding to any drop in rates so we as we can see risk assets do well. Stocks in particular win either realized yields decline or forward expectations for policy rates shift lower.

In your mind, whether that move has gone a little bit too far too quickly based on what you expect from the Federal Reserve life.

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