Tesla, apple story. It harkens back so many times to derivative excesses. We have the right guess coming coming up guests on this. Jonathan futures down hard. Down 1. 9 . Never mind the next couple of hours. What is softbank . Tom this is the heart of the matter. This is real simple. They publicly traded Company Acting in an investment capacity. Beautifully done up by the zero hedge at abu dhabi. X going to big guys, etc. X Deutsche Bank gus. Guys. People are seeing the unwind of a successful derivative strategy. Jonathan lisa, a little bit of supply a little later. Lisa this is the tension. The safety bid in treasury. We dont how big it could get. 50 billion sale, three your notes today threeyour notes today. Curious to see how much there is in terms of organic demand for this offering. Negotiator is trying to forge a deal before a key october 15 meeting with eu leaders. Tom can ask john questions about brexit that john loves to answer. The senate will be returning with a goal of stimulus package. Exactly to that point, this is one of the most interesting aspects of the past few weeks. There has been a shift away from talking about the inevitable of the deal getting done to now saying, you know what . The likelihood of any deal is getting smaller and smaller as the data comes in betterthanexpected. Jonathan lets avoid the brexit conversation for an hour. Give me 60 minutes to catch my breath and talk about some thing else. Lets talk about the physical effort down in washington. Larry kudlow after those numbers came out on friday, the payroll figures. Is he comfortable if they dont have a fiscal deal before the election . He said we can live with it. That is the administrations stance at the moment going into september, october, and heading towards the election. Tom 55 days until the election. Kevin cirilli was good this morning about recalibrating after labor day. I will not answer the question. , suggesting areg late 10 to 13 of america is undecided. I have never seen that. Jonathan lets get to the price action. Equity futures are down. Here is the mover. Nasdaq down. 1. 85 . Ion by. 8 it is a tricky one for christine lagarde. Just south of 70 basis points on the u. S. 10year. The story of the moment, what is happening with big tech and the options market. The perfect guests is stuart kaiser. Lets keep it super simple. What is the message for the client given what is going on right now and the last few months . Stuart you can interpret this to ways. The first is that this is the last gasp of the tech rally and the last legasing to the rally and hedging. Need tothe thing you worry about in terms of largecap Tech Leadership and quality leadership. The flipside is this is a healthy correction. You have seen across the board in the options base activity that could be read into ways. People were chasing the rally by buying call options and stocker placement. People selling the stock and replacing it with calls to reduce risk. Depending on which side of that you are on, you will have a slightly different view of things. People are piling into the tech trade, for it is prudent for me to reduce risk with key upcoming events. From my perspective we still think largecap Tech Leadership is sort of the way to be positioned. This is probably a shorterterm disruption for the markets. You need to respect the fact we have seen in two weeks 1. 6 million contracts added in the big five tech stocks. 70 has been call options. When that flow goes to the system the way markets trade. Tom stuart kaiser, we do quantitative finance folks on wednesday. We will keep it simple on tuesday. When thea way to know excesses of the softbank trade are done . Can you observe in the market when it is over . Stuart the positions are in place. I will not speak to anyone client. We have seen these flows across other investors as well. There are two ways they can come out of the system. They can unwind the trades which is probably unlikely in the near term, or the other side is the bank trading desk can adjust risk so those positions are not as disruptive to the market. What we have seen is the second thing going through the system. To risk adjust positions. Thats an ongoing process. You see what we have seen the past few days, a lot of volatility. Unfortunately, circular way in a circular way the market is calming down. Other ways of looking at that are we look at the ratio of nasdaq to russell implied volatility. Nasdaq volatility is about 1. 2 times as high as russell. Given the growth risks, which are not normal, and where is nasdaq implied volatility relative to the market . Tom you nailed this. Softbank is the buccaneer. I dont know who regulates them. I want to go to fooled by randomness. We are all fooled by softbank right now. What will global wall street do on their desks to adjust to this derivative shock . Is at what we have seen lot of these options positions has forced the market to use nasdaq and the index level to hedge risk. That is what you are seeing in the market today. People ended up sort of short gamma and it makes the market much more volatile when you get large moves. With the street is doing is using the nasdaq, using cash positions to reduce risk as much as they can. That is a turbulent process. Or awe are seeing is a 7 percent drawdown of the nasdaq highs as the street tries to absorb and redistribute the risk across the street. It will take a little time. Relative to the rally we have seen, the pullback is not that large. People get used to coming in every and seeing as up five weeks in a row and this becomes much more emotionally painful than it is for p l. This is just a process the street will have to go through today just the large positions unfortunately. Lisa does that also change the psychology of individual investors . Buy the dip may not work every time. Amazon down nearly 3 ahead of market opening with no discernible news at a time when people are counting on amazon to rule the world. Stuart it does change the market mentality. Five weeks in a row nasdaq was up. The large ones have just been easy trades. You buy them. You add to the risk and you just kind of set it and forget it. I think it does change the mentality a little bit because it has become harder trade. Retail