Handle on the vix. Towas really extraordinary just sit there and observe the turn in the markets yesterday. It continues this morning. Surprise, in an election year, we are thinking about infrastructure. A 1 trillion infrastructure on deck, according to reporting in washington, d. C. This shouldnt shock anyone. Tom not at all. As i said earlier, everybody tunes into you. They dont tune into me earlier. I get that. But to the people out there, it is a bridge to nowhere in kentucky, a bridge to nowhere in San Francisco for speaker pelosi. I guess the president can put a bridge to nowhere in florida. It is all about politics. You just say to yourself, why cant this happen . Why cant this get done . I dont have a straight answer. Jonathan i dont have a straight answer either. They are not here for me, tom. They are here for lisa. Lets talk about the data. Retail sales on deck. A series of upside surprises in the United States weve had in the Economic Data for much of the last month. Lisa you have to wonder, an upside surprise from something so dismal that it defied any books. History rebound comes after the 16 plunge in april, and still we are seeing expectation for a 40 sales. In retail the, at 9 15 we get manufacturing data. Retail sales has not necessarily picked up to the same degree ufacturing has would manufacturing has. Then fed chair jay powell testifies before the Senate Banking committee. I am interested in how much credit risk the Federal Reserve willing to take, how they are thinking about the main Street Lending facility that got started yesterday, in terms of how they are going to outsource some of the nittygritty of managing a portfolio of direct loans to small and mediumsize companies. This is uncharted territory for the Federal Reserve. Jonathan and the individual bond buying as well. Things yesterday, with an equity market down, and in the process of reversing, and then the Federal Reserve steps in and boosts it higher, i think it was the timing that the Federal Reserve might take a little bit of criticism for in yesterdays session. Tom i am of the triple leverage cash fund, and i studied a number of weeks ago, should i step into those three year 0. 4 yield. With a can you imagine that the fed needs to buy those amazon three your notes . That is extraordinary. Jonathan i think it is fair to say the fed has probably moved far away from market functioning and towards something much bigger for this market. Thats start the conversation this morning with mike pyle of blackrock, the chief investment strategist. Live coverage right here on bloomberg tv and radio. Lets begin with the Bond Buying Program from the Federal Reserve. In many ways, they have done exactly what they said they would do several months ago. I think the focus for many people in the bond market, several months ago, we thought if you were a bond issuer, you would have to self certified. Some people thought maybe no one would come forward. The Federal Reserve has managed to circumvent that. Is that why this is having a little more bite in a way that people didnt think it would . Mike i think that is exactly right. Dropping the Self Certification requirement, just announcing the backups moving forward with individual bond buying, all of that suggests that much more of the capacity the fed has talked about using up to now is going to get put to work rather soon, and that has been an incremental positive for markets. Buy Corporate Bonds, did you end blackrock just assumed they hold them until maturity . Mike our expectation right now is that most of the assets that are being purchased and put on the Balance Sheet will be held there until they run off at the point of maturity. That is true certainly of Corporate Bonds, but also even more so with respect to the treasuries they are buying, where there would likely be repurchasing going on beyond that. Lets talk about how you trade this. Perhaps you cant front the fed. Recreate trying to this index that the fed has created with the express purpose of trying to get ahead of it . Is that in your playbook right now . Mike i would say our playbook in general is around being up the capital structure and being up in quality. Those are the things we think have been very good riskadjusted positions over the entirety of the coronavirus shock. That doesnt have anything to do with the strategy you described, but it does have to do with putting yourself in a position to benefit from these very strong policy stops we have seen from policymakers in a highly uncertain environment. Jonathan i am just getting a load of messages on the bloomberg terminal about the subject. Weve all had the messages over the last 24 hours. Revolve around a sense many of them revolve around a central question. What is the point . Was there a real need for the fed to follow through . Importantink it is for the credibility of policymakers to follow through on the commitments theyve made. , talkingad up to this about things like the main Street Lending facility, i think it is also an important thing for them to articulate. Theres been a lot of discussion about whether the fed is going to be able to reach some of these harder to access parts of the Business Community of the main street economy, and i think seeing their success there, as well as in the Corporate Bond space, is going to be very important in gauging the followthrough and effectiveness of their policy interventions. Tom i want to follow up on jobs questions. Be andoesnt seem to emergency. Anne richards at fidelity made clear this is the path from liquidity to solvency challenges. Is that what this is really about, the dreaded fear of solvency issues . Why i would say that is continuing to see a fiscal policy impulse as well as a Monetary Policy impulse is going to be so important over the next