money is either fast money or really slow money. They are buying stocks they like and plan to hold for a decade, that is slow money that is healthy for the market. Money, thenes fast you get a very emotional market that has a lot of shortterm volatility and trading action. We have been in that second case for the last week or so. They thought they could buy the stocks and just go about their business. There is risk in them. You mentioned a treasury supply at ecb, the fomc. These are real risks you need to manage ahead of time. I think it changes the mentality of the Retail Investor in particular, as well as the long haul community as well. Jonathan stuart kaiser, always great to catch up with you. We approach the back end of the year, summer is truly over. It is constantly refining the narrative to fit the price. Fooled by softbank. How many people came up with eloquent, nice, finessed arguments about what we have a surgeon august . Surge in august . Softbank acting like a hedge fund. Tom the numbers are worth repeating and thank you for really great work on this. The printed value of the derivatives. The cash in is believed to be for billion dollars. They made roughly 4 billion. They made roughly 100 on the trade. Who pays that bill . Jonathan li said you said something that turned out to be profound. If you think we have seen one now . Lisa it is hard for a reality check. I dont see any discussion about fundamentals. I dont hear people saying with the correct valuations of amazon, apple are right now given where we are with rates. This is the biggest conundrum to me at a time of technical disruption with the likes of softbank. Jonathan trying to justify the unjustifiable. Equity futures down. Nasdaq futures down a little more than 2 . S p 500. 6 . Surveillance. Erg up next, subadra rajappa. It would be unprecedented for an incumbent president to spend his money to win a second term. The president scrutinized heavy spending by his team earlier in the year. Joe biden has been raising more money than the Trump Campaign in recent months. Drugmakers racing to produce vaccines have come up with an unusual public letter. They promised to avoid shortcuts on the science as they are under pressure to rush a shot to market. The ceo of nine drugmakers signed the pledge. President trump says the u. S. Could approve a vaccine in october just before the election. China is proposing global datable to counter u. S. Moves on tiktok. Ed a proposaln to stop foreign governments from acquiring data. Tesla are falling today. The carmaker was widely expect it to be named to the s p 500 on friday but it did not happen. The decision was over questions about profitability metrics and a murky forecast. Global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. The tech sector is undergoing a correction right now. As you will know, that is a fairly normal item. I dont think anybody should panic. The economy is definitely improving. Jonathan larry kudlow. No sign of urgency. No sign of concern over the market as far as the fiscal stimulus packages concerned. No sign of real talks at all over the last month. Price action this morning. Shaping up, stateside, equity futures are lower. Nasdaq futures much lower. Off by more than 2 . Eurodollar, 118. Crude market, 5 . It is decidedly risk off this tuesday. Tom brent crude maybe at 39, 40. Three big figures. 34, showingup to some of the tension. With mr. Ersation kudlow falls into the state of the economy and what it means for politics when nobody cares about the economy. Kevin cirilli is an expert at this. Kevin, is perceived by both campaigns that it is a recovering economy . Kevin no, it is not. Thats a brilliant question. The Biden Campaign is sank this economy is not heading in the right direction, not recovering at the pace they would like to see and not moving in the direction the republican conservative ideology has only benefited the elites. In contrast to that, republicans are sank the economy is moving in the right direction are saying the economy is moving in the right direction. It is a consequential crossroads American Voters are at right now. Should they choose to have a single party, whichever party, be in control of both chambers and the white house, the recovery route voters will choose to take is incredibly different depending upon the party. That is why it has been fascinating to watch the recalibration in the senate down ballot races. A lot of swing states are now trending back towards a divided government, which indicates that republicans might control the senate. Tom 10 to 13 undecided. Down it really is coming to the lordstown vote in ohio or the inland vote in florida. We talked about kenosha county. This is the precise moment. I think what you are going to see from the left is, Harris Kamala harris will got to try to rally the base. She met with the family and legal team of jacob blake. To target theg same voters. See atrast, you will also similar strategy on behalf of republicans. The Vice President will try to rally the evangelical base. The president is going to try to go into the working class communities and get them back to reform that coalition. Jonathan what a weekend as far as china is concerned. Administration coming out swinging. What was your take . Kevin i talked to sources who said the president is considering banning cotton imports in retaliation for the oppression of the Minority Group in that particular region. China, 80 of chinas cotton exports come from that region. 30 of u. S. Apparel comes from china. The supply chain will really have an interesting effect, particularly for highend fashion brands in the united states. Beyond that, this is part of a broader strategy we talked about. As far as n, i saw tenent. Lisa i am looking at the august trade surplus with china. It rose to the highest since billion the trade deficit the u. S. Has with china. This comes after the measures the Trump Administration is put in place. Will they have tough talk with do more of the same . Kevin the president used the word decoupling. The trend of the rhetoric typically as we talk about coverage of this administration, typically the rhetoric is fiery and then the policy lags on behind. It is a much more measured policy implementation. There is no other way to look at this. Whether it is the pentagon report they cannot over the past week with regards to the military capability of china, for it is looking at how things like the imports. We have come a long way from the president promising foxconn facilities in wisconsin that are no longer following through. I was so emotionally taken by the end of mulan i am not speaking clearly. Kevin there is only one Jonathan Ferro. Tom does the president have 100 million to put into his campaign . Kevin i guess. Yeah. He is a billionaire. I guess he does. It is just a sign of the times of how expensive to put it into perspective, think of the cash the democrats and republicans are spending on this cycle in comparison to the fiscal stimulus that has eluded this town. Jonathan kevin cirilli, always great to catch up with you. Chief washington correspondent. Lets talk about the economic recovery. Of upside,pshot downside surprises. The u. S. Economy. Every single segment of the u. S. Economy still surprised to the upside. That is the data doing better than expected. Though recovery is doing better than expected coming into september. A lot of people work too bearish. Tom the way i frame it is people were delaying their cause for concern. What is critical is i dont know if they are delaying until october or till the first week of december. I just dont know. It has been much better than expected. Ande is a belief about q4 we are not there yet. Jonathan no one thinks we are out of the woods. When you consider the fiscal package and our conversation with the administration, a month ago there was real urgency for those talks. There is not anymore. I wonder if the 1 trillion effort for the republicans comes in a little bit and the democrats have become an even further. I think republicans have a little bit more leveraged relatively speaking to what they had 30 days ago. Tom but do we see it this week . Time is running out. I see no indication we do. Jonathan coming up, subadra rajappa. Looking forward to that chat and just a moment. We are counting down to the opening bell a couple of hours away right here on bloomberg surveillance. Equity futures are down. Nasdaq futures another leg lower in the last 10 minutes. We are down by 2. 4 . This is bloomberg. Jonathan from new york and london, this is bloomberg surveillance. I am Jonathan Ferro. Stateside, ahings shortened trading wreak week. The euro, 1. 18. Equity futures are down. Nasdaq is down 2. 14 . Lets get straight to tesla. Tesla down in the free market by 12 . Not included in the s p 500 and the announcement put on friday. What are we out this year . For thatbout 400 stock alone. From what we saw a week and a half ago. This goes to the demanded equation, the demand a stunning 5 move. 33. 63 . Lding at it all points to yields coming in. Subadra rajappa joins us and it is wonderful to hear about her skill in the derivative space here over the weekend, you had the derivative analysis of a softbank trade with what the fixed income market will do. Is there a linkage between your world and the equity derivative world we are seeing right now . There actually seems to be very little correlation between the two markets. Bonds have stayed rangebound and i think that supported the equity validity if anything. There seems to be a divergence between the signaling youre getting between these markets. Tom is the signaling diminishing . Can you link it up with Lower Oil Prices and a global slowdown expected . Subadra absolutely. I think lower yields are fueling the value in equities. August has july and been showing a sharp move higher in the data in may and june. The market is cautious. The fact that we have not gotten a stimulus has keeping has kept the market down. Jonathan people have talked about the potential for the market to turn into a zombie market. Not just the treasury market, the credit market as well. From your perspective, is the long end aligned with fundamentals and the trajectory of this recovery . Subadra no, because of the fact that the market is pricing for longer paradigms given the fact that the fed will keep the shape low and there is still uncertainty about the trajectory of future Monetary Policy initiatives. Will they be more weighted toward the long end . It is reflecting the time between this supply we are going to see in the second half versus the potential for the fed to start purchasing more in the long end. You can see a far market across the curve. Ultimately the supply picture is going to outweigh any sort of orand youre going to see marginal buying you will see from the fed. Tom your basic assumptions jonathan your basic assumptions going forward, if we do not get another deal in d. C. Subadra i think that in the august refunding the treasury already accounted for about 1 trillion in spending coming after the august meeting. The supply has gone up meaningfully in anticipation of another deal getting past through and that has not really happened. Supplyess, i think deficits are going to be higher for the future. I think that is going to be something that weighs on the long end over time. Especially as rights reflect a fundamental. When you talk about when you talk about marginal buying, so far it has been that and for the past two months the Balance Sheet has stayed consistent. At what point do you expect the fed to step in more meaningfully . Inadra i think as we move yields, it is somewhat erratic. You can see some sharp rises are run yields we saw after the temper tantrum or if there is a fundamental reason for a lack of liquidity, that is when the fed stepped in. A very gradual rise warranted from improving fundamentals i think the fed will be ok. Any sort of chart move higher in yields is when i think we will see the fed coming in and putting a lid on how high yields can go. One of the big raging debates right now is whether the 6040 portfolio is dead, whether treasuries at yields this low are an insufficient heads. You agree with that thesis . Do you agree with that thesis . Subadra i think so. Looking back over the decades, the portfolio has been bonds rallying and stocks rallying. The fixed Income Portfolio has never been a strong hedge for equity. Maybe over short periods of time, but not over th