handful of months. It is clear that the fed leaning hard into the liquidity challenges in the economy at this moment. What we have seen in the data is a strong fiscal policy response, whether it is through small through lending, unemployment insurance, through direct payments. Seeing that is going to be an important part of solvency, as well as liquidity. Tom right. Pick it up here and pretend you are doing the real yield. The artificiality of this is shocking. These bonds come off, and is this just like a highyield junkbond bailout . Jonathan weve got to live with it now. Of course we have a distortion now. Lisa, we talked about this so many times. We have a pricesensitive buyer in a market buying in size that will cause distortions, but we have to live with it now. We can complain on programs like this forever about how divorced this market is from economic fundamentals. We can spend the next 10 years doing it. You can get the macro call right, the economy is going to be weak. Weve just got to accept it, work out with the consequences are and what it means for markets. Lisa and to me, one of the Big Questions is how much is the fed going to be willing to backstop insolvencies. I think you are certain to see corporate defaults rise to the highest levels so far this quarter on record, if you look globally, which indicates losses. How do you trade around those fundamentals when you have the central bank completely stifling a lot of the price discovery could bore used to from all of the textbooks . Jonathan is that the pain . , butu get a weaker economy the pain trade is you get the market call wrong . Mike we have seen dynamics that do suggest they are trading with some importance for fundamentals. During the peak optimism of the last couple of weeks before last thursdays selloff, we saw the really strong value encyclical rally. Then the rally out of it on friday and monday, we saw the our performance from what we have seen during most of the coronavirus crisis, the up in quality, up in the u. S. Rally. We think that, looking ahead, that is going to be the better riskadjusted play for investors , to stay up in quality, stay up the capital structure. That is going to be the sensible place to be in light of the possibilities that lie ahead for policy over the next couple of quarters. Jonathan mike pyle, always good to catch up with you. Mike pyle of blackrock, the global chief investment strategist. In, i dont agree with you i dont disagree with you on any of this. But quite clearly, they are going further. They are worried about their credibility. They want to followup on what they promised to do. As a market for it is bent, you just have to work out what that means for financial markets. Tom ok. To me, it is an easy path, but youve got to look at the Swiss National bank and the bank of under and all of a sudden pressure, under crisis. And all, the fed is starting to buy apple shares at a 400 price target. If chair powell gets out front, he could probably nail that citigroup price target. Jonathan we joke. 10 years ago if you said the fed was buying corporate debt in the way the Federal Reserve is now, buying equity etfs tom 10 months ago. Jonathan yeah, and here we are. In the next downturn, that is the other option left on the table. A lot of questions for chairman powell in front of the senate come alive on bloomberg tv and radio, just a couple of hours away. From new york this morning, good morning. This is bloomberg. Ritika with the first word news, im ritika gupta. The trumpet ministration is preparing its latest proposal to get the economy going the Trump Administration is preparing its latest proposal to get the economy going. Most of the money would be set aside for projects like roads and bridges. On 5gld also spend networks and rural broadband. Fed chair Jerome Powell specter to give another downbeat view of the u. S. Economy today. He begins todays of hearings on capitol hill with an appearance before the Senate Banking committee at 10 00 a. M. New york time. Asked week, fed policymakers held Interest Rates near zero and signaled they would probably stay there through 2022. It is one of the largest provocations north korea has made in years. Kim jonguns regime has blown up a Liaison Office on its side of the border. In recent weeks, north korea has issued an escalating series of threats against the south. It is unhappy that south korea backs the u. S. Led sanctions campaign. The u. K. And the European Union believe they are a step closer to a brexit deal. They believe a video call has injected momentum into the deadlocked negotiations. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im ritika gupta. This is bloomberg. I think we are better equipped to handle additional spikes, which tells me the restart of Economic Activity i think is going to continue. Jonathan the constructive view from jim polson. From new york city this morning, good morning to you all. Alongside tom keene, im jonathan ferro, together with lisa abramowicz. We are live on bloomberg tv end bloomberg radio, getting human shape for the trading day ahead. This morning, a couple of hours away from the opening bell. 34 points on the s p 500, up by 1. 1 . Really mixed session in foreign exchange. In g10, the euro slightly negative against the u. S. Dollar. Outside of that, a much bigger directional move comes from the treasury market. Yields higher at the long end. We are up five basis points on 1. 51 percent. We go nowhere on twos. The elephant in the room, supply risk. Once again, we are discussing infrastructure down in washington. It is a longrunning joke through the last four years. For structure week down in washington, d. C. Theregain, reports that is a 1 trillion plan slowly coming together. Tom tom what is so important here, and i think all of our viewers and listeners know this, is the idea that the democrats a berry the democrats agree, the republicans agree. What is the trouble . Lets go to our correspondent Kevin Cirilli in washington. There are 40,000 bridges in Mitch Mcconnells kentucky. Ngineer rating e on those bridges. How can senator mcconnell block a 3 trillion program which i am certain will benefit kentuckys roads and bridges . Kevin well, not so fast. This is a potential vehicle come september for another round of economic stimulus. However, september is just a couple of weeks before the next president ial election. So it is incredibly unlikely that a massive congressional package would move that close to an election, especially weighing in at 1 trillion. However, we are living in a very different time in the middle of an incrediblyand volatile time. While republicans are skeptical to get economic stimulus at the end of july, early august, the president is forecasting in this Bloomberg News report that they might have their eye on september. Separately, i am interested in the 5g component because that is something democrats and republicans do agree on. Whether they get to it before november or in nexgen you are a, you know, that will likely be more likely the case. Jonathan from your perspective, is this in addition to or instead of what was supposed to be discussed over the next month to help this economy recover from the pandemic of the last several months . Kevin right now, if i am being incredibly straightforward, i think right now it is saying we could have another congressional vehicle to get through in the round ofld this next economic stimulus not proved to be adequate or not can across the finish line before august recess. Lisa theres is a headline this morning, Mick Mulvaney, the former head of the Budget Office for the u. S. , said that an infrastructure plan would be a poor shortterm stimulative matter. Pushbackering how much there is the part of republicans on engaging in another major stimulus or economic spending package at a time when the deficit is increasing. When where the republicans the party of the hawks . Kevin people like Mick Mulvaney want to know how they are going to pay for it. Frankly, if you are looking at this even in the longer term, we are all obsessed with the november election, but if you play this out to 2022, 2024, that is really going to be the battle from an ideological standpoint in the republican party. People like Mick Mulvaney. They are going to be pressing, how exactly do we pay for this . Youre going to see a resurgence of that. I have my eye on senator joni ernst. She recently Just Launched with senator tim scott a millennial debt coalition, a coalition of republicans increasingly coming to the forefront for a new generation about these types of issues. That is why i am skeptical that a 1 trillion infrastructure plan would have a strong prospect in the fall, but i guess we are to have to wait and see. The president on air force one, he can read a book on the first lady and a book from john bolton. What is he going to read . Kevin i dont think he is going to be reading any of these books. I think his lawyers are going to be reading the john bolton book, and they are already saying that they are willing to have this play out in the courts. As far as the first lady book is concerned, stephanie grisham, the spokesperson for the first lady, saying it is pure fiction. Summer int be a washington without healthy d. C. Bookclub, right . Is the buzz of the town. Tom no question. [laughter] story. E Kevin Cirilli look for it, labor day. Jonathan the biography. I am looking forward to that. Are you putting together the Summer Reading list . Is that what this is about . Tom i havent got there yet. Im threatening to read the bolton book. Well have to see if it ever sees the light of day. Jonathan there is something that could go on the back of the book. Tom keene is threatening to read this book. [laughter] that will help sales. Equity futures positive 1. 4 . About an hour from now, we will get u. S. Retail sales. I do think the stimulus conversation is worth having. The composition of it, if you speak with democrats and republicans, the prospect of a bipartisan deal on some been like supporting unemployment, supporting companies to incentivize rehiring come of those kind of things can get done quickly. When youre thinking about things that go beyond next year, may be money that wont be deployed until several years from now, and infrastructure plan this close to the election, i just find it difficult to believe that that is something that can get through in a bipartisan way in just a couple of months. Tom i would be skeptical, too, but to lisas point earlier, this retail sales report will speak volumes when we see it this morning. Jonathan bear in mind, it is month on month. Month on month, this has got to be better than the month before because the economy is slowly reopening. That is what we have been trading on, sequential month on month improvement. If you go from shut down to reopen, guess what . The data is going to look better. What has been interesting is that it is been so much better than many people thought it would. The ifou take at you take a look at the citigroup u. S. Economic surprise index, it has surged. But what does this actually mean . People are basically throwing darts at a dartboard. A lot of people say the data is very noisy when it comes to jobs in particular, so there is a question as to how much of a leading indicator this is or whether it shows how little way since we have of the actual economic picture. Jonathan full coverage right here on bloomberg tv and bloomberg radio. And later, we will hear from the chairman of the Federal Reserve, jay powell, and front of the Senate Banking committee. Coming up